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

                       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, 2003

                                       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 $27,705,000 (based on the $17.00 average of bid and
ask prices per share on June 30, 2003).

         As of March 5, 2004, there were 1,783,420 shares of Common Stock
(adjusted for the 10% stock dividend declared March 25, 2004) no par value,
outstanding.



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

                                       1

<PAGE>



                             FIRST FINANCIAL BANCORP
                                 2003 FORM 10-K
                                TABLE OF CONTENTS

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 ....... 40
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  ..................... 40
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
           ACCOUNTING AND FINANCIAL DISCLOSURE ............................ 40
ITEM 9A. CONTROLS AND PROCEDURES .......................................... 40

PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............... 41

ITEM 11. EXECUTIVE COMPENSATION ........................................... 44

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.... 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................... 52
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES............................ 52

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .. 53

Signatures ................................................................ 83
Index to Exhibits.......................................................... 84


                                       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; impact of litigation; the ability of management and
directors to work together cooperatively and efficiently; 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. At December 31, 2003 the
Company had a wholly-owned trust, First Financial (CA) Statutory Trust I, 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. As a
result of the adoption of FIN 46R, the Company deconsolidated the Trust as of
and for years ended December 31, 2003 and 2002. Prior to December 31, 2003, the
Trust was a consolidated subsidiary and was included in liabilities in the
consolidated balance sheet, as "Obligated mandatorily redeemable capital
securities of subsidiary trust." The common securities and debentures, along
with the related income effects were eliminated in the consolidated financial
statements. 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. A full-service branch was opened in
Sacramento, California in September 2003.

The Bank's headquarters is located at 701 South Ham Lane, Lodi, California. This
area is estimated to have a population approaching 60,000 persons. 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. This agreement
was terminated during 2003.

                                       4

<PAGE>

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.

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 61, is President and Chief Executive Officer of the Bank and
of the Company; Robert H. Daneke, age 50 is Executive Vice President and Chief
Credit Officer of the Bank and of the Company, and; Allen R. Christenson, age 46
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 has a Bachelors degree from
California State University, Sacramento. Mr. Christenson and his wife are the
parents of 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, 2003, the Company employed 130 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(a) 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
15(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>

Changes in 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. California permits 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). California law (1) permits interstate merger transactions; (2)
prohibits 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) prohibits 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.

The federal banking agencies also monitor the ability of banks to manage
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 agencies is to ensure that institutions with high levels of
interest-rate risk have sufficient capital to cover their exposures to risk.

The Federal Financial Institutions Examination Council ("FFIEC") has adopted 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, 2003, the Bank's total risk-based capital ratio was
approximately 10.68 percent and its leverage ratio was approximately 7.96
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 8 to the consolidated financial statements.

                                       8

<PAGE>



Insurance Premiums and Assessments. The FDIC has authority to impose a special
assessment on members of the Bank Insurance Fund (the "BIF") to insure that
there will be sufficient assessment income for repayment of BIF obligations and
for any other purpose which it deems necessary. The FDIC is authorized to set
semi-annual assessment rates for BIF members at levels sufficient to maintain
the BIF's reserve ratio to a designated level of 1.25% of insured deposits.
Congress has considered various proposals to merge the BIF with the Savings
Association Insurance Fund or otherwise to require banks to contribute to the
insurance funds for savings associations. Adoption of any of these proposals
might increase the cost of deposit insurance for all banks, including the Bank.

Under FDICIA, the FDIC has developed a risk-based assessment system, which
provides that the assessment rate for an insured depository institution will
vary according to the level of risk incurred in its activities. An institution's
risk category is based upon whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. Each insured
depository institution is also to be assigned to one of three "supervisory
subgroups": Subgroup A institutions are financially sound institutions with a
few minor weaknesses; Subgroup B institutions are institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration;
and Subgroup C institutions are institutions for which there is a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. The FDIC
assigns each BIF member institution an annual FDIC assessment rate on BIF
insured deposits which, as of the date of this Offering Circular, varies between
$0.00 per $100 of insured deposits with a $2,000 annual minimum (for well
capitalized Subgroup A institutions) and $0.27 per $100 of insured deposits (for
undercapitalized Subgroup C institutions). In addition, banks must pay an amount
which fluctuates (but is currently 1.54 cents per $100 of insured deposits)
towards the retirement of the Financing Corporation bonds issued in the 1980s to
assist in the recovery of the savings and loan industry.

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.

                                       9

<PAGE>

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.

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.

                                       10

<PAGE>

Regulation W. The Federal Reserve has adopted Regulation W to implement sections
23A and 23B of the Federal Reserve Act.

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.

Regulation W has certain exemptions, including:

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

     --   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).

     --   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).

     --   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 regulation 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.

                                       11

<PAGE>

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.

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. Title III of the United and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"USA Patriot Act") includes numerous provisions for fighting international money
laundering and blocking terrorism access to the U.S. financial system. The USA
Patriot Act requires certain additional due diligence and record keeping
practices, including, but not limited to, new customers, correspondent and
private banking accounts.

Part of the USA Patriot Act requires covered financial institutions to: (i)
establish an anti-money laundering program; (ii) establish appropriate
anti-money laundering policies, procedures and controls; (iii) appoint a Bank
Secrecy Act officer responsible for day-to-day compliance; and (iv) conduct
independent audits. The USA Patriot Act also expands penalties for violation of
the anti-money laundering laws, including expanding the circumstances under
which funds in a bank account may be forfeited. The USA Patriot Act also
requires covered financial institutions to respond under certain circumstances
to requests for information from federal banking agencies within 120 hours.

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.

Brokered Deposits. A bank cannot accept brokered deposits (defined to include
payment of an interest rate more than 75 basis points above prevailing rates)
unless (a) the bank is well capitalized or (b) the bank is adequately
capitalized and receives a waiver from the FDIC. A bank that cannot receive
brokered deposits also cannot offer "pass-through" insurance on employee benefit
plan accounts. In addition, a bank that is adequately capitalized may not pay an
interest rate on any deposit in excess of 75 basis points over prevailing market
rates. These restrictions are not imposed on banks that are well capitalized.
The Bank is well capitalized and holds only an insignificant amount of brokered
deposits.

Potential Enforcement Actions; Supervisory Agreements. Under federal law, banks
and their institution-affiliated parties may be the subject of potential
enforcement actions by the FRB, the FDIC or, for national banks, the Office of
the Comptroller of the Currency, for unsafe and unsound practices in conducting
their businesses, or for violations of any law, rule or regulation or provision,
any consent order with any agency, any condition imposed in writing by the
agency or any written agreement with the agency. Enforcement actions may include
the imposition of a conservator or receiver, cease-and-desist orders and written
agreements, the termination of insurance of deposits, the imposition of civil
money penalties and removal and prohibition orders against
institution-affiliated parties.

                                       12

<PAGE>

Acquisitions of Control. Under applicable federal and state laws, it is unlawful
for a person to purchase or otherwise acquire beneficial ownership of the
Company's common stock without the prior approval of the Board of Governors of
the Federal Reserve System, if the acquisition would give the person, or any
group of persons acting together (a "Group"), control of the Company. The
applicable government regulations define "control" for these purposes to mean
the direct or indirect power (i) to vote 25% or more of the Company's
outstanding shares or (ii) to direct or cause the direction of the management
and policies of the Company, whether through ownership of voting securities, by
contract or otherwise; provided that no individual will be deemed to control the
Company solely on accord of being a director, officer or employee of the
Company. Persons who directly or indirectly own or control 10% or more of a bank
holding company's outstanding shares are presumed to control the bank holding
company.

Exposure to and Management of Risk. The federal banking agencies examine banks
and bank holding companies with respect to their exposure to and management of
different categories of risk. Categories of risk identified by the agencies
include legal risk, operational risk, market risk, credit risk, interest rate
risk, price risk, foreign exchange risk, transaction risk, compliance risk,
strategic risk, credit risk, liquidity risk, and reputation risk. This
examination approach causes bank regulators to focus on risk management
procedures, rather than simply examining every asset and transaction. This
approach supplements rather than replaces existing rating systems based on the
evaluation of an institution's capital, assets, management, earnings and
liquidity.

Money Laundering Control Act. The Money Laundering Control Act of 1986 provides
sanctions for the failure to report high levels of cash deposits to non-bank
financial institutions. Federal banking regulators possess the power to revoke
the charter or appoint a conservator for any institution convicted of money
laundering. Offending state-chartered banks could lose their federal deposit
insurance, and bank officers could face lifetime bans from working in financial
institutions. The Community Development Act, which includes a number of
provisions that amend the Bank Secrecy Act, allows the Secretary of the Treasury
to exempt specified currency transactions from reporting requirements and
permits the federal bank regulatory agencies to impose civil money penalties on
banks for violations of the currency transaction reporting requirements.

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 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.

Conclusions. It is impossible to predict with any degree of accuracy the
competitive impact the laws and regulations described above will have on
commercial banking in general and on the business of the Company and the Bank in
particular, or to predict whether or when any of the proposed legislation and
regulations described above will be adopted. It is anticipated that banking will
continue to be a highly regulated industry. Additionally, there has been a
continued lessening of the historical distinction between the services offered
by financial institutions and other businesses offering financial services.
Also, the trend toward nationwide interstate banking is expected to continue. As
a result of these factors, it is anticipated banks will experience increased
competition for deposits and loans and, possibly, further increases in their
cost of doing business.

                                       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 July 2001,
the full-service branch was relocated to a new 2,426 square foot site in the
Folsom area under a 10 year lease.

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.

In September 2003, the Bank opened 4,485 square foot full service branch and a
2,595 square foot administrative office in downtown Sacramento. The branch and
office are leased under a ten-year lease with three successive five year renewal
options.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, the Company and its subsidiaries are involved
in litigation. Management does not believe that any litigation in which it is
currently involved will have a material impact on the company's financial
condition or results of operations. First Financial Bancorp, Bank of Lodi, N.A.
and certain named directors and officers of the Company are party to a lawsuit
brought by two shareholders who allege various charges of breach of fiduciary
duty and corporate mismanagement. See Note 25 - Subsequent Events, to the
Consolidated Financial Statements for more information.

The Company is involved in various other litigation of a routine nature which is
being handled and defended in the ordinary course of the Company's business. In
the opinion of Management, based in part on consultation with legal counsel, the
resolution of these litigation matters will not have a material impact on the
Company's financial position.

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 5, 2004, there were 1,163
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 2003 and 2002 and
is based on information obtained from the OTCBB.

<TABLE>
<CAPTION>


                                                      2003                         2002
         Bid Price of Common Shares             High           Low           High       Low
         <S>                             <C>    <C>         <C>              <C>        <C>
         First Quarter                   $      14.00       12.10            11.35      10.40
         Second Quarter                         17.00       12.80            12.50      11.00
         Third Quarter                          19.35       16.10            11.88      11.65
         Fourth Quarter                         19.05       16.75            12.65      11.71


</TABLE>


The foregoing prices 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 three 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 - Supervision and Regulation - The Company." For
the amount available for dividends at December 31, 2003, see Note 15(c) 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. On March 25, 2004,
the Company's Board of Directors declared a 10% stock dividend payable on May
14, 2004 to shareholders of record on April 19, 2004. The future payment of
dividends is dependent upon the Company's financial condition, earnings, equity
structure, capital needs, regulatory requirements and economic conditions.

                                       15

<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>


         (in  thousands except per share amounts)
         Consolidated Statement of Income                2003         2002         2001         2000          1999
------------------------------------------------------------------------------------------------------------------------------------
         <S>                                     <C>    <C>          <C>          <C>          <C>           <C>
         Interest Income                         $      13,662       13,677       13,858       13,496        12,526
         Interest Expense                                2,837        3,459        4,644        4,613         3,699
         Net Interest Income                            10,825       10,218        9,214        8,883         8,827
         Provision for Loan Losses                         312          625          391         135          1,051
         Noninterest Income                              4,525        4,703        3,828        2,690         2,461
         Noninterest Expense                            13,508       12,486       11,226        9,855         8,803
         Net Income                              $       1,177        1,355        1,207        1,283         1,159


         Per Share Data (1)
------------------------------------------------------------------------------------------------------------------------------------

         Basic Earnings                          $         .66          .75          .68          .73           .68
         Diluted Earnings                                  .62          .72          .66          .72           .66
         Cash Dividends Declared                 $           -            -            -          .05           .20


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

         Federal Funds Sold and Securities
            Purchased Under Resale Agreements    $       8,034       19,634        6,129       10,115           100
         Investment Securities                          90,270       33,125       41,015       29,560        36,096
         Loans held for sale                             3,076        7,578        3,876        1,292           647
         Loans, net of allowance for loan
            losses and deferred fees                   175,449      154,090      135,430      110,793       108,947
         Total Assets                                  321,813      255,401      226,175      185,064       176,334
         Total Deposits                                278,155      210,679      201,571      162,261       156,161
         Other Borrowings                               19,255       20,040        4,000        4,588         4,300
         Total Stockholders' Equity              $      19,967       19,270       17,863       16,454        14,521

</TABLE>


(1) All per share data has been adjusted for the 10% stock dividend declared on
March 25, 2004.


                                       16

<PAGE>



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

Recent Accounting Pronouncements

In June 2001, FASB Statement No. 143, Accounting for Asset Retirement
Obligations, was issued. Statement 143 requires the Company 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 tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. The Company also would record a corresponding asset
that is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation would be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company was required
to adopt Statement 143 on January 1, 2003. The adoption of Statement 143 had no
effect on the Company's financial statements.

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 December 2003, the FASB revised FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, which addresses how a business enterprise should
evaluate whether it has a controlling financial interest in an entity through
means other than voting rights and accordingly should consolidate the entity.
FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest
Entities (VIEs), which was issued January 2003. The Company will be required to
apply FIN 46R to variable interests in VIEs created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004, the Interpretation
will be applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and noncontrolling interests of the VIE initially would be measured
a their carrying amounts with any difference between the net amount added to the
balance sheet and any previously recognized interest being recognized as the
cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to
measure assets, liabilities and noncontrolling interest of the VIE. The Company
adopted the disclosure provisions of FIN 46 effective December 31, 2002. On
December 31, 2003, the Company adopted FIN 46R for all existing VIEs. The
adoption of FIN 46 and FIN 46R did not have a material effect on our financial
statements.

Historically, issuer trusts that issued trust preferred securities have been
consolidated by their parent companies and trust preferred securities have been
treated as eligible for Tier 1 capital treatment by bank holding companies under
Federal Reserve rules and regulations relating to minority interests in equity
accounts of consolidated subsidiaries. Applying the provisions of FIN 46R, the
Company is no longer able to consolidate the issuer trust as of December 31,
2003. As a result of deconsolidation, the debentures issued by the Company to
the trust are reflected on the balance sheet as "junior subordinated
debentures." Although the Federal Reserve has stated in its July 2, 2003
Supervisory Letter that trust preferred securities will be treated as Tier 1
capital until notice is given to the contrary, the Supervisory Letter also
indicates that the Federal Reserve will review the regulatory implications of
any accounting treatment changes and will provide further guidance if necessary
or warranted. Accordingly, there can be no assurance that the Federal Reserve
will continue to accord Tier 1 treatment to trust preferred upon completion of
its review.

FASB Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, was issued in May 2003. This
Statement establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. The Statement also includes required disclosures for financial
instruments within its scope. For the Company, the Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise will be
effective January 1, 2004, except for mandatorily redeemable financial
instruments. For certain mandatorily redeemable financial instruments, the
Statement will be effective for the Company on January 1, 2005. The effective
date has been deferred indefinitely for certain other types of mandatorily
redeemable financial instruments.

                                       17

<PAGE>

In December 2003, FASB Statement No. 132 (revised), Employers' Disclosures about
Pensions and Other Postretirement Benefits, was issued. Statement 132 (revised)
prescribes employers' disclosures about pension plans and other postretirement
benefit plans; it does not change the measurement or recognition of those plans.
The Statement retains and revises the disclosure requirements contained in the
original Statement 132. It also requires additional disclosures about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other postretirement benefit plans. The Statement
generally is effective for fiscal years ending after December 15, 2003.

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 55 through 82, as well as other information presented throughout
this report.

                                       18

<PAGE>


<TABLE>
<CAPTION>


Summary of Earnings Performance

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

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

                                                                      2003                   2002                      2001

<S>                                                           <C>    <C>                   <C>                        <C>
Earnings (in thousands)                                       $      1,177                  1,355
                                                                                                                      1,207
----------------------------------------------------------------------------------------------------------------------------

Basic earnings per share                                      $        .66                    .75                       .68

Diluted earnings per share                                    $        .62                    .72                       .66

Return on average assets                                             0.43%                  0.57%                     0.59%

Return on average equity                                             5.97%                  7.20%                     7.03%

Dividend payout ratio                                                    -                      -                         -

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

Average equity to average assets                                     7.17%                  7.92%                     8.40%

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

</TABLE>


For the year ended December 31, 2003, net income totaled $1,177 thousand, a
decrease of $178 thousand, or 13.1%, over the prior year. Basic earnings per
share in 2003 was $.66, compared to $.75 and $.68 in 2002 and 2001, respectively
and diluted earnings per share totaled $.62, $.72 and $.66 in 2003, 2002 and
2001, respectively. During 2003, the Company incurred unanticipated costs
totaling $373 thousand in response to disruptive actions initiated by three
dissident directors. On an after tax basis, the expenses incurred as a result of
the actions initiated by the dissident directors totaled $220 thousand,
representing a reduction of $.12 and $.11 in basic and diluted earnings per
share during 2003, respectively. Excluding the expenses associated with the
dissident directors, net income increased $42 thousand, or 3.1% over 2002.
Additionally, in September 2003, the Company opened a branch office in downtown
Sacramento. While the performance of the new branch exceeded management's budget
projections, during 2003 the branch incurred an after tax loss totaling $156
thousand. Excluding the expenses associated with the dissident directors
combined with the startup costs associated with the new branch in downtown
Sacramento, net income increased $198 thousand or 14.6% over 2002.

The growth trend for both average earning assets and deposits continued in 2003,
increasing 18.9% and 18.5%, respectively, over 2002. Net interest income in 2003
increased 5.9%, to $10.8 million from $10.2 million in 2002 and $9.2 million in
2001. The net interest margin decreased to 4.56% for 2003 compared to 5.12% for
2002. The net interest margin in 2001 was 5.41%. Changes in the balance sheet
mix and the decrease in general interest rates as a result of actions undertaken
by the Federal Reserve, have resulted in net interest margin compression over
the past three years. During 2003, the provision for loan losses was $312
thousand in correlation with the growth of the loan portfolio. The Company
experienced a $178 thousand decrease in noninterest income combined with a
$1,022 thousand increase in noninterest expense. The Company's provision for
income taxes decreased $102 thousand in 2003 as compared to 2002.

Total gross loans (total portfolio loans plus loans held for sale) increased
10.3% during 2003. Although the Company experienced growth in loans during the
year, the lower interest rate environment during 2003, when compared to 2002
reduced the overall earnings potential generated by the increase in the
Company's primary earning asset. The Company was successful in collecting
interest totaling $183 thousand and $242 thousand during 2003 and 2002,
respectively, on loans that had previously been on nonaccrual. Interest forgone
on nonaccrual loans amounted to $382 thousand during 2003 compared to $364
thousand during 2002. During 2002, the Company's total gross loans (including
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 benefit to interest
income, the Company was successful in collecting interest totaling $242 thousand
and $423 thousand during 2002 and 2001, respectively, on loans that had
previously been on nonaccrual. Interest forgone on nonaccrual loans amounted to
$364 thousand during 2002 compared to $310 thousand during 2001.

                                       19

<PAGE>

The Company's interest expense for 2003 decreased $622 thousand, or 18.0%, to
$2.8 million from $3.5 million when compared to 2002. The decrease in interest
expense reflects a lower cost of funds on interest bearing liabilities partially
offset by a 15.4% increase in average interest bearing liabilities during 2003,
as compared to last year. Total average deposits increased $38.4 million during
2003 as compared to 2002. The average balance of non-interest bearing demand
deposits increased by $9.0 million when comparing December 31, 2003 to 2002,
with the average balance of non-interest bearing demand deposits reaching $42.5
million for the year ended December 31, 2003 from $33.5 million for the year
ended December 31, 2002. In addition, the average balance of the Company's money
market deposits increased $10.3 million, to $37.1 million during 2003 from $26.8
million for 2002. 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.

