<PAGE>

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

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

                                    FORM 10-Q

(Mark  One)  [X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15  (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1998

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

For The transition period from _____ to _____

Commission file number:  0-19231

                             REDWOOD EMPIRE BANCORP
             (Exact name of Registrant as specified in its charter)

          California                                         68-0166366
  State or other jurisdiction of                           (IRS Employer
  incorporation or organization)                       Identification No.)

  111 Santa Rosa Avenue, Santa Rosa, California             95404-4905
  (Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (707) 573-4800

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

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.  November 5, 1998:  3,384,890

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


<PAGE>



                             REDWOOD EMPIRE BANCORP
                                       AND
                                  SUBSIDIARIES

                                      Index


                                                                            Page
PART I.   Financial Information

  Item 1. Financial Statements

          Consolidated Statements of Operations
          Three and Nine Months ended September 30, 1998 and 1997..............3

          Consolidated Balance Sheets
          September 30, 1998 and December 31, 1997.............................4

          Consolidated Statements of Cash Flows
          Nine Months Ended September 30, 1998 and 1997........................5

          Notes to Consolidated Financial Statements...........................7


       Item 2.    Management's Discussion and Analysis
                  of  Financial Condition and Results of  Operations..........10

       Item 3.    Quantitative and Qualitative Disclosure about Market Risk...23


PART II. Other Information

       Item 6.    Exhibits and Reports on Item 8-K............................28


SIGNATURES....................................................................29


<PAGE>
PART I.  FINANCIAL INFORMATION
Item 1.      Financial Statements

                            REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
                             Consolidated Statements of Operations
                          (dollars in thousands except per share data)
                                          (unaudited)
<TABLE>
<CAPTION>
                                                                         Three Months Ended               Nine Months Ended
                                                                            September 30,                   September 30,
                                                                         1998          1997              1998          1997
                                                                     ----------------------------    ----------------------------
<S>                                                                  <C>               <C>           <C>               <C>

Interest income:
  Interest and fees on  loans                                               $7,124        $7,898           $20,792       $24,922
  Interest on investment securities                                          1,115           913             3,340         2,594
  Interest on federal funds sold                                               207           387               843           902
  Interest on time deposits due from
    financial institutions                                                     ---             1               ---             7
                                                                     ----------------------------    ----------------------------
Total interest income                                                        8,446         9,199            24,975        28,425

Interest expense:
  Interest on deposits                                                       3,086         3,715             9,724        11,849
  Interest on subordinated notes                                               276           276               830           830
  Interest on other borrowings                                                 166            69               315           187
                                                                     ----------------------------    ----------------------------
Total interest expense                                                       3,528         4,060            10,869        12,866
                                                                     ----------------------------    ----------------------------

Net interest income                                                          4,918         5,139            14,106        15,559
Provision for loan losses                                                      510           465             1,530         1,635
                                                                     ----------------------------    ----------------------------

Net interest income after loan loss provision                                4,408         4,674            12,576        13,924

Noninterest income:
  Service charges on deposit accounts                                          261           271               802           852
  Merchant draft processing, net                                               686           335             1,732         1,127
  Loan servicing income                                                        201           161               485           676
  Net realized gain on sale of
    investment securities available for sale                                    22            30               127            23
  Gain on sale of loans and loan servicing                                   1,340           396             3,942         2,726
  Mortgage loan brokerage revenue, net                                       1,234           709             3,548         1,521
  Other income                                                                 280           190               840           511
                                                                     ----------------------------    ----------------------------
Total noninterest  income                                                    4,024         2,092            11,476         7,436

Noninterest expense:
  Salaries and employee benefits                                             3,623         2,614            10,014         8,768
  Occupancy and equipment expense                                              930           876             2,580         2,519
  Other                                                                      1,780         1,750             5,696         6,020
                                                                     ----------------------------    ----------------------------
Total noninterest expense                                                    6,333         5,240            18,290        17,307
                                                                     ----------------------------    ----------------------------

  Income before income taxes                                                 2,099         1,526             5,762         4,053
  Provision for income taxes                                                   764           601             2,109         1,664
                                                                     ----------------------------    ----------------------------

Net income                                                                   1,335           925             3,653         2,389
Dividends on preferred stock                                                   ---           112               112           336
                                                                     ============================    ============================
Net income available for common stock shareholders                          $1,335          $813            $3,541        $2,053
                                                                     ============================    ============================

Earnings per common share and common equivalent share:
   Basic earnings per share                                                   $.40          $.29             $1.14          $.74
   Weighted average shares                                               3,369,000     2,784,000         3,101,000     2,772,000
   Diluted earnings per share                                                 $.38          $.27             $1.05          $.70
   Weighted average shares                                               3,486,000     3,390,000         3,465,000     3,424,000
</TABLE>

<PAGE>

                                    REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
                                          Consolidated Balance Sheets
                                            (dollars in thousands)
                                                  (unaudited)
<TABLE>
<CAPTION>
                                                                    September 30,               December 31,
                                                                        1998                        1997
                                                                  ------------------          ------------------

<S>                                                               <C>                         <C>
Cash and due from banks                                                     $30,902                     $21,505
Federal funds sold and repos                                                 15,825                      34,553
                                                                  ------------------          ------------------
  Cash and cash equivalents                                                  46,727                      56,058

Interest bearing deposits due from financial institutions                         6                           6
Investment securities:
  Held to maturity (market value of $33,849 and $31,273)                     33,315                      30,658
  Available for sale, at market                                              37,827                      41,907
                                                                  ------------------          ------------------
    Total investment securities                                              71,142                      72,565
Mortgage loans held for sale                                                 19,133                      16,929
Loans:
    Residential real estate mortgage                                         96,616                      93,516
    Commercial real estate mortgage                                          57,064                      57,425
    Commercial                                                               62,611                      69,097
    Real estate construction                                                 50,146                      55,031
    Installment and other                                                     5,357                       9,200
    Less deferred loan fees                                                  (1,714)                     (1,873)
                                                                   ------------------         ------------------
        Total portfolio loans                                               270,080                     282,396
    Less allowance for loan losses                                           (8,221)                     (7,645)
                                                                   ------------------         ------------------
        Net loans                                                           261,859                     274,751

Premises and equipment, net                                                   4,218                       4,055
Mortgage servicing rights                                                       372                         620
Other real estate owned                                                       3,227                       6,352
Cash surrender value of life insurance                                        2,999                       2,929
Other assets and interest receivable                                         11,290                      12,454
                                                                  ------------------          ------------------
     Total assets                                                          $420,973                    $446,719
                                                                  ==================          ==================

Deposits:
  Noninterest bearing demand deposits                                       $83,662                     $98,915
  Interest-bearing transaction accounts                                     132,678                     149,939
  Time deposits $100,000 and over                                            61,410                      53,878
  Other time deposits                                                        80,263                      88,689
                                                                  ------------------          ------------------
    Total deposits                                                          358,013                     391,421

Other borrowings                                                              4,598                       2,341
Subordinated notes                                                           12,000                      12,000
Other liabilities and interest payable                                        8,614                       7,714
                                                                  ------------------          ------------------
     Total liabilities                                                      383,225                     413,476

Shareholders' equity:
  Preferred stock, no par value; authorized 2,000,000 shares;
     issued and outstanding  0 and 575,000 shares                               ---                       5,750
  Common stock, no par value; authorized 10,000,000 shares;
      issued and outstanding 3,384,890 and 2,785,261 shares                  26,085                      19,656
  Retained earnings                                                          11,295                       8,024
  Unrealized gain (loss) on investment securities carried as,
    or transferred from available for sale, net of income taxes                 368                        (187)
                                                                  ------------------          ------------------

     Total shareholders' equity                                              37,748                      33,243
                                                                  ------------------          ------------------

     Total liabilities and shareholders' equity                            $420,973                    $446,719
                                                                  ==================          ==================
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>
                               REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
                                Consolidated Statements of Cash Flows
                                           (in thousands)
                                             (unaudited)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                                September 30,
                                                                         1998               1997
                                                                    --------------     --------------
<S>                                                                 <C>                <C>
Cash flows from operating activities:

   
  Net income                                                                $3,653             $2,389

Adjustments  to  reconcile   net income to net cash 
  provided by operating activities:
  Depreciation and amortization, net                                         1,067                330
  Net realized gains on securities available for sale                         (127)                 7
  Loans originated for sale                                               (327,381)           (92,081)
  Proceeds from sale of loans held for sale                                338,288            128,796
  Gain on sale of loans and loan servicing                                  (3,942)            (2,330)
  Provision for loan losses                                                  1,530              1,170
  Change in other assets and interest receivable                               774              9,563
  Change in other liabilities and interest payable                             907             (4,901)
  Other, net                                                                   416                386
                                                                     --------------     --------------
  Total adjustments                                                         11,532             40,940
                                                                     --------------     --------------

  Net cash provided by operating activities                                 15,185             43,329
                                                                     --------------     --------------

