MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

Overview of Operating Results - 1996 compared to 1995

Earnings per share decreased by 26.6% in 1996 compared to 1995. Net income
and earnings per share were $640 thousand and $.47, respectively, for 1996
compared to net income and earnings per share of $843 thousand and $.64,
respectively, for 1995 . The return on average assets and average equity were
.60% and 5.4%, respectively, for 1996 compared to .83% and 7.4%, respectively,
for 1995. Falling interest rates and a lower portion of loans in the mix of
earning assets resulted in a decrease in the net interest margin of 37 basis
points to 5.15%. Although net interest income decreased by $160 thousand, or
3.2%, noninterest income increased by $149 thousand, or 15.9%, reflecting growth
in service charge income as well as SBA and mortgage income. The provision for
loan losses increased by $195 thousand, or 170%, reflecting isolated loss
exposure in a small number of loan relationships. Noninterest expenses increased
by $142 thousand, or 3.1%.

Consolidated assets were $104.9 million at December 31, 1996, an increase
of $1 million, or .9%, over the comparable total of $103.9 million at December
31, 1995. Average consolidated assets increased by $4.4 million, or 4.4%, to
$105.7 million for 1996 compared to $101.3 million for 1995. Average earning
assets increased by $3.4 million, or 3.7%, and represented 88% of consolidated
average assets for 1996 compared to 88.5% for 1995. Loans declined to 59% of
average earning assets in 1996 compared to 63% in 1995. The declining loan
portfolio funded an increase in the average investment portfolio of $5.0
million, or 16.8%. The growth in average earning assets was funded principally
by deposit growth. Year end and average deposits increased by $3 million and
$4.3 million, respectively. Noninterest bearing demand deposits increased by
$1.1 million, or 16%. The mortgage debt that was secured by the company's
headquarter building matured in November and was paid off.

Consolidated equity increased by $325 thousand to $11.9 million. The
increases of $640 thousand and $10 thousand from earnings and option exercises,
respectively, provided total additions to consolidated equity of $650 thousand.
Consolidated equity was reduced by the $261 thousand in dividends declared
during 1996 and the $64 thousand reduction in net unrealized holding gains on
available-for-sale securities. Consolidated equity as a percentage of
consolidated assets increased to 11.3% from 11.1%. The Bank's total risk-based
and leverage capital ratios at December 31, 1996, were 17.0% and 10.8%,
respectively, compared to 15.1% and 9.0%, respectively, at December 31, 1995.

Net Interest Income, Margin, and Spread - 1996 compared to 1995

Net interest income, interest income less interest expense, decreased by
$160 thousand, or 3.2%. Although average earning assets and deposits increased
by 3.7% and 5.0%, respectively, the increased net interest income resulting from
these improved volumes was offset by the net result of changes in the mix and
yield of average earning assets and average deposits. Net interest margin, net
interest income as a percentage of earning assets, decreased by 37 basis points
to 5.15% from 5.52%. The improvement in net interest income as a result of
increased earning asset and deposit volumes was $141 thousand. The reduction
from lower rates and changes in mix was $301 thousand.

Interest income decreased by $44 thousand, or .5%. Earning asset yields
decreased to a weighted average of 8.65% from 9.02%, and decreased interest
income by $179 thousand before the impact of higher average earning asset volume
and lower average loans relative to total average earning assets. The impact of
rising earning asset volumes produced an increase in interest income of $304
thousand. Average loans fell to 59% of earning assets for 1996 compared to 63%
for 1995, while average investments increased to 37% of average earning assets
for 1996 compared to 33% for 1995. Had the average earning asset mix for 1996
been equal to the mix for 1995, interest income would have been $169 thousand
higher in 1996.

Interest expense increased by $116 thousand, or 3.7%, from 1995 to 1996.
The increase in average deposits and other funding of $4.3 million, or 5.0%,
resulted in an increase in interest expense of $163 thousand. The average cost
of deposits and other funding decreased by 4 basis points as increases in
certificate of deposit yields were offset by decreases in interest bearing
demand deposit yields. Although the mix of average certificates of deposits to
total average deposits held steady at 37%, noninterest bearing demand deposits
increased to 9% of average deposits. Changes in the mix of average deposits had
a favorable impact on interest expense of $55 thousand.

Exposure to Interest Rate Fluctuations

The structure of earning assets and liabilities both during and at the end
of 1996 were such that net interest income and earnings were at risk to
increases in interest rates. During 1996, there was approximately $.80 in
earning assets subject to repricing for every $1.00 in deposits subject to
repricing on a rolling, cumulative, twelve-month basis, representing a
cumulative twelve-month repricing gap of 80%. The practical reality of this
sensitivity position is predicated upon the assumption that earning assets and
liabilities that are subject to repricing will reprice in concert with the
general rate movement in the money and credit markets. While this assumption was
generally borne out with respect to repricable assets, repriceable deposits
lagged the overall movement in interest rates and net interest margin tightened
as a result. A similar but inverse pattern occurs during periods of rising
interest rates.

Fluctuations in interest rates can affect net spread, net interest margin,
and net interest income beyond the impact of direct contractual repricing of
assets and liabilities. Fluctuations in interest rates can, and often do, alter
the contractual maturities of assets and liabilities by increasing or decreasing
both contractual and anticipated prepayment rates. Changes in contractual and
anticipated prepayment rates affect net spread, net interest margin and income
by altering expected repricing gaps as well as changing the amortization of
premiums and discounts related to the affected earning assets.

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

Provision for Loan Losses - 1996 compared to 1995

The provision for loan losses was approximately 170%, or $195 thousand more
than in 1995. In relation to average loans outstanding, the provision for loan
losses in 1996 was .57% compared to .20% in 1995. Net loans charged off during
1996 were $62 thousand compared to $283 thousand in 1995. Gross charge-offs for
1996 were $334 thousand compared to $482 thousand in 1995. $272 thousand in
previously charged off loans were recovered during 1996 compared to $199
thousand during 1995. The provision for loan losses is derived through the
maintenance of an adequate reserve for loan losses. To the extent that the
reserve for loan losses needs to be increased or decreased after adjustment for
net chargeoffs, a provision for loan losses is charged against or credited to
earnings with a corresponding adjustment to the reserve for loan losses. The
loan loss reserve is discussed in the asset quality and allowance for loan
losses section of management's discussion and analysis.

Noninterest Income - 1996 compared to 1995

Noninterest income increased by $149 thousand, or 15.9%, compared to 1995.
Service charge income increased by $67 thousand while SBA and mortgage income
increase by $80 thousand, or 20.4%. The increase in service charge income is
attributable to an increase in demand deposit accounts and the elimination of
certain service charge waivers that were based upon account balances. Demand
deposit accounts increased by 15.3% from December 31, 1995 to December 31, 1996.
SBA and mortgage income consists of transaction income in the form of premiums
realized upon the sale of loans, and servicing income related to portfolio
administration on behalf of the investors to whom loans were sold. Transaction
income increased by 36% in 1996 while servicing income increased by 9%.

Income from the sale of SBA loans increased by $61 thousand, or 41%, in
1996 compared to 1995. SBA servicing income increased by $9 thousand, or 5%, in
1996 compared to 1995. The volume of loans sold increased in 1996 relative to
1995 as significant business development efforts that started during the
previous year began to yield results. Income from the sale of mortgage loans
declined by $6 thousand, or 16%, while servicing income increased by $10
thousand, or 33%. Mortgage activity increased during 1996 due a favorable
interest rate environment; although competitive forces reduced margins.

Noninterest Expense - 1996 compared to 1995

Total noninterest expenses increased by $142 thousand, or 3.1%, in 1996
compared to 1995. The most significant components of the change were an increase
of $40 thousand, or 9%, in occupancy expense, a 72% decline in regulatory
assessments, and an increase of $215 thousand, or 16%, in other noninterest
expenses. Although salaries and employee benefits declined slightly relative to
1995, there where changes in the character of the expenses in this category.
Actual direct payroll expense declined by approximately 2.2% in part reflecting
the foregoing of salary increases for officers, labor savings related to the
implementation of new information systems, and a vacancy during the year in one
officer position. In addition, contributions to the Employee Stock Ownership
plan declined by $19 thousand, or 34%. Deferral of labor costs associated with
originating loans increased by $57 thousand due to increased lending activity.
During 1996, the Board of Directors of Bank of Lodi adopted a management
incentive plan that specifies performance-driven incentives for specific officer
classes throughout the banks operations. Accruals under this incentive plan for
1996, inclusive of related taxes, were $80 thousand.

The increase in occupancy expense resulted from the full year impact of a
vacancy of approximately 4,500 feet of space that was vacated by a tenant at the
company's headquarters building as of October 1, 1995.

Effective June 1, 1995, the Federal Deposit Insurance Corporation (FDIC)
made significant changes to its deposit insurance premium schedule. The deposit
insurance expense of the Bank of Lodi was significantly reduced as a result of
the FDIC changes. Bank of Lodi's principal regulator, the Office of the
Comptroller of the Currency (OCC), has also reduced its annual assessment rates.
Regulatory assessments for 1996 were below the 1995 level by $102 thousand. The
benefit from reductions in regulatory assessments is subject to change in the
future based upon the level of reserves in the FDIC's Bank Insurance Fund.