Noninterest income totaled $4.5 million for the year ending December 31, 2003
representing a decrease of $178 thousand, or 3.8% when compared to the prior
year. Income from the servicing of loans increased by 15.5% resulting in $492
thousand of income for 2003 compared to $426 thousand for 2002. Loan sales
generated $1,082 thousand of income an increase of $77 thousand over 2002. The
significant increases in the volume of loans sold during 2003 and 2002 compared
to the prior year relate to record mortgage loan production volumes as consumers
took advantage of historically low market interest rates to refinance or
originate mortgage loans. The increase in gains on sales of loans comparing 2002
to 2001 relates to the Company taking advantage of pricing opportunities
resulting from historically low interest rates and unprecedented loan demand
during 2002. However, gains on sales of loans decreased in 2003 from 2002 as
peak volumes of residential mortgage loans held for sale slowed down during the
latter part of 2003 and pricing spreads began to shrink in response to changing
competitive market factors. Management anticipates a continued reduction in the
level of gains on sales of loans during 2004 primarily due to lower expected
mortgage loan production volumes and competitive market conditions. Included in
noninterest income at December 31, 2003 is the gain on the sale of securities of
$396 thousand, which is a decrease of $207 thousand when compared to 2002. Also
included is an increase in the cash surrender value of life insurance of $524
thousand, which decreased $125 thousand when compared to last year. Excluding
gains on securities and the increase in cash surrender value of life insurance,
total noninterest income amounted to $3,605 thousand in 2003 and $3,451 thousand
in 2002. 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 and increased mortgage lending activity.

The Company experienced an increase in noninterest expense totaling $1,022
thousand 8.2% for 2003. The leading factors contributing to the increase in
noninterest expense were reflected in increases of $859 thousand, or 13.6% in
salaries and employee benefits combined with expenses totaling $373 thousand
associated with actions initiated by three dissident directors. The actions
initiated by the dissidents represent 36.5% of the total increase in noninterest
expense during 2003. The increase in salaries during 2003 was due, in part, to
higher commissions paid to mortgage originators and staff hired in connection
with the opening of a new branch in Sacramento. The average number of full-time
equivalent employees was at 134 at the end of 2003, compared to 121 at the end
of 2002. The opening of the new branch in Sacramento accounted for over 50% of
the increase in full-time equivalent employees during 2003. Total noninterest
expense increased $1,260 thousand, or 11.2%, during 2002 compared to 2001
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.

Branch Expansion and Acquisitions

In April 2003, the Bank entered into a ten-year lease for a 4,485 square foot
full service branch and a 2,595 square foot administrative office in downtown
Sacramento. The Sacramento office is approximately 42 miles north of the Bank's
corporate headquarters in Lodi, California and expands the Bank's trade area
into the downtown Sacramento area.

In January 2001, the Bank entered into a three-year lease for a 1,557 square
foot Small Business Administration (SBA) loan production office in the Folsom
area. In May, 2003 the U. S. Small Business Administration for the Sacramento
District granted Preferred Lender status (PLP) to the Bank 's SBA lending
department. The Preferred Lender Program is open only to lenders who have
demonstrated capability and commitment to small business lending, and who
strictly adhere to the SBA lending guidelines provided by the U. S. Small
Business Administration. It is the highest lending designation awarded by the
SBA. As a result of the Bank's desire to expand its SBA lending program, in
January 2004, the Bank entered into a 63 month lease for a 5,172 square foot
office space in the Folsom area to be used as the new location for the SBA loan
production and Credit Administration offices.

                                       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. The net interest
spread is the difference between the average yield earned on assets and the
average rate incurred on liabilities: The table also illustrates the interest
income earned and interest expense charged for each major component of interest
earning assets and interest bearing liabilities for the years ended December 31,
2003, 2002, and 2001, respectively.

<TABLE>
<CAPTION>


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

                                For the Year Ended              For the Year Ended                For the Year Ended
                                December 31, 2003                December 31, 2002                December 31, 2001
                          (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)  $  54,657     1,215      2.22%    34,076      1,602       4.70%    35,260       2,073       5.88%


Federal funds sold and
securities purchased
under resale agreements   $  12,057       132      1.09%     9,464        158       1.67%    11,360         481       4.23%

Loans(2)                  $ 170,556    12,315      7.22%    155,986    11,917       7.64%    123,600     11,304       9.15%
                            -------    ------      -----               ------       -----    -------     ------       -----

Total Earning Assets      $ 237,270    13,662      5.76%    199,526    13,677       6.85%    170,220     13,858       8.14%
                            =======    ======      =====    =======    ======       =====    =======     ======       =====

Liabilities:

Noninterest bearing
deposits                  $  40,058         -          -    31,141          -           -    25,350           -           -

Savings, money market,
& NOW deposits              135,299     1,127      0.83%    112,727     1,296       1.15%    91,600       1,297       1.42%

Time deposits                68,911     1,439      2.09%    62,026      1,880       3.03%    66,630       3,342       5.02%

Other borrowings              7,218       271      3.75%     7,412        283       3.82%       120           5       4.17%
                              -----       ---      -----    ------        ---       -----       ---           -       -----

Total Liabilities         $ 251,486     2,837      1.12%    213,306     3,459       1.62%    183,700      4,644       2.53%
                            =======     =====      =====    =======     =====       =====    =======      =====       =====

Net Spread                                         4.64%                            5.23%                             5.61%
                                                   =====                            =====                             =====
----------------------------------------------------------------------------------------------------------------------------

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

Yield on average
earning assets            $ 237,270    13,662      5.76%    199,526    13,677       6.85%    170,220     13,858       8.14%

Cost of funds for
average earning assets      237,270    (2,837)    (1.20%)   199,526    (3,459)     (1.73%)   170,220     (4,644)     (2.73%)
                                       -------    -------              -------     -------               -------     -------

Net Interest Margin         237,270    10,825      4.56%    199,526    10,218       5.12%    170,220      9,214       5.41%
                                       ======      =====               ======       =====                 =====       =====
----------------------------------------------------------------------------------------------------------------------------

</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.

                                       21

<PAGE>

Net interest income, the difference between income from earning assets and the
interest cost of funding those assets, is the Company's primary source of
earnings. Net interest income increased 6.0% in 2003, following an 11.0%
increase in 2002. Net interest margin, the ratio of net interest income to
average earning assets, is affected by movements in interest rates and changes
in the mix of earning assets and the liabilities that fund those assets. Net
interest margin was 4.56% in 2003 compared to 5.12% in 2002. The decrease in net
interest margin over the past two years, has been impacted by changes in balance
sheet mix coupled with the decrease in general interest rates as a result of
action undertaken by the Federal Reserve.

While the yield on average earning assets declined to 5.76% in 2003 as compared
to 6.85% in 2002, the cost of funds for average earning assets also decreased to
1.20% in 2003 from 1.73% in 2002. The increase in net interest income in 2002 is
attributable to an increase of 17% in average earning assets combined with an
18% increase in average total liabilities.

During 2003, average loans, increased $14,570 thousand, or 9%, while investment
securities and federal funds sold and securities purchased under resale
agreements increased $20,581 thousand and $2,593 thousand, or 60% and 27%,
respectively, compared to 2002. Average deposits increased $38,440 thousand, or
18.5% during 2003 and other borrowings decreased $1,225 thousand. Net interest
margin decreased 56 basis points in 2003 after decreasing by 29 basis points in
2002. This decrease in 2003 was the result of several key items:

     --   Interest forgone on nonaccrual loans during 2003 totaled $382
          thousand. This reduced the yield on loans by 16 basis points and the
          net interest margin by 16 basis points.
          --   Interest collected on loans that had previously been on
               nonaccrual status totaled $183 thousand. This increased the yield
               on loans by 8 basis points and the net interest margin by 7 basis
               points.
     --   Changes in the mix of the investment portfolio during 2003 resulted in
          a decrease of 248 basis points in the average yield earned on
          investment securities.
     --   The general decrease in interest rates during 2003 resulted in a
          decrease of 58 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 94 basis points in the cost of average certificates of
          deposit.

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 13% 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 $8,323 thousand, primarily as a
result of a $5.2 million floating rate junior subordinated debt issuance on
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.
          --   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.
     --   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.


                                       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, 2003 and 2002.


<TABLE>
<CAPTION>


-------------------------------------------------------------------------------------------------------------------------------
                                          2003 compared to 2002                             2002 compared to 2001
                                              (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        $     968           (1,355)           (387)             (70)           (401)            (471)

Federal funds sold and
securities purchased under
resale agreements                   43              (69)            (26)             (80)           (243)            (323)

Loans                            1,113             (715)            398            2,962          (2,349)             613
                                 -----             -----            ---            -----          -------             ---

Total interest income        $   2,124           (2,139)            (15)           2,812          (2,993)            (181)
                             =========           =======            ====           =====          =======            =====

Interest Expense:

Savings, money market, &
NOW accounts                 $     306             (475)           (169)             384            (385)              (1)

Time deposits                      209             (650)           (441)            (231)         (1,231)          (1,462)

Other borrowings                   (41)              29             (12)             347             (69)             278
                                   ----              --             ----             ---              --              ---

Total interest expense       $     474           (1,096)           (622)             500          (1,685)          (1,185)
                             =========           =======           =====             ===          =======          =======

Net interest income          $   1,650           (1,043)            607            2,312          (1,308)           1,004
                             =========           =======            ===            =====          =======           =====
-------------------------------------------------------------------------------------------------------------------------------

</TABLE>


Increases in average loans, investment securities and federal funds sold and
securities purchased under resale agreements of 9%, 60% and 27%, respectively
combined to increase interest income by $2,124 thousand for the year ending
December 31, 2003. However this increase was offset by a reduction in interest
income of $2,139 thousand resulting from the continued low level of the interest
rate environment during 2003. An increase of 17% in average interest bearing
deposits resulted in an increase in interest expense of $515 thousand. However,
due to a decrease of 48 basis points in the average rate paid on interest
bearing accounts, total interest expense decreased $622 thousand when compared
to 2002.

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 of
the 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 16% during 2002, the average rate paid on interest bearing liabilities
declined 100 basis points resulting in a net decrease in total interest expense
of $1,185 thousand. In addition, during 2002, other borrowings (which includes
the proceeds from the junior subordinated debentures) increased $8.3 million
resulting in an increase in total interest expense of $278 thousand.


                                       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 in provisions for loan losses.

<TABLE>
<CAPTION>


---------------------------------------------------------------------------------------------------------------------------
(in thousands)                                     2003             2002             2001            2000             1999
<S>                                             <C>              <C>              <C>             <C>              <C>

Balance at beginning of period                  $ 3,057          $ 2,668          $ 2,499         $ 2,580          $ 1,564

Charge-offs:

  Commercial                                         88              178              226             201               90

  Real estate                                         -               62                -               -                -

  Consumer                                           55               30               57              45               20
                                                -------          -------          -------         -------          -------

  Total Charge-offs                                 143              270              283             246              110

Recoveries:

  Commercial                                         27               26               21              15               68

  Real estate                                         -                -                -               -                -

  Consumer
                                                      9                8               40              15                7
                                                -------          -------          -------         -------          -------

  Total Recoveries                                   36               34               61              30               75
                                                -------          -------          -------         -------          -------

Net charge-offs                                    (107)            (236)            (222)           (216)             (35)

Additions charged to operations                     312              625              391             135            1,051
                                                -------          -------          -------         -------          -------

Balance at end of period                          3,262            3,057            2,668           2,499            2,580
                                                =======          =======          =======         =======          =======

Ratio of net charge-offs to average
loans outstanding                               (0.06%)          (0.14%)          (0.16%)         (0.19%)          (0.03%)
                                                =======          =======          =======         =======          =======
---------------------------------------------------------------------------------------------------------------------------

</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.

The allowance for loan losses, among other things, is based on management's
evaluation of the anticipated impact on the loan portfolio of current economic
conditions, changes in the character and size of the loan portfolio, evaluation
of potential problem loans identified based on existing circumstances known to
management and recent loan loss experience. Specific allowances have been
adjusted on certain loans based on individual reviews of these loans and
management's estimate of the borrower's ability to repay the loan given the
availability of collateral, other sources of cash flow and collection options
available to us. The allowance for loan losses is provided at a level considered
adequate to provide for inherent loan losses. Management continually monitors
the quality of the loan portfolio to ensure timely charge-off of problem loans
and to determine the adequacy of the level of the allowance for loan losses.
Management believes that the allowance was adequate to absorb losses inherent in
the loan portfolio as of December 31, 2003. The Bank has not modified or
significantly compromised its underwriting standards despite growing competition
within the industry.

The allowance for loan losses totaled $3,262 thousand at December 31, 2003 and
$3,057 thousand at December 31, 2002. The provision for loan losses was $312
thousand in 2003 compared to $625 thousand in 2002. The allowance for loan
losses was 1.79% of gross loans (including held for sale) at December 31, 2003
compared to 1.85% at December 31, 2002. As a percentage of average loans, net
charge-offs were 0.06% in 2003 compared to 0.14% in 2002. Action taken during
the year to resolve certain of these problem credits coupled with loan growth,
lowered the ratio of allowance for loan losses to gross loans. Net charge-offs
during 2003 totaled $107 thousand and represents a decrease of $129 thousand, or
55%, over 2002. This activity was comprised of $143 thousand in gross
charge-offs combined with $36 thousand in recoveries representing a decrease of
47% in gross charge-offs and an increase of 6% in recoveries compared to 2002.

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.

                                       24

<PAGE>

Noninterest Income

During 2003, noninterest income decreased 4% after increasing 23% in 2002. 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 2003, 2002, and 2001:


<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
(in thousands)                                                       2003             2002              2001
----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>                   <C>
Periodic deposit account charges                                  $   444          $   483               492
Returned item charges                                                 857              849               624
Ancillary services charges                                             97               97                95
Other service charges                                                 211              169               203
                                                            ----------------------------------------------------
     Total service charge revenue                                   1,609            1,598             1,414
                                                            ====================================================

Gain on sale of SBA loans                                             149              331                95
SBA loan servicing revenue                                            199              205               223
                                                            ----------------------------------------------------
     Total SBA revenue                                                348              536               318

Gain on sale of mortgage loans                                        904              640               409
Mortgage loan servicing revenue                                       293              221               176
                                                            ----------------------------------------------------
     Total mortgage revenue                                         1,197              861               585

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

    Total loan origination, sale and servicing revenue              1,574            1,431               932
----------------------------------------------------------------------------------------------------------------

</TABLE>

When compared to 2002, service charge revenue increased 0.7% in 2003 after
increasing 13% in 2002. These increases are primarily the result of continued
growth in demand deposits. Average total deposits increased 19% in 2003 and 14%
in 2002.

During 2003, SBA revenue decreased 35% after increasing 69% during 2002 and
decreasing 6% during 2001. The declines in 2003 and 2001 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 increase in 2002 was the result of the sale of $6.9 million
SBA 7a loans.

Due to mortgage lending rates remaining low during 2003, the Company continued
to experience increases in mortgage lending activity for both new loans and
refinancing of existing loans. The increased lending activity resulted in an
increase in the Company's mortgage revenue totaling $336 thousand, or 39% from
2002 to 2003, $276 thousand, or 47% from 2002 to 2001 and $330 thousand, or 129%
in 2001 as compared to 2000. Farmer Mac revenue decreased 15% in 2003 after
increasing 17% in 2002 as compared to 2001 and declining 7% during 2001 as
compared to 2000.

The Company realized gains on the sale of investment securities totaling $396
thousand, $603 thousand and $267 thousand in 2003, 2002 and 2001, respectively.

The Company purchased single-premium life insurance policies written on the
lives of certain officers and directors of the Company and the Bank. Included in
other noninterest income is the increase in the cash surrender value of these
policies. The income totaled $524 thousand, $649 thousand and $658 thousand
during 2003, 2002 and 2001, respectively.

                                       25

<PAGE>

Noninterest Expenses

The Company experienced increases in noninterest expense of 8% and 11% for 2003
and 2002, respectively. Cost control and better utilization of resources
continue to be a focus of the Company. The leading factors contributing to the
increase in noninterest expense were reflected in increases of $859 thousand, or
13.6% in salaries and employee benefits combined with expenses totaling $373
thousand associated with actions initiated by three dissident directors. The
actions initiated by the dissidents represent 36.5% of the total increase in
noninterest expense during 2003. See "Certain Trends and Uncertainties." The
salary and employee benefits increase in 2003 from the prior year was due, in
part, to higher commissions paid to mortgage originators. The average number of
full-time equivalent employees was at 134 at the end of 2003, compared to 121 at
the end of 2002. Occupancy expense in 2003 increased 14% from 2002, following an
8% increase in 2002. During 2003, equipment expense decreased 4% after
increasing 10% during 2002. 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.

Salaries and Employee Benefits

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

(in thousands except full time equivalents)        2003   2002   2001
----------------------------------------------------------------------
Regular payroll, contract labor, and overtime    $5,479 $4,740  4,285
Incentive compensation and profit sharing           263    426    218
Payroll taxes and employment benefits             1,429  1,146  1,177
                                                 ---------------------
     Total Salaries and Employee Benefits        $7,171 $6,312  5,680
                                                 =====================
Average number of full-time equivalent employees    134    121    117
                                                 ---------------------
Regular payroll per full-time equivalent employee 40.89  39.25  36.62
                                                 ---------------------
Incentive compensation to regular payroll           4.8%   9.0%   5.1%
                                                 ---------------------
Payroll taxes and benefits per average full-time
 equivalent employee                              10.66   9.49  10.06
----------------------------------------------------------------------

The average number of full-time equivalent employees increased 11% in 2003
compared to 2002 and 3% in 2002 compared to 2001. The opening of the new branch
in downtown Sacramento in 2003 accounted for over 50% of the increase in
full-time equivalent employees during 2003. Regular payroll, contract labor and
overtime increased 16% in 2003 compared to 2002 and 11% in 2002 compared to
2001. Total salaries and benefits expense increased 14% in 2003 compared to 2002
and 11% in 2002 compared to 2001. The average regular payroll per full-time
equivalent employee increased 4% in 2003 compared to 2002 and increased 7% in
2002 compared to 2001.

Incentive compensation includes bonus awards to employees under the Incentive
Compensation Plan, contributions to the Employee Stock Ownership Plan and
matching contributions to the 401(k) 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. Contributions to the Employee Stock Ownership Plan totaled $168,870,
190,995 and $171,160 and employer contributions to the 401(k) Stock Ownership
Plan totaled $73,053, $71,482 and $46,659 in 2003, 2002 and 2001, respectively.

Payroll taxes and employee benefits per full-time equivalent increased 12% in
2003 as compared to 2002 and decreased 6% in 2002 as compared to 2001. Workers
compensation expense increased 138% when compared to 2002 and medical insurance
expense increased 14% during 2003. The decrease in 2002 payroll taxes and
employee benefits as compared to 2001 is primarily the result of a $162 thousand
reduction in the supplemental compensation accrual (see Note 10 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 reversal of an accrual for an unvested post
employment/retirement benefit by a former executive officer of the Company.


                                       26
<PAGE>

Occupancy Expense
-----------------

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

(in thousands except square footage and cost per
 sq. ft.)                                          2003   2002   2001
----------------------------------------------------------------------
Depreciation                                        401    405    347
Property taxes, insurance, and utilities            302    268    245
Property maintenance                                174    157    150
Net rental expense  (income)                        255    167    177
                                                 ---------------------
     Total Occupancy                              1,132    997    919
                                                 =====================
Square footage of occupied and unoccupied space  52,788 45,708 45,708
                                                 ---------------------
Occupancy cost per square foot                    21.44  21.81  20.11
                                                 ---------------------
Locations                                            10      9      9
----------------------------------------------------------------------

Occupancy expenses increased 14% in 2003 and 8% in 2002. The increase in 2003 is
primarily related to the opening of the downtown Sacramento branch, combined
with general increases in the utilities and maintenance of the existing
locations. The new branch in downtown Sacramento opened in September 2003 and
includes a 4,485 square foot full service branch and a 2,595 square foot
administrative office. The increase in 2002 was related to expansion
improvements within existing and new locations combined with general increases
in the maintenance of the existing locations.

Equipment Expense
-----------------

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


----------------------------------------------------------------------
(in thousands)                                    2003    2002   2001
----------------------------------------------------------------------
Depreciation                                      $700     750    684
Maintenance                                        147     134    122
Rental expense                                       7       8      8
                                               -----------------------
     Total Equipment                              $854     892    814
----------------------------------------------------------------------

Equipment expense decreased 4% in 2003 after increasing 10% in 2002. The
decrease in 2003 is primarily due to the decrease in depreciation expense as
older assets become fully depreciated. The increases in 2002 are related to the
purchase of operating equipment.

