GREATER BAY BANCORP, 10-K, 1999-02-17

GREATER BAY BANCORP
10-K, 1999-02-17
NATIONAL COMMERCIAL BANKS

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM 10-K
(Mark one)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 1998

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

For the transition period from to .

Commission file number 0-25034

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GREATER BAY BANCORP
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
California 77-0387041
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>

2860 West Bayshore Road, Palo Alto, California 94303
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (650) 813-8200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, no par value
9.75% Cumulative Trust Preferred Securities of GBB Capital I
Guarantee of Greater Bay Bancorp with respect to the
9.75% Cumulative Trust Preferred Securities of GBB Capital I
Preferred Share Purchase Rights
(Title of classes)

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

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

The aggregate market value of the Common Stock held by non-affiliates, based
upon the closing sale price of the Common Stock on January 29, 1999, as
reported on the Nasdaq National Market System, was approximately $272,319,000.
Shares of Common Stock held by each officer, director and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. Such determination of affiliate status is not
necessarily a conclusive determination for other purposes.

As of January 29, 1999, 9,666,002 shares of the Registrant's Common Stock
were outstanding.

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DOCUMENT INCORPORATED BY REFERENCE: PART OF FORM 10-K INTO WHICH
INCORPORATED:

Definitive Proxy Statement for
Annual Meeting of Shareholders to be Part III
filed within 120 days of the fiscal
year ended December 31, 1998

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PART I

Discussions of certain matters contained in this Annual Report on Form 10-K
may constitute forward-looking statements within the meaning of the Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and as
such, may involve risks and uncertainties. These forward-looking statements
relate to, among other things, expectations of the business environment in
which Greater Bay Bancorp (referred to as the "Company" when such reference
includes Greater Bay Bancorp and its subsidiaries, collectively, "Greater Bay"
when referring only to the parent company and "the Banks" when referring only
to Greater Bay's banking subsidiaries, Cupertino National Bank, Mid-Peninsula
Bank, Peninsula Bank of Commerce and Golden Gate Bank) operates, projections
of future performance, perceived opportunities in the market and statements
regarding the Company's mission and vision. The Company's actual results,
performance and achievements may differ materially from the results,
performance and achievements expressed or implied in such forward-looking
statements. For a discussion of some of the factors that might cause such a
difference, see "Item 1. Business--Factors That May Affect Future Results of
Operations".

ITEM 1. BUSINESS.

Greater Bay

Greater Bay is a bank holding company operating Cupertino National Bank
("CNB"), Mid-Peninsula Bank ("MPB"), Peninsula Bank of Commerce ("PBC") and
Golden Gate Bank ("Golden Gate") along with its operating divisions Greater
Bay Bank Santa Clara Valley Commercial Banking Group, Greater Bay Corporate
Finance Group, Greater Bay Bank Contra Costa Regional Banking Office, Greater
Bay International Banking Division, Greater Bay Trust Company, Pacific
Business Funding, Venture Banking Group and the Small Business Administration
Division. The Company has 14 regional offices in San Jose, Cupertino, Santa
Clara, Palo Alto, Redwood City, San Mateo, Millbrae, San Bruno, San Francisco
and Walnut Creek, California. At December 31, 1998, the Company had total
assets of $1.6 billion, total net loans of $1.0 billion and total deposits of
$1.3 billion.

History

Greater Bay Bancorp is the result of the merger (the "1996 Merger"),
effective November 27, 1996, of Cupertino National Bancorp ("Cupertino") and
Mid-Peninsula Bancorp ("Mid-Peninsula"). Cupertino was formed in 1984 as the
holding company for CNB, a national banking association which began operating
in 1985. Mid-Peninsula was formed in 1984 under the name San Mateo County
Bancorp ("San Mateo") as the bank holding company of San Mateo County National
Bank, which subsequently changed its name to WestCal National Bank ("WestCal")
in 1991. In 1994, WestCal was merged into MPB, a California state chartered
bank organized in 1987, and San Mateo concurrently changed its name to Mid-
Peninsula Bancorp. Effective December 23, 1997, the Company completed a merger
(the "PBC Merger") with PBC, whereby PBC became a wholly-owned subsidiary of
Greater Bay. PBC was formed in 1981, as a California state chartered bank.
Effective May 8, 1998, the Company completed a merger with Pacific Rim
Bancorporation ("PRB"). PRB was formed in 1993 as the holding company for
Golden Gate Bank, whereby Golden Gate Bank became a wholly-owned banking
subsidiary of Greater Bay. Effective August 31, 1998, the Company completed a
merger with Pacific Business Funding Corporation ("PBFC"), which now operates
as a division of CNB and conducts business under the name Pacific Business
Funding ("PBF"). All mergers were accounted for as pooling-of-interests
business combinations and, accordingly, all financial data for the periods
prior to the mergers have been restated to include the results of the acquired
entities.

The Company was created with the intention of achieving seven primary goals.
These goals included:

. Developing a greater banking presence throughout the San Francisco Bay
Area by increasing the number of banking offices available to clients;

. Reaching a critical mass in the Company's market areas in order to better
meet competitive challenges inherent in the banking and financial
services industries;

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. Maximizing the utilization of capital by increasing the float and
marketability of its common stock and, by virtue of its larger size,
obtaining access to a lower cost of capital;

. Realizing operating efficiencies through a combination of the Banks;

. Generating increased loan and fee income as a result of the higher
lending limits available to the combined entity;

. Leveraging marketing expense to improve the return on the combined
entity's marketing investment; and

. Enabling the Banks to cross-sell services.

Super Community Banking Philosophy

In order to meet the demands of the increasingly competitive banking and
financial services industries, management has adopted a business philosophy
referred to as the "Super Community Banking Philosophy." The Super Community
Banking Philosophy is based on management's belief that banking clients value
doing business with locally managed institutions that can provide a full
service commercial banking relationship through an understanding of the
clients' financial needs and the flexibility to deliver customized solutions
through Greater Bay's menu of products and services. Management further
believes that banks are better able to build successful client relationships
by affiliating with a holding company that provides cost effective
administrative support services while promoting bank autonomy and flexibility.

To implement this philosophy, Greater Bay operates the Banks as separate
subsidiaries by retaining their independent names and separate Boards of
Directors. The Banks have established strong reputations and customer
followings in their market areas through attention to client service and an
understanding of client needs. In an effort to capitalize on the identities
and reputations of the Banks, the Company currently intends to continue to
market its services under each Bank's name, primarily through each Bank's
relationship managers. The primary focus for the Banks' relationship managers
is to cultivate and nurture their client relationships. Relationship managers
are assigned to each borrowing client to provide continuity in the
relationship. This emphasis on personalized relationships requires that all of
the relationship managers maintain close ties to the communities in which they
serve, so they are able to capitalize on their efforts through expanded
business opportunities for the Banks.

While client service decisions and day-to-day operations are maintained at
the Banks, Greater Bay offers the advantages of affiliation with a multi-bank
holding company by providing expanded client support services, such as
business cash management, international trade services and accounting
services. In addition, Greater Bay provides centralized administrative
functions, including support in credit policy formulation and review,
investment management, data processing, accounting, loan servicing and other
specialized support functions. This allows the Banks to focus on client
service.

Corporate Growth Strategy

The Company's primary goal is to become the preeminent financial services
company based in the San Francisco Bay Area. The Company's primary business
strategy is to focus on increasing its market share within the communities it
serves through continued internal growth. The Company also will pursue
opportunities to expand its market share through select acquisitions that
management believes complement the Company's businesses. Management will
pursue acquisition opportunities to expand its presence in its current market
areas of San Francisco, Santa Clara and San Mateo Counties, and to establish a
presence in other parts of the Bay Area and California. Consistent with the
Company's operating philosophy and growth strategy, Greater Bay regularly
evaluates opportunities to acquire banks and other financial service companies
that complement the Company's existing business, expand its market coverage
and share and enhance its client product offerings.

Recent Events

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companies. The agreement provides for BA Bancshares shareholders to receive
approximately 1,393,000 shares of Greater Bay Bancorp stock subject to certain
adjustments based on movements in the Company's stock price, in a tax-free
exchange to be accounted for as a pooling-of-interests. Following the
transaction, the shareholders of BA Bancshares will own approximately 12.7% of
the combined company. The Company expects to complete the transaction in the
second quarter of 1999, subject to the approval of BA Bancshares shareholders
and regulatory approvals. As of December 31, 1998 BA Bancshares had $155.3
million in assets, $136.5 million in deposits, and $14.4 million in
shareholders' equity. BAB's office is located in Redwood City, California. The
combined Company, on a pro-forma basis, would have had total assets of
approximately $1.8 billion and equity of over $107.0 million at December 31,
1998.

The transaction is anticipated to be slightly accretive to the Company's
core earnings in 1999 based on anticipated reductions in operating expenses
and revenue enhancements resulting from an expanded product line, increased
lending capacity and an increased market awareness that can be utilized by
BAB. Management of each of the organizations believe that significant
opportunities exist to enhance the spectrum of financial services offered to
both existing and future clients of BAB while also increasing market
penetration in the San Francisco Peninsula market areas.

The Banks and Operating Divisions

Cupertino National Bank

CNB presently has seven offices, including five full service branches. At
December 31, 1998, CNB had total assets of $688.3 million, total net loans of
$500.2 million and total deposits of $569.7 million.

Mid-Peninsula Bank

MPB presently has four offices, including three full service branches. On
December 31, 1998, MPB had total assets of $530.6 million, total net loans of
$307.0 million and total deposits of $445.5 million.

Peninsula Bank of Commerce

PBC presently has two banking offices. On December 31, 1998, PBC had total
assets of $234.0 million, total net loans of $109.8 million and total deposits
of $214.8 million. PBC holds $89.6 million from a single depositor (the
"Special Deposit"). Due to the uncertainty of the time the Special Deposit
will remain with PBC, management has invested a significant portion of the
proceeds from this deposit in agency securities with maturities of less than
90 days.

Golden Gate Bank

Golden Gate presently has one office. On December 31, 1998, Golden Gate had
total assets of $127.0 million, total net loans of $67.6 million and total
deposits of $117.4 million.

Operating Divisions

The Banks have various operating divisions. These divisions include the
Greater Bay Trust Company, the Venture Banking Group, the Small Business
Administration ("SBA") Division, and the asset-based speciality finance
division, PBF. In addition, consistent with Greater Bay's operating philosophy
and growth strategy, in 1998, the Company formed the Greater Bay Bank Santa
Clara Valley Commercial Banking Group ("SCVG"), Greater Bay Corporate Finance
Group ("CFG"), Greater Bay Bank Contra Costa Banking Office ("CCBO") and the
Greater Bay International Banking Division ("IBD").

Greater Bay Trust Company provides trust services to support the trust needs
of the Bank's business and personal clients. These services include, but are
not limited to, custodial, investment management, estate planning resources
and employee benefit plan services.

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The Venture Banking Group serves the needs of companies in their start-up
and development phase, allowing them to access a banking relationship early in
their development. The loans to this target group of clients are generally
secured by the accounts receivable, inventory and equipment of the companies.
The financial strength of these companies also tends to be bolstered by the
presence of venture capital investors among their shareholders.

The SBA Division provides loans to smaller businesses that are generally 65%
to 80% guaranteed by the SBA. In 1994, the SBA named CNB's SBA Division a
Preferred Lender. The SBA awards Preferred Lender status to lenders who have
demonstrated superior ability to generate, underwrite and service loans
guaranteed by the SBA. This status results in more rapid turnaround of loan
applications submitted to the SBA for approval.

PBF is an asset-based lending and factoring division that provides
alternative funding and support programs designed to enhance the Company's
small business banking services.

SCVG offers a full line of business banking services, catering to the needs
of small to medium-sized businesses, professional firms and executives who own
and operate them. The services include a full range of deposit accounts, cash
management and credit facilities custom-tailored to meet the specific needs of
its clients. SCVG further solidifies the Company's strong presence in the
Silicon Valley.

CFG primarily focuses its efforts on obtaining middle market lending clients
that have revenues in excess of $20 million and financing requirements in the
range of $5 million to $250 million. The clients will fall into two
categories: 1.) syndicated loan transactions, and 2.) direct sourced
transactions where CFG will be the lead agent.

CCBO was formed to expand the Company's presence into the East Bay market.
The Company believes the East Bay has tremendous potential for growth and is
contiguous to its existing markets.

IBD provides a wide range of financial services to support the international
banking needs of the Bank's clients, including identifying certain risks of
conducting business abroad and, providing international letters of credit and
trade finance services.

Banking Services

Greater Bay provides a wide range of commercial banking and financial
services to small and medium-sized businesses, real estate developers and
property managers, business executives, professionals and other individuals.

The Banks offer a wide range of deposit products. These include the normal
range of personal and business checking and savings accounts, time deposits
and individual retirement accounts. The Banks also offer a wide range of
specialized services designed to attract and service the needs of customers
and include cash management and international trade services for business
clients, traveler's checks, safe deposit and MasterCard and Visa merchant
deposits services.

The Banks also engage in the full complement of lending activities,
including commercial, real estate and consumer loans. The Banks provide
commercial loans for working capital and business expansion to small and
medium-sized businesses with annual revenues generally in the range of $1.0
million to $100.0 million with a focus on business clients with borrowing
needs between $2.0 million and $10.0 million. The Banks' commercial clients
are drawn from a wide variety of manufacturing, wholesale and service
businesses. The Banks provide interim real estate loans primarily for
construction in the Banks' primary service areas of single-family residences,
which typically range between approximately $500,000 and $1.0 million, and
multi-unit projects, which typically range between approximately $1.5 million
and $4.0 million. The Banks provide medium term commercial real estate loans
or credits, typically ranging between $750,000 and $3.0 million for the
financing of commercial or industrial buildings where the owners either use
the properties for business purposes or derive income from tenants.

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Market Area

The Banks concentrate on marketing their services to small and medium-sized
businesses, professionals and individuals in Contra Costa, Santa Clara, San
Francisco and San Mateo Counties.

. CNB's primary base of operations is in Cupertino, California, which is in
the center of the geographical area referred to as "Silicon Valley," and
CNB's operations extend throughout Santa Clara County. Santa Clara County
has a population of approximately 1,690,000;

. MPB's primary base of operations is centered in Palo Alto, California and
extends north through San Mateo County. San Mateo County has a population
of approximately 715,000. MPB has recently formed an operating division
located in Contra Costa County. Contra Costa has a population of
approximately 900,000;

. PBC's primary base of operations is centered in Millbrae, California, and
includes northern San Mateo County and extends into San Francisco County;

. Golden Gate's operations are centered in the City and County of San
Francisco. San Francisco County has a population in excess of 790,000.

The commercial base of Contra Costa, Santa Clara, San Francisco and San
Mateo Counties is diverse and includes computer and semiconductor
manufacturing, professional services, biotechnology, printing and publishing,
aerospace, defense and real estate construction, as well as wholesale and
retail trade. As a result of its geographic concentration, the Company's
results depend largely upon economic conditions in these areas. While the
economy in the Company's market areas have exhibited positive economic and
employment trends, there is no assurance that such trends will continue. A
deterioration in economic conditions could have material adverse impact on the
quality of the Company's loan portfolio and the demand for its product and
services, and accordingly its results of operations. See "Item 1. Business--
Factors That May Affect Future Results of Operations."

Lending Activities

Underwriting and Credit Administration

The lending activities of each of the Banks is guided by the basic lending
policies established by its Board of Directors. Each loan must meet minimum
underwriting criteria established in the Bank's lending policy. Lending
authority is granted to officers of each Bank on a limited basis. Loan
requests exceeding individual officer approval limits are approved by the
Officers Loan Committees of the respective Banks. Loan requests exceeding
these limits are submitted to the Greater Bay Officers Loan Committee, which
consists of the President and Chief Executive Officer of Greater Bay, the
Executive Vice President and Chief Lending Officer of Greater Bay, the
Executive Vice President and Chief Credit Officer of MPB and the Senior Vice
President and Chief Credit Officer of Greater Bay. All members of the Officers
Loan Committee are also officers of the individual Banks. Loan requests which
exceed the limits of the Greater Bay Officers Loan Committee are submitted to
the Directors Loan Committee for final approval. The Directors Loan Committee
consists of five outside directors. Each of these committees meet on a regular
basis in order to provide timely responses to the Banks' clients.

The Company's credit administration function includes an internal review and
the regular use of an outside loan review firm. In addition, the Greater Bay
Officers Loan Committee, Chief Operating Officer/Chief Financial Officer and
Controller review information at least once a month related to delinquencies,
nonperforming assets, classified assets and other pertinent information to
evaluate credit risk within each Bank's loan portfolio and to recommend
general reserve percentages and specific reserve allocations. The Board of
Directors of Greater Bay and each of the Banks review this same information on
a monthly basis.

Loan Portfolio

The composition of the Company's gross loan portfolio at December 31, 1998
was as follows:

. Approximately 45.3% were commercial loans;

. Approximately 17.3% were in real estate construction and land loans,
primarily for residential projects;

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. Approximately 29.7% were real estate term loans, primarily secured by
commercial properties; and

. The balance of the portfolio consists of consumer loans.

The interest rates the Banks charge for the vary with the degree of risk,
size and maturity of the loans. Rates are generally affected by competition,
associated factors stemming from the client's deposit relationship with the
Bank and the Banks' cost of funds.

Commercial Loans. In their commercial loan portfolio, the Banks provide
personalized financial services to the diverse commercial and professional
businesses in their market areas. Commercial loans, including those made by
the Venture Banking Group, consist primarily of short-term loans (normally
with a maturity of under one year) for working capital and business expansion.
The Banks' focus is on businesses with annual revenues generally between $1.0
million and $100.0 million with borrowing needs generally between $2.0 and
$10.0 million. The Banks' commercial clients are drawn from a wide variety of
manufacturing, wholesale and service businesses.

Commercial loans typically include revolving lines of credit collateralized
by inventory, accounts receivable and equipment. Emphasis is placed on the
borrower's earnings history, capitalization, secondary sources of repayment,
and in some instances, third party guarantees or highly liquid collateral
(such as time deposits and investment securities). Commercial loan pricing is
generally at a rate tied to the prime rate (as quoted in the Wall Street
Journal) or the Banks' reference rates.

The Venture Banking Group serves the needs of companies in their start-up
and development phase. Typical clients include technology companies, ranging
from multimedia, software and telecommunications providers to bio-technology
and medical device firms. The Venture Banking Group provides innovative
lending products and other financial services, tailored to the needs of start-
up and growth-stage companies. Borrowings are generally secured by minimum
cash balances, accounts receivable, intellectual property rights, inventory
and equipment of the companies. Because these companies are in the start-up or
development phase, many of them will not generate earnings for several years.
The Company often receives warrants from these companies as part of the
compensation for its services.

The Company participates in many SBA programs and, through CNB, is a
"preferred lender." Preferred lender status is granted to a lender which has
made a certain number of SBA loans and which, in the opinion of the SBA has
staff who are qualified and experienced in this area. As a preferred lender,
the Company has the authority to authorize, on behalf of the SBA, the SBA
guaranty on loans under the 7A program. This can represent a substantial
savings in serving a customer's needs. The Company utilizes both the 504
program, which is focused toward longer-term financing of buildings, and other
long-term assets, and the 7A program which is primarily used for financing of
the equipment, inventory and working capital needs of eligible businesses
generally over a three- to seven-year term. The Company's collateral position
in the SBA loans is enhanced by the SBA guaranty in the case of 7A loans, and
by lower loan-to-value ratios under the 504 program. The Company generally
sells the guaranteed portion of its SBA loans in the secondary market.

Real Estate Construction and Land Loans. The Banks' real estate construction
loan activity focuses on providing short-term (generally less than one year
maturity) loans to individuals and developers with whom the Banks have
established relationships for the construction primarily of single family
residences in the Banks' market areas. Prior to 1994, the Banks concentrated
their construction loan activity on owner-occupied custom residences. During
1994, as real estate values began to stabilize, the Banks also entered the
construction loan market for multi-unit single family residential projects.
Subsequently, the Banks continued to expand their real estate construction
portfolio with the help of the improving real estate market in Northern
California. Real estate construction loans for single family residences
typically range between approximately $500,000 and $1.0 million, and for
multi-unit projects typically range between approximately $1.5 million and
$4.0 million.

Residential real estate construction loans are typically secured by first
deeds of trust and require guarantees of the borrower. The economic viability
of the project and the borrower's credit-worthiness are primary considerations
in the loan underwriting decision. Generally, these loans provide an
attractive yield, but may carry a higher than normal risk of loss or
delinquency, particularly if general real estate values decline. The Banks
utilize approved

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independent local appraisers and loan-to-value ratios which generally do not
exceed 65% to 75% of the appraised value of the property. The Banks monitor
projects during the construction phase through regular construction
inspections and a disbursement program tied to the percentage of completion of
each project.

The Banks also occasionally make land loans to persons who intend to
construct a single family residence on the lot generally within twelve months.
In addition, the Banks have occasionally in the past, and may to a greater
extent in the future, make commercial real estate construction loans to high
net worth clients with adequate liquidity for construction of office and
warehouse properties. Such loans are typically secured by first deeds of trust
and require guarantees of the borrower.

Real Estate Term Loans. The Banks provide medium-term commercial real estate
loans secured by commercial or industrial buildings where the owner either
uses the property for business purposes ("owner-user properties") or derives
income from tenants ("investment properties"). The Company's loan policies
require the principal balance of the loan, generally between $400,000 and $3.0
million, to be no more than 70% of the stabilized appraised value of the
underlying real estate collateral. The loans, which are typically secured by
first deeds of trust only, generally have terms of no more than seven to ten
years and are amortized over 20 years. Most of these loans have rates tied to
the prime rate, with many adjusting whenever the prime rate changes; the
remaining loans adjust every two or three years depending on the term of the
loan.

Consumer and Other Loans. The Banks' consumer and other loan portfolio is
divided between installment loans secured by automobiles and aircraft, and
home improvement loans and equity lines of credit which are often secured by
residential real estate. Installment loans tend to be fixed rate and longer-
term (one-to-five year maturity), while the equity lines of credit and home
improvement loans are generally floating rate and are reviewed for renewal on
an annual basis. The Banks also have a minimal portfolio of credit card loans,
issued as an additional service to its clients.

Deposits

The Banks obtain deposits primarily from small and medium-sized businesses,
business executives, professionals and other individuals. Each of the Banks
offers the usual and customary range of depository products provided by
commercial banks. The Banks' deposits typically are not received from a single
depositor or group of affiliated depositors, the loss of any one of which
would have a material adverse effect on the business of the Company or any of
the Banks. Rates paid on deposits vary among the categories of deposits due to
different terms, the size of the individual deposit, and rates paid by
competitors on similar deposits.

CNB has two business units that provide significant support to its deposit
base. The Greater Bay Trust Company has approximately 10% of its trust assets
under management in liquid funds that are retained in CNB money market demand
accounts. At December 31, 1998, these funds totaled $76.5 million. The Venture
Banking Group, which finances companies in their start-up and development
stage, is another source of deposits as most of the start-up phase companies
have significant liquidity that is deposited in the bank as part of the
banking relationship. At December 31, 1998, clients of the Venture Banking
Group had $106.5 million in deposits at CNB.

Trust Services

The Greater Bay Trust Company, which is a division of CNB, offers a full
range of fee-based trust services directly to its clients and administers
several types of retirement plans, including corporate pension plans, 401(k)
plans and individual retirement plans, with an emphasis on the investment
management, custodianship and trusteeship of such plans. In addition, the
Greater Bay Trust Company acts as executor, administrator, guardian and/or
trustee in the administration of the estates of individuals. Investment and
custodial services are provided for corporations, individuals and nonprofit
organizations. Total assets under management by the Greater Bay Trust Company
were $649.3 million at December 31, 1998, compared to $577.7 million at
December 31, 1997, and $418.0 million at December 31, 1996.

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Competition

The banking and financial services business in California generally, and in
the Banks' market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation,
changes in technology and product delivery systems, and the accelerating pace
of consolidation among financial service providers. The Banks compete for
loans, deposits and customers with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies,
insurance companies, finance companies, money market funds, credit unions, and
other nonbank financial service providers. Many of these competitors are much
larger in total assets and capitalization, have greater access to capital
markets and offer a broader array of financial services than the Banks. In
order to compete with the other financial service providers, the Banks
principally rely upon local promotional activities, personal relationships
established by officers, directors and employees with its clients, and
specialized services tailored to meet its clients' needs. In those instances
where the Banks are unable to accommodate a customer's needs, the Banks may
arrange for those services to be provided by its correspondents. The Banks
have fourteen offices, located in Contra Costa, Santa Clara, San Francisco and
San Mateo Counties. Neither the deposits nor loans of the offices of the
respective Banks exceed 1% of all financial services companies located in such
counties.

Effect of Economic Conditions, Governmental Policies and Legislation

The Company's profitability, like most financial institutions, is primarily
dependent on interest rate differentials. In general, the difference between
the interest rates the Banks pay on interest-bearing liabilities, such as
deposits and other borrowings, and the interest rates the Banks receive on
interest-earning assets, such as loans extended to its clients and securities
held in its investment portfolio, comprise the major portion of the Company's
earnings. These rates are highly sensitive to many factors that are beyond the
control of the Company and the Bank, such as inflation, recession and
unemployment, and the impact which future changes in domestic and foreign
economic conditions might have on the Company and the Bank cannot be
predicted.

The business of the Company is also influenced by the monetary and fiscal
policies of the federal government and the policies of regulatory agencies,
particularly the Board of Governors of the Federal Reserve System (the
"Federal Reserve"). The Federal Reserve implements national monetary policies
(with objectives such as curbing inflation and combating recession) through
its open-market operations in U.S. Government securities by adjusting the
required level of reserves for depository institutions subject to its reserve
requirements and by varying the target federal funds and discount rates
applicable to borrowings by depository institutions. The actions of the
Federal Reserve in these areas influence the growth of bank loans, investments
and deposits and also affect interest rates earned on interest-earning assets
and paid on interest-bearing liabilities. The nature and impact on the Company
of any future changes in monetary and fiscal policies cannot be predicted.

From time to time, legislative acts, as well as regulations, are enacted
which have the effect of increasing the cost of doing business, limiting or
expanding permissible activities, or affecting the competitive balance between
banks and other financial services providers. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank holding
companies and other financial institutions are frequently made in the U.S.
Congress, in the state legislatures and before various bank regulatory
agencies. See "Item 1. Business--Supervision and Regulation."

Employees

At December 31, 1998, the Company had 313 full-time employees. None of the
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be satisfactory.

Supervision and Regulation

Bank holding companies and banks are extensively regulated under both
federal and state law. This regulation is intended primarily for the
protection of depositors and the deposit insurance fund and not for the
benefit of stockholders of the Company. Set forth below is a summary
description of certain laws which relate to the regulation

9
<PAGE>

of Greater Bay and the Banks. The description does not purport to be complete
and is qualified in its entirety by reference to the applicable laws and
regulations.

In recent years, Congress has discussed and evaluated significant
legislative proposals and reforms affecting the financial services industry.
Such proposals include legislation to revise the Glass-Steagall Act and the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and the expand
permissible activities for banks, principally to facilitate the convergence of
commercial and investment banking. Certain proposals also sought to expand
insurance activities of banks. It is unclear whether any of these proposals,
or any form of them, will be introduced in the current Congress and become
law. Consequently, it is not possible to determine what effect, if any, they
may have on Greater Bay and the Banks.

Greater Bay

Greater Bay, as a registered bank holding company, is subject to regulation
under the BHCA. Greater Bay is required to file with the Federal Reserve
quarterly and annual reports and such additional information as the Federal
Reserve may require pursuant to the BHCA. The Federal Reserve may conduct
examinations of Greater Bay and its subsidiaries.

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

Under the BHCA and regulations adopted by the Federal Reserve, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease
or sale of property or furnishing of services. Further, Greater Bay is
required by the Federal Reserve to maintain certain levels of capital. See
"Capital Standards" herein.

Greater Bay is required to obtain the prior approval of the Federal Reserve
for the acquisition of more than 5% of the outstanding shares of any class of
voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve is also required for
the merger or consolidation of Greater Bay and another bank holding company.

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

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

10
<PAGE>

Greater Bay is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, Greater Bay and its
subsidiaries are subject to examination by, and may be required to file
reports with, the California Department of Financial Institutions.

The Company's securities are registered with the Securities and Exchange
Commission under the Exchange Act. As such, the Company is subject to the
information, proxy solicitation, insider trading, and other requirements and
restrictions of the Exchange Act.

The Banks

CNB, as a national banking association, is subject to primary supervision,
examination and regulation by the Office of the Comptroller of Currency (the
"Comptroller"). MPB, PBC and Golden Gate as California state chartered banks
and members of the Federal Reserve System, are subject to primary supervision,
periodic examination and regulation by the Commissioner of the Department of
Financial Institutions ("Commissioner") and the Federal Reserve. If as a
result of an examination of a bank, the bank regulatory agencies should
determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of the bank's
operations are unsatisfactory or that the bank or its management is violating
or has violated any law or regulation, various remedies are available to the
bank regulatory agencies. Such remedies include the power to enjoin "unsafe or
unsound" practices, to require affirmative action to correct any conditions
resulting from any violation or practice, to issue an administrative order
that can be judicially enforced, to direct an increase in capital, to restrict
the growth of the bank, to assess civil monetary penalties, to remove officers
and directors and ultimately to terminate a bank's deposit insurance, which
would result in a revocation of the bank's charter. None of the Banks has been
subject of any such actions by their respective regulatory agencies.

The Federal Deposit Insurance Corporation ("FDIC") insures the Banks'
deposits in the manner and to the extent provided by law. For this protection,
the Banks pay a semiannual statutory assessment. See "Premium for Deposit
Insurance" herein.

Various requirements and restrictions under the laws of the State of
California and the United States affect the operations of the Banks. State and
federal statutes and regulations relate to many aspects of the Banks'
operations, including levels of capital, reserves against deposits, interest
rates payable on deposits, loans, investments, mergers and acquisitions,
borrowings, dividends, locations of branch offices and capital requirements.

Dividends and Other Transfers of Funds

The Company is a legal entity separate and distinct from the Banks. The
Banks are subject to various statutory and regulatory restrictions on their
abilities to pay dividends to the Company. Under such restrictions, the amount
available for payment of dividends to the Company by the Banks totaled $24.6
million at December 31, 1998. In addition, the California Department of
Financial Institutions and the Federal Reserve Board have the authority to
prohibit the Banks from paying dividends, depending upon the Banks' financial
condition, if such payment is deemed to constitute an unsafe or unsound
practice.

The bank regulatory agencies also have authority to prohibit the Banks from
engaging in activities that, in their respective opinions, constitute unsafe
or unsound practices in conducting its business. It is possible, depending
upon the financial condition of the bank in question and other factors, that
the bank regulatory agencies could assert that the payment of dividends or
other payments might, under some circumstances, be such an unsafe or unsound
practice. Further, the bank regulatory agencies have established guidelines
with respect to the maintenance of appropriate levels of capital by banks or
bank holding companies under their jurisdiction. Compliance with the standards
set forth in such guidelines and the restrictions that are or may be imposed
under the prompt corrective action provisions of federal law could limit the
amount of dividends which the Banks or Greater Bay may pay. See "Prompt
Corrective Action and Other Enforcement Mechanisms" herein and "Capital
Standards" herein for a discussion of these additional restrictions on capital
distributions.

11
<PAGE>

The Banks are subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, Greater Bay or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of Greater Bay or other affiliates. Such
restrictions prevent Greater Bay and such other affiliates from borrowing from
the Banks unless the loans are secured by marketable obligations or other
acceptable collateral of designated amounts. Further, such secured loans and
investments by the Banks to or in Greater Bay or to or in any other affiliate
is limited to 10% of the respective bank's capital stock and surplus (as
defined by federal regulations) and such secured loans and investments are
limited, in the aggregate, to 20% of the respective banks' capital stock and
surplus (as defined by federal regulations). California law also imposes
certain restrictions with respect to transactions involving Greater Bay and
other controlling persons of the Banks. Additional restrictions on
transactions with affiliates may be imposed on the Banks under the prompt
corrective action provisions of federal law. See "Prompt Corrective Action and
Other Enforcement Mechanisms" herein.

Capital Standards

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

The federal banking agencies require a minimum ratio of qualifying total
capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to
risk-adjusted assets of 4%. In addition to the risked-based guidelines,
federal banking regulators require banking organizations to maintain a minimum
amount of Tier 1 capital to total assets, referred to as the leverage ratio.
For a banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. For all banking organizations not rated in
the highest category, the minimum leverage ratio must be at least 100 to 200
basis points above the 3% minimum, or 4% to 5%. In addition to these uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the
minimum guidelines and ratios.

Prompt Corrective Action and Other Enforcement Mechanisms

Federal banking agencies possess broad powers to take prompt corrective
action to resolve the problems of insured depository institutions, including
but not limited to those that fall below one or more prescribed minimum
capital ratios. Each federal banking agency has promulgated regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. At December 31, 1998, each
of the Banks, and the Company as a whole exceeded the required ratios for
classification as "well capitalized".

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

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

12
<PAGE>

Safety and Soundness Standards

The federal banking agencies have adopted guidelines designed to assist the
federal banking agencies in identifying and addressing potential safety and
soundness concerns before capital becomes impaired. The guidelines set forth
operational and managerial standards relating to: (i) internal controls,
information systems and internal audit systems, (ii) loan documentation, (iii)
credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation,
fees and benefits. In addition, the federal banking agencies have also adopted
safety and soundness guidelines with respect to asset quality and earnings
standards. These guidelines provide six standards for establishing and
maintaining a system to identify problem assets and prevent those assets from
deteriorating. Under these standards, an insured depository institution
should: (i) conduct periodic asset quality reviews to identify problem assets,
(ii) estimate the inherent losses in problem assets and establish reserves
that are sufficient to absorb estimated losses, (iii) compare problem asset
totals to capital, (iv) take appropriate corrective action to resolve problem
assets, (v) consider the size and potential risks of material asset
concentrations, and (vi) provide periodic asset quality reports with adequate
information for management and the board of directors to assess the level of
asset risk. These new guidelines also set forth standards for evaluating and
monitoring earnings and for ensuring that earnings are sufficient for the
maintenance of adequate capital and reserves.

Premiums for Deposit Insurance

The Banks' deposit accounts are insured by the Bank Insurance Fund ("BIF"),
as administered by the FDIC, up to the maximum permitted by law. Insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operation, or has violated any applicable law, regulation, rule,
order, or condition imposed by the FDIC or the institution's primary
regulator.

The FDIC charges an annual assessment for the insurance of deposits, which
as of December 31, 1998, ranged from 0 to 27 basis points per $100 of insured
deposits, based on the risk a particular institution poses to its deposit
insurance fund. The risk classification is based on an institution's capital
group and supervisory subgroup assignment. Pursuant to the Economic Growth and
Paperwork Reduction Act of 1996 (the "Paperwork Reduction Act"), at January 1,
1997, the Bank began paying, in addition to its normal deposit insurance
premium as a member of the BIF, an amount equal to approximately 1.3 basis
points per $100 of insured deposits toward the retirement of the Financing
Corporation bonds ("Fico Bonds") issued in the 1980s to assist in the recovery
of the savings and loan industry. Members of the Savings Association Insurance
Fund ("SAIF"), by contrast, pay, in addition to their normal deposit insurance
premium, approximately 6.4 basis points. Under the Paperwork Reduction Act,
the FDIC is not permitted to establish SAIF assessment rates that are lower
than comparable BIF assessment rates. Beginning no later than January 1, 2000,
the rate paid to retire the Fico Bonds will be equal for members of the BIF
and the SAIF. The Paperwork Reduction Act also provided for the merging of the
BIF and the SAIF by January 1, 1999 provided there were no financial
institutions still chartered as savings associations at that time. However, as
of January 1, 1999, there were still financial institutions chartered as
savings associations. Should the insurance funds be merged before January 1,
2000, the rate paid by all members of this new fund to retire the Fico Bonds
would be equal.

Interstate Banking and Branching

The BHCA currently permits bank holding companies from any state to acquire
banks and the bank holding companies located in any other state, subject to
certain conditions, including certain nationwide - and state-imposed
concentration limits. The Company has the ability, subject to certain
restrictions, to acquire by acquisition or merger branches outside its home
state. The establishment of new interstate branches is also possible in those
states with laws that expressly permit it. Interstate branches are subject to
certain laws of the states in which they are located. Competition may increase
further as banks branch across state lines and enter new markets.

Community Reinvestment Act and Fair Lending Developments

The Banks are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal

13
<PAGE>

banking agencies to evaluate the record of a financial institution in meeting
the credit needs of its local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.

A bank's compliance with its CRA obligations is based on a performance-based
evaluation system which bases CRA ratings on an institution's lending service
and investment performance. When a bank holding company applies for approval
to acquire a bank or other bank holding company, the Federal Reserve will
review the assessment of each subsidiary bank of the applicant bank holding
company, and such records may be the basis for denying the application. In
connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding," "satisfactory," "needs to
improve" or "substantial noncompliance." Based on an examination conducted as
of March 1998, MPB was rated outstanding. Based on examinations conducted as
of March 1996, September 1995 and June 1995, CNB, PBC and Golden Gate were
rated satisfactory.

Year 2000 Compliance

The Federal Financial Institutions Examination Council issued an interagency
statement to the chief executive officers of all federally supervised
financial institutions regarding year 2000 project management awareness. It is
expected that unless financial institutions address the technology issues
relating to the coming of the year 2000, there will be major disruptions in
the operations of financial institutions. The statement provides guidance to
financial institutions, providers of data services, and all examining
personnel of the federal banking agencies regarding the year 2000 problem. The
federal banking agencies intend to conduct year 2000 compliance examinations,
and the failure to implement a year 2000 program may be seen by the federal
banking agencies as an unsafe and unsound banking practice. If a federal
banking agency determines that the Bank is operating in an unsafe and unsound
manner, the Bank may be required to submit a compliance plan. Failure to
submit a compliance plan or to implement an accepted plan may result in
enforcement action being taken, which may include a cease and desist order and
fines.

Factors That May Affect Future Results of Operations

The following discusses certain factors which may affect the Company's
financial results and operations and should be considered in evaluating the
Company.

Ability of Greater Bay to Execute its Business Strategy

The financial performance and profitability of the Company will depend on
its ability to execute its business strategy and manage its recent and
possible future growth. Although management believes that it has substantially
integrated the business and operations of the recently acquired Banks and PBF,
there can be no assurance that unforeseen issues relating to the assimilation
of these Banks and PBF will not adversely affect the Company. In addition, any
future acquisitions, including BAB, or continued growth may present operating
and other problems that could have an adverse effect on the Company's
business, financial condition and results of operations. The Company's
financial performance will also depend on its ability to maintain profitable
operations through implementation of its Super Community Banking Philosophy.
Accordingly, there can be no assurance that the Company will be able to
continue the growth or maintain the level of profitability it has recently
experienced.

Interest Rates

The Company's earnings are impacted by changing interest rates. Changes in
interest rates impact the demand for new loans, the credit profile of existing
loans, the rates received on loans and securities and rates paid on deposits
and borrowings. The relationship between the rates received on loans and
securities and the rates paid on deposits and borrowings is known as interest
rate spread. Given the Company's current volume and mix of interest-bearing
liabilities and interest-earning assets, the Company's interest rate spread
could be expected to increase during times of rising interest rates and,
conversely, to decline during times of falling interest rates. Although the
Company believes its current level of interest rate sensitivity is reasonable,
significant fluctuations in interest rates may have an adverse effect on the
Company's business, financial condition and results of operations.

14
<PAGE>

Economic Conditions and Geographic Concentration

The Company's operations are located in Northern California and concentrated
primarily in Contra Costa San Francisco, Santa Clara and San Mateo Counties,
which includes the area known as the "Silicon Valley." As a result of the
geographic concentration, the Company's results depend largely upon economic
conditions in these areas. A deterioration in economic conditions in the
Company's market areas, particularly in the technology and real estate
industries on which these areas depend, could have a material adverse impact
on the quality of the Company's loan portfolio, the demand for its products
and services, and its results of operations.

Government Regulation and Monetary Policy

The financial services industry is regulated extensively. Federal and State
regulation is designed primarily to protect the deposit insurance funds and
consumers, and not to benefit the Company's stockholders. Significant new laws
or changes in existing laws or repeal of existing laws may cause the Company's
results to differ materially. Further, federal monetary policy, particularly
as implemented through the Federal Reserve System, significantly affects
credit conditions for the Company.

Competition

The financial services business in the Company's market areas are highly
competitive. It is becoming increasingly competitive due to changes in
regulation, technological advances, and the accelerating pace of consolidation
among financial services providers. The results of the Company may differ in
future periods depending upon the nature or level of competition.

Credit Quality

A significant source of risk arises from the possibility that losses will be
sustained because borrowers, guarantors and related parties may fail to
perform in accordance with the terms of their loans. The Company has adopted
underwriting and credit monitoring procedures and credit policies, including
the establishment and review of the allowance for credit losses, that
management believes are appropriate to minimize this risk by assessing the
likelihood of nonperformance, tracking loan performance and diversifying the
Company's credit portfolio. These policies and procedures, however, may not
prevent unexpected losses that could materially adversely affect the Company's
results of operations.

Year 2000 Compliance

Most of the Company's operations are dependent on the efficient functioning
of the Company's computer systems and software. Computer system failures or
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations.

Many computer programs were designed and developed utilizing only two digits
in date fields, thereby creating the inability to recognize the year 2000 or
years thereafter. Beginning in the year 2000, these date codes will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. This year 2000 issues creates risks for the Company from unforeseen or
unanticipated problems in its internal computer systems as well as from
computer systems of the Federal Reserve Bank, correspondent banks, customers
and suppliers. Failures of these systems or untimely corrections could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The Company's computer systems and programs are designed and supported by
companies specifically in the business of providing such products and
services. The Company's year 2000 plan includes evaluating existing hardware,
software, ATM's, vaults, alarm systems, communication systems and other
electrical devices, testing critical application programs and systems, both
internally and externally, establishing a contingency plan and upgrading
hardware and software as necessary. The initial phase of the project was to
assess and identify all internal business processes requiring modification and
to develop comprehensive renovation plans as needed. This phase was largely

15
<PAGE>

completed in mid-1998. The second phase was to execute those renovation plans
and begin testing systems by simulating year 2000 data conditions. This phase
was largely completed in 1998. Testing and implementation is planned to be
completed during the first half of 1999. Failure to be year 2000 compliant or
incurrence of significant costs to render the Company year 2000 compliant
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The Company is evaluating its major customers and suppliers to determine if
they are year 2000 compliant. Failure of any material customer or supplier to
be year 2000 compliant could have a material adverse effect on the Company.

Other Risks

From time to time, the Company details other risks with respect to its
business and financial results in its filings with the Securities and Exchange
Commission.

ITEM 2. PROPERTIES.

The Company occupies its administrative offices under a lease which,
including options to renew, expires in 2007. PBC owns its main office located
in Millbrae, California. The Company leases thirteen additional offices
throughout the San Francisco Bay Area under operating leases. Those leases
expire under various dates, including options to renew, through 2017.

The Company believes its present facilities are adequate for its present
needs and anticipated future growth. The Company believes that, if necessary,
it could secure suitable alternative facilities on similar terms without
adversely affecting operations.

ITEM 3. LEGAL PROCEEDINGS.

From time to time, the Company is involved in certain legal proceedings
arising in the normal course of its business. Management believes that the
outcome of these matters will not have a material adverse effect on the
Company.

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

There were no submission of matters to a vote of security holders during the
fourth quarter of the year ended December 31, 1998.

16
<PAGE>

PART II

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

The Company's stock is traded on the Nasdaq National Market ("Nasdaq") under
the symbol "GBBK". The quotations shown reflect the high and low sales prices
for the Company's common stock as reported by Nasdaq. The following
information is restated to reflect 2-1 stock split effective as of April 30,
1998.

<TABLE>
<CAPTION>
Cash dividends
For the period indicated High Low declared (1)
------------------------ ------ ------ --------------
<S> <C> <C> <C>
1998
Fourth Quarter................................ $35.00 $24.50 $0.095
Third Quarter................................. 39.00 23.38 0.095
Second Quarter................................ 36.00 28.88 0.095
First Quarter................................. 31.38 24.13 0.095
1997
Fourth Quarter................................ $26.75 $21.00 $0.075
Third Quarter................................. 22.25 15.94 0.075
Second Quarter................................ 15.75 12.44 0.075
First Quarter................................. 13.82 11.88 0.075
</TABLE>
- --------
(1) Includes only those dividends declared by Greater Bay, and excludes those
dividends paid by Greater Bay's subsidiaries prior to the completion of
their mergers with Greater Bay. In 1998, PBFC made a distribution of $1.2
million to its shareholders. In 1997, PBC declared an annual dividend of
$3.20 share, PRB declared and paid a dividend of $100,000 to its sole
shareholder and PBFC made a distribution of $208,000 to its shareholders.
On a consolidated basis, Greater Bay has declared dividends of $0.54 and
$0.48 in 1998 and 1997, respectively.

The Company estimates there were approximately 2,500 shareholders at
December 31, 1998.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.

Information regarding Selected Consolidated Financial Data appears on page
A-1 under the caption "Financial Highlights" and is incorporated herein by
reference.

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

Information regarding Management's Discussion and Analysis of Financial
Condition and Results of Operations appears on pages A-2 through A-23 under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Information regarding Quantitative and Qualitative Disclosures About Market
Risk appears on page A-18 through A-19 under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quantitative and Qualitative Disclosures About Market Risk" and is
incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Information regarding Financial Statements and Supplementary Data appears on
pages A-24 through A-59 under the caption "Consolidated Balance Sheets,"
"Consolidated Statements of Operations," "Consolidated Statements of
Comprehensive Income", "Consolidated Statements of Equity," "Consolidated
Statements of Cash Flows" and "Notes to Consolidated Financial Statements" and
is incorporated herein by reference.

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

Not applicable.

17
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The Company intends to file a definitive proxy statement for the 1999 Annual
Meeting of Shareholders (the "Proxy Statement") with the Securities and
Exchange Commission within 120 days of December 31, 1998. Information
regarding directors of Greater Bay will appear under the caption "DISCUSSION
OF THE PROPOSALS RECOMMENDED BY THE BOARD--Proposal 1: Elect Four Directors"
in the Proxy Statement and is incorporated herein by reference. Information
regarding compliance with Section 16(a) of the Securities Exchange Act of
1934, as amended, and executive officers will appear under the captions
"INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS--Section 16(a) Beneficial
Ownership Reporting Compliance by Directors and Executive Officers" and "--
Executive Officers" in the Proxy Statement and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION.

Information regarding executive compensation will appear under the captions
"INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS--How We Compensate
Executive Officers", "--How We Compensate Directors" "--Employment Contracts,
Termination of Employment and Change of Control Arrangements,"--"Executive
Committee's Report on Executive Compensation", "--Compensation Committee
Interlocks and Insider Participation" and "--Performance Graph" in the Proxy
Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information regarding security ownership of certain beneficial owners and
management will appear under the caption "INFORMATION ABOUT GREATER BAY STOCK
OWNERSHIP" in the Proxy Statement and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information regarding certain relationships and related transactions will
appear under the caption "INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS--
Certain Relationships and Related Transactions" in the Proxy Statement and is
incorporated herein by reference.

18
<PAGE>

PART IV

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

(a)1. Financial Statements

The following documents are filed as part of this report:

<TABLE>
<S> <C>
Consolidated Balance Sheets........................................... A-24
Consolidated Statements of Operations................................. A-25
Consolidated Statements of Comprehensive Income....................... A-26
Consolidated Statements of Changes in Shareholders' Equity ........... A-27
Consolidated Statements of Cash Flows................................. A-28
Notes to the Consolidated Financial Statements........................ A-29
Report of Independent Accountants..................................... A-60
</TABLE>

2. Financial Statement Schedules

All financial statement schedules are omitted because of the absence of
the conditions under which they are required to be provided or because
the required information is included in the financial statements listed
above and/or related notes.

3. Exhibits

See Item 14(c) below.

(b) Reports on Form 8-K

During the fourth quarter of 1998 the Company filed two reports on Form
8-K as described below.

On December 8, 1998, the Company filed a report on Form 8-K reported
under Item 5. Other Event and containing three recent press
releases. Those press releases announced 1.) the adoption of a
shareholder rights plan by the Company, 2.) consummation of its
offer to exchange its $30 million aggregate principle amount of
Floating Rate Capital Securities, Series A for a like amount of its
registered Floating Rate Capital Securities, Series B and 3.) the
hiring of Fred Bailard as Senior Vice President of Cash Management
Services.

On October 19, 1998, the Company filed a report on Form 8-K reported
under Item 5. Other Event and containing two recent press releases.
Those press releases announced 1.) financial results of the Company
for the third quarter of 1998 and 2.) the hiring of Linda M. Iannone
as Senior Vice President and General Counsel of the Company.

19
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
4.3 Officers' Certificate and Company Order, dated March 31, 1997.(2)
4.4 Certificate of Trust of GBB Capital I.(3)
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997.(3)
4.6.1 Amended and Restated Trust Agreement of GBB Capital I, among
Greater Bay Bancorp, Wilmington Trust Company and the
Administrative Trustees named therein dated as of March 31,
1997.(2)
4.6.2 Successor Administrative Trustee and First Amendment to Amended
and Restated Trust Agreement.
4.7 Trust Preferred Certificate of GBB Capital I.(2)
4.8 Common Securities Certificate of GBB Capital I.(2)
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington
Trust Company, dated as of March 31, 1997.(2)
4.10 Agreement as to Expenses and Liabilities, dated as of March 31,
1997.(2)
4.11 Form of Subordinated Debentures.(4)
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp
dated as of November 22, 1996.(3)
4.13 Supplemental Debenture Agreement dated November 27, 1996 between
Cupertino National Bancorp and Mid-Peninsula Bancorp.(3)
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997.(2)
4.15 Indenture between Greater Bay Bancorp and Wilmington Trust
Company, as Debenture Trustee, dated as of August 12, 1998.(5)
4.16 Form of Exchange Junior Subordinated Debentures (filed as Exhibit
A to Exhibit 4.15 hereto).
4.17 Certificate of Trust of GBB Capital II, dated as of May 18,
1998.(5)
4.18 Amended and Restated Trust Agreement of GBB Capital II, among
Greater Bay Bancorp, Wilmington Trust Company and the
Administrative Trustees named therein dated as of August 12,
1998.(5)
4.19 Form of Exchange Capital Security Certificate (filed as Exhibit A-
1 to Exhibit 4.18 hereto).
4.20 Common Securities Guarantee Agreement of Greater Bay Bancorp,
dated as of August 12, 1998.(5)
4.21 Series B Capital Securities Guarantee Agreement of Greater Bay
Bancorp and Wilmington Trust Company dated as of November 27,
1998.
4.22 Liquidated Damages Agreement among Greater Bay Bancorp, GBB
Capital II, and Sandler O'Neill and Partners, L.P., dated as of
August 7, 1998.(5)
4.23 Registration Rights Agreement between Greater Bay Bancorp and The
Leo K.W. Lum PRB Revocable Trust dated May 8, 1998.(6)
10.1 Employment Agreement with David L. Kalkbrenner, dated March 3,
1992.(8), (9)
10.1.1 Amendment No. 1 to Employment Agreement with David L. Kalkbrenner,
dated March 27, 1998.(7), (8)
10.2 Employment, Severance and Retirement Benefits Agreement with
Steven C. Smith dated July 31, 1995.(3), (8)
10.2.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with Steven C. Smith, dated March 27, 1998.(7), (8)
10.3 Employment, Severance and Retirement Benefits Agreement with David
R. Hood dated July 31, 1995.(3), (8)
10.3.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with David R. Hood, dated March 27, 1998.(7), (8)
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
10.4 Greater Bay Bancorp 1996 Stock Option Plan, as amended.(8)
10.5 Greater Bay Bancorp 401(k) Profit Sharing Plan.(7), (8)
10.6.1 Greater Bay Bancorp Employee Stock Purchase Plan.(8), (10)
10.6.2 Amendment to Greater Bay Bancorp Employee Stock Purchase Plan.(7),
(8)
10.7 Greater Bay Bancorp Change of Control Pay Plan I.(7), (8)
10.8 Greater Bay Bancorp Change of Control Pay Plan II.(7), (8)
10.9 Greater Bay Bancorp Termination and Layoff Plan I.(7), (8)
10.10 Greater Bay Bancorp Termination and Layoff Plan II.(7), (8)
10.11.1 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan.(7),
(8)
10.11.2 Amendment to Greater Bay Bancorp 1997 Elective Deferred
Compensation Plan.(8)
10.12 Form of Indemnification Agreement between Greater Bay Bancorp and
with directors and certain executive officers.(3)
11.1 Statements re Computation of Earnings per Share.
12.1 Statement re Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
</TABLE>
--------
(1) Incorporated by reference from Greater Bay Bancorp's Form 8-A12G
filed with the SEC on November 25, 1998.
(2) Incorporated by reference from Greater Bay Bancorp's Current Report
on Form 8-K (File No. 000-25034) dated June 5, 1997.
(3) Incorporated by reference from Greater Bay's Registration Statement
on Form S-1 (File No. 333-22783) filed with the SEC on March 5,
1997.
(4) Incorporated herein by reference from Exhibit 1 of Cupertino
National Bancorp's Form 8-K (File No. 0-18015), filed with the SEC
on October 25, 1995.
(5) Incorporated by reference from Greater Bay's Current Report on Form
8-K (File No. 000-25034) filed with the SEC on August 28, 1998.
(6) Incorporated by reference from Greater Bay Bancorp's Current Report
on Form 8-K filed with the SEC on May 20, 1998.
(7) Incorporated by reference from Greater Bay Bancorp's Annual Report
on Form 10-K filed with the SEC on March 31, 1998.
(8) Represents executive compensation plans and arrangements of Greater
Bay Bancorp.
(9) Incorporated herein by reference from Exhibit 10.15 to Mid-
Peninsula Bancorp's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 0-25034), filed with the SEC on March
30, 1995.
(10) Incorporated herein by reference from Greater Bay Bancorp's Proxy
Statement for Annual Meeting of Shareholders (File No. 000-25034),
filed with the SEC on May 13, 1997.

(d) Additional Financial Statements

Not applicable.

21
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 17th day
of February, 1999.

