<PAGE>

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

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the Year ended DECEMBER 31, 1998

[ ]  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 000-23815

                                 REGENCY BANCORP
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       STATE OF CALIFORNIA                           77-0378956
 -------------------------------        ------------------------------------
 (STATE OR OTHER JURISDICTION OF        (I.R.S. EMPLOYER IDENTIFICATION NO.)
  INCORPORATION OR ORGANIZATION) 

  7060 N. FRESNO STREET, FRESNO, CALIFORNIA              93720
   ---------------------------------------             ----------
   (Address of principal executive office)             (Zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (209) 438-2600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS              NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------              -----------------------------------------
      NONE                                          NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

         TITLE OF EACH CLASS
         -------------------
            COMMON  STOCK


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

The aggregate market value of the voting stock held by non-affiliates of the 
registrant at March 10,1999 was $26,263,000. 

As of March 10, 1999, the registrant had 2,624,374 shares of Common Stock 
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into this Form 10-K: (1)
Portions of the definitive Proxy Statement for the 1998 annual meeting of
shareholders into Part III. Items 10-13.

The Index to Exhibits is located at page 90.



<PAGE>



                                 REGENCY BANCORP


                                 TABLE OF CONTENTS



<TABLE>
<CAPTION>
PART I                                                                             PAGE
<S>                                                                                <C>
        Item 1.  Business .......................................................    3
        Item 2.  Description of Properties ......................................   13
        Item 3.  Legal Proceedings ..............................................   14
        Item 4.  Submission of Matters to a Vote of Security Holders ............   14

PART II

        Item 5.  Market for Registrant's Common Equity and Related Stockholder
                  Matters .......................................................   15
        Item 6.  Selected Financial Data ........................................   17
        Item 7.  Management's Discussion and Analysis of Financial Condition and
                 Results of Operations ..........................................   18

        Item 7A. Quantitative and Qualitative Disclosures About Market Risk .....   40
        Item 8.  Financial Statements and Supplementary Data ....................   45
        Item 9.  Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure ......................................   83

PART III

       Item 10.  Directors and Executive Officers of the Registrant .............   83
       Item 11.  Executive Compensation .........................................   83
       Item 12.  Security Ownership of Certain Beneficial Owners and Management .   83
       Item 13.  Certain Relationships and Related Transactions .................   83

PART IV

       Item14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.   84
</TABLE>



                                       2
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                                      PART I

Item 1.           BUSINESS

         Certain matters discussed or incorporated by reference in this 
Annual Report on Form 10-K including, but not limited to, matters described 
in "Item 7 - Management's Discussion and Analysis of Financial Condition and 
Results of Operations," are forward-looking statements that are subject to 
risks and uncertainties that could cause actual results to differ materially 
from those projected. Changes to such risks and uncertainties, which could 
impact future financial performance, include, among others, (1) competitive 
pressures in the banking industry; (2) changes in the interest rate 
environment; (3) general economic conditions, either nationally or 
regionally; (4) changes in the regulatory environment; (5) changes in 
business conditions and inflation; (6) changes in securities markets; and (7) 
Year 2000 compliance problems. Therefore, the information set forth therein 
should be carefully considered when evaluating the business prospects of the 
Company and the Bank.

         GENERAL DEVELOPMENT OF BUSINESS

         Regency Bancorp (the "Company") is a California corporation 
organized to act as the holding company for Regency Bank (the "Bank"), and 
Regency Investment Advisors, Inc. ("RIA"), a SEC registered investment 
advisor. The Company and the Bank maintain their administrative headquarters 
and banking offices in Fresno, California. The Bank also maintains a full 
service banking office in Madera, California and a loan production office in 
Modesto, California. In 1995, upon its formation, the Company acquired all of 
the outstanding common stock of the Bank. Other than its investment in the 
Bank and RIA, the Company currently conducts no other significant business 
activities, although it is authorized to engage in a variety of activities 
which are deemed closely related to the business of banking upon prior 
approval of the Board of Governors of the Federal Reserve System (the "Board 
of Governors"), the Company's principal regulator.

         The Bank is a California banking corporation which has served small 
and medium-sized businesses, professionals, merchants and individuals located 
in and adjacent to Fresno, California since 1980. The Company and Bank 
operate through the administrative headquarters office and Herndon Branch 
banking office located at 7060 N. Fresno St., Fresno, California, and offer a 
full range of commercial banking services, including the acceptance of 
demand, savings and time deposits, and the making of commercial, real estate 
(including real estate construction and residential mortgage), Small Business 
Administration, personal, home improvement, automobile and other installment 
and term loans. It also offers Visa credit cards, traveler's checks, safe 
deposit boxes, notary public, courier service and other customary bank 
services.

         The Bank's Herndon branch office is open from 9:00 a.m. to 5:00 
p.m., Monday through Friday. In addition to its Herndon Office, the Bank 
operates a full service banking office at 126 N. "D" Street in Madera, 
California. The Madera office hours are 9:00 a.m. to 5:00 p.m. Monday through 
Thursday, 9:00 a.m. to 6:00 p.m. on Friday and 9:00 a.m. to 1:00 p.m. on 
Saturday. The Bank also operates a full service facility and loan production 
office located at 5240 N. Palm Ave., Fresno, California. The facility is open 
from 9:00 a.m. to 6:00 p.m., Monday through Friday and 9:00 a.m. to 1:00 p.m. 
on Saturday. Additionally, the Bank has established a loan production office 
in Modesto, California. The Bank has automated teller machines located at its 
headquarters office and its Madera office. The Bank is insured under the 
Federal Deposit Insurance Act and each depositor's account is insured up to 
the legal limits thereon. The Bank is chartered (licensed) by 



                                       3
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the California Commissioner of Financial Institutions ("Commissioner") and 
became a member of the Federal Reserve System in the third quarter of 1998. 
Additionally, in the fourth quarter of 1998, the Bank was accepted as a 
member of the Federal Home Loan Bank.

         The Bank has one subsidiary, Regency Service Corporation ("RSC"), a 
California corporation which engaged in the business of real estate 
development primarily in the Fresno/Clovis area. For more information on RSC, 
see, "Real Estate Development Activities" under this section and 
additionally, under note 4 of the Company's audited consolidated financial 
statements included in item 8.

         The Company's second subsidiary, Regency Investment Advisors ("RIA"),
provides investment management and consulting services from offices located in
the Company's headquarters office at 7060 N. Fresno St., Fresno, California. For
more information on RIA, see, "Investment Management Activities" under this
section.

         The three areas in which the Bank has directed virtually all of its
lending activities are: (i) commercial loans; (ii) real estate loans (including
residential construction and mortgage loans); and (iii) consumer loans. As of
December 31, 1998, these three categories accounted for approximately 66
percent, 28 percent and 6 percent, respectively, of the Bank's loan portfolio.

         The Bank's deposits are attracted primarily from small and medium-sized
businesses, professionals, merchants and individuals. The Bank's deposits are
not received from a single depositor or group of affiliated depositors the loss
of any one of which would have a material adverse effect on the business of the
Bank, nor is a material portion of the Bank's loans concentrated within a single
industry or group of related industries.

         As of December 31, 1998, the Bank had total deposits of $206.6 million.
Of this total, $54.2 million represented noninterest-bearing demand deposits,
$101.3 million represented interest-bearing demand deposits and interest-bearing
savings deposits, and $51.1 million represented time deposits.

         REAL ESTATE DEVELOPMENT ACTIVITIES

         The Bank, through RSC and pursuant to California Financial Code 
Section 751.3 has engaged in real estate development activities since 1986. 
Such activities typically involved the acquisition, development and sale of 
the properties (but sometimes involved the sale of properties prior to 
development) and historically were structured as limited partnerships in 
which RSC was the limited partner and a local developer the general partner. 
Partnerships are accounted for under the equity method. Sales of properties 
are recognized on the accrual method and are allocated between the partners 
based on the provisions of the various partnership agreements.

         Under FDIC regulations, banks were required to divest their real 
estate development investments as quickly as prudently possible but in no 
event later than December 19, 1996, and submit a plan to the FDIC regarding 
divestiture of such investments. Such regulations also permitted banks to 
apply for the FDIC's consent to continue, on a limited basis, certain real 
estate development activities. In December 1995, the Bank and RSC submitted a 
request to extend the mandatory time period in which it must divest its real 
estate development interests. In December 1996, the FDIC, responding to the 
Bank's request, granted the Bank and RSC a two-year extension, until December 
31, 1998, to continue its divestiture activities.


                                       4
<PAGE>

         As of December 31, 1998, RSC had divested of all real estate
investments and loans with the exception of one limited partnership interest
with one completed home as its primary asset. At December 31, 1998, this one
remaining partnership investment had been fully reserved for. For more
information regarding RSC and its financial performance, see "Item 7 - Regency
Service Corporation", below and additionally, note 4 of the Company's audited
financial statements included in Item 8.

         INVESTMENT MANAGEMENT ACTIVITIES

         RIA was formed in August 1993 through the acquisition by the Bank of 
the assets, including client list, of a fee-only investment management and 
consulting firm. RIA provides investment management and consulting services, 
including comprehensive financial and retirement planning and investment 
advice to individuals and corporate clients for an annual fee that varies 
depending upon the size of a client's account. For more information regarding 
RIA and its financial performance, see "Item 7 - Regency Investment 
Advisors", below.

         SUPERVISION AND REGULATION

         The common stock of the Company is subject to the registration 
requirements of the Securities Act of 1933, as amended, and the qualification 
requirements of the California Corporate Securities Law of 1968, as amended. 
The Bank's common stock, however, which is owned 100 percent by the Company, 
is exempt from such requirements. The Company is also subject to the periodic 
reporting requirements of Section 13 of the Securities Exchange Act of 1934, 
as amended, which include, but are not limited to, filing annual, quarterly 
and other current reports with the Securities and Exchange Commission.

         The Bank is licensed by the Commissioner, its deposits are insured 
by the FDIC, and became a member of the Federal Reserve System in the third 
quarter of 1998. Consequently, the Bank is subject to the supervision of, and 
is regularly examined by, the Commissioner and the Board of Governors. Such 
supervision and regulation include comprehensive reviews of all major aspects 
of the Bank's business and condition, including its capital ratios, 
subsidiary operations, allowance credit losses and other factors. However, no 
inference should be drawn that such authorities have approved any such 
factors. The Company and the Bank are required to file reports with the 
Commissioner and the Board of Governors and provide such additional 
information as the Commissioner and the Board of Governors may require.

         The Company is a bank holding company within the meaning of the Bank 
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and 
is registered as such with, and subject to the supervision of, the Board of 
Governors. The Company is required to obtain the approval of the Board of 
Governors before it may acquire all or substantially all of the assets of any 
bank, or ownership or control of the voting shares of any bank if, after 
giving effect to such acquisition of shares, the Company would own or control 
more than 5 percent of the voting shares of such bank. The Bank Holding 
Company Act prohibits the Company from acquiring any voting shares of, or 
interest in, all or substantially all of the assets of, a bank located 
outside the State of California unless such an acquisition is specifically 
authorized by the laws of the state in which such bank is located. Any such 
interstate acquisition is also subject to the 

                                       5
<PAGE>

provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act 
of 1994 discussed below.

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

         In addition, regulations of the Board of Governors promulgated under
the Federal Reserve Act require that reserves be maintained by the Bank in
conjunction with any liability of the Company under any obligation (promissory
note, acknowledgment of advance, banker's acceptance or similar obligation) with
a weighted average maturity of less than seven (7) years to the extent that the
proceeds of such obligations are used for the purpose of supplying funds to the
Bank for use in its banking business, or to maintain the availability of such
funds.

         In 1995, pursuant to Congressional mandate, the FDIC reduced bank
deposit insurance assessment rates to a range from $0 to $0.27 per $100 of
deposits, dependent upon a bank's risk. The FDIC has continued these reduced
assessment rates through the first semiannual assessment period of 1999.

         The Board of Governors and other federal banking agencies have 
adopted risk-based capital guidelines for evaluating the capital adequacy of 
bank holding companies and banks. The guidelines are designed to make capital 
requirements sensitive to differences in risk profiles among banking 
organizations, to take into account off-balance sheet exposures and to aid in 
making the definition of bank capital uniform internationally. Under the 
guidelines, the Company and the Bank are required to maintain capital equal 
to at least 8.0 percent of its assets and commitments to extend credit, 
weighted by risk, of which at least 4.0 percent must consist primarily of 
common equity (including retained earnings) and the remainder may consist of 
subordinated debt, cumulative preferred stock, or a limited amount of loan 
loss reserves.

         Assets, commitments to extend credit, and off-balance sheet items 
are categorized according to risk and certain assets considered to present 
less risk than others permit maintenance of capital at less than the 8 
percent ratio. For example, most home mortgage loans are placed in a 50 
percent risk category and therefore require maintenance of capital equal to 4 
percent of such loans, while commercial loans are placed in a 100 percent 
risk category and therefore require maintenance of capital equal to 8 percent 
of such loans.

         The guidelines establish two categories of qualifying capital: Tier 
1 capital comprising core capital elements and Tier 2 comprising 
supplementary capital requirements. At least one-half of the required capital 
must be maintained in the form of Tier 1 capital. Tier 1 capital includes 
common shareholder's equity and qualifying perpetual preferred stock less 
intangible assets and certain other adjustments. However, no more than 25 
percent of the Company's total Tier 1 capital may consist of perpetual 
preferred stock. The definition of Tier 1 capital for the Bank is the same, 
except that perpetual preferred stock may be included only if it is 
noncumulative. Tier 2 capital includes, among other items, limited life (and 
in the case of banks, cumulative) preferred stock, mandatory convertible 
securities, subordinated debt and a limited amount of reserves for credit 
losses. Effective October 1, 1998 the Board of Governors and other federal 

                                       6
<PAGE>

bank regulatory agencies approved including in Tier 2 capital up to 45 
percent of the pretax net unrealized gains on certain available-for-sale 
equity securities having readily determinable fair values (i.e. the excess, 
if any, of fair market value over the book value or historical cost of the 
investment security). The federal regulatory agencies reserve the right to 
exclude all or a portion of the unrealized gains upon a determination that 
the equity securities are not prudently valued. Unrealized gains and losses 
on other types of assets, such as bank premises and available-for-sale debt 
securities, are not included in Tier 2 capital, but may be taken into account 
in the evaluation of overall capital adequacy and net unrealized losses on 
available-for-sale equity securities will continue to be deducted from Tier 1 
capital as a cushion against risk.

         The Board of Governors and other federal banking agencies have 
adopted a revised minimum leverage ratio for bank holding companies as a 
supplement to the risk-weighted capital guidelines. The old rule established 
a 3 percent minimum leverage standard for well-run banking organizations 
(bank holding companies and banks) with diversified risk profiles. Banking 
organizations which did not exhibit such characteristics or had greater risk 
due to significant growth, among other factors, were required to maintain a 
minimum leverage ratio 1 percent to 2 percent higher. The old rule did not 
take into account the implementation of the market risk capital measure set 
forth in the federal regulatory agency capital adequacy guidelines. The 
revised leverage ratio establishes a minimum Tier 1 ratio of 3 percent (Tier 
1 capital to total assets) for the highest rated bank holding companies and 
banks. All other bank holding companies and banks must maintain a minimum 
Tier 1 leverage ratio of 4 percent with higher leverage capital ratios 
required for banking organizations that have significant financial and/or 
operational weaknesses, a high risk profile, or are undergoing or 
anticipating rapid growth. 

         On December 19, 1991, President Bush signed the Federal Deposit 
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The Board of 
Governors and other federal banking agencies adopted regulations effective 
December 19, 1992, implementing a system of prompt corrective action pursuant 
to Section 38 of the Federal Deposit Insurance Act and Section 131 of the 
FDICIA. The regulations establish five capital categories with the following 
characteristics: (1) "Well capitalized" - consisting of institutions with a 
total risk-based capital ratio of 10 percent or greater, a Tier 1 risk-based 
capital ratio of 6 percent or greater and a leverage ratio of 5 percent or 
greater, and the institution is not subject to an order, written agreement, 
capital directive or prompt corrective action directive; (2) "Adequately 
capitalized" - consisting of institutions with a total risk-based capital 
ratio of 8 percent or greater, a Tier 1 risk-based capital ratio of 4 percent 
or greater and a leverage ratio of 4 percent or greater, and the institution 
does not meet the definition of a "well capitalized" institution; (3) 
"Undercapitalized" - consisting of institutions with a total risk-based 
capital ratio less than 8 percent, a Tier 1 risk-based capital ratio of less 
than 4 percent, or a leverage ratio of less than 4 percent; (4) 
"Significantly undercapitalized" - consisting of institutions with a total 
risk-based capital ratio of less than 6 percent, a Tier 1 risk-based capital 
ratio of less than 3 percent, or a leverage ratio of less than 3 percent; (5) 
"Critically undercapitalized" - consisting of an institution with a ratio of 
tangible equity to total assets that is equal to or less than 2 percent.

         The regulations established procedures for classification of 
financial institutions within the capital categories, filing and reviewing 
capital restoration plans required under the regulations and procedures for 
issuance of directives by the appropriate regulatory agency, among other 
matters. The regulations impose restrictions upon all institutions to refrain 
from certain actions which would cause an institution to be classified within 
any one of the three 

                                       7
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"undercapitalized" categories, such as declaration of dividends or other 
capital distributions or payment of management fees, if following the 
distribution or payment the institution would be classified within one of the 
"undercapitalized" categories. In addition, institutions which are classified 
in one of the three "undercapitalized" categories are subject to certain 
mandatory and discretionary supervisory actions. Mandatory supervisory 
actions include (1) increased monitoring and review by the appropriate 
federal banking agency; (2) implementation of a capital restoration plan; (3) 
total asset growth restrictions; and (4) limitation upon acquisitions, branch 
expansion, and new business activities without prior approval of the 
appropriate federal banking agency. Discretionary supervisory actions may 
include (1) requirements to augment capital; (2) restrictions upon affiliate 
transactions; (3) restrictions upon deposit gathering activities and interest 
rates paid; (4) replacement of senior executive officers and directors; (5) 
restrictions upon activities of the institution and its affiliates; (6) 
requiring divestiture or sale of the institution; and (7) any other 
supervisory action that the appropriate federal banking agency determines is 
necessary to further the purposes of the regulations. Further, the federal 
banking agencies may not accept a capital restoration plan without 
determining, among other things, that the plan is based on realistic 
assumptions and is likely to succeed in restoring the depository 
institution's capital. In addition, for a capital restoration plan to be 
acceptable, the depository institution's parent holding company must 
guarantee that the institution will comply with such capital restoration 
plan. The aggregate liability of the parent holding company under the 
guaranty is limited to the lesser of (i) an amount equal to 5 percent of the 
depository institution's total assets at the time it became undercapitalized, 
and (ii) the amount that is necessary (or would have been necessary) to bring 
the institution into compliance with all capital standards applicable with 
respect to such institution as of the time it fails to comply with the plan. 
If a depository institution fails to submit an acceptable plan, it is treated 
as if it were "significantly undercapitalized." The FDICIA also restricts the 
solicitation and acceptance of and interest rates payable on brokered 
deposits by insured depository institutions that are not "well capitalized." 
An "undercapitalized" institution is not allowed to solicit deposits by 
offering rates of interest that are significantly higher than the prevailing 
rates of interest on insured deposits in the particular institution's normal 
market areas or in the market areas in which such deposits would otherwise be 
accepted.

         Any financial institution which is classified as "critically 
undercapitalized" must be placed in conservatorship or receivership within 90 
days of such determination unless it is also determined that some other 
course of action would better serve the purposes of the regulations. 
Critically undercapitalized institutions are also prohibited from making (but 
not accruing) any payment of principal or interest on subordinated debt 
without the prior approval of the FDIC and the FDIC must prohibit a 
critically undercapitalized institution from taking certain other actions 
without its prior approval, including (1) entering into any material 
transaction other than in the usual course of business, including investment 
expansion, acquisition, sale of assets or other similar actions; (2) 
extending credit for any highly leveraged transaction; (3) amending articles 
or bylaws unless required to do so to comply with any law, regulation or 
order; (4) making any material change in accounting methods; (5) engaging in 
certain affiliate transactions; (6) paying excessive compensation or bonuses; 
and (7) paying interest on new or renewed liabilities at rates which would 
increase the weighted average costs of funds beyond prevailing rates in the 
institution's normal market areas.

         Under the FDICIA, the Board of Governors and other federal agencies 
have adopted regulations which require banks to establish and maintain 
comprehensive written real estate policies which address certain lending 
considerations, including loan-to-value limits, loan 

                                       8
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administrative policies, portfolio diversification standards, and 
documentation, approval and reporting requirements. The FDICIA further 
generally prohibits an insured state bank from engaging as a principal in any 
activity that is impermissible for a national bank, absent FDIC determination 
that the activity would not pose a significant risk to the Bank Insurance 
Fund, and that the bank is, and will continue to be, within applicable 
capital standards. Similar restrictions apply to subsidiaries of insured 
state banks. The Company does not currently intend to engage in any 
activities which would be restricted or prohibited under the FDICIA.

         The Board of Governors and other federal banking agencies have 
established safety and soundness standards for insured financial institutions 
covering (1) internal controls, information systems and internal audit 
systems; (2) loan documentation; (3) credit underwriting; (4) interest rate 
exposure; (5) asset growth; (6) compensation, fees and benefits; and (7) 
excessive compensation for executive officers, directors or principal 
shareholders which could lead to material financial loss. If the agency 
determines that an institution fails to meet any standard, the agency may 
require the financial institution to submit to the agency an acceptable plan 
to achieve compliance with the standard. If the agency requires submission of 
a compliance plan and the institution fails to timely submit an acceptable 
plan or to implement an accepted plan, the agency must require the 
institution to correct the deficiency. Under the final rule, an institution 
must file a compliance plan within 30 days of a request to do so from the 
institution's primary federal regulatory agency. The agencies may elect to 
initiate enforcement action in certain cases rather than rely on an existing 
plan particularly where failure to meet one or more of the standards could 
threaten the safe and sound operation of the institution.

         The Board of Governors issued final amendments to its risk-based 
capital guidelines to be effective December 31, 1994, requiring that net 
unrealized holding gains and losses on securities available for sale 
determined in accordance with Statement of Financial Accounting Standards 
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity 
Securities," are not to be included in the Tier 1 capital component 
consisting of common stockholders' equity. Net unrealized losses on 
marketable equity securities (equity securities with a readily determinable 
fair value), however, will continue to be deducted from Tier 1 capital. This 
rule has the general effect of valuing available for sale securities at 
amortized cost (based on historical cost) rather than at fair value 
(generally at market value) for purposes of calculating the risk-based and 
leverage capital ratios.

         On December 13, 1994, the Board of Governors issued amendments to 
its risk-based capital guidelines regarding concentration of credit risk and 
risks of non-traditional activities, which were effective January 17, 1995. 
As amended, the risk-based capital guidelines identify concentrations of 
credit risk and evaluate a bank's ability to manage such risks and the risk 
posed by non-traditional activities as important factors in assessing a 
bank's overall capital adequacy.

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

                                       9
<PAGE>

         However, the Federal Financial Institution Examination Counsel 
("FFIEC") on December 13, 1996, approved an updated Uniform Financial 
Institutions Rating System ("UFIRS"). In addition to the five components 
traditionally in the so-called "CAMEL" rating system which has been used by 
bank examiners for a number of years to classify and evaluate the soundness 
of financial institutions (including capital adequacy, asset quality, 
management, earnings and liquidity), UFIRS includes for all bank regulatory 
examinations conducted on or after January 1, 1997, a new rating for a sixth 
category identified as sensitivity to market risk. Ratings in this category 
are intended to reflect the degree to which changes in interest rates, 
foreign exchange rates, commodity prices or equity prices may adversely 
affect an institution's earnings and capital. The rating system henceforth 
will be identified as the "CAMELS" system.

         COMPETITION

         The banking business in California generally, and in the Bank's 
primary service area specifically is highly competitive with respect to both 
loans and deposits, and is dominated by a relatively small number of major 
banks with many offices operating over a wide geographic area. Among the 
advantages such major banks have over the Bank are their ability to finance 
wide-ranging advertising campaigns and to allocate their investment assets to 
geographic regions of higher yield and demand. Such banks offer certain 
services such as trust services and international banking services which are 
not offered directly by the Bank and, by virtue of their greater total 
capitalization upon which legal lending limits are based, such banks have 
substantially higher limits than the Bank. At December 31, 1998, the Bank's 
legal lending limits to a single borrower and such borrower's related 
interests were $3.0 million on an unsecured basis and $5.0 million on a fully 
secured basis based on regulatory capital of $20.0 million.

         The Bank's primary service area encompasses Fresno County and Madera 
County. As cited in "The Market Share Report" published by the FDIC, as of 
June 30, 1998, there were 27 banks and savings and loans operating in Fresno 
County with total deposits of $5.4 billion. At that time, the Bank held a 
total of $164.5 million in deposits at its Fresno branches representing 
approximately 3.1 percent of total bank and savings and loan deposits in 
Fresno County. Additionally, there were 15 banks and savings and loans 
operating in Madera County with total deposits of $601.6 million. At June 30, 
1998, the Bank held a total of $21.1 million in deposits, representing 
approximately 3.5 percent of total bank and savings and loan deposits in 
Madera County.

         In order to compete with the major financial institutions in its 
primary service area, the Bank uses to the fullest extent possible the 
flexibility which is accorded by its independent status. This includes an 
emphasis on specialized services, local promotional activity, and personal 
contacts by the Bank's officers, directors and employees. The Bank also seeks 
to provide special services and programs for individuals in its primary 
service area who are employed in the professional and business fields, such 
as loans for equipment, furniture, tools of the trade or expansion of 
practices or businesses. In the event there are customers whose loan demands 
exceed the Bank's lending limits, the Bank seeks to arrange for such loans on 
a participation basis with other financial institutions. The Bank also 
assists those customers requiring services not offered by the Bank to obtain 
such services from correspondent banks.

         Banking is a business which depends on interest rate differentials. 
In general, the difference between the interest rate paid by the Bank to 
obtain its deposits and its other 

                                       10
<PAGE>

borrowings and the interest rate received by the Bank on loans extended to 
its customers and on securities held in the Bank's portfolio comprise the 
major portion of the Bank's earnings.

         Commercial banks compete with savings and loan associations, credit 
unions, other financial institutions and other entities for funds. For 
instance, yields on corporate and government debt securities and other 
commercial paper affect the ability of commercial banks to attract and hold 
deposits. Commercial banks also compete for loans with savings and loan 
associations, credit unions, consumer finance companies, mortgage companies 
and other lending institutions.