Other Noninterest Expense
-------------------------

Other noninterest expense increased 2% in 2003 after increasing 13% in 2002. The
following table provides the detail for each major segment of other noninterest
expense:

----------------------------------------------------------------------
(in  thousands)                                      2003  2002  2001
----------------------------------------------------------------------
Third party data processing                          $569   848   877
Marketing                                             640   514   413
Professional fees                                     853   465   403
Director fees and retirement                          205   315   385
Telephone and postage                                 415   313   296
Office supplies                                       269   266   247
Intangible amortization                               171   171   171
Other real estate owned losses and holding costs       18   103    83
Nonperforming loan costs                              147    92    77
Other                                               1,064 1,198   861
                                                   -------------------
     Total Other Noninterest Expense               $4,351 4,285 3,813
----------------------------------------------------------------------

Third party data processing decreased 33% during 2003 and 3% during 2002. As a
result of 2003 being the first complete year with the statement preparation and
item processing functions no longer being outsourced, third party data
processing expenses decreased $279 thousand, or 33%, when compared to 2002.
These functions were brought in-house May 2002 which reflected a decrease of
$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 2002. As part of the Company's long term focus on
growth and expansion, marketing expenses increased 25% during both 2003 and
2002. Professional fees increased 83% during 2003 primarily as a result of
unanticipated expenses totaling $373 thousand incurred by the Company in
response to the disruptive actions initiated by three dissident directors.


                                       27
<PAGE>



Income Taxes

The provision for income taxes as a percentage of pretax income for 2003, 2002,
and 2001 was 23%, 25%, and 15%, 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 $212 thousand, $168
thousand and $241 thousand and the increase in the cash surrender value of life
insurance increased $524 thousand, $649 thousand and $658 thousand, the
combination of which represented 48%, 45% and 63% of pretax income during the
year ended December 31, 2003, 2002 and 2001, respectively. Note 13 to the
consolidated financial statements contains a detailed presentation of the income
tax provision and the related current and deferred tax assets and liabilities.

Balance Sheet Review

The following table presents average balance sheets for the years ended December
31, 2003, 2002 and 2001.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                     For the Year Ended        For the Year Ended     For the Year Ended
                                                     December 31, 2003          December 31, 2002     December 31, 2001
                                                       (in thousands)            (in thousands)         (in thousands)
                                                 -------------------------- ------------------------- ------------------
                                                        Amount      Percent       Amount      Percent   Amount   Percent
------------------------------------------------ ------------- ------------ ------------ ------------ -------- ---------
Assets:
<S>                                                   <C>             <C>       <C>             <C>    <C>         <C>
Cash & Due from banks                                 $15,595         5.67%     $14,133         5.95%  11,310      5.59%
Federal funds sold and securities purchased
 under resale agreements                               12,057         4.38%       9,464         3.99%  11,360      5.61%
Investment securities                                  54,657        19.87%      34,076        14.35%  35,260     17.42%
Loans held for sale                                     2,403         0.87%       4,686         1.97%   3,130      1.55%
Loans (net of allowance for loan losses and
deferred income)                                      164,192        59.70%     149,469        62.95% 117,320     57.95%
Premises and equipment, net                             6,651         2.42%       7,093         2.99%   6,800      3.35%
Other assets                                           19,469         7.09%      18,532         7.80%  17,260      8.53%
                                                 ------------- ------------ ------------ ------------ -------- ---------
Total Assets                                         $275,024       100.00%    $237,453       100.00% 202,440    100.00%
                                                 ============= ============ ============ ============ ======== =========
Liabilities & Stockholders' Equity:
Deposits                                             $244,268        88.82%    $205,895        86.71% 183,580     90.68%
Other borrowings                                        7,218         2.62%       7,412         3.12%     120       .06%
Other liabilities                                       3,823         1.39%       4,516         1.90%   1,730       .85%
Stockholders' equity                                   19,715         7.17%      19,630         8.27%  17,010      8.40%
                                                 ------------- ------------ ------------ ------------ -------- ---------
Total Liabilities & Stockholders' Equity             $275,024       100.00%    $237,453       100.00% 202,440    100.00%
                                                 ============= ============ ============ ============ ======== =========
------------------------------------------------------------------------------------------------------------------------
</TABLE>

During 2003, total average assets reached $275,024 thousand. This represents an
increase of 16% over 2002, which follows an increase of 17% for 2002 over 2001.
The increases in both 2003 and 2002 resulted from Management's strategic plan to
grow deposits throughout the Bank's branch network. The results of this plan are
reflected by the 18% and 13% growth in average deposits for 2003 and 2002,
respectively.

The growth trend in average net loans continued in 2003, increasing 10% over
2002. The deposit growth was able to fund the increase in loans and also
increase fed funds sold and investment securities by 27% and 60%, respectively.
During 2002 average net loans increased 27%. This increase was funded by the
growth in deposits combined with a 17% and 3% reduction in fed funds sold and
investment securities, respectively.

Average other assets increased 4% and 8% at December 31, 2003 and 2002 as
compared to December 31, 2002 and 2001, respectively. The increases are
primarily attributable to increases in the cash surrender value of life
insurance of $524 thousand and $649 thousand during 2003 and 2002, respectively.
The cash surrender value of life insurance consists

                                       28

<PAGE>

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-exempt based upon each
policy's crediting rate, which is adjusted by the insurance company on an annual
basis.

Investment Securities

The following table presents the investment portfolio at December 31, 2003, 2002
and 2001 by security type, maturity, and yield:
<TABLE>
<CAPTION>
                                                Book Value at December 31 (dollars in thousands):
                                                    2003              2002              2001
                                              ------------------------------------------------------
                                                 Amount    Yield   Amount    Yield   Amount    Yield
----------------------------------------------------------------------------------------------------
U.S. Agency Securities:
<S>    <C>                                          <C>               <C>            <C>       <C>
Within 1 year                                       $-        -       $-        -    3,501     6.46%
After 1 year, within 5 years                    38,773     3.37%   3,702     5.74%   8,099     5.66%
After 5 years, within 10 years                       -        -        -        -        -        -
After 10 years                                       -        -        -        -        -        -
                                              ------------------------------------------------------
Total U.S. Agency                              $38,773     3.37%  $3,702     5.74%  11,600     5.90%
Collateralized Mortgage Obligations:
Within 1 year                                   $9,529     3.82%  $4,255     3.40%   1,192     4.27%
After 1 year, within 5 years                    30,328     3.40%  20,860     3.85%  21,741     4.76%
After 5 years, within 10 years                   1,836     4.45%       -        -        -        -
After 10 years                                       -        -        -        -      131     3.42%
                                              ------------------------------------------------------
Total Collateralized Mortgage Obligations      $41,693     3.52% $25,115     3.67%  23,064     4.72%
Municipal Securities:
Within 1 year                                       $-        -       $-        -      100    10.24%
After 1 year, within 5 years                       960     5.61%     335     7.30%   2,133     6.86%
After 5 years, within 10 years                   7,347     4.82%     501     7.57%     476     7.44%
After 10 years                                     915     5.50%   2,094     8.21%   2,309     8.20%
                                              ------------------------------------------------------
Total Municipal Securities                      $9,222     4.97%  $2,930     8.00%   5,018     7.60%
Other Debt Securities:
Within 1 year                                     $149     6.80%     $67     6.73%     202     7.41%
After 1 year, within 5 years                       230     3.50%     356     4.27%     194     6.33%
After 5 years, within 10 years                       -        -        -        -      274     4.48%
After 10 years                                       -        -        -        -        -        -
                                              ------------------------------------------------------
Total Other Debt Securities                       $379     4.80%    $423     4.66%     670     5.90%
Federal Agency Stock                               182     5.00%     184     6.00%     126     6.00%
Unrealized Holding Gain, net                        21        -      771        -      537        -
                                              ------------------------------------------------------
Total                                          $90,270     3.61% $33,125     4.33%  41,015     5.35%
----------------------------------------------------------------------------------------------------
</TABLE>

The investment portfolio increased $57,145 or 173%, at December 31, 2003 as
compared to December 31, 2002 after decreasing $7,890 or 19%, at December 31,
2002 as compared to December 31, 2001. The increase in the investment portfolio
during 2003 occurred as a result of deposit growth outpacing loan growth.
Conversely, the decrease in the investment portfolio during 2002 occurred as a
result of loan growth outpacing deposit growth. During 2003 and 2002, proceeds
received from prepayments of mortgage backed investment securities totaled
$31,177 thousand and $13,595 thousand, respectively and proceeds from the
maturity of investment securities totaled $0 and $3,600, respectively. During
2003, proceeds from the sale of investment securities totaled $7,128 thousand
and resulted in gains totaling $396 thousand. During 2002, proceeds from the
sale of investment securities totaled $23,487 thousand and resulted in gains
totaling $603 thousand.

                                       29

<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:

<TABLE>
<CAPTION>
                                                Outstanding at December 31 (in thousands):
                                            2003         2002         2001         2000          1999
------------------------------------------------------------------------------------------------------
<S>                                     <C>           <C>          <C>           <C>           <C>
Commercial and other real estate        $164,285      141,962      125,274       99,377        95,509
Real estate construction                  16,006       20,489       13,703       12,124        13,919
Installment and other                      2,274        3,068        3,674        3,605         3,301
                                    ------------------------------------------------------------------
Total Gross Loans                       $182,565      165,519      142,651      115,106       112,729
------------------------------------==================================================================
</TABLE>

Loans are the Company's primary component of earning assets. At December 31,
2003 and 2002, gross loans outstanding totaled $182,565 thousand and $165,519
thousand, an increase of 10% and 16% from year-end 2002 and 2001, 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 and the Sacramento area in late 2003, 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 90% and 86% of the total portfolio at December 31, 2003 and 2002,
respectively. Our target lending customers are closely-held small to midsize
businesses requiring credit ranging in size from $1.0 million to $3.0 million,
although the Company makes larger loans based upon the needs of our business
customers and consistent with our loan policy and applicable laws and
regulations. Management has continued to emphasize growth in commercial and
commercial real estate categories in order to focus on the more profitable
commercial relationships. The growth in the commercial sector since 2000 was
accomplished by hiring additional commercial lending personnel who average more
than 15 years of commercial lending experience in Northern California, and
directing existing staff toward commercial relationship procurement.. This has
enabled the Company to achieve our objective of diversifying our commercial loan
portfolio by adding customers in a wide variety of businesses. As these loan
officers have joined our banking team, the Company has benefited from their
existing customer relationships, as well as their local banking expertise.

Commercial loans include Small Business Administration (SBA) loans. SBA loans
represented approximately 19 % and 21% of the commercial loan portfolio at
December 31, 2003 and 2002, respectively. A vast majority of businesses are
eligible for these loans, which provide assurance to the lenders that in the
event the borrower does not repay their obligation and a payment default occurs,
the Government will reimburse the lender for its loss, up to the percentage of
SBA's guaranty.

Also included in commercial loans are agricultural loans, working capital loans
to businesses in a number of industries, and loans to finance commercial real
estate. Agricultural loans represented approximately 12 % and 10% of the
commercial loan portfolio at December 31, 2003 and 2002, 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.


                                       30
<PAGE>

The maturity and repricing characteristics of the loan portfolio at December 31,
2003 are as follows:

Due:  (in thousands) (1)        Fixed Rate    Floating Rate   Total
                               -------------  ------------- ----------
In 1 year or less                   $16,819         31,696     48,515
After 1 year through 5 years          7,960         17,267     25,227
After 5 years                         3,158        105,665    108,823
                               -------------  ------------- ----------
Total Loans                         $27,937        154,628    182,565
                               =============  ============= ==========
(1) Scheduled repayments are reported in the maturity category in which the
payment is due.

Approximately 15% of the loan portfolio carries a fixed rate of interest as of
December 31, 2003, while approximately 40% of the portfolio matures within five
years.

Deposits

The following table summarizes average deposit balances and rates for the years
ended December 31, 2003, 2002 and 2001.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in thousands)                For the Year Ended    For the Year Ended     For the Year Ended
                                December 31, 2003     December 31, 2002     December 31, 2001
Type                           Average    Average    Average    Average    Average     Average
                                Amount      Rate      Amount      Rate       Amount      Rate
------------------------------------------------------------------------------------------------
<S>                              <C>           <C>        <C>         <C>         <C>      <C>
Demand - non-interest bearing    $40,058       N/A      31,141       N/A       25,350       N/A
NOW accounts                      54,631      0.45%     49,709      0.72%      47,600      1.01%
Money market accounts             37,051      1.29%     26,827      1.66%      15,050      1.98%
Savings                           43,617      0.92%     36,192      1.36%      28,950      1.78%
Time deposits                     68,911      2.09%     62,026      3.03%      66,630      5.02%
                             -------------------------------------------------------------------
Total Deposits                  $244,268      1.05%    205,895      1.54%     183,580      2.53%
                             ===================================================================
------------------------------------------------------------------------------------------------
</TABLE>

Average deposits increased approximately 19% and 12% in 2003 and 2002,
respectively. Due to the continuing decline in the rate environment during 2003
and 2002, the average rate decreased 49 basis points and 99 basis points when
comparing 2003 to 2002 and 2002 to 2001, respectively. The continued growth in
deposits 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. All categories of
deposits increased during 2003. The largest increase at 38% was in money market
accounts followed by increases in noninterest bearing demand accounts, savings
accounts, certificates of deposit and NOW accounts of 29%, 21% 11% and 10%,
respectively.

Certificates of deposit contain regular and individual retirement account
balances and deposits received from the State of California under its Time
Certificate of Deposit Program. There are no brokered certificates of deposit in
the portfolio. At December 31, 2003 and 2000 the Company had $5,000 thousand and
$0 thousand in deposits with the State of California under the Time Certificate
of Deposit Program, respectively. The Certificates with the State of California
have maturities of one year or less and are collateralized by loans or
investment securities. The deposit program provides the Company with an
additional source of funds at a relatively low cost. The deposits are used to
fund loans and investments.

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 51% and 39% of the
certificate of deposit portfolio at December 31, 2003 and 2002, respectively.
Excluding the Certificates of Deposit with the State of California, certificates
of $100,000 or more represent approximately 47% and 39% of the certificate of
deposit portfolio at December 31, 2003 and 2002, respectively. The following
table summarizes the maturities of those certificates of $100,000 or more:


----------------------------------------------------------------------
(in thousands)                                                   2003
                                                       ---------------
Three months or less                                          $16,794
Four months to six months                                      11,805
Seven months to twelve months                                   5,467
Over twelve months                                              3,237
                                                       ---------------
Total time deposits of $100,000 or more                       $37,303
                                                       ===============
----------------------------------------------------------------------

                                       31

<PAGE>

Short Term Borrowings

The Bank has two lines of credit with correspondent banks totaling $5 million at
December 31, 2003, 2002 and 2001. The lines of credit are unsecured and renew
annually. At December 31, 2003, 2002 and 2001 the Bank had outstanding
borrowings under these lines totaling $0 million, $3 million and $4 million,
respectively. The maximum amount outstanding at any month end was $5 million, $3
million, and $4 million, the average balance outstanding was $33 thousand, $61
thousand, and $50 thousand and the weighted average interest rate was 1.92%,
2.46% and 3.02% for the years ending December 31, 2003, 2002 and 2001,
respectively.

At December 31, 2003, 2002 and 2001 securities sold under agreements to
repurchase totaled $14,100 thousand, $11,885 thousand and $0 thousand,
respectively. The maximum amount outstanding was $14,100 thousand, $11,885
thousand and $4,588 thousand, the average balance outstanding was $2,031
thousand, $3,227 thousand and $70 thousand and the weighted average interest
rate was 1.08%, 2.09% and 6.79% for the years ending December 31, 2003, 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.

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)                                 2003        2002        2001        2000           1999
--------------------------------------------------- ----------- ----------- ----------- --------------
<S>                                         <C>         <C>          <C>         <C>            <C>
Nonaccrual loans                            $3,880      $2,409       3,246       5,655          2,303
Accruing loans past due more than 90
 days                                            -           -           -           -            374
                                        ----------- ----------- ----------- ----------- --------------
Total non-performing loans                  $3,880      $2,409       3,246       5,655          2,677
                                        =========== =========== =========== =========== ==============
Allowance for loan losses                   $3,262      $3,057       2,668       2,499          2,580
Allowance for loan losses to non-
 performing loans                               84%        127%         82%         44%            96%
Total loan portfolio delinquency              3.21%       2.38%       3.30%       5.14%          3.32%
Allowance for loan losses to total gross
 loans                                        1.79%       1.85%       1.87%       2.17%          2.29%
Other real estate owned                     $    -        $329         809         405            129
                                        ----------- ----------- ----------- ----------- --------------
------------------------------------------------------------------------------------------------------
</TABLE>

The Company's nonaccrual policy is discussed in Note 1(c) to the consolidated
financial statements. The Company's principal earning assets are its loans.
Inherent in the lending function is the risk of the borrower's inability to
repay its loan under its existing terms. Risk elements include nonaccrual loans,
past due and restructured loans, potential problem loans, loan concentrations
and other real estate owned. Non-performing assets include loans that are not
accruing interest (nonaccrual loans) as a result of principal or interest being
contractually delinquent for a period of 90 days or more. When a loan is
classified as nonaccrual, interest accruals discontinue and all accumulated
accrued interest receivable is backed out of current period income. Until the
loan becomes current, any payments received from the borrower are applied to
outstanding principal until such time as management determines the financial
condition of the borrower and other factors merit recognition of such payments
as interest. The Company attempts to minimize overall credit risk through loan
diversification and its loan approval procedures. The Company's due diligence
begins at the time the borrower and the Company begin to discuss the origination
of the loan documentation, including the borrower's credit history, materials
establishing the value and liquidity of potential collateral, the purpose of the
loan, the source and timing of the repayment of the loan, and other factors are
analyzed before a loan is submitted for approval. Loans made are also subject to
periodic review.



                                       32

<PAGE>

Nonaccrual loans increased $1,471 thousand, or 61%, for the year ending December
31, 2003, decreased $837 thousand, or 26%, in 2002 and decreased $2,409 thousand
in 2001 while increasing $2,978 thousand and $2,238 thousand in 2000 and 1999,
respectively. Portfolio delinquency increased to 3.21% in 2003, 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. Interest income recorded on these nonaccrual loans was
approximately $183 thousand, $242 thousand, $423 thousand, $224 thousand and $76
thousand in 2003, 2002, 2001, 2000 and 1999, respectively. Interest income would
have increased in 2003, 2002, 2001, 2000 and 1999 by approximately $382
thousand, $364 thousand, $310 thousand, $542 thousand and $76 thousand,
respectively, if these loans had earned interest at their full contract rate. At
December 31, 2003, 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. Management
believes these loans are all adequately reserved and it does not expect any
material losses as a result of these credits. The Company had no other real
estate owned at December 31, 2003.

The amount of the allowance for loan losses increased $205 thousand during 2003,
$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, 2003  December 31, 2002 December 31, 2001 December 31, 2000 December 31, 1999

                                ----------------  ----------------- ----------------- ----------------- ------------------
                                             %                   %                  %                %              %
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  $2,381    89.99%     2,182   85.77%     2,122   87.82%   1,752   86.46% 1,943   84.72%
Real estate construction             828     8.76%       807   12.38%       466    9.61%     666   10.41%   560   12.35%
Installment and other                 53     1.25%        68    1.85%        80    2.57%      81    3.13%    77    2.93%
                                --------- -------- ---------- -------   -------- ------- -------- ------- ------ ---------
                                  $3,262   100.00%     3,057  100.00%     2,668  100.00%   2,499  100.00% 2,580  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, 2003
and 2002.
<TABLE>
<CAPTION>
As of December 31, 2003:
----------------------------------------------------------------------------------------------------
                                 Expected Maturity / Principal Repayment           Total     Fair
(in thousands)              2004     2005     2006     2007     2008  Thereafter  Balance   Value
----------------------------------------------------------------------------------------------------
Interest-Sensitive Assets:
Federal funds sold and
 securities purchased
 under resale agreements $ 8,034        -        -        -        -           -    8,034     8,034
<S>                       <C>      <C>      <C>      <C>      <C>         <C>      <C>       <C>
Fixed rate investments(1) 16,966   14,507   13,760   11,199   15,011      18,581   90,024    90,024
Floating rate
 investments (1)              79       48       30       21       15          53      246       246
Fixed rate loans (2)      16,819    2,712    1,275    1,421    2,552       3,158   27,937    27,622
Floating rate loans (2)   31,696    2,832    6,264    2,583    5,588     105,665  154,628   159,607

Interest-Sensitive Liabilities:
NOW account deposits (3)  22,639    3,769    3,769    3,769    3,769      18,882   56,597    57,139
Money market deposits (3) 22,038    3,669    3,669    3,669    3,669      18,382   55,096    55,406
Savings deposits (3)      18,198    3,030    3,030    3,030    3,030      15,176   45,494    46,385
Certificates of deposit   67,031    4,569      849      354      400           -   73,203    73,498
Short term borrowings     14,100        -        -        -        -       5,155   19,255    19,255

Interest-Sensitive Off-Balance Sheet Items:
Commitments to lend                                                                49,643       496
Standby letters of credit                                                             488         1
----------------------------------------------------------------------------------------------------
</TABLE>



                                       34
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 2002:
--------------------------------------------------------------------------------- ------------------
                                 Expected Maturity / Principal Repayment           Total     Fair
(in thousands)               2003    2004     2005     2006     2007  Thereafter  Balance   Value
--------------------------------------------------------------------------------- ------------------
Interest-Sensitive Assets:
<S>     <C>    <C>    <C>    <C>    <C>    <C>
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       -        -        -        -       5,155   20,040    20,040

Interest-Sensitive Off-Balance Sheet Items:
Commitments to lend                                                                40,717       407
Standby letters of                                                                  1,038         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, 2003, federal funds sold and securities purchased under resale
agreements of $8,034 thousand with a yield of 0.93% and investment securities
totaling $17,045 thousand with a weighted-average, tax-equivalent yield of 3.63%
were scheduled to mature within one year. In addition, gross loans totaling
$48,515 thousand with a weighted-average yield of 6.14% were scheduled to mature
within the same time frame. Overall, interest-earning assets scheduled to mature
within one year totaled $73,594 thousand with a weighted-average, tax-equivalent
yield of 4.99% at December 31, 2003.