The principal component of the increase in other noninterest expenses was
an increase of $67 thousand in legal and professional costs. The majority of
this increase represents legal costs associated with resolving problem assets.
The remainder consists of consulting expenses associated with strategic planning
efforts. In addition to increased legal and professional expenses, costs
associated with higher deposit and lending transaction volumes increased as
well. These costs included telephone, postage, supplies, forms, and travel.
Promotional expenses also increased as efforts to generate new business were
ongoing.

Income Taxes - 1996 compared to 1995

The current year tax provision is $254 thousand compared to $399 thousand
for 1995, reflecting an approximate proportional decline in pretax income. The
company had an effective tax rate that was below statutory rates due to the
continued benefit of tax-free interest income from municipal securities
holdings.

Earning Assets

An increase in average earning assets for 1996 relative to 1995 was driven
by the growth in average deposits. Average earning assets for 1996 were $93.0
million, for an increase of $3.4 million, or 3.7%, over 1995. The mix of earning
assets changed during 1996. Average loans declined by $1.9 million, or 3.4%. The
funds available from the decline in average loans and the increase in average
deposits funded an increase in the investment portfolio. The mix of average
loans, investments, and federal funds was 59%, 37%, and 4% for 1996,
respectively, compared to 63%, 33%, and 4% for 1995, respectively. Changes in
the relative yields of significant earning asset components are discussed in the
net interest margin portion of management's discussion and analysis.

Loan Portfolio

The average loan portfolio was $54.5 million for 1996 compared to $56.5
million for 1995. Although the average portfolio declined during 1996, there was
significantly more lending activity during 1996 compared to 1995. The increased
activity was not sufficient to overcome the significant maturities and payoffs
that occurred during the fourth quarter of 1995. The portfolio segments that
experienced the greatest declines were commercial and real estate lending. The
average commercial portfolio declined by $1million, or 3.6%, while the average
real estate portfolio declined by $1 million, or 5.5%. At December 31, 1996, the
loan portfolio was $53.9 million, or 4.4% greater than the loan portfolio at
December 31, 1995.

The most significant component of the loan portfolio is commercial loans.
At December 31, 1996, commercial loans represented 78% of the loan portfolio.
The commercial loan portfolio includes agricultural loans, working capital loans
to businesses in a number of industries, and loans to finance commercial real
estate. Agricultural loans represent approximately 29% of the commercial loan
portfolio. Agricultural loans are diversified amongst a number of agricultural
areas including dairies, orchards, row crops, vineyards, cattle, and contract
harvesting. Agricultural lending risks are generally related to the potential
for volatility of agricultural commodity prices. Commodity prices are affected
by

government programs to subsidize certain commodities, weather, and the
potential for changes in overall demand and supply. The remaining commercial
loans are to business entities in a number of industries throughout the greater
Lodi, California area. Lending risk in this sector of the commercial loan
portfolio is related to the health of the local economy and real estate market.

Investment Securities

The average investment securities portfolio increased by $5 million, or
16.8%, during 1996. The increase in the portfolio was generally funded by the
reductions in the average loan portfolio of $2.0 million and growth in average
deposits of $4.3 million. New purchases were concentrated primarily in US Agency
securities. A number of the US Agency securities purchased had final maturites
of from three to fifteen years but were callable beginning from six months to
three years from the issue date. Although these securities are likely to be
called in the event that interest rates are stable or declining, they have
incrementally better yields over securities of like maturity on a callable or
final basis to compensate for the risk of being called or provide some cushion
in the event that rates rise and the security is not called. In addition to
these purchases, investments were also made in shares of institutional money
market funds that were designed to be competitive with investments in federal
funds. The focus upon short-term investments and money market equivalents can be
directly related to the prevailing interest rate environment during 1996.

As discussed in note 1 (a) to the consolidated financial statements, the
company adopted the provisions of Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities,
effective January 1, 1994. At December 31, 1996, the market value of the
investment portfolio was in excess of cost by $315 thousand compared to cost
being in excess of market at December 31, 1995, by $461 thousand.

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

The amortized cost of the Bank's structured note portfolio at December 31,
1996 and 1995 was $2.1 million and $3.6 million, respectively, and represented
approximately 5.7% and 9.7%, respectively, of the investment portfolio. The
market value of the structured note portfolio at December 31, 1996 and 1995 was
$2.1 million and $3.6 million, respectively. All of the structured notes were
issued by Federal Agencies and therefore carry the implied AAA credit rating of
the Federal Government. Approximately $1.6 million of the structured note
portfolio carries floating rate coupons that generally lag overall movements in
market interest rates, while the remaining $500 thousand are now fixed after
having previously adjusted upward based upon a predefined schedule. The average
final maturity of the structured note portfolio at December 31, 1996 and 1995
was approximately one half year and one years, respectively.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses at December 31, 1996, was $1.2 million or
2.24% of loans outstanding compared to $959 thousand, or 1.86% of loans
outstanding at December 31, 1995. Nonaccrual loans at December 31, 1996, were
$898 thousand compared to $987 thousand at December 31, 1995. The nonaccrual
coverage ratio increased to 1.23 times at December 31, 1996, compared to .97
times at December 31, 1995. The increased reserve level and coverage ratios
reflect both increased lending volumes as well as increased credit risk within
the nonaccrual portion of the loan portfolio. The relative health of the
remaining portfolio as measured by the portfolio delinquency rate continued to
improve during 1996. Loan portfolio delinquency at December 31, 1996, was 2.14%
compared to 2.57% at December 31, 1995.

Other real estate owned represents property acquired through foreclosure or
by taking a deed in lieu of foreclosure. The portfolio of other real estate
owned increased by $43 thousand during 1996 to $400 thousand at December 31,
1996, compared to $357 thousand at December 31, 1995. Provisions made during
1996 to recognize the impairment of other real estate owned values totaled $35
thousand compared to $60 thousand in 1995. As discussed in Note 1 (c) of the
consolidated financial statements, the company adopted the provisions of
Statement of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan, during the first quarter of 1994. Among other provisions,
Statement No. 114 eliminates the application of in-substance foreclosure
accounting.

Deposits

Average deposits increased by $4.3 million, or 5.0%, in 1996 compared to
1995. Average noninterest bearing deposits increased by $1.1 million, or 16%, in
addition to the 17% growth in this deposit category last year. Average
negotiable order of withdrawal (NOW), money market and savings deposits
increased by $1.5 million, or 3.1%, in the aggregate. Average certificates of
deposit increased by $1.8 million, or 5.4%. The increase in noninterest bearing
demand deposits was due in part to an emphasis on developing business demand
deposits in connection with developing overall business banking relationships.
These efforts benefited from the merger activity of large banks during 1996. A
significant portion of new account relationships were former customers of larger
institutions that were not willing to accept the disruption of those
transactions and were dissatisfied with what they believed were deteriorating
service levels at those institutions. The changes in the average deposit
balances increased the mix of noninterest bearing demand balances to 9% in 1996
from 8% 1995.

Capital

Consolidated capital increased by $325 thousand, or 2.8%, during 1996. The
increase was due primarily to net income of $640 thousand less both dividends
paid of $261 thousand and the after-tax valuation adjustment of $64 thousand
related to marking the available for sale securities portfolio to market at
December 31, 1996, compared to December 31, 1995. The consolidated capital to
assets ratio increased to 11.3% at December 31, 1996, from 11.1% at December 31,
1995.

The Bank's total risk-based and leverage capital ratios at December 31,
1996, were 17.0% and 10.8%, respectively, compared to 15.1% and 9.0%,
respectively, at December 31, 1995. The increase reflects both the impact of
bank earnings and a capital contribution from First Financial to Bank of Lodi.
On November 14, 1996, First Financial Bancorp transferred title of its
headquarters building to Bank of Lodi. For regulatory accounting purposes, the
building was transferred to the Bank at its fair value of $4.25 million, and the
Bank assumed the mortgage on the building. The equity in the building
represented a contribution of capital to the Bank. The leverage and total risk-
based capital ratios at December 31, 1996, are in excess of the required
regulatory minimums of 3% and 8%, respectively. The Bank's capital ratios will
decline as of the first quarter of 1997 due to the acquisition of three branches
from Wells Fargo Bank; however, all capital ratios are expected to remain in
excess of the regulatory minimums for a Well Capitalized institution.

Liquidity

Liquidity is managed on a daily basis by maintaining cash, federal funds
sold, and short-term investments at levels commensurate with the estimated
requirements for loan demand and fluctuations in deposits. Loan demand and
deposit fluctuations are affected by a number of factors, including economic
conditions, seasonality of the borrowing and deposit bases, and the general
level of interest rates. The bank maintains two lines of credit with
correspondent banks as a supplemental source of short-term liquidity in the
event that salable investment securities and loans or available new deposit
funding are not adequate to meet liquidity needs. The Bank may also borrow on a
short-term basis from the Federal Reserve in the event that other liquidity
sources are not adequate. At December 31, 1996, liquidity was considered
adequate, and funds available in the local deposit market and scheduled
maturities of investments are considered sufficient to meet long-term liquidity
needs. Compared to 1995, liquidity increased during 1996 as a result of the
reduction in average loans outstanding, increases in average deposits, and the
corresponding additions to the investment portfolio that carry a greater degree
of liquidity than loans. In November, 1996, the mortgage debt related to the
headquarter building matured and was paid off as the opportunity cost of using
otherwise liquid funds to pay the mortgage debt was lower than rates that would
have been paid had the mortgage been refinanced.

The Bank's liquidity will increase further during the first quarter of 1997
due to the acquisition of three branches form Wells Fargo Bank. The acquisition
will add approximately $32 million in liquid funds to the Bank based upon
deposits acquired less the purchase price to be paid for the branches tangible
and intangible assets.