         The interest rate differentials of the Bank, and therefore its 
earnings, are affected not only by general economic conditions, both domestic 
and foreign, but also by the monetary and fiscal policies of the United 
States as set by statutes and as implemented by federal agencies, 
particularly the Federal Reserve Board. This agency can and does implement 
national monetary policy, such as seeking to curb inflation and combat 
recession, by its open market operations in United States government 
securities, adjustments in the amount of interest free reserves that banks 
and other financial institutions are required to maintain, and adjustments to 
the discount rates applicable to borrowing by banks from the Federal Reserve 
Board. These activities influence the growth of bank loans, investments and 
deposits and also affect interest rates charged on loans and paid on 
deposits. The nature and timing of any future changes in monetary policies 
and their impact on the Bank can't be predicted.

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

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

         The Bank has a current rating of "satisfactory" CRA compliance, and 
is scheduled for further examination for CRA compliance during 1999.

         The federal banking agencies, especially the OCC and the Board of 
Governors, have taken steps to increase the types of activities in which 
national banks and bank holding companies can engage, and to make it easier 
to engage in such activities. On November 20, 

                                       11
<PAGE>


1996, the OCC issued final regulations permitting national banks to engage in 
a wider range of activities through subsidiaries. An "eligible institution" 
(those national banks that are well capitalized, have a high overall rating 
and a satisfactory CRA rating, and are not subject to an enforcement order) 
may engage in activities related to banking through operating subsidiaries 
after going through an expedited application process. In addition, the 
regulations include a provision whereby a national bank may apply to the OCC 
to engage in an activity through a subsidiary in which the bank itself may 
not engage. This OCC regulation could be advantageous to national banks 
depending on the extent to which the OCC permits national banks to engage in 
new lines of business.

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

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

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

                                       12
<PAGE>



Item 2.           PROPERTIES

         The Company leases land and a building at 5240 N. Palm Avenue, Fresno,
California, under a lease agreement having an initial term of approximately 30
years with 2 five year options. The lease is accounted for as an operating lease
for the land and a capital lease for the building. The facility is approximately
9,000 square feet with rental payments of $1.05 per square foot per month. The
lease calls for rent payment increases of 25 percent every five years. The
foregoing description of the lease is qualified by reference to the lease
agreement dated December 22, 1988 attached as exhibit 10.10 to the Company's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on July 27, 1994.

         On February 20, 1995, the Bank entered into a lease agreement for its
SBA loan production office located at 3501 Coffee Road, Suite 3, Modesto,
California. The lease is for a period of 5 years on facilities of 1,072 square
feet at a lease rate of $1.35 per square foot. The lease calls for annual rent
adjustments based on changes in the consumer price index of not less than 3
percent and not more than 5 percent. The foregoing description of the lease is
qualified by reference to the lease agreement dated February 20, 1995 and
attached as exhibit 10.19 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.

         On August 17, 1995, the Company entered into a sale-leaseback of its
corporate headquarters located at 7060 N. Fresno Street, Fresno, California. The
leaseback is accounted for as an operating lease with a term of 15 years and
contains provisions for periodic rent increases every three years based on
changes in the consumer price index not to exceed 12 percent per adjustment. The
facility is approximately 24,100 square feet with the initial rental rate set at
$1.35 per square foot. The foregoing description of the lease is qualified by
reference to the lease agreement dated August 17, 1995 and attached as exhibit
10.21 to the Company's Form 10-K for the year ended December 31, 1995.

         On May 13, 1996, the Bank entered into a lease for its fourth branch
office, commonly referred to as the Madera Branch, at 126 North "D" Street,
Madera, California. The initial term of the lease is for three years at a fixed
rate of $2,091 per month with an option for an additional three years at a rate
of $2,510 per month. The facility is approximately 2,500 square feet in size and
is located in the primary downtown business district in Madera. The foregoing
description of the lease is qualified by reference to the lease agreement dated
May 13, 1996 and attached as exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996.

         Rent expense under all operating lease agreements was $636,000, 
$528,000 and $540,000, for the years ended December 31, 1998, 1997 and 1996, 
respectively.



                                       13
<PAGE>



         At December 31, 1998, the aggregate minimum future lease commitments 
under capital leases and noncancelable operating leases with terms of one 
year or more consist of the following (in thousands):

<TABLE>
<CAPTION>
                                       CAPITAL LEASES                  OPERATING LEASES
<S>                                    <C>                             <C>
  1999                                         $   48                             $ 573
  2000                                             76                               544
  2001                                             76                               492
  2002                                             76                               492
  2003                                             76                               492
  Thereafter                                    2,450                             4,294
                                               ------                           -------
  Total minimum lease payments                  2,802                           $ 6,887
  Amount representing interest                 (2,255)                          -------
                                               ------                           -------
                                               ------                           
  Net present value of minimum
     lease payments                            $  547
                                               ------                            
</TABLE>

Item 3.           LEGAL PROCEEDINGS

         There are no material proceedings adverse to the Company or the Bank to
which any director, officer, affiliate of the Company or 5 percent shareholder
of the Company or the Bank, or any associate of any such director, officer,
affiliate or 5 percent shareholder of the Company or Bank is a party, and none
of the above persons has a material interest adverse to the Company or the Bank.

         Neither the Company nor the Bank is a party to any pending legal or
administrative proceedings (other than ordinary routine litigation incidental to
the Company's or the Bank's business) and no such proceedings are known to be
contemplated.

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

            No matters were submitted to a vote of security holders during the
fourth quarter of 1998.



                                       14
<PAGE>



                                     PART II

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

(a)      MARKET INFORMATION

         In May 1998, the Company's Stock began trading on the Nasdaq National
Market System under the symbol REFN. Prior to that date there was limited
trading in and no established public market for the Company's Common Stock.
Hoefer & Arnett, Incorporated, Sutro & Co., Banc Stock Exchange and Van Kasper &
Company act as market makers and facilitate trades in the Company's Common
Stock. Based on information provided by Nasdaq and the aforementioned market
makers, the range of high and low bids for the Company's Common Stock for the
two most recent fiscal years are set forth below. Such bid prices represent
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.


<TABLE>
<CAPTION>
         CALENDAR YEAR                    LOW                  HIGH
<S>                                    <C>                   <C>
         1997
         First Quarter                  9.125                10.625
         Second Quarter                 9.000                10.000
         Third Quarter                  8.250                10.125
         Fourth Quarter                 9.250                11.000
         1998
         First Quarter                 10.250                14.875
         Second Quarter                13.625                14.625
         Third Quarter                 11.000                16.125
         Fourth Quarter                12.937                14.812
</TABLE>

The bid price for the Company's Common Stock was $14.50 as of March 10, 1999.

(b)      HOLDERS

         As of March 10, 1999, there were approximately 650 holders of the
Common Stock of the Company. There are no other classes of common equity
outstanding.

(c)      DIVIDENDS

         The Company's shareholders are entitled to receive dividends when 
and as declared by its Board of Directors, out of funds legally available 
therefor, subject to the restrictions set forth in the California General 
Corporation Law (the "Corporation Law"). The Corporation Law provides that a 
corporation may make a distribution to its shareholders if the corporation's 
retained earnings equal at least the amount of the proposed distribution. The 
Corporation Law further provides that, in the event that sufficient retained 
earnings are not available for the proposed distribution, a corporation may 
nevertheless make a distribution to its shareholders if it meets two 
conditions, which generally stated are as follows: (1) the corporation's 
assets equal at least 1-1/4 times its liabilities; and (2) the corporation's 
current assets equal at least its current liabilities or, if the average of 
the corporation's earnings before taxes on income and before interest 
expenses for the two preceding fiscal years was less than the average of the 
corporation's 



                                       15
<PAGE>

interest expenses for such fiscal years, then the corporation's current 
assets must equal at least 1-1/4 times its current liabilities. Funds for 
payment of any cash dividends by the Company would be obtained from its 
investments as well as dividends and/or management fees from the Bank. The 
payment of cash dividends by the Bank is subject to restrictions set forth in 
the California Financial Code (the "Financial Code"). The Financial Code 
provides that banks may not make a cash distribution to its shareholders in 
excess of the lesser of (a) the bank's retained earnings; or (b) the bank's 
net income for its last three fiscal years, less the amount of any 
distributions made by the bank or by any majority-owned subsidiary of the 
bank to the shareholders of the bank during such period. However, a bank may, 
with the approval of the Commissioner, make a distribution to its 
shareholders in an amount not exceeding the greater of (a) its retained 
earnings; (b) its net income for its last fiscal year; or (c) its net income 
for its current fiscal year. In the event that the Commissioner determines 
that the shareholders' equity of a bank is inadequate or that the making of a 
distribution by the bank would be unsafe or unsound, the Commissioner may 
order the bank to refrain from making a proposed distribution.

         The FDIC may also restrict the payment of dividends if such payment 
would be deemed unsafe or unsound or if after the payment of such dividends, 
the Bank would be included in one of the "undercapitalized" categories for 
capital adequacy purposes pursuant to the Federal Deposit Insurance 
Corporation Improvement Act of 1991. Additionally, while the Board of 
Governors has no general restriction with respect to the payment of cash 
dividends by an adequately capitalized bank to its parent holding company, 
the Board of Governors might, under certain circumstances, place restrictions 
on the ability of a particular bank to pay dividends based upon peer group 
averages and the performance and maturity of the particular bank, or object 
to management fees on the basis that such fees cannot be supported by the 
value of the services rendered or are not the result of an arm's length 
transaction.

         During 1998 and 1997, the Company paid no cash dividends. During 
1996, the Company paid four quarterly cash dividends of $.06 per common 
share. There can be no assurance that the Company will pay dividends in the 
future. The determination to pay dividends is subject to regulatory 
restrictions applicable to the Bank and the Company, the financial condition 
of the Bank and the Company and such other factors as the Board of Directors 
of the Company may consider.






                                       16
<PAGE>

Item 6.           SELECTED FINANCIAL DATA

         The following table presents certain consolidated financial information
concerning the business of the Company and the Bank. This information should be
read in conjunction with the Consolidated Financial Statements and the notes
thereto, and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained elsewhere herein.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(In thousands, except
percentages, share and  per share data)              1998           1997          1996         1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                <C>            <C>          <C>           <C>           <C>
OPERATING RESULTS:
Interest income                                    $ 18,636       $15,286      $ 13,227      $12,841       $ 10,708
Interest expense                                      5,452         5,321         4,694        5,092          2,989
                                                    -------        ------         -----        -----          -----
Net interest income                                  13,184         9,965         8,533        7,749          7,719
Provision for credit losses                             375         1,353            -           470            487
                                                    -------        ------         -----        -----          -----
Net interest income after provision
  for credit losses                                  12,809         8,612         8,533        7,279          7,232

Non-interest income                                 $ 2,962       $ 2,687       $ 3,109      $ 1,883        $ 4,026
Non-interest expense                                  9,455        13,406         9,902       12,105          8,327
                                                    -------        ------         -----        -----          -----
Income (loss) before income taxes                     6,316       (2,107)         1,740      (2,943)          2,931
Income taxes (benefit)                                2,643         (833)           732      (1,176)          1,195
                                                    -------        ------         -----        -----          -----
Net Income (loss)                                   $ 3,673     $ (1,274)       $ 1,008    $ (1,767)        $ 1,736
                                                    -------        ------         -----        -----          -----
                                                    -------        ------         -----        -----          -----

FINANCIAL CONDITION AND CAPITAL
   YEAR END BALANCES:
Total assets                                      $ 231,967      $198,241     $ 181,058    $ 163,682      $ 155,802
Net loans                                           147,588       126,430        99,770       94,529         89,589
Investments in real estate                                -         4,338        16,926       17,954         16,209
Deposits                                            206,637       176,279       159,802      143,745        137,889
Shareholders' equity                                 22,449        18,734        13,470       12,942         14,327

FINANCIAL CONDITION AND CAPITAL
   AVERAGE BALANCES:
Total assets                                      $ 207,481      $186,243     $ 166,534    $ 160,215      $ 144,734
Net loans                                           137,389       110,025        98,333       91,046         83,230
Investments in real estate                              929        12,538        17,892       17,801         15,667
Deposits                                            183,466       168,296       143,723      142,943        128,288
Shareholders' equity                                 20,218        13,272        13,358       14,948         13,737

FINANCIAL RATIOS:
Return on average assets                              1.77%       (0.68%)         0.61%      (1.10%)          1.20%
Return on average equity                             18.17%       (9.60%)         7.55%     (11.82%)         12.64%
Average equity to average assets                      9.75%         7.13%         8.02%        9.33%          9.49%
Dividend payout ratio                                     -             -        43.33%     (19.93%)          9.50%
Allowance for loan losses to total loans              1.74%         1.71%         1.58%        1.85%          1.69%

EARNINGS (LOSS) PER COMMON SHARE:
Basic                                                $ 1.40       $ (.68)         $ .55      $ (.98)         $ 1.00
Diluted                                              $ 1.31       $ (.68)         $ .54      $ (.98)          $ .94
SHARES ON WHICH EARNINGS (LOSS) PER
  COMMON SHARE WERE BASED:
Basic                                             2,624,000     1,860,000     1,818,000    1,805,000      1,734,000
Diluted                                           2,800,000     1,860,000     1,872,000    1,805,000      1,841,000
CASH DIVIDENDS DECLARED PER COMMON SHARE:                 -             -         $0.24        $0.20          $0.10
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       17
<PAGE>

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

         Certain matters discussed or incorporated by reference in this Annual
Report on Form 10-K including, but not limited to, matters described in Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Changes to such risks and uncertainties, which could impact future
financial performance, include, among others, (1) competitive pressures in the
banking industry; (2) changes in the interest rate environment; (3) general
economic conditions, either nationally or regionally; (4) changes in the
regulatory environment; (5) changes in business conditions and inflation; (6)
changes in securities markets; and (7) Year 2000 compliance problems. Therefore,
the information set forth therein should be carefully considered when evaluating
the business prospects of the Company and the Bank.

         OVERVIEW

         The 1998 fiscal year was a year of growth and record profits for
Regency Bancorp. Highlights included overall asset growth of 17.0 percent with
total assets reaching $232.0 million at year end, completion of the divestiture
of RSC's real estate investment assets, a return to profitability with net
income after tax reaching $3.7 million for the year, and, in May the Company's
common stock began trading on the Nasdaq national market system under the symbol
REFN. In September 1998, the Bank received written acknowledgement from the
Federal Deposit Insurance Corporation ("FDIC") and California Department of
Financial Institutions ("CDFI") that the administrative orders issued in
November 1997 had been rescinded. Additionally, the Bank was accepted as a
member of both the Federal Reserve Bank and the Federal Home Loan Bank of San
Francisco.

         For the year ended December 31, 1998, the Company recorded net income
of $3.7 million representing a $4.9 million improvement from a net loss of $1.3
million in 1997 and a $2.7 million increase from income of $1.0 million in 1996.
Record income for 1998 was primarily the result of a decrease in expenses
associated with RSC's divestiture, as well as a significantly larger earning
asset base resulting in greater interest income. The net loss in 1997 was
primarily the result of losses totaling $5.7 million related to the dissolution
of RSC's real estate development activities.

         Earnings per share for 1998 were $1.40 (basic) and $1.31 (diluted),
compared to a net loss per share for 1997 of $.68 (basic and diluted) and net
income per share of $.55 (basic) and $.54 (diluted) in 1996. For the year ended
December 31, 1998, return on average assets and average equity were 1.77 and
18.17 percent, respectively. Shareholders' equity increased in 1998 by $3.7
million or 19.8 percent, primarily as a result of income generated by the
Company's subsidiaries. Shareholders' equity increased by $5.3 million during
1997 primarily as a result of the Company's capital offering offset by the net
loss for the year. The Company's ratio of common shareholders' equity to total
assets was 9.7 percent at December 31, 1998, compared to 9.5 percent at December
31, 1997 and 7.4 percent at December 31, 1996. The Company's and Bank's levels
of risk based capital to assets were considered "well capitalized" at year-end.

                                       18
<PAGE>

         During 1998, the Company effectively completed divestiture of RSC's 
real estate holdings reducing the Company's investment in real estate from 
$4.1 million at December 31, 1997 to zero at year-end 1998. At December 31, 
1996 the Company's investment in real estate was $16.3 million. The 
elimination of nonperforming real estate assets had a significant effect on 
the Company's overall increase in earning assets and an improved ratio of 
earning assets to total assets. For the year ended December 31, 1998, the 
Company's ratio of average earning assets to average total assets was 90.3 
percent, compared to 83.9 percent in 1997 and 79.5 percent in 1996. The 
higher levels of earning assets achieved in 1998 were a significant reason 
for the increase in interest income, and subsequently the increase in overall 
net income achieved during 1998.

         NET INTEREST INCOME

         The Company's operating results depend primarily on net interest 
income (the difference between the interest earned on loans, investment 
securities and federal funds sold less interest expense on deposit accounts 
and borrowings). A primary factor affecting the level of net interest income 
is the Company's interest rate margin, the difference between the yield 
earned on interest-earning assets and the rate paid on interest-bearing 
liabilities, as well as the difference between the relative amounts of 
average interest-earning assets and interest-bearing liabilities.

         The following table presents, for the years ended December 31, 1998, 
1997 and 1996, the Company's total dollar amount of interest income from 
average interest-earning assets and the resultant yields, as well as the 
interest expense on average interest-bearing liabilities and the resultant 
cost, expressed both in dollars and rates. The table also sets forth the net 
interest income and the net earning asset balances for the periods indicated.

                                       19
<PAGE>

CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND INTEREST RATES

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                1998                          1997                           1996               
--------------------------------------------------------------------------------------------------------------------------------
(In thousands, except               AVERAGE    YIELD/   INTEREST   AVERAGE   YIELD/   INTEREST   AVERAGE    YIELD/   INTEREST   
percentages)                        BALANCE     RATE               BALANCE    RATE               BALANCE     RATE               
--------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>      <C>       <C>        <C>      <C>       <C>         <C>      <C>        
ASSETS:                                                                                                                         
Interest-earning assets:                                                                                                        
Loans  (1)                         $ 139,891    11.29%  $ 15,793  $ 111,891   11.18%   $12,506  $ 100,052    11.25%  $ 11,255   
Investment securities  (2)            39,149     6.17%     2,416     35,879    6.49%     2,328     29,013     6.22%     1,805   
Federal funds sold & other             8,304     5.14%       427      8,417    5.36%       452      3,254     5.13%       167   
--------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets        187,344     9.95%    18,636    156,187    9.79%    15,286    132,319    10.00%    13,227   
--------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets:                                                                                                     
Allowances for credit losses          (2,502)                        (1,866)                       (1,719)                      
Cash and due from banks               11,629                          9,562                         8,482                       
Real estate investments                  929                         12,538                        17,518                       
Other real estate owned                  673                            462                           374                       
Premises and equipment, net            1,649                          2,041                         2,296                       
Cash surrender value of                                                                                                         
  life insurance                       3,104                          2,965                         2,829                       
Accrued interest receivable                                                                                                     
  and other assets                     4,655                          4,354                         4,435                       
--------------------------------------------------------------------------------------------------------------------------------
Total average assets               $ 207,481                      $ 186,243                     $ 166,534                       
--------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND                                                                                                                 
SHAREHOLDERS' EQUITY:                                                                                                           
Interest-bearing liabilities:                                                                                                   
Transaction accounts                $ 50,218     2.32%   $ 1,166   $ 50,240    2.52%   $ 1,264   $ 46,237     2.67%   $ 1,235   
Savings accounts                      42,223     3.85%     1,625     34,150    4.09%     1,397     25,327     4.18%     1,058   
Time deposits                         47,923     5.34%     2,557     47,223    5.47%     2,580     41,791     5.36%     2,241   
Federal funds purchased                                                                                                         
  and other                              874    11.94%       104      3,104    2.58%        80      6,795     2.36%       160   
--------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing                                                                                                          
  liabilities                        141,238     3.86%     5,452    134,717    3.95%     5,321    120,150     3.91%     4,694   
--------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing                                                                                                             
liabilities:                                                                                                                    

Transaction accounts                  43,102                         36,683                        30,369                       
Other liabilities                      2,923                          1,571                         2,657
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities                     46,025                        172,971                       153,176                       
--------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:                                                                                                           
Common stock                          15,176                          9,202                         8,868                       
Retained earnings                      4,818                          4,029                         4,529                       
Accumulated other                                                                                                               
  comprehensive income                   224                             41                          (39)                       
--------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity            20,218                         13,272                        13,358                       
--------------------------------------------------------------------------------------------------------------------------------
Total average liabilities and                                                                                                   
  shareholders' equity             $ 207,481                      $ 186,243                     $ 166,534                       
--------------------------------------------------------------------------------------------------------------------------------
Net interest income                                     $ 13,184                       $ 9,965                        $ 8,533   
--------------------------------------------------------------------------------------------------------------------------------
Interest income as a                                                                                                            
  percentage of average                                                                                                         
  interest-earning assets                        9.95%                         9.79%                         10.00%             
Interest expense as a                                                                                                           
  percentage of average                                                                                                        
  interest-earning assets                        2.91%                         3.41%                          3.55%             
--------------------------------------------------------------------------------------------------------------------------------
Net interest  margin                             7.04%                         6.38%                          6.45%             
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Loan amounts include nonaccrual loans, but the related interest income has
been included only for the period prior to the loan being placed on a nonaccrual
basis. Loan interest income includes loan fees of approximately $1,331,000,
$1,252,000 and $1,232,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.

(2) Applicable nontaxable securities yields have not been calculated on a
taxable-equivalent basis

                                       20
<PAGE>

         Changes in the net interest income can be attributed to changes in 
the yield on interest-earning assets, the rate paid on interest-bearing 
liabilities, as well as changes in the volume of interest-earning assets and 
interest-bearing liabilities. The following table presents the dollar amount 
of certain changes in interest income and expense for each major component of 
interest-earning assets and interest-bearing liabilities and the difference 
attributable to changes in average rates and volumes for the periods 
indicated.

         VOLUME/RATE  ANALYSIS

<TABLE>
<CAPTION>
(In thousands)                                              1998 - 1997                       1997 - 1996
--------------------------------------------------------------------------------------------------------------------
                                                  Volume         Rate      Total      Volume        Rate      Total
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>      <C>         <C>           <C>      <C>
NET INTEREST EARNINGS VARIANCE ANALYSIS: (1)

Increase (decrease) in interest income:
Loans                                            $ 3,160          127    $ 3,287     $ 1,323        (72)      1,251
Investment securities  (2)                           190        (102)         88         443          80        523
Federal funds sold and other                         (6)         (19)       (25)         277           8        285
--------------------------------------------------------------------------------------------------------------------
Total                                            $ 3,344            6    $ 3,350     $ 2,043          16    $ 2,059
--------------------------------------------------------------------------------------------------------------------

Increase (decrease) in interest expense:
Transaction accounts                                 (1)         (97)       (98)          88        (59)         29
Savings accounts                                     304         (76)        228         360        (21)        339
Time deposits                                         40         (63)       (23)         295          44        339
Federal funds purchased and other                    (6)           30         24        (97)          17       (80)
--------------------------------------------------------------------------------------------------------------------
Total                                                337        (206)        131         646        (19)        627
--------------------------------------------------------------------------------------------------------------------
Increase in net interest income                  $ 3,007          212    $ 3,219     $ 1,397          35    $ 1,432
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) A change due to both volume and rate has been allocated to the change in
volume and rate in proportion to the relationship of the dollar amount of the
change in each.

(2) Changes calculated on nontaxable securities have not considered tax
equivalent effects.

         Total interest income increased $3.4 million or 21.9 percent in 1998 to
$18.6 million. During 1997, interest income increased $2.1 million or 15.6
percent to $15.3 million. Interest expense in 1998 increased $131,000 or 2.4
percent to $5.5 million from $5.3 million in 1997. In 1997, interest expense
increased by $627,000 or 13.4 percent. One of the primary reasons for the
Company's increased profitability in 1998 was the increase in net interest
income. Net interest income for 1998 increased by $3.2 million or 32.3 percent.
The Company's net interest margin increased to 7.04 percent in 1998 from 6.38
percent in 1997 and 6.45 percent in 1996. The higher margin for 1998 resulted
from a higher percentage of loans to earning assets and a recovery of nonaccrued
interest on loans RSC had carried on its books for several years. Management
expects the net interest margin will return to more normalized levels in 1999.

         Average interest-earning assets increased by $31.2 million in 1998 to
$187.3 million compared to $156.2 million in 1997 and $132.3 million in 1996.
For the year ended December 31, 1998, growth in average interest earning assets
was paced by growth in average loans outstanding of 25.0 percent, growth in
average investments of 9.1 percent, and a decline in average federal funds sold
of 1.4 percent. Average interest bearing liabilities grew by 4.8 percent overall
in 1998 with the majority of growth occurring in the Bank's preferred savings
product, which experienced an increase of $8.1 million or 23.6 percent. The
other subcategories of deposits had only minor growth or, as was the case of
Federal Funds purchased, a decline on average for the year.

         For the year ended December 31, 1997, average interest-earning assets
increased $23.9 million to $156.2 million, compared to $132.3 million in 1996.
In 1997, growth in average interest earning assets was spread over all earning
asset categories with federal funds sold increasing 158.7 

                                       21
<PAGE>

percent, investments increasing 23.7 percent and loans increasing 11.8 
percent. Average interest bearing liabilities grew by $14.6 million in 1997 
to $134.7 million from $120.2 million in 1996. All major interest bearing 
liability categories grew during 1997 with the exception of federal funds 
purchased. Of note in 1997 was a substantial reduction in Federal Funds 
purchased and other borrowings. During 1997, the Company was able to retire 
all debt incurred as a result of the acquisition of limited partnership 
properties involving RSC.