With respect to interest-bearing liabilities, based on historical withdrawal
patterns, NOW accounts, money market and savings deposits of $62,875 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 1.77% were scheduled to mature in the same time frame. In addition, short
term borrowings totaling $14,100 with a weighted-average cost of 1.20% were
scheduled to mature within one year. Total interest-bearing liabilities
scheduled to mature within one year totaled $126,175 thousand with a
weighted-average rate of 1.28%.

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, 2003:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                                By Repricing Interval
--------------------------------------------------------------------------------------------------
(in thousands)       Within   After three After six After one  After five Noninterest  Total
                      three     months,    months,     year,      years     bearing
                      months   within six   within    within                 funds
                                 months    one year  five years
--------------------------------------------------------------------------------------------------
<S>                      <C>        <C>          <C>      <C>      <C>       <C>           <C>
Assets
Federal funds sold
 and securities
 purchased under
 resale agreements     $ 8,034         --         --        --         --         --        8,034
Investment
 securities              5,042      4,135      7,868    54,591     18,634         --       90,270
Loans (including
 loans held for
 sale)                  61,108      8,058     13,711    68,523     31,165         --      182,565
Noninterest earning
 assets and
 allowance for loan
 losses                     --         --         --        --         --     40,944       40,391
                   -------------------------------------------------------------------------------
Total Assets           $74,184     12,193     21,579   123,114     49,799     40,944      321,813
                   ===============================================================================
Liabilities and
 Stockholders' Equity
 Savings, money market
 & NOW deposits      $ 157,187         --         --        --         --         --      157,187
Time deposits           30,588     21,358     15,085     6,172         --         --       73,203
Borrowings              14,100         --         --        --      5,155         --       19,255
Other liabilities
 and stockholders'
 equity                     --         --         --        --         --     72,168       71,615
                   -------------------------------------------------------------------------------
Total Liabilities
 and Stockholders'
 Equity              $ 201,875     21,358     15,085     6,172      5,155     72,168      321,813
                   ===============================================================================
Interest Rate
 Sensitivity Gap    $ (127,691)    (9,165)     6,494   116,942     44,644    (31,224)          --
                   ===============================================================================
Cumulative Interest
 Rate Sensitivity
 Gap                 $(127,691)  (136,856)  (130,362)  (13,420)    31,224         --           --
-------------------===============================================================================
</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 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, 2003, 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 8 and
18 to the consolidated financial statements for further information). Compared
to 2002 liquidity decreased in 2003 as a result of the Company using fed funds
to purchase investment securities.

Certain Trends and Uncertainties

Two shareholders of the Company have recently expressed an intention of
commencing legal proceedings against the Company, its executives and certain of
its directors, purportedly in the nature of a shareholder derivative action.
These shareholders believe that there has been a beach of fiduciary duty and
improper management of the Company. The Company is unable to predict whether an
action will ultimately be commenced and if so, what effect any potential outcome
may have on the Company's financial condition and results of operations.

As referred to above, three directors of the Company have made certain demands
for information from the Company and have engaged in various other activities
over the past year due to their disagreement with the manner in which the
Company is managed and directors and executive officers are compensated. The
Company has spent significant sums for legal, investor relations and other
expenses in responding to these directors. For the year ended December 31, 2003,
the Company incurred unanticipated costs totaling $373,000. In addition, the
actions of these directors have been disruptive to the Company's business
operations and have diverted the attention of management and the remaining
directors from normal business operations. No assurance can be given as to the
impact on the Company's financial condition and results of operations as a
result of these activities and the Company's need to respond to any future
actions taken by these directors in order to protect the Company and its
shareholders.

                                       37

<PAGE>

Capital Resources

Management continues to emphasize profitable asset growth and retention of
equity in the business. In accordance with SFAS No. 115, the Company includes
unrealized gain (loss) on available-for-sale securities, net of income taxes, as
accumulated other comprehensive income which is a component of stockholders'
equity. While regulatory capital adequacy ratios exclude unrealized gain (loss)
in the calculation thereof, it does impact the Company's equity as reported in
the audited financial statements. The unrealized gain on available-for-sale
securities, net of income taxes, was $13 thousand and $455 thousand at December
31, 2003 and 2002, respectively. Consolidated capital increased $649 thousand,
or 3.4%, during 2003. The increase was due primarily to net income of $1,177
thousand. Capital also increased $99 thousand as a result of stock options
exercised and $19 thousand for stock-based compensation. Capital decreased by
$442 thousand as a result of a decrease in the net unrealized holding gain on
available-for-sale securities and $156 thousand as a result of stock
repurchases. Average stockholders' equity equated to 7.17% of average total
assets in 2003 compared to 7.92% in 2002. Shareholders' equity was 6.20% of
total assets at year-end 2003, compared to 7.54% at year-end 2002. This decrease
is primarily due to the effect of asset growth exceeding the growth in capital.
During 2003, total assets increased 26% while capital increased 3%.

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. See Note 8 to the consolidated financial
statements for further information.

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. During
2003, 9,207 shares were repurchased at an average cost of $16.94 per share for a
total of $156 thousand. During 2002, 32,649 shares were repurchased at an
average cost of $11.96 per share for a total of $391 thousand under this
program. The repurchase program has been extended to December 31, 2004.

The Bank's total risk-based and leverage capital ratios were 10.68% and 7.96%,
respectively, at December 31, 2003 compared to 11.16% and 8.22%, respectively,
at December 31, 2002. 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 under
current regulatory guidelines is treated as Tier 1 capital for regulatory
capital adequacy determination purposes. For additional information see "Recent
Accounting Pronouncements." The total risk-based and leverage capital ratios at
December 31, 2003, are in excess of the required regulatory minimums of 10% and
5%, respectively, for well-capitalized institutions.


                                       38

<PAGE>

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

The definition of "off-balance sheet arrangements" includes any transaction,
agreement or other contractual arrangement to which an entity is a party under
which the Company has:

--   Any obligation under a guarantee contract that has any of the
     characteristics as defined in paragraph 3 of FIN 45, "Guarantor's
     Accounting and Disclosure Requirements for Guarantees Including Indirect
     Guarantees of Indebtedness to Others" ("FIN 45");

--    A retained or contingent interest in assets transferred to an
     unconsolidated entity or similar arrangement that serves as credit,
     liquidity or market risk support to that entity for such assets, such as a
     subordinated retained interest in a pool of receivables transferred to an
     unconsolidated entity;

--    Any obligation, including a contingent obligation, under a contract that
     would be accounted for as a derivative instrument, except that it is both
     indexed to the registrant's own stock and classified in stockholders'
     equity; or

--   Any obligation, including contingent obligations, arising out of a material
     variable interest, as defined in FIN 46, in an unconsolidated entity that
     provides financing, liquidity, market risk or credit risk support to the
     registrant, or engages in leasing, hedging or research and development
     services with the registrant.

For a description of certain guarantees the Company has issued which qualify as
off-balance sheet arrangements, see Note 23 of the notes to consolidated
financial statements.

For a description of variable interest entities, which qualify as off-balance
sheet arrangements, see Note 8 of the notes to consolidated financial
statements.

The following table provides the amounts due under specified contractual
obligations (excluding interest) for the periods indicated as of December 31,
2003.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                     Less than one     One to three     Three to five   More than five years   Total
(in thousands)                             year            years             years
------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                         <C>                  <C>               <C>        <C>
Commitment to fund loans           $          24,877           15,194               521               9,051      49,643
Commitments under letters of credit              488               --                --                  --         488
Borrowings                                    14,100               --                --               5,155      19,255
Operating lease obligations                      290              917               370                 104       1,681
Other liabilities                              2,112               --                --               2,119       4,231
------------------------------------------------------------------------------------------------------------------------
</TABLE>

The obligations are categorized by their contractual due dates. Approximately
$13 million of the commitments to fund loans relate to real estate construction
and are expected to fund within the next 12 months. However, the remainder
relates primarily to revolving lines of credit or other commercial loans, and
many of these commitments are expected to expire without being drawn upon.
Therefore, the total commitments do not necessarily represent future cash
requirements. The Company may, at our option, prepay certain borrowings prior to
their maturity date. The junior subordinated debentures, 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. Furthermore,
the actual payment of certain current liabilities may be deferred into future
periods. For purposes of this schedule, liabilities for our Supplemental
Compensation Agreements, described in Note 10 of the notes to consolidated
financial statements, are included in more than five years category.

                                       39

<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" and "Market Risk" in Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operations.

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


ITEM 9A.  CONTROLS AND PROCEDURES

                       Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Senior Vice
President and 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 Senior Vice President 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 Control over Financial Reporting

There was no change in internal control over financial reporting that occurred
during the fourth quarter of 2003 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.


                                       40

<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Directors of the Company

      The following table sets forth information, as of December 31, 2003, with
respect to the current directors of the Company.

                                                              Director
Name                    Position                    Age         Since
----------------------------------------------------------------------
Benjamin R. Goehring    Chairman of the Board        72          1982
Weldon D. Schumacher    Vice Chairman of the Board   68          1982
David M. Philipp        Director                     41          1999
Robert H. Miller, III   Director                     59          2001
Daniel M. Lewis         Director                     49          2002
Leon J. Zimmerman       President and CEO, Director  61          1999
Robert H. Daneke        EVP, COO, Director           50          2000
Angelo J. Anagnos       Director                     69          1982
Steven M. Coldani       Director                     50          1999
Kevin Van Steenberge    Director                     46          2001

The following is a brief description of the business experience of each
director.

BENJAMIN R. GOEHRING was appointed Chairman of the Board of Directors of the
Bank in February 1996 and Chairman of the Board of Directors of the Company in
April 1996. Chairman of the Board of BioWaste Energy, Inc., and was formerly the
President and principal shareholder of Goehring Meat, Inc., a meat processing
concern headquartered in Lodi, California, prior to its sale to Victor Fine
Foods in 1988. He holds a Bachelor of Science degree from the University of
California. He is a member of many civic, fraternal and professional
organizations.

WELDON D. SCHUMACHER, M.D. was appointed Vice Chairman of the Board of the Bank
and the Company in April 1996. Dr. Schumacher has been engaged in the private
practice of medicine in Lodi, California, since 1968. He holds a Bachelor of
Arts degree from Loma Linda University, Loma Linda, California, and a Doctor of
Medicine degree from Loma Linda University School of Medicine. Dr. Schumacher is
active in a number of civic and professional organizations, including the San
Joaquin County Medical Society, California Medical Association, American Medical
Association, American Academy of Family Physicians and the Lodi District Chamber
of Commerce.


DAVID M. PHILIPP is the Chief Financial Officer of Mother Lode Holding Company.
Mother Lode Holding Company owns a strategic array of title and escrow, real
estate information and lender services companies throughout the United States.
Mr. Philipp served as the Chief Financial Officer for First Financial Bancorp
and the Bank from April 1992 to April 1999. Prior to joining the Company and the
Bank, he was the Budget Director and Financial Analyst for a national retailer
from 1990 to 1992 and he was with KPMG, LLP from 1986 to 1990. Mr. Philipp lives
with his wife and two sons in El Dorado Hills, California.


ROBERT H. MILLER, III retired in 1997 from IBM Corporation after 31 years where
he served in management positions. Since that time, he has done consulting and
was employed by International Business Systems at their U.S. Headquarters
location in Folsom. Mr. Miller graduated from Golden Gate University with a
Bachelor of Business Administration degree. He served in the United States Air
Force Reserves from 1966 through 1972. Mr. Miller is Senior Vice President and
Chief Financial Officer for the Folsom Economic Development Corporation
(FEDCorp) and is a member of the Folsom Chamber of Commerce, Folsom Historical
Society, California State Railroad Museum, Aircraft Owners and Pilots
Association, Folsom-El-Dorado-Sacramento Historical Railroad Society, plus a
member of the Rotary Club of Folsom since 1985. Mr. Miller resides in Folsom
with his wife Candy.

DANIEL M. LEWIS is President of Jeanell Inc., a family owned restaurant company.
The company operates four Taco Bell franchises in the Lodi area. Mr. Lewis has
been actively involved in the food services industry for over 28 years. Prior to
working in the food services industry, Mr. Lewis worked in community bank
operations. During that period of time, he completed various college courses
related to banking and the financial services industry. Mr. Lewis is also an
active farmer and operator of a local vineyard. He has continually been involved
in various community and religious organizations, including serving a member of
the Sacramento Area Taco Bell Association, a marketing cooperative in which he
served as treasurer, and Franmac, a franchise organization of Taco Bell
franchisees dedicated to marketing and operations support functions. Currently
Mr. Lewis serves as a member of the Board of Directors of the Lodi Boys & Girls
Club. Mr. Lewis and his wife Judy reside in Lodi and are the parents of four
children.

                                       41

<PAGE>

LEON J. 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, Sacramento Sierra
Chapter - American Red Cross, and LEED - Sacramento. He is a member of Sutter
Club - Sacramento, World Trade Club - San Francisco, Independent Order of Odd
Fellows, Lodi Grape Festival and Harvest Fair and several other community
groups.

ROBERT H. DANEKE joined the Company in December 1999. He has 27 years of banking
experience, including 20 in community banking. Prior to joining the Company, Mr.
Daneke was employed at a community bank for eight years, serving as Senior Vice
President/Senior Credit Officer beginning in 1997. In addition, his career has
included: seven years in correspondent banking and seven years with a major bank
in middle market lending. 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 and the Lodi Chamber of Commerce Leadership Lodi
Program. He currently is a member of various community organizations and serves
on Lodi Unified School District Superintendent's Budget Advisory Committee. Mr.
Daneke and his wife Roselyn reside in Lodi and are the parents of two children.

ANGELO J. ANAGNOS is an active investor and an owner/manager of various real
estate holdings. He owned Sunwest Liquors and Delicatessen in Lodi, California
from 1983 to 1998. He was also the previous owner of Payless Market and Liquors
in Lodi, California from 1957 to 1983. Mr. Anagnos is a member of a number of
fraternal and professional organizations including Lodi Elks Club, Lodi Eagles,
Order of Ahepa, and the Lodi Hellenic Society.

STEVEN M. COLDANI is a real estate broker and farmer. He is President of Coldani
Realty Inc. in Lodi, California and co-owner of Graeagle Associates, Realtors in
Graeagle, California. He holds a Bachelor of Science degree from the University
of the Pacific School of Business. He is a director of Lodi Memorial Hospital
Foundation, Inc., a member of the Lodi and Plumas County Boards of Realtors, San
Joaquin County Farm Bureau, and the California Asparagus Commission. Mr. Coldani
is also a past president of the Lodi Board of Realtors and a past director of
the California Association of Realtors. Mr. Coldani and his wife Jeanne reside
in Lodi and are the parents of two children.

KEVIN VAN STEENBERGE has worked for Lodi Iron Works since 1979 and has served as
President since December 1999. Mr. Van Steenberge holds a Bachelors degree in
Economics from the University of Southern California. He is a member of the
American Foundrymen's Society, Steel Founders Association and California Cast
Metals Association. He currently serves as a member of the Board of Directors of
Metal Casting Stormwater Monitoring Group and the Micke Grove Zoological
Society. Mr. Van Steenberge and his wife Lori reside in Lodi and are the parents
of two children.

(b) Executive Officers of the Company

Included under Part I of this Form 10-K.

(c) Compliance with Section 16(a) of the Exchange Act

 Section 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") requires
each person (i) who owns more than 10% of any class of equity security which is
registered under the Exchange Act or (ii) who is a director or one of certain
officers of the issuer of such security to file with the Securities and Exchange
Commission certain reports regarding the beneficial ownership of such persons of
all equity securities of the issuer. While the individuals are required to
complete and submit the required filings, the Company has established procedures
to aid certain individuals in timely filing of reports required by the Exchange
Act. As a result of certain staffing changes, the Company is aware of one late
filing for Director Miller for one transaction occurring in June 2003 and, one
late filing relating to the grant of stock options in October 2003 to Directors
Goehring, Schumacher, Philipp, Miller and Lewis.

Except as noted above, based solely on our review of these reports of or
certifications from the officer or director to us that no report was required to
be filed, we believe that all of our directors and officers complied with all
Section 16(a) filing requirements applicable to them during the 2003 fiscal year


                                       42

<PAGE>

(d) Director Nomination Procedures

The Company has a Corporate Governance and Nominating Committee. The Company
will consider director nominees recommended by shareholders who adhere to the
following procedure. The Company's Bylaws provide that any shareholder must give
written notice to the Secretary of First Financial Bancorp of an intention to
nominate a director at a shareholder meeting. To be timely, a shareholder's
notice must be given to the Secretary of the Company and must be delivered to or
mailed and received at the principal executive offices of the Company not less
than ninety (90) days nor more than one hundred twenty (120) days prior to the
anniversary of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after the anniversary date,
or no annual meeting was held in the immediately preceding year, notice by the
shareholder in order to be timely must be so received no later than the close of
business on the tenth (10th) day following the day on which the notice of the
annual meeting date was mailed to shareholders. The Bylaws contain additional
requirements for nominations. A copy of the bylaws is attached to this report as
Exhibit 3(b).

The purpose of the Nominating Committee is to identify, evaluate, recruit and
select qualified candidates for election, re-election, or appointment to the
Board. The Nominating Committee may use multiple sources for identifying and
evaluating nominees for directors, including referrals from current directors
and executive officers and recommendations by shareholders. Candidates
recommended by shareholders will be evaluated in the same manner as candidates
identified by any other source.

The Company seeks directors who are of high ethical character and have
reputations, both personal and professional, which are consistent with the image
and values of the Company. The Director Nomination Committee reviews from time
to time the appropriate skills and characteristics required of directors in the
context of the current make-up of the board, including such factors as business
experience, diversity and personal skills in finance, real estate capital
markets, government regulation, financial reporting and other areas that are
expected to contribute to an effective Board.

The charter of the Nominating Committee is available, without charge, upon the
written request of any shareholder directed to Allen R. Christenson, Corporate
Secretary, First Financial Bancorp, 701 South Ham Lane, Lodi, California 95242.
All members of the Nominating Committee are independent directors of the Company
and comply with the independence requirements of the Nasdaq.

(e) Audit Committee Financial Expert

The board has determined that Mr. David Philipp has:

         (i) an understanding of generally accepted accounting principles and
         financial statements;

         (ii) the ability to assess the general application of such principles
         in connection with the accounting for estimates, accruals and reserves;

         (iii) experience preparing, auditing, analyzing or evaluating financial
         statements that present a breadth and level of complexity of accounting
         issues that are generally comparable to the breadth and complexity of
         issues that can reasonably be expected to be raised by the registrant's
         financial statements, or experience actively supervising one or more
         persons engaged in such activities;

         (iv) an understanding of internal control over financial reporting; and

         (v) an understanding of audit committee functions.

Therefore, the board has determined that Mr. Philipp meets the definition of
"audit committee financial expert" under the rules of the SEC. The determination
is based on Mr. Philipp's experience as the former CFO of the Company and Bank,
his current service as CFO of Mother Lodi Holding Company and his past public
accounting experience gained while employed by KPMG LLP. Designation of a person
as an audit committee financial expert does not result in the person being
deemed an expert for any purpose, including under Section 11 of the Securities
Act of 1933. The designation does not impose on the person any duties,
obligations or liability greater than those imposed on any other audit committee
member or any other director and does not affect the duties, obligations or
liability of any other member of the audit committee or board of directors. The
board has also determined that Mr. Philipp meets the requirements for audit
committee independence under the rules of Nasdaq.

