<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                     ANNUAL REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1999     Commission File Number 000-23257

                                   BYL BANCORP

              CALIFORNIA                                       33-0755794
   (State or other jurisdiction of                           (IRS Employer
    Incorporation or organization)                        Identification No.)

1875 NORTH TUSTIN STREET, ORANGE, CALIFORNIA                   92685
  (Address of principal executive offices)                     (Zip Code)


                    Issuer's telephone number: (714) 685-1317

         SECURITIES REGISTERED UNDER SECTION 12(b) OF EXCHANGE ACT: NONE
           SECURITIES REGISTERED UNDER SECTION 12(g) OF EXCHANGE ACT:

                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Securities Exchange Act during the past 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.
                                                                  Yes /X/ No / /

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.                                                 /X/

There were 2,537,102 shares of Common Stock outstanding at April 6, 2000. The
aggregate market value of Common Stock held by non-affiliates at April 6, 2000
was approximately $21.1 million based upon the last known trade of $10.06 per
share on April 6, 2000.

Documents incorporated by reference: The proxy statement for the Annual Meeting
of Shareholders of the registrant to be held in the second or third quarter of
2000. Certain information therein is incorporated by reference in Part III
hereof.


                                       1
<PAGE>

                                                    BYL BANCORP

                                                 TABLE OF CONTENTS


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Part I

   Item 1.   Business......................................................................................... 3
   Item 2.   Properties.......................................................................................18
   Item 3.   Legal Proceedings................................................................................18
   Item 4.   Submission of Matters to a Vote of Security Holders..............................................18

Part II

   Item 5.   Market for the Registrant's Common Equity and Related Stockholder Matters........................19
   Item 6.   Selected Financial Data..........................................................................20
   Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operation.............22
   Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.......................................37
   Item 8.   Financial Statements and Supplementary Data......................................................40
   Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............76

Part III

   Item 10.  Directors and Executive Officers of the Registrant...............................................76
   Item 11.  Executive Compensation...........................................................................76
   Item 12.  Security Ownership of Certain Beneficial Owners and Management...................................76
   Item 13.  Certain Relationships and Related Transaction....................................................76

Part IV

   Item 14.  Exhibits Financial Statement Schedules, and Reports on Form 8-K..................................77
</TABLE>


                                       2
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                                     PART I


ITEM 1:  BUSINESS

GENERAL

BYL Bancorp (hereinafter the "Company") was incorporated under the laws of the
State of California in 1997 and commenced operations in November 1997 as a bank
holding company of BYL Bank Group (the "Bank"), which changed its name from Bank
of Yorba Linda in June 1998. Other than its investment in the Bank, the Company
currently conducts no other significant business activities, although it is
authorized to engage in a variety of activities which are deemed closely related
to the business of banking upon prior approval of the Federal Reserve's Board of
Governors, the Company's primary regulator. As of December 31, 1999, the Company
had total assets of approximately $354 million, total deposits of $323 million
and total shareholders' equity of $29 million.

The Bank was incorporated under the laws of the State of California in 1979 and
was licensed by the California State Banking Department, now known as of the
California Department of Financial Institutions ("DFI") and commenced operations
as a California state chartered bank on March 3, 1980. The Bank's accounts are
insured by the Federal Deposit Insurance Corporation ("FDIC"), but like most
banks of its size in California, is not a member of the Federal Reserve Bank.

The Bank is a California commercial bank that operates from its main office in
Orange, California and operates seven full-service banking centers in the Bank's
primary market areas of Orange and Riverside counties, California. The Bank
specializes in originating and selling non-conforming and conforming residential
real estate loans and SBA guaranteed loans. The Bank's specialized loan
origination divisions, non-conforming mortgages and SBA guaranteed loans,
operate under the name of Bank of Yorba Linda, a division of BYL Bank Group. The
Bank's principal office is located at 1875 North Tustin Avenue, Orange,
California. The Bank's Mortgage Division is currently located in Tustin,
California. The Bank's SBA Loan Division is currently located in Mission Viejo,
California. The Bank also has mortgage origination offices in Colorado, Indiana,
Florida, Kansas, Northern California, Nevada, Utah and Washington state. On
March 26, 1999, the Bank closed its Laguna Hills office and relocated the
branch's assets and liabilities to its Costa Mesa office. On May 20, 1999, the
Bank closed its Riverside branch office and relocated the branch's assets and
liabilities to its De Anza office.

FOCUS AND OPERATING STRATEGY

The primary focus of the Bank is to provide personalized quality banking
products and services to small- and medium-size businesses, including
professionals, to originate primarily conforming and nonconforming mortgages in
California and various other states and selling such loans in the secondary
market, and to originate and sell SBA guaranteed loans, with the objective of
building a balanced community loan and investment portfolio mix. Management
believes that a local market focus, accompanied by strategic placement of bank
branches and personnel, enables the Bank to attract and retain low cost core
deposits which provide substantially all of the Bank's funding requirements.


                                       3
<PAGE>

Historically, the Bank engaged in traditional community banking activities,
including originating commercial, consumer and real estate construction loans,
and gathering local deposits to fund these activities. With the employment of
Mr. Robert Ucciferri as the Bank's President and Chief Executive Officer in late
1990 and other senior officers in early 1991, the Bank's operating strategy
changed to emphasize the origination and sale of nonconforming residential
mortgage loans and SBA loans. In part, because of the portfolio turnover and
resultant gains on sales of such loans, such activities typically provide
greater returns than more traditional community bank activities.

From 1990 to 1999, the Bank's operating strategy emphasized: (i) expansion of
its programs for originating and selling mortgage loans and SBA guaranteed
loans; (ii) continued focus upon providing personalized quality banking products
to small to medium-size businesses, professionals, general retail clients and
the local community; and (iii) continued expansion of the Bank, primarily in
Orange County and Riverside County, California, through internal growth and,
when favorable, through selective acquisitions of, or mergers with, healthy,
distressed or failed institutions or the selective acquisition of branches of
such institutions; however, the Bank has no written or oral agreements regarding
any such activities at this time.

RESTRUCTURING

However, during the fourth quarter of 1999, the Company determined that the
maximum potential value of the Bank's commercial loan originations would be
realized through the retention of these loans in the Bank's loan portfolio. This
decision was based upon the current and anticipated returns obtainable from
either the sale or securitization of these commercial loan originations and the
proposed increased capital requirements on loan securitzations. The shift in the
Bank's strategy from loan sales or securitizations to portfolio retention will
require increasing levels of capital in order to maximize the value of the
Bank's ability to generate commercial loans at premium yields. In order to
conserve the Bank's capital to implement this strategic change, the Board of
Directors suspended the quarterly cash dividend for the fourth quarter of 1999.

The Bank is currently evaluating various possible alternatives of increasing
capital, including the issuance of various kinds of securities and the
divestiture or closing of those operations which were expected to continue to
provide rates of return below the Bank's targeted ROI. On February 4, 2000, the
Bank completed the sale of its automobile loan portfolio of approximately $38
million and closed its automobile division. On February 22, 2000, the Bank
completed the sale of its Diamond Bar Mortgage Division, an originator of Agency
conforming residential mortgages. As a result of this restructuring, the Company
expects to report a loss for the first quarter 2000 of approximately $500,000.
The Company also suspended quarterly dividends effective January 1, 2000. The
Company continues to explore various means to increase capital and shareholder
value, including the raising of additional capital, the formation of a holding
company subsidiary that would house many of the Bank's current lending
activities, and forming strategic alliances with other well-positioned financial
institutions.


                                       4
<PAGE>

SALE OF UNGUARANTEED INTERESTS IN SBA LOANS

On December 10, 1998, the Bank entered into a Pooling and Servicing Agreement
dated as of October 1, 1998 (the "SBA Pooling Agreement") between the Bank, as
Servicer and Master Servicer, and Marine Midland Bank, as Trustee (the
"Trustee") whereby the Bank transferred certain unguaranteed interests (the
"Unguaranteed Interests") in loans (the "SBA Loans") partially guaranteed by the
U.S. Small Business Administration ("SBA") to a newly-created trust (the
"Trust") for the benefit of the SBA and the holders of certificate representing
interests in such Trust. The Trust consists of the Unguaranteed Interests in
such SBA Loans that are subject to the Pooling Agreement, and the Trust has
issued three (3) classes of certificates representing certain fractional
undivided ownership interests in the Trust. The Aggregate principal amount of
the Unguaranteed Interests delivered to the Trust on October 31, 1998 equaled
approximately $38.1 million.

Pursuant to the SBA Pooling Agreement, the Trust issued $34.4 million aggregate
principal amount of BYL Bank Group SBA Loan-Backed Adjustable Rate Certificate,
Series 1998-1, Class A ("Class A Certificate"), $6.02 million aggregate
principal amount of BYL Bank Group SBA Loan-Backed Adjustable Rate Certificate,
Series 1998-1, Class M. ("Class M Certificate") and $2.58 million aggregate
principal amount of BYL Bank Group SBA Loan-Back Adjustable Rate Certificates,
Series 1998-1, Class B ("Class B Certificate").

The Class A and Class M Certificates were sold to a limited number of "Qualified
Institutional Buyers" as defined in Rule 144A under the Securities Act of 1933,
and institutional "Accredited Investors" as defined in Rule 501 under the
Securities Act. Pursuant to the requirements of the SBA, the Class B Certificate
were retained by the Bank and are subordinate to the Class A and Class M
Certificates. The Class M Certificates are subordinate to the Class A
Certificates.

SALE OF COMMERCIAL LOANS

On August 11, 1999, the Bank entered into a Pooling and Servicing Agreement
dated as of June 30, 1999 (the "Business Loan Pooling Agreement") among the
Bank, as seller and master servicer, HSBC Bank USA, as Trustee, and Bankers
Trust (Delaware) as Delaware Trustee, whereby the Bank has transferred a pool of
business loans to a newly-created trust (the "Business Loan Trust") for the
benefit of the holders of certificates representing interests in such Business
Loan Trust. The Business Loan Trust consists of the Business Loans that are
subject to the Business Loan Pooling Agreement, land the Business Loan Trust has
issued three (3) classes of certificates representing certain fractional
undivided ownership interests in the Business Loan Trust. The aggregate
principal amount of the Business Loans delivered to the Business Loan Trust on
August 11, 1999 equaled approximately $47.1 million.

Pursuant to the Business Loan Pooling Agreement, the Trust issued $16 million
aggregate principal amount of BYL Bank Group Business Loan-Backed Pass-Through
Certificates, Series 1999-1, Class A-1 ("Class A-1 Certificates"), $12 million
aggregate principal amount of BYL Bank Group Business Loan-Backed Pass Through
Certificates, Series 1999-1, Class A-2 Certificates ("Class A-2 Certificates");
$27.2 million aggregate principal amount of BYL Bank Group Business Loan-Backed
Pass-Through Certificates, Series 1999-1, Class A-3 Certificates ("Class A-3
Certificates"); $4.8 million aggregate principal amount of BYL Bank Group
Business Loan-Backed Pass-Through Certificates, Series 1999-1, Class B
Certificates ("Class B-1 Certificates"); and BYL Bank Group Business Loan-Backed
Pass-Through Certificates, Series 1999-1, Class R Certificates ("Class R
Certificates").


                                       5
<PAGE>

The Class A Certificates were sold to a limited number of "Qualified
Institutional Buyers" as defined in Rule 144A under the Securities Act of 1933,
and institutional "Accredited Investors" as defined in Rule 501 under the
Securities Act. The Class B-1 Certificates and the Class R Certificates were
retained by the Bank and are subordinate to the Class A-1 Certificates, the
Class A-2 Certificates and the Class A-3 Certificates.

REGULATORY ACTIONS, PROMPT CORRECTIVE ACTION AND CAPITAL RESTORATION PLAN

The two securitization transactions described above were accounted for as
sales in accordance with Generally Accepted Accounting Principles. However,
as a result of a recent FDIC examination, the FDIC has indicated that such
transactions are considered to be with recourse, that the Bank did not
adequately support the assumptions utilized to project the value assigned to
various residual assets retained in the securitizations completed in 1998 and
1999, that the FDIC has advised the Bank it believes these assets are
overstated $2.7 million on a pre-tax basis, that the Bank's Total Risk Based
Capital Ratio has been recalculated to 7.99%, which does not include the
FDIC's perceived overstatement, and that the Bank is considered to be
undercapitalized for purposes of Prompt Corrective Action (see "-Prompt
Corrective Action" below) because the Bank's Total Risk Based Capital Ratio
as calculated by the FDIC was 0.01% less than being adequately capitalized.
The Bank also believes that the FDIC may issue a formal enforcement action in
the near future. As a result, the Bank has filed a capital restoration plan
with the FDIC, which provides that as a result of the sale of the Bank's $38
million auto portfolio, the closing of the Indirect Auto division and the
sale of the Diamond Bar Mortgage Division, the Bank expects to be adequately
capitalized by March 31, 2000. The capital restoration plan also provides for
increasing levels of capital every quarter until the Bank is well capitalized
in 2001. Further, the Bank has eliminated asset securitizations from its
business plan. The Bank will continue operations of all traditional retail
banking activities through the Bank's existing branch system.

Management strongly disagrees with the FDIC conclusions in this matter and
intends to appeal the FDIC findings. In connection with this appeal, the Bank
has engaged a reputable third-party consultant to evaluate the assumptions
used in the valuation of these assets as well as design a new valuation model
for ongoing measurement of the changes in valuation of these assets.

COMPLETION OF THE ACQUISITION OF DNB FINANCIAL

Following the receipt of all necessary regulatory approvals, the Company
completed the acquisition of DNB Financial ("DNBF") on May 29, 1998 pursuant to
the terms of the Agreement and Plan of Reorganization dated January 29, 1998 in
which DNBF was merged with and into the Company, and De Anza National Bank, the
wholly-owned subsidiary of DNBF, was merged with and into the Bank. The
transaction was structured as a pooling of interests through a tax-free exchange
of the Company's shares of common stock for all outstanding shares of DNBF's
common stock.

As a result of the calculations required by the Agreement, each share of DNBF
common stock was converted into the right to receive 4.1162 shares of the
Company common stock, resulting in the issuance of 956,641 shares of Company
common stock to the shareholders of DNBF. The acquisition of DNBF by the Company
increased the total assets of the Company and its subsidiaries to approximately
$270 million and total shareholders' equity to approximately $23 million as of
the consummation of the transaction.


                                       6
<PAGE>

COMPLETION OF ACQUISITION OF BANK OF WESTMINSTER

Following the receipt of all necessary regulatory approvals, the Bank completed
the acquisition of Bank of Westminster ("BOW") on June 14, 1996 pursuant to the
terms of the Agreement and Plan of Reorganization dated January 12, 1996 in
which the Bank organized and established BYL Merger Corporation as a
wholly-owned subsidiary of the Bank for the sole purpose of facilitating the
merger of BOW with the Bank. BYL Merger Corporation was consolidated with BOW
under the name and charter of BOW (the "Consolidation"), and, immediately
thereafter, the consolidated corporation was merged with and into the Bank (the
"Merger"). The aggregate purchase price of BOW was $6.17 million or $6.52 per
share.

The Bank acquired 100% of the outstanding common stock of BOW for $6,174,000 in
cash. BOW had total assets of approximately $54,923,000. The acquisition was
accounted for using the purchase method of accounting in accordance with
Accounting Principles Board Opinion No. 16 "Business Combinations". Under this
method of accounting, the purchase price was allocated to the assets acquired
and deposits and liabilities assumed based on their fair values as of the
acquisition date. The financial statements include the operations of BOW from
the date of the acquisition. Goodwill arising from the transaction totaled
approximately $1,717,000 and is being amortized over fifteen years on a
straight-line basis.

SECONDARY STOCK OFFERING

During 1996, the Bank completed a secondary stock offering underwritten on a
firm commitment basis by Ryan, Beck & Co. In connection with this offering, the
Bank issued 805,000 shares of common stock generating $7.8 million in additional
capital (net of underwriting discounts and transaction costs of $1.1 million).
Proceeds from this offering were used, in part, to fund the acquisition of BOW.

SUPERVISION AND REGULATION

THE COMPANY

The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
registered as such with, and subject to the supervision of, the Federal Reserve
Board. The Company is required to file with the Federal Reserve Board quarterly
and annual reports and such additional information as the Federal Reserve Board
may require pursuant to the Bank Holding Company Act. The Federal Reserve Board
may conduct examinations of bank holding companies and their subsidiaries.

The Company will be required to obtain the approval of the Federal Reserve Board
before it may acquire all or substantially all of the assets of any bank, or
ownership or control of the voting shares of any bank if, after giving effect to
such acquisition of shares, the Company would own or control more than 5% of the
voting shares of such bank. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company and another bank holding
company.


                                       7
<PAGE>

The Company is prohibited by the Bank Holding Company Act, except in certain
statutorily prescribed instances, from acquiring direct or indirect ownership or
control of more than 5% of the outstanding voting shares of any company that is
not a bank or bank holding company and from engaging, directly or indirectly, in
activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiaries. However, the Company may, subject to
the prior approval of the Federal Reserve Board, engage in any, or acquire
shares of companies engaged in, activities that are deemed by the Federal
Reserve Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.

The Company, and any subsidiaries which it may acquire or organize, are deemed
to be "affiliates" of the Company within the meaning of that term as defined in
the Federal Reserve Act. This means, for example, that there are limitations (a)
on loans by it subsidiaries to affiliates, and (b) on investments by its
subsidiaries in affiliates' stock as collateral for loans to any borrower. The
Company and its subsidiary are also subject to certain restrictions with respect
to engaging in the underwriting, public sale and distribution of securities.

The Company and its subsidiary are prohibited from engaging in certain tie-in
arrangements in connection with an extension of credit, sale or lease of
property or furnishing of services. Section 106(b) of the Bank Holding Company
Act Amendments of 1970 generally prohibits a bank from tying a product or
service to another product or service offered by its subsidiaries, or by any of
its affiliates. Further, the Company and its subsidiary is required to maintain
certain levels of capital. See, "Effect of Governmental Policies and Recent
Legislation Capital Standards."

The Federal Reserve Board may require that the Company terminate an activity or
terminate control of or liquidate or divest subsidiaries or affiliates when the
Federal Reserve Board determines that the activity or the control or the
subsidiary or affiliates constitutes a significant risk to the financial safety,
soundness or stability of any of its banking subsidiaries. The Federal Reserve
Board also has the authority to regulate provisions of certain bank holding
company debt, including authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, the Company is required
to file written notice and obtain approval from the Federal Reserve Board prior
to purchasing or redeeming its equity securities.

Under the Federal Reserve Board's regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe and unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving as
a source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.

THE BANK

The Bank is extensively regulated under both federal and state law. Set forth
below is a summary description of certain laws which relate to the regulation of
the Bank. The description does not purport to be complete and is qualified in
its entirety by reference to the applicable laws and regulations.


                                       8
<PAGE>

The Bank is chartered under the laws of the State of California and its deposits
are insured by the FDIC to the extent provided by law. The Bank is subject to
the supervision of, and is regularly examined by, the DFI and the FDIC. Such
supervision and regulation include comprehensive reviews of all major aspects of
the Bank's business and condition.