         NONINTEREST INCOME

         The Company receives a significant portion of its income from
noninterest sources related both to activities conducted by the Bank (loan
originations, servicing and depositor service charges), as well as from RIA
(income from investment management services). The following table presents the
dollar amount of the Company's noninterest income for the years ended December
31, 1998, 1997 and 1996 respectively.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(In thousands)                                                 1998                   1997                     1996
--------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                   <C>                      <C>
NONINTEREST INCOME:
Gain on sale of loans                                          $356                   $608                  $ 1,315
Depositor service charges                                       500                    397                      338
Income from investment management services                      916                    810                      682
Gain  (loss) on sale of securities                               15                   (19)                        -
Gain on sale of premises & equipment                              4                    252                       18
Servicing fees on loans sold                                    119                    329                      322
Other                                                         1,052                    310                      434
--------------------------------------------------------------------------------------------------------------------
TOTAL                                                        $2,962                $ 2,687                  $ 3,109
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         NONINTEREST INCOME 1998 VS. 1997

         Noninterest income increased $275,000 or 10.2 percent in 1998 to 
$2.96 million. The increase was primarily the result of an increase of 
$742,000 in other income resulting from recoveries of previously charged off 
investments in real estate and loans made by Regency Service Corporation of 
$739,000. Additional noninterest income categories reflecting an increase in 
1998 included: depositor service charges, up $103,000 primarily as a result 
of growth in the Company's deposit base; income from RIA investment 
management services, up $106,000 as a result of increased assets under 
management; and gains on the sale of securities, up $34,000. Noninterest 
income categories with decreased income in 1998 were led by gain on sale of 
loans with a decline of $252,000. Gain on sale of loans declined primarily as 
a result of lower amounts of SBA loans sold throughout the year. The majority 
of the income in this category in 1998 was the result of newly originated 
mortgage loans generated by the Bank. Additional noninterest income 
categories declining in 1998 included: gain on sale of premises and 
equipment, down $248,000; and servicing fees on loans sold, down $210,000. 
During 1997, the Company recognized a gain on the sale of certain facilities 
resulting in greater than normal gain from the sale of premises & equipment. 
The Company generally does not sell non-financial assets, consequently, 
1997's gain of $252,000 was a nonrecurring event and 1998's reduced income 
in this category should be more reflective of future income in this category. 
Income from servicing fees on loans sold is dependent on the volume of loans 
serviced and the speed at which serviced loans pre-pay their principal 
balances. The Company's overall servicing portfolio declined in 1998 as older 
loans in the servicing portfolio paid off while new loans originated were 
held on the Company's balance sheet rather than sold and serviced. The 
decline in portfolio size combined with the amortization of the 
future-servicing asset 

                                       22
<PAGE>

associated with a number of loans that paid off at an accelerated rate 
combined to reduce income in this category.

         NONINTEREST INCOME 1997 VS. 1996

         For the year ended December 31, 1997, noninterest income decreased
$422,000 or 13.6 percent to $2.7 million from $3.1 million in 1996. The overall
decrease in noninterest income was primarily the result of decreased income from
the sale of loans. For the year, gains on the sale of loans were down $707,000,
primarily as a result of the Company's decision to retain the guaranteed portion
of SBA loans originated to increase interest income, rather than sell the
guaranteed portion to generate immediate noninterest income. Additional
noninterest income categories reflecting declines in 1997 included: gain (loss)
on sale of investments down $19,000 from 1996; and other income declining
$124,000. The decline in other noninterest income was primarily a result of a
decrease in broker fees of $84,000. Noninterest income categories reflecting an
increase in 1997 included: gain on sale of premises & equipment, up $234,000 as
a result of the Company's recognition of the gain associated with the sale of
certain facilities; depositor service fee income, up $59,000 primarily as a
result of growth in the Bank's deposit base; income from RIA investment
management services, up $128,000 as a result of a larger asset base under
management; and servicing fee income, up $7,000 as a result of a larger
servicing portfolio of loans.

         REGENCY INVESTMENT ADVISORS

                  As described above, Regency Investment Advisors is a wholly 
owned subsidiary of Regency Bancorp providing investment management and 
consulting services on a fee only basis. Revenue from RIA is primarily a 
result of fees generated from assets under management. At December 31, 1998, 
RIA's assets under management were $110.3 million, a 27.5 percent increase 
from assets under management of $86.5 million at December 31, 1997. During 
1997, assets under management increased $9.3 million or 12.0 percent from 
$77.2 million at December 31, 1996. Assets in client accounts managed by RIA 
are not reflected in the consolidated assets of the Company.

Revenue from RIA's operations increased $106,000 or 13.1 percent in 1998 to 
$916,000 from $810,000 in 1997. In 1996, revenue from investment management 
services was $682,000. The increased revenue over the past two years was 
primarily the result of a larger asset base managed by RIA. On a stand alone 
basis, RIA provided the Company with pre-tax net income of $217,000, $181,000 
and $55,000 in the years ended December 31, 1998, 1997 and 1996, respectively.

                                       23
<PAGE>

         NONINTEREST  EXPENSE 

         Noninterest expense reflects the costs of products, services, systems,
facilities and personnel for the Company. The following table presents the
Company's noninterest expense, stated both as dollars and as a percentage of
average assets, for the years ended December 31, 1998, 1997 and 1996
respectively.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(In thousands, except percentages)                   1998                    1997                    1996
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>        <C>           <C>        <C>       <C>            <C>
NONINTEREST EXPENSE:
Salaries and related benefits                    $5,134      2.47%        $4,782     2.57%     $4,561         2.74%
Occupancy                                         1,559       .75%         1,639      .88%      1,568          .94%
FDIC insurance and regulatory assessments           270       .13%           120      .06%         63          .04%
Marketing                                           475       .23%           450      .24%        428          .26%
Professional services                               684       .33%           461      .25%        749          .45%
Directors' fees and expenses                        219       .11%           270      .15%        383          .23%
Management fees for real estate projects              -          -           120      .07%        488          .29%
Supplies, telephone and postage                     312       .15%           329      .18%        349          .21%
(Gain) loss  from investments in real estate       (171)    (.08%)         3,973     2.13%        351          .21%
Other                                               973       .47%         1,262      .68%        962          .58%
--------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE                        $9,455      4.56%      $ 13,406     7.20%     $9,902         5.95%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         NONINTEREST EXPENSE 1998 VS. 1997

         Noninterest expenses decreased by $3.95 million or 29.5 percent to $9.5
million in 1998 from $13.4 million in 1997. The 1998 decrease in noninterest
expense resulted from a gain experienced by RSC on investments in real estate of
$171,000, compared to a loss of $3.97 million during 1997. When compared to
average assets for the respective periods, noninterest expense decreased to 4.56
percent from 7.20 percent.

         Additional noninterest expense categories reflecting a decrease for the
year included: occupancy expense, down $80,000 to $1.6 million primarily as a
result of lower amounts of depreciation on fixed assets; director's fees and
expense, down $51,000 to $219,000 as a result of reduced board fees and a
streamlined meeting schedule; management fees for real estate projects, down
$120,000 to zero as a result of the cancellation of RSC's third party management
contract; and other noninterest expense, down $289,000. In 1997, other expense
was abnormally high due to expenses related to the charge-off of accounts
receivable at RSC. No similar expense occurred in 1998.

         Noninterest expense categories reflecting an increase in 1998 included;
salaries and related benefits, up $352,000 or 7.4 percent due primarily to an
increase in bonuses paid under the Company's incentive compensation plan; FDIC
insurance and regulatory assessments, up $150,000 or 125.0 percent as a result
of the regulatory orders the Bank was under until September 1998; marketing, up
25,000 or 5.6 percent primarily as a result of increased radio advertising; and
professional services, up $223,000 or 48.4 percent as a result of increased
legal expense related to the Company's capital offering, Nasdaq listing,
regulatory orders, as well as, increased audit expense related to the Bank's
regulatory orders and increased consulting expense related to the Company's Year
2000 project. Management expects the expense categories of FDIC insurance and
professional services will be reduced in 1999 with the termination of the Bank's
regulatory orders and the nonrecurring professional fees related to the
Company's capital offering and Nasdaq listing.

                                       24
<PAGE>

         NONINTEREST EXPENSE 1997 VS. 1996

         Noninterest expenses increased by $3.5 million to $13.4 million in 1997
from $9.9 million in 1996. This increase was a significant contributing factor
to the Company's overall net loss for the year. The primary cause of the
increase in noninterest expense came as a result of losses associated with RSC's
divestiture of investments in real estate, which increased by $3.6 million in
1997. When compared to average assets for the respective periods, noninterest
expense increased to 7.20 percent from 5.95 percent.

         Additional noninterest expense categories increasing in 1997 included:
salaries and related benefits, up $222,000 or 4.9 percent to $4.8 million,
primarily as a result of higher commissions paid to staff on incentive based
compensation; occupancy expense, up $72,000 to $1.6 million, primarily as a
result of a full year's rental expense related to the Bank's Madera office
(opened in late 1996), as well as higher maintenance and utility expense; FDIC
insurance and regulatory assessments, up $57,000 to $120,000, primarily as a
result of the administrative orders issued to the Bank and lower capital levels
at the mid-year assessment period; and other expenses, up $299,000 to $1.3
million, primarily as a result of a one-time expense related to the write-off of
an unsecured account receivable held by RSC.

         Noninterest expense categories that decreased in 1997 compared to 1996
included: professional services, down $288,000 to $461,000, primarily as a
result of lower legal and accounting expenses related to RSC; and management
fees paid for real estate projects, down $368,000 to $120,000 as a result of a
restructured management contract with RSC's project manager. Additionally,
supplies, telephone and postage declined by $21,000 in 1997.

         REGENCY SERVICE CORPORATION

         As described above, Regency Service Corporation is a wholly owned
subsidiary of Regency Bank and has engaged in real estate development activities
primarily in the Fresno/Clovis area since 1986.

         For the year ended December 31, 1998, RSC experienced a gain from sales
of real estate in the amount of $171,000 compared to a loss of $4.0 million for
the year ended December 31, 1997, and a loss of $351,000 for the year ended
December 31, 1996. The gain in 1998 resulted from the sale of several properties
which had previously been written down to reflect RSC's anticipated sales
proceeds. For the year ended December 31, 1998, on a stand alone basis, RSC's
activities (including gains from the sale of properties, recoveries of RSC's
provision for real estate losses and credit losses, plus operating expenses),
increased the Company's overall pre-tax income by $1.6 million compared to a
decrease of $5.7 million in 1997 and a decrease of $1.5 million in 1996,
respectively.

         BALANCE SHEET ANALYSIS

         For the year ended December 31, 1998, total assets increased by $33.7
million or 17.0 percent to $232.0 million from $198.2 million at December 31,
1997. During 1997, total assets increased by $17.2 million or 9.5 percent, from
$181.0 million at December 31, 1996.

   For 1998, total loans increased $21.5 million or 16.6 percent to $151.2
million from $129.6 million at December 31, 1997, primarily as a result of
growth in the SBA and B&I loan portfolios. 

                                       25
<PAGE>

During 1997, total loans increased $27.3 million or 26.7 percent as a result 
of the Company's decision to hold newly originated SBA loans rather than sell 
the guaranteed portion in the secondary market. Investment securities 
increased 30.2 percent to $48.2 million at December 31, 1998, from $37.0 
million at year-end 1997.

         During 1998, the Company effectively completed divestiture of RSC's 
real estate investments reducing the Company's investment in real estate from 
$4.3 million at December 31, 1997, to zero at year-end 1998. At December 31, 
1996, the Company's investment in real estate was $16.5 million. The 
elimination of nonperforming real estate assets has been a significant cause 
of the Company's overall increase in earning assets and an improved ratio of 
earning assets to total assets. For the year ended December 31, 1998, the 
Company's ratio of average earning assets to average total assets was 90.3 
percent, compared to 83.9 percent in 1997, and 79.5 percent in 1996. The 
higher levels of earning assets was a significant reason for the increase in 
net interest income in 1998 compared to 1997.

         Deposits increased during 1998 by $30.4 million or 17.2 percent to end
the year at $206.6 million. During 1997, deposits increased $16.5 million or
10.3 percent to $176.3 million from $159.8 million at December 31, 1996.
Interest-bearing deposits grew 17.7 percent in 1998 while noninterest-bearing
deposits grew 16.0 percent. Notes payable and capital lease obligations were
little changed during 1998 and represent the capital lease obligation on the
Company's Palm branch facility. During 1997, notes payable decreased 90.7
percent or $4.9 million as the Company paid off all debts related to the
acquisition of real estate properties from RSC's former partners.

         Shareholders' equity increased in 1998 by $3.7 million or 19.8 percent
primarily as a result of income generated by the Company's subsidiaries.
Shareholders equity increased by $5.3 million during 1997 primarily as a result
of the Company's capital offering offset by a net loss for the year.

         INVESTMENT SECURITIES

         The Company maintains a securities portfolio consisting of U.S.
Treasury, U.S. Government agencies and corporations, state and political
subdivisions, asset-backed and other securities. An independent custodian holds
investment securities in safekeeping. The provisions of SFAS No. 115 require,
among other things, that certain investments in debt and equity securities be
classified under three categories: securities held-to-maturity; trading
securities; and securities available-for-sale. Securities classified as
held-to-maturity are to be reported at amortized cost; securities classified as
trading securities are to be reported at fair value with unrealized gains and
losses included in operations; and securities classified as available-for-sale
are to be reported at fair value with unrealized gains and losses excluded from
earnings and reported as a separate component of shareholders' equity, net of
tax. If a security is sold, any gain or loss is recorded as a charge to earnings
and the equity adjustment is reversed. At December 31, 1998, the Bank held $46.9
million in securities classified as available for sale. At December 31, 1998, an
unrealized gain of $220,000, net of taxes of $159,000, related to these
securities, was reflected in shareholders' equity. The Company had no securities
classified as held-to-maturity or as trading securities at December 31, 1998 or
1997, respectively. For more information on investment securities, see Notes 1
and 2 to the consolidated financial statements.

                                      26
<PAGE>

The following table reflects the carrying amount (fair value) of the Company's
investment securities available-for-sale as of December 31, 1998, 1997, and 1996
respectively.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
AVAILABLE -FOR-SALE SECURITIES                  1998                     1997                      1996
-------------------------------------------------------------------------------------------------------------------
(In thousands)                          Amortized         Fair   Amortized         Fair    Amortized          Fair
                                             Cost        Value        Cost        Value         Cost         Value
-------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>       <C>            <C>        <C>             <C>
U.S. Treasuries                           $ 1,003      $ 1,008     $ 2,007      $ 2,012      $ 2,020       $ 2,030
U.S. Government Agencies                   16,434       16,468      17,431       17,489       21,408        21,383
Mortgage-backed Securities                 17,761       17,779      11,541       11,647        7,972         7,948
State and Political Subdivisions           11,166       11,488       5,441        5,624        1,517         1,559
Equity Securities                             247          247         214          214          350           350
-------------------------------------------------------------------------------------------------------------------
                                          $46,611      $46,990    $ 36,634     $ 36,986      $33,267       $33,270
-------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table sets forth the relative maturities and yields of the
Company's available-for-sale securities at December 31, 1998 based on amortized
cost. Weighted average yields have been computed by dividing annual interest
income, adjusted for amortization of premium and accretion of discount, by the
amortized value of the related security. Yields on state and political
subdivision securities have not been calculated on a fully taxable equivalent
basis.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                             AFTER ONE         AFTER FIVE
                                             WITHIN            THROUGH            THROUGH              AFTER
SECURITIES AVAILABLE-FOR-SALE (1)          ONE YEAR         FIVE YEARS          TEN YEARS          TEN YEARS              TOTAL
--------------------------------------------------------------------------------------------------------------------------------
                                   Amount     Yield    Amount    Yield     Amount   Yield    Amount    Yield    Amount    Yield
--------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>         <C>     <C>        <C>      <C>       <C>     <C>        <C>     <C>        <C>
U.S.  Treasuries                  $ 1,003     5.47%         -        -          -       -         -        -   $ 1,003    5.47%
U.S. Government agencies                -         -   $ 1,049    6.11%    $15,385   6.47%         -        -    16,434    6.45%
Mortgage-backed securities              -         -       278    8.47%      1,884   5.91%   $15,599    6.37%    17,761    6.36%
State and political subdivisions      375     5.72%       743    5.96%      1,182   4.46%     8,866    4.84%    11,166    4.90%
Equity Securities                     247     5.55%         -        -          -       -         -        -       247    5.55%
--------------------------------------------------------------------------------------------------------------------------------
TOTAL                             $ 1,625     5.54%   $ 2,070    6.37%    $18,451   6.37%   $24,465    5.82%   $46,611    6.02%
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Yields calculated on nontaxable securities have not considered tax
equivalent effects.

            LOAN  PORTFOLIO

The following table shows the composition of the Company's loan portfolio, by
type of loan, as of December 31, for the years indicated:

<TABLE>
<CAPTION>
LOAN PORTFOLIO COMPOSITION:
-----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS,
EXCEPT PERCENTAGES)           1998               1997               1996                1995               1994
-----------------------------------------------------------------------------------------------------------------------
<S>                      <C>        <C>     <C>        <C>      <C>       <C>     <C>         <C>    <C>         <C>
Commercial               $99,341    65.7%   $ 75,487   58.3%    $56,625   55.4%   $54,150     55.7%  $46,374     50.3%
Real estate:
  Construction            25,192    16.7%     30,128   23.2%     23,640   23.1%    23,706     24.4%   29,857     32.4%
  Real estate mortgage    16,682    11.0%     14,900   11.5%     13,260   12.9%    10,389     10.7%    9,318     10.1%
  Consumer and other       9,936     6.6%      9,120    7.0%      8,778    8.6%     8,892      9.2%    6,559      7.2%
-----------------------------------------------------------------------------------------------------------------------
SUBTOTAL                 151,151     100%    129,635    100%    102,303    100%    97,137      100%   92,108      100%
-----------------------------------------------------------------------------------------------------------------------
Less:
Allowances
   for credit losses       2,631               2,219              1,615             1,784              1,541
Deferred loan fees           492                 363                392               356                542
Unearned discount            440                 623                526               468                436
-----------------------------------------------------------------------------------------------------------------------
TOTAL LOANS, NET        $147,588            $126,430            $99,770           $94,529            $89,589
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                          27

<PAGE>

The following table represents the maturity distribution of the loan portfolio
as of December 31, 1998.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                     AFTER ONE
                                                     WITHIN            THROUGH             AFTER
MATURITY DISTRIBUTION OF LOAN PORTFOLIO            ONE YEAR         FIVE YEARS        FIVE YEARS               TOTAL
---------------------------------------------------------------------------------------------------------------------
<S>                                                <C>              <C>               <C>                   <C>
Loans:
Commercial                                          $28,894            $14,134           $56,313             $99,341
Real estate construction                             23,178              1,530               484              25,192
Real estate mortgage                                  3,115              7,164             6,403              16,682
Consumer and other                                    1,299              2,295             6,342               9,936
---------------------------------------------------------------------------------------------------------------------
TOTAL                                               $56,486            $25,123           $69,542            $151,151
---------------------------------------------------------------------------------------------------------------------
Fixed rate                                            2,217              2,390             2,261               6,868
Variable rate                                        54,269             22,733            67,281             144,283
---------------------------------------------------------------------------------------------------------------------
TOTAL                                               $56,486            $25,123           $69,542            $151,151
---------------------------------------------------------------------------------------------------------------------
</TABLE>

         During 1998, the Bank continued its success in SBA lending, leading the
15 county Fresno SBA district in the dollar volume of loans made for the seventh
consecutive year. In addition, the Bank continued to actively participate in the
U.S. Department of Agriculture Business and Industry Loan program. Business and
Industry loans ("B&I") contain a government guarantee on a portion of the loan
similar to that of an SBA loan guarantee. For the B&I fiscal year ended
September 30, 1998, the Bank was the leading B&I lender in California in new
loans made.

         Commercial loans, including SBA and B&I loans, comprised approximately
65.7 percent of the Company's loan portfolio at December 31, 1998, compared to
58.3 percent at December 31, 1997, primarily as a result of the Bank holding
newly originated SBA and B&I loans in its portfolio rather than selling these
loans on the secondary market. Commercial loans are generally made to small and
mid-size businesses and professionals. Commercial loans are diversified as to
industries and types of business, with no material industry concentrations. Most
of these loans have floating rates based upon underwriting analysis. The primary
source of repayment on most commercial loans is cash flow from the primary
business. Additional collateral in the form of real estate, cash, accounts
receivable, inventory or other financial instruments is often obtained as a
secondary source of repayment.

         Real estate construction lending comprised 16.7 percent of the 
Company's loan portfolio at December 31, 1998, compared to 23.2 percent of 
the Company's loan portfolio at December 31, 1997. These loans are primarily 
made for the construction of single family residential housing. Loans in this 
category may be made to the homebuyer or to the developer. Construction loans 
are secured by deeds of trust on the primary property. The majority of 
construction loans have floating rates based upon underwriting analysis. A 
significant portion of the borrowers' ability to repay these loans is 
dependent upon the sale of the property, which is affected by, among other 
factors, the residential real estate market. In this regard, the Company's 
potential risks include a general decline in the value of the underlying 
property, as well as cost overruns or delays in the sale or completion of a 
property.

         Real estate mortgage loans comprised 11.0 percent of the loan portfolio
at December 31, 1998, compared to 11.5 percent at December 31, 1997. Real estate
mortgage loans are made up of non-residential properties and single-family
residential mortgages. The non-residential loans generally are "mini-perm"
(medium-term) commercial real estate mortgages with maturities under seven
years. The residential mortgages are secured by first trust deeds and have
varying maturities. Both types of loans may have either fixed or floating rates.
The majority are floating. Risks 



                                    28

<PAGE>

associated with non-residential loans include the decline in value of 
commercial property values; economic conditions surrounding commercial real 
estate properties; and vacancy rates. The repayment of single-family 
residential mortgage loans is generally dependent upon the income of the 
borrower from other sources; however, declines in the underlying property 
value may create risk in these loans.

         Consumer loans represented the remainder of the loan portfolio at
December 31, 1998, comprising 6.6 percent of the loan portfolio compared to 7.0
percent of total loans at December 31, 1997. This category includes traditional
Consumer loans, Home Equity Lines of Credit, and Visa Card loans. Consumer loans
are generally secured by third trust deeds on single-family residences or
personal property, while Visa Cards are unsecured.

         RISK ELEMENTS  AND  CONCENTRATIONS

         The Company assesses and manages credit risk on an ongoing basis
through stringent credit review and approval policies, extensive internal
monitoring and established formal lending policies. Additionally, the Bank
contracts with an outside loan review consultant to periodically grade new loans
and to review the existing loan portfolio. Management believes its ability to
identify and assess risk and return characteristics of the Company's loan
portfolio are critical for profitability and growth. Management strives to
continue the historically low level of credit losses by continuing its emphasis
on credit quality in the loan approval process, active credit administration and
regular monitoring. With this in mind, management has designed and implemented a
comprehensive loan review and grading system that functions to continually
assess the credit risk inherent in the loan portfolio. Additionally, management
believes its ability to manage portfolio credit risk is enhanced by the
knowledge of the Bank's service area by the lending personnel and Board of
Directors.

         Generally, loans are secured by various forms of collateral. The loans
are expected to be repaid from income of the borrower or with proceeds from the
sale of assets securing the loans. The Company's loan policy requires sufficient
collateral to meet the Company's relative risk criteria for each borrower. The
Company's collateral mainly consists of real estate, cash, accounts receivable,
inventory and other financial instruments. The Company either maintains
possession of the collateral in safekeeping or perfects a security interest with
the State of California. The Company's largest concentration of loans based on
collateral is in real estate mortgages, including commercial real estate, and
real estate construction lending. A significant portion of its customers'
ability to repay these loans is dependent upon the economic sectors of
residential real estate development and construction. If a significant decline
in real estate property values were to occur in Fresno County, loans associated
with these collateral types could become impaired as to their full
collectability should default occur.

         The Company does not believe there to be any concentration of loans in
excess of 10 percent of total loans, other than those disclosed above, which
would be significantly impacted by economic or other conditions. For further
discussion of the impact of California economic conditions upon the loan
portfolio, see "Allowance for Credit Losses" below.


                                    29

<PAGE>

         NONPERFORMING LOANS

         The Company's current policy is to cease accruing interest when a loan
becomes 90-days past due as to principal or interest; when the full, timely
collection of interest or principal becomes uncertain; or when a portion of the
principal balance has been charged off, unless the loan is well secured and in
the process of collection. When a loan is placed on nonaccrual status, the
accrued and uncollected interest receivable is reversed and the loan is
accounted for on the cash or cost recovery method thereafter, until qualifying
for return to accrual status. Generally, a loan may be returned to accrual
status when all delinquent interest and principal become current in accordance
with the terms of the loan agreement or when the loan is both well secured and
in process of collection.

         At December 31, 1998, nonaccrual loans totaled $1.2 million or .79
percent of total loans, compared to $1.7 million or 1.34 percent at December 31,
1997, and $3.3 million or 3.23 percent at December 31, 1996. The decrease in
total nonaccrual loans was primarily the result of the Company's divestiture of
RSC's real estate development assets including loans made by RSC to facilitate
the divestiture of partnership properties. As of December 31, 1998, RSC had no
loans outstanding. Of the total nonaccrual loans at December 31, 1997, $1.1
million represented loans RSC had made to facilitate the sale of former
partnerships.

         Of the nonaccrual loans at December 31, 1998, $831,000 represented the
portion of SBA loans that are guaranteed by the SBA. Beginning in 1997, the SBA
changed the requirements for banks originating SBA loans, which are subsequently
sold in the secondary market. Under the current requirement, if a borrower
defaults on a SBA guaranteed loan, the originating bank is required to buy the
guaranteed portion back and hold it in its portfolio until collection efforts
are exhausted. While this guaranteed portion is backed by the full faith and
credit of the U.S. government and poses little risk of loss to the Bank, the
Bank does incur loss of the use of the funds while awaiting payoff from the SBA
or other loan collateral. Expense from the loss of use of the funds is expected
to be minimal; however, due to this requirement it is expected that the Bank's
SBA non-accrual loan levels will be slightly higher than in prior years.

         The gross interest income that would have been recorded for loans
placed on nonaccrual status was $103,000, $254,000 and $276,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.