Greater Bay Bancorp

/s/ David L. Kalkbrenner
By: _________________________________
David L. Kalkbrenner
Chief Executive Officer

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

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ David L. Kalkbrenner President, Chief Executive February 17, 1999
______________________________________ Officer and Director
David L. Kalkbrenner (Principal Executive
Officer)

/s/ Steven C. Smith Executive Vice President, February 17, 1999
______________________________________ Chief Operating Officer
Steven C. Smith and Chief Financial
Officer (Principal
Financial and Accounting
Officer)

/s/ George R. Corey Director February 17, 1999
______________________________________
George R. Corey

/s/ John M. Gatto Director February 17, 1999
______________________________________
John M. Gatto

/s/ James E. Jackson Director February 17, 1999
______________________________________
James E. Jackson

/s/ Rex D. Lindsay Director February 17, 1999
______________________________________
Rex D. Lindsay

/s/ Leo K. W. Lum Director February 17, 1999
______________________________________
Leo K. W. Lum

/s/ George M. Marcus Director February 17, 1999
______________________________________
George M. Marcus

</TABLE>

22
<PAGE>

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Duncan L. Matteson Director February 17, 1999
______________________________________
Duncan L. Matteson

/s/ Glen McLaughlin Director February 17, 1999
______________________________________
Glen McLaughlin

/s/ Rebecca Q. Morgan Director February 17, 1999
______________________________________
Rebecca Q. Morgan

/s/ Dick J. Randall Director February 17, 1999
______________________________________
Dick J. Randall

/s/ Donald H. Seiler Director February 17, 1999
______________________________________
Donald H. Seiler

/s/ Warren R. Thoits Director February 17, 1999
______________________________________
Warren R. Thoits
</TABLE>

23
<PAGE>

SELECTED FINANCIAL INFORMATION

The following table represents the selected financial information at and for
the five years ended December 31, 1998:

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------
1998 1997* 1996* 1995* 1994*
---------- ---------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data
Interest income......... $ 112,920 $ 88,527 $ 62,883 $ 53,060 $ 39,946
Interest expense........ 47,472 34,059 22,379 18,961 11,804
---------- ---------- --------- --------- ---------
Net interest income.... 65,448 54,468 40,504 34,099 28,142
Provision for loan
losses................. 6,035 6,786 2,594 1,219 1,985
---------- ---------- --------- --------- ---------
Net interest income
after provision for
loan losses........... 59,413 47,682 37,910 32,880 26,157
Other income............ 6,310 5,379 4,623 3,043 4,120
Nonrecurring--warrant
income................. 945 1,162 -- -- --
---------- ---------- --------- --------- ---------
Total other income..... 7,255 6,541 4,623 3,043 4,120
Operating expenses...... 38,711 34,083 29,416 25,962 22,724
Other expenses--
nonrecurring........... 1,341 (1,287) -- 2,135 --
---------- ---------- --------- --------- ---------
Total operating
expenses.............. 40,052 32,796 29,416 28,097 22,724
---------- ---------- --------- --------- ---------
Income before income tax
expense & merger and
other related
nonrecurring costs..... 26,616 21,427 13,117 7,826 7,553
Income tax expense...... 8,364 7,526 4,778 2,870 2,794
---------- ---------- --------- --------- ---------
Income before merger and
other related
nonrecurring costs..... 18,252 13,901 8,339 4,956 4,759
Merger and other related
nonrecurring costs, net
of tax................. 1,674 2,282 1,991 -- 608
---------- ---------- --------- --------- ---------
Net income............. $ 16,578 $ 11,619 $ 6,348 $ 4,956 $ 4,151
========== ========== ========= ========= =========
Per Share Data (1)
Income per share (before
merger and other
related nonrecurring
costs)
Basic.................. $ 1.92 $ 1.51 $ 0.94 $ 0.59 $ 0.61
Diluted................ 1.78 1.41 0.88 0.56 0.56
Net income per share
Basic.................. $ 1.75 $ 1.26 $ 0.72 $ 0.59 $ 0.53
Diluted................ 1.62 1.17 0.67 0.56 0.49
Cash dividends per share
(2).................... $ 0.38 $ 0.30 $ 0.22 $ 0.20 $ 0.11
Book value per common
share.................. $ 9.64 $ 8.23 $ 7.41 $ 7.02 $ 6.55
Shares outstanding at
year end............... 9,612,142 9,304,930 9,021,738 8,613,440 8,053,218
Average common shares
outstanding............ 9,485,000 9,196,000 8,856,000 8,334,000 7,854,000
Average common and
common equivalent
shares outstanding..... 10,231,000 9,892,000 9,443,000 8,813,000 8,485,000
Performance Ratios
Return on average assets
(before merger and
other related
nonrecurring costs)
(3).................... 1.28 % 1.33 % 1.13% 0.82 % 1.09 %
Return on average common
shareholders' equity
(before merger and
other related
nonrecurring costs)
(3).................... 21.72 % 18.86 % 12.97% 8.70 % 11.95 %
Net interest margin
(4).................... 4.96 % 5.55 % 5.91% 6.09 % 6.98 %
Balance Sheet Data--At
Period End
Assets.................. $1,582,865 $1,217,665 $ 919,924 $ 659,373 $ 552,272
Loans, net.............. 984,487 735,233 564,175 393,378 342,098
Investment securities... 342,294 213,127 135,671 141,024 117,737
Deposits................ 1,342,492 1,071,148 821,133 584,103 475,048
Subordinated debt....... 3,000 3,000 3,000 3,000 --
Trust Preferred
Securities............. 50,000 20,000 -- -- --
Common shareholders'
equity................. 92,676 76,540 66,834 60,494 52,784
Asset Quality Ratios
Nonperforming assets to
total loans and OREO... 0.31 % 0.73 % 1.62% 2.40 % 3.45 %
Allowance for loan
losses to total loans.. 2.12 % 2.18 % 1.76% 1.67 % 1.96 %
Allowance for loan
losses to non-
performing assets...... 676.10 % 298.40 % 108.36% 69.15 % 56.56 %
Net (charge-offs)
recoveries to average
loans.................. (0.16)% (0.28)% 0.01% (0.40)% (0.40)%
Regulatory Capital
Ratios
Leverage Ratio.......... 7.81 % 8.40 % 7.78% 9.53 % 9.89 %
Tier 1 Capital.......... 9.90 % 10.72 % 9.83% 12.47 % 13.05 %
Total Capital........... 12.94 % 12.31 % 11.47% 14.31 % 14.37 %
</TABLE>
- -------
* Restated on a historical basis to reflect the mergers between Greater Bay
Bancorp and Cuperfino National Bancorp, PBC, PRB (the parent of Golden
Gate) and PBFC, on a pooling-of-interests basis.
(1) Restated to reflect 2-for-1 stock split declared for shareholders of
record at April 30, 1998.
(2) Includes only those dividends declared by Greater Bay, and excludes those
dividends paid by Greater Bay's subsidiaries prior to the completion of
their mergers with Greater Bay.
(3) Including merger and other related nonrecurring costs net of tax of $1.7
million in 1998, $2.3 million in 1997, $2.0 million in 1996 and $608,000
in 1994, ROA for 1998, 1997, 1996, 1995 and 1994 would have been 1.17%,
1.11%, 0.86%, 0.82% and 0.95%, respectively, and ROE for 1998, 1997, 1996,
1995 and 1994 would have been 19.73%, 15.76%, 9.87%, 8.70%, and 10.42%,
respectively.
(4) Net interest margin for 1998, 1997 and 1996 includes the lower spread
earned on the PBC Special Deposit (see Note 7 to the Financial Statements
for details). Excluding the PBC Special Deposit, net interest margin would
have been 5.16%, 5.78% and 6.08% for 1998, 1997 and 1996, respectively.

A-1
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview

Greater Bay Bancorp ("Greater Bay", on a parent-only basis, and the
"Company", on a consolidated basis) was formed as the result of the merger in
November 1996 between Cupertino National Bancorp, the former holding company
for Cupertino National Bank ("CNB"), and Mid-Peninsula Bancorp, the former
holding company for Mid-Peninsula Bank ("MPB"). In December 1997 the Company
completed a merger with Peninsula Bank of Commerce ("PBC"), whereby PBC became
the third wholly owned banking subsidiary of Greater Bay. In May 1998, the
Company completed a merger with Pacific Rim Bancorporation ("PRB"), the
holding company for Golden Gate Bank ("Golden Gate"), whereby Golden Gate
became the fourth wholly owned banking subsidiary of Greater Bay. In August
1998, the Company completed a merger with Pacific Business Funding Corporation
("PBFC"), which now operates as an operating division of CNB and conducts
business under the name Pacific Business Funding. All mergers were accounted
for as a pooling of interests. All of the financial information for the
Company for the periods prior to the mergers has been restated to reflect the
pooling of interests, as if they occurred at the beginning of the earliest
reporting period presented. CNB, MPB, PBC and Golden Gate are referred to
collectively herein as the "Banks." The financial information includes the
result of the Company's operating divisions, Greater Bay Bank Santa Clara
Valley Commercial Banking Group, Greater Bay Corporate Finance Group, Greater
Bay Bank Contra Costa Banking Office, Greater Bay International Banking
Division, Greater Bay Trust Company, Pacific Business Funding and Venture
Banking Group.

The following discussion and analysis is intended to provide greater details
of the results of operations and financial condition of the Company. The
following discussion should be read in conjunction with the information under
"Selected Financial Information" and the Company's consolidated financial data
included elsewhere in this document. Certain statements under this caption
constitute "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed
in such forward-looking statements. Factors that might cause such a difference
include but are not limited to economic conditions, competition in the
geographic and business areas in which the Company conducts its operations,
fluctuation in interest rates, credit quality and government regulation.

Results of Operations

The Company reported net income of $16.6 million in 1998, a 42.7% increase
over 1997 net income of $11.6 million. The net income in 1997 was an 83.0%
increase over 1996 income of $6.3 million. Basic net income per share was
$1.75 for 1998, as compared to $1.26 for 1997 and $0.72 for 1996. Diluted net
income per share was $1.62, $1.17 and $0.67 for 1998, 1997 and 1996,
respectively. The return on average assets and return on average shareholders'
equity were 1.17% and 19.73% in 1998, compared with 1.11% and 15.76% in 1997
and 0.86% and 9.87% in 1996, respectively.

The Company's operating results included merger and other related
nonrecurring costs of $2.7 million ($1.7 million net of tax), $3.3 million
($2.3 million net of tax) and $2.8 million ($2.0 million net of tax) in 1998,
1997 and 1996, respectively. The following table summarizes net income, net
income per share and key financial ratios before and after merger and other
related nonrecurring costs for the years presented:

<TABLE>
<CAPTION>
Before merger and
other After merger and other
related nonrecurring related nonrecurring
costs costs
------------------------ ------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------ ------- ------- ------
(Dollars in thousands, except per share
amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income................ $18,252 $13,901 $8,339 $16,578 $11,619 $6,348
Net income per share:
Basic................... $ 1.92 $ 1.51 $ 0.94 $ 1.75 $ 1.26 $ 0.72
Diluted................. $ 1.78 $ 1.41 $ 0.88 $ 1.62 $ 1.17 $ 0.67
Return on average assets.. 1.28% 1.33% 1.13% 1.17% 1.11% 0.86%
Return on average
shareholders' equity..... 21.72% 18.86% 12.97% 19.73% 15.76% 9.87%
</TABLE>

A-2
<PAGE>

The increase in 1998 net income was the result of significant growth in
loans, deposits and trust assets. This growth resulted in increases in net
interest income, trust fees, depositors' service fees and other fee income.
Operating expense increases required to service and support the Company's
growth partially offset the increase in revenues.

Net income for 1998 and 1997 included $945,000 and $1.2 million,
respectively, in warrant income resulting from the warrants received from
clients of the Banks. During 1998, the Company donated appreciated warrants to
the Greater Bay Bancorp Foundation. The contribution of the warrants triggered
recognition of warrant income of $945,000, net of related employee incentives,
and a donation expense of $1.3 million. The Company recognized a tax benefit
of $551,000 from these transactions.

The increase in net income in 1997 over 1996 was due primarily to increased
growth in interest-earning assets. Additionally, warrant income increased to
$1.2 million in 1997, compared with $92,000 in 1996. Net income in 1997 also
included approximately $1.7 million ($1.0 million net of tax) of a recovery
through insurance of a litigation settlement charge incurred in 1995. The
increases were partially offset by the growth in operating expenses. In
addition, during 1997 the Company increased its allowance for loan losses to
2.18% of total loans from 1.76% of total loans in 1996. The increase in the
allowance for loan losses as a percentage of total loans accounted for $3.7
million of the increased provision for loan losses in 1997.

Net Interest Income

Net interest income increased 20.2% to $65.4 million in 1998 from $54.5
million in 1997. This increase was primarily due to the $336.5 million, or
34.3%, increase in average interest-earning assets which was partially offset
by a 56 basis point decrease in the Company's net yield on interest earning
assets. Net interest income increased 34.5% in 1997 from $40.5 million in
1996. This increase was primarily due to the $296.7 million, or 43.3%,
increase in average interest-earning assets, which was partially offset by the
36 basis point decrease in the Company's net yield on interest earning assets.

The Company's net yield on interest earning assets was reduced by the
Special Deposit (discussed in Note 7 of the Notes to the Consolidated
Financial Statements). The average deposit balances related to the Special
Deposit during 1998, 1997 and 1996 were $88.9 million, $93.4 million and $91.3
million, respectively, on which the Company earned a spread of 2.25%.
Excluding the Special Deposit, the 1998, 1997 and 1996 net yield on interest
earning assets would have been 5.16%, 5.78% and 6.08%, respectively.

A-3
<PAGE>

The following table presents, for the years indicated, condensed average
balance sheet information for the Company, together with interest income and
yields earned on average interest-earning assets and interest expense and
rates paid on average interest-bearing liabilities. Average balances are
average daily balances.

<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance (1) Interest Rate Balance (1) Interest Rate Balance (1) Interest Rate
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Fed funds sold.......... $ 85,329 $ 4,598 5.39% $ 73,223 $ 3,911 5.34% $ 64,194 $ 3,637 5.67%
Other short term
securities............. 96,765 5,454 5.64% 97,586 5,287 5.42% 12,569 691 5.50%
Investment securities:
Taxable................ 281,395 17,114 6.08% 128,856 8,199 6.36% 121,809 7,394 6.07%
Tax-exempt (3)......... 42,185 2,104 4.99% 19,064 1,095 5.74% 19,428 990 5.10%
Loans (2)............... 812,665 83,650 10.29% 663,107 70,035 10.56% 467,159 50,171 10.74%
---------- -------- ---------- ------- -------- -------
Total interest-earning
assets................ 1,318,339 112,920 8.57% 981,836 88,527 9.02% 685,159 62,883 9.18%
Noninterest-earning
assets................. 102,230 63,303 55,003
---------- -------- ---------- ------- -------- -------
Total assets........... $1,420,569 112,920 $1,045,139 88,527 $740,162 62,883
========== -------- ========== ------- ======== -------
Interest-Bearing
Liabilities:
Deposits:
MMDA, NOW and Savings.. $ 761,332 27,634 3.63% $ 575,603 20,653 3.59% $390,996 12,886 3.30%
Time deposits, over
$100,000.............. 180,626 9,300 5.15% 129,991 6,686 5.14% 94,899 4,689 4.94%
Other time deposits.... 48,217 2,464 5.11% 58,342 3,301 5.66% 58,387 3,645 6.24%
---------- -------- ---------- ------- -------- -------
Total interest-bearing
deposits.............. 990,175 39,398 3.98% 763,936 30,640 4.01% 544,282 21,220 3.90%
Other borrowings........ 74,877 4,879 6.52% 16,931 1,611 9.51% 10,854 814 7.50%
Subordinated debt....... 3,000 345 11.50% 3,000 345 11.50% 3,000 345 11.50%
Trust Preferred
Securities............. 31,671 2,850 9.00% 15,000 1,463 9.75% -- -- 0.00%
---------- -------- ---------- ------- -------- -------
Total interest-bearing
liabilities........... 1,099,723 47,472 4.32% 798,867 34,059 4.26% 558,136 22,379 4.01%
---------- -------- ---------- ------- -------- -------
Noninterest-bearing
deposits............... 220,832 161,684 112,321
Other noninterest-
bearing liabilities.... 15,987 10,865 5,412
Shareholders' equity.... 84,027 73,723 64,293
---------- ---------- --------
Total liabilities and
shareholders' equity.. $1,420,569 $ 47,472 $1,045,139 $34,059 $740,162 $22,379
========== -------- ========== ------- ======== -------
Net interest income..... $ 65,448 $54,468 $40,504
======== ======= =======
Interest rate spread.... 4.25% 4.75% 5.17%
Contribution of interest
free funds............. 0.72% 0.79% 0.74%
Net yield on interest-
earnings assets (4).... 4.96% 5.55% 5.91%
</TABLE>
- --------
(1) Nonaccrual loans are excluded from the average balance and only collected
interest on accrual loans is included in the interest column.
(2) Loan fees totaling $3.2 million, $3.4 million and $2.5 million are
included in loan interest income for 1998, 1997 and 1996, respectively.
(3) Tax equivalent yields earned on the tax exempt securities are 7.19%, 8.34%
and 7.34% for the years ended December 31, 1998, 1997 and 1996,
respectively, using the federal statutory rate of 34%.
(4) Net yield on interest-earning assets during the period equals (a) the
difference between interest income on interest-earning assets and the
interest expense on interest-bearing liabilities, divided by (b) average
interest-earning assets for the period.

A-4
<PAGE>

The most significant impact on the Company's net interest income between
periods is derived from the interaction of changes in the volume of and rate
earned or paid on interest-earning assets and interest-bearing liabilities.
The volume of interest-earning asset dollars in loans and investments,
compared to the volume of interest-bearing liabilities represented by deposits
and borrowings, combined with the spread, produces the changes in the net
interest income between periods. The table below sets forth, for the years
indicated, a summary of the changes in average asset and liability balances
(volume) and changes in average interest rates (rate).

<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1997
Compared with December 31, 1997 Compared with December 31, 1996
favorable (unfavorable) favorable (unfavorable)
---------------------------------- ----------------------------------
Volume Rate Net Volume Rate Net
---------------------- ---------- ---------------------- ----------
(Dollars in thousands) (1)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fed funds sold.......... $ 638 $ 49 $ 687 $ 483 $ (209) $ 274
Other short term
securities............. (47) 214 167 4,607 (11) 4,596
Investment securities:
Taxable................ 9,091 (176) 8,915 448 357 805
Tax-exempt............. 1,136 (127) 1,009 (21) 126 105
Loans................... 15,071 (1,456) 13,615 20,701 (837) 19,864
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning
assets............... 25,889 (1,496) 24,393 26,218 (574) 25,644
---------- ---------- ---------- ---------- ---------- ----------
Interest-bearing
liabilities:
Deposits:
MMDA, NOW and Savings.. 6,322 659 6,981 6,562 1,205 7,767
Time deposits, over
$100,000.............. 2,445 169 2,614 1,796 201 1,997
Other time deposits.... (556) (281) (837) (4) (340) (344)
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
deposits............. 8,211 547 8,758 8,354 1,066 9,420
Other borrowings........ 3,348 (80) 3,268 527 270 797
Trust Preferred
Securities............. 1,370 17 1,387 967 496 1,463
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities.......... 12,929 484 13,413 9,848 1,832 11,680
---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in
net interest income.. $ 12,960 $ (1,980) $ 10,980 $ 16,370 $ (2,406) $ 13,964
========== ========== ========== ========== ========== ==========
</TABLE>
- --------
(1) The change in interest income and expense not attributable to specific
volume and rate changes has been allocated proportionately between the
volume and rate changes.

Interest income in 1998 increased 27.6% to $112.9 million from $88.5 million
in 1997. This was primarily due to the significant increase in loans, the
Company's highest yielding interest-earning asset, and investment securities.
Loan volume increases were the result of the continuing economic improvement
in the Company's market areas, as well as the addition of experienced
relationship managers and significant business development efforts by the
Company's relationship managers. The increase was partially offset by a
decline in the yield earned on average interest-earning assets. Average
interest-earning assets increased $336.5 million, or 34.3%, to $1.3 billion in
1998, compared to $981.8 million in 1997. Of this total increase, average
loans increased $149.6 million, or 22.6%, to $812.7 million, or 61.6% of
average interest-earning assets, in 1998 from $663.1 million, or 67.5% of
average interest-earning assets in 1997. Investment securities, Federal funds
sold and other short-term securities, increased 58.7% to $505.7 million, or
38.4% of average interest-earning assets in 1998, from $318.7 million, or
32.5% of average interest-earning assets in 1997.

The average yield on interest-earning assets declined 45 basis points to
8.57% in 1998 from 9.02% in 1997 primarily due to a decline in the average
yield on loans which was caused by increased competition for quality borrowers
in the Company's market area and the shift in the mix between lower yielding
investments and higher yielding loans. Loans represented approximately 61.6%
of total interest-earning assets in 1998 compared to 67.5%

A-5
<PAGE>

in 1997. If loans would have remained at 67.5% of total interest earning
assets in 1998, the yield on interest-earning assets would have been 8.83% and
the interest rate spread would have been 4.51%. The average yield on loans
declined 27 basis points to 10.29% in 1998 from 10.56% in 1997 primarily due
to declines in market interest rates.

Interest expense in 1998 increased 39.4% to $47.5 million from $34.1 million
in 1997. This increase was due to greater volumes of interest-bearing
liabilities coupled with slightly higher interest rates paid on interest-
bearing liabilities. Average interest-bearing liabilities increased 37.7% to
$1.1 billion in 1998 from $798.9 million in 1997 due primarily to the efforts
of the Banks' relationship managers in generating core deposits from their
client relationships and the deposits derived from the activities of the
Greater Bay Trust Company and the Venture Banking Group.

During 1998, average noninterest-bearing deposits increased to $220.8
million from $161.7 million in 1997. Due to that increase, noninterest-bearing
deposits comprised 18.2% of total deposits at year-end 1998, compared 17.5% at
year-end 1997.

As a result of the foregoing, the Company's interest rate spread declined to
4.25% in 1998 from 4.75% in 1997, and the net yield on interest-earning assets
declined in 1998 to 4.96% from 5.55% in 1997.

Interest income increased 40.8% to $88.5 million in 1997 from $62.9 million
in 1996, as a result of the increase in average interest-earning assets offset
by a decline in the yields earned. Average interest-earning assets increased
43.3% to $981.8 million in 1997 from $685.2 million in 1996 principally as a
result of increase in loans. The yield on the higher volume of average
interest-earning assets declined 16 basis points to 9.02% in 1997 from 9.18%
in 1996, primarily as a result of increased competition for loans.

Interest expense in 1997 increased 52.2% to $34.1 million from $22.4 million
in 1996 primarily as a result of the increase in volume of interest-bearing
liabilities in addition an increase in rates paid on interest-bearing
liabilities. As a result of the utilization of higher cost long term
borrowings which provide additional capital to the Company, the average rate
paid on average interest-bearing liabilities increased 25 basis points to
4.26% in 1997 from 4.01% in 1996. Corresponding to the growth in average
interest-earning assets, average interest-bearing liabilities increased 43.1%
to $798.9 million in 1997 from $558.1 million in 1996.

As a result of the foregoing, the Company's interest rate spread declined to
4.75% in 1997 from 5.17% in 1996 and the net yield on interest-earning assets
declined to 5.55% in 1997 from 5.91% in 1996.

Certain client service expenses were incurred by the Company with respect to
its noninterest-bearing liabilities. These expenses include messenger
services, check supplies and other related items and are included in operating
expenses. Had they been included in interest expense, the impact of these
expenses on the Company's net yield on interest-earning assets would have been
as follows for each of the years presented.

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Average noninterest bearing demand deposits..... $220,832 $161,684 $112,321
Client service expenses......................... 544 444 462
Client service expenses, annualized............. 0.25% 0.27% 0.41%
Impact on net yield on interest-earning assets:
Net yield on interest-earning assets............ 4.96% 5.55% 5.91%
Impact of client service expense................ 0.53% 0.30% 0.10%
-------- -------- --------
Adjusted net yield on interest-earning assets
(1)............................................ 5.49% 5.85% 6.01%
======== ======== ========
</TABLE>
- --------
(1) Noninterest-bearing liabilities are included in cost of funds calculations
to determine adjusted net yield of spread

The impact on the net yield on interest-earning assets is determined by
offsetting net interest income by the cost of client service expense, which
reduces the yield on interest-earning assets. The cost for client service
expense reflects the Company's efforts to manage its client service expenses.

A-6
<PAGE>

Provision for Loan Losses

The provision for loan losses creates an allowance for future loan losses.
The loan loss provision for each year is dependent on many factors, including
loan growth, net charge-offs, changes in the composition of the loan
portfolio, delinquencies, management's assessment of the quality of the loan
portfolio, the value of the underlying collateral on problem loans and the
general economic conditions in the Company's market area. The Company performs
a monthly assessment of the risk inherent in its loan portfolio, as well as a
detailed review of each asset determined to have identified weaknesses. Based
on this analysis, which includes reviewing historical loss trends, current
economic conditions, industry concentrations and specific reviews of assets
classified with identified weaknesses, the Company makes a provision for loan
losses. Specific allocations are made for loans where the probability of a
loss can be defined and reasonably determined. The balance of the provision
for loan losses is based on historical data, delinquency trends, economic
conditions in the Company's market area and industry averages. Annual
fluctuations in the provision for loan losses result from management's
assessment of the adequacy of the allowance for loan losses, and ultimate loan
losses may vary from current estimates.

The provision for loan losses in 1998 was $6.0 million, compared to $6.8
million in 1997 and $2.6 million in 1996. In addition, in connection with the
mergers, the Company made an additional provision for loan losses of $183,000,
$1.4 million and $800,000 in 1998, 1997 and 1996, respectively, to conform to
the Companys' reserve allocation methodologies. Although loans outstanding
have increased substantially, nonperforming loans, comprised of nonaccrual
loans, restructured loans, and accruing loans past due 90 days or more,
declined to $2.2 million, or 0.22% of loans outstanding, at December 31, 1998,
from $4.2 million, or 0.56% of loans outstanding, at December 31, 1997 and
$7.7 million, or 1.34% of loans outstanding, at December 31, 1996.

For further information on nonperforming and classified loans and the
allowance for loan losses, see--"Nonperforming and Classified Assets" herein.

Other Income

Total other income increased to $7.3 million in 1998, compared to $6.6
million in 1997 and $4.6 million in 1996. The following table sets forth
information by category of other income for the years indicated.

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Trust fees......................................... $ 2,473 $ 2,049 $ 1,426
Service charges and other fees..................... 1,487 1,620 1,429
Gain on sale of SBA loans.......................... 1,037 883 537
Gain (loss) on investments, net.................... 374 (5) (255)
Other income....................................... 939 832 1,394
-------- -------- --------
Total, recurring................................. 6,310 5,379 4,531
Warrant income..................................... 945 1,162 92
-------- -------- --------
Total............................................ $ 7,255 $ 6,541 $ 4,623
======== ======== ========
</TABLE>

The increase in other income in 1998 was primarily the result of a $424,000
increase in trust fees, and a $154,000 increase in the gain on sale of SBA
loans. The increase in trust fees was due to significant growth in assets
under management by Greater Bay Trust Company. Trust assets increased to
$649.3 million at December 31, 1998, compared to $577.7 million at December
31, 1997. The increase in the gain on sale of SBA loans was due to an increase
in the origination and subsequent sale of SBA loans.

Other income in 1998 included warrant income of $945,000, net of related
employee incentives. The Company occasionally receives warrants to acquire
common stock from companies that are in the start-up or development phase. The
timing and amount of income derived form the exercise and sale of client
warrants typically depend upon factors beyond the control of the Company, and
cannot be predicted with any degree of accuracy and are likely to vary
materially from period to period.

A-7
<PAGE>

The increase in other income in 1997 was primarily the result of $1.1
million increase in warrant income in 1997, a $623,000 increase in trust fees,
and a $346,000 increase in the gain on sale of SBA loans. The increase in
trust fees was due to significant growth in assets under management by Greater
Bay Trust Company. Trust assets increased to $577.7 million at year-end 1997,
compared to $418.0 million at December 31, 1996. The increase in the gain on
sale of SBA loans was due to an increase in the origination and subsequent
sale of SBA loans.

Operating Expenses

The following table sets forth the major components of operating expenses
for the years indicated.

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Compensation and benefits........................ $ 22,715 $ 20,495 $ 16,740
Occupancy and equipment.......................... 6,217 5,240 4,437
Professional services and legal costs............ 1,597 1,808 1,730
Client service expenses.......................... 544 444 462
FDIC insurance and regulatory assessments........ 338 285 148
Expenses on other real estate owned.............. 76 177 175
Recovery of legal settlement..................... -- (1,700) --
Other............................................ 8,566 6,048 5,724
-------- -------- --------
Total operating expenses, excluding merger and
other related nonrecurring costs.............. 40,053 32,797 29,416
Mergers and other related nonrecurring costs..... 2,661 3,333 2,791
-------- -------- --------
Total operating expenses....................... $ 42,714 $ 36,130 $ 32,207
======== ======== ========
Efficiency ratio................................. 58.75% 59.22% 71.37%
Efficiency ratio, excluding merger and other
related nonrecurring costs...................... 55.09% 53.76% 65.18%
Efficiency ratio, excluding nonrecurring items
(1)............................................. 53.95% 56.95% 65.32%
Total operating expenses to average assets....... 3.01% 3.46% 4.35%
Total operating expenses to average assets,
excluding merger and other related nonrecurring
costs........................................... 2.82% 3.14% 3.97%
</TABLE>
- --------
(1) Nonrecurring items include warrant income of $945,000, $1.2 million and
$92,000 for 1998, 1997 and 1996, respectively, merger and related
nonrecurring items of $2.7 million, $3.3 million, and $2.8 million for
1998, 1997 and 1996, respectively, and the $1.7 million recovery of legal
settlement in 1997.

Operating expenses totaled $42.7 million for 1998, compared to $36.1 million
for 1997 and $32.2 million for 1996. The ratio of operating expenses to
average assets was 3.01% in 1998, 3.46% in 1997, and 4.35% in 1996. Excluding
these items, operating expense to average assets would have been 2.82% in
1998, 3.14% in 1997 and 3.97% in 1996.

The efficiency ratio is computed by dividing total operating expenses by net
interest income and other income. An increase in the efficiency ratio
indicates that more resources are being utilized to generate the same (or
greater) volume of income while a decrease would indicate a more efficient
allocation of resources. The Company's efficiency ratio for 1998 was 58.75%,
compared to 59.22% in 1997 and 71.37% in 1996.

During 1998, Greater Bay established the Greater Bay Bancorp Foundation (the
"Foundation"). The Foundation was formed to provide a vehicle through which
the Company, its officers and directors can provide support to the communities
in which the Company does business. The Foundation focuses its support on
initiatives related to education, health and economic growth. To support the
Foundation, the Company contributed appreciated warrants, which had an
unrealized gain of $1.3 million. Concurrently, the Company recorded $1.3
million of expense for the contribution to the Foundation, which is included
in other expenses.

A-8
<PAGE>

As indicated by the improvements in the efficiency ratio and ratio of total
operating expenses to average assets, the Company has been able to achieve
increasing economies of scale. In 1998, average assets increased 35.9% from
1997, while operating expenses, excluding nonrecurring cost, increased only
17.5%. From 1996 to 1997, average assets increased 41.2%, while operating
expenses, excluding nonrecurring costs increased only 15.9%.

Compensation and benefits expenses increased in 1998 to $22.7 million,
compared to $20.5 million in 1997 and $16.7 million in 1996. The increase in
compensation and benefits is due primarily to the additions in personnel made
in 1998 and 1997 to accommodate the growth of the Company.

The increase in occupancy and equipment, client service expense, FDIC
insurance and regulatory assessments and other operating expenses was related
to the growth in the Company's loans, deposits and trust assets.

Income Taxes

The Company's effective income tax rate for 1998 was 30.8%, compared to
35.8% in 1997 and 38.5% in 1996. The effective rates were lower than the
statutory rate of 41.2% due to tax-exempt income on municipal securities, the
donation of appreciated warrants to the Foundation, as discussed above and
were partially offset by the impact of merger costs and other pooling related
items.

Financial Condition

Total assets increased 30.0% to $1.6 billion at December 31, 1998, compared
to $1.2 billion at December 31, 1997. Total assets increased 32.4% in 1997
from $919.9 million at December 31, 1996. The increases in 1998 and 1997 were
primarily due to increases in the Company's loan portfolio funded by growth in
deposits.

Loans

Total gross loans increased 33.8% to $1.0 billion at December 31, 1998,
compared to $754.4 million at December 31, 1997. Total gross loans increased
30.8% in 1997 from $576.8 million at year-end 1996. The increases in loan
volumes in 1998 and 1997 were primarily due to an improving economy in the
Company's market areas coupled with the business development efforts by the
Company's relationship managers.

The Company's loan portfolio is concentrated in commercial (primarily
manufacturing, service and technology) and real estate lending, with the
balance in consumer loans. While no specific industry concentration is
considered significant, the Company's lending operations are located in a
market area that is dependent on the technology and real estate industries and
supporting service companies. Thus, the Company's borrowers could be adversely
impacted by a downturn in these sectors of the economy. This could, in turn,
reduce the demand for loans and adversely impact the borrowers' abilities to
repay their loans, while also decreasing the Company's net interest margin.

The following table presents the composition of the Company's loan portfolio
at the dates indicated.

<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 455,077 46.2% $362,747 49.3% $301,436 53.4% $221,260 56.2% $198,509 57.1%
Real estate construction
and land............... 173,857 17.7 112,514 15.3 92,820 16.5 43,930 11.2 33,930 9.8
Real estate term........ 299,111 30.4 196,217 26.7 126,651 22.4 96,560 24.5 87,068 25.1
Consumer and other...... 81,089 8.2 82,914 11.3 55,893 9.9 40,409 10.3 37,534 10.8
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, gross..... 1,009,134 102.5 754,392 102.6 576,800 102.2 402,159 102.2 357,041 102.8
Deferred fees and
discounts, net......... (3,343) (0.3) (2,765) (0.4) (2,489) (0.4) (2,097) (0.5) (2,600) (0.7)
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, net of
deferred fees......... 1,005,791 102.2 751,627 102.2 574,311 101.8 400,062 101.7 354,441 102.0
Allowance for loan
losses................. (21,304) (2.2) (16,394) (2.2) (10,136) (1.8) (6,683) (1.7) (6,960) (2.0)
---------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans, net....... $ 984,487 100.0% $735,233 100.0% $564,175 100.0% $393,379 100.0% $347,481 100.0%
========== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>

A-9
<PAGE>

The following table presents the maturity distribution of the Company's
commercial, real estate construction and land and real estate term portfolios
and the sensitivity of such loans to changes in interest rates at December 31,
1998.

<TABLE>
<CAPTION>
Real estate
construction Real estate
Commercial and land term
---------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans maturing in:
One year or less:
Fixed rate............................ $ 62,623 $ 6,179 $ 16,190
Variable rate......................... 205,537 143,379 78,451
One to five years:
Fixed rate............................ 19,653 -- 33,494
Variable rate......................... 99,213 10,356 48,858
After five years:
Fixed rate............................ 28,911 2,311 76,755
Variable rate......................... 39,140 11,632 45,363
-------- -------- --------
Total................................ $455,077 $173,857 $299,111
======== ======== ========
</TABLE>

Nonperforming and Classified Assets

Management generally places loans on nonaccrual status when they become 90
days past due, unless they are well secured and in the process of collection.
When a loan is placed on nonaccrual status, any interest previously accrued
but not collected is generally reversed from income. Loans are charged off
when management determines that collection has become unlikely. Restructured
loans are those where the Banks have granted a concession on the interest paid
or original repayment terms due to financial difficulties of the borrower.
Other real estate owned ("OREO") consists of real property acquired through
foreclosure on the related collateral underlying defaulted loans.

The following table sets forth information regarding nonperforming assets at
the dates indicated.

<TABLE>
<CAPTION>
As of December 31,
---------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming loans
Nonaccrual loans..................... $1,858 $2,971 $4,616 $4,833 $ 6,601
Accruing loans past due 90 days or
more................................ -- 158 1,237 830 1,518
Restructured loans................... 327 1,062 1,828 1,530 1,972
------ ------ ------ ------ -------
Total nonperforming loans........... 2,185 4,191 7,681 7,193 10,091
Other real estate owned............... 966 1,303 1,673 2,471 2,214
------ ------ ------ ------ -------
Total nonperforming assets.......... $3,151 $5,494 $9,354 $9,664 $12,305
====== ====== ====== ====== =======
Nonperforming assets to total loans
and other real estate owned......... 0.31% 0.73% 1.62% 2.40% 3.45%
</TABLE>

At December 31, 1998, the Company had $1.9 million in nonaccrual loans.
Interest income foregone on nonperforming loans outstanding at year-end
totaled $113,000, $479,000 and $633,000 for the years ended December 31, 1998,
1997 and 1996, respectively.

The Company records OREO at the lower of carrying value or fair value less
estimated costs to sell. Estimated losses that result from the ongoing
periodic valuation of these properties are charged to earnings through a
provision for losses on foreclosed property in the period in which they are
identified. At December 31, 1998, OREO acquired through foreclosure had a
carrying value of $966,000, compared to $1.3 million at December 31, 1997.

A-10
<PAGE>

The Company had $327,000 and $1,062,000 of restructured loans as of December
31, 1998 and 1997, respectively. There were no principal reduction concessions
allowed on restructured loans during 1998. Principal reduction concessions
totaling $387,000 were permitted on restructured loans during the year ended
December 31, 1997. Interest income from restructured loans totaled $16,000 and
$82,000 for the years ended December 31, 1998 and 1997. Foregone interest
income, which totaled $11,000 and $10,000 for the years ended December 31,
1998 and 1997, respectively, would have been recorded as interest income if
the loans had accrued interest in accordance with their original terms prior
to the restructurings.

The policy of the Company is to review each loan in the portfolio to
identify problem credits. There are three classifications for problem loans:
"substandard," "doubtful" and "loss." Substandard loans have one or more
defined weakness and are characterized by the distinct possibility that the
Banks will sustain some loss if the deficiencies are not corrected. Doubtful
loans have the weaknesses of substandard loans with the additional
characteristic that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable; and
there is a high possibility of loss of some portion of the principal balance.
A loan classified as "loss" is considered uncollectible and its continuance as
an asset is not warranted.

The following table sets forth the classified assets at the dates indicated.

<TABLE>
<CAPTION>
As of December 31,
-------------------------
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Substandard........................................ $12,515 $15,723 $ 8,908
Doubtful........................................... 1,046 1,377 1,760
Loss............................................... -- 49 231
Other real estate owned............................ 966 1,303 1,673
------- ------- -------
Classified assets................................ $14,527 $18,452 $12,572
======= ======= =======
Classified assets to total loans and other real
estate owned...................................... 1.44% 2.45% 2.19%
Allowance for loan losses to total classified
assets............................................ 146.65% 88.85% 80.62%
</TABLE>

With the exception of these classified assets, management was not aware of
any loans outstanding as of December 31, 1998 where the known credit problems
of the borrower would cause management to have serious doubts as to the
ability of such borrowers to comply with their present loan repayment terms
and which would result in such loans being included in nonperforming or
classified asset tables at some future date. Management cannot, however,
predict the extent to which economic conditions in the Company's market areas
may worsen or the full impact that such an environment may have on the
Company's loan portfolio. Accordingly, there can be no assurance that other
loans will not become 90 days or more past due, be placed on nonaccrual,
become restructured loans, or other real estate owned in the future.

A-11
<PAGE>

Allowance For Loan Losses

The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of risk inherent in the Company's loan
portfolio and economic conditions in the Company's market areas. See
"Provision for Loan Losses" herein. The allowance is increased by provisions
charged against earnings and reduced by net loan charge-offs. Loans are
charged-off when they are deemed to be uncollectible; recoveries are generally
recorded only when cash payments are received.

The following table sets forth information concerning the Company's
allowance for loan losses at the dates and for the years indicated.

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Period end loans
outstanding............ $1,009,134 $754,392 $576,800 $402,159 $357,041
Average loans
outstanding............ $ 815,952 $663,107 $467,159 $371,564 $276,254
Allowance for loan
losses:
Balance at beginning of
period................. $ 16,394 $ 10,136 $ 6,683 $ 6,960 $ 6,072
Charge-offs:
Commercial............. (1,256) (1,469) (234) (974) (800)
Real estate
construction and
land.................. (6) (243) (127) (410) (388)
Real estate term....... -- (14) (54) -- --
Consumer and other..... (157) (213) (171) (463) (166)
---------- -------- -------- -------- --------
Total charge-offs..... (1,420) (1,939) (586) (1,847) (1,354)
---------- -------- -------- -------- --------
Recoveries:
Commercial............. 111 51 343 190 191
Real estate
construction and
land.................. -- -- 283 3 1
Real estate term....... -- -- -- -- 48
Consumer and other..... 1 9 19 158 17
---------- -------- -------- -------- --------
Total recoveries...... 112 60 645 351 257
---------- -------- -------- -------- --------
Net charge-offs........ (1,308) (1,879) 59 (1,496) (1,097)
Provision charged to
income (1)............. 6,218 8,137 3,394 1,219 1,985
---------- -------- -------- -------- --------
Balance at end of
period................. $ 21,304 $ 16,394 $ 10,136 $ 6,683 $ 6,960
========== ======== ======== ======== ========
Net recoveries (charge-
offs) to average loans
outstanding during the
period................. (0.16)% (0.28)% 0.01% (0.40)% (0.40)%
Allowance as a
percentage of average
loans outstanding...... 2.61% 2.47% 2.17% 1.80% 2.52%
Allowance as a
percentage of period
end loans outstanding.. 2.12% 2.18% 1.76% 1.67% 1.96%
Allowance as a
percentage of
non-performing loans... 974.99% 391.17% 131.96% 92.91% 68.97%
</TABLE>
- --------
(1) Includes $183,000, $1.4 million and $800,000 in 1998, 1997 and 1996,
respectively, to conform to the Companys' practices for reserve
methodologies. These amounts are included in mergers and related
nonrecurring costs.

Management considers changes in the size and character of the loan
portfolio, changes in nonperforming and past due loans, historical loan loss
experience, and the existing and prospective economic conditions when
determining the adequacy of the allowance for loan losses. Although management
believes that the allowance for loan losses is adequate to provide for both
potential losses and estimated inherent losses in the portfolio, future
provisions will be subject to continuing evaluations of the inherent risk in
the portfolio and if the economy declines or asset quality deteriorates,
additional provisions could be required.

A-12
<PAGE>

The table as follows provides a summary of the allocation of the allowance
for loan losses for specific loan categories at the dates indicated. The
allocation presented should not be interpreted as an indication that charges
to the allowance for loan losses will be incurred in these amounts or
proportions, or that the portion of the allowance allocated to each loan
category represents the total amounts available for future losses that may
occur within these categories. The unallocated portion of the allowance for
loan losses and the total allowance is applicable to the entire loan
portfolio.

<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------------- ---------------- ---------------- --------------- ---------------
% of % of % of % of % of
Category Category Category Category Category
to Gross to Gross to Gross to Gross to Gross
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------- -------- ------- -------- ------- -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 8,346 45.10% $ 5,445 48.08% $ 3,703 52.26% $2,413 55.02% $3,581 55.60%
Real estate construction
and land............... 1,454 17.23 829 14.91 1,587 16.09 851 10.92 930 9.50
Real estate term........ 1,679 29.64 1,374 26.01 969 21.96 975 24.01 774 24.39
Consumer and other...... 1,529 8.04 827 10.99 1,133 9.69 802 10.05 673 10.51
------- ------ ------- ------ ------- ------ ------ ------ ------ ------
Total allocated......... 13,008 8,475 7,392 5,041 5,958
Unallocated............. 8,296 7,919 2,744 1,642 1,002
------- ------ ------- ------ ------- ------ ------ ------ ------ ------
Total.................. $21,304 100.00% $16,394 100.00% $10,136 100.00% $6,683 100.00% $6,960 100.00%
======= ====== ======= ====== ======= ====== ====== ====== ====== ======
</TABLE>

At December 31, 1998, the allowance for credit losses was $21.3 million,
consisting of a $13.0 million allocated allowance and a $8.3 million
unallocated allowance. The unallocated allowance is composed of two elements.
The first element consists of an amount up to 20% of the allocated allowance
which recognizes the model and estimation risk associated with the allocated
allowances. The second element is based upon management's evaluation of
various conditions, the effects of which are not directly measured in
determining the allocated allowance. The evaluation of the inherent loss
regarding these conditions involves a higher degree of uncertainty because
they are not identified with specific problem credits or portfolio segments.
The conditions evaluated in connection with the unallocated allowance include
the following conditions that existed December 31, 1998:

. Specific industry conditions within portfolio segments, particularly
involving the high technology sector and the impact of foreign economic
forces upon that sector;

. Seasoning of the loan portfolio and growth in loan volumes;

. The strength and duration of the current business cycle and existing
general economic and business conditions affecting our key lending
areas;

. Credit quality trends, including trends in nonperforming loans expected
to result from changes in existing conditions; and

. The results of bank regulatory examinations and the findings of our
internal credit examiners.

The Officers' Loan Committee reviews these conditions quarterly in
discussion with our senior relationship managers. If any of these conditions
is evidenced by a specifically identifiable problem credit or portfolio
segment as of the evaluation date, management's estimate of the effect of this
condition may be reflected as an allocated allowance applicable to this credit
or portfolio segment. Where any of these conditions is not evidenced by a
specifically identifiable problem credit or portfolio segment as of the
evaluation date, management's evaluation of the probable loss concerning this
condition is reflected in the unallocated allowance.

The allowance for credit losses is based upon estimates of probable losses
inherent in the loan portfolio. The amount actually observed for these losses
can vary significantly from the estimated amounts. Our methodology includes
several features that are intended to reduce the differences between estimated
and actual losses. The historical loss analysis, which reviews the losses over
1, 3 and 5 year periods, and evaluations of the current business cycle and
economic conditions are used to establish the loan loss factors for problem
graded loans which are designed to be

A-13
<PAGE>

self-correcting by taking into account our recent loss experience. Similarly,
by basing the pass graded loan loss factors on historical loss experience, the
methodology is designed to take our recent loss experience into account. Loan
loss factors are adjusted quarterly based upon the level of net chargeoffs
expected by management in the next twelve months. Furthermore, our methodology
permits adjustments to any loss factor used in the computation of the formula
allowance in the event that, in management's judgment, significant factors
that affect the collectibility of the portfolio as of the evaluation date are
not reflected in the loss factors. By assessing the probable estimated losses
inherent in the loan portfolio on a quarterly basis, we are able to adjust
specific and inherent loss estimates based upon any more recent information
that has become available.

The Company recorded provisions in 1998 to bring the allowance for credit
losses to a level deemed appropriate by management based upon management's
application of the loan loss allowance methodology discussed above. In
particular, in the assessment as of December 31, 1998, management focused on
factors affecting elements of the high technology sector and the impact of
foreign economic forces upon that sector, including seasoning of the loan
portfolio coupled with growth in loan volumes and the strength and duration of
the current business cycle coupled with existing general economic and business
conditions affecting our key lending areas.

Investment Securities

The Company's investment portfolio is managed to meet the Company's
liquidity needs through proceeds from scheduled maturities and is utilized for
pledging requirements for deposits of state and political subdivisions and
securities sold under repurchase agreements. The portfolio is comprised of
U.S. Treasury securities, U.S. government agency securities, mortgage-backed
securities, obligations of states and political subdivisions and a modest
amount of equity securities, including Federal Reserve Bank stock and Federal
Home Loan Bank stock. The Company does not include federal funds sold and
certain other short-term securities as investment securities. These other
investments are included in cash and cash equivalents. Investment securities
classified as available for sale are recorded at fair market value, while
investment securities classified as held to maturity are recorded at cost.
Unrealized gains or losses, net of the deferred tax effect, are reported as
increases or decreases in shareholders' equity for available for sale
securities.

The amortized cost and estimated market value of investment securities at
December 31, 1998 and 1997 is as follows:

A-14
<PAGE>

<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale securities:
U.S. Treasury obligations............. $ 10,095 $ 52 $ (2) $ 10,145
U.S. agency notes..................... 38,833 52 (63) 38,822
Mortgage-backed securities............ 102,432 357 (185) 102,604
Tax-exempt securities................. 7,018 199 (5) 7,212
Corporate securities.................. 7,568 62 -- 7,630
-------- ------ ----- --------
Total securities available for
sale............................... 165,946 722 (255) 166,413
-------- ------ ----- --------
Held to maturity securities:
U.S. Treasury obligations............. 501 1 -- 502
U.S. agency notes..................... 17,798 182 (12) 17,968
Mortgage-backed securities............ 11,324 177 (2) 11,499
Tax-exempt securities................. 14,838 492 (53) 15,277
-------- ------ ----- --------
Total securities held to maturity... 44,461 852 (67) 45,246
-------- ------ ----- --------
Other securities...................... 2,253 -- -- 2,253
-------- ------ ----- --------
Total investment securities......... $212,660 $1,574 $(322) $213,912
======== ====== ===== ========
</TABLE>

The tax effected net unrealized gain on available for sale securities was
$581,000 as of December 31, 1998. The following table shows the amortized cost
and estimated market value of the Company's investment securities by maturity
at December 31, 1998.

<TABLE>
<CAPTION>
2000 2004
Through Through 2009 and
1999 2003 2008 Thereafter Total
------- ------- ------- ---------- --------
(Dollars in thousands) (1)
<S> <C> <C> <C> <C> <C>
Available for sale securities:
U.S. Treasury obligations..... $ 4,308 $ 100 $ -- $ -- $ 4,408
U.S. agency notes (2)......... 15,829 -- 12,792 -- 28,621
Mortgage-backed securities
(3).......................... -- 3,033 8,941 141,013 152,987
Tax-exempt securities......... -- 1,601 4,561 26,790 32,952
Corporate securities.......... 4,016 991 -- 30,510 35,517
------- ------- ------- -------- --------
Total securities available
for sale................... 24,153 5,725 26,294 198,313 254,485
======= ======= ======= ======== ========
Market value.................. $24,197 $ 5,808 $26,601 $198,877 $255,483
======= ======= ======= ======== ========
Held to maturity securities:
U.S. Treasury obligations..... 1,764 -- -- -- 1,764
U.S. agency notes (2)......... -- 23,990 1,500 -- 25,490
Mortgage-backed securities
(3).......................... -- -- 7,596 20,365 27,961
Tax-exempt securities......... 1,261 3,598 5,252 15,831 25,942
------- ------- ------- -------- --------
Total securities held to
maturity................... 3,025 27,588 14,348 36,196 81,157
======= ======= ======= ======== ========
Market value.................. 3,034 27,613 7,528 43,542 81,717
======= ======= ======= ======== ========
Combined investment securities
portfolio:
Total investment securities... $27,178 $33,313 $40,642 $234,509 $335,642
======= ======= ======= ======== ========
Total market value............ $27,231 $33,421 $34,129 $242,419 $337,200
======= ======= ======= ======== ========
Weighted average yield-total
portfolio.................... 5.73% 5.74% 5.25% 6.84% 6.23%
</TABLE>
- --------
(1) Other securities are comprised of equity investments and have no stated
maturity and therefore are excluded from this table.
(2) Certain notes issued by U.S. Agencies may be called, without penalty, at
the discretion of the issuer. This may cause the actual maturities to
differ significantly from the contractual maturity dates.
(3) Mortgage-backed securities are shown at contractual maturity; however, the
average life of these mortgage-backed securities may differ due to
principal prepayments.

For additional information concerning the investments portfolio, see Note 3
of Notes to Consolidated Financial Statements.

A-15
<PAGE>

Deposits

The Company emphasizes developing total client relationships with its
customers in order to increase its core deposit base. Deposits reached $1.3
billion at December 31, 1998, an increase of 25.3% compared to deposits of
$1.1 billion at December 31, 1997. In 1997, deposits increased 30.4% from
$821.1 million at December 31, 1996. The increase in deposits was primarily
due to the continued marketing efforts directed at commercial business clients
in the Company's market areas, coupled with an increase in deposits related to
the new business development activities of the Greater Bay Trust Company and
the Venture Banking Group.

PBC holds $89.6 million in one demand deposit account (the "Special
Deposit"). The Special Deposit represents the proposed settlement of a class
action lawsuit not involving the Company. Due to the uncertainty of the time
the Special Deposit will remain with PBC, management has invested a
significant portion of the proceeds from this deposit in agency securities
with maturities of less than 90 days. As previously discussed, the interest
rate spread on the Special Deposit was approximately 2.25%, which resulted in
a decrease in overall interest rate spreads.

Noninterest-bearing demand deposit accounts increased 22.3% to $268.4
million at December 31, 1998, compared to $219.5 million a year earlier.

Money market deposit accounts ("MMDA"), negotiable order of withdrawal
accounts ("NOW") and savings accounts reached $854.4 million at year-end 1998,
an increase of 36.2% from $627.5 million at December 31, 1997. MMDA, NOW and
savings accounts were 63.6% of total deposits at December 31, 1998, as
compared to 58.6% at December 31, 1997.

Time certificates of deposit totaled $219.7 million, or 16.4% of total
deposits, at December 31, 1998, compared to $224.2 million, or 20.9% of total
deposits, at December 31, 1997. Note 7 of the Notes to the Consolidated
Financial Statements presents the maturity distribution of time certificates
of deposits at December 31, 1998.

As of December 31, 1997, the Company had $10.0 million in brokered deposits
outstanding. There were no such deposits as of December 31, 1998.

For additional information concerning deposits, see Note 7 of Notes to
Consolidated Financial Statements.

Other Borrowings

Other borrowings consisted of Federal Funds purchased and securities sold
under agreements to repurchase, Federal Home Loan advances, and promissory
notes. Note 9 of the Notes to the Consolidated Financial Statements provides
the amounts outstanding, the short and long term classification, the weighted
interest rate and the general terms of these borrowings.

Liquidity and Cash Flow

The objective of liquidity management is to maintain each Bank's ability to
meet the day-to-day cash flow requirements of its clients who either wish to
withdraw funds or require funds to meet their credit needs. The Company must
manage its liquidity position to allow the Banks to meet the needs of their
clients while maintaining an appropriate balance between assets and
liabilities to meet the return on investment expectations of its shareholders.
The Company monitors the sources and uses of funds on a daily basis to
maintain an acceptable liquidity position. In addition to liquidity from core
deposits and repayments and maturities of loans and investments, the Banks
utilize brokered deposit lines, sell securities under agreements to repurchase
and borrow overnight federal funds. In 1997 the Company issued $20.0 million
in Trust Preferred Securities ("TPS") to enhance its regulatory capital base,
while also providing added liquidity. In 1998, the Company completed a second
offering of TPS in an aggregate amount of $30.0 million. Greater Bay invested
$15.0 million of the net proceeds in the Company's subsidiary banks to
increase their capital level. The Company intends to use the remaining net
proceeds for general corporate purposes or to provide additional capital to
the Banks, as it is needed. Under applicable regulatory guidelines, $30.2
million of the TPS qualifies as Tier I capital, and the remaining portion
qualifies as Tier 2 capital. As the Company's shareholders' equity increases,
the amount of the additional TPS that will count as Tier I capital will
increase.

