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

       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES 
                             EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1997

                        COMMISSION FILE NUMBER : 0-12499
                            FIRST FINANCIAL BANCORP
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

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

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

          Securities registered pursuant to Section 12(b) of the Act:
                                      None
          Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value

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

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

  As of January 31, 1998, there were 1,332,842 shares of Common Stock, no par
value, outstanding.  The aggregate market value of the Common Stock held by non-
affiliates of the registrant was approximately $12,849,000 (based on the $13.00
average of bid and ask prices per share on January 27, 1998.)

 Documents Incorporated by Reference   Part of Form 10-K into which Incorporated
 -----------------------------------   -----------------------------------------
                                        
 Proxy Statement for the Annual 
   Meeting of Shareholders to be held     Part III, Items 10, 11, 12, 13
   on April 28, 1998.

The Index to Exhibits is on page 59
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                                       1
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                            FIRST FINANCIAL BANCORP
                                 1997 FORM 10-K
                               TABLE OF CONTENTS

PART 1
------

ITEM 1. BUSINESS.............................................................  3
        General..............................................................  3
        The Bank.............................................................  3
        Bank Services........................................................  3
        Sources of Business..................................................  4
        Competition..........................................................  4
        Employees............................................................  5
        Supervision and Regulation...........................................  5
                The Company..................................................  5
                The Bank.....................................................  6
                Officers.....................................................  6
                Recent Legislation and Regulations Affecting Banking.........  7
ITEM 2. PROPERTIES...........................................................  9
ITEM 3. LEGAL PROCEEDINGS.................................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................. 10
 
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS.................................................. 10
ITEM 6. SELECTED FINANCIAL DATA.............................................. 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS............................................ 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................... 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 31
 
PART III
--------
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................... 31
ITEM 11 EXECUTIVE COMPENSATION............................................... 31
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....... 31
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................... 31
 
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..... 31

Signatures................................................................... 58
Index to Exhibits............................................................ 59

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                                     PART I
                                        
ITEM 1. BUSINESS

General:
------- 
First Financial Bancorp (the "Company") was incorporated under the laws of the
State of California on May 13, 1982, and operates principally as a bank holding
company for its wholly owned subsidiary, Bank of Lodi, N.A. (the "Bank"). The
Company is registered under the Bank Holding Company Act of 1956, as amended.
The Bank is the sole subsidiary of the Company and its principal source of
income. The Bank owns the office building where the Bank's Lodi Branch and
administrative offices are located, and the Company owns the land upon which the
Bank's Woodbridge Branch is located. The Company receives income from the Bank
from the lease associated with the Woodbridge Property. All references herein to
the "Company" include the Bank, unless the context otherwise requires.

The Bank:
-------- 
The Bank was organized on May 13, 1982 as a national banking association.  The
application to organize the Bank was accepted for filing by the Comptroller of
the Currency (the "OCC") on September 8, 1981, and preliminary approval to
organize was granted on March 27, 1982.  On July 18, 1983 the Bank received from
the OCC a Certificate of Authority to Commence the Business of Banking.
Subsequently, the Bank opened branch offices in Woodbridge and Lockeford,
California. Effective February 22, 1997, the Bank acquired the Galt, Plymouth
and San Andreas offices of Wells Fargo Bank.

The Bank's main office is located at 701 South Ham Lane, Lodi, California, with
branch offices in Woodbridge, Lockeford, Galt, Plymouth and San Andreas,
California.  The Bank's primary service area, from which the Bank attracts 75%
of its business, is the city of Lodi and the surrounding area.  This area is
estimated to have a population approaching 70,000 persons, with a median annual
family income of approximately $30,000.  The area includes residential
developments, neighborhood shopping centers, business and professional offices
and manufacturing and agricultural concerns. On January 5, 1998, the Bank opened
a loan production office in Folsom, California in order to develop loan business
in the Folsom, greater Sacramento, and South Placer County, California markets.

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

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 towards businesses whose demand for funds falls within the
Bank's lending limit, such as small to medium-sized professional firms, retail
and wholesale outlets and manufacturing and agricultural concerns.  Consumer
lending is oriented primarily to the needs of the Bank's customers, with an
emphasis on automobile financing and leasing.  Consumer loans also include loans
for boats, home improvements, debt consolidation, and other personal needs.
Real estate loans include short-term "swing" loans and construction loans.
Residential mortgages are generally sold into the secondary market for these
loans.   SBA loans are made available to small to medium-sized businesses.

                                       3
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Sources of Business:
--------------------
Management seeks to obtain sufficient market penetration through the full range
of services described above and through the personal solicitation of the Bank's
officers, directors and shareholders.  All officers are responsible for making
regular calls on potential customers to solicit business and on existing
customers to obtain referrals.  Promotional efforts are directed toward
individuals and small to medium-sized businesses.  The Bank's customers are able
in their dealings with the Bank to be served by bankers who have commercial loan
experience, lending authority, and the time to serve their banking needs quickly
and competently. Bankers are assigned to customers and not transferred from
office to office as in many major chain or regional banks. In order to expedite
decisions on lending transactions, the Bank's loan committee meets on a regular
basis and is available where immediate authorization is important to the
customer.

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

Consistent with the need to maintain liquidity, management of the Bank seeks to
invest the largest portion of the Bank's assets in loans of the types described
above.  Loans are generally limited to less than 75% of  deposits and capital
funds.  The Bank's surplus funds are invested in the investment portfolio, made
up of both taxable and non-taxable debt securities of the U.S. government, U.S.
government agencies, states, and municipalities.  On a day to day basis, surplus
funds are invested in federal funds and other short-term money market
instruments.

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

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

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

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

                                       4
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Employees:
--------- 
As of December 31, 1997, the Company employed 87 full-time equivalent employees,
including five executive officers. Management believes that the Company's
relationship with its employees is good.

SUPERVISION AND REGULATION

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

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

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

With certain limited exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company that is not a bank or bank holding company and from
engaging directly or indirectly in any activity other than banking or managing
or controlling banks or furnishing services to, or performing services for, its
authorized subsidiaries.  A bank holding company may, however, engage in or
acquire an interest in a company that engages in activities that the Board has
determined to be so closely related to banking or to managing or controlling
banks as to be properly incident thereto.  In making such a determination, the
Board is required to consider whether the performance of such activities
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.  The
Board is also empowered to differentiate between activities commenced de novo
and activities commenced by the acquisition, in whole or in part, of a going
concern.

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

The Company's ability to pay cash dividends is subject to restrictions set forth
in the California General Corporation Law. See Note 12(e) to the financial
statements for further information regarding the payment of cash dividends by
the Company and the Bank.

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

                                       5
<PAGE>
 
The Bank:
-------- 
The Bank, as a national banking association whose accounts are insured by the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum legal
limits and is subject to regulation, supervision, and regular examination by the
OCC.  The Bank is a member of the Federal Reserve System, and, as such, is
subject to certain provisions of the Federal Reserve Act and regulations issued
by the Board.  The Bank is also subject to applicable provisions of California
law, insofar as they are not in conflict with, or preempted by, federal law.
The regulations of these various agencies govern most aspects of the Bank's
business, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends
and location of branch offices.

Officers:
-------- 
Leon Zimmerman, age 55, is President and Chief Executive Officer of the Bank and
of the Company; David M. Philipp, age 35, is Executive Vice-President, Chief
Financial Officer and Secretary of the Bank and of the Company; Lance Gallagher,
age 52, is Senior Vice President and Operations Administrator of the Bank and
the Company; Dennis Ceklovsky, age 45 is Senior Vice President and Regional
Manager of the Bank and the Company; and David Redman, age 53, is Senior Vice
President and Chief Credit Officer of the Bank and of the Company;

Mr. Zimmerman joined the Company in April, 1990.   He was promoted from
Executive Vice President and Chief Credit Officer of Bank of Lodi to President
and CEO in August of 1994.  Mr. Zimmerman became President and CEO of the
Company effective August 1995.   He lives in Lodi with his wife and has been in
the San Joaquin-Sacramento Valley since 1960, serving in various banking
capacities since 1962. Mr. Zimmerman serves on many community boards and
committees, including San Joaquin County Education Foundation,  Boys & Girls
Club of Lodi, Economic Development Task Force and LEED - Sacramento Steering
Committee.  He is an active member of Rotary, Chamber of Commerce and several
other community groups.

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

Mr. Gallagher joined the Bank in February, 1991.  He was promoted from Vice
President of Compliance to Senior Vice President & Operations Administrator in
January, 1997.  As a graduate of the American Bankers Associations Graduate
School of Compliance, he is responsible for the Bank's regulatory matters in
addition to Bank operations and item processing. Prior to joining the Company,
Mr. Gallagher was with Wells Fargo Bank for 22 years in various customer
service, operations, and human resource capacities of increasing responsibility.
He lives in San Joaquin County with his wife and has 4  boys and a grandson.
Mr. Gallagher is a banking instructor for The American Institute of Banking and
Delta Community College,  serves as a member of the Colleges Banking Advisory
Board, a member of the Heald College Employer Advisory Committee, and is the
Initiation Coaching Program Director with U. S. Hockey Pacific District.

Mr. Ceklovsky joined the Company in December, 1997. A resident of the greater
Sacramento area for over 30 years,  Mr. Ceklovsky has over 24 years of banking
experience, including nearly 18 years in the greater Sacramento area. While
previously with three community banks and two major banks,  Mr. Ceklovsky has
been responsible for all aspects of credit administration and management
positions of increasing responsibility, including the position of chief credit
officer for two community banks in the Sacramento area, both under successful
turnaround strategies. He is the former owner of DFC Consulting Company, a
financial consulting firm specializing in due diligence reviews and litigation
support to the banking industry. Mr. Ceklovsky has served the greater Sacramento
area on various community boards and committees including the Sacramento Metro
Chamber of Commerce, SACTO,  Sacramento Juvenile Diabetes Foundation, Sacramento
YWCA and Robert Morris Associates.  He is a founding member of the Sacramento
Capitol Club.

                                       6
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Mr. Redman joined the Company in December 1997. He has over 33 years of banking
experience in central California. He was previously President and CEO of
Citizens Bank of Paso Robles, N.A. (1990 to 1995). Mr. Redman assisted in the
start up of Commerce Bank of San Luis Obispo and served as Executive Vice
President of that bank (1985 to 1990). Most recently he was the organizing
President and CEO for Central California Bank (in organization). His banking
experience includes several years with two major California banks. Mr. Redman's
education includes Porterville Community College and the University of
Washington Graduate School of Banking. Community involvement has included the
Jaycees, Lions Club, Kiwanis Club, Rotary, Chamber of Commerce, Downtown
Merchants Association and the Elks Lodge.

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

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

CAPITAL REQUIREMENTS.  Federal regulation imposes upon all FDIC-insured
financial institutions a variable system of risk-based capital guidelines
designed to make capital requirements sensitive to differences in risk profiles
among banking organizations, to take into account off-balance sheet exposures
and to aid in making the definition of bank capital uniform internationally.
Under the OCC's risk-based capital guidelines, the Bank is required to maintain
capital equal to a 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 at less than the 8 percent ratio.  The guidelines
established to 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 of the Bank were to issue such stock.  Tier 2 capital
includes, among other items, limited life (and in the case of banks, cumulative)
preferred stock, mandatory convertible securities, subordinated debt and a
limited amount of the allowance for loan and lease losses.

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

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

However, the Federal Financial Institutions Examination Council ("FFIEC") on
December 13, 1996, approved an updated Uniform Financial Rating System
("UFIRS").  In addition to the five components traditionally included in the so-
called "CAMEL" rating system which has been used by bank examiners for a number
of years to classify and evaluate the soundness of financial institutions
(including capital adequacy, asset quality,  management, earnings and
liquidity),  UFIRS includes for all bank regulatory examinations conducted on or
after January 1, 1997, a new rating for a sixth category identified as
sensitivity to 

                                       7
<PAGE>
 
market risk. Ratings in this category are intended to reflect the degree to
which changes in interest rates, foreign exchange rates, commodity prices or
equity prices may adversely affect an institution's earnings and capital. The
rating system henceforth will be identified as the "CAMELS" system.

As of December 31, 1997, the Bank's total risk-based capital ratio was
approximately 12.95 percent and its leverage ratio was approximately 7.11
percent.  The Bank does not presently expect that compliance with the risk-based
capital guidelines or minimum leverage requirements will have a materially
adverse effect on its business in the reasonably foreseeable future.  Nor does
the bank expect that its sensitivity to market risk will adversely affect its
overall CAMELS rating as compared with its previous CAMEL ratings by bank
examiners.

DEPOSIT INSURANCE ASSESSMENTS.  In 1995, the FDIC, pursuant to Congressional
mandate, reduced bank deposit insurance assessment rates to a range from $0 to
$.27 per $100 of deposits, dependent upon a bank's risk.  The FDIC has continued
these reduced assessment rates through 1997.  Based upon the above risk-based
assessment rate schedule, the Bank's current capital ratios, the Bank's current
level of deposits, and assuming no further change in the assessment rate
applicable to the Bank during 1998, the Bank estimates that its annual
noninterest expense attributed to the regular assessment schedule will not
increase during 1998.

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

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

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

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

                                       8
<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 which are beyond the
control of that bank, including the influence of domestic and foreign economic
conditions. See Item 7 herein, Management's Discussion and Analysis of Financial
Condition and Results of Operations.

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

PROPOSED LEGISLATION AND REGULATION.  Certain legislative and regulatory
proposals that could affect the Bank and the banking business in general are
pending or may be introduced before the United States Congress, the California
State Legislature and Federal and state government agencies.  The United States
Congress is considering numerous bills that could reform banking laws
substantially.  For example, proposed bank modernization legislation under
consideration would, among other matters, include a repeal of the Glass-Steagall
Act restrictions on banks that now prohibit the combination of commercial and
investment banks.

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

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

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


ITEM 2. PROPERTIES

The Bank owns a 0.861 acre lot located at the corner of Ham Lane and Tokay
Street, Lodi, California.  A 34,000 square foot, tri-level commercial building
for the main branch and administrative offices of the Company and the Bank was
constructed on the lot.   The Company and the Bank use approximately 75% of the
leasable space in the building and the remaining area is either leased or
available for lease as office space to other tenants. This expansion 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 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 was moved to Lockeford, California, and has become the permanent branch
office of the Bank at that location.  A temporary office was opened by the Bank
on January 8, 1990 at this location in a 1,100 square foot building.  The
permanent office was opened on April 1, 1991.  The temporary office, along with
a portion of the permanent building, are leased by the Bank to two tenants.

                                       9
<PAGE>
 
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.

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

On December 31, 1997, the Bank leased 1,220 square feet of office space in
Folsom, California for use as a loan production office.  The lease term is for
one year and includes an option for one additional year.


ITEM 3. LEGAL PROCEEDINGS

There are no legal proceedings required to be discussed pursuant to this Item 3.


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

     Not Applicable


                                    PART II

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

The Company's common stock is traded in the over-the-counter market and is not
presently listed on a national exchange or reported by the NASDAQ Stock Market.
Trading of the stock has been limited and has been principally contained within
the Company's general service area.  As of March 2, 1998, there were 1,170
shareholders of record of the Company's common stock.