Investment in Bank Premises and Equipment

In 1996, investments in bank premises and equipment totaled $1.2 million in
comparison to $231 thousand invested in 1995. Approximately $350 thousand of the
expenditures are the initial investment related to the acquisition of three
branches to be purchased from Wells Fargo Bank during the first quarter of 1997.
The most significant investment during the year was the new information system
for which installation and conversion was completed in June at a cost of $475
thousand in addition to the $100 thousand invested in this project during 1995.
Investment in enhancements and upgrades to this system during the latter part of
1996 in order to expand functionality to prepare for growth totaled $245
thousand. Investment in other furniture, fixtures, and equipment totaled $130
thousand for 1996.

In the first quarter of 1997, the Bank will complete the purchase of the
Galt, Plymouth, and San Andreas branches of Wells Fargo Bank. The Bank will be
assuming the deposits of each branch and purchasing the real property, personal
property, and certain intangible assets associated with each branch. The total
purchase price is expected to be approximately $2.34 million. Costs associated
with acquiring the branches and converting them to Bank of Lodi branches will be
approximately $350 thousand.

Overview of Operating Results - 1995 compared to 1994

Earnings per share increased by 146.2% in 1995 compared to 1994. Net income
and earnings per share were $843 thousand and $.64, respectively, for 1995
compared to net income and earnings per share of $338 thousand and $.26,
respectively, for 1994. The return on average assets and average equity were
.83% and 7.4%, respectively, for 1995 compared to .33% and 3.1%, respectively,
for 1994. Rising interest rates contributed significantly to an increase in the
net interest margin of 30 basis points to 5.52%. Although net interest income
increased by $256 thousand, or 5.5%, noninterest income declined by $110
thousand, or 10.5%. Noninterest expense decreased by $603 thousand, or 11.7%,
due to general cost reduction efforts, declining regulatory assessments, and the
absence of the reorganization costs that significantly impacted noninterest
expense during 1994.

Consolidated assets were $103.9 million at December 31, 1995, a decrease of
$1.3 million, or 1.2%, over the comparable total of $105.2 million at December
31, 1994. Average consolidated assets decreased by $636 thousand, or .6%, to
$101.3 million for 1995 compared to $101.9 million for 1994. The decline in
year-end and average consolidated assets was the result of decreases in year-
end and average deposits of $763 thousand
9

and $1.2 million, respectively. Average earning assets decreased by $267
thousand, or .3%, and represented 88.5% of consolidated average assets for 1995
compared to 88.2% for 1994. Loans declined to 63% of average earning assets in
1995 compared to 67% in 1994 due both to efforts to improve overall credit
quality and a continuation of subdued demand for credit. The declining loan
portfolio funded an increase in the average investment portfolio of $3.7
million, or 14%.

Consolidated equity increased by $954 thousand to $11.6 million. The
increases of $843 thousand and $4 thousand from earnings and option exercises,
respectively, were combined with the change in the securities portfolio
valuation adjustment account of $303 thousand to provide total additions to
consolidated equity of $1.2 million. Consolidated equity was reduced by the $196
thousand in dividends declared during 1995. The securities valuation adjustment
was recorded as a component of equity in accordance with Statement of Financial
Accounting Standard No. 115, Accounting for Certain Investments in Debt and
Equity Securities which was adopted by the Company in the first quarter of 1994.
Consolidated equity as a percentage of consolidated assets increased to 11.1%
from 10.1% as the capital growth rate was disproportionate to the slightly
negative growth rate in deposits and other non-equity funding. The Bank's total
risk-based and leverage capital ratios at December 31, 1995, were 15.1% and
9.0%, respectively, compared to 12.7% and 7.9%, respectively, at December 31,
1994.

Net Interest Income, Margin, and Spread - 1995 compared to 1994

Net interest income, interest income less interest expense, increased by
$256 thousand, or 5.5%. Although average earning assets and deposits decreased
by .3% and 1.4%, respectively, the change in net interest income is primarily
the net result of changes in the mix and yield of average earning assets and
average deposits. Net interest margin, net interest income as a percentage of
earning assets, increased by 30 basis points to 5.52% from 5.22% and increased
net interest income by $454 before taking into account the impact of lower
average loans outstanding and increased average certificate of deposit balances
for 1995 compared to 1994. These mix changes offset $203 thousand of the benefit
derived from the increase in net interest margin.

Interest income increased by $627 thousand, or 8.4%. Earning asset yields
increased to a weighted average of 9.02% from 8.30%, and increased interest
income by $839 thousand before the impact of lower average earning asset volume
and lower average loans relative to total average earning assets. Average loans
fell to 63% of earning assets for 1995 compared to 67% for 1994, while average
investments increased to 33% of average earning assets for 1995 compared to 29%
for 1994. The change in earning asset mix dampened the overall increase in
average earning asset yields, as loan yields increased 106 basis points while
the investment portfolio yields increased by 54 basis points. Had the average
earning asset mix for 1995 been equal to the mix for 1994, interest income would
have been $174 thousand higher in 1995.

Interest expense increased by $371 thousand, or 13.4%, from 1994 to 1995.
The decrease in average deposits and other funding of $1.27 million, or 1.4%,
resulted in a decrease in interest expense of $43 thousand. The average cost of
deposits and other funding increased by 46 basis points and contributed $385
thousand to the increase in interest expense. Average certificates of deposit
increased to 37% of average deposits and other funding from 34% in 1994 and
contributed $29 thousand to the increase in interest expense. The average cost
of certificates of deposit increased by 123 basis points as a result of the
increases in the general level of interest rates that began in 1994.

Net interest spread, the difference between the yield on earning assets and
the average interest rate paid for deposits and other debt, increased by 26
basis points, to 5.48%. Net interest spread was four basis points less than the
net interest margin for 1995 compared to one basis point greater for 1994. The
primary factor behind the change is the increase in earning asset efficiency
(the ratio of earning assets to total assets). Increased efficiency provides a
broader base of earning assets over which to spread deposit costs relative to
the deposit base. Earning asset efficiency was 88.5% in 1995 compared to 88.2%
in 1994.

Exposure to Interest Rate Fluctuations

The structure of earning assets and liabilities both during and at the end
of 1995 were such that net interest income and earnings were at risk to
increases in interest rates. During 1995, there was approximately $.85 in
earning assets subject to repricing for every $1.00 in deposits subject to
repricing on a rolling, cumulative, twelve-month basis, representing a
cumulative twelve-month repricing gap of 85%. The practical reality of this
sensitivity position is predicated upon the assumption that earning assets and
liabilities that are subject to repricing will reprice in concert with the
general rate movement in the money and credit markets. While this assumption was
generally borne out with respect to repricable assets, repriceable deposits
lagged the overall movement in interest rates and net interest margin widened as
a result. A similar but inverse pattern occurs during periods of declining
interest rates.

Provision for Loan Losses - 1995 compared to 1994

The provision for loan losses was approximately 64%, or $208 thousand less
than in 1994. In relation to average loans outstanding, the provision for loan
losses in 1995 was .20% compared to .53% in 1994. Net loans charged off during
1995 were $283 thousand compared to $120 thousand in 1994. Gross charge-offs for
1995 were $482 thousand compared to $175 thousand in 1994. The increase in gross
charge-offs reflects the resolution of certain loan relationships that had been
reserved for during 1994; and to a lesser extent, an isolated number of new loan
resolution efforts that developed during 1995. $199 thousand in previously
charged off loans were recovered during 1995 compared to $55 thousand during
1994. The provision for loan losses is derived through the maintenance of an
adequate reserve for loan losses. To the extent that the reserve for loan losses
needs to be increased or decreased after adjustment for net chargeoffs, a
provision for loan losses is charged against or credited to earnings with a
corresponding adjustment to the reserve for loan losses. The loan loss reserve
is discussed in the asset quality and allowance for loan losses section of
management's discussion and analysis.

Noninterest Income - 1995 compared to 1994

Noninterest income declined by $110 thousand, or 10.5%, compared to 1994.
Service charge income declined by $64 thousand while SBA and mortgage income
declined by $51 thousand, or 11.5%. The principal reason for the decline in
service charge income was a reduction in the volume of returned checks and the
related service charges. SBA and mortgage income consists of transaction income
in the form of premiums realized upon the sale of loans, and servicing income
related to portfolio administration on behalf of the investors to whom loans
were sold. Transaction income declined by 23% in 1995 while servicing income
increased by 2.5%.

Income from the sale of SBA loans declined by $45 thousand, or 24%, in 1995
compared to 1994. SBA servicing income remained constant in 1995 compared to
1994. The decline in transaction revenue was the result of a decline in the
volume of loans sold. The volume decline is attributable to both soft demand and
increased competition in the SBA lending area. Income from the sale of mortgage
loans declined by $16 thousand, or 30%, while servicing income increased by $4
thousand, or 15%. Mortgage activity slowed considerably during 1995 due to
increased competition as well as rising interest rates in the early part of the
year that significantly impacted demand in the home refinance and purchase
markets.

Noninterest Expense - 1995 compared to 1994

Total noninterest expenses decreased by $603 thousand, or 11.7%, in 1995
compared to 1994. The most significant components of the change were a decrease
of $557 thousand, or 29%, in other noninterest expense and a decrease of $118
thousand, or 45%, in regulatory assessments.