A-16
<PAGE>

Greater Bay is a company separate and apart from the Banks. It must provide
for its own liquidity. Substantially all of Greater Bay's revenues are
obtained from management fees, interest received on its investments and
dividends declared and paid by the Banks. There are statutory and regulatory
provisions that could limit the ability of the Banks to pay dividends to
Greater Bay. At December 31, 1998, the Banks had approximately $24.6 million
in the aggregate available to be paid as dividends to Greater Bay. Management
of Greater Bay believes that such restrictions will not have an impact on the
ability of Greater Bay to meet its ongoing cash obligations. As of December
31, 1998, Greater Bay did not have any material commitments for capital
expenditures. There are statutory and regulatory provisions that could limit
the ability of the Banks to pay dividends to Greater Bay.

Net cash provided by operating activities, consisting primarily of net
income, totaled $19.9 million for 1998, $14.0 million for 1997 and $10.0
million for 1996. Cash used for investing activities totaled $411.9 million in
1998, $253.7 million in 1997 and $170.1 million in 1996. The funds used for
investing activities primarily represent increases in loans and investment
securities for each year reported.

For the year ended December 31, 1998, net cash provided by financing
activities was $341.4 million, compared to $279.8 million in 1997 and $252.3
million in 1996. Historically, the primary financing activity of the Company
has been through deposits. In 1998, 1997 and 1996, deposit gathering
activities generated cash of $271.3 million, $250.0 million and $236.5
million, respectively. This represents a total of 79.5%, 89.4% and 93.75% of
the financing cash flows for 1998, 1997 and 1996, respectively. The increase
in financing activities other than deposits are a result of the Company
entering into $70.0 million in long-term low cost borrowing agreements in
1998, and the issuance of TPS of $30.0 million and $20.0 million in 1998 and
1997, respectively, which were issued principally to provide capital to the
Company (see Capital Resources--below).

Capital Resources

Shareholders' equity at December 31, 1998 increased to $92.7 million from
$76.5 million at December 31, 1997 and from $66.8 million at December 31,
1996. Greater Bay paid dividends of $0.38, $0.30 and $0.22 per share in
December 31, 1998, 1997 and 1996, respectively. In 1998, PBFC made a
distribution of $1.2 million to its shareholders. In 1997, PBC declared an
annual dividend of $3.20 per share, PRB declared and paid a dividend of
$100,000 to its sole shareholder and PBFC made a distribution of $208,000 to
its shareholders. In 1996, Cupertino National Bancorp declared and paid a
dividend of $0.10 per share, Peninsula Bank of Commerce declared an annual
dividend of $1.35 per share and PBFC made a distribution of $227,000 to its
shareholders.

The Company has provided a substantial portion of its capital requirements
through the retention of earnings. The Company supplemented its capital base
by issuing $30.0 million of TPS in 1998 and $20.0 million of TPS in 1997,
which, subject to certain limitations, qualify as Tier 1 capital.

A banking organization's total qualifying capital includes two components,
core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core
capital, which must comprise at least half of total capital, includes common
shareholders' equity, qualifying perpetual preferred stock, trust preferred
securities and minority interests, less goodwill. Supplementary capital
includes the allowance for loan losses (subject to certain limitations), other
perpetual preferred stock, trust preferred securities, certain other capital
instruments and term subordinated debt. The Company's major capital components
are shareholders' equity and TPS in core capital, and the allowance for loan
losses and subordinated debt in supplementary capital.

At December 31, 1998, the minimum risk-based capital requirements to be
considered adequately capitalized were 4.0% for core capital and 8.0% for
total capital. Federal banking regulators have also adopted leverage capital
guidelines to supplement risk-based measures. The leverage ratio is determined
by dividing Tier 1 capital as defined under the risk-based guidelines by
average total assets (not risk-adjusted) for the preceding quarter. The
minimum leverage ratio is 3.0%, although certain banking organizations are
expected to exceed that amount by 1.0% or more, depending on their
circumstances.

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, the Federal Reserve, the OCC and the FDIC have adopted regulations
setting forth a five-tier system for measuring the capital adequacy of

A-17
<PAGE>

the financial institutions they supervise. The capital levels of the Company
at December 31, 1998 and the two highest levels recognized under these
regulations are as follows.

<TABLE>
<CAPTION>
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Ratio Capital Ratio
-------- ------------- -------------
<S> <C> <C> <C>
Company................................... 7.81% 9.90% 12.94%
Well-capitalized.......................... 5.00% 6.00% 10.00%
Adequately capitalized.................... 4.00% 4.00% 8.00%
</TABLE>

The Company's leverage ratio was 7.81% at December 31, 1998, compared to
8.40% at December 31, 1997. At December 31, 1998, the Company's risk-based
capital ratios were 9.90% for Tier 1 risk-based capital and 12.94% for total
risk-based capital, compared to 10.72% and 12.31%, respectively, as of
December 31, 1997. These ratios all exceeded the well-capitalized guidelines
shown above.

In addition, at December 31, 1997, each of the Banks had levels of capital
that exceeded the well-capitalized guidelines. For additional information on
the capital levels and capital ratios of the Company and each of the Banks,
see Note 17 of Notes to Consolidated Financial Statements.

The Company anticipates that the economic and business conditions in its
market areas will continue to expand in 1999, resulting in continued growth in
earnings and deposits. To support this continuing growth or future acquisition
opportunities, it may be necessary for the Company to raise additional capital
through the sale of either debt or equity securities in order for the Company
and each of the Banks to remain well-capitalized under applicable regulations.

Quantitative and Qualitative Disclosures about Market Risk

The Company's financial performance is impacted by, among other factors,
interest rate risk and credit risk. The Company utilizes no derivatives to
mitigate its credit risk, relying instead on loan review and an adequate loan
loss reserve see "--Allowance for Loan Losses" herein.

Interest rate risk is the risk of loss in value due to changes in interest
rates. This risk is addressed by the Company's Asset Liability Management
Committee ("ALCO"), which includes senior management representatives. The ALCO
monitors and considers methods of managing interest rate risk by monitoring
changes in net portfolio values ("NPV") and net interest income under various
interest rate scenarios. The ALCO attempts to manage the various components of
the Company's balance sheet to minimize the impact of sudden and sustained
changes in interest rates on NPV and net interest income.

The Company's exposure to interest rate risk is reviewed on at least a
quarterly basis by the Board of Directors and the ALCO. Interest rate risk
exposure is measured using interest rate sensitivity analysis to determine the
Company's change in NPV in the event of hypothetical changes in interest rates
and interest liabilities. If potential changes to NPV and net interest income
resulting from hypothetical interest rate swings are not within the limits
established by the Board, the Board may direct management to adjust its asset
and liability mix to bring interest rate risk within Board-approved limits.

In order to reduce the exposure to interest rate fluctuations, the Company
has developed strategies to manage its liquidity, lengthen the effective
maturities of certain interest-earning assets, and shorten the effective
maturities of certain interest-bearing liabilities. The Company has focused
its investment activities on securities with generally medium-term (7 years to
10 years) maturities or average lives. The Company has utilized short-term
borrowings and deposit marketing programs to adjust the term to repricing of
its liabilities.

Interest rate sensitivity analysis is used to measure the Company's interest
rate risk by computing estimated changes in NPV of its cash flows from assets,
liabilities and off-balance sheet items in the event of a range of assumed
changes in market interest rates. NPV represents the market value of portfolio
equity and is equal to the market value of assets minus the market value of
liabilities, with adjustments made for core deposit valuations and off-balance
sheet items. This analysis assesses the risk of loss in market rate sensitive
instruments in the event of sudden and

A-18
<PAGE>

sustained increases and decreases in market interest rates of 100 basis
points. The following table presents the Company's projected change in NPV for
these rate shock levels as of December 31, 1998. All market rate sensitive
instruments presented in this table are classified as either held to maturity
or available for sale. The Company has no trading securities.

<TABLE>
<CAPTION>
Projected Change
------------------
Change in Interest Rates NPV Dollars Percentage
------------------------ -------- ------- ----------
<S> <C> <C> <C>
100 basis point rise................................ $106,437 $1,818 1.7%
Base scenario....................................... 104,619 -- 0.0%
100 basis point decline............................. 107,212 2,593 2.5%
</TABLE>

The preceding table indicates that at December 31, 1998, in the event of a
sudden and sustained increase in prevailing market interest rates, the
Company's NPV would be expected to increase.

NPV is calculated based on the net present value of estimated cash flows
utilizing market prepayment assumptions and market rates of interest provided
by independent broker quotations and other public sources.

Computation of forecasted effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposits decay, and should be not relied upon as
indicative of actual future results. Further, the computations do not
contemplate any actions the ALCO could undertake in response to changes in
interest rates.

Certain shortcomings are inherent in the method of analysis presented in the
computation of NPV. Actual values may differ from those projections presented
should market conditions vary from assumptions used in the calculation of the
NPV. Certain assets, such as adjustable-rate loans, which represent one of the
Company's loan products, have features which restrict changes in interest rate
on a short-term basis and over the life of the assets. In addition, the
proportion of adjustable-rate loans in the Company's portfolio could decrease
in future periods if market interest rates remain at or decrease below current
levels due to refinancing activity. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in the NPV. Finally, the ability of many
borrowers to repay their adjustable-rate mortgage loans may decrease in the
event of significant interest rate increases.

Interest Rate Risk Management

Interest rate risk management is a function of the repricing characteristics
of the Company's portfolio of assets and liabilities. Interest rate risk
management focuses on the maturity structure of assets and liabilities and
their repricing characteristics during periods of changes in market interest
rates. Effective interest rate risk management seeks to ensure that both
assets and liabilities respond to changes in interest rates within an
acceptable time frame, thereby minimizing the effect of interest rate
movements on net interest income. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in the Company's
current portfolio that are subject to repricing at various time horizons: one
day or immediate, two days to six months, seven to twelve months, one to three
years, four to five years, over five years and on a cumulative basis. The
differences are known as interest sensitivity gaps.

A-19
<PAGE>

The following table shows interest sensitivity gaps for different intervals
as of December 31, 1998.

<TABLE>
<CAPTION>
Total
Immediate 2 Days to 7 Months to 1 Year 4 Years More than Total Rate Non-Rate
or One Day 6 Months 12 Months to 3 Years to 5 Years 5 Years Sensitive Sensitive Total
---------- --------- ----------- ---------- ---------- --------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash and due from
banks................ $ 386 $ -- $ -- $ -- $ -- $ -- $ 386 $ 59,589 $ 59,975
Fed funds sold........ 43,600 -- -- -- -- -- 43,600 -- 43,600
Investment
securities........... 110,307 27,002 43,225 90,715 17,810 125,157 414,216 -- 414,216
Other securities...... -- -- -- -- -- -- -- 5,654 5,654
Loans................. 607,116 245,448 27,613 54,351 22,737 51,869 1,009,134 -- 1,009,134
Loan losses/unearned
fees................. -- -- -- -- -- -- -- (24,647) (24,647)
Other assets.......... -- -- -- -- -- -- -- 74,933 74,933
-------- -------- -------- -------- -------- -------- ---------- --------- ----------
Total assets......... $761,409 $272,450 $ 70,838 $145,066 $ 40,547 $177,026 $1,467,336 $ 115,529 $1,582,865
======== ======== ======== ======== ======== ======== ========== ========= ==========
Liabilities and Equity
Deposits.............. $857,945 $196,357 $ 26,810 $ 17,370 $ 668 $ 32 $1,099,182 $ 243,310 $1,342,492
Other borrowings...... -- -- 40,135 32,450 -- -- 72,585 -- 72,585
Subordinated debt..... -- -- -- -- 3,000 -- 3,000 -- 3,000
Trust preferred
securities........... -- -- -- -- -- 50,000 50,000 -- 50,000
Other liabilities..... -- -- -- -- -- -- -- 22,112 22,112
Shareholders' equity.. -- -- -- -- -- -- -- 92,676 92,676
-------- -------- -------- -------- -------- -------- ---------- --------- ----------
Total liabilities and
equity.............. $857,945 $196,357 $ 66,945 $ 49,820 $ 3,668 $ 50,032 $1,224,767 $ 358,098 $1,582,865
======== ======== ======== ======== ======== ======== ========== ========= ==========
Gap................... $(96,536) $ 76,093 $ 3,893 $ 95,246 $ 36,879 $126,994 $ 242,569 $(242,569) --
Cumulative Gap........ $(96,536) $(20,443) $(16,550) $ 78,696 $115,575 $242,569 $ 242,569 $ -- --
Cumulative Gap/total
assets............... (6.10)% (1.29)% (1.05)% 4.97% 7.30% 15.32% 15.32% -- --
</TABLE>

The foregoing table indicates that the Company had a one year gap of $(16.6)
million, or (1.05)% of total assets, at December 31, 1998. In theory, this
would indicate that at December 31, 1998, $16.6 million more in liabilities
than assets would reprice if there was a change in interest rates over the
next 365 days. Thus, if interest rates were to increase, the gap would tend to
result in a higher net interest margin. However, changes in the mix of earning
assets or supporting liabilities can either increase or decrease the net
interest margin without affecting interest rate sensitivity. In addition, the
interest rate spread between an asset and its supporting liability can vary
significantly while the timing of repricing of both the asset and its
supporting liability can remain the same, thus impacting net interest income.
This characteristic is referred to as a basis risk and, generally, relates to
the repricing characteristics of short-term funding sources such as
certificates of deposit.

The impact of fluctuations in interest rates on the Company's projected next
twelve month net interest income and net income has been evaluated through an
interest rate shock simulation modeling analysis that includes various
assumptions regarding the repricing relationship of assets and liabilities, as
well as the anticipated changes in loan and deposit volumes over differing
rate environments. As of December 31, 1998, the analysis indicates that the
Company's net interest income would increase a maximum of 10.2% if rates rose
200 basis points immediately and would decrease a maximum of 11.2% if rates
declined 200 basis points immediately. In addition, the results indicate that
notwithstanding the Company's gap position, which would indicate that the net
interest margin increases when rates rise, the Company's net interest margin
increases during rising rate periods due to the basis risk imbedded in the
Company's interest-bearing liabilities.

In addition, while this analysis indicates the probable impact of interest
rate movements on the Company's net interest income, it does not take into
consideration other factors that would impact this analysis. These factors
would include management's and ALCO's actions to mitigate the impact to the
Company and the impact of the Company's credit risk profile during periods of
significant interest rate movements.

Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis table. These prepayments may have significant
effects on the Company's net interest margin. Because of these factors and
others, an interest sensitivity gap report may not provide a complete
assessment of the Company's exposure to changes in interest rates.

A-20
<PAGE>

Year 2000 Compliance

State of Readiness

The Company has undertaken a major project to ensure that its internal
operating systems will be fully capable of processing year 2000 transactions.
This project is overseen by the Greater Bay Year 2000 Project Team (the "Year
2000 Project Team"), which reports monthly progress to the Company's Board of
Directors.

The Company is determining the potential impact of the year 2000 on the
ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a number of
computer programs across its entire operation.

The initial phase of the project was to assess and identify all internal
business processes requiring modification and to develop comprehensive
renovation plans as needed. This phase was largely completed in mid-1998. The
second phase was to execute those renovation plans and begin testing systems
by simulating year 2000 data conditions. This phase was largely completed in
1998. Final testing and implementation is planned to be completed during the
first half of 1999.

The Company relies upon third-party software vendors and service providers
for substantially all of its electronic data processing and does not operate
any proprietary programs which are critical to the Company's operations. Thus,
the focus of the Company is to monitor the progress of its primary software
providers towards compliance with year 2000 issues and prepare to test actual
data of the company in simulated processing of future sensitive dates.

As well as evaluating its own internal operating systems, the Company has
also initiated discussions with its major customers and suppliers as to their
ability to meet year 2000 requirements. The Year 2000 Project Team previously
has identified and sought information from significant third party suppliers
regarding their year 2000 compliance. Suppliers providing system
interdependencies also have been identified, and testing with such suppliers
also will occur during this phase of the project. The Year 2000 Project Team
continues to work with all targeted suppliers to determine their year 2000
status. As of this time, the Year 2000 Project Team has not identified any
significant issues with the identified suppliers.

The Company also has identified customers who have a material relationship
with the Company and requested such customers to complete a year 2000 survey,
which will be used by the Company to assess the overall risk to the Company
resulting from such customers' year 2000 compliance.

Costs to Address the Year 2000 Issue

The Company has budgeted anticipated expenditures of $300,000 to $500,000 in
1998 and 1999 to ensure that its systems are ready for processing information
in the year 2000. The Company estimates that it has incurred out-of-pocket
expenses of approximately $146,000 in 1998 in connection with year 2000
issues. In addition, the Company has incurred certain costs relating to
reallocation of internal resources to address year 2000 issues. The Company
expects that the cost of remedial action for its noncompliant year 2000 IT
systems will not be material.

The Company has not completed its assessment of the year 2000 issue, but
currently believes that costs of addressing it will not have a material
adverse impact on the Company's financial position. However, if the Company
and third parties upon which it relies are unable to address this issue in a
timely manner, it could result in a material financial risk to the Company. In
order to assure that this does not occur, the Company plans to devote all
resources required to resolve any significant year 2000 issues in a timely
manner.

Risks Presented by the Year 2000 Issue

As the Company continues to assess the year 2000 issue, it may identify
systems that present a year 2000 risk. In addition, if any third-party
software vendors and service providers upon who the Company relies fail to

A-21
<PAGE>

appropriately address their year 2000 issues, such failure could have a
material adverse effect on the Company's business, financial condition and
operating results.

Should the Company and/or its significant suppliers fail to timely identify,
address and correct material year 2000 issues, such failure could have a
material adverse impact on the Company's ability to operate. The range of
adverse impacts may include the requirement to pay significant overtime to
manually process certain transactions and added costs to process certain
banking activity through a centralized administrative function. In addition,
if corrections made by such suppliers to address year 2000 issues are
incompatible with the Company's systems, the year 2000 issue could have a
material adverse impact on the Company's operations.

Despite the Company's activities in regards to the year 2000 issue, there
can be no assurance that partial or total systems interruptions or the costs
necessary to update hardware and software would not have a material adverse
effect upon the Company's business, financial condition, results of operations
and business prospects.

Contingency Plans

The Year 2000 Project Team currently is in the process of developing
contingency plans for year 2000 readiness. The Company has engaged a third
party company, which specializes in developing contingency plans for financial
institutions for year 2000, to assist the Company in analyzing the impact of
year 2000 on its business. This business impact analysis was completed in 1998
and the Company's contingency plans for year 2000 readiness currently are
substantially complete. There can be no assurance, however, that such
contingency plans will be successful.

Recent Events

On January 26, 1999 the Company and Bay Area Bancshares ("BA Bancshares"),
the holding company of Bay Area Bank, a California state charted bank ("BAB"),
signed a definitive agreement for a merger between the two companies. The
agreement provides for BA Bancshares shareholders to receive approximately
1,393,000 shares of Greater Bay stock subject to the approval of BA Bancshares
shareholders and certain adjustments based on movements in the Company's stock
price, in a tax-free exchange to be accounted for as a pooling-of-interests.
Following the transaction, the shareholders of BA Bancshares will own
approximately 12.7% of the combined company. The transaction is expected to be
completed early in the second quarter of 1999 subject to regulatory approvals.
As of December 31, 1998 BA Bancshares had $155.3 million in assets, $136.5
million in deposits, and $14.4 million in shareholders' equity. BAB's office
is located in Redwood City, California. The combined Company, on a pro-forma
basis would have had total assets of approximately $1.8 billion and equity of
over $107.0 million at December 31, 1998.

The transaction is anticipated to be accretive to the Company's core
earnings in 1999 based on anticipated reductions in operating expenses and
revenue enhancements resulting from an expanded product line, increased
lending capacity and an increased market awareness that can be utilized by
BAB. Management of each of the organizations believe that significant
opportunities exist to enhance the spectrum of financial services offered to
both existing and future clients of BAB while also increasing market
penetration in the San Francisco Peninsula market areas.

Recent Accounting Developments

In July 1998, the Financial Accounting Standards Board reconfirmed its
decision to review the accounting for business combinations. That approach
includes considering either adopting one method to account for business
combinations or reducing the difference in accounting outcomes between the
pooling and purchase methods rather than just modifying the conditions
specific for pooling-of-interests accounting.

The Board issued an Invitation to Comment on a position paper entitled,
Methods of Accounting for Business Combinations: Recommendation of the G4+1
for Achieving Convergence, on December 15, 1998, in order to solicit comments
on certain issues that will be addressed by the Board as part of its business
combinations project. This position paper concludes that the use of a single
method of accounting is preferable and that the purchase method is

A-22
<PAGE>

the appropriate method to use. As such there is a possibility that the pooling
of interests method of accounting that the Company has used to account for its
previous mergers may not be available at some point in the future. A portion
of the Company's business strategy is to pursue acquisition opportunities so
as to expand its market presence and maintain growth levels. A change in the
accounting for business combinations could have a negative impact on the
Company's ability to realize those business strategies.

A-23
<PAGE>

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
As of December 31,
------------------------
1998 1997*
----------- -----------
(Dollars in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks.............................. $ 59,975 $ 53,167
Federal funds sold................................... 43,600 75,000
Other short term securities.......................... 77,576 103,549
----------- -----------
Cash and cash equivalents........................ 181,151 231,716
Investment securities:
Available for sale, at fair value.................. 255,483 166,413
Held to maturity, at amortized cost (fair value
1998: $81,717 1997: $45,246)...................... 81,157 44,461
Other securities................................... 5,654 2,253
----------- -----------
Investment securities............................ 342,294 213,127
Total loans:
Commercial......................................... 455,077 362,747
Real estate construction and land.................. 173,857 112,514
Real estate term................................... 299,111 196,217
Consumer and other................................. 81,089 82,914
Deferred loan fees and discounts................... (3,343) (2,765)
----------- -----------
Total loans, net of deferred fees................ 1,005,791 751,627
Allowance for loan losses.......................... (21,304) (16,394)
----------- -----------
Total loans, net................................. 984,487 735,233
Property, premises and equipment..................... 10,961 8,498
Interest receivable and other assets................. 63,972 29,091
----------- -----------
Total assets..................................... $ 1,582,865 $ 1,217,665
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits....................................... $ 1,342,492 $ 1,071,148
Other borrowings..................................... 72,585 32,355
Subordinated debt.................................... 3,000 3,000
Company obligated mandatorily redeemable cumulative
trust preferred securities of subsidiary trusts
holding solely junior subordinated debentures....... 50,000 20,000
Other liabilities.................................... 22,112 14,622
----------- -----------
Total liabilities................................ 1,490,189 1,141,125
----------- -----------
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, no par value: 4,000,000 shares
authorized; none issued............................. -- --
Common stock, no par value: 24,000,000 shares
authorized; 9,612,142 and 9,304,930 shares issued
and outstanding as of December 31, 1998 and 1997,
respectively**...................................... 57,283 52,269
Accumulated other comprehensive income (loss)........ (96) 223
Retained earnings.................................... 35,489 24,048
----------- -----------
Total shareholders' equity....................... 92,676 76,540
----------- -----------
Total liabilities and shareholders' equity....... $ 1,582,865 $ 1,217,665
=========== ===========
</TABLE>
- --------
* Restated on a historical basis to reflect the mergers with Pacific Rim
Bancorporation and Pacific Business Funding Corporation on a pooling of
interests basis.
** Restated to reflect 2-for-1 stock split declared for shareholders of record
at April 30, 1998.

See notes to consolidated financial statements.

A-24
<PAGE>

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997* 1996*
--------- -------- --------
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
INTEREST INCOME
Interest on loans................................ $ 83,650 $ 70,035 $ 50,171
Interest on investment securities:
Taxable........................................ 17,114 8,199 7,394
Tax-exempt..................................... 2,104 1,095 990
--------- -------- --------
Total interest on investment securities...... 19,218 9,294 8,384
Other interest income............................ 10,052 9,198 4,328
--------- -------- --------
Total interest income........................ 112,920 88,527 62,883
--------- -------- --------
INTEREST EXPENSE
Interest on deposits............................. 39,398 30,640 21,220
Interest on long term borrowings................. 6,650 2,137 355
Interest on other borrowings..................... 1,424 1,282 804
--------- -------- --------
Total interest expense....................... 47,472 34,059 22,379
--------- -------- --------
Net interest income.......................... 65,448 54,468 40,504
Provision for loan losses........................ 6,035 6,786 2,594
--------- -------- --------
Net interest income after provision for loan
losses...................................... 59,413 47,682 37,910
--------- -------- --------
OTHER INCOME
Trust fees....................................... 2,473 2,049 1,426
Service charges and other fees................... 1,487 1,620 1,429
Gain on sale of SBA loans........................ 1,037 883 537
Warrant income................................... 945 1,162 92
Gain (loss) on sale of investments, net.......... 374 (5) (255)
Other income..................................... 939 832 1,394
--------- -------- --------
Total other income........................... 7,255 6,541 4,623
--------- -------- --------
OPERATING EXPENSES
Compensation and benefits........................ 22,715 20,495 16,740
Occupancy and equipment.......................... 6,217 5,240 4,437
Merger and other related nonrecurring costs...... 2,661 3,333 2,791
Recovery of legal settlement..................... -- (1,700) --
Other expenses................................... 11,121 8,762 8,239
--------- -------- --------
Total operating expenses..................... 42,714 36,130 32,207
--------- -------- --------
Net income before provision for income
taxes....................................... 23,954 18,093 10,326
Provision for income taxes....................... 7,376 6,474 3,978
--------- -------- --------
Net income................................... $ 16,578 $ 11,619 $ 6,348
========= ======== ========
Net income per share--basic**.................... $ 1.75 $ 1.26 $ 0.72
========= ======== ========
Net income per share--diluted**.................. $ 1.62 $ 1.17 $ 0.67
========= ======== ========
</TABLE>
- --------
* Restated on a historical basis to reflect the mergers with Peninsula Bank of
Commerce, Pacific Rim Bancorporation and Pacific Business Funding
Corporation on a pooling of interests basis.
** Restated to reflect 2-for-1 stock split declared for shareholders of record
at April 30, 1998.

See notes to consolidated financial statements.

A-25
<PAGE>

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Net income........................................ $ 16,578 $ 11,619 $ 6,348
-------- -------- -------
Other comprehensive income:
Unrealized gains on securities:
Unrealized holding gains arising during period
(net of taxes of $420, $157 and $323 for the
years ended December 31, 1998, 1997 and 1996,
respectively)................................ 578 310 462
Less: reclassification adjustment for gains
(losses) included in net income (net of taxes
of $154, $(2) and $(105) for the years ended
December 31, 1998, 1997 and 1996,
respectively)................................ 220 (3) (150)
-------- -------- -------
Net change...................................... 358 313 612
Cash flow hedge:
Cumulative transition effect of adopting SFAS
No. 133 (net of taxes of $(744) as of October
1, 1998...................................... (1,063) -- --
Change in market value of hedge during the
period (net of taxes of $294 for the year
ended December 31, 1998)..................... 418 -- --
Less: reclassification adjustment for swap
settlements included in net income (net of
taxes of $(23) for the year ended December
31, 1998).................................... (32) -- --
-------- -------- -------
Net change...................................... (677) -- --
Other comprehensive income (loss)............. (319) 313 612
-------- -------- -------
Comprehensive income.......................... $ 16,259 $ 11,932 $ 6,960
======== ======== =======
</TABLE>

See notes to consolidated financial statements.

A-26
<PAGE>

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

For the years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
Common Stock Accumulated Other Total
----------------- Comprehensive Retained Shareholders'
Shares** Amount Income (Loss) Earnings Equity
--------- ------- ----------------- -------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Greater Bay Bancorp,
prior to pooling....... 7,364,692 $40,108 $(609) $12,885 $52,384
Shares issued to Pacific
Rim Bancorporation
shareholders........... 950,748 8,000 -- -- 8,000
Pacific Rim
Bancorporation
accumulated other
comprehensive income
and retained earnings
prior to pooling....... -- -- (93) 338 245
Shares issued to Pacific
Business Funding
Corporation
shareholders........... 298,000 51 -- -- 51
Pacific Business Funding
Corporation retained
earnings prior
to pooling............. -- -- -- (185) (185)
--------- ------- ----- ------- -------
Balance, December 31,
1995, restated to
reflect pooling....... 8,613,440 48,159 (702) 13,038 60,495
Net income.............. -- -- -- 6,348 6,348
Other comprehensive
income, net of taxes... -- -- 612 -- 612
Stock options exercised,
including related tax
benefit................ 376,478 1,693 -- -- 1,693
Stock issued in Employee
Stock Purchase Plan.... 21,264 137 -- -- 137
401(k) employee stock
purchase............... 10,556 87 -- -- 87
Cash dividend $0.29 per
share ***.............. -- -- -- (2,536) (2,536)
--------- ------- ----- ------- -------
Balance, December 31,
1996*................. 9,021,738 50,076 (90) 16,850 66,836
Net income.............. -- -- -- 11,619 11,619
Other comprehensive
income, net of taxes... -- -- 313 -- 313
Stock options exercised,
including related tax
benefit................ 216,720 1,315 -- -- 1,315
Stock issued in Employee
Stock Purchase Plan.... 30,320 347 -- -- 347
401(k) employee stock
purchase............... 36,152 531 -- -- 531
Cash dividend $0.48 per
share ***.............. -- -- -- (4,421) (4,421)
--------- ------- ----- ------- -------
Balance, December 31,
1997*................. 9,304,930 52,269 223 24,048 76,540
Net income.............. -- -- -- 16,578 16,578
Other comprehensive
loss, net of taxes..... -- -- (319) -- (319)
Stock options exercised,
including related tax
benefit................ 241,059 3,298 -- -- 3,298
Stock issued in Employee
Stock Purchase Plan.... 29,670 656 -- -- 656
401(k) employee stock
purchase............... 36,483 1,060 -- -- 1,060
Cash dividend $0.54 per
share ***.............. -- -- -- (5,137) (5,137)
--------- ------- ----- ------- -------
Balance, December 31,
1998.................. 9,612,142 $57,283 $ (96) $35,489 $92,676
========= ======= ===== ======= =======
</TABLE>
- --------
* Restated on a historical basis to reflect the mergers with Cupertino
National Bancorp, Peninsula Bank of Commerce, Pacific Rim Bancorporation
and Pacific Business Funding Corporation on a pooling of interests basis.
** Restated to reflect 2-for-1 stock split declared for shareholders of
record at April 30, 1998.
*** Excluding dividends paid by Greater Bays subsidiaries prior to the
completion of their mergers with Greater Bay, Greater Bay paid dividends
of $0.38, $0.30 and $0.22 per share in December 31, 1998, 1997 and 1996,
respectively. In 1998, Pacific Business Funding Corporation made a
distribution of $1.2 million to its shareholders. In 1997, Peninsula Bank
of Commerce declared an annual dividend of $3.20 per share, Pacific Rim
Bancorporation declared and paid a dividend of $100,000 to its sole
shareholder and Pacific Business Funding Corporation made a distribution
of $208,000 to its shareholders. In 1996, Cupertino National Bancorp
declared and paid a dividend of $0.10, Peninsula Bank of Commerce
declared an annual dividend of $1.35 per share and Pacific Business
Funding Corporation made a distribution of $227,000 to its shareholders.

See notes to consolidated financial statements.

A-27
<PAGE>

GREATER BAY BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1998 1997* 1996*
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows--operating activities
Net income.................................... $ 16,578 $ 11,619 $ 6,348
Reconcilement of net income to net cash from
operations:
Provision for loan losses.................... 6,035 6,786 2,594
Depreciation and amortization................ 1,541 1,487 1,253
Deferred income taxes........................ (2,020) (4,200) (1,382)
(Gain) loss on sale of investments, net...... (374) 5 255
Changes in:
Accrued interest receivable and other
assets...................................... (8,803) (8,168) (1,029)
Accrued interest payable and other
liabilities................................. 6,341 6,170 1,750
Deferred loan fees and discounts, net........ 578 276 188
--------- --------- ---------
Operating cash flows, net..................... 19,876 13,975 9,977
--------- --------- ---------
Cash flows--investing activities
Maturities and partial paydowns on of
investment securities:
Held to maturity............................. 55,507 25,899 25,976
Available for sale........................... 441,778 47,145 32,990
Purchase of investment securities:
Held to maturity............................. (91,903) (9,851) (27,254)
Available for sale........................... (725,442) (150,740) (54,269)
Other securities............................. (3,401) -- --
Proceeds from sale of available for sale
securities................................... 195,863 14,598 31,430
Loans, net.................................... (256,221) (177,917) (176,863)
Investment in other real estate owned......... -- (500) 1,266
Purchase of property, premises and equipment.. (4,591) (2,341) (3,109)
Purchase of insurance policies................ (23,480) -- (240)
--------- --------- ---------
Investing cash flows, net..................... (411,890) (253,707) (170,073)
--------- --------- ---------
Cash flows--financing activities
Net change in deposits........................ 271,343 250,015 236,526
Net change in other borrowings--short term.... (27,506) 9,830 15,150
Proceeds from other borrowings--long term..... 70,000 3,025 2,015
Principal repayment--long term borrowings..... (2,265) (865) (775)
Proceeds from company obligated madatorily
redeemable preferred securities of subsidiary
trusts holding solely junior subordinated
debentures................................... 30,000 20,000 --
Proceeds from sale of common stock............ 5,014 2,193 1,917
Cash dividends................................ (5,137) (4,421) (2,536)
--------- --------- ---------
Financing cash flows, net..................... 341,449 279,777 252,297
--------- --------- ---------
Net change in cash and cash equivalents....... (50,565) 40,045 92,201
Cash and cash equivalents at beginning of
period....................................... 231,716 191,671 99,470
--------- --------- ---------
Cash and cash equivalents at end of period.... $ 181,151 $ 231,716 $ 191,671
========= ========= =========
Cash flows--supplemental disclosures
Cash paid during the period for:
Interest..................................... $ 46,195 $ 33,760 $ 22,399
========= ========= =========
Income taxes................................. $ 10,305 $ 11,190 $ 5,228
========= ========= =========
Non-cash transactions:
Additions to other real estate owned......... $ 450 $ 853 $ 687
========= ========= =========
</TABLE>
- --------
* Restated on a historical basis to reflect the mergers with Peninsula Bank of
Commerce, Pacific Rim Bancorporation and Pacific Business Funding
Corporation on a pooling of interests basis.

See notes to consolidated financial statements.

A-28
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 1998, 1997 and 1996

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Greater Bay Bancorp ("Greater Bay," on a parent-only basis, and the
"Company" on a consolidated basis) is a California corporation and bank
holding company that was incorporated on November 14, 1984 as San Mateo County
Bancorp. The name was changed to Mid-Peninsula Bancorp on October 7, 1994 as a
result of the merger between Mid-Peninsula Bank and San Mateo County Bancorp
and its wholly owned subsidiary, WestCal National Bank. The name was further
changed to Greater Bay Bancorp on November 27, 1996 as a result of the merger
between Mid-Peninsula Bancorp and Cupertino National Bancorp (see Note 2).
Upon consummation of the merger with Cupertino National Bancorp, Greater Bay
became a multi-bank holding company for two wholly owned subsidiaries. On
December 23, 1997 the Company merged with Peninsula Bank of Commerce, adding a
third wholly owned banking subsidiary to the group. On May 8, 1998, the
Company merged with Pacific Rim Bancorporation ("PRB"), the former holding
company of Golden Gate Bank ("Golden Gate"), adding a fourth wholly owned
banking subsidiary to the group. The four wholly owned bank subsidiaries are
Mid-Peninsula Bank ("MPB"), Cupertino National Bank ("CNB"), Peninsula Bank of
Commerce ("PBC"), and Golden Gate, collectively the "Banks." On August 31,
1998, the Company merged with Pacific Business Funding Corporation ("PBFC").
Subsequent to the completion of the merger the assets and liabilities of PBFC
were assigned to CNB. PBFC has been reformed as an operating division of CNB
and conducts business under the name Pacific Business Funding.

MPB commenced operations in October 1987 and is a state chartered bank
regulated by the Federal Reserve Bank ("FRB") and Department of Financial
Institutions of the State of California ("DFI"). CNB commenced operations in
May 1985 and is a national banking association regulated by the Office of the
Comptroller of Currency ("OCC"). PBC commenced operations in September 1981
and is a state chartered bank regulated by the FRB and the DFI. Golden Gate
commenced operations in 1976 and is a state chartered bank regulated by the
FRB and the DFI.

On March 3, 1997 GBB Capital I, a statutory business trust, was formed for
the exclusive purpose of issuing and selling Cumulative Trust Preferred
Securities ("TPS") (see Note 8) and using the proceeds from the sale of the
TPS to acquire Junior Subordinated Debentures issued by Greater Bay. On May
18, 1998 GBB Capital II, a statutory business trust, was formed for the
exclusive purpose of issuing and selling additional TPS and using the proceeds
from the sale of the TPS to acquire Junior Subordinated Debentures issued by
Greater Bay.

The Company provides a wide range of commercial banking services to small
and medium-sized businesses, real estate developers, property managers,
business executives, professionals and other individuals. The Company operates
throughout Silicon Valley, the San Francisco Peninsula and the Contra Costa
Tri Valley Region, with offices located in San Jose, Cupertino, Santa Clara,
Palo Alto, Redwood City, San Mateo, Millbrae, San Bruno, San Francisco and
Walnut Creek.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Greater Bay
and its wholly owned subsidiaries, MPB, CNB, PBC, Golden Gate, GBB Capital I
and GBB Capital II and its operating divisions Greater Bay Bank Santa Clara
Valley Commercial Banking Group, Greater Bay Corporate Finance Group, Greater
Bay Bank Contra Costa Banking Office, Greater Bay International Banking
Division, Greater Bay Trust Company, Pacific Business Funding and Venture
Banking Group. All significant intercompany transactions and balances have
been eliminated. Certain reclassifications have been made to prior years'
consolidated financial statements to conform to the 1998 presentation. The
accounting and reporting policies of the Company conform to generally accepted
accounting principles and the prevailing practices within the banking
industry.

A-29
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds sold and agency securities
with original maturities of less than ninety days. Generally, federal funds
are sold for one-day periods. As discussed in Note 7, PBC holds $89.6 million
in one demand deposit account whose funds are comprised of proceeds from a
lawsuit settlement. Due to the uncertainty of the time this special deposit
(the "Special Deposit") will remain with PBC, management has invested a
significant portion of the proceeds in agency securities with maturities of
less than 90 days. Those securities have been classified as cash and
equivalents. MPB, CNB, PBC, and Golden Gate are required by the Federal
Reserve System to maintain noninterest-earning cash reserves against certain
of their deposit accounts. At December 31, 1998, the required combined
reserves totaled approximately $19.4 million.

Investment Securities

The Company classifies its investment securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Investment securities
classified as held to maturity are reported at amortized cost; available for
sale securities are reported at fair value with net unrealized gains and
losses reported (net of taxes) as a component of shareholders' equity. The
Company does not have any trading securities.

A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary, results in a charge
to earnings and the corresponding establishment of a new cost basis for the
security.

Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.

Required investments in Federal Reserve Bank and Federal Home Loan Bank
stocks for MPB, CNB, PBC, and Golden Gate are recorded at cost.

Loans

Loans held for investment are carried at amortized cost. The Company's loan
portfolio consists primarily of commercial and real estate loans generally
collateralized by first and second deeds of trust on real estate as well as
business assets and personal property.

Interest income is accrued on the outstanding loan balances using the simple
interest method. Loans are generally placed on nonaccrual status when the
borrowers are past due 90 days and when full payment of principal or interest
in not expected. At the time a loan is placed on nonaccrual status, any
interest income previously accrued but not collected is generally reversed and
amortization of deferred loan fees is discontinued. Interest accruals are
resumed on such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans are
estimated to be fully collectible as to both principal and interest.

A-30
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

The Company charges loan origination and commitment fees. Net loan
origination fees and costs are deferred and amortized to interest income over
the life of the loan, using the effective interest method. Loan commitment
fees are amortized to interest income over the commitment period.

When a loan is sold, unamortized fees and capitalized direct costs are
recognized in the consolidated statements of operations. Other loan fees and
charges representing service costs for the repayment of loans, for delinquent
payments or for miscellaneous loan services are recognized when earned.

Sale and Servicing of Small Business Administration ("SBA") Loans

The Company originates loans to customers under SBA programs that generally
provide for SBA guarantees of 70% to 90% of each loan. The Company generally
sells the guaranteed portion of the majority of the loans to an investor and
retains the unguaranteed portion and servicing rights in its own portfolio.
Funding for the SBA programs depend on annual appropriations by the U.S.
Congress.

Gains on these sales are earned through the sale of the guaranteed portion
of the loan for an amount in excess of the adjusted carrying value of the
portion of the loan sold. The Company allocates the carrying value of such
loans between the portion sold, the portion retained and a value assigned to
the right to service the loan. The difference between the adjusted carrying
value of the portion retained and the face amount of the portion retained is
amortized to interest income over the life of the related loan using a method
which approximates the interest method.

Allowance for Loan Losses

The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," as amended by SFAS No. 118 ("SFAS No. 114 and No. 118"), on January
1, 1995. Under these standards, a loan is considered impaired, based on
current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal and interest when due
according to the contractual terms of the loan agreement. Under these
standards, any allowance on impaired loans is generally based on one of three
methods. It requires that impaired loans be measured at either, 1) the present
value of expected cash flows at the loan's effective interest rate, 2) the
loan's observable market price, or 3) the fair market value of the collateral
of the loan. In general, these statements are not applicable to large groups
of smaller-balance loans that are collectively evaluated for impairment such
as credit cards, residential mortgage and/or consumer installment loans.
Income recognition on impaired loans conforms to the method the Company uses
for income recognition on nonaccrual loans.

The allowance for loan losses is maintained at a level deemed appropriate by
management to adequately provide for known losses in the loan portfolio. The
allowance is based upon a number of factors, including prevailing and
anticipated economic trends, industry experience, industry and geographic
concentrations, estimated collateral values, management's assessment of credit
risk inherent in the portfolio, delinquency trends, historical loss
experience, specific problem loans and other relevant factors.

Additions to the allowance, in the form of provisions, are reflected in
current operating results, while charge-offs to the allowance are made when a
loss is determined to have occurred. Because the allowance for loan losses is
based on estimates, ultimate losses may vary from the current estimates.

Other Real Estate Owned

Other real estate owned ("OREO") consists of properties acquired through
foreclosure and is stated at the lower of carrying value or fair value less
estimated costs to sell. Development and improvement costs relating to the
OREO are capitalized. Estimated losses that result from the ongoing periodic
valuation of these properties are charged to current earnings with a provision
for losses on foreclosed property in the period in which they are identified.
The

A-31
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

resulting allowance for OREO losses is decreased when the property is sold.
Operating expenses of such properties, net of related income, are included in
other expenses. Gains and losses on the disposition of OREO are included in
other income.

Property, Premises and Equipment

Property, premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed on a straight-line
basis over the estimated useful lives of the assets, which is determined by
asset classification, as follows:

<TABLE>
<S> <C>
Buildings..................................................... 40 years
Building improvements......................................... 10 years
Furniture and fixtures........................................ 7 years
Automobiles................................................... 5 years
Computer equipment............................................ 2-5 years
Other equipment............................................... 5-7 years
</TABLE>

Amortization of leasehold improvements is computed on a straight-line basis
over the shorter of the lease term or the estimated useful lives of the asset,
which is generally 10 years.

Income Taxes

Deferred incomes taxes reflect the estimated future tax effects of temporary
differences between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.

Derivatives and Hedging Activities

The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"), effective October 1, 1998. In accordance
with the transition provisions of SFAS No. 133, the Company recorded a net-of-
tax cumulative-effect-type adjustment of $1,063,000 in accumulated other
comprehensive income to recognize at fair value all derivatives that are
designated as cash-flow hedging instruments. There were no net gains or losses
on derivatives that had been previously deferred or gains and losses on
derivatives that were previously deferred as adjustments to the carrying
amount of hedged items.

All derivatives are recognized on the balance sheet at their fair value. On
the date the derivative contract is entered into, the Company designates the
derivative as a hedge of a forecasted transaction or of the variability of
cash flows to be received or paid related to a recognized asset or liability
("cash flow" hedge). Changes in the fair value of a derivative that is highly
effective as--and that is designated and qualifies as--a cash-flow hedge are
recorded in other comprehensive income, until earnings are affected by the
variability of cash flows (e.g., when periodic settlements on a variable-rate
asset or liability are recorded in earnings).

The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as cash-flow hedges to specific liabilities on
the balance sheet. The Company also formally assesses, both at the hedge's
inception and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in cash flows
of hedged items.

When it is determined that a derivative is not highly effective as a hedge
or that it has ceased to be a highly effective hedge, the Company discontinues
hedge accounting prospectively when (1) it is determined that the derivative
is no longer effective in offsetting changes in the cash flows of a hedged
item; (2) the derivative expires or

A-32
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

is sold, terminated, or exercised; or (3) management determines that
designation of the derivative as a hedge instrument is no longer appropriate.
In these situations where hedge accounting is discontinued, the derivative
will be carried at its fair value on the balance sheet, with changes in its
fair value recognized in current-period earnings. All gains or losses that
were accumulated in other comprehensive income will be recognized immediately
in earnings upon the discontinuance of hedge accounting.

Comprehensive Income

On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement requires companies to classify items of
other comprehensive income by their nature in the financial statements and
display the accumulated other comprehensive income separately from retained
earnings in the equity section of the balance sheet. The changes to the
balances of accumulated other comprehensive income are as follows:

<TABLE>
<CAPTION>
Accumulated
Other
Unrealized Gain Cash Flow Comprehensive
on Securities Hedges Income (Loss)
--------------- --------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance--December 31, 1997........... $223 $ -- $ 223
Current period change................ 358 (677) (319)
---- ----- -----
Balance--December 31, 1998........... $581 $(677) $ (96)
==== ===== =====
</TABLE>

Per Share Data

Net income per share is stated in accordance with SFAS No. 128 "Earnings per
Share". Basic net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
net income per share is computed by dividing net income by the weighted
average number of common shares plus common equivalent shares outstanding
including dilutive stock options. All years presented include the effect of
the 2-for-1 stock split effective as of April 30, 1998.

The following table provides a reconciliation of the numerators and
denominators of the basic and diluted net income per share computations for
the years ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
For the year ended December 31,
1998
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(Dollars in thousands, except per
share amounts)
<S> <C> <C> <C>
Net income............................. $16,578
Basic net income per share:
Income available to common
shareholders........................ 16,578 9,485,000 $1.75
Effect of dilutive securities:
Stock options........................ -- 746,000 --
------- ---------- -----
Diluted net income per share:
Income available to common
shareholders and assumed
conversions......................... $16,578 10,231,000 $1.62
======= ========== =====
</TABLE>

A-33
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
For the year ended December 31,
1997
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(Dollars in thousands, except per
share amounts)
<S> <C> <C> <C>
Net income............................. $11,619
Basic net income per share:
Income available to common
shareholders........................ 11,619 9,196,000 $1.26
Effect of dilutive securities:
Stock options........................ -- 696,000 --
------- --------- -----
Diluted net income per share:
Income available to common
shareholders and assumed
conversions......................... $11,619 9,892,000 $1.17
======= ========= =====
<CAPTION>
For the year ended December 31,
1996
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
(Dollars in thousands, except per
share amounts)
<S> <C> <C> <C>
Net income............................. $ 6,348
Basic net income per share:
Income available to common
shareholders........................ 6,348 8,856,000 $0.72
Effect of dilutive securities:
Stock options........................ -- 587,000 --
------- --------- -----
Diluted net income per share:
Income available to common
shareholders and assumed
conversions......................... $ 6,348 9,443,000 $0.67
======= ========= =====
</TABLE>

There were options to purchase 51,000 shares that were considered anti-
dilutive whereby the options' exercise price was greater than the average
market price of the common shares, during the year ended December 31, 1998.
There were no options that were considered anti-dilutive during the years
ended December 31, 1997 and 1996.

Weighted average shares outstanding and all per share amounts included in
the consolidated financial statements and notes thereto are based upon the
increased number of shares giving retroactive effect to the 1996 merger with
Cupertino National Bancorp at a 0.81522 conversion ratio, the 1997 merger with
PBC at a 0.96550 conversion ratio and the 1998 mergers with PRB and PBFC at a
total of 950,748 and 298,000 shares, respectively.

Segment Information

In 1998, the Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131".) SFAS No. 131 supersedes
SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise",
replacing the "industry segment" approach with the "management" approach. The
management approach designates the internal organization that is used by
management for making operating decisions and assessing performance as the
source of the company's reportable segments. SFAS No. 131 also requires
disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect results of operations
or financial position but did affect the disclosure of segment information.

A-34
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 2--MERGERS

On August 31, 1998, PBFC, an asset-based specialty finance company merged
with and into the Company. Upon consummation of the merger, the outstanding
shares of PBFC were converted into an aggregate of 298,000 shares of the
Company's stock. The stock was issued to former PBFC shareholders, in a tax-
free exchange accounted for as a pooling-of-interests.

On May 8, 1998, PRB, the former holding company of Golden Gate, merged with
and into the Company. Upon consummation of the merger, the outstanding shares
of PRB were converted into an aggregate of 950,748 shares of the Company's
stock. The stock was issued to former PRB's sole shareholder in a tax-free
exchange accounted for as a pooling-of-interests.

On December 23, 1997, the Company consummated a merger with PBC. Pursuant to
terms of the merger agreement, the Company issued approximately 664,000 shares
(approximately 1,328,000 shares, as adjusted to reflect the 2-for-1 stock
split) of its common stock in exchange for the outstanding common stock of PBC
at an exchange ratio of 0.9655 of the Company's common stock for each share of
PBC's common stock. The merger was accounted for as a pooling-of-interests.

On November 27, 1996, the Company consummated a merger with Cupertino
National Bancorp. Pursuant to the terms of the merger agreement, the Company
issued approximately 1,586,000 shares (approximately 3,172,000 shares, as
adjusted for the 2-for-1 stock split) of its common stock in exchange for the
outstanding common stock of Cupertino National Bancorp at an exchange ratio of
0.81522 of the Company's common stock for each share of Cupertino National
Bancorp's common stock. The merger was accounted for as a pooling-of-
interests.

The following table sets forth the separate results of operations for
Greater Bay, PBC, PRB and PBFC for the periods indicated:

<TABLE>
<CAPTION>
Year ended December 31, Net Interest Income Net Income
----------------------- ------------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1997:
Greater Bay........................... $47,776 $10,013
PRB................................... 4,750 996
PBFC.................................. 1,942 610
------- -------
Combined............................ $54,468 $11,619
======= =======
1996:
Greater Bay........................... $28,824 $3,503
PBC................................... 6,149 1,835
PRB................................... 4,039 541
PBFC.................................. 1,492 469
------- -------
Combined............................ $40,504 $6,348
======= =======
</TABLE>

In all mergers, certain reclassifications were made to conform to the
Company's financial presentation. The results of operations previously
reported by the separate enterprises for the periods before the merger was
consummated and that are included in the current combined amounts presented in
the accompanying consolidated financial statements are summarized below.

A-35
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

The following table sets forth the composition of the operations of the
Company and PBFC, PRB and PBC for the periods indicated.

<TABLE>
<CAPTION>
PBFC PRB PBC
---------------- ------------------ ------------------
Six months ended Three months ended Nine months ended
June 30, 1998 March 31, 1998 September 30, 1997
---------------- ------------------ ------------------
(Dollars in thousands)
<S> <C> <C> <C>
Net interest income:
Greater Bay Bancorp... $30,077 $13,366 $27,922
Acquired entity....... 1,154 1,285 6,851
------- ------- -------
Combined............ $31,231 $14,651 $34,773
======= ======= =======
Provision for loan
losses:
Greater Bay Bancorp... $ 2,243 $ 866 $ 5,287
Acquired entity....... 100 70 105
------- ------- -------
Combined............ $ 2,343 $ 936 $ 5,392
======= ======= =======
Net income:
Greater Bay Bancorp... $ 6,628 $ 3,646 $ 6,097
Acquired entity....... 344 60 2,573
------- ------- -------
Combined............ $ 6,972 $ 3,706 $ 8,670
======= ======= =======
</TABLE>

The following table sets forth the composition of the combined operations of
Mid-Peninsula Bancorp and Cupertino National Bancorp for the period indicated.

<TABLE>
<CAPTION>
Nine months ended
September 30, 1996
----------------------
(Dollars in thousands)
<S> <C>
Net interest income:
Mid-Peninsula Bancorp............................... $ 8,878
Cupertino National Bancorp.......................... 11,487
-------
Combined.......................................... $20,365
=======
Provision for loan losses:
Mid-Peninsula Bancorp............................... $ 427
Cupertino National Bancorp.......................... 864
-------
Combined.......................................... $ 1,291
=======
Net income:
Mid-Peninsula Bancorp............................... $ 2,373
Cupertino National Bancorp.......................... 1,548
-------
Combined.......................................... $ 3,921
=======
</TABLE>

There were no significant transactions between the Company and PBFC, the
Company and PRB, the Company and PBC or between Mid-Peninsula Bancorp and
Cupertino National Bancorp prior to the mergers. All intercompany transactions
have been eliminated.

A-36
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 3--INVESTMENT SECURITIES

The amortized cost and estimated market value of investment securities is
summarized below:

<TABLE>
<CAPTION>
As of December 31, 1998
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations......... $ 4,408 $ 26 $ -- $ 4,434
U.S. agency notes................. 28,621 20 (2) 28,639
Mortgage-backed securities........ 152,987 988 (60) 153,915
Tax-exempt securities............. 32,952 563 -- 33,515
Corporate securities.............. 35,517 60 (597) 34,980
-------- ------ ----- --------
Total securities available for
sale........................... 254,485 1,657 (659) 255,483
-------- ------ ----- --------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations......... 1,764 2 (2) 1,764
U.S. agency notes................. 25,490 -- (58) 25,432
Mortgage-backed securities........ 27,961 86 (179) 27,868
Tax-exempt securities............. 25,942 725 (14) 26,653
-------- ------ ----- --------
Total securities held to
maturity....................... 81,157 813 (253) 81,717
-------- ------ ----- --------
Other securities.................. 5,654 -- -- 5,654
-------- ------ ----- --------
Total investment securities..... $341,296 $2,470 $(912) $342,854
======== ====== ===== ========
<CAPTION>
As of December 31, 1997
----------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
U.S. Treasury obligations......... $ 10,095 $ 52 $ (2) $ 10,145
U.S. agency notes................. 38,833 52 (63) 38,822
Mortgage-backed securities........ 102,432 357 (185) 102,604
Tax-exempt securities............. 7,018 199 (5) 7,212
Corporate securities.............. 7,568 62 -- 7,630
-------- ------ ----- --------
Total securities available for
sale........................... 165,946 722 (255) 166,413
-------- ------ ----- --------
HELD TO MATURITY SECURITIES:
U.S. Treasury obligations......... 501 1 -- 502
U.S. agency notes................. 17,798 182 (12) 17,968
Mortgage-backed securities........ 11,324 177 (2) 11,499
Tax-exempt securities............. 14,838 492 (53) 15,277
-------- ------ ----- --------
Total securities held to
maturity....................... 44,461 852 (67) 45,246
-------- ------ ----- --------
Other securities.................. 2,253 -- -- 2,253
-------- ------ ----- --------
Total investment securities..... $212,660 $1,574 $(322) $213,912
======== ====== ===== ========
</TABLE>

A-37
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

The following table shows amortized cost and estimated market value of the
Company's investment securities by year of maturity as of December 31, 1998.