<TABLE>
<CAPTION>
                                        1997                1996
     BID PRICE OF COMMON SHARES     HIGH     LOW        HIGH     LOW
----------------------------------------------------------------------------
<S>                                <C>     <C>          <C>      <C> 
     First Quarter                 $10.25   9.50        $ 8.87   8.37
     Second Quarter                 10.25   9.63          9.75   8.63
     Third Quarter                  12.75   9.81         10.00   9.50
     Fourth Quarter                 13.00  12.13         10.00   9.25
 
</TABLE>

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

                                       10
<PAGE>
 
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
(in  thousands except per share amounts)

Consolidated Statement of Income      1997     1996     1995     1994    1993
------------------------------------------------------------------------------
<S>                                 <C>       <C>      <C>      <C>     <C>
Interest Income                     $10,592    8,045    8,089    7,462   6,907
Interest Expense                      3,785    3,254    3,138    2,767   2,765
Net Interest Income                   6,807    4,791    4,951    4,695   4,142
Provision for Loan Losses               (60)     310      115      323     327
Noninterest Income                    1,423    1,067      940    1,050   1,151
Noninterest Expense                   6,796    4,654    4,534    5,137   4,115
Net Income                          $ 1,015      640      843      338     746

Per Share Data
------------------------------------------------------------------------------ 
Basic Earnings                      $   .77      .49      .65      .26     .57
Diluted Earnings                        .73      .48      .64      .26     .57
Cash Dividends Declared             $   .20      .20      .15       --     .10

Consolidated Balance Sheet Data
------------------------------------------------------------------------------
Federal Funds Sold                 $  4,900    1,100    3,300    2,000   2,600
Investment Securities                61,917   36,913   36,945   33,100  23,956
Loans, net of loss reserve and
   deferred fees                     62,228   52,672   50,524   55,812  59,943
Total Assets                        147,850  104,913  103,972  105,167  99,806
Total Deposits                      133,891   92,207   89,216   89,979  86,174
Note Payable                             --       --    2,585    2,618   2,648
Total StockholdersO Equity         $ 12,861   11,889   11,564   10,610  10,380
------------------------------------------------------------------------------
</TABLE>

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

Certain statements in this Annual Report on Form 10-K include forward-looking
information within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the "safe harbor" created by those sections.  These forward-
looking statements involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements.  Such risks and uncertainties include, but are not limited to, the
following factors: competitive pressure in the banking industry; changes in the
interest rate environment; general economic conditions, either nationally or
regionally becoming less favorable than expected and resulting in, among other
things, a deterioration in credit quality and an increase in the provision for
possible loan losses; changes in the regulatory environment; changes in business
conditions; volatility of rate sensitive deposits; operational risks, including
data processing system failures or fraud; asset/liability matching risks and
liquidity risks; and changes in the securities markets.

The following discussion addresses information pertaining to the financial
condition and results of operations of the Company that may not be otherwise
apparent from a review of the consolidated financial statements and related
footnotes.  It should be read in conjunction with those statements and notes
found on pages 33 through 54, as well as other information presented throughout
this report.

                                       11
<PAGE>
 
SUMMARY OF EARNINGS PERFORMANCE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                             For the Year Ended December 31:
                                          ------------------------------------
                                              1997          1996         1995
                                           -----------------------------------  
<S>                                        <C>             <C>          <C>
Earnings (in thousands)                     $1,015           640          843
------------------------------------------------------------------------------
Basic earnings per share                    $  .77           .49          .65
Diluted earnings per share                  $  .73           .48          .64
Return on average assets                      0.75%         0.60%        0.83%
Return on average equity                      8.18%         5.44%        7.45%
Dividend payout ratio                        26.11%        42.55%       22.25%

------------------------------------------------------------------------------
"Cash" earnings (in thousands) (1)          $1,293           640          843
Diluted "cash" earnings per share           $  .93           .48          .64
"Cash" return on average assets               0.96%         0.60%        0.83%
"Cash" return on average equity              10.42%         5.44%        7.45%

------------------------------------------------------------------------------
Average equity to average assets              9.12%        11.12%       11.13%
------------------------------------------------------------------------------
</TABLE>
(1)  "Cash" earnings represent earnings based upon generally accepted accounting
     principles plus the after-tax, non-cash effect on earnings of the
     amortization of intangible assets.  Following the 1997 acquisition of three
     branches from Wells Fargo Bank, the "cash" earnings, return on assets, and
     return on equity are the most comparable to prior year numbers.  They are
     also the more relevant performance measures for shareholders because they
     measure the Company's ability to support growth and pay dividends.

Diluted earning per share for 1997 increased by 52% over 1996, while 1997 "cash"
earnings per share increased by 94% over 1996.  Diluted and cash earnings per
share for 1996 were 25% below the comparable earnings for 1995.  "Cash"  return
on equity and return on average assets  for 1997 increased by 92% and 60%,
respectively, over 1996, while return on equity and return on average assets in
1996 were 27% and 28%, respectively, below 1995.  The disproportionate increase
in return on average equity relative to return on average assets is the result
of more efficiently leveraged equity in 1997 versus 1996.  Average equity to
average assets was reduced by 200 basis points in 1997 compared to 1996.  As a
result each dollar of equity in 1997 supported $11 in assets versus $9 in 1996
and $9 in 1995.  The principal reason for the increase in leverage was the
acquisition of three branches from Wells Fargo Bank on February 22, 1997.  The
acquisition increased deposits by $34 million as of the closing date of the
transaction.

Earnings increased in 1997 versus 1996 as a result of a 30% increase in net
interest income, a 120% reduction in the provision for loan losses and a 31%
increase in noninterest income.  The foregoing improvements were partially
offset by a 45% increase in noninterest expenses.  The growth in net interest
income was the result of both increases in the volume of earning assets and
deposits and an increase in net interest margin.  Noninterest income increased
due in part to record volumes in both SBA and mortgage lending of the Bank.
Service charges and noninterest expenses increased principally as a result of
the acquisition of three branches from Wells Fargo Bank on February 22, 1997.
As a result of the earnings in 1997, the Company continued the practice of
paying a quarterly dividend of $.05 per share that began in the first quarter of
1995.

Earnings fell in 1996 versus 1995 due to a 3.2% decrease in net interest income
and a 170% increase in the provision for loan losses.  The impact of the
foregoing items offset the benefit of a 16% increase in SBA and mortgage income
in 1996 compared to 1995.

                                       12
<PAGE>
 
BRANCH ACQUISITION

The single factor that had the most pervasive impact on the financial
performance and financial position of the Company during 1997 was the
acquisition of three branches.

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

                                       13
<PAGE>
 
NET INTEREST INCOME

The following table provides a detailed analysis of net interest spread and net
interest margin for the years ended December 31, 1997, 1996, and 1995,
respectively:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                     For the Year Ended                 For the Year Ended                    For the Year Ended
                                     December 31, 1997                  December 31, 1996                     December 31, 1995
                                       (in thousands)                     (in thousands)                        (in thousands)
                             -------------------------------------------------------------------------------------------------------
                               Average    Income/                 Average   Income/                 Average   Income/
                               Balance    Expenses     Yield      Balance   Expenses    Yield       Balance   Expenses    Yield
                               --------   --------     -----      -------   ---------  -------      -------   ---------  -------
<S>                            <C>        <C>          <C>        <C>       <C>        <C>          <C>       <C>        <C>
Earning Assets:
Investment securities (1)..... $ 53,580      3,519      6.57%     34,700      2,233       6.44%      29,709    1,777        5.98%
Federal funds sold............    8,400        461      5.49%      3,790        199       5.25%       3,490      200        5.73%
Loans (2).....................   58,600      6,612     11.28%     54,520      5,613      10.30%      56,450    6,112       10.83%
                               --------     ------     -----      ------     ------     ------       ------   ------      ------
                               $120,580     10,592     8.78%      93,010      8,045       8.65%      89,649    8,089        9.02%
                               ========     ======     =====      ======     ======     ======       ======   ======      ======
LIABILITIES:
Noninterest bearing deposits.. $ 13,470         --        --       8,280         --         --        7,140       --          --
Savings, money market, & NOW..   67,520      1,660      2.46%     47,820      1,193       2.49%      46,370     1,187       2.56%
 deposits
Time deposits.................   41,550      2,125      5.11%     34,320      1,799       5.24%      32,570     1,672       5.13%
Note payable..................       --         --       --        2,440        262      10.74%       2,600       279      10.73%
                               --------     ------     -----      ------     ------     ------       ------    ------     ------
TOTAL LIABILITIES............. $122,540      3,785      3.09%     92,860      3,254       3.50%      88,680     3,138       3.54%
                               ========     ======     =====      ======     ======     ======       ======    ======     ======
NET SPREAD....................                          5.69%                             5.15%                  5.48%
                                                       =====                            ======                 ======
-----------------------------------------------------------------------------------------------------------------------------------
                               Average    Income/                 Average   Income/                 Average   Income/
                               Balance    Expenses     Yield      Balance   Expenses    Yield       Balance   Expenses    Yield
                               --------   --------     -----      -------   ---------  -------      -------   ---------  -------
Yield on average earning
 assets....................... $120,580     10,592      8.78%      93,010       8,045     8.65%      89,649       8,089     9.02%
Cost of funds for average
 earning assets............... $120,580     (3,785)    (3.13%)     93,010      (3,254)   (3.50%)     89,649      (3,138)   (3.50%)
                               --------     ------     -----       ------      ------   ------       ------      ------   ------
NET INTEREST MARGIN........... $120,580      6,807      5.65%      93,010       4,791     5.15%      89,649       4,951     5.52%
                               ========     ======     =====       ======      ======   ======       ======      ======   ======
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Income on tax-exempt securities has not been adjusted to a tax equivalent
     basis.
(2)  Nonaccrual loans are included in the loan totals for each year.

Net interest income increased by 42% in 1997 after declining by 3% in 1996.  The
increase in 1997 was the result of both growth in earning assets and deposits as
well as increased earning asset yields and decreased deposit costs.  The decline
in 1996 was primarily the result of falling interest rates which served to
reduce net interest margin.

Average earning assets increased by 30% in 1997 compared to 1996 and 4% in 1996
compared to 1995.  The increase in average earning assets was driven by growth
in average deposits. Average deposits increased by 36% in 1997 compared to 1996
and 5% in 1996 compared to 1995.  Using year-end totals, loans outstanding at
December 31, 1997 were in excess of loans outstanding at December 31, 1996  by
18%.  Despite the significant growth in the loan portfolio, the deposit growth
reduced the average loan-to-deposit ratio to 48% in 1997 compared to 60% in 1996
and 66% in 1995.  Average loans also increased, growing by 7.5% after declining
by 3.5% in 1996 compared to 1995.  The largest growth in average earning assets
took place in the investment portfolio into which the proceeds from the branch
acquisition were initially invested.  Average investments increased by 54% in
1997 after growing by 17% in 1996.

                                       14
<PAGE>
 
Net interest margin increased by 50 basis points in 1997 after declining by 37
basis points in 1996.  The increase in 1997 was the result of several key items:

 .  The general level of short-term interest rates as indicated by the
   comparative yields on federal funds sold increased by approximately 24 basis
   points.

 .  Approximately $445 thousand in loan interest income was recognized during
   1997 as a result of nonaccrual loan payoffs. The recovery of nonaccrual
   interest increased loan yields and net interest margin for the year by 76
   basis points and 37 basis points respectively.

 .  The general decline in interest rates helped to bring down the cost of
   average certificates of deposit by 13 basis points, while a new tiered rate
   pricing structure for savings, money market, and NOW accounts reduced the
   cost of those funds by 3 basis points.

 .  In addition to changes in the pricing structure of deposits, the mix of
   noninterest bearing and lower cost transaction accounts increased for 1997,
   while the mix of higher cost certificates of deposit declined.

 .  The mortgage note payable, which carried a yield of 10.45%, was paid off
   during November 1996.

The 37 basis point decline in net interest income in 1996 compared to 1995
reflects a drop in short term interest rates of approximately 48 basis points
based upon the change in the yield on federal funds for the same period.  The
yield on loans declined in a similar manner, while investment yields increased
due to an emphasis on purchasing callable agency securities that carry higher
yields than conventional agency securities.  The cost of certificates of deposit
increased during 1996 while short term interest rates declined as falling
interest rates prompted many depositors to extend maturities to achieve higher
yields.

                                       15
<PAGE>
 
The following table presents the monetary impact of the aforementioned changes
in earning asset and deposit volumes, yields and mix for the three years ended
December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                      1997 compared to 1996              1996 compared to 1995           1995 compared to 1994  
                                          (in thousands)                     (in thousands)                   (in thousands) 

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

                                  Volume   Rate     Mix    Total     Volume   Rate   Mix    Total      Volume  Rate  Mix    Total
                                  --------------------------------------------------------------------------------------------------
<S>                               <C>      <C>    <C>      <C>       <C>      <C>    <C>    <C>        <C>     <C>   <C>     <C>   
Investment securities             $  661     46      578   1,285       67      135    255     457       (5)    141   223     359 
Federal funds sold                    59      9      194     262        7      (17)     8      (2)      11      56    (1)     66 
Loans                              1,664    539   (1,203)  1,000      229     (300)  (428)   (499)     (44)    642  (396)    202 
                                  ------   ----   ------   -----      ---     ----   ----    ----      ---     ---  ----     --- 
Total interest income             $2,384    594     (431)  2,547      303     (182)  (165)    (44)     (38)    839  (174)    627 
                                  ======   ====   ======   =====      ===     ====   ====    ====      ===     ===  ====     === 
Interest Expense:                                                                                            
Noninterest-bearing deposits      $   --     --       --      --       --       --     --      --       --      --    --      -- 
Savings, money market, & NOW         382    (16)     103     469       56      (27)   (22)      7      (18)      5   (80)    (93)
 accounts                                                                                                    
Time deposits                        573    (44)    (205)    324       79       35     13     127      (28)    380   115     467 
Note payable                          84   (262)     (84)   (262)      13       --    (30)    (17)       3       0    (6)     (3)
                                  ------   ----   ------   -----      ---            ----    ----      ---     ---  ----     --- 
Total interest expense            $1,039   (322)    (186)    531      148        8    (39)    117      (43)    385    29     371 
                                  ======   ====   ======   =====      ===     ====   ====    ====      ===     ===  ====     === 
Net interest income               $1,345    916     (245)  2,016      155     (190)  (126)   (161)       5     454  (203)    256 
                                  ======   ====   ======   =====      ===     ====   ====    ====      ===     ===  ====     ===
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                                                                
The increase in net interest income for 1997 attributable to volume is
illustrative of the principal impact of acquiring the new branches.  The volume
variance for 1997 compared to 1996 is nearly ten times greater than the
comparable variance for 1996 compared to 1995.  Interest increased by $2.4
million as a result of volume, while interest expense increased by $1.1 million.
The volume variance for 1996 compared to 1995 reflects the modest growth in
earning assets and deposits.

The rate variance in net interest income for 1997 compared to 1996 is over ten
times greater than the comparable rate variance for 1996 compared to 1995.
Approximately 49% of the positive rate variance of $916 thousand for 1997
compared to 1996 is the result of the nonaccrual interest recoveries realized
during the year.  The remainder of the variance is principally the result of
paying off the mortgage note payable and yield increases for loans and
investments.  The negative rate variance for 1996 compared to 1995 is
principally the result of lower loan yields.

The negative impact of earning asset mix variances with respect to loans was
minimized for 1997 relative to 1996 due to favorable mix changes in the deposit
base.  Noninterest bearing demand deposits increased to 11% of average deposits
for 1997 compared to 9% for 1996 and 8% for 1995.  In a similar manner, NOW
accounts increased to 37% of average deposits compared to 34% in 1996 and 1995.
Certificates of deposit declined to 34% of average deposits in 1997 compared to
37% in 1996 and 1995.  The favorable certificate of deposit mix variance in 1997
was $205 thousand, or twice the increase in interest expense attributable to the
growth in NOW account volumes.  Although loans as a percentage of average
earning assets were 49% for 1997 compared to 59% in 1996, the growth in average
loans outstanding of 7.5% for 1997 compared to 1996 kept the loan mix variance
for interest income below the volume variance.



Provision for Loan Losses

                                       16
<PAGE>

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
(in thousands)                                        1997      1996    1995    1994    1993
--------------------------------------------------------------------------------------------
<S>                                                <C>         <C>     <C>     <C>     <C>
Balance at beginning of period                       $1,207      959   1,127     924   1,334
CHARGE-OFFS:
  Commercial                                            249      237     357      98     676
  Real estate                                            --       --      30      --      41
  Consumer                                               41       97      95      77      46
                                                     ------    -----   -----   -----   -----
  TOTAL CHARGE-OFFS                                  $  290      334     482     175     763
RECOVERIES:
  Commercial                                            434      260     174      37      21
  Real estate                                            --       --      --      --      --
  Consumer                                               22       12      25      18       5
                                                     ------    -----   -----   -----   -----
  TOTAL RECOVERIES                                   $  456      272     199      55      26
                                                     ------    -----   -----   -----   -----
Net charge-offs                                      $ (166)      62     283     120     737
Additions charged to operations                        ( 60)     310     115     323     327
                                                     ------    -----   -----   -----   -----
BALANCE AT END OF PERIOD                             $1,313    1,207     959   1,127     924
                                                     ======    =====   =====   =====   =====
RATIO OF NET CHARGE-OFFS TO AVERAGE LOANS            $(.28%)   0.11%   0.50%   0.20%   1.15%
 OUTSTANDING                                         ======    =====   =====   =====   =====
--------------------------------------------------------------------------------------------
</TABLE>
Footnote 1(g) to the consolidated financial statement discusses the factors used
in determining the provision for loan losses and the adequacy of the allowance
for loan losses.