Various requirements and restrictions under the laws of the United States and
the State of California affect the operations of the Bank. Federal and
California statutes relate to many aspects of the Bank's operations, including
reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends and locations of
branch offices. Further, the Bank is required to maintain certain levels of
capital.

California law and regulations of the DFI authorize California licensed banks,
subject to applicable limitations and approvals of the DFI to (1) provide real
estate appraisal services, management consulting and advice services, and
electronic data processing services; (2) engage directly in real property
investment or acquire and hold voting stock of one or more corporations, the
primary activities of which are engaging in real property investment; (3)
organize, sponsor, operate or render investment advice to an investment company
or to underwrite, distribute or sell securities in California; and (4) invest in
the capital stock, obligations or other securities of corporations not acting as
insurance companies, insurance agents or insurance brokers. In November 1988,
Proposition 103 was adopted by California voters. The DFI has established
certain procedures to be followed by banks desiring to engage in certain
insurance activities.

CAPITAL STANDARDS

The Federal Reserve Board and FDIC have adopted risk-based minimum capital
guidelines (for bank holding companies and insured non-member state banks,
respectively) intended to provide a measure of capital that reflects the degree
of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.

A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which includes off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock,
retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for possible loan and lease losses, cumulative
preferred stock, long-term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. The federal banking agencies
require a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%.


                                       9
<PAGE>

In addition to the risked-based guidelines, federal banking regulators require
banking organizations to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage ratio. For a banking organization rated in
the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. For all banking organizations not rated in the highest category, the minimum
leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or
4% to 5%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.

In June 1996, the federal banking agencies adopted a joint agency policy
statement to provide guidance on managing interest rate risk. These agencies
indicated that the adequacy and effectiveness of a bank's interest rate risk
management process and the level of its interest rate exposures are critical
factors in the agencies' evaluation of the Bank's capital adequacy. A bank with
material weaknesses in its risk management process or high levels of exposure
relative to its capital will be directed by the agencies to take corrective
action. Such actions will include recommendations or directions to raise
additional capital, strengthen management expertise, improve management
information and measurement systems, reduce levels of exposure, or some
combination thereof depending upon the individual institution's circumstances.

The federal banking agencies issued an interagency policy statement on the
allowance for loan and lease losses which, among other things, establishes
certain benchmark ratios of loan loss reserves to classified assets. The
benchmark set forth by such policy statement is the sum of (a) assets classified
loss; (b) 50 percent of assets classified doubtful; (c) 15 percent of assets
classified substandard; and (d) estimated credit losses on other assets over the
upcoming 12 months.

Federally supervised banks and savings associations are currently required to
report deferred tax assets in accordance with SFAS No. 109. The federal banking
agencies recently issued final rules governing banks and bank holding companies,
which became effective April 1, 1995, which limit the amount of deferred tax
assets that are allowable in computing an institutions regulatory capital. The
standard has been in effect on an interim basis since March 1993. Deferred tax
assets that can be realized for taxes paid in prior carryback years and from
future reversals of existing taxable temporary differences are generally not
limited. Deferred tax assets that can only be realized through future taxable
earnings are limited for regulatory capital purposes to the lesser of (i) the
amount that can be realized within one year of the quarter-end report date, or
(ii) 10% of Tier 1 Capital. The amount of any deferred tax in excess of this
limit would be excluded from Tier 1 Capital and total assets and regulatory
capital calculations.

Future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends. Under applicable regulatory
guidelines, the Bank is considered to be "Undercapitalized" at December 31,
1999. See REGULATORY ACTIONS, PROMPT CORRECTIVE ACTION AN CAPITAL RESTORATION
PLAN.

On January 1, 1998, new legislation became effective which, among other things,
gave the power to the DFI to take possession of the business and properties of a
bank in the event that the tangible shareholders' equity of the Bank is less
than the greater of (i) 3% of the Bank's total assets or (ii) $1,000,000.


                                       10
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PROMPT CORRECTIVE ACTION

Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.

An insured depository institution generally will be classified in the
following categories based on capital measures indicated below:

<TABLE>
<S>                                              <C>
        "WELL CAPITALIZED"                               "ADEQUATELY CAPITALIZED"

Total risk-based capital of 10%;                 Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and             Tier 1 risk-based capital of 4%; and
  Leverage ratio of 5%.                            Leverage ratio of 4%.

        "UNDERCAPITALIZED"                           "SIGNIFICANTLY UNDERCAPITALIZED"

Total risk-based capital less than 8%;           Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 4%; or       Tier 1 risk-based capital less than 3%; or
  Leverage ratio less than 4%.                     Leverage ratio less than 3%.

       "CRITICALLY UNDERCAPITALIZED"

Tangible equity to total assets less than 2%.
</TABLE>

An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.

The law prohibits insured depository institutions from paying management fees to
any controlling persons or, with certain limited exceptions, making capital
distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is


                                       11
<PAGE>

necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions. An
insured depository institution that is significantly undercapitalized, or is
undercapitalized and fails to submit, or in a material respect to implement, an
acceptable capital restoration plan, is subject to additional restrictions and
sanctions. These include, among other things: (i) a forced sale of voting shares
to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced acquisition; (ii) restrictions on transactions with
affiliates; (iii) further limitations on interest rates paid on deposits; (iv)
further restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of directors or senior
executive officers; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate federal banking
agency has discretion to determine which of the foregoing restrictions or
sanctions it will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions and impose
restrictions on rates paid on deposits unless it determines that such actions
would not further the purpose of the prompt corrective action provisions. In
addition, without the prior written approval of the appropriate federal banking
agency, a significantly undercapitalized institution may not pay any bonus to
its senior executive officers or provide compensation to any of them at a rate
that exceeds such officer's average rate of base compensation during the 12
calendar months preceding the month in which the institution became
undercapitalized.

Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.

In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.


                                       12
<PAGE>

SAFETY AND SOUNDNESS STANDARDS

Effective in 1995 the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by the Federal
Deposit Insurance Corporation Improvement Act of 1991 (AFDICIA). These standards
are designed to identify potential safety and soundness concerns and ensure that
action is taken to address those concerns before they pose a risk to the deposit
insurance fund. The standards relate to (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees and
benefits. If a federal banking agency determines that an institution fails to
meet any of these standards, the agency may require the institution to submit to
the agency an acceptable plan to achieve compliance with the standard. In the
event the institution fails to submit an acceptable plan within the time allowed
by the agency or fails in any material respect to implement an accepted plan,
the agency must, by order, require the institution to correct the deficiency.
Effective October 1, 1996, the federal banking agencies promulgated safety and
soundness regulations and accompanying interagency compliance guidelines on
asset quality and earnings standards. These new guidelines provide six standards
for establishing and maintaining a system to identify problem assets and prevent
those assets from deteriorating. The institution should (i) conduct periodic
asset quality reviews to identify problem assets; (ii) estimate the inherent
losses in those assets and establish reserves that are sufficient to absorb
estimated losses; (iii) compare problem asset totals to capital; (iv) take
appropriate corrective action to resolve problems assets; (v) consider the size
and potential risks of material asset concentrations; and (vi) provide periodic
asset reports with adequate information for management and the board of
directors to assess the level of risk. These new guidelines also set forth
standards for evaluating and monitoring earnings and for ensuring that earnings
are sufficient for the maintenance of adequate capital and reserves. If an
institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an accepted
plan may result in enforcement action.

PREMIUMS FOR DEPOSIT INSURANCE

Federal law has established several mechanisms to increase funds to protect
deposits insured by Bank Insurance Fund ("BIF") administered by the FDIC. The
FDIC is authorized to borrow up to $30 billion from the United States Treasury;
up to 90% of the fair market value of assets of institutions acquired by the
FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of the BIF. Any borrowings not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The FDIC also has authority to impose special assessments
against insured deposits.

The FDIC has adopted final regulations implementing a risk-based premium system
required by federal law. Under the regulations, which cover the assessment
periods commencing on and after January 1, 1994, insured depository institutions
are required to pay insurance premiums within a range of 23 cents per $100 of
deposits to 31 cents per $100 of deposits depending on their risk
classification. The FDIC, effective September 15, 1995, lowered assessments from
their rates of $.23 to $.31 per $100 of insured deposits to rates of $.04 to
$.31, depending on the health of the Bank, as a result of the recapitalization
of the BIF. On November 15, 1995, the FDIC voted to drop its premiums for well
capitalized banks to zero effective January 1, 1996. Other banks will be charged
risk-based premiums up to $.27 per $100 of deposits.


                                       13
<PAGE>

Congress passed in 1996 and the President signed into law, provisions to
strengthen the Savings and Loan Insurance Fund ("SAIF") and to repay outstanding
bonds that were issued to recapitalize the SAIF as a result of payments made due
to the insolvency of savings and loan associations and other federally insured
savings institutions in the late 1980s and early 1990s. The new law requires
saving and loan associations to be bear the cost of recapitalizing the SAIF and,
after January 1, 1997, banks will contribute towards paying off the financing
bonds, including interest. Effective January 1, 1997, SAIF-insured institutions
pay 3.2 cents per $100 in domestic deposits, and BIF-insured institutions, like
the Bank, pay 0.64 cents per $100 in domestics deposits. In 2000, the banking
industry will share on a more equal basis in the bulk of the payments.

FINANCIAL MODERNIZATION LEGISLATION

On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (the "Gramm Act"). The Gramm Act is expected to have a major impact on
cross-industry mergers, customer privacy and lending to lower-income
communities. The Gramm Act repeals the Glass Steagall Act of 1937 that separated
commercial and investment banking, and eliminates the Bank Holding Company Act's
prohibition on insurance underwriting activities. The Gramm Act allows both
holding company subsidiaries and national bank operating subsidiaries to offer a
wide range of new financial services, including insurance or securities sales.
However, real estate development and insurance underwriting would be restricted
to affiliates and can not be performed by bank operating subsidiaries. State
laws will govern insurance sales, but states can not discriminate against
national bank by preventing national banks from conducting insurance activities
that nonbanks may conduct. The Gramm Act bars a bank holding company from
merging with insurance or securities firms, or embarking on new powers, if any
of its banks earned less than a "satisfactory" CRA rating in its most recent
examination. The Gramm Act also provides that customers will have the right to
prevent banks from sharing information with third parties. The Gramm Act is
expected to further increase competition in providing financial services.

INTERSTATE BANKING AND BRANCHING

On September 29, 1994, the President signed into law the Rieglel Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Act"). Under the
Interstate Act, beginning one year after the date of enactment, a bank holding
company that is adequately capitalized and managed may obtain approval under
Bank Holding Company Act to acquire an existing bank located in another state
without regard to state law. A bank holding company would not be permitted to
make such an acquisition if, upon consummation, it would control (a) more than
10% of the total amount of deposits of insured depository institutions in the
United States or (b) 30% or more of the deposits in the state in which it is
located. A state may limit the percentage of total deposits that may be held in
that state by any one bank or bank holding company if application of such
limitation does not discriminate against out-of-state banks. An out-of-state
bank holding company may not acquire a state bank in existence for less than a
minimum length of time that may be prescribed by state law except that a state
may not impose more than a five-year existence requirement.

The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirements and conditions as for a merger
transaction.


                                       14
<PAGE>

In 1995, California adopted "opt in" legislation under the Interstate Act that
permits out-of-state banks to acquire California banks that satisfy a five-year
minimum age requirement (subject to exceptions for supervisory transactions) by
means of merger or purchases of assets, although entry through acquisition of
individual branches of California institutions and de novo branching into
California are not permitted. The Interstate Act and the California branching
statute will likely increase competition from out-of-state banks in the markets
in which the Company intends to operate, although it is difficult to assess the
impact that such increased competition may have on the Company's operations. The
Interstate Act may increase competition in the Company's market areas especially
from larger financial institutions and their holding companies. It is difficult
to assess the impact such likely increased competition may have on the Company's
operations.

COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS

The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate-income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.

In 1995 the federal banking agencies issued final regulations which change the
manner in which they measure a bank's compliance with CRA obligations. The final
regulations adopt a performance-based evaluation system which bases CRA ratings
on an institution's actual lending, service and investment performance, rather
than the extent to which the institution conducts needs assessments, documents
community outreach activities or complies with other procedural requirements.

In 1994 the federal Interagency Task Force on Fair Lending issued a policy
statement on discrimination in lending. The policy statement describes the three
methods that federal agencies will use to prove discrimination: overt evidence
of discrimination, evidence of disparate treatment and evidence of disparate
impact.

In connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding," "satisfactory," "needs to
improve" or "substantial noncompliance." The Bank has consistently been rate
"satisfactory" and was examined most recently during the fourth quarter of 1998.
The final report of examination has been received, and the Bank received a
"satisfactory" rating.

POTENTIAL ENFORCEMENT ACTIONS

Commercial banking organizations and bank holding companies, such as the Bank
and the Company, may be subject to potential enforcement actions by federal and
state bank regulatory officials for unsafe or unsound practices in conducting
their businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance of a cease and desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of a depository institution),
the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against institution-affiliated parties and the
enforcement of such actions through injunctions or restraining orders based upon
a judicial determination that the agency would be harmed if such equitable
relief was not granted.


                                       15
<PAGE>

HAZARDOUS WASTE CLEAN-UP COSTS

Management is aware of recent legislation and cases relating to hazardous waste
clean-up costs and potential liability. Based on a general survey of the loan
portfolios of the Bank, conversations with local authorities and appraisers, and
the type of lending currently and historically done by the Bank (the Bank has
generally not made the types of loans generally associated with hazardous waste
contamination problems), management is not aware of any potential liability for
hazardous waste contamination.

OTHER REGULATIONS AND POLICIES

The federal regulatory agencies have adopted regulations that implement Section
304 of FDICIA which requires federal banking agencies to adopt uniform
regulations prescribing standards for real estate lending. Each insured
depository institution must adopt and maintain a comprehensive written real
estate lending policy, developed in conformance with prescribed guidelines, and
each agency has specified loan-to-value limits in guidelines concerning various
categories of real estate loans.

Various requirements and restrictions under the laws of the United States and
the State of California affect the operations of the Bank. Federal regulations
include requirements to maintain non-interest bearing reserves against deposits,
limitations on the nature and amount of loans which may be made, and
restrictions on payment of dividends. The California Commissioner of Financial
Institutions approves the number and locations of the branch offices of a bank.
California law exempts banks from the usury laws.

BUSINESS CONCENTRATIONS

As of December 31, 1999, the Company had approximately $354 million in assets
and $323 million in deposits. No individual or single group of related accounts
is considered material in relation to the Company's totals, or in relation to
its overall business.

MONETARY POLICY

Banking is a business which depends on rate differentials. In general, the
difference between the interest paid by the Bank on its deposits and its other
borrowings and the interest rate received by the Bank on loans extended to its
clients and securities held in the Bank investment portfolios will comprise a
major portion of the Bank's earnings.

The earnings and growth of the Bank will be affected not only by general
economic conditions, both domestic and international, but also by the monetary
and fiscal policies of the United States and its agencies, particularly the
Federal Reserve Board. The Federal Reserve Board can and does implement national
monetary policy, such as seeking to curb inflation and combat recession, by its
open market operations in U.S. Government securities, limitations upon savings
and time deposit interest rates, and adjustments to the discount rates
applicable to borrowings by banks which are members of the Federal Reserve
System. The actions of the Federal Reserve Board influence the growth of bank
loans, investments and deposits and also affect interest rates charged on loans
and paid on deposits. The nature and impact that future changes in fiscal or
monetary policies or economic controls may have on the Bank's businesses and
earnings cannot be predicted.


                                       16
<PAGE>

COMPETITION

The banking business in California generally, and in the Bank's primary service
areas specifically, is highly competitive with respect to both loans and
deposits, and is dominated by a relatively small number of major banks with many
offices and operations over a wide geographic area. Among the advantages such
major banks have over the Bank are their ability to finance and wide-ranging
advertising campaigns and to allocate their investment assets to regions of
higher yield and demand. Such banks offer certain services such as trust
services and international banking which are not offered directly by the Bank
(but which can be offered indirectly by the Bank through correspondent
institutions). In addition, by virtue of their greater total capitalization,
such banks have substantially higher lending limits than the Bank. (Legal
lending limits to an individual client are based upon a percentage of a bank's
total capital accounts.) Other entities, both governmental and in private
industry, seeking to raise capital through the issuance and sale of debt or
equity securities also provide competition for the Bank in the acquisition of
deposits. Banks also compete with money market funds and other money market
instruments which are not subject to interest rate ceilings.

In order to compete with other competitors in their primary service areas, the
Bank attempts to use to the fullest extent the flexibility which their
independent status permits. This includes an emphasis on specialized services,
local promotional activity, and personal contacts by their respective officers,
directors and employees. In particular, each of the banks offers highly
personalized banking services.

EMPLOYEES

At December 31, 1999, the Bank had a total of 328 full-time employees and 28
part-time employees. The Bank believes that its employee relations are
satisfactory.


                                       17
<PAGE>

ITEM 2.  PROPERTIES

The Company currently maintains an administrative facility in Orange,
California, which is utilized by the Company and the Bank. The Bank also
maintains seven full service branches, one regional loan center and six loan
production offices. The Bank owns three of its branch locations and leases all
of its other facilities. For additional information regarding the Bank's lease
obligations, see Note E to the Consolidated Financial Statements, included in
Item 8 hereof.

The Company believes that all of its properties are appropriately maintained and
suitable for their respective present needs and operations.


ITEM 3.  LEGAL PROCEEDINGS

To the best of the Company's knowledge, there are no pending legal proceedings
to which the Company is a party and which may have a materially adverse effect
upon the Company's property or business.


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

No matters were submitted to a vote of securities holders during the fourth
quarter of 1999.


                                       18
<PAGE>

                                     PART II


ITEM 5.  MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

The equity securities of BYL Bancorp consist of one class of common stock, of
which there were 2,537,102 shares outstanding, held by approximately 800
shareholders of record at year-end 1999. Holders of the common stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors out of funds legally available therefor, as specified by the
California Financial Code. During 1999 and 1998, the Company paid quarterly cash
dividends of $0.075 per share and $0.05 per share, respectively. During the
first quarter of 2000 the Company has suspended the payment of quarterly cash
dividends.

Management of the Company is aware of five (5) securities dealers who maintain
an inventory and make a market in its Common Stock. The market makers are Ryan,
Beck & Co., Wedbush Morgan Securities Inc., Herzog, Heine & Geduld, Sutro & Co.
and Sandler, O'Neill & Partners.

The information set forth in the table below summarizes, for the periods
indicated, the bid and ask prices of the Company Common Stock. These quotes do
not necessarily include retail markups, markdowns, or commissions and may not
necessarily represent actual transactions. Additionally, there may have been
transactions at prices other than those shown below.

<TABLE>
<CAPTION>
          1998
-------------------------
<S>                                          <C>                 <C>
First Quarter                                21.875              23.125
Second Quarter                               23.250              23.500
Third Quarter                                21.500              21.500
Fourth Quarter                               18.000              18.500

          1999
-------------------------

First Quarter                                16.750              17.563
Second Quarter                               13.375              13.625
Third Quarter                                13.250              13.688
Fourth Quarter                               11.750              12.000
</TABLE>


                                       19
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following is our summary consolidated financial information. The balance
sheet and income statement data as of or for the five years ended December 31,
1999 are taken from our audited consolidated financial statements as of the end
of and for each such year. You should read this summary consolidated financial
information in conjunction with our consolidated financial statements and notes
that appear in this prospectus.