                                       43

<PAGE>

(f) Code of Conduct

The Company has adopted a Code of Conduct, which complies with the Code of
Ethics requirements of the Securities and Exchange Commission. A copy of the
Code of Conduct is available, without charge, upon the written request of any
shareholder directed to Allen R. Christenson, Corporate Secretary, First
Financial Bancorp, 701 South Ham Lane, Lodi, California 95242.


ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table


The following table sets forth, for each of the last three fiscal years, the
compensation of Leon J. Zimmerman, President and Chief Executive Officer; Robert
H. Daneke, Executive Vice President and Chief Operating Officer; and Allen R.
Christenson, Senior Vice President and Chief Financial officer of the Company
and the Bank. No other executive officer of the Company or the Bank received for
the three fiscal years ended December 31, 2003 annual salary and bonus exceeding
$100,000.
<TABLE>
<CAPTION>
                                                                Long-Term Compensation
                                                            -------------------------------
                Annual Compensation                               Awards            Payouts
    -------------------------------------------------       --------------------    -------
                                                           Restricted
                                      Other Annual           Stock                   LTIP           All Other
    Year    Salary (1)       Bonus   Compensation (2)       Award(s)     Options    Payouts     Compensation (3)
    ----    ----------       -----   ----------------       --------     -------    -------     ----------------
    Leon J. Zimmerman:
<S> <C>     <C>            <C>                                                                      <C>
    2003    $  186,836     $ 20,400                -              -            -         -          $    17,019
    2002       178,416                             -              -       22,000         -               16,753
    2001       155,000                             -              -       26,000         -               12,975

     Robert H. Daneke
    2003    $  116,873        12,250               -              -            -         -          $    11,368
    2002       110,619             -               -              -        9,300         -               11,298
    2001       102,600             -               -              -        8,400         -               11,894

     Allen R. Christenson
    2003    $  103,788        11,330               -              -            -         -          $     6,417
    2002        99,212             -               -              -        8,100         -               10,421
    2001        94,000             -               -              -        5,000         -               10,638
    --------------------------------
</TABLE>
(1)  Amounts shown for each year include compensation earned and received as
     well as amounts earned but deferred at the officer's election.
(2)  Mr. Zimmerman, Mr. Daneke, and Mr. Christenson did not receive perquisites
     or other personal benefits in excess of the lesser of $50,000 or 10% of his
     total annual salary and bonus during 2003, 2002 or 2001.
(3)  All other compensation includes the cost of insurance premiums for the Long
     Term Care Benefit (see description herein above), contributions to the Bank
     of Lodi Employee Stock Ownership Plan (see description herein below) and
     matching contributions to the Company's 401(k) Profit Sharing Plan. All
     other compensation does not include the value of certain benefits payable
     pursuant to Executive Supplemental Compensation Agreements and Life
     Insurance Endorsement Method Split Dollar Plan Agreements (for more
     information, see the discussion of Executive Supplemental Compensation
     Agreements under "Supplemental Compensation Agreements" herein below).



                                       44

<PAGE>

Stock Options - Option Grants in the Last Fiscal Year


No stock options were granted to the named officers in 2003.

Aggregated Option Exercises in 2003 and 2003 Fiscal Year-end Option Values


The following table sets forth information pertaining to options exercised
during the last fiscal year and unexercised options as of the end of the last
fiscal year for Leon J. Zimmerman, President and Chief Executive Officer; Robert
H. Daneke, Executive Vice President and Chief Operating Officer; and Allen R.
Christenson, Senior Vice President and Chief Financial Officer of the Company
and the Bank. No stock options were exercised by the named officers in 2003.
Options and option values have not been adjusted for the effect of the 10% stock
dividend declared March 25, 2004.
<TABLE>
<CAPTION>
                          Number of                   Securities Underlying             Value of Unexercised
                           Shares                     Number of Unexercised                 in-the-money
                          Acquired     Value            Options at FY-End                Options at FY-End
                        on Exercise   Realized     Exercisable    Unexercisable    Exercisable     Unexercisable
                        -----------   --------     -----------    -------------    -----------     -------------

<S>                                                   <C>             <C>         <C>              <C>
Leon J. Zimmerman:              -             -       76,601          28,610      $   719,087      $   202,343

Robert H. Daneke:               -             -       23,749          10,620          190,481           73,379

Allen R. Christenson:           -             -       15,952           7,910          115,131           52,954

</TABLE>

Employment Agreements

Leon J. Zimmerman, President and Chief Executive Officer of the Company and the
Bank, entered into an Employment Agreement with the Company, effective September
30, 1998, for a one-year term ending April 30, 1999, subject to automatic
extensions for additional one-year periods and also subject to certain early
termination provisions. The Agreement provides for a base salary of $140,000 per
annum, with increases effective on the 1st of January each year, commencing with
January 1, 1999, at the sole discretion of the Board of Directors based upon a
review of his performance during the previous year and competitive factors. Such
salary includes Mr. Zimmerman's service on the Board of Directors of the Company
and the Bank. The Agreement also provides that Mr. Zimmerman shall participate
in any officer bonus plan and he is entitled to the same group insurance plans
and other benefits made available to employees generally, plus the use of an
automobile. The Company may immediately terminate the Agreement if the
termination is for cause. The Company may also terminate the Agreement without
cause by giving Mr. Zimmerman thirty (30) days written notice. In the event the
Company terminates Mr. Zimmerman's employment without cause, Mr. Zimmerman will
be entitled to receive as severance compensation an amount equal to twelve
months' salary. Upon a change in control, or if Mr. Zimmerman is terminated
after a change in control or he voluntarily terminates his employment within two
years after a change in control in response to a constructive termination, Mr.
Zimmerman will be entitled to receive as severance compensation an amount equal
to two times his average annual compensation for the two years immediately
preceding the change in control. For purposes of the Agreement, "change in
control" means a change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act. A "constructive termination" is
defined by the Agreement to include a material reduction in base salary, a
material change in responsibilities, or a requirement to relocate.

The Company also has employment agreements with Robert H. Daneke and Allen R.
Christenson. Except for the salaries and service on the board of directors (Mr.
Christenson does not serve on the Board of Directors), the terms of each
agreement currently in force are substantially identical. The base salary for
Mr. Daneke and Mr. Christenson are disclosed in the Summary Compensation Table
above. The term of each agreement is one year and is extended automatically for
one year each January 1 unless either party gives written notice to the
contrary. In addition to their salaries, each employee is entitled to various
fringe benefits and a discretionary bonus.


                                       45

<PAGE>

Compensation of Directors

Executive officers of the Company and the Bank receive no fees for service on
the Board of Directors of the Company and the Bank or on any committees of the
Boards. During 2003, fees totaling $154,400 were paid to the Directors of the
Bank for attending meetings of the Bank's Boards of Directors. The Bank's
Chairman of the Board received an annual retainer of $32,400, three Directors
who served as chairman of a committee each received an annual retainer of
$25,200, and each of the remaining directors received an annual retainer of
$24,000. The Chairman of the Board also served as Chairman of the Loan Committee
during 2003. Directors are also eligible to receive stock options to purchase
shares of the Company's Common Stock pursuant to the 1997 Director Stock Option
Plan.

Effective April 3, 1998, the Company and the Bank established a director
emeritus program (the "Director Emeritus Program") for retired members of the
Board of Directors. Any Director who has served continuously for at least ten
years as a Director of the Company or the Bank prior to retirement is eligible
to be granted the status of "Director Emeritus" under the Director Emeritus
Program. A Director Emeritus is required to (a) represent the goodwill of the
Company and the Bank in the community, (b) promote the continued profitability
of the Company and the Bank, (c) maintain communication and meet periodically
with the President and the Chairman, (d) provide consultation in his field of
expertise, and (e) comply with the Company's policies applicable to the
activities of a Director Emeritus. A Director Emeritus does not have the status
of a Director of the Company or the Bank and is not entitled to attend or vote
at any meetings of the Board of Directors or committees of the Board of
Directors. The term of any Director Emeritus is three years. No fees or other
compensation will be paid to a Director Emeritus, although any such person with
a Director Supplemental Compensation Agreement will be eligible for annual
payments totaling $10,000 during each of the first three years of service as a
Director Emeritus (for more information regarding such payments, see the
discussion of Director Supplemental Compensation Agreements under "Supplemental
Compensation Agreements" below).

During 1998, each member of the Board of Directors became entitled to certain
fringe benefits, payable upon death, disability or retirement and upon early
termination of service as a Director due to a change in control or certain other
events other than voluntary resignation, pursuant to the terms of individual
Director Supplemental Compensation Agreements and Life Insurance Endorsement
Method Split Dollar Plan Agreements signed with the Bank. Said Agreements were
made effective as of April 3, 1998, the premium date of single-premium life
insurance policies purchased by the Bank on the lives of certain executive
officers and directors. For more information, see the discussion of Director
Supplemental Compensation Agreements under "Supplemental Compensation
Agreements" below.

The Company maintains a salary continuation plan for its executive officers and
certain directors for the provision of death, disability and
post-employment/retirement benefits (see Note 10 to the Consolidated Financial
Statements). 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.

Long Term Care Benefit

The Bank has purchased long-term care insurance on behalf of certain directors
and executive officers meeting specific medical qualifications and underwriting
criteria ("Participants"). The insurance provides benefits for long term care
services in the event of a disabling or long-term medical or physical condition.
The services include in-home care, as well as nursing home or community-based
care. The insurance premiums are paid annually over a ten-year period. As
discussed in the Supplemental Compensation Agreements section below, the Bank
has purchased single premium life insurance in connection with the
implementation of the Long Term Care Benefit Plan. The purpose of the life
insurance is to provide cash value and life insurance proceeds to defray the
Company's premium costs under the long-term care insurance. If a Participant
ceases to be an employee or director of the Bank for any reason other than the
Participant's retirement or a change in control of the Bank prior to the time
that all premiums due under the insurance policy have been paid, the Company's
obligation to pay the premiums shall immediately terminate and the Participant
shall have the opportunity to assume the obligation to pay the remaining
premiums to keep the Policy current. During 2003 the Bank recognized expense
related to the long-term care insurance totaling $38,000.

Supplemental Compensation Agreements

The Bank has entered into Salary Continuation Agreements with the executive
officers and directors. The executive officer agreement provides for the payment
of certain benefits upon retirement (age 62 or older) or early retirement (prior
to attaining age 62), upon death or disability prior to retirement, or in the
event employment is terminated prior to retirement. If the employment of the
executive officer is terminated prior to the officer attaining age 62, other
than by reason of death, disability

                                       46

<PAGE>

or retirement, then the entitlement of the executive officer to the benefits
specified in his agreement will depend on whether the officer is terminated (i)
without cause, or on account of or after a change in control of the Bank, in
which case the designated benefits will be payable, or (ii) with cause, or by
voluntary resignation of the officer prior to 100 percent vesting of his
benefits, in which case all rights and benefits will be forfeited. The formula
by which benefits are determined for the executive officer is based on a
combination of the individual's position within the Bank and the age when
retirement benefits become fully vested.

The salary continuation agreement for directors provides for the payment of
certain benefits, commencing after the expiration of the initial three-year
period as Director Emeritus following retirement from the Board of Directors of
the Bank, and continuing until the director's death. During service as Director
Emeritus, the director will also be entitled to receive certain payments during
the three-year period commencing upon retirement from the Board of Directors.
The agreement also provides for the payment of certain benefits in the event the
director becomes disabled while serving on the Board of Directors of the Bank,
which benefits will continue until the director's death, and certain other
benefits in the event the service of the director is terminated, other than by
reason of death, disability or retirement, prior to age 65, which benefits
depend on whether service is terminated (i) without cause, or on account of or
after a change in control of the Bank, in which case the designated benefits
will be payable, or (ii) with cause, or by voluntary resignation of the Director
prior to 100 percent vesting of benefits, in which case all rights and benefits
will be forfeited.

The specific benefits are defined in each Director Agreement. Upon a director's
retirement, and assuming the director serves as a Director Emeritus, the Bank
will pay to the director the sum of $10,000 per year for the first three years
of such service. In any event, commencing on the third anniversary of the
director's retirement, the Bank will begin paying to the director the sum of
$7,500 per year. The payments continue until the director's death.

The Bank has purchased single premium life insurance on the lives of the
executive officers and certain directors who participate in the Plan ($13,863
thousand $13,339 thousand and $12,690 thousand at December 31, 2003, 2002 and
2001, respectively). The policies provide protection to the Company against the
adverse financial effects from the death of an executive officer or director and
provide the Company with income to offset expenses associated with the Salary
Continuation Agreements as well as the Long Term Care Benefit (discussed above).
The Bank's total accrued benefit cost under the Salary Continuation Agreements
was $1,566 thousand, $1,243 thousand and $948 thousand as of December 31, 2003,
2002 and 2001, respectively. The Bank also entered into a Life Insurance
Endorsement Method Split Dollar Plan Agreement with the executive officers and
directors in order to provide for the division of death proceeds of such
policies as between the Bank and the designated beneficiary(ies).

Change in Control Arrangements

Employment Contract. If an executive officer is terminated after a change in
control or he voluntarily terminates his employment within two years after a
change in control in response to a constructive termination, the officer will be
entitled to receive as severance compensation an amount equal to two times his
average annual compensation for the two years immediately preceding the change
in control. For purposes of the Agreement, "change in control" means a change in
control of the Company of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any
similar item on any similar schedule or form) promulgated under the Securities
Exchange Act. A "constructive termination" is defined by the Agreement to
include a material reduction in base salary, a material change in
responsibilities, or a requirement to relocate.

1991 Stock Option Plans. On February 19, 1991, the Board of Directors adopted
(i) the First Financial Bancorp 1991 Employee Stock Option Plan (the "Employee
Stock Option Plan"), under which officers and key full-time salaried employees
of the Company and its subsidiaries may be granted options to purchase shares of
the Company's Common Stock; and (ii) the First Financial Bancorp 1991 Director
Stock Option Plan (the "Director Stock Option Plan"), under which members of the
Board of Directors are granted options to purchase shares of the Company's
Common Stock.

The Board of Directors of the Company adopted a new, 1997 Stock Option Plan and
the shareholders approved such Plan at the annual meeting held on April 22,
1997. No additional option grants will be made under the 1991 Stock Option Plans
after such date. Such discontinuance will not adversely affect any stock option
previously granted and outstanding under the 1991 Stock Option Plans.

                                       47

<PAGE>

1997 Stock Option Plan. On March 20, 1997, the Board of Directors adopted the
First Financial Bancorp 1997 Stock Option Plan (the "1997 Stock Option Plan"),
under which directors, officers and key full-time salaried employees of the
Company and its subsidiaries and any consultant to the Company and its
subsidiaries who is not a member of the Board of Directors may be granted
options to purchase shares of the Company's Common Stock. At the 1997 Annual
Meeting, the shareholders approved the adoption of the 1997 Stock Option Plan.
The 1997 Stock Option Plan is intended to further the growth, development and
financial success of the Company and its subsidiaries by providing additional
incentives to members of the Board of Directors, officers and key employees and
consultants.

Change in Control. In the event of a sale, dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving
or resulting corporation, the Board has the power to cause the termination of
options which are then outstanding under the Company's 1991 Stock Option Plans
if the surviving or resulting corporation does not agree to assume all
outstanding options under such plans; provided however, that in such event the
optionees shall have the right prior to such sale, liquidation, dissolution,
merger or consolidation to notification thereof as soon as practicable and,
thereafter until three days prior to the effectiveness of such sale,
dissolution, liquidation, merger or consolidation, to exercise the option
without regard to the vesting provisions. This right is conditioned upon the
execution of a definitive agreement of merger or consolidation or final plan of
sale, liquidation, or dissolution. Under the 1997 Stock Option Plan, in the
event of a change in control of the Company, the outstanding options will be
subject to the terms of the agreement of merger or reorganization. Such an
agreement may provide for the assumption of outstanding options, for payment of
a cash settlement or for acceleration of exercisability, in all cases without
the consent of the optionees.

Employee Stock Ownership Plan

Effective January 1, 1992, the Company and 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 Company's consolidated profitability. Contributions to the plan are invested
primarily in the common stock of the Company 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. The amount of contributions
for the benefit of Mr. Zimmerman, Mr. Daneke and Mr. Christenson is included in
the Summary Cash Compensation table in the column entitled "All Other
Compensation."

Profit Sharing Plan

Effective January 1, 1997, the Company established the First Financial Bancorp
401(k) Profit Sharing Plan. The plan covers all employees, age 18 or older,
beginning with the first plan year in which the employee completes at least
1,000 hours of service. The plan is intended to supplement income upon
retirement; the actual retirement benefit for each employee will depend on the
amount in the employee's plan account balance at the time of retirement. For
each plan year, participating employees may elect to have a portion of their
compensation contributed to the plan, and the Company or the Bank may, at its
discretion, make matching or other contributions. Company and Bank contributions
to the plan for the benefit of employees become 20% vested after the first year
of service, with an additional 20% vesting each year thereafter until 100%
vested. The amount of contributions for the benefit of Mr. Zimmerman, Mr. Daneke
and Mr. Christenson is included in the Summary Cash Compensation table in the
column entitled "All Other Compensation."


                                       48

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


As of December 31, 2003, no individual known to the Company owned beneficially
or of record more than five percent (5%) of the outstanding shares of its Common
Stock, except as described below. Number of Shares Beneficially Owned and have
not been adjusted for the effect of the 10% stock dividend declared March 25,
2004.

<TABLE>
<CAPTION>
Title or                   Name and Address of                    Number of Shares          Percentage
Class                      Principal Owner                       Beneficially Owned            Owned
------                     ---------------------------           ------------------         -----------
<S>                                                                  <C>     <C>              <C>
Common                     Bank of Lodi, Employee                    164,265 (1)              10.13%
Stock                      Stock Ownership Plan (ESOP)
                           701 South Ham Lane
                           Lodi, CA 95242

Common                     Leon J. Zimmerman                         149,956 (2)               8.81%
Stock                      701 S. Ham Lane
                           Lodi, CA 95242

Common                     Weldon D. Schumacher                      134,361 (3)               8.28%
Stock                      1303 Rivergate Drive
                           Lodi, CA 95240

Common                     Raymond H. Coldani                         91,959 (4)               5.67%
Stock                      13199 N. Ray Road
                           Lodi, CA 95242
-----------------------------------
</TABLE>
(1)  Shares of Common Stock beneficially owned by the ESOP are allocated on an
     annual basis among ESOP participants. The Board of Directors of the Company
     has authority to appoint Trustees of the ESOP. The Trustees possess
     authority to manage all of the assets of the ESOP. As of the Record Date,
     Messrs. Ben Goehring, David Philipp and Robert Miller, III served as
     Trustees and Administrative Committee members of the ESOP.

(2)  Includes 10,023 shares owned by Mr. Zimmerman's wife, 14,892 shares held
     solely by Mr. Zimmerman, 28,521 shares held in trust by Mr. Zimmerman and
     his wife, 14,879 shares owned in the Bank of Lodi Employee Stock Ownership
     Plan and First Financial Bancorp 401k Profit Sharing Plan, and 81,641
     shares subject to options that are exercisable as of December 31, 2003, or
     become exercisable within 60 days thereafter.

(3)  Includes 6,438 shares held solely by Dr. Schumacher, 3,710 shares owned by
     Dr. Schumacher's wife, and 122,983 shares held in trust by Dr. Schumacher
     and his wife and 1,230 shares subject to options that are exercisable as of
     December 31, 2003, or become exercisable within 60 days thereafter.

(4)  Includes 18,599 shares owned by Mr. Coldani's wife, 19,267 shares owned
     solely by Mr. Coldani, and 54,093 shares held as joint tenants with spouse.



                                       49

<PAGE>

The following table shows the number and percentage of shares beneficially owned
(including shares subject to options exercisable currently or within 60 days of
March 5, 2004) by each current director and named executive officer of the
Company and all directors and executive officers as a group.
<TABLE>
<CAPTION>
                                                                               Beneficially Owned (1)
                                                                             ---------------------------
Name                                                                            Shares      Percentage
------------------------------------------------------------------------------------------ -------------
<S>                                                                              <C>                <C>
Benjamin R. Goehring                                                             44,375(2)          2.7%
Weldon D. Schumacher                                                            134,361(3)          8.3%
David M. Philipp                                                                 46,684(4)          2.9%
Robert H. Miller, III                                                             4,286(5)             *
Daniel M. Lewis                                                                   3,604(6)             *
Leon J. Zimmerman                                                               149,956(7)          8.8%
Robert H. Daneke                                                                 36,155(8)          2.2%
Angelo J. Anagnos                                                                30,984(9)          1.9%
Steven M. Coldani                                                               56,552(10)          3.5%
Kevin Van Steenberge                                                             6,448(11)             *
All Directors and Executive Officers of the Company as a Group (11 in number)  535,765(12)         30.3%
</TABLE>

The address for all persons is First Financial Bancorp, 701 South Ham Lane,
Lodi, California 95242

* Indicates that the percentage of outstanding shares beneficially owned is less
than one percent (1%).