The principal element of the decline in other noninterest expense is the
absence of the significant management transition costs that were incurred during
1994. Transition costs and accruals during 1994 totaled $433 thousand and
consisted principally of estimated payments and the related legal and
professional costs incurred to settle the claims made by the former President
and Chief Executive Officer. The remaining decrease in other noninterest expense
reflects lower loss experience in the areas of operations and the disposition of
other real estate owned. Operations and other real estate loss levels declined
by approximately $117 thousand during 1995. Legal costs related to loan
resolution efforts increased by $38 thousand, or 40.7%, during 1995.

Effective June 1, 1995, the Federal Deposit Insurance Corporation (FDIC)
made significant changes to its deposit insurance premium schedule. The deposit
insurance expense of the Bank of Lodi was significantly reduced as a result of
the FDIC changes. Bank of Lodi's principal regulator, the Office of the
Comptroller of the Currency (OCC), has also reduced its annual assessment rates.
Regulatory assessments for 1995 were below the 1994 level by $118 thousand, or
45%.

Although salaries and employee benefits increased by $63 thousand, or 2.9%,
direct salary expense was unchanged. The principal elements of the increase were
a $15 thousand reduction in the amount of lending salary expense deferrable in
connection with loan originations and an increase of $31 thousand in the
contribution to the Employee Stock Ownership Plan. The Employee Stock Ownership
Plan contribution increased based upon the improved financial performance of the
company.

Occupancy expense increased by 5.5%, or $23 thousand, during 1995. The
principal cause of the increase was a decline in the occupancy levels of the
Company's principal location. The lease of a primary tenant expired at the end
of the third quarter of 1995 and was not renewed. Although some of the vacated
space is now being used by Bank of Lodi, management is making efforts to lease
the remaining vacant space.

Income Taxes - 1995 compared to 1994

The current year tax provision is a tax expense of $399 thousand compared
to tax benefit of $53 thousand for 1994. Although the Company had pre-tax income
of $285 thousand for 1994, a taxable loss was generated after deducting tax free
municipal bond income net of disallowed interest expense associated with
carrying the bonds. The company had taxable book income during 1995. The company
had an effective tax rate that was below statutory rates due to the continued
benefit of tax-free interest income from municipal securities holdings.

Earning Assets

Although average deposits declined by $1.2 million, decreases in nonearning
assets and increases in capital left the level of average earning assets during
1995 virtually constant with 1994. Average earning assets for 1995 were $89.6
million compared to $89.9 million in 1994. As a result of the reduced averages
for nonearning assets, the earning asset efficiency ratio (earning assets
relative to total assets) increased to 88.5% in 1995 from 88.2% in 1994.

The mix of earning assets changed during 1995 as a result of continued
softness in the lending market and management efforts to reduce the level of
loans for which underwriting criteria were not satisfied. The mix of average
loans, investments, and federal funds was 63%, 33%, and 4% for 1995,
respectively, compared to 67%, 29%, and 4% for 1994, respectively. Changes in
the relative yields of significant earning asset components are discussed in the
net interest margin portion of management's discussion and analysis.

Asset Quality and Allowance for Loan Losses

The allowance for loan losses at December 31, 1995, was $959 thousand or
1.86% of loans outstanding compared to $1.1 million, or 1.98% of loans
outstanding at December 31, 1994. The absolute level of the allowance declined
during 1995 as certain loans for which reserves had been previously established
were either favorably resolved or charged off. Nonaccrual loans at December 31,
1995, were $987 thousand, or 29% higher than the balance of $765 thousand at
December 31, 1994. The nonaccrual coverage ratio decreased to .97 times at
December 31, 1995, compared to 1.47 times at December 31, 1994. Although the
portfolio of nonaccrual loans has increased during 1995, the overall credit risk
exposure of the nonaccrual portfolio has decreased, and management believes that
the current reserve and coverage levels are adequate. The relative health of the
overall portfolio as measured by the portfolio delinquency rate continued to
improve during 1995. Loan portfolio delinquency at December 31, 1995, was 2.57%
compared to 2.71% at December 31, 1994.

Other real estate owned represents property acquired through foreclosure or
by taking a deed in lieu of foreclosure. The portfolio of other real estate
owned increased by $182 thousand during 1995 to $357 thousand at December 31,
1995, compared to $175 thousand at December 31, 1994. Provisions made during
1995 to recognize the impairment of other real estate owned values totaled $60
thousand compared to $115 thousand in 1994. As discussed in Note 1 (c) of the
consolidated financial statements, the company adopted the provisions of
Statement of Financial Accounting Standards No. 114, Accounting by Creditors for
Impairment of a Loan, during the first quarter of 1994. Among other provisions,
Statement No. 114 eliminates the application of in-substance foreclosure
accounting. For 1995 and 1994 the adoption of Statement No. 114 does not affect
the comparability of other real estate owned portfolio balances.

Market Price of Company's Stock

The Company's common stock is traded in the over-the-counter market and is
not presently listed on a national exchange or reported by the NASDAQ Stock
Market. Trading of the stock has been limited and has been principally been
contained within the Company's general service area. As of March 3, 1997, there
were 1,170 shareholders of record of the Company's common stock.

1996 1995
---- ----
Bid Price of Common Shares High Low High Low
First Quarter ............ $ 8.87 $ 8.37 $ 7.00 $ 6.75
Second Quarter ........... 9.75 8.63 7.00 6.75
Third Quarter ............ 10.00 9.50 7.75 7.00
Fourth Quarter ........... 10.00 9.25 9.00 7.00

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

SELECTED FINANCIAL DATA
(in thousands except per share amounts)

1996 1995 1994 1993 1992
CONSOLIDATED STATEMENT OF INCOME
- ---------------------------------------------------------------------------------------

Interest Income ................ $ 8,045 8,089 7,462 6,907 7,499
Interest Expense ............... 3,254 3,138 2,767 2,765 3,646
Net Interest Income ............ 4,791 4,951 4,695 4,142 3,853
Provision for Loan Losses ...... 310 115 323 327 836
Noninterest Income ............. 1,089 940 1,050 1,151 1,099
Noninterest Expense ............ 4,676 4,534 5,137 4,115 3,752
Net Income ..................... 640 843 338 746 294

PER SHARE DATA
- ---------------------------------------------------------------------------------------
Net Income ..................... $ .47 .64 .26 .57 .23
Cash Dividends Declared ........ .20 .15 -- .10 --

CONSOLIDATED BALANCE SHEET DATA
- ---------------------------------------------------------------------------------------
Federal Funds Sold ............. $ 1,100 3,300 2,000 2,600 4,900
Investment Securities .......... 36,913 36,945 33,100 23,956 13,967
Loans, net of loss reserve
and deferred fees ..... 52,672 50,524 55,812 59,943 64,482
Total Assets ................... 104,913 103,972 105,167 99,806 98,902
Total Deposits ................. 92,207 89,216 89,979 86,174 85,090
Note Payable ................... -- 2,585 2,618 2,648 2,674
Total Stockholders'
Equity ................ 11,889 11,564 10,610 10,380 9,653

INDEPENDENT AUDITORS' REPORT

The Board of Directors
First Financial Bancorp:

We have audited the accompanying consolidated balance sheets of First
Financial Bancorp and subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Financial Bancorp and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.

/S/KPMG PEAT MARWICK LLP
Sacramento, California
February 21, 1997

FIRST FINANCIAL BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1996 and 1995

ASSETS 1996 1995
- ------ ---- ----

Cash and due from banks (note 2) ................................ $ 4,748 4,488
Federal funds sold .............................................. 1,100 3,300
Investment Securities: (note 3)
Held-to-maturity securities (at amortized cost, market
value of $1,888 and $2,170 in 1996 and 1995) ................. 1,789 2,036

Available-for-sale securities at fair value .................. 35,124 34,909
-------- -------
Total investments ............................................ 36,913 36,945

Loans, net of deferred loan fees and allowance for loan losses of
$1,607 in 1996 and $1,320 in 1995 (notes 4 & 14) ................ 52,672 50,524

Premises and equipment, net (notes 5 & 8) ....................... 6,723 6,449
Accrued interest receivable ..................................... 1,060 1,139
Other assets (notes 6 & 12) ..................................... 1,697 1,127
-------- -------
$104,913 103,972
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits (notes 7 & 14):
Noninterest bearing ........................................ $ 9,066 7,863
Interest bearing ........................................... 83,141 81,353
-------- -------
Total deposits ........................................... 92,207 89,216

Accrued interest payable ..................................... 324 408
Other liabilities (note 12) .................................. 493 199
Note payable (note 8) ........................................ -- 2,585
-------- -------
Total liabilities ........................................ 93,024 92,408

STOCKHOLDERS' EQUITY (NOTES 13 & 17):
Common stock - no par value; 9,000,000 shares authorized;
1,308,950 shares issued and outstanding in 1996; and
1,306,996 shares issued and outstanding in 1995 .............. 7,324 7,314
Retained earnings ............................................ 4,438 4,059
Net unrealized holding gains on available-for-sale securities 127 191
-------- -------
Total stockholders' equity ................................. 11,889 11,564
-------- -------
Commitments and contingencies (notes 6, 9, 10 & 19)
$104,913 103,972
======== =======

See accompanying notes to consolidated financial statements.