<TABLE>
<CAPTION>
                                                             AT OR FOR THE YEAR ENDED DECEMBER 31,
                                              --------------------------------------------------------------------
                                                 1999          1998          1997          1996          1995
                                              ------------  ------------  ------------  ------------  ------------
<S>                                           <C>           <C>           <C>           <C>           <C>
SUMMARY OF OPERATIONS:
   Interest Income                               $ 27,528      $ 24,016      $ 18,455      $ 12,642      $  9,746
   Interest Expense                                11,586         8,406         6,057         3,840         2,757
                                              ------------  ------------  ------------  ------------  ------------
   Net Interest Income                             15,942        15,610        12,398         8,802         6,989
   Provision for Loan Losses                          694           755           778           364           262
                                              ------------  ------------  ------------  ------------  ------------
   Net Interest Income After Provision
      for Loan Losses                              15,248        14,855        11,620         8,438         6,727
   Noninterest Income                              24,049        23,408        15,920         8,752         6,726
   Noninterest Expense                             33,891        30,870        22,717        14,045        11,211
                                              ------------  ------------  ------------  ------------  ------------
   Income Before Income Taxes                       5,406         7,393         4,823         3,145         2,242
   Income Taxes                                     2,330         3,277         1,968         1,229           872
                                              ------------  ------------  ------------  ------------  ------------
   Net Income                                    $  3,076      $  4,116      $  2,855      $  1,916      $  1,370
                                              ============  ============  ============  ============  ============

   Dividends on Common Stock                     $    760      $    467      $    502      $    168      $     89

PER SHARE DATA:
   Net Income - Basic                            $   1.21      $   1.63      $   1.19      $   0.98      $   0.88
   Net Income - Diluted                          $   1.21      $   1.55      $   1.12      $   0.96      $   0.75
   Book Value                                    $  11.51      $  10.62      $   9.01      $   8.10      $   9.26

BALANCE SHEET SUMMARY:
   Total Assets                                  $353,736      $318,013      $238,086      $183,755      $125,872
   Total Deposits                                 322,973       287,206       207,935       162,058       113,295
   Loans Held for Sale                             69,756        74,598        47,150        24,363        10,186
   Total Loans                                    196,675       165,199       139,002       106,019        67,979
   Allowance for Loan Losses (ALLL)                 2,610         2,300         1,923         1,616         1,047
   Total Shareholders' Equity                      29,200        26,882        22,550        19,434        11,273

SELECTED RATIOS:
   Return on Average Assets                         0.88%         1.49%         1.31%         1.23%         1.17%
   Return on Average Equity                        11.05%        17.03%        13.80%        12.81%        12.56%
   Net Interest Margin                              5.38%         6.40%         6.46%         6.47%         6.68%
   Dividend Payout Ratio - Common Stock            24.78%        11.35%        17.59%         8.82%         6.50%
   Non-performing Loans to Total Loans              0.84%         1.23%         0.92%         1.15%         1.98%
   Non-performing Assets to Total Assets            0.55%         0.94%         0.93%         1.57%         1.81%
   ALLL to Non-performing Loans                   157.04%       113.30%       150.35%       132.68%        77.90%
   Average Shareholder's Equity
      to Average Assets                             8.00%         8.75%         9.49%         9.63%         9.28%
</TABLE>


                                       20
<PAGE>

On June 14, 1996, our bank acquired Bank of Westminster ("BOW"), pursuant to the
terms of an Agreement and Plan of Reorganization dated January 12, 1996. Our
bank acquired 100% of the outstanding common stock of BOW for $6,174,000 in
cash. BOW had assets of approximately $54,923,000. At the time of such
acquisition, the Bank also raised approximately $7.8 million in additional
equity in a firmly underwritten offering by issuing 1,073,000 shares of the
Bank's Common Stock as adjusted for the four for three stock split effective
June 30, 1997. BOW's result of operations are included only since the second
quarter of fiscal 1996. Due to the relatively large size of this transaction,
any comparison of data as of and for the years ended December 31, 1996 and
December 31, 1997 to data as of or for prior dates or periods may not be
meaningful. On November 19, 1997, the Bank completed the reorganization of BYL
as its bank holding company, and BYL's Common Stock began trading on that date.

On May 29, 1998 pursuant to the terms of an Agreement and Plan of Reorganization
dated January 29, 1998, the Company completed the acquisition of DNB Financial
("DNBF"). This transaction was structured as a pooling of interests through a
tax-free exchange of 4.1162 of the Company's shares of common stock for each
outstanding share of DNBF's common stock, resulting in the issuance of 956,641
shares of Company common stock to the shareholders of DNBF. The acquisition of
DNBF increased the total assets of the Company and its subsidiaries to
approximately $270 million and total shareholder's equity to approximately $23
million. Due to the relatively large size of this transaction, any comparison of
data as of and for the years ended December 31, 1999 and December 31, 1998 to
data and of or for prior date or periods may not be meaningful.


                                       21
<PAGE>

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

The following sections set forth a discussion of the significant operating
changes, business trends, financial condition, earnings, capital position, and
liquidity that have occurred in the two-year period ended December 31, 1999,
together with an assessment, when considered appropriate, of external factors
that may affect us in the future. This discussion should be read in conjunction
with our consolidated financial statements and notes included herein.

OVERVIEW

EARNINGS SUMMARY

Net income in 1999 was $3.1 million, decrease of $1.0 million or24.4%, compared
to $4.1 million in 1998. Diluted earnings per share in 1999 were $1.21 compared
to $1.55 in 1998. The decrease in earnings in 1999 was due primarily to decrease
profitability of the SBA and Mortgage Loan Divisions.

Net income in 1998 was $4.1 million, an increase of $1.2 million or 44.2%,
compared to $2.9 million in 1997. Diluted earnings per share in 1998 were $1.55
compared to $1.12 in 1997. The increase in earnings in 1998 was due primarily to
strong asset growth and increased profitability of our SBA and Mortgage Loan
Divisions.

BALANCE SHEET SUMMARY

Total assets at December 31, 1999 were $353.7 million, a $35.7 million or 11.2%
increase from $318.0 million at December 31, 1998. Average assets for 1999 were
$347.8 million compared to $276.4 million for 1998. Total deposits increased
$35.8 million or 12.5% to $323.0 million at December 31, 1999. Gross loans
increased $26.6 million or 11.1% , to $266.4 million at December 31, 1999.
Shareholder's equity increased $2.3 million or 8.6%, to $29.2 million at
December 31, 1999.

Total assets at December 31, 1998 were $318.0 million, a $79.9 million or 33.6%
increase from $238.1 million at December 31, 1997. Average assets for 1998 were
$276.4 million compared to $217.9 million for 1997. The increases in
shareholders' equity in 1998 and 1997 allowed us to aggressively expand our
asset base.

The following table sets forth several key operating ratios for 1999, 1998 and
1997:

<TABLE>
<CAPTION>
                                                                    For the Year Ended
                                                                       December 31,
                                                         ------------------------------------------
                                                            1999           1998            1997
                                                         -----------     ----------     -----------
<S>                                                      <C>             <C>            <C>
Return on Average Assets                                      0.88%          1.49%           1.31%
Return on Average Equity                                     11.05%         17.03%          13.80%
Average Shareholder's Equity to Average Total Assets          8.00%          8.75%           9.49%
</TABLE>


                                       22
<PAGE>

DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY

The following table presents, for the years indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields, and the dollar amounts of interest expense and average
interest-bearing liabilities, expressed both in dollars and in rates. Nonaccrual
loans are included in the calculation of the average balances of loans, and
interest not accrued is excluded (dollar amounts in thousands).

<TABLE>
<CAPTION>
                                                         For the Year Ended December 31,
                           ---------------------------------------------------------------------------------------------
                              1999                           1998                           1997
                           ------------------------------ ------------------------------ -------------------------------
                                                 Average                        Average                         Average
                                                  Yield                          Yield                           Yield
                                       Interest    or                 Interest    or                  Interest    or
                            Average     Earned    Rate     Average     Earned    Rate     Average     Earned     Rate
                            Balance    or Paid    Paid     Balance    or Paid    Paid     Balance     or Paid    Paid
                           ----------- --------- -------- ----------- --------- -------- ----------- ---------- --------
<S>                        <C>         <C>       <C>      <C>         <C>       <C>      <C>         <C>        <C>
ASSETS
Interest-Earning Assets:
   Investment Securities   $   21,635  $  1,450    6.70%  $   18,564  $  1,119    6.03%  $   25,110    $ 1,535    6.11%
   Federal Funds Sold          20,554       976    4.75%      13,322       669    5.02%       7,329        394    5.38%
   Other Earning Assets           168         9    5.36%       2,935       171    5.83%       3,882        227    5.85%
   Loans                      253,771    25,093    9.89%     209,080    22,057   10.55%     155,588     16,299   10.48%
                           ----------- ---------          ----------- ---------          ----------- ----------
Total Interest-Earning
   Assets                     296,128    27,528    9.30%     243,901    24,016    9.85%     191,909     18,455    9.62%

Cash and Due From
   Banks                       24,663                         15,756                         13,334
Premises and Equipment          6,561                          5,299                          4,830
Other Real Estate Owned           714                          1,067                            908
Accrued Interest and
   Other Assets                22,294                         12,641                          8,496
Allowance for Loan Losses      (2,514)                        (2,281)                        (1,552)
                           -----------                    -----------                    -----------
Total Assets               $  347,846                     $  276,383                     $  217,925
                           ===========                    ===========                    ===========


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing
Liabilities:
   Money Market and NOW    $   74,797     2,764    3.70%  $   53,640     1,613    3.01%  $   48,414      1,321    2.73%
   Savings                     87,566     4,076    4.65%      39,308     1,622    4.13%      26,164        920    3.52%
   Time Deposits under
      $100,000                 42,386     2,165    5.11%      51,997     2,823    5.43%      37,866      2,080    5.49%
   Time Deposits of
      $100,000 or More         39,963     2,505    6.27%      38,120     2,258    5.92%      28,923      1,661    5.74%
   Other                        1,646        76    4.62%       1,623        90    5.55%         908         75    8.26%
                           ----------- ---------          ----------- ---------          ----------- ----------
Total Interest-Bearing
   Liabilities                246,358    11,586    4.70%     184,688     8,406    4.55%     142,275      6,057    4.26%
                                       ---------                      ---------                      ----------

Noninterest-Bearing
   Liabilities:
      Demand Deposits          68,632                         62,771                         51,664
     Other Liabilities          5,015                          4,753                          3,306
      Shareholders' Equity     27,841                         24,171                         20,680
                           -----------                    -----------                    -----------
   Total Liabilities and
      Shareholders' Equity $  347,846                     $  276,383                     $  217,925
                           ===========                    ===========                    ===========
   Net Interest Income                  $15,942                        $15,610                        $ 12,398
                                       =========                      =========                      ==========
Net Yield on
   Interest-Earning Assets                         5.38%                          6.40%                           6.46%
</TABLE>


                                       23
<PAGE>

EARNINGS ANALYSIS

NET INTEREST INCOME

A significant component of our earnings is net interest income. Net interest
income is the difference between the interest we earn on our loans and
investments and the interest we pay on deposits and other interest-bearing
liabilities.

Our net interest income is affected by changes in the amount and mix of our
interest-earning assets and interest-bearing liabilities, referred to as a
"volume change". It is also affected by changes in the yields we earn on
interest-earning assets and rates we pay on interest-bearing deposits and other
borrowed funds, referred to as a "rate change".

The following table sets forth changes in interest income and interest expense
for each major category of interest-earning asset and interest-bearing
liability, and the amount of change attributable to volume and rate changes for
the years indicated. Changes not solely attributable to rate or volume have been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the changes in each (dollar amounts in thousands).


<TABLE>
<CAPTION>
                                          Year Ended December 31, 1999            Year Ended December 31, 1998
                                                     versus                                  versus
                                          Year Ended December 31, 1998            Year Ended December 31, 1997
                                      --------------------------------------  -------------------------------------
                                             Increase (Decrease) Due                Increase (Decrease) Due
                                                  To Change in                            To Change in
                                      --------------------------------------  -------------------------------------
                                        Volume        Rate         Total       Volume        Rate         Total
                                      -----------  ------------  -----------  ----------   ----------  ------------
<S>                                   <C>          <C>           <C>          <C>          <C>         <C>
INTEREST-EARNING ASSETS:
   Investment Securities                $    198    $      133   $      331    $(   395)   $(     21)   $(     416)
   Federal Funds Sold                        345     (      38)         307         302     (     27)          275
   Other Earning Assets                  (    79)    (      83)     (   162)    (    55)    (      1)    (      56)
   Loans                                   4,486     (   1,450)       3,036       5,642          116         5,758
                                      -----------  ------------  -----------  ----------   ----------  ------------
   TOTAL INTEREST INCOME                   4,950     (  1,438)        3,512       5,494           67         5,561

INTEREST-BEARING LIABILITIES:
   Money Market and NOW                      728           423        1,151         150          142           292
   Savings                                 2,222           232        2,454         521          181           702
   Time Deposits under
      $100,000                            (  499)     (    159)      (  658)        767       (   24)          743
   Time Deposits $100,000
      or More                                112           135          247         543           54           597
   Other                                       1     (      15)     (    14)         46       (   31)           15
                                      -----------  ------------  -----------  ----------   ----------  ------------
   TOTAL INTEREST EXPENSE                  2,564           616        3,180       2,027          322         2,349
                                      -----------  ------------  -----------  ----------   ----------  ------------
   NET INTEREST INCOME                   $ 2,386    $(  2,054)        $ 332     $ 3,467     $(  255)       $ 3,212
                                      ===========  ============  ===========  ==========   ==========  ============
</TABLE>


                                       24
<PAGE>

1999 COMPARED TO 1998

Net interest income for 1999 was $15.9 million, an increase of 1.9% compared to
the $15.6 million reported in 1998. This increase was primarily due to the
significant increase in average interest-earning assets which increased $52.2
million or 21.3% to $296.1 million in 1999 compared to $243.9 million in 1998.

Interest income in 1999 was $27.5 million, a $3.5 million or a 14.6% increase
over the $24.0 million recorded in 1998. The increase in interest income was the
result primarily of volume increases in loan totals offset by a decreased
interest rate environment. Average loans outstanding increased 21.4% to $253.8
million in 1999 compared to $209.0 million in 1998. The yield on
interest-earning assets decreased 55 basis points to 9.30% from 9.85% in 1998.
The yield on the loan portfolio, the Banks largest interest-earning asset,
decreased 66 basis points, from 10.55% to 9.89%.

Interest expense also rose significantly in 1999 as we increased deposits and
other borrowings to fund the loan growth discussed above. Interest expense was
$11.6 million in 1999, compared to $8.4 million in 1998. The increase in
interest expense was primarily the result of an increase in interest-bearing
liabilities. Average interest-bearing liabilities increased 33.4% to $246.4
million in 1999 compared to $184.7 million in 1998. An increase in the cost of
interest-bearing liabilities accounted for $616 or 19.3% of the total increase
in interest expense. Rates on interest bearing deposits increased 15 basis
points to 4.70% from 4.55% in 1998.

Interest rates played a significant role in the changes in net interest income
in 1999. Our yield on interest-earning assets decreased 55 basis points, while
the yield on interest-bearing liabilities increased 15 basis points. The net
yield on interest-earning assets in 1999 declined 102 basis points to 5.38%
compared to 6.40% in 1998.

1998 COMPARED TO 1997

Net interest income for 1998 was $15.6 million, an increase of 25.9% compared to
the $12.4 million reported in 1997. This increase was primarily due to the
significant increase in average interest-earning assets which increased $52.0
million or 27.1% to $243.9 million in 1998 compared to $191.9 million in 1997.

Interest income in 1998 was $24.0 million, a $5.5 million or a 30.1% increase
over the $18.5 million recorded in 1997. Increased loan totals accounted for the
majority of this increase as the average loans outstanding increased 34.4% to
$209.0 million in 1998 compared to $155.6 million in 1997. The significant
increase in shareholders' equity in 1998 and 1997 has allowed the Bank to
aggressively grow its loan portfolio and other interest-earning assets.

Interest expense also rose significantly in 1998 as the Bank increased deposits
and other borrowings to fund the loan growth discussed above. Interest expense
was $8.4 million in 1998, compared to $6.0 million in 1997.

Interest rates played a minor role in the changes in net interest income in
1998. The Bank was able to increase its yield on interest-earning assets by 23
basis points, however, the rates the Bank paid on interest-bearing liabilities
increased 29 basis points. The net yield on interest-earning assets in 1998
declined 6 basis points to 6.40% compared to 6.46% in 1997.


                                       25
<PAGE>

NONINTEREST INCOME

The Bank receive noninterest income from three primary sources: service charges
and fees on accounts and banking services, fees and premiums generated by our
Mortgage Loan Division, and fees, premiums, and servicing income generated by
our SBA Loan Division.

In 1999, noninterest income was $24.0 million, an increase of $.6 million or
2.6% compared to the 1998 amount of $23.4 million. The majority of the increase
was generated by our SBA and Mortgage Loan Divisions who continued to expand
their operations in 1999. The majority of the increase was from the increase in
Net Servicing and Interest-Only Strip Income, which increased to $1.8 million or
157.1%, compared to $0.7 million in 1998.

In 1998, noninterest income was $23.4 million, an increase of $7.5 million or
47.0% compared to the 1997 amount of $15.9 million. The majority of this
increase, $6.5 million, was generated by our SBA and Mortgage Loan Divisions who
continued to expand their operations in 1998. Included in the increase was a
gain of $3.6 million from the securitization of the unguranteed portion SBA
loans totaling approximately $38.1 million. By the end of 1998, these divisions
had developed networks of referring brokers throughout most pacific coast
states. Service charges, fees and other income increased almost $1.0 million in
1998 from a combination of increased deposit activity and income from other loan
referral programs

NONINTEREST EXPENSE

Noninterest expense reflects our costs of products and services related to
systems, facilities and personnel. The major components of noninterest expense
stated as a percentage of average assets are as follows:

<TABLE>
<CAPTION>
                                                                      1999              1998              1997
                                                                  -------------     -------------     -------------
<S>                                                               <C>               <C>               <C>
Salaries and Employee Benefits                                           5.72%             7.11%            6.46%
Occupancy Expenses                                                        .65               .60              .62
Furniture and Equipment                                                   .80               .74              .64
Professional Fees and Outside Services                                    .56               .65              .65
OREO Expenses                                                             .06               .10              .08
Commission and Loan Expenses                                              .47               .38              .29
Office Expenses                                                           .58               .55              .60
Other                                                                     .90              1.04             1.08
                                                                  -------------     -------------     -------------
                                                                         9.74%            11.17%           10.42%
                                                                  =============     =============     =============
</TABLE>



Noninterest expense was $33.9 million in 1999, an increase of $3.0 million or
9.7% over the $30.9 million reported in 1998. The majority of this increase,
$1.9 million was from the expansion of facilities and equipment for our SBA and
Mortgage Loan Divisions. Other expense categories increased in total amount but
declined as a percentage of total average assets.