Charge-off activity declined by 31% and 13%, respectively, in 1996 and 1997,
while recoveries increased by 37% and 68%, respectively, for the same periods.
These trends are consistent with the improvements discussed below in the Asset
Quality section.  The principal reason for the increases in recoveries was
improvement in the repayment capacity of certain credits that had previously
been charged off combined with the Bank's continued efforts subsequent to
charge-off to work diligently toward collection.  These credits began to
contribute toward recoveries in the latter part of 1995 and were paid in full
during 1997.  Approximately $285 thousand of the recoveries of $456 thousand for
1997 are attributable to the credits that were paid off.

The loan loss provision for 1996 exceeded the provision for 1995 by 170%.
Although net charge-offs declined from 1995 to 1996, management determined that
the loan loss provision of $310 thousand was necessary to provide for the loss
potential with respect to a specific group of loan relationships that exhibited
increased credit risk at that time.

The declining charge-offs and larger recoveries during 1997 increased the loan
loss reserve by more than management believed was necessary to provide for loss
potential in the loan portfolio.  Accordingly, $60 thousand of the reserve for
loan losses was reversed and taken into income in the form of a negative
provision for loan losses in 1997.  While portfolio quality generally improved
in 1997 compared to 1996 a larger reserve was necessitated by the significant
growth in the loan portfolio.  Please also see the "Asset Quality".

                                       17
<PAGE>
 
Noninterest Income

Noninterest income increased by 33% in 1997 compared to 1996 and rose by 14% in
1996 compared to 1995.  The increases in both years came from growth in the
major components of noninterest income: service charges, SBA, 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 1997, 1996, and 1995:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
(in thousands)                                                1997   1996  1995
-------------------------------------------------------------------------------
<S>                                                           <C>    <C>   <C>
Periodic deposit account charges                              $ 307   192   169
Returned item charges                                           332   259   254
Ancillary services charges                                       70    33    32
Other service charges                                            57    75    37
                                                              -----------------
     Total service charge revenue                               766   559   492
                                                              =================
                                                             
Gain on sale of SBA loans                                       217   163   143
SBA loan servicing revenue                                      199   183   174
                                                              -----------------
     Total SBA revenue                                          416   346   317
                                                             
Gain on sale of mortgage loans                                   77    44    36
Mortgage loan servicing revenue                                  53    41    30
                                                              -----------------
     Total mortgage revenue                                     130    85    66
                                                             
Farmer Mac origination, sale and servicing                       29    20    10
                                                              -----------------
                                                             
      Total loan origination, sale and servicing revenue      $ 575   451   393
-------------------------------------------------------------------------------
</TABLE>
                                                                                
Service charge revenue increased by 37% in 1997 compared to 1996 and 14% in 1996
compared to 1995.  The growth in service charge revenue for 1997 resulted
primarily from the acquisition of three branches as discussed above in "Branch
Acquisition."  The acquisition increased deposits by approximately 37%.  In
addition to deposit growth, the Bank's service charge schedule was reviewed
during 1997, and certain rates were increased in areas where the Bank's rates
were more than competitive.  The increase in service charge revenue from 1995 to
1996 is principally the result of a 103% increase in other service charges.  The
increase in other service charges was the result of increases in penalties for
the early withdrawl of certificates of deposit and increases in late charges on
loans.  These items moderated in 1997 compared to 1996.

Revenue from SBA loan sales reached a record level in 1997, increasing by 33%
over 1996 and following an increase of 14% in 1996 compared to 1995.  The
increase in 1997 was the result of both increases in the volume of loans
originated and sold as well as a general increase in the loan sale premiums
realized in the secondary market for SBA loan sales.  During 1996, a new
incentive compensation program was put into place.  The program was designed to
provide incentives for increasing levels of production.  As production
increased, the SBA servicing portfolio increased and resulted in the 9% and 5%
increases in SBA servicing revenue for 1997 and 1996, respectively.

Revenue from mortgage loan sales also reached a record level in 1997, increasing
by 75% over 1996 and following an increase of 22% in 1996 compared to 1995.
Mortgage operations were reorganized in 1994, and part of the annual increases
since that time are the result of the relationships that have been developed
with builders, realtors, and title companies.  In addition to reorganized
operations, housing activity in the Bank's trade area improved during 1996 and
1997, resulting in increased volumes.  The Bank has packaged home construction
and mortgage take-out loans in a competitive manner and has successfully
marketed this product in the new trade areas that were opened as a result of the
acquisition of branches from Wells Fargo Bank in early 1997 (see "Branch
Acquisition" above).  Finally, declining mortgage rates during 1997 have
resulted in increased mortgage refinance volumes.

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

                                       18
<PAGE>
 
NONINTEREST EXPENSES

Noninterest expenses increased by 46% in 1997 compared to 1996 and 3% in 1996
compared to 1995.  The single biggest factor behind the increase in 1997 was the
acquisition of three branches from Wells Fargo Bank on February 22, 1997 as
discussed above in "Branch Acquisition."  Noninterest expense is broken down
into four primary categories each of which is discussed in this section.

SALARIES AND EMPLOYEE BENEFITS
------------------------------

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
(in thousands except full time equivalents)                     1997     1996    1995
--------------------------------------------------------------------------------------
<S>                                                             <C>      <C>     <C>
Regular payroll, contract labor, and overtime                   $2,298   1,699   1,788
Incentive compensation and profit sharing                          335     125      83
Payroll taxes and employment benefits                              459     381     360
                                                                ----------------------
     TOTAL SALARIES AND EMPLOYEE BENEFITS                       $3,092   2,205   2,231
                                                                ======================
Number of full-time equivalent employees                         82.00   62.25   64.50
                                                                ----------------------
Regular payroll per full-time equivalent employee                28.02   27.29   27.72
                                                                ----------------------
Incentive compensation to regular payroll                         14.6%    7.4%    4.6%
                                                                ----------------------
Ratio of payroll taxes and benefits per full-time equivalent      5.60    6.12    5.58
--------------------------------------------------------------------------------------
</TABLE>

Total salaries and benefits expense increased by 40% in 1997 compared to 1996
after declining by 1% in 1996 compared to 1995.  Regular payroll increased by
35% in 1997 compared to 1996 due primarily to the increase in personnel from the
three branches purchased from Wells Fargo Bank (see "Branch Acquisition above").
At the closing date of the transaction, the branch acquisition added 20 full-
time equivalents.  Regular payroll per full-time equivalent increased by 2.7% in
1997 compared to 1996.  Regular payroll and regular payroll per full-time
equivalent declined in 1996 compared to 1995 by 5% and 1.5%, respectively.  The
reason for the decline was twofold.  The Bank's senior officers elected to forgo
salary increases for 1996 in exchange for the implementation of a management
Incentive Compensation Plan.  In addition, during 1996 there were temporary
vacancies in certain officer positions with salaries for those positions that
were higher than the Bank average.

Incentive compensation includes bonus awards under the Incentive Compensation
Plan, contributions to the Employee Stock Ownership Plan and matching
contributions to the 401(k) Stock Ownership Plan.  The Incentive Compensation
Plan pays bonuses to officers based upon the actual results of departmental and
Bank-wide performance in comparison to predetermined targets.  As explained in
the preceding paragraph, the plan was implemented in 1996.  Contributions to the
Employee Stock Ownership Plan are made at the discretion of the board of
directors based upon profitability.  Matching contributions to the 401(k) Stock
Ownership Plan are made at the rate of 50% of the first 4% of compensation
contributed by employees.  The rate of incentive compensation for 1997 was
nearly double the rate in 1996 based upon increased profitability.  Although the
incentive compensation rate for 1996 is higher than 1995 despite a decline in
profitability, such a comparison is not meaningful as there was no Incentive
Compensation Plan in 1995.

Payroll taxes and employee benefits per full-time equivalent declined in 1997
compared to 1996 because certain benefit expenses did not increase
proportionately with the increase in full-time equivalents.  Despite an increase
of 20 full-time equivalents, workers compensation insurance declined slightly in
1997, and medical insurance per full-time equivalent declined by $377.  The
increase per full-time equivalent for payroll taxes and employee benefits of
9.6% in 1996 was the result of increases in the cost of medical benefits and
workers compensation insurance.

                                       19
<PAGE>
 
Occupancy Expense
-----------------

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(in thousands except square footage and cost per sq. ft.)      1997      1996      1995
----------------------------------------------------------------------------------------
<S>                                                           <C>      <C>       <C>
Depreciation                                                     265       251       250
Property taxes, insurance, and utilities                         204       168       183
Property maintenance                                             154       109       130
Net rental income                                                (30)      (45)     (120)
                                                              --------------------------
     TOTAL OCCUPANCY                                             593       483       443
                                                              ==========================
Square footage of occupied and unoccupied space               40,725    28,312    24,635
                                                              --------------------------
Occupancy cost per square foot                                $14.56    $17.06    $17.98
                                                              --------------------------
Locations                                                          6         3         3
----------------------------------------------------------------------------------------
</TABLE>

Occupancy expenses increased by 23% in 1997 compared to 1996 and 9% in 1996
compared to 1995.

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

The increase in 1996 compared to 1995 was principally the result of lower net
rental income.  Net rental income is rental income less rental expense. The
decline in net rental income from 1995 to 1996 is the result of a reduction in
the occupancy of space available for lease to third parties at the Company's
main location.  Some of the impact of the reduction in net rental income was
offset by a reduction of property taxes based upon a request made to the San
Joaquin County to reduce the assessed value of three properties.

EQUIPMENT EXPENSE
-----------------

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
(in thousands)                                                                      1997   1996  1995
-----------------------------------------------------------------------------------------------------
<S>                                                                                 <C>    <C>   <C>
Depreciation                                                                        $ 318   232   172
Maintenance                                                                           136   109   144
Rental expense                                                                          1    26    58
                                                                                    -----------------
     TOTAL EQUIPMENT                                                                $ 455   367   374
-----------------------------------------------------------------------------------------------------
</TABLE>

Equipment expense increased by 24% in 1997 compared to 1996 and declined by 2%
in 1996 compared to 1995.

The increase in 1997 was a function of the equipment acquired in, or purchased
as a result of, the acquisition of three branches from Wells Fargo Bank (see
"Branch Acquisition").  The increase in 1997 was also due in part to the
depreciation expense taken on a new banking information system, the Phoenix
Banking System, that was put into place in June of 1996.  1997 was the first
full year of depreciation and followed six months of depreciation in 1996.  The
old system was no longer operationally or technologically current.  As such, it
was subject to significant maintenance and repair expenses.  Those costs
declined by 24% in 1996 as a result of the new system.  Concurrent with
conversion to the Phoenix Banking System, the bank also contracted with an
outside vendor to process customer checks and statements.  These functions had
previously been done internally with rented equipment.  As a result of this
change, rental expenses for equipment were reduced by 55% in 1996 compared to
1995 and were nearly eliminated in 1997 compared to 1996.

                                       20
<PAGE>
 
OTHER NONINTEREST EXPENSE
-------------------------

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

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
(in thousands)                                          1997    1996   1995
---------------------------------------------------------------------------
<S>                                                    <C>      <C>    <C>
Third party data processing                            $  642    371    244
Intangible amortization                                   479      -      -
Professional fees                                         401    372    311
Telephone and postage                                     182    132    123
Director fees                                             150    124    109
Office supplies                                           142    113    115
Marketing                                                 120    121    102
Printing                                                  117     86     78
Other real estate owned losses and holding costs           94     49     83
Business development                                       55     43     39
Regulatory assessments                                     53     40    142
Other                                                     220    148    140
                                                       --------------------
     TOTAL OTHER NONINTEREST EXPENSE                   $2,656  1,599  1,486
---------------------------------------------------------------------------
</TABLE>

Other noninterest expenses increased by 66% in 1997 compared to 1996 and 7.6% in
1996 compared to 1995.  The most significant items behind the increase for 1997
were the acquisition of three branches from Wells Fargo Bank (see Branch
Acquisition),  the outsourcing of more functions to third party processors and
increased losses and holding costs on other real estate owned.   The increase in
1996 compared to 1995 was driven by higher outside processing costs and
increased professional fees related to loan resolution and strategic advisory
and consultation.

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

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

The decision to outsource this function was based upon the prohibitive projected
cost of continuing to process these items in-house.  An outside provider could
not only process these items more economically than what would be the case in-
house, it could do so with added features, such as statement imaging, which were
not affordable from an in-house perspective.  While many of the financial
benefits of this change have been realized in other areas of the income
statement, such as salaries and benefits, equipment depreciation, and equipment
rental and maintenance, postage and supplies expenses (excluding the impact of
new branches) were also reduced.

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

Regulatory assessments decreased 72% in 1996 compared to 1995 based upon the
FDIC's new deposit insurance premium schedule.   In 1995, the FDIC, pursuant to
Congressional mandate, reduced bank deposit insurance assessment rates to a
range from $0 to $.27 per $100 of deposits, dependent upon a bank's risk.  The
FDIC has continued these reduced assessment rates through 1997.

                                       21
<PAGE>
 
Income Taxes

The provision for income taxes as a percentage of pretax income for 1997, 1996,
and 1995 was 32%, 28%, and 32%, respectively.  The effective rate is lower than
the combined marginal rate for state and federal taxes due primarily to the
level of tax exempt income relative to total pre-tax income.  Tax exempt income
has been reduced during this same period in an effort to avoid paying
alternative minimum taxes and recoup alternative minimum taxes paid in previous
periods. Footnote 11 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, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                             For the Year Ended      For the Year Ended     For the Year Ended
                                             December 31, 1997       December 31, 1996      December 31, 1995
                                               (in thousands)         (in thousands)         (in thousands)
                                            -----------------------------------------------------------------
                                             Amount     Percent      Amount    Percent      Amount    Percent
                                             ------     -------      ------    -------      -------   -------
-------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>          <C>       <C>          <C>       <C>                     
Assets:                                                                                
Cash & Due from banks                       $  5,362      3.94%        4,020     3.80%        3,582     3.54%                  
Federal funds sold                             8,400      6.17%        3,790     3.58%        3,490     3.44%
Investment securities                         53,580     39.36%       34,700    32.82%       29,709    29.33%      
Loans (net of allowance for loan                                                             
   losses and deferred income)                56,744     41.68%       53,213    50.33%       55,428    54.71%     
                                                                                             
Premises and equipment, net                    7,227      5.31%        7,044     6.66%        6,552     6.47%      
Other assets                                   4,830      3.54%        2,966     2.81%        2,546     2.51%       
                                            --------    ------       -------   ------       -------   ------  
TOTAL ASSETS                                $136,143    100.00%      105,733   100.00       101,307   100.00%    
                                            ========    ======       =======   ======       =======   ======                
LIABILITIES & STOCKHOLDERS' EQUITY:                                                    
Deposits                                    $122,540     90.00%       90,420    85.52%       86,080    84.97%   
Note payable                                      --        --         2,440     2.31%        2,600     2.57%        
Other liabilities                              1,193       .88%        1,113     1.05%        1,309     1.29%      
Stockholders' equity                          12,410      9.12%       11,760    11.12%       11,318    11.17%   
                                            --------    ------       -------   ------       -------   ------          
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY    $136,143    100.00%      105,733   100.00%      101,307   100.00%       
                                            ========    ======       =======   ======       =======   ======      
------------------------------------------------------------------------------------------------------------
</TABLE>                                      

Average total assets increased by 29% in 1997 compared to 1996 and 4% in 1996
compared to 1995.  Year-end asset totals at December 31, 1997 reached $147.9
million and represented an increase of 41% over December 31, 1996.  The increase
in 1997 is largely attributable to $34 million in deposits acquired in
connection with the acquisition of three branches from Wells Fargo Bank (see
"Branch Acquisition").  Deposits at December 31, 1997 increased by 45%, or $41.6
million, compared to December 31, 1996.  Average deposits for 1997 exceeded 1996
by 36%.  The increase in deposits reduced the ratio of average equity to average
assets by 200 basis points in 1997 to 9.12% and provided for a more efficient
use of capital.