Cash flows from investing activities:
  Net change in loans                                                         (752)             6,000
  Proceeds from sales of loans in portfolio                                    946              1,973
  Purchases of investment securities available for sale                    (20,150)            (7,971)
  Purchases of investment securities held to maturity                      (11,594)              (730)
  Sales of investment securities available for sale                          2,987              4,020
  Maturities of investment securities available for sale                    17,900              6,974
  Maturities of investment securities held to maturity                      13,406                500
  Premises and equipment, net                                               (1,383)              (540)
  Purchase of mortgage servicing rights                                        (12)              (155)
  Interest bearing deposits                                                    ---                  7
  Proceeds from sale of other real estate owned                              5,205                846

                                                                     --------------     --------------
    Net cash provided by investment activities                               6,553             10,924
                                                                     --------------     --------------

Cash flows from financing activities:
  Change in noninterest bearing transaction accounts                       (15,253)             4,468
  Change in interest bearing transaction accounts                          (17,260)            (9,050)
  Change in time deposits                                                     (895)           (44,846)
  Change in borrowings                                                       2,257             (5,477)
  Issuance of stock                                                            463                264
  Dividends paid                                                              (381)              (224)
                                                                     --------------     --------------
    Net cash used in financing activities                                  (31,069)           (54,865)
                                                                     --------------     --------------


Net change in cash and cash equivalents                                     (9,331)              (612)
Cash and cash equivalents at beginning of period                            56,058             45,473
                                                                     --------------     --------------


Cash and cash equivalents at end of period                                 $46,727            $44,861
                                                                     ==============     ==============
</TABLE>
                                             (Continued)


<PAGE>

                               REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
                                Consolidated Statements of Cash Flows
                                           (in thousands)
                                             (Continued)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended
                                                                               September 30,
                                                                         1998               1997
                                                                     --------------     --------------
<S>                                                                  <C>                <C>
Supplemental Disclosures:

Cash paid during the period for:
  
  Interest expense                                                          10,805             13,179
  Income taxes                                                               1,245                 60

Noncash investing and financing activities:
  Transfers from loans to other real estate owned                            2,675              2,591
  Transfer from mortgage loans held for sale to loans                        8,999              1,377
  Conversion of Preferred Stock into Common Stock                            5,739                ---
</TABLE>


<PAGE>



                     REDWOOD EMPIRE BANCORP AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.       Basis of Presentation

         The accompanying  unaudited consolidated financial statements should be
read in conjunction with the financial statements and related notes contained in
Redwood  Empire  Bancorp's  1997 Annual Report to  Shareholders.  The statements
include the accounts of Redwood Empire Bancorp ("Redwood"), and its wholly owned
subsidiary, National Bank of the Redwoods ("NBR"). All significant inter-company
balances  and  transactions  have been  eliminated.  The  financial  information
contained  in this  report  reflects  all  adjustments,  which in the opinion of
management are necessary for a fair  presentation  of the results of the interim
periods.  All such adjustments are of a normal recurring nature.  The results of
operations  and cash flows for the nine months ended  September 30, 1998 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1998.

         Certain   reclassifications   were  made  to  prior  period   financial
statements to conform to current period presentations.

         For purposes of reporting cash flows, cash and cash equivalents include
cash on hand,  amounts  due  from  banks,  federal  funds  sold  and  repurchase
agreements.  Federal funds sold and repurchase  agreements are generally for one
day periods.

2.       On March 24, 1997,  Allied Bank,  F.S.B. a wholly owned  subsidiary  of
Redwood,  was merged into NBR. In connection with the merger, NBR assumed all of
Allied's rights and obligations.  As a result of the merger Allied Bank,  F.S.B.
ceased to exist.

3.       Earnings per Share

         Basic earnings per share excludes  dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares  outstanding  for the period.  Diluted  earnings  per share  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.



<PAGE>

<TABLE>
<CAPTION>

                                                            Three Months Ended                 Nine Months Ended
                                                              September 30,                      September 30,
                                                          1998             1997             1998             1997
                                                      -------------    --------------   --------------   --------------
                                                                   (in thousands except per share amounts)
<S>                                                   <C>              <C>              <C>               <C>
 Basic Earnings per share:
   
 Net income                                                 $1,335              $925           $3,653           $2,389
 Less: Preferred stock dividend                                ---               112              112              336
                                                      =============    ==============   ==============   ==============
 Net income available to common stock shareholders          $1,335              $813           $3,541           $2,053
                                                      =============    ==============   ==============   ==============

 Weighted average common shares outstanding                  3,369             2,784            3,101            2,772
                                                      =============    ==============   ==============   ==============

 Basic earnings per share                                    $0.40             $0.29            $1.14            $0.74
                                                      =============    ==============   ==============   ==============

 Diluted Earnings per share:
 Net income available to common stock shareholders          $1,335              $813           $3,541           $2,053
 Dilutive effect of Preferred Stock dividend                     -               112              112              336
                                                      =============    ==============   ==============   ==============
                                                            $1,335              $925           $3,653           $2,389
                                                      =============    ==============   ==============   ==============

 Weighted average common shares outstanding                  3,369             2,784            3,101            2,772
 Effect of outstanding stock options                           117               108              142               94
 Effect of Convertible Preferred Stock                           -               499              221              499
                                                      =============    ==============   ==============   ==============
                                                             3,486             3,391            3,464            3,365
                                                      =============    ==============   ==============   ==============

 Diluted earnings per share                                  $0.38             $0.27            $1.05            $0.70
                                                      =============    ==============   ==============   ==============
</TABLE>

4.       Change in Accounting Principles

         Effective  January 1, 1998, the Company adopted  Statement of Financial
Accounting Standards,  ("S.F.A.S.") No. 130, "Reporting  Comprehensive  Income".
This Statement requires that all items recognized under accounting  standards as
components  of  comprehensive  earnings  be  reported  in  an  annual  financial
statement that is displayed with the same  prominence as other annual  financial
statements.  This Statement also requires that an entity classify items of other
comprehensive  earnings by their nature in an annual  financial  statement.  For
example,  other comprehensive  earnings may include foreign currency translation
adjustments,  minimum pension  liability  adjustments,  and unrealized gains and
losses  on  marketable  securities  classified  as  available-for-sale.   Annual
financial statements for prior periods will be reclassified, as required.

         The Company's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>

                                                      Three Months Ended                    Nine Months Ended
                                                         Sepember 30,                         September 30,
                                                   1998              1997               1998              1997
                                              ---------------    -------------     ---------------    --------------
<S>                                           <C>                <C>               <C>                <C>
Net income as reported                               $1,335             $813              $3,541           $2,053
Other comprehensive income (net of tax):
  Change in unrealized holding gain (losses)
     on available for sale securities                   418              138                 594              105
  Reclassification adjustment                           (14)             (19)                (39)             (15)
                                              ===============    =============     ===============    ==============
Total comprehensive income                           $1,739             $932              $4,096           $2,143
                                              ===============    =============     ===============    ==============
</TABLE>
<PAGE>

5.       Preferred Stock Redemption

         On March  19,  1998  the  Company  called  for  redemption  of its 7.8%
Noncumulative  Convertible  Perpetual  Preferred Stock, Series A. The redemption
notice  provided  that all shares be  redeemed  on April 30,  1998 at $10.39 per
share  payable to  shareholders  of record as of March 27, 1998 who  surrendered
their  preferred  stock  certificates  to the  conversion  agent,  Chase  Mellon
Shareholder  Services LLC. The preferred  stock was convertible at the option of
the  holder,  into  0.8674  shares of common  stock for each share of  preferred
stock.  The total  number of shares  subject to  redemption  was  reduced by the
number of shares of preferred  stock  converted  into common  stock  between the
record date and the redemption date.

         As a result of the redemption  573,290  shares of the preferred  shares
were  converted into 497,865  shares of common stock  effective  April 30, 1998.
Preferred shares redeemed for cash at $10.39 per share amounted to 1,017.

6.       Common Stock Dividend

         On August 18, 1998 the Board of  Directors  declared a  quarterly  cash
dividend of 4 cents per share on the Company's  Common  Stock.  The dividend was
payable on October 15, 1998 to shareholders of record on September 30, 1998.

7.       New Accounting Pronouncement

     In June, 1998 the Financial  Accounting Standards Board issued S.F.A.S. No.
133  "Accounting  for  Derivative  Instruments  and  Hedging  Activities".   The
statement   establishes   accounting  and  reporting  standards  for  derivative
instruments  and hedging  activities.  The statement is effective for all fiscal
quarters of fiscal years  beginning  after June 15, 1999.  Management  is in the
process of determining the impact of S.F.A.S. No. 133 on the Company's financial
statements, which is not expected to be material.

         In  October,  1998 The  Financial  Accounting  Standards  Board  issued
S.F.A.S.  No. 134 "Accounting for Mortgage-Backed  Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
This statement requires that after the securitization of mortgage loans held for
sale, an entity engaged in mortgage  banking  activities  classify the resulting
mortgage-backed  securities or other retained interests based on its ability and
intent to sell or hold those investments. This Statement conforms the subsequent
accounting for securities retained after the securitization of mortgage loans by
a mortgage  banking  enterprise  with the  subsequent  accounting for securities
retained  after the  securitization  of other  types of assets by a  nonmortgage
banking  enterprise.  The statement  shall be effective for all fiscal  quarters
beginning  after December 31, 1998. The Management does not believe the adoption
of  S.F.A.S.  No. 134 will have a  material  effect on the  Company's  financial
statements.