(1)   Includes shares beneficially owned (including options exercisable within
      60 days of March 5, 2004), directly and indirectly together with
      associates. Subject to applicable community property laws and shared
      voting and investment power with a spouse, the persons listed have sole
      voting and investing power with respect to such shares unless otherwise
      noted. Shares have not been adjusted for the 10% stock dividend declared
      March 25, 2004.

(2)   Includes 12,783 shares owned by Mr. Goehring's wife, 22,633 shares owned
      solely by Mr. Goehring, 1,044 shares owned by Mr. Goehring in joint
      tenancy with his children, and 7,915 shares subject to options that are
      exercisable as of March 5, 2004 or become exercisable within 60 days
      thereafter.

(3)   Includes 6,438 shares held solely by Dr. Schumacher, 3,710 shares owned by
      Dr. Schumacher's wife, 122,983 shares held in trust by Dr. Schumacher and
      his wife and 1,230 shares subject to options that are exercisable as of
      March 5, 2004 or become exercisable within 60 days thereafter.

(4)   Includes 1,300 shares owned by Mr. Philipp's wife, 110 shares held as
      custodian for minor children, 36,009 shares owned solely by Mr. Philipp,
      and 9,265 shares subject to options that are exercisable as of March 5,
      2004 or become exercisable within 60 days thereafter.

(5)   Includes 1,000 shares owned in joint tenancy with spouse,  and 3,286
      shares  subject to options that are  exercisable as of March 5, 2004, or
      become exercisable within 60 days thereafter.

(6)   Includes 3,004 shares owned in joint tenancy with spouse,  and 600 shares
      subject to options that are  exercisable as of March 5, 2004, or become
      exercisable within 60 days thereafter.

(7)   Includes 10,023 shares owned by Mr. Zimmerman's wife, 14,892 shares held
      solely by Mr. Zimmerman, 28,521 shares held in trust by Mr. Zimmerman and
      his wife, 14,879 shares owned in the Bank of Lodi Employee Stock Ownership
      Plan and First Financial Bancorp 401k Profit Sharing Plan, and 81,641
      shares subject to options that are exercisable as of March 5, 2004, or
      become exercisable within 60 days thereafter.

(8)   Includes 656 shares held in joint tenancy with spouse; 7,170 owned solely
      by Mr. Daneke, 2,900 shares owned in the Bank of Lodi Employee Stock
      Ownership Plan and First Financial Bancorp 401k Profit Sharing Plan, and
      25,429 shares subject to options that are exercisable as of March 5, 2004,
      or become exercisable within 60 days thereafter.

(9)  Includes 30,688 shares held in family trust by Mr. Anagnos and his wife,
     and 296 shares held as custodian for minor grandchildren.

(10) Includes 35,677 shares owned solely by Mr. Coldani, 7,244 shares held as
     community property or joint tenants by Mr. Coldani and his wife, 7,069
     shares held as custodian for minor children and 6,562 shares held jointly
     with his son.


                                       50

<PAGE>

(11) Includes 298 shares owned jointly with Lori Van Steenberge, 6,150 held in
     trust by Mr. Van Steenberge and his wife.

(12)  Officers included in this total are the President and Chief Executive
      Officer; the Executive Vice President and Chief Operations Officer and
      Senior Vice President and Chief Financial Officer--in each case of the
      Company and the Bank. Shares include 146,368 shares subject to options
      that are exercisable as of March 5, 2004 or become exercisable within 60
      days thereafter.




EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about the Company's equity compensation
plans as of December 31, 2003. Number of securities and weighted-average price
have been adjusted to give retroactive effect of the stock dividend declared
March 25, 2004.

<TABLE>
<CAPTION>
                       Equity Compensation Plan Information
                    ------------------------------------------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                             (a)                  (b)                   (c)
                                                                    Number of
                                                                     securities
                                                                remaining available
                                                                        for
                         Number of                               future issuance
                        securities to                                  under
                       be issued upon      Weighted-average     equity compensation
                           exercise        exercise price of     plans (excluding
                       of outstanding         outstanding           securities
                           options,        options, warrants       reflected in
   Plan Category     warrants and rights       and rights           column (a))
 ----------------   --------------------  -------------------  --------------------
Equity compensation
 plans approved by
 security holders               281,167                 $8.87               12,605

Equity compensation
 plans not approved
 by security
 holders                             --                NA                       --

                     -------------------  --------------------  -------------------
    Total                       281,167                 $8.87               12,605
                     ===================  ====================  ===================
</TABLE>


                                       51

<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During 2003, certain directors of the Company and the Bank had loans outstanding
with the Bank. Such loans were made in the ordinary course of business on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than the normal risk of collectibility or present other
unfavorable features.

There are no existing or proposed material interests or transactions between the
Company and any of its executive officers or directors.


ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees billed to the Company for the
fiscal year ended December 31, 2003 by the Company's principal accounting firm,
KPMG LLP:

         Audit fees, excluding Audit related fees (2)                $   106,000

         Financial information systems design and implementation              --

         All other fees (1):
              Audit related fees (2)                                 $    16,000
              Other non-audit services (3)                                11,200
                                                                     -----------
                  Total all other fees                               $    27,200
                                                                     ===========
------------------------------
 (1) The Audit Committee has considered whether the provision of these non-audit
     services is compatible with maintaining the principal accountant's
     independence.
 (2) Audit related fees consisted principally of audits of financial statements
     of certain employee benefit plans, review of registration statements,
     issuance of consent and attendance at various meetings of the Board of
     Directors.
 (3) Other non-audit fees consisted of tax compliance.


                                       52
<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                               54
             Consolidated Balance Sheets as of
              December 31, 2003 and 2002                                55
             Consolidated Statements of Income
              Years Ended 2003, 2002, and 2001                          56
             Consolidated Statements of Stockholders' Equity
              and Comprehensive Income
              Years Ended 2003, 2002, and 2001                          57
             Consolidated Statements of Cash Flows
              Years Ended 2003, 2002, and 2001                          58
             Notes to Consolidated financial statements                 60

     (b) Reports on Form 8-K

          During the fourth quarter of 2003, the Company filed a Current Report
          on 8-K dated November 14, 2003 (Items 7 and 10).

          During the fourth quarter of 2003, the Company filed a Current Report
          on 8-K dated December 8, 2003 (Items 7 and 10).

     (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.


                                       53
<PAGE>

Independent Auditors' Report

The Board of Directors and Stockholders
First Financial Bancorp:

We have audited the accompanying consolidated balance sheets of First Financial
Bancorp and subsidiaries (the Company) as of December 31, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation, under the prospective method of
adoption as of January 1, 2003.



                                            /s/ KPMG LLP


Sacramento, California
February 21, 2004 except for Note 25
which is as of March 25, 2004

                                       54

<PAGE>
<TABLE>
<CAPTION>
                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES

                           Consolidated Balance Sheets
                           December 31, 2003 and 2002
                      (in thousands, except share amounts)

 Assets                                                                       2003                2002
----------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                      <C>
 Cash and due from banks                                               $    17,497              14,988
 Federal funds sold and securities purchased
      under resale agreements                                                8,034              19,634
 Investment securities available-for-sale, at fair value
      (includes securities pledged to creditors with the right
      to sell or pledge of  $14,100 and $11,885, respectively)              90,270              33,125
 Loans held for sale                                                         3,076               7,578
 Loans, net of deferred loan fees and allowance for loan losses of
      $4,040 and $3,851 in 2003 and 2002, respectively                     175,449             154,090
 Premises and equipment, net                                                 6,903               6,745
 Accrued interest receivable                                                 1,322                 772
 Other assets                                                               19,262              18,469
----------------------------------------------------------------------------------------------------------
                                                                       $   321,813             255,401
==========================================================================================================

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

 Liabilities:
 Deposits:
      Noninterest bearing                                              $    47,765              34,673
      Interest bearing                                                     230,390             176,006
----------------------------------------------------------------------------------------------------------
          Total deposits                                                   278,155             210,679


 Accrued interest payable                                                      205                 140
 Short term borrowings                                                      14,100              14,885
 Other liabilities                                                           4,231               5,272
 Junior subordinated debentures                                              5,155               5,155
----------------------------------------------------------------------------------------------------------
          Total liabilities                                                301,846             236,131

 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 2003, 1,783,420 shares; in 2002, 1,621,837 shares         12,950              10,143
 Retained earnings                                                           7,004               8,672
 Accumulated other comprehensive income, net                                    13                 455
----------------------------------------------------------------------------------------------------------

          Total stockholders' equity                                        19,967              19,270
----------------------------------------------------------------------------------------------------------

          Commitments and contingencies
                                                                      $   321,813             255,401
==========================================================================================================
</TABLE>
         See accompanying notes to consolidated financial statements.

                                       55

<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                        Consolidated Statements of Income
                  Years Ended December 31, 2003, 2002 and 2001
                     (in thousands except per share amounts)
                                               2003        2002        2001
--------------------------------------------------------------------------------
 Interest income:
     Loans, including fees                 $   12,315      11,917      11,304
     Interest on investment securities
       available for sale:
         Taxable                               1,003       1,434       1,832
         Exempt from Federal taxes             212         168         241
     Federal funds sold and securities
       purchased under resale agreements       132         158         481
--------------------------------------------------------------------------------
         Total interest income                 13,662      13,677      13,858

 Interest expense:
     Deposit accounts                          2,566       3,176       4,639
     Other borrowings                          271         283         5
         Total interest expense                2,837       3,459       4,644

         Net interest income                   10,825      10,218      9,214

 Provision for loan losses                     312         625         391
--------------------------------------------------------------------------------
         Net interest income after provision
           for loan losses                     10,513      9,593       8,823

 Noninterest income:
     Service charges                           1,609       1,598       1,414
     Gain on sale of investment securities
       available-for-sale                      396         603         267
     Gain on sale of other real estate owned   20          16          255
     Gain on sale of loans                     1,082       1,005       533
     Premiums and fees from SBA
         and mortgage operations               492         426         399
     Increase in cash surrender value
         of life insurance                     524         649         658
     Other                                     402         406         302
--------------------------------------------------------------------------------
         Total noninterest income              4,525       4,703       3,828
--------------------------------------------------------------------------------

 Noninterest expense:
     Salaries and employee benefits            7,171       6,312      5,680
     Occupancy                                 1,132       997         919
     Equipment                                 854         892         814
     Other                                     4,351       4,285       3,813
--------------------------------------------------------------------------------
         Total noninterest expense             13,508      12,486      11,226
--------------------------------------------------------------------------------

 Income before provision for income taxes      1,530       1,810       1,425

 Provision for income taxes                    353         455         218
--------------------------------------------------------------------------------

         Net income                        $   1,177       1,355       1,207
================================================================================

 Earnings per share:
--------------------------------------------------------------------------------
     Basic                                 $   .66         .75         .68
================================================================================
     Diluted                               $   .62         .72         .66
================================================================================
 Dividends per share                       $    -           -           -
================================================================================
         See accompanying notes to consolidated financial statements.


                                       56

<PAGE>

<TABLE>
<CAPTION>
                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
    Consolidated Statements of Stockholders' Equity and Comprehensive Income
                  Years Ended December 31, 2003, 2002 and 2001
                       (in thousands except share amounts)

                                                                                                  Accumulated
                                                                                            Accumulated
                                            Common      Common                                 Other
                                            Stock       Stock    Comprehensive  Retained    Comprehensive
Description                                 Shares      Amounts      Income     Earnings  Income (Loss), net   Total
----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>                         <C>               <C>       <C>
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
  Net income                                                         $   1,177     1,177                        1,177
  Other comprehensive loss:
     Unrealized holding loss arising
       during the current period,
       net of tax effect of $145                                          (208)
     Reclassification adjustment
       due to gains realized,
       net of tax effect of $162                                          (234)
         Total other comprehensive
            loss, net of                                             ---------
            tax effect of $307                                            (442)                     (442)        (442)
                                                                     ---------
     Comprehensive income                                            $     735
                                                                     =========
10% stock dividend                           162,129       2,845                  (2,845)
Options exercised, including tax benefits      8,661          99                                                   99
Stock-based compensation
  and related tax benefits                                    19                                                   19
Stock repurchase                              (9,207)       (156)                                                (156)
                                         -----------------------              ----------------------------------------
Balance at December 31, 2003               1,783,420   $  12,950                   7,004              13       19,967
                                         =======================              ========================================

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

                                       57

<PAGE>
<TABLE>
<CAPTION>
                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2003, 2002 and 2001
                                 (in thousands)

                                                                            2003         2002        2001
----------------------------------------------------------------------------------------------------------
  Cash flows from operating activities:
<S>                                                                     <C>             <C>         <C>
      Net income                                                        $    1,177      1,355       1,207
      Adjustments to reconcile net income to net cash flows
      provided by operating activities:
           (Decrease) increase in deferred loan income                         (16)       117         155
           Depreciation and amortization                                     2,863      1,778       1,366
           Stock-based compensation                                             19         --          --
           Provision for loan losses                                           312        625         391
           Gain on sale of available-for-sale securities                      (396)      (603)       (267)
           Gain on sale of loans                                            (1,082)    (1,005)       (533)
           Gain on sale of other real estate owned                             (20)       (16)       (255)
           Provision for deferred taxes                                       (301)      (338)       (401)
           (Increase) decrease in accrued interest receivable                 (550)       493         182
           Increase (decrease) in accrued interest payable                      65       (167)         (9)
           Increase in cash surrender value of life insurance                 (524)      (649)       (658)
           Increase in other assets                                           (160)       (30)       (685)
           (Decrease) increase in other liabilities                         (1,009)     2,923       1,003
----------------------------------------------------------------------------------------------------------

           Net cash provided by operating activities                           378      4,483       1,496

  Cash flows from investing activities:
      Investment securities available-for-sale:
           Purchases                                                       (97,414)   (32,427)    (33,269)
           Proceeds from prepayments                                        31,177     13,595       8,833
           Proceeds from maturity                                               --      3,600       9,548
           Proceeds from sale                                                7,128     23,487       3,578
      Loans held for sale:
           Loans originated                                                (64,966)   (48,354)    (33,950)
           Proceeds from sale                                               70,550     45,657      31,899
      Increase in loans made to customers, net                             (21,728)   (19,492)    (26,269)
      Proceeds from the sale of other real estate                              422        296         937
      Purchases of bank premises, equipment and intangible assets           (1,240)      (695)     (1,210)
      Purchase of cash surrender value life insurance                           --         --      (2,000)
----------------------------------------------------------------------------------------------------------
      Net cash used in investing activities                                (76,071)   (14,333)    (41,903)

  Cash flows from financing activities:
      Net increase in deposits                                              67,476      9,108      39,310
      Proceeds from junior subordinated debt                                    --      5,155          --
      (Decrease) increase in short term borrowings                            (785)    10,885        (588)
      Proceeds from issuance of common stock                                    67        258         122
      Payments for repurchase of common stock                                 (156)      (391)         --
      Dividends paid                                                            --         --          (4)
----------------------------------------------------------------------------------------------------------
      Net cash provided by financing activities                             66,602     25,015      38,840
----------------------------------------------------------------------------------------------------------
 Net (decrease) increase in cash and cash equivalents                       (9,091)    15,165      (1,567)

 Cash and cash equivalents at beginning of year                             34,622     19,457      21,024
----------------------------------------------------------------------------------------------------------
 Cash and cash equivalents at end of year                               $   25,531     34,622      19,457
----------------------------------------------------------------------------------------------------------
</TABLE>

                                       58

<PAGE>
<TABLE>
<CAPTION>
                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2003, 2002 and 2001
                                 (in thousands)

                                                                            2003         2002        2001
----------------------------------------------------------------------------------------------------------
 Supplemental Disclosures of Cash Flow Information:
     Cash paid during the year for:
<S>                                                                      <C>            <C>         <C>
          Interest                                                       $   2,772      3,622       4,653
          Income taxes                                                         320      1,342         372
     Loans transferred to other real estate owned                               73         90       1,086
     Unrealized (loss) gain on available-for-sale securities, net of tax      (208)       456         228
     Stock dividend                                                          2,845         --         717
</TABLE>
See accompanying notes to consolidated financial statements.

                                       59
<PAGE>

                    FIRST FINANCIAL BANCORP AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                        December 31, 2003, 2002 and 2001

(1)      Summary of Significant Accounting Policies

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

         (a)    Principles of Consolidation

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

         (b)    Investment Securities

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

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

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

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

         (c)    Loans

         Loans are stated at principal balances outstanding, net of deferred
         origination fees and costs. 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.


                                       60

<PAGE>



         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 nonaccrual status, accrued and unpaid interest is reversed
         against current period interest income. Interest accruals are resumed
         when such loans are brought fully current with respect to interest and
         principal and when, in the judgment of management, the loans are
         estimated to be fully collectible as to both principal and interest.

         (d)     Loan Origination Fees and Costs

         Loan origination fees, net of 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 $239 thousand and $145 thousand at
         December 31, 2003 and 2002, respectively, and is included in other
         assets. As of December 31, 2003 and 2002, 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.

                                       61

<PAGE>



         (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.

         (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.

         Goodwill represents the excess of costs over fair value of assets of
         businesses acquired. The Company adopted the provisions of FASB
         Statement No. 142, Goodwill and Other Intangible Assets, as of January
         1, 2002. Pursuant to Statement No. 142, goodwill and intangible assets
         acquired in a purchase business combination and determined to have an
         indefinite useful life are not amortized, but instead tested for
         impairment at least annually in accordance with the provisions of
         Statement 142. Statement 142 also requires that intangible assets with
         estimable useful lives be amortized over their respective estimated
         useful lives to their estimated residual values, and reviewed for
         impairment in accordance with FASB Statement No. 144, Accounting for
         Impairment or Disposal of Long-Lived Assets.

         (i) Impairment of Long-Lived Assets and Long-Lived Assets to Be
         Disposed Of. The Company adopted Statement 144 on January 1, 2002. The
         adoption of Statement 144 did not affect the Company's financial
         statements. In accordance with Statement 144, long-lived assets, such
         as property, plant and equipment, and purchased intangibles subject to
         amortization, 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 estimated,
         undiscounted future cash flows expected to be generated by the assets.
         If the carrying amount of an asset exceeds its estimated future cash
         flows, an impairment charge is recognized by the amount by which the
         carrying amount of the asset exceeds the fair value of the asset.
         Assets to be disposed of would be separately presented in the balance
         sheet and reported at the lower of the carrying amount or fair value
         less costs to sell, and are no longer depreciated. The assets and
         liabilities of a disposed group classified as held for sale would be
         presented separately in the appropriate asset and liability sections of
         the balance sheet. Goodwill is tested annually for impairment, and is
         tested for impairment more frequently if events and circumstances
         indicate that the asset might be impaired. An impairment loss is
         recognized to the extent that the carrying amount exceeds the asset's
         fair value. This determination is made at the reporting unit level and
         consists of two steps. First, the Company determines the fair value of
         a reporting unit and compares it to its carrying amount. Second, if the
         carrying amount of a reporting unit exceeds its fair value, an
         impairment loss is recognized for any excess of the carrying amount of
         the reporting unit's goodwill over the implied fair value of that
         goodwill. The implied fair value of goodwill is determined by
         allocating the fair value of the reporting unit in a manner similar to
         a purchase price allocation, in accordance with FASB Statement No. 141,
         Business Combinations. The residual fair value after this allocation is
         the implied fair value of the reporting unit goodwill.



                                       62

<PAGE>

         (j)    Other Real Estate Owned (OREO)

         Other real estate owned 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.

         (k)    Earnings Per Share

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

         (l)    Income Taxes

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

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

         (m)    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.