                                       26
<PAGE>

Noninterest expense was $30.9 million in 1998, an increase of $8.1 million or
35.9% over the $22.8 reported in 1997. The majority of this increase, $5.6
million, was created by increased salaries and benefits generated by our SBA and
Mortgage Loan Divisions. Compensation in these divisions are primarily
incentive-based, therefore, significant increases in volume of loan
originations, and resulting gains, result in significant increases in salaries
and incentive payments. Other expense categories increased in total amount but
were consistent as a percentage of total assets. Included in other in 1998 was
$542,000 of acquisition related expenses.

INCOME TAXES

Income tax expense was $2.3, $3.3, and $2.9 million for the years ended December
31, 1999, December 31, 1998, and December 31, 1997, respectively. These expenses
resulted in an effective tax rate of 43.1% in 1999, 44.3% in 1998, and 40.8% in
1997. The increase in effective rate in 1998 was due primarily to non-deductible
merger expenses.


                                       27
<PAGE>

BALANCE SHEET ANALYSIS

INVESTMENT PORTFOLIO

The following table summarizes the amounts and distribution of our investment
securities held as of the dates indicated, and the weighted average yields as of
December 31, 1999 (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                        December 31,
                                        ------------------------------------------------------------------------------
                                          1999                              1998                   1997
                                        --------------------------------- ---------------------  ---------------------
                                                               Weighted
                                          Book       Market     Average     Book       Market      Book      Market
                                          Value      Value       Yield      Value      Value       Value      Value
                                        ----------  ---------  ---------- ----------  ---------  ---------- ----------
<S>                                     <C>         <C>        <C>        <C>         <C>        <C>        <C>
U.S. GOVERNMENT AND AGENCY SECURITIES:
   Within One Year                          $   -      $   -                  $   -      $   -     $ 1,022    $ 1,025
   One to Five Years                            -          -                      -          -         233        232
   After Ten Years                              -          -                      -          -       1,297      1,307
                                        ----------  ---------             ----------  ---------  ---------- ----------
   Total U.S. Government and
      Agency Securities                         -          -                      -          -       2,552      2,564

MUNICIPAL SECURITIES -
   FIVE TO TEN YEARS                            -          -                      -          -       1,018      1,032

MUTUAL FUNDS                                    -          -                  3,000      3,000       6,059      6,016
MORTGAGE BACKED SECURITIES                  6,597      6,868      10.64%      2,305      2,570           -          -
                                        ----------  ---------             ----------  ---------  ---------- ----------

   TOTAL AVAILABLE-FOR-SALE SECURITIES    $ 6,597    $ 6,868      10.64%    $ 5,305    $ 5,570     $ 9,629    $ 9,612
                                        ==========  =========             ==========  =========  ========== ==========

U.S. TREASURIES:
   Within One Year                         $  500     $  501       6.37%    $ 2,001    $ 2,015     $ 1,999    $ 1,998
   One to Five Years                            -          -                    498        511       2,499      2,505
                                        ----------  ---------             ----------  ---------  ---------- ----------
   Total U.S. Treasuries Securities           500        501                  2,499      2,526       4,498      4,503

U.S. GOVERNMENT AND AGENCY SECURITIES:
   Within One Year                          3,013      2,987       4.80%        994      1,001           -          -
   One to Five Years                       10,995     10,755       5.66%      7,035      7,029         998        999
   Five to Ten Years                                                                                 3,968      3,990
   After Ten Years                              -          -                      -          -       1,500      1,502
                                        ----------  ---------             ----------  ---------  ---------- ----------
   Total U.S. Government
      and Agency Securities                14,008     13,742       5.47%      8,029      8,030       6,466      6,491

MUNICIPAL SECURITIES:
   One to Five Years                            -          -                      -          -       1,074      1,079
   Five to Ten Years                            -          -                      -          -         852        867
                                        ----------  ---------             ----------  ---------  ---------- ----------
   Total Municipal Securities                   -          -                      -          -       1,926      1,946

MORTGAGE BACKED SECURITIES                    204        202       6.82%        316        318          60         56
                                        ----------  ---------             ----------  ---------  ---------- ----------

   TOTAL HELD-TO-MATURITY SECURITIES     $ 14,712   $ 14,445       5.52%   $ 10,844   $ 10,874    $ 12,950   $ 12,996
                                        ==========  =========             ==========  =========  ========== ==========
</TABLE>


                                       28
<PAGE>

Securities may be pledged to meet security requirements imposed as a condition
to receipt of deposits of public funds and other purposes. At December 31, 1999
and 1998, the carrying values of securities pledged to secure public deposits
and other purposes were $14.7 million and $10.8 million, respectively.

LOANS HELD FOR SALE

We originate mortgage loans and SBA loans for sale to institutional investors.
Loans held for sale increased from $47.2 million at December 31, 1997, to $74.6
million at December 31, 1998 and decreased to $69.8 million at December 31,
1999. Historically, we sold these loans within sixty (60) days of origination,
but during 1998 the Bank began to warehouse and accumulate pools of loans to
take advantage of short-term fluctuations in the market.

At December 31, 1999 and 1998, we were servicing approximately $220.1 million
and $164.8 million, respectively, in SBA and other loans previously sold. In
connection with a portion of these loans, the Company has capitalized
approximately $2.8 million and $2.5 million in servicing assets at December 31,
1999 and 1998, respectively. Servicing assets are amortized over the estimated
life of the serviced loan using a method that approximates the interest method.
We evaluate the carrying value of the excess servicing receivables by estimating
the excess future servicing income, based on our best estimate of the remaining
loan lives.

We have also recorded interest-only strips receivable in connection with our
loan sales and securitizations. These totaled $12.3 million in 1999 and $5.9
million at December 31, 1998.

See also Note C in the Consolidated Financial Statements for additional
information on loans held for sale and key assumptions used to value retained
interest in securitizations.


                                       29
<PAGE>

LOAN PORTFOLIO

The following table sets forth the components of total net loans outstanding in
each category at the date indicated (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                         December 31,
                                           ------------------------------------------------------------------------
                                               1999           1998          1997            1996          1995
                                           -------------  ------------- --------------  -------------  ------------
<S>                                        <C>            <C>           <C>             <C>            <C>
LOANS
   Commercial                              $    104,719   $     56,244  $      36,359   $     24,512   $    13,706
   Real Estate - Construction                     5,524          4,411          2,867          4,149         3,478
   Real Estate - Other                           45,976         82,235         84,792         71,799        46,885
   Consumer                                      40,456         22,309         14,984          5,559         3,910
                                           -------------  ------------- --------------  -------------  ------------
         Total Loans                            196,675        165,199        139,002        106,019        67,979
   Net Deferred Loan Costs (Fees)                 2,209          1,255            471            173      (    102)
   Allowance for Loan Losses                  (   2,610)     (   2,300)     (   1,923)     (   1,616)     (  1,047)
                                           -------------  ------------- --------------  -------------  ------------
         Net Loans                         $    196,274   $    164,154  $     137,550   $    104,576   $    66,830
                                           =============  ============= ==============  =============  ============

COMMITMENTS
   Standby Letters of Credit                     $  839         $  360         $  371         $  203        $  398
   Undisbursed Loans and
      Commitments to Grant Loans                 28,060         21,627         18,521         14,843        10,014
                                           -------------  ------------- --------------  -------------  ------------
         Total Commitments                     $ 28,899       $ 21,987       $ 18,892       $ 15,046       $10,412
                                           =============  ============= ==============  =============  ============
</TABLE>


RISK ELEMENTS

We assess and manage credit risk on an ongoing basis through our lending
policies. We strive to continue our historically low level of credit losses by
continuing our emphasis on credit quality in the loan approval process, active
credit administration and regular monitoring.

In extending credit and commitments to borrowers, we generally require
collateral and/or guarantees as security. The repayment of such loans is
expected to come from cash flow or from proceeds from the sale of selected
assets of the borrower. Our requirement for collateral and/or guarantees is
determined on a case-by-case basis in connection with our evaluation of the
credit worthiness of the borrower. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, income-producing
properties, residences and other real property. We secure our collateral by
perfecting our interest in business assets, obtaining deeds of trust, or
outright possession among other means.

We believe that our lending policies and underwriting standards will tend to
minimize losses in an economic downturn, however, there is no assurance that
losses will not occur under such circumstances.


                                       30
<PAGE>

The following table shows the maturity distribution of the fixed rate portion of
the loan portfolio and the repricing distribution of the variable rate portion
of the loan portfolio, including loans held for sale, at December 31, 1999:

<TABLE>
<CAPTION>
                                Over
                              3 Months               Due after
      3 Months                 through              one year to              Due after
      or Less                 12 months             five years              five years                Total
---------------------    --------------------   --------------------    --------------------   --------------------
<S>                      <C>                    <C>                     <C>                    <C>
$            181,834     $             6,346    $            51,107     $            27,811    $           267,098
=====================    ====================   ====================    ====================

                         Loans on Non-Accrual                                                                1,542
                                                                                               --------------------
                         Total Loans, including Loans Held for Sale                            $           268,640
                                                                                               ====================
</TABLE>


NONPERFORMING ASSETS

The following table provides information with respect to the components of our
nonperforming assets at the dates indicated (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                   For the Year Ended December 31,
                                                    --------------------------------------------------------------
                                                       1999         1998         1997         1996        1995
                                                    -----------  -----------  ------------  ----------  ----------
<S>                                                 <C>          <C>          <C>           <C>         <C>
Loans 90 Days Past Due and Still
   Accruing                                         $      120   $      223   $         -   $     122   $     149
Nonaccrual Loans                                         1,542        1,807         1,279       1,096       1,195
                                                    -----------  -----------  ------------  ----------  ----------

Total Nonperforming Loans                                1,662        2,030         1,279       1,218       1,344

Other Real Estate Owned                                    277          971           924       1,661         930
                                                    -----------  -----------  ------------  ----------  ----------

Total Nonperforming Assets                          $    1,939   $    3,001   $     2,203   $   2,879   $   2,274
                                                    ===========  ===========  ============  ==========  ==========

Nonperforming Loans as a
    Percentage of Total Loans                            0.84%        1.22%         1.21%       1.79%       1.97%
Allowance for Loan Loss as a
    Percentage of Nonperforming Loans                  157.04%      113.30%       126.35%      85.96%      71.43%
Nonperforming Assets as a
    Percentage of Total Assets                           0.55%        0.94%         1.20%       2.29%       1.94%
</TABLE>




Nonaccrual loans are generally past due 90 days or are loans that we believe the
interest on which may not be collectible. Loans past due 90 days will continue
to accrue interest only when we believe the loan is both well-secured and in the
process of collection.

Other real estate owned is acquired through foreclosure or other means. These
properties are recorded on an individual asset basis at the estimated fair value
less selling expenses. We believe these properties can be liquidated at or near
their current fair value.


                                       31
<PAGE>

PROVISION AND ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained at a level that is considered
adequate to provide for the loan losses inherent in our loans. The provision for
loan losses was $694,000 in 1999 compared to $755,000 in 1998 and $778,000 in
1997.

The following table summarizes, for the years indicated, changes in the
allowances for loan losses arising from loans charged-off, recoveries on loans
previously charged-off, and additions to the allowance which have been charged
to operating expenses and certain ratios relating to the allowance for loan
losses (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                 For the Year Ended December 31,
                                               --------------------------------------------------------------------
                                                   1999          1998          1997          1996          1995
                                               -------------  ------------  ------------  ------------  -----------
<S>                                            <C>            <C>           <C>           <C>           <C>
OUTSTANDING LOANS:
   Average for the Year                        $    253,771   $   209,080   $   155,588   $   102,145   $   68,052
   End of the Year                             $    196,675   $   165,199   $   139,002   $   106,019   $   67,979
ALLOWANCE FOR LOAN LOSSES:
Balance at Beginning of Year                   $      2,300   $     1,923   $     1,616   $     1,047   $      960
Actual Charge-Offs:
    Commercial                                          102           175           486           318          133
    Consumer                                            118           252            29            21           24
    Real Estate                                         298           101            20           192          162
                                               -------------  ------------  ------------  ------------  -----------
Total Charge-Offs                                       518           528           535           531          319
Less Recoveries:
    Commercial                                          123           140            33            19           18
    Consumer                                             10             7             7            11            3
    Real Estate                                           1             3            24             6          123
                                               -------------  ------------  ------------  ------------  -----------
Total Recoveries                                        134           150            64            36          144
                                               -------------  ------------  ------------  ------------  -----------
Net Loans Charged-Off                                   384           378           471           495          175
Provision for Loan Losses                               694           755           778           364          262
Allowance on Loans Acquired
   from BOW                                               -             -             -           700            -
                                               -------------  ------------  ------------  ------------  -----------
Balance at End of Year                         $      2,610   $     2,300   $     1,923   $     1,616   $    1,047
                                               =============  ============  ============  ============  ===========
RATIOS:
   Net Loans Charged-Off to Average
      Loans                                           0.15%         0.18%         0.30%         0.48%        0.26%
   Allowance for Loan Losses to Total
      Loans                                           1.33%         1.39%         1.38%         1.87%        1.54%
   Net Loans Charged-Off to Beginning
      Allowance for Loan Losses                      16.70%        19.66%        29.15%        47.28%       18.23%
   Net Loans Charged-Off to Provision
      for Loan Losses                                55.33%        50.07%        60.54%       135.99%       66.79%
   Allowance for Loan Losses to
      Nonperforming Loans                           157.04%       113.30%       150.35%       132.68%       77.90%
</TABLE>


                                       32
<PAGE>

We believe that the allowance for loan losses is adequate. Quarterly detailed
reviews are performed to identify the risks inherent in the loan portfolio,
assess the overall quality of the loan portfolio and to determine the adequacy
of the allowance for loan losses and the related provision for loan losses to be
charged to expense. These systematic reviews follow the methodology set forth by
the FDIC in its 1993 policy statement on the allowance for loan losses.

A key element of our methodology is the credit classification process. Loans
identified as less than "acceptable" are reviewed individually to estimate the
amount of probable losses that need to be included in the allowance. These
reviews include analysis of financial information as well as evaluation of
collateral securing the credit. Additionally, we consider the inherent risk
present in the "acceptable" portion of the loan portfolio taking into
consideration historical losses on pools of similar loans, adjusted for trends,
conditions and other relevant factors that may affect repayment of the loans in
these pools.

The following table summarizes the allocation of the allowance for loan losses
by loan type for the years indicated and the percent of loans in each category
to total loans (dollar amounts in thousands):

<TABLE>
<CAPTION>
                   December 31, 1999   December 31, 1998    December 31, 1997    December 31, 1996     December 31, 1995
                   ------------------- ------------------- -------------------- ---------------------  -------------------
                               Loan                Loan                 Loan                 Loan                  Loan
                    Amount   Percent    Amount   Percent    Amount    Percent    Amount    Percent      Amount   Percent
                   --------- --------- --------- --------- ---------  --------- --------- -----------  --------- ---------
<S>                <C>       <C>       <C>       <C>       <C>        <C>       <C>       <C>          <C>       <C>
Commercial         $    960     53.2%  $    854     34.1%  $    657      26.2%  $    806       23.1%   $    522     20.2%
Construction            134      2.8%       100      2.7%        33       2.1%        65        3.9%         42      5.1%
Real Estate           1,034     23.4%     1,049     49.8%       873      61.0%       569       67.7%        368     69.0%
Consumer                267     20.6%        55     13.5%       139      10.8%        50        5.2%         32      5.8%
Unallocated             215    n/a          242    n/a          221     n/a          126     n/a             83    n/a
                   --------- --------- --------- --------- ---------  --------- --------- -----------  --------- ---------
                     $2,610    100.0%    $2,300    100.0%    $1,923     100.0%    $1,616      100.0%     $1,047    100.0%
                   ========= ========= ========= ========= =========  ========= ========= ===========  ========= =========
</TABLE>


FUNDING

Deposits are our primary source of funds. At December 31, 1999, we had a deposit
mix of 56.7% in time and savings deposits, 22.7% in money market and NOW
deposits, and 20.6% in noninterest-bearing demand deposits. Our net interest
income is enhanced by our percentage of noninterest-bearing deposits.


                                       33
<PAGE>

The following table summarizes the distribution of average deposits and the
average rates paid for the years indicated (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                                        December 31,
                                           ------------------------------------------------------------------------
                                                     1999                     1998                    1997
                                           -----------------------  ----------------------- -----------------------
                                             Average     Average     Average     Average      Average     Average
                                             Balance      Rate       Balance       Rate       Balance      Rate
                                           ------------ ----------  ----------- ----------- ------------ ----------

<S>                                        <C>          <C>         <C>         <C>         <C>          <C>
Money Market and NOW Accounts              $    74,797      3.70%   $   53,640       3.01%  $    48,414      2.73%
Savings Deposits                                87,566      4.65%       39,308       4.13%       26,164      3.52%
TCD Less than $100,000                          42,386      5.11%       51,997       5.43%       37,866      5.49%
TCD $100,000 or More                            39,963      6.27%       38,120       5.92%       28,923      5.74%
                                           ------------             -----------             ------------

Total Interest-Bearing Deposits                244,712      4.70%      183,065       4.54%      141,367      4.23%

Noninterest-Bearing Demand Deposits             68,632     n/a          62,771     n/a           51,664     n/a
                                           ------------             -----------             ------------

Total Average Deposits                        $313,344      3.67%     $245,836       3.38%     $193,031      3.10%
                                           ============             ===========             ============
</TABLE>


The scheduled maturity distribution of the Bank's time deposits of $100,000 or
greater, as of December 31, 1999, were as follows (dollar amounts in thousands):

<TABLE>
<S>                                                      <C>
   Three Months or Less                                       $ 20,012
   Over Three Months to One Year                                23,457
   Over One Year to Three Years                                  2,959
                                                         --------------
                                                              $ 46,428
                                                         ==============
</TABLE>


LIQUIDITY AND INTEREST RATE SENSITIVITY

The objective of the Bank's asset/liability strategy is to manage liquidity and
interest rate risks to ensure the safety and soundness of the Bank and its
capital base, while maintaining adequate net interest margins and spreads to
provide an appropriate return to the our shareholders.

We manage the Bank's interest rate risk exposure by limiting the amount of
long-term fixed rate loans we hold for investment, by originating mortgage and
SBA loans for sale to the secondary market, increasing emphasis on shorter-term,
higher yield loans for portfolio, increasing or decreasing the relative amounts
of long-term and short-term borrowings and deposits and/or purchasing
commitments to sell loans.