<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

Forward-Looking Information

         This Quarterly Report on Form 10-Q includes forward-looking information
which is subject to the "safe harbor"  created by the Securities Act of 1933 and
Securities  Act of 1934.  These  forward-looking  statements  (which involve the
Company's  plans,  beliefs and goals,  refer to estimates or use similar  terms)
involve  certain  risks and  uncertainties  that could cause  actual  results to
differ materially from those in the forward-looking  statements.  Such risks and
uncertainties include, but are not limited to, the following factors:

        oCompetitive  pressure in the banking and mortgage industry and changes 
        in the regulatory environment.

        oChanges in the interest rate  environment and volatility of rate sensi-
        tive deposits.

        oThe health of the economy declines nationally or regionally which could
        reduce  the  demand  for  loans  or  reduce  the  value  of real  estate
        collateral securing most of the Company's loans.

        oCredit  quality  deteriorates  which  could  cause an  increase  in the
        provision for loan losses.

        oRisks  associated  with the Year 2000 which could cause  disruptions in
        the Company's operations or increase expenses.

        oLosses in the Company's merchant credit card processing business.

        oAsset/liability matching risks and liquidity risks.

        oChanges in the securities markets.

         The Company  undertakes no obligation to revise or publicly release the
results of any  revision to these  forward-looking  statements.  For  additional
information  concerning risks and  uncertainties  related to the Company and its
operations please refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.

         The  following  sections  discuss  significant  changes  and  trends in
financial  condition,  capital  resources  and  liquidity  of the  Company  from
December 31, 1997 to September 30, 1998, and  significant  changes and trends in
the  Company's  results  of  operations  for the  three  and nine  months  ended
September 30, 1998, compared to the same period in 1997.




<PAGE>
Summary of Financial Results

         The Company reported net income of $1,335,000 ($.38 per share, diluted)
for the three months ended  September 30, 1998,  compared to $925,000  ($.27 per
share,  diluted)  for the same  period in 1997.  Net income for the nine  months
ended September 30, 1998 was $3,653,000  ($1.05 per share,  diluted) compared to
$2,389,000 ($.70 per share,  diluted).  The increase in net income for the third
quarter  in 1998  when  compared  to the  same  period  one year ago is due to a
decline of $221,000 in net interest  income,  an increase of  $1,932,000  in non
interest  income,  and an increase of  $1,093,000 in non interest  expense.  The
increase in net income during the first nine months of 1998 when compared to the
same period in 1997 is due to a decline of $1,453,000 in net interest income, an
increase of  $4,040,000 in non interest  income,  and an increase of $983,000 in
non interest expense.


Net Interest Income

         Net interest income  decreased  $221,000 or 4% during the third quarter
of 1998 compared to the third quarter of 1997.  The decrease is primarily due to
a decrease in average  earning assets of $21,648,000 or 5%. Net interest  margin
for the quarter ended  September 30, 1998 amounted to 5.13% as compared to 5.08%
one year ago.

         Net interest  income of $14,106,000  declined  $1,453,000 or 9% for the
nine months ended  September  30, 1998 when compared to the same period one year
ago. The decrease is primarily due to a decline in earning assets of $41,608,000
or 10%.  Net  interest  margin  for the first  nine  months of 1998 was 4.93% as
compared to 4.90% for the same period one year ago.

         The  decline  in  earning  assets  during  the  third  quarter  is  due
principally to the decline in average  portfolio loans and federal funds sold of
$42,667,000 and $11,736,000,  being offset by an increase in average  investment
securities  and mortgage  loans held for sale of  $17,391,000  and  $15,363,000.
Management  believes the decline in portfolio  loans is attributable to interest
rate driven  prepayments of mortgage loans, the overall  competitive  commercial
lending  environment,  strict credit control and management's  effort to balance
the  components  of the  Company's  loan  portfolio.  The  increase  in  average
investment  securities for the quarter compared to the same time period one year
ago is a direct  result of  deploying  loan  payoff  proceeds.  The  increase in
average  mortgage  loans  held for sale for the  quarter  is  attributable  to a
favorable mortgage interest rate environment.

         Average  earning  assets also declined in the first nine months of 1998
when compared to the same period one year ago.  Average  earning assets amounted
to  $381,658,000  during the nine  month  period  ended  September  30,  1998 as
compared to  $423,266,000  in 1997.  Management  believes the decline in average
earning  assets  during the first nine  months of 1998 when  compared to 1997 is
primarily due to a decline in portfolio loans  partially  offset by increases in
average  investment  securities  and mortgage loans held for sale due to reasons
described in the preceding paragraph.

<PAGE>

         The net interest  margin for the third quarter  increased from 5.08% in
1997 to 5.13% in 1998.  Yield on earning  assets  decreased  from 9.09% to 8.82%
primarily as a result a decline in higher yielding portfolio loans,  principally
construction  loans.  As a  result  of  decreased  funding  needs,  the  Company
significantly  reduced its higher cost time  certificates  of deposits.  Average
time certificates  amounted to $139,128,000 for the third quarter as compared to
$158,434,000  one year ago, which results in a decline of $19,306,000 or 12%. In
addition,  at the end of the second  quarter of 1998 the Company  reduced  rates
paid on its money market accounts.  Due primarily to these two factors, the cost
of  interest  bearing  liabilities  declined  to 4.71%  from  5.01% in the third
quarter of 1998 compared to the same quarter in 1997.

         The net interest  margin for the first nine months of 1998  amounted to
4.93% as  compared  to 4.90% in the same  period one year ago.  Yield on earning
assets  declined  from  8.95% in 1997 as  compared  to  8.73%  in 1998.  Cost of
interest bearing liabilities declined from 5.08% in 1997 to 4.79% in 1998.


         The following is an analysis of the net interest margin for the periods
indicated:
<TABLE>
<CAPTION>

                                               Three months ended                       Three months ended
                                               September 30, 1998                       September 30, 1997

                                       Average                    %             Average                    %
(dollars in thousands)                 Balance     Interest     Yield           Balance     Interest     Yield
                                     ---------------------------------        ---------------------------------

<S>                                   <C>           <C>         <C>            <C>           <C>         <C>
Earning assets (1)                    $383,168      $8,446      8.82           $404,816      $9,199      9.09
Interest-bearing liabilities           299,473       3,528      4.71            324,020       4,060      5.01
                                                   -------                                   ------
Net interest income                                 $4,918                                   $5,139
                                                   =======                                   ======
Net interest income to
  earning assets                                                5.13                                     5.08

</TABLE>
<TABLE>
<CAPTION>

                                                Nine months ended                        Nine months ended
                                               September 30, 1998                       September 30, 1997
                                     ---------------------------------        ---------------------------------

                                       Average                    %             Average                    %
(dollars in thousands)                 Balance     Interest     Yield           Balance     Interest     Yield
                                     ---------------------------------        ---------------------------------

<S>            <C>                    <C>          <C>          <C>            <C>          <C>          <C> 
Earning assets (1)                    $381,658     $24,975      8.73           $423,266     $28,425      8.95
Interest-bearing liabilities           302,464      10,869      4.79            337,585      12,866      5.08
                                                  --------                                  -------
Net interest income                                $14,106                                  $15,559
                                                  ========                                  =======
Net interest income to
  earning assets                                                4.93                                     4.90
</TABLE>

          (1)  Nonaccrual  loans are included in the  calculation of the average
               balance of earning assets, and interest not accrued is excluded.

         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 three and nine months ended September 30, 1998 and 1997.  Changes not solely
attributable to rate or volume have been allocated to rate.

<PAGE>
<TABLE>
<CAPTION>

                                                            Three month periods ending
                                                                September 30, 1998
                                                              over September 30, 1997
                                                         -----------------------------------
                                                          Volume        Rate          Total
                                                         -----------------------------------
                                                                   (in thousands)
<S>                                                      <C>            <C>         <C>
Increase (decrease) in interest income:     
  Portfolio loans                                        ($1,554)       $477        ($1,077)
  Mortgage loans held for sale                               143         160            303
  Investment securities                                      228         (33)           195
  Interest-earning deposits with other institutions            6         ---              6
  Federal funds sold                                        (186)          6           (180)
                                                         -----------------------------------
Total increase (decrease)                                 (1,363)        610           (753)
                                                         -----------------------------------

Increase (decrease) in interest expense:
  Interest-bearing transaction accounts                      243        (582)          (339)
  Time deposits                                             (635)        345           (290)
  Other borrowings                                           206        (109)            97
                                                         -----------------------------------
Total increase (decrease)                                   (186)       (346)          (532)
                                                         -----------------------------------

Increase in net interest income                          ($1,177)       $956          ($221)

                                                         ===================================
</TABLE>
<TABLE>
<CAPTION>
                                                           Year to date September 30, 1998
                                                               over September 30, 1997
                                                         -----------------------------------
                                                          Volume        Rate          Total
                                                         -----------------------------------
                                                                   (in thousands)
<S>                                                      <C>            <C>         <C> 
Increase (decrease) in interest income: 
      Portfolio loans                                    ($4,834)       $298        ($4,536)
  Mortgage loans held for sale                               514        (108)           406
  Investment securities                                    1,040        (301)           739
  Interest-earning deposits with other institutions          ---         ---            ---
  Federal funds sold                                         (17)        (42)           (59)
                                                         -----------------------------------
Total increase (decrease)                                 (3,297)       (153)        (3,450)
                                                         -----------------------------------

Increase (decrease) in interest expense:
  Interest-bearing transaction accounts                       87        (677)          (590)
  Time deposits                                           (1,676)        141         (1,535)
  Other borrowings                                           248        (120)           128
                                                         -----------------------------------
Total increase (decrease)                                 (1,341)       (656)        (1,997)
                                                         -----------------------------------

Increase in net interest income                          ($1,956)       $503        ($1,453)
                                                         ===================================
</TABLE>

Provision for Loan Losses

         The provision for loan losses for the three months ended  September 30,
1998  amounted to  $510,000  as compared to $465,000 in the same  quarter in the
previous  year.  For the nine months ended  September  30, 1998,  the  provision
decreased  $105,000 from  $1,635,000 in 1997 to $1,530,000 in 1998.  For further
discussion see Allowance for Loan Losses.