                                   30

<PAGE>

         The following table reflects the dollar value of various 
nonperforming assets, allowance for credit losses, assets and loans, as well 
as various nonperforming asset ratios as of December 31, 1998, 1997, 1996, 
1995 and 1994, respectively.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(In thousands, except percentages)                   1998          1997           1996          1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>             <C>            <C>            <C>
NONPERFORMING ASSETS:
Nonaccrual RSC loans                                   $-       $ 1,138        $ 3,250          $505             $-
Nonaccrual Bank loans                               1,197           598             51            76            391
--------------------------------------------------------------------------------------------------------------------
Nonperforming loans                                 1,197         1,736          3,301           581            391
Other real estate owned                               684           503            437           341            299
--------------------------------------------------------------------------------------------------------------------
Total nonperforming assets                          1,881         2,239          3,738           922            690
--------------------------------------------------------------------------------------------------------------------
Accruing loans 90 days past due                        16            48             19           725             58
--------------------------------------------------------------------------------------------------------------------
Total loans before allowance for losses          $151,151     $ 129,635       $102,303       $97,137        $91,130
Total assets                                      231,967       198,241        181,058       163,682        155,802
Allowance for possible credit losses              (2,631)       (2,219)        (1,615)       (1,784)        (1,541)
--------------------------------------------------------------------------------------------------------------------
RATIOS:
Nonperforming loans to total loans                   .79%         1.34%          3.23%          .60%           .43%
Nonperforming loans to total loans
  (excluding RSC loans)                              .79%          .46%           .05%          .08%           .43%
Nonperforming assets to:
   Total loans                                      1.24%         1.73%          3.65%          .95%           .76%
   Total loans and OREO                             1.24%         1.73%          3.64%          .95%           .75%
   Total assets                                      .81%         1.13%          2.06%          .56%            44%
Allowance for possible credit losses to
   total nonperforming assets                     139.91%        99.11%         43.20%        193.5%         223.3%
Allowance for possible credit losses to loans       1.74%         1.71%          1.58%         1.85%          1.69%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         Management is not aware of any potential problem loans which were
accruing and current at December 31, 1998, where serious doubt exists as to the
ability of the borrower to comply with present repayment terms.

         ALLOWANCE FOR CREDIT LOSSES

         The allowance for credit losses reflects management's judgment as to
the level which is considered adequate to absorb potential losses inherent in
the loan portfolio. This allowance is increased by provisions charged to expense
and reduced by loan charge-offs net of recoveries. Management determines an
appropriate provision based on information currently available to analyze credit
loss potential, including: (1) the loan portfolio growth in the period; (2) a
comprehensive grading and review of new and existing loans outstanding; (3)
actual previous charge-offs; and (4) changes in economic conditions.

         For the year ended December 31, 1998, the Company had net recoveries of
$37,000 or (.03) percent of average loans. The net recoveries in 1998 were the
result of net charge-offs of $105,000 on the Bank's loan portfolio, offset by
recoveries of $142,000 on RSC's loan portfolio. During 1997, net charge-offs
totaled $749,000 with $148,000 in net charge-offs attributable to the Bank and
$601,000 attributable to RSC's real estate development divestiture activities.
Net charge-offs during 1996 were $169,000.


                                     31

<PAGE>

The following table reflects loan charge-off and recovery activity for the 
Bank and RSC respectively, as well as on a consolidated basis, for the years 
indicated:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(In thousands)                                      1998          1997           1996          1995            1994
--------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>            <C>           <C>             <C>
Charge-offs:
   Bank                                           $(217)        $(294)         $(258)        $(265)          $(313)
   RSC                                                 -         (601)              -             -               -
--------------------------------------------------------------------------------------------------------------------
Total charge-offs                                  (217)         (895)          (258)         (265)           (313)
--------------------------------------------------------------------------------------------------------------------
Recoveries:
   Bank                                              112           146             89            38              29
   RSC                                               142             -              -             -               -
--------------------------------------------------------------------------------------------------------------------
Total recoveries                                     254           146             89            38              29
--------------------------------------------------------------------------------------------------------------------
Net charge-offs
   Bank                                            (105)         (148)          (169)         (227)           (284)
   RSC                                               142         (601)              -             -               -
--------------------------------------------------------------------------------------------------------------------
Total  net recoveries (charge-offs)                $  37        $(749)         $(169)        $(227)          $(284)
--------------------------------------------------------------------------------------------------------------------
Net recoveries (charge-offs) to average
loans outstanding
   Bank Only                                        .08%          .14%           .17%          .24%            .34%
   Total                                          (.03%)          .66%           .17%          .24%            .34%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

         The Company's allowance for credit losses totaled $2.6 million or 1.74
percent of total loans at December 31, 1998, compared to $2.2 million or 1.71
percent of total loans at December 31, 1997, and $1.6 million or 1.58 percent at
December 31, 1996. It is the policy of management to maintain the allowance for
credit losses at a level deemed adequate for known and currently anticipated
future risks inherent in the loan portfolio. Based on information currently
available to analyze credit loss potential, including economic factors, overall
credit quality, historical delinquency and a history of actual charge-offs,
management believes that the credit loss provision and allowance is adequate.
However, no prediction of the ultimate level of loans charged-off in future
years can be made with any certainty.

         Although management is of the opinion that the allowance for credit
losses is maintained at an adequate level for known and currently anticipated
future risks inherent in the loan portfolio, the Fresno economy and its real
estate market remain important factors when assessing risk. The Bank's loan
portfolio could be adversely affected if economic conditions and the real estate
market in the Bank's market area deteriorate. The effect of such events,
although uncertain at this time, could result in an increase in the level of
nonperforming loans and OREO and the level of the allowance for credit losses,
which could adversely affect the Company's and the Bank's future growth and
profitability.


                                    32

<PAGE>

Following is a table presenting the activity within the Company's allowance for
credit losses for the period between December 31, 1994 and December 31, 1998.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
(In thousands)                                      1998          1997           1996          1995            1994
--------------------------------------------------------------------------------------------------------------------
<S>                                              <C>           <C>            <C>           <C>             <C>
Balance, (beginning of year)                     $ 2,219       $ 1,615        $ 1,784       $ 1,541         $ 1,338
Provision charged to expense                         375         1,353              -           470             487
--------------------------------------------------------------------------------------------------------------------
Charge-offs:
  Commercial                                       (118)         (132)          (193)         (211)           (259)
  Real estate construction                          (64)         (663)              -           (8)               -
  Real estate mortgage                                 -             -              -             -               -
  Consumer and other                                (35)         (100)           (65)          (46)            (54)
--------------------------------------------------------------------------------------------------------------------
Total Charge-offs                                  (217)         (895)          (258)         (265)           (313)
--------------------------------------------------------------------------------------------------------------------
Recoveries:
  Commercial                                          40           122             76            37              27
  Real Estate construction                           203             -              -             -               2
  Real estate mortgage                                 -             -              -             -               -
  Consumer and other                                  11            24             13             1               -
--------------------------------------------------------------------------------------------------------------------
Total Recoveries                                     254           146             89            38              29
--------------------------------------------------------------------------------------------------------------------
Net recoveries (charge-offs)                          37         (749)          (169)         (227)           (284)
--------------------------------------------------------------------------------------------------------------------
Balance, (end of year)                           $ 2,631       $ 2,219        $ 1,615       $ 1,784         $ 1,541
--------------------------------------------------------------------------------------------------------------------
Net (recoveries) charge-offs to average
loans outstanding                                 (.03%)          .66%           .17%          .24%            .34%
--------------------------------------------------------------------------------------------------------------------

</TABLE>


The following table represents the allocation of the allowance for loan losses
for the period between December 31, 1994 and December 31, 1998.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                               1998                1997                1996               1995               1994
--------------------------------------------------------------------------------------------------------------------------
                                   Percent             Percent             Percent            Percent              Percent
                                  of loans            of loans            of loans           of loans             of loans
                                   in each             in each             in each            in each              in each
                                  category            category            category           category             category
(In thousands,                    to total            to total            to total           to total             to total
except  percentages)      Amount     loans    Amount     loans    Amount     loans  Amount      loans    Amount      loans
--------------------------------------------------------------------------------------------------------------------------
<S>                      <C>      <C>        <C>      <C>        <C>      <C>       <C>      <C>       <C>        <C>
Commercial               $ 1,301     65.7%   $ 1,184     58.3%   $ 1,069     55.4%  $ 1,005    55.7%   $ 1,001       50.3%
Real estate construction     126     16.7%       506     23.2%       208     23.1%      215    24.4%       135       32.4%
Real estate mortgage         151     11.0%       121     11.5%       100     12.9%       78    10.7%        65       10.1%         
Consumer and other           247      6.6%       226      7.0%       238      8.6%      221     9.2%       184        7.2%
Unallocated                  806         -       182         -         -         -      265        -       156           -
--------------------------------------------------------------------------------------------------------------------------
Total                    $ 2,631    100.0%   $ 2,219    100.0%   $ 1,615    100.0%  $ 1,784   100.0%   $ 1,541      100.0%
--------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                                  33

<PAGE>

DEPOSITS AND SHORT TERM BORROWINGS

         Deposits represent the Bank's primary source of funds for investment.
Deposits are primarily core deposits in that they are demand, savings, and time
deposits generated from local businesses and individuals. These sources are
considered to be relatively more stable, long-term deposit relationships thereby
enhancing steady growth of the deposit base without major fluctuations in
overall deposit balances. The Bank normally experiences a seasonal decline in
deposits in the first quarter of each year. In order to assist in meeting its
funding needs, the Bank maintains a Fed Funds line with a correspondent bank in
the amount of $5.0 million. During 1998, the Bank applied for, and was accepted
as a member of the Federal Home Loan Bank of San Francisco (the " FHLB"). At
December 31, 1998, the Bank held stock in the FHLB which would allow the Bank to
borrow up to $11.5 million using various loans or securities as collateral. In
addition to these borrowing methods, the Bank from time to time uses its
investment portfolio to raise funds through repurchase agreements. The Bank may,
from time to time, obtain additional deposits through the use of brokered time
deposits. As of December 31, 1998, the Bank held no institutional brokered time
deposits. For more information on deposits and other short term borrowings, see
Notes 6 and 7 to the consolidated financial statements.

The following table presents the composition of the deposit mix at December 31,
1994, through December 31, 1998, respectively.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------
                                1998                1997                1996                 1995                  1994
--------------------------------------------------------------------------------------------------------------------------------
(In thousands, except
percentages)               Amount    Percent  Amount    Percent   Amount    Percent    Amount     Percent    Amount    Percent
--------------------------------------------------------------------------------------------------------------------------------
<S>                        <C>       <C>      <C>       <C>       <C>       <C>        <C>        <C>        <C>       <C>
DEPOSITS:
Noninterest-bearing        $ 54,236   26.2%   $ 46,744    26.5%   $ 36,613    22.9%    $ 32,672      22.7%   $ 30,589     22.2%
Interest-bearing
deposits                    101,342   49.1%     85,114    48.3%     73,391    45.9%      75,539      52.6%     72,615     52.7%
Time under  $100,000         17,682    8.6%     15,778     9.0%     19,032    11.9%      12,229       8.5%     12,852      9.3%
Time over $100,000           33,377   16.1%     28,643    16.2%     30,766    19.3%      23,305      16.2%     21,833     15.8%
--------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
  deposits                  152,401   73.8%    129,535    73.5%    123,189    77.1%     111,073      77.3%    107,300     77.8%
--------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS             $206,637    100%   $176,279     100%   $159,802     100%    $143,745       100%   $137,889      100%
--------------------------------------------------------------------------------------------------------------------------------

</TABLE>

The following table represents maturities of time deposits of $100,000 or more
at December 31, 1998.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------------
                                                                         Over Three
                                                Three Months                 Though                   Over
(In thousands)                                       Or Less          Twelve Months          Twelve Months                Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>                   <C>                    <C>                       <C>
Maturities of Time Deposits Greater
Than $100,000                                       $ 15,945               $ 12,480                $ 4,952             $ 33,377
--------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                                        34


<PAGE>

         CAPITAL RESOURCES

         The Company and Bank are subject to various minimum capital
requirements as defined by regulation. For further discussion of the
requirements see "Item 1- Supervision and Regulation", of this report. The
current and projected capital position of the Company and the impact of capital
plans and long-term strategies are reviewed regularly by Management. The
Company's capital position represents the level of capital available to support
continued operations and expansion. The Company's primary capital resource is
shareholders' equity, which increased $3.7 million or 19.8 percent from the
previous year-end and increased $9.0 million or 66.7 percent from December 31,
1996. The ratio of total risk-based capital to risk-adjusted assets was 16.14
percent at December 31, 1998, compared to 13.87 percent at December 31, 1997.
Tier 1 risk-based capital to risk-adjusted assets was 14.89 percent at December
31, 1998, compared to 12.62 percent at December 31, 1997.

         The Board of Governors of the Federal Reserve System and other 
federal banking agencies have adopted risk-based capital guidelines for 
evaluating the capital adequacy of bank holding companies and banks. The 
guidelines are designed to make capital requirements sensitive to 
differences in risk profiles among banking organizations, to take into 
account off-balance sheet exposures and to aid in making the definition 
of bank capital uniform internationally. Under the guidelines, the 
Company and the Bank are required to maintain capital equal to at least 
8.0 percent of its assets and commitments to extend credit, weighted by 
risk, of which at least 4.0 percent, must consist primarily of common 
equity (including retained earnings) and the remainder may consist of 
subordinated debt, cumulative preferred stock, or a limited amount of 
loan loss reserves. Assets, commitments to extend credit and off-balance 
sheet items are categorized according to risk and certain assets 
considered to present less risk than other permit maintenance of capital 
at less than the 8 percent ratio.

         The guidelines establish two categories of qualifying capital: Tier 
1 capital comprising core capital elements and Tier 2 comprising 
supplementary capital requirements. At least one-half of the required capital 
must be maintained in the form of Tier 1 capital. Tier 1 capital includes 
common shareholder's equity and qualifying perpetual preferred stock less 
intangible assets and certain other adjustments. However, no more than 25 
percent of the Company's total Tier 1 capital may consist of perpetual 
preferred stock. The definition of Tier 1 capital for the Bank is the same, 
except that perpetual preferred stock may be included only if it is 
noncumulative. Tier 2 capital includes, among other items, limited life (and 
in the case of banks, cumulative) preferred stock, mandatory convertible 
securities, subordinated debt and a limited amount of reserves for credit 
losses. Effective October 1, 1998 the Board of Governors and other federal 
bank regulatory agencies approved including Tier 2 capital up to 45 percent 
of the pretax net unrealized gains on certain available-for-sale equity 
securities having readily determinable fair values (i.e. the excess, if any, 
of fair market value over the book value or historical cost of the investment 
security). The federal regulatory agencies reserve the right to exclude all 
or a portion of the unrealized gains upon a determination that the equity 
securities are not prudently valued. Unrealized gains and losses on other 
types of assets, such as bank premises and available-for-sale debt 
securities, are not included in Tier 2 capital, but may be taken into account 
in the evaluation of overall capital adequacy and net unrealized losses on 
available-for-sale equity securities will continue to be deducted from Tier 1 
capital as a cushion against risk.

         The Board of Governors and other federal banking agencies have adopted
a revised minimum leverage ratio for bank holding companies as a supplement to
the risk-weighted capital 


                              35
<PAGE>

guidelines. The old rule established a 3 percent minimum leverage standard 
for well-run banking organizations (bank holding companies and banks) with 
diversified risk profiles. Banking organizations which did not exhibit such 
characteristics or had greater risk due to significant growth, among other 
factors, were required to maintain a minimum leverage ratio 1 percent to 2 
percent higher. The old rule did not take into account the implementation of 
the market risk capital measure set forth in the federal regulatory agency 
capital adequacy guidelines. The revised leverage ratio establishes a minimum 
Tier 1 ratio of 3 percent (Tier 1 capital to total assets) for the highest 
rated bank holding companies or those that have implemented the risk-based 
capital market risk measure. All other bank holding companies must maintain a 
minimum Tier 1 leverage ratio of 4 percent higher leverage capital ratios 
required for bank holding companies that have significant financial and/or 
operational weaknesses, a high risk profile, or are undergoing or 
anticipating rapid growth. The old rule remains in effect for banks, however, 
the federal regulatory agencies are currently continuing work on a revised 
leverage rule for banks.

         On December 19, 1991, President Bush signed the Federal Deposit 
Insurance Corporation Improvement Act of 1991 ("FDICIA"). The Board of 
Governors and other federal banking agencies adopted regulations effective 
December 19, 1992, implementing a system of prompt corrective action pursuant 
to Section 38 of the Federal Deposit Insurance Act and Section 131 of the 
FDICIA. The regulations establish five capital categories with the following 
characteristics: (1) "Well capitalized" - consisting of institutions with a 
total risk-based capital ratio of 10 percent or greater, a Tier 1 risk-based 
capital ratio of 6 percent or greater and a leverage ratio of 5 percent or 
greater, and the institution is not subject to an order, written agreement, 
capital directive or prompt corrective action directive; (2) "Adequately 
capitalized" - consisting of institutions with a total risk-based capital 
ratio of 8 percent or greater, a Tier 1 risk-based capital ratio of 4 percent 
or greater and a leverage ratio of 4 percent or greater, and the institution 
does not meet the definition of a "well capitalized" institution; (3) 
"Undercapitalized" - consisting of institutions with a total risk-based 
capital ratio less than 8 percent, a Tier 1 risk-based capital ratio of less 
than 4 percent, or a leverage ratio of less than 4 percent; (4) 
"Significantly undercapitalized" - consisting of institutions with a total 
risk-based capital ratio of less than 6 percent, a Tier 1 risk-based capital 
ratio of less than 3 percent, or a leverage ratio of less than 3 percent; (5) 
"Critically undercapitalized" - consisting of an institution with a ratio of 
tangible equity to total assets that is equal to or less than 2 percent.

          Financial institutions classified as undercapitalized or below are 
subject to various limitations including, among other matters, certain 
supervisory actions by bank regulatory authorities and restrictions related 
to (a) growth of assets, (b) payment of interest on subordinated 
indebtedness, (c) payment of dividends or other capital distributions, and 
(d) payment of management fees to a parent holding company. The FDICIA 
requires the bank regulatory authorities to initiate corrective action 
regarding financial institutions which fail to meet minimum capital 
requirements. Such action may be taken in order to, among other matters, 
augment capital and reduce total assets. Critically undercapitalized 
financial institutions may also be subject to appointment of a receiver or 
conservator unless the financial institution submits an adequate 
capitalization plan.

                                  36


<PAGE>

         The following tables reflect the Company's and Bank's capital amounts
(in thousands) and ratios for the periods presented and applicable regulatory
capital requirements for such periods:

<TABLE>
<CAPTION>

                                                                                                  TO BE WELL
                                                                     FOR CAPITAL               CAPITALIZED UNDER
                                                                       ADEQUACY                PROMPT CORRECTIVE
                                               ACTUAL                  PURPOSES:              ACTION PROVISIONS:
                                       --------------------------------------------------------------------------------
                                         AMOUNT      RATIO         AMOUNT        RATIO        AMOUNT          RATIO
                                       --------------------------------------------------------------------------------
<S>                                    <C>           <C>         <C>             <C>        <C>          <C>
  AS OF DECEMBER 31, 1998
  Total Capital (to Risk Weighted
  Assets):
    Company                               $22,814      16.14%     >=$11,309      >=8.00%              N/A
    Regency Bank                          $20,047      14.16%     >=$11,327      >=8.00%    >=$ 14,159    >=10.00%

  Tier 1 Capital (to Risk Weighted                             
  Assets):
    Company                              $ 21,042      14.89%     >=$ 5,654      >=4.00%              N/A
    Regency Bank                         $ 18,266      12.90%     >=$ 5,664      >=4.00%     >=$ 8,495    >= 6.00%

  Tier 1 Capital (to Average Assets):
    Company                              $ 21,042       9.22%     >=$ 9,128      >=4.00%              N/A
    Regency Bank                         $ 18,266       8.02%     >=$ 9,108      >=4.00%    >=$ 11,385    >= 5.00%

</TABLE>

<TABLE>
<CAPTION>

                                                                                                  TO BE WELL
                                                                     FOR CAPITAL               CAPITALIZED UNDER
                                                                       ADEQUACY                PROMPT CORRECTIVE
                                               ACTUAL                  PURPOSES:              ACTION PROVISIONS:
                                       --------------------------------------------------------------------------------
                                         AMOUNT      RATIO       AMOUNT        RATIO        AMOUNT          RATIO
                                       --------------------------------------------------------------------------------
<S>                                    <C>           <C>          <C>           <C>         <C>           <C>
  AS OF DECEMBER 31, 1997
  Total Capital (to Risk Weighted
  Assets):
    Company                               $18,779      13.87%     >=$10,828      >=8.00%              N/A
                                          
    Regency Bank                          $16,003      11.79%     >=$10,860      >=8.00%    >=$ 13,576    >=10.00%

  Tier 1 Capital (to Risk Weighted                             
  Assets):
    Company                              $ 17,081      12.62%     >=$ 5,414      >=4.00%              N/A
    Regency Bank                         $ 14,300      10.53%     >=$ 5,430      >=4.00%     >=$ 8,145    >= 6.00%

  Tier 1 Capital (to Average Assets):
    Company                              $ 17,081       8.89%     >=$ 7,686      >=4.00%              N/A
    Regency Bank                         $ 14,300       7.46%     >=$ 7,663      >=4.00%     >=$ 9,579    >= 5.00%

</TABLE>

         The risk-based capital ratios increased in 1998 as the increase in
equity outpaced the growth in total assets. Capital ratios are reviewed on a
regular basis to ensure that capital exceeds the prescribed regulatory minimums
and is adequate to meet the Company's future needs. All ratios are in excess of
the regulatory definition of "well capitalized."

         INFLATION

         The impact of inflation on a financial institution differs 
significantly from that exerted on manufacturing or other commercial 
concerns, primarily because its assets and liabilities are largely monetary. 
In general, inflation primarily affects the Company indirectly through its 
effect on the ability of its customers to repay loans, or its impact on 
market rates of interest, and thus the ability of the Bank to attract loan 
customers. Inflation affects the growth of total assets by increasing the 
level of loan demand, and potentially adversely affects the Company's capital 
adequacy because loan growth in inflationary periods may increase more 
rapidly than capital. Interest rates in 

                                         37

<PAGE>

particular are significantly affected by inflation, but neither the timing 
nor the magnitude of the changes coincides with changes in the Consumer Price 
Index, which is one of the indicators used to measure the rate of inflation. 
Adjustments in interest rates may be delayed because of the possible 
imposition of regulatory constraints. In addition to its effects on interest 
rates, inflation directly affects the Company by increasing the Company's 
operating expenses. The effect of inflation during the three-year period 
ended December 31, 1998 has not been significant to the Company's financial 
position or results of operations.

         OTHER MATTERS

         As discussed in the Company's annual report on Form 10-K for the year
ended December 31, 1997, during the fourth quarter of 1997, the Bank's Board of
Directors consented to administrative orders issued by the FDIC and CDFI. As
reported in the Company's quarterly report on Form 10-Q for the period ended
September 30, 1998, during the third quarter of 1998, the Bank received written
notice from the FDIC and CDFI that both orders had been "terminated" and removed
in their entirety.

         YEAR 2000 READINESS DISCLOSURE

         The inability of most computers, software and other equipment utilizing
microprocessors to distinguish the year 1900 from the year 2000 poses
substantial risks to all financial institutions including the Company. The year
2000 problem is pervasive and complex. Virtually every financial institution
service provider and vendor will have their computing operations affected in
some way by the rollover of the two-digit year value to 00 if action is not
taken to fix the problem before the year 2000 arrives.

         In 1997, the Company initiated a five-phase plan ("Plan") which
includes awareness, assessment, renovation, validation, and implementation. The
Company's Year 2000 Plan addresses the issues associated with the proper
functioning of the Company's computer hardware and software systems before, at,
and after the turn of the century and other date-related systems issues. The
scope of the project covers all computer systems including PC and network
hardware and software, and mainframe and mainframe software. It also covers all
equipment and other systems utilized in the bank operations or in the premises
from which the Company operates. The Company is using the Year 2000 milestones
established to date by the Federal Financial Institutions Examination Council
(FFIEC) to benchmark and gauge its progress.

         Awareness and Assessment Phases - The Company completed the Awareness
and Assessment Phases, as defined by the FFIEC, for its mission critical systems
and facilities in 1997 and continues to update its assessment as needed.
Non-mission critical systems have also been identified and assessed as to Y2K
readiness and plans and timelines for renovation of both mission critical and
non-mission critical systems have been prepared. Management of the Company
reports regularly to the Board of Directors on its Year 2000 efforts.

         Renovation Phase - The FFIEC guideline date for institutions to
substantially complete program changes and system upgrades for mission critical
systems was December 31, 1998. By that date, the Company had completed repairs,
upgrades, or replacements of all hardware and software components with the
exception of one software program supplied by a third party to RIA, the
company's investment advisory subsidiary. The Company expects this one remaining
system to be Year 2000 ready in June of 1999 upon receipt and installation of
its scheduled 

                                         38

<PAGE>

software release. In addition to mission critical systems and applications, 
the Company has completed redemption of all non-mission critical systems as 
of December 31, 1998.

         Validation and Implementation Phases - To reduce the possibility of
unexpected failure of the Company's systems during and after the century date
change, which could have an impact on the Company and its customers, the Company
continues to test its systems in accordance with a testing strategy and plan
developed in 1998.

         The FFIEC guideline date for institutions to begin testing their
mission critical applications and systems was September 1, 1998. During March
1998, the Company began testing various mission critical and non-mission
critical systems. By December 31, 1998, the Company had substantially completed
this testing, including both remediated systems and systems presumed to be Year
2000 compliant. As a key part of the validation phase, the computer software
that operates the Bank's main customer and accounting system, the "Fiserv CBS
System," was thoroughly tested by Fiserv. Fiserv is one of the largest providers
of bank computer software nationwide. In addition to Fiserv's efforts, the Bank
has conducted additional testing of all components of the software through
January 3, 2001, and has detected no Year 2000 problems. All of the systems
referred to above have been implemented (i.e., placed into a production
environment). All mission critical systems will continue to be monitored and
tested throughout 1999 as releases of enhanced software become available.

         Business Partner Relationships - As part of the Company's Plan, all
third party suppliers and service providers have been contacted and assessed as
to their Year 2000 preparedness. If their reliability cannot be reasonably
assured, alternative vendors, suppliers and other contingency plans have been,
or are, being prepared. In addition, the Bank has communicated with its large
borrowers and major vendors upon which it relies to determine the extent to
which the Company might be vulnerable if those third parties fail to resolve
their Year 2000 issues. Borrowers or large deposit customers are being
categorized based upon risk and are monitored on a regular basis. If a borrowing
customer is determined to have significant Year 2000 exposure that may impair
the quality or collectability of its loan, reserves for potential losses
resulting from such Year 2000 exposures are established accordingly.

         Because the Company recognizes that its business and operations could
be adversely affected if key business partners fail to achieve timely Year 2000
compliance, the Company is evaluating strategies to manage and mitigate the risk
to the Company of their Year 2000 failures. However, although the Company is
establishing reasonable safeguards, there can be no assurance that all key
business partners will adequately address their Year 2000 issues. Therefore,
failures of third parties to adequately address their Year 2000 issues could
adversely affect the business and operations of the Company.