The liquidity generated by the growth in deposits funded growth in the loan and
investment securities portfolios.  Average loans for 1997 increased by 7% over
1996, while loans at December 31, 1997 were 18% above the comparable total at
December 31, 1996.  The average investment portfolio for 1997 was 54% larger
than in 1996.

                                       22
<PAGE>
 
Investment Securities

The following table presents the investment portfolio at  December 31, 1997,
1996 and 1995 by security type, maturity, and yield:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                                                   BOOK VALUE AT DECEMBER 31 (IN THOUSANDS)
                                                            ------------------------------------------------------
                                                                    1997              1996             1995
                                                            ----------------    ----------------  ----------------
                                                             Amount   Yield(a)  Amount  Yield(a)  Amount  Yield(a)
----------------------------------------------------------------------------------------------------------------
<S>                                                         <C>       <C>       <C>     <C>       <C>     <C>
U.S. Treasury Securities:
Within 1 year                                                $ 2,995   5.94%       600   8.09%       999   5.54%
After 1 year, within 5 years                                   1,000   5.87%     3,972   5.93%       600   8.09%
After 5 years, within 10 years                                    --     --         --     --         --     --
After 10 years                                                    --     --         --     --         --     --
                                                            ---------------------------------------------------
TOTAL U.S. TREASURY                                          $ 3,995   5.92%     4,572   6.21%     1,599   6.49%

U.S. AGENCY SECURITIES:                                     
Within 1 year                                                  2,101   7.06%     4,023   5.94%     8,265   5.65%
After 1 year, within 5 years                                  13,997   6.46%     8,537   6.71%     7,105   6.37%
After 5 years, within 10 years                                 9,986   7.07%     5,038   7.04%       998     --
After 10 years                                                 4,993   7.63%       483   8.30%        --     --
                                                            ---------------------------------------------------
TOTAL U.S. AGENCY                                            $31,077   6.88%    18,081   6.67%    16,368   6.00%

COLLATERALIZED MORTGAGE OBLIGATIONS:                        
Within 1 year                                                     --     --         --     --      1,142   5.89%
After 1 year, within 5 years                                     225   6.08%       329   5.65%       523   7.13%
After 5 years, within 10 years                                   277   6.27%       376   5.84%        35   6.00%
After 10 years                                                   534   6.57%       534   6.40%       603   7.97%
                                                            ---------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS                    $ 1,036   6.38%     1,239   6.03%     2,303   6.36%

MUNICIPAL SECURITIES:                                       
Within 1 year                                                    688   6.67%       250   6.33%       500   6.10%
After 1 year, within 5 years                                   3,118   6.94%     3,455   6.88%     1,987   6.74%
After 5 years, within 10 years                                   530   7.60%       886   6.14%     3,109   6.96%
After 10 years                                                    --     --         --     --         --     --
                                                            ---------------------------------------------------
TOTAL MUNICIPALS                                             $ 4,336   6.98%     4,591   6.71%     5,596   6.80%

OTHER DEBT SECURITIES:                                      
Within 1 year                                                     22   7.86%        27   8.57%       267   7.65%
After 1 year, within 5 years                                   2,748   7.41%       492   8.25%         8   8.20%
After 5 years, within 10 years                                     7   9.73%     1,097   7.33%       747   8.27%
After 10 years                                                   972   7.67%        33   8.15%     1,007   7.11%
                                                            ---------------------------------------------------
TOTAL OTHER DEBT SECURITIES                                  $ 3,749   7.48%     1,649   7.64%     2,029   7.27%

MONEY MARKET MUTUAL FUND                                      17,200   6.12%     6,482   5.28%     8,640   5.77%
FEDERAL AGENCY STOCK                                             126   6.00%        83   6.00%        83   6.00%
UNREALIZED HOLDING GAIN/(LOSS)                                   398     --        216     --        327     --
                                                            ---------------------------------------------------
TOTAL                                                        $61,917   6.59%    36,913   6.39%    36,945   6.18%
----------------------------------------------------------------------------------------------------------------
</TABLE>
(a)  The yields on tax-exempt obligations have not been computed on a tax-
     equivalent basis.

                                       23
<PAGE>
 
The investment portfolio at December 31, 1997 increased by 68% compared to
December 31, 1996, and there was virtually no change in the portfolio size from
December 31, 1995 to December 31, 1996.  The growth in the portfolio during 1997
resulted from the investment of the deposit liquidity that was received when the
Bank purchased three branches from Wells Fargo Bank (see "Branch Acquisition").

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

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

The amortized cost of the Bank's structured note portfolio at December 31, 1997
and 1996 was $1.0 million and $2.1 million, respectively, and represented
approximately 1.6% and 5.7%, respectively, of the investment portfolio.  The
market value of the structured note portfolio at December 31, 1997 and 1996 was
$1.0 million and $2.1 million, respectively.  All of the structured notes were
issued by Federal Agencies and therefore carry the implied AAA credit rating of
the Federal Government.  The structured note portfolio at December 31, 1997
carries only floating rate coupons that generally lag overall movements in
market interest rates.  The average final maturity of the structured note
portfolio at December 31, 1997 and 1996 was approximately one half year.

LOANS

The following table summarizes gross loans and the components thereof as of
December 31 for each of the last five years:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------- 
                                                         OUTSTANDING AT DECEMBER 31 (IN THOUSANDS):
                                               ---------------------------------------------------------------
                                                 1997          1996          1995          1994          1993
-------------------------------------------------------------------------------------------------------------- 
<S>                                            <C>            <C>           <C>           <C>           <C>
Commercial                                     $53,684        45,322        41,538        44,847        48,478
Real estate construction                         6,900         5,802         7,549         9,809        10,182
Installment and other                            3,525         3,155         2,757         2,656         2,804
                                               -------        ------        ------        ------        ------
                                               $64,109        54,279        51,844        57,312        61,464
                                               =======        ======        ======        ======        ======
-------------------------------------------------------------------------------------------------------------- 
</TABLE>


Gross loans outstanding as of December 31, 1997 exceeded the comparable total at
December 31, 1996 by $9.8 million, or 18%.  The primary lending categories of
commercial, real estate construction, and installment increased by 18%, 19%, and
12%

                                       24
<PAGE>
 
respectively. A significant amount of effort was put forth by management during
1994 to improve the credit quality of the loan portfolio and alter the labor
intensivity of certain segments of the portfolio. The portfolio dollars declined
in 1995 as a result of these efforts. During 1995 and thereafter, management's
focus expanded to business development and the approach to business development
was refined. The 5% and 18% growth in the portfolio for 1996 and 1997 are
attributable to diligent application of those business development disciplines
as well as modest economic improvement in the Bank's market areas.

The most significant segment of the loan portfolio is commercial loans, which
represented 84% and 83% of the total portfolio, respectively, at December 31,
1997 and 1996.  Commercial loans include agricultural loans, working capital
loans to businesses in a number of industries, and loans to finance commercial
real estate.  Agricultural loans represented approximately 21% and 29% of the
commercial loan portfolio at December 31, 1997 and 1996, respectively.
Agricultural loans are diversified throughout a number of agricultural business
segments, including dairy, orchards, row crops, vineyards, cattle and contract
harvesting.  Agricultural lending risks are generally related to the potential
for volatility of agricultural commodity prices.  Commodity prices are affected
by government programs to subsidize certain commodities, weather, and overall
supply and demand in wholesale and consumer markets.  Excluding agricultural
loans, the remaining portfolio is principally dependent upon the health of the
local economy and related to the real estate market.

The maturity and repricing characteristics of the loan portfolio at December 31,
1997 are as follows:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
DUE:  (1)                                          Fixed Rate  Floating Rate  Total
-----------------------------------------------------------------------------------
<S>                                                <C>         <C>           <C>
In 1 year or less                                       1,072         665     1,737

After 1 year through 5 years                           21,171      26,391    47,562

After 5 years                                           8,412       6,398    14,810
                                                       ------      ------    ------
TOTAL LOANS                                            30,655      33,454    64,109
                                                       ======      ======    ======
-----------------------------------------------------------------------------------
</TABLE>

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

Approximately 48% of the loan portfolio carries a fixed rate of interest as of
December 31, 1997, while approximately 77% of the portfolio matures within five
years.

Deposits

The following table summarizes average deposit balances and rates for the years
ended December 31, 1997, 1996, and 1995:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
(in thousands)                           For the Year Ended        For the Year Ended        For the Year Ended
                                         December 31, 1997         December 31, 1996         December 31, 1995
                                                                                             
        Type                             Average   Average         Average   Average         Average   Average
                                         Amount       Rate         Amount       Rate         Amount       Rate
---------------------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>             <C>       <C>             <C>       <C> 
Demand - non-interest bearing            $ 13,470      N/A          8,280        N/A          7,140        N/A

NOW accounts                               27,520     1.68%        19,561       1.89%        18,019       2.01%

Money market accounts                      17,870     3.09%        12,469       2.95%        12,561       2.95%

Savings                                    22,130     2.92%        15,790       2.89%        15,791       2.87%

Time deposits                              41,550     5.11%        34,320       5.24%        32,566       5.13%
                                         --------     ----         ------       ----         ------       ---- 
TOTAL DEPOSITS                           $122,540     3.09%        90,420       3.31%        86,079       3.32%
                                         ========     ====         ======       ====         ======       ====
---------------------------------------------------------------------------------------------------------------
</TABLE>


Average deposits increased by approximately 36% in 1997 compared to 1996, while
the average rate declined by 22 basis points.  Average deposits increased by 5%
in 1996 compared to 1995, while the average rate declined by 1 basis point.  The
majority of the deposit growth in 1997 came from the acquisition of three
branches with  $34 million in deposits from Wells Fargo Bank on 

                                       25
<PAGE>
 
February 22, 1997 (see "Branch Acquisition"). Deposits also grew as a result of
internal growth that resulted from the focused business development efforts of
Bank officers and staff. Growth in 1996 also came through focused business
development efforts as well as account transfers from large banks by customers
that had grown tired of the merger activity amongst large institutions.

The reduced rates on the deposit portfolio in 1996 and 1997 are a function of
changes in mix, pricing, and the general level of interest rates.  The mix of
deposits has become more cost efficient over the past three years.  The mix of
noninterest bearing deposits was 7%, 8%, and 11% for 1995, 1996, and 1997,
respectively.   The  mix of certificates of deposit declined significantly from
1996 to 1997 in favor of NOW, money market and savings accounts.  The savings,
money market, and NOW accounts were repriced in early 1997.  The basis used to
pay interest on these accounts was changed from a flat rate of interest
regardless of balance to a tiered rate of interest with increasingly higher
rates paid on incrementally higher balances.  During the fourth quarter of 1997
rates on NOW savings and money market accounts were reduced by 20, 10 and 10
basis points, respectively.  The effect of the pricing structure and pricing
level changes was to reduce the average rates paid on NOW accounts by 21 basis
points.  The average rates paid on money market and savings accounts increased
by 14 and 3 basis points respectively.

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 35% of the certificate
of deposit portfolio at December 31, 1997, and the maturities of those
certificates are as follows:

<TABLE>
<CAPTION>
 
---------------------------------------------------------------------------------------------------
(in thousands)                                                                               1997
---------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
Three months or less                                                                        $ 6,285
Four months to six months                                                                     3,417
Seven months to twelve months                                                                 2,982
Over twelve months                                                                              800
                                                                                            -------
TOTAL TIME DEPOSITS OF $100,000 OR MORE                                                     $13,484
                                                                                            =======
---------------------------------------------------------------------------------------------------
</TABLE>
                                                                                
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)                            1997    1996    1995    1994   1993
---------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>      <C>     <C>     <C>     <C>
Nonaccrual loans                                                          $  340     898     987     765    714
Accruing loans past due more than 90 days                                     65      52     118      40    237
                                                                          ------   -----   -----   -----   ----
Total nonperforming loans                                                 $  405     950   1,105     805    951
                                                                          ======   =====   =====   =====   ====
Reserve for loan losses                                                    1,313   1,207     959   1,127    924
Reserve for loan losses to nonperforming loans                             3.24x   1.27x    .87x    1.4x   .97x
Total loan portfolio delinquency                                            1.09%   2.14%   2.57%   2.71%  5.12%
Reserve for loan losses to total gross loans                                2.05%   2.22%   1.85%   1.97%  1.50%
Other real estate owned                                                   $  159     400     357     175    407
---------------------------------------------------------------------------------------------------------------
</TABLE>

The Company's nonaccrual policy is discussed in note 1(c) to the consolidated
financial statements.  Interest income recorded on these nonaccrual loans was
approximately $8,000, $7,000, $13,000, $14,000 and $22,000 in 1997, 1996, 1995,
1994 and 1993, respectively.  Interest income foregone or reversed on these
loans was approximately $45,000, $149,000, $161,000, $74,000 and $57,000 in
1997, 1996, 1995, 1994 and 1993, respectively.  At December 31, 1997, there were
no individually material or a 

                                       26
<PAGE>
 
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.
 
Nonperforming loans have declined each year since 1995, while portfolio
delinquency has fallen each of the last four years. Nonperforming loans in 1997
are 57% below the 1996 level, while portfolio delinquency fell by 49% for the
same period. The reserve for loan losses increased for each of the last two
years after declining by 15% in 1995 compared to 1994.  As a result, the reserve
coverage ratio for nonperforming loans increased in 1995, 1996, and 1997,
reaching 3.24 times at December 31, 1997.  Notwithstanding the improving asset
quality statistics in 1997 and 1996, the reserve for loan losses was increased
in order to provide for the inherent loss potential in the new loan portfolio
growth.  The following table summarizes the allocation of the allowance for loan
losses at December 31 for each of the last five years:


<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS)        December 31,           December 31,           December 31,         December 31,            December 31,
EXCEPT PERCENTAGES        1997                   1996                  1995                 1994                    1993
-----------------------------------------------------------------------------------------------------------------------------------
Loan Category      Amount        %        Amount        %        Amount        %        Amount         %        Amount      %
                   ------      Loans      ------      Loans      ------      Loans      ------       Loans      ------     Loans
                               -----                  -----                  -----                   -----                 -----
<S>                <C>         <C>        <C>         <C>        <C>         <C>        <C>          <C>        <C>        <C>
Commercial         $ 309       60.95%       490       91.42%       295       84.29%       376        78.25%       140      79.22%
Real estate          192       37.87%        45        8.40%        38       10.86%       121        17.12%        45      16.20%
Consumer               6        1.18%         1        0.19%        17        4.86%         4         4.63%         2       4.58%
Unallocated          806         N/A        671         N/A        609         N/A        629          N/A        737        N/A
                  ------      ------      -----      ------        ---      ------      -----       ------        ---     ------
                  $1,313      100.00%     1,207      100.00%       959      100.00%     1,127       100.00%       924     100.00%
                  ======      ======      =====      ======        ===      ======      =====       ======        ===     ======
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Please also see "Provision for Loan Losses".