<PAGE>




Other Operating Income and Expense and Income Taxes

         Other Operating Income

         The following  table sets forth the  components of the Company's  other
operating  income for the nine months ended  September  30, 1998, as compared to
the same period in 1997.

<TABLE>
<CAPTION>
                                               Three Months Ended                          Nine Months Ended
                                                 September 30                 %              September 30                 %
                                            --------------------------                 ---------------------------
(dollars in thousands)                          1998           1997         Change          1998           1997        Change
                                            -----------    -----------   -----------   ------------   ------------   -----------
<S>                                         <C>            <C>                  <C>    <C>            <C>                   <C>

Service charges on deposit accounts                 261            271           (4)            802            852           (6)
Merchant draft processing, net                      686            335          105           1,732          1,127           54
Loan servicing income                               201            161           25             485            676          (28)
Gain (loss) on securities                            22             30          (27)            127             23          452
Gain on sale of loans and servicing               1,340            396          238           3,942          2,726           45
Mortgage brokerage revenue, net                   1,234            709           74           3,548          1,521          133
Other income                                        280            190           47             840            511           64
                                            -----------    -----------                 ------------   ------------
Total other operating income                     $4,024         $2,092           92         $11,476         $7,436           54
                                            ===========    ===========                 ============   ============
</TABLE>

         Other operating  income  increased  $1,932,000 or 92% to $4,024,000 for
the third  quarter of 1998 when  compared to  $2,092,000  for the same period in
1997.  Such increase is primarily due to an increase of $944,000 in gain on sale
of loans and  servicing,  an increase of $525,000 in net mortgage loan brokerage
revenue, and an increase of $351,000 in merchant card net revenue.  Gain on sale
revenue is derived  from the sale of both sub prime  mortgage  loans the Company
originates and "A" paper mortgage loans originated within the Company's mortgage
loan division,  Valley Financial.  Valley Financial has experienced  significant
growth in 1998. Net revenue from the mortgage loan brokerage  operation amounted
to  $1,234,000  in the third quarter of 1998 as compared to $709,000 in 1997 and
$3,548,000 for the nine month period ending  September 30, 1998 when compared to
$1,521,000 for the nine months ended September 30, 1997. Management believes the
significant  increase in both gain on sale of loans and  servicing  and mortgage
brokerage revenue is due primarily to a favorable  interest rate environment and
a strong  residential  purchase market in northern  California.  The increase in
merchant  card  income  is  attributable  to  the  addition  of a new  strategic
relationship  with an  independent  sales  organization  whose focus is internet
based merchants.

         Other  operating  income  amounted to  $11,476,000  for the nine months
ended  September 30, 1998 as compared to $7,436,000 the same period in 1997. The
increase of $4,040,000 is primarily  attributable  to increases in mortgage loan
brokerage revenue,  merchant card processing,  net revenue,  and gain on sale of
loans and loan servicing.



<PAGE>



         Other Operating Expense

         Other  operating  expense  increased by $1,093,000 or 21% to $6,333,000
during the third quarter of 1998 compared to $5,240,000 for the third quarter of
1997,  primarily  due to an increase in salary and benefits  associated  with an
increase in mortgage loan  origination.  Other operating expense increased 6% to
$18,290,000  from  $17,307,000 for the nine months ended September 30, 1998 when
compared to the same period in 1997.

         The following  table sets forth the  components of the Company's  other
operating  expense during the three and nine months ended September 30, 1998, as
compared to the same periods in 1997.
<TABLE>
<CAPTION>

                                              Three Months Ended                        Nine Months Ended
                                                 September 30              %               September 30          %
                                           --------------------------               ------------------------
(dollars in thousands)                          1998          1997       Change         1998         1997      Change
                                           ------------  ------------    ------     -----------  -----------   ------

<S>                                        <C>           <C>                 <C>    <C>          <C>               <C>
Salaries and employee benefits                   $3,623        $2,614        39         $10,014       $8,768       14
Occupancy and equipment expense                     930           876         6           2,580        2,519        2
Other                                             1,780         1,750         2           5,696        6,020       (5)
                                           ------------  ------------               -----------  -----------
Total other operating expense                    $6,333        $5,240        21         $18,290      $17,307        6
                                           ============  ============               ===========  ===========
</TABLE>

Income Taxes

         The  Company's  effective  tax rate varies with changes in the relative
amounts of its non-taxable income and nondeductible expenses. The effective rate
was 36.40% and 36.60% for the three and nine months  ended  September  30, 1998,
compared to 39.38% and 41.06% for the same  periods in 1997.  The decline in the
Company's  effective tax rate in the third quarter and first nine months of 1998
is due to recording the benefit of certain items arising in previous years.


Investment Securities

         Total investment  securities  decreased $1,423,000 or 2% to $71,142,000
as of September 30, 1998 when compared to  $72,565,000  as of December 31, 1997.
The principal reason for the decline relates to callable agency securities being
called by the issuer.  Such called  securities  amounted to  $13,400,000  in the
first  nine  months of 1998.  As a result of this  action the  Company  recorded
$92,000 as gain on sale during the first and third quarters of 1998.


Mortgage Loans Held for Sale

         Mortgage loans held for sale increased $2,204,000 or 13% to $19,133,000
at September 30, 1998 compared to $16,929,000 at December 31, 1997. The increase
in  mortgage  loans  held  for  sale is due to the  current  low  interest  rate
environment  and increased  production  capability  within the Valley  Financial
unit. In addition to brokering to other financial institutions, Valley Financial
also originates loans for sale into the secondary market.



<PAGE>

Loans

         Total loans  decreased  $12,316,000 or 4% to  $270,080,000 at September
30, 1998 compared to $282,396,000 at December 31, 1997.  Management believes the
decline in portfolio  loans is primarily  attributable  to interest  rate driven
prepayments  of  mortgage  loans,  the  overall   competitive   environment  for
commercial loans, strict credit control,  and management's desire to balance the
components of the Company's loan portfolio.  The Company  anticipates that these
forces will remain intact for the  foreseeable  future thereby  slowing  earning
asset growth.

         The following table summarizes the composition of the loan portfolio at
September 30, 1998 and December 31, 1997.
<TABLE>
<CAPTION>

                                                September 30, 1998                      December 31, 1997
                                        -------------------------------------   -------------------------------------
 (dollars in thousands)                       Amount               %                  Amount               %
                                        -------------------------------------   -------------------------------------

<S>                                     <C>                        <C>          <C>                       <C>
 Residential real estate mortgage                  $96,616                36%              $93,516                33%
 Commercial real estate mortgage                    57,064                21                57,425                20
 Commercial                                         62,611                23                69,097                24
 Real estate construction                           50,146                19                55,031                21
 Installment and other                               5,357                 2                 9,200                 3
 Less deferred fees                                 (1,714)               (1)               (1,873)               (1)
                                         ------------------------------------   -------------------------------------
     Total loans                                   270,080               100%              282,396               100%
                                                                   ==========                             ===========
 Less allowance for loan losses                     (8,221)                                 (7,645)
                                        ===================                     ===================
     Net loans                                    $261,859                                $274,751
                                        ===================                     ===================

</TABLE>

Allowance for Loan Losses

         The  allowance  for loan  losses  is  established  through  charges  to
earnings in the form of the provision  for loan losses.  Loan losses are charged
to, and recoveries are credited to, the allowance for loan losses. The provision
for loan losses is determined by Management  after  considering  various factors
believed  appropriate  such as loan loss  experience,  current  and  anticipated
economic conditions,  maturity of the portfolio, size of the portfolio, industry
concentrations, borrower credit history, the existing allowance for loan losses,
independent  loan reviews,  current  charges and recoveries to the allowance for
loan  losses,  and the  overall  quality  of the  portfolio,  as  determined  by
management,  regulatory  agencies,  and  independent  credit review  consultants
retained by the Company.