                                       34
<PAGE>

The table below sets forth the interest rate sensitivity of the our
interest-earning assets and interest-bearing liabilities as of December 31,
1999, using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms, except for loans held for sale which we classifies as highly liquid based
on historical sale patterns (dollar amounts in thousands):

<TABLE>
<CAPTION>
                                                               After        After One
                                                 Within      Three Months    Year But
                                                  Three      But Within       Within        After
                                                 Months       One Year      Five Years   Five Years       Total
                                               ------------ -------------  ------------- ------------  ------------
<S>                                            <C>          <C>            <C>           <C>           <C>
INTEREST-EARNING ASSETS:
   Interest Bearing Deposits                   $         -  $        100   $          -  $         -   $       100
   Investment Securities and FHLB Stock              3,385         3,513         10,995        4,800        22,693
   Gross Loans                                     181,834         6,346         51,107       27,811       267,098
                                               ------------ -------------  ------------- ------------  ------------
                                                  $185,219     $   9,959      $  62,102     $ 32,611     $ 289,891
                                               ============ =============  ============= ============  ============

INTEREST-BEARING LIABILITIES:
   Money Market and NOW Deposits               $    73,193  $          -   $          -  $         -   $    73,193
   Savings                                          79,983             -              -            -        79,983
   Time Deposits                                    44,812        52,098          6,268            -       103,178
   Other Borrowings                                      -             -              -            -             -
                                               ------------ -------------  ------------- ------------  ------------
                                               $   197,988  $     52,098   $      6,268  $         -   $   256,354
                                               ============ =============  ============= ============  ============

   Interest Rate Sensitivity Gap               $(   12,769) $(    42,139)  $     55,834  $    32,611   $    33,537
   Cumulative Interest Rate Sensitivity Gap    $(   12,769) $(    54,908)  $        926  $    33,537   $    67,074

   Ratios Based on Total Assets:
      Interest Rate Sensitivity Gap             (    3.61%)  (    11.91%)         15.78%        9.22%         9.48%
      Cumulative Interest Rate Sensitivity Gap  (    3.61%)  (    15.52%)          0.26%        9.48%
</TABLE>


Liquidity refers to our ability to maintain a cash flow adequate to fund both
on-balance sheet and off-balance sheet requirements on a timely and
cost-effective basis. Potentially significant liquidity requirements include
funding of commitments to loan clients and withdrawals from deposit accounts.

CAPITAL RESOURCES

Shareholders' equity at December 31, 1999 was $29.2 million, an increase of $2.3
million or 8.6% over $26.9 million at December 31, 1998. Average shareholders'
equity for 1999 was $27.8 million compared to $24.2 million in 1998. The
increase in shareholder's equity is primarily from net income of $3,076 in 1999
less dividends paid totaling $760.

Shareholders' equity at December 31, 1998 was $26.9 million, an increase of $4.3
million or 19.2% over $22.6 million at December 31, 1997. Average shareholders'
equity for 1998 was $24.2 million compared to $20.7 million in 1997.


                                       35
<PAGE>

In 1990, the banking industry began to phase in new regulatory capital adequacy
requirements based on risk-adjusted assets. These requirements take into
consideration the risk inherent in investments, loans, and other assets for both
on-balance sheet and off-balance sheet items. Under these requirements, the
regulatory agencies have set minimum thresholds for Tier 1 capital, total
capital and leverage ratios. At December 31, 1999, the Bank's capital exceeded
the Tier 1 Capital and Leverage Ratio's minimum regulatory requirement and was
below the minimum regulatory requirement for Total Capital. The Bank was
considered to be under-capitalized at December 31, 1999, as defined in the
regulations issued by the FDIC. The Bank's risk-based capital ratios, shown
below as of December 31, 1999, have been computed in accordance with regulatory
accounting policies (Our capital ratios are comparable to the Bank's).

<TABLE>
<CAPTION>
                                       Minimum
                                     Requirements              Bank
                                   -----------------        -----------
<S>                                <C>                      <C>
   Tier 1 Capital                       4.00%                 7.28%
   Total Capital                        8.00%                 7.99%
   Leverage Ratio                       4.00%                 7.40%
</TABLE>


On March 8, 2000 the Bank was notified by the FDIC that the Bank is
under-capitalized for purposes of Prompt Corrective Action. Accordingly, the
Bank is prohibited, among other things, from renewing broker deposits, paying
dividends and is subject to enforcement actions. Subsequent to the
notification by the FDIC, the Bank has filed a capital restoration plan with
the FDIC. The plan provides that the Bank will have Total Capital in excess
of 8% by March 31, 2000 and in excess of 10% by the third quarter of 2001.
See also Note O in the Consolidated Financial Statements for additional
information on our regulatory capital requirements and computations.

EFFECTS OF INFLATION

The financial statements and related financial information presented herein have
been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or same magnitude as the price of
goods and services.

IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES". This
Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. This new standard was originally
effective for 2000. In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE
OF FASB STATEMENT NO. 133". This Statement establishes the effective date of
SFAS No. 133 for 2001 and is not expected to have a material impact on the
Company's financial statements.


                                       36
<PAGE>

YEAR 2000 ISSUES

During the periods leading up to January 1, 2000, the Company addressed the
potential problems associated with the possibility that the computers that
control or operate the Company's information technology system and
infrastructure may not have been programmed to read four-digit date codes and,
upon arrival of the Year 2000, may have recognized the two-digit code "00" as
the year 1900, causing systems to fail to function or generate erroneous data.

The Company expended approximately $61,000 through the periods ended December
31, 1999 in connection with its year 2000 compliance program. The Company
experienced no significant problems related to its information technology
systems upon arrival of the Year 2000, nor was there any interruption in service
to its customers.

The Company could still incur losses if Year 2000 issues adversely affect its
depositors or borrowers. Such problems could include delayed loan payments due
to Year 2000 problems affecting any significant borrowers or impairing the
payroll systems of large employers in the Company's primary market areas.
Because the Company's loan portfolio is highly diversified with regard to
individual borrowers and types of business, the Company does not expect, and to
date has not realized, any significant or prolonged difficulties that will
affect net earnings or cash flow.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

NET INTEREST MARGIN. As previously discussed, net interest income is the
difference between the interest income and fees earned on loans and investments
and the interest expense paid on deposits and other liabilities. The amount by
which interest income exceed interest expense depends on two factors: the volume
of earnings assets compared to the volume of interest-bearing deposits and
liabilities, and the interest rat earned on those interest earning assets
compared with the interest paid on those interest-bearing deposits and
liabilities.

Net interest margin is the net interest income expressed as a percentage of
earning assets. To maintain its net interest margin, the Company must manage the
relationship between interest earned and paid, and the relationship is subject
to the following types of risks that are related to changes in interest rates.

MARKET RISK. The market values of assets or liabilities on which the interest
rate is fixed will increase or decrease with changes in market interest rates.
If the Company invests funds in a fixed rate long-term security and then
interest rates rise, the security is worth less than a comparable security just
issued because the older security pays less interest than the newly issued
security. If the older security had to be sold, the Company would have to
recognize a loss. Correspondingly, if interest rates decline after a fixed rate
security is purchased, its value increases. Therefore, while the value changes
regardless of which direction interest rates move, the adverse exposure to
"market risk" is primarily due to rising interest rates. This exposure is
lessened by managing the amount of fixed rate assets and by keeping maturities
relatively short. However, this strategy must be balanced against the need for
adequate interest income because variable rate and shorter fixed rate securities
generally earn less interest than longer term fixed rate securities.


                                       37
<PAGE>

There is market risk relating to the Company's fixed rate or term liabilities as
well as its assets. For liabilities, the adverse exposure to market risk is to
lower rates because the Company must continue to pay the higher rate until the
end of the term. However, because the amount of fixed rate liabilities is
significantly less that the fixed rate assets, and because the average maturity
is substantially less than for the assets, the market risk is not as great.

Net interest margin was 5.38% in 1999 compared to 6.40% in 1998 and 6.46% in
1997.

The following is a summary of the carrying amounts and estimated fair values of
selected Company financial assets and liabilities at December 31, 1999 (amounts
in thousands):


<TABLE>
<CAPTION>
                                                       Carrying              Estimated
                                                        Amount               Fair Value
                                                   ------------------     -----------------
<S>                                                <C>                    <C>
Financial Assets:
   Securities                                      $          21,580      $         21,313
   Loans, Net of Allowance for Credit Losses       $         196,274      $        196,136
Financial Liabilities:
   Deposits                                        $         322,973      $        323,010
</TABLE>

Other than a relatively small difference due to credit quality issues pertaining
to loans, the difference between the carrying amount and the fair value is a
measure of how much more or less valuable the Company's financial instruments
are to it than when acquired. The net difference for interest-bearing financial
assets is $0.4 million. The amount is not deemed to be significant compared to
the outstanding balances taken as a whole.

MISMATCH RISK. Another interest-related risk arises from the fact that when
interest rate change, the changes do not occur equally in the rates of interest
earned and paid because of difference in the contractual terms of the assets and
liabilities held. The Company has a large portion of its loan portfolio tied to
the prime interest rate. If the prime rate is lowered because of general market
conditions, e.g., other banks are lowering their lending rates; these loans will
be repriced. If the Company were at the same time to have a large proportion of
its deposits in long-term fixed rate certificates, net interest income would
decrease immediately. Interest earned on loans would decline while interest
expense would remain at higher levels for a period of time because of the higher
rate still being paid on deposits.

A decrease in net interest income could also occur with rising interest rates if
the Company had a large portfolio of fixed rate loans and securities funded by
deposit accounts on which the rate is steadily rising. This exposure to
"mismatch risk" is managed by matching the maturities and repricing
opportunities of assets and liabilities. This is done by varying the terms and
conditions of the products that are offered to depositors and borrowers. For
example, if many depositors want longer-term certificates while most borrowers
are requesting loans with floating interest rates, the Company will adjust the
interest rates on the certificates and loans to try to match up demand. The
company can then partially fill in mismatches by purchasing securities with the
appropriate maturity or repricing characteristics.

One of the means of monitoring this matching process is the use of a "gap"
report table. This table show the extent to which the maturities or repricing
opportunities of the major categories of assets and liabilities are matched
based upon specific interest rate shifts of up to +/- 300 basis points.


                                       38
<PAGE>

The following table shows the estimated impact to net interest income for an
instantaneous shift in various interest rates as of December 31, 1999 (the
dollar change in net interest income represents the estimated change for the
next 12 months):

<TABLE>
<CAPTION>
                                                                            CHANGE IN NET
                  CHANGE IN INTEREST RATES                                 INTEREST INCOME
              --------------------------------                           --------------------
              <S>                                                        <C>
              +300 basis points                                          $             4,175
              +200 basis points                                                        2,263
              +100 basis points                                                        1,360
              -100 basis points                                           (            1,400)
              -200 basis points                                           (            2,771)
              -300 basis points                                           (            4,092)
</TABLE>


The Company has adequate capital to absorb any potential losses as a result of a
decrease in interest rates. Periods of more than one year is not estimated
because steps can be taken to mitigate the adverse effects of any interest rate
changes.

BASIS RISK. A third interest-related risk arises from the fact that interest
rates rarely change in a parallel or equal manner. The interest rates associated
with the various assets and liabilities differ in how often they change, the
extent to which they change, and whether they change sooner or later than other
interest rates. For example, while the repricing of a specific asset and a
specific liability may fall in the same period of a gap report the interest rate
on the asset may rise 100 basis points, while market conditions dictate that the
liability increases only 50 basis points. While evenly matched in the gap
report, the Company would experience an increase in net interest income. This
exposure to "basis risk" is the type of interest risk least able to be managed,
but is also the least dramatic. Avoiding concentration in only a few types of
assets or liabilities is the best insurance that the average interest received
and paid will move in tandem, because the wider diversification means that many
different rates, each with their own volatility characteristics, will come into
play. The Company has made an effort to minimize concentrations in certain types
of assets and liabilities.


                                       39
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                           INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                            PAGE
                                                                                                            ----
<S>                                                                                                <C>

     Independent Auditors' Report                                                                             41

     Consolidated Balance Sheets at December 31, 1999 and 1998                                         42 and 43

     Consolidated Statements of Income for each of the Years
        in the Three-Year Period Ended December 31, 1999                                                      44

     Consolidated Statements of Shareholders' Equity for each of the
        Years in the Three-Year Period Ended December 31, 1999                                                45

     Consolidated Statements of Cash Flows for each of the Years
        in the Three-Year Period Ended December 31, 1999                                                      46

     Notes to Financial Statements                                                                 47 through 75
</TABLE>


All supplemental schedules are omitted as inapplicable or because the required
information is included in the financial statements or notes hereto.


                                       40
<PAGE>

To the Board of Directors and Shareholders
of BYL Bancorp and Subsidiary

                          INDEPENDENT AUDITORS' REPORT

We have audited the accompanying consolidated balance sheets of BYL Bancorp and
Subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of BYL Bancorp and Subsidiary as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.




Laguna Hills, California
February 11, 2000


                                       41
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
                          (DOLLAR AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                   1999                 1998
                                                                              ----------------     ----------------
<S>                                                                           <C>                  <C>
ASSETS

Cash and Due from Banks                                                       $        34,119      $        14,214
Federal Funds Sold                                                                          -               18,700
                                                                              ----------------     ----------------
                                       TOTAL CASH AND CASH EQUIVALENTS                 34,119               32,914

Interest-Bearing Deposits                                                                 100                    -

Investment Securities
   Available for Sale                                                                   6,868                5,570
   Held to Maturity                                                                    14,712               10,844
                                                                              ----------------     ----------------
                                           TOTAL INVESTMENT SECURITIES                 21,580               16,414

Federal Home Loan Bank Stock, at Cost                                                   1,113                  830

Loans Held for Sale                                                                    69,756               74,598

Loans
   Commercial                                                                         104,719               56,244
   Real Estate                                                                         51,500               86,646
   Consumer                                                                            40,456               22,309
                                                                              ----------------     ----------------
                                                           TOTAL LOANS                196,675              165,199
   Net Deferred Loan Costs                                                              2,209                1,255
   Allowance for Credit Losses                                                 (        2,610)      (        2,300)
                                                                              ----------------     ----------------
                                                             NET LOANS                196,274              164,154

Premises and Equipment                                                                  6,447                6,082
Other Real Estate Owned                                                                   277                  971
Cash Surrender Value of Life Insurance                                                  2,196                1,374
Deferred Tax Assets                                                                     1,804                1,843
Goodwill                                                                                1,324                1,445
Interest-Only Strips Receivable and Servicing Assets                                   15,659                9,025
Accrued Interest and Other Assets                                                       3,087                8,363
                                                                              ----------------     ----------------
                                                                              $       353,736      $       318,013
                                                                              ================     ================
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       42
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
                          (DOLLAR AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                   1999                 1998
                                                                              ----------------     ----------------
<S>                                                                           <C>                  <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
   Noninterest-Bearing Demand                                                 $        66,619      $        69,863
   Money Market and NOW                                                                73,193               58,470
   Savings                                                                             79,983               70,838
   Time Deposits Under $100,000                                                        56,750               48,799
   Time Deposits $100,000 and Over                                                     46,428               39,236
                                                                              ----------------     ----------------
                                                        TOTAL DEPOSITS                322,973              287,206

Accrued Interest and Other Liabilities                                                  1,563                3,925
                                                                              ----------------     ----------------
                                                     TOTAL LIABILITIES                324,536              291,131

Commitments and Contingencies - Note K

Shareholders' Equity
   Preferred Shares - Authorized 25,000,000
      Shares; None Outstanding
   Common Shares - Authorized 50,000,000
      Shares;  Issued and Outstanding 2,537,102
      Shares in 1999 and 2,531,302 Shares in 1998                                      12,788               12,760
   Retained Earnings                                                                   15,918               13,602
   Accumulated Other Comprehensive Income                                                 494                  520
                                                                              ----------------     ----------------
                                            TOTAL SHAREHOLDERS' EQUITY                 29,200               26,882
                                                                              ----------------     ----------------

                                                                                    $ 353,736            $ 318,013
                                                                              ================     ================
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                   statements.


                                       43
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                  YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                  1999               1998               1997
                                                             ---------------     --------------     --------------
<S>                                                          <C>                 <C>                <C>
INTEREST INCOME
   Interest and Fees on Loans                                $       25,093      $      22,057      $      16,299
   Interest on Investment Securities                                  1,310              1,119              1,535
   Other Interest Income                                              1,125                840                621
                                                             ---------------     --------------     --------------
                                TOTAL INTEREST INCOME                27,528             24,016             18,455

INTEREST EXPENSE
   Interest on Money Market and NOW                                   2,764              1,613              1,321
   Interest on Savings Deposits                                       4,076              1,622                920
   Interest on Time Deposits                                          4,670              5,081              3,741
   Interest on Other Borrowings                                          76                 90                 75
                                                             ---------------     --------------     --------------
                               TOTAL INTEREST EXPENSE                11,586              8,406              6,057
                                                             ---------------     --------------     --------------

                                  NET INTEREST INCOME                15,942             15,610             12,398

Provision for Credit Losses                                             694                755                778
                                                             ---------------     --------------     --------------
                            NET INTEREST INCOME AFTER
                          PROVISION FOR CREDIT LOSSES                15,248             14,855             11,620

NONINTEREST INCOME
   Net Servicing and Interest-Only Strip Income                       1,817                662                689
   Net Gain on Sale and Securitization of Loans                      19,563             19,724             13,150
   Service Charges, Fees, and Other Income                            2,669              3,022              2,081
                                                             ---------------     --------------     --------------
                                                                     24,049             23,408             15,920
                                                             ---------------     --------------     --------------
                                                                     39,297             38,263             27,540
NONINTEREST EXPENSE
   Salaries and Employee Benefits                                    19,906             19,662             14,073
   Occupancy Expenses                                                 2,287              1,645              1,342
   Furniture and Equipment                                            2,798              2,032              1,388
   Other Expenses                                                     8,900              7,531              5,914
                                                             ---------------     --------------     --------------
                                                                     33,891             30,870             22,717
                                                             ---------------     --------------     --------------
                           INCOME BEFORE INCOME TAXES                 5,406              7,393              4,823
Income Taxes                                                          2,330              3,277              1,968
                                                             ---------------     --------------     --------------

                                           NET INCOME        $        3,076      $       4,116      $       2,855
                                                             ===============     ==============     ==============
Per Share Data
   Net Income - Basic                                        $         1.21      $        1.63      $        1.19
   Net Income - Diluted                                      $         1.21      $        1.55      $        1.12
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       44
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                                    Common Shares                                    Accumulated
                                                -----------------------                                 Other
                                                Number of               Comprehensive   Retained    Comprehensive
                                                  Shares      Amount       Income       Earnings        Income
                                                -----------  ---------- ------------- ------------- ---------------
<S>                                             <C>          <C>        <C>           <C>           <C>
BALANCE AT JANUARY 1, 1997                       2,399,919   $  11,945                $      7,602  $(         113)

COMPREHENSIVE INCOME:
   Net Income                                                              $   2,855         2,855
   Other Comprehensive Income - Unrealized
      Gain on Available-for-Sale Securities,
      Net of Taxes of $21                                                         86                            86
                                                                        -------------
                  TOTAL COMPREHENSIVE INCOME                               $   2,941
                                                                        =============
Dividends on Common                                                                    (       502)
Common Stock Retired                             (     823)   (      6)
Exercise of Stock Options, Including Tax
   Benefit of $91                                  104,075         683
                                                -----------  ----------               ------------- ---------------
BALANCE AT DECEMBER 31, 1997                     2,503,171      12,622                       9,955   (          27)