                                       27
<PAGE>
 
MARKET RISK

While there are several varieties of market risk, the market risk material to
the Company and the Bank is interest rate risk. Within the context of interest
rate risk, market risk is the risk of loss due to changes in market interest
rates that have an adverse effect on net interest income, earnings, capital or
the fair value of financial instruments.  Exposure to this type of risk is a
regular part of a financial institution's operations.  The fundamental
activities of making loans, purchasing investment securities, and accepting
deposits inherently involve exposure to interest rate risk.  As described in
"Asset Liability Management," the Company monitors the repricing differences
between assets and liabilities on a regular basis and estimates exposure to net
interest income, net income, and capital based upon assumed changes in the
market yield curve.  The following table summarizes the expected maturity,
principal repayment and fair value of the financial instruments that are
sensitive to changes in interest rates as of December 31, 1997.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                        Expected Maturity / Principal Repayment       TOTAL    FAIR
In Thousands                           1998    1999   2000   2001    2002  AFTER 02  BALANCE  VALUE
----------------------------------------------------------------------------------------------------
<S>                                  <C>     <C>     <C>    <C>    <C>     <C>       <C>      <C>
Interest-Sensitive Assets:
Federal funds sold                    4,900       -      -      -       -         -    4,900   4,900
Fixed rate investments (1)            5,307   3,695  2,018  4,405  10,770    15,384   41,579  41,648
Floating rate investments (1)        17,700     500      -      -       -     2,138   20,338  20,338
Fixed rate loans (2)                  1,072  13,880  2,062  2,135   3,094     8,412   30,655  31,102
Floating rate loans (2)                 665  19,557  1,582  2,181   3,071     6,398   33,454  33,454
 
Interest-Sensitive Liabilities:
NOW account deposits (3)                  -       -      -      -       -    29,734   29,734  29,734
Money market deposits (3)                 -       -      -      -       -    20,456   20,456  20,456
Savings deposits (3)                      -       -      -      -       -    24,802   24,802  24,802
Certificates of deposit              40,794   2,127    465    129     431        25   43,971  43,911
 
Interest-Sensitive Off-Balance
Sheet Items:
Loans serviced for others                 -       -      -      -       -         -   45,939     400
Commitments to lend                       -       -      -      -       -         -   17,950     180
Standby letters of credit                 -       -      -      -       -         -       50       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 contractural maturity dates.
(3)  NOW, money market and savings deposits do not carry contractual maturity
     dates; therefore, they have been shown in the "after 02" category.  The
     actual maturities of NOW, money market, and savings deposits could vary
     substantially if future prepayments differ from the Company's historical
     experience.

                                       28
<PAGE>
 
ASSET LIABILITY MANAGEMENT

The primary goal of the Company's asset and liability management system is to
maximize net interest margin within reasonable risk parameters with respect to
the maturity and pricing structure of assets and liabilities.  The Company
monitors the repricing differences between assets and liabilities on a regular
basis and estimates exposure to net interest income, net income, and capital
based upon assumed changes in the market yield curve.  The following table
summarizes the repricing intervals for the balance sheet at December 31, 1997:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                  BY REPRICING
                                    INTERVAL
------------------------------------------------------------------------------------------------------------------------------------
(in thousands)            WITHIN         AFTER THREE      AFTER SIX     AFTER ONE    AFTER FIVE   NONINTEREST       TOTAL
                          THREE            MONTHS,         MONTHS,     YEAR, WITHIN    YEARS      BEARING FUNDS 
                          MONTHS         WITHIN SIX       WITHIN ONE    FIVE YEARS 
                                           MONTHS           YEAR
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>              <C>              <C>           <C>           <C>          <C>              <C>
Assets
Federal funds sold        4,900              --              --            --            --           --               4,900
Investment securities    23,337              --             535        19,912        18,133           --              61,917
Loans                    33,693             551             282        21,171         8,412           --              64,109
Noninterest earning 
assets and allowance  
for loan losses              --              --              --            --            --       16,924              16,924
                       -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS             61,930             551             817        41,083        26,545       16,924             147,850

LIABILITIES AND 
STOCKHOLDERS' EQUITY

Savings, money market & 
NOW deposits             74,992              --              --            --            --           --              74,992
 
Time deposits            18,794          10,807          11,193         3,152            25           --              43,971

Other liabilities and  
stockholders' equity         --              --              --            --            --       28,887              28,887
                       -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND   
 STOCKHOLDERS' EQUITY    93,786          10,807          11,193         3,152            25       28,887             147,850
                       -------------------------------------------------------------------------------------------------------------
 
Interest Rate 
Sensitivity Gap         (31,856)        (10,256)        (10,376)       37,931        26,520      (11,963)                 --
                       =============================================================================================================
Cumulative Interest     (31,856)        (42,112)        (52,488)      (14,557)       11,963           --                  --
Rate Sensitivity Gap            
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       29
<PAGE>
 
Fluctuations in interest rates can also impact the market value of assets and
liabilities either favorably or adversely depending upon the nature of the rate
fluctuations as well as the maturity and repricing structure of the underlying
financial instruments.  To the extent that financial instruments are held to
contractual maturity, market value fluctuations related to interest rate changes
are realized only to the extent that future net interest margin is either higher
or lower than comparable market rates for the period.  To the extent that
liquidity management dictates the need to liquidate certain assets prior to
contractual maturity, changes in market value from fluctuating interest rates
will be realized in income to the extent of any gain or loss incurred upon the
liquidation of the related assets.

LIQUIDITY

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

At December 31, 1997, liquidity was considered adequate, and funds available in
the local deposit market and scheduled maturities of investments are considered
sufficient to meet long-term liquidity needs.  Compared to 1996, liquidity
increased during 1997 as a result of the growth in deposits internally and the
$34 million in new deposits received in the acquisition of three branches from
Wells Fargo Bank (see "Branch Acquisition").

In November, 1996, the mortgage debt related to the headquarters building in
Lodi, California matured and was paid off.  The opportunity cost of using
otherwise liquid funds to pay the mortgage debt was lower than rates that would
have been paid had the mortgage been refinanced.

CAPITAL RESOURCES

Consolidated capital increased by $1 million, or 9%, during 1997.  The increase
was due primarily to net income of $1.01 million.  The increase in the net
unrealized gain on available for sale securities of $160 thousand together with
capital paid in upon exercise of stock options of $131 thousand offset $265
thousand in capital used to pay dividends.  The consolidated capital to assets
ratio declined by 200 basis points, to 9.12% from 11.12%, due to the growth in
assets upon the acquisition of three branches from Wells Fargo Bank (see "Branch
Acquisition").

The Bank's total risk-based and leverage capital ratios at December 31, 1997
were 12.9% and 7.1%, respectively, at December 31, 1997 compared to 17.0% and
10.8%, respectively, at December 31, 1996.  The decrease reflects the additional
leverage created by the growth in deposits as well as increased lending which
moves assets from lower risk-weight categories to the higher risk-weight
categories of loans.  The leverage and total risk-based capital ratios at
December 31, 1997, are in excess of the required regulatory minimums of 3% and
8%, respectively, for well-capitalized institutions.

On November 14, 1996, the Company transferred title of its headquarters
building to the Bank of Lodi. For regulatory accounting purposes, the building
was transferred to the Bank at its fair value of $4.25 million, and the Bank
assumed the mortgage on the building. The equity in the building of $1.4
million represented a contribution of capital to the Bank.

YEAR 2000 PREPAREDNESS

Preparedness for the year 2000 date change with respect to computer systems is
recognized as a serious issue throughout the banking industry.  Both the Company
and the Bank have a detailed year 2000 compliance plan that has been approved by
their respective boards of directors.  The Bank's core banking system, The
Phoenix Banking System, uses a four-digit date field; therefore, it is expected
to be year 2000 compliant already.  Testing to confirm this status will be
performed by the Bank in early 1998.  With respect to external systems, the
Company and the Bank are in contact with vendors and customers 

                                       30
<PAGE>
 
in order to monitor their progress with year 2000 compliance efforts and assess
the need for contingency plans, if applicable. At the present time, vendors and
customers are already compliant or are making satisfactory progress toward
planned compliance by the end of 1998. The cost of year 2000 compliance efforts
is not material to the financial position or the results of operation of the
Company or the Bank.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
     See Item 14(a) herein.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
     Not Applicable


                                    PART III
ITEMS 10, 11, 12 AND 13.

The information required by these items is contained in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on April 28,
1998, and is incorporated herein by reference.  The definitive Proxy Statement
will be filed with the Commission within 120 days after the close of the
Company's fiscal year pursuant to Regulation 14A of the Securities Exchange Act
of 1934.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
<TABLE>
<CAPTION>
 
(A)    FINANCIAL STATEMENTS AND SCHEDULES               PAGE REFERENCE
<S>    <C>                                              <C>
 
       Independent Auditors' Report                                 33
       Consolidated Balance Sheets as of
         December 31, 1997 and 1996.                                34
       Consolidated Statements of Stockholders' Equity                      
         Years Ended 1997, 1996, and 1995                           35 
       Consolidated Statements of Income
         Years Ended 1997, 1996, and 1995                           36
       Consolidated Statements of Cash Flows
         Years Ended 1997, 1996, and 1995                           37
       Notes to Consolidated Financial Statements                   38
 
</TABLE>
(B)  REPORTS ON FORM 8-K
 
        The Company filed no reports on Form 8-K during the last quarter of the
        period covered by this report.

        On January 30, 1998 the Company filed a Current Report on Form 8-K
        regarding its press release of the same date, reporting the Company's
        results of operations for the year ended December 31, 1997 and the
        declaration of a cash dividend of $.05 per share, payable February 27,
        1998 to shareholders of record on February 13, 1998.


                                       31
<PAGE>
 
(C)  EXHIBITS

     Exhibit No.  Description
     -----------  -----------
 
         3(a)     Articles of Incorporation, as amended, filed as Exhibit 3.1 to
                  the Company's General Form for Registration of Securities on
                  Form 10, filed on September 21, 1983, is hereby incorporated
                  by reference.

         3(b)     Bylaws, as amended.

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

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

         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 on May 1, 1995 is hereby
                  incorporated by reference.

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

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

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

         10(f)    Bank of Lodi Incentive Compensation Plan.

         10(g)    First Financial Bancorp 401(k) Profit Sharing Plan.

         11       Statement re computation of earnings per share is incorporated
                  herein by reference to footnotes 1(k) and 12(d) to the
                  consolidated financial statements included in this report.

         23       Consent of KPMG Peat Marwick LLP, independent auditors.

         27       Financial Data Schedule.

 

     (D)  FINANCIAL STATEMENT SCHEDULES

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


                                       32
<PAGE>
 
Independent Auditors' Report


The Board of Directors


First Financial Bancorp:

We have audited the accompanying consolidated balance sheets of First Financial
Bancorp and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Financial
Bancorp and subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.



                           /s/ KPMG Peat Marwick LLP


Sacramento, California

February 12, 1998
                                       33
<PAGE>
 
                     FIRST FINANCIAL BANCORP AND SUBSIDIARY


                          Consolidated Balance Sheets
                                 (in thousands)
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Assets                                                                     1997       1996
---------------------------------------------------------------------------------------------
<S>                                                                       <C>       <C>
 
     Cash and due from banks (note 2)                                     $  7,183    4,748
     Federal funds sold                                                      4,900    1,100
     Investment Securities:  (note 3)
       Held-to-maturity securities (at amortized cost, market
       value of $1,785 and $1,888 in 1997 and 1996)                          1,716    1,789
       Available-for-sale securities at fair value                          60,201   35,124
--------------------------------------------------------------------------------------------- 
       Total investments                                                    61,917   36,913
 
 
     Loans, net of deferred loan fees and allowance for loan losses of
     $1,881 and $1,607 in 1997 and 1996, respectively (notes 4 & 13)        62,228   52,672
 
     Premises and equipment, net (notes 5 & 8)                               7,233    6,723
     Accrued interest receivable                                             1,473    1,060
     Other assets                                                            2,916    1,697
 --------------------------------------------------------------------------------------------
                                                                          $147,850  104,913
 ============================================================================================
 

     Liabilities and Stockholders' Equity
---------------------------------------------------------------------------------------------
Liabilities:
---------------------------------------------------------------------------------------------
<S>                                                                            <C>       <C>
 
       Deposits (notes 7 & 13):
          Noninterest bearing                                               $ 14,928    9,066
          Interest bearing                                                   118,963   83,141
---------------------------------------------------------------------------------------------
            Total deposits                                                   133,891   92,207
 
 
       Accrued interest payable                                                  429      324
       Other liabilities                                                         669      493
---------------------------------------------------------------------------------------------
            Total liabilities                                                134,989   93,024
 
 
     Stockholders' equity (notes 12 & 16):
       Common stock - no par value; authorized 9,000,000 shares, issued and
       outstanding in 1997, 1,332,842 shares;  in 1996, 1,308,950 shares       7,455    7,324
       Retained earnings                                                       5,188    4,438
       Net unrealized holding gain on available-for-sale securities              218      127
---------------------------------------------------------------------------------------------
          Total stockholders' equity                                          12,861   11,889
---------------------------------------------------------------------------------------------

          Commitments and contingencies (notes 8, 9 & 18)
 
                                                                            $147,850  104,913
=============================================================================================
</TABLE>

       See accompanying notes to consolidated financial statements.


                                       34
<PAGE>
 
                     FIRST FINANCIAL BANCORP AND SUBSIDIARY


                Consolidated Statements of Stockholders' Equity
                      (in thousands except share amounts)
                  Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Unrealized
                                                                    Common Stock             Retaine      Securities
                                                                      Shares      Amount    Earnings    Gain(Loss)Net    Total   
<S>                                                                <C>            <C>       <C>         <C>              <C>    
---------------------------------------------------------------------------------------------------------------------------------
     Balance, December 31, 1994                                      1,306,296    $7,310      3,412         (112)        10,610 
---------------------------------------------------------------------------------------------------------------------------------
     Options exercised (Note 12)                                           700         4         __           __              4 
     Cash dividend declared (Note 12)                                       __        __       (196)          __           (196)
     Net change in unrealized gains on available-for-sale                   __        __         __          303            303 
       securities, net of tax effect of $216                                                                                    
     Net income                                                             __        __        843           __            843 
---------------------------------------------------------------------------------------------------------------------------------
     Balance, December 31, 1995                                      1,306,996     7,314      4,059          191         11,564 
                                                                                                                                
                                                                                                                                
     Options exercised (Note 12)                                         1,954        10         --           --             10 
     Cash dividends declared (Note 12)                                      --        --       (261)          --           (261)
     Net change in unrealized gain on available-for-sale                                                                        
        securities, net of tax effect of $48                                --        --         --          (64)           (64)
     Net income                                                             --        --        640           --            640 
---------------------------------------------------------------------------------------------------------------------------------
     Balance, December  31, 1996                                     1,308,950     7,324      4,438          127         11,889 
     Options exercised (Note 12)                                        23,892       131         __           __            131 
     Cash dividends declared (Note 12)                                      __        __       (265)          __           (265)
     Net change in unrealized gain on available-for-sale securities,                                                        
        net of tax effect of $92                                            __        __         __           91             91 
     Net income                                                             __        __      1,015           __          1,015 
---------------------------------------------------------------------------------------------------------------------------------
     Balance, December 31, 1997                                      1,332,842    $7,455      5,188          218         12,861 
=================================================================================================================================
</TABLE>
       See accompanying notes to consolidated financial statements.
 

                                       35

<PAGE>
 
                     FIRST FINANCIAL BANCORP AND SUBSIDIARY


                       Consolidated Statements of Income
                    (in thousands except per share amounts)

                  Years Ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
                                                           1997    1996   1995
---------------------------------------------------------------------------------------
<S>                                                      <C>       <C>    <C>
Interest income:
  Loans, including fees                                  $ 6,612   5,613  6,112
Interest on investment securities available for sale:
  Taxable                                                  3,252   1,918  1,424
  Exempt from Federal taxes                                  150     202    216
 
 Interest on investment securities held to maturity:
   Exempt from Federal taxes                                 117     113    137
Federal funds sold                                           461     199    200
---------------------------------------------------------------------------------------
    Total interest income                                 10,592   8,045  8,089
 
Interest expense:
  Deposit accounts                                         3,785   2,992  2,859
  Other                                                      262     279
--------------------------------------------------------------------------------------- 
    Total interest expense                                 3,785   3,254  3,138
---------------------------------------------------------------------------------------
    Net interest income                                    6,807   4,791  4,951

Provision for loan losses (Note 4)                           (60)    310    115
--------------------------------------------------------------------------------------- 
 
    Net interest income after provision
      for loan losses                                      6,867   4,481  4,836
Noninterest income:
  Service charges                                            766     559    492
  Premiums and fees from SBA and
     mortgage operations                                     575     451    393
  Other                                                       82      57     55
--------------------------------------------------------------------------------------- 
    Total noninterest income                               1,423   1,067    940
Noninterest expense:
  Salaries and employee benefits                           3,092   2,205  2,231
  Occupancy                                                  593     483    443
  Equipment                                                  455     367    374
  Other (Note 10)                                          2,656   1,599  1,486
--------------------------------------------------------------------------------------- 
    Total noninterest expense                              6,796   4,654  4,534
--------------------------------------------------------------------------------------- 
Income before provision for income
  taxes                                                    1,494     894  1,242
Provision for income taxes (Note 11)                         479     254    399
--------------------------------------------------------------------------------------- 
    Net income                                           $ 1,015     640    843
=======================================================================================
Earnings per share:
--------------------------------------------------------------------------------------- 
  Basic (Note 12)                                           $.77     .49    .65
=======================================================================================
  Diluted  (Note 12)                                        $.73     .48    .64
=======================================================================================
</TABLE>
      See accompanying notes to consolidated financial statements.
 