         The  adequacy of the  Company's  allowance  for loan losses is based on
specific and formula  allocations  to the  Company's  loan  portfolio.  Specific
allocations  of the allowance for loan losses are made to identified  problem or
potential  problem loans.  The specific  allocations  are increased or decreased
through management's reevaluation of the status of the particular problem loans.
Loans which do not receive a specific allocation receive an allowance allocation
based on a formula,  represented  by a  percentage  factor  based on  underlying
collateral, type of loan, historical charge-offs and general economic conditions
and other qualitative factors.


<PAGE>

        The following table  summarizes the Company's  allowance for loan losses
for the periods indicated:
<TABLE>
<CAPTION>

                                                     Three months ended           Nine months ended
                                                       September 30                   September 30
                                               ----------------------------   ---------------------------
(dollars in thousands)                            1998            1997           1998           1997
                                               ------------   -------------   ------------   ------------

<S>                                            <C>            <C>             <C>            <C>
Beginning allowance for loan losses                 $7,930          $7,548         $7,645         $7,040
Provision for loan losses                              510             465          1,530          1,635
Charge-offs                                           (369)           (272)        (1,240)        (1,027)
Recoveries                                             150             248            286            341
                                               ============   =============   ============   ============
Ending allowance for loan losses                    $8,221          $7,989         $8,221         $7,989
                                               ============   =============   ============   ============


Net charge-offs to average
   loans (annualized)                                  .31%            .03%           .48%           .28%
</TABLE>


         The  allowance  for loan  losses as a  percentage  of  portfolio  loans
increased  from 2.71% at December 31, 1997 to 3.04% at September  30, 1998.  The
increase in this  percentage is primarily  due to a  $12,316,000  decline in the
Company's total loan portfolio.


Nonperforming Assets

         The following table summarizes the Company's nonperforming assets.
<TABLE>
<CAPTION>

                                               September 30,      December, 31
(dollars in thousands)                             1998                1997
                                              ---------------    -------------

<S>                                           <C>                <C>
Nonaccrual loans                                       $5,759           $7,883
Accruing loans past due 90 days or more                   114              735
Restructured loans                                      1,048            1,109
                                              ---------------    -------------
Total nonperforming loans                               6,921            9,727
Other real estate owned                                 3,227            6,352
Other assets owned                                        264              542
                                              ---------------     -------------
Total nonperforming assets                            $10,412          $16,621
                                              ===============     =============



Nonperforming assets to total assets                    2.47%             3.72%
</TABLE>


         Nonperforming assets have decreased from $16,621,000 as of December 31,
1997 to  $10,412,000  as of September 30, 1998.  The principal  reasons for this
decrease relate to a decrease in nonaccrual  loans of $2,124,000,  a decrease in
other real estate owned of $3,125,000  and a decrease in accruing loans past due
90 days or more of $621,000.


<PAGE>

         Nonperforming loans consist of loans to 38 borrowers,  18 of which have
balances  in excess of  $100,000.  The two  largest  have  recorded  balances of
$745,000  and  $731,000,  both  secured  by real  estate.  Based on  information
available as of September 30, 1998,  management  believes that adequate reserves
are included in the allowance for loan losses to cover foreseeable loss exposure
which may result from these loans.

         Other real estate owned  consists of 13  properties.  8 properties  are
residential,  2 construction  lots and the remaining are  undeveloped  acres and
commercial buildings. Other assets owned included contract receivable rights and
repossessed personal property carried at $264,000.

         Although the volume of nonperforming  assets will depend in part on the
future  economic  environment  at September 30, 1998,  there are also seven loan
relationships  which total  approximately  $2,431,000 about which management has
serious  doubts as to the  ability of the  borrowers  to comply with the present
repayment  terms  and  which  may  become  nonperforming  assets  based  on  the
information presently known about possible credit problems of the borrower as of
September 30, 1998.

         In the first nine months of 1998 the  Company  was  required by various
mortgage  loan  investors to  repurchase 9  nonperforming  residential  mortgage
loans.  From time to time the Company may be  required  to  repurchase  mortgage
loans from  investors  depending  upon  representations  and  warranties  of the
purchase  agreement between the investor and the Company.  Such  representations
and  warranties  include  valid  appraisal,  status of borrower,  first  payment
default  or  fraud.  Primarily  these  repurchases  involve  loans  which are in
default.  The Company expects that it may be required to repurchase loans in the
future.  The Company  maintains a reserve for its estimate of  potential  losses
associated with the potential repurchase of previously sold mortgage loans.
Such reserve amounts to $186,000 as of September 30, 1998.

         At  September  30, 1998 the  Company's  total  recorded  investment  in
impaired  loans  (as  defined  by SFAS  114 and 118)  was  $10,163,000  of which
$4,622000  relates  to the  recorded  investment  for  which  there is a related
allowance for credit losses of  $1,383,000  determined in accordance  with these
statements and $5,541,000 relates to the amount of that recorded  investment for
which there is no related  allowance for credit losses  determined in accordance
with these standards.

         The average  recorded  investment in the impaired loans during the nine
months ended  September  30, 1998 and  September  30, 1997 was  $10,062,000  and
$13,000,000; the related amount of interest income recognized during the periods
that such loans were  impaired  was $92,000 and  $409,000 for the three and nine
month  period  ended  September  30, 1998 and $43,000 and  $433,000 for the same
period in 1997. No interest income was recognized  using a cash-basis  method of
accounting during the period that the loans were impaired.




<PAGE>



Liquidity

         Redwood's  primary  source of liquidity is dividends from its financial
institution subsidiary.  Redwood's primary uses of liquidity are associated with
cash payments made to the subordinated debt holders,  and operating  expenses of
the parent.  It is Redwood's  general policy to retain liquidity at Redwood at a
level which  management  believes to be consistent with the safety and soundness
of the Company as a whole. As of September 30, 1998,  Redwood held $2,351,000 in
deposits at NBR and a $3,000,000 subordinated note issued by NBR.

         Prior to April 30, 1998 Redwood paid quarterly dividends of 7.8% on its
preferred stock of $5,750,000. On April 30, 1998 Redwood converted its preferred
stock into common,  thus  eliminating  the preferred  dividend.  On May 19, 1998
Redwood  reinstated its quarterly  common  dividend at a rate of $.04 per share.
Redwood  also is  required  to make  monthly  payments  of  interest  at 8.5% on
$12,000,000  of  subordinated  debentures  issued  in  1993.  Payment  of  these
obligations is dependent on dividends from NBR. Federal regulatory agencies have
the  authority  to  prohibit  the  payment of  dividends  by NBR to Redwood if a
finding  is made that  such  payment  would  constitute  an  unsafe  or  unsound
practice,  or if NBR became  undercapitalized.  If NBR is restricted from paying
dividends,  Redwood could be unable to pay the above  obligations.  No assurance
can be given as to the ability of NBR to pay dividends to Redwood.

         During  the  first  nine  months of 1998,  NBR  declared  dividends  of
$900,000.  Management  believes  that  at  September  30,  1998,  the  Company's
liquidity position was adequate for the operations of Redwood and its subsidiary
for the foreseeable future.

         Although each entity within the  consolidated  Company  manages its own
liquidity,  the  Company's  consolidated  cash flow can be  divided  into  three
distinct areas;  operating,  investing and financing.  For the nine months ended
September 30, 1998 the Company received $15,185,000 and $6,553,000 in cash flows
from  operating and investing  activities  while using  $31,069,000 in financing
activities.


Capital Resources

         A strong capital base is essential to the Company's  continued  ability
to service  the needs of its  customers.  Capital  protects  depositors  and the
deposit  insurance fund from  potential  losses and is a source of funds for the
substantial  investments  necessary  for the Company to remain  competitive.  In
addition, adequate capital and earnings enable the Company to gain access to the
capital  markets  to  supplement  its  internal  growth of  capital.  Capital is
generated internally primarily through earnings retention.

         The Company and NBR are  required to maintain  minimum  capital  ratios
defined by various federal government  regulatory agencies.  The FRB and the OCC
have  each  established  capital  guidelines,   which  include  minimum  capital
requirements.  The regulations  impose three sets of standards:  a "risk-based",
"leverage" and "tangible" capital standard.


<PAGE>

         Under  the  risk-based   capital   standard,   assets  reported  on  an
institution's  balance sheet and certain off-balance sheet items are assigned to
risk  categories,  each of  which  is  assigned  a risk  weight.  This  standard
characterizes  an  institution's  capital as being "Tier 1" capital  (defined as
principally comprising  shareholders' equity and noncumulative  preferred stock)
and "Tier 2" capital  (defined as principally  comprising the allowance for loan
losses and subordinated debt).

         Under the leverage  capital  standard,  an institution  must maintain a
specified  minimum  ratio of Tier 1 capital to total  assets,  with the  minimum
ratio ranging from 4% to 6%. The leverage ratio for the Company and NBR is based
on average assets for the quarter.