                                       63

<PAGE>

         (n)    Stock Based Compensation

         Effective as of January 1, 2003, the Company adopted the fair value
         recognition provisions of FASB Statement No. 148, Accounting for
         Stock-Based Compensation (SFAS No. 148). Under the prospective method
         of adoption selected by the Company, stock-based employee compensation
         costs are recognized as awards are granted, modified or settled. Prior
         to January 1, 2003, these plans were accounted for under the intrinsic
         value method as prescribed in APB Opinion No. 25, Accounting for Stock
         Issued to Employees. Under the intrinsic value method, compensation
         expense was recognized on the date of grant only if the market price of
         the underlying stock exceeded the exercise price on that date. The
         following table presents the effect on net income and earnings per
         share as if the fair value based method had been applied to all
         outstanding and unvested awards in each period. Accordingly, a total of
         $11 thousand was recognized as compensation expense for the issuance of
         stock options for the year ended December 31, 2003, $52 thousand was
         recognized for 2002, and no compensation expense was recognized for the
         issuance of stock options granted under any of the various plans for
         the year ended December 31, 2001. (See Note 25)


Year ending December 31,                              2003    2002   2001
--------------------------------------------------------------------------
Net income (in thousands)
     As reported                                  $  1,177   1,355  1,207

     Add: Stock based employee compensation
     expense included in reported net income,
     net of tax effects                                 11      52     --

     Deduct:  Stock based employee compensation
     determined  under fair value based method
     for all awards, net of tax effects                (21)    (40)   (50)
--------------------------------------------------------------------------
     Pro forma net income                         $  1,167   1,367  1,157
==========================================================================

Year ending December 31,                              2003    2002   2001
--------------------------------------------------------------------------
Earnings per share
Basic net income per share
     As reported                                      0.66    0.75   0.68
     Pro forma                                        0.65    0.75   0.65
Diluted net income per share
     As reported                                      0.62    0.72   0.66
     Pro forma                                        0.62    0.73   0.64

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:

                                                      2003    2002   2001
--------------------------------------------------------------------------
Dividend yield                                         0.0%    0.0%   0.0%
Expected life (in years)                               5.0     5.0    5.0
Expected volatility                                   19.6%   18.4%  18.4%
Risk-free rate                                         3.2%    2.8%   4.5%
Weighted average grant date
 fair value of options granted                    $   2.48    1.52   1.88


                                       64

<PAGE>



         (o)    Impact Of Recently Issued Accounting Standards

         In December 2003, the FASB revised FASB Interpretation No. 46,
         Consolidation of Variable Interest Entities, which addresses how a
         business enterprise should evaluate whether it has a controlling
         financial interest in an entity through means other than voting rights
         and accordingly should consolidate the entity. FIN 46R replaces FASB
         Interpretation No. 46, Consolidation of Variable Interest Entities
         (VIEs), which was issued in January 2003. The Company will be required
         to apply FIN 46R to variable interests in VIEs created after December
         31, 2003. For variable interests in VIEs created before January 1,
         2004, the Interpretations will be applied beginning on January 1, 2005.
         For any VIEs that must be consolidated under FIN 46R that were created
         before January 1, 2004, the assets, liabilities and noncontrolling
         interests of the VIE initially would be measured at their carrying
         amounts with any difference between the net amount added to the balance
         sheet and any previously recognized interest being recognized as the
         cumulative effect of an accounting change. If determining the carrying
         amounts is not practicable, fair value at the date FIN 46R applies may
         be used to measure the assets, liabilities and noncontrolling interest
         of the VIE.

         FASB Statement No. 150, Accounting for Certain Financial Instruments
         with Characteristics of both Liabilities and Equity, was issued in May
         2003. This Statement establishes standards for the classification and
         measurement of certain financial instruments with characteristics of
         both liabilities and equity. The Statement also includes required
         disclosures for financial instruments within its scope. For the
         Company, the Statement was effective for instruments entered into or
         modified after May 31, 2003 and otherwise will be effective as of
         January 1, 2004, except for mandatorily redeemable financial
         instruments. For certain mandatorily redeemable financial instruments,
         the Statement will be effective for the Company on January 1, 2005. The
         effective date has been deferred indefinitely for certain other types
         of mandatorily redeemable financial instruments.

         In June 2001, FASB Statement No. 143, Accounting for Asset Retirement
         Obligations, was issued. Statement 143 requires the Company 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 tangible long-lived assets that result from the
         acquisition, construction, development, and/or normal use of the
         assets. The Company also would record a corresponding asset that is
         depreciated over the life of the asset. Subsequent to the initial
         measurement of the asset retirement obligation, the obligation would be
         adjusted at the end of each period to reflect the passage of time and
         changes in the estimated future cash flows underlying the obligation.
         The Company was required to adopt Statement 143 on January 1, 2003. The
         adoption of Statement 143 had no effect on the Company's financial
         statements.

         In April 2002, FASB Statement No. 145, Rescission of FASB Statements
         No. 4, 44 and 64, Amendment of FASB Statement No 13, and Technical
         Corrections, was issued. Statement 145 amends existing guidance on
         reporting gains and losses on the extinguishment of debt to prohibit
         the classification of the gain or loss as extraordinary, as the use of
         such extinguishments have become part of the risk management strategy
         of many companies. Statement No. 145 also amends FASB Statement No. 13,
         Accounting for Leases, to require sale-leaseback accounting for certain
         lease modifications that have economic effects similar to
         sale-leaseback transactions. The provisions of Statement 145 related to
         the rescission of FASB Statement No. 4, Reporting Gains and Losses from
         Extinguishment of Debt, were applied in fiscal years beginning after
         May 15, 2002. The provisions of Statement 145 related to Statement 13
         were effective for transactions occurring after May 15, 2002. The
         adoption of Statement 145 had no effect on the Company's financial
         statements.

         In June 2002, FASB Statement No. 146, Accounting for Costs Associated
         with Exit or Disposal Activities, was issued. Statement 146 addresses
         financial accounting and reporting for costs associated with exit or
         disposal activities and nullifies EITF Issue No. 94-3, Liability
         Recognition for Certain Employee Termination Benefits and Other Costs
         to Exit an Activity. The provisions of Statement 146 were effective for
         exit or disposal activities initiated after December 31, 2002, with
         early application encouraged.

         In November 2002, FASB Interpretation No. 45 Guarantor's Accounting and
         Disclosure Requirements for Guarantees of Indebtedness to Others, an
         interpretation of FASB Statements No. 5, 57 and 107 and a rescission of
         FASB Interpretation No. 34, was issued. This Interpretation enhances
         the disclosures to be made by a guarantor in its interim and annual
         financial statements about its obligation under guarantees issued. The
         Interpretation also clarifies that a guarantor is required to
         recognize, at inception of a guarantee, a liability for the fair value
         of the obligation undertaken. The initial recognition and measurement
         provisions of the Interpretation were applicable to guarantees issued
         or modified after December 31, 2002 and the disclosure requirements
         were effective for financial statements of interim or annual periods
         ending after December 15, 2002.


                                       65
<PAGE>

         In December 2002, FASB Statement No. 148, Accounting for Stock-Based
         Compensation - Transition and Disclosure, an amendment of FASB
         Statement No. 123 was issued. This Statement amends FASB Statement No.
         123, Accounting for Stock-Based Compensation, to provide alternative
         methods of transition for a voluntary change to the fair value method
         of accounting for stock-based employee compensation. In addition,
         Statement 148 amends the disclosure requirements of Statement 123 to
         require prominent disclosures in both annual and interim financial
         statements. Disclosures required by this standard are included in the
         notes to these consolidated financial statements.

         In December 2003, FASB Statement No. 132 (revised), Employers'
         Disclosures about Pensions and Other Postretirement Benefits, was
         issued. Statement 132 (revised) prescribes employers' disclosures about
         pension plans and other postretirement benefit plans; it does not
         change the measurement of recognition of those plans. The Statement
         retains and revises the disclosure requirements contained in the
         original Statement 132. It also requires additional disclosures about
         the assets, obligations, cash flows, and net periodic benefit cost of
         defined benefit pension plans and other postretirement benefit plans.
         The Statement generally is effective for fiscal years ending after
         December 15, 2003.

         (p)    Reclassifications

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


(2)      Restricted Cash Balances

         The Bank is required to maintain certain daily reserve balances in
         accordance with Federal Reserve Board requirements. Aggregate reserves
         of $3,928 thousand and $3,163 thousand were necessary to satisfy these
         requirements at December 31, 2003 and 2002, respectively.



(3)      Investment Securities
<TABLE>
<CAPTION>
         Investment securities at December 31, 2003 and 2002 consisted of the following:

                                                              December 31, 2003
                                                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                     $      38,773                  61                 135           38,699
Municipal securities                               9,222                  80                 122            9,180
Collateralized mortgage obligations               41,693                 301                 173           41,821
Other debt securities                                379                   9                   -              388
Investment in Federal Agency stock                   182                   -                   -              182
--------------------------------------------------------------------------------------------------------------------------

Total                                      $      90,249                 451                 430           90,270
==========================================================================================================================

                                                              December 31, 2002
                                                Estimated                Gross               Gross
                                                Amortized             Unrealized          Unrealized       Market
 (in thousands)                                   Cost                   Gains              Losses          Value
--------------------------------------------------------------------------------------------------------------------------
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
==========================================================================================================================
</TABLE>


                                       66

<PAGE>

         Investment securities totaling $26,777 thousand and $9,755 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, 2003 and 2002, respectively.

         Proceeds from the sale of Available for Sale securities during 2003,
         2002 and 2001 were $7,128 thousand, $23,487 thousand and $3,578
         thousand. The Company realized gross gains totaling $396 thousand, $603
         thousand and $267 on the sale of Available for Sale securities during
         the year ended December 31, 2003, 2002 and 2001, respectively.

         Federal Agency dividends paid to the Company were $9 thousand in 2003
         and 2002 and $7 thousand in 2001.

         The amortized cost and estimated fair value of debt securities at
         December 31, 2003, 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, 2003

                                                 Amortized     Market
        (in thousands)                             Cost         Value
        --------------------------------------------------------------
        Due in one year or less                 $   9,678       9,585
        Due after one year through five years      70,291      70,497
        Due after five years through 10 years       9,183       9,104
        Due after 10 years                            915         902
        Investment in Federal Agency stock            182         182
        --------------------------------------------------------------
                                                $  90,249      90,270
        ==============================================================


         Gross unrealized losses on investment securities and the fair value of
         the related securities, aggregated by investment category and length of
         time that individual securities have been in a continuous unrealized
         loss position, at December 31, 2003, were as follows:

<TABLE>
<CAPTION>
                                   Less than 12 months   12 months or more       Total
----------------------------------------------------------------------------------------------
                                     Fair    Unrealized   Fair  Unrealized   Fair   Unrealized
(in thousands)                       Value     Losses    Value    Losses     Value     Losses
----------------------------------------------------------------------------------------------
Available for sale:
<S>                                    <C>         <C>    <C>          <C>    <C>         <C>
U.S. Agency and mortgage-backed
 securities                       $  18,289        135      --         --   18,289        135
Municipal securities                  6,435        122      --         --    6,435        122
Collateralized mortgage
 obligations                         14,771        173      --         --   14,771        173
----------------------------------------------------------------------------------------------
Total                             $  39,495        430      --         --   39,495        430
==============================================================================================
</TABLE>

         U.S. Agency and mortgage-backed securities: The unrealized losses on
         investments in U.S. Agency and mortgage-backed securities were caused
         by interest rate increases. The contractual cash flows of these
         securities are guaranteed by the respective government agency. It is
         expected that the securities would not be settled at a price less than
         the amortized cost of the investment. Because the decline in fair value
         is attributable to changes in interest rates and not credit quality,
         and because the Company has the ability and intent to hold these
         investments until a market price recovery or maturity, these
         investments are not considered other-than temporarily impaired.

         Municipal securities: The unrealized losses on investments in municipal
         securities were caused by interest rate increases. The contractual
         terms of these investments do not permit the issuer to settle the
         securities at a price less than the amortized cost of the investment.
         Because the Company has the ability and intent to hold these
         investments until a market price recovery or maturity, these
         investments are not considered other-than-temporarily impaired.
         Additionally, it is the policy of the Company to only purchase
         municipal securities of those entities that provide credit insurance.

         Collateralized mortgage obligations: The unrealized losses on
         investments in collateralized mortgage obligation securities were
         caused by interest rate increases. It is expected that the securities
         would not be settled at a price less than the amortized cost of the
         investment. Because the decline in fair value is attributable to
         changes in interest rates and not credit quality, and because the
         Company has the ability and intent to hold these investments until a
         market price recovery or maturity, these investments are not considered
         other-than temporarily impaired.


                                       67

<PAGE>

(4)      Loans

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

         Outstanding loans (excluding held for sale) consisted of the following
         at December 31:

(in thousands)                                      2003        2002
----------------------------------------------------------------------
Commercial                                    $  152,505     127,111
Real estate construction                          16,006      20,489
Other real estate                                  8,704       7,273
Installment and other                              2,274       3,068
----------------------------------------------------------------------
                                                 179,489     157,941


Deferred loan fees and loan sale premiums          (778)       (794)
Allowance for loan losses                        (3,262)     (3,057)
----------------------------------------------------------------------
                                              $  175,449     154,090
======================================================================

         SBA and mortgage loans serviced by the Bank totaled $125,595 thousand,
         $102,743 thousand and $83,252 thousand at December 31, 2003, 2002 and
         2001, respectively.

         Changes in the allowance for loan losses were as follows:

(in thousands)                         2003        2002       2001
-------------------------------------------------------------------
Balance, beginning of year         $  3,057       2,668      2,499
Loans charged off                      (143)       (270)      (283)
Recoveries                               36          34         61
Provision charged to operations         312         625        391
-------------------------------------------------------------------
Balance, end of year               $  3,262       3,057      2,668
===================================================================


         Nonaccrual loans totaled $3,880 thousand, $2,409 thousand and $3,246
         thousand at December 31, 2003, 2002 and 2001, respectively. Interest
         income, which would have been recorded on nonaccrual loans, was $382
         thousand, $364 thousand and $310 thousand, in 2003, 2002, and 2001,
         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, 2003 and 2002,
         the Bank had outstanding balances of $3,880 thousand and $2,409
         thousand in impaired loans which had valuation allowances of $720
         thousand in 2003 and $446 thousand in 2002. The average outstanding
         balances of impaired loans for the years ended December 31, 2003, 2002
         and 2001 were $2,734 thousand, $3,209 thousand and $4,871 thousand
         respectively, on which $183 thousand, $242 thousand and $423 thousand,
         respectively, was recognized as interest income.

         At December 31, 2003 and 2002, the collateral value method was used to
         measure impairment for all loans classified as impaired. Impaired loans
         at December 31, 2003 and 2002 consisted solely of commercial loans.

(5)      Premises and Equipment

         Premises and equipment consisted of the following at December 31:

(in thousands)                                       2003       2002
----------------------------------------------------------------------
Land                                        $         874        874
Building                                            5,725       5,725
Leasehold improvements                              2,492       2,103
Furniture and equipment                             6,514       5,741
----------------------------------------------------------------------
                                                   15,605      14,443
----------------------------------------------------------------------
Accumulated depreciation and amortization         (8,702)      (7,698)
----------------------------------------------------------------------
                                            $      6,903        6,745
======================================================================



                                       68

<PAGE>

         The Bank leases a portion of its building to unrelated parties under
         operating leases which expire in various years. The minimum future
         rentals to be received on non-cancelable leases as of December 31, 2003
         are summarized as follows:

(in thousands)  Year Ending December 31,
-------------------------------------------------------------------
                        2004                         $  109
                        2005                            104
                        2006                             94
                        2007                             93
                        2008                             84
-------------------------------------------------------------------
                        Total minimum future rentals $  484
===================================================================

(6)      Other Assets

         Other assets include the cash surrender value of life insurance
         totaling $13,863 thousand and $13,339 thousand at December 31, 2003 and
         2002 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 $0
         thousand, $329 thousand and $809 thousand at December 31, 2003, 2002
         and 2001, respectively. During 2003, 2002 and 2001 other real estate
         owned was acquired through foreclosure as settlement for loans in the
         amounts of $73 thousand, $90 thousand and $1,086 thousand,
         respectively. These amounts represent non-cash transactions, and
         accordingly, have been excluded from the Consolidated Statements of
         Cash Flows.


(7)      Deposits

         The following is a summary of deposits at December 31:

(in thousands)                        2003         2002
----------------------------------------------------------
Demand                         $     47,765       34,673
NOW and Super NOW Accounts           56,597       50,582
Money Market                         55,096       30,248
Savings                              45,494       39,597
Time, $100,000 and over              37,303       21,507
Other Time                           35,900       34,072
----------------------------------------------------------
                               $    278,155      210,679
==========================================================

         Interest paid on time deposits in denominations of $100 thousand or
         more was $646 thousand, $660 thousand and $1,069 thousand in 2003, 2002
         and 2001, respectively.

         At December 31, 2003, the aggregate maturities for time deposits is as
         follows:
                (in thousands)
                ----------------------------
                2004              $  67,031
                2005                  4,569
                2006                    849
                2007                    354
                2008                    400
                ----------------------------
                Total             $  73,203
                ============================

                                       69

<PAGE>

(8)      Junior Subordinated Debentures

         At December 31, 2003, the Company had a wholly-owned trust (the Trust)
         that was formed to issue trust preferred securities and related common
         securities of the trust. As a result of the adoption of FIN 46R, the
         Company deconsolidated the Trust as of and for years ended December 31,
         2003 and 2002. The $5,155 thousand of junior subordinated debentures
         issued by the Trust is reflected as long-term debt in the consolidated
         balance sheet at December 31, 2003 and 2002. The common stock issued by
         the Trust is recorded in other assets in the consolidated balance sheet
         at December 31, 2003 and 2002.

         The subordinated debenture bears an initial interest rate of 5.59% and
         matures March 26, 2032, subject to prior redemption under certain
         circumstances. The debentures 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 debentures constitute a full and unconditional
         guarantee by the Company.

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

         Prior to December 31, 2003, the Trust was a consolidated subsidiary and
         was included in liabilities in the consolidated balance sheet, as
         "Obligated mandatorily redeemable capital securities of subsidiary
         trust." The common securities and debentures, along with the related
         income effects were eliminated in the consolidated financial
         statements.

         The debentures issued by the Company less the common securities of the
         Trust, continue to qualify as Tier 1 capital under interim guidance
         issued by the Board of Governors of the Federal Reserve System (Federal
         Reserve Board). Although the Federal Reserve has stated in its July 2,
         2003 Supervisory Letter that trust preferred securities will be treated
         as Tier 1 capital until notice is given to the contrary, the
         Supervisory Letter also indicates that the Federal Reserve will review
         the regulatory implications of any accounting treatment changes and
         will provide further guidance if necessary or warranted. Accordingly,
         there can be no assurance that the Federal Reserve will continue to
         accord Tier 1 treatment to trust preferred upon completion of its
         review.


(9)      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
-----------------------------------------------------------------
2004                                            $             290
2005                                                          317
2006                                                          322
2007                                                          278
2008                                                          258
More than 5 years                                             216
=================================================================
                                                $           1,681

         Total rental expense for operating leases was $336 thousand, $243
         thousand and $254 thousand in 2003, 2002 and 2001 respectively.


                                       70

<PAGE>

(10)     Supplemental Compensation Agreements

         The Company has a supplemental retirement plan for certain directors
         and a supplemental executive retirement plan covering key executives.
         These plans are non-qualified defined benefit plans and are unsecured
         and unfunded. The Company has purchased insurance on the lives of the
         participants and intends to use the cash values of these policies to
         pay the retirement obligations (See Note 6 for information regarding
         the cash values of the life insurance).

         The accrued pension obligation was $1,566 thousand and $1,243 thousand
         as of December 31, 2003 and 2002, respectively. The Company recognized
         expense during 2003 and 2002 totaling $323 thousand and $295 thousand,
         respectively. The net periodic cost was determined using a discount
         rate of 6.25% in 2003 and 7.25% in 2002. The following table sets forth
         the plan's status at December 31, 2003.

                                                                    December 31,
                                                                        2003
(in thousands)                                                      ------------
Change in benefit obligation:
Benefit obligation at beginning of year                            $     (2,167)
Service cost                                                               (115)
Interest cost                                                              (146)
Actuarial loss                                                              (65)
Benefits paid                                                                22
--------------------------------------------------------------------------------

Benefit obligation at end of year                                  $     (2,471)
================================================================================

Change in plan assets:
Fair value of plan assets at beginning of year                     $          --
--------------------------------------------------------------------------------

Fair value of plan assets at end of year                           $          --
================================================================================

Funded status                                                      $     (2,471)
Unrecognized net obligation existing at January 1, 2003                     553
Unrecognized net actuarial loss                                             325
Unrecognized prior service cost                                             580
Intangible asset                                                           (553)
--------------------------------------------------------------------------------

Accrued benefit cost                                               $     (1,566)
================================================================================

                                                                     Year Ended
                                                                    December 31,
                                                                         2003
                                                                     -----------
Net pension cost included the following components:
Service cost-benefits earned during the period                     $         115
Interest cost on projected benefit obligation                                146
Amortization of prior service cost                                            80
Recognized net actuarial loss                                                  4
--------------------------------------------------------------------------------
Net periodic pension cost                                          $         345
================================================================================


                                       71
<PAGE>

(11)     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, 2003 and 2002, financial instruments whose contract
         amounts represent credit risk are as follows:

(in thousands)                     2003        2002
---------------------------------------------------
Commitments to extend credit  $  49,643      40,717
===================================================
Standby letters of credit     $     488       1,038
===================================================


         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.