COMPREHENSIVE INCOME:
   Net Income                                                              $   4,116         4,116
   Other Comprehensive Income - Unrealized
      Gain on Available-for-Sale Securities,
      Net of Taxes of $116                                                       183                           183
   Unrealized Gain on Interest-Only
       Strips Net of Taxes of $256                                               364                           364
                                                                        -------------
                  TOTAL COMPREHENSIVE INCOME                               $   4,663
                                                                        =============
Cash in Lieu of Fractional Shares from
    Merger with DNB                                                                    (         2)
Dividends on Common                                                                    (       467)
Exercise of Stock Options                           28,131         138
                                                -----------  ----------               ------------- ---------------
BALANCE AT DECEMBER 31, 1998                     2,531,302      12,760                      13,602             520

COMPREHENSIVE INCOME:
   Net Income                                                              $   3,076         3,076
   Other Comprehensive Income - Unrealized
      Gain on Available-for-Sale Securities,
      Net of Taxes of $2                                                           3                             3
   Unrealized Loss on Interest-Only
       Strips Net of Taxes of $21                                        (        29)                (          29)
                                                                        -------------
                  TOTAL COMPREHENSIVE INCOME                               $   3,050
                                                                        =============
Cash Dividends                                                                         (       760)
Exercise of Stock Options                            5,800          28
                                                -----------  ----------               ------------- ---------------

BALANCE AT DECEMBER 31, 1999                     2,537,102   $  12,788                $     15,918  $          494
                                                ===========  ==========               ============= ===============
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       45
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


<TABLE>
<CAPTION>
OPERATING ACTIVITIES                                                     1999            1998            1997
                                                                      ------------    ------------    ------------
<S>                                                                   <C>             <C>             <C>
   Net Income                                                         $     3,076     $     4,116     $     2,855
   Adjustments to Reconcile Net Income
     to Net Cash Provided (Used) by Operating Activities:
       Depreciation and Amortization                                        3,622           1,920           1,013
       Deferred Income Taxes                                                   57      (      496)     (      912)
       Loans Originated for Sale                                       (  690,108)     (  336,685)     (  225,800)
       Proceeds from Loan Sales                                           701,551         319,630         216,434
       Gain on Sale of Loans                                           (   19,563)     (   19,724)     (   13,150)
       Provision for Credit Losses                                            694             755             778
       Other Real Estate Owned Losses                                          72             220              53
       Other Items - Net                                                    1,995      (    5,784)          2,617
                                                                      ------------    ------------    ------------
                                         NET CASH PROVIDED (USED)
                                          BY OPERATING ACTIVITIES           1,396       (  36,048)      (  16,112)

INVESTING ACTIVITIES
   Net Change in Interest-Bearing Deposits                             (      100)          3,419             685
   Purchases of Available-for-Sale Securities                          (      236)      (   1,894)      (   5,864)
   Purchases of Held-to-Maturity Securities                            (   10,994)      (  10,551)      (   7,902)
   Proceeds from Maturities and Sale of Available-for-Sale
     Securities                                                             3,452          18,683           4,787
   Proceeds from Maturities of Held-to-Maturity Securities                  7,108           2,663           8,407
   Net Change in Loans                                                 (   33,022)     (   28,838)     (   35,866)
   Proceeds from Sales of Other Real Estate Owned                             830           1,212             885
   Purchases of Premises and Equipment                                 (    2,294)     (    2,184)     (    1,885)
   Proceeds from Sale of Premises and Equipment                                30              82               3
                                                                      ------------    ------------    ------------
                            NET CASH USED BY INVESTING ACTIVITIES      (   35,226)     (   17,408)     (   36,750)

FINANCING ACTIVITIES
   Net Change in Demand Deposits and Savings Accounts                      20,624          67,451          14,568
   Net Change in Time Deposits                                             15,143          11,820          31,310
   Net Change Short-Term Borrowings                                             -      (    4,000)          3,500
   Reductions in Long-Term Debt                                                 -      (      465)     (       58)
   Proceeds from Exercise of Stock Options                                     28             138             592
   Redemption of Common Stock                                                   -               -      (        6)
   Dividends Paid                                                      (      760)     (      467)     (      502)
                                                                      ------------    ------------    ------------
                        NET CASH PROVIDED BY FINANCING ACTIVITIES          35,035          74,477          49,404
                                                                      ------------    ------------    ------------

                                           INCREASE (DECREASE) IN
                                        CASH AND CASH EQUIVALENTS           1,205          21,021      (    3,458)
Cash and Cash Equivalents at Beginning of Year                             32,914          11,893          15,351
                                                                      ------------    ------------    ------------
                                        CASH AND CASH EQUIVALENTS
                                                   AT END OF YEAR     $    34,119     $    32,914     $    11,893
                                                                      ============    ============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest Paid                                                      $    11,495     $     8,338     $     5,895
   Income Taxes Paid                                                  $     2,470     $     4,237     $     2,352
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.


                                       46
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The financial statements include the accounts of BYL Bancorp and its subsidiary,
BYL Bank Group ("the Bank"), collectively referred to herein as the "Company".

NATURE OF OPERATIONS

The Bank operates seven retail branches in Orange and Riverside County,
California. It also operates a Small Business Administration (SBA) loan
department and a mortgage loan department. The Bank's primary source of revenue
is providing loans to customers for both retention in the Bank's loan portfolio
as well as sales to other institutional investors.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include cash,
due from banks and federal funds sold. Generally, federal funds are sold for one
day periods.

CASH AND DUE FROM BANKS

Banking regulations require that all banks maintain a percentage of their
deposits as reserves in cash or on deposit with the federal reserve bank. The
Bank complied with the reserve requirements as of December 31, 1999.

The Bank maintains amounts due from banks which exceed federally insured limits.
The Bank has not experienced any losses in such accounts.

INVESTMENT SECURITIES

Bonds, notes, and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.


                                       47
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

INVESTMENT SECURITIES - CONTINUED

Investments not classified as trading securities nor as held to maturity
securities are classified as available-for-sale securities and recorded at fair
value. Unrealized gains or losses on available-for-sale securities are excluded
from net income and reported as an amount net of taxes as a separate component
of other comprehensive income included in shareholders' equity. Premiums or
discounts on held-to-maturity and available-for-sale securities are amortized or
accreted into income using the interest method. Realized gains or losses on
sales of held-to-maturity or available-for-sale securities are recorded using
the specific identification method.

LOANS HELD FOR SALE

Mortgage, SBA loans and other loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated market value in
the aggregate. Net unrealized losses are recognized through a valuation
allowance by charges to income.

LOANS

Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.

Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield of the related loan.

The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.

For impairment recognized in accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 114,
"ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN", amended by SFAS No. 118, the
entire change in the present value of expected cash flows is reported as either
provision for loan losses in the same manner in which impairment initially was
recognized, or as a reduction in the amount of provision for loan losses that
otherwise would be reported.


                                       48
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

LOANS - CONTINUED

On January 1, 1997, the Company adopted SFAS No. 125 "ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES". The
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Under this
statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished.

To calculate the gain (loss) on sale of loans, the Company's investment in the
loan is allocated among the retained portion of the loan, the servicing
retained, the interest-only strip and the sold portion of the loan, based on the
relative fair market value of each portion. The gain (loss) on the sold portion
of the loan is recognized at the time of sale based on the difference between
the sale proceeds and the allocated investment. As a result of the relative fair
value allocation, the carrying value of the retained portion is discounted, with
the discount accreted to interest income over the life of the loan. That portion
of the excess servicing fees that represent contractually specified servicing
fees (contractual servicing) are reflected as a servicing asset which is
amortized over an estimated life using a method approximating the level yield
method; in the event future prepayments exceed Management's estimates and future
expected cash flows are inadequate to cover the unamortized servicing asset,
additional amortization would be recognized. The portion of excess servicing
fees in excess of the contractual servicing fees is reflected as interest-only
(I/O) strips receivable which are classified as interest-only strips receivable
available for sale and are carried at fair value.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is increased by charges to income and decreased
by charge-offs (net of recoveries). The Company performs quarterly detailed
reviews to identify the risks inherent in the loan portfolio, assess the overall
quality of the loan portfolio and to determine the adequacy of the allowance for
loan losses and the related provision for loan losses to be charged to expense.
This systematic reviews follow the methodology set forth by the FDIC in its 1993
policy statement on the allowance for loan losses.

Loans identified as less than "acceptable" are reviewed individually to estimate
the amount of probable losses that need to be included in the allowance. These
reviews include analysis of financial information as well as evaluation of
collateral securing the credit. Additionally, management considers the inherent
risk present in the "acceptable" portion of the loan portfolio taking into
consideration historical losses on pools of similar loans, adjusted for trends,
conditions and other relevant factors that may affect repayment of the loans in
these pools.


                                       49
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

MORTGAGE BANKING ACTIVITIES

The Company originates and sells residential mortgage loans to a variety of
secondary market investors, including the Federal Home Loan Mortgage Corporation
(FHLMC), the Federal National Mortgage Association (FNMA) and others. Gains and
losses on the sale of mortgage loans are recognized upon delivery based on the
difference between the selling price and the carrying value of the related
mortgage loans sold. Deferred origination fees and expenses are recognized at
the time of sale in the determination of the gain or loss. The Company sells the
servicing for such loans to the purchaser of the loans. The Company recognizes
the gain or loss on servicing sold when all risks and rewards of ownership have
transferred.

Mortgage loans held for sale are stated at the lower of cost or market as
determined by the outstanding commitments from investors or current investor
yield requirements calculated on an aggregate loan basis.
Valuation adjustments are charged against noninterest income.

Forward commitments to sell, and put options on mortgage-backed securities are
used to reduce interest rate risk on a portion of loans held for sale and
anticipated loan fundings of the Diamond Bar Mortgage Division. The resulting
gains and losses on forward commitments are deferred and included in the
carrying values of loans held for sale. Premiums on put options are capitalized
and amortized over the option period. Gains and losses on forward commitments
and put options deferred against loans held for sale approximately offset
equivalent amounts of unrecognized gains and losses on the related loans.
Forward commitments to sell and put options on mortgage-backed securities that
hedge anticipated loan funding are not reflected in the consolidated statement
of financial condition. Gains and losses on these instruments are not recognized
until the actual sale of the loans held for sale. Loans generally fund in 10 to
30 days from the date of commitment. As noted in Note S, in conjunction with the
closing of the Diamond Bar Mortgage Division, the Company no longer utilizes
these activities to reduce interest rate risk.

PREMISES AND EQUIPMENT

Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives, which ranges from three to
ten years for furniture and fixtures and forty years for buildings. Leasehold
improvements are amortized using the straight-line method over the estimated
useful lives of the improvements or the remaining lease term, whichever is
shorter. Expenditures for betterment or major repairs are capitalized and those
for ordinary repairs and maintenance are charged to operations as incurred.


                                       50
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

OTHER REAL ESTATE OWNED

Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of foreclosure establishing a new
cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of cost or fair value
minus estimated costs to sell. Revenue and expenses from operations and changes
in the valuation allowance are included in other expenses.

GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of the purchase price over the estimated fair
value of net assets associated with acquisition transactions of the Company
accounted for as purchases and is amortized over fifteen years. Core deposit
intangibles represent the intangible value of depositor relationships resulting
from deposit liabilities assumed in acquisitions and are amortized over seven
years. Goodwill and other intangibles are evaluated periodically for other than
temporary impairment. Should such an assessment indicate that the undiscounted
value of an intangible may be impaired, the net book value of the intangible
would be written down to net estimated recoverable value.

INCOME TAXES

Deferred income taxes are computed using the asset and liability method, which
recognizes a liability or asset representing the tax effects, based on current
tax law, of future deductible or taxable amounts attributable to events that
have been recognized in the consolidated financial statements. A valuation
allowance is established to reduce the deferred tax asset to the level at which
it is "more likely than not" that the tax asset or benefits will be realized.
Realization of tax benefits of deductible temporary differences and operating
loss carryforwards depends on having sufficient taxable income of an appropriate
character within the carryforward periods.

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107 specifies the disclosure of the estimated fair value of financial
instruments. The Bank's estimated fair value amounts have been determined by the
Bank using available market information and appropriate valuation methodologies.

Considerable judgment is required to develop the estimates of fair value.
Accordingly, the estimates are not necessarily indicative of the amounts the
Company could have realized in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.


                                       51
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED

Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since the balance sheet date
and, therefore, current estimates of fair value may differ significantly from
the amounts presented in the accompanying Notes.

EARNINGS PER SHARES (EPS)

Basic EPS excludes 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 that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.

STOCK-BASED COMPENSATION

SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," encourages, but does
not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board ("APB") Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. The pro forma effects of adoption are disclosed in
Note M.

CURRENT ACCOUNTING PRONOUNCEMENTS

In June 1998, FASB issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES". This Statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. This new
standard was originally effective for 2000. In June 1999, the FASB issued SFAS
No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES -
DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133". This Statement
establishes the effective date of SFAS No. 133 for 2001 and is not expected to
have a material impact on the Company's financial statements.

RECLASSIFICATIONS

Certain reclassifications were made to prior years' presentations to conform to
the current year. These classifications are of a normal recurring nature.


                                       52
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE B - INVESTMENT SECURITIES

Debt and equity securities have been classified in the consolidated balance
sheets according to management's intent. The carrying amount of securities and
their approximate fair values at December 31 were as follows:

<TABLE>
<CAPTION>
                                                                          Gross           Gross
                                                         Amortized      Unrealized      Unrealized
                                                            Cost          Gains          (Losses)      Fair Value
                                                        -------------  -------------   -------------  -------------
<S>                                                     <C>            <C>             <C>            <C>
AVAILABLE-FOR-SALE SECURITIES:
   DECEMBER 31, 1999:
      Mortgage-Backed Securities                        $      6,597   $        271    $          -   $      6,868
                                                        =============  =============   =============  =============


   DECEMBER 31, 1998:
      Investment in Mutual funds                        $      3,000   $          -    $          -   $      3,000
      Mortgage-Backed Securities                               2,305            265               -          2,570
                                                        -------------  -------------   -------------  -------------
                                                        $      5,305   $        265    $          -   $      5,570
                                                        =============  =============   =============  =============

HELD-TO-MATURITY SECURITIES:
   DECEMBER 31, 1999:
      U.S. Treasury                                     $        500   $          1    $          -   $        501
      U.S. Government and Agency Securities                   14,008              -     (       266)        13,742
      Mortgage-Backed Securities                                 204              -     (         2)           202
                                                        -------------  -------------   -------------  -------------
                                                        $     14,712   $          1    $(       268)  $     14,445
                                                        =============  =============   =============  =============

   DECEMBER 31, 1998:
      U.S. Treasury                                     $      2,499   $         27    $          -   $      2,526
      U.S. Government and Agency Securities                    8,029              7     (         6)         8,030
      Mortgage-Backed Securities                                 316              2               -            318
                                                        -------------  -------------   -------------  -------------
                                                        $     10,844   $         36    $(         6)  $     10,874
                                                        =============  =============   =============  =============
</TABLE>


The gross unrealized gain of $271 on available-for-sale securities is included
in accumulated other comprehensive income at December 31, 1999, net of taxes of
$111.


                                       53
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE B - INVESTMENT SECURITIES - CONTINUED

During 1998, the Company received $1,504 in proceeds and recorded a loss of $39
from the sale of investment securities. The Company did not sell any investment
securities for the years ended December 31, 1999, and 1997.

Investment securities carried at $14,712 and $10,844 at December 31, 1999 and
1998, respectively, were pledged to secure public deposits and other purposes as
required by law.

The scheduled maturities of securities available for sale and securities held to
maturity at December 31, 1999, were as follows:

<TABLE>
<CAPTION>
                                                 Available-for-Sale                      Held-to-Maturity
                                          ----------------------------------     ----------------------------------
                                            Amortized             Fair             Amortized             Fair
                                              Cost               Value               Cost               Value
                                          --------------     ---------------     --------------     ---------------
<S>                                       <C>                <C>                 <C>                <C>
Due In One Year or Less                   $           -      $            -      $       3,513      $        3,488
Due from One to Five Years                            -                   -             10,995              10,755
Mortgage-Backed Securities                        6,597               6,868                204                 202
                                          --------------     ---------------     --------------     ---------------
                                          $       6,597      $        6,868      $      14,712      $       14,445
                                          ==============     ===============     ==============     ===============
</TABLE>



NOTE C - LOANS HELD FOR SALE

The Bank originates auto, mortgage and SBA loans for sale to institutional
investors. A substantial portion of the Bank's revenues are from origination of
loans guaranteed by the Small Business Administration under its Section 7
program and sale of the guaranteed portions of those loans. Funding for the
Section 7 program depends on annual appropriations by the U.S. Congress.

At December 31, 1999 and 1998, the Bank was servicing approximately $220,120 and
$164,764, respectively, in loans previously sold.

Prior to January 1, 1997, the Company's excess servicing fees were recorded as
excess servicing assets which were amortized over the estimated life of the
related loans. Effective January 1, 1997, under provisions of SFAS 125, excess
servicing assets on loans sold prior to January 1, 1997 were reclassified to
interest-only strips receivable and to servicing assets. These assets are
amortized as an offset to loan servicing income and I/O strip income over the
estimated life of the related loans.


                                       54
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE C - LOANS HELD FOR SALE - CONTINUED

A summary of the changes in the servicing assets and interest-only strips
receivable is as follows:

<TABLE>
<CAPTION>
                                                                                    Servicing Assets
                                                                     ---------------------------------------------
                                                                         1999             1998             1997
                                                                     ------------     ------------     -----------
<S>                                                                  <C>              <C>              <C>
Balance at Beginning of Year                                         $     2,479      $     1,920      $    1,249
Transfer to Interest-Only Strips Receivable                                    -                -       (     312)
Increase from Loan Sales                                                   1,045              968           1,057
Amortization and Prepayments Charged to Income                        (      721)      (      409)      (      74)
                                                                     ------------     ------------     -----------
Balance at End of Year                                               $     2,803      $     2,479      $    1,920
                                                                     ============     ============     ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                           Interest-Only Strips Receivable
                                                                     ---------------------------------------------
                                                                         1999             1998             1997
                                                                     ------------     ------------     -----------
<S>                                                                  <C>              <C>              <C>
Balance at Beginning of Year                                         $     5,926      $       644      $        -
Transfer from Servicing Assets                                                 -                -             312
Increase from Loan Sales                                                   7,224            5,437             353
Amortization and Prepayments Charged to Income                        (      864)      (      155)      (      21)
                                                                     ------------     ------------     -----------
Balance at End of Year                                               $    12,286      $     5,926      $      644
                                                                     ============     ============     ===========

Unrecognized Gain at End of Year                                     $       570      $       620      $        -
</TABLE>



The unrecognized gain on interest-only strips receivable of $570 is included in
accumulated other comprehensive income at December 31, 1999, net of taxes of
$236.

The estimated fair value of the servicing assets was approximately $2,815 at
December 31, 1999. Fair value is estimated by discounting estimated future cash
flows from the servicing assets using discount rates that approximate current
market rates over the expected lives of the loans being serviced. For purposes
of measuring impairment, the Bank has identified each servicing asset with the
underlying loan being serviced. A direct write down is recorded where the fair
value is below the carrying amount of a specific servicing asset.