FIRST FINANCIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands except share amounts)
Years Ended December 31, 1996, 1995 and 1994

Unrealized
Common Stock Retained Securities
Shares Amount Earnings Gain(Loss)Net Total
------ ------ -------- ------------- -----

BALANCE, DECEMBER 31, 1993 .......................... 1,314,488 $ 7,306 3,074 -- 10,380
Shares returned ..................................... (8,717) -- -- -- --
Options exercised (Note 13) ......................... 525 4 -- -- 4
Net unrealized loss on available-for-sale securities,
net of tax effect of $80 ....................... -- -- -- (112) (112)
Net income .......................................... -- -- 338 -- 338
--------- ------- ----- --- ------
BALANCE, DECEMBER 31, 1994 ......................... 1,306,296 7,310 3,412 (112) 10,610

Options exercised (Note 13) ......................... 700 4 -- -- 4
Cash dividends declared (Note 13) ................... -- -- (196) -- (196)
Net change in unrealized gains on available-for-sale
securities,net of tax effect of $216 ........... -- -- -- 303 303
Net Income .......................................... -- -- 843 -- 843
--------- ------- ----- --- ------
BALANCE, DECEMBER 31, 1995 .......................... 1,306,996 $ 7,314 4,059 191 11,564

Options exercised (Note 13) ......................... 1,954 10 -- -- 10
Cash dividends declared (Note 13) ................... -- -- (261) -- (261)
Net change in unrealized loss on available-for-sale
securities, net of tax effect of $48 ........... -- -- -- (64) (64)
Net income .......................................... -- -- 640 -- 640
--------- ------- ----- --- ------
BALANCE, DECEMBER 31, 1996 .......................... 1,308,950 $ 7,324 4,438 127 11,889
========= ======= ===== === ======

See accompanying notes to consolidated financial statements.

FIRST FINANCIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)

Years Ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

INTEREST INCOME:
Loans, including fees ..................................... $5,613 6,112 5,910
Interest on investment securities available for sale:
Taxable ................................................ 1,918 1,424 1,047
Exempt from Federal taxes .............................. 202 216 230
Interest on investment securities held to maturity:
Exempt from Federal taxes .............................. 113 137 138
Federal funds sold ........................................ 199 200 134
Deposits in banks and other interest income ............... -- -- 3
------ ----- -----
Total interest income ................................ 8,045 8,089 7,462

INTEREST EXPENSE:
Deposit accounts ....................................... 2,992 2,859 2,485
Other .................................................. 262 279 282
------ ----- -----
Total interest expense ............................... 3,254 3,138 2,767
------ ----- -----
Net interest income .................................. 4,791 4,951 4,695

Provision for loan losses (note 4) ........................ 310 115 323
------ ----- -----
Net interest income after provision for loan losses .. 4,481 4,836 4,372

NONINTEREST INCOME:
Service charges ........................................ 559 492 556
Premiums and fees from SBA and mortgage operations ..... 473 393 444
Other .................................................. 57 55 50
------ ----- -----
Total noninterest income ............................. 1,089 940 1,050

NONINTEREST EXPENSE:
Salaries and employee benefits ......................... 2,227 2,231 2,168
Occupancy .............................................. 483 443 420
Equipment .............................................. 367 374 388
Regulatory assessments ................................. 40 142 260
Other (Note 11) ........................................ 1,559 1,344 1,901
------ ----- -----
Total noninterest expense ............................ 4,676 4,534 5,137
------ ----- -----
Income before provision for income tax expense (benefit) 894 1,242 285
Provision for income tax expense (benefit) (note 12) ... 254 399 (53)
------ ----- -----
Net Income ........................................... $ 640 843 338
====== ===== =====
EARNINGS PER SHARE:
Net Income ............................................. $ .47 .64 .26
====== ===== =====

See accompanying notes to consolidated financial statements.

FIRST FINANCIAL BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31, 1996, 1995, and 1994

1996 1995 1994
---- ---- ----

Cash flows from operating activities:
Net income ............................................... $ 640 843 338
Adjustments to reconcile net income to net cash flows
provided by operating activities:
(Increase) decrease in loans held for resale ........ (166) 201 32
Increase (decrease) in deferred loan origination fees 40 (12) 44
Provision for other real estate owned losses ........ 35 60 115
Depreciation and amortization ....................... 481 422 430
Provision for loan losses ........................... 310 115 323
Provision for deferred taxes ........................ (98) 188 (299)
Decrease (increase) in accrued interest receivable .. 79 (36) (249)
(Decrease) increase in accrued interest payable ..... (84) 108 27
(Increase) decrease in other assets ................. (79) (35) 91
Increase (decrease) in other liabilities ............ 294 (461) 460
----- ------ -----
Net cash provided by operating activities ......... 1,610 1,393 1,312

Cash flows from investing activities:
Decrease in certificates of deposit in banks .......... -- -- 100
Proceeds from maturity of held-to-maturity securities . 249 -- 46
Proceeds from maturity of available-for-sale securities 30,780 20,218 27,104
Proceeds from sale of available-for-sale securities ... -- -- 1,000
Purchases of available-for-sale securities ............ (31,107) (24,544) (36,487)
(Increase) decrease in loans made to customers ........ (2,629) 4,730 3,824
Proceeds from the sale of other real estate ........... 209 11 316
Purchases of bank premises and equipment .............. (1,207) (231) (88)
------ ------ ------
Net cash (used in) provided by investing activities (3,705) 184 (4,185)

Cash flows from financing activities:
Net Increase (decrease) in deposits ................... 2,991 (763) 3,805
Payments on notes payable ............................. (2,585) (33) (30)
Proceeds received upon exercise of stock options ...... 10 4 4
Dividends paid ........................................ (261) (196) (131)
------ ------ ------
Net cash provided by (used in) financing activities 155 (988) 3,648
------ ------ ------
Net (decrease) increase in cash and cash equivalents ..... (1,940) 589 775
Cash and cash equivalents at beginning of year ........... 7,788 7,199 6,424
------ ------ ------
Cash and cash equivalents at end of year ................. $ 5,848 7,788 7,199
====== ====== ======
Supplemental Disclosures of Cash Flow Information:
Cash (paid) received during the year for:
Interest ............................................ $ (3,338) (3,029) (2,740)
Income taxes ........................................ (242) (391) 144

See accompanying notes to consolidated financial statements.

FIRST FINANCIAL BANCORP AND SUBSIDIARY Notes to Consolidated Financial
Statements December 31, 1996, 1995 and 1994

(1) Summary of Significant Accounting Policies

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

(a) Principles of Consolidation

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

(b) Investment Securities

Investment securities at December 31, 1996 and 1995 consist of U.S.
Treasury and U.S. Government agency obligations, municipal, collateralized
mortgage obligations, money market mutual funds, and other securities. At the
time of purchase of a security the Company designates the security as
held-to-maturity or available-for-sale, based on the investment objectives,
operational needs and intent to hold. The Company does not purchase securities
with the intent to engage in trading activity.

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

To the extent that the fair value of a security is below cost and the
impairment of value is permanent, a new cost basis is established using the
current market value, and the resulting loss is charged to earnings. No such
declines have occurred.

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

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

Interest on loans is accrued daily. Nonaccrual loans are loans on which the
accrual of interest ceases when the collection of principal or interest is
determined to be doubtful by management. It is the general policy of the Company
to discontinue the accrual of interest when principal or interest payments are
delinquent 90 days or more unless the loan is well secured and in the process of
collection. When a loan is placed on non-accrual status, accrued and unpaid
interest is reversed against current period interest income. Interest accruals
are resumed when such loans are brought fully current with respect to interest
and principal and when, in the judgment of management, the loans are estimated
to be fully collectable as to both principal and interest.

(d) Loan Origination Fees and Costs

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

(e) Revenue Recognition on Loan Sales

The Bank originates loans under programs administered by the United States
Small Business Administration (SBA). The programs generally provide for SBA
guarantees of 75% to 90% of each loan. The Bank's general practice is to sell
the guaranteed portion of each loan to third parties and retain the balance in
its loan portfolio. A portion of the premium received from the sale of the
guaranteed portion is recognized as a gain on the sale, and the remainder of the
premium is deferred. The gain is the difference between the market value and
allocated book value of the portion sold. The deferred premium is amortized into
interest income over the estimated life of the retained portion of the loan
using the interest method.

(f) Loan Servicing Income

The Bank services both the sold and retained portions of SBA loans as well
as a portfolio of mortgage loans. Servicing income is realized through the
retention of an ongoing rate differential between the rate paid by the borrower
to the Bank and the rate paid by the Bank to the investor in the loan.

(g) Allowance for Loan Losses

The allowance for loan losses is established through a provision charged to
expense. Loans are charged off against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely.
Recoveries of amounts previously charged off are added back to the allowance.
The allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans, standby letters of credit, overdrafts and
commitments to extend credit based on evaluations of collectibility and prior
loss experience. The evaluations take into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, loan
concentrations, specific problem loans, commitments, and current and anticipated
economic conditions that may affect the borrowers' ability to pay. While
management uses these evaluations to recognize the provision for loan losses,
future provisions may be necessary based on changes in the factors used in the
evaluations. The allowance for loan losses is also subject to review by the
Comptroller of the Currency, the Bank's principal regulator.

(h) Premises and Equipment

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

Building 35 years
Improvements, furniture, and equipment 3 to 10 years

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

(i) Other Real Estate Owned

Other real estate owned (OREO) consists of property acquired through
foreclosure and is recorded at the time of foreclosure at its fair market value.
Thereafter, it is carried at the lower of cost or fair market value less
estimated completion and selling costs. If at foreclosure, the loan balance is
greater than the fair market value of the property acquired, the excess is
charged against the allowance for loan losses. Fair market value is generally
determined based upon independent appraisals. Subsequent operating expenses or
income, changes in carrying value, and gains or losses on disposition of OREO
are reflected in other noninterest expense. A net loss of $35,000, $60,000, and
$115,000 was recorded for the years ended December 31, 1996, 1995, and 1994,
repectively.