         The following table summarizes the consolidated  capital ratios and the
capital ratios of the principal  subsidiaries at December 31, 1997 and September
30, 1998.
<TABLE>
<CAPTION>

                                                      Company         NBR
                                                  --------------  -------------
<S>                                                   <C>            <C> 
         September 30, 1998  
           Total capital to risk based assets         15.99%         15.00%
           Tier 1 capital to risk based assets        11.04          12.81
           Leverage ratio                              8.49           9.86

         December 31, 1997
           Total capital to risk based assets         14.64          13.83
           Tier 1 capital to risk based assets         9.72          11.65
           Leverage ratio                              7.10           8.58
</TABLE>



         Year 2000. The "Year 2000 issue" relates to the fact that many computer
programs  and  equipment  utilizing  microprocessors  only  use  two  digits  to
represent a year, such as "99" to represent "1999," which means that in the year
2000 such programs/processors  could incorrectly treat the year 2000 as the year
1900.  The issue must be  recognized as a business  issue,  rather than simply a
computer issue, because of the way its effects could ripple through the economy.
The Company  could be affected  either  directly or  indirectly by the Year 2000
issue.  This could happen if any of its critical  computer  systems or equipment
containing   embedded   logic  fail,   if  the  local   infrastructure   (power,
communication  system,  or water system) fails, if its  significant  vendors are
adversely impacted, or if its borrowers or depositors are significantly impacted
by their internal systems or their customers or suppliers.

         The  Company's  business is highly  dependent  on  technology  and data
processing.  As a result,  Bank  management and the Board of Directors have made
Year 2000 compliance a high priority.

         The  Company  principally  relies  on  third-party   software  for  its
mission-critical applications needs. It licenses software and/or data processing
services  from outside  vendors for its critical  applications  such as mortgage
lending, credit cards, ATM, item processing and customer statements. The Company
also is  dependent  on  personal  computers  and a local area  network  which is
supported  by a  Microsoft  operating  environment.  The  foregoing  systems are
classified  by the Company as mission  critical  information  technology  ("IT")
systems.


<PAGE>

         The Company's business also involves non-IT products and services, some
of which have  embedded  technology  which  might not be Year 2000  ready.  Some
non-IT  products  and  services  involve  infrastructure  issues  such as power,
communications and water, as well as elevators, ventilation and air conditioning
equipment.  The Company  classifies power and  communications  as non-IT mission
critical systems.

         The  Company's  third-party   application  software,   data  processing
vendors,   local  area  network  and   operating   systems  and  the  power  and
communication  infrastructure  provide critical support to substantially  all of
its  business  and  operations.  Failure to  successfully  complete  renovation,
validation  and  implementation  of mission  critical  IT  systems  could have a
material  adverse  effect on the  operations  and financial  performance  of the
Company.  Moreover,  Year 2000  issues  experienced  by  significant  vendors or
customers of the Company could negatively  impact the business and operations of
the Company even if its critical IT systems function satisfactorily.  Due to the
many  variables  related to the Year 2000 issue and the lack of  information  on
Year  2000  readiness  from  non-IT  service  providers  such as power and phone
systems  vendors,  the Company cannot quantify the potential cost of problems if
the  Company's   renovation  and  implementation   efforts  or  the  efforts  of
significant vendors or customers are not successful.

State of Readiness

         The  Company  has  formed a Year 2000 team  comprised  of senior  level
employees and officers who are familiar with the business and  operations of the
Company.  The Year  2000  team  has  conducted  a  comprehensive  review  of the
Company's IT systems to identify  systems  that  present  Year 2000 issues.  The
Company has  developed a plan which it believes  should  satisfactorily  resolve
Year 2000 problems  related to its  mission-critical  IT systems.  The Company's
Year 2000 team is also using external  resources provided by outside vendors and
a consultant hired to assist the Company.

         Vendors of the Company's  critical IT systems have informed the Company
that their  products/systems  are Year 2000  compliant.  If initial  testing for
other  critical  IT  systems  is not  satisfactory  the  Company  plans  to take
corrective action and complete secondary testing by June 30, 1999.

         The Company has run tests on selected components of its core processing
system  during  1998 with  technical  assistance  from the vendor and an outside
consultant.  At the date of this  report  the  Company  believes  it  remains on
schedule to complete initial testing of all mission-critical IT systems by March
31, 1999.




<PAGE>



Costs

         The Company is expensing all period costs associated with the Year 2000
issue.  Through  September  30,  1998,  the  amount  of such  expense  has  been
approximately   $35,000.   Management   estimates   that  the  Bank  will  incur
approximately  an  additional  $100,000 in Year 2000  related  expenses  for the
identification,  correction and  reprogramming,  and testing of systems for Year
2000 compliance  during the last three months of 1998 and in fiscal 1999.  There
can be no assurance that these expenses will not increase as further testing and
assessment  of vendor and customer  readiness for the Year 2000  continues.  The
above cost estimates  include costs for  consultants,  running tests,  technical
assistance  from  vendors  and  costs  for  products   replaced  for  Year  2000
compliance. These costs exclude the cost of the Company's internal staff time.

Risks

         Management  believes it will be difficult to predict the outcome of the
Year 2000 issue due to the  complexity of technology and the inability to assess
the impact of the Year 2000  problem on the local,  national  and  international
economy. Management has attempted, however, to identify a most reasonably likely
worst case  scenario.  This  scenario  suggests that the Year 2000 problem might
negatively  impact  some of the  Company's  significant  IT  vendors  and non-IT
vendors/products  through the failure of the vendor to be prepared or the impact
on them of their own vendors and customers  including possible  short-term power
failures.  Management  believes  that if this  scenario  occurs  its  ability to
process mortgages and/or credit cards could be temporarily  delayed and earnings
could  be  adversely  impacted  especially  if a  recession  results.  It is not
possible to predict the effect of this scenario on the economic viability of its
customers and the related adverse impact it may have on the Company's  financial
position and results of operations,  including the level of the Bank's provision
for possible loan losses in future periods.

     The  Company  presently  believes  that,  with  modifications  to  existing
software which needs to be made Year 2000 compliant and assuming representations
of Year 2000 readiness from significant vendors and customers are accurate,  the
Year 2000 issue should not pose significant  operational risks for the Company's
IT systems as so modified. However, other significant risks relating to the Year
2000 problem are that of the unknown impact of this problem on the operations of
the Bank's  customers  and vendors,  the impact of  catastrophic  infrastructure
issues such as power, communications and water on the economy and future actions
which banking or securities regulators may take.

         The Company is making efforts to ensure that its customer base is aware
of the Year 2000 problem. Year 2000 correspondence has been sent to both deposit
and loan customers. The Bank has amended its credit authorization  documentation
to include consideration  regarding the Year 2000 problem.  Significant customer
relationships  have been  identified,  and such customers are being contacted by
the Bank's employees to determine  whether they are aware of Year 2000 risks and
whether they are taking preparatory actions.



<PAGE>



         The Company has also  attempted to contact  major vendors and suppliers
of non-software  products and services  including  those where products  utilize
embedded technology,  to determine the Year 2000 readiness of such organizations
and/or  the  products  and  services  which  the  Company  purchases  from  such
organizations.  The  Company is  monitoring  reports  provided  by such  vendors
regarding their preparations for Year 2000. This is an ongoing process,  and the
company  intends to continue to monitor the progress of such vendors through the
century date change.

         Federal  banking  regulators  have  responsibility  for supervision and
examination of banks to determine whether each institution has an effective plan
for identifying,  renovating,  testing and implementing  solutions for Year 2000
processing  and  coordinating   Year  2000  processing   capabilities  with  its
customers,  vendors and payment system partners.  Examiners are also required to
assess the  soundness  of an  institution's  internal  controls  and to identify
whether  further  corrective  action may be necessary  to assure an  appropriate
level of attention to Year 2000 processing capabilities.  Management believes it
is  currently in  compliance  with the federal bank  regulatory  guidelines  and
timetables.

Contingency Plans

         The  Company  has  developed  contingency  plans for  software  systems
utilized by the Company,  should they not  successfully  pass the Company's Year
2000 testing.  Generally this involves the identification of an alternate vendor
or expected  actions the Company could take, as well as the  establishment  of a
trigger date to implement the contingency  plan. The Company is also considering
the  purchase  of a backup  generator  to  provide  power for  certain  critical
functions in the event of a power failure.  The Company  intends to develop,  in
accordance  with regulatory  guidelines,  further  contingency  plans to address
potential business disruptions  resulting from Year 2000 issues,  however,  this
process is not expected to be completed until after March 31, 1999.


Item 3.  Quantitative and Qualitative Disclosure about Market Risk

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



<PAGE>

         The fundamental objective of the Company's management of its assets and
liabilities is to maximize the economic  value of the Company while  maintaining
adequate liquidity and an exposure to interest rate risk deemed by management to
be acceptable.  Management believes an acceptable degree of exposure to interest
rate  risk  results  from the  management  of  assets  and  liabilities  through
maturities,  pricing and mix to attempt to neutralize  the  potential  impact of
changes in market interest  rates.  The Bank's  profitability  is dependent to a
large extent upon its net interest income,  which is the difference  between its
interest income on interest-earning  assets,  such as loans and securities,  and
its  interest  expense on  interest-bearing  liabilities,  such as deposits  and
borrowings. The Bank, like other financial institutions,  is subject to interest
rate risk to the degree that its  interest-earning  assets  reprice  differently
than its  interest-bearing  liabilities.  The Bank manages its mix of assets and
liabilities  with the goals of limiting  its  exposure  to  interest  rate risk,
ensuring adequate liquidity, and coordinating its sources and uses of funds.