<TABLE>
<CAPTION>
2000 2004
Through Through 2009 and
1999 2003 2008 Thereafter Total
------- ------- ------- ---------- --------
(Dollars in thousands) (1)
<S> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
SECURITIES:
U.S. Treasury obligations.. $ 4,308 $ 100 $ -- $ -- $ 4,408
U.S. agency notes (2)...... 15,829 -- 12,792 -- 28,621
Mortgage-backed securities
(3)....................... -- 3,033 8,941 141,013 152,987
Tax-exempt securities...... -- 1,601 4,561 26,790 32,952
Corporate securities....... 4,016 991 -- 30,510 35,517
------- ------- ------- -------- --------
Total securities
available for sale...... 24,153 5,725 26,294 198,313 254,485
======= ======= ======= ======== ========
Market value............... $24,197 $ 5,808 $26,601 $198,877 $255,483
======= ======= ======= ======== ========
HELD TO MATURITY
SECURITIES:
U.S. Treasury obligations.. 1,764 -- -- -- 1,764
U.S. agency notes (2)...... -- 23,990 1,500 -- 25,490
Mortgage-backed securities
(3)....................... -- -- 7,596 20,365 27,961
Tax-exempt securities...... 1,261 3,598 5,252 15,831 25,942
------- ------- ------- -------- --------
Total securities held to
maturity................ 3,025 27,588 14,348 36,196 81,157
======= ======= ======= ======== ========
Market value............... 3,034 27,613 7,528 43,542 81,717
======= ======= ======= ======== ========
COMBINED INVESTMENT
SECURITIES PORTFOLIO:
Total investment
securities................ $27,178 $33,313 $40,642 $234,509 $335,642
======= ======= ======= ======== ========
Total market value......... $27,231 $33,421 $34,129 $242,419 $337,200
======= ======= ======= ======== ========
Weighted average yield-
total portfolio........... 5.73% 5.74% 5.25% 6.84% 6.23%
</TABLE>
--------
(1) Other securities are comprised of equity investments and have no
stated maturity and therefore are excluded from this table.
(2) Certain notes issued by U.S. Agencies may be called, without
penalty, at the discretion of the issuer. This may cause the
actual maturities to differ significantly from the contractual
maturity dates.
(3) Mortgage-backed securities are shown at contractual maturity;
however, the average life of these mortgage-backed securities may
differ due to principal prepayments.

Investment securities with a carrying value of $104.2 million and $34.9
million were pledged to secure deposits, borrowings and for other purposes as
required by law or contract at December 31, 1998 and 1997, respectively.

Investments in the FRB and the FHLB are required in order to maintain
membership and support activity levels.

A-38
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

Proceeds and realized losses and gains on sales of investment securities for
the years ended December 31, 1998, 1997 and 1996 are presented below:

<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Proceeds from sale of available for sale
securities.................................... $195,863 $14,598 $31,430
Available for sale securities-gains (losses)
(1)........................................... $ 374 $ (5) $ (255)
</TABLE>
--------
(1) Includes $466,000 of charges in 1996 to conform accounting
practices, which is included in merger and other related
nonrecurring costs.

NOTE 4--LOANS AND ALLOWANCE FOR LOAN LOSSES

The following summarizes the activity in the allowance for loan losses for
the years ended December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, January 1................................ $16,394 $10,136 $ 6,683
Provision for loan losses (1)................... 6,218 8,137 3,394
Loan charge-offs................................ (1,420) (1,939) (586)
Recoveries...................................... 112 60 645
------- ------- -------
Balance, December 31.............................. $21,304 $16,394 $10,136
======= ======= =======
</TABLE>
--------
(1) Includes $183,000, $1.4 million and $800,000 of charges in 1998,
1997 and 1996, respectively, to conform accounting practices for
the Banks' reserve methodologies and is included in merger and
related nonrecurring costs in the consolidated statements of
operations.

The following table sets forth nonperforming loans as of December 31, 1998,
1997 and 1996. Nonperforming loans are defined as loans which are on
nonaccrual status, loans which have been restructured, and loans which are 90
days past due but are still accruing interest. Interest income foregone on
nonperforming loans outstanding at year end totaled $114,000, $479,000, and
$633,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Interest income recognized on the nonperforming loans approximated $80,000,
$206,000, and $508,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans.................................... $ 1,858 $ 2,971 $ 4,616
Accruing loans past due 90 days or more............. -- 158 1,237
Restructured loans.................................. 327 1,062 1,828
------- ------- -------
Total nonperforming loans........................... $ 2,185 $ 4,191 $ 7,681
======= ======= =======
</TABLE>

At December 31, 1998 and 1997, the recorded investment in loans, for which
impairment has been recognized in accordance with SFAS No. 114 and No. 118,
was approximately $1.9 million and $2.8 million, respectively, with
corresponding valuation allowances of $696,000 and $568,000, respectively. For
the years ended December 31, 1998 and 1997, the average recorded investment in
impaired loans was approximately $3.3 million and $4.4 million, respectively.
The Company did not recognize interest income on impaired loans during the
twelve months ended December 31, 1998, 1997 and 1996.

A-39
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

The Company had $327,000 and $1,062,000 of restructured loans as of December
31, 1998 and 1997, respectively. Principal reduction concessions totaling
$387,000 were permitted on restructured loans during the year ended December
31, 1997. There were no principal reduction concessions allowed on
restructured loans during 1998. Interest income from restructured loans
totaled $16,000, $82,000 and $317,000 for the years ended December 31, 1998,
1997 and 1996. Foregone interest income, which totaled $11,000, $10,000 and
$8,000 for the years ended December 31, 1998, 1997 and 1996 would have been
recorded as interest income if the loans had accrued interest in accordance
with their original terms prior to the restructurings.

NOTE 5--OTHER REAL ESTATE OWNED

At December 31, 1998 and 1997, other real estate owned ("OREO") consisted of
properties acquired through foreclosure with a carrying value of $966,000 and
$1.3 million, respectively. These balances are included in interest receivable
and other assets in the accompanying consolidated balance sheets. There was no
allowance for estimated losses.

The following summarizes OREO operations, which are included in operating
expenses, for the years ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate operations, net...................... $ 77 $ 247 $ 190
Gain on sale of other real estate owned.......... (1) (124) (15)
Provision for estimated losses................... -- 54 --
------- -------- -------
Net loss from other real estate operations....... $ 76 $ 177 $ 175
======= ======== =======
</TABLE>

NOTE 6--PROPERTY, PREMISES AND EQUIPMENT

Property, premises and equipment at December 31, 1998 and 1997 are composed
of the following:

<TABLE>
<CAPTION>
1998 1997
------- -------
(Dollars
in thousands)
<S> <C> <C>
Land....................................................... $ 417 $ 417
Building and premises...................................... 1,561 1,377
Leasehold improvements..................................... 4,703 4,771
Furniture and equipment.................................... 9,794 7,951
Automobiles................................................ 124 123
------- -------
Total.................................................... 16,599 14,639
Accumulated depreciation and amortization.................. (5,638) (6,141)
------- -------
Premises and equipment, net.............................. $10,961 $ 8,498
======= =======
</TABLE>

Depreciation and amortization amounted to $2.1 million, $1.9 million and
$1.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively, and have been included in occupancy and equipment expense in the
accompanying consolidated statements of operations.

A-40
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 7--DEPOSITS

Deposits as of December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
---------- ----------
(Dollars
in thousands)
<S> <C> <C>
Demand, noninterest-bearing........................... $ 268,448 $ 219,495
MMDA, NOW and Savings................................. 854,392 627,475
Time certificates, $100,000 and over.................. 168,075 183,147
Other time certificates............................... 51,577 41,031
---------- ----------
Total deposits...................................... $1,342,492 $1,071,148
========== ==========
</TABLE>

The following table sets forth the maturity distribution of time
certificates of deposit at December 31, 1998.

<TABLE>
<CAPTION>
December 31, 1998
-------------------------------------------------------------
Seven to One to More
Three months Four to six twelve three than
or less months months years three years Total
------------ ----------- -------- ------ ----------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits, $100,000
and over............... $123,309 $27,502 $13,930 $3,334 $-- $168,075
Other time deposits..... 25,231 11,717 10,222 4,375 32 51,577
-------- ------- ------- ------ ---- --------
Total................. $148,540 $39,219 $24,152 $7,709 $ 32 $219,652
======== ======= ======= ====== ==== ========
</TABLE>

At December 31, 1998 and 1997, the Company held $89.6 million and $88.1
million, respectively from a single depositor. Due to the uncertainty of the
time the deposit will remain outstanding, management has invested a
significant portion in agency securities with maturities of less than 90 days.

NOTE 8--COMPANY OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED
SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES

GBB Capital I and GBB Capital II (the "Trusts") are Delaware business trusts
wholly-owned by Greater Bay and were formed for the purpose of issuing Company
Obligated Manditorily Redeemable Preferred Securities of Subsidiary Trusts
Holding Soley Junior Subordinated Debentures ("TPS"). The TPS are individually
described below. Interest on the TPS are payable quarterly and is deferrable,
at the option of the Company, for up to five years. Following the issuance of
each TPS, the Trusts used the proceeds from the TPS offerings to purchase a
like amount of Junior Subordinated Deferrable Interest Debentures (the
"Debentures") of Greater Bay. The Debentures bear the same terms and interest
rates as the related TPS. The Debentures are the sole assets of the Trusts and
are eliminated, along with the related income statement effects, in the
consolidated financial statements. Greater Bay has fully and unconditionally
guaranteed all of the obligations of the Trusts. Under applicable regulatory
guidelines, a portion of the TPS will qualify as Tier I capital, and the
remaining portion will qualify as Tier II capital.

On March 30, 1997, GBB Capital I completed a public offering of 800,000
shares of 9.75% Cumulative Trust Preferred Securities ("TPS I") in an
aggregate amount of $20.0 million. The TPS I accrue interest at an annual rate
of 9.75% on the $20.0 million liquidation amount of $25 per share of TPS I.
The TPS I are mandatorily redeemable, in whole or in part, upon repayment of
the Debentures at their stated maturity of April 1, 2027 or their earlier
redemption. The Debentures are redeemable prior to maturity at the option of
the Company, on or after April 1, 2002, in whole at any time or in part from
time to time.

A-41
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

On August 12, 1998, GBB Capital II completed an offering of 30,000 shares of
Floating Rate Trust Preferred Securities, Series A ("the Series A Securities")
in an aggregate amount of $30.0 million. The Series A Securities issued in the
offering were sold in a private transaction pursuant to an applicable
exemption from registration under the Securities Act. In November 1998, the
Company, through GBB Capital II, completed an offer to exchange the Series A
Securities for a like amount of its registered Floating Rate Trust Preferred
Securities, Series B ("TPS II"). The exchange offer was conducted in
accordance with the terms of the initial issuance of the Series A Securities.
The TPS II accrue interest at a variable rate of interest, initially at
7.1875%, on the liquidation amount of $1,000 per share of TPS II. The interest
rate resets quarterly and is equal to 3-month LIBOR plus 150 basis points. As
part of this transaction, the Company concurrently entered into an interest
rate swap to fix the cost of the offering at 7.55% for 10 years (see note 10).
The TPS II are mandatorily redeemable, in whole or in part, upon repayment of
the Debentures at their stated maturity of September 15, 2028 or their earlier
redemption. The Debentures are redeemable prior to maturity at the option of
the Company, on or after September 15, 2008, in whole at any time or in part
from time to time.

The total amount of TPS outstanding at December 31, 1998 and 1997 was $50.0
million and $20.0 million, respectively and the dividends paid on TPS was $2.8
million and $1.5 million in 1998 and 1997, respectively.

NOTE 9--BORROWINGS

Other borrowings are detailed as follows:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Other borrowings:
Short term borrowings:
Securities sold under agreements to
repurchase.................................... $ -- $ 19,480
Other short term notes payable................. 135 2,675
Advances under credit line..................... -- 7,750
----------- -----------
Total short term borrowings.................. 135 29,905
----------- -----------
Long term borrowings:
Securities sold under agreements to repurchase... 50,000 --
FHLB advances.................................... 20,000 --
Promissory notes................................. 2,450 2,450
----------- -----------
Total other long term borrowings............. 72,450 2,450
----------- -----------
Total other borrowings............................. $ 72,585 $ 32,355
=========== ===========
Subordinated notes, due September 15, 2005......... $ 3,000 $ 3,000
----------- -----------
Total subordinated debt............................ $ 3,000 $ 3,000
=========== ===========
</TABLE>

During the years ended December 31, 1998 and 1997, the average balance of
securities sold under short term agreements to repurchase was $11,648,000 and
$5,278,000, respectively, and the average interest rates during those periods
were 5.35% and 5.71%, respectively. Securities sold under short term
agreements to repurchase generally mature within 90 days of dates of purchase.
The maximum outstanding at any month end was $30.2 million and $19.5 million
for the years ended December 31, 1998 and 1997 respectively.

During the years ended December 31, 1998 and 1997, the average balance of
federal funds purchased was $293,000 and $1,523,000, respectively, and the
average interest rates during those periods were 5.53% and 5.32%,

A-42
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

respectively. There were no such balances outstanding at December 31, 1998 or
1997. The maximum amount outstanding at any month end was $0 and $9.2 million
for the years ended December 31, 1998 and 1997 respectively.

The Company has sold securities under long term agreements to repurchase
which mature in the year 2003 and have an average interest rate of 5.21%. The
counterparties to these agreements have put options which give them the right
to demand early repayment. As of December 31, 1998, $40.0 million of these
borrowings are subject to early repayment beginning in 1999 and $10.0 million
are subject to early repayment beginning in 2000.

The FHLB advances will mature in the year 2003 and have an average interest
rate of 5.13%. The advances are collateralized by securities pledge to the
FHLB. Under the terms of the advances, the FHLB has a put option which gives
it the right to demand early repayment beginning in 1999.

The promissory notes, which bear an interest rate of 13.76% and will mature
April 15, 2000, were offered to PBFC's officers along with other accredited
investors within the definition of Rule 501 under the Securities Act of 1933,
as amended. The notes are redeemable by the Company at any time.

The subordinated notes, which will mature on September 15, 2005, were
offered to members of Cupertino National Bank's Board of Directors and bank
officers along with other accredited investors within the definition of Rule
501 under the Securities Act of 1933, as amended. The notes bear an interest
rate of 11.5%. The notes are redeemable by the Company any time after
September 30, 1998 at a premium ranging from 0% to 5%. The notes qualify as
Tier 2 capital for the Company.

NOTE 10--DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company currently uses a single interest-rate swap to convert its
floating-rate debt (the TPS II) to fixed rates. This swap was entered into
concurrently with the issuance of the debt being hedged. This swap is
accounted for as a cash flow hedge under SFAS No. 133. This swap possesses a
term equal to the non-callable term of the debt, with a fixed pay rate and a
receive rate indexed to rates paid on the debt and a notional amount equal to
the amount of the debt being hedged. As the specific terms and notional amount
of the swap exactly match those of the debt being hedged the Company meets the
"no ineffectiveness" criteria of SFAS No. 133. As such the swap is assumed to
be 100% effective and all changes in the market value of the hedge are
recorded in other comprehensive income with no impact on the income statement
for any ineffective portion. As of December 31, 1998, the unrealized loss on
the cash flow hedge was $677,000, net of income taxes, which was included in
the balance of accumulated other comprehensive income. The floating rate TPS
II combined with the cash flow hedge created a synthetic fixed rate debt
instrument. The unrealized loss on the cash flow hedge approximated the
unrealized loss the Company would have incurred if it had issued a fixed rate
debt instrument. Under current accounting practices, as required by SFAS No.
133, the Company was required to record the unrealized loss on the synthetic
fixed rate debt instrument, but it would not have been required to record an
unrealized loss if it had issued fixed rate debt.

The notional amount of the swap is $30.0 million with a term of 10 years
expiring on September 15, 2008. The Company intends to use the swap as a hedge
of the related debt for 10 years. The periodic settlement date of the swap
results in the reclassifying as earnings the gains or losses that are reported
in accumulated comprehensive income. For the year ended December 31, 1998 the
Company recognized a net settlement expense of $55,000 for the swap. The
estimated net amount of the existing losses at December 31, 1998 that is
expected to be reclassified as earnings within the next twelve months,
assuming no change in interest rates, would be approximately $147,000, net of
taxes. For the years ended December 31, 1997 and 1996, the Company did not
have any derivative instruments.

The Company minimizes the credit (or repayment) risk in derivative
instruments by entering into transactions with high-quality counterparties
that are reviewed periodically by the Company's credit committee.

A-43
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 11--INCOME TAXES

Income tax expense was comprised of the following for the years ended
December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Current:
Federal......................................... $ 7,537 $ 8,248 $ 4,276
State........................................... 2,721 2,426 1,084
------- ------- -------
Total current................................. 10,258 10,674 5,360
Deferred:
Federal......................................... (2,255) (3,243) (1,244)
State........................................... (627) (957) (138)
------- ------- -------
Total deferred................................ (2,882) (4,200) (1,382)
------- ------- -------
Total expense................................. $ 7,376 $ 6,474 $ 3,978
======= ======= =======
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. The tax effects of
temporary differences that gave rise to significant portions of the deferred
tax assets and liabilities at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
Years Ended
December 31,
---------------
1998 1997
------- ------
(Dollars in
thousands)
<S> <C> <C>
Loan loss reserves.......................................... $ 7,301 $5,061
State income taxes.......................................... 2,276 1,943
Deferred compensation....................................... 1,380 997
Net operating losses........................................ 167 336
Unrealized gains............................................ 70 (247)
Purchase accounting adjustments............................. 22 72
Accumulated depreciation.................................... 5 61
Other....................................................... (237) (445)
------- ------
Net deferred tax asset.................................... $10,984 $7,778
======= ======
</TABLE>

Management believes that the Company will fully realize its total deferred
income tax assets as of December 31, 1998 based upon the Company's recoverable
taxes from prior carryback years, its total deferred income tax liabilities
and its current level of operating income.

At December 31, 1998, the Company had a federal tax net operating loss
carryforward of approximately $478,000 expiring in years 2010, 2011, and 2012.

Under provisions of the United States income tax laws these loss carryovers
are subject to limitation due to the acquisition of Pacific Rim Bancorporation
in 1998. Management does not believe that these limitations will prevent the
realization of the benefit of the loss carryovers during the carryover
periods.

A-44
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

A reconciliation from the statutory income tax rate to the consolidated
effective income tax rate follows, for the years ended December 31, 1998, 1997
and 1996:

<TABLE>
<CAPTION>
Years Ended
December 31,
------------------
1998 1997 1996
---- ---- ----
(Dollars in
thousands)
<S> <C> <C> <C>
Statutory federal tax rate............................ 35.0% 35.0% 35.0%
California franchise tax expense, net of federal
income tax benefit................................... 5.7% 6.2% 7.1%
Tax exempt income..................................... (2.6)% (2.0)% (4.2)%
Nondeductible merger costs, net....................... (0.4)% 0.0% 2.6%
Contribution of appreciated securities................ (2.0)% 0.0% 0.0%
Other, net............................................ (4.9)% (3.4)% (2.0)%
---- ---- ----
Effective income tax rate........................... 30.8% 35.8% 38.5%
==== ==== ====
</TABLE>

NOTE 12--OPERATING EXPENSES

Merger and other related nonrecurring costs for the years ended December 31,
1998, 1997 and 1996 were comprised of the following:

<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(Dollars in
thousands)
<S> <C> <C> <C>
Financial advisory and professional fees............... $1,101 $1,083 $1,000
Charges to conform accounting practices................ 183 1,350 1,266
Other costs............................................ 1,377 900 525
------ ------ ------
Total................................................ $2,661 $3,333 $2,791
====== ====== ======
</TABLE>

Other costs include severance and other compensation expenses, charges for
the write-off of assets retired as a result of the merger, and other expenses
including printing costs and filing fees.

In July 1995, the Company settled a lawsuit of $1.1 million, net of tax. The
Company recovered those losses through insurance coverage for this settlement
in 1997. However, due to the uncertainty associated with the recovery, the
Company reflected the settlement expense as a charge to 1995 earnings, and the
associated recovery in 1997 as a recovery to earnings.

Other expenses for the years ended December 31, 1998, 1997 and 1996 were
comprised of the following:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(Dollars in
thousands)
<S> <C> <C> <C>
Telephone, postage and supplies....................... $ 1,775 $1,383 $1,163
Legal and other professional fees..................... 1,597 1,808 1,730
Marketing and promotion............................... 1,203 1,237 989
Directors fees........................................ 559 657 515
Client services....................................... 544 444 462
Data processing....................................... 430 478 514
Insurance............................................. 339 313 225
FDIC insurance and regulatory assessments............. 338 285 148
Other real estate owned............................... 76 177 175
Other................................................. 2,919 1,980 2,318
------- ------ ------
9,780 8,762 8,239
Contribution to GBB Foundation........................ 1,341 -- --
------- ------ ------
Total............................................... $11,121 $8,762 $8,239
======= ====== ======
</TABLE>

A-45
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 13--EMPLOYEE BENEFIT PLANS

Stock Option Plan

On November 19, 1997, the Company's shareholders approved an amendment of
the Greater Bay Bancorp 1996 Stock Option Plan (the "Bancorp Plan"), to
increase by 912,652 the number of shares of Greater Bay stock issuable under
the Bancorp Plan. This was done to accommodate the increased number of
eligible employees as a result of the merger with PBC.

Effective November 27, 1996, the Company's shareholders approved the
original Bancorp Plan and authorized an increase in the number of shares
previously available for issuance under the Mid-Peninsula Bancorp Plan from
914,074 to 1,503,128 shares to accommodate the merger of Mid-Peninsula Bancorp
and Cupertino National Bancorp. Under the terms of the merger, all stock
option plans of Cupertino National Bancorp and Mid-Peninsula Bancorp were
terminated at the time of the merger and all outstanding options from these
plans were assumed by the Bancorp Plan. Outstanding options from the Mid-
Peninsula Bancorp plan of 432,652 and outstanding options from the Cupertino
National Bancorp plan of 502,146 (converted at a ratio of 0.81522) were
assumed by the Bancorp Plan.

Options issued under the Bancorp Plan may be granted to employees and
nonemployee directors and may be either incentive or nonqualified stock
options as defined under current tax laws. The exercise price of each option
must equal the market price of the Company's stock on the date of grant. The
term of an option may not exceed 10 years and generally vest over a five year
period.

At December 31, 1998 the total authorized shares issuable under the Bancorp
Plan was approximately 2,260,000 shares and the number of shares available for
future grants was approximately 715,000 shares.

All shares amounts have been restated to reflect the 2-for-1 stock split
declared for shareholders of record as of April 30, 1998.

Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under the
provisions of SFAS No. 123, the Company is encouraged, but not required, to
measure compensation costs related to its employee stock compensation plans
under the fair market value method. If the Company elects not to recognize
compensation expense under this method, it is required to disclose the pro
forma net income and net income per share effects based on the SFAS No. 123
fair value methodology. The Company implemented the requirements of SFAS No.
123 in 1996 and has elected to adopt the disclosure provisions of this
statement.

A-46
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

At December 31, 1998, the Company had one stock option plan, which is
described above. The Company applies Accounting Principles Board ("APB")
Opinion No. 25 and related interpretations in accounting the Bancorp Plan.
Accordingly, no compensation cost has been recognized for its stock option
plan. Had compensation for the Company's stock option plan been determined
consistent with SFAS No. 123, the Company's net income per share would have
been reduced to the pro forma amounts indicated below (the following reflects
the impact of the 2-for-1 stock split):

<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(Dollars in thousands,
except per share amounts)
<S> <C> <C> <C>
Net Income:
As reported..................................... $ 16,578 $ 11,619 $ 6,348
Pro forma....................................... $ 15,778 $ 11,210 $ 6,107
Basic net income per share
As reported..................................... $ 1.75 $ 1.26 $ 0.72
Pro forma....................................... $ 1.66 $ 1.22 $ 0.69
Diluted net income per share
As reported..................................... $ 1.62 $ 1.17 $ 0.67
Pro forma....................................... $ 1.54 $ 1.13 $ 0.65
</TABLE>

The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1998, 1997 and 1996, respectively; dividend
yield of 1.75%, 1.8% and 2.0%; expected volatility of 39.84%, 22.9% and 19.3%;
risk free rates of 4.54%, 6.3% and 6.0%. No adjustments have been made for
forfeitures. The actual value, if any, that the option holder will realize
from these options will depend solely on the increase in the stock price over
the option price when the options are exercised.

A summary of the Company's stock option plan as of December 31, 1998, 1997,
and 1996 and changes during the years ended on those dates is presented below
(as adjusted for the 2 for 1 stock split):

<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
Weighted Weighted Weighted
Shares Average Shares Average Shares Average
(000's) Exercise Price (000's) Exercise Price (000's) Exercise Price
------- -------------- ------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,390 $11.27 1,316 $ 7.62 1,242 $ 5.46
Granted................. 558 31.29 312 24.11 482 10.12
Exercised............... (241) 7.15 (217) 4.92 (376) 3.95
Forfeited............... (65) 16.39 (21) 5.27 (32) 6.03
----- ------ ----- ------ ----- ------
Outstanding at end of
year................... 1,642 17.83 1,390 11.27 1,316 7.62
===== ====== ===== ====== ===== ======
Options exercisable at
year-end............... 676 8.63 750 6.97 624 6.32
===== ====== ===== ====== ===== ======
Weighted average fair
value of options
granted during the
year................... $11.63 $ 6.31 $ 2.87
====== ====== ======
</TABLE>

A-47
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

The following table summarizes information about stock options outstanding
at December 31, 1998 (as adjusted for the 2-for-1 stock split).

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ----------------------------
Number Number
Exercise Outstanding Weighted Average Weighted Average Exercisable Weighted Average
Price Range (000's) Exercise Price Remaining Life (years) (000's) Exercise Price
------------- ----------- ---------------- ---------------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 3.06-$ 4.68 71 $ 3.75 1.4 71 $ 3.75
$ 4.86-$ 9.38 512 6.78 5.7 426 6.57
$10.88-$17.00 221 11.34 7.8 121 11.49
$17.13-$25.00 286 24.26 9.0 58 24.27
$25.38-$30.00 78 27.85 9.4 -- --
$31.50-$38.50 474 33.61 9.9 -- --
</TABLE>

401(k) Savings Plan

The Company has a 401(k) tax deferred savings plan under which eligible
employees may elect to defer a portion of their salary (up to 15%) as a
contribution to the plan. The Company matches the employees contributions at a
rate set by the Board of Directors (currently 62.5% of the first 8% of
deferral of an individual's total compensation). The matching contribution
vests ratably over the first four years of employment. The Company has merged
the 401(k) plans of PBC and Golden Gate into the Company's plan.

For the years ended December 31, 1998, 1997 and 1996, the Company
contributed $812,000, $672,000 and $379,000, respectively to the 401(k) plans.

Employee Stock Purchase Plan

The Company has established an Employee Stock Purchase Plan, as amended,
under section 423(b) of the Internal Revenue Code which allows eligible
employees to set aside up to 15% of their compensation toward the purchase of
the Company's stock for an aggregate total of 267,868 shares. Under the plan
the purchase price is 85% of the lower of the fair market value at the
beginning or end of each three month offering period. During 1998, employees
purchased 29,670 shares of common stock for an aggregate purchase price of
$656,000 compared to the purchase of 30,320 shares of common stock for an
aggregate purchase price of $347,000 in 1997 and 21,264 shares of common stock
for an aggregate purchase price of $137,000 in 1996. There were 104,646 shares
remaining in the plan available for purchase by employees at December 31,
1998.

All shares amounts have been restated to reflect the 2-for-1 stock split
declared to shareholders of record as of April 30, 1998.

Supplemental Employee Compensation Benefits Agreements

The Company has entered into supplemental employee compensation benefits
agreements with certain executive and senior officers. Under these agreements,
the Company is generally obligated to provide for each such employee or their
beneficiaries, during a period of up to 15 to 20 years after the employee's
death, disability or retirement, annual benefits as defined in each specific
agreement. The estimated present value of future benefits to be paid is being
accrued over the vesting period of the participants. Expenses accrued for this
plan for the years ended December 31, 1998, 1997 and 1996 totaled $540,000,
$503,000 and $310,000, respectively. The related accumulated accrued liability
of at December 31, 1998 is approximately $2.2 million. Depending on the
agreement, the Company and the employees are beneficiaries of life insurance
policies that have been purchased as a method of financing the benefits under
the agreements. At December 31, 1998 and 1997, the Company's cash surrender
value of these policies was approximately $32.0 million and $9.4 million,
respectively and is included in other assets.

A-48
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

Deferred Compensation Plan

Effective November 19, 1997, the Company adopted the Greater Bay Bancorp
1997 Elective Deferral Compensation Plan (the "Deferred Plan") that allows
eligible officers and directors of the Company to defer a portion of their
bonuses, director fees and other compensation. The deferred compensation will
earn interest calculated annually based on a short-term interest reference
rate. All participants are fully vested at all times in their contributions to
the Deferred Plan. At December 31, 1998, $834,000 of deferred compensation
under this plan is included in other liabilities in the accompanying
consolidated balance sheets.

Additionally, under deferred compensation agreements that were established
at PBC prior to its merger with the Company, there was approximately $1.1
million of deferred compensation which is included in other liabilities.

Change of Control

In the event of a change in control, the supplemental employee compensation
benefits agreements with certain executive and senior officers may require
payments to be made by the Company that are currently not recognized in the
accompanying consolidated financial statements.

NOTE 14--RELATED PARTY TRANSACTIONS

Loans made to executive officers, directors and their affiliates, are made
subject to approval by the Directors' Loan Committee and the Board of
Directors. An analysis of total loans to related parties for the years ended
December 31, 1998 and 1997 is shown below:

<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Dollars in thousands)
<S> <C> <C>
Balance, January 1.................................. $ 16,309 $ 10,374
Additions........................................... 32,729 15,658
Repayments.......................................... (12,376) (9,723)
----------- ----------
Balance, December 31................................ $ 36,662 $ 16,309
=========== ==========
Undisbursed commitments, at year end................ $ 5,707 $ 8,296
=========== ==========
</TABLE>

NOTE 15--COMMITMENTS AND CONTINGENT LIABILITIES

Lease Commitments

The Company leases certain facilities at which it conducts its operations.
Future minimum lease commitments under all noncancelable operating leases as
of December 31, 1998 are below:

<TABLE>
<CAPTION>
Years Ended
December 31,
------------
(Dollars in
thousands)
<S> <C>
1999............................................................ $ 3,515
2000............................................................ 3,597
2001............................................................ 3,629
2002............................................................ 3,152
2003............................................................ 1,871
Thereafter...................................................... 8,864
-------
Total......................................................... $24,628
=======
</TABLE>

A-49
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

The Company subleases that portion of the available space that is not
utilized. Sublease rental income for the years ended December 31, 1998, 1997,
and 1996 was $607,000, $882,000, and $309,000, respectively. Gross rental
expense for the years ended December 31, 1998, 1997, and 1996 was $3.0
million, $2.8 million, and $2.0 million, respectively.

Other Commitments and Contingent Liabilities

In the normal course of business, various commitments and contingent
liabilities are outstanding, such as guarantees and commitments to extend
credit, that are not reflected in the accompanying consolidated financial
statements. Commitments to fund loans were $488.1 million and $332.9 million
and standby letters of credit were $16.3 million and $15.1 million, at
December 31, 1998 and 1997, respectively. The Company's exposure to credit
loss is limited to amounts funded or drawn; however, at December 31, 1998, no
losses are anticipated as a result of these commitments.

Loan commitments which have fixed expiration dates and require the payment
of a fee are typically contingent upon the borrower meeting certain financial
and other covenants. Approximately $xx million of these commitments relate to
real estate construction and land loans and are expected to fund within the
next 12 months. However, the remainder relates primarily to revolving lines of
credit or other commercial loans, and many of these commitments are expected
to expire without being drawn upon, therefore the total commitments do not
necessarily represent future cash requirements. The Banks evaluate each
potential borrower and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank deposits, debt or
equity securities, or business assets.

Stand-by letters of credit are conditional commitments written by the Banks
to guarantee the performance of a client to a third party. These guarantees
are issued primarily related to purchases of inventory by the Banks'
commercial clients, and are typically short-term in nature. Credit risk is
similar to that involved in extending loan commitments to clients, and the
Banks accordingly use evaluation and collateral requirements similar to those
for loan commitments.

In the ordinary course of business there are various assertions, claims and
legal proceedings pending against the Company. Management is of the opinion
that the ultimate resolution of these proceedings will not have a material
adverse effect on the consolidated financial position or results of operations
of the Company.

NOTE 16--SHAREHOLDERS' RIGHTS PLAN

In 1998 Greater Bay adopted a shareholder rights plan designed to maximize
the long-term value of the Company and to protect the Company's shareholders
from improper takeover tactics and takeover bids that are not fair to all
shareholders.

In accordance with the plan, preferred share purchase rights were
distributed as a dividend at the rate of one right for each common share held
of record as of the close of business on November 28, 1998. The rights, which
are not immediately exercisable, entitle the holders to purchase one one-
hundredth of a share of Series A Preferred Stock at a price of $145.00 upon
the occurrence of certain triggering events. In the event of an acquisition
not approved by the Board, each right enables its holder (other than the
acquirer) to purchase the Preferred Stock at 50% of the market price. Further,
in the event the Company is acquired in an unwanted merger or business
combination, each right enables the holder to purchase shares of the acquiring
entity at a similar discount. Under certain circumstances, the rights may be
exchanged for common shares of the Company. The Board may, in its sole
discretion, redeem the rights at any time prior to any of the triggering
events.

The rights can be exercised and separate rights certificates distributed
only if any of the following events occur: acquisition by a person of 10% or
more of the Company's common share; a tender offer for 10% or more of the

A-50
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

Company's common shares; or ownership of 10% or more of the Company's common
shares by a shareholder whose actions are likely to have a material adverse
impact on the Company or shareholder interests. The rights will initially
trade automatically with the common shares. The rights are not deemed by the
Board of Directors to be presently exercisable.

NOTE 17--REGULATORY MATTERS

The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines and regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
The Banks' 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 Banks to maintain minimum capital amounts and ratios (as defined
in the regulations) and are set forth in the table below. At December 31, 1998
and 1997 the Company and the Banks met all capital adequacy requirements to
which they are subject.

As of December 31, 1998, the most recent notification from the regulators
categorized the Company and the Banks as well-capitalized under the regulatory
framework for prompt corrective action. To be categorized as well-capitalized,
the Company and the Banks must maintain minimum total risk-based, Tier 1 risk-
based and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since that determination that management believes
have changed the institution's category. The Company and the Bank's actual
1998 and 1997 capital amounts and ratios are as follows:

A-51
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
As of December 31, 1998
--------------------------------------------
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
-------------- ------------- -------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (To Risk Weighted
Assets):
Greater Bay Bancorp........... $161,103 12.94% $99,627 8.00% N/A
Cupertino National Bank....... 59,224 10.12 46,822 8.00 $58,527 10.00%
Golden Gate Bank.............. 10,194 11.01 7,406 8.00 9,257 10.00
Mid-Peninsula Bank............ 47,111 11.51 32,747 8.00 40,934 10.00
Peninsula Bank of Commerce.... 18,256 12.37 11,809 8.00 14,761 10.00
Tier 1 Capital (To Risk Weighted
Assets):
Greater Bay Bancorp........... $123,287 9.90% $49,813 4.00% N/A
Cupertino National Bank....... 48,845 8.35 23,411 4.00 $35,116 6.00%
Golden Gate Bank.............. 9,036 9.76 3,703 4.00 5,554 6.00
Mid-Peninsula Bank............ 41,990 10.26 16,373 4.00 24,560 6.00
Peninsula Bank of Commerce.... 16,408 11.12 5,904 4.00 8,857 6.00
Tier 1 Capital/Leverage (To
Average Assets):
Greater Bay Bancorp........... $123,287 7.81% $63,132 4.00% N/A
Cupertino National Bank....... 48,845 7.47 26,138 4.00 $32,673 5.00%
Golden Gate Bank.............. 9,036 6.89 5,243 4.00 6,554 5.00
Mid-Peninsula Bank............ 41,990 7.91 15,927 3.00 26,544 5.00
Peninsula Bank of Commerce.... 16,408 6.93 9,759 4.00 12,198 5.00
<CAPTION>
As of December 31, 1997
--------------------------------------------
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
-------------- ------------- -------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- ------- ----- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (To Risk Weighted
Assets):
Greater Bay Bancorp........... $110,595 12.31% $71,882 8.00% N/A
Cupertino National Bank....... 40,201 10.03 32,118 8.00 $40,147 10.00%
Golden Gate Bank.............. 9,408 12.80 5,878 8.00 7,347 10.00
Mid-Peninsula Bank............ 34,727 11.88 23,416 8.00 29,269 10.00
Peninsula Bank of Commerce.... 15,252 14.33 8,525 8.00 10,657 10.00
Tier 1 Capital (To Risk Weighted
Assets):
Greater Bay Bancorp........... $ 96,316 10.72% $35,941 4.00% N/A
Cupertino National Bank....... 32,126 8.02 16,059 4.00 $24,088 6.00%
Golden Gate Bank.............. 8,523 11.60 2,939 4.00 4,408 6.00
Mid-Peninsula Bank............ 31,064 10.63 11,708 4.00 17,562 6.00
Peninsula Bank of Commerce.... 13,917 13.08 4,263 4.00 6,394 6.00
Tier 1 Capital/Leverage (To
Average Assets):
Greater Bay Bancorp........... $ 96,316 8.40% $45,873 4.00% N/A
Cupertino National Bank....... 32,126 7.08 18,189 4.00 $22,737 5.00%
Golden Gate Bank.............. 8,523 9.30 3,666 4.00 4,582 5.00
Mid-Peninsula Bank............ 31,064 8.54 10,935 3.00 18,225 5.00
Peninsula Bank of Commerce.... 13,917 6.65 8,401 4.00 10,501 5.00
</TABLE>

A-52
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 18--RESTRICTIONS ON SUBSIDIARY TRANSACTIONS

Total dividends which may be declared by the Banks without receiving prior
approval from regulatory authorities are limited to the lesser of the Banks'
retained earnings or the net income of the Banks for the latest three fiscal
years, less dividends previously declared during that period.

The Banks are subject to certain restrictions under the Federal Reserve Act,
including restrictions on the extension of credit to affiliates. In
particular, the Banks are prohibited from lending to Greater Bay unless the
loans are secured by specified types of collateral. Such secured loans and
other advances from the Banks are limited to 10% of the Bank's shareholders'
equity, or a maximum of $9.3 million at December 31, 1998. No such advances
were made during 1998 or exist as of December 31, 1998.

NOTE 19--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS

The financial statements of Greater Bay Bancorp (parent company only) are
presented below:

Parent Company Only--Balance Sheets

<TABLE>
<CAPTION>
December 31,
------------------
1998 1997*
-------- --------
(Dollars
in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents................................ $ 5,284 $ 4,804
Investment in subsidiaries............................... 118,601 86,592
Other investments........................................ 17,936 5,717
Subordinated debentures issued by subsidiary............. 3,000 3,000
Other assets............................................. 8,834 3,198
-------- --------
Total assets......................................... $153,655 $103,311
======== ========
Liabilities and shareholders' equity:
Subordinated debt........................................ $ 54,547 $ 23,618
Other liabilities........................................ 6,432 3,153
-------- --------
Total liabilities........................................ 60,979 26,771
Shareholders' equity:
Common stock........................................... 57,283 52,269
Accumulated other comprehensive income................. (96) 223
Retained earnings...................................... 35,489 24,048
-------- --------
Total shareholders' equity........................... 92,676 76,540
-------- --------
Total liabilities and shareholders' equity........... $153,655 $103,311
======== ========
</TABLE>
--------
* Restated on a historical basis to reflect the mergers with Pacific Rim
Bancorporation and Pacific Business Funding Corporation.

A-53
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

Parent Company Only--Income Statements

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1998 1997* 1996*
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Income:
Interest income............................. $ 969 $ 389 $ 531
Other income................................ 47 27 142
-------- -------- -------
Total..................................... 1,016 416 673
-------- -------- -------
Provision for loan losses..................... -- -- 113
Expenses:
Interest expense............................ 3,195 1,458 --
Salaries.................................... 8,908 5,978 135
Occupancy and equipment..................... 1,966 1,154 461
Other expenses.............................. 5,242 2,532 1,651
Less: rentals and fees received from Banks.. (15,866) (10,201) (460)
-------- -------- -------
Total..................................... 3,445 921 1,787
-------- -------- -------
Loss before taxes and equity in undistributed
net income of subsidiaries................... (2,429) (505) (1,227)
Income tax expense............................ (1,616) (249) 21
-------- -------- -------
Income (loss) before equity in undistributed
net income of subsidiaries................... (813) (256) (1,248)
-------- -------- -------
Equity in undistributed net income of
subsidiaries................................. 17,391 11,875 7,596
-------- -------- -------
Net income.................................... $ 16,578 $ 11,619 $ 6,348
======== ======== =======
</TABLE>
- --------
* Restated on a historical basis to reflect the mergers with Peninsula Bank of
Commerce, Pacific Rim Bancorporation and Pacific Business Funding
Corporation.

A-54
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

Parent Company Only--Statements of Cash Flows

<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1998 1997* 1996*
-------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Cash flows-operating activities
Net income.................................... $ 16,578 $ 11,619 $ 6,348
Reconciliation of net income to net cash from
operations:
Equity in undistributed net income of
subsidiaries............................... (17,391) (11,875) (7,596)
Provision for loan losses................... -- -- 113
Net change in other assets.................. (4,678) (1,601) 271
Net change in other liabilities............. 2,128 2,524 142
-------- -------- -------
Operating cash flow, net...................... (3,363) 667 (722)
-------- -------- -------
Cash flows-investing activities
Purchases of available for sale securities.... (84,130) (8,293) --
Proceeds from sale and maturities of available
for sale securities.......................... 71,940 3,156 --
Proceeds from sale of OREO.................... 407 -- --
Principal repayment of loans receivable....... -- -- 113
Dividends from subsidiaries................... 3,249 3,617 769
Capital contribution to the subsidiaries...... (17,500) (13,818) (1,003)
-------- -------- -------
Investing cash flows, net..................... (26,034) (15,338) (121)
-------- -------- -------
Cash flows-financing activities
Proceeds from issuance of subordinated debt... 30,000 20,618 --
Proceeds from exercise of stock options and
employees stock purchases.................... 5,014 2,193 1,954
Payment of cash dividends..................... (5,137) (3,986) (2,311)
-------- -------- -------
Financing cash flows, net..................... 29,877 18,825 (357)
-------- -------- -------
Net increase in cash and cash equivalents..... 480 4,154 (1,200)
Cash and cash equivalents at the beginning of
the year..................................... 4,804 650 1,850
-------- -------- -------
Cash and cash equivalents at end of the year.. $ 5,284 $ 4,804 $ 650
======== ======== =======
</TABLE>
- --------
* Restated on a historical basis to reflect the mergers with Peninsula Bank of
Commerce, Pacific Rim Bancorporation and Pacific Business Funding
Corporation.

A-55
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

NOTE 20--FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments. The estimated fair value of financial
instruments of the Company as of December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks.................. $ 59,975 $ 59,975 $ 53,167 $ 53,167
Short term investments................... 121,176 121,176 178,549 178,380
Investment securities.................... 342,294 343,846 213,127 215,912
Loans, net............................... 984,487 990,408 735,233 718,670
Financial liabilities:
Deposits:
Demand, noninterest-bearing............ 268,448 268,448 219,495 219,495
MMDA, NOW and Savings.................. 854,392 854,392 627,475 627,476
Time certificates, $100,000 and over... 168,075 163,419 183,147 183,103
Other time certificates................ 51,577 65,821 41,031 41,013
Other borrowings......................... 72,585 74,156 32,355 19,480
Subordinated debt........................ 3,000 2,999 3,000 3,337
Company obligated mandatory redeemable
preferred securities of subsidiary trust
holding solely junior subordinated
debentures.............................. 50,000 49,829 20,000 21,210
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.

Cash and Cash Equivalents

The carrying value reported in the balance sheet for cash and cash
equivalents approximates fair value.

Investment Securities

The carrying amounts for short-term investments approximate fair value
because they mature in 90 days or less and do not present unanticipated credit
concerns. The fair value of longer term investments, except certain state and
municipal securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair value
of certain state and municipal securities is not readily available through
market sources other than dealer quotations, as such, fair value estimates are
based on quoted market prices of similar instruments, adjusted for differences
between the quoted instruments and the instruments being valued.

Loans

Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, commercial
real estate, residential mortgage and consumer. Each loan category is further
segmented into fixed and adjustable rate interest terms.

The fair value of performing fixed rate loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in the

A-56
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

loan. The estimate of maturity is based on the Company's historical experience
with repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic and lending conditions. The fair
value of performing variable rate loans is judged to approximate book value
for those loans whose rates reprice in less than 90 days. Rate floors and rate
ceilings are not considered for fair value purposes as the number of loans
with such limitations is not significant.

Fair value for significant nonperforming loans is based on recent external
appraisals. If appraisals are not available, estimated cash flows are
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flows, and
discount rates are judgmentally determined using available market information
and specific borrower information.

Deposit Liabilities and Borrowings

The fair value for all deposits without fixed maturities and short term
borrowings is considered to be equal to the carrying value. The fair value for
fixed rate time deposits and subordinated debt are estimated by discounting
future cash flows using interest rates currently offered on time deposits or
subordinated debt with similar remaining maturities.

Derivative Instruments

The fair value of the single interest rate swap the Company uses as a cash
flow hedge on the TPS II is estimated by discounting future cash flows using
current interest rates. The fair value of the hedge is presented in the above
table with the fair value of the related TPS II.

Commitments to Extend Credit and Standby Letters of Credit

The majority of the Company's commitments to extend credit carry current
market interest rate if converted to loans. Because these commitments are
generally unassignable by either the Company or the borrower, they only have
value to the Company and the borrower. The estimated fair value approximates
the recorded deferred fee amounts and is excluded from the table.

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. Fair value estimates are based on judgments regarding
future expected loss experience, current economic condition, 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. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have significant
effect on fair value estimates and have been considered in many of the
estimates.

NOTE 21--SUBSEQUENT EVENT

On January 26, 1999 the Company and Bay Area Bancshares ("BA Bancshares"),
the holding company of Bay Area Bank ("BAB"), signed a definitive agreement
for a merger between the two companies. The terms of the

A-57
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

agreement provide for BA Bancshares shareholders to receive approximately
1,393,000 shares of Greater Bay Bancorp stock subject to certain adjustments,
in a tax-free exchange to be accounted for as a pooling-of-interest. Following
the transaction, the shareholders of BA Bancshares will own approximately
12.7% of the combined company. The transaction is expected to be completed
early in the second quarter of 1999, subject to approval of BA Bancshares
shareholders and regulatory approvals. BAB's office is located in Redwood
City, California.

NOTE 22--ACTIVITY OF BUSINESS SEGMENTS

In 1998 the Company adopted SFAS No. 131. The prior year's segment
information has been restated to present the Company's two reportable
segments, community banking and trust operations.

The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies." Segment data includes
intersegment revenue, as well as charges allocating all corporate-headquarters
costs to each of its operating segments. The Company evaluates the
performances of its segments and allocates resources to them based on net
interest income, other income, net income before income taxes, total assets
and deposits.

The Company is organized primarily along community banking and trust
divisions. Ten of the divisions have been aggregated into the "community
banking" segment. Community banking provides a range of commercial banking
services to small and medium-sized businesses, real estate developers,
property managers, business executives, professional and other individuals.
The GBB Trust division has been shown as the "trust operations" segment. The
Company's business is conducted principally in the U.S.; foreign operations
are not material.

The following table shows each segments key operating results and financial
position for the years ended or as of December 31, 1998, 1997 and 1996:

<TABLE>
<CAPTION>
1998 1997 1996
--------------------- --------------------- --------------------
Community Trust Community Trust Community Trust
Banking Operations Banking Operations Banking Operations
---------- ---------- ---------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net interest income
(1).................... $ 66,815 $ 859 $ 55,396 $ 141 $ 39,472 $ 501
Other income............ 4,720 2,488 4,422 2,092 3,141 1,340
Operating expenses, ex-
cluding merger and
other related nonrecur-
ring costs............. 37,374 2,429 31,367 1,966 25,731 1,898
Net income before income
taxes (1).............. 25,465 918 18,331 267 11,610 (57)
Total assets............ 1,550,811 -- 1,203,946 -- 917,677 --
Deposits................ 1,274,953 67,539 1,004,827 66,321 779,416 41,717
Assets under manage-
ment................... -- 649,336 -- 577,746 -- 418,053
</TABLE>
- --------
(1) Includes intercompany earnings allocation charge which is eliminated in
consolidation

A-58
<PAGE>

GREATER BAY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Years Ended December 31, 1998, 1997 and 1996

A reconciliation of total segment net interest income and other income
combined, net income before income taxes, and total assets to the consolidated
numbers in each of these categories for the years ended December 31, 1998, 1997
and 1996 is presented below.

<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Net interest income and other income
Total segment net interest income and other
income.................................... $ 74,882 $ 62,051 $ 44,454
Parent company net interest income and
other income.............................. (2,179) (1,042) 673
---------- ---------- --------
Consolidated net interest income and
other income............................ $ 72,703 $ 61,009 $ 45,127
========== ========== ========
Net income before taxes
Total segment net income before income
taxes..................................... $ 26,383 $ 18,598 $ 11,553
Parent company net income before income
taxes..................................... (2,429) (505) (1,227)
---------- ---------- --------
Consolidated net income before income
taxes................................... $ 23,954 $ 18,093 $ 10,326
========== ========== ========
Total assets
Total segment assets....................... $1,550,811 $1,203,946 $917,677
Parent company assets...................... 32,054 13,719 2,247
---------- ---------- --------
Consolidated total assets................ $1,582,865 $1,217,665 $919,924
========== ========== ========
</TABLE>

NOTE 23--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
December 31, September 30, June 30, March 31,
--------------- --------------- --------------- ---------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share data) (1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income......... $29,989 $24,853 $29,861 $23,024 $27,510 $21,521 $25,560 $19,129
Net interest income..... 17,494 15,237 16,908 14,179 15,918 12,975 15,128 12,077
Provision for loan
losses................. 1,901 1,109 1,791 1,284 1,347 2,340 996 2,053
Other income............ 2,497 1,573 1,661 1,565 1,571 2,564 1,526 839
Other expenses.......... 11,114 12,898 10,573 8,491 11,245 8,357 9,782 6,384
Income before taxes..... 6,976 2,803 6,205 5,969 4,897 4,842 5,876 4,479
Net income.............. 4,983 1,809 4,394 3,822 3,222 3,125 3,979 2,863
Net income per share:
Basic.................. $ 0.52 $ 0.20 $ 0.46 $ 0.41 $ 0.34 $ 0.34 $ 0.43 $ 0.31
Diluted................ $ 0.48 $ 0.18 $ 0.43 $ 0.38 $ 0.31 $ 0.32 $ 0.40 $ 0.29
</TABLE>
- --------
(1) Quarterly amounts have been restated on a historical basis to reflect the
mergers with Peninsula Bank of Commerce, Pacific Rim Bancorporation and
Pacific Business Funding Corporation on a pooling of interests basis.

A-59
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

San Francisco, California
February 8, 1999

The Board of Directors and Shareholders
Greater Bay Bancorp

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, comprehensive income, shareholders'
equity, and cash flows present fairly, in all material respects, the financial
position of Greater Bay Bancorp and Subsidiaries (the Company) at December 31,
1998 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments in 1998.