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

(j) Earnings Per Share

Earnings per common and common share equivalent are calculated by dividing
net income by the weighted-average number of common and common share equivalents
outstanding during the period. Stock owned by the Employee Stock Ownership Plan
is included in the weighted average number of common and common share
equivalents outstanding for earnings per share calculations. Stock options are
considered common share equivalents for this calculation.

(k) Income Taxes

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

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

(l) Statements of Cash Flows

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

(m) Stock Based Compensation

Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock Based Compensation (SFAS No. 123), which
permits entities to recognize as expense over the vesting period the fair value
of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB No. 25 and provide
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.

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

The Bank adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such asets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of SFAS No. 121 did not have a material impact on the Bank's
financial position, results of operations, or liquidity.

(2) Restricted Cash Balances

The Bank is required to maintain certain daily reserve balances in
accordance with Federal Reserve Board requirements. Aggregate reserves of
approximately $881,000 and $788,000 were maintained to satisfy these
requirements at December 31, 1996 and 1995, respectively.

(3) Investment Securities

Investment securities at December 31, 1996 and 1995 consisted of the
following:

December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----

HELD TO MATURITY
Municipal Securities ....... $ 1,789,000 99,000 -- 1,888,000
---------- ------- ------ ----------
AVAILABLE FOR SALE
U.S. Treasury securities ... $ 4,572,000 10,000 -- 4,582,000
U.S. Agency securities ..... 18,081,000 47,000 32,000 18,096,000
Municipal securities ....... 2,802,000 181,000 -- 2,983,000
Collateralized mortgage
obligations ........... 1,239,000 6,000 21,000 1,224,000
Debt securities ............ 1,649,000 33,000 8,000 1,674,000
Money market mutual fund ... 6,482,000 -- -- 6,482,000
Investment in Federal Agency
Stock .................. 83,000 -- -- 83,000
---------- ------- ------ ----------
34,908,000 277,000 61,000 35,124,000
---------- ------- ------ ----------
Total ...................... $36,697,000 376,000 61,000 37,012,000
=========== ======= ====== ==========

December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----

HELD TO MATURITY
Municipal Securities .............. $ 2,036,000 134,000 -- 2,170,000
----------- ------- ------ ----------
AVAILABLE FOR SALE
U.S. Treasury securities .......... $ 1,599,000 17,000 -- 1,616,000
U.S. Agency securities ............ 16,368,000 62,000 40,000 16,390,000
Municipal securities .............. 3,560,000 243,000 -- 3,803,000
Collateralized mortgage obligations 2,303,000 32,000 35,000 2,300,000
Debt securities ................... 2,029,000 49,000 1,000 2,077,000
Money market mutual fund .......... 8,640,000 -- -- 8,640,000
Investment in Federal Agency Stock 83,000 -- -- 83,000
----------- ------- ------ ----------
34,582,000 403,000 76,000 34,909,000
----------- ------- ------ ----------
Total ............................. $36,618,000 537,000 76,000 37,079,000
----------- ------- ------ ----------

Investment securities totaling $351,000 and $355,000 were pledged as
collateral to secure treasury, tax and loan accounts with the Federal Reserve at
December 31, 1996 and 1995, respectively.

Gross realized losses on the sale of available-for-sale investment
securities were $1,000 in 1994. There were no realized loses or gains on the
sale of available-for-sale investment securities in 1996 or 1995.

Federal Agency stock dividends paid to the Company were $16,000, $16,000,
and $7,000 in 1996, 1995 and 1994, respectively.

The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, or expected maturity where applicable, are
shown below. Expected maturities will differ from contractual maturities because
certain securities provide the issuer with the right to call or prepay
obligations with or without call or prepayment penalties.

December 31, 1996
Amortized Market
Cost Value
---- -----

HELD TO MATURITY
Due in one year or less ............. $ 70,000 72,000
Due after one year through five years 1,719,000 1,816,000
Due after five years through 10 years -- --
Due after 10 years .................. -- --
------------ ----------
$1,789,000 1,888,000

AVAILABLE FOR SALE
Due in one year or less ............. $ 4,830,000 4,831,000
Due after one year through five years 15,014,000 15,170,000
Due after five years through 10 years 5,620,000 5,667,000
Due after 10 years .................. 2,879,000 2,891,000
------------ ----------
28,343,000 28,559,000
------------ ----------
$ 30,132,000 30,447,000
============ ==========

(4) Loans

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

Outstanding loans consisted of the following at December 31:

1996 1995
---- ----

Commercial .............................. $ 42,215,000 41,538,000
Real estate construction ................ 5,802,000 3,529,000
Other real estate ....................... 3,107,000 4,020,000
Installment and other ................... 3,155,000 2,757,000
---------- ----------
54,279,000 51,844,000

Deferred loan fees and loan sale premiums (400,000) (361,000)
Allowance for loan losses ............... (1,207,000) (959,000)
---------- ----------
$ 52,672,000 50,524,000
============ ==========

Included in total loans are loans held for sale of approximately $489,000
and $323,000 for 1996 and 1995, respectively.

SBA and mortgage loans serviced by the Bank totaled $41,319,000,
$35,505,000 and $31,598,000 in 1996, 1995, and 1994, respectively.

Changes in the allowance for loan losses were as follows:

1996 1995 1994
---- ---- ----
Balance, beginning of year .... $ 959,000 1,127,000 924,000
Loans charged off ............. (334,000) (482,000) (175,000)
Recoveries .................... 272,000 199,000 55,000
Provision charged to operations 310,000 115,000 323,000
----------- ------- ---------
Balance, end of year .......... $ 1,207,000 959,000 1,127,000
=========== ======= =========

Nonaccrual loans totaled approximately $898,000 and $987,000 at December
31, 1996, and 1995, respectively. Interest income which would have been recorded
on such loans was approximately $149,000, $161,000 and $74,000, in 1996, 1995,
and 1994, respectively.

Impaired loans are loans for which it is probable that the Bank will not be
able to collect all amounts due. At December 31, 1996 and 1995, the Bank had
outstanding balances of $1,463,000 and $770,000 in impaired loans which had
valuation allowances of $371,000 in 1996 and $140,000 in 1995. The average
outstanding balances of impaired loans for the years ended December 31, 1996 and
1995 were $1,116,000 and $682,000 respectively, on which $45,000 and $22,000,
respectively, was recognized as interest income.

(5) Premises and Equipment

Premises and equipment consisted of the following at December 31:

1996 1995
---- ----
Land ............................ $ 694,000 694,000
Building ........................ 5,438,000 5,438,000
Leasehold improvements .......... 1,243,000 1,234,000
Furniture and equipment ......... 1,979,000 1,582,000
----------- ---------
9,354,000 8,948,000
----------- ---------
Less accumulated depreciation and
amortization ............... (2,631,000) (2,499,000)
---------- ---------
$ 6,723,000 6,449,000
=========== =========

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

The minimum future rentals to be received on noncancelable leases as of
December 31, 1996, for each of the next five years and in the aggregate are:

Year Ending December 31,
--------------------------------------------
1997 $ 38,000
1998 32,000
1999 32,000
2000 32,000
2001 31,000
--------------------------------------------
Total minimum future rentals $165,000
--------------------------------------------

(6) Other Real Estate Owned

Other real estate owned is included in other assets and was $400,000 and
$357,000 at December 31, 1996 and 1995, respectively. During 1996, 1995, and
1994, real estate of $297,000, $254,000 and $176,000, respectively, was acquired
through foreclosure as settlement for loans. These amounts represent noncash
transactions, and accordingly, have been excluded from the Consolidated
Statements of Cash Flows. The noncash portion of the proceeds from the sale of
other real estate totaled $0, $0 and $268,000 in 1996, 1995 and 1994,
respectively, and has been excluded from the Consolidated Statements of Cash
Flows.

(7) Deposits

The following is a summary of deposits at December 31:

1995 1995
---- ----
Demand ................... $ 9,066,000 7,863,000
NOW and Super NOW Accounts 20,553,000 18,910,000
Money Market ............. 13,042,000 13,047,000
Savings .................. 15,972,000 15,880,000
Time, $100,000 and over .. 11,111,000 12,126,000
Other Time ............... 22,463,000 21,390,000
----------- ----------
$92,207,000 89,216,000
=========== ==========

Interest paid on time deposits in denominations of $100,000 or more was
approximately $607,000, $561,000 and $395,000 in 1996, 1995 and 1994,
respectively.

At December 31, 1996, the aggregate maturities for time deposits is as
follows:

Year Ending December 31,
-------------------------------------------------------------
1997 $ 27,397,000
1998 5,064,000
1999 741,000
2000 117,000
2001 246,000
Thereafter 9,000
-------------------------------------------------------------
Total $33,574,000
-------------------------------------------------------------

(8) Note Payable

During 1991, the Company secured financing of $2,700,000. The balance of
the note was $2,585,000 as of December 31, 1995 and was secured by the Company's
building and premises. The note was completely paid off as of November 14, 1996.