         The Bank seeks to control its interest  rate risk  exposure in a manner
that will allow for  adequate  levels of earnings  and  capital  over a range of
possible  interest rate  environments.  The Bank has adopted formal policies and
practices to monitor and manage  interest  rate risk  exposure.  As part of this
effort,  the Bank measures risk in three ways:  repricing of earning  assets and
interest bearing  liabilities;  changes in net interest income for interest rate
shocks up and down 200 basis  points;  and changes in the market value of equity
for interest rate shocks up and down 200 basis points.

         The  following  table  sets  forth,  as  of  September  30,  1998,  the
distribution  of repricing  opportunities  for the Company's  earning assets and
interest-bearing  liabilities, the interest rate sensitivity gap, the cumulative
interest rate  sensitivity  gap, the interest rate  sensitivity gap ratio (i.e.,
earning  assets  divided by  interest-bearing  liabilities)  and the  cumulative
interest rate sensitivity gap ratio.
<TABLE>
<CAPTION>

                                                            After Three     After Six    After One
                                                 Within      Months but     Months but   Year But
                                                 Three       Within Six     Within One    Within     After Five
                                                 Months        Months         Year      Five Years     Years         Total
                                            --------------------------------------------------------------------------------
                                                                               (Dollars in thousands)
<S>                                            <C>           <C>          <C>           <C>          <C>           <C>
Interest earning assets:
     
Federal funds sold                              $ 15,825          $ -           $ -          $ -          $ -      $ 15,825
Investment securities and other                   10,972        2,005         3,071       27,586       27,515        71,148
Mortgage loans held for sale                      19,133            -             -            -            -        19,133
Loans                                            108,344       52,314        24,069       32,008       53,345       270,080
                                            --------------------------------------------------------------------------------
      Total interest-earning assets              154,274       54,319        27,140       59,594       80,860       376,186
                                            --------------------------------------------------------------------------------

Interest-bearing liabilities:
Interest-bearing transaction accounts            132,678            -             -            -            -       132,678
Time deposits                                     42,206       38,552        41,376       19,486           53       141,673
Short-term borrowings                              4,598            -             -            -            -         4,598
Subordinated notes                                     -            -             -            -       12,000        12,000
                                            --------------------------------------------------------------------------------
      Total interest-bearing liabilities         179,482       38,552        41,376       19,486       12,053       290,949
                                            --------------------------------------------------------------------------------

Interest rate sensitivity gap                  $ (25,208)    $ 15,767     $ (14,236)    $ 40,108     $ 68,807
                                            ==================================================================
Cumulative interest rate sensitivity gap         (25,208)      (9,441)      (23,677)      16,431       85,238

Interest rate sensitivity gap ratio                 0.86         1.41          0.66         3.06         6.71
Cumulative interest rate sensitivity gap ratio      0.86         0.96          0.91         1.06         1.29
</TABLE>

<PAGE>

         The Company's gap position is  substantially  dependent upon the volume
of mortgage loans held for sale and held in the portfolio. These loans generally
have maturities greater than five years;  however,  mortgage loans held for sale
are generally  sold within 5 to 60 days of funding and therefore are  classified
in the above table as repricing  within three  months.  The Company  enters into
commitments to sell such loans on a forward basis, usually within 30 to 60 days.
The  amount of loans held for sale and the  amount of  forward  commitments  can
fluctuate  significantly from period to period.  Additionally,  interest-bearing
transaction accounts,  which consist of money market, demand and savings deposit
accounts,  are  classified  as  repricing  within  three  months.  Some of these
deposits may be repriced at management's option, and therefore a decision not to
reprice such  deposits  could  significantly  alter the  Company's  net interest
margin.

         Management expects that, in a declining rate environment, the Company's
net interest  margin would be expected to decline,  and, in an  increasing  rate
environment,  the  Company's  net interest  margin  would tend to increase.  The
Company has experienced  greater  mortgage  lending  activity  through  mortgage
refinancings  and  financing  new  home  purchases  as rates  declined,  and may
increase its net interest  margins in an  increasing  rate  environment  if more
traditional  commercial bank lending becomes a higher  percentage of the overall
earning  assets  mix.  There  can be no  assurance,  however,  that  under  such
circumstances  the  Company  will  experience  the  described  relationships  to
declining or increasing interest rates.

         On a monthly  basis,  NBR  management  prepares an analysis of interest
rate risk exposure.  Such analysis  calculates the change in net interest income
and the theoretical  market value of the Bank's equity given a change in general
interest rates of 200 basis points up and 200 basis points down. All changes are
measured in dollars and are  compared to projected  net interest  income and the
current  theoretical market value of the Bank's equity.  This theoretical market
value of the Bank's equity is calculated by  discounting  cash flows  associated
with the Company's assets and liabilities. The following is a September 30, 1998
summary of interest  rate risk  exposure as  measured on a net  interest  income
basis and a market  value of equity  basis,  given a change in general  interest
rates of 200 basis points up and 200 basis points down.
<TABLE>
<CAPTION>

                                Change in Annual              Change in
   Change in Interest Rate     Net Interest Income      Market Value of Equity
<S>       <C>                       <C>                      <C>         
          +200                        $330,000               ($5,618,000)
          +100                         153,000                (3,492,000)
          -100                        (971,000)                3,167,000
          -200                      (2,269,000)                5,835,000
</TABLE>
<PAGE>


         The model utilized by management to create the report  presented  above
makes  various  estimates at each level of interest rate change  regarding  cash
flows from principal  repayments on loans and mortgage-backed  securities and/or
call activity on investment  securities.  In addition,  repricing  these earning
assets and matured  liabilities  can occur in one of three ways: (1) the rate of
interest to be paid on an asset or liability may adjust periodically based on an
index;  (2)  an  asset,  such  as a  mortgage  loan,  may  amortize,  permitting
reinvestment  of cash flows at the  then-prevailing  interest  rates;  or (3) an
asset or liability  may mature,  at which time the proceeds can be reinvested at
current  market  rate.  Actual  results  could differ  significantly  from those
estimates  which  would  result in  significant  differences  in the  calculated
projected change.


Certain Important Considerations for Investors


         Mortgage Banking and Brokerage Activity. The Company's historic results
of operations has been  significantly  influenced by mortgage banking  activity,
which can  fluctuate  significantly,  in both  volume  and  profitability,  with
changes in interest rate movements.

         In the fourth quarter of 1996, the Company significantly  curtailed its
"A paper" wholesale  mortgage loan production.  As a result of this action,  the
Company's  future  mortgage  loan  production   revenue  and  expenses  will  be
significantly  reduced  from pre 1997 levels.  The  Company's  current  mortgage
banking operations include both the origination and brokering of retail oriented
mortgage  loan  production.  Such mortgage  loan lending  activity  primarily is
centered in northern  California.  The  Company's  ability to maintain  and grow
mortgage  banking and brokerage  revenue  depends on a favorable  interest rate,
economic, and real estate market conditions.

         Merchant Credit Card  Processing.  The Company's  profitability  can be
negatively  impacted should one of the Company's  merchant credit card customers
be  unable  to pay  on  charge-backs  from  cardholders.  Due  to a  contractual
obligation between the Company and Visa and Mastercard,  NBR stands in the place
of the  merchant in the event that a merchant  is unable to pay on  charge-backs
from  cardholders.  Management has taken certain actions to decrease the risk of
merchant bankruptcy with its merchant bankcard business. These steps include the
discontinuance  of high-risk  accounts.  The Company utilizes  independent sales
organizations  (ISO) to acquire  merchant credit card  customers.  The Company's
ability  to  maintain  and  grow  net  revenue  from its  merchant  credit  card
processing operation is dependent upon maintaining these ISO relationships.


<PAGE>

         Concentration  of Lending  Activities.  Concentration  of the Company's
lending activities in the real estate sector, including construction loans could
have the effect of intensifying  the impact on the Company of adverse changes in
the real estate market in the Company's  lending  areas.  At September 30, 1998,
approximately  75% of the Company's loans were secured by real estate,  of which
28% were secured by commercial real estate,  including  small office  buildings,
owner-user  office/warehouses,  mixed use residential and commercial  properties
and retail  properties.  Substantially  all of the  properties  that  secure the
Company's present loans are located within Northern and Central California.  The
ability of the Company to continue to originate  mortgage or construction  loans
may be impaired by adverse  changes in local or  regional  economic  conditions,
adverse changes in the real estate market, increasing interest rates, or acts of
nature (including  earthquakes,  which may cause uninsured damage and other loss
of  value  to  real  estate  that  secures  the  Company's  loans).  Due  to the
concentration of the Company's real estate collateral,  such events could have a
significant  adverse  impact on the value of such  collateral  or the  Company's
earnings.




<PAGE>



PART II - OTHER INFORMATION

  Item 6.  Exhibits and Reports on Form 8-K.

      (a)   EXHIBITS.  The following  documents are included or  incorporated by
            reference  in this  Quarterly  Report  on Form  10-Q:  See  Index to
            Exhibits.