                                       36
<PAGE>
 
                     FIRST FINANCIAL BANCORP AND SUBSIDIARY


                     Consolidated Statements of Cash Flows
                                 (in thousands)
                 Years Ended December 31, 1997, 1996, and 1995

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
                                                                  1997          1996          1995
------------------------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>           <C>
     Cash flows from operating activities:
     Net income                                                 $ 1,015           640           843
       Adjustments to reconcile net income to net cash flows
       provided by operating activities:
          (Increase) decrease in loans held for resale           (1,318)         (166)          201
          Increase (decrease)  in deferred loan income              168            40           (12)
          Provision for other real estate owned losses               60            35            60
          Depreciation and amortization                           1,066           481           422
          Provision for loan losses                                 (60)          310           115
          Provision for deferred taxes                              (28)          (98)          188
          (Increase) decrease in accrued interest receivable       (413)           79           (36)
          Increase (decrease) in accrued interest payable           105           (84)          108
          Increases in other assets                                (492)          (79)          (35)
          Increase (decrease) in other liabilities                  176           294          (461)
------------------------------------------------------------------------------------------------------------
          Net cash provided by operating activities                 279         1,610         1,393
                                                                           
     Cash flows from investing activities:                                 
       Proceeds from maturity of held-to-maturity securities         70           249            --
       Proceeds from maturity of available-for-sale securities   19,230        30,780        20,218
       Proceeds from sale of available-for-sale securities       28,077            --            --
       Purchases of available-for-sale securities               (72,201)      (31,107)      (24,544)
      (Increase) decrease in loans made to customers             (7,928)       (2,629)        4,730
       Proceeds from the sale of other real estate                  285           209            11
       Purchases of bank premises, equipment and intangible                
       assets                                                    (3,127)       (1,207)         (231)
------------------------------------------------------------------------------------------------------------
       Net cash (used in) provided by investing activities      (35,594)       (3,705)          184

     Cash flows from financing activities:
       Net increase (decrease) in deposits                       41,684         2,991          (753)
       Payments on notes payable                                               (2,585)          (33)
       Proceeds received upon exercise of stock options             131            10             4
       Dividends paid                                              (265)         (261)         (196)
------------------------------------------------------------------------------------------------------------
          Net cash provided by (used in) financing activities    41,550           155          (988)
------------------------------------------------------------------------------------------------------------
     Net increase (decrease) in cash and cash equivalents         6,235        (1,940)          589
     Cash and cash equivalents at beginning of year               5,848         7,788         7,199
------------------------------------------------------------------------------------------------------------
     Cash and cash equivalents at end of year                  $ 12,083         5,848         7,788
============================================================================================================
     Supplemental Disclosures of Cash Flow Information:

       Cash paid during the year for:
          Interest                                             $  3,680         3,338         3,029
          Income taxes                                              476           242           391
------------------------------------------------------------------------------------------------------------
</TABLE>
       See accompanying notes to consolidated financial statements.
 

                                       37
<PAGE>

                     FIRST FINANCIAL BANCORP AND SUBSIDIARY

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

(1)  Summary of Significant Accounting Policies

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


     (a)  Principles of Consolidation


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


     (b)  Investment Securities


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

     Held-to-maturity securities are carried at cost, adjusted for accretion of
     discounts and amortization of premiums, which are recognized as adjustments
     to interest income using the interest method. Available-for-sale securities
     are recorded at fair value with unrealized holding gains and losses, net of
     the related tax effect reported as a separate component of stockholders'
     equity until realized. For the years ended December 31, 1997 and 1996,
     there were no transfers between classifications.

     To the extent that the fair value of a security is below cost and the
     decline is other than temporary, a new cost basis is established using the
     current market value, and the resulting loss is charged to earnings.

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


     (c)  Loans


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

                                       38
<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 non-accrual status,
     accrued and unpaid interest is reversed against current period interest
     income. Interest accruals are resumed when such loans are brought fully
     current with respect to interest and principal and when, in the judgment of
     management, the loans are estimated to be fully collectable as to both
     principal and interest.


     (d)   Loan Origination Fees and Costs


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


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


     In June, 1996, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standard (SFAS) No. 125, Accounting for Transfers and
     Servicing of Financial Assets and Extinguishments of Liabilities.  SFAS No.
     125 is effective for transfers and servicing of financial assets and
     extinguishments of liabilities occurring after December 31, 1996, and is to
     be applied prospectively.  This statement provides accounting and reporting
     standards for transfers and servicing of financial assets and
     extinguishments of liabilities based on consistent application of a
     financial-components approach that focuses on control.  It distinguishes
     transfers of financial assets that are sales from transfers that are
     secured borrowings.  In addition, it requires that servicing assets and
     other retained interests in transferred assets be measured by allocating
     the previous carrying amount of the transferred assets between the assets
     sold, if any and retained interests, if any, based on their relative fair
     value at the date of transfer.  Liabilities and derivatives incurred or
     obtained by transferors as part of a transfer of financial assets are to be
     initially measured at fair value.  Servicing assets and liabilities are to
     be subsequently amortized in proportion to and over the period of estimated
     net servicing income or loss and assessed for asset impairment or increased
     obligation based on fair value.

     The Bank recognizes a gain and a related asset for the fair value of the
     rights to service loans for others when loans are sold.  In accordance with
     SFAS No. 125, the fair value of the servicing assets is estimated based
     upon the present value of the estimated expected future cash flows.  The
     Bank measures the impairment of the servicing asset based on the difference
     between the carrying amount of the servicing asset and its current fair
     value.  As of December 31, 1997 and 1996, there was no impairment in
     mortgage servicing asset.

     A gain or loss is recognized to the extent that the sales proceeds and the
     fair value of the servicing asset exceed or are less than the book value of
     the loan.  Additionally, a normal cost for servicing the loan is considered
     in the determination of the gain or loss.

     When servicing rights are sold, a gain or loss is recognized at the closing
     date to the extent that the sales proceeds, less costs to complete the
     sale, exceed or are less than the carrying value of the servicing rights
     held.


     (g)   Allowance for Loan Losses


     The allowance for loan losses is established through a provision charged to
     expense. Loans are charged off against the allowance for loan losses when
     management believes that the collectibility of the principal is unlikely.
     Recoveries of amounts previously charged off are added back to the
     allowance. The allowance is an amount that management believes will be
     adequate to absorb losses inherent in existing loans, standby letters of
     credit, overdrafts and commitments to extend credit based on evaluations of
     collectibility and prior loss experience. The evaluations take into
     consideration such factors as changes in the nature and volume of the
     portfolio, overall portfolio quality, loan concentrations, specific problem
     loans, commitments, and current and anticipated economic

                                       39
<PAGE>
 
     conditions that may affect the borrowers' ability to pay. While management
     uses these evaluations to recognize the provision for loan losses, future
     provisions may be necessary based on changes in the factors used in the
     evaluations. The allowance for loan losses is also subject to review by the
     Comptroller of the Currency, the Bank's principal regulator.


     (h)  Premises and Equipment


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


     Building                                        35 years

     Improvements, furniture, and equipment          3 to 10 years


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


     (i)  Intangible Assets

     Goodwill, representing the excess of purchase price over the fair value of
     net assets acquired, results from branch acquisitions made by the Bank.
     Goodwill is being amortized on an accelerated basis over eight years.  Core
     deposit intangibles are amortized on an accelerated basis over eight years.
     Intangible assets are reviewed on a periodic basis for other than temporary
     impairment.  If such impairment is indicated, recoverability of the asset
     is assessed based upon expected undiscounted net cash flows.


     (j)  Other Real Estate Owned


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


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


     (k)  Earnings Per Share


     The Company adopted SFAS No. 128, Earnings per Share. SFAS No. 128 replaces
     APB Opinion 15, Earnings per Share, and simplifies the computation of
     earnings per share (EPS) by replacing the presentation of primary EPS. In
     addition, the statement requires dual presentation of basic and diluted EPS
     by entities with complex capital structures. Basic 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, similar to fully diluted EPS.
                                       40
<PAGE>
 
     (l)  Income Taxes


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

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


     (m)  Statements of Cash Flows


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



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


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


     (o)  Stock Based Compensation


     The Company accounts for its stock option plan in accordance with the
     provisions of Accounting Principles Board Opinion (APB) No. 25, Accounting
     for Stock Issued to Employees, and related interpretations. As such,
     compensation expense is recorded on the date of grant only if the current
     market price of the underlying stock exceeds the exercise price. SFAS No.
     123, Accounting for Stock Based Compensation, allows entities to elect to
     recognize as expense over the vesting period the fair value of all stock-
     based awards on the date of grant. Alternatively, SFAS No. 123 also allows
     entities to continue to apply the provisions of APB No. 25 and provide pro
     forma net income and pro form earnings per share disclosures for employee
     stock option grants made in 1995 and future years as if the fair-value-
     based method defined in SFAS No. 123 had been applied. The Company has
     elected to continue to apply the provisions of APB No. 25 and provide the
     pro forma disclosure provisions of SFAS No. 123.



     (p)  Year 2000

     Both the Company and the Bank have a detailed year 2000 compliance plan
     that has been approved by their respective board of directors.  The Bank's
     core banking system, The Phoenix Banking System, uses a four-digit date
     field; therefore, it is expected to be year 2000 compliant already.
     Testing to confirm this status should be completed by the Bank in early
     1998.  With respect to external systems, the Company and the Bank are in
     contact with vendors and customers in order to monitor the progress with
     year 2000 compliance efforts and assess the need for contingency plans, if
     applicable.  To date vendors and customers have provided confirmations that
     they are either compliant or are making progress toward planned compliance
     by the end of 1998.  The cost of year 2000 compliance efforts are not
     expected to be material to the financial position or the results of
     operation of the Company.


                                       41
<PAGE>
 
     (q)  Reclassifications
 
     Certain reclassifications not affecting net income or stockholders' equity
     have been made to prior years' balances to conform with the current year's
     presentation.



(2)  Restricted Cash Balances


     The Bank is required to maintain certain daily reserve balances in
     accordance with Federal Reserve Board requirements. Aggregate reserves of
     $1,053,000 and $881,000 were maintained to satisfy these requirements at
     December 31, 1997 and 1996, respectively.



(3)  Investment Securities


     Investment securities at December 31, 1997 and 1996 consisted of the
     following:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                                                      December 31, 1997
                                                         Gross       Gross   Estimated
                                         Amortized  Unrealized  Unrealized      Market
                                              Cost       Gains      Losses       Value
--------------------------------------------------------------------------------------
<S>                                    <C>          <C>         <C>          <C>
Held to Maturity
----------------
Municipal Securities                   $ 1,716,000      69,000               1,785,000
--------------------------------------------------------------------------------------
 
Available for Sale
------------------ 
U.S. Treasury securities                 3,995,000       5,000               4,000,000
U.S. Agency securities                  31,077,000     208,000      14,000  31,271,000
Municipal securities                     2,620,000     155,000               2,775,000
Collateralized mortgage obligations      1,036,000       5,000      17,000   1,024,000
Other debt securities                    3,749,000      58,000       2,000   3,805,000
Money market mutual fund                17,200,000                          17,200,000
Investment in Federal Agency stock         126,000                             126,000
--------------------------------------------------------------------------------------
                                         59,803,000    431,000      33,000  60,201,000  
--------------------------------------------------------------------------------------
     Total                              $61,519,000    500,000      33,000  61,986,000
======================================================================================
</TABLE> 
                                       42
<PAGE>
 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                                      December 31, 1996

                                                         Gross       Gross   Estimated
                                         Amortized  Unrealized  Unrealized      Market
                                              Cost       Gains      Losses       Value
---------------------------------------------------------------------------------------------
<S>                                      <C>        <C>         <C>           <C> 
Held to Maturity
----------------
Municipal Securities                   $ 1,789,000      99,000               1,888,000 
---------------------------------------------------------------------------------------------
Available for Sale
------------------
 
U.S. Treasury securities                 4,572,000      10,000          --   4,582,000
U.S. Agency securities                  18,081,000      47,000      32,000  18,096,000
Municipal securities                     2,802,000     181,000               2,983,000
Collateralized mortgage obligations      1,239,000       6,000      21,000   1,224,000
Other debt securities                    1,649,000      33,000       8,000   1,674,000
Money market mutual fund                 6,482,000          --          --   6,482,000
Investment in Federal Agency stock          83,000          --          --      83,000
---------------------------------------------------------------------------------------------
                                        34,908,000     277,000      61,000  35,124,000
---------------------------------------------------------------------------------------------
     Total                             $36,697,000     376,000      61,000  37,012,000
=============================================================================================
</TABLE> 
    Investment securities totaling $4,631,000 and $251,000 were pledged as
    collateral to secure Local Agency Deposits as well as treasury, tax and loan
    accounts with the Federal Reserve at December 31, 1997 and 1996,
    respectively.


    Proceeds from the sale of Available for Sale securities during 1997 were
    $28,077,000 and represented the sale of money market mutual fund shares at
    book value.  Accordingly, no gain or loss was realized.  There were no sales
    of Available for Sale securities during 1996 and 1995.


    Federal Agency stock dividends paid to the Company were $7,000, $5,000, and
    $5,000 in 1997, 1996 and 1995, respectively.

    The amortized cost and estimated fair value of debt securities at December
    31, 1997, 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.


<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
                                           December 31, 1997
                                         Amortized      Market
                                         Cost           Value
---------------------------------------------------------------------------------------------
<S>                                      <C>         <C>   
Held to Maturity
---------------- 
Due in one year or less                  $   535,000     547,000
Due after one year through five years      1,181,000   1,238,000
Due after five years through 10 years             --          --
Due after 10 years                                --          --
---------------------------------------------------------------------------------------------
                                         $ 1,716,000   1,785,000
============================================================================================= 
 
Available for Sale
------------------
Due in one year or less                  $ 5,272,000   5,292,000
Due after one year through five years     19,907,000  20,167,000
Due after five years through 10 years     10,800,000  10,897,000
Due after 10 years                         6,498,000   6,519,000
---------------------------------------------------------------------------------------------
                                          42,477,000  42,875,000
---------------------------------------------------------------------------------------------
                                         $44,193,000  44,660,000
============================================================================================= 
</TABLE>

                                       43
 
<PAGE>
 
(4)  Loans


     The Bank grants commercial, installment, real estate construction and other
     real estate loans to customers primarily in the greater Lodi area.
     Generally, the loans are secured by real estate or other assets. Although
     the Bank has a diversified loan portfolio, a significant portion of its
     debtors' ability to honor their contract is dependent upon the condition of
     the local real estate market.