(9) Operating Leases

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

Year Ending December 31, Lease Payments
-------------------------------------------------------------
1997 $12,000
1998 $12,000
1999 $12,000
2000 $12,000
2001 $12,000
-------------------------------------------------------------
$60,000
-------------------------------------------------------------

Total rental expense for operating leases was approximately $35,000,
$67,000 and $66,000 in 1996, 1995 and 1994, respectively.

(10) Financial Instruments with Off-Balance Sheet Risk

In the normal course of business, the Company is a party to financial
instruments with off-balance sheet risk. These financial instruments include
commitments to extend credit and standby letters of credit.

The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
those instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.

At December 31, financial instruments whose contract amounts represent
credit risk are as follows:

1996 1995
---- ----
Commitments to extend credit $11,784,000 9,789,000
----------- ---------
Standby letters of credit .. $ 50,000 153,000
----------- ---------

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates, other termination clauses and
may require payment of a fee. Many of the commitments are expected to expire
without being drawn upon and accordingly, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. Upon extension of credit,
the amount of collateral obtained, if any, is based on management's credit
evaluation of the counter-party. Collateral varies but may include accounts
receivable, inventory, property, plant and equipment, and income-producing or
other real estate.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. These guarantees
are primarily issued to support private borrowing arrangements. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. Collateral obtained, if any, is
varied.

(11) Other Noninterest Expense

Other noninterest expense for the years 1996, 1995 and 1994 included the
following significant items:

1996 1995 1994
---- ---- ----
Management transition
expenses ................. $ -- 18,000 433,000
Directors' fees ............... $124,000 109,000 84,000

Provision for other real estate
owned losses ............. $ 35,000 60,000 115,000
Legal fees .................... $207,000 142,000 90,000
Ancillary Data Processing
expense .................. $105,000 -- --

(12) Income Taxes

The provision for income taxes for the years 1996, 1995 and 1994 consisted
of the following:

1996 Federal State Total
- ---- ------- ----- -----
Current ................. $ 212,000 140,000 352,000
Deferred ................ (66,000) (32,000) (98,000)
--------- ------- -------
Income tax expense . $ 146,000 108,000 254,000

1995
- ----
Current ................. $ 143,000 68,000 211,000
Deferred ................ 118,000 70,000 188,000
--------- ------- -------
Income tax expense . $ 261,000 138,000 399,000

1994
- ----
Current ................. $ 160,000 86,000 246,000
Deferred ................ (220,000) (79,000) (299,000)
--------- ------- -------
Income tax (benefit)
expense ........ $ (60,000) 7,000 (53,000)
--------- ------- -------

Income taxes payable of approximately $134,000 and $25,000 are included in
other liabilities at December 31, 1996 and 1995, respectively.

Net deferred tax assets of approximately $470,000 and $324,000 are included
in other assets at December 31, 1996 and 1995.

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

1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----

Federal income tax expense,
at statutory income
tax rates ............... $ 304,000 34% 422,000 34% 97,000 34%
State franchise tax expense,
net of federal
income tax benefits ..... 63,000 7 87,000 7 20,000 7
Tax-free municipal interest
income .................. (97,000) (11) (110,000) (9) (118,000) (41)
Tax-free loan interest income -- -- -- -- (11,000) (4)
Change in the beginning of
the year deferred
tax asset valuation
allowance ............... -- -- -- -- (17,000) (6)
Other ........................ (16,000) (2) -- -- (24,000) (9)
------- -- ------- --

$ 254,000 28% 399,000 32% (53,000) (19%)
========= == ======= == ======= ===

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and in 1995 are presented below.

1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses ............... $ 387,000 271,000
Reserve for losses on other real
estate owned ....................... 65,000 77,000
Deferred loan income .................... 112,000 114,000
Deferred compensation ................... 64,000 76,000
Alternative minimum tax
credit carryforwards ............... 159,000 160,000
Settlement accruals ..................... 12,000 20,000
Other ................................... 59,000 44,000
-------- --------
Total gross deferred tax assets .... 858,000 762,000
Less valuation allowance ........... (133,000) (133,000)
-------- --------

Deferred tax assets,
net of allowance ................... 725,000 629,000
Deferred tax liabilities:
Accumulated depreciation ................ (46,000) (44,000)
Deferred loan origination costs ......... (61,000) (78,000)
Unrealized gain on
available-for-sale securities, net . (88,000) (136,000)
Other ................................... (60,000) (47,000)
Total gross deferred tax liabilities (255,000) (305,000)
-------- --------
Net deferred tax asset ............. $ 470,000 324,000
========= =======

There was no change in the valuation allowance for deferred tax assets for
the years ended December 31, 1996 and 1995. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 1996 and 1995.

At December 31, 1996, the Company has alternative minimum tax credit
carryforwards of approximately $159,000 which are available to reduce future
federal regular income taxes, if any, over an indefinite period.

(13) Stockholders' Equity

(a) Stock Options

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

In February 1991, the Board of Directors adopted the First Financial
Bancorp 1991 Employee Stock Option Plan and Director Stock Option Plan. The
maximum number of shares issuable under the Employee Stock Option Plan is
178,500. The maximum number of shares issuable under the Director Stock Option
Plan was 55,000. Options are granted at an exercise price of at least 100% and
85% of the fair market value of the stock on the date of grant for the Employee
Stock Option Plan and the Director Stock Option Plan respectively. The 1991
Plans replaced the 1982 Plan; however, this does not adversely affect any stock
options outstanding under the 1982 Plan. In May, 1995, the 1991 Director Stock
Option Plan was amended to grant in 1995 options that were otherwise grantable
in subsequent years.

Transactions during 1996, 1995 and 1994 related to the stock option plan
were as follows:

Shares Options Outstanding
Available Exercise Price
For Grant Shares Per Share
--------- ------ ---------

Balance, December 31, 1993 172,075 67,638 $ 6.80 - 10.43
Options granted ..... (139,725) 139,725 $ 5.74 - 6.75
Options exercised ... -- (525) $ 6.80
Options surrendered . 50,000 (50,000) $ 7.50
------- --------

Balance, December 31, 1994 82,350 156,838 $ 5.74 - 10.43
Options granted ..... (55,350) 55,350 $ 5.78 - 6.80
Options exercised ... -- (700) $ 5.74 - 6.50
Options expired ..... -- (1,764) $10.43
------- --------

Balance, December 31, 1995 27,000 209,724 $ 5.74 - 10.43
Options exercised ... -- (3,675) $ 5.78 - 8.57
Options expired ..... 8,150 (10,374) $ 5.74 - 10.43
------- --------

Balance, December 31, 1996 35,150 195,675 $ 5.74 - 8.57
======= =======

At December 31, 1996, options for 107,875 shares were exercisable at prices
varying from $5.74 to $8.57 per share. Options exercised during 1996 included
options exercised in a cashless manner whereby no cash is paid by the optionee,
and the actual shares issued are determined by dividing the difference between
the options gross market value and option price by the market value per share of
the stock on the date of exercise. The effect of cashless exercises was to
reduce the shares otherwise issuable under those options by 1,721 shares.

There were no stock options granted during 1996. The per share
weighted-average fair value of stock options granted during 1995 was $1.96 on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: expected dividend yield 2.22%; risk-free
interest rate of 6%; and an expected life of 10 years.

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

1996 1995
---- ----
Net Income As reported $ 640,000 $ 843,000
Pro forma $ 630,000 $ 833,000

Net income per share As reported $ .47 $ .64
Pro forma $ .46 $ .63

Pro forma net income reflects only options granted in 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 ten years and
compensation cost for options granted prior to January 1, 1995 is not
considered.

(b) Employee Stock Ownership Plan

Effective January 1, 1992, the Bank established the Bank of Lodi Employee
Stock Ownership Plan. The plan covers all employees, age 21 or older, beginning
with the first plan year in which the employee completes at least 1,000 hours of
service. The Bank's annual contributions to the plan are made in cash and are at
the discretion of the Board of Directors based upon a review of the Bank's
profitability. Contributions for 1996, 1995, and 1994 totaled approximately
$37,000, $56,000, and $25,000, respectively. In addition, the plan borrowed
$94,000 from a bank on November 14, 1996 to puchase additional Company stock.
The loan is secured by Company stock owned by the Plan. As of December 31, 1996,
the plan owned 32,502 shares of Company Common Stock.

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

On January 23, 1997, the Board of Directors declared a cash dividend of
five cents per share payable on February 28, 1997, to shareholders of record on
February 14, 1997.

The Company's principal source of funds for dividend payments is dividends
received from its subsidiary Bank. Under applicable Federal laws, permission to
pay a dividend must be granted to a Bank by the Comptroller of the Currency if
the total dividend payment of any national banking association in any calendar
year exceeds the net profits of that year, as defined, combined with net profits
for the two preceding years. At December 31, 1996, there were Bank retained
earnings of $2,154,000 free of this condition.

(d) Weighted Average Shares Outstanding

Weighted-average shares used in the computation of earnings per share were
1,362,473; 1,321,764; and 1,306,514 for 1996, 1995 and 1994, respectively.

(14) Related Party Transactions

During the normal course of business, the Bank enters into transactions
with related parties, including directors, officers, and affiliates. These
transactions include borrowings from the Bank with substantially the same terms,
including rates and collateral, as loans to unrelated parties. At December 31,
1996 and 1995, respectively, such borrowings totaled $1,176,000 and $1,803,000.
Deposits of related parties held by the Bank totaled $951,000 and $1,800,000 at
December 31, 1996 and 1995, respectively.