                                       55
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE C - LOANS HELD FOR SALE - CONTINUED

Included in the above Interest-Only Strips Receivable are retained interest in
securitized assets ("RISA"), which has been capitalized upon the securitization
of $43,000 of the unguaranteed portion of SBA loans in 1998 and $60,000 of
commercial real estate loans in 1999. The RISA represents the present value of
the estimated future earnings to be received by the company from the excess
spread created in securitization transactions. Excess spread is calculated by
taking the difference between the coupon rate of the loans sold and the
certificate rate paid to the investors less contractually specified servicing
and costs and projected credit losses, after giving effect to estimated
prepayments. The Company utilized prepayment rates for the 1998 securitization
of 12% in 1998 and 15.3% in 1999. The prepayment rate for the 1999
securitization is 5% for the first sixty months and 15% thereafter. Annual net
credit loss assumptions utilized for the 1999 and 1998 securitization
transactions ranged from .25% to .50%. The Company used a discount rate during
1999 and 1998 of 125 to 525 points over the certificate rates paid to investors
at the time of securitization in discounting future earnings.

RISA is classified in a manner similar to available for sale securities and as
such is marked to market each quarter. The Company is not aware of an active
market for the purchase or sale of the RISA, and accordingly, the company
determines the estimated fair value of the RISA by discounting the expected cash
flows released from the trust (the "Cash-Out Method") using a discount rate
which the Company believes is commensurate with the risks involved. Any changes
in the market value of RISA is reported as a separate component of shareholders'
equity as an unrealized gain or loss, net of deferred taxes.

In initially valuing the RISA, the Company establishes an off balance sheet
allowance for expected future credit losses. The allowance is based upon
historical experience and management's estimate of future performance regarding
credit losses. The amount is reviewed periodically and adjustments are made if
actual experience or other factors indicate that future performance may differ
from management's prior estimates.


                                       56
<PAGE>

                            BY BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE C - LOANS HELD FOR SALE - CONTINUED

The following table presents the estimated future undiscounted retained interest
earnings to be received from securitizations. Estimated future undiscounted RISA
earnings are calculated by taking the difference between the coupon rate of the
contracts sold and the rates paid to the investors, less the contractually
specified servicing fee of .40% and costs, after giving effect to estimated
prepayments and assuming no losses. To arrive at the RISA, this amount is
reduced by the off balance sheet allowance established for potential future
losses and by discounting to present value.

<TABLE>
<CAPTION>
                                                                                        1999              1998
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Estimated Net Undiscounted RISA Earnings                                             $    19,475       $    11,114
Off Balance Sheet Allowance for Losses                                                (    1,864)       (    1,355)
Discount to Present Value                                                             (    6,966)       (    3,920)
                                                                                     ------------      ------------
Retained Interest in Securitized Assets                                              $    10,645       $     5,839
                                                                                     ============      ============

Outstanding Balance of Loans Sold Through Securitizations                            $    94,297       $    37,420
                                                                                     ============      ============
</TABLE>




NOTE D - LOANS

The Bank's loan portfolio consists primarily of loans to borrowers within Orange
and Riverside County in Southern California. Although the Bank seeks to avoid
concentrations of loans to a single industry or based upon a single class of
collateral, real estate and real estate associated businesses are among the
principal industries in the Bank's market area and, as a result, the Bank's loan
and collateral portfolios are, to some degree, concentrated in those industries.

A summary of the changes in the allowance for credit losses as of December 31
follows:

<TABLE>
<CAPTION>
                                                                       1999              1998              1997
                                                                   -----------       ------------      ------------
<S>                                                                <C>               <C>               <C>
Balance at Beginning of Year                                       $    2,300        $     1,923       $     1,616
Additions to the Allowance Charged to Expense                             694                755               778
Recoveries on Loans Charged Off                                           134                150                64
                                                                   -----------       ------------      ------------
                                                                        3,128              2,828             2,458
Less Loans Charged Off                                              (     518)        (      528)       (      535)
                                                                   -----------       ------------      ------------

                                                                   $    2,610        $     2,300       $     1,923
                                                                   ===========       ============      ============
</TABLE>


                                       57
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE D - LOANS - CONTINUED

The following is a summary of the investment in impaired loans, the related
allowance for credit losses, and income recognized thereon as of December 31:

<TABLE>
<CAPTION>
                                                                      1999              1998              1997
                                                                   -----------       ------------      ------------
<S>                                                                <C>               <C>               <C>
Recorded Investment in Impaired Loans                              $    1,542        $     1,806       $     2,325

Related Allowance for Impaired Losses                              $      243        $       289       $       341

Average Recorded Investment in Impaired Loans                      $    2,349        $     2,102       $     2,324

Interest Income Recognized from Cash Payments                      $        -        $         -       $       103
</TABLE>



Loans having carrying values of $725, $1,479, and $336 were transferred to other
real estate owned in 1999, 1998 and 1997, respectively. During 1999 loans
totaling $517 were made to facilitate the sale of other real estate owned.


NOTE E - PREMISES AND EQUIPMENT

A summary of premises and equipment follows:

<TABLE>
<CAPTION>
                                                                                        1999              1998
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Land                                                                                 $       943       $       943
Buildings                                                                                  2,091             2,039
Leasehold Improvements                                                                     1,685             1,380
Furniture, Fixtures, and Equipment                                                         7,584             5,739
                                                                                     ------------      ------------
                                                                                          12,303            10,101
Less Accumulated Depreciation and Amortization                                        (    5,856)       (    4,019)
                                                                                     ------------      ------------

                                                                                     $     6,447       $     6,082
                                                                                     ============      ============
</TABLE>


The Bank has entered into various operating lease agreements, primarily covering
its branch locations. These agreements expire at various times through the year
2005.


                                       58
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE E - PREMISES AND EQUIPMENT - CONTINUED

The approximate future minimum annual payments for these leases by year are as
follows:

<TABLE>
                        <S>                              <C>
                        2000                             $      1,289
                        2001                                    1,258
                        2002                                      826
                        2003                                      262
                        2004                                      152
                        Thereafter                                 76
                                                         -------------

                                                         $      3,863
                                                         =============
</TABLE>


The minimum rental payments shown above represent the existing lease
obligations, are not a forecast of future rental expense, and do not include
sublease income.

Total rental expense included in occupancy expense and furniture and equipment
expense was approximately $1,526 in 1999, $987 in 1998, and $768 in 1997.


NOTE F - DEPOSITS

At December 31, 1999, the scheduled maturities of time deposits are as follows:

<TABLE>
                        <S>                              <C>
                        2000                             $     96,910
                        2001 through 2003                       6,264
                        After 2003                                  4
                                                         -------------

                                                         $    103,178
                                                         =============
</TABLE>


                                       59
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE G - OTHER EXPENSES

A summary of other expenses for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                                                      1999              1998              1997
                                                                   ------------      ------------      ------------
<S>                                                                <C>               <C>               <C>
Regulatory Assessments                                             $        61       $        58       $        79
Other Real Estate Owned                                                    226               288               185
Commissions                                                                  -                13               278
Professional Fees and Outside Services                                   1,965             1,792             1,406
Loan Expenses                                                            1,649             1,047               511
Office Expenses                                                          2,016             1,527             1,303
Merger Related Expenses                                                      -               542                 -
Other                                                                    2,983             2,264             2,152
                                                                   ------------      ------------      ------------

                                                                   $     8,900       $     7,531       $     5,914
                                                                   ============      ============      ============
</TABLE>




NOTE H - INCOME TAXES

The provisions for income taxes included in the statements of income consist of
the following:

<TABLE>
<CAPTION>
                                                                     1999               1998              1997
                                                                  ------------       -----------       -----------
<S>                                                               <C>                <C>               <C>
Current:
   Federal                                                        $     1,704        $    2,723        $    2,176
   State                                                                  569             1,050               704
                                                                  ------------       -----------       -----------
                                                                        2,273             3,773             2,880

Deferred                                                                   57         (     496)        (     912)
                                                                  ------------       -----------       -----------

                                                                  $     2,330        $    3,277        $    1,968
                                                                  ============       ===========       ===========
</TABLE>



Deferred taxes are a result of differences between income tax accounting and
generally accepted accounting principles with respect to income and expense
recognition. The Company's principal differences are from loan loss provision
accounting, loan sales, and depreciation differences.


                                       60
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE H - INCOME TAXES - CONTINUED

The following is a summary of the components of the deferred tax asset account
recognized in the accompanying consolidated balance sheets:

<TABLE>
<CAPTION>
                                                                                        1999              1998
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Deferred Tax Assets:
   Allowance for Loan Losses                                                         $       763       $       510
   Other Real Estate Writedowns                                                               91               222
   Gain on Sale of Loans                                                                   1,098             1,196
   California Franchise Tax                                                                  196               312
   Other Assets/Liabilities                                                                  160               401
                                                                                     ------------      ------------
                                                                                           2,308             2,641
Deferred Tax Liabilities:
   Unrealized Gains on Securities and Other Assets                                    (      347)       (      365)
   Premises and Equipment                                                             (      157)       (      433)
                                                                                     ------------      ------------
                                                                                      (      504)       (      798)
                                                                                     ------------      ------------

                                                                                     $     1,804       $     1,843
                                                                                     ============      ============
</TABLE>



A comparison of the federal statutory income tax rates to the Company's
effective income tax rates for the years ended December 31 follows:

<TABLE>
<CAPTION>
                                                1999                      1998                      1997
                                      ------------------------  ------------------------  ------------------------
                                        Amount        Rate        Amount        Rate        Amount        Rate
                                      -----------  -----------  -----------  -----------  -----------  -----------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>
Federal Tax Rate                      $    1,838        34.0%   $    2,514        34.0%   $    1,640        34.0%
California Franchise Taxes,
   Net of Federal Tax Benefit                387         7.1           536         7.3           330         6.8
Tax Savings from Exempt
   Interest                            (      42)   (    0.8)    (      44)   (    0.6)    (      79)   (    1.6)
Merger Expenses
                                               -           -           222         3.0             -           -
Other Items - Net                            147         2.8            49         0.6            77         1.6
                                      -----------  -----------  -----------  -----------  -----------  -----------

Bank's Effective Rate                 $    2,330        43.1%   $    3,277        44.3%   $    1,968        40.8%
                                      ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>


                                       61
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE I - EARNINGS PER SHARE (EPS)

The following is a reconciliation of net income and shares outstanding to the
income and number of share used to compute EPS:

<TABLE>
<CAPTION>
                                              1999                        1998                       1997
                                  --------------------------  -------------------------  --------------------------
                                    Income        Shares        Income        Shares       Income        Shares
                                  ------------  ------------  -----------   -----------  ------------  ------------
<S>                               <C>           <C>           <C>           <C>          <C>           <C>
Net Income as Reported            $     3,076                 $    4,116                 $     2,855
Weighted Average Shares
   Outstanding During the Year                    2,534,053                  2,520,828                   2,403,103
                                  ------------  ------------  -----------   -----------  ------------  ------------
              USED IN BASIC EPS         3,076     2,534,053        4,116     2,520,828         2,855     2,403,103
Dilutive Effect of:
   Outstanding Stock Options                         17,556                    135,410                     134,084

                                  ------------  ------------  -----------   -----------  ------------  ------------
           USED IN DILUTIVE EPS   $     3,076     2,551,609   $    4,116     2,656,238   $     2,855     2,537,187
                                  ============  ============  ===========   ===========  ============  ============
</TABLE>




NOTE J - EMPLOYEE BENEFITS

The Bank has a salary deferral 401(k) Plan that covers substantially all
employees. The Bank contributed matching funds at its option, which amounted to
$381, $302 and $34 in 1999, 1998 and 1997, respectively.

The Bank has entered into retirement benefit agreements with certain officers
providing for future benefits aggregating approximately $2,415, payable in equal
annual installments for ten years from the death or retirement dates of each
participating officer. The obligations for these agreements are funded by single
premium life insurance policies, with cash surrender values aggregating
approximately $2,196, $1,374, and $906 at December 31, 1999, 1998 and 1997,
respectively. As of December 31, 1999, 1998 and 1997, approximately $216, $152,
and $97, respectively, has been accrued in conjunction with these agreements.


NOTE K - COMMITMENTS AND CONTINGENCIES

The Company is involved in various litigation which has arisen in the ordinary
course of its business. In the opinion of management, based upon representation
of legal counsel, the disposition of such pending litigation will not have a
material effect on the Bank's financial statements.


                                       62
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE K - COMMITMENTS AND CONTINGENCIES - CONTINUED

In the ordinary course of business, the Bank enters into financial commitments
to meet the financing needs of its customers. These financial commitments
include commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and interest rate
risk not recognized in the statement of financial position.

The Bank's exposure to loan loss in the event of nonperformance on commitments
to extend credit and standby letters of credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in making
commitments as it does for loans reflected in the financial statements.

As of December 31, 1999, the Bank had the following outstanding financial
commitments whose contractual amount represents credit risk:

<TABLE>
                 <S>                                            <C>
                 Commitments to Extend Credit                   $     28,060
                 Standby Letter of Credit                                839
                                                                -------------

                                                                $     28,899
                                                                =============
</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. Standby
letters of credit are conditional commitments to guarantee the performance of a
Bank customer to a third party. Since many of the commitments and standby
letters of credit are expected to expire without being drawn upon, the total
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank, is based on
management's credit evaluation of the customer. The majority of the Bank's
commitments to extend credit and standby letters of credit are secured by real
estate.


NOTE L - RELATED PARTY TRANSACTIONS

In the ordinary course of business, the Bank has granted loans to certain
officers and directors and the companies with which they are associated. In the
Bank's opinion, all loans and loan commitments to such parties are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons


                                       63
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE L - RELATED PARTY TRANSACTIONS - CONTINUED

The following is an analysis of the activity of all such loans:

<TABLE>
<CAPTION>
                                                                                        1999              1998
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Beginning Balance                                                                    $     2,241       $     1,486
Credits Granted, Including Renewals                                                        1,033               887
Repayments                                                                            (      493)       (      132)
                                                                                     ------------      ------------

Ending Balance                                                                           $ 2,781           $ 2,241
                                                                                     ============      ============
</TABLE>



The Bank leases its main Riverside facility from a partnership comprised of two
of its directors. The initial term of the lease started in 1982 and expires in
2002, with two successive ten year options. Monthly rental expense, currently at
$14, is adjusted for cost of living increases every three years. The Bank also
pays its pro-rata share of taxes and common operating expenses.


NOTE M - STOCK OPTION PLAN

At December 31, 1999, the Company has an option plan which is described below.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plan. Accordingly, no compensation cost has been recognized for its
fixed stock option plan.

In 1997, the Company adopted an incentive stock option plan under which up to
460,519 shares of the Company's common shares may be issued to directors,
officers, and key employees at not less than 100% of the fair market value at
the date the options are granted.

The fair value of each option granted was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions; risk-free
rates of 4.5% in 1998 and 5.8% in 1997, volatility of 28% in 1998 and 19% in
1997 and expected lives of five years. The weighted-average fair value of
options granted during 1998 was $5.22 and $3.87 for 1997.


                                       64
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE M - STOCK OPTION PLAN - CONTINUED

A summary of the status of the Company's fixed stock option plan as of December
31, 1999, 1998, and 1997, and changes during the years ending on those dates is
presented below:

<TABLE>
<CAPTION>
                                                 1999                      1998                      1997
                                       -----------------------   -----------------------   ------------------------
                                                    Weighted                  Weighted                   Weighted
                                                     Average                   Average                   Average
                                                    Exercise                  Exercise                   Exercise
                                         Shares       Price        Shares       Price        Shares       Price
                                       -----------  ----------   -----------  ----------   -----------  -----------
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>
Outstanding at Beginning of Year          413,102   $   12.80       288,700   $    9.56       125,865   $     4.88
Options Granted                                 -           -       152,533       17.47       179,368        12.70
Options Exercised                       (   5,800)       4.88     (  28,131)       4.88     (  11,466)        6.40
Options Forfeited                       (   3,200)      17.38             -                 (   5,067)       11.79
                                       -----------               -----------               -----------
Outstanding at
   End of Year                            404,102       12.88       413,102       12.80       288,700         9.56
                                       ===========               ===========               ===========

Options Exercisable at Year-End           284,636       10.95       203,052        9.31       171,783         7.41
Weighted-Average
   Fair Value of Options
   Granted During the Year                          $       -                 $    5.22                  $    3.87
</TABLE>



The following table summarizes information about fixed options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                           Options Outstanding                          Options Exercisable
                          -------------------------------------------------------  -------------------------------
                                                  Weighted-          Weighted                         Weighted-
                                                   Average            Average                          Average
       Exercise               Number              Remaining          Exercise          Number          Exercise
         Price            Outstanding         Contractual Life         Price         Exercisable        Price
------------------------  ----------------   --------------------  --------------  ----------------  -------------
<S>                       <C>                <C>                   <C>             <C>               <C>
         $4.88                     82,201         2.8 years        $       4.88             82,201   $      4.88
      $12 to $13                  172,568         6.9 years        $      12.71            172,568   $     12.71
      $17 to $21                  149,333         8.2 years        $      17.47             29,867   $     17.47
                          ----------------                                         ----------------

                                  404,102         6.8 years                                284,636
                          ================                                         ================
</TABLE>


                                       65
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE M - STOCK OPTION PLAN - CONTINUED

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 following pro forma amount:

<TABLE>
<CAPTION>
                                                                  1999                1998               1997
                                                              --------------      -------------      -------------
<S>                                                           <C>                 <C>                <C>
Net Income:
   As Reported                                                $       3,076       $      4,116       $      2,855
   Pro Forma                                                  $       2,703       $      3,888       $      2,640

Per Share Data:
   Net Income - Basic
      As Reported                                                      1.21               1.63               1.19
      Pro Forma                                                        1.07               1.54               1.10
   Net Income - Diluted
      As Reported                                                      1.21               1.55               1.12
      Pro Forma                                                        1.06               1.46               1.04
</TABLE>



The information above does not include options from DNB Financial which was
acquired in 1998 (see Note P). DNB Financial had no options granted in 1998 and
1997 and therefore did not impact the pro forma data presented above. During
1997, options previously granted equal to 92,609 shares were exercised.


NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. 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 entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the 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, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.


                                       66
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED

Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.

The following methods and assumptions were used to estimate the fair value of
significant financial instruments:

FINANCIAL ASSETS

The carrying amounts of cash, short term investments, due from customers on
acceptances, and Bank acceptances outstanding are considered to approximate fair
value. Short term investments include federal funds sold, securities purchased
under agreements to resell, and interest bearing deposits with Banks. The fair
values of investment securities, including available-for-sale, are generally
based on quoted market prices. The fair value of loans are estimated using a
combination of techniques, including discounting estimated future cash flows and
quoted market prices of similar instruments where available.

FINANCIAL LIABILITIES

The carrying amounts of deposit liabilities payable on demand, commercial paper,
and other borrowed funds are considered to approximate fair value. For fixed
maturity deposits, fair value is estimated by discounting estimated future cash
flows using currently offered rates for deposits of similar remaining
maturities. The fair value of long term debt is based on rates currently
available to the Bank for debt with similar terms and remaining maturities.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The fair value of commitments to extend credit and standby letters of credit is
estimated using the fees currently charged to enter into similar agreements. The
fair value of these financial instruments is not material.