         Contingency Plans - FFIEC guidelines indicate that contingency plans
covering mission critical systems in the event of Year 2000 problems are a
prudent business practice. The Company has developed high level contingency
plans for applications and systems used by the Bank and RIA that are deemed
mission critical as well as plans to cover many non-mission critical
applications and systems.

         The contingency, or business resumption plan, is based on a review of
various emergency scenarios ranging from the Year 2000 failure of a single
software or hardware component to the total loss of systems and applications
should large-scale power or communications failures occur. 

                                         39

<PAGE>

The Company expects to have these plans substantially complete by June 30, 
1999. Because business resumption planning is a dynamic process, the Company 
expects to further refine and test these plans throughout 1999. As part of 
the contingency planning process, the Company intends to take reasonable 
steps to mitigate foreseeable and significant risks that can be identified 
should key business partners fail to be Year 2000 compliant. The Bank's 
contingency planning includes risk management options to insure adequate 
liquidity availability for the Bank and its customers should the need arise.

         Costs to Address Year 2000 Issues - The majority of costs associated
with the Company's Year 2000 preparedness efforts have been associated with the
use of existing staff to prepare, test and confirm the components of the plan.
In some cases, third parties have been used to assist with planning and testing
and certain new software and hardware products have been procured. The majority
of these costs would have been incurred in the normal course of business as the
company regularly upgrades its various systems in an effort to more efficiently
and effectively serve its clientele and conduct its operations. The Company
incurred costs of approximately $75,000 in 1998 related to the use of third
party consultants and other extraordinary Year 2000 expenses and expects to
expend a similar amount in 1999. The costs incurred in 1998 did not have a
material effect on the Company's net income for 1998, and the Company does not
expect the costs that will be incurred in 1999 to have a material impact on the
Company's net income for 1999.


Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         MARKET RISK

         The financial services industry in general and the banking industry
specifically encompass various forms and degrees of risk. As the primary source
of business, the intermediation of funds presents various degrees and types of
risk, which can be managed and controlled, however, can never be completely
eliminated. Management of the Company and its' Board of Directors have
established a framework of policies and procedures to manage risk by
identifying, measuring, monitoring, and controlling the risks involved in the
various products and lines of business of the Company.

         Market risks comprise several of the risk factors encompassed in the
Company's risk management policy/program. Market risk is described as the risk
to a financial institution's condition resulting from adverse movements in
market rates or prices, such as interest rates, foreign exchange rates, or
equity prices. Further description of these components include:

         Interest rate risk is the risk to earnings or capital arising from
movements in interest rates. The economic perspective focuses on a bank's value
given the current interest rate environment and sensitivity of that value to
changes in interest rates. Interest rate risk arises from the following:
repricing risk differences between the timing of rate changes and the timing of
cash flows; basis risk - changing rate relationships among different yield
curves affecting bank activities; yield curve risk - changing rate relationships
across the spectrum of maturities; options risk - interest-related options
embedded in bank products. The Company manages interest rate risk through a
comprehensive asset/liability policy.

                                         40

<PAGE>

         Price risk is the risk to earnings or capital arising from changes in
the value of portfolios of financial instruments. This risk arises from
market-making, dealing, and position-taking activities for interest rate,
foreign exchange, equity, and commodity markets. Price risk focuses on the
changes in market factors (e.g., interest rates, market liquidity, volatilities,
etc.) that affect traded instruments. The primary accounts affected by price
risk are the ones revalued for financial presentation. The Company does not
engage in trading activities and as a result does not have exposure to price
risk due to market-making, dealing, and position-taking activities for interest
rate, foreign exchange, equity, and commodity markets. Some price risk is
inherent in the Company's balance sheet based upon changes in interest rates,
market liquidity and volatilities. These risks are managed under the Company's
investment policy, and secondarily, by the asset/liability and liquidity
policies.

         Foreign exchange risk a.k.a. transfer risk is the risk to earnings or
capital arising from movement of foreign exchange rates. It arises from accrual
accounts denominated in foreign currency, including loans, deposits, and equity
investments (i.e., cross-border investing). Under GAAP foreign-denominated
accounts are periodically revalued into U.S. dollar terms. This periodic
revaluation may reveal changes in the value of the investment related to the
relative value of the local currency versus the U.S. dollar. The Company does
not engage in foreign exchange trading or cross-border investing and has no
foreign exchange exposure as of December 31, 1998.

         Liquidity risk is the risk to earnings or capital resulting from the
bank's inability to meet its obligations when they come due, without incurring
unacceptable losses, and includes the inability to manage unplanned decreases or
changes in funding sources. Liquidity risk also arises from a failure to
recognize or address changes in market conditions that affect the bank's ability
to liquidate assets quickly and with minimal loss in value. The Company manages
liquidity risk through the Bank's asset/liability and liquidity policies.

         ASSET  AND  LIABILITY  MANAGEMENT

         The Company's asset/liability management policy is designed to ensure
that the Bank is managed to provide adequate liquidity, maintain adequate
capital, and, provide a satisfactory and consistent level of profits, within
suitable interest rate risk constraints. Generally, asset-liability ("A/L")
management is a comprehensive integrated process for overall financial
management. The major purpose of A/L management is to ensure that the Bank's
primary financial objectives; profitability, capital adequacy, risk tolerance,
and liquidity are achieved.

         Through A/L management, the Bank develops a methodology, which can be
used to optimize the critical risk/return tradeoff that the institution faces in
pricing, maturity selection, funds allocation, and other decisions every day.
Doing so will result in earnings which are adequate and consistent, thereby
enabling the achievement of profitability and risk objectives.

         The primary capital objective is capital preservation, which is
achieved by controlling interest rate and credit-related risk exposure, and by
the retention of ongoing earnings. The Bank will also strive to ensure that each
dollar of capital is optimally leveraged. The Bank's A/L management program
consists of four major disciplines; interest rate risk management, net interest
margin/spread management, capital management, and liquidity management

                                         41

<PAGE>

         The formal integration of these inter-related areas into an effective
A/L management program that includes a process of planning, organizing, and
controlling all of the Bank's financial resources will enable the Bank to
achieve a planned net interest margin over time within acceptable risk levels.

         INTEREST RATE RISK  

         As a financial institution, the Company's most significant market risk
factor is interest rate risk. 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, other than those which possess a short term to maturity. Since all of
the Company's interest bearing liabilities and virtually 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.

         One approach to quantify interest rate risk is to use a simulation
model to project changes in net interest income that result from forecast
changes in interest rates. The primary analytical tool used by the Company to
gauge interest rate sensitivity is a simulation model used by many banks and
bank regulators. This industry standard model is used to simulate, based on the
current and projected portfolio mix, the effects on net interest income of
changes in market interest rates. This analysis calculates the difference
between a net interest income forecast over a 12-month period using a flat
interest rate scenario and a net interest income forecast using a rising (or
falling) rate scenario, where the National Prime rate, serving as a "driver" is
made to rise (or fall) by 200 basis points over the 12-month forecast interval
triggering a response in the other rates. According to the Company's policy, the
simulated changes in net interest income should always be less the 12.5 percent
or steps must be taken to reduce interest rate risk. Various strategies the Bank
will use to adjust its exposure to interest rate risk include: lengthen/shorten
asset maturities; lengthen/shorten liability maturities; new product
introductions; secondary marketing/sell newly originated assets; and
growth/contraction (overall). As can be seen from the results of the following
interest rate sensitivity analysis matrix, the simulated change in net interest
income, based on the 12-month period ending December 31, 1999, fall well within
the 12.5 percent risk limit. (In thousands)


<TABLE>
<CAPTION>

                               Interest Rate Sensitivity Analysis Matrix
          -------------------------------------------------------------------------------------------------
                      Change in             Net Interest                    Change                  Change
                    Driver Rate                   Income                         $                       %
          
          -------------------------------------------------------------------------------------------------
          <S>                               <C>                              <C>
                         +2.000                   16,543                     1,617                  10.83%
                         +1.000                   15,733                       807                   5.41%
                          0.000                   14,926                         0                   0.00%
                         -1.000                   14,121                      -805                  -5.39%
                         -2.000                   13,318                    -1,607                 -10.77%

</TABLE>

The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk, even though such activities may be
permitted with the approval of the Company's Board of Directors.

                                         42

<PAGE>

         INTEREST RATE SENSITIVITY AND GAP ANALYSIS

         It is management's objective to maintain stability in the net interest
margin in times of fluctuating interest rates by maintaining an appropriate mix
of interest sensitive assets and liabilities. Generally, if assets and
liabilities do not reprice simultaneously and in equal volumes, the potential
for interest rate risk exposure exists. To achieve this goal, the Bank prices
the majority of its interest bearing liabilities at variable rates. At the same
time, the majority of its interest-earning assets are also priced at variable
rates. This pricing structure tends to stabilize the net interest margin
percentage achieved by the Bank.

The following table sets forth the interest rate sensitivity and repricing
schedule of the Company's interest-earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate
sensitivity gap, and the cumulative interest rate sensitivity gap ratio.

<TABLE>
<CAPTION>

                                                         After  Three       After One
                                         Immediately           Months            Year
(In thousands, except percentages)         or Within       But Within      But Within         After
As of December 31, 1998                 Three Months        12 Months      Five Years    Five Years           Total
--------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>              <C>             <C>           <C>
Interest Rate Sensitivity Gap:
Loans (1)                                  $ 105,140          $22,204         $11,754       $10,856        $149,954
Investment securities and other               12,433            5,631           1,869        26,678          46,611
Federal  funds  sold                           5,000                -               -             -           5,000
--------------------------------------------------------------------------------------------------------------------
Total interest-earning assets              $ 122,573          $27,835         $13,623       $37,534        $201,565
--------------------------------------------------------------------------------------------------------------------
Interest-bearing transaction accounts         54,878                -               -             -          54,878
Savings accounts                              46,464                -               -             -          46,464
Time deposits                                 22,092           19,695           9,272             -          51,059
--------------------------------------------------------------------------------------------------------------------
Total  interest-bearing liabilities         $123,434          $19,695         $ 9,272        $    -        $152,401
--------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap               $  (861)          $ 8,140         $ 4,351      $ 37,534
Cumulative gap                              $  (861)          $ 7,279        $ 11,630      $ 49,164
Cumulative gap percentage to
   interest earning assets                    -0.43%            3.61%           5.77%        24.39%
--------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) Amounts exclude nonaccrual loans of $1,197,000.

         The table indicates the time periods in which interest-earning assets
and interest-bearing liabilities will mature or reprice in accordance with their
contractual terms. The table does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive
pressures. Additionally, this table does not take into consideration changing
balances in forward periods as a result of normal amortization, principal
paydowns, changes in deposit mix or other such movements of funds as a result of
changing interest rate environments.

                                         43

<PAGE>

         LIQUIDITY

         Liquidity management refers to the Bank's ability to provide funds on
an ongoing basis to meet fluctuations in deposit levels as well as the credit
needs and requirements of its clients. Both assets and liabilities contribute to
the Bank's liquidity position. Federal Funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. The Bank maintains lines of credit and other
wholesale funding sources as described above. Additionally, the Bank maintains a
portfolio of SBA loans either available-for-sale or in its portfolio that could
be sold should additional liquidity be required.

         The Company generated significant liquidity from its operating
activities. In addition to net income in 1998 of $3.7 million, other operating
activities provided $4.9 million in additional cash flows for a total of $8.6
million in net cash provided by operating activities. Financing activities,
primarily the acceptance of customer deposits, provided additional cash flows.
Total cash flows provided by financing activities were $30.4 million as a result
of the increase in deposits for 1998. The Company uses cash flows to make
investments in loans and investment securities. The increase in loans was $22.1
million in 1998 while investment securities increased by $11.2 million. The
Company anticipates increasing its cash levels through the end of 1999 mainly
due to increased profitability and retained earnings. For the same period, it is
anticipated that the demand for loans will continue to moderately increase. The
growth in deposit balances is expected to be sufficient to fund loan growth with
excess funds available for investment in securities.

                                         44

<PAGE>

Item 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                                       PAGE
                                                                                                                 ----
<S>                                                                                                              <C>
Independent Auditors' Report of  KPMG LLP                                                                         47

Consolidated Balance Sheets, December 31, 1998 and 1997                                                           49

Consolidated Statements of Operations for each of the years in the three year period ended  December              51
31, 1998

Consolidated Statements of Shareholders' Equity for each of the years in the three year period ended              52
December 31, 1998

Consolidated Statements of Cash Flows for each of the years in the three year period ended  December              53
31, 1998

Notes to Consolidated Financial Statements                                                                        54

</TABLE>










                                         45


<PAGE>

      REGENCY BANCORP AND
      SUBSIDIARIES

      CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 
      1998 AND 1997, AND FOR EACH OF THE YEARS IN THE THREE 
      YEAR PERIOD ENDED DECEMBER 31, 1998 AND 
      INDEPENDENT AUDITORS' REPORT



                                      46

<PAGE>

                             INDEPENDENT AUDITORS' REPORT


To the Board of Directors of 
Regency Bancorp:


We have audited the accompanying consolidated balance sheet of Regency 
Bancorp and subsidiaries as of December 31, 1998 and the related consolidated 
statements of operations, stockholders' equity and cash flows for the year 
then ended.  These consolidated financial statements are the responsibility 
of the Company's management.  Our responsibility is to express an opinion on 
these consolidated financial statements based on our audit.  The consolidated 
financial statements of Regency Bancorp and subsidiaries as of December 31, 
1997 and for the years ended December 31, 1997 and 1997, were audited by 
other auditors whose report dated February 20, 1998, expressed an unqualified 
opinion on those statements.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Regency Bancorp and
subsidiaries as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ KPMG LLP

February 5, 1999


                                      47

<PAGE>

                            INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Regency Bancorp
Fresno, California

We have audited the accompanying consolidated balance sheet of Regency 
Bancorp and subsidiaries, as of December 31, 1997 and the related 
consolidated statements of operations, stockholders' equity and cash flows 
for each of the two years then ended. These financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of Regency Bancorp and subsidiaries 
as of December 31, 1997, and the results of their operations and their cash 
flows for each of the two years in the period ended December 31, 1997 in 
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche
------------------------------
Fresno, California
February 4, 1998


                                      48

<PAGE>

REGENCY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARES)                  1998            1997
-------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>
ASSETS

CASH AND DUE FROM BANKS                                               $   20,220       $  16,893

FEDERAL FUNDS SOLD                                                         5,000           3,000
                                                                      ----------       ---------
     Cash and cash equivalents                                            25,220          19,893
INTEREST BEARING DEPOSITS IN OTHER BANKS                                     869             232

INVESTMENT SECURITIES (Note 2):
  Available-for-sale at fair value (cost of $46,611 and $36,634)          46,990          36,986

NON-MARKETABLE EQUITY SECURITIES (FRB & FHLB Stock), at cost               1,170               -

LOANS, net of allowance for credit losses of $2,631
and $2,219  (Notes 3 and 11)                                             147,588         126,430

INVESTMENTS IN REAL ESTATE (Note 4)                                            -           4,338

OTHER REAL ESTATE OWNED                                                      684             503

PREMISES AND EQUIPMENT, net (Note 5)                                       1,500           1,751

CASH SURRENDER VALUE OF LIFE INSURANCE (Note 9)                            3,186           3,038

INTEREST RECEIVABLE, DEFERRED INCOME TAXES
  AND OTHER ASSETS (Note 8)                                                4,760           5,070
                                                                      ----------      ----------
                                                                      $  231,967      $  198,241
                                                                      ----------      ----------
                                                                      ----------      ----------
</TABLE>

See notes to consolidated financial statements.


                                       49
<PAGE>

<TABLE>
<CAPTION>

                                                                          1998            1997
-------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

DEPOSITS (Note 6):
  Noninterest bearing deposits                                        $   54,236        $ 46,744
  Interest bearing deposits                                              152,401         129,535
                                                                      ----------      ----------
           Total deposits                                                206,637         176,279

NOTES PAYABLE AND CAPITAL LEASE OBLIGATION                                   547             509
  (Note 5)

ACCRUED INTEREST AND OTHER
  LIABILITIES (Note 9)                                                     2,334           2,719
                                                                      ----------        --------
           Total liabilities                                             209,518         179,507

COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)

SHAREHOLDERS' EQUITY (Notes 9, 10 and 13):
  Preferred stock, no par value;
    1,000,000 shares authorized;
    no shares issued                                                           -               -
  Common stock, no par value; 5,000,000
    shares authorized, 2,624,374 and 2,621,125 shares outstanding         15,229          15,203
  Retained earnings                                                        7,000           3,327
  Accumulated other comprehensive income:
    Net unrealized gain on investment securities, net of
    taxes of $159 and $148                                                   220             204
                                                                      ----------      ----------
           Total shareholders' equity                                     22,449          18,734
                                                                      ----------      ----------
                                                                        $231,967        $198,241
                                                                      ----------      ----------
                                                                      ----------      ----------
</TABLE>

See notes to consolidated financial statements.


                                      50
<PAGE>

<TABLE>

REGENCY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996                                        1998            1997            1996
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
(In thousands, except per share data) INTEREST INCOME:
  Interest and fees on loans                                                    $ 15,793        $ 12,506        $ 11,255
  Interest on investment securities:                                                                      
    Taxable                                                                        2,071           2,163           1,718
    Nontaxable                                                                       345             165              87
                                                                         ------------------------------------------------
                                                                                   2,416           2,328           1,805
  Other                                                                              427             452             167
                                                                         ------------------------------------------------
           Total interest income                                                  18,636          15,286          13,227
INTEREST EXPENSE:                                                                                         
  Interest on deposits                                                             5,348           5,241           4,534
  Interest on borrowings                                                             104              80             160
                                                                         ------------------------------------------------
           Total interest expense                                                  5,452           5,321           4,694

Net interest income                                                               13,184           9,965           8,533
Provision for credit losses                                                          375           1,353               -
                                                                         ------------------------------------------------
Net interest income after provision for credit losses                             12,809           8,612           8,533

NONINTEREST INCOME:
  Gain on sale of loans (Note 3)                                                     356             608           1,315
  Depositor service charges                                                          500             397             338
  Income from investment management services                                         916             810             682
  Gain (loss) on sale of investment securities (Note 2)                               15            (19)               -
  Gain on sale of premises & equipment                                                 4             252              18
  Servicing fees on loans sold                                                       119             329             322
  Other                                                                            1,052             310             434
                                                                         ------------------------------------------------
           Total noninterest income                                                2,962           2,687           3,109

NONINTEREST EXPENSES:                                                                                     

  Salaries and related benefits (Notes 9 and 11)                                   5,134           4,782           4,561
  Occupancy                                                                        1,559           1,639           1,568
  FDIC insurance and regulatory assessments                                          270             120              63
  Marketing                                                                          475             450             428
  Professional services                                                              684             461             749
  Directors' fees and expenses                                                       219             270             383
  Management fees for real estate projects (Note 11)                                   -             120             488
  Supplies, telephone and postage                                                    312             329             349
  (Gain) loss  from investments in real estate (Note 4)                            (171)           3,973             351
  Other                                                                              973           1,262             962
                                                                         ------------------------------------------------
           Total noninterest expenses                                              9,455          13,406           9,902
                                                                         ------------------------------------------------
Income (loss) before income tax expense (benefit)                                  6,316         (2,107)           1,740
Income tax expense (benefit) (Note 8)                                              2,643           (833)             732
                                                                         ------------------------------------------------
Net income (loss)                                                                $ 3,673       $ (1,274)         $ 1,008
EARNINGS (LOSS) PER COMMON SHARE (Note 10)
Basic                                                                            $  1.40       $  (0.68)         $  0.55
                                                                                                                 
Diluted                                                                          $  1.31       $  (0.68)         $  0.54
                                                                         ------------------------------------------------
SHARES ON WHICH EARNINGS (LOSS) PER COMMON SHARE
 WERE BASED (Note 10)
Basic                                                                              2,624           1,860           1,818
Diluted                                                                            2,800           1,860           1,872
                                                                         ------------------------------------------------

</TABLE>

See notes to consolidated financial statements.

                                         51

<PAGE>

<TABLE>

REGENCY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
-----------------------------------------------------------------------------------------------------------------------
                                                          1998                    1997                    1996
                                                    SHARE-     COMPRE-      SHARE-     COMPRE-      SHARE-     COMPRE-
                                                   HOLDERS'    HENSIVE     HOLDERS'    HENSIVE     HOLDERS'    HENSIVE
                                                    EQUITY      INCOME      EQUITY      INCOME      EQUITY      INCOME
-----------------------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>         <C>         <C>
 COMMON STOCK - SHARES
 Balance, beginning of period                          2,621                   1,818                   1,818
                              
 Issuance of common stock to
   employee stock ownership plan (Note 9)                  -                      36                       -
                                                  
 Issuance of common stock under
   stock option plan (Note 9)                              3                      17                       -
                                                  
 Issuance of common stock in private placement
   captial offering, net of expenses (Note 10)             -                     750                       -
                                                    --------               ---------               ---------           
 Balance, end of period                                2,624                   2,621                   1,818
                                                    --------               ---------               ---------           
                                                    --------               ---------               ---------           

 COMMON STOCK
 Balance, beginning of period                       $ 15,203                $  8,868                $  8,868
 Issuance of common stock to
   employee stock ownership plan (Note 9)                  -                     333                       -
                                          
 Issuance of common stock under
   stock option plan (Note 9)                             26                      75                       -
                                          
 Issuance of common stock in private placement
   captial offering, net of expenses (Note 10)             -                   5,927                       -
                                                    --------               ---------               ---------           
 Balance, end of period                               15,229                  15,203                   8,868
                                                    --------               ---------               ---------           

 RETAINED EARNINGS
 Balance, beginning of period                          3,327                   4,601                   4,030
 Net Income (loss)                                     3,673    $  3,673      (1,274)   $ (1,274)      1,008    $ 1,008
 Common stock dividends                                    -                      -                     (437)
                                                    --------               ---------               ---------           
 Balance, end of period                                7,000                   3,327                   4,601           
                                                    --------               ---------               ---------           

 CUMULATIVE OTHER COMPREHENSIVE INCOME

 Balance, beginning of period                            204                       1                      44
 Unrealized gain (loss) on investment
   securities arising during the period, net of
   tax (expense) benefit of $(21), $(161) and                                                                 
   $31.                                                   31          31         184         184        (43)        (43)
 Reclassification adjustment for (gain) loss on
   sale of securities included in net income, net
   of tax benefit (expense) of $10, $(13) and                                                                 
   $0.                                                   (15)        (15)         19          19           -           -
                                                    --------               ---------               ---------           
   Balance, end of period                                220                     204                       1
------------------------------------------------------------------------------------------------------------------------
 COMPREHENSIVE INCOME                                           $  3,689              $  (1,071)                 $   965
                                                                --------              ---------                  -------
                                                    -------     --------   ---------  ---------                  -------
 Total shareholders' equity                         $ 22,449                $ 18,734                $ 13,470
                                                    --------               ---------               ---------           
                                                    --------               ---------               ---------           
</TABLE>

                                         52

<PAGE>

<TABLE>
<CAPTION>

REGENCY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)                       1998            1997          1996
------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net Income (loss)                                                            $   3,673      $ (1,274)     $  1,008
    Adjustments:                                                                                          
      Provision for credit losses                                                      375         1,353            -
      Provision for OREO losses                                                        131           121            -
      Depreciation and amortization                                                    504           653          632
      Deferred income taxes                                                            372          (428)         827
      (Increase) decrease in interest receivable and other assets                      (73)        1,209       (1,491)
      Increase in surrender value of life insurance                                   (148)         (135)        (139)
      Distributions of income from real estate partnerships                            452           232          103
      Equity in loss (income) of real estate partnerships                               17           436         (151)
      Decrease in real estate held for sale                                          3,869        10,783        7,170
      (Decrease) increase in other liabilities                                        (347)          418         (790)
      (Gain) loss on sale of securities                                                (15)           19            -
      Gain on sale of loans held for sale                                             (356)        (608)       (1,315)
      Proceeds from sale of loans held for sale                                     20,040        18,537       13,908
      Additions to loans held for sale                                             (19,907)      (16,453)     (11,313)
      (Gain) loss on sale of premises and equipment and OREO                            (2)           11           (1)
                                                                                 ---------      --------      --------
           Net cash provided by operating activities                                 8,585        14,874         8,448

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of available-for-sale securities                                       (43,040)      (21,059)      (21,596)
  Proceeds from sales of available-for-sale securities                                   -         2,353         1,000
  Proceeds from maturities of available-for-sale securities                         32,995        15,262        18,881
  Purchases of non marketable equity securities                                     (1,170)            -             -
  Loan participations purchased                                                          -             -        (1,750)
  Loan participations sold                                                               -         2,039         4,842
  Net increase in loans                                                            (22,123)      (31,918)       (7,802)
  Net (increase) decrease in interest bearing deposits in other banks                 (636)         (134)          (95)
  Cash received through acquisition of partnerships                                      -             -           804
  Proceeds from sale of OREO                                                           501           208           123
  Capital contributions to real estate partnerships                                      -             -          (397)
  Capital distributions from real estate partnerships                                    -           700         1,012
  Purchases of premises and equipment                                                 (178)         (136)         (435)
  Proceeds from sale of premises and equipment                                          10            34             -
                                                                                 ---------      --------      --------
           Net cash used in investing activities                                   (33,641)      (32,651)       (5,413)

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                     
  Net increase (decrease) in time deposits                                           6,638        (5,377)       14,265
  Net increase in other deposits                                                    23,719        21,855         1,791
  Cash dividends paid                                                                    -             -          (437)
  Payments on notes payable                                                              -        (7,155)       (8,131)
  Proceeds from notes payable                                                            -         2,179           385
  Proceeds from the issuance of common stock under employee stock option                  
   plan                                                                                 26            75             -
  Proceeds from the issuance of common stock to employee stock ownership                
   plan                                                                                 -            333             -
  Net proceeds from the issuance of common stock                                        -          5,927             -
                                                                                 ---------      --------      --------
           Net cash provided by financing activities                                30,383        17,837         7,873

NET INCREASE IN CASH AND CASH EQUIVALENTS                                            5,327            60        10,908

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                        19,893        19,833         8,925
                                                                                 ---------      --------      --------
CASH AND CASH EQUIVALENTS, END OF YEAR                                           $  25,220      $ 19,893      $ 19,833
                                                                                 ---------      --------      --------
                                                                                 ---------      --------      --------

</TABLE>

See notes to consolidated financial statements.