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

1996 1995
---- ----
Balance, beginning of year $ 1,803,000 2,536,000
Loans funded ............. 738,000 1,290,000
Principal repayments ..... (1,365,000) (2,023,000)
---------- ----------
Balance, end of year ..... $ 1,176,000 1,803,000
=========== =========

(15) Parent Company Financial Information

This information should be read in conjunction with the other notes to the
consolidated financial statements. The following presents summary balance sheets
as of December 31, 1996 and 1995, and statements of income, and cash flows
information for the years ended December 31, 1996, 1995, and 1994.

Balance Sheets:
Assets 1996 1995
- ------ ---- ----

Cash in bank ............................ $ 29,000 45,000
Investment securities available-for-sale,
at fair value ...................... 80,000 382,000
Premises and equipment, net ............. 68,000 4,418,000
Investment in wholly-owned subsidiary ... 11,683,000 9,238,000
Other assets ............................ 56,000 66,000
------------ ----------
$ 11,916,000 14,149,000
------------ ----------

Liabilities and Stockholders' Equity
Note payable ............................ $ -- 2,585,000
Accounts payable and other liabilities .. 27,000 --
------------ ----------
Total liabilities .................. 27,000 2,585,000

Common stock ............................ 7,324,000 7,314,000
Retained earnings ....................... 4,438,000 4,059,000
Unrealized holding gain (loss) on
available-for-sale securities, net . 127,000 191,000
------------ ----------

Total stockholders' equity ......... 11,889,000 11,564,000
------------ ----------

$ 11,916,000 14,149,000
============ ==========

Income Statements: 1996 1995 1994
- ------------------ ---- ---- ----

Interest from subsidiary ................ $ -- -- 6,000
Rent from subsidiary .................... 356,000 456,000 445,000
Interest from unrelated parties ......... 9,000 23,000 18,000
Other expenses .......................... (626,000) (610,000) (586,000)
Equity in undistributed income
of subsidiary ...................... 832,000 935,000 385,000
Income tax benefit ...................... 69,000 39,000 70,000
------------ ------- -------
Net income ......................... $ 640,000 843,000 338,000
============ ======= =======

Cash Flow Statements: 1996 1995 1994
- --------------------- ---- ---- ----
Net Income .............................. $ 640,000 843,000 338,000
Adjustments to reconcile net
income to net cash flows
(used by) provided by
operating activities:
Depreciation and amortization ...... 125,000 142,000 142,000
Provision for deferred taxes ....... 7,000 4,000 (7,000)
Increase (decrease) in other
liabilities .................... 27,000 (41,000) (90,000)
Decrease in other assets ........... 3,000 7,000 34,000
Increase in equity of
subsidiary ..................... (832,000) (935,000) (385,000)
------------ ------- -------
Net cash (used by) provided by
operating activities ............... (30,000) 20,000 32,000

Proceeds from sale of
available-for-sale securities ...... 302,000 127,000 --
Purchase of
available-for-sale securities ...... -- -- (509,000)
Capital expenditures .................... (4,000) -- --
Decrease in loans ....................... -- -- 220,000
------------ ------- -------
Net cash provided by (used by)
investing activities ............... 298,000 127,000 (289,000)

Payments on notes payable ............... (33,000) (33,000) (30,000)
Proceeds received upon
exercise of stock options .......... 10,000 4,000 4,000
Dividends paid .......................... (261,000) (196,000) --
------------ ------- -------
Net cash used by financing
activities ......................... (284,000) (225,000) (26,000)
Net (decrease) increase in cash ......... (16,000) (78,000) (283,000)
Cash at beginning of year ............... 45,000 123,000 406,000
------------ ------- -------
Cash at end of year ..................... $ 29,000 45,000 123,000
============ ====== =======

(16) Lines of Credit

The Company has two lines of credit with correspondent banks totaling
$5,000,000. As of December 31, 1996 and 1995, no amounts were outstanding under
these lines of credit.

(17) Regulatory Matters

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

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

First, a bank must meet a minimum Tier I (as defined in the regulations)
Capital ratio ranging from 3% to 5% based upon the bank's CAMEL (capital
adequacy, asset quality, management, earnings, and liquidity) rating.

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

Management believes, as of December 31, 1996, that the Bank meets all
capital adequacy requirements to which it is subject. As of December 31, 1996,
the most recent notification, the Federal Deposit Insurance Corporation (FDIC)
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately capitalized the Bank
must meet the minimum ratios as set forth below. There are no conditions or
events since that notification that management believes have changed the
institution's category.

The Bank's actual capital amounts and ratios as of December 31, 1996 are as
follows:

To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----

Total Risk-Based
Capital (to Risk
Weighted Assets) $12,207,000 16.98% $*5,750,000 *8.0% $*7,188,000 *10.0%
Tier 1Capital (to
Risk Weighted
Assets) ......... $11,308,000 15.73% $*2,875,000 *4.0% $*4,313,000 * 6.0%
Tier 1Capital (to
Average Assets) . $11,308,000 10.84% $*4,174,000 *4.0% $*5,128,000 * 5.0%

* greater than or equal to

(18) Fair Values of Financial Instruments

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

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

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

Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans (e.g., commercial real estate, mortgage loans,
commercial and construction loans, and installment loans) are estimated using
discounted cash flow analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.

Commitments to extend credit and standby letters of credit: The majority of
commitments to extend credit and standby letters of credit contain variable
rates of interest and credit deterioration clauses, and therefore, the carrying
value of these credit commitments approximates fair value.

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

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

Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets or liabilities include deferred tax assets,
premises, and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in many of the estimates.

The estimated fair values of the Bank's financial instruments are
approximately as follows:

1996
Carrying Fair
Amount Value
------ -----

Financial assets:
Cash and federal funds sold $ 5,848,000 5,848,000

Investment securities ..... $ 36,913,000 37,012,000
Loans:
Gross Loans ............... $ 54,279,000 53,920,000
Less:
Allowance for loan losses ... (1,207,000) (1,207,000)
Deferred loan fees and loan
sale premiums ............. (400,000) (400,000)
Net loans ................. $ 52,672,000 52,313,000
------------ ----------

1996
Carrying Fair
Amount Value
------ -----
Financial liabilities:
Deposits:
Demand ................... $ 9,066,000 9,066,000
Now and Super Now accounts 20,553,000 20,553,000
Money Market ............. 13,042,000 13,042,000
Savings .................. 15,972,000 15,972,000
Time ..................... 33,574,000 33,702,000
---------- ----------
Total deposits ........... $92,207,000 92,335,000

Contract Carrying Fair
Amount Amount Value
------ ------ -----
Unrecognized financial instruments:
Commitments to extend
credit ........................... $11,784,000 -- 118,000
Standby letters of credit .......... 50,000 -- 1,000

The estimated fair values of the Bank's financial instruments are
approximately as follows:

1995
Carrying Fair
Amount Value
------ -----
Financial assets:
Cash and federal funds sold ..... $ 7,788,000 7,788,000
Investment securities ........... $ 36,945,000 37,079,000
Loans:
Gross Loans ..................... $ 51,844,000 51,542,000
Less:
Allowance for loan losses .......... (959,000) (959,000)
Deferred loan fees and loan
sale premiums .................. (361,000) (361,000)

Net loans ....................... $ 50,524,000 50,222,000

Financial liabilities:
Deposits:
Demand ...................... $ 7,863,000 7,863,000
Now and Super Now accounts .. 18,910,000 18,910,000
Money Market ................ 13,047,000 13,047,000
Savings ..................... 15,880,000 15,880,000
Time ........................ 33,516,000 33,620,000
---------- ----------

Total deposits .............. $ 89,216,000 89,320,000

Note payable ................ 2,585,000 2,585,000

Contract Carrying Fair
Amount Amount Value
------ ------ -----
Unrecognized financial instruments:
Commitments to extend
credit .......................... $9,789,000 -- 98,000
Standby letters of credit.......... 153,000 -- 2,000

(19) Legal Proceedings

The bank is involved in various legal actions arising in the ordinary
course of business. In the opinion of management, after consulting with legal
counsel, the ultimate disposition of these matters will not have a material
effect on the Bank's financial condition, results of operations, or liquidity.

(20) Derivative Financial Instruments

In October, 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 119, Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments (SFAS No. 119), effective
for financial statements issued for fiscal years ending after December 15, 1994.
This statement requires certain disclosures for off-balance sheet derivative
financial instruments. As of December 31, 1996 and 1995, the Company has no off-
balance sheet derivatives requiring additional disclosure under the provisions
of SFAS No. 119. The Company held $1,224,000 and $2,303,000 in collateralized
mortgage obligations and $2,100,000 and $3,568,000 in structured notes as of
December 31, 1996 and 1995, respectively, which are considered derivative
financial instruments under the provisions of SFAS No. 119. These investments
are held in the available-for-sale portfolio.

(21) Subsequent Event

On October 15, 1996, the Bank entered into an agreement with Wells Fargo
Bank for the cash purchase of three branches from Wells Fargo and the assumption
of each branches' deposit liabilities. The branches, located in Galt, Plymouth
and San Andreas, California, have aggregate deposits of approximately
$34,000,000. The transaction closed on February 21, 1997. The purchase price was
approximately $2,340,000. The transaction will be accounted for using the
purchase method of accounting. Prepaid acquisition costs of approximately
$450,000 are included in other assets at December 31, 1996.

(22) Prospective Accounting Pronouncement

In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect that adoption of SFAS No.
125 will have a material impact on the Company's financial position, results of
operations, or liquidity.