(12)     Other Noninterest Expense

         Other noninterest expense for the years 2003, 2002 and 2001 included
         the following significant items:
(in thousands)                              2003        2002      2001
----------------------------------------------------------------------
Third party data processing expense     $    569         848       877
Marketing                                    640         514       413
Professional fees                            853         465       403
Directors' fees and retirement               205         315       385
Telephone and postage                        415         313       296
Supplies                                     269         266       247
Intangible amortization                      171         171       171
Non-performing loan costs                    147          92        77
Other                                      1,082       1,301       944
----------------------------------------------------------------------
     Total                               $ 4,351       4,285     3,813
======================================================================

                                       72

<PAGE>

(13)     Income Taxes

The provision for income taxes for the years 2003, 2002 and 2001 consisted of
the following:

2003 (in thousands)               Federal     State      Total
--------------------------------------------------------------

Current                       $       554       100        654
Deferred, net                       (318)        17      (301)
--------------------------------------------------------------
     Income tax expense       $       236       117        353
==============================================================

2002 (in thousands)
--------------------------------------------------------------

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

         Income taxes receivable of $271 thousand and $573 thousand are included
         in other assets at December 31, 2003 and 2002, 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:
                                                    2003        2002       2001
--------------------------------------------------------------------------------
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-exempt interest income                          (16%)      (15%)       (21%)
Change in the beginning of the year deferred
 tax asset valuation allowance                        -         (2%)         -
Other                                                (2%)        1%         (5%)
--------------------------------------------------------------------------------
                                                     23%        25%         15%
================================================================================

         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets and deferred tax liabilities at
         December 31, 2003 and 2002 which are included in other assets are
         presented below.

(in thousands)                                 2003           2002
----------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses                  $  1,111          1,129
Deferred loan income                            156            180
Accumulated depreciation                        471            265
Accumulated Amortization                        403            393
Deferred compensation                           702            557
Other                                            99            120
----------------------------------------------------------------------
     Total gross deferred tax assets          2,942          2,644
----------------------------------------------------------------------
Deferred tax liabilities:
Deferred loan origination costs                (384)          (387)
Unrealized gain on available-for-sale
 securities, net                                 (8)          (316)
Other                                          (162)          (162)
----------------------------------------------------------------------
     Total gross deferred tax liabilities      (554)          (865)
----------------------------------------------------------------------
     Net deferred tax asset                $  2,388          1,779
======================================================================

         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

                                       73

<PAGE>

         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.


(14)     Employee Benefit Plans

         The Company has a 401(k) tax deferred savings plan under which eligible
         employees may elect to defer a portion of their salary as a
         contribution to the plan. The Company matches the employees'
         contributions at a rate set by the Board of Directors (currently 50% of
         the first 4% of deferral of an individual's total compensation). The
         matching contributions are made in cash, which is then invested in
         Company stock. The matching contribution vests ratably over the first
         six years of employment. For the years ended December 31, 2003, 2002
         and 2001, the Company contributed $73 thousand, $71 thousand and $47
         thousand, respectively, to the 401(k) plan.


(15)     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 491,168 less any shares reserved for issuance
         pursuant to the 1991 Plans. There were 12,605, 14,113 and 77,822 shares
         available to be issued pursuant to the Plan at December 31, 2003, 2002
         and 2001, respectively. 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 2003, 2002 and 2001 were not issued
         at less than 100% of market value.

         Stock option plan activities are summarized as follows:

                                           Weighted
                              Number of     Average
                               Options   Exercise Price
--------------------------------------------------------
Balance, December 31, 2000     222,133    $    7.04
     Options granted            72,710         8.55
     Options exercised        (22,468)         5.36
     Options expired          (11,493)         6.16
--------------------------------------------------------
Balance, December 31, 2001     260,882         7.82
     Options granted            69,850        10.58
     Options exercised        (35,405)         7.22
     Options expired           (6,141)         8.40
--------------------------------------------------------
Balance, December 31, 2002     289,186         8.33
     Options granted            21,450        15.16
     Options exercised         (9,527)         6.26
     Options expired          (19,942)         8.98
--------------------------------------------------------
Balance, December 31, 2003     281,167         8.87
========================================================


         At December 31, 2003, the range of exercise prices for all outstanding
         options ranged from $5.06 to $16.84. The following table provides
         certain information with respect to stock options outstanding at
         December 31, 2003:

                                         Weighted          Weighted
                           Stock          Average           Average
Range of                  Options        Exercise          Remaining
Exercise Prices         Outstanding        Price      Contractual Life
----------------------------------------------------------------------
Under $6.00                 52,324      $   5.27               1.20
$6.00 to $8.50              66,499          8.06               6.36
$8.51 to $9.50              59,088          8.55               7.39
$9.51 to $12.00             81,807         10.43               8.27
Over $12.00                 21,449         15.16               9.82
----------------------------------------------------------------------
                           281,167      $   8.88               6.44
======================================================================


                                       74

<PAGE>

         At December 31, 2003 and 2002, the weighted-average remaining
         contractual life of all outstanding options was 6.44 years and 7.07
         years, respectively. The number of options exercisable was 186,909,
         160,537 and 155,091 and the weighted-average exercise price of those
         options was $8.04, $7.50 and $7.31 at December 31, 2003, 2002 and 2001,
         respectively.

         The following table provides certain information with respect to stock
         options exercisable at December 31, 2003:

                                               Weighted
                         Stock                  Average
Range of                Options                Exercise
Exercise Prices       Exercisable                Price
-------------------------------------------------------
Under $6.00             52,324                $   5.27
$6.00 to $8.50          53,217                    8.06
$8.51 to $9.50          35,400                    8.55
$9.51 to $12.00         41,679                   10.30
Over $12.00              4,290                   15.16
-------------------------------------------------------
                       186,910                $   8.04
=======================================================

         (b)    Employee Stock Ownership Plan

         Effective January 1, 1992, the Bank established the Bank of Lodi
         Employee Stock Ownership Plan. The plan covers all employees, age 21 or
         older, beginning with the first plan year in which the employee
         completes at least 1,000 hours of service. The Bank's annual
         contributions to the plan are made in cash and are at the discretion of
         the Board of Directors based upon a review of the Bank's profitability.
         Contributions for 2003, 2002 and 2001 totaled approximately $169
         thousand, $191 thousand and $171 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,
         2003, the plan owned 180,691 shares of Company Common Stock. Of that
         amount, 107,726 shares were unallocated to participants at December 31,
         2003.


         (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, 2003, there were Bank retained
         earnings of $4,581 thousand free of this condition.


         (d)    Weighted Average Shares Outstanding

         Basic and diluted earnings per share for the years ended December 31,
         2003, 2002, and 2001 were computed as follows:

                                       Income        Shares     Per-
                                     (numerator)  (denominator) Share
 2003                              (in thousands)               Amount
----------------------------------------------------------------------
Basic earnings per share                   $1,177    1,786,026  $0.66
Effect of dilutive stock options                -      106,611      -
                                   ----------------------------
Diluted earnings per share                 $1,177    1,892,637  $0.62
                                   ============================


                                       75

<PAGE>

                                     Income         Shares      Per-
                                   (numerator)  (denominator)   Share
 2002                            (in thousands)                Amount
----------------------------------------------------------------------
Basic earnings per share                 $1,355     1,810,945   $0.75
Effect of dilutive stock options              -        69,568       -
                                 -----------------------------
Diluted earnings per share               $1,355     1,880,513   $0.72
                                 =============================


                                     Income         Shares     Per-
                                   (numerator)   (denominator)  Share
 2001                             (in thousands)                Amount
----------------------------------------------------------------------
Basic earnings per share                  $1,207     1,770,160  $0.68
Effect of dilutive stock options               -        49,462      -
                                 ------------------------------
Diluted earnings per share                $1,207     1,819,622  $0.66
                                 ==============================

         (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.


(16)     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, 2003 and 2002, respectively, such borrowings
         totaled $1,164 thousand and $1,467 thousand, respectively. Deposits of
         related parties held by the Bank totaled $285 thousand and $ 397
         thousand at December 31, 2003 and 2002, respectively. (See also
         Footnote 10)

         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)                   2003     2002
------------------------------------------------
Balance, beginning of year    $ 1,467    1,403
Loans funded                       46      745
Principal repayments            (349)    (681)
------------------------------------------------
Balance, end of year          $ 1,164    1,467
================================================


                                       76

<PAGE>

(17)     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, 2003 and 2002, and statements of
         income, and cash flows information for the years ended December 31,
         2003, 2002, and 2001.


Balance Sheets: (in thousands)
----------------------------------------------------------------------
Assets                                            2003           2002
----------------------------------------------------------------------
Cash in bank                                 $   1,890          2,802
Investment securities available-for-sale,
  at fair value                                      6              6
Premises and equipment, net                         60             60
Investment in wholly-owned subsidiaries         22,081         20,844
Other assets                                     1,085            713
----------------------------------------------------------------------
                                             $  25,122         24,425
======================================================================

Liabilities and Stockholders' Equity
----------------------------------------------------------------------
Junior subordinated debentures               $   5,155          5,155

Stockholders' equity
Common stock                                    10,105         10,143
Retained earnings                                9,849          8,672
Accumulated other comprehensive
  income, net                                       13            455
----------------------------------------------------------------------
     Total stockholders' equity                 19,967         19,270
----------------------------------------------------------------------
                                             $  25,122         24,425
======================================================================




Statements of Income: (in thousands)     2003       2002       2001
---------------------------------------------------------------------
Rent from subsidiary                  $     6          6          6
Interest expense - long term debt        (244)      (214)         -
Other expenses                           (501)      (203)      (213)
Equity in income of subsidiaries        1,679      1,694      1,292
Income tax benefit                        237         72        122
---------------------------------------------------------------------
     Net income                       $ 1,177      1,355      1,207
=====================================================================




Statements of Cash Flows: (in thousands)               2003      2002     2001
-------------------------------------------------------------------------------
Net Income                                       $    1,177     1,355     1,207
Adjustments to reconcile net income to net cash
   flows (used in) provided by operating
   activities:
          Depreciation and amortization                  -         -         -
          Provision for deferred taxes                  (2)      (37)      (21)
          Increase in other assets                    (319)     (222)      (75)
          Increase in equity of subsidiaries        (1,679)   (3,444)   (1,307)
-------------------------------------------------------------------------------
          Net cash used in operating activities       (823)   (2,348)     (196)

Cash flows from financing activities:
     Proceeds from issuance of junior
       subordinated debt                                 -     5,155         -
     Proceeds from issuance of common stock             67       258       122
     Payments for repurchase of common stock          (156)     (391)        -
     Dividends paid                                      -         -        (4)
-------------------------------------------------------------------------------
    Net cash (used in) provided by financing
      activities                                       (89)    5,022       118
-------------------------------------------------------------------------------
 Net (decrease) increase in cash                      (912)    2,674       (78)
-------------------------------------------------------------------------------
Cash at beginning of year                             2,802      128       206
-------------------------------------------------------------------------------
Cash at end of year                              $    1,890    2,802       128
===============================================================================

                                       77

<PAGE>

(18)     Other Borrowings

         The Company has two lines of credit with correspondent banks totaling
         $5 million at December 31, 2003 and 2002. The lines of credit are
         unsecured and renew annually. At December 31, 2003 and 2002 the Bank
         had outstanding borrowings under these lines totaling $0 million and $3
         million, respectively. The maximum amount outstanding was $5 million
         and $3 million, the average balance outstanding was $33 thousand and
         $61 thousand and the weighted average interest rate was 1.92% and 2.46%
         for the years ending December 31, 2003 and 2002, respectively.

         At December 31, 2003 and 2002 securities sold under agreements to
         repurchase totaled $14,100 and $11,885 thousand, respectively. The
         maximum amount outstanding was $14,100 thousand and $11,885 thousand,
         the average balance outstanding was $2,031 thousand and $3,227 thousand
         and the weighted average interest rate was 1.08% and 2.09% for the
         years ending December 31, 2003 and 2002, respectively. These agreements
         generally mature within 30 days.


(19)     Regulatory Matters

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

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

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

         Management believes, as of December 31, 2003, that the Bank meets all
         capital adequacy requirements to which it is subject. As of December
         31, 2003, 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, 2003
         are as follows:
<TABLE>
<CAPTION>
                                                      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)   $   24,700   10.68%     18,502    >8.0%        23,128     >10.0%

Tier I Capital (to Risk
  Weighted Assets)          $   21,804    9.43%      9,251    >4.0%        13,877      >6.0%

Tier I Capital  (to
  Average Assets)           $   21,804    7.96%     10,959    >4.0%        13,699      >5.0%
</TABLE>


                                       78

<PAGE>

         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%
</TABLE>

(20)     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.

         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.

         Junior subordinated debenture: Junior subordinated debenture consists
         of debentures issued by the Company's wholly-owned trust. The fair
         value of the debentures 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.

                                       79

<PAGE>

         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, 2003 are approximately as follows:

                                                                2003
                                                           Carrying  Fair
(in thousands)                                              Amount   Value
-----------------------------------------------------------------------------
   Financial assets:
        Cash and due from banks and federal
             funds sold and securities purchased
             under resale agreements                   $    25,531   25,531
        Investment securities                               90,270   90,270
        Loans held for sale                                  3,076    3,100
        Loans, net                                         175,449  184,129

   Financial liabilities:
        Deposits:
             Demand                                         47,765   47,765
             Now and Super Now accounts                     56,597   57,139
             Money Market                                   55,096   55,406
             Savings                                        45,494   46,385
             Time                                           73,203   73,498
             --------------------------------------------------------------
             Total deposits                                278,155  280,193
        Short term borrowings                               14,100   14,100
        Junior subordinated debenture                        5,155    5,470

                                        Contract     Carrying       Fair
(in thousands)                           Amount       Amount        Value
---------------------------------------------------------------------------
   Unrecognized financial instruments:
        Commitments to extend credit   $  49,643           -         496
        Standby letters of credit            488           -           1

                                                        2002
                                                   Carrying   Fair
(in thousands)                                      Amount    Value
---------------------------------------------------------------------------
   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
        Junior subordinated debenture                 5,155   5,155

                                        Contract     Carrying       Fair
(in thousands)                           Amount       Amount        Value
---------------------------------------------------------------------------
   Unrecognized financial instruments:
        Commitments to extend credit    $  40,717        -         407
        Standby letters of credit           1,038        -           1


                                       80
<PAGE>

(21)     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. (See Note 25 - Subsequent Events)


(22)     Derivative Financial Instruments

         As of December 31, 2003 and 2002, the Company has no on or off-balance
         sheet derivatives. The Company held $56,112 thousand and $25,463
         thousand in collateralized mortgage obligations as of December 31, 2003
         and 2002, respectively. These investments are held in the available for
         sale portfolio.



(23)     Guarantees

         In November 2002, the FASB issued FIN 45, which requires the Company to
         disclose information about obligations under certain guarantee
         arrangements. FIN 45 defines a guarantee as a contract that
         contingently requires the Company to pay a guaranteed party based on:

         1) changes in underlying asset, liability, or equity security of the
         guaranteed party or 2) a third party's failure to perform under an
         obligating guarantee (performance guarantee).

         In the ordinary course of business, the Company has issued certain
         guarantees which qualify as off-balance sheet arrangements. As of
         December 31, 2003, those guarantees include the following:

         Financial standby letters of credit and financial guarantees are
         conditional lending commitments issued by the Company to guarantee the
         performance of a customer to a third party in borrowing arrangements.
         At December 31, 2003, the maximum undiscounted future payments that the
         Company could be required to make was $488 thousand. 100.0% of these
         arrangements mature within one year. The Company generally has recourse
         to recover from the customer any amounts paid under these guarantees.


<TABLE>
(24) Quarterly Financial Information (Unaudited)

----------------------------------------------------------------------------------------------
(in thousands, except per share data
and price range of common stock)     March 31,     June 30,     September 30,    December 31,
----------------------------------------------------------------------------------------------
2003
----
<S>                                <C>               <C>             <C>             <C>
Interest income                    $   3,276         3,561           3,196           3,629
Net interest income                    2,629         2,872           2,446           2,878
Provision for loan losses                257            55               -               -
Noninterest income                     1,178         1,092           1,091           1,164
Noninterest expense                    3,084         3,405           3,333           3,686
Income before taxes                      466           504             204             356
Net income                               342           359             191             285
Basic earnings per share                 .19           .20             .11             .16
Diluted earnings per share               .18           .19             .10             .15
Dividends paid per share                   -             -               -
Price range, common stock        14.00-12.10   17.00-12.80     19.35-16.10     19.05-16.75
----------------------------------------------------------------------------------------------
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                 .16           .11             .34             .14
Diluted earnings per share               .15           .11             .33             .13
Dividends paid per share                   -             -               -
Price range, common stock        11.35-10.40   12.50-11.00     11.88-11.65     12.65-11.71
</TABLE>


                                       81
<PAGE>


Subsequent Events

         (a) On March 23, 2004, First Financial Bancorp, Bank of Lodi, N.A. and
         certain named directors and officers of the Company were informed that
         a lawsuit is being filed naming them and alleging various charges of
         breach of fiduciary duty and corporate mismanagement. The lawsuit is
         being brought by two shareholders. The suit is a verified complaint for
         derivative action for intentional and negligent breach of fiduciary
         duty, abuse of control, waste of corporate assets, unjust enrichment
         and imposition of constructive trust.

         As of March 23, 2004 none of the defendants named in the suit have been
         served. Because the complaint has not been served, the Company is not
         able to perform discovery into the allegations of the Complaint. The
         matter has been referred to the Company's carrier for its director and
         officer liability insurance and the insurance company is preparing to
         respond to the tender of defense in due course. Management is not aware
         of any circumstances that would cause the director and officer
         liability insurance to not be effective. It is the intent of the
         Company to contest the allegations of the Complaint.

         (b) On March 25, 2004, the Board of Directors of the Company declared a
         10% stock dividend payable as of May 14, 2004. All income per share
         amounts have been adjusted to give retroactive effect to the stock
         dividend.


                                       82
<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.

                                                  FIRST FINANCIAL BANCORP

                                                    /s/ ALLEN R. CHRISTENSON
                                                  ----------------------------
                                                  Allen R. Christenson
                                                  Sr. Vice President and Chief
                                                  Financial Officer

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

<TABLE>
                                                     Capacity                             Date
                                                     --------                             ----
<S>                                                                                            <C> <C>
 /s/ BENJAMIN R. GOEHRING                    Director and Chairman of the Board          March 25, 2004
------------------------------------------
Benjamin R. Goehring


 /s/ WELDON D. SCHUMACHER                    Director and Vice Chairman of the Board     March 25, 2004
------------------------------------------
Weldon D. Schumacher


 /s/ DAVID M. PHILIPP                        Director                                    March 25, 2004
------------------------------------------
David M. Philipp


 /s/ ROBERT H. MILLER, III                   Director                                    March 25, 2004
------------------------------------------
Robert H. Miller, III


 /s/ DANIEL M. LEWIS                         Director                                    March 25, 2004
------------------------------------------
Daniel M. Lewis


 /s/ LEON J. ZIMMERMAN                       Director, President and                     March 25, 2004
------------------------------------------   Chief Executive Officer
Leon J. Zimmerman                           (Principal Executive Officer)


 /s/ ROBERT H. DANEKE                        Director, Executive Vice President          March 25, 2004
------------------------------------------   and Chief Operating Officer
Robert H. Daneke


 /s/ ALLEN R. CHRISTENSON                    Senior Vice President,                      March 25, 2004
------------------------------------------   Chief Financial Officer and Secretary
Allen R. Christenson                        (Principal Financial and Accounting Officer)
</TABLE>

                                       83

<PAGE>


                                INDEX TO EXHIBITS

               Exhibit No. Description

                  3(a)     Restated Articles of Incorporation, as amended

                  3(b)     Bylaws, as amended through March 25, 2004

                  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

                  4(f)     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) (incorporated by reference to Exhibit 1 to
                           Annual Report on form 10-K of the Company for the
                           fiscal year ended December 31, 2002.

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

                  10(f)*   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(g)*   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.


                                       84

<PAGE>


                  10(h)*   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(i)*   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(j)*   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(k)*   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(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
                           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(m)*   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

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

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


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

                  * Management contract or compensatory plan or arrangement

                                       85


<PAGE>

                               THIS IS TO CERTIFY:


   That I am the duly elected, qualified and acting Secretary of First
Financial Bancorp, a California corporation, (the "Corporation") and that the
attached is a true and correct copy of the Bylaws of the Corporation, as amended
through the date of this certificate, in effect as of the date hereof.


   IN WITNESS WHEREOF, I have hereunder set my hand the 25th day of March, 2004.




                                                   /s/ Allen R. Christenson
                                                  ----------------------------
                                                  Allen R. Christenson
                                                  Secretary