                                       67
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE N - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED

The estimated fair value of financial instruments at December 31, 1999 and 1998
is summarized as follows:

<TABLE>
<CAPTION>
                                                                              December 31,
                                                       ------------------------------------------------------------
                                                                   1999                            1998
                                                       ----------------------------    ----------------------------
                                                         Carrying         Fair           Carrying         Fair
                                                          Value          Value            Value          Value
                                                       -------------  -------------    -------------  -------------
<S>                                                    <C>            <C>              <C>            <C>
FINANCIAL ASSETS:
   Cash and Due From Banks                             $     34,119   $     34,119     $     14,214   $     14,214
   Federal Funds Sold                                             -              -           18,700         18,700
   Interest-Bearing Deposits                                    100            100                -              -
   Investment Securities                                     21,580         21,313           16,414         16,444
   Federal Home Loan Bank Stock, at Cost                      1,113          1,113              830            830
   Loans Held for Sale                                       69,756         71,849           74,598         76,836
   Loans, net                                               196,274        196,136          164,154        164,138
   I/O Strips Receivable and Servicing Assets                15,659         15,674            9,025          9,025
   Cash Surrender Value - Life Insurance                      2,196          2,196            1,374          1,374

FINANCIAL LIABILITIES:
   Deposits                                                 322,973        323,010          287,206        287,394
</TABLE>



NOTE O - 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 certain 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 measures 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.


                                       68
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
              (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)


NOTE O - REGULATORY MATTERS - CONTINUED

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined).

As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as under-capitalized under the
regulatory framework for prompt corrective action (there are no conditions or
events since that notification that management believes have changed the Bank's
category). To be categorized as well-capitalized, the Bank must maintain minimum
ratios as set forth in the table below.

<TABLE>
<CAPTION>
                                                                                    Required Capital
                                                                       --------------------------------------------
                                                                                                  To Be Well-
                                                                                                  Capitalized
                                                                           For Capital            Under Prompt
                                                                             Adequacy              Corrective
                                                       Actual                Purposes              Provisions
                                                ---------------------  ---------------------  ---------------------
                                                 Amount       Ratio     Amount      Ratio      Amount       Ratio
                                                ----------   --------  ----------  ---------  ----------   --------
<S>                                             <C>          <C>       <C>         <C>        <C>          <C>
AS OF DECEMBER 31, 1999:
   Total Capital (to Risk-Weighted Assets)      $  29,539      7.99%   $  29,542      8.00%   $  36,928     10.00%
   Tier 1 Capital (to Risk-Weighted Assets)     $  26,930      7.28%   $  14,771      4.00%   $  22,157      6.00%
   Tier 1 Capital (to Average Assets)           $  26,930      7.40%   $  14,550      4.00%   $  18,187      5.00%

AS OF DECEMBER 31, 1998:
   Total Capital (to Risk-Weighted Assets)      $  26,782      9.68%   $  22,123      8.00%   $  27,653     10.00%
   Tier 1 Capital (to Risk-Weighted Assets)     $  24,483      8.85%   $  11,061      4.00%   $  16,592      6.00%
   Tier 1 Capital (to Average Assets)           $  24,483      7.95%   $  12,314      4.00%   $  15,392      5.00%
</TABLE>



On March 8, 2000 the Bank was notified by the FDIC that the Bank is
under-capitalized for purposes of Prompt Corrective Action. Accordingly, the
Bank is prohibited, among other things, from renewing broker deposits, paying
dividends and is subject to enforcement actions.


NOTE P - MERGERS AND ACQUISITIONS

At the close of business on May 29, 1998, the Company consummated a merger with
DNB Financial and its wholly-owned subsidiary, De Anza National Bank. This
merger was accounted for by the pooling of interest method, whereby the
Company's Financial Statements have been restated as if the two companies were
historically one unit. A total of 956,641 common shares were issued to the
shareholders of DNB Financial in connection with this merger.


                                       69
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE P - MERGERS AND ACQUISITIONS - CONTINUED

The following table summarizes the separate revenue and net income of the
Company and DNB Financial that have been reported in the restated financial
statements included herein:

<TABLE>
<CAPTION>
                                                               1999                 1998                 1997
                                                           --------------      ---------------      ---------------
<S>                                                        <C>                 <C>                  <C>
Interest and Noninterest Income:
   The Company                                             $      51,577       $       44,635       $       27,818
   DNB Financial                                                       -                2,789                6,557
                                                           --------------      ---------------      ---------------
                                                           $      51,577       $       47,424       $       34,375
                                                           ==============      ===============      ===============

Net Income:
   The Company                                             $       3,076       $        3,794       $        2,110
   DNB Financial                                                       -                  322                  745
                                                           --------------      ---------------      ---------------
                                                           $       3,076       $        4,116       $        2,855
                                                           ==============      ===============      ===============
</TABLE>



NOTE Q - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY

BYL Bancorp operates BYL Bank Group. BYL Bancorp commenced operations during
1997. The earnings of the subsidiary are recognized on the equity method of
accounting. Condensed financial statements of the parent company only are
presented below:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                               ------------------------------------
                                                                                   1999                  1998
                                                                               --------------        --------------
<S>                                                                            <C>                   <C>
ASSETS:
   Cash                                                                        $         134         $         193
   Investment in Subsidiary                                                           29,029                26,689
   Other Assets                                                                           37                     -
                                                                               --------------        --------------
                                                                               $      29,200         $      26,882
                                                                               ==============        ==============

LIABILITIES:
   Long-Term Debt                                                              $           -         $           -
   Other Liabilities                                                                       -                     -
                                                                               --------------        --------------
                                                    TOTAL LIABILITIES                      -                     -

                                                 SHAREHOLDER'S EQUITY                 29,200                26,882
                                                                               --------------        --------------
                                                                               $      29,200         $      26,882
                                                                               ==============        ==============
</TABLE>


                                       70
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE Q - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY - CONTINUED

                                       CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                               ------------------------------------
                                                                                   1999                  1998
                                                                               --------------        --------------
<S>                                                                            <C>                   <C>
INCOME:
   Cash Dividends from Subsidiary                                              $         760         $         531
   Interest Income                                                                         -                    36
                                                                               --------------        --------------

                                                         TOTAL INCOME                    760                   567

EXPENSES:
   Merger Related Expenses                                                                 -                   542
   Other                                                                                  50                    44
                                                                               --------------        --------------

                                                       TOTAL EXPENSES                     50                   586
                                                                               --------------        --------------

                                              INCOME BEFORE EQUITY IN
                                                 UNDISTRIBUTED INCOME
                                                        OF SUBSIDIARY                    710          (         19)

                                              EQUITY IN UNDISTRIBUTED
                                                 INCOME OF SUBSIDIARY                  2,366                 4,135
                                                                               --------------        --------------

                                                           NET INCOME          $       3,076         $       4,116
                                                                               ==============        ==============
</TABLE>


                                       71
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE Q - CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY - CONTINUED

                                        CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                               ------------------------------------
                                                                                     1999                  1998
                                                                               --------------        --------------
<S>                                                                            <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Income                                                                  $      3,076          $       4,116
   Noncash Items Included in Net Income:
      Equity in Income of Subsidiary                                            (     3,126)          (      4,666)
      Change in Other Assets and Liabilities                                    (        37)                   212
                                                                               --------------        --------------
                                                     NET CASH USED IN
                                                 OPERATING ACTIVITIES           (        87)          (        338)
CASH FLOWS FROM INVESTING ACTIVITIES:
   Dividends Received from Subsidiary                                                    760                   531
   Investment in Subsidiary                                                                -          (        915)
   Change in Investments                                                                   -                 1,106
   Change in Loans                                                                         -                   555
                                                                               --------------        --------------
                                                    NET CASH PROVIDED
                                              BY INVESTING ACTIVITIES                    760                 1,277
CASH FLOWS FROM FINANCING ACTIVITIES:
   Repayments of Long-Term Debt                                                            -          (        465)
   Options Exercised and Shares Retired                                                   28                   138
   Dividends Paid                                                               (        760)         (        469)
                                                                               --------------        --------------
                                                     NET CASH USED IN
                                                 FINANCING ACTIVITIES           (        732)         (        796)
                                                                               --------------        --------------

                                          NET (DECREASE) INCREASE IN
                                           CASH AND CASH EQUIVALENTS            (         59)                  143

                                           CASH AND CASH EQUIVALENTS,
                                                 AT BEGINNING OF YEAR                    193                    50
                                                                               --------------        --------------

                                            CASH AND CASH EQUIVALENTS
                                                    AT ENDING OF YEAR          $         134         $         193
                                                                               ==============        ==============
</TABLE>


                                       72
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1999, 1998, AND 1997
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE R - SEGMENT INFORMATION

The Company has two primary reportable segments; its wholesale lending
operations and its retail banking operations. The wholesale lending segment
originates loans for resale to institutional investors. The Company's SBA Loan
Division and its Mortgage Loan Division are included in this segment. The retail
banking segment accepts deposits, originates loans and provides other banking
services to the communities in which its seven branch offices are located.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before allocation of the provision for
loan losses, administrative costs, amortization of goodwill and income taxes.
The retail segment charges the wholesale segments for use of excess funds based
on the estimated cost of outside financing

The following tables summarize segment operations and asset allocations for the
last three years:


<TABLE>
<CAPTION>
                                                                                 1999
                                                   ----------------------------------------------------------------
                                                         Wholesale Segments
                                                   -------------------------------     Retail            Total
                                                      Mortgage           SBA           Segment          Company
                                                   --------------  ---------------  --------------   --------------
<S>                                                <C>             <C>              <C>              <C>
          CONDENSED INCOME STATEMENT
Net Interest Income                                $       2,933   $        3,398   $       9,611    $      15,942
Noninterest Income                                        16,582            5,641           1,826           24,049
Operating Expense                                   (     16,011)   (       4,031)   (     7,604)     (     27,646)
                                                   --------------  ---------------  --------------   --------------
                            OPERATIONAL PROFIT             3,504            5,008           3,833           12,345
Provision for Loan Losses                                                                             (        694)
Administrative Costs                                                                                  (      6,124)
Goodwill Amortization                                                                                 (        121)
Income Taxes                                                                                          (      2,330)
                                                                                                     --------------
                                    NET INCOME                                                       $       3,076
                                                                                                     ==============

Total Assets at December 31, 1999                  $      44,103   $      139,488   $     170,145    $     353,736
Loans Originated for Sale during 1999              $     567,000   $      123,000
Loans Sold during 1999                             $     587,000   $      108,000
</TABLE>


                                       73
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997, AND 1996
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE R - SEGMENT INFORMATION - CONTINUED

<TABLE>
<CAPTION>
                                                                                1998
                                                   ----------------------------------------------------------------
                                                         Wholesale Segments
                                                   -------------------------------     Retail            Total
                                                      Mortgage           SBA           Segment          Company
                                                   --------------  ---------------  --------------   --------------
<S>                                                <C>             <C>              <C>              <C>
          CONDENSED INCOME STATEMENT
Net Interest Income                                $       2,772   $        3,382   $       9,456    $      15,610
Noninterest Income                                        13,487            6,899           3,022           23,408
Operating Expense                                   (     11,225)   (       4,405)   (     10,433)    (     26,063)
                                                   --------------  ---------------  --------------   --------------
                            OPERATIONAL PROFIT             5,034            5,876           2,045           12,955
Provision for Loan Losses                                                                             (        755)
Administrative Costs                                                                                  (      4,686)
Goodwill Amortization                                                                                 (        121)
Income Taxes                                                                                          (      3,277)
                                                                                                     --------------
                                    NET INCOME                                                       $       4,116
                                                                                                     ==============

Total Assets at December 31, 1998                  $      37,365   $       74,720   $     205,928    $     318,013
Loans Originated for Sale during 1998              $     245,000   $       89,000
Loans Sold during 1998                             $     222,000   $       94,000
</TABLE>


<TABLE>
<CAPTION>
                                                                                1997
                                                  -----------------------------------------------------------------
                                                        Wholesale Segments
                                                  -------------------------------      Retail           Total
                                                     Mortgage           SBA            Segment          Company
                                                  --------------   --------------  ---------------  ---------------
<S>                                               <C>              <C>             <C>              <C>
          CONDENSED INCOME STATEMENT
Net Interest Income                               $       1,230    $       2,023   $        9,145   $       12,398
Noninterest Income                                       10,158            3,681            2,081           15,920
Operating Expense                                  (      7,513)    (      3,121)   (       9,017)   (      19,651)
                                                  --------------   --------------  ---------------  ---------------
                            OPERATIONAL PROFIT            3,875            2,583            2,209            8,667
Provision for Loan Losses                                                                            (         778)
Administrative Costs                                                                                 (       2,952)
Goodwill Amortization                                                                                (         114)
Income Taxes                                                                                         (       1,968)
                                                                                                    ---------------
                                    NET INCOME                                                      $        2,855
                                                                                                    ===============

Total Assets at December 31, 1997                 $      46,957    $      43,861   $      147,268   $      238,086
Loans Originated for Sale during 1997             $     190,000    $      62,000
Loans Sold during 1997                            $     163,000    $      42,000
</TABLE>


                                       74
<PAGE>

                           BYL BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1998, 1997, AND 1996
                          (DOLLAR AMOUNTS IN THOUSANDS)


NOTE S - SUBSEQUENT EVENTS

As discussed in Note O, the Bank is under capitalized pursuant to the regulatory
capital requirements administered by the FDIC. In order to improve its capital
ratios, during the first quarter of 2000, the Bank closed its Indirect Auto
Division, sold the related loan portfolio and divested itself of its Diamond Bar
Mortgage Division, an originator of Agency conforming residential mortgages. As
a result of these restructurings, the Company expects to report a loss for the
first quarter of 2000 approaching approximately $500,000.

On a recent exam, the FDIC concluded that the Bank did not adequately support
the assumptions utilized to project the value assigned to various residual
assets retained in securitization completed in 1998 and 1999. The FDIC has
advised the Bank it believes these assets are overstated by approximately $2.7
million, on a pre-tax basis.

Management strongly disagrees with the FDIC conclusions in this matter and
intends to appeal the FDIC findings. In connection with this appeal, the Bank
has engaged a reputable third-party consultant to evaluate the assumption used
in the valuation of these assets as well as design a new valuation model for
ongoing measurement of the changes in valuation of these assets.


                                       75
<PAGE>

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

None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

The information required by this Item is incorporated by reference from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held in
the second or third quarter, 2000.


ITEM 11.  EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held in
the second or third quarter, 2000.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference from of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held in
the second or third quarter, 2000.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference from of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held in
the second or third quarter, 2000.


                                       76
<PAGE>

                                     PART IV


ITEM 14.  EXHIBITS AND REPORTS ON FORM 8-K

         a)       EXHIBITS

         EXHIBIT NO.
         -----------
                  2.1      Plan of  Reorganization  and Merger  Agreement  -
                           Annex I of Proxy  Statement/Prospectus
                           incorporated by reference (A)

                  3.1      Articles of Incorporation of the Registrant (A)

                  3.2      Amendment to Articles of Incorporation of Registrant
                           (A)

                  3.3      Bylaws of the Registrant (A)

                  4.1      Specimen Certificate evidencing shares of
                           Registrant's Common Stock (A)

                  4.2      Stockholder Agreement Covering Issuance and
                           Compulsory Repurchase of Organizing Shares
                           of Registrant - Annex II of Proxy Statement/
                           Prospectus incorporated by reference (A)

                  10.1     Form of Indemnification Agreement (A)

                  10.2     BYL Bancorp 1997 Stock Option Plan (C)

                  10.3     Form of Proxy,Proxy Statemment and Notice of Annual
                           Meeting (E)

                  10.4     Employment Agreement - Mr. Robert Ucciferri (A)

                  10.5     Employment Agreement - Mr. Barry J. Moore (A)

                  10.6     Employment Agreement - Mr. Michael Mullarky (A)

                  10.7     Employment Agreement - Ms. Gloria Van Kampen (D)

                  10.8     Employment Agreement - Mr. Gary Strachn

                  10.9     Salary Continuation Agreement - Mr. Robert Ucciferri
                           (A)

                  10.10    Salary Continuation Agreement - Mr. Barry J. Moore
                           (A)

                  10.11    Salary Continuation Agreement - Mr. Michael Mullarky
                           (F)

                  10.12    Salary Continuation Agreement - Ms. Gloria Van Kampen
                           (F)

                  10.13    Agreement and Plan of Reorganization with DNB
                           Financial (B)

                  21.1     Subsidiary of BYL Bancorp (A)

                  23.1     Consent of Vavrinek, Trine, Day & Co., LLP


         b)       REPORTS ON FORM 8-K

                  None.

---------------------------------
(A)        Filed as an Exhibit to the Registrant's Registration Statement (File
           No. 333-34995) filed on September 5, 1997, which exhibit is
           incorporated herein by this reference.
(B)        Filed as an Exhibit to Form 8-K filed on January 29, 1998, which
           exhibit is incorporated herein by this reference.
(C)        Filed as an Exhibit to the Registration Statement on Form S-8 filed
           on May 15, 1998.
(D)        Filed as an Exhibit to the Annual Report on Form 10-K as of December
           31, 1998.
(E)        Filed as an exhibit to the Annual Report on Form 10-K as of December
           31, 1998,  incorporating  Schedule 14 A information pursuant to
           Section 14(a) of the Securities Exchange Act of 1934, filed on May
           18, 1999.
(F)        Filed as an Exhibit to Form 10-Q filed on November 15, 1999, which
           Exhibit is incorporated herein by this reference.


                                       77
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 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.

                  BYL BANCORP

                  By: /s/ Robert Ucciferri
                     --------------------------------------
                                    Robert Ucciferri
                          President and Chief Executive Officer

In accordance with the Securities Exchange Act, this report has been signed by
the following persons on behalf of the registrant and in the capacities on the
dates indicated:


<TABLE>
<CAPTION>
Signature                                          Title                                               Date
---------                                          -----                                               ----
<S>                                                <C>                                                 <C>
/s/ Barry J. Moore                                 Senior Executive Vice President                     April 13, 2000
---------------------------------                  and Chief Financial Officer
Barry J. Moore

/s/ Henry C. Cox II                                Director                                            April 13, 2000
---------------------------------
Henry C. Cox II

/s/ Eddie R. Fischer                               Director                                            April 13, 2000
---------------------------------
Eddie R. Fischer

/s/ Neil Hatcher                                   Director                                            April 13, 2000
---------------------------------
Neil Hatcher

/s/ Leonard O. Lindborg                            Director                                            April 13, 2000
---------------------------------
Leonard O. Lindborg

/s/ H. Rhoads Martin, Jr.                          Chairman of the Board, Director                     April 13, 2000
---------------------------------
H. Rhoads Martin, Jr.

/s/ John F. Myers                                  Director                                            April 13, 2000
---------------------------------
John F. Myers

/s/ Brent W. Walberg                               Director                                            April 13, 2000
---------------------------------
Brent W. Walberg
</TABLE>


                                       78