/s/ PricewaterhouseCoopers LLP

A-60
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
2.1 Agreement and Plan of Reorganization by and between Greater Bay
Bancorp and Bay Area Bancshares dated January 26, 1999. (The schedules
to this agreement are not being filed herewith. Greater Bay Bancorp
agrees to furnish supplemental copies of any omitted schedules to the
SEC upon request.)
3.1 Articles of Incorporation of Greater Bay Bancorp, as amended.
3.2 Bylaws of Greater Bay Bancorp, as amended.
3.3 Certificate of Determination of Series A Preferred Stock of Greater
Bay Bancorp (filed as Exhibit A to Exhibit 4.1 hereto).
4.1 Rights Agreement.(1)
4.2 Junior Subordinated Indenture dated as of March 31, 1997 between
Greater Bay Bancorp and Wilmington Trust Company, as Trustee.(2)
4.3 Officers' Certificate and Company Order, dated March 31, 1997.(2)
4.4 Certificate of Trust of GBB Capital I.(3)
4.5 Trust Agreement of GBB Capital I dated as of February 28, 1997.(3)
4.6.1 Amended and Restated Trust Agreement of GBB Capital I, among Greater
Bay Bancorp, Wilmington Trust Company and the Administrative Trustees
named therein dated as of March 31, 1997.(2)
4.6.2 Successor Administrative Trustee and First Amendment to Amended and
Restated Trust Agreement.
4.7 Trust Preferred Certificate of GBB Capital I.(2)
4.8 Common Securities Certificate of GBB Capital I.(2)
4.9 Guarantee Agreement between Greater Bay Bancorp and Wilmington Trust
Company, dated as of March 31, 1997.(2)
4.10 Agreement as to Expenses and Liabilities, dated as of March 31,
1997.(2)
4.11 Form of Subordinated Debentures.(4)
4.12 Supplemental Debenture Agreement of Cupertino National Bancorp dated
as of November 22, 1996.(3)
4.13 Supplemental Debenture Agreement dated November 27, 1996 between
Cupertino National Bancorp and Mid-Peninsula Bancorp.(3)
4.14 Supplemental Debenture Agreement, dated as of March 27, 1997.(2)
4.15 Indenture between Greater Bay Bancorp and Wilmington Trust Company, as
Debenture Trustee, dated as of August 12, 1998.(5)
4.16 Form of Exchange Junior Subordinated Debentures (filed as Exhibit A to
Exhibit 4.15 hereto).
4.17 Certificate of Trust of GBB Capital II, dated as of May 18, 1998.(5)
4.18 Amended and Restated Trust Agreement of GBB Capital II, among Greater
Bay Bancorp, Wilmington Trust Company and the Administrative Trustees
named therein dated as of August 12, 1998.(5)
4.19 Form of Exchange Capital Security Certificate (filed as Exhibit A-1 to
Exhibit 4.18 hereto).
4.20 Common Securities Guarantee Agreement of Greater Bay Bancorp, dated as
of August 12, 1998.(5)
4.21 Series B Capital Securities Guarantee Agreement of Greater Bay Bancorp
and Wilmington Trust Company dated as of November 27, 1998.
4.22 Liquidated Damages Agreement among Greater Bay Bancorp, GBB Capital
II, and Sandler O'Neill and Partners, L.P., dated as of August 7,
1998.(5)
4.23 Registration Rights Agreement between Greater Bay Bancorp and The Leo
K.W. Lum PRB Revocable Trust dated May 8, 1998.(6)
10.1 Employment Agreement with David L. Kalkbrenner, dated March 3,
1992.(8), (9)
10.1.1 Amendment No. 1 to Employment Agreement with David L. Kalkbrenner,
dated March 27, 1998.(7), (8)
10.2 Employment, Severance and Retirement Benefits Agreement with Steven C.
Smith dated July 31, 1995.(3), (8)
<PAGE>

</TABLE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S>
10.2.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with Steven C. Smith, dated March 27, 1998.(7), (8)
10.3 Employment, Severance and Retirement Benefits Agreement with David R.
Hood dated July 31, 1995.(3), (8)
10.3.1 Amendment No. 1 to Employment, Severance and Retirement Benefits
Agreement with David R. Hood, dated March 27, 1998.(7), (8)
10.4 Greater Bay Bancorp 1996 Stock Option Plan, as amended.(8)
10.5 Greater Bay Bancorp 401(k) Profit Sharing Plan.(7), (8)
10.6.1 Greater Bay Bancorp Employee Stock Purchase Plan.(8), (10)
10.6.2 Amendment to Greater Bay Bancorp Employee Stock Purchase Plan.(7), (8)
10.7 Greater Bay Bancorp Change of Control Pay Plan I.(7), (8)
10.8 Greater Bay Bancorp Change of Control Pay Plan II.(7), (8)
10.9 Greater Bay Bancorp Termination and Layoff Plan I.(7), (8)
10.10 Greater Bay Bancorp Termination and Layoff Plan II.(7), (8)
10.11.1 Greater Bay Bancorp 1997 Elective Deferred Compensation Plan.(7), (8)
10.11.2 Amendment to Greater Bay Bancorp 1997 Elective Deferred Compensation
Plan.(8)
10.12 Form of Indemnification Agreement between Greater Bay Bancorp and with
directors and certain executive officers.(3)
11.1 Statements re Computation of Earnings per Share.
12.1 Statement re Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference from Greater Bay Bancorp's Form 8-A12G filed
with the SEC on November 25, 1998.
(2) Incorporated by reference from Greater Bay Bancorp's Current Report on
Form 8-K (File No. 000-25034) dated June 5, 1997.
(3) Incorporated by reference from Greater Bay's Registration Statement on
Form S-1 (File No. 333-22783) filed with the SEC on March 5, 1997.
(4) Incorporated herein by reference from Exhibit 1 of Cupertino National
Bancorp's Form 8-K (File No. 0-18015), filed with the SEC on October 25,
1995.
(5) Incorporated by reference from Greater Bay's Current Report on Form 8-K
(File No. 000-25034) filed with the SEC on August 28, 1998.
(6) Incorporated by reference from Greater Bay Bancorp's Current Report on
Form 8-K filed with the SEC on May 20, 1998.
(7) Incorporated by reference from Greater Bay Bancorp's Annual Report on
Form 10-K filed with the SEC on March 31, 1998.
(8) Represents executive compensation plans and arrangements of Greater Bay
Bancorp.
(9) Incorporated herein by reference from Exhibit 10.15 to Mid-Peninsula
Bancorp's Annual Report on Form 10-K for the year ended December 31, 1994
(File No. 0-25034), filed with the SEC on March 30, 1995.
(10) Incorporated herein by reference from Greater Bay Bancorp's Proxy
Statement for Annual Meeting of Shareholders (File No. 000-25034), filed
with the SEC on May 13, 1997.

<PAGE>

EXHIBIT 2.1

AGREEMENT AND PLAN OF REORGANIZATION

BY AND AMONG

GREATER BAY BANCORP

AND

BAY AREA BANCSHARES

January 26, 1999
<PAGE>

AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------

THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and entered
into as of the 26th day of January, 1999, by and between GREATER BAY BANCORP, a
California corporation ("GBB"), and BAY AREA BANCSHARES, a California
corporation ("BAB").

WHEREAS, the Boards of Directors of GBB and BAB deem advisable and in the
best interests of their respective shareholders the merger of BAB with and into
GBB (the "Merger") upon the terms and conditions set forth herein and in
accordance with the California General Corporation Law (the "CGCL") (GBB,
following the effectiveness of the Merger, being hereinafter sometimes referred
to as the "Surviving Corporation");

WHEREAS, the Boards of Directors of GBB and BAB have approved the Merger
pursuant to this Agreement and pursuant to the Agreement of Merger by and
between GBB and BAB (the "Agreement of Merger"), in substantially the form of
Exhibit A attached hereto, pursuant to which BAB will merge with and into GBB
- ---------
and each outstanding share of BAB common stock, no par value ("BAB Stock"),
excluding any BAB Perfected Dissenting Shares (as defined below), will be
converted into the right to receive a specified amount of GBB common stock, no
par value ("GBB Stock"), upon the terms and subject to the conditions set forth
herein; and

WHEREAS, the Merger is intended to qualify as a tax-free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").

NOW, THEREFORE, on the basis of the foregoing recitals and in consideration
of the mutual covenants, agreements, representations and warranties contained
herein, the parties hereto do covenant and agree as follows:

ARTICLE 1.

DEFINITIONS
-----------

Except as otherwise expressly provided for in this Agreement, or unless the
context otherwise requires, as used throughout this Agreement the following
terms shall have the respective meanings specified below:

"Affiliate" of, or a person "Affiliated" with, a specific person(s) is a
person that directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person(s)
specified.

1
<PAGE>

"Affiliated Group" means, with respect to any entity, a group of entities
required or permitted to file consolidated, combined or unitary Tax Returns (as
defined herein).

"Agreement of Merger" has the meaning set forth in the second recital of
this Agreement.

"Average Closing Price" means the average of the daily closing price of a
share of GBB Stock reported on the Nasdaq National Market System during the 20
consecutive trading days ending at the end of the third trading day immediately
preceding the Effective Time of the Merger (as defined herein).

"BAB 401(k) Plan" means the Bay Area Bank 401(k) Plan.

"BAB Conflicts and Consents List" has the meaning set forth in Section 4.6.

"BAB Contract List" has the meaning set forth in Section 4.16.

"BAB Derivatives List" has the meaning set forth in Section 4.32.

"BAB Dissenting Shares" means any shares of BAB Stock held by "dissenting
shareholders" within the meaning of Chapter 13 of the CGCL.

"BAB Employee Plan List" has the meaning set forth in Section 4.20.

"BAB Environmental Compliance List" has the meaning set forth in Section
4.12.2.

"BAB Filings" has the meaning set forth in Section 4.5.

"BAB Filings List" has the meaning set forth in Section 4.5.

"BAB Fully Diluted Book Value Per Share" means the sum of (a) shareholders'
equity as reflected on the consolidated financial statements to be provided by
BAB to GBB pursuant to Section 11.14, including any adjustments relating to
litigation expenses, plus (b) the consideration to be paid upon the exercise of
any BAB Stock Option (as defined herein) then issued and outstanding, divided by
the sum of (y) the number of shares of BAB Stock then issued and outstanding,
plus (z) such number of shares of BAB Stock issuable upon the exercise of any
BAB Stock Option.

"BAB Indemnification List" has the meaning set forth in Section 4.30.

"BAB Insurance List" has the meaning set forth in Section 4.7.

"BAB Investment Securities List" has the meaning set forth in Section 4.26.

2
<PAGE>

"BAB Intellectual Property List" has the meaning set forth in Section 4.35.

"BAB List" means any list required to be furnished by BAB to GBB herewith.

"BAB Litigation List" has the meaning set forth in Section 4.10.

"BAB Loan List" has the meaning set forth in Section 4.25.

"BAB Offices List" has the meaning set forth in Section 4.23.

"BAB Operating Losses List" has the meaning set forth in Section 4.24.

"BAB Perfected Dissenting Shares" means BAB Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as BAB
Dissenting Shares.

"BAB Personal Property List" has the meaning set forth in Section 4.8.

"BAB Real Property List" has the meaning set forth in Section 4.9.

"BAB SAR Plan" means the Bay Area Bancshares 1996 Stock Appreciation Rights
Plan, as amended.

"BAB Shareholders' Meeting" means the meeting of BAB's shareholders
referred to in Section 6.7.

"BAB Stock" has the meaning set forth in the second recital of this
Agreement.

"BAB Stock Option" means any option issued pursuant to the BAB Stock Option
Plan.

"BAB Stock Option Plan" means the Bay Area Bancshares 1993 Stock Option
Plan, as amended.

"BAB Supplied Information" has the meaning set forth in Section 4.34.

"BAB Tax List" has the meaning set forth in Section 4.11.

"BAB Undisclosed Liabilities List" has the meaning set forth in Section
4.19.

"BABANK" means Bay Area Bank, a California state chartered bank and wholly
owned subsidiary of BAB.

3
<PAGE>

"Banks" means CNB, GGB, MPB and PBC.

"Benefit Arrangements" has the meaning set forth in Section 4.20.2.

"BHC Act" means the Bank Holding Company Act of 1956, as amended.

"Business Day" means any day other than a Saturday, Sunday or day on which
a bank chartered under the laws of the State of California is closed.

"CFC" means California Financial Code.

"CGCL" has the meaning set forth in the second recital of this Agreement.

"Certificates" has the meaning set forth in Section 2.5.2.

"Classified Credits" has the meaning set forth in Section 6.8.

"Closing" means the consummation of the Merger provided for in Article 2 of
this Agreement on the Closing Date (as defined herein) at the offices of Greater
Bay Bancorp, 2860 West Bayshore Road, Palo Alto, California, or at such other
place as the parties may agree upon.

"Closing Date" means the date which is the first Friday which follows the
last to occur of (i) the approval of this Agreement and the transactions
contemplated hereby by the shareholders of BAB, (ii) the receipt of all permits,
authorizations, approvals and consents specified in Section 9.3 hereof, (iii)
the expiration of all applicable waiting periods under the law, (iv) the
expiration of the 30 day period following the mailing by BAB to its shareholders
of a notice of approval of the Merger by the outstanding shares pursuant to
Section 1301 of the CGCL, or such other date as the parties may agree upon.

"CNB" means Cupertino National Bank, a national banking association and
wholly owned subsidiary of GBB.

"Code" shall have the meaning set forth in the third recital of this
Agreement.

"Colmery Agreement" means the written agreement dated August 15, 1998
between BAB and Joseph P. Colmery.

"Commissioner" means the Commissioner of the Department of Financial
Institutions of the State of California.

"Competing Transaction" has the meaning set forth in Section 6.1.14.

4
<PAGE>

"Comptroller" means the Comptroller of the Currency.

"Conversion Ratio" has the meaning set forth in Section 2.2.1.

"Covered Person" has the meaning set forth in Section 4.30.

"DFI" means the Department of Financial Institutions of the State of
California.

"Effective Time of the Merger" means the date upon which the Merger is
consummated and the Agreement of Merger is filed with the Secretary of State of
the State of California.

"Employee Plans" has the meaning set forth in Section 4.20.1.

"Encumbrance" shall mean any option, pledge, security interest, lien,
charge, encumbrance or restriction (whether on voting or disposition or
otherwise), whether imposed by agreement, understanding, law or otherwise.

"Environmental Regulations" has the meaning set forth in Section 4.12.2.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Affiliates" has the meaning set forth in Section 4.20.1.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchange Agent" means Norwest Bank Minnesota, N.A.

"Exchange Fund" has the meaning set forth in Section 2.5.1 hereof.

"FDIC" means the Federal Deposit Insurance Corporation

"Financial Statements of GBB" means the audited consolidated financial
statements of GBB consisting of the consolidated balance sheets as of December
31, 1994, 1995, 1996 and 1997, the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended and the
related notes thereto and related opinions thereon for the years then ended and
GBB's unaudited consolidated balance sheets and consolidated statement of
operations and cash flows as of and for the nine month period ended September
30, 1998.

"Financial Statements of BAB" means the audited consolidated financial
statements of BAB consisting of the consolidated statements of condition as of
December 31, 1994, 1995, 1996 and 1997, the related statements of operations,
stockholders' equity and cash flows for the years then ended and the related
notes thereto and related opinions thereon for the years then ended and BAB's

5
<PAGE>

unaudited consolidated statements of financial conditions and statements of
operations and cash flows as of and for the nine month period ended
September 30, 1998.

"Findley Agreement" means the letter agreement dated July 15, 1998 between
Gary Steven Findley & Associates and BAB.

"FRB" means the Board of Governors of the Federal Reserve System.

"GBB 401(k) Plan" means the Greater Bay Bancorp 401(k) Profit Sharing Plan.

"GBB Conflicts and Consents List" has the meaning set forth in Section 5.5.

"GBB Filings" has the meaning set forth in Section 5.4.

"GBB Litigation List" has the meaning set forth in Section 5.19.

"GBB Stock" has the meaning set forth in the second recital of this
Agreement.

"GBB Stock Option Plan" means the Greater Bay Bancorp 1996 Stock Option
Plan, as amended.

"GBB Supplied Information" has the meaning set forth in Section 5.14.

"GBB Undisclosed Liabilities List" has the meaning set forth in Section
5.21.

"GGB" means Golden Gate Bank, a California state chartered bank and wholly
owned subsidiary of GBB.

"Governmental Entity" shall mean any court or tribunal in any jurisdiction
or any United States federal, state, municipal, domestic, foreign or other
administrative authority or instrumentality.

"Hazardous Materials" has the meaning set forth in Section 4.12.2.

"Immediate Family" means a person's spouse, parents, in-laws, children and
siblings.

"Investment Security" means any equity security or debt security as defined
in Statement of Financial Accounting Standards No. 115.

"IRS" means the Internal Revenue Service.

"Merger" has the meaning set forth in the first recital of this Agreement.

6
<PAGE>

"MPB" means Mid-Peninsula Bank, a California state chartered bank and
wholly-owned subsidiary of GBB.

"Operating Loss" has the meaning set forth in Section 4.24.

"PBC" means Peninsula Bank of Commerce, a California state chartered bank
and wholly owned subsidiary of GBB.

"Person" means any individual, corporation, association, partnership,
limited liability company, trust, joint venture, other entity, unincorporated
body, government or governmental department or agency.

"Proxy Statement and Prospectus" means the Proxy Statement and Prospectus
that is included as part of the Registration Statement on Form S-4 (as defined
herein) and used to solicit proxies for the BAB Shareholders' Meeting and to
offer and sell the shares of GBB Stock to be issued in connection with the
Merger.

"PwC" means PricewaterhouseCoopers LLP, GBB's and BAB's independent
accountants.

"Related Group of Persons" means Affiliates, members of an Immediate Family
or Persons the obligations of whom would be attributed to another Person
pursuant to the regulations promulgated by the SEC (as defined herein).

"Registration Statement on Form S-4" means the Registration Statement on
Form S-4, and such amendments thereto, that is filed with the SEC to register
the shares of GBB Stock to be issued in the Merger under the Securities Act and
to clear use of the Proxy Statement and Prospectus in connection with the BAB
Shareholders' Meeting pursuant to the regulations promulgated under the Exchange
Act.

"Scheduled Contracts" has the meaning set forth in Section 4.16.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Surviving Corporation" has the meaning set forth in the first recital of
this Agreement.

"Tanks" has the meaning set forth in Section 4.12.2.

"Tax Return" means all returns, declarations, reports, estimates,
information returns and statements required to be filed in respect of any Taxes.

7
<PAGE>

"Taxes" means (i) all federal, state, local or foreign taxes, charges,
fees, imposts, levies or other assessments, including, without limitation, all
net income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation, property, corporation and estimated taxes, custom duties, fees,
assessments and charges of any kind whatsoever; (ii) all interest, penalties,
fines, additions to tax or additional amounts imposed by any taxing authority in
connection with any item described in clause (i); and (iii) any transferred
liability in respect of any items described in clauses (i) and/or (ii).

"Tax Sharing Agreement" means an agreement (whether or not in writing)
pursuant to which tax losses of one entity are made available to another entity
of the Affiliated Group or Affiliates for purpose of Taxes.

"Understanding" means any contract, agreement, understanding, commitment or
offer, whether oral or written, which may become a binding obligation if
accepted by another Person.

ARTICLE 2.

TERMS OF MERGER
---------------

2.1. Effect of Merger and Surviving Corporation. At the Effective Time of
------------------------------------------
the Merger, BAB will be merged with and into GBB pursuant to the terms,
conditions and provisions of the Agreement of Merger and in accordance with the
applicable provisions of the CGCL. By virtue of the Merger, all the rights,
privileges, powers and franchises and all property and assets of every kind and
description of BAB and GBB shall be vested in and be held and enjoyed by the
Surviving Corporation, without further act or deed, and all the interests of
every kind of BAB and GBB, including all debts due to either of them on whatever
account, shall be the property of the Surviving Corporation as they were of BAB
and GBB and the title to any interest in real property and any interest in
personal property vested by deed or otherwise in either BAB or GBB shall not
revert or be in any way impaired by reason of the Merger; and all rights of
creditors and liens upon any property of BAB and GBB shall be preserved
unimpaired and all debts, liabilities and duties of BAB and GBB shall be debts,
liabilities and duties of the Surviving Corporation and may be enforced against
it to the same extent as if said debts, liabilities and duties had been incurred
or contracted by it.

2.2. Stock of BAB. Subject to Section 2.4, each share of BAB Stock issued
------------
and outstanding immediately prior to the Effective Time of the Merger shall,
without any further action on the part of BAB or the holders of such shares, be
treated on the basis set forth herein.

2.2.1. Conversion of BAB Stock. At the Effective Time of the
-----------------------
Merger, pursuant to the Agreement of Merger, each outstanding share of BAB Stock
excluding any BAB Perfected

8
<PAGE>

Dissenting Shares or shares of BAB Stock held by GBB or the Banks (other than
those held in a fiduciary capacity or as a result of debts previously
contracted) shall, without any further action on the part of BAB or the
holders of any such shares, be automatically cancelled and cease to be an
issued and outstanding share of BAB Stock and be converted into (a) 1.44271
shares of GBB Stock in the event the Average Closing Price is less than
$30.00; or (b) 1.38682 shares of GBB Stock in the event the Average Closing
Price is $30.00 or more (as applicable, the "Conversion Ratio").

2.2.2. BAB Perfected Dissenting Shares. BAB Perfected Dissenting
-------------------------------
Shares shall not be converted into shares of GBB Stock, but shall, after the
Effective Time of the Merger, be entitled only to such rights as are granted
them by Chapter 13 of the CGCL. Each dissenting shareholder who is entitled to
payment for his shares of BAB Stock shall receive such payment in an amount as
determined pursuant to Chapter 13 of the CGCL.

2.2.3 Shares Held by GBB or the Banks. Shares of BAB Stock held by
-------------------------------
GBB or the Banks (other than those held in a fiduciary capacity or as a result
of debts previously contracted) shall be canceled and no consideration shall be
issued in exchange therefor.

2.2.4. Dividends, Etc. If, prior to the Effective Time of the
--------------
Merger, GBB shall declare a stock dividend or distribution upon or subdivide,
split up, reclassify or combine the GBB Stock, or make a distribution on the GBB
Stock in any security convertible into GBB Stock, with a record date prior to
the Effective Time of the Merger, appropriate adjustment or adjustments will be
made to the Conversion Ratio.

2.3. Effect on GBB Stock. On the Effective Time of the Merger, each
-------------------
outstanding share of GBB Stock shall remain an outstanding share of GBB Stock
and shall not be converted or otherwise affected by the Merger.

2.4. Fractional Shares. No fractional shares of GBB Stock shall be issued
-----------------
in the Merger. In lieu thereof, each holder of BAB Stock who would otherwise be
entitled to receive a fractional share shall receive an amount in cash equal to
the product (calculated to the nearest hundredth) obtained by multiplying (a)
the Average Closing Price times (b) the fraction of the share of GBB Stock to
which such holder would otherwise be entitled. No such holder shall be entitled
to dividends or other rights in respect of any such fraction.

2.5 Exchange Procedures.
-------------------

2.5.1. As of the Effective Time of the Merger, GBB shall have
deposited with the Exchange Agent for the benefit of the holders of shares of
BAB Stock, for exchange in accordance with this Section 2.5 through the Exchange
Agent, certificates representing the shares of GBB Stock issuable pursuant to
Section 2.2 in exchange for shares of BAB Stock outstanding immediately prior to
the Effective Time of the Merger, and funds in an amount not less than the
amount of cash payable in lieu of fractional shares of GBB Stock which would
otherwise be issuable in connection

9
<PAGE>

with Section 2.2 hereof but for the operation of Section 2.4 of this Agreement
(collectively, the "Exchange Fund").

2.5.2. GBB shall direct the Exchange Agent to mail, promptly after
the Effective Time of the Merger, to each holder of record of a certificate or
certificates which immediately prior to the Effective Time of the Merger
represented outstanding shares of BAB Stock (the "Certificates") whose shares
were converted into the right to receive shares of GBB Stock pursuant to Section
2.2 hereof, (i) a letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as GBB and BAB may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of GBB Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by GBB, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of GBB
Stock and cash in lieu of fractional shares which such holder has the right to
receive pursuant to Sections 2.2 and 2.4 hereof, and the Certificate so
surrendered shall forthwith be canceled. In the event a certificate is
surrendered representing BAB Stock, the transfer of ownership which is not
registered in the transfer records of BAB, a certificate representing the proper
number of shares of GBB Stock may be issued to a transferee if the Certificate
representing such BAB Stock is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence that
any applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.5, each Certificate shall be deemed at any time
after the Effective Time of the Merger to represent only the right to receive
upon such surrender the certificate representing shares of GBB Stock and cash in
lieu of any fractional shares of stock as contemplated by this Section 2.5.
Notwithstanding anything to the contrary set forth herein, if any holder of
shares of BAB should be unable to surrender the Certificates for such shares,
because they have been lost or destroyed, such holder may deliver in lieu
thereof such bond in form and substance and with surety reasonably satisfactory
to GBB and shall be entitled to receive the certificate representing the proper
number of shares of GBB Stock and cash in lieu of fractional shares in
accordance with Sections 2.2 and 2.4 hereof.

2.5.3. No dividends or other distributions declared or made with
respect to GBB Stock with a record date after the Effective Time of the Merger
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of GBB Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.4 until
the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of GBB Common Stock issued in exchange thereof,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of GBB Stock to which such holder is
entitled pursuant to Section 2.4 and the amount of dividends or other
distributions with a record date after the Effective Time of the Merger

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<PAGE>

theretofore paid with respect to such whole shares of GBB Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time of the Merger but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of GBB Stock.

2.5.4. All shares of GBB Stock issued upon the surrender for exchange
of BAB Stock in accordance with the terms hereof (including any cash paid
pursuant to Section 2.4) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of BAB Stock, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of BAB Stock which were outstanding
immediately prior to the Effective Time of the Merger. If, after the Effective
Time of the Merger, Certificates are presented to GBB for any reason, they shall
be canceled and exchanged as provided in this Agreement.

2.5.5. Any portion of the Exchange Fund which remains undistributed
to the shareholders of BAB following the passage of six months after the
Effective Time of the Merger shall be delivered to GBB, upon demand, and any
shareholders of BAB who have not theretofore complied with this Section 2.5
shall thereafter look only to GBB for payment of their claim for GBB Stock, any
cash in lieu of fractional shares of GBB Stock and any dividends or
distributions with respect to GBB Stock.

2.5.6. Neither GBB nor BAB shall be liable to any holder of shares of
BAB Stock for such shares (or dividends or distributions with respect thereto)
or cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.

2.5.7. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of GBB Stock held by it from
time to time hereunder, except that it shall receive and hold all dividends or
other distributions paid or distributed with respect to such shares of GBB Stock
for the account of the Persons entitled thereto.

2.5.8 Certificates surrendered for exchange by any Person
constituting an Affiliate of BAB for purposes of Rule 144(a) under the
Securities Act shall not be exchanged for certificates representing whole shares
of GBB Stock until GBB has received a written agreement from such person as
provided in Section 6.10.

2.6. Directors of Surviving Corporation and BABANK Immediately after the
---------------------------------------------
Effective Time of the Merger, the Board of Directors of the Surviving
Corporation shall be comprised of the persons serving as directors of GBB
immediately prior to the Effective Time of the Merger and one current member of
BAB's Board of Directors to be appointed by GBB and assigned to Class I
(reelection 2001). Such persons shall serve until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified. Immediately after the Effective Time of the Merger, the Board of
Directors of BABANK shall be comprised of the persons serving as directors of
BABANK immediately prior to the Effective Time of the Merger and David L.

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<PAGE>

Kalkbrenner, or such other person designated by GBB and reasonably acceptable to
BAB. Such persons shall serve until the earlier of their resignation or removal
or until their respective successors are duly elected and qualified; provided,
however, that GBB agrees to maintain BABANK's existing Board members for a
period of one year following the Effective Time of the Merger.

2.7 Executive Officers of Surviving Corporation and BABANK. Immediately
------------------------------------------------------
after the Effective Time of the Merger, the executive officers of the Surviving
Corporation shall be comprised of the persons serving as executive officers of
GBB immediately prior to the Effective Time of the Merger. Immediately after
the Effective Time of the Merger, the executive officers of BABANK shall be
comprised of the persons serving as executive officers of BABANK immediately
prior to the Effective Time of the Merger. Such persons shall serve until the
earlier of their resignation or termination.

ARTICLE 3.

THE CLOSING
-----------

3.1. Closing Date. The Closing shall take place on the Closing Date.
------------

3.2. Execution of Agreements. As soon as practicable after execution
-----------------------
of this Agreement, the Agreement of Merger together with all other agreements
necessary to consummate the transactions described herein shall be executed by
GBB and BAB. On the Closing Date, the Agreement of Merger, together with all
requisite certificates, shall be duly filed with the Secretary of State of the
State of California as required by applicable law and regulations.

3.3. Further Assurances. At the Closing, the parties hereto shall
------------------
deliver, or cause to be delivered, such documents or certificates as may be
necessary in the reasonable opinion of counsel for any of the parties, to
effectuate the transactions contemplated by this Agreement. From and after the
Effective Time of the Merger, each of the parties hereto covenants and agrees,
without the necessity of any further consideration whatsoever, to execute,
acknowledge and deliver any and all other documents and instruments and take any
and all such other action as may be reasonably necessary or desirable to more
effectively carry out the intent and purpose of this Agreement and the Agreement
of Merger.

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES OF BAB
-------------------------------------

BAB represents and warrants to GBB as follows:

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<PAGE>

4.1. Incorporation, Standing and Power. BAB has been duly organized,
---------------------------------
is validly existing and in good standing as a corporation under the laws of the
State of California and is registered as a bank holding company under the BHC
Act. BABANK is a California state chartered bank duly organized, validly
existing and in good standing under the laws of the State of California and is
authorized by the DFI to conduct a general banking business. BAB's deposits are
insured by the FDIC in the manner and to the fullest extent provided by law.
Each of BAB and BABANK has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently conducted. Neither the scope of the business of BAB or BABANK nor the
location of any of their respective properties requires that either BAB or
BABANK be licensed to do business in any jurisdiction other than the State of
California where the failure to be so licensed would, individually or in the
aggregate, have a material adverse effect on the business, financial condition,
results of operations or prospects of BAB on a consolidated basis. BAB has
delivered to GBB true and correct copies of its and BABANK's Articles of
Incorporation and Bylaws, as amended, and in effect as of the date hereof.

4.2. Capitalization.
--------------

4.2.1. As of the date of this Agreement, the authorized capital
stock of BAB consists of 20,000,000 shares of BAB Stock, of which 1,004,141
shares are outstanding. All of the outstanding shares of BAB Stock are duly
authorized, validly issued, fully paid and nonassessable. Except for BAB
Options covering 83,108 shares of BAB Stock granted pursuant to the BAB Stock
Option Plan and 48,000 stock appreciation rights under the BAB SAR Plan, there
are no outstanding options, warrants or other rights in or with respect to the
unissued shares of BAB Stock nor any securities convertible into such stock, and
BAB is not obligated to issue any additional shares of its common stock or any
additional options, warrants or other rights in or with respect to the unissued
shares of such stock or any other securities convertible into such stock. BAB
has furnished GBB a list (the "BAB Option List") setting forth the name of each
holder of a BAB Option and stock appreciation right, the number of shares of BAB
Stock covered by each such option and stock appreciation right, the vesting
schedule of such option and stock appreciation right, the exercise price per
share and the expiration date of each such option and stock appreciation right.

4.2.2. As of the date of this Agreement, the authorized capital
stock of BABANK consists of 500,000 shares of common stock, of which 100 shares
are outstanding and owned of record and beneficially by BAB. All of the
outstanding shares of such common stock are duly authorized, validly issued,
fully paid and nonassessable, except as provided in California Financial Code
Section 662. There are no outstanding options, warrants or other rights in or
with respect to the unissued shares of such common stock or any other securities
convertible into such stock, and BABANK is not obligated to issue any additional
shares of its common stock or any options, warrants or other rights in or with
respect to the unissued shares of its common stock or any other securities
convertible into such stock.

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<PAGE>

4.3. Subsidiaries. Other than BABANK, BAB does not own, directly or
------------
indirectly (except as a pledgee pursuant to loans or upon acquisition in
satisfaction of debt previously contracted), the outstanding stock or equity or
other voting interest in any Person.

4.4. Financial Statements. BAB has previously furnished to GBB a copy
--------------------
of the Financial Statements of BAB. The Financial Statements of BAB: (a)
present fairly the consolidated financial condition of BAB as of the respective
dates indicated and its consolidated results of operations and changes in cash
flows, for the respective periods then ended, subject, in the case of the
unaudited interim financial statements, to normal recurring adjustments; (b)
have been prepared in accordance with generally accepted accounting principles
consistently applied (except as otherwise indicated therein); (c) set forth as
of the respective dates indicated adequate reserves, in the opinion of
management of BAB, for loan losses and other contingencies and (d) are based
upon the books and records of BAB.

4.5. Reports and Filings. Except as set forth in a list (the "BAB
-------------------
Filings List"), since January 1, 1995, each of BAB and BABANK has filed all
reports, returns, registrations and statements (such reports and filings
referred to as "BAB Filings"), together with any amendments required to be made
with respect thereto, that were required to be filed with (a) the FDIC, (b) the
DFI, (c) the FRB, (d) the SEC and (e) any other applicable Governmental Entity,
including taxing authorities, except where the failure to file such reports,
returns, registrations or statements has not had and is not reasonably expected
to have a material adverse effect on the business, financial condition, results
of operations or prospects of BAB on a consolidated basis. No administrative
actions have been taken or orders issued in connection with such BAB Filings.
As of their respective dates, to the best knowledge of BAB, each of such BAB
Filings (y) complied in all material respects with all laws and regulations
enforced or promulgated by the Governmental Entity with which it was filed (or
was amended so as to be in compliance promptly following discovery of any such
noncompliance); and (z) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. Any financial statement contained in any of such BAB
Filings fairly presented the financial position of BAB on a consolidated basis,
BAB alone and BABANK alone, as the case may be, and was prepared in accordance
with generally accepted accounting principles or banking regulations
consistently applied, except as stated therein, during the periods involved.
BAB has furnished GBB with true and correct copies of all BAB Filings filed by
BAB since January 1, 1995.

4.6. Authority of BAB. The execution and delivery by BAB of this
----------------
Agreement and the Agreement of Merger and, subject to the requisite approval of
the shareholders of BAB of this Agreement and the transactions contemplated
hereby, the consummation of the transactions contemplated hereby and thereby
have been duly and validly authorized by all necessary corporate action on the
part of BAB. This Agreement is, and the Agreement of Merger will be, upon due
execution and delivery by the respective parties thereto, a valid and binding
obligation of BAB enforceable in accordance with their respective terms, except
as the enforceability thereof may be

14
<PAGE>

limited by bankruptcy, liquidation, receivership, conservatorship, insolvency,
moratorium or other similar laws affecting the rights of creditors generally
and by general equitable principles. Except as set forth in a list furnished
by BAB to GBB (the "BAB Conflicts and Consents List"), neither the execution
and delivery by BAB of this Agreement or the Agreement of Merger, the
consummation of the transactions contemplated herein or therein, nor
compliance by BAB with any of the provisions hereof or thereof, will: (a)
conflict with or result in a breach of any provision of its or BABANK's
Articles of Incorporation, as amended, or Bylaws, as amended; (b) constitute a
breach of or result in a default (or give rise to any rights of termination,
cancellation or acceleration, or any right to acquire any securities or
assets) under any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, franchise, license, permit, agreement or other instrument
or obligation to which BAB or BABANK is a party, or by which BAB or BABANK or
any of their respective properties or assets are bound; (c) result in the
creation or imposition of any Encumbrance on any of the properties or assets
of BAB or BABANK; or (d) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to BAB or BABANK or any of their respective
properties or assets. Except as set forth in the BAB Conflicts and Consents
List, no consent of, approval of, notice to or filing with any Governmental
Entity having jurisdiction over any aspect of the business or assets of BAB or
BABANK, and no consent of, approval of or notice to any other Person, is
required in connection with the execution and delivery by BAB of this
Agreement, the Agreement of Merger or the consummation by BAB of the Merger or
the transactions contemplated hereby or thereby, except (i) the approval of
this Agreement and the Agreement of Merger and the transactions contemplated
hereby and thereby by the shareholders of BAB; (ii) such approvals as may be
required by the FRB and the DFI; (iii) the filing of the Proxy Statement and
Prospectus and Registration Statement on Form S-4 with the SEC; and (iv) the
filing of the Agreement of Merger with the Secretary of State.

4.7. Insurance. Each of BAB and BABANK has policies of insurance and
---------
bonds with respect to its assets and business against such casualties and
contingencies and in such amounts, types and forms as are customarily
appropriate for its business, operations, properties and assets. All such
insurance policies and bonds are in full force and effect. Except as set forth
in a list furnished by BAB to GBB (the "BAB Insurance List"), no insurer under
any such policy or bond has canceled or indicated an intention to cancel or not
to renew any such policy or bond or generally disclaimed liability thereunder.
Except as set forth in the BAB Insurance List, neither BAB nor BABANK is in
default under any such policy or bond and all material claims thereunder have
been filed in a timely fashion. Set forth in the BAB Insurance List is a list
of all policies of insurance carried and owned by either BAB or BABANK showing
the name of the insurance company, the nature of the coverage, the policy limit,
the annual premiums and the expiration dates. There has been delivered to GBB a
copy of each such policy of insurance.

4.8. Personal Property. Each of BAB and BABANK has good and
-----------------
marketable title to all its material properties and assets, other than real
property, owned or stated to be owned by BAB or BABANK, free and clear of all
Encumbrances except: (a) as set forth in the Financial Statements of BAB; (b)
for Encumbrances for current taxes not yet due; (c) for Encumbrances

15
<PAGE>

incurred in the ordinary course of business; (d) for Encumbrances that are not
substantial in character, amount or extent and that do not materially detract
from the value, or interfere with present use, of the property subject thereto
or affected thereby, or otherwise materially impair the conduct of business of
BAB or BABANK; or (e) as set forth in a list furnished by BAB to GBB (the "BAB
Personal Property List.")

4.9. Real Estate. BAB has furnished GBB a list of real property,
-----------
including leaseholds and all other interests in real property (other than
security interests), owned by BAB or BABANK (the "BAB Real Property List").
Each of BAB and BABANK has duly recorded or caused to be recorded, in the
appropriate county, all recordable interests in the real property described in
the BAB Real Property List. Either BAB or BABANK has good and marketable title
to the real property, and valid leasehold interests in the leaseholds, described
in the BAB Real Property List, free and clear of all Encumbrances, except (a)
for rights of lessors, co-lessees or sublessees in such matters that are
reflected in the lease; (b) for current taxes not yet due and payable; (c) for
such Encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of such property; and (d) as described
in the BAB Real Property List. BAB has furnished GBB with true and correct
copies of all leases included in the BAB Real Property List, all title insurance
policies and all documents evidencing recordation of all recordable interests in
real property included in the BAB Real Property List.

4.10. Litigation. Except as set forth in a list furnished by BAB to
----------
GBB (the "BAB Litigation List"), there is no private or governmental suit,
claim, action or proceeding pending, nor to BAB's knowledge threatened, against
BAB or BABANK or against any of their respective directors, officers or
employees relating to the performance of their duties in such capacities or
against or affecting any properties of BAB or BABANK which, if adversely
determined, would have, individually or in the aggregate, a material adverse
effect upon the business, financial condition or results of operations of BAB on
a consolidated basis, or the transactions contemplated hereby, or which may
involve a judgment against BAB or BABANK in excess of $25,000. Also, except as
disclosed in the BAB Litigation List, there are no material judgments, decrees,
stipulations or orders against BAB or BABANK or enjoining their respective
directors, officers or employees in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area.

4.11. Taxes.
-----

(a) Except as set forth in a list furnished by BAB to GBB (the "BAB
Tax List"), (A) all material Tax Returns required to be filed by or on behalf of
BAB, BABANK or any of their subsidiaries or the Affiliated Group(s) of which any
of them is or was a member, have been duly and timely filed with the appropriate
taxing authorities in all jurisdictions in which such Tax Returns are required
to be filed (after giving effect to any valid extensions of time in which to
make such filings), and all such Tax Returns were true, complete and correct in
all material respects; (B) all Taxes due and payable by or on behalf of BAB,
BABANK or any of their subsidiaries, either

16
<PAGE>

directly, as part of an Affiliated Group Tax Return, or otherwise, have been
fully and timely paid, except to the extent adequately reserved therefor in
accordance with generally accepted accounting principles and/or applicable
regulatory accounting principles or banking regulations consistently applied
on the BAB balance sheet, and adequate reserves or accruals for Taxes have
been provided in the BAB balance sheet with respect to any period through the
date thereof for which Tax Returns have not yet been filed or for which Taxes
are not yet due and owing; and (C) no agreement, waiver or other document or
arrangement extending or having the effect of extending the period for
assessment or collection of Taxes (including, but not limited to, any
applicable statute of limitation) has been executed or filed with any taxing
authority by or on behalf of BAB, BABANK or any of their subsidiaries, or any
Affiliated Group(s) of which any of them is or was a member.

(b) BAB, BABANK and any of their subsidiaries have complied in all
material respects with all applicable laws, rules and regulations relating to
the payment and withholding of Taxes and have duly and timely withheld from
employee salaries, wages and other compensation and have paid over to the
appropriate taxing authorities all amounts required to be so withheld and paid
over for all periods under all applicable laws.

(c) GBB has received complete copies of (i) all material income or
franchise Tax Returns of BAB, BABANK and any of their subsidiaries relating to
the taxable periods since January 1, 1995 and (ii) any audit report issued
within the last three years relating to any material Taxes due from or with
respect to BAB, BABANK or any of their subsidiaries with respect to their
respective income, assets or operations.

(d) Except as set forth in the BAB Tax List, no claim has been
made by a taxing authority in a jurisdiction where BAB, BABANK or any of their
subsidiaries do not file an income or franchise Tax Return such that BAB,
BABANK or any of their subsidiaries are or may be subject to taxation by that
jurisdiction.

(e) Except as set forth in the BAB Tax List: (i) all deficiencies
asserted or assessments made as a result of any examinations by any taxing
authority of the Tax Returns of or covering or including BAB, BABANK or any of
their subsidiaries have been fully paid, and there are no other audits or
investigations by any taxing authority in progress, nor have BAB, BABANK or any
of their subsidiaries received any notice from any taxing authority that it
intends to conduct such an audit or investigation; (ii) no requests for a ruling
or a determination letter are pending with any taxing authority; and (iii) no
issue has been raised in writing by any taxing authority in any current or prior
examination which, by application of the same or similar principles, could
reasonably be expected to result in a proposed deficiency against BAB, BABANK or
any of their subsidiaries for any subsequent taxable period that could be
material.

(f) Except as set forth in the BAB Tax List, neither BAB, BABANK or
any of their subsidiaries nor any other Person on behalf of BAB, BABANK or any
of their subsidiaries has (i) filed a consent pursuant to Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the

17
<PAGE>

Code apply to any disposition of a subsection (f) asset (as such term is
defined in Section 341(f)(4) of the Code) owned by BAB, BABANK or any of their
subsidiaries (ii) agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by BAB, BABANK or any
of their subsidiaries or has any knowledge that the Internal Revenue Service
has proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of
BAB, BABANK or any of their subsidiaries or (iii) executed or entered into a
closing agreement pursuant to Section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law with
respect to BAB, BABANK or any of their subsidiaries.

(g) Except as set forth in the BAB Tax List, no property owned by
BAB, BABANK or any of their subsidiaries is (i) property required to be
treated as being owned by another Person pursuant to provisions of Section
168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986, (ii)
constitutes "tax exempt use property" within the meaning of Section 168(h)(1)
of the Code or (iii) is "tax-exempt bond financed property" within the meaning
of Section 168(g) of the Code.

(h) Neither BAB (except with BABANK) nor BABANK (except with BAB)
is a party to any Tax Sharing Agreement or similar agreement or arrangement
(whether written or not written) pursuant to which it will have any obligation
to make any payments after the Closing.

(i) Except as set forth in the BAB Tax List, there is no contract,
agreement, plan or arrangement covering any Person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by BAB, BABANK or any of their subsidiaries or their respective
affiliates by reason of Section 280G of the Code, or would constitute
compensation in excess of the limitation set forth in Section 162(m) of the
Code.

(j) There are no liens as a result of any unpaid Taxes upon any of
the assets of BAB, BABANK or any of their subsidiaries.

(k) Except as set forth in the BAB Tax List, BAB, BABANK or any of
their subsidiaries have no elections in effect for federal income tax purposes
under Sections 108, 168, 338, 441, 472, 1017, 1033, or 4977 of the Code.

(l) Except as set forth in the BAB Tax list, none of the members of
BAB's Affiliated Group has any net operating loss carryovers.

(m) BAB agrees, and agrees to cause BABANK or any of their
subsidiaries, to cooperate with tax counsel in furnishing reasonable and
customary written tax representations to tax counsel for purposes of supporting
tax counsel's opinion that the Merger qualifies as a tax-deferred reorganization
within the meaning of Section 368(a) of the Code as contemplated in Section 9.6

18
<PAGE>

hereof. Such Persons acknowledge that their inability or unwillingness to
provide such reasonable and customary written representations could preclude
tax counsel from rendering such opinion, with consequences specified elsewhere
herein.

4.12. Compliance with Laws and Regulations.
------------------------------------

4.12.1. Neither BAB nor BABANK is in default under or in breach or
violation of (i) any provision its Articles of Incorporation, as amended, or
Bylaws, as amended, or (ii) law, ordinance, rule or regulation promulgated by
any Governmental Entity, except, with respect to this clause (ii), for such
violations as would not have, individually or in the aggregate, a material
adverse effect on the business, financial condition, results of operations or
prospects of BAB on a consolidated basis or BABANK, as the case may be.

4.12.2. Except as set forth on a list furnished by BAB to GBB (the
"BAB Environmental Compliance List"), to the best of BAB's knowledge without
further investigation (i) each of BAB and BABANK is in compliance with all
Environmental Regulations; (ii) there are no Tanks on or about BAB Property;
(iii) there are no Hazardous Materials on, below or above the surface of, or
migrating to or from BAB Property; (iv) neither BAB nor BABANK has loans
outstanding secured by real property that is not in compliance with
Environmental Regulations or which has a leaking Tank or upon which there are
Hazardous Materials on or migrating to or from; and (v) without limiting Section
4.10 or the foregoing representations and warranties contained in clauses (i)
through (iv), as of the date of this Agreement, there is no claim, action, suit,
or proceeding or notice thereof before any Governmental Entity pending against
BAB or BABANK or concerning property securing BAB or BABANK loans and there is
no outstanding judgment, order, writ, injunction, decree, or award against or
affecting BAB Property or property securing BAB or BABANK loans, relating to the
foregoing representations (i) - (iv), in each case the noncompliance with which,
or the presence of which would have a material adverse effect on the business,
financial condition, results of operations or prospects of BAB on a consolidated
basis. For purposes of this Section 4.12.2, the term "Environmental
Regulations" shall mean all applicable statutes, regulations, rules, ordinances,
codes, licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar items, of all Governmental Entities and all applicable
judicial, administrative, and regulatory decrees, judgments, and orders relating
to the protection of human health or the environment, including, without
limitation: all requirements, including, but not limited to those pertaining to
reporting, licensing, permitting, investigation, and remediation of emissions,
discharges, releases, or threatened releases of Hazardous Materials, chemical
substances, pollutants, contaminants, or hazardous or toxic substances,
materials or wastes whether solid, liquid, or gaseous in nature, into the air,
surface water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminants, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in nature and all
requirements pertaining to the protection of the health and safety of employees
or the public. "BAB Property" shall mean real estate currently owned, leased,
or otherwise used by BAB or BABANK, or in which BAB or BABANK has an investment
or

19
<PAGE>

security interest (by mortgage, deed of trust, sale and lease-back or
otherwise), including, without limitation, properties under foreclosure and
properties held by BAB or BABANK in its capacity as a trustee or otherwise.
"Tank" shall mean treatment or storage tanks, sumps, or water, gas or oil wells
and associated piping transportation devices. "Hazardous Materials" shall mean
any substance the presence of which requires investigation or remediation under
any federal, state or local statute, regulation, ordinance, order, action,
policy or common law; or which is or becomes defined as a hazardous waste,
hazardous substance, hazardous material, used oil, pollutant or contaminant
under any federal, state or local statute, regulation, rule or ordinance or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601,
et seq.); the Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et
seq.); the Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. Section 1251, et
seq.); the Toxic Substances Control Act, as amended (15 U.S.C. Section 9601, et
seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. Section
651; the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C.
Section 11001, et seq.); the Mine Safety and Health Act of 1977, as amended (30
U.S.C. Section 801, et seq.); the Safe Drinking Water Act (42 U.S.C. Section
300f, et seq.); and all comparable state and local laws, including without
limitation, the Carpenter-Presley-Tanner Hazardous Substance Account Act (State
Superfund), the Porter-Cologne Water Quality Control Act, Section 25140,
25501(j) and (k), 25501.1,25281 and 25250.1 of the California Health and Safety
Code and/or Article I of Title 22 of the California Code of Regulations,
Division 4, Chapter 30; laws of other jurisdictions or orders and regulations;
or the presence of which causes or threatens to cause a nuisance, trespass or
other common law tort upon real property or adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons or without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons; polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde
foam insulation.

4.12.3. BAB has provided to GBB phase I environmental assessments
with respect to each interest in real property set forth on the BAB Real
Property List as to which such a phase I environmental investigation has been
prepared by or on behalf of BAB or BABANK. The BAB Real Property list shall
disclose each such property as to which such an assessment has not been prepared
on behalf of BAB or BABANK.

4.13. Performance of Obligations. Each of BAB and BABANK has
--------------------------
performed in all material respects all of the obligations required to be
performed by it to date and is not in default under or in breach of any term or
provision of any covenant, contract, lease, indenture or any other covenant to
which it is a party, is subject or is otherwise bound, and no event has occurred
that, with the giving of notice or the passage of time or both, would constitute
such default or breach, where such default or breach would have, individually or
in the aggregate, a material adverse effect on the business, financial
condition, results of operations or prospects of BAB on a consolidated basis.
Except for loans and leases made by BAB or BABANK in the ordinary course of
business, to BAB's knowledge, no party with whom BAB or BABANK has an agreement
that is of material importance to the business of BAB or BABANK is in default
thereunder.

20
<PAGE>

4.14. Employees. There are no controversies pending or threatened
---------
between either BAB or BABANK and any of its employees that are likely to have a
material adverse effect on the business, financial condition, results of
operations or prospects of BAB on a consolidated basis. Neither BAB nor BABANK
is a party to any collective bargaining agreement with respect to any of its
employees or any labor organization to which its employees or any of them
belong.

4.15. Brokers and Finders. Except for the obligation to Gary Steven
-------------------
Findley & Associates set forth in the Findley Agreement and the obligation to
Joseph P. Colmery set forth in the Colmery Agreement, copies of which have been
delivered to GBB, neither BAB nor BABANK is a party to or obligated under any
agreement with any broker or finder relating to the transactions contemplated
hereby, and neither the execution of this Agreement nor the consummation of the
transactions provided for herein will result in any liability to any broker or
finder.

4.16. Material Contracts. Except as set forth in a list furnished by
------------------
BAB to GBB (the "BAB Contract List") hereto (all items listed or required to be
listed in such BAB Contract List being referred to herein as "Scheduled
Contracts"), neither BAB nor BABANK is a party or otherwise subject to:

4.16.1. any employment, deferred compensation, bonus or consulting
contract that (i) has a remaining term, as of the date of this Agreement, of
more than one year in length of obligation on the part of BAB or BABANK and is
not terminable by BAB or BABANK within one year without penalty or (ii) requires
payment by BAB or BABANK of $25,000 or more per annum;

4.16.2. any advertising, brokerage, licensing, dealership,
representative or agency relationship or contract requiring payment by BAB or
BABANK of $25,000 or more per annum;

4.16.3. any contract or agreement that restricts BAB or BABANK (or
would restrict any Affiliate of BAB or BABANK or the Surviving Corporation
(including GBB and its subsidiaries) after the Effective Time of the Merger)
from competing in any line of business with any Person or using or employing the
services of any Person;

4.16.4. any lease of real or personal property providing for annual
lease payments by or to BAB or BABANK in excess of $25,000 per annum other than
(A) financing leases entered into in the ordinary course of business in which
BAB or BABANK is lessor and (B) leases of real property presently used by BABANK
as banking offices;

4.16.5. any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any interest
of BAB or BABANK (other than as mortgagor or pledgor in the ordinary course of
its banking business or as mortgagee, secured

21
<PAGE>

party or deed of trust beneficiary in the ordinary course of its business) in
personal property having a value of $25,000 or more;

4.16.6. other than as described in the BAB Filings or as set forth
in the BAB Employee Plan List, any stock purchase, stock option, stock bonus,
stock ownership, profit sharing, group insurance, bonus, deferred compensation,
severance pay, pension, retirement, savings or other incentive, welfare or
employment plan or material agreement providing benefits to any present or
former employees, officers or directors of BAB or BABANK;

4.16.7. any agreement to acquire equipment or any commitment to
make capital expenditures of $25,000 or more;

4.16.8. other than agreements entered into in the ordinary course
of business, including sales of other real estate owned, any agreement for the
sale of any property or assets in which BAB or BABANK has an ownership
interest or for the grant of any preferential right to purchase any such
property or asset;

4.16.9. any agreement for the borrowing of any money (other than
liabilities or interbank borrowings made in the ordinary course of its banking
business and reflected in the financial records of BAB or BABANK);

4.16.10. any restrictive covenant contained in any deed to or
lease of real property owned or leased by BAB or BABANK (as lessee) that
materially restricts the use, transferability or value of such property;

4.16.11. any guarantee or indemnification which involves the sum of
$25,000 or more, other than letters of credit or loan commitments issued in the
normal course of business;

4.16.12. any supply, maintenance or landscape contracts not
terminable by BAB or BABANK without penalty on 30 days' or less notice and
which provides for payments in excess of $25,000 per annum;

4.16.13. other than as disclosed with reference to Section 4.16.11
of this Section 4.16, any material agreement which would be terminable other
than by BAB or BABANK as a result of the consummation of the transactions
contemplated by this Agreement;

4.16.14. any contract of participation with any other bank in any
loan in excess of $25,000 or any sales of assets of BAB or BABANK with
recourse of any kind to BAB or BABANK except the sale of mortgage loans,
servicing rights, repurchase or reverse repurchase agreements, securities or
other financial transactions in the ordinary course of business;

22
<PAGE>

4.16.15. any agreement providing for the sale or servicing of any
loan or other asset which constitutes a "recourse arrangement" under
applicable regulation or policy promulgated by a Governmental Entity (except
for agreements for the sale of guaranteed portions of loans guaranteed in part
by the U. S. Small Business Administration and related servicing agreements);

4.16.16. any contract relating to the provision of data processing
services to BAB or BABANK; or

4.16.17. any other agreement of any other kind which involves future
payments or receipts or performances of services or delivery of items requiring
payment of $25,000 or more to or by BAB or BABANK other than payments made under
or pursuant to loan agreements, participation agreements and other agreements
for the extension of credit in the ordinary course of their business.

True copies of all Scheduled Contracts, including all amendments and
supplements thereto, have been delivered to GBB.

4.17. Certain Material Changes. Except as specifically required,
------------------------
permitted or effected by this Agreement, since September 30, 1998, there has not
been, occurred or arisen any of the following (whether or not in the ordinary
course of business unless otherwise indicated):

4.17.1. Any change in any of the assets, liabilities, permits,
methods of accounting or accounting practices, business, or manner of conducting
business, of BAB or BABANK or any other event or development that has had or may
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the assets, liabilities, permits, business, financial
condition, results of operations or prospects of BAB on a consolidated basis;

4.17.2. Any damage, destruction or other casualty loss (whether or
not covered by insurance) that has had or may reasonably be expected to have a
material adverse effect on the assets, liabilities, business, financial
condition, results of operations or prospects of BAB on a consolidated basis or
that may involve a loss of more than $25,000 in excess of applicable insurance
coverage;

4.17.3. Any amendment, modification or termination of any existing,
or entry into any new, material contract or permit that has had or may
reasonably be expected to have a material adverse effect on the assets,
liabilities, business, financial condition, results of operations or prospects
of BAB on a consolidated basis;

4.17.4. Any disposition by BAB or BABANK of an asset the lack of
which has had or may reasonably be expected to have a material adverse effect on
the assets, liabilities, business, financial condition, results of operations or
prospects of BAB on a consolidated basis; or

23
<PAGE>

4.17.5. Any direct or indirect redemption, purchase or other
acquisition by BAB or BABANK of any equity securities or stock appreciation
rights or any declaration, setting aside or payment of any dividend (except, in
the case of the declaration, setting aside or payment of a cash dividend, as
disclosed in the Financial Statements of BAB) or other distribution on or in
respect of BAB Stock or stock appreciation rights whether consisting of money,
other personal property, real property or other things of value.

4.18. Licenses and Permits. Each of BAB and BABANK has all material
--------------------
licenses and permits that are necessary for the conduct of its business, and
such licenses are in full force and effect, except for any failure to be in full
force and effect that would not, individually or in the aggregate, have a
material adverse effect on the business, financial condition, results of
operations or prospects of BAB on a consolidated basis. The respective
properties, assets, operations and businesses of BAB and BABANK are and have
been maintained and conducted, in all material respects, in compliance with all
applicable licenses and permits. The respective properties and operations of
BAB and BABANK are and have been maintained and conducted, in all material
respects, in compliance with all applicable laws and regulations.