                                         53

<PAGE>

REGENCY BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
------------------------------------------------------------------------------


1.   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION - The consolidated financial statements include the
     accounts of Regency Bancorp and its wholly-owned subsidiaries, hereinafter
     referred to as the ("Company"). Regency Bancorp is a California corporation
     organized to act as the holding company for Regency Bank ("Bank"), with
     headquarters and branches in Fresno, a branch in Madera and a loan
     production office in Modesto, and Regency Investment Advisors Inc. ("RIA")
     a Securities Exchange Commision ("SEC") registered investment advisor. The
     Bank has one wholly-owned subsidiary, Regency Service Corporation, a
     California corporation ("RSC"), that engages in the business of real estate
     development primarily in the Fresno/Clovis area. Other than its investment
     in the Bank and RIA, the Company currently conducts no other significant
     business activities, although it is authorized to engage in a variety of
     activities which are deemed closely related to the business of banking upon
     prior approval of the Board of Governors of the Federal Reserve System
     ("Board of Governors"), the Company's principal regulator. All significant
     intercompany balances and transactions have been eliminated in
     consolidation.

     NATURE OF OPERATIONS - The Company operates three bank branches through its
     bank subsidiary in Fresno, California and one branch in Madera, California.
     The Bank is a California banking corporation which has served individuals,
     merchants, small and medium-sized businesses and professionals located in
     and adjacent to Fresno, California, since 1980. The Bank offers a full
     range of commercial banking services including the acceptance of demand,
     savings and time deposits, and the making of commercial, real estate
     (including real estate construction and residential mortgage), Small
     Business Administration ("SBA"), personal, home improvement, automobile and
     other installment and term loans. It also offers Visa credit cards,
     traveler's checks, safe deposit boxes, notary public, customer courier and
     other customary bank services. The Bank's primary source of revenue is
     interest generated by providing loans to customers. Additionally, the Bank
     generates revenue from the sale and servicing of loans made under
     government guaranteed programs.

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

     SIGNIFICANT ACCOUNTING POLICIES - The accounting and reporting policies of
     the Company conform to generally accepted accounting principles and to
     prevailing practices within the banking industry. The following is a
     summary of significant policies:

     a.   CASH AND CASH EQUIVALENTS - The Company considers cash and cash
          equivalents to include cash, federal funds sold, and other short-term
          investments consisting of deposits in other banks. Generally, federal
          funds are sold for one-day periods.

                                         54

<PAGE>

     b.   INVESTMENT SECURITIES - The Company's investment policy, as
          established by its investment committee, governs the type and quality
          of securities in which management may invest with the objective of
          achieving an optimum balance between credit quality, liquidity and
          income.

          The Company has classified its investment securities as
          available-for-sale. These securities are recorded at their fair value.
          Unrealized gains or losses are included in shareholders' equity, net
          of tax. Gain or loss on the sale of available-for-sale securities is
          based on the specific identification method.

     c.   NON MARKETABLE EQUITY SECURITIES - The Bank became a member of both
          the Federal Reserve Bank and Federal Home Loan Bank System in 1998 and
          as such was required to own capital stock of these entities in amounts
          specified by regulations. At December 31, 1998, the Bank owned 5,749
          and 5,912 shares of $100 par value capital stock of the Federal
          Reserve Bank and Federal Home Loan Bank of San Francisco,
          respectively.

     d.   LOANS - Loans are stated at the outstanding unpaid principal balance
          reduced by any partial charge-offs, valuation allowances and
          nonrefundable fees and related direct costs associated with the
          origination or purchase of loans. Interest on loans is accrued daily
          based on outstanding loan balances. The recognition of interest income
          on a loan is discontinued, and previously accrued interest is
          reversed, when the payment of interest or principal is ninety days
          past due, unless the outstanding loan is adequately secured and is in
          the process of collection. The loan is accounted for thereafter on the
          cash or cost recovery method until qualifying for return to accrual
          status.

          Impaired loans are measured based on the present value of expected
          future cash flows discounted at the loan's effective interest rate or
          as a practical expedient at the loan's observable market rate or the
          fair value of the collateral if the loan is collateral dependent.
          Impaired loans are accounted for as loans until foreclosure.

          Net deferred fees and costs are generally amortized into interest
          income over the loan term using a method which approximates the
          interest method. Other credit-related fees, such as standby letter of
          credit fees, loan placement fees and annual credit card fees are
          recognized as noninterest income over the commitment period or over
          the period the related service is performed.

          The Company originates loans to customers under a SBA program that 
          generally provides for guarantees of 75 percent to 90 percent of each 
          loan. Loans held for sale are carried at the lower of cost or 
          estimated market value in the aggregate. Historically, the Company 
          has sold the guaranteed portion of each loan to a third-party and has 
          retained the unguaranteed portion in its own portfolio. The Company 
          allocates basis of the loans sold and the retained portions based 
          upon their relative fair market value. The Company may be required to 
          refund a portion of the sales premium received, if the borrower 
          defaults or the loan prepays within 90 days of the settlement date. 
          At December 31, 1998 and 1997, the Company had received premiums of 
          $12,000 and $104,000, respectively, subject to such recourse.

          The Company retains a servicing spread on the sale of SBA guaranteed
          loans that creates loan servicing income. Under Statement of Financial
          Accounting Standards ("SFAS") No. 125, which was implemented by the
          Company as of January 1, 1997, the servicing spread is recognized as a
          servicing asset to the extent the contractual servicing fee in the
          loan sale agreement exceeds adequate compensation for the servicing.
          Servicing spread in excess of the contractual fee, formerly known as
          excess servicing is recognized as an interest only ("IO") strip. The
          Company 

                                         55

<PAGE>

          measures the servicing assets and interest only strip by
          discounting the respective cash flow for the estimated expected life
          of the loan. The Company uses prepayment statistics and its own
          prepayment experience in estimating the expected life of the loans.
          Both the servicing asset and the interest only strip represent the
          discounted present values of cash flows that are recorded as loan
          servicing income. These assets are amortized as an offset to loan
          servicing income over the estimated expected life of the loans, as
          well as the capitalized excess servicing in prior years.

          SFAS No. 125 requires periodic measurements of the fair value for
          servicing assets and interest only strips as well as loan prepayment
          experience. The statement further requires that these assets be
          stratified by one or more predominant risk characteristics of the
          underlying loans. The Company stratifies the servicing portfolio by
          date of origination. Fair value is measured by discounting the
          respective cash flows for the servicing assets and interest only
          strips over this remaining period.

          At December 31, 1998 and 1997, there was no material difference
          between the Company's amortized carrying value for servicing assets
          and their fair value.

          The Company measures the fair value of its IO strips following the
          same stratification and discounted cash flow methods used for
          servicing assets. The IO strip is treated as a financial asset in
          substance, similar to an available-for-sale security under SFAS No.
          115. Differences between the fair value of the strip and its amortized
          carrying value are recorded as unrealized gains or losses, and
          recorded net of the related tax effect as a separate component of
          shareholders' equity. At December 31, 1998 and 1997, there was no
          material difference between the carrying value and the fair value of
          the IO strip.

     e.   ALLOWANCE FOR CREDIT LOSSES - The allowance for credit losses
          represents management's recognition of the risks assumed when
          extending credit and its evaluation of the quality of the loan
          portfolio. The allowance is maintained at a level considered to be
          adequate for potential credit losses based on management's assessment
          of various factors affecting the loan portfolio, which include a
          review of problem loans, business conditions and an overall evaluation
          of the quality of the portfolio. In addition, various regulatory
          agencies, as an integral part of their examination process,
          periodically review the Company's allowance for credit losses. Such
          agencies may require the Company to recognize additions to the
          allowance based on their judgement of information available to them at
          the time of their examination. The allowance is increased by
          provisions for credit losses charged to operations and reduced by
          charges to the allowance net of recoveries. Management considers the
          allowance for credit losses adequate to cover any losses that may be
          inherent in the loan portfolio.

          In evaluating the probability of collection, management is required to
          make estimates and assumptions that affect the reported amounts of
          loans, allowance for credit losses and the provision for credit losses
          charged to operations. Actual results could differ significantly from
          those estimates.

     f.   PREMISES AND EQUIPMENT - Premises and equipment are stated at cost
          less accumulated depreciation. Depreciation is computed on a
          straight-line basis over the estimated useful lives of the assets as
          follows:

                                         56

<PAGE>

<TABLE>
<CAPTION>

          <S>                                     <C>
          Buildings                               30 years
          Leasehold improvements                  Life of the lease
          Furniture and equipment                 3 - 10 years
</TABLE>

     g.   LONG LIVED ASSETS - The Company periodically evaluates the carrying
          value of long-lived assets to be held and used, including goodwill and
          other intangible assets. Based on such an evaluation, the Company
          determined that there is no impairment loss to be recognized in 1998
          or 1997.

     h.   OTHER REAL ESTATE OWNED - Real estate properties acquired through, or
          in lieu of, loan foreclosure are to be sold and are initially recorded
          at fair value at the date of foreclosure establishing a new cost
          basis. After foreclosure, valuations are periodically performed by
          management and the real estate is carried at the lower of carrying
          amount or fair value less costs to sell. Revenue and expenses from
          operations and changes in the valuation allowance are included in
          noninterest expenses.

     i.   INVESTMENTS IN REAL ESTATE - Investments in real estate represent
          RSC's equity interests in real estate development partnerships and
          certain other real estate holdings held for sale or development. All
          investments in real estate are valued at net realizable value.

     j.   INCOME TAXES - The Company files a consolidated federal income tax
          return and a combined California tax return. Deferred income taxes are
          provided for temporary differences between the financial reporting
          basis and the tax basis of the Company's assets and liabilities in
          accordance with SFAS No. 109.

     k.   NET INCOME (LOSS) PER SHARE - Basic earnings (loss) per share is
          computed by dividing net income (loss) available to common
          stockholders by the weighted average number of common shares
          outstanding during the period. Diluted earnings (loss) per share is
          computed by dividing net income (loss) available to common
          stockholders by the weighted average common shares outstanding during
          the period plus potential common shares outstanding. Diluted EPS
          reflects the potential dilution that could occur if securities or
          other contracts to issue common stock were exercised or converted into
          common stock or resulted in the issuance of common stock that then
          shared in the earnings of the Company. For the year ended December 31,
          1997, diluted loss per common share is equal to basic loss per common
          share because the effect of potential common stock under the stock
          option plan was antidilutive.

     l.   STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
          to employees using the intrinsic value method in accordance with
          Accounting Principles Board opinion No. 25, "Accounting for Stock
          Issued to Employees".

     m.   NEW ACCOUNTING PRONOUNCEMENTS - Statement of Financial Accounting
          Standards ("SFAS") No. 130 "Reporting Comprehensive Income" was issued
          in June 1997 and is effective for fiscal years beginning after
          December 15, 1997. SFAS No. 130 establishes standards for the
          reporting and display of comprehensive income and its components,
          which included net income and changes in equity during the period
          except those resulting from investments by, or distributed to
          stockholders. As of January 1, 1998, the Company adopted the
          provisions of SFAS No. 130, which have been applied retroactively to
          all periods presented in these financial statements.

     n.   RECLASSIFICATIONS - Certain reclassifications have been made to prior
          year balances to conform to current year classifications.

                                         57

<PAGE>

2.   INVESTMENT SECURITIES

     Investment securities are comprised of the following (In thousands):


<TABLE>
<CAPTION>

                                                                   DECEMBER 31, 1998
                                         -----------------------------------------------------------------------
                                                                 GROSS           GROSS
                                             AMORTIZED        UNREALIZED       UNREALIZED           FAIR
                                                COST             GAINS           LOSSES            VALUE
<S>                                          <C>              <C>               <C>
AVAILABLE-FOR-SALE:
  U.S. Treasuries                              $  1,003           $   5           $   -           $  1,008
  U.S. Government agencies                       16,434              72             (38)             16,468
  Mortgage-backed securities                     17,761             109             (91)             17,779
  State and political subdivisions               11,166             344             (22)             11,488
  Equity securities                                 247               -               -                 247
                                              ---------          ------          ------           ---------
                                               $ 46,611          $  530          $ (151)          $  46,990
                                              ---------          ------          ------           ---------
                                              ---------          ------          ------           ---------

</TABLE>

<TABLE>
<CAPTION>

                                                                   DECEMBER 31, 1997
                                         -----------------------------------------------------------------------
                                                                 GROSS           GROSS
                                             AMORTIZED        UNREALIZED       UNREALIZED           FAIR
                                                COST             GAINS           LOSSES            VALUE
<S>                                           <C>             <C>              <C>                 <C>
AVAILABLE-FOR-SALE:
  U.S. Treasuries                              $  2,007           $   5             $  -           $  2,012
  U.S. Government agencies                       17,431              91             (33)             17,489
  Mortgage-backed securities                     11,541             142             (36)             11,647
  State and political subdivisions                5,441             183                -              5,624
  Equity securities                                 214               -                -                214
                                              ---------          ------           ------           ---------
                                              $  36,634          $  421           $  (69)         $  36,986
                                              ---------          ------           ------           ---------
                                              ---------          ------           ------           ---------
</TABLE>

     There were no investment securities classified as held-to-maturity or
     trading at December 31, 1998 or December 31, 1997.

     Gross realized gains and losses on sales of available-for-sale securities
     for the years ended December 31, 1998, 1997 and 1996 are as follows (In
     thousands):


<TABLE>
<CAPTION>

                                                                              YEAR ENDED DECEMBER 31,
                                                                       ---------------------------------------
                                                                            1998         1997         1996
<S>                                                                         <C>          <C>          <C>
Gross realized gains                                                        $  15        $  21         $   -
Gross realized losses                                                           -          (40)            -
                                                                            -----        -----         ------
           Net gain (loss)                                                  $  15        $ (19)        $   -
                                                                            -----        -----         ------
                                                                            -----        -----         ------
</TABLE>

                                         58

<PAGE>

     Actual maturities will differ from contractual maturities because borrowers
     may have the right to call or prepay obligations with or without call or
     prepayment penalties. The amortized cost and fair value of debt securities
     available for sale at December 31, 1998, by contractual maturity, are shown
     below. (In thousands):


<TABLE>
<CAPTION>

                                                                              AMORTIZED             FAIR
                                                                                 COST              VALUE
                                                                          --------------------------------------
<S>                                                                           <C>                  <C>        
AVAILABLE-FOR-SALE:
  Due in one year or less                                                          $   1,625          $  1,633
  Due after one year through five years                                                2,070             2,114
  Due after five years through ten years                                              18,451            18,546
  Due after ten years                                                                 24,465            24,697
                                                                          ------------------ -----------------
                                                                                   $  46,611          $ 46,990
                                                                          ------------------ -----------------
                                                                          ------------------ -----------------
</TABLE>

     At December 31, 1998 and 1997, investment securities with cost basis of
     approximately $2,003,000 and $4,007,000 (market value of $2,015,000 and
     $4,011,000, respectively), were pledged as collateral to secure public
     funds and for other purposes as required by law or contract.


                                         59

<PAGE>

3.   LOANS

     Loans are comprised of the following (In thousands, except percentages):

<TABLE>
<CAPTION>

                                                                            DECEMBER 31,
                                                    --------------------------------------------------------------
                                                                 1998                            1997
                                                                        PERCENT                        PERCENT
                                                                        OF TOTAL                       OF TOTAL
                                                          AMOUNT         LOANS            AMOUNT        LOANS
<S>                                                     <C>             <C>               <C>          <C>
Commercial                                              $  99,341        66%            $  75,487        58%
Real estate:
  Mortgage                                                 16,682        11%               14,900        12%
  Construction                                             25,192        17%               30,128        23%
Consumer and other                                                        6%                              7%
                                                            9,936                           9,120
                                                  ---------------------------  ------------------------------

           Total loans                                    151,151       100%              129,635       100%
                                                  ---------------------------  ------------------------------
                                                                       ------                           -----
Less:                                                                           
  Unearned discount                                                             
                                                              440                             623
  Deferred loan fees                                                            
                                                              492                             363
  Allowance for credit losses                                                   
                                                            2,631                           2,219
                                                  ----------------             -------------------
          Total loans, net                             $  147,588                      $  126,430
                                                  ----------------             -------------------
                                                  ----------------             -------------------
</TABLE>



     Loans serviced for other institutions, principally SBA and Business &
     Industry loans totaled approximately $34,700,000 and $44,500,000 at
     December 31, 1998 and 1997, respectively.

     The Company's business activity is with customers primarily located within
     Fresno and Madera counties. The Company grants real estate, commercial and
     installment loans to these customers. The Company's commercial portfolio is
     highly diversified among industry groups within the Company's service area.
     The Company's largest concentration of loans is in real estate mortgages
     and real estate construction lending. A significant portion of its
     customers' ability to repay these loans is dependent upon the economic
     sectors of residential real estate development and construction. Generally,
     loans are secured by various forms of collateral. The loans are expected to
     be repaid from income of the borrower or with proceeds from the sale of
     assets securing the loans. The Company's loan policy requires sufficient
     collateral to meet the Company's relative risk criteria for each borrower.
     The Company's collateral mainly consists of real estate, cash, accounts
     receivable, inventory and other financial instruments. The Company either
     maintains possession of the collateral in safekeeping or perfects a
     security interest with the State of California.

                                         60

<PAGE>

     At December 31, 1998 and 1997, the following information related to
     nonperforming assets. (In thousands, except percentages)

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                 ------------------------------------------------
                                                                                  1998                      1997
    <S>                                                          <C>                    <C>
    Nonperforming Assets:
                                                                 ------------------------------------------------
    Nonperforming loans                                                       $  1,197                  $  1,736
    Other real estate owned                                                        684                       503
                                                                 ------------------------------------------------
    Total nonperforming assets                                                   1,881                     2,239
                                                                 ------------------------------------------------
                                                                 ------------------------------------------------
    Total loans before allowance for credit losses                             151,151                   129,635
    Total assets                                                               231,967                   198,241
    Allowance for credit losses                                              $ (2,631)                 $ (2,219)
                                                                 ------------------------------------------------
    Ratios:
    Nonperforming loans to total loans                                            .79%                     1.34%
    Nonperforming assets to:
       Total loans                                                               1.24%                     1.73%
       Total loans and OREO                                                      1.24%                     1.72%
       Total assets                                                               .81%                     1.13%
    Allowance for credit losses to total
       nonperforming assets                                                    139.91%                    99.11%
    Allowance for  credit losses to loans                                        1.74%                     1.71%
                                                                 ------------------------------------------------

</TABLE>

     The gross interest income that would have been recorded for loans placed on
     nonaccrual status was $103,000, $254,000 and $276,000 for the years ended
     December 31, 1998, 1997 and 1996, respectively.

     The Company is not aware of any potential problem loans, which were
     accruing interest at December 31, 1998, or 1997, where serious doubt exists
     as to the ability of the borrower to comply with present repayment terms.

     The Company does not believe there to be any concentration of loans in 
     excess of 10 percent of total loans which are not disclosed above which 
     would cause them to be significantly impacted by economic or other 
     conditions.

                                         61


<PAGE>


     At December 31, 1998 and 1997, the following information related to
     impaired loans under SFAS No. 114 was included in the total loan balance
     (In thousands):

<TABLE>
<CAPTION>

                                                                                                DECEMBER 31,
                                                                                        ----------------------------
                                                                                          1998               1997
<S>                                                                                     <C>                <C>
      Total impaired loans                                                              $  1,519          $   1,410

      Impaired loans without specified SFAS No. 114
        allowance for credit losses                                                          567                598
                                                                                        --------           --------
      Impaired loans with specific SFAS No. 114
        allowance for credit losses                                                     $    952           $    812
                                                                                        --------           --------
                                                                                        --------           --------
      Specific allowance for credit losses on impaired loans                            $     88           $    194
                                                                                        --------           --------
                                                                                        --------           --------

</TABLE>

     Average impaired loans were $1,542,000, $689,000, and $188,000 for the
     years ended December 31, 1998, 1997, and 1996, respectively. The Company
     uses the cash basis method of income recognition for impaired loans. For
     the years ended December 31, 1998, 1997 and 1996, the Company did not
     recognize any income on such loans.

     An analysis of the changes in the allowance for credit losses is as follows
     (In thousands):

<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                             -----------------------------------------------------
                                                                     1998             1997              1996
<S>                                                          <C>                    <C>               <C>
Balance, beginning of the year                                    $  2,219          $  1,615          $  1,784
Provision charged to operations                                        375             1,353                 -
Losses charged to the allowance                                       (217)             (895)             (258)
Recoveries of amounts charged off                                      254               146                89
                                                                  --------          --------          --------
Balance, end of the year                                          $  2,631          $  2,219          $  1,615
                                                                  --------          --------          --------
                                                                  --------          --------          --------

</TABLE>


     Included in commercial loans are SBA loans with guaranteed balances of
     $25,368,000 and $13,045,000 at December 31, 1998 and 1997, respectively.
     The unguaranteed balance of these loans was $18,261,000 and $18,567,000 at
     December 31, 1998 and 1997, respectively.


                                       62

<PAGE>



     The activity in the asset accounts related to the servicing spread retained
     on SBA guaranteed and Business & Industry loan sales for the three years
     ended December 31, 1998, 1997 and 1996 is summarized as follows:

<TABLE>
<CAPTION>

                                                            1998                         1997                      1996
                                                 ---------------------------- ---------------------------- -------------
                                                     SERVICING                   SERVICING                    SERVICING
                                                        ASSETS     IO STRIPS        ASSETS      IO STRIPS        ASSETS
                                                 -------------- ------------- ------------- -------------- -------------
      <S>                                        <C>            <C>           <C>           <C>            <C>
      Balance, beginning of the year                   $   507        $  418       $   595         $    -        $  290
      SFAS 125 reclassification                              -             -          (143)           143             -
      Servicing assets and IO strips
       recognized on loans sold                             37            20           192            317           396
      Amortization                                        (199)          (82)         (137)           (42)          (91)
                                                       -------        ------       -------         ------        ------
      Balance, end of the year                         $   345        $  356       $   507         $  418        $  595
                                                       -------        ------       -------         ------        ------
                                                       -------        ------       -------         ------        ------

</TABLE>

     In the ordinary course of business, the Company enters into various types
     of transactions which involve financial instruments with off-balance sheet
     risk. These instruments include commitments to extend credit and standby
     letters of credit which are not reflected in the accompanying consolidated
     balance sheets. These transactions may involve, to varying degrees,
     liquidity, credit and interest rate risk in excess of the amount, if any,
     recognized in the balance sheets. The Company's off-balance sheet credit
     risk exposure is the contractual amount of commitments to extend credit and
     standby letters of credit. The Company applies the same credit standards to
     these contracts as it uses in its lending process.


<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                 -------------------------------
                                                                                     1998               1997
<S>                                                                              <C>                  <C>
Financial instruments whose contractual
  amount may represent additional risk
  if funded (In thousands):
    Commitments to extend credit                                                   $  55,376          $  44,139
    Standby letters of credit                                                      $   1,557          $     795

</TABLE>


     Commitments to extend credit are agreements to lend to customers. These
     commitments have specified interest rates and generally have fixed
     expiration dates but may be terminated by the Company if certain conditions
     of the contract are violated. Many of these commitments are expected to
     expire or terminate without funding. Therefore, the total commitment
     amounts do not necessarily represent future cash requirements. Collateral
     relating to these commitments varies, but may include cash, securities and
     real estate.

     Standby letters of credit are conditional commitments issued by the Company
     to guarantee the performance of a customer to a third party. Credit risk
     arises in these transactions from the possibility that a customer may not
     be able to repay the Company upon default of performance. Collateral held
     for standby letters of credit is based on an individual evaluation of each
     customers' credit worthiness, but may include cash, securities or other
     guarantees.


                                    63
<PAGE>


4.   REAL ESTATE ACTIVITIES

     Regency Service Corporation was involved in residential real estate
     development in the Fresno/Clovis area through both limited partnership
     investments and direct investments in real estate projects. These real
     estate activities consisted of residential subdivisions being developed
     into lots and homes. Limited partnership investments were accounted for
     under the equity method. Gains on sales of limited partnership properties
     were recognized on the accrual method and were allocated between the
     partners based on the provisions of the partnership agreements.

     Included in the investments in real estate balances are acquisition,
     development and construction loans held by the Bank totaling $0 and
     $271,000 at December 31, 1998 and 1997, respectively. The remaining
     investments in real estate balances of $0 and $4,067,000 represent RSC's
     investments in real estate at December 31, 1998 and 1997.

     Condensed financial information relative to RSC included in the Company's
     consolidated financial statements at December 31, 1998 and 1997,
     respectively, is as follows (In thousands):

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                                 --------------------------------
                                                                                      1998               1997
<S>                                                                              <C>                  <C>
Financial position:
  Investments in real estate:
    Real estate held for sale                                                       $      -          $   4,420
    Equity in partnerships                                                               232                702
                                                                                    --------          ---------
           Investment in real estate before allowance                                    232              5,122
    Allowance for real estate losses                                                    (232)            (1,055)
                                                                                    --------          ---------
           Investment in real estate                                                       -              4,067

  Loans to real estate partnerships and projects                                           -              1,768
    Allowance for loan losses                                                              -               (364)
                                                                                    --------          ---------
           Net loans                                                                       -              1,404

  Other assets                                                                           935              2,524

  Liabilities                                                                            (99)              (144)
                                                                                    --------          ---------
  Bank's investment in RSC                                                          $    836          $   7,851
                                                                                    --------          ---------
                                                                                    --------          ---------

</TABLE>


                                                   64
<PAGE>

<TABLE>
<CAPTION>

                                                                               YEAR ENDED DECEMBER 31,
                                                                      -------------------------------------------
                                                                           1998          1997            1996
<S>                                                                   <C>              <C>              <C>
Summary of income (loss):
  (Loss) income from partnerships accounted for on
    the equity method                                                    $    (17)     $   (436)        $   151
  Income (loss) from direct investments in real estate                        188        (3,565)           (583)
  Recovery of (provision) for loan losses                                     507          (855)              -
                                                                         --------      --------         -------
             Net income (loss) from real estate projects                      678        (4,856)           (432)

  Other income                                                              1,145           102             249
  Other expenses                                                             (188)         (966)         (1,316)
                                                                         --------      --------         -------
           Total income (loss) from RSC (excluding
             income tax benefits)                                        $  1,635      $ (5,720)        $(1,499)
                                                                         --------      --------         -------
                                                                         --------      --------         -------

</TABLE>

     During 1997, the Company accelerated the disposition of RSC's real estate
     holdings. Based upon the Company's decision to pursue the bulk sale of
     several projects, as well as discounting other holdings to reflect RSC's
     current anticipated sales proceeds, several properties were written down to
     their estimated net realizable value. The amount of the writedown in 1997
     was $2,342,000.