      (b)    REPORTS ON FORM 8-K

            Form 8-K dated August 27, 1998 announcing quarterly cash dividend on
            common stock under Item 5 "Other Events."



<PAGE>




                                   SIGNATURES

Pursuant  to the  requirements  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 and in the capacity indicated.

                             REDWOOD EMPIRE BANCORP


DATE:   11/12/98         BY: /s/ James E Beckwith
        --------             --------------------
                             James E. Beckwith
                             Executive Vice President and
                             Chief Financial Officer
                             (Principal Financial Officer,
                             Principal Accounting Officer and
                             Duly Authorized Signatory)

<PAGE>

                                INDEX TO EXHIBITS


   EXHIBIT NUMBER                             DESCRIPTION
   --------------                             -----------
         2.1               Acquisition  and Merger  Agreement  between  National
                           Bank of the Redwoods and Codding Bank, dated June 21,
                           1994,  including  Exhibits A and B thereto,  filed as
                           Exhibit  2.1 to the  Registrant's  Current  Report on
                           Form 8-K dated June 21, 1994,  and by this  reference
                           incorporated herein.
         2.2               Amendment No. 1 to Acquisition  and Merger  Agreement
                           between  National  Bank of the  Redwoods  and Codding
                           Bank,  dated September 21, 1994, filed as Exhibit 2.1
                           to the Registrant's  Current Report on Form 8-K dated
                           September   21,   1994,   and   by   this   reference
                           incorporated herein.
         3.                Amended and restated By-Laws of the Registrant, filed
                           as Exhibit 3 to the  Registrant's  1994 Annual Report
                           on  Form  10-K  and by  this  reference  incorporated
                           herein.
         4.1               Form of IndenTure  (including form of notes) between 
                           the registrant and the  bank of new  york,  as  
                           trustee,  relating  to the  issuance  of 8.50%
                           Subordinated  notes  due 2004,  filed as  exhibit  
                           4.1 To the  registrant's registration  statement on 
                           form s-2 dated  december 13, 1993  (registration
                           no. 33-71324), And by this reference incorporated 
                           herein.
         4.2               Certificate   of   Determination   of   the   Rights,
                           Preferences,   Privileges  and  Restrictions  of  the
                           Registrant's    7.80%    Noncumulative    Convertible
                           Perpetual Preferred Stock, Series A, filed as Exhibit
                           4.1 to the  Registrant's  Registration  Statement  on
                           Form S-2 dated  February 16, 1993  (Registration  No.
                           33-56962), and by this reference incorporated herein.
         10.1              Severance  Compensation  Agreement  between  Allied  
                           Savings  Bank,  F.S.B.  and Terance O'Mahoney, filed 
                           as Exhibit 10.1 to the Registrant's 1990 Annual 
                           Report on Form 10-K and by this reference 
                           incorporated herein.
         10.2              Amendment  No. 1 to Severance Compensation Agreement 
                           between  Allied  Savings  Bank, F.S.B.  and Terance  
                           O'Mahoney dated as of January 1, 1993, filed as 
                           Exhibit 10.2 to the Registrant's 1992 Annual Report 
                           on Form 10-K and by this reference incorporated 
                           herein.
         10.3              Employment  Agreement  between  Allied  Savings Bank,
                           F.S.B.  and Martin B. McCormick, dated as of July 1, 
                           1990, filed as Exhibit 10.5 to the  Registrant's 1992
                           Annual Report on Form 10-K and by this reference
                           incorporated herein.
         10.4              Amendment No. 1 to Employment  Agreement  between 
                           Allied Savings Bank, F.S.B. and Martin B. McCormick, 
                           dated as of January 1, 1993, filed as Exhibit 10.6  
                           to the  Registrant's 1992 Annual Report on Form 10-K 
                           and by this reference incorporated herein.
         10.5              Employment  Agreement  between  National  Bank of the
                           Redwoods and Patrick W.  Kilkenny, dated as of 
                           January  1, 1994,  filed as Exhibit  10.7 to the  
                           Registrant's  1993  Annual Report on Form 10-K and by
                           this reference incorporated herein.


<PAGE>



         10.6              Lease, dated August 30, 1988,  between  National Bank
                           of the Redwoods and 137 Group, a general partnership,
                           filed as Exhibit 10.1 to the  Registrant's  1989 
                           Annual Report on Form 10-K, and by this reference 
                           incorporated herein.
         10.7              Lease,  Dated April 18, 1990,  between Allied Savings
                           Bank, F.S.B. and Stony Point West, General Partner-
                           ship,  filed as Exhibit 10.2 to the  Registrant's  
                           1990 Annual Report on Form 10-K, and by this 
                           reference incorporated herein.
         10.8              The  Registrant's  401 (k) Profit Sharing Plan, filed
                           as  Exhibit  28.1  to the  Registrant's  Registration
                           Statement   on  Form  S-8   dated   June   12,   1990
                           (Registration No.
                           33-35377), and by this reference incorporated herein.
         10.9              The Allied  Savings  Bank,  F.S.B.  1986 Stock Option
                           Plan,  filed  as  Exhibit  28.1  to the  Registrant's
                           Registration  Statement  on Form S-8  dated  June 28,
                           1991 (Registration No.
                           33-41503), and by this reference incorporated herein.
         10.10             The  National Bank of the Redwoods Stock Option Plan,
                           filed as Exhibit 28.1 to the Registrant's  Post-
                           Effective  Amendment  No.  1 to  Registration  
                           Statement on Form S-4 dated March 27, 1989 (Registra-
                           tion  No. 33-24642),  and by this reference  
                           incorporated herein.
         10.11             The  Registrant's  Amended and Restated 1991 Stock
                           Option Plan,  filed as Exhibit 4.1 to the   
                           Registrant's   Registration   Statement on  Form  S-8
                           filed  on  July  8, 1992 (Registration No. 33-49372),
                           and by this reference incorporated herein.
         10.12             The  Registrant's  Performance Incentive  Bonus Plan,
                           filed as  Exhibit  10.13 to the Registrant's  1992  
                           Annual  Report  on Form  10-K,  and by this reference
                           incorporated herein.
         10.13             The Registrant's  Dividend  Reinvestment and Stock 
                           Purchase Plan, filed as Exhibit 10.14 to  the   
                           Registrant's   1992  Annual  Report  on  Form  10-K, 
                           and  by  this  reference incorporated herein.
         10.14             The  Registrant's  Phantom Stock Plan,  filed as 
                           Exhibit 10.16 to the Registrant's 1993 Annual Report 
                           on Form 10-K, and by this reference incorporated 
                           herein.
         10.15             Phantom Stock  Agreement  between the  Registrant and
                           John H.  Downey,  Jr.,  dated as of  January 1, 1994,
                           filed  as  Exhibit  10.17  to the  Registrant's  1993
                           Annual  Report on Form  10-K,  and by this  reference
                           incorporated herein.
         10.16             The  Registrant's Executive Salary Continuation Plan,
                           filed as Exhibit  10.9 to the Registrant's  Registra-
                           tion  Statement on Form S-2 dated December 13, 1993  
                           (Registration
                           No. 33-71324), and by this reference incorporated 
                           herein.
         10.17             Director  Retirement  Plan,  filed as  Exhibit  10.10
                           to the  Registrant's  Registration Statement on Form 
                           S-2 dated December 13, 1993  (Registration No. 
                           33-71324), and by this reference incorporated herein.


<PAGE>



         10.18             Chairman  Retirement  Agreement,  dated  November 30,
                           1993, between the Registrant and John H. Downey, Jr.,
                           filed   as   Exhibit   10.11   to  the   Registrant's
                           Registration Statement on Form S-2 dated December 13,
                           1993   (Registration  No.  33-71324),   and  by  this
                           reference incorporated herein.
         10.19             Lease,  dated  December 23, 1993 between Allied Bank,
                           F.S.B. and Santa Rosa Corporate Center Associates II,
                           filed  as  Exhibit  10.21  to the  Registrant's  1994
                           Annual  Report on Form  10-K,  and by this  reference
                           incorporated herein.
         10.20             Compensation Agreement between Patrick W. Kilkenny 
                           and Redwood Empire Bancorp.
         10.21             Executive Severance Agreement between Patrick W. 
                           Kilkenny and Redwood Empire Bancorp.
         10.22             Salary Continuation Agreement between James E. 
                           Beckwith and Redwood Empire Bancorp.
         10.23             Dividend  Reinvestment  and  Stock  Purchase  Plan on
                           Form  S-3  dated  April  28,  1993
                           (Registration No. 3361750), and by this reference 
                           incorporated herein.
         27.1              Financial Data Schedule for the period ended 
                           September 30, 1998.
         27.2              Financial  Data  Schedule  Restated  for the fiscal 
                           years ended  December  31, 1996 and December 31, 
                           1995.
         27.3              Financial  Data Schedule  Restated for the periods  
                           ended March 31, 1997,  June 30, 1997
                           and September 30, 1997.
         27.4              Financial  Data Schedule  Restated for the periods  
                           ended March 31, 1996,  June 30, 1996 and September 
                           30, 1996.