4.19. Undisclosed Liabilities. Neither BAB nor BABANK has any
-----------------------
liabilities or obligations, either accrued or contingent, that are material to
BAB and that have not been: (a) reflected or disclosed in the Financial
Statements of BAB; (b) incurred subsequent to December 31, 1997 in the ordinary
course of business consistent with past practices; or (c) disclosed in a list
furnished by BAB to GBB (the "BAB Undisclosed Liabilities List") or on any other
BAB List. BAB does not know of any basis for the assertion against it or BABANK
of any liability, obligation or claim (including, without limitation, that of
any regulatory authority) that is likely to result in or cause a material
adverse change in the business, financial condition, results of operations or
prospects of BAB on a consolidated basis that is not fairly reflected in the
Financial Statements of BAB or otherwise disclosed in this Agreement.

4.20. Employee Benefit Plans.
----------------------

4.20.1. BAB has previously made available to GBB copies of each
"employee benefit plan," as defined in Section 3(3) of ERISA, of which BAB or
any member of the same controlled group of corporations, trades or businesses as
BAB within the meaning of Section 4001(a)(14) of ERISA ("ERISA Affiliates") is a
sponsor or participating employer or as to which BAB or any of its ERISA
Affiliates makes contributions or is required to make contributions and which is
subject to any provision of ERISA and covers any employee, whether active or
retired, of BAB or any of its ERISA Affiliates, together with all amendments
thereto, all currently effective and related summary plan descriptions (to the
extent one is required by law), the determination letter from the IRS, the
annual reports for the most recent three years (Form 5500 including, if
applicable, Schedule B thereto) and the summary of material modifications and
all material employee communications prepared in connection with or pertaining
to any such plan. Such plans

24
<PAGE>

are hereinafter referred to collectively as the "Employee Plans." BAB does not
participate in an employee benefit pension plan that is a "multiemployer plan"
within the meaning of Section 3(37) of ERISA that would subject BAB or any of
its ERISA Affiliates to a material amount of liability with respect to any
such plan. Each Employee Plan which is intended to be qualified in form and
operation under Section 401(a) of the Code is so qualified and the associated
trust for each such Employee Plan is exempt from tax under Section 501(a) of
the Code. No event has occurred that will subject such Employee Plans to a
material amount of tax under Section 511 of the Code. All amendments required
to bring each Employee Plan into conformity with all of the applicable
provisions of ERISA, the Code and all other applicable laws have been made.
Except as disclosed in a list furnished by BAB to GBB (the "BAB Employee Plan
List"), all Employee Plans were in effect for substantially all of 1998, and
there has been no material amendment thereof (other than amendments required
to comply with applicable law) or increase in the cost thereof or benefits
thereunder on or after January 1, 1998.

4.20.2. BAB has previously made available to GBB copies or
descriptions of each plan or arrangement maintained or otherwise contributed to
by BAB or any of its ERISA Affiliates which is not an Employee Plan and which
(exclusive of base salary and base wages) provides for any form of current or
deferred compensation, bonus, stock option, stock awards, stock-based
compensation or other forms of incentive compensation or post-termination
insurance, profit sharing, benefit, retirement, group health or insurance,
disability, workers' compensation, welfare or similar plan or arrangement for
the benefit of any employee or class of employees, whether active or retired, of
BAB or any of its ERISA Affiliates (such plans and arrangements being
collectively referred to herein as "Benefit Arrangements"). Except as disclosed
in the BAB Employee Plan List hereto, all Benefit Arrangements which are in
effect were in effect for substantially all of 1998. There has been no material
amendment thereof or increase in the cost thereof or benefits payable thereunder
since January 1, 1998. Except as set forth in the BAB Employee Plan List, there
has been no material increase in the compensation of or benefits payable to any
senior executive employee of BAB since December 31, 1997, nor any employment,
severance or similar contract entered into with any such employee, nor any
amendment to any such contract, since December 31, 1997. There is no contract,
agreement or benefit arrangement covering any employee of BAB which individually
or collectively could give rise to the payment of any amount which would
constitute an "excess parachute payment," as such term is defined in Section
280G of the Code, or would constitute compensation in excess of the limitation
set forth in Section 162(m) of the Code.

4.20.3. With respect to all Employee Plans and Benefit Arrangements,
BAB and its ERISA Affiliates are in material compliance (other than
noncompliance the cost or liability for which is not material) with the
requirements prescribed by any and all statutes, governmental or court orders,
or governmental rules or regulations currently in effect, including but not
limited to ERISA and the Code, applicable to such plans or arrangements. All
material government reports and filings required by law have been properly and
timely filed and all information required to be distributed to participants or
beneficiaries has been distributed with respect to each Employee Plan.

25
<PAGE>

BAB and its ERISA Affiliates have performed all of their obligations under all
such Employee Plans and Benefit Arrangements in all material aspects. There is
no pending or, to the knowledge of BAB, threatened legal action, proceeding or
investigation against or involving any Employee Plan or Benefit Arrangement
which could result in a material amount of liability to such Employee Plan. To
the knowledge of BAB, no condition exists that could constitute grounds for
the termination of any Employee Plan under Section 4042 of ERISA; no
"prohibited transaction," as defined in Section 406 of ERISA and Section 4975
of the Code, has occurred with respect to any Employee Plan, or any other
employee benefit plan maintained by BAB or any of its ERISA Affiliates which
is covered by Title I of ERISA, which could subject any person (other than a
person for whom BAB is not directly or indirectly responsible) to a material
amount of liability under Title I of ERISA or to the imposition of a material
amount of tax under Section 4975 of the Code which could have a material
adverse effect on the business, assets, financial condition, results of
operations or prospects of BAB on a consolidated basis; nor has any Employee
Plan subject to Part III of Subtitle B of Title I of ERISA or Section 412 of
the Code, or both, incurred any "accumulated funding deficiency," as defined
in Section 412 of the Code, whether or not waived, nor has BAB failed to make
any contribution or pay any amount due and owing as required by the terms of
any Employee Plan or Benefit Arrangement. No "reportable event" as defined in
ERISA has occurred with respect to any of the Employee Plans. Neither BAB nor
any of its ERISA Affiliates has incurred nor expects to incur, directly or
indirectly, a material amount of liability under Title IV or ERISA arising in
connection with the termination of, or a complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA which could
constitute a liability of GBB or of any of its Affiliates (including BAB) at
or after the Effective Time of the Merger.

4.20.4. None of the Employee Plans nor any trust created thereunder
has incurred any "accumulated deficiency" as such term is defined in Section
412 of the Code, whether or not waived. Furthermore, neither BAB nor any of
its ERISA Affiliates has provided or is required to provide security to any
Employee Plan pursuant to Section 401(a)(29) of the Code. Each of the Employee
Plans which is intended to be a qualified plan under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service and BAB does not know of any fact which could adversely affect the
qualified status of any such Employee Plan. All contributions required to be
made to each of the Employee Plans under the terms of the Employee Plan,
ERISA, the Code or any other applicable laws have been timely made. The
Financial Statements of BAB properly reflect all amounts required to be
accrued as liabilities to date under each of the Employee Plans.

4.20.5. Except for Scheduled Contracts set forth in the BAB Contract
List or as set forth in the BAB Employee Plan List, as the case may be, each
Employee Plan or Benefit Arrangement and each personal services contract, fringe
benefit, consulting contract or similar arrangement with or for the benefit of
any officer, director, employee or other person can be terminated by BAB within
a period of 30 days following the Effective Time of the Merger, without payment
of any amount as a penalty, bonus, premium, severance pay or other compensation
for such termination.

26
<PAGE>

4.20.6. All group health plans of BAB have been operated in compliance
with the group health plan continuation coverage requirements of Section 4980B
of the Code in all material respects.

4.20.7. Neither BAB nor BABANK has used the services of (i) workers
who have been provided by a third party contract labor supplier for more than
six months or who may otherwise be eligible to participate in any of the
Employee Plans or to an extent that would reasonably be expected to result in
the disqualification of any of the Employee Plans or the imposition of penalties
or excise taxes with respect to the IRS, the Department of Labor, the Pension
Benefit Guaranty Corporation or any other Governmental Entity; (ii) temporary
employees who have worked for more than six months or who may otherwise be
eligible to participate in any of the Employee Plans or to an extent that would
reasonably be expected to result in the disqualification of any of the Employee
Plans or the imposition of penalties or excise taxes with respect to the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity; (iii) individuals who have provided services to BAB or
BABANK as independent contractors for more than six months or who may otherwise
be eligible to participate in the Employee Plans or to an extent that would
reasonably be expected to result in the disqualification of any of the Employee
Plans or the imposition of penalties or excise taxes with respect to the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation or any other
Governmental Entity or (iv) leased employees, as that term is defined in section
414(n) of the Code.

4.20.8. Except as set forth in the BAB Employee Plan List, with
respect to each Employee Plan that is funded wholly or partially through an
insurance policy, there will be no liability of BAB or BABANK, as of the Closing
Date, under any such insurance policy or ancillary agreement with respect to
such insurance policy in the nature of a retroactive rate adjustment, loss
sharing arrangement or other actual or contingent liability arising wholly or
partially out of events occurring prior to the Closing Date.

4.21. Corporate Records. The minute books of each of BAB and BABANK
-----------------
accurately reflect all material actions taken to this date by the respective
shareholders, board of directors and committees of each of BAB and BABANK.

4.22. Accounting Records. Each of BAB and BABANK maintains
------------------
accounting records which fairly and validly reflect, in all material respects,
its transactions and accounting controls exist sufficient to provide reasonable
assurances that such transactions are, in all material respects, (i) executed in
accordance with its management's general or specific authorization, and (ii)
recorded as necessary to permit the preparation of financial statements in
conformity with generally accepted accounting procedures. Such records, to the
extent they contain important information pertaining to BAB or BABANK which is
not easily and readily available elsewhere, have been duplicated, and such
duplicates are stored safely and securely.

27
<PAGE>

4.23. Offices and ATMs. BAB has furnished to GBB a list (the "BAB
----------------
Offices List") setting forth the headquarters of each of BAB and BABANK
(identified as such) and each of the offices and automated teller machines
("ATMs") maintained and operated by BAB or BABANK (including, without
limitation, representative and loan production offices and operations centers)
and the location thereof. Except as set forth on the BAB Offices List, neither
BAB nor BABANK maintains any other office or ATM or conducts business at any
other location, and neither BAB nor BABANK has applied for or received
permission to open any additional branch or operate at any other location.

4.24. Operating Losses. BAB has furnished to GBB a list (the "BAB
----------------
Operating Losses List") setting forth any Operating Loss (as herein defined)
which has occurred at BAB during the period after December 31, 1997 to the date
of the Agreement. To the knowledge of BAB, no action has been taken or omitted
to be taken by any employee of BAB that has resulted in the incurrence by BAB of
an Operating Loss or that might reasonably be expected to result in the
incurrence of any individual Operating Loss which, net of any insurance proceeds
payable in respect thereof, would exceed $25,000 on an individual basis or in
the aggregate. For purposes of this section "Operating Loss" means any loss
resulting from cash shortages, lost or misposted items, disputed clerical and
accounting errors, forged checks, payment of checks over stop payment orders,
counterfeit money, wire transfers made in error, theft, robberies, defalcations,
check kiting, fraudulent use of credit cards or ATMs, civil money penalties,
fines, litigation, claims or other similar acts or occurrences.

4.25. Loan Portfolio. BAB has furnished to GBB a list (the "BAB Loan
--------------
List") that sets forth (a) as of December 31, 1998, a description of, by type
and classification, if any, each loan, lease, other extension of credit or
commitment to extend credit by BAB or BABANK; (b) sets forth as of December 31,
1998, by type and classification, all loans, leases, other extensions and
commitments to extend credit of BAB or BABANK that are currently classified by
its bank examiners or auditors (external or internal) as "Watch List,"
"Substandard," "Doubtful," "Loss" or any comparable classification; and (c) all
consumer loans due to BAB or BABANK as to which any payment of principal,
interest or any other amount is currently 90 days or more past due.

4.26. Investment Securities. BAB has furnished to GBB a list (the
---------------------
"BAB Investment Securities List") setting forth a description of each Investment
Security held by BAB or BABANK on December 31, 1998. The BAB Investment
Securities List sets forth, with respect to each such Investment Security: (i)
the issuer thereof; (ii) the outstanding balance or number of shares; (iii) the
maturity, if applicable; (iv) the title of issue; and (v) the classification
under SFAS No. 115. Neither BAB nor BABANK has any Investment Security
classified as trading.

4.27. Power of Attorney. Neither BAB nor BABANK has granted any
-----------------
Person a power of attorney or similar authorization that is presently in effect
or outstanding.

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<PAGE>

4.28. Facts Affecting Regulatory Approvals. To the best knowledge of
------------------------------------
BAB, there is no fact, event or condition applicable to BAB or BABANK which
will, or reasonably could be expected to, adversely affect the likelihood of
securing the requisite approvals or consents of any Governmental Entity to the
Merger and the transactions contemplated by this Agreement.

4.29. Accounting and Tax Matters. To the best knowledge of BAB,
--------------------------
neither BAB nor BABANK has through the date hereof taken or agreed to take any
action that would prevent GBB from accounting for the business combination to be
effected by the Merger as a pooling-of-interests or would prevent the Merger
from qualifying as a tax-free reorganization under the Code.

4.30. Indemnification. Other than pursuant to the provisions of
---------------
their respective Articles of Incorporation or Bylaws insurance and bond
policies, the Findley Agreement and the Colmery Agreement, neither BAB nor
BABANK is a party to any indemnification agreement with any of its present
officers, directors, employees, agents or other persons who serve or served in
any other capacity with any other enterprise at the request of BAB or BABANK (a
"Covered Person"), and to the best knowledge of BAB, there are no claims for
which any Covered Person would be entitled to indemnification by BAB or BABANK
if such provisions were deemed in effect, except as set forth in a list
furnished by BAB to GBB (the "BAB Indemnification List").

4.31. Community Reinvestment Act. BABANK has received rating of
--------------------------
"satisfactory" in its most recent examination or interim review with respect to
the Community Reinvestment Act. BABANK has not been advised of any supervisory
concerns regarding BAB's compliance with the Community Reinvestment Act.

4.32. Derivative Transactions. Except as set forth in a list furnished by
-----------------------
BAB to GBB (the "BAB Derivatives List"), neither BAB nor BABANK is a party to
or has agreed to enter into an exchange traded or over-the-counter equity,
interest rate, foreign exchange or other swap, forward, future, option, cap,
floor or collar or any other contract that is not included on the balance
sheet and is a derivative contract (including various combinations thereof) or
owns securities that are referred to generically as "structured notes," "high
risk mortgage derivatives," "capped floating rate notes," or "capped floating
rate mortgage derivatives."

4.33. Trust Administration. BAB does not presently exercise trust
--------------------
powers, including, but not limited to, trust administration, and neither it nor
any predecessor has exercised such trust powers for a period of at least three
years prior to the date hereof. The term "trusts" as used in this Section 4.33
includes (i) any and all common law or other trusts between an individual,
corporation or other entities and BABANK or a predecessor, as trustee or co-
trustee, including, without limitation, pension or other qualified or
nonqualified employee benefit plans, compensation, testamentary, inter vivos,
and charitable trust indentures; (ii) any and all decedents' estates where
BABANK or a predecessor is serving or has served as a co-executor or sole
executor, personal representative or administrator, administrator de bonis non,
administrator de bonis non with will annexed, or in any similar fiduciary
capacity; (iii) any and all guardianships, conservatorships or

29
<PAGE>

similar positions where BABANK or a predecessor is serving or has served as a
co-grantor or a sole grantor or a conservator or co-conservator of the estate,
or any similar fiduciary capacity; and (iv) any and all agency and/or
custodial accounts and/or similar arrangements, including plan administrator
for employee benefit accounts, under which BABANK or a predecessor is serving
or has served as an agent or custodian for the owner or other party
establishing the account with or without investment authority.

4.34. Disclosure Documents and Applications. None of the information
-------------------------------------
supplied or to be supplied by or on behalf of BAB ("BAB Supplied Information")
for inclusion in (a) the Registration Statement on Form S-4 and the Proxy
Statement and Prospectus and (b) any other documents to be filed with the SEC,
the FRB, the FDIC, the DFI or any other Governmental Entity in connection with
the transactions contemplated in this Agreement, will, at the respective times
such documents are filed or become effective, or with respect to the Proxy
Statement and Prospectus when mailed, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.

4.35. Intellectual Property. Except as set forth in a list furnished
---------------------
by BAB to GBB (the "BAB Intellectual Property List"), BAB and BABANK own or
possess valid and binding licenses and other rights to use without payment all
material patents, copyrights, trade secrets, trade names, service marks and
trademarks used in their respective businesses; and neither BAB nor BABANK has
received any notice with respect thereto that asserts the rights of others. BAB
and BABANK has in all material respects performed all the obligations required
to be performed by them, and are not in default in any material respect under
any license, contract, agreement, arrangement or commitment relating to any of
the foregoing.

4.36. Year 2000. The mission critical computer software operated by
---------
BAB and BABANK is currently capable of providing, or is being adapted to
provide, uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 in substantially the
same manner and with the same functionality as such mission critical software
records, stores, processes and presents such calendar dates falling on or before
December 31, 1999. The costs of the adaptations referred to in this clause will
not have a material adverse effect on the business, financial condition, results
of operations or prospects of BAB on a consolidated basis. Neither BAB nor
BABANK has received, or reasonably expects to receive, a "Year 2000 Deficiency
Notification Letter" (as such term is employed by the FDIC). BAB has disclosed
to GBB a complete and accurate copy of its plan, including an estimate of the
anticipated associated costs, for addressing the issues set forth in all Federal
Financial Institutions Examination Council Interagency Statements as such issues
affect BAB and BABANK. Between the date of this Agreement and the Effective
Time, BAB shall use commercially practicable efforts to implement such plan.

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<PAGE>

4.37. Insider Loans; Other Transactions. BAB has previously provided
---------------------------------
GBB with a listing, current as of January 22, 1999, of all extensions of credit
made by BAB and BABANK to each of its executive officers and directors and their
related interests (all as defined under Federal Reserve Board Regulation O), all
of which have been made in compliance with Regulation O, and Section 23B under
the Federal Reserve Act which listing is true, correct and complete in all
material respects. Neither BAB nor BABANK owes any amount to, or has any
contract or lease with or commitment to, any of the present executive officers
or directors of BAB or BABANK (other than for compensation for current services
not yet due and payable, reimbursement of expenses arising in the ordinary
course of business, options or awards available under the BAB Stock Option Plan
or BAB SAR Plan or any amounts due pursuant to BAB's Employee Plans).

4.38. Registration Obligation. Neither BAB nor BABANK is under any
-----------------------
obligation, contingent or otherwise, to register any of their respective
securities under the Securities Act.

4.39. Accuracy and Currentness of Information Furnished. The
-------------------------------------------------
representations and warranties made by BAB hereby or in the BAB Lists or
schedules hereto do not contain any untrue statement of a material fact or omit
to state any material fact which is necessary under the circumstances under
which they were made to prevent the statements contained herein or in such
schedules from being misleading.

ARTICLE 5.

REPRESENTATIONS AND WARRANTIES OF GBB
-------------------------------------

GBB represents and warrants to BAB as follows:

5.1. Incorporation, Standing and Power. GBB has been duly organized,
---------------------------------
is validly existing and in good standing as a corporation under the laws of the
State of California and is registered as a bank holding company under the BHC
Act. GBB has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted. GBB is duly qualified and in good standing as a foreign corporation,
and is authorized to do business, in all states or other jurisdictions in which
such qualification or authorization is necessary, except where the failure to be
so qualified or authorized would not, individually or in the aggregate, have a
material adverse effect on the business, financial condition, results of
operations or prospects of GBB on a consolidated basis. True and correct copies
of the Articles of Incorporation and Bylaws of GBB have been delivered to BAB.
Such Articles of Incorporation and Bylaws are in full force and effect as of the
date hereof.

5.2. Capitalization. As of the date of this Agreement, the
--------------
authorized capital stock of GBB consists of 24,000,000 shares of common stock,
of which 9,608,822 shares were outstanding at December 30, 1998, and 4,000,000
shares of preferred stock, no par value, of which no shares are outstanding.
All of the outstanding shares of GBB Stock are duly authorized, validly

31
<PAGE>

issued, fully paid and nonassessable. The GBB Stock to be used in the Merger
will be duly authorized, validly issued, fully paid and nonassessable.

5.3. Financial Statements. GBB has previously furnished to BAB a copy
--------------------
of the Financial Statements of GBB. The Financial Statements of GBB: (a)
present fairly the consolidated financial condition of GBB as of the respective
dates indicated and its consolidated results of operations and changes in cash
flows, as applicable, for the respective periods then ended, subject, in the
case of the unaudited consolidated interim financial statements, to normal
recurring adjustments; (b) have been prepared in accordance with generally
accepted accounting principles consistently applied (except as otherwise
indicated therein); (c) set forth as of the respective dates indicated adequate
reserves for loan losses and other contingencies; and (d) are based upon the
books and records of GBB and its subsidiaries.

5.4. Reports and Filings. Since January 1, 1995, GBB has filed all
-------------------
reports, returns, registrations and statements (such reports and filings
referred to as "GBB Filings"), together with any amendments required to be made
with respect thereto, that were required to be filed with (a) the SEC, (b) the
FRB, and (c) any other applicable Governmental Entity, including taxing
authorities, except where the failure to file such reports, returns,
registrations or statements has not had and is not reasonably expected to have a
material adverse effect on the business, financial condition, results of
operations or prospects of GBB on a consolidated basis. No administrative
actions have been taken or orders issued in connection with such GBB Filings.
As of their respective dates, each of such GBB Filings (y) complied in all
material respects with all laws and regulations enforced or promulgated by the
Governmental Entity with which it was filed (or was amended so as to be in such
compliance promptly following discovery of any such noncompliance; and (z) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Any
financial statement contained in any of such GBB Filings that was intended to
present the financial position of GBB on a consolidated basis fairly presented
the financial position of GBB on a consolidated basis and was prepared in
accordance with generally accepted accounting principles or banking regulations
consistently applied, except as stated therein, during the periods involved.

5.5. Authority. The execution and delivery by GBB of this Agreement
---------
and the Agreement of Merger have been duly and validly authorized by all
necessary corporate action on the part of GBB. This Agreement is, and the
Agreement of Merger will be, upon due execution and delivery by the respective
parties hereto, a valid and binding obligation of GBB enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium
or other similar laws affecting the rights of creditors generally and by general
equitable principles. Except as set forth in a list furnished by GBB to BAB (the
"GBB Conflicts and Consents List"), neither the execution and delivery by GBB of
this Agreement or the Agreement of Merger, the consummation of the transactions
contemplated herein, nor compliance by GBB with any of the provisions hereof or

32
<PAGE>

thereof, will: (a) conflict with or result in a breach of any provision of its
Articles of Incorporation, as amended, or Bylaws, as amended; (b) constitute a
breach of or result in a default (or give rise to any rights of termination,
cancellation or acceleration, or any right to acquire any securities or assets)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, franchise, license, permit, agreement or other instrument or
obligation to which GBB or any subsidiary of GBB is a party, or by which GBB, or
any subsidiary of GBB or any of its respective properties or assets is bound;
(c) result in the creation or imposition of any Encumbrance on any of the
properties or assets of GBB or any subsidiary; or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to GBB or any
subsidiary of GBB or any of their respective properties or assets. Except as
set forth in the "GBB Conflicts and Consents List," no consent of, approval of,
notice to or filing with any Governmental Entity having jurisdiction over any
aspect of the business or assets of GBB, and no consent of, approval of or
notice to any other Person, is required in connection with the execution and
delivery by GBB of this Agreement or the Agreement of Merger, or the
consummation by GBB of the Merger or the transactions contemplated hereby or
thereby, except (i) such approvals as may be required by the SEC, the FRB and
the DFI; (ii) filing of the Agreement of Merger with the Secretary of State of
the State of California; and (iii) such approvals as may be required to approve
for inclusion on the Nasdaq National Market System of the GBB Stock to be issued
in the Merger.

5.6. Subsidiaries. As of the date of this Agreement, GBB owns 100% of
------------
the outstanding stock of each of CNB, GGB, MPB, PBC and Pacific Business
Funding Corporation. As of the date of this Agreement, and except for its
investments in the Banks, GBB Capital I and GBB Capital II, GBB does not own,
directly or indirectly (except as a pledgee pursuant to loans or upon
acquisition in satisfaction of debt previously contracted), the outstanding
stock or equity or other voting interest in any other Person.

5.7. Brokers and Finders. Except for the obligation to Hoefer &
-------------------
Arnett Incorporated, as set forth in a letter agreement dated June 22, 1998, as
supplemented on November 11, 1998, GBB is not a party to or obligated under any
agreement with any broker or finder relating to the transactions contemplated
hereby, and neither the execution of this Agreement nor the consummation of the
transactions provided for herein will result in any liability to any broker or
finder.

5.8. Certain Material Changes. Except as specifically required,
------------------------
permitted or effected by this Agreement or as disclosed in any GBB Filings,
since September 30, 1998, there has not been, occurred or arisen any of the
following (whether or not in the ordinary course of business unless otherwise
indicated):

5.8.1. Any change in any of the assets, liabilities, permits,
methods of accounting or accounting practices, business, or manner or conducting
business, of GBB or its subsidiaries or any other event or development that has
had or may reasonably be expected to have a

33
<PAGE>

material adverse effect on the assets, liabilities, permits, business,
financial condition, results of operations or prospects of GBB on a
consolidated basis;

5.8.2. Any damage, destruction or other casualty loss (whether or
not covered by insurance) that has had or may reasonably be expected to have a
material adverse effect on the assets, liabilities, permits, business, financial
condition, results of operations or prospects of GBB on a consolidated basis;

5.8.3. Any amendment, modification or termination of any existing,
or entry into any new, material contract or permit that has had or may
reasonably be expected to have a material adverse effect on the assets,
liabilities, permits, business, financial condition, results of operations or
prospects of GBB on a consolidated basis; or

5.8.4. Any disposition by GBB of an asset the lack of which has had
or may reasonably be expected to have a material adverse effect on the assets,
liabilities, permits, business, financial condition, results of operations or
prospects of GBB on a consolidated basis; or

5.8.5 Any direct or indirect redemption, purchase or other
acquisition by GBB or the Banks of any equity securities or stock appreciation
rights or any declaration, setting aside or payment of any dividend (except, in
the case of the declaration, setting aside or payment of a cash dividend, as
disclosed in the Financial Statements of GBB or otherwise declared or paid
consistent with past practice) or other distribution on or in respect of GBB
Stock or stock appreciation rights whether consisting of money, other personal
property, real property or other things of value, except pursuant to the Rights
Agreement, dated as of November 17, 1998, between GBB and Norwest Bank
Minnesota, N.A.

5.9. Licenses and Permits. GBB and each subsidiary of GBB have all
--------------------
material licenses and permits that are necessary for the conduct of their
respective businesses, and such licenses are in full force and effect, except
for any failure to be in full force and effect that would not, individually or
in the aggregate, have a material adverse effect on the business, financial
condition, results of operations or prospects of GBB on a consolidated basis.
The respective properties, assets, operations and businesses of GBB and each
subsidiary of GBB are and have been maintained and conducted, in all material
respects, in compliance with all applicable licenses and permits. The
properties and operations of GBB and each subsidiary of GBB are and have been
maintained and conducted, in all material respects, in compliance with all
applicable laws and regulations.

5.10. Corporate Records. The minute books of GBB reflect all
-----------------
material actions taken to this date by its shareholders, boards of directors and
committees.

5.11. Accounting Records. GBB and its subsidiaries maintain
------------------
accounting records which fairly and validly reflect, in all material respects,
their transactions and accounting controls

34
<PAGE>

exist sufficient to provide reasonable assurances that such transactions are,
in all material respects, (i) executed in accordance with their management's
general or specific authorization, and (ii) recorded as necessary to permit
the preparation of financial statements in conformity with generally accepted
accounting procedures. Such records, to the extent they contain important
information pertaining to GBB and its subsidiaries which is not easily and
readily available elsewhere, have been duplicated, and such duplicates are
stored safely and securely.

5.12. Facts Affecting Regulatory Approvals. To the best knowledge of
------------------------------------
GBB, there is no fact, event or condition applicable to GBB or any of its
subsidiaries which will, or reasonably could be expected to, adversely affect
the likelihood of securing the requisite approvals or consents of any
Governmental Entity to the Merger and transactions contemplated by this
Agreement.

5.13. Accounting and Tax Matters. To the best of GBB's knowledge,
--------------------------
GBB has not through the date hereof taken or agreed to take any action that
would prevent it from accounting for the business combination to be effected by
the Merger as a pooling-of-interests or would prevent the Merger from qualifying
as a tax-free reorganization under the Code.

5.14. Disclosure Documents and Applications. None of the information
-------------------------------------
supplied or to be supplied by or on behalf of GBB or any of its subsidiaries
("GBB Supplied Information") for inclusion in (a) the Registration Statement on
Form S-4 and the Proxy Statement and Prospectus to be mailed to the shareholders
of BAB in connection with obtaining the approval of the shareholders of BAB of
this Agreement, the Merger and the other transactions contemplated hereby, and
(b) any other documents to be filed with the SEC, the FRB, the DFI or any other
Governmental Entity in connection with the transactions contemplated in this
Agreement, will, at the respective times such documents are filed or become
effective, or with respect to the Proxy Statement and Prospectus when mailed,
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

5.15. Nasdaq Listing. As of the date hereof, GBB Stock is listed on
--------------
the Nasdaq National Market System.

5.16. Accuracy and Currentness of Information Furnished. The
-------------------------------------------------
representations and warranties made by GBB hereby or in the GBB Lists or
Schedules hereto do not contain any untrue statement of material fact or omit to
state any material fact which is necessary under the circumstances under which
they were made to prevent the statements contained herein or in such schedules
from being misleading.

5.17 Year 2000. The mission critical computer software operated by
---------
GBB is currently capable of providing, or is being adapted to provide,
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such mission critical software

35
<PAGE>

records, stores, processes and presents such calendar dates falling on or before
December 31, 1999. The costs of the adaptations referred to in this clause will
not have a material adverse effect on the business, financial condition, results
of operations or prospects of GBB on a consolidated basis. GBB has not
received, and reasonably expects that it will not receive, a "Year 2000
Deficiency Notification Letter" (as such term is employed by the FDIC).

5.18. Insurance. Each of GBB and the Banks have policies of
---------
insurance and bonds with respect to their respective assets and business against
such casualties and contingencies and in such amounts, types and forms as are
customarily appropriate for their respective business, operations, properties
and assets. All such insurance policies and bonds are in full force and effect.
No insurer under any such policy or bond has canceled or indicated an intention
to cancel or not to renew any such policy or bond or generally disclaimed
liability thereunder. Neither GBB nor the Banks are in default under any such
policy or bond and all material claims thereunder have been filed in a timely
fashion.

5.19. Litigation. Except as set forth in a list furnished by GBB to
----------
BAB (the "GBB Litigation List"), there is no private or governmental suit,
claim, action or proceeding pending, nor to GBB's knowledge threatened, against
GBB or the Banks or against any of their respective directors, officers or
employees relating to the performance of their duties in such capacities or
against or affecting any properties of GBB or the Banks which, if adversely
determined, would have, individually or in the aggregate, a material adverse
effect upon the business, financial condition or results of operations of GBB on
a consolidated basis, or the transactions contemplated hereby. Also, except as
disclosed in the GBB Litigation List, there are no material judgments, decrees,
stipulations or orders against GBB or the Banks or enjoining their respective
directors, officers or employees in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area.

5.20. Compliance with Laws and Regulations. Neither GBB nor the Banks
------------------------------------
is in default under or in breach or violation of (i) any provision its Articles
of Incorporation, as amended, or Bylaws, as amended, or (ii) law, ordinance,
rule or regulation promulgated by any Governmental Entity, except, with respect
to this clause (ii), for such violations as would not have, individually or in
the aggregate, a material adverse effect on the business, financial condition,
results of operations or prospects of GBB on a consolidated basis or the Banks,
as the case may be.

5.21. Undisclosed Liabilities. Neither GBB nor the Banks have any
-----------------------
liabilities or obligations, either accrued or contingent, that are material to
GBB and that have not been: (a) reflected or disclosed in the Financial
Statements of GBB; (b) incurred subsequent to December 31, 1997 in the ordinary
course of business consistent with past practices; or (c) disclosed in a list
furnished by GBB to BAB (the " GBB Undisclosed Liabilities List") or on any
other GBB List. GBB does not know of any basis for the assertion against it or
the Banks of any liability, obligation or claim (including, without limitation,
that of any regulatory authority) that is likely to result in or cause a
material adverse change in the business, financial condition, results of
operations

36
<PAGE>

or prospects of GBB on a consolidated basis that is not fairly reflected in
the Financial Statements of GBB or otherwise disclosed in this Agreement.

5.22. Community Reinvestment Act. Each of the Banks has received a
--------------------------
rating of at least "satisfactory" in its most recent examination or interim
review with respect to the Community Reinvestment Act. None of the Banks has
been advised of any supervisory concerns regarding its compliance with the
Community Reinvestment Act.

5.23. Employee Benefit Plans. GBB has previously made available to BAB
----------------------
copies of each "employee benefit plan," as defined in Section 3(3) of ERISA, of
which GBB or any of its ERISA Affiliates is a sponsor or participating employer
or as to which GBB or any of its ERISA Affiliates makes contributions or is
required to make contributions and which is subject to any provision of ERISA
and covers any employee, whether active or retired, of GBB or any of its ERISA
Affiliates, together with all amendments thereto, all currently effective and
related summary plan descriptions (to the extent one is required by law), the
determination letter from the IRS, the annual reports for the most recent three
years (Form 5500 including, if applicable, Schedule B thereto) and the summary
of material modifications and all material employee communications prepared in
connection with or pertaining to any such plan. Such plans are hereinafter
referred to collectively as the "Employee Plans." GBB does not participate in
an employee benefit pension plan that is a "multiemployer plan" within the
meaning of Section 3(37) of ERISA that would subject GBB to a material amount of
liability with respect to any such plan. Each Employee Plan which is intended
to be qualified in form and operation under Section 401(a) of the Code is so
qualified and the associated trust for each such Employee Plan is exempt from
tax under Section 501(a) of the Code. No event has occurred that will subject
such Employee Plans to a material amount of tax under Section 511 of the Code.
All amendments required to bring each Employee Plan into conformity with all of
the applicable provisions of ERISA, the Code and all other applicable laws have
been made. All Employee Plans were in effect for substantially all of 1998, and
there has been no material amendment thereof (other than amendments required to
comply with applicable law) or increase in the cost thereof or benefits
thereunder on or after January 1, 1998.

ARTICLE 6.

COVENANTS OF BAB
----------------
PENDING EFFECTIVE TIME OF THE MERGER
------------------------------------

BAB covenants and agrees with GBB as follows:

6.1. Limitation on BAB's Conduct Prior to Effective Time of the
----------------------------------------------------------
Merger. Between the date hereof and the Effective Time of the Merger, except as
contemplated by this Agreement and subject to requirements of law and
regulation, BAB agrees to conduct its business (and to cause BABANK to conduct
its business) in the ordinary course in substantially the manner

37
<PAGE>

heretofore conducted and in accordance with sound banking practices, and BAB
and BABANK shall not, without the prior written consent of GBB, which consent
will not be unreasonably withheld:

6.1.1. issue, sell or grant any BAB Stock (except pursuant to the
exercise of BAB Options outstanding as of the date hereof), any other securities
(including long term debt) of BAB or BABANK, or any rights, stock appreciation
rights, options or securities to acquire any BAB Stock, or any other securities
(including long term debt) of BAB or BABANK;

6.1.2. declare, set aside or pay any dividend or make any other
distribution upon or split, combine or reclassify any shares of capital stock or
other securities of BAB or BABANK, provided, however, that subject to Section
6.11, BAB may pay to its shareholders its regular cash dividend in amounts
consistent with past practices;

6.1.3. purchase, redeem or otherwise acquire any capital stock or
other securities of BAB or BABANK or any rights, options, or securities to
acquire any capital stock or other securities of BAB or BABANK;

6.1.4. except as may be required to effect the transactions
contemplated herein, amend its Articles of Incorporation or Bylaws;

6.1.5. grant any general or uniform increase in the rate of pay of
employees or employee benefits;

6.1.6. grant any increase in salary, incentive compensation or
employee benefits or pay any bonus to any Person (except as to any amounts
accrued as of December 31, 1998 and except as to any increase reasonably
necessary to retain an existing employee whose services are critical to the
operations of BABANK; provided, however that any such increases or bonuses shall
not exceed in the aggregate (and not on an individual basis) 3% of BABANK's
compensation expense at December 31, 1998) or voluntarily accelerate the vesting
of any employee benefits;

6.1.7. make any capital expenditure (unless previously committed
and disclosed to BAB) or commitments with respect thereto in excess of $50,000
in the aggregate, except for ordinary repairs, renewals and replacements;

6.1.8. compromise or otherwise settle or adjust any assertion or
claim of a deficiency in taxes (or interest thereon or penalties in connection
therewith), extend the statute of limitations with any tax authority or file any
pleading in court in any tax litigation or any appeal from an asserted
deficiency, or file or amend any federal, foreign, state or local tax return, or
make any tax election;

38
<PAGE>

6.1.9. grant, renew or commit to grant or renew any extension of
credit if such extension of credit, together with all other credit then
outstanding to the same Person and all Affiliated Persons, would exceed $200,000
on an unsecured basis, or $500,000 if secured by a lien on real estate or cash
(consent shall be deemed granted if within three Business Days of written notice
delivered to GBB's Chief Credit Officer, written notice of objection is not
received by BAB);

6.1.10. change in any material respect its tax or accounting
policies and procedures or any method or period of accounting unless required by
generally accepted accounting principles or a Governmental Entity;

6.1.11. grant or commit to grant any extension of credit or amend
the terms of any such credit outstanding on the date hereof to any executive
officer, director or holder of 10% or more of the outstanding BAB Stock, or any
Affiliate of such Person, if such credit would exceed $25,000;

6.1.12. close any offices at which business is conducted or open any
new offices except ATM locations; provided, however that BABANK shall give GBB
prior notice of new ATM locations;

6.1.13. adopt or enter into any new employment agreement or other
employee benefit plan or arrangement or amend or modify any employment agreement
or employee benefit plan or arrangement of any such type except for such
amendments as are required by law;

6.1.14. initiate, solicit or encourage (including by way of
furnishing information or assistance), or take any other action to facilitate,
any inquiries or the making of any proposal which constitutes, or may reasonably
be expected to lead to, any Competing Transaction (as such term is defined
below), or negotiate with any person in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of its or BABANK's officers, directors
or employees or any investment banker, financial advisor, attorney, accountant
or any other representative retained by it or any of its Affiliates to take any
such action, and BAB shall promptly notify GBB (orally and in writing) of all of
the relevant details relating to all inquiries and proposals which it may
receive relating to any of such matters. For purposes of this Agreement,
"Competing Transaction" shall mean any of the following involving BAB or BABANK:
any merger, consolidation, share exchange or other business combination; a sale,
lease, exchange, mortgage, pledge, transfer or other disposition of assets of
BAB or BABANK representing 10% or more of the consolidated assets of BAB; a sale
of shares of capital stock (or securities convertible or exchangeable into or
otherwise evidencing, or any agreement or instrument evidencing, the right to
acquire capital stock), representing 10% or more of the voting power of BAB or
BABANK; a tender offer or exchange offer for at least 10% of the outstanding
shares; a solicitation of proxies in opposition to approval of the Merger by
BAB's shareholders; or a public announcement of an unsolicited bona fide
proposal, plan, or intention to do any of the foregoing. Notwithstanding any
other provision in this Section 6.1.14 or elsewhere in

39
<PAGE>

this Agreement, the obligations of BAB in this Agreement are subject to, upon
advice of counsel, the continuing fiduciary duties of the Board of Directors
of BAB to the shareholders of BAB; provided, however, that nothing herein
shall prohibit GBB from terminating this Agreement pursuant to Section 13.1.8
hereof.

6.1.15. change any basic policies and practices with respect to
liquidity management and cash flow planning, marketing, deposit origination,
lending, budgeting, profit and tax planning, personnel practices or any other
material aspect of BAB's business or operations, except such changes as may be
required in the opinion of BAB's management to respond to economic or market
conditions or as may be required by any Governmental Entity;

6.1.16. grant any Person a power of attorney or similar
authority;

6.1.17. make any investment by purchase of stock or securities
(including an Investment Security), contributions to capital, property transfers
or otherwise in any other Person, except for federal funds or obligations of the
United States Treasury or an agency of the United States government, including
collateralized mortgage obligations, the obligations of which are entitled to or
implied to have the full faith and credit of the United States government or
bank qualified investment grade municipal bonds, in any case, in the ordinary
course of business consistent with past practices and which are not designated
as trading (consent shall be deemed granted if within three Business Days of
written notice delivered to GBB's Chief Operating Officer, written notice of
objection is not received by BAB);

6.1.18. materially amend or modify any Scheduled Contract or enter
into any agreement or contract that would be a Scheduled Contract under Section
4.16 except ATM location contracts in accordance with market conditions;

6.1.19. sell, transfer, mortgage, encumber or otherwise dispose of
any assets or release or waive any claim, except in the ordinary course of
business and consistent with past practices;

6.1.20. knowingly take any action which would or is reasonably
likely to (i) adversely affect the ability of GBB or BAB to obtain any necessary
approval of any Governmental Entity required for the transactions contemplated
hereby; (ii) adversely affect BAB's ability to perform its covenants and
agreements under this Agreement; or (iii) result in any of the conditions to the
performance of GBB's or BAB's obligations hereunder, as set forth in Article 9
or 10 herein not being satisfied;

6.1.21. make any special or extraordinary payments to any
Person;

6.1.22. reclassify any Investment Security from hold-to-maturity
or available for sale to trading;

40
<PAGE>

6.1.23. sell any security other than in the ordinary course of
business, or engage in gains trading;

6.1.24. take title to any real property without conducting prior
thereto an environmental investigation, which investigation shall disclose the
absence of any suspected environmental contamination;

6.1.25. knowingly take or cause to be taken any action which would
disqualify the Merger as a "reorganization" within the meaning of Section 368 of
the Code or prevent GBB from accounting for the business combination to be
effected by the Merger as a pooling-of-interests;

6.1.26. settle any claim, action or proceeding involving any
material liability for monetary damages or enter into any settlement agreement
containing material obligations;

6.1.27. make, acquire a participation in, or reacquire an interest
in a participation sold of, any loan that is not in compliance with its normal
credit underwriting standards, policies and procedures as in effect on September
30, 1998; or renew, extend the maturity of, or alter any of the material terms
of any such loan for a period of greater than six months;

6.1.28. incur any indebtedness for borrowed money or assume,
guaranty, endorse or otherwise as an accommodation become responsible for the
obligations of any other person, except for (i) in connection with banking
transactions with banking customers in the ordinary course of business, or (ii)
short-term borrowings made at prevailing market rates and terms; or

6.1.29. agree or make any commitment to take any actions
prohibited by this Section 6.1.

6.2. Affirmative Conduct of BAB Prior to Effective Time of the Merger.
----------------------------------------------------------------
Between the date hereof and the Effective Time of the Merger, BAB shall (and
shall cause BABANK to):

6.2.1. use its commercially reasonable efforts consistent with this
Agreement to maintain and preserve intact its present business organization and
to maintain and preserve its relationships and goodwill with account holders,
borrowers, employees and others having business relationships with BAB or
BABANK;

6.2.2. use its commercially reasonable efforts to keep in full
force and effect all of the existing material permits and licenses of BAB and
BABANK;

41
<PAGE>

6.2.3. use its commercially reasonable efforts to maintain
insurance coverage at least equal to that now in effect on all properties for
which it is responsible and on its business operations;

6.2.4. perform its material contractual obligations and not
become in material default on any such obligations;

6.2.5. duly observe and conform in all material respects to all
lawful requirements applicable to its business;

6.2.6. maintain its assets and properties in good condition and
repair, normal wear and tear excepted;

6.2.7. promptly upon learning of such information, advise GBB in
writing of any event or any other transaction within its knowledge whereby any
Person or Related Group of Persons acquires, directly or indirectly, record or
beneficial ownership or control (as defined in Rule 13d-3 promulgated by the SEC
under the Exchange Act) of 5% or more of the outstanding BAB Stock prior to the
record date fixed for the BAB Shareholders' Meeting or any adjourned meeting
thereof to approve this Agreement and the transactions contemplated herein;

6.2.8. promptly notify GBB regarding receipt from any tax authority
of any notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue agent's
report, any notice of proposed assessment, or any other similar notification of
potential adjustments to the tax liabilities of BAB, or any actual or threatened
collection enforcement activity by any tax authority with respect to tax
liabilities of BAB;

6.2.9. make available to GBB monthly unaudited balance sheets and
income statements of BAB within 25 days after the close of each calendar month;

6.2.10. not later than the 30th day of each calendar month, amend or
supplement the BAB Lists prepared and delivered pursuant to Article 4 to ensure
that the information set forth in the BAB Lists accurately reflects the then-
current status of BAB. BAB shall further amend or supplement the BAB Lists as
of the Closing Date if necessary to reflect any additional information that
needs to be included in the BAB Lists;

6.2.11. use its commercially reasonable efforts to obtain any third
party consent with respect to any contract, agreement, lease, license,
arrangement, permit or release that is material to the business of BAB or that
is contemplated in this Agreement as required in connection with the Merger;

42
<PAGE>

6.2.12. maintain an allowance for loan and lease losses consistent
with practices and methodology as in effect on the date of the execution of
this Agreement; and

6.2.13. furnish to Manatt, Phelps & Phillips, LLP promptly upon its
written request written representations and certificates as deemed reasonably
necessary or appropriate for purposes of enabling Manatt, Phelps & Phillips, LLP
to render the tax opinion referred to in Section 9.6 hereof.

6.3. Access to Information
---------------------

6.3.1. BAB will afford, upon reasonable notice, to GBB and its
representatives, counsel, accountants, agents and employees reasonable access
during normal business hours to all of its and BABANK's business, operations,
properties, books, files and records and will do everything reasonably necessary
to enable GBB and its representatives, counsel, accountants, agents and
employees to make a complete examination of the financial statements, business,
assets and properties of BAB and BABANK and the condition thereof and to update
such examination at such intervals as GBB shall deem appropriate. Such
examination shall be conducted in cooperation with the officers of BAB and
BABANK and in such a manner as to minimize any disruption of, or interference
with, the normal business operations of BAB and BABANK. Upon the request of
GBB, BAB will request PwC to provide reasonable access to representatives of PwC
working on behalf of GBB to auditors' work papers with respect to the business
and properties of BAB and BABANK, including tax accrual work papers prepared for
BAB and BABANK during the preceding 60 months, other than (a) books, records and
documents covered by the attorney-client privilege, or that are attorneys' work
product, and (b) books, records and documents that BAB or BABANK is legally
obligated to keep confidential. No examination or review conducted under this
section shall constitute a waiver or relinquishment on the part of GBB of the
right to rely upon the representations and warranties made by BAB herein;
provided, that GBB shall disclose to BAB any fact or circumstance it may
discover which GBB believes renders any representation or warranty made by BAB
hereunder incorrect in any respect. GBB covenants and agrees that it, its
subsidiaries, and their respective representatives, counsel, accountants, agents
and employees will hold in strict confidence all documents and information
concerning BAB and BABANK so obtained from any of them (except to the extent
that such documents or information are a matter of public record or require
disclosure in the Proxy Statement and Prospectus or any of the public
information of any applications required to be filed with any Governmental
Entity to obtain the approvals and consents required to effect the transactions
contemplated hereby), and if the transactions contemplated herein are not
consummated, such confidence shall be maintained and all such documents shall be
returned to BAB.

6.3.2. A representative of GBB, selected by GBB in its sole
discretion, shall be authorized and permitted to review each loan, lease, or
other credit funded or renewed by BAB or BABANK after the date hereof, and all
information associated with such loan, lease or other credit

43
<PAGE>

within three Business Days of such funding or renewal, such review to take
place, if possible, on BAB's premises.

6.3.3. A representative of GBB, selected by GBB in its sole
discretion, shall be permitted by BAB and BABANK to attend all regular and
special Board of Directors' and committee meetings of BAB and BABANK from the
date hereof until the Effective Time of the Merger; provided, however, that the
attendance of such representative shall not be permitted at any meeting, or
portion thereof, for the sole purpose of discussing the transactions
contemplated by this Agreement or the obligations of BAB under this Agreement.

6.4. Review by Accountants. Promptly upon request of GBB, BAB will
---------------------
request PwC to permit representatives of PwC working on behalf of GBB to review
and examine the work papers of PwC relating to BAB and BABANK and the Financial
Statements of BAB and to review and examine the work papers of PwC relating to
any future completed audits or completed reviews of BAB and BABANK.

6.5. Filings. BAB agrees that through the Effective Time of the
-------
Merger, each of its or BABANK's reports, registrations, statements and other
filings required to be filed with any applicable Governmental Entity will comply
in all material respects with all the applicable statutes, rules and regulations
enforced or promulgated by the Governmental Entity with which it will be filed
and none will contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statement contained in any such report, registration,
statement or other filing that is intended to present the financial position of
the entity to which it relates will fairly present the financial position of
such entity and will be prepared in accordance with generally accepted
accounting principles or applicable banking regulations consistently applied
during the periods involved.

6.6. Notices; Reports. BAB will promptly notify GBB of any event of
----------------
which BAB obtains knowledge which has had or may have a materially adverse
effect on the financial condition, operations, business or prospects of BAB on a
consolidated basis, or in the event that BAB determines that it is unable to
fulfill any of the conditions to the performance of GBB's obligations hereunder,
as set forth in Article 9 or 11 herein, and BAB will furnish GBB (i) as soon as
available, and in any event within one Business Day after it is mailed or
delivered to the Board of Directors of BAB or BABANK or committees thereof, any
report by BAB or BABANK for submission to the Board of Directors of BAB or
BABANK or committees thereof, provided, however, that BAB need not furnish to
GBB communications of BAB's legal counsel regarding BAB's rights and obligations
under this Agreement or the transactions contemplated hereby, or books, records
and documents covered by confidentiality agreements or the attorney-client
privilege, or which are attorneys' work product, (ii) as soon as available, all
proxy statements, information statements, financial statements, reports, letters
and communications sent by BAB to its shareholders or other security holders,
and all reports filed by BAB or BABANK with the FRB, the

44
<PAGE>

FDIC or the DFI, and (iii) such other existing reports as GBB may reasonably
request relating to BAB or BABANK.

6.7. BAB Shareholders' Meeting. Promptly after the execution of this
-------------------------
Agreement, BAB will take action necessary in accordance with applicable law and
its Articles of Incorporation and Bylaws to convene a meeting of its
shareholders to consider and vote upon this Agreement and the transactions
contemplated hereby so as to permit the consummation of the transactions
contemplated hereby. The Board of Directors of BAB shall, subject to its
fiduciary duties, recommend that its shareholders approve this Agreement and the
transactions contemplated hereby, and the Board of Directors of BAB shall,
subject to its fiduciary duties, use its best efforts to obtain the affirmative
vote of the holders of the largest possible percentage of the outstanding BAB
Stock to approve this Agreement and the transactions contemplated hereby.

6.8. Certain Loans and Other Extensions of Credit. BAB will promptly
--------------------------------------------
inform GBB of the amounts and categories of any loans, leases or other
extensions of credit that have been classified by any bank regulatory authority
or by any unit of BAB or BABANK or by any other Person as "Criticized,"
"Specially Mentioned," "Substandard," "Doubtful," "Loss" or any comparable
classification ("Classified Credits"). BAB will furnish GBB, as soon as
practicable, and in any event within 20 days after the end of each calendar
month, schedules including the following: (a) Classified Credits (including
with respect to each credit its classification category and the originating
unit); (b) nonaccrual credits (including the originating unit); (c) accrual
exception credits that are delinquent 90 or more days and have not been placed
on nonaccrual status (including its originating unit); (d) credits delinquent as
to payment of principal or interest (including its originating unit), including
an aging into current-to-29, 30-59, 60-89, and 90+ day categories; (e)
participating loans and leases, stating, with respect to each, whether it is
purchased or sold and the originating unit; (f) loans or leases (including any
commitments) by BAB or BABANK to any BAB or BABANK director, officer at or above
the senior vice president level, or shareholder holding 10% or more of the
capital stock of BAB, including with respect to each such loan or lease the
identity and, to the knowledge of BAB, the relation of the borrower to BAB or
BABANK, and the outstanding and undrawn amounts; (g) letters of credit
(including the originating unit); (h) loans or leases wholly or partially
charged off during the previous month (including with respect to each loan or
lease, the originating amount, the write-off amount and its originating unit);
and (i) other real estate or assets acquired in satisfaction of debt.

6.9. Applications. Subject to Section 7.5, BAB will promptly prepare
------------
or cause to be prepared the portions of the Proxy Statement and Prospectus as it
pertains to BAB or BABANK and any other applications necessary to consummate the
transactions contemplated hereby, and further agrees to provide any information
requested by GBB for the preparation of any applications necessary to consummate
the transactions contemplated hereby. BAB shall afford GBB a reasonable
opportunity to review the portions of the Proxy Statement and Prospectus
pertaining to BAB or BABANK and all such applications and all amendments and
supplements thereto before the filing thereof. BAB covenants and agrees that,
with respect to the information relating to BAB or

45
<PAGE>

BABANK, the Proxy Statement and Prospectus will comply in all material
respects with the provisions of applicable law, and will not contain any
untrue statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. BAB
will use its commercially reasonable efforts to obtain all regulatory
approvals or consents necessary to effect the Merger and the transactions
contemplated herein.

6.10. Affiliates Agreements. Concurrently with the execution of this
---------------------
Agreement, (a) BAB shall deliver to GBB a letter identifying all persons who are
then "affiliates" of BAB for purposes of Rule 145 under the Securities Act and
(b) BAB shall advise the persons identified in such letter of the resale
restrictions imposed by applicable securities laws and shall use reasonable
efforts to obtain from each person identified in such letter a written agreement
substantially in the form attached hereto as Exhibit B. BAB shall use
---------
reasonable efforts to obtain from any person who becomes an affiliate of BAB
after BAB's delivery of the letter referred to above, and on or prior to the
date of the BAB Shareholders' Meeting to approve this Agreement, a written
agreement substantially in the form attached as Exhibit B hereto as soon as
---------
practicable after obtaining such status.

6.11. Coordination of Dividends. BAB shall coordinate with GBB the
-------------------------
declaration of any dividends that may be allowed pursuant to Section 6.1.2
hereof, and the record date and the payment dates relating thereto, it being the
intention of the parties that holders of BAB Stock shall not receive two
dividends, or fail to receive one dividend, for any applicable dividend period
with respect to their shares of BAB Stock and any shares of GBB Stock any such
holder will receive in exchange therefor in the Merger.