     Condensed financial information relative to investments in real estate
     limited partnerships accounted for under the equity method, before
     eliminations, are as follows (In thousands):

<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                                  -------------------------------
                                                                                      1998              1997
<S>                                                                               <C>                 <C>
Assets:
  Real estate                                                                        $   494          $    2,755
  Other assets                                                                           281                 657
                                                                                     -------          ----------

           Total                                                                     $   775          $    3,412
                                                                                     -------          ----------
                                                                                     -------          ----------
Liabilities and Equity:
  Liabilities (primarily third-party debt)                                           $   221          $    1,895
  RSC's equity (before write down of $105 in 1998
     and $213 in 1997)                                                                   337                 915
  Others' equity                                                                         217                 602
                                                                                     -------          ----------
           Total                                                                     $   775          $    3,412
                                                                                     -------          ----------
                                                                                     -------          ----------

</TABLE>


                                                  65

<PAGE>

<TABLE>
<CAPTION>

                                                                           YEAR ENDED DECEMBER 31,
                                                                   ------------------------------------
                                                                     1998          1997          1996
<S>                                                                <C>           <C>           <C>
Summary of partnerships' income (loss):
  Sales of real estate                                             $  3,276      $  9,493      $ 11,930
  Cost of sales and expenses                                         (3,527)       (9,930)      (11,635)
                                                                   --------      --------      --------
           Net (loss) income                                       $   (251)     $   (437)     $    295
                                                                   --------      --------      --------
                                                                   --------      --------      --------
RSC's share of net (loss) income in limited
   partnerships                                                    $   (125)     $   (223)     $    151
Recovery (write down) of RSC's investment in limited
partnerships                                                            108          (213)           --
                                                                   --------      --------      --------
          Total                                                    $    (17)     $   (436)     $    151

Increases (decreases) to RSC's share of net income:
    Income (loss) from direct investments in real estate                188        (3,565)         (583)
    Other                                                                --            28            81
                                                                   --------      --------      --------
          Total                                                         188        (3,537)         (502)
                                                                   --------      --------      --------
Income (loss) from investments in real estate                      $    171      $ (3,973)     $   (351)
                                                                   --------      --------      --------
                                                                   --------      --------      --------

</TABLE>


5.    PREMISES AND EQUIPMENT

      Bank premises and equipment consists of the following (In thousands):

<TABLE>
<CAPTION>

                                                                 DECEMBER 31,
                                                          ---------------------------
                                                            1998              1997
<S>                                                       <C>               <C>
Buildings                                                 $    245          $    250
Leasehold improvements                                       1,196             1,253
Furniture and equipment                                      2,979             3,465
                                                          --------          --------
                                                             4,420             4,968
Accumulated depreciation and amortization                   (2,920)           (3,217)
                                                          --------          --------

           Total premises and equipment                   $  1,500          $  1,751
                                                          --------          --------
                                                          --------          --------

</TABLE>

                                         66

<PAGE>


6.    DEPOSITS

      Deposits are comprised of the following (In thousands):

<TABLE>
<CAPTION>

                                                                                         DECEMBER 31,
                                                                                 ------------------------------
                                                                                    1998                1997
<S>                                                                              <C>                 <C>
Noninterest bearing deposits                                                     $   54,236          $   46,744
Interest bearing deposits:
  NOW and money market accounts                                                      54,878              48,616
  Savings accounts                                                                   46,464              36,498
  Time deposits:
    Under $100,000                                                                   17,682              15,778
    $100,000 and over                                                                33,377              28,643
                                                                                 ----------          ----------
           Total interest bearing deposits                                          152,401             129,535
                                                                                 ----------          ----------
           Total deposits                                                        $  206,637          $  176,279
                                                                                 ----------          ----------
                                                                                 ----------          ----------

</TABLE>


     At December 31, 1998, time deposits of $100,000 or more include
     approximately $15,945,000 maturing in 3 months or less, $12,480,000
     maturing in 3 to 12 months and $4,952,000 maturing after 12 months.

     At December 31, 1998, the scheduled maturities of all certificates of
     deposits and other time deposits are as follows (In thousands):

<TABLE>
<CAPTION>

                                           DECEMBER 31, 1998
                                  ---------------------------------------
                                  <S>                          <C>
                                  1999                         $  41,432
                                  2000                             6,756
                                  2001                             1,577
                                  2002                             1,191
                                  2003 and thereafter                103
                                                               ----------

                                                               $  51,059
                                                               ----------
                                                               ----------

</TABLE>


                                      67

<PAGE>



7.   SHORT-TERM BORROWINGS, LEASE COMMITMENTS, AND CONTINGENCIES

     At December 31, 1998 and 1997, the Company had no federal funds purchased
     or securities sold under repurchase agreements outstanding.

     At December 31, 1998, the Company had unsecured federal funds lines of 
     credit available providing for short-term borrowings up to an aggregate 
     of $5,000,000. Borrowings under federal funds lines are generally on an 
     overnight basis with interest rates determined by market conditions. 
     Interest rates ranged between 4.50 percent and 4.80 percent at December 
     31, 1998. The agreements are subject to annual renewal. Information 
     concerning federal funds lines is summarized as follows (In thousands, 
     except percentages):

<TABLE>
<CAPTION>

                                                                                          DECEMBER 31,
                                                                                -------------------------------
                                                                                      1998              1997
<S>                                                                             <C>                    <C>
Average balance during the year                                                      $   143           $     -
Average interest rate during the year                                                  4.95%                 -
Maximum month-end balance during the year                                            $     -           $     -

</TABLE>


     In addition to its federal funds lines, the Company uses unpledged
     securities in its investment portfolio as a source of short-term liquidity
     by selling securities under repurchase agreements. Securities sold under
     repurchase agreements generally mature within one to seven days from the
     transaction date. Securities sold under repurchase agreements are delivered
     to broker dealers who arrange the transactions. The broker dealers may
     sell, loan or otherwise dispose of such securities to other parties in the
     normal course of their operations and agree to resell to the Company
     substantially identical securities at the maturities of the agreements.
     There were no such outstanding agreements at December 31, 1998 and 1997.
     During 1998, the Bank applied for, and was accepted as a member of the
     Federal Home Loan Bank of San Francisco (the " FHLB"). At December 31,
     1998, the Bank held stock in the FHLB which would allow the Bank to borrow
     up to $11.5 million using various loans or securities as collateral.
     Information concerning securities sold under agreements to repurchase is
     summarized as follows (In thousands, except percentages):

<TABLE>
<CAPTION>

                                                                                           DECEMBER 31,
                                                                                ---------------------------------
                                                                                       1998              1997
<S>                                                                             <C>                     <C>
Average balance during the year                                                       $   204           $     -
Average interest rate during the year                                                   5.65%                 -
Maximum month-end balance during the year                                             $     -           $     -

</TABLE>


     The Company leases land and a building under a lease agreement having an
     initial term of approximately 30 years. The lease is accounted for as an
     operating lease for the land and a capital lease for the building.

     During 1995, the Company entered into a sale-leaseback of its corporate
     headquarters. The leaseback is accounted for as an operating lease with a
     term of 15 years. Additionally, the Bank has lease commitments related to
     certain other properties which are accounted for as operating leases. Rent
     expense under all operating lease agreements was $636,000, $528,000 and
     $540,000 for the years ended December 31, 1998, 1997 and 1996,
     respectively.


                                     68

<PAGE>


     At December 31, 1998, the aggregate minimum future lease commitments under
     capital leases and noncancelable operating leases with terms of one year or
     more consist of the following (In thousands):

<TABLE>
<CAPTION>

                                                                                      CAPITAL          OPERATING
                                                                                      LEASES             LEASES
                                                                                      --------------------------
<S>                                                                                   <C>              <C>
1999                                                                                  $    48          $    573
2000                                                                                       76               544
2001                                                                                       76               492
2002                                                                                       76               492
2003                                                                                       76               492
Thereafter                                                                              2,450             4,294
                                                                                      -------          --------
Total minimum lease payments                                                            2,802          $  6,887
                                                                                                       --------
                                                                                                       --------
Amount representing interest                                                           (2,255)
                                                                                      -------
Net present value of minimum lease payments                                           $   547
                                                                                      -------
                                                                                      -------

</TABLE>

     The Company is party to legal proceedings and claims which arise during the
     ordinary course of business. In the opinion of management, the ultimate
     outcome of such litigation and claims will not have a material adverse
     effect on the Company's financial position or results of its operations.

8.   INCOME TAXES

     Income tax expense (benefit) is summarized as follows (In thousands):

<TABLE>
<CAPTION>

                                                                            YEAR ENDED DECEMBER 31,
                                                                -------------------------------------------------
                                                                    1998               1997               1996
<S>                                                             <C>                  <C>                 <C>
Current:
  Federal                                                         $   1,784          $    (358)          $  (149)
  State                                                                 487                (47)               54
                                                                  ---------          ---------           -------
           Total current                                          $   2,271          $    (405)              (95)

Deferred:
  Federal                                                               160               (280)              688
  State                                                                 212               (148)              139
                                                                  ---------          ---------           -------

           Total deferred                                               372               (428)              827
                                                                  ---------          ---------           -------

                                                                  $   2,643          $    (833)          $   732
                                                                  ---------          ---------           -------
                                                                  ---------          ---------           -------

</TABLE>


                                                     69
<PAGE>


     A reconciliation of the statutory federal income tax rate with the
     effective tax rate is as follows:

<TABLE>
<CAPTION>

                                                                                 PERCENT OF PRE-TAX INCOME
                                                                                  YEAR ENDED DECEMBER 31,
                                                                           -------------------------------------
                                                                                1998        1997         1996
<S>                                                                        <C>             <C>           <C>
Statutory rate                                                                 35.0 %      (35.0)%       35.0 %
State taxes, net of federal benefit                                             7.3 %       (6.1)%        7.3 %
Other, net                                                                     (0.5)%        1.6 %       (0.3)%
                                                                               ------      -------       ------
Effective rate                                                                 41.8 %      (39.5)%       42.0 %
                                                                               ------      -------       ------
                                                                               ------      -------       ------

</TABLE>

     The Company's net deferred tax asset (included in other assets) is
     comprised of the following (In thousands):

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                                     --------------------------
                                                                                       1998              1997
<S>                                                                                  <C>                <C>
Deferred tax assets:
  Allowance for credit losses                                                        $  1,062           $   871
  Lease financing                                                                         171               150
  Deferred compensation                                                                   395               340
  Nonaccrual loan interest                                                                 68               259
  Allowance for real estate losses                                                        105               802
  Other                                                                                   325               231
                                                                                     --------           -------

           Total deferred tax assets                                                    2,126             2,653
                                                                                     --------           -------

Deferred tax liabilities:
  State taxes                                                                            (157)             (205)
  Depreciation                                                                            (34)              (32)
  Unrealized investment gains                                                            (159)             (148)
  Other                                                                                  (500)             (610)
                                                                                     --------           -------

           Total deferred tax liabilities                                                (850)             (995)
                                                                                     --------           -------

           Net deferred tax asset                                                    $  1,276           $ 1,658
                                                                                     --------           -------
                                                                                     --------           -------

</TABLE>

     Based upon the level of historical taxable income and projections for
     future taxable income over the periods which the deferred tax assets are
     deductible, management believes it is more likely than not the Company will
     realize the benefits of these deductible differences. Accordingly, for the
     years ended December 31, 1998 and 1997, no valuation allowance related to
     the deferred tax asset was considered necessary.


                                         70

<PAGE>

9.   EMPLOYEE BENEFIT PLANS

     STOCK OPTION PLAN - The Company has reserved 545,448 shares of its common
     stock for issuance under its amended 1990 stock option plan. Options 
     granted under the plan may either be immediately exercisable for the full 
     number of shares granted thereunder or may become exercisable in 
     cumulative increments over a period of months or years as determined by 
     the Compensation Committee of the Board of Directors but, in no event 
     less than 20 percent of the shares subject to the option per year during 
     the five years from the date of grant. All options are granted at prices 
     not less than 100 percent of the fair value of the stock at the date of 
     grant. The maximum term of shares granted is set by the Compensation 
     Committee not to exceed ten years.
     
     At December 31, 1998 and 1997, there were 124,495 and 190,994 additional 
     shares available for grant under the Plan. The per share weighted-average 
     fair value of stock options granted during 1998 was $2.96 on the date of 
     grant using the Black Scholes option-pricing model with the following 
     weighted-average assumptions. 1998 - expected dividend yield 2.67 
     percent, risk-free interest rate of 5.71 percent, expected life of 9.6 
     years and a volatility assumption of 15 percent. There were no options 
     granted in 1997. In 1996 the calculated fair value of options granted was 
     $2.17 using the following assumptions; expected life, 36 to 120 months; 
     volitility 20 percent, risk free interest rates, 6.10 percent to 6.50 
     percent; and expected dividend yield of 2.5 percent.
     
     The Company applies APB Opinion No. 25 in accounting for its Plan, and
     accordingly, no compensation cost has been recognized for its stock options
     in the financial statements. Had the company determined compensation cost
     based on the fair value at the grant date for its stock options under SFAS
     No. 123 "Accounting for Stock-Based Compensation", the Company's net income
     would have been reduced to the pro forma amounts indicated below.

<TABLE>
<CAPTION>

                                                                      1998           1997              1996
                                                                      ----           ----              ----
<S>                                           <C>               <C>             <C>               <C>
             Net income (loss)                  As reported       $3,673,000      $(1,274,000)      $1,008,000
                                                Pro forma         $3,584,000      $(1,330,000)      $  959,000
             Earnings (loss) per share
                      Basic                     As reported       $1.40           $(.68)            $.55
                      Diluted                   As reported       $1.31           $(.68)            $.54
                      Basic                     Pro forma         $1.37           $(.71)            $.53
                      Diluted                   Pro forma         $1.28           $(.71)            $.51

</TABLE>

     Pro forma net income reflects only options granted since December 31, 1995.
     Therefore, the full impact of calculating compensation cost for stock
     options under SFAS No. 123 is not reflected in the pro forma net income
     amounts presented above because compensation cost is reflected over the
     options' vesting period of 5 years and compensation cost for options
     granted prior to January 1, 1996 is not considered.

                                      71

<PAGE>



     Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>

                                                                                                      WEIGHTED
                                                                                  NUMBER               AVERAGE
                                                                               OF SHARES        EXERCISE PRICE
<S>                                                                <C>                        <C>
                                                                   --------------------------------------------

OUTSTANDING, JANUARY 1, 1996                                                     121,714            $     4.31
     Granted                                                                     167,000                  9.23
     Exercised                                                                         -                     -
     Forfeited                                                                         -                     -
     Expired                                                                           -                     -
                                                                   --------------------------------------------
OUTSTANDING, DECEMBER 31, 1996                                                   288,714                  7.15
     Granted                                                                           -                     -
     Exercised                                                                   (17,387)                 4.31
     Forfeited                                                                         -                     -
     Expired                                                                     (12,500)                 9.49
                                                                   --------------------------------------------
OUTSTANDING, DECEMBER 31, 1997                                                   258,827                  7.23
     Granted                                                                      68,500                 13.30
     Exercised                                                                    (3,249)                 8.94
     Forfeited                                                                    (1,001)                 8.94
     Expired                                                                      (1,000)                 8.94
                                                                   --------------------------------------------
OUTSTANDING, DECEMBER 31, 1998                                                   322,077            $     8.50
                                                                   --------------------------------------------
                                                                   --------------------------------------------

</TABLE>

      Additional information regarding options outstanding as of December 31,
1998 is as follows:

<TABLE>
<CAPTION>

                                     OPTIONS OUTSTANDING                           OPTIONS EXERCISABLE
----------------------------------------------------------------------------------------------------------------
                                       WEIGHTED AVG.
                                         REMAINING
      RANGE OF           NUMBER         CONTRACTUAL     WEIGHTED AVG.          NUMBER         WEIGHTED AVG.
  EXERCISE PRICES      OUTSTANDING         LIFE         EXERCISE PRICE      EXERCISABLE       EXERCISE PRICE
<S>                  <C>              <C>             <C>                  <C>               <C>           
       $4.31              104,327        1.40 yrs.          $  4.31             104,327           $  4.31
       $8.94               89,250        7.96 yrs.          $  8.94              81,125           $  8.94
       $9.63               60,000        7.34 yrs.          $  9.63              24,000           $  9.63
  $10.50 - $14.50          68,500        9.13 yrs.          $ 13.30              15,458           $ 14.46
------------------------------------------------------------------------  --------------------------------------
  $ 4.31 - $14.50         322,077        5.97 yrs           $  8.50             224,910           $  7.24
                          -------                                               -------
                          -------                                               -------

</TABLE>


     EMPLOYEE STOCK OWNERSHIP PLAN - The Company has an employee stock ownership
     plan covering substantially all full-time employees meeting certain
     requirements. Contributions to the plan are discretionary as determined by
     the Board of Directors. The employee stock ownership plan expense was
     $200,000, $200,000 and $173,500 for the years ended December 31, 1998, 1997
     and 1996, respectively. The plan owned 172,319 and 161,239 shares of the
     Company's common stock at December 31, 1998 and 1997, respectively.

     OTHER PLANS - The Company has also established the Regency Bancorp Cash or
     Deferred Retirement Plan which qualifies under the Internal Revenue Code
     Section 401(k). Employee contributions to the

                                      72


<PAGE>


     Plan may be matched by the Company at the discretion of the Board of 
     Directors. Employee contributions to the Plan are immediately vested while
     any matching contributions made by the Bank vest at different percentages 
     based on years of service. For the years ended December 31, 1998, 1997 and
     1996, the Company contributed approximately $45,000, $47,000 and $27,100 
     respectively, to the Plan.

     The Company has a nonqualified Deferred Compensation Plan providing 
     directors with the opportunity to participate in an unfunded, deferred 
     compensation program. Under the plan, directors may elect to defer some 
     or all of their current compensation. At December 31, 1998 and 1997, the 
     total net deferrals included in other liabilities was approximately 
     $557,000 and $515,000, respectively. In addition, in 1994, the Company 
     established a salary continuation plan for three of the Bank's key 
     executives which provides that upon retirement the Bank will continue to 
     provide compensation to these executives for a period of 15 years. Future 
     compensation under the Plan is earned by the executives for services 
     rendered through retirement and vests at a rate of 10 percent per year. 
     The Company accrues for the compensation based on anticipated years of 
     service and the vesting schedule provided in the Plan. At December 31, 
     1998 and 1997, $323,000 and $242,000, respectively, has been accrued. In 
     connection with the implementation of the Deferred Compensation and 
     Salary Continuation Plans, single premium universal life insurance 
     policies on the life of each participant were purchased by the Bank, 
     which is beneficiary and owner of the policies. The cash surrender value 
     of the policies was $3,186,000 and $3,038,000 at December 31, 1998 and 
     1997. The current annual tax-free interest rates on these policies range 
     from 5.50 percent to 5.70 percent. The assets of the Plan, under Internal 
     Revenue Service regulations, are the property of the Company and are 
     available to satisfy the Company's general creditors.
     
10.  SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE

     The following table provides a reconciliation of the numerator and
     denominator of the basic EPS computation with the numerator and denominator
     of the diluted EPS computation (In thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                 1998          1997            1996
                                                                      ----------------------------------------------
<S>                                                                   <C>                <C>             <C>
       BASIC EPS COMPUTATION
       Net income (loss)                                                      $ 3,673       $(1,274)         $1,008

       Average common shares outstanding                                        2,624          1,860          1,818

       Basic EPS                                                               $ 1.40        $(0.68)          $0.55
                                                                      ----------------------------------------------
       DILUTED EPS COMPUTATION
       Net income (loss)                                                      $ 3,673      $ (1,274)         $1,008

       Average common shares outstanding                                        2,624          1,860          1,818
       Stock options (Anti dilutive in 1997)                                      126              -             54
       Warrants (Anti dilutive in 1997)                                            50              -              -
                                                                      ----------------------------------------------
                                                                                2,800          1,860          1,872
                                                                      ----------------------------------------------
                                                                      ----------------------------------------------
       Diluted EPS                                                             $ 1.31        $(0.68)          $0.54
                                                                      ----------------------------------------------
                                                                      ----------------------------------------------
</TABLE>

     On December 31, 1997, the Company completed a private placement offering of
     750,000 new shares of its common stock. The net proceeds of $5,927,000 were
     used to contribute capital to the Bank. Warrants to purchase 26,211 shares
     of common stock at $9.90 and 150,000 shares of common stock at

                                      73


<PAGE>


     $10.00 per share were outstanding at December 31, 1997 but were not 
     included in the computation of diluted EPS because the warrants exercise 
     price was greater than the average market price of the common shares. The 
     warrants expire on January 1, 2003. Options to purchase 49,000, 60,000, 
     and 167,000 shares of common stock at various prices per share were 
     outstanding at December 31, 1998, 1997 and 1996, respectively but were not
     included in diluted EPS because the options exercise price was greater 
     than the average market price of the common shares for the years then 
     ended.

11.  RELATED PARTY TRANSACTIONS

     Certain officers and directors of the Company and affiliates are customers
     of and have had other transactions with the Bank in the ordinary course of
     business. In management's opinion, all loans and commitments included in
     such transactions were made on substantially the same terms, including
     interest rates and collateral, as those prevailing at the time for
     comparable transactions with other persons and did not involve more than
     normal risk of collectibility or present other unfavorable features.
     Changes in loans outstanding to directors, officers and affiliates were as
     follows (In thousands):

<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                                  ---------------------------------
                                                                      1998                   1997
<S>                                                               <C>                  <C>
Balance, beginning of year                                           $ 509                  $ 998
Additions                                                              302                     87
Reductions                                                            (476)                  (576)
                                                                      -----                  -----

Balance, end of year                                                 $ 335                  $ 509
                                                                      -----                  -----
                                                                      -----                  -----
</TABLE>

     Prior to 1998, the Company's Vice Chairman, David N. Price, provided
     administrative services for the Company's 401(k) and ESOP plans. In 1997
     and 1996, the Company paid approximately $19,000 and $18,000, respectively,
     for these services.

12.  FINANCIAL INSTRUMENTS FAIR VALUE DISCLOSURE

     The following summary disclosures are made in accordance with the
     provisions of SFAS No. 107, "Disclosures About Fair Value of Financial
     Instruments", which requires the disclosure of fair value information about
     both on- and off- balance sheet financial instruments where it is practical
     to estimate that value. Fair value is defined in SFAS No. 107 as the amount
     at which an instrument could be exchanged in a current transaction between
     willing parties, other than in a forced or liquidation sale. It is not the
     Company's intent to enter into such exchanges.

     In cases where quoted market prices were not available, fair values were
     estimated using present value of future cash flows or other valuation
     methods, as described below. The use of different assumptions (e.g.,
     discount rates and cash flow estimates) and estimation methods could have a
     significant effect on fair value amounts. Accordingly, the estimates
     presented herein are not necessarily indicative of the amounts the Company
     could realize in a current market exchange. Because SFAS No. 107 excludes
     certain financial instruments and all non-financial instruments from its
     disclosure requirements, any aggregation of the fair value amounts
     presented would not represent the underlying value of the Company.

                                      74


<PAGE>
<TABLE>
<CAPTION>
                                                   DECEMBER 31, 1998                   DECEMBER 31, 1997
                                             -------------------------------    --------------------------------
                                                CARRYING       ESTIMATED           CARRYING        ESTIMATED
                                                 AMOUNT        FAIR VALUE           AMOUNT        FAIR VALUE
                                                     (IN THOUSANDS)                     (IN THOUSANDS)
<S>                                         <C>               <C>                <C>             <C>
Assets:
  Cash and cash equivalents                      $ 25,220       $ 25,220            $ 19,893        $ 19,893
  Investment securities                            46,990         46,990              36,986          36,986
  Non marketable equity securities                  1,170                                     
                                                                   1,170                   -               -
  Loans, net                                      147,588        148,388             126,430         127,730
  Servicing asset                                                                                
                                                      245            245                 507             507
  Interest only strip                                                                            
                                                      346            346                 417             426

Liabilities:
  Deposits                                        206,637        210,189             176,279         176,190

Commitments to extend credit and
    standby letters of credit                                                                    
                                                        -            195                   -               -

</TABLE>

     The following methods and assumptions were used in estimating the fair
     values of financial instruments:

     CASH AND CASH EQUIVALENTS - The carrying amounts reported in the balance
     sheets for cash and cash equivalents approximate their estimated fair
     values.

     INVESTMENT SECURITIES - Fair values for investment securities, including
     mortgage-backed securities, are based on quoted market prices.

     NON MARKETABLE EQUITY SECURITIES - Fair values of non marketable equity
     securities are based on the quoted par value of capital stock of the
     Federal Reserve Bank and Federal Home Loan Bank.

     LOANS - The fair value for loans, values both the principal and interest
     cash flows to the present using discounting techniques. Principal cash
     flows are defined in the maturity schedules. Income is calculated for each
     month using the basis, the remaining balance, and the repricing rate for
     that time period. If any portion of the account is scheduled to reprice,
     the projected offering rate for that time period is used as the repricing
     rate. The income is then multiplied by a discount factor to determine the
     discounted fair value income amount.

     SERVICING ASSET AND INTEREST ONLY STRIP - Fair values for servicing assets
     and interest only strips are estimated based on the results of valuation
     techniques which include the initial price paid, discounted cash flows,
     prepayment statistics, and estimated expected lives of the underlying
     loans.

     DEPOSITS - Fair values for transactions and savings accounts are equal to
     the respective amounts payable on demand at December 31, 1998 and 1997
     (i.e., carrying amounts). Fair values of fixed-maturity certificates of
     deposit were estimated using discounted cash flows over their remaining
     maturities as discussed above.

     COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - Fair values of
     commitments to extend credit are estimated using the fees currently charged
     to enter into similar agreements, taking into 

                                      75

<PAGE>

     account the remaining terms of the agreements and the present 
     creditworthiness of counterparties. The fair value of standby letters of 
     credit are based on fees currently charged for similar agreements or on 
     the estimated cost to terminate them or otherwise settle the obligation 
     with the counterparties at the reporting date.