     Outstanding loans consisted of the following at December 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                               1997            1996
---------------------------------------------------------------------------------
<S>                         <C>             <C>
Commercial                  $50,155,000     42,215,000
Real estate construction      6,900,000      5,802,000
Other real estate             3,529,000      3,107,000
Installment and other         3,525,000      3,155,000
--------------------------------------------------------------------------------- 
                             64,109,000     54,279,000
                                        
Deferred loan fees and                  
loan sale premiums             (568,000)      (400,000)
Allowance for loan losses    (1,313,000)    (1,207,000)
--------------------------------------------------------------------------------- 
                            $62,228,000     52,672,000
=================================================================================
</TABLE> 

     Included in total loans are loans held for sale of $1,807,000 and $489,000
     for 1997 and 1996, respectively. SBA and mortgage loans serviced by the
     Bank totaled $45,939,000 and $41,319,000, and $35,505,000 in 1997, 1996,
     and 1995, respectively.

     Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------- 
                                           1997         1996        1995
------------------------------------------------------------------------------- 
<S>                                     <C>          <C>         <C>
 
     Balance, beginning of year         $1,207,000     959,000   1,127,000
     Loans charged off                    (290,000)   (334,000)   (482,000)
     Recoveries                            456,000     272,000     199,000
     Provision charged to operations       (60,000)    310,000     115,000
 ------------------------------------------------------------------------------- 
     Balance, end of year               $1,313,000   1,207,000     959,000
 ===============================================================================
</TABLE>

     Nonaccrual loans totaled $340,000, $898,000 and $987,000 at December 31,
     1997, 1996 and 1995 respectively. Interest income which would have been
     recorded on nonaccrual loans was $45,000, $149,000 and $161,000, in 1997,
     1996, and 1995, 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, 1997 and 1996, the Bank
     had outstanding balances of $821,000 and $1,465,000 in impaired loans which
     had valuation allowances of $100,000 in 1997 and $371,000 in 1996. The
     average outstanding balances of impaired loans for the years ended December
     31, 1997, 1996 and 1995 were $1,150,000, $1,116,000 and $682,000
     respectively, on which $47,000, $45,000 and $22,000, respectively, was
     recognized as interest income.


     At December 31, 1997 and 1996, the collateral value method was used to
     measure impairment for all loans classified as impaired. The following
     table shows the recorded investment in impaired loans by loan category at
     December 31:


<TABLE>
<CAPTION>
------------------------------------------------------------------------------- 
                            1997       1996
------------------------------------------------------------------------------- 
<S>                      <C>         <C>
Commercial               $  821,000  1,457,000
Installment and other             -      8,000
-------------------------------------------------------------------------------  
                         $  821,000  1,465,000
===============================================================================
</TABLE>

                                       44
<PAGE>
 
 (5)    Premises and Equipment

Premises and equipment consisted of the following at December 31:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- 
                                                           1997         1996
----------------------------------------------------------------------------------- 
<S>                                                    <C>           <C>
     Land                                              $   874,000      694,000
     Building                                            5,705,000    5,438,000
     Leasehold improvements                              1,258,000    1,243,000
     Furniture and equipment                             2,616,000    1,979,000
-----------------------------------------------------------------------------------  
                                                        10,453,000    9,354,000
-----------------------------------------------------------------------------------  
     Accumulated depreciation and amortization          (3,220,000)  (2,631,000)
-----------------------------------------------------------------------------------  
                                                       $ 7,233,000    6,723,000
=================================================================================== 
</TABLE>

     The Bank leases a portion of its building to unrelated parties under
     operating leases which expire in various years.


     The minimum future rentals to be received on noncancelable leases as of
     December 31, 1997, are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- 
                             Year Ending December 31,
----------------------------------------------------------------------------------- 
                     <S>                                   <C>
 
                     1998                             $ 57,000
                     1999                               58,000
                     2000                               43,000
-----------------------------------------------------------------------------------  
      Total minimum future rentals                    $158,000
=================================================================================== 
</TABLE>

(6)  Other Real Estate Owned


     Other real estate owned is included in other assets and was $159,000 and
     $400,000 at December 31, 1997 and 1996, respectively. During 1997, 1996,
     and 1995, real estate of $170,000, $297,000 and $254,000, respectively, was
     acquired through foreclosure as settlement for loans. These amounts
     represent noncash transactions, and accordingly, have been excluded from
     the Consolidated Statements of Cash Flows.  

 (7)    Deposits

        The following is a summary of deposits at December 31:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- 
                                       1997         1996
----------------------------------------------------------------------------------- 
<S>                                <C>           <C>
 
     Demand                        $ 14,928,000   9,066,000
     NOW and Super NOW Accounts      29,734,000  20,553,000
     Money Market                    20,456,000  13,042,000
     Savings                         24,802,000  15,972,000
     Time, $100,000 and over         13,484,000  11,111,000
     Other Time                      30,487,000  22,463,000
-----------------------------------------------------------------------------------  
                                   $133,891,000  92,207,000
=================================================================================== 
</TABLE>

                                       45
<PAGE>
 
     Interest paid on time deposits in denominations of $100,000 or more was
     $620,000, $607,000 and $561,000 in 1997, 1996 and 1995, respectively.

     At December 31, 1997, the aggregate maturities for time deposits is as
     follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------  
<S>                <C>
     1998          $40,794,000
     1999            2,127,000
     2000              465,000
     2001              129,000
     2002              431,000
     Thereafter         25,000
-----------------------------------------------------------------------------------  
     Total         $43,971,000
=================================================================================== 
</TABLE>

(8)  Operating Leases


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

<TABLE>
<CAPTION>
------------------------------------------------------------------------------- 
                     Year Ending December 31,       Lease Payments
------------------------------------------------------------------------------- 
                      <S>                          <C>
                     1998                           $ 56,000
                     1999                             14,000
                     2000                             12,000
                     2001                             12,000
                     2002                             14,000
-----------------------------------------------------------------------------------  
                                                    $108,000
=================================================================================== 
</TABLE>
     Total rental expense for operating leases was $32,000, $35,000 and $67,000
     in 1997, 1996 and 1995 respectively.



(9)  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, 1997 and 1996, financial instruments whose contract amounts
     represent credit risk are as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- 
                                          1997         1996
----------------------------------------------------------------------------------- 
<S>                                    <C>          <C>
       Commitments to extend credit    $17,950,000  11,784,000
===================================================================================

=================================================================================== 
       Standby letters of credit       $    50,000      50,000
=================================================================================== 
</TABLE>

    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

                                      46
<PAGE>
 
    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.



(10)  Other Noninterest Expense

     Other noninterest expense for the years 1997, 1996 and 1995 included the
     following significant items:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------- 
                                                       1997     1996     1995
----------------------------------------------------------------------------------- 
<S>                                                  <C>       <C>      <C>
 
     Intangible amortization                         $479,000
     Ancillary data processing expense                326,000  105,000
     Directors' fees                                  150,000  124,000  109,000
     Legal fees                                       166,000  207,000  142,000
     Provision for other real estate owned losses      60,000   35,000   60,000
----------------------------------------------------------------------------------- 
</TABLE>

(11)  Income Taxes

     The provision for income taxes for the years 1997, 1996 and 1995 consisted
     of the following:
<TABLE> 
<CAPTION> 
----------------------------------------------------------------------------------- 
     1997                      Federal     State       Total
----------------------------------------------------------------------------------- 
<S>                          <C>         <C>       <C>
     Current                  $312,000   195,000   507,000
     Deferred, net              16,000   (44,000)  (28,000)
-----------------------------------------------------------------------------------  
       Income tax expense     $328,000   151,000   479,000
=================================================================================== 
     1996
-----------------------------------------------------------------------------------  
     Current                  $212,000   140,000   352,000
     Deferred, net             (66,000)  (32,000)  (98,000)
-----------------------------------------------------------------------------------  
       Income tax expense     $146,000   108,000   254,000
=================================================================================== 
     1995
-----------------------------------------------------------------------------------  
     Current                  $143,000    68,000   211,000
     Deferred, net             118,000    70,000   188,000
-----------------------------------------------------------------------------------  
       Income tax expense     $261,000   138,000   399,000
=================================================================================== 
</TABLE>

     Income taxes payable of $164,000 and $134,000 are included in other
     liabilities at December 31, 1997 and 1996, respectively.
     
                                       47
<PAGE>

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                       1997               1996              1995
                                                      Amount    Rate    Amount    Rate     Amount    Rate
--------------------------------------------------------------------------------------------------------------
<S>                                                  <C>        <C>     <C>       <C>     <C>        <C>
     Federal income tax expense, at statutory
       income tax rates                              $508,000     34%   304,000     34%    422,000     34%
     State franchise tax expense, net of federal
       income tax benefits                            107,000      7%    63,000      7%     87,000      7%
     Tax-free municipal interest income               (83,000)    (6%)  (97,000)   (11%)  (110,000)    (9%)
     Change in the beginning of the year deferred
       tax asset valuation allowance                   32,000      2%        --     --          --     --
     Other                                            (85,000)    (5%)  (16,000)    (2%)        --     --
--------------------------------------------------------------------------------------------------------------
                                                     $479,000     32%   254,000     28%    399,000     32%
==============================================================================================================
</TABLE>

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

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Deferred tax assets:                                       1997       1996
--------------------------------------------------------------------------------------------------------------
<S>                                                     <C>         <C>
       Allowance for loan losses                                $ 419,000    387,000
       Reserve for losses on other real estate owned               60,000     65,000
       Deferred loan income                                       157,000    112,000
       Accumulated Amortization                                   154,000         --
       Deferred compensation                                       53,000     64,000
       Alternative minimum tax credit carryforwards                60,000    159,000
       Settlement accruals                                             --     12,000
       Other                                                       93,000     59,000
----------------------------------------------------------------------------------------------------------------------
          Total gross deferred tax assets                         996,000    858,000
          Less valuation allowance                               (165,000)  (133,000)
----------------------------------------------------------------------------------------------------------------------
          Deferred tax assets, net of allowance                   831,000    725,000
----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
       Accumulated depreciation                                   (61,000)   (46,000)
       Deferred loan origination costs                           (108,000)   (61,000)
       Unrealized gain on available-for-sale securities, net     (180,000)   (88,000)
       Other                                                      (76,000)   (60,000)
--------------------------------------------------------------------------------------------------------------
          Total gross deferred tax liabilities                   (425,000)  (255,000)
--------------------------------------------------------------------------------------------------------------
         Net deferred tax asset                                 $ 406,000    470,000
==============================================================================================================
</TABLE>

     The valuation allowance for deferred tax assets increased by $32,000 for
     the year ended December 31, 1997. In assessing the realizability of
     deferred tax assets, management considers whether it is more likely than
     not that some portion or all of the deferred tax assets will not be
     realized. The ultimate realization of deferred tax assets is dependent upon
     the generation of future taxable income during the periods in which those
     temporary differences become deductible. Management considers the scheduled
     reversal of deferred tax liabilities, projected future taxable income, and
     tax planning strategies in making this assessment. Based upon the level of
     historical taxable income and projections for future taxable income over
     the periods which the deferred tax assets are deductible, management
     believes it is more likely than not the Company will realize the benefits
     of these deductible differences, net of the existing valuation allowances
     at December 31, 1997 and 1996.

     At December 31, 1997, the Company has alternative minimum tax credit carry
     forwards of $60,000 which are available to reduce future federal regular
     income taxes, if any, over an indefinite period.


                                       48
<PAGE>
 
(12)  Stockholders' Equity


     (a)  Stock Options


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


     In February 1991, the Board of Directors adopted the First Financial
     Bancorp 1991 Employee Stock Option Plan and Director Stock Option Plan. The
     maximum number of shares issuable under the Employee Stock Option Plan is
     178,500. The maximum number of shares issuable under the Director Stock
     Option Plan was 55,000. Options are granted at an exercise price of at
     least 100% and 85% of the fair market value of the stock on the date of
     grant for the Employee Stock Option Plan and the Director Stock Option Plan
     respectively. The 1991 Plans replaced the 1982 Plan; however, this does not
     adversely affect any stock options outstanding under the 1982 Plan. 



     In February 1997, the Board of Directors adopted the First Financial
     Bancorp 1997 Stock Option Plan.  The maximum number of shares issuable
     under the Plan is 393,207 less any shares reserved for issuance pursuant to
     the 1991 Plans.   Options are granted at an exercise price of at least 100%
     and 85% of the fair market value of the stock on the date of grant for
     employee stock options and director stock options, respectively.  The 1997
     Plan replaces the 1991 Plans; however, this does not adversely affect any
     stock options outstanding under the 1991 Plans.

     Stock option plan activities are summarized as follows:

<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------------- 
                                                        Options Outstanding
                                                          Exercise Price
                                       Options               Per Share 
------------------------------------------------------------------------------------------------- 
<S>                                   <C>                <C>
     Balance, December 31, 1994        156,838            $5.74 - 10.43
=================================================================================================
        Options granted                 55,350            $5.78 -  6.80
=================================================================================================
        Options exercised                 (700)           $5.74  -  6.50
=================================================================================================
        Options expired                 (1,764)           $10.43
=================================================================================================
                                
                                
     Balance, December 31, 1995        209,724            $5.74  - 10.43
=================================================================================================
       Options exercised                (3,675)           $5,78 -  8.57
=================================================================================================
       Options expired                 (10,374)           $5.74 -  10.43
=================================================================================================
                                
     Balance, December 31, 1996        195,675            $5.74 - 8.57
=================================================================================================
       Net increase from 1997   
       plan                                 --                      --
=================================================================================================
       Options granted                  76,500            $10.00 - 12.50
=================================================================================================
       Options exercised               (27,600)           $5.74 - 8.57
===================================================================================================
       Options expired                 (28,000)           $6.80 - 10.00
===================================================================================================
                                 
     Balance, December 31, 1997        216,575            $5.74 - 12.50
===================================================================================================
</TABLE> 

                                       49
<PAGE>
 
     At December 31, 1997, the weighted-average remaining contractual life of
     all outstanding options was 7.59 years, respectively.  At December 31,
     1997, the number of options exercisable was 123,775 and the weighted-
     average exercise price of those options was $7.22.


     Options exercised during 1997 included options exercised in a cashless
     manner whereby no cash is paid by the optionee, and the actual shares
     issued are determined by dividing the difference between the options gross
     market value and option price by the market value per share of the stock on
     the date of exercise. The effect of cashless exercises was to reduce the
     shares otherwise issuable under those options by 1,692 shares.


     There were no stock options granted during 1996.  The per share weighted-
     average fair value of stock options granted during 1997 and 1995 was $3.03
     and $1.96, respectively. The fair value of each option grant is estimated
     on the date of grant using the Black-Sholes option-pricing model with the
     following weighted-average assumptions used for grants in 1997 and 1995,
     respectively: dividend yield of 2.18% and 2.22%; expected volatility of
     18.4% and 20.1%; risk-free interest rate of 6.2% and 6.0%; and an expected
     life of five years and five years.


     The Company applies APB Opinion No. 25 in accounting for its plan and,
     accordingly, no compensation cost has been recognized for its stock options
     in the accompanying consolidated financial statements. Had the Company
     determined compensation cost based on the fair value at the grant date for
     its stock options under SFAS No. 123, the Company's net income would have
     been reduced to the pro forma amounts indicated below for the period ended
     December 31:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
                                      1997       1996      1995
--------------------------------------------------------------------------
<S>                                <C>         <C>       <C>
 
     Net Income
        As reported                 $1,015,000  $640,000  $843,000
        Pro forma                      985,000   630,000   833,000
 
     Basic Net Income Per Share
        As reported                 $      .77  $    .49  $    .65
        Pro forma                          .75       .48       .64

     Diluted Net Income Per Share
        As reported                 $      .73  $    .48  $    .64
        Pro forma                          .71       .47       .63
 
</TABLE>

     Pro forma net income reflects only options granted after 1994.  Therefore,
     the full impact of calculating compensation cost for stock options under
     SFAS No. 123 is not reflected in the pro forma net income amounts presented
     above because compensation cost is reflected over the options' vesting
     period of five years and compensation cost for options granted prior to
     January 1, 1995 is not considered.



     (b)  Employee Stock Ownership Plan


     Effective January 1, 1992, the Bank established the Bank of Lodi Employee
     Stock Ownership Plan. The plan covers all employees, age 21 or older,
     beginning with the first plan year in which the employee completes at least
     1,000 hours of service. The Bank's annual contributions to the plan are
     made in cash and are at the discretion of the Board of Directors based upon
     a review of the Bank's profitability. Contributions for 1997, 1996 and 1995
     totaled approximately $98,000, $37,000, and $56,000, respectively. 