6.12. D&O Coverage. In the event that GBB is unable to have BAB's and
------------
BABANK's directors and officers added to GBB's directors' and officers'
liability insurance policy pursuant to Section 7.2.6 hereof and upon GBB's
request, BAB shall use commercially reasonable efforts to obtain (i) coverage
for a period of at least 36 months following the Effective Time of the Merger
for the directors and officers of BAB and BABANK under a directors' and
officers' liability insurance policy which is no less protective in terms of
coverage or limitations than now possessed by BAB covering acts or omissions
occurring prior to the Effective Time of the Merger and actions related to this
Agreement, and (ii) coverage for a period of at least 36 months following the
Effective Time of the Merger under a bankers' blanket bond which is no less
protective in terms of coverage or limitations than now possessed by BAB
covering acts or omissions occurring prior to the Effective Time of the Merger
and actions related to this Agreement.

6.13. Management Indebtedness. BAB shall modify the loans with its
-----------------------
directors and officers that are secured by BAB Stock to require repayment of the
related indebtedness 12 months after the Effective Time of the Merger.

46
<PAGE>

ARTICLE 7.

COVENANTS OF GBB
----------------
PENDING EFFECTIVE TIME OF THE MERGER
------------------------------------

GBB covenants and agrees with BAB as follows:

7.1. Limitation on GBB's Conduct Prior to Effective Time of the
----------------------------------------------------------
Merger. Between the date hereof and the Effective Time of the Merger, except as
- ------
contemplated by this Agreement and subject to requirements of law and regulation
generally applicable to bank holding companies and banks, each of GBB and its
subsidiaries shall not, without prior written consent of BAB:

7.1.1. take any action which would or is reasonably likely to (i)
adversely affect the ability of GBB to obtain any necessary approvals of any
Governmental Entity required for the transactions contemplated hereby; (ii)
adversely affect GBB's ability to perform its covenants and agreements under
this Agreement; or (iii) result in any of the conditions to the performance of
GBB's obligations hereunder, as set forth in Article 9 or 11 herein not being
satisfied;

7.1.2. take or cause to be taken any action which would disqualify
the Merger as a "reorganization" within the meaning of Section 368 of the Code
or prevent GBB from accounting for the business combination to be effected by
the Merger as a pooling-of-interests;

7.1.3. amend its articles of incorporation in any respect which
would materially and adversely affect the rights and privileges attendant to the
GBB Stock; or

7.1.4. agree or make any commitment to take any actions
prohibited by this Section 7.1.

7.2. Affirmative Conduct of GBB and Subsidiaries Prior to Effective
--------------------------------------------------------------
Time of the Merger. Between the date hereof and the Effective Time of the
- ------------------
Merger, GBB shall:

7.2.1. duly observe and conform in all material respects to all
lawful requirements applicable to the business of GBB or any subsidiary of GBB;

7.2.2. use its commercially reasonable efforts to obtain any third
party consent with respect to any contract, agreement, lease, license,
arrangement, permit or release that is material to the business of GBB on a
consolidated basis and that is contemplated in this Agreement as required in
connection with the Merger;

7.2.3. not later than the 20th day of each calendar month, amend or
supplement the GBB Lists prepared and delivered pursuant to Article 5 to ensure
that the

47
<PAGE>

information set forth in the GBB Lists accurately reflects the then-current
status of GBB and its subsidiaries. GBB shall further amend or supplement the
GBB Lists as of the Closing Date if necessary to reflect any additional
information that needs to be included in the GBB Lists; and

7.2.4. use its commercially reasonable efforts to have BAB's
directors and officers added to GBB's directors' and officers' liability
insurance policy, providing for coverage for a period of at least 36 months
following the Effective Time of the Merger and covering acts or omissions
occurring prior to the Effective Time of the Merger and actions related to this
Agreement.

7.3. Access to Information. Upon reasonable request by BAB, GBB shall
---------------------
(i) make its Chief Operating Officer/Chief Financial Officer and Controller (or
another senior officer) available to discuss with BAB and its representatives
GBB's operations; and (ii) shall provide BAB with written information which is
(a) similar to the written information that BAB reviewed in connection with this
Agreement, and (b) related to GBB's business condition, operations and
prospects. No examination or review conducted under this section shall
constitute a waiver or relinquishment on the part of BAB of the right to rely
upon the representations and warranties made by GBB herein; provided, that BAB
shall disclose to GBB any fact or circumstance it may discover which BAB
believes renders any representation or warranty made by GBB hereunder incorrect
in any respect. BAB covenants and agrees that it and its representatives,
counsel, accountants, agents and employees will hold in strict confidence all
documents and information concerning GBB so obtained (except to the extent that
such documents or information are a matter of public record or require
disclosure in the Proxy Statement and Prospectus or any of the public
information of any applications required to be filed with any Governmental
Entity to obtain the approvals and consents required to effect the transactions
contemplated hereby), and if the transactions contemplated herein are not
consummated, such confidence shall be maintained and all such documents shall be
returned to GBB.

7.4. Filings. GBB agrees that through the Effective Time of the
-------
Merger, each of its reports, registrations, statements and other filings
required to be filed with any applicable Governmental Entity will comply in all
material respects with all the applicable statutes, rules and regulations
enforced or promulgated by the Governmental Entity with which it will be filed
and none will contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any financial statement contained in any such report, registration,
statement or other filing that is intended to present the financial position of
the entities or entity to which it relates will fairly present the financial
position of such entities or entity and will be prepared in accordance with
generally accepted accounting principles or applicable banking regulations
consistently applied during the periods involved.

7.5. Applications. GBB will promptly prepare and file or cause to be
------------
prepared and filed (i) an application for approval of the Merger with the FRB;
(ii) an application for approval of the Merger with the DFI; (iii) in
conjunction with BAB, the Registration Statement on Form S-4

48
<PAGE>

and the Proxy Statement and Prospectus as it pertains to GBB; and (iv) any
other applications necessary to consummate the transactions contemplated
hereby. GBB shall afford BAB a reasonable opportunity to review the Proxy
Statement and Prospectus and all such applications and all amendments and
supplements thereto before the filing thereof. GBB covenants and agrees that
the Registration Statement on Form S-4 and the Proxy Statement and Prospectus
and all applications to the appropriate regulatory agencies for approval or
consent to the Merger, with respect to information relating to GBB or its
subsidiaries, will comply in all material respects with the provisions of
applicable law, and will not contain any untrue statement of material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under
which they were made, not misleading. GBB will use its commercially reasonable
efforts to obtain all regulatory approvals or consents necessary to effect the
Merger.

7.6. Blue Sky. GBB agrees to use commercially reasonable efforts to
--------
have the shares of GBB Stock to be issued in connection with the Merger
qualified or registered for offer and sale, to the extent required, under the
securities laws of each jurisdiction in which shareholders of BAB reside.

7.7. Notices; Reports. GBB will promptly notify BAB of any event of
----------------
which GBB obtains knowledge which has had or may have a material adverse affect
on the financial condition, operations, business or prospects of GBB on a
consolidated basis or in the event that GBB determines that it is unable to
fulfill any of the conditions to the performance of BAB's obligations hereunder,
as set forth in Article 9 or 10 herein.

7.8. Removal of Conditions. In the event of the imposition of a
---------------------
condition to any regulatory approvals which GBB deems to materially adversely
affect it or to be materially burdensome, GBB shall use its commercially
reasonable efforts for purposes of obtaining the removal of such condition.

7.9. Stock Options and Stock Appreciation Rights.
-------------------------------------------

7.9.1. At and as of the Effective Time of the Merger, GBB shall
assume each and every outstanding option to purchase shares of BAB Stock ("BAB
Stock Option") and all obligations of BAB under the BAB Stock Option Plan. Each
and every BAB Stock Option so assumed by GBB under this Agreement shall continue
to have, and be subject to, the same terms and conditions set forth in the BAB
Stock Option Plan and in the other documents governing such BAB Stock Option
immediately prior to the Effective Time of the Merger, except that: (i) such
BAB Stock Option shall be exercisable for that number of whole shares of GBB
Stock equal to the product of (A) the number of shares of BAB Stock that were
purchasable under such BAB Stock Option immediately prior to the Effective Time
of the Merger multiplied by (B) the Conversion Ratio, rounded down to the
nearest whole number of shares of GBB Stock; and (ii) the per share exercise
price for the shares of GBB Stock issuable upon exercise of such BAB Stock
Option shall

49
<PAGE>

be equal to the quotient determined by dividing (A) the exercise price per
share of BAB Stock at which such BAB Stock Option was exercisable immediately
prior to the Effective Time of the Merger by (B) the Conversion Ratio. Prior
to the Effective Time of the Merger, GBB shall issue to each holder of an
outstanding BAB Stock Option a document evidencing the assumption of such BAB
Stock Option by GBB pursuant to this Section 7.9.

7.9.2. GBB shall comply with the terms of the BAB Stock Option Plan
and insure, to the extent required by, and subject to the provisions of, such
Plans, that BAB Stock Options which qualify as incentive stock options prior to
the Effective Time of the Merger qualify as incentive stock options of GBB after
the Effective Time of the Merger.

7.9.3. At or prior to the Effective Time of the Merger, GBB shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of GBB Stock for delivery upon exercise of GBB Stock Options assumed
by it in accordance with this Section 7.9.

7.9.4 At or prior to the Effective Time of the Merger, GBB shall
provide for the cash settlement of the stock appreciation rights granted under
the BAB SAR Plan in accordance with the "Change In Control" provisions of such
Plan, subject to the cap contained therein and the agreements executed
thereunder.

7.10 Reservation, Issuance and Registration of GBB Stock. GBB shall
---------------------------------------------------
reserve and make available for issuance in connection with the Merger and in
accordance with the terms and conditions of this Agreement such number of shares
of GBB Stock to be issued to the shareholders of BAB in the Merger pursuant to
Article 2 hereof.

7.11 Nasdaq Listing. GBB shall use its commercially reasonable
--------------
efforts to cause the shares of GBB Stock to be issued in the Merger to be
approved for listing on the Nasdaq National Market System, subject to official
notice of issuance, prior to the Effective Time of the Merger.

7.12 Directors Emeritus. GBB shall assume the obligations of BAB
------------------
under the three Director Emeritus agreements in effect on the date of this
Agreement, plus a Director Emeritus agreement (similar to the currently
effective Director Emeritus agreements) with Thorwald A. Madsen that BAB may
enter into between the date of this Agreement and the Closing Date providing for
a five year term and monthly payments over such term in the amount of $1,550.

50
<PAGE>

ARTICLE 8.

ADDITIONAL COVENANTS
--------------------

The parties hereto hereby mutually covenant and agree with each other as
follows:

8.1. Best Efforts. Subject to the terms and conditions of this
------------
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement as promptly as practical.

8.2. Public Announcements. No press release or other public
--------------------
disclosure of matters related to this Agreement or any of the transactions
contemplated hereby shall be made by GBB or BAB unless the other party shall
have provided its prior consent to the form and substance thereof; provided,
however, that nothing herein shall be deemed to prohibit any party hereto from
making any disclosure which its counsel deems necessary or advisable in order to
fulfill such party's disclosure obligations imposed by law.

8.3. Appointment of Directors. GBB agrees to take all necessary
------------------------
action, including, if necessary, increasing the authorized number of its
directors, to appoint one member of BAB's Board of Directors to the Board of
Directors of GBB effective at and after the Effective Time of the Merger. BAB
agrees to take all necessary action including, if necessary, increasing or
causing BABANK to increase the authorized number of BABANK's directors, to
appoint David L. Kalkbrenner (or such other person designated by GBB and
reasonably acceptable to BAB) to the Board of Directors of BABANK, effective at
and after the Effective Time of the Merger.

8.4. Environmental Assessment and Remediation. GBB may cause to be
----------------------------------------
prepared at GBB's sole cost and expense within 45 days of the date of this
Agreement one or more phase I environmental investigations with respect to the
Real Property set forth on the BAB Real Property List. In the event any such
phase I environmental investigation report, or any such report which BAB or
BABANK has already obtained on any of the Real Property set forth on BAB's Real
Property List, discloses facts which, in the sole discretion of GBB, warrant
further investigation, GBB shall provide written notice to BAB, and BAB shall be
required to cause to be completed within 60 days of such written notice, at the
sole cost and expense of GBB, a phase II environmental investigation and report
with respect to such property. The consultant engaged by BAB to conduct such
investigation and provide such report shall be acceptable to GBB. GBB shall
have 10 days from the receipt of such investigation report to object thereto,
which objection shall be by written notice. In the event of any such objection,
GBB shall engage an environmental consultant satisfactory to BAB who shall
provide an estimate of the cost of taking any remedial action recommended or
suggested in such phase II environmental investigation report, or which is
required by law, or which is determined to be prudent by GBB, in its sole
discretion, and, unless the estimated cost of such Remediation is in excess of
$100,000 or is not reasonably determinable by

51
<PAGE>

such consultant (and written notice thereof provided by BAB to GBB) BAB shall
immediately commence such Remediation, all at the sole cost and expense of
BAB. In the event such environmental consultant determines that the estimated
cost of such remediation is in excess of $100,000 or is not reasonably
determinable, GBB shall have the right to terminate the Agreement pursuant to
Section 13.1.9 hereof before the expiration of 21 days from the date of such
written notice.

GBB agrees to keep confidential and not to disclose any nonpublic
information obtained in the course of such environmental investigation relating
to environmental contamination or suspected contamination of any property on the
BAB Real Property List, except as required by law.

ARTICLE 9.

CONDITIONS PRECEDENT TO THE MERGER
----------------------------------

The obligations of each of the parties hereto to consummate the
transactions contemplated herein are subject to the satisfaction, on or before
the Closing Date, of the following conditions:

9.1. Shareholder Approval. The Agreement and the transactions
--------------------
contemplated hereby shall have received all requisite approvals of the
shareholders of BAB.

9.2. No Judgments or Orders. No judgment, decree, injunction, order
----------------------
or proceeding shall be outstanding or threatened by any Governmental Entity
which prohibits or restricts the effectuation of, or threatens to invalidate or
set aside, the Merger substantially in the form contemplated by this Agreement,
unless counsel to the party against whom such action or proceeding was
instituted or threatened renders to the other parties hereto a favorable opinion
that such judgment, decree, injunction, order or proceeding is without merit.

9.3. Regulatory Approvals. To the extent required by applicable law
--------------------
or regulation, all approvals or consents of any Governmental Entity, including,
without limitation, those of the FRB and the DFI shall have been obtained or
granted for the Merger and the transactions contemplated hereby and the
applicable waiting period under all laws shall have expired. All other
statutory or regulatory requirements for the valid completion of the
transactions contemplated hereby shall have been satisfied.

9.4. Securities Laws. The Registration Statement on Form S-4 shall
---------------
have been declared effective by the SEC and shall not be the subject of any stop
order or proceedings seeking or threatening a stop order. GBB shall have
received all state securities or "Blue Sky" permits and other authorizations
necessary to issue the GBB Stock to consummate the Merger.

52
<PAGE>

9.5. Listing. The GBB Stock issuable in the Merger shall have been
-------
included for listing on the Nasdaq National Market System.

9.6. Tax Opinions. GBB and BAB shall have received from Manatt,
------------
Phelps & Phillips, LLP an opinion reasonably satisfactory to GBB and BAB to the
effect that the Merger shall not result in the recognition of gain or loss for
federal income tax purposes to GBB or BAB, nor shall the issuance of the GBB
Stock result in the recognition of gain or loss by the holders of BAB Stock who
receive such stock in connection with the Merger, dated prior to the date the
Proxy Statement and Prospectus is first mailed to the shareholders of BAB and
GBB and such opinions shall not have been withdrawn or modified in any material
respect.

9.7. Pooling of Interests. Prior to the Effective Time of the
--------------------
Merger, GBB shall have received from PwC a written confirmation that the Merger
will qualify for pooling-of-interests accounting treatment. In making its
determination that the Merger will qualify for such treatment, PwC shall be
entitled to assume that cash will be paid with respect to all shares held of
record by any holder of Dissenting Shares.

ARTICLE 10.

CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BAB
----------------------------------------------

All of the obligations of BAB to effect the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions, any of which may be waived in writing by BAB:

10.1. Legal Opinion. BAB shall have received the opinion of Linda M.
-------------
Iannone, General Counsel of GBB, dated as of the Closing Date, and in form and
substance satisfactory to the counsel of BAB, to the effect that: (i) GBB is a
corporation validly existing under the laws of the State of California with full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby; (ii) all corporate proceedings on the part of
GBB necessary to be taken in connection with the Merger in order to make the
same effective have been duly and validly taken; (iii) this Agreement and the
Agreement of Merger have been duly and validly authorized, executed and
delivered on behalf of GBB and constitute (subject to standard exceptions of
enforceability arising from the bankruptcy laws and rules of equity) valid and
binding agreements of GBB; and (iv) the shares of GBB Stock to be issued in the
Merger will, when issued, be duly authorized, validly issued, fully paid and
nonassessable.

10.2. Representations and Warranties; Performance of Covenants. All
--------------------------------------------------------
the covenants, terms and conditions of this Agreement to be complied with and
performed by GBB on or before the Closing Date shall have been complied with
and performed in all material respects. Each of the representations and
warranties of GBB contained in Article 5 hereof shall have been true and correct
in all material respects (except that where any statement in a representation or

53
<PAGE>

warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects) on and as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date or for changes expressly contemplated by this Agreement) on and as of the
Closing Date, with the same effect as though such representations and warranties
had been made on and as of the Closing Date. It is understood and acknowledged
that the representations being made on and as of the Closing Date shall be made
without giving effect to any update with respect to the GBB Lists in accordance
with Section 7.2.3.

10.3. Authorization of Merger. All actions necessary to authorize
-----------------------
the execution, delivery and performance of this Agreement by GBB and the
Agreement of Merger and the consummation of the transactions contemplated hereby
and thereby shall have been duly and validly taken by the Board of Directors of
GBB, as required by applicable law, and GBB shall have full power and right to
merge pursuant to the Agreement of Merger.

10.4. Absence of Certain Changes. Between the date of this Agreement
--------------------------
and the Effective Time of the Merger, there shall not have occurred any event
that has had or could reasonably be expected to have a material adverse effect
on the business, financial condition, results of operations or prospects of GBB
on a consolidated basis, whether or not such event, change or effect is
reflected in the GBB Lists as amended or supplemented after the date of this
Agreement.

10.5. Officers' Certificate. There shall have been delivered to BAB
---------------------
on the Closing Date a certificate executed by the Chief Executive Officer and
the Chief Financial Officer of GBB certifying, to the best of their knowledge,
compliance with all of the provisions of Sections 10.2, 10.3 and 10.4.

10.6. Fairness Opinion. BAB shall have received a letter from
----------------
Findley & Associates dated as of a date within five Business Days of the mailing
of the Proxy Statement and Prospectus to the shareholders of BAB, to the effect
that the transactions contemplated by this Agreement are fair from a financial
point of view to the shareholders of BAB.

ARTICLE 11.

CONDITIONS PRECEDENT TO
-----------------------
OBLIGATIONS OF GBB
------------------

All of the obligations of GBB to effect the transactions contemplated
hereby shall be subject to the satisfaction, on or before the Closing Date, of
the following conditions, any of which may be waived in writing by GBB:

11.1. Legal Opinion. GBB shall have received the opinion of Haines
-------------
Brydon & Lea, attorneys for BAB, and in form and substance satisfactory to the
counsel of GBB, to the effect that: (i) BAB is a corporation validly existing
under the laws of the State of California with full

54
<PAGE>

corporate power and authority to enter into this Agreement and the Agreement
of Merger and to consummate the transactions contemplated hereby and thereby;
(ii) all corporate proceedings on the part of BAB necessary to be taken in
connection with the Merger in order to make the same effective have been duly
and validly taken; and (iii) this Agreement and the Agreement of Merger have
been duly and validly authorized, executed and delivered on behalf of BAB and
constitutes (subject to standard exceptions of enforceability arising from the
bankruptcy laws and rules of equity) a valid and binding agreement of BAB.

11.2. Representations and Warranties; Performance of Covenants. All
--------------------------------------------------------
the covenants, terms and conditions of this Agreement to be complied with and
performed by BAB at or before the Closing Date shall have been complied with and
performed in all material respects. Each of the representations and warranties
of BAB contained in Article 4 hereof shall have been true and correct in all
material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct in all respects) on and as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date or for changes expressly contemplated by this Agreement) on and as of the
Closing Date, with the same effect as though such representations and warranties
had been made on and as of the Closing Date. It is understood and acknowledged
that the representations being made on and as of the Closing Date shall be made
without giving effect to any update with respect to the BAB Lists in accordance
with Section 6.2.10.

11.3. Authorization of Merger. All actions necessary to authorize
-----------------------
the execution, delivery and performance of this Agreement and the Agreement of
Merger by BAB and the consummation of the transactions contemplated hereby and
thereby shall have been duly and validly taken by the Board of Directors and
shareholders of BAB, and BAB shall have full power and right to merge pursuant
to the Agreement of Merger.

11.4. Third Party Consents. BAB shall have obtained all consents of
--------------------
other parties to its and BABANK'S respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit the
Merger and the transactions contemplated herein to be consummated without a
material default, acceleration, breach or loss of rights or benefits thereunder.

11.5. Absence of Certain Changes. Between the date of this Agreement
--------------------------
and the Effective Time of the Merger, there shall not have occurred any event
that has had or could reasonably be expected to have a material adverse effect
on the business, financial condition, results of operations or prospects of BAB
on a consolidated basis whether or not such event, change or effect is reflected
in the BAB Lists as amended or supplemented after the date of this Agreement.

11.6. Officers' Certificate. There shall have been delivered to GBB
---------------------
on the Closing Date a certificate executed by the Chief Executive Officer and
the Chief Financial Officer of BAB

55
<PAGE>

certifying, to the best of their knowledge, compliance with all of the
provisions of Sections 11.2, 11.3, 11.4 and 11.5.

11.7. Fairness Opinion. GBB shall have received a letter from Hoefer
----------------
& Arnett Incorporated dated as of a date within five Business Days of the
mailing of the Proxy Statement and Prospectus to the shareholders of BAB, to the
effect that the transactions contemplated by this Agreement are fair from a
financial point of view to the shareholders of GBB.

11.8. Shareholder's Agreements. Concurrently with the execution of
------------------------
this Agreement, each director of BAB and BABANK shall have executed and
delivered to GBB agreements substantially in the form of Exhibit D hereto.
---------

11.9. Agreements Not to Compete. Concurrently with the execution of
-------------------------
this Agreement, the directors of BAB shall have executed and delivered to GBB
agreements substantially in the form of Exhibit C hereto.
---------

11.10. Affiliates Agreements. Concurrently with the execution of
---------------------
this Agreement, GBB shall have received from each person named in the letter or
otherwise referred to in Section 6.10 an executed copy of an agreement
substantially in the form on Exhibit B hereto.
---------

11.11. Employee Benefit Plans. GBB shall have received satisfactory
----------------------
evidence that all of BAB's employee benefit plans, programs and arrangements,
including, without limitation, the BAB 401(k) Plan, have been treated as
provided in Article 12 of this Agreement.

11.12. Dissenting Shares. BAB Perfected Dissenting Shares shall
-----------------
constitute less than 8% of the outstanding shares of BAB Stock.

11.13. Remediation. All remediation of environmental contamination
-----------
or conditions on any BAB Property required by the terms of this Agreement shall
have been completed to the satisfaction of GBB.

11.14. BAB Fully Diluted Book Value Per Share. At least five
--------------------------------------
Business Days prior to the Effective Time of the Merger, BAB shall provide GBB
with BAB's consolidated financial statements as of the close of business on the
last day of the month prior to the Effective Time of the Merger. Such financial
statements shall have been prepared in all material respects in accordance with
generally accepted accounting principles and other applicable legal and
accounting requirements, and reflect all period-end accruals and other
adjustments. At the close of business on the last day of the month preceding
the Effective Time of the Merger, after giving effect to any dividends paid
pursuant to Section 6.1.2 hereof, the BAB Fully Diluted Book Value Per Share, as
determined in accordance with such financial statements, shall be not less than
the BAB Fully Diluted Book Value Per Share as of December 31, 1998 as reflected
on the audited consolidated financial statements of BAB for the year then ended,
plus the quotient obtained by dividing (a)

56
<PAGE>

$199,396 times the number of full calendar months from January 1, 1999 through
the last day of the month preceding the Closing Date by (b) the sum of (i) the
number of shares of BAB Stock then issued and outstanding plus (ii) such
number of shares of BAB Stock issuable upon the exercise of any BAB Stock
Option.

11.15. Termination of BAB Stock Option Plan and BAB SAR Plan. GBB
-----------------------------------------------------
shall have received satisfactory evidence that the BAB Stock Option Plan and BAB
SAR Plan have been terminated prior to the Effective Time of the Merger;
provided GBB shall comply with the provisions of Section 7.9.

11.16. Modification of Director and Officer Indebtedness. GBB shall
-------------------------------------------------
have received satisfactory evidence that all loans made by BAB or BABANK to
officers and directors thereof secured by BAB Stock are modified to require
repayment in full 12 months after the Effective Time of the Merger.

ARTICLE 12.

EMPLOYEE BENEFITS
-----------------

12.1. Employee Benefits. GBB intends to merge the BAB 401(k) Plan
-----------------
with and into the GBB 401(k) Plan as soon as administratively feasible after the
Effective Time of the Merger. In no event shall the BAB 401(k) Plan be merged
with and into the GBB 401(k) Plan, however, unless GBB determines, in its sole
discretion, that: (i) the BAB 401(k) Plan is a qualified plan under Section
401(a) of the Code, both as to the form of the BAB 401(k) Plan and as to its
operation; and (ii) there are no facts in existence that would be reasonably
likely to adversely affect the qualified status of the BAB 401(k) Plan. This
analysis shall be made prior to the Effective Time of the Merger and, if the
above determinations are made, the BAB 401(k) Plan shall be merged with and into
the GBB 401(k) Plan as soon as administratively feasible after the Effective
Time of the Merger. If GBB determines in its sole discretion not to merge the
BAB 401(k) Plan into the GBB 401(k) Plan, BAB agrees to use its best efforts to
have the BAB 401(k) Plan qualified prior to the Effective Time of the Merger.

As soon as practicable after the Effective Time of the Merger, all
other BAB and BABANK Employee Plans will be discontinued or merged into GBB
plans, in the discretion of GBB, and employees of BAB and BABANK shall become
eligible for the employee benefit plans of GBB on the same terms as such plans
and benefits are generally offered from time to time to employees of GBB and its
subsidiaries in comparable positions with GBB or its subsidiaries. For purposes
of determining such employment eligibility and vesting under the employee
benefit plans of GBB, GBB shall recognize such employees' years of service with
BAB or BABANK beginning on the date such employees commenced employment with BAB
or BABANK through the Effective Time of the Merger.

57
<PAGE>

12.2 Severance Policy. As to BABANK employees, GBB shall abide by
----------------
the Severance Policy of BABANK as adopted on October 20, 1998 and amended on
November 3, 1998.

ARTICLE 13.

TERMINATION
-----------

13.1. Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time of the Merger upon the occurrence of any of the
following:

13.1.1. By mutual agreement of the parties, in writing;

13.1.2. By BAB (unless BAB's Board of Directors shall have withdrawn
or modified in a manner adverse to GBB in any respect its recommendation of the
Merger to the holders of BAB Stock) or GBB immediately upon the failure of the
shareholders of BAB to give the requisite approval of this Agreement;

13.1.3. By BAB immediately upon expiration of 20 days from delivery
of written notice by BAB to GBB of GBB's breach of or failure to satisfy any
covenant or agreement contained herein resulting in a material impairment of the
benefit reasonably expected to be derived by BAB from the performance or
satisfaction of such covenant or agreement (provided that such breach has not
been waived by BAB or cured by GBB, as the case may be, prior to expiration of
such 20 day period);

13.1.4. By GBB immediately upon expiration of 20 days from delivery
of written notice by GBB to BAB of BAB's breach of or failure to satisfy any
covenant or agreement contained herein resulting in a material impairment of the
benefit reasonably expected to be derived by GBB from the performance or
satisfaction of such covenant or agreement (provided that such breach has not
been waived by GBB or cured by BAB, as the case may be, prior to expiration of
such 20 day period);

13.1.5. By BAB or GBB upon the expiration of 30 days after any
Governmental Entity denies or refuses to grant any approval, consent or
authorization required to be obtained in order to consummate the transactions
contemplated by this Agreement unless, within said 30 day period after such
denial or refusal, all parties hereto agree to resubmit the application to the
regulatory authority that has denied, or refused to grant the approval, consent
or qualification requested;

13.1.6. By BAB or GBB if any conditions set forth in Article 9 shall
not have been met by June 30, 1999 (or July 31, 1999 if any applicable waiting
period for a regulatory approval requires additional time), provided, however,
that this Agreement shall not be terminated

58
<PAGE>

pursuant to this Section 13.1.6 if the relevant condition shall have failed to
occur as a result of any act or omission of the party seeking to terminate.

13.1.7. By BAB if any of the conditions set forth in Article 10
shall not have been met, or by GBB if any of the conditions set forth in Article
11 shall not have been met, by June 30, 1999 (or July 31, 1999 if any applicable
waiting period for a regulatory approval requires additional time), or such
earlier time as it becomes apparent that such condition shall not be met;
provided, however, that this Agreement shall not be terminated pursuant to this
Section 13.1.7 if the relevant condition shall have failed to occur as a result
of any act or omission of the party seeking to terminate;

13.1.8. By GBB if BAB or BABANK shall have failed to act or
refrained from doing any act pursuant to Section 6.1.14; or

13.1.9. By GBB under the circumstances set forth in Section 8.4.

13.2. Effect of Termination. In the event of termination of this
---------------------
Agreement by either BAB or GBB as provided in Section 13.1, neither BAB nor GBB
shall have any further obligation or liability to the other party except (a)
with respect to the last sentences of each of Section 6.3.1, Section 7.3 and
Section 8.4, (b) with respect to Sections 14.1 and 14.2, and (c) to the extent
such termination results from a party's willful and material breach of the
warranties and representations made by it, or willful and material failure in
performance of any of its covenants, agreements or obligations hereunder.

13.3. Force Majeure. BAB and GBB agree that, notwithstanding
-------------
anything to the contrary in this Agreement, in the event this Agreement is
terminated as a result of a failure of a condition, which failure is due to a
natural disaster or other act of God, or an act of war, and provided neither
party has materially failed to observe the obligations of such party under this
Agreement, neither party shall be obligated to pay to the other party to this
Agreement any expenses or otherwise be liable hereunder.

ARTICLE 14.

MISCELLANEOUS
-------------

14.1. Expenses.
--------

14.1.1. GBB hereby agrees that if this Agreement is terminated by
BAB pursuant to Section 13.1.3, GBB shall promptly and in any event within 10
days after such termination pay BAB all Expenses (as defined in Section 14.1.4
below) of BAB, but not to exceed $175,000.

59
<PAGE>

14.1.2. BAB hereby agrees that if the Agreement is terminated by GBB
or BAB pursuant to Section 13.1.2 with respect to the failure of BAB
shareholders to approve the Agreement and the transactions contemplated hereby,
or by GBB pursuant to Section 13.1.4 or Section 13.1.8, BAB shall promptly and
in any event within 10 days after such termination pay GBB all Expenses of GBB,
but not to exceed $250,000.

14.1.3. Except as otherwise provided herein, all Expenses incurred
by GBB or BAB in connection with or related to the authorization, preparation
and execution of this Agreement, the solicitation of shareholder approvals and
all other matters related to the closing of the transactions contemplated
hereby, including, without limitation of the generality of the foregoing, all
fees and expenses of agents, representatives, counsel and accountants employed
by either such party or its affiliates, shall be borne solely and entirely by
the party which has incurred the same. Notwithstanding the foregoing, GBB and
BAB shall share equally the cost of printing the Proxy Statement and Prospectus.

14.1.4. "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the party and its
affiliates) incurred by the party or on its behalf in connection with the
consummation of the transactions contemplated by this Agreement.

14.2. Competing Transaction Fee. As an inducement to GBB to enter
-------------------------
into this Agreement, in the event this Agreement is terminated by GBB because of
a failure by BAB to comply with its obligations under Section 6.1.14, or if BAB
or BABANK otherwise consummates a Competing Transaction prior to termination of
this Agreement or during the 12-month period following termination of this
Agreement, in addition to the Expenses payable to GBB under Section 14.1.2, BAB
shall wire to GBB within three Business Days of demand, or shall cause the third
party to such a Competing Transaction to wire to GBB within three Business Days
of demand, the sum of $1,500,000, which sum the parties acknowledge as
representing (i) GBB's direct costs and expenses (including, but not limited
to, fees and expenses of financial or other consultants, printing costs,
accountants, and counsel) incurred in negotiating and undertaking to carry out
the transactions contemplated by this Agreement, including GBB's management time
devoted to negotiation and preparation for the transactions contemplated by this
Agreement; (ii) GBB's indirect costs and expenses incurred in connection with
the transactions contemplated by this Agreement; and (iii) GBB's loss as a
result of the transactions contemplated by this Agreement not being consummated.
Any payment previously made by BAB pursuant to Section 14.1.2 hereof shall be
credited against any amount due under this Section.

60
<PAGE>

In the event the Agreement terminates because GBB enters into another
merger or acquisition transaction, BAB reserves its rights to assert a claim
against GBB (and any successor) for BAB's direct and indirect costs and expenses
and for any loss BAB incurs as a result of the transactions contemplated by this
Agreement not being consummated.

14.3. Notices. Any notice, request, instruction or other document to
-------
be given hereunder by any party hereto to another shall be in writing and
delivered personally or by overnight courier or by confirmed facsimile
transmission or sent by registered or certified mail, postage prepaid, with
return receipt requested, addressed as follows:

To GBB: Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Steven C. Smith
Facsimile Number: (415) 494-9220

With a copy to: Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Linda M. Iannone, Esq.
Facsimile Number: (650) 494-9220

To BAB: Bay Area Bancshares
2003 East Bayshore Road
Redwood City, California 94063
Attention: Anthony Gould
Facsimile Number: (650) 367-6004

With a copy to: Haines Brydon & Lea
235 Pine Street, Suite 1300
San Francisco, California 94104
Attention: Jay Pimentel, Esq.
Facsimile Number: (415) 989-3561

Any such notice, request, instruction or other document shall be deemed
received (i) on the date delivered personally or delivered by confirmed
facsimile transmission; (ii) on the next Business Day after it was sent by
overnight courier, postage prepaid with return receipt requested; (iii) or on
the third Business Day after it was sent by registered or certified mail,
postage prepaid. Any of the persons shown above may change its address for
purposes of this section by giving notice in accordance herewith.

61
<PAGE>

14.4. Successors and Assigns. All terms and conditions of this
----------------------
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns; provided,
however, that this Agreement and all rights, privileges, duties and obligations
of the parties hereto may not be assigned or delegated by any party hereto and
any such attempted assignment or delegation shall be null and void.

14.5. Counterparts. This Agreement and any exhibit hereto may be
------------
executed in one or more counterparts, all of which, taken together, shall
constitute one original document and shall become effective when one or more
counterparts have been signed by the appropriate parties and delivered to each
party hereto.

14.6. Effect of Representations and Warranties. The representations
----------------------------------------
and warranties contained in this Agreement or in any List shall terminate
immediately after the Effective Time of the Merger.

14.7. Third Parties. Each party hereto intends that this Agreement
-------------
shall not benefit or create any right or cause of action to any person other
than parties hereto. As used in this Agreement the term "parties" shall refer
only to GBB and BAB as the context may require.

14.8. Lists; Exhibits; Integration. Each List, exhibit and letter
----------------------------
delivered pursuant to this Agreement shall be in writing and shall constitute a
part of the Agreement, although Lists and letters need not be attached to each
copy of this Agreement. This Agreement, together with such Lists, exhibits and
letters, constitutes the entire agreement between the parties pertaining to the
subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith.

14.9. Knowledge. Whenever any statement herein or in any list,
---------
certificate or other document delivered to any party pursuant to this Agreement
is made "to the knowledge" or "to the best knowledge" of any party or another
Person, such party or other Person shall make such statement only after
conducting an investigation reasonable under the circumstances of the subject
matter thereof, and each such statement shall constitute a representation that
such investigation has been conducted.

14.10. Governing Law. This Agreement is made and entered into in the
-------------
State of California, except to the extent that the provisions of federal law are
mandatorily applicable, and the laws of the State of California shall govern the
validity and interpretation hereof and the performance of the parties hereto of
their respective duties and obligations hereunder.

14.11. Captions. The captions contained in this Agreement are for
--------
convenience of reference only and do not form a part of this Agreement and shall
not affect the interpretation hereof.

62
<PAGE>

14.12. Severability. If any portion of this Agreement shall be
------------
deemed by a court of competent jurisdiction to be unenforceable, the remaining
portions shall be valid and enforceable only if, after excluding the portion
deemed to be unenforceable, the remaining terms hereof shall provide for the
consummation of the transactions contemplated herein in substantially the same
manner as originally set forth at the date this Agreement was executed.

14.13. Waiver and Modification; Amendment. No waiver of any term,
----------------------------------
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such term, provision or condition of this Agreement.
Except as otherwise required by law, this Agreement and the Agreement of Merger,
when executed and delivered, may be modified or amended by action of the Boards
of Directors of GBB or BAB without action by their respective shareholders.
This Agreement may be modified or amended only by an instrument of equal
formality signed by the parties or their duly authorized agents.

14.14. Attorneys' Fees. If any legal action or any arbitration upon
---------------
mutual agreement is brought for the enforcement of this Agreement or because of
an alleged dispute, controversy, breach, or default in connection with this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs and expenses incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.

63
<PAGE>

IN WITNESS WHEREOF, the parties to this Agreement have duly executed this
Agreement as of the day and year first above written.

GREATER BAY BANCORP

By: /s/David L. Kalkbrenner
------------------------------------
David L. Kalkbrenner
President and Chief Executive Officer
ATTEST:

/s/Linda M. Iannone
- -------------------------------
Secretary

BAY AREA BANCSHARES

By: /s/Robert R. Haight
------------------------------------
Robert R. Haight
President and Chief Executive Officer
ATTEST:

/s/Janeene Johnson
- -------------------------------
Assistant Secretary

64
<PAGE>

EXHIBIT LIST
------------

A AGREEMENT OF MERGER

B FORM OF AFFILIATE'S AGREEMENT

C FORM OF NONCOMPETITION AGREEMENT

D FORM OF SHAREHOLDER'S AGREEMENT

<PAGE>

EXHIBIT 3.1

ARTICLES OF INCORPORATION

SAN MATEO COUNTY BANCORP

ONE: NAME.

The name of the corporation is San Mateo County Bancorp.

TWO: PURPOSE.

The purpose of the corporation is to engage in any lawful act or

activity for which a corporation may be organized under the General

Corporation Law of California other than the banking business, the

trust company business, or the practice of a profession permitted to

be incorporated by the California Corporation Code.

THREE: AGENT FOR SERVICE OF PROCESS.

The name and address of the corporation's initial agent for
service of process is: Fred R. Brinkop, 500 Allerton Street, Redwood
City, CA 94063.

FOUR: AUTHORIZED STOCK.

(a) The corporation is authorized to issue two classes of shares
designated "Preferred Stock" and "Common Stock", respectively. The
number of shares of Preferred Stock authorized to be issued is
4,000,000 and the number of shares of Common Stock authorized to be
issued is 6,000,000.
<PAGE>

(b) The Preferred Stock may be divided into such number of series
as the board of directors may determine. The board of directors is
authorized to determine and alter the rights, preferences, privileges
and restrictions granted to or imposed upon any wholly unissued series
of Preferred Stock, and to fix the number of shares of any series of
Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions
stated in any resolution or resolutions of the board of directors
originally fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent
to the issue of shares of that series.

IN WITNESS WHEREOF, for the purpose of forming this corporation under
the laws of the State of California, the undersigned, constituting the sole
incorporator of this corporation, has executed these Articles of Incorporation.

/s/ Fred R. Brinkop
--------------------------
Fred R. Brinkop
Sole Incorporator

The undersigned declares under penalty or perjury that h is the person
who executed these Articles of Incorporation and that this instrument is the act
and dead of the undersigned.

Executed this 7 day of Nov, 1984, at San Francisco, California.

/s/ Fred R. Brinkop
--------------------------
Fred R. Brinkop
<PAGE>

CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
SAN MATEO COUNTY BANCORP

Leo D. Taylor and Douglas S. McGlashan hereby certify that:

1. They are the President and Secretary, respectively, of SAN MATEO COUNTY
BANCORP, a California corporation.

2. The Articles of Incorporation of this corporation are amended to add
the following Article Five:

"FIVE: INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.

(a) Limitation of Directors' Liability. The liability of the directors
of the corporation for monetary damages shall be eliminated to the fullest
extent permissible under California law.

(b) Indemnification of Corporate Agents. The corporation is authorized
to provide indemnification of its agents (as defined in Section 317 of the
California General Corporation Law) for breach of their duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or both, in excess of the indemnification otherwise permitted by such
Section 317, subject to the limits on such excess indemnification set forth in
Section 204 of the California General Corporation Law.

(c) Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article V shall not adversely affect any right of
indemnification or limitation of liability of an agent of the corporation
relating to acts or omissions occurring prior to such repeal or modification."

1.
<PAGE>

3. The foregoing Certificate of Amendment of Articles of Incorporation
has been duly approved by the Board of Directors.

4. The foregoing Certificate of Amendment of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902 of the California General Corporation Law. The total number of
outstanding shares of capital stock of the corporation is 347,675 shares of
Common Stock. The number of shares voting in favor of the Certificate of
Amendment of Articles of Incorporation equaled or exceeded the vote required.
The percentage vote required was more than 50% of the outstanding Common Stock.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate of Amendment of
Articles of Incorporation are true of our own knowledge.

Executed at San Mateo, California this 21st day of June, 1988.

/s/ Leo D. Taylor
-------------------------------
Leo D. Taylor, President

/s/ Douglas S. McGlashan
-------------------------------
Douglas S. McGlashan, Secretary

2.
<PAGE>

CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION

Owen D. Conley and Robert M. Lubin certify that:

1. They are the Chairman of the Board and Secretary, respectively, of San Mateo
County Bancorp, a California corporation.

2. Article One of the articles of incorporation of this corporation is amended
to read as follows:

"The name of this corporation shall be Mid-Peninsula Bancorp."

3. The foregoing amendment of articles of incorporation has been duly approved
by the board of directors.

4. The foregoing amendment of articles of incorporation has been duly
approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of
common stock of the corporation is 465,369. The number of shares voting in
favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50%. There are no shares of
preferred stock outstanding.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

DATE: October 3, 1994

/s/ OWEN D. CONLEY
---------------------------
Owen D. Conley
Chairman of the Board

/s/ ROBERT M. LUBIN
---------------------------
Robert M. Lubin
Secretary
<PAGE>

MERGER AGREEMENT

THIS MERGER AGREEMENT (the "Merger Agreement") is made and entered into as
of November 15, 1996, by and between MID-PENINSULA BANCORP, a California
corporation ("Mid-Peninsula"), and CUPERTINO NATIONAL BANCORP, a California
corporation ("Cupertino").

RECITALS

A. Mid-Peninsula is a corporation duly organized, validly existing and
doing business in good standing under the laws of the State of California with
authorized capital stock of six million (6,000,000) shares of no par value
common stock of which, on the date hereof, there are One Million, Six Hundred
Thirty-Seven Thousand, Five Hundred Ninety-Three (1,637,593) shares issued and
outstanding (individually, a "Mid-Peninsula Share" and together the "Mid-
Peninsula Shares") and four million (4,000,000) shares of preferred stock of
which, on the date hereof, there are no shares issued and outstanding.

B. Cupertino is a corporation duly organized, validly existing and doing
business in good standing under the laws of the State of California with
authorized capital stock of six million (6,000,000) shares of no par value
common stock of which, on the date hereof, there are One Million Nine Hundred
Five Thousand, Nine Hundred Fifty-Eight (1,905,958) shares issued and
outstanding (individually a "Cupertino Share" and together the "Cupertino
Shares") and 4,000,000 shares of preferred stock of which, on the date hereof,
there are no shares issued and outstanding.

C. Mid-Peninsula and Cupertino have entered into a Second Amended
Agreement and Plan of Reorganization and Merger, dated August 20, 1996 (the
"Agreement"), which contemplates the merger of Cupertino with and into Mid-
Peninsula (the "Merger") upon and in accordance with the terms and conditions
set forth in the Agreement and this Merger Agreement.

D. The respective Boards of Directors of Mid-Peninsula and Cupertino deem
it desirable and in the best interests of Mid-Peninsula and Cupertino and their
respective shareholders that Cupertino be merged with and into Mid-Peninsula as
provided in the Agreement and this Merger Agreement pursuant to the laws of the
State of California and that Mid-Peninsula change its name to Greater Bay
Bancorp ("Bancorp") which shall be the surviving corporation ("Surviving
Corporation").

E. The respective Boards of Directors of Mid-Peninsula and Cupertino have
adopted resolutions approving this Merger Agreement and the Agreement and have
recommended that the Merger be approved by the shareholders of their respective
corporations.

F. The respective shareholders of each of Mid-Peninsula and Cupertino, at
meetings duly held, have duly approved and adopted this Merger Agreement, the
Agreement and approved the Merger.
<PAGE>

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein set forth and for the purpose of prescribing
the terms and conditions of the Merger, the parties hereto agree as follows:

ARTICLE I
THE MERGER
----------

1.1 Effect of Merger. At the Effective Time of the Merger (as defined in
Article VII hereof), Cupertino shall be merged with and into Mid-Peninsula,
Mid-Peninsula shall change its name to Greater Bay Bancorp, which shall
thereupon be the Surviving Corporation, and the separate corporate existence of
Cupertino shall cease.

1.2 Rights and Duties of Surviving Corporation. At and after the Effective
Time of the Merger, all rights, privileges, powers and franchises and all
property and assets of every kind and description of Cupertino shall be vested
in and be held and enjoyed by Bancorp as the Surviving Corporation, without
further act or deed; all the estates and interests of every kind of Cupertino,
including all debts due to it, shall be as effectively the property of Bancorp
as the Surviving Corporation as they were of Cupertino; the title to any real
estate vested by deed or otherwise in Cupertino shall not revert or be in any
way impaired by reason of the Merger; and Bancorp shall be deemed to be the same
entity as each of Cupertino and Mid-Peninsula and shall be subject to all of
their duties and liabilities of every kind and description. All rights of
creditors and liens upon any property of Mid-Peninsula or Cupertino shall be
preserved unimpaired and all debts, liabilities and duties of Mid-Peninsula or
Cupertino shall be the debts, liabilities and duties of Bancorp as the Surviving
Corporation and may be enforced against it to the same extent as if such debts,
liabilities and duties had been incurred or contracted by it.

ARTICLE II
CONVERSION OF SHARES
--------------------

2.1 Conversion of Shares. In and by virtue of the Merger and at the
--------------------
Effective Time of the Merger, pursuant to this Merger Agreement, each
Mid-Peninsula Share and each Cupertino Share issued and outstanding immediately
prior to the Effective time of the Merger shall, at the Effective Time of the
Merger, be converted.

a. Effect on Mid-Peninsula Shares. At the Effective Time of the
------------------------------
Merger, each Mid-Peninsula Share issued and outstanding immediately prior to the
Effective Time of the Merger shall, on and after the Effective Time of the
Merger, remain issued and outstanding and shall automatically and for all
purposes be deemed to represent one share of the common stock, without par
value, of Bancorp as the Surviving Corporation ("Bancorp Shares").

b. Conversion of Cupertino Shares. At the Effective Time of the
------------------------------
Merger, each Cupertino Share outstanding immediately prior to the Effective Time
of the Merger shall, by virtue of the Merger and without any action on the part
of the holder thereof, be exchanged for

2
<PAGE>

and converted into .81522 (the "Conversion Ratio") of a Bancorp Share. From and
after the Effective Time of the Merger, each holder of Cupertino Shares
immediately prior to the Effective Time of the Merger (other than holders of
Dissenting Shares, as defined below) shall have the right to receive, upon
surrender of the certificates theretofore representing such Cupertino Shares,
one or more certificates representing shares of Bancorp Shares equal to the
number of Cupertino Shares represented by each surrendered certificate
multiplied by the Conversion Ratio.

2.2 Fractional Shares. No fractional Bancorp Shares shall be issued in the
-----------------
Merger. In lieu thereof, each record holder of Cupertino Shares who would
otherwise be entitled to receive a fractional Bancorp Share shall receive,
subject to prior surrender of certificates representing Cupertino Shares, an
amount in cash equal to the product (calculated to the nearest hundredth)
obtained by multiplying the average of the bid and asked prices quoted by each
brokerage firm acting as a market maker of Mid-Peninsula Shares for a Mid-
Peninsula Share for each of the twenty (20) consecutive trading days up to and
including the last business day of the calendar month end immediately prior to
the Closing Date (as defined in the Agreement), by the fraction of a Bancorp
Share to which such holder would otherwise be entitled. No such holder shall be
entitled to dividends, voting rights, interest, or any other rights in respect
of any such fractional share.

2.3 Exchange Procedures.
-------------------

a. At and after the Effective Time of the Merger, Mid-Peninsula will
deliver or cause to be delivered to U.S. Stock Transfer Corporation, which shall
serve as exchange agent (the "Exchange Agent"), such number of blank
certificates representing Bancorp Shares sufficient to issue the number of
Bancorp Shares issuable in the Merger and an amount of cash sufficient for
payment of any fractional shares.

b. As soon as practicable after the Effective Time of the Merger, the
Exchange Agent will send written notice of exchange procedures to each record
holder of certificates representing Cupertino Shares converted pursuant to
Section 2.1(b) of this Merger Agreement.

c. Upon surrender for cancellation to the Exchange Agent of one or
more certificates evidencing Cupertino Shares ("Cupertino Certificates"),
accompanied by a duly executed letter of transmittal in proper form, the
Exchange Agent shall promptly deliver to each holder of such surrendered
Cupertino Certificates one or more new certificates representing the appropriate
number of Bancorp Shares ("Bancorp Certificates") to which such holder is
entitled, together with one or more checks for payment of cash in lieu of
fractional interests to be issued in respect of the Cupertino Shares so
surrendered.

d. Until Cupertino Certificates have been surrendered and exchanged
for Bancorp Certificates as herein provided, each outstanding Cupertino
Certificate shall represent, on and after the Effective Time of the Merger, the
right to receive the number of Bancorp Shares into which the number of Cupertino
Shares shown thereon have been converted. No dividends or other distributions of
any kind which are declared payable to holders of record of the Bancorp

3
<PAGE>

Shares after the Effective Time of the Merger will be paid to persons otherwise
entitled to receive the same until such persons have surrendered their Cupertino
Certificates in exchange for Bancorp Certificates in the Manner herein provided,
but upon such surrender, such dividends or other distributions, from and after
the Effective Time of the Merger, will be paid to such persons in accordance
with the terms of such Bancorp Shares. In no event shall the persons entitled to
receive such dividends or other distributions be entitled to receive interest on
such dividends or other distributions.

e. No. transfer taxes shall be payable by any holder of Cupertino
Shares in respect of the issuance of Bancorp Certificates for Bancorp Shares,
except that if any Bancorp Certificate for Bancorp Shares is to be issued in a
name other than that in which the Cupertino Certificate surrendered shall be
been registered, it shall be a condition of such issuance that the person
requesting such issuance shall properly endorse the certificate or certificates
and shall pay to Bancorp any transfer taxes payable by reason thereof, or of any
prior transfer of such surrendered certificate, or establish to the satisfaction
of Bancorp that such taxes have been paid or are not payable.

f. Any Bancorp Shares delivered to the Exchange Agent and not issued
pursuant hereto at the end of one (1) year from the Effective Time of the Merger
shall be returned to Bancorp, in which event the persons, if any, entitled
thereto shall look only to Bancorp for payment thereof.

g. Notwithstanding anything to the contrary set forth herein, if any
holder of Cupertino Shares shall be unable to surrender his or her Cupertino
Certificates because such certificates have been lost or destroyed, such holder
may deliver in lieu thereof an indemnity bond in form and substance and with
surety satisfactory to Bancorp.

h. The Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the Bancorp Shares held by it from time to
time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such Bancorp Shares for the
account of the persons entitled thereto. All dividends or distributions, and any
cash to be paid in lieu of fractional shares, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered certificates representing
Cupertino Shares and unclaimed at the end of one (1) year from the Effective
Time of the Merger, shall (together with any interest earned thereon) at such
time be paid or redelivered by the Exchange Agent to Bancorp, and after such
time any holder of certificate representing Cupertino Shares who has not
surrendered such certificate to the Exchange Agent shall, subject to applicable
law, look as a general creditor only to Bancorp for payment or delivery of such
dividends or distributions or cash, as the case may be.

2.4 Dissenting Shareholders. Notwithstanding the provisions of this
-----------------------
Article II to the contrary, any Cupertino Shares held by persons who have
satisfied the requirements of Chapter 13 of the California General Corporation
Law (the "GCL") and who have not effectively withdrawn or lost their dissenters'
rights under Chapter 13 (such shares being referred to as "Dissenting Shares"),
shall not be converted pursuant to this Merger Agreement, but the holders

4
<PAGE>

thereof shall be entitled only to such rights as are afforded them by Chapter 13
of the GCL. Each dissenting shareholder who is entitled to payment for his or
her Cupertino Shares pursuant to Chapter 13 of the GCL shall receive payment in
an amount determined pursuant to Chapter 13 of the GCL.

ARTICLE III
ARTICLES OF INCORPORATION
-------------------------

At the Effective Time of the Merger, the Articles of Incorporation of
Mid-Peninsula, as in effect immediately prior to the Effective Time of the
Merger, shall be amended (a) to change its name to Greater Bay Bancorp, (b) to
establish a super-majority vote requirement of the Board of Directors equal to a
two-thirds vote on certain matters, and (c) to limit the liability of the
directors and provide expanded indemnification rights of agents of the
Surviving Corporation to the maximum extent permitted by law, as set forth in
Exhibit I attached hereto and incorporated herein by this reference, and, as so
- ---------
amended, shall hereto and incorporated herein by this reference, and, as
amended, shall be the Articles of Incorporation of Bancorp as the Surviving
Corporation from and after the Effective Time of the Merger until amended in
accordance with its provisions and as provided by law.

ARTICLE IV
BYLAWS
------

At the Effective Time of the Merger, the Bylaws of Mid-Peninsula as in
effect immediately prior to the Effective time of the Merger shall be amended
(a) to provide for a range in the number of authorized directors of not less
than seven (7) and not more than thirteen (13), with the exact number of
directors fixed at ten (10); and (b) to require a two-thirds (2/3rds vote of the
Board of Directors of Bancorp to approve certain matters affecting Bancorp,
including (i) a merger, sale of control or sale of material assets of Bancorp,
(ii) acquisitions by Bancorp, (iii) creation of new business units of Bancorp or
its subsidiaries, (iv) material changes in operating budgets of Bancorp or its
subsidiaries, (v) material changes in the business organization or
organizational structure of Bancorp or its subsidiaries, (vi) termination of any
executive officer or senior officer appointed to the Executive Management
Committee of Bancorp, and (vii) any change in the authorized range of directors;
and, as so amended, the Bylaws of Mid-Peninsula shall, at and after the
Effective Time of the Merger, be the Bylaws of Bancorp as the Surviving
Corporation until further amended as provided by law.

ARTICLE V
DIRECTORS
---------

At the Effective Time of the Merger, the Board of Directors of Bancorp as
the Surviving Corporation shall consist of five (5) members appointed by the
Board of Directors of Mid-Peninsula and five (5) members appointed by the Board
of Directors of Cupertino, in each case as designated in the Agreement. Such
persons shall serve as the Directors of the Surviving Corporation until such
time as their successors have been duly elected and qualified.

5
<PAGE>

ARTICLE VI
FURTHER ACTION
--------------

The parties shall deliver, or cause to be delivered, such documents or
certificates as may be necessary, in the reasonable opinion of counsel for any
of the parties, to effectuate the transactions set forth in this Merger
Agreement. If, at any time after the Effective Time of the Merger, Bancorp as
the Surviving Corporation or its successors or assigns shall determine that any
further conveyance, assignment or other documents or any further action is
necessary or desirable to further effectuate the transactions set forth herein
or contemplated hereby, the officers and directors of the parties hereto shall
execute and deliver, or cause to be executed and delivered, all such documents
as may be reasonably required to effectuate such transactions.

ARTICLE VII
EFFECTIVE TIME OF THE MERGER
----------------------------

The Merger will become effective upon the filing, in accordance with
Section 1103 of the GCL, of an executed copy of this Merger Agreement and all
other requisite accompanying certificates in the office of the California
Secretary of State. The date and time of such filing with the California
Secretary of State is referred to herein as the "Effective Time of the Merger."

ARTICLE VIII
CONDITIONS TO MERGER
--------------------

The filing of this Merger Agreement with the California Secretary of State
as provided in Article VII above is conditioned upon the fulfillment, prior to
such filing, of all the conditions to the Merger set forth in the Agreement.

ARTICLE IX
TERMINATION
-----------

This Merger Agreement may, by the mutual consent and action of the Boards
of Directors of Mid-Peninsula and Cupertino, be abandoned at any time before or
after approval thereof by the shareholders of Mid-Peninsula and Cupertino, but
not later than the filing of this Merger Agreement with the California Secretary
of State pursuant to Section 1103 of the GCI. This Merger Agreement shall
automatically be terminated and of no further force and effect if, prior to the
filing of an executed copy hereof with the California Secretary of State as
provided in Article VII hereof, the Agreement is terminated in accordance with
the terms thereof.

ARTICLE X
GENERAL PROVISIONS
------------------

10.1 Successors and Assigns. This Merger Agreement shall be binding upon
and enforceable by the parties hereto and their respective successors, assigns
and transferees, but this Merger Agreement may not be assigned by any party
without the written consent of the other parties.

6
<PAGE>

10.2 Governing Law. This Merger Agreement has been executed in the State
-------------
of California, and the laws of the State of California shall govern the validity
and interpretation hereof and the performance by the parties hereto.

10.3 Amendments. This Agreement, when duly executed and delivered, may
----------
be modified or amended by action of the Board of Directors of Mid-Peninsula and
Cupertino to the extent permitted by law without action by their respective
shareholders. This Merger Agreement may be modified or amended only by an
instrument of equal formality signed by the parties or their duly authorized
agents.

10.4 Entire Agreement. This Merger Agreement and the Agreement,
----------------
together with all exhibits hereto and thereto and all documents referenced
herein and therein, constitute the entire agreement of Mid-Peninsula and
Cupertino, and supersede any prior written or oral negotiations, discussions,
understandings and agreements between them, concerning the subject matter
contained herein and therein.

10.5 Counterparts. This Merger Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original instrument, but
all of which together shall constitute but one and the same agreement.

IN WITNESS WHEREOF, Mid-Peninsula and Cupertino, pursuant to the approval
and authority duly given by resolution of their respective Boards of Directors,
have caused this Merger Agreement to be signed by their respective Presidents
and Secretaries on the day and year first above written.

CUPERTINO NATIONAL BANCORP, MID-PENINSULA BANCORP,
a California corporation a California corporation

By /s/ C. Donald Allen By /s/ David L. Kalkbrenner
---------------------------- -----------------------------
C. Donald Allen, President David L. Kalkbrenner, President
and Chief Executive Officer and Chief Executive Officer

By /s/ Steven C. Smith By /s/ Warren R. Thoits
---------------------------- -----------------------------
Steven C. Smith, Secretary Warren R. Thoits, Secretary

7
<PAGE>

EXHIBIT 1
---------

AMENDMENT TO ARTICLES OF INCORPORATION
OF
MID-PENINSULA BANCORP

1. Article One of the Articles of Incorporation is amended to read as
follows:

"ONE: NAME.
---

The name of the corporation is Greater Bay Bancorp."

2. Article Five of the Articles of Incorporation is amended to read as
follows:

"FIVE DIRECTOR LIABILITY; INDEMNIFICATION OF AGENTS.
----

(a) The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.

(b) The indemnification of an agent as defined in California
Corporations Code section 317(a) of this corporation, whether by bylaws,
agreement or otherwise, for breach of duty to this corporation and its
stockholders, may, to the extent not prohibited under California Corporations
Code sections 317 and 204(a) , exceed the indemnification otherwise
permitted by section 317 of the Corporations Code."

3. The following Article Six is added to the Articles of Incorporation:

"SIX: SUPER-MAJORITY VOTING BY DIRECTORS.
---

The vote of not less than two-thirds of all members of the
board of directors shall be required to approve any of the following types of
matters affecting the corporation.

(a) Any merger, sale of control or sale of material assets of the
corporation.
(b) Any material acquisition by the corporation.
(c) The creation of any new business unit of the corporation or any
subsidiary of the corporation.
(d) Any operating budget, or any material change therein, of the
corporation or any subsidiary of the corporation.
(e) Any material change in the business organization or
organizational structure of the corporation or any subsidiary of the
corporation.
(f) Termination of the employment of any executive or senior officer
appointed to the Executive Management Committee of the corporation.
(g) Any change in the authorized range of the number of directors of
the corporation."
<PAGE>

Certificate of Officers
Pursuant to Section 1103 of the
California Corporations Code

Mid-Peninsula Bancorp

David L. Kalkbrenner and Carol H. Rowland certify that:

1. They are the duly elected and acting Chief Executive Officer and Chief
Financial Officer, respectively, of Mid-Peninsula Bancorp.

2. This certificate is attached to the Merger Agreement dated as of
November 15, 1996, providing for the merger of Mid-Peninsula Bancorp and
Cupertino National Bancorp, with Mid-Peninsula Bancorp being the surviving
corporation of the merger and changing its name to Greater Bay Bancorp.

3. The Merger Agreement in the form attached has been approved by the
Board of Directors of the Corporation.

4. The principal terms of the Merger Agreement in the form attached were
approved by the corporation by the vote of a number of shares of each class
entitled to vote on the merger which equaled or exceeded the vote required, such
classes, the total number of outstanding shares of each class entitled to vote
on the merger and the percentage vote required of each class being as follows:

Name of Class Shares Outstanding Vote Required
------------- ------------------ -------------
Common Stock 1,637,593 Majority of shares outstanding

IN WITNESS WHEREOF, the undersigned have executed this certificate on
November 15, 1996.

/s/ DAVID L. KALKBRENNER /s/ CAROL H. ROWLAND
-------------------------- --------------------------
David L. Kalkbrenner Carol H. Rowland
Chief Executive Officer Chief Financial Officer

The undersigned, Chief Executive Officer and Chief Financial Officer,
respectively, of Mid-Peninsula Bancorp, a California corporation, each declares
under penalty of perjury that the matters set out in the foregoing Certificate
are true of his or her own knowledge.

Executed at Palo Alto, California on November 15, 1996.

/s/ DAVID L. KALKBRENNER /s/ CAROL H. ROWLAND
-------------------------- --------------------------
David L. Kalkbrenner Carol H. Rowland
Chief Executive Officer Chief Financial Officer
<PAGE>

Certificate of Officers
Pursuant to Section 1103 of the
California Corporations Code

Cupertino National Bancorp

C. Donald Allen and Heidi R. Wulfe certify that:

1. They are the duly elected and acting Chief Executive Officer and Chief
Financial Officer, respectively, of Cupertino National Bancorp.

2. This certificate is attached to the Merger Agreement dated as of
November 15, 1996, providing for the merger of Cupertino National Bancorp with
and into Mid-Peninsula Bancorp, with Mid-Peninsula Bancorp being the surviving
corporation of the merger and changing its name to Greater Bay Bancorp.

3. The Merger Agreement in the form attached has been approved by the
Board of Directors of the corporation.

Name of class Shares Outstanding Vote Required
------------- ------------------ -------------
Common Stock 1,905,958 Majority of shares outstanding

IN WITNESS WHEREOF, the undersigned have executed this certificate on
November 15, 1996.

/s/ C. Donald Allen /s/ Heidi R. Wulfe
-------------------------- --------------------------
C. Donald Allen Heidi R. Wulfe
Chief Executive Officer Chief Executive Officer

The undersigned, Chief Executive Officer and Chief Executive Officer,
respectively, of Cupertino National Bancorp, a California corporation, each
declares under penalty of perjury that the matters set out in the foregoing
Certificate are true of his or her own knowledge.

Executed at Cupertino, California on November 15, 1996.

/s/ C. Donald Allen /s/ Heidi R. Wulfe
-------------------------- --------------------------
C. Donald Allen Heidi R. Wulfe
Chief Executive Officer Chief Executive Officer
<PAGE>

CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION

David L. Kalkbrenner and Steven C. Smith verify that:

1. They are the President and Chief Executive Officer and the Assistant
Secretary, respectively, of GREATER BAY BANCORP, a California corporation.

2. The Articles of Incorporation of this corporation are amended by adding
thereto a new Article SEVEN to read as follows:

"SEVEN. ELIMINATION OF CUMULATIVE VOTING.

No holder of any class of stock of the corporation shall be entitled to
cumulate votes at any election of directors of the corporation."

3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors.

4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section
902 of the Corporations Code. The total number of outstanding shares of
the corporation entitled to vote with respect to the amendment is
3,300,827. The number of shares voting in favor of the amendment equaled
or exceeded the vote required. The percentage vote required was more than
50%.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
to our own knowledge.

DATE: May 9, 1997

/s/ David L. Kalkbrenner
------------------------------------
David L. Kalkbrenner, President and
Chief Executive Officer

/s/ Steven C. Smith
------------------------------------
Steven C. Smith, Assistant Secretary
<PAGE>

CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION

David L. Kalkbrenner and Steven C. Smith certify that:

1. They are the President and Chief Executive Officer and the Assistant
Secretary, respectively, of GREATER BAY BANCORP, a California corporation.

2. Paragraph (a) of Article FOUR of the Articles of Incorporation of this
corporation is amended to read as follows:

"(a) The Corporation is authorized to issue two (2) classes of
shares of stock: one class of shares to be called "Common Stock"; the
second class of shares to be called "Preferred Stock." The total number
of shares of stock of which the Corporation shall have authority to
issue is Sixteen Million (16,000,000), of which Twelve Million
(12,000,000) shall be Common Stock and Four Million (4,000,000) shall be
Preferred Stock."

3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.

4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the Corporations Code. The total number of outstanding shares of the corporation
entitled to vote with respect to the amendment is 3,339,131. The number of
shares voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50%.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

DATED: December 2, 1997.

/s/ David L. Kalkbrenner
-------------------------------
David L. Kalkbrenner, President
and Chief Executive Officer

/s/ Steven C. Smith
-------------------------------
Steven C. Smith, Assistant
Secretary

SEAL
<PAGE>

CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION

David L. Kalkbrenner and Steven C. Smith certify that:

1. They are the President and the Assistant Secretary, respectively, of
Greater Bay Bancorp, a California corporation (the "Corporation").

2. Article FOUR, Subsection (a) of the Articles of Incorporation of the
Corporation is amended to read in its entirety as follows:

"This corporation is authorized to issue only two classes of shares
designated "Preferred Stock" and "Common Stock," respectively. The
number of shares of Preferred Stock authorized to be issued is
4,000,000 and the number of shares of Common Stock authorized to be
issued is 24,000,000.

"Upon the amendment of this Article FOUR, Subsection (a) to read as
hereinabove set forth, each share of Common Stock issued and
outstanding immediately prior to the amendment shall be divided into
two (2) shares of Common Stock."

3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors of the Corporation.

4. Shareholder approval of the foregoing amendment of the Articles of
Incorporation is not required pursuant to Section 902(c) of the California
General Corporation Law.

We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.

Executed at Palo Alto, California this 20th day of April, 1998.

/s/ David L. Kalkbrenner
-------------------------------
David L. Kalkbrenner, President

/s/ Shawn E. Saunders
-------------------------------
Shawn E. Saunders, Assistant
Secretary

<PAGE>

EXHIBIT 3.2

BYLAWS
OF
GREATER BAY BANCORP
<PAGE>

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I Applicability...................................................... 1

Section 1. Applicability of Bylaws............................................ 1

ARTICLE II Offices............................................................ 1

Section 1. Principal Executive Offices........................................ 1

Section 2. Other Offices...................................................... 1

Section 3. Change in Location or Number of Offices............................ 1

ARTICLE III Meetings of Shareholders........................................... 1

Section 1. Place of Meetings.................................................. 1

Section 2. Annual Meetings.................................................... 1

Section 3. Special Meetings................................................... 1

Section 4. Notice of Annual, Special or Adjourned Meetings.................... 2

Section 5. Record Date........................................................ 3

Section 6. Quorum; Action at Meetings......................................... 3

Section 7. Adjournment........................................................ 4

Section 8. Validation of Defectively Called, Noticed or Held Meetings......... 4

Section 9. Voting for Election of Directors................................... 4

Section 10. Proxies............................................................ 5

Section 11. Inspectors of Election............................................. 5

Section 12. Action by Written Consent.......................................... 5

ARTICLE IV Directors.............................................................. 6

Section 1. Number of Directors................................................ 6

Section 2. Election of Directors.............................................. 6

Section 3. Term of Office..................................................... 7
</TABLE>
i
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Section 4. Vacancies....................................................... 7

Section 5. Removal......................................................... 7

Section 6. Resignation..................................................... 8

Section 7. Fees and Compensation........................................... 8

ARTICLE V Committees of the Board of Directors............................ 8

Section 1. Designation of Committees....................................... 8

Section 2. Powers of Committees............................................ 8

ARTICLE VI Meetings of the Board of Directors and Committees Thereof....... 9

Section 1. Place of Meetings.............................................. 9

Section 2. Organization Meeting............................................ 9

Section 3. Other Regular Meetings.......................................... 9

Section 4. Special Meetings................................................ 9

Section 5. Notice of Special Meetings...................................... 9

Section 6. Validation of Defectively Held Meetings......................... 10

Section 7. Quorum; Action at Meetings; Telephone Meetings.................. 10

Section 8. Adjournment..................................................... 10

Section 9. Action Without a Meeting........................................ 10

Section 10. Meetings of and Action by Committees............................ 10

ARTICLE VII Officers........................................................ 10

Section 1. Officers........................................................ 10

Section 2. Election of Officers............................................ 11

Section 3. Subordinate Officers, Etc....................................... 11

Section 4. Removal and Resignation......................................... 11

Section 5. Vacancies....................................................... 11

Section 6. Chairman of the Board........................................... 11
</TABLE>
ii
<PAGE>

<TABLE>
<CAPTION>
<S> <C> <C>
Section 7. President....................................................... 11

Section 8. Vice President.................................................. 12

Section 9. Secretary....................................................... 12

Section 10. Treasurer....................................................... 12

ARTICLE VIII Records and Reports............................................. 12

Section 1. Minute Book - Maintenance and Inspection........................ 12

Section 2. Share Resister - Maintenance and Inspection..................... 12

Section 3. Books and Records of Account - Maintenance and Inspection....... 13

Section 4. Bylaws - Maintenance and Inspection............................. 13

Section 5. Annual Report to Shareholders................................... 13

ARTICLE IX Miscellaneous................................................... 13

Section 1. Checks, Drafts, Etc............................................. 13

Section 2. Contracts, Etc. - How Executed.................................. 13

Section 3. Certificates of Stock........................................... 13

Section 4. Lost Certificates............................................... 13

Section 5. Representation of Shares of Other Corporations.................. 14

Section 6. Construction and Definitions.................................... 14

Section 7. Indemnification of Corporate Agents; Purchase of Liability
Insurance....................................................... 14

ARTICLE X Amendments...................................................... 15

Section 1. Amendments...................................................... 15
</TABLE>
iii
<PAGE>

BYLAWS

GREATER BAY BANCORP

ARTICLE I

APPLICABILITY
-------------

Section 1. Applicability of Bylaws. These Bylaws govern, except as
-----------------------
otherwise provided by statute or its Articles of Incorporation, the management
of the business and the conduct of the affairs of the Corporation.

ARTICLE II

OFFICES
-------

Section 1. Principal Executive Office. The location of the principal
--------------------------
executive office of the Corporation is 420 Cowper Street, Palo Alto, California
94301-1504.

Section 2. Other Offices. The Board of Directors may establish other
-------------
offices at any place or places within or without the State of California.

Section 3. Change in Location or Number of Offices. The Board of
---------------------------------------
Directors may change any office from one location to another or eliminate any
office or offices.

ARTICLE III

MEETINGS OF SHAREHOLDERS
------------------------

Section 1. Place of Meetings. Meetings of the shareholders shall be held
-----------------
at any place within or without the State of California designated by the Board
of Directors, or, in the absence of such designation, at the principal executive
office of the Corporation.

Section 2. Annual Meetings. An annual meeting of the shareholders shall
------
be held within 180 days following the end of the fiscal year of the Corporation
at a date and time designated by the Board of Directors. Directors shall be
elected at each annual meeting and any other proper business may be transacted
thereat.

Section 3. Special Meetings. (a) Special meetings of the shareholders
----------------
may be called by a majority of the Board of Directors, the Chairman of the
Board, the President or the holders of shares entitled to cast not less than 10
percent of the votes at such meeting.
<PAGE>

(b) Any request for the calling of a special meeting of the
shareholders shall (1) be in writing, (2) specify the date and time thereof
which date shall be not less than 35 nor more than 60 days after receipt of the
request, (3) specify the general nature of the business to be transacted thereat
and (4) be given either personally or by first-class mail, postage prepaid, or
other means of written communication to the Chairman of the Board, President,
any Vice President or Secretary of the Corporation. The officer receiving a
proper request to call a special meeting of the shareholders shall cause notice
to be given pursuant to the provisions of Section 4 of this article to the
shareholders entitled to vote thereat that a meeting will be held at the date
and time specified by the person or persons calling the meeting.

(c) No business may be transacted at a special meeting unless the
general nature thereof was stated in the notice of such meeting.

Section 4. Notice of Annual, Special or Adjourned Meetings. (a) Whenever
-----------------------------------------------
any meeting of the shareholders is to be held, a written notice of such meeting
shall be given in the manner described in subdivision (d) of this section not
less than 10 nor more than 60 days before the date thereof to each shareholder
entitled to vote thereat. The notice shall state the place, date and hour of the
meeting and (1) in the case of a special meeting, the general nature of the
business to be transacted or (2) in the case of the annual meeting, those
matters which the Board of Directors, at the time of the giving of the notice,
intend to present for action by the shareholders including, whenever directors
are to be elected at a meeting, the names of nominees intended at the time of
giving of the notice to be presented by management for election.

(b) Any proper matter may be presented at an annual meeting for
action, except as is provided in subdivision (f) of Section 601 of the
Corporations Code of the State of California.

(c) Notice need not be given of an adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, except that if the adjournment is for more than 45 days or if after the
adjournment a new record date is provided for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote thereat.

(d) Notice of any meeting of the shareholders or any report shall
be given either personally or by first class mail, postage prepaid, or other
means of written communication, addressed to the shareholder at his address
appearing on the books of the Corporation or given by him to the Corporation for
the purpose of notice; or if no such address appears or is given, at the place
where the principal executive office of the Corporation is located or by
publication at least once in a newspaper of general circulation in the county in
which the principal executive office is located. The notice or report shall be
deemed to have been given at the time when delivered personally to the recipient
or deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any notice or report in accordance with the provisions
of these Bylaws or the General Corporation Law of the State of California,
executed by the Secretary, assistant secretary or any transfer agent of the
Corporation, shall be prima facie evidence of the notice or report.
----- -----

2
<PAGE>

(e) If any notice or report addressed to the shareholder at his
address appearing on the books of the Corporation is returned to the Corporation
by the United States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the shareholder at
such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available for the shareholder
upon his written demand at the principal executive office of the Corporation for
a period of one year from the date of the giving of the notice or report to all
other shareholders.

Section 5. Record Date. (a) The Board of Directors may fix a time in the
-----------
future as a record date for the determination of the shareholders (1) entitled
to notice of any meeting or to vote thereat, (2) entitled to receive payment of
any dividend or other distribution or allotment of any rights or (3) entitled to
exercise any rights in respect of any other lawful action. The record date so
fixed shall be not more than 60 nor less than 10 days prior to the date of any
meeting of the shareholders nor more than 60 days prior to any other action.

(b) In the event no record date is fixed:

a. The record date for determining the shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.

b. The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given.

c. The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto, or the 60th day prior to the
date of such other action, whichever is later.

(c) Only shareholders of record at the close of business on the
record date are entitled to notice and to vote or to receive a dividend,
distribution or allotment of rights or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the record date.

(d) A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set for the original meeting.

Section 6. Quorum; Action at Meetings. (a) A majority of the shares
------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the shareholders.

(b) Except as provided in subdivision (c) of this section, the
<PAGE>

affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required

3
<PAGE>

quorum) shall be the act of the shareholders, unless the vote of a greater
number is required by Law or the Articles of Incorporation.

(c) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.

Section 7. Adjournment. Any meeting of the shareholders may be adjourned
-----------
from time to time whether or not a quorum is present by the vote of a majority
of the shares represented thereat either in person or by proxy. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.

Section 8. Validation of Defectively Called, Noticed or Held Meetings.
----------------------------------------------------------
(a) The transactions of any meeting of the shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote thereat, not present in person or by proxy, signs a written waiver of
notice or a consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.

(b) Attendance of a person at a meeting shall constitute a waiver
of notice of, and presence at, such meeting, except (1) when the person objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened and (2) that attendance at a meeting
is not a waiver of any right to object to the consideration of any matter
required by the General Corporation Law of the State of California to be
included in the notice but not so included, if such objection is expressly made
at the meeting.

(c) Any written waiver of notice shall comply with subdivision
(f) of Section 601 of the Corporations Code of the State of California.

Section 9. Voting for Election of Directors. (a) Shareholders shall
--------------------------------
not be permitted to cumulate their votes for the election of directors.

(b) Elections for directors may be by voice vote or by ballot
unless any shareholder entitled to vote demands election by ballot at the
meeting prior to the voting, in which case the vote shall be by ballot.

(c) In any election of directors, the candidates receiving the
highest number of votes of the shares entitled to be voted for them up to the
number of directors of each class to be elected by such shares are elected as
directors. If, at any meeting of shareholders, due to a vacancy or vacancies or
otherwise, directors of more than one class of the Board of Directors are to be
elected, each class of directors to be elected at the meeting shall be elected
in a separate election.

4
<PAGE>

Section 10. Proxies. (a) Every person entitled to vote shares may
-------
authorize another person or persons to act with respect to such shares by a
written proxy signed by him or his attorney-in-fact and filed with the Secretary
of the Corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by him or his attorney-in-fact.

(b) Any duly executed proxy shall continue in full force and
effect until the expiration of the term specified therein or upon its earlier
revocation by the person executing it prior to the vote pursuant thereto (1) by
a writing delivered to the Corporation stating that it is revoked, (2) by a
subsequent proxy executed by the person executing the proxy or (3) by the
attendance at the meeting and voting in person by the person executing the
proxy. No proxy shall be valid after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. The date contained on the form
of proxy shall be deemed to be the date of its execution.

(c) A proxy which states that it is irrevocable for the period
specified therein shall be subject to the provisions of subdivisions (e) and (f)
of Section 705 of the Corporations Code of the State of California.

Section 11. Inspectors of Election. (a) In advance of any meeting of the
----------------------
shareholders, the Board of Directors may appoint either one or three persons
(other than nominees for the office of director) as inspectors of election to
act at such meeting or any adjournments thereof. If inspectors of election are
not so appointed, or if any person so appointed fails to appear or refuses to
act, the chairman of any such meeting may, and on the request of any shareholder
or his proxy shall, appoint inspectors of election (or persons to replace those
who so fail or refuse to act) at the meeting. If appointed at a meeting on the
request of one or more shareholders or the proxies thereof, the majority of
shares represented in person or by proxy shall determine whether one or three
inspectors are to be appointed.

(b) The duties of inspectors of election and the manner of
performance thereof shall be as prescribed in Section 707 of the Corporations
Code of the State of California.

Section 12. Action by Written Consent. (a) Subject to subdivisions (b)
-------------------------
and (c) of this section, any action which may be taken at any annual or special
meeting of the shareholders may be taken without a meeting, without a vote and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting in which all shares entitled to vote thereon were present
and voted. All such consents shall be filed with the Secretary of the
Corporation and maintained with the corporate records.

5
<PAGE>

(b) Except for the election of a director by written consent to
fill a vacancy (other than a vacancy created by removal), directors may be
elected by written consent only by the unanimous written consent of all shares
entitled to vote for the election of directors. In the case of an election of a
director by written consent to fill a vacancy (other than a vacancy created by
removal), any such election requires the consent of a majority of the
outstanding shares entitled to vote.

(c) Unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of any shareholder approval without a meeting
by less than unanimous written consent shall be given as provided in subdivision
(b) of Section 603 of the Corporations Code of the state of California.

(d) Any shareholder giving a written consent, or his
proxyholders, or a personal representative of the shareholder or their
respective proxyholders, may revoke the consent by a writing received by the
Corporation prior to the time that written consents of the number of shares
required to authorized the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter. Such revocation is effective upon
its receipt by the Secretary of the Corporation.

ARTICLE IV

DIRECTORS
---------

Section 1. Number of Directors. (a) The authorized number of directors
-------------------
shall be no less than seven (7) nor more than thirteen (13). The exact number of
directors shall be fixed from time to time, within the limits specified in this
subdivision, by an amendment of subdivision (b) of this section adopted by the
Board of Directors.

(b) The exact number of directors shall be ten (10) until
changed as provided in subdivision (a) of this section.

(c) The maximum or minimum authorized number of directors may
only be changed by an amendment of this section approved by the vote or written
consent of a majority of the outstanding shares entitled to vote; provided,
however, that an amendment reducing the minimum number to a number less than 5
shall not be adopted if the votes cast against its adoption at a meeting (or the
shares not consenting in the case of action by written consent) exceed 16-2/3%
of such outstanding shares; and provided, further, that in no case shall the
stated maximum authorized number of directors exceed two times the stated
minimum number of authorized directors minus one.

Section 2. Classification, Election and Term of Office.
-------------------------------------------

(a) Nomination for election of directors may be made by the Board
of Directors or by any holder of any outstanding class of capital stock of the
Corporation entitled to vote for the election of directors. Notice of intention
to make any nominations shall be made in writing and shall be delivered or
mailed to the President of the Corporation not less than twenty-one (21) days
nor more than sixty (60) days prior to any meeting of shareholders called for
<PAGE>

the election of directors; provided, however, that if less than twenty-one (21)
days' notice is given to shareholders, such notice of intention to nominate
shall be mailed or delivered to the President of the Corporation not later than
the close of business on the tenth (10th) day following the day on which the
notice of meeting was mailed; provided, further, that if notice of such meeting
is sent by third class mail (if permitted by law), no notice of intention to
make nominations shall be required. Such notification shall contain the
following information to the extent known to the notifying shareholder.

(1) the name and address of each proposed nominee;
(2) the principal occupation of each proposed nominee;
(3) the number of shares of capital stock of the Corporation owned by each
proposed nominee;
(4) the name and residence address of the notifying shareholder; and
(5) the number of shares of capital stock of the Corporation owned by the
notifying shareholder.

Nominations not made in accordance herewith may, in the discretion of the
Chairman of the meeting, be disregarded and upon the Chairman's instructions,
the inspectors of election can disregard all votes cast for each such nominee.
A copy of this paragraph shall be set forth in a notice to shareholders of any
meeting at which directors are to be elected.

(b) In the event that the authorized number of directors shall be
fixed at nine (9) or more, the Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist of
one-third of the directors or as close an approximation as possible. The initial
term of office of the directors of Class I shall expire at the annual meeting to
be held during fiscal year 1998, the initial term of office of the directors of
Class II shall expire at the annual meeting to be held during fiscal 1999 and
the initial term of office of the directors of Class III shall expire at the
annual meeting to be held during fiscal year 2000. At each annual meeting,
commencing with the annual meeting to be held during fiscal year 1998, each of
the successors to the directors of the class whose term shall have expired at
such annual meeting shall be elected for a term running until the third annual
meeting next succeeding his or her election and until his or her successor shall
have been duly elected and qualified.

In the event that the authorized number of directors shall be fixed with at
least six (6) but less than nine (9), the Board of Directors shall be divided
into two classes, designated Class I and Class II. Each class shall consist of
one-half of the directors or as close an approximation as possible. At each
annual meeting, each of the successors to the directors of the class whose
term shall have expired at such annual meeting shall be elected for a term
running until the second annual meeting next succeeding his or her election
and until his or her successor shall have been duly elected and qualified.

Notwithstanding the rule that the classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors, each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term, or his or her prior death,
resignation or removal.
<PAGE>

At each annual election, the directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless,
by reason of any intervening changes in the authorized number of directors,
the Board of Directors shall designate one or more directorships whose term
then expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes.

This section may only be amended or repealed by approval of the Board of
Directors and the outstanding shares (as defined in Section 152 of the
California General Corporation Law) voting as a single class, notwithstanding
Section 903 of the California General Corporation Law.

6
<PAGE>

Section 3. Term of Office. Each director, including a director elected
--------------
to fill a vacancy, shall hold office until the expiration of the term for which
he is elected and until a successor has been elected.

Section 4. Vacancies. (a) A vacancy in the Board of Directors exists
---------
whenever any authorized position of director is not then filled by a duly
elected director, whether caused by death, resignation, removal, change in the
authorized number of directors or otherwise.

(b) Except for a vacancy created by the removal al a director,
vacancies on the Board of Directors may be filled by a majority of the directors
then in office, whether or not less than a quorum, or by a sole remaining
director. A vacancy created by the removal of a director shall be filled only by
shareholders.

Section 5. Removal. (a) The Board of Directors may declare vacant the
-------
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony.

(b) Any or all of the directors may be removed without cause if
such removal is approved by a majority of the outstanding shares entitled to
vote; provided, however, that no director may be removed (unless the entire
Board of Directors is removed) if whenever the votes

7
<PAGE>

cast against removal, or not consenting in writing to such removal, would be
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of his most recent election were then being
elected.

(c) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of his term of office.

Section 6. Resignation. Any director may resign effective upon giving
-----------
written notice to the Chairman of the Board, the President, the Secretary or the
Board of Directors of the Corporation, unless the notice specifies a later time
for the effectiveness of such resignation. If the resignation is effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.

Section 7. Fees and Compensation. Directors may be paid for their
---------------------
services in such capacity a sum in such amounts, at such times and upon such
conditions as may be determined from time to time by resolution of the Board of
Directors, and may be reimbursed for their expenses, if any, incurred in such
capacity, including (without limitation) expenses of attendance at any meeting
of the Board. No such payments shall preclude any director from serving the
Corporation in any other capacity and receiving compensation in any manner
therefor.

ARTICLE V

COMMITTEES OF THE BOARD OF DIRECTORS
------------------------------------

Section 1. Designation of Committees. The Board of Directors may, by
resolution adopted by a majority of the authorized number of directors,
designate (1) one or more committees, each consisting of two or more directors
and (2) one or more directors as alternate members of any committee, who may
replace any absent member at any meeting thereof. Any member or alternate member
of a committee shall serve at the pleasure of the Board.

Section 2. Powers of Committees. Any committee, to the extent provided
--------------------
in the resolution of the Board of Directors designating such committee, shall
have all the authority of the Board, except with respect to:

(a) The approval of any action for which the General Corporation
Law of the State of California also requires any action by the shareholders;

(b) The filling of vacancies on the Board or in any committee
thereof;

(d) The amendment or repeal of these Bylaws or the adoption of
new bylaws;

8
<PAGE>

(e) The amendment or repeal of any resolution of the Board which
by its express terms is not so amenable or resealable;

(f) A distribution to the shareholders of the Corporation, except
at a rate or in a periodic amount or within a price range determined by the
Board of Directors; or

(g) The designation of other committees of the Board or the
appointment of members or alternate members thereof.

ARTICLE VI

MEETINGS OF THE BOARD OF DIRECTORS
----------------------------------

AND COMMITTEES THEREOF
----------------------

Section 1. Place of Meetings. Regular meetings of the Board of Directors
-----------------
shall be held at any place within or without the State of California which has
been designated from time to time by the Board or, in the absence of such
designation, at the principal executive office of the Corporation. Special
meetings of the Board shall be held either at any place within or without the
State of California which has been designated in the notice of the meeting or,
if not stated in the notice or if there is no notice, at the principal executive
office of the Corporation.

Section 2. Organization Meeting. Immediately following each annual
--------------------
meeting of the shareholders the Board of Directors shall hold a regular meeting
for the purpose of organization and the transaction of other business. Notice of
any such meeting is not required.

Section 3. Other Regular Meetings. Other regular meetings of the Board
----------------------
of Directors shall be held without call at such time as shall be designated from
time to time by the Board. Notice of any such meeting is not required.

Section 4. Special Meetings. Special meetings of the Board of Directors
----------------
may be called at any time for any purpose or purposes by the Chairman of the
Board or the President or any vice president or the Secretary or any two
directors. Notice shall be given of any special meeting of the Board.

Section 5. Notice of Special Meetings. (a) Notice of the time and place
--------------------------
of special meetings of the Board of Directors shall be delivered personally or
by telephone to each director or sent to each director by first-class mail or
telegraph, charges prepaid. Such notice shall be given four days prior to the
holding of the special meeting if sent by mail or 48 hours prior to the holding
thereof if delivered personally or given by telephone or telegraph. The notice
or report shall be deemed to have been given at the time when delivered
personally to the recipient or deposited in the mail or sent by other means of
written communication.

(b) Notice of any special meeting of the Board of Directors need
not specify the purpose thereof and need not be given to any director who signs
a waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
<PAGE>

notice to him.

9
<PAGE>

Section 6. Validation of Defectively Held Meetings. The transactions of
---------------------------------------
any meeting of the Board of Directors, however called and noticed or wherever
held, are as valid as though had at a meeting duly held after regular call and
notice if a quorum is present and if, either before or after the meeting, each
of the directors not present signs a written waiver of notice, a consent to
holding the meeting or an approval of the minutes thereof. Such waivers,
consents and approvals (1) need not specify the purpose of any meeting of the
Board of Directors and (2) shall be filed with the corporate records or made a
part of the minutes of the meeting.

Section 7. Quorum; Action at Meetings; Telephone Meetings. (a) A
----------------------------------------------
majority of the authorized number of directors shall constitute a quorum for the
transaction of business. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, unless action by a greater proportion of the
directors is required by law or the Articles of Incorporation.

(b) A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.

(c) Members of the Board of Directors may participate in a
meeting through use of conference telephone or similar communications equipment
so long as all members participating in such meeting can hear one another.

Section 8. Adjournment. A majority of the directors present, whether or
-----------
not a quorum is present, may adjourn any meeting to another time and place. If
the meeting is adjourned for more than 24 hours, notice of any adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.

Section 9. Action Without a Meeting. Any action required or permitted to
------------------------
be taken by the Board of Directors may be taken without a meeting, if all
members of the Board individually or collectively consent in writing to such
action. Such written consent or consents shall be filed with the minutes of the
proceedings of the Board. Such action by written consent shall have the same
force and effort as a unanimous vote of such directors.

Section 10. Meetings of and Action by Committees. The provisions of this
------------------------------------
Article apply to committees of the Board of Directors and action by such
committees with such changes in the language of those provisions as are
necessary to substitute the committee and its members for the Board and its
members.

ARTICLE VII

OFFICERS
--------

Section 1. Officers. The Corporation shall have as officers, a
--------
President, a Secretary and a Treasurer. The Treasurer is the chief financial
officer of the Corporation unless the Board of Directors has by resolution

<PAGE>

designated a vice president or other officer to be the chief financial

10
<PAGE>

officer. The Corporation may also have at the discretion of the Board, a
Chairman of the Board, one or more vice presidents, one or more assistant
secretaries, one or more assistant treasurers and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article. One
person may hold two or more offices.

Section 2. Election of Officers. The officers of the Corporation, except
--------------------
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article, shall be chosen by the Board of Directors.

Section 3. Subordinate Officers, Etc. The Board of Directors may appoint
-------------------------
by resolution, and may empower the Chairman of the Board, if there be such an
officer, or the President, to appoint such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are determined from time to time by
resolution of the Board or, in the absence of any such determination, as are
provided in these Bylaws. Any appointment of an officer shall be evidenced by a
written instrument filed with the Secretary of the Corporation and maintained
with the corporate records.

Section 4. Removal and Resignation. (a) Any officer may be removed,
-----------------------
either with or without cause, by the Board of Directors or, except in case of
any officer chosen by the Board, by any officer upon whom such power of removal
may be conferred by resolution of the Board.

(b) Any officer may resign at any time effective upon giving
written notice to the Chairman of the Board, President, any vice president or
Secretary of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation.

Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.

Section 6. Chairman of the Board. If there is a Chairman of the Board,
---------------------
he shall, if present, preside at all meetings of the Board of Directors,
exercise and perform such other powers and duties as may be from time to time
assigned to him by resolution of the Board and, if there is no President, the
Chairman of the Board shall be the chief executive officer of the Corporation
and have the power and duties set forth in Section 7 of this Article.

Section 7. President. Subject to such supervisory powers, if any, as may
---------
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the chief executive officer and general
manager of the Corporation and shall, subject to the control of the Board, have
general supervision, direction and control of the business and affairs of the
Corporation. He shall preside at all meetings of the shareholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed from time to time by resolution of the
Board.

11
<PAGE>

Section 8. Vice President. In the absence or disability of the
--------------
President, the vice presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the Vice President designated by the Board, shall
perform all the duties of the President, and when so acting shall have all the
powers of, and be subject to all the restrictions upon, the President. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the Board or as the
President may from time to time delegate.

Section 9. Secretary. (a) The Secretary shall keep or cause to be kept
---------
(1) the minute book, (2) the share register and (3) the seal, if any, of the
Corporation.

(b) The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board.

Section 10. Treasurer. (a) The Treasurer shall keep, or cause to be kept,
---------
the books and records of account of the Corporation.

(b) The Treasurer shall deposit all monies and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated from time to time by resolution of the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, shall render to the President and the Board, whenever they request
it, an account of all of his transactions as Treasurer and of the financial
condition of the Corporation, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board or as the
President may from time to time delegate.

ARTICLE VIII

RECORDS AND REPORTS
-------------------

Section 1. Minute Book - Maintenance and Inspection. The Corporation
----------------------------------------
shall keep or cause to be kept in written form at its principal executive office
or such other place as the Board of Directors may order, a minute book which
shall contain a record of all actions by its shareholders, Board or committees
of the Board including the time, date and place of each meeting; whether a
meeting is regular or special and, if special, how called; the manner of giving
notice of each meeting and a copy thereof; the names of those present at each
meeting of the Board or committees thereof; the number of shares present or
represented at each meeting of the shareholders; the proceedings of all
meetings; any written waivers of notice, consents to the holding of a meeting or
approvals of the minutes thereof; and written consents for action without a
meeting.

Section 2. Share Resister - Maintenance and Inspection. The Corporation
-------------------------------------------
shall keep or cause to be kept at its principal executive office or, if so
provided by resolution of the Board of Directors, at the Corporation's transfer
agent or registrar, a share register, or a duplicate share register, which shall
<PAGE>

contain the names of the shareholders and their addresses, the number and

12
<PAGE>

classes of shares held by each, the number and date of certificates issued for
the same and the number and date of cancellation of every certificate
surrendered for cancellation.

Section 3. Books and Records of Account - Maintenance and Inspection.
---------------------------------------------------------
The Corporation shall keep or cause to be kept at its principal executive office
or such other place as the Board of Directors may order, adequate and correct
books and records of account.

Section 4. Bylaws - Maintenance and Inspection. The Corporation shall
-----------------------------------
keep at its principal executive office or, in the absence of such office in the
State of California, at its principal business office in that state, the
original or a copy of the Bylaws as amended to date.

Section 5. Annual Report to Shareholders. The annual report to the
--------------------
shareholders described in Section 1501 of the Corporations Code of the State of
California is expressly dispensed with, but nothing herein shall be interpreted
as prohibiting the Board of Directors from issuing annual or other periodic
reports to the shareholders of the Corporation as they see fit.

ARTICLE IX

MISCELLANEOUS
-------------

Section 1. Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
payment of money, notes or other evidences of indebtedness, and any assignment
or endorsement thereof, issued in the name of or payable to the Corporation,
shall be signed or endorsed by such person or persons and in such manner as,
from time to time, shall be determined by resolution of the Board of Directors.

Section 2. Contracts, Etc. - How Executed. The Board of Directors,
------------------------------
except as otherwise provided in these Bylaws, may authorize any officer or
officers, agent or agents, to enter into any contract or execute any instrument
in the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances; and, unless so authorized or ratified
by the Board, no officer, employee or other agent shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or to any amount.

Section 3. Certificates of Stock. All certificates shall be signed in
---------------------
the name of the Corporation by the Chairman of the Board or the President or a
vice president and by the Treasurer or an assistant treasurer or the Secretary
or an assistant secretary, certifying the number of shares and the class or
series thereof owned by the shareholder. Any or all of the signatures on a
certificate may be by facsimile signature. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were an officer, transfer agent or registrar at
the date of issue.

Section 4. Lost Certificates. Except as provided in this section, no new
-----------------
<PAGE>

certificate for shares shall be issued in lieu of an old certificate unless the
latter is surrendered to the Corporation

13
<PAGE>

and canceled at the same time. The Board of Directors may in case any share
certificate or certificate for any other security is lost, stolen or destroyed,
authorize the issuance of a new certificate in lieu thereof, upon such terms and
conditions as the Board may require, including provision for indemnification of
the Corporation secured by a bond or other adequate security sufficient to
protect the Corporation against any claim that may be made against it, including
any expense or liability, on account of the alleged loss, theft or destruction
of such certificate or the issuance of such new certificate.

Section 5. Representation of Shares of Other Corporations. Any person
----------------------------------------------
designated by resolution of the Board of Directors or, in the absence of such
designation, the Chairman of the Board, the President or any vice president or
the Secretary, or any other person authorized by any of the foregoing, is
authorized to vote on behalf of the Corporation any and all shares of any other
corporation or corporations, foreign or domestic, owned by the Corporation.

Section 6. Construction and Definitions. Unless the context otherwise
----------------------------
requires, the general provisions, rules of construction and definitions
contained in the Corporations Code of the State of California shall govern the
construction of these Bylaws.

Section 7. Indemnification of Corporate Agents; Purchase of Liability
----------------------------------------------------------
Insurance. (a) The Corporation shall, to the maximum extent permitted by the
- ---------
General Corporation Law of the State of California, and as the same may from
time to time be amended, indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
in connection with any proceeding to which such person was or is a party or is
threatened to be made a party arising by reason of the fact that such person is
or was an agent of the Corporation. For purposes of this Section 7, an "agent"
of the Corporation includes any person who is or was a director, officer,
employee or other agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust or other enterprise,
or was a director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation; "proceeding" means
any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative, and includes an action or proceeding
by or in the right of the Corporation to procure a judgment in its favor; and
"expenses" includes attorneys' fees and any expenses of establishing a right to
indemnification under this subdivision (a).

(b) The Corporation shall, if and to the extent the Board of
Directors so determines by resolution, purchase and maintain insurance in an
amount and on behalf of such agents of the Corporation as the Board may specify
in such resolution against any liability asserted against or incurred by the
agent in such capacity or arising out of the agent's status as such whether or
not the Corporation would have the capacity to indemnify the agent against such
liability under the provisions of this Section.

14
<PAGE>

ARTICLE X

AMENDMENTS
----------

Section 1. Amendments. New bylaws may be adopted or these Bylaws may be
amended or repealed by the affirmative vote of a majority of the outstanding
shares entitled to vote. Subject to the next preceding sentence, bylaws (other
than a bylaw or amendment thereof specifying or changing a fixed number of
directors or the maximum or minimum number, or changing from a fixed to a
variable board or vice versa) may be adopted, amended or repealed by the Board
of Directors.

15
<PAGE>

GREATER BAY
BANCORP

CERTIFICATION

The undersigned hereby certifies that he is the duly elected and acting
Assistant Corporate Secretary of Greater Bay Bancorp, a California Corporation,
that the foregoing is a true, correct and complete copy of the resolutions duly
adopted at the regular meeting of the Board of Directors of Greater Bay Bancorp,
duly called and held October 21, 1997, at which a quorum was present and acting
throughout, which resolutions are in full force and effect on and as of the date
hereof, not having been amended, altered or repealed.

IN WITNESS WHEREOF, the undersigned has executed this Certificate this 21st
day of October, 1997.

/s/ Steven C. Smith
-----------------------------
Steven C. Smith
Assistant Secretary
<PAGE>

RESOLUTIONS OF THE BOARD OF DIRECTORS

OF GREATER BAY BANCORP

WHEREAS, the Board of Directors of Greater Bay Bancorp (the "Corporation")
is authorized by the Corporation's Articles of Incorporation and Bylaws to amend
the Corporation's Bylaws;

WHEREAS, the Corporation's Bylaws currently fix the authorized number of
Directors at ten (10) and provide for three roughly equal Classes of Directors:
Class I, Class II and Class III;

WHEREAS the Board of Directors of the Corporation is currently comprised of
ten persons: three (3) Class I Directors, three (3) Class II Directors, and four
(4) Class III Directors;

WHEREAS, on September 5, 1997, the corporation entered into an Agreement
and Plan of Reorganization (the "Agreement") by and among the Corporation, GBB
Acquisition Corp., a California corporation and wholly-owned subsidiary of the
Corporation ("Newco"), and Peninsula Bank of commerce, a California banking
corporation ("PBC"), pursuant to which, among other things, the Corporation will
acquire PBC through the merger of Newco with and into PBC (the "Merger");

WHEREAS, pursuant to Section 10.7 of the Agreement, the Corporation is
required to take all necessary action to appoint, as of the effective time of
the Merger (the "Effective Time"), George R. Corey, current Chairman of PBC, to
the Board of Directors of the Corporation;

WHEREAS, the Board of Directors has received and reviewed a draft of a
proposed amendment to Article IV, Section 1, subdivision (b) for the
Corporation's Bylaws fixing the number of authorized Directors at eleven (11) as
of the Effective Time;

WHEREAS, the Board of Directors believes it is in the best interests of the
Corporation and its shareholders to amend the Corporation's Bylaws as
contemplated by such proposed amendment; and

WHEREAS, the Board of Directors believes it is in the best interests of the
Corporation and its shareholders to appoint, as of the Effective Time, Mr. Corey
to serve as a Class II Director of the Corporation, to fill the vacancy thus
created.

NOW, THEREFORE, BE IT HEREBY RESOLVED, that Article IV, Section 1,
subdivision (b) of the Corporation's Bylaws is hereby amended to be effective as
of the Effective Time to read as follows:

"(b) The exact number of directors shall be eleven
(11) until changed as provided in subdivision (a) of
this section."
<PAGE>

RESOLVED, FURTHER, that, as of the Effective Time, George R. Corey shall be
appointed to Class II of the Board of Directors of the Corporation, to serve
until the 1998 Annual Meeting of Shareholders and until his successor is elected
and has qualified;

RESOLVED, FURTHER, that the officers of the Corporation be, and they each
hereby are, authorized, directed and empowered to do or cause to be done all
such acts or things and sign and deliver all such documents as such officer(s)
may deem advisable or necessary in order to carry out and perform the purposes
of these resolutions; and

RESOLVED FURTHER, that the Secretary of the Corporation is hereby
authorized and directed to compile and certify copies of the Bylaws as amended
and to place one copy in the Corporation's minute book and keep another copy at
the Corporation's principal executive office where it shall be open to
inspection by the shareholders at all reasonable times during office hours, as
provided in Section 213 of the Corporations Code.

<PAGE>

CERTIFICATE OF SECRETARY

I, Carleen Maniglia, hereby certify that:

1) I am the duly elected and acting Assistant Secretary of Greater Bay
Bancorp, a California Corporation;

2) Set forth below is a true copy of resolutions duly adopted by the Board of
Directors at their meeting duly held on March 24,1998.

3) The resolutions set forth below have not been modified or rescinded and are
in full force and effect.

In witness whereof, I have hereunto set my hand this 25th day of March, 1998.

/s/ Carleen Maniglia
-------------------
Carleen Maniglia
Assistant Corporate Secretary

WHEREAS, the Board of Directors of Greater Bay Bancorp (the "Corporation") is
authorized by the Corporation's Articles of Incorporation and Bylaws to amend,
subject in certain instances to shareholder approval, the Corporation's Bylaws:

WHEREAS, the Corporations' Bylaws currently (i) provide that the authorized
number of Director shall not be less than seven (7) nor more than thirteen (13);
(ii) fix the authorized number of Directors at eleven (11); and (iii) provide
for three roughly equal Classes of Directors: Class I, Class II and Class III;

WHEREAS, the Board of Directors of the Corporation is currently comprised of
eleven (11) persons; three (3) Class I Directors, four (4) Class II Directors,
and four (4) Class III Directors;

WHEREAS, the Board of Directors has received and reviewed a draft of a proposed
amendment to Article IV, Section 1, subdivision (a) of the Corporation's Bylaws
which provides that the authorized number of directors shall not be less than
nine (9) nor more than seventeen (17);

WHEREAS, the Board of Directors has received and reviewed a draft of a proposed
amendment to Article IV, Section 1, subdivision (b) of the Corporation's Bylaws
fixing the number of authorized Directors at thirteen (13);

WHEREAS, the Board of Directors believes it is in the best interest of the
Corporation and its shareholders to amend the Corporation's Bylaws as
contemplated by such proposed amendments;

WHEREAS, the Board of Directors believes it is in the best interests of the
Corporation and its shareholders to appoint Roger V. Smith and George M. Marcus
to serve as Class II Directors of the Corporation to fill the vacancies thus
created;

WHEREAS, Edwin E. van Bronkkhorst, who is currently a Class I Director of the
Corporation, has expressed his intention to resign from the Board of Directors,
effective as of the earlier of (i) the Corporation's 1998 Annual Meeting of
Shareholders (the "Annual Meeting:), or (ii) in the event that the Corporation's
pending merger transaction with Pacific Rim Bancorporation (the "PRB Merger") is
closed prior to the date of the Annual Meeting, the effective time of the PRB
Merger; and
<PAGE>

WHEREAS, in the event that Mr. van Bronkhorst resigns from the Board of
Directors as of the effective time of the PRB Merger as described in (ii) above,
the Board of Directors believes it is in the best interests of the Corporation
and its shareholders to appoint Mr. Leo K.W. Lum to serve as a Class II Director
to fill the vacancy thus created, as of the effective time of the PRB Merger;
and

NOW, THEREFORE, BE IT HEREBY RESOLVED, that Article IV, Section 1, subdivision
(a) of the Corporation's Bylaws is hereby amended, subject to the approval of a
majority of the outstanding shares of the Corporation, to read in its entirety
as follows:

"(a) The authorized number of directors shall be no less than nine (9) nor
more than seventeen (17). The exact number of directors shall be fixed
from time to time, within the limits specified in this subdivision, by an
amendment of subdivision (b) of the section adopted by the Board of
Directors."

RESOLVED FURTHER, that Article IV, Section 1, subdivision (b) of the
Corporation's Bylaws is hereby amended, effective immediately, to read in its
entirety as follows:

"(b) The exact number of directors shall be thirteen (13) until changed as
provided in subdivision (a) of this section."

RESOLVED FURTHER, that Messrs. Roger V. Smith and George M. Marcus are hereby
appointed to Class I of the Board of Directors of the Corporation, to serve
until the 1998 Annual meeting of Shareholders and until their successors are
elected and have qualified;

RESOLVED FURTHER, that in the event that the effective time of the PRB Merger
occurs prior to the date of the Annual Meeting; (i) the Board of Directors shall
accept Mr. van Bronkhorst's resignation from the Board as of the effective time
of the PRB Merger, and (ii) Mr. Leo K.W. Lum shall be appointed to Class II of
the Board of Directors of the Corporation, to serve until the 1999 Annual
Meeting of Shareholders and until his successor is elected and has qualified;

RESOLVED FURTHER, that the officers of the Corporation be, and they each hereby
are, authorized, directed and empowered to do or cause to be done all such acts
or things and sign and deliver all such documents as such officer(s) may deem
advisable or necessary in order to carry out and perform the purposes of these
resolutions, including, but not limited to, preparing or causing to be prepared
and filing or causing to be filed with the Securities and Exchange Commission, a
preliminary proxy statement and a definitive proxy statement to be used in
connection with solicitation of approval of the Corporation's shareholders of
the amendment of the Corporation's Bylaws to increase the range of the number of
authorized directors; and

RESOLVED FURTHER, that the Secretary of the Corporation is hereby authorized and
directed to compile and certify copies of the Bylaws as amended and to place one
copy in the Corporation's minute book and keep another copy at the Corporation's
principal executive office where it shall be open to inspection by the
shareholders at all reasonable times during office hours, as provided in Section
213 of the Corporations Code.
<PAGE>

CERTIFICATE OF SECRETARY

I, Carleen Maniglia, hereby certify that:

1) I am the duly elected and acting Assistant Secretary of Greater Bay
Bancorp, a California Corporation;

2) Set forth below is a true copy of resolutions duly adopted by the Board of
Directors at their meeting duly held on July 21, 1998.

3) The resolutions set forth below have not been modified or rescinded and are
in full force and effect.

In witness whereof, I have hereunto set my hand this 22nd day of July, 1998.

/s/Carleen Maniglia
-------------------
Carleen Maniglia
Assistant Corporate Secretary

RESOLVED FURTHER, that Article IV, Section 1 of the Bylaws of Greater Bay
Bancorp be, and hereby is, amended to read in full as follows:

Section 1. Number of Directors. (a) The authorized number of directors
-------------------
shall be no less than nine (9) nor more than seventeen (17). The exact
number of directors shall be fixed from time to time, within the limits
specified in this