13.   REGULATORY MATTERS

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

     Quantitative measures established by regulation to ensure capital adequacy
     require the Company and Bank to maintain minimum ratios (set forth in the
     table below) of total and Tier 1 capital (as defined in the regulations) to
     risk-weighted assets (as defined), and of Tier 1 capital to average assets
     (as defined). As of December 31, 1998 and 1997, the Company and Bank meet
     all capital adequacy requirements to which they are subject and management
     believes that, under the current regulations, both will continue to meet
     their minimum capital requirements in the foreseeable future.

     As of December 31, 1998 and 1997 respectively, the Bank's capital ratios
     are considered "Well Capitalized" under the regulatory framework for prompt
     corrective action. The Company and Bank's actual capital amounts (in
     thousands) and ratios are also presented in the following table:

<TABLE>
<CAPTION>
                                                                                                  TO BE WELL
                                                                       FOR CAPITAL             CAPITALIZED UNDER
                                                                         ADEQUACY              PROMPT CORRECTIVE
                                                   ACTUAL               PURPOSES:             ACTION PROVISIONS:
                                            --------------------------------------------------------------------------
                                              AMOUNT     RATIO      AMOUNT       RATIO        AMOUNT        RATIO
                                            --------------------------------------------------------------------------
<S>                                        <C>        <C>       <C>          <C>         <C>            <C>        
       AS OF DECEMBER 31, 1998
       Total Capital (to Risk Weighted
       Assets:)
         Company                              $22,814   16.14%     >=$11,309     >=8.00%            N/A
         Regency Bank                         $20,047   14.16%     >=$11,327     >=8.00%     >=$14,159     >=10.00%

       Tier 1 Capital (to Risk Weighted                           
       Assets):
         Company                              $21,042   14.89%      >=$5,654     >=4.00%            N/A
         Regency Bank                         $18,266   12.90%      >=$5,664     >=4.00%     >=$ 8,495     >=6.00%

       Tier 1 Capital (to Average Assets):
         Company                              $21,042    9.22%      >=$9,128     >=4.00%            N/A
         Regency Bank                         $18,266    8.02%      >=$9,108     >=4.00%     >=$11,385    >=5.00%
</TABLE>

                                      76

<PAGE>

<TABLE>
<CAPTION>

                                                                                                  TO BE WELL
                                                                       FOR CAPITAL             CAPITALIZED UNDER
                                                                         ADEQUACY              PROMPT CORRECTIVE
                                                   ACTUAL               PURPOSES:             ACTION PROVISIONS:
                                            --------------------------------------------------------------------------
                                              AMOUNT     RATIO      AMOUNT       RATIO        AMOUNT        RATIO
                                            --------------------------------------------------------------------------
<S>                                        <C>         <C>      <C>           <C>          <C>            <C>
       AS OF DECEMBER 31, 1997
       Total Capital (to Risk Weighted
       Assets:)
         Company                               $18,779    13.87%    >=$10,828     >=8.00%             N/A
         Regency Bank                          $16,003    11.79%    >=$10,860     >=8.00%     >=$ 13,576   >=10.00%
       Tier 1 Capital (to Risk Weighted                           
       Assets):
         Company                               $17,081    12.62%    >= $5,414     >=4.00%             N/A
         Regency Bank                          $14,300    10.53%    >= $5,430     >=4.00%      >=$ 8,145   >= 6.00%

       Tier 1 Capital (to Average Assets):
         Company                                $17,081    8.89%    >= $7,686     >=4.00%             N/A
         Regency Bank                           $14,300    7.46%    >= $7,663     >=4.00%      >=$ 9,579   >= 5.00%

</TABLE>

     DIVIDENDS - Under California law, shareholders of the Company may receive
     dividends when and as declared by its Board of Directors out of funds
     legally available. With certain exceptions, a California corporation may
     not pay a dividend to its shareholders unless its retained earnings equal
     at least the amount of the proposed dividend. California law further
     provides that, in the event that sufficient retained earnings are not
     available for the proposed distribution, a corporation may nevertheless
     make a distribution to its shareholders if it meets the following two
     generally stated conditions: (i) the corporation's assets equal at least 1
     1/4 times its liabilities; and (ii) the corporation's current assets equal
     at least its current liabilities or, if the average of the corporation's
     earnings before taxes on income and before interest expense for the two
     preceding fiscal years was less than the average of the corporation's
     interest expense for such fiscal years, then the corporation's current
     assets must equal at least 1 1/4 times its current liabilities.

     The Company expects to receive substantially all of its income initially
     from dividends from the Bank and/or RIA. Under California state banking
     law, the Bank may not pay cash dividends in an amount which exceeds the
     lesser of the retained earnings of the Bank or the Bank's net income for
     its last three fiscal years (less the amount of any distributions to
     shareholders made during that period). If the above test is not met, cash
     dividends may only be paid with the prior approval of the California State
     Department of Financial Institutions, in an amount not exceeding the Bank's
     net income for its last fiscal year or the amount of its net income for its
     current fiscal year. Accordingly, the future payment of cash dividends may
     depend on the Bank's earnings, its ability to meet capital requirements
     and/or the Company's ability to generate income from other sources.

     CASH RESTRICTION - The FDIC requires banks to maintain average reserve
     balances on deposits, consisting of vault cash and actual balances held by
     the Federal Reserve Bank of San Francisco. The Bank's average FDIC reserve
     requirements were $2,601,000 and $1,683,000 in 1998 and 1997, respectively.
     The Bank maintained average balances of $2,801,000 and $1,815,000 in 1998
     and 1997, respectively.

                                      77

<PAGE>


14.   SUPPLEMENTAL CASH FLOW INFORMATION

     Following is a summary of amounts paid for interest and taxes and of
     non-cash transactions for the years ended December 31, 1998, 1997 and 1996
     (In thousands):

<TABLE>
<CAPTION>

                                                                    FOR THE YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------
                                                               1998               1997              1996
<S>                                                    <C>                  <C>                  <C>
Cash paid during the period for:
  Interest on deposits and other borrowings                      $   5,455          $   5,328          $  4,597
  Income taxes                                                       1,901                  -               316

Noncash transactions:                                                                          
  Transfer of loans to other real                                                              
    estate owned                                                       813                390               218
Net assets acquired through acquisition of                                                     
    partnerships less cash received:
    Land and real estate under construction                              -                  -             6,272
    Notes receivable                                                     -                  -             2,025
    Other assets                                                         -                  -               227
    Notes payable                                                        -                  -             8,614
    Accrued interest and other liabilities                               -                  -               714

</TABLE>

                                       78

<PAGE>


15.  PARENT COMPANY ONLY FINANCIAL STATEMENTS

     Condensed balance sheets of Regency Bancorp at December 31, 1998, and 1997,
     and condensed statements of income and cash flows for the years ended
     December 31, 1998, 1997 and 1996, respectively. (In thousands):

CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                        DECEMBER 31,
                                                              ------------------------------
                                                                     1998           1997
<S>                                                            <C>              <C>
ASSETS

Cash and short-term investments                                     $  2,662       $ 2,794
Investment in bank subsidiary                                         19,506        15,805
Investment in investment subsidiary                                      220           308
Other assets                                                              61           107
                                                                    --------       -------
                                                                           -             -
         Total assets                                               $ 22,449       $19,014
                                                                    --------       -------
                                                                    --------       -------

LIABILITIES AND SHAREHOLDERS' EQUITY

Other liabilities                                                   $      -       $   280
                                                                    --------       -------

           Total liabilities                                               -           280

SHAREHOLDERS' EQUITY:
  Common stock                                                        15,229        15,203
  Retained earnings                                                    7,000         3,327
  Unrealized gain on securities                                          220           204
                                                                    --------       -------

           Total shareholders' equity                                 22,449        18,734
                                                                     -------       -------

           Total liabilities and shareholders' equity               $ 22,449       $19,014
                                                                    --------       -------
                                                                    --------       -------

</TABLE>

                                      79

<PAGE>

<TABLE>
<CAPTION>

STATEMENTS OF INCOME
             (IN THOUSANDS)                                      FOR THE YEAR ENDED DECEMBER 31,
                                                           -------------------------------------------
                                                                1998           1997           1996
<S>                                                       <C>             <C>            <C>
INCOME:
    Regency Bank income (loss)                                   $ 3,685       $(1,291)       $ 1,122
    Regency Investment Advisors income                               126           103              -
                                                              ----------    ----------      ---------
            Total income                                           3,811        (1,188)         1,122

EXPENSES:
    Management fees to bank subsidiary                                66            66             66
    Other                                                            150            79            133      
                                                              ----------    ----------      ---------
           Total expenses                                            216           145            199

NET INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)              3,595        (1,333)           923

INCOME TAX (BENEFIT)                                                 (78)          (59)           (85)
                                                              ----------    ----------      ---------
NET INCOME (LOSS)                                                $ 3,673       $(1,274)       $ 1,008
                                                              ----------    ----------      ---------
                                                              ----------    ----------      ---------

</TABLE>

                                      80
<PAGE>

<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)                                                                        FOR THE YEAR ENDED DECEMBER 31,
                                                                                   -----------------------------------
                                                                                     1998          1997          1996
<S>                                                                                 <C>         <C>             <C>
OPERATING ACTIVITIES:
  Net income (loss)                                                                 $ 3,673     $ (1,274)       $ 1,008
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Equity in undistributed (income) loss of bank subsidiary                       (3,684)       1,291         (1,122)
      Equity in undistributed income of investment subsidiary                          (126)        (103)             -
      Decrease (increase) in other assets                                                45           22            (11)
      (Decrease) increase in other liabilities                                         (281)         281            (10)
                                                                                    -------     --------        -------
           Net cash (used in) provided by  operating activities                        (373)         217           (135)

INVESTING ACTIVITIES:
  Capital contribution to subsidiary bank                                                 -       (3,950)             -
  Capital distribution from subsidiary bank                                               -            -            491
  Capital distribution from investment subsidiary                                       215            -              -
                                                                                    -------     --------        -------
            Net cash provided by (used in) investing activities                         215       (3,950)           491

FINANCING ACTIVITIES:
  Issuance of common stock                                                                -        5,927              -
  Cash dividends                                                                          -            -           (437)
  Proceeds from the issuance of common stock under the
     employee stock option plan                                                          26           75              -

  Proceeds from the issuance of common stock to
     employee stock ownership plan                                                        -          333              -

            Net cash provided by (used in) financing activities                          26        6,335           (437)
                                                                                    -------     --------        -------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                       (132)       2,602            (81)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                        2,794          192            273
                                                                                    -------     --------        -------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                            $ 2,662     $  2,794        $   192
                                                                                    -------     --------        -------
                                                                                    -------     --------        -------

SUPPLEMENTAL CASH FLOW INFORMATION:
  Transfer of Bank's equity in undistributed income
     in investment subsidiary to Regency Bancorp                                    $     -     $    205        $     -
</TABLE>

                                       81
<PAGE>

16.   QUARTERLY FINANCIAL DATA

      Following is selected quarterly financial information for the years ended
      December 31, 1998 and 1997. (In thousands):

QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
 (IN THOUSANDS)                                         1998                                       1997
                                                   QUARTER ENDED                               QUARTER ENDED
                                      Dec. 31     Sep. 30    Jun. 30    Mar. 31    Dec. 31    Sep. 30    Jun. 30   Mar. 31
                                     -------------------------------------------------------------------------------------
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income                        $ 4,957    $ 4,861    $ 4,694    $ 4,124    $ 4,148    $ 4,031     $3,659    $3,448
Interest expense                         1,447      1,409      1,313      1,283      1,361      1,351      1,330     1,279
                                     -------------------------------------------------------------------------------------
Net interest income                      3,510      3,452      3,381      2,841      2,787      2,680      2,329     2,169
Provision for credit losses                  -        100        150        125         58        460        835         -
                                     -------------------------------------------------------------------------------------
Net interest income after provision      3,510      3,352      3,231      2,716      2,729      2,220      1,494     2,169
Non-interest income                      1,028        771        676        487        563        724        619       781
Non-interest expense                     2,076      2,260      2,815      2,304      2,635      2,420      5,806     2,545
                                     -------------------------------------------------------------------------------------
Income (loss) before taxes               2,462      1,863      1,092        899        657        524    (3,693)       405
Income tax expense (benefit)             1,015        785        463        380        325        223    (1,551)       170
                                     -------------------------------------------------------------------------------------
Net income (loss)                        1,447      1,078        629        519        332        301    (2,142)       235


Basic earnings per share                   .55        .41        .24        .20        .18        .16     (1.15)       .13
Diluted earnings per share                 .52        .38        .22        .19        .17        .16     (1.15)       .12


Dividends paid per share                     -          -          -          -          -          -          -         -


Price range, common stock
         High                          14.8125    16.1250    14.6250    14.8750    11.0000    10.1250     10.000   10.6250
         Low                          $12.9375   $11.0000   $13.6250   $10.2500    $9.2500    $8.2500    $9.0000   $9.1250


Shares on which earnings (loss) 
    per common share were based:
        Basic                            2,624      2,624      2,624      2,621      1,879      1,871      1,859     1,831
        Diluted                          2,805      2,804      2,807      2,784      1,948      1,926      1,859     1,902
</TABLE>

                                       
                                  * * * * * *

                                       82
<PAGE>

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

         The registrant's Board of Director's approved the dismissal of 
Deloitte & Touche LLP as the registrant's independent accountant effective 
August 1, 1998. There were no disagreements with Deloitte & Touche LLP on any 
matter of accounting principals or practices, financial statement disclosure, 
or auditing scope or procedure. During the past two years the accountant's 
report contained no adverse opinion or disclaimer of opinion nor was it 
qualified as to uncertainty, audit scope or accounting principles. The 
decision to dismiss Deloitte & Touche LLP was a recommendation made by the 
registrant's Board Audit Committee to the registrant's Board of Directors. 
The registrant has engaged KPMG LLP as principal accountant to audit the 
registrant's financial statements effective August 1, 1998. Regency Bancorp 
received a letter from Deloitte and Touche LLP confirming their agreement 
with the above disclosure which was filed as Exhibit 99.1 on Form 8-K dated 
August 1, 1998 and filed on August 7, 1999.
                                       
                                    PART III

Item 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by Item 10 of Form 10-K is incorporated by 
reference to the information contained in the Company's definitive proxy 
statement for the 1999 Annual Meeting of Shareholders which will be filed 
pursuant to Regulation 14A.

Item 11.    EXECUTIVE COMPENSATION

         The information required by Item 11 of Form 10-K is incorporated by 
reference to the information contained in the Company's definitive proxy 
statement for the 1999 Annual Meeting of Shareholders which will be filed 
pursuant to Regulation 14A.

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by Item 12 of Form 10-K is incorporated by 
reference to the information contained in the Company's definitive proxy 
statement for the 1999 Annual Meeting of Shareholders which will be filed 
pursuant to Regulation 14A.

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by Item 13 of Form 10-K is incorporated by 
reference to the information contained in the Company's definitive proxy 
statement for the 1999 Annual Meeting of Shareholders which will be filed 
pursuant to Regulation 14A.

                                       83
<PAGE>

                                     PART IV

Item 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM-8-K

     (a)(1)       Financial Statements. Listed and included in Part II, Item 8.

        (2)       Financial Statement Schedules. Not Applicable.

        (3)       Exhibits.

<TABLE>
<S>                 <C>

          (2)       Plan of Reorganization and Merger Agreement dated July 21, 1994
                    by and among Regency Bank, Regency Merger Corporation and Regency
                    Bancorp, incorporated by reference from exhibit 2 of registration
                    statement number 33-82150 on Form S-4, filed with the Commission
                    on July 27, 1994.

          (3.1)     Articles of Incorporation dated June 9, 1994, incorporated by
                    reference from exhibit 3.1 of registrant's Annual Report on Form
                    10-K for the year ended December 31, 1994, filed with the
                    Commission on February 27, 1995.

          (3.2)     Bylaws, as amended.

          (4.1)     Specimen form of Regency Bancorp stock certificate incorporated
                    by reference from exhibit 4.1 of registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1994, filed with the
                    Commission on February 27, 1995.

          *(10.1)   401(k) Pension and Profit Sharing Plan, incorporated by
                    reference from exhibit 10.3 of registration statement number
                    33-82150 on Form S-4, filed with the Commission on July 27, 1994.

          *(10.2)   Employee Stock Ownership Plan, incorporated by reference from
                    exhibit 10.4 of registration statement number 33-82150 on Form
                    S-4, filed with the Commission on July 27, 1994.

          *(10.3)   Directors Deferred Fee Plan, incorporated by reference from
                    exhibit 10.5 of registration statement number 33-82150 on Form
                    S-4, filed with the Commission on July 27, 1994.

          *(10.4)   Form of Directors Deferred Fees Agreement for Regency Bank,
                    incorporated by reference from exhibit 10.6 of registration
                    statement number 33-82150 on Form S-4, filed with the Commission
                    on July 27, 1994.

                                       84
<PAGE>

          (10.5)    Lease agreement dated December 22, 1988 for premises located at
                    5240 N. Palm Avenue, Fresno, California, incorporated by
                    reference from exhibit 10.10 of registration statement number
                    33-82150 on Form S-4, filed with the Commission on July 27, 1994.

          (10.6)    Electronic Financial Services Agreement dated June 9, 1992,
                    between Regency Bank and Fiserv, incorporated by reference from
                    exhibit 10.12 of registration statement number 33-82150 on Form
                    S-4, filed with the Commission on July 27, 1994.

          (10.7)    Comprehensive Banking System License and Service Agreement
                    dated April 13, 1992, between Regency Bank and Fiserv,
                    incorporated by reference from exhibit 10.13 of registration
                    statement number 33-82150 on Form S-4, filed with the Commission
                    on July 27, 1994.

          (10.8)    Lease agreement dated February 20, 1995 for premises located at
                    3501 Coffee Road, Suite 3, Modesto, California, incorporated by
                    reference from exhibit 10.19 of registrant's Annual Report on
                    Form 10-K for the year ended December 21, 1995, filed with the
                    Commission on March 29, 1996.

          (10.9)    Lease agreement dated August 17, 1995 for premises located at
                    7060 N. Fresno Street, Fresno, California, incorporated by
                    reference from exhibit 10.21 of registrant's Annual Report on
                    Form 10-K for the year ended December 21, 1995, filed with the
                    Commission on March 29, 1996.

          (10.10)   Form of Indemnification Agreement, incorporated by reference
                    from exhibit 10.3 of registrant's Quarterly Report on Form 10-Q
                    for the quarter ended June 30, 1996, filed with the Commission on
                    August 2, 1996.

          (10.11)   Lease agreement dated May 13, 1996 for premises located at 126
                    "D" Street, Madera, California, incorporated by reference from
                    exhibit 10.4 of registrant's Quarterly Report on Form 10-Q for
                    the quarter ended June 30, 1996, filed with the Commission on
                    August 2, 1996.

          *(10.12)  Employment Agreement made and entered into as of August 22,
                    1996 between Regency Bank, a California Corporation, and Steven
                    F. Hertel, President/Chief Executive Officer, incorporated by
                    reference from exhibit 10.2 of registrant's Quarterly Report on
                    Form 10-Q/A-1 for the quarter ended September 31, 1996, filed
                    with the Commission on November 16, 1996.

          *(10.13)  Employment Agreement made and entered into as of August 22,
                    1996 between Regency Bank, a California Corporation, and Steven
                    R. Canfield, Executive Vice President/Chief Financial Officer
                    incorporated by reference from exhibit 10.3 of registrant's
                    Quarterly Report on Form 10-Q/A- 1 for the quarter ended
                    September 31, 1996, filed with the Commission on November 16,
                    1996.

          *(10.14)  Employment Agreement made and entered into as of August 22,
                    1996 between Regency Bank, a California Corporation, and Robert
                    J. Longatti, 

                                       85
<PAGE>

                    Executive Vice President/Chief Credit Officer incorporated by 
                    reference from exhibit 10.4 of registrant's Quarterly Report on 
                    Form 10-Q/A-1 for the quarter ended September 31, 1996, filed 
                    with the Commission on November 16, 1996.

          *(10.15)  Employment Agreement made and entered into as of August 22,
                    1996 between Regency Bank, a California Corporation, and Regency
                    Investment Advisors Incorporated, a California Corporation, and
                    Alan R. Graas, President, incorporated by reference from exhibit
                    10.5 of registrant's Quarterly Report on Form 10-Q/A-1 for the
                    quarter ended September 31, 1996, filed with the Commission on
                    November 16, 1996.

          *(10.16)  Regency Bancorp 1990 Stock Option Plan, as amended, and Form
                    of Nonstatutory Stock Option Agreement, Form of Incentive Stock
                    Option Agreement and Form of Nonstatutory Stock Option Agreement
                    for Outside Directors, under the Regency Bancorp 1990 Stock
                    Option Plan, as amended, incorporated by reference on
                    registration statement number 33-3848 on Form S-8, filed with the
                    Commission on April 19, 1996.

          *(10.17)  Incentive Stock Option Agreement entered into with Steven F.
                    Hertel, dated December 16, 1996 incorporated by reference from
                    exhibit 10.29 of registrant's Annual Report on Form 10-K for the
                    year ended December 31, 1996, filed with the Commission on March
                    31, 1997.

          *(10.18)  Incentive Stock Option Agreement entered into with Steven R.
                    Canfield, dated December 16, 1996 incorporated by reference from
                    exhibit 10.30 of registrant's Annual Report on Form 10-K for the
                    year ended December 31, 1996, filed with the Commission on March
                    31, 1997.

          *(10.19)  Incentive Stock Option Agreement entered into with Robert J.
                    Longatti, dated December 16, 1996 incorporated by reference from
                    exhibit 10.31 of registrant's Annual Report on Form 10-K for the
                    year ended December 31, 1996, filed with the Commission on March
                    31, 1997.

          *(10.20)  Form of Director Deferred Fees Agreement for Regency Bancorp
                    incorporated by reference from exhibit 10.32 of registrant's
                    Annual Report on Form 10-K for the year ended December 31, 1996,
                    filed with the Commission on March 31, 1997.

          *(10.21)  Form of Director Deferred Fees Agreement for Regency Service
                    Corporation incorporated by reference from exhibit 10.33 of
                    registrant's Annual Report on Form 10-K for the year ended
                    December 31, 1996, filed with the Commission on March 31,1997.

          *(10.22)  Amended and Restated Executive Salary Continuation Agreement
                    dated September 23, 1997, made by and between Regency Bank and
                    Steven F. Hertel, incorporated by reference from exhibit 99.1 of
                    registrant's current report on Form 8-K, filed with the
                    Commission on October 9, 1997.

                                       86
<PAGE>

          *(10.23)  Amended and Restated Executive Salary Continuation Agreement
                    dated September 26, 1997, made by and between Regency Bank and
                    Robert J. Longatti, incorporated by reference from exhibit 99.2
                    of the Form 8-K, filed with the Commission on October 9, 1997.

          *(10.24)  Amended and Restated Executive Salary Continuation Agreement
                    dated September 30, 1997, made by and between Regency Bank and
                    Steven R. Canfield, incorporated by reference from exhibit 99.3
                    of the Form 8-K, filed with the Commission on October 9, 1997.

          (10.25)   Form of Warrant Agreement and Warrant Certificate, incorporated
                    by reference from exhibit 10.29 of registrant's Annual Report on
                    Form 10-K for the year ended December 31, 1997, filed with the
                    Commission on March 27, 1997.

          (10.26)   Belle Plaine Financial LLC Agreement, dated July 23, 1998,
                    incorporated by reference from exhibit 99.1 on Form 8-K, filed
                    with the Commission on July 29, 1998.

          (21.1)    The Company has two subsidiaries, Regency Bank (the "Bank"), a
                    California banking corporation and Regency Investment Advisors
                    ("RIA"), which provides investment management and consulting
                    services. The Bank has only one subsidiary, Regency Service
                    Corporation, a California corporation ("RSC") which engages in
                    the business of real estate development primarily in the
                    Fresno/Clovis area.

          (23.1)    Consent of Deloitte & Touche LLP

          (23.2)    Consent of KPMG Peat Marwick LLP

          (27.1)    Financial Data Schedule
</TABLE>

         * Denotes management contracts, compensatory plans or arrangements.

             (b)  Reports on Form 8-K

                  The Company filed a Form 8-K dated October 8, 1998, in which
                  it reported its third quarter earnings, which states record
                  net quarterly income of $1.08 million or $0.41 per share for
                  the third quarter of 1998.

                                       87
<PAGE>

                                   SIGNATURES

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


                                       REGENCY BANCORP




Date: March 19, 1999                   By: /s/ STEVEN F. HERTEL
      --------------                      -------------------------
                                           Steven F. Hertel
                                           President and Chief Executive Officer
                                           (Principal Executive Officer)



Date: March 19, 1999                   By: /s/ STEVEN R. CANFIELD
      --------------                      -------------------------
                                           Steven R. Canfield
                                           Executive Vice President and
                                           Chief Financial Officer (Principal
                                           Financial and Accounting Officer)


                                       88

<PAGE>

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

<TABLE>
<CAPTION>

        Name                              Date                        Title
        ----                              ----                        -----
<S>                                  <C>                  <C>
/s/ STEVEN F. HERTEL                 March 19, 1999       Director, Chairman of the Board,
-------------------------------                           President & CEO
Steven F. Hertel                                          

/s/ DAVID N. PRICE                   March 19, 1999       Director and Vice
-------------------------------                           Chairman
David N. Price

/s/ ROY JURA                         March 19, 1999       Director and Secretary
-------------------------------                           
Roy Jura

/s/ JOSEPH L. CASTANOS               March 19, 1999       Director
-------------------------------                           
Joseph L. Castanos

/s/ WAYMON E. WATTS                  March 19, 1999       Director
-------------------------------                           
Waymon E. Watts

/s/ DANIEL R. SUCHY                  March 19, 1999       Director
-------------------------------                           
Daniel R. Suchy

/s/ BARBARA PALMQUIST                March 19, 1999       Director
-------------------------------                           
Barbara Palmquist

/s/ STEVE FREELAND                   March 19, 1999       Director
-------------------------------                           
Steve Freeland

/s/ WILLIAM J. ALESSINI              March 19, 1999       Director
-------------------------------                           
William J. Alessini

/s/ WILLIAM J. RUH                   March19, 1999        Director
-------------------------------                           
William J. Ruh
</TABLE>

                                       89
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                   Sequentially
     Exhibit Number                  Description                   Page Number
     --------------                  -----------                   -----------
<S>                        <C>                                     <C>
          3.2                     Bylaws, as amended                  91-118

         23.1              Consent of Deloitte & Touche LLP              119

         23.2              Consent of KPMG Peat Marwick LLP              120

         27.1                   Financial Data Schedule                  121
</TABLE>





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