    Contributions to the plan are invested primarily in the Common Stock of
    First Financial Bancorp and are allocated to participants on the basis of
    salary in the year of allocation. Benefits become 20% vested after the third
    year of credited service, with an additional 20% vesting each year
    thereafter until 100% vested after seven years. As of December 31, 1997,
    the plan owned 34,962 shares of Company Common Stock.
 

                                       50
<PAGE>
 
     (c) Dividends and Dividend Restrictions


     On January 22, 1998, the Company's Board of Directors declared a cash
     dividend of five cents per share payable on February 27, 1998, to
     shareholders of record on February 13, 1998.

     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, 1997, there
     were Bank retained earnings of $2,422,000 free of this condition.


     (d) Weighted Average Shares Outstanding


     Basic and diluted earnings per share for the years ended December 31, 1997,
     1996, and 1995 were computed as follows:


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

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

---------------------------------------------------------------------------------------------
                                                          Income         Shares     Per-Share
1995                                                    (numerator)   (denominator)  Amount
---------------------------------------------------------------------------------------------
Basic earnings per share                            $    843,000       1,306,772       $.65
Effect of dilutive securities                                 --          16,862         --
                                                 -------------------------------
Diluted earnings per share                          $    843,000       1,323,634       $.64
                                                 ================================
---------------------------------------------------------------------------------------------
</TABLE>

(13)  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, 1997 and 1996, respectively, such borrowings totaled
      $1,108,000 and $1,176,000, respectively. Deposits of related parties held
      by the Bank totaled $1,000,000 and $951,000 at December 31, 1997 and 1996,
      respectively.

                                       51
<PAGE>
 
     The following is an analysis of activity with respect to the aggregate
     dollar amount of loans made by the Bank to directors, officers and
     affiliates for the years ended December 31:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                      1997         1996
-------------------------------------------------------------------------------
<S>                                <C>          <C>
 
     Balance, beginning of year    $1,176,000    1,803,000
     Loans funded                     524,000      738,000
     Principal repayments            (592,000)  (1,365,000)
------------------------------------------------------------------------------- 
     Balance, end of year          $1,108,000    1,176,000
=============================================================================== 
</TABLE>


(14) 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, 1997 and 1996, and statements of income, and cash
     flows information for the years ended December 31, 1997, 1996, and 1995.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Balance Sheets:
Assets                                                            1997        1996
------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>
     Cash in bank                                               $   139,000      29,000
     Investment securities available-for-sale, at fair value          5,000      80,000
     Premises and equipment, net                                     66,000      68,000
     Investment in wholly-owned subsidiary                       12,548,000  11,683,000
     Other assets                                                   107,000      56,000
------------------------------------------------------------------------------------------ 
                                                                $12,865,000  11,916,000
========================================================================================== 

     Liabilities and Stockholders' Equity
------------------------------------------------------------------------------------------- 
     Accounts payable and other liabilities                          $4,000      27,000
------------------------------------------------------------------------------------------- 
     Common stock                                                 7,455,000   7,324,000
     Retained earnings                                            5,188,000   4,438,000
     Unrealized holding gain on available-for-sale 
     securities, net                                                218,000     127,000
------------------------------------------------------------------------------------------- 
       Total stockholders' equity                                12,861,000  11,889,000
------------------------------------------------------------------------------------------- 
                                                                $12,865,000  11,916,000
=========================================================================================== 
</TABLE> 

<TABLE> 
<CAPTION> 
------------------------------------------------------------------------------------------ 
Statements of Income:                                  1997        1996       1995
------------------------------------------------------------------------------------------ 
<S>                                                  <C>          <C>        <C>
     Rent from subsidiary                                 6,000    356,000    456,000
     Interest from unrelated parties                      2,000      9,000     23,000
     Other expenses                                    (215,000)  (626,000)  (610,000)
     Equity in undistributed income of subsidiary     1,100,000    832,000    935,000
     Income tax benefit                                 122,000     69,000     39,000
------------------------------------------------------------------------------------------  
       Net income                                    $1,015,000    640,000    843,000
==========================================================================================
</TABLE>
 

                                       52
<PAGE>
 
<TABLE>
<CAPTION>
 
Statements of Cash Flows:                                    1997        1996       1995
--------------------------------------------------------------------------------------------- 
<S>                                                       <C>          <C>        <C>
     Net Income                                           $1,015,000    640,000    843,000
       Adjustments to reconcile net income to net cash
       flows provided by operating activities:
       Depreciation and amortization                           2,000    125,000    142,000
       Provision for deferred taxes                          (36,000)     7,000      4,000
       (Decrease) increase in other liabilities              (23,000)    27,000    (41,000)
       (Increase) decrease in other assets                   (15,000)     3,000      7,000
       Increase in equity of subsidiary                     (774,000)  (832,000)  (935,000)
---------------------------------------------------------------------------------------------  

     Net cash provided by (used in) operating activities     169,000    (30,000)    20,000

     Proceeds from sale of available-for-sale securities      75,000    302,000    127,000
     Capital expenditures                                         --     (4,000)        --
---------------------------------------------------------------------------------------------  
     Net cash provided by investing activities                75,000    298,000    127,000
 
     Payments on notes payable                                    --    (33,000)   (33,000)
     Proceeds received upon exercise of stock options        131,000     10,000      4,000
     Dividends paid                                         (265,000)  (261,000)  (196,000)
---------------------------------------------------------------------------------------------   
     Net cash  used by financing activities                 (134,000)  (284,000)  (225,000)
---------------------------------------------------------------------------------------------  

     Net increase (decrease) in cash                         110,000    (16,000)   (78,000)
---------------------------------------------------------------------------------------------  
     Cash at beginning of year                                29,000     45,000    123,000
---------------------------------------------------------------------------------------------   
     Cash at end of year                                   $ 139,000     29,000     45,000
============================================================================================= 
</TABLE>

(15)  Lines of Credit


     The Bank has two lines of credit with correspondent banks totaling
     $5,000,000. As of December 31, 1997 and 1996, no amounts were outstanding
     under these lines of credit.



(16)  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.
 

                                       53
<PAGE>
 
     Management believes, as of December 31, 1997, that the Bank meets all
     capital adequacy requirements to which it is subject.  As of December 31,
     1997, 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, 1997 are as
     follows:
<TABLE> 
<CAPTION> 
-------------------------------------------------------------------------------------------------------------------------------
                                                                                               To Be Well Capitalized
                                                                           For Capital         Under Prompt Corrective
                                              Actual                    Adequacy Purposes      Action Provisions
                                              Amount     Ratio          Amount     Ratio       Amount           Ratio
-------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>            <C>        <C>         <C>              <C>
 
Total Risk-based capital                    
(to Risk weighted assets)                   $11,459,000   12.95%        $7,081,000   8.0%       $8,851,000       10.0%  

Tier I Capital (to Risk Weighted assets)    $10,352,000   11.70%        $3,541,000   4.0%       $5,310,000        6.0%

Tier I Capital  (to Average Assets)         $10,352,000    7.11%        $5,828,000   4.0%       $7,285,000        5.0%
</TABLE> 

(17) Fair Values of Financial Instruments


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

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

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

     Loans: For variable-rate loans that reprice frequently and with no
     ------                                                            
     significant change in credit risk, fair values are based on carrying
     values. The fair values for other loans (e.g., commercial real estate,
     mortgage loans, commercial and construction loans, and installment 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 majority of
     -----------------------------------------------------------                
     commitments to extend credit and standby letters of credit contain variable
     rates of interest and credit deterioration clauses, and therefore, the
     carrying value of these credit commitments approximates fair value.

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


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

                                       54
<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 Bank's financial instruments are
    approximately as follows:

<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------  
                                                            1997
                                                 Carrying         Fair
                                                  Amount         Value
---------------------------------------------------------------------------------------------  
<S>                                            <C>            <C>
 
Financial assets:
 Cash and due from banks and                    
  federal funds sold                           $ 12,083,000    12,083,000
 Investment securities                           61,917,000    61,986,000
 Loans:
 Gross Loans                                     64,109,000    64,556,000
  Less:
  Allowance for loan losses                      (1,313,000)   (1,313,000)
  Deferred loan fees and loan sale  premiums       (568,000)     (568,000)
---------------------------------------------------------------------------------------------  
  Net loans                                    $ 62,228,000    62,675,000
 
Financial liabilities:
 Deposits:
 
  Demand                                       $ 14,928,000    14,928,000
  Now and Super Now accounts                     29,734,000    29,734,000
  Money Market                                   20,456,000    20,456,000
  Savings                                        24,802,000    24,802,000
  Time                                           43,971,000    43,911,000
---------------------------------------------------------------------------------------------  
  Total deposits                               $133,891,000   133,831,000
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------  
                                               Contract    Carrying   Fair
                                                Amount       Amount   Value
---------------------------------------------------------------------------------------------  
<S>                                           <C>          <C>       <C>
        Unrecognized financial instruments:
           Commitments to extend credit        $17,950,000     __     180,000
           Standby letters of credit                50,000     __       1,000
 
</TABLE>

                                       55
<PAGE>
 
<TABLE> 
<CAPTION> 
---------------------------------------------------------------------------------------------  
                                                                  1996
                                                          Carrying       Fair
                                                          Amount        Value
---------------------------------------------------------------------------------------------  
<S>                                                      <C>            <C>
        Financial assets:
           Cash and due from banks 
             and federal funds sold                      $ 5,848,000    5,848,000
           Investment securities                         $36,913,000   37,012,000
           Loans:
           Gross Loans                                 $  54,279,000   53,920,000
             Less:
             Allowance for loan losses                    (1,207,000)  (1,207,000)
             Deferred loan fees and loan sale  premiums     (400,000)    (400,000
---------------------------------------------------------------------------------------------  
             Net loans                                   $52,672,000   52,313,000
 
       Financial liabilities:
           Deposits:
             Demand                                    $   9,066,000    9,066,000
             Now and Super Now accounts                   20,553,000   20,553,000
             Money Market                                 13,042,000   13,042,000
             Savings                                      15,972,000   15,972,000
             Time                                         33,574,000   33,702,000
---------------------------------------------------------------------------------------------  
             Total deposits                              $92,207,000   92,335,000
 
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------  
                                                Contract   Carrying   Fair
                                                 Amount      Amount   Value
---------------------------------------------------------------------------------------------  
<S>                                            <C>         <C>        <C> 
      Unrecognized financial instruments:
           Commitments to extend credit       $ 11,784,000     __     118,000
           Standby letters of credit                50,000     __       1,000
 
</TABLE>

(18)  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.



(19)
     Derivative Financial Instruments


     As of December 31, 1997 and 1996, the Company has no off-balance sheet
     derivatives.  The Company held $1,036,000 and 1,224,000 in collateralized
     mortgage obligations and $1,000,000 and $2,100,00 in structured notes as of
     December 31, 1997 and 1996 respectively.  These investments are held in the
     available for sale portfolio.



(20)  Acquisition of Branches


     On February 22, 1997, the Bank completed the acquisition of the Galt,
     Plymouth, and San Andreas, California, branches of Wells Fargo Bank. The
     Bank purchased the premises and equipment of the Plymouth and San Andreas
     branches and assumed the building lease for the Galt branch. The Bank also
     purchased the furniture and equipment of all three branches and paid a
     premium for the deposits of each branch. The total cost of acquiring the
     branches, including payments to Wells Fargo Bank as well as other direct
     costs associated with the purchase, was $2.86 million. The transaction was
     accounted for using the purchase

                                       56
<PAGE>
 
     method of accounting. Accordingly, the purchase price was allocated first
     to identifiable tangible assets based upon those assets' fair value and
     then to identifiable intangible assets based upon the assets' fair value.
     The excess of the purchase price over identifiable tangible and intangible
     assets was allocated to goodwill. Allocations to identifiable tangible
     assets, identifiable intangible assets, and goodwill were $856 thousand,
     $1.98 million, and $24 thousand, respectively. Deposits totaling $34
     million were acquired in the transaction.



(21) Prospective Accounting Pronouncements

     Reporting Comprehensive Income
     ------------------------------


     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
     SFAS No. 130 is effective for interim and annual periods beginning after
     December 15, 1997 and is to be applied retroactively to all periods
     presented.   SFAS No. 130 establishes standards for reporting and display
     of comprehensive income and its components in a full set of general purpose
     financial statements.  It does not, however, specify when to recognize or
     how to measure items that make up comprehensive income.  SFAS No. 130 was
     issued to address concerns over the practice of reporting elements of
     comprehensive income directly in equity. This statement requires all items
     that are required to be recognized under accounting standards as components
     of comprehensive income be reported in a financial statement that is
     displayed in equal prominence with the other financial statements.  It does
     not require a specific format for that financial statement but requires
     that an enterprise display an amount representing total comprehensive
     income for the period in that financial statement. Enterprises are required
     to classify items of "other comprehensive income" by their nature in the
     financial statement and display the balance of other comprehensive income
     separately in the equity section of a statement of financial position. It
     does not require per share amounts of comprehensive income to be disclosed.
     Management does not expect that adoption of SFAS No. 130 will have a
     material impact on the Company's consolidated financial statements.

     Financial Reporting for Segments of a Business Enterprise
     ---------------------------------------------------------


     In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
     an Enterprise and Related Information. SFAS No. 131 is effective for
     interim and annual periods beginning after December 15, 1997 and is to be
     applied retroactively to all periods presented. SFAS No. 131 establishes
     standards for the way public business enterprises are to report information
     about operating segments in annual financial statements and requires those
     enterprises to report selected information about operating segments in
     interim financial reports issued to shareholders. It also establishes
     standards for related disclosures about products and services, geographic
     areas, and major customers. SFAS No. 131 supersedes SFAS No. 14, Financial
     Reporting for Segments of a Business Enterprise but retains the requirement
     to report information about major customers. Management does not expect
     that adoption of SFAS No. 131 will have a material impact on the Company's
     consolidated financial statements.

                                       57
<PAGE>
 
                                    SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 6th day of March,
1998.

                                           FIRST  FINANCIAL  BANCORP

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

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
 
                                               Capacity                          DATE
                                ---------------------------------------      -------------
<S>                             <C>                                          <C>

    /s/ BENJAMIN R. GOEHRING    Director and Chairman of the Board           March, 6 1998
------------------------------
Benjamin R. Goehring

    /s/ WELDON D. SCHUMACHER    Director and Vice Chairman of the Board      March, 6 1998
------------------------------
Weldon D. Schumacher

   /s/ BOZANT KATZAKIAN         Director                                     March, 6 1998
------------------------------
Bozant Katzakian

   /s/ ANGELO J. ANAGNOS        Director                                     March, 6 1998
------------------------------
Angelo J. Anagnos

   /s/ RAYMOND H. COLDANI       Director                                     March, 6 1998
------------------------------
Raymond H. Coldani

   /s/ MICHAEL D. RAMSEY        Director                                     March, 6 1998
------------------------------
Michael D. Ramsey

   /s/ FRANK M. SASAKI          Director                                     March, 6 1998
------------------------------
Frank M. Sasaki

   /s/ DENNIS SWANSON           Director                                     March, 6 1998
------------------------------
Dennis Swanson

   /s/ LEON J. ZIMMERMAN        President and                                March, 6 1998
------------------------------  Chief Executive Officer
Leon Zimmerman                  (Principal Executive Officer)

   /s/ DAVID M. PHILIPP         Executive Vice President,                    March, 6 1998
------------------------------  Chief Financial Officer and Secretary
David M. Philipp                (Principal Financial and Accounting Officer)

</TABLE>
                                      58
<PAGE>
 
                               INDEX TO EXHIBITS
                                        
Exhibit                                                               Page
-------                                                               ----
  3(b)          Bylaws, as amended                                     60
              
  10(f)         Bank of Lodi Incentive Compensation Plan               74
              
  10(g)         First Financial Bancorp 401 (k) Profit Sharing Plan    76
              
  23            Consent of Expert                                     136
              
  27            Financial Data Schedule (electronic submission only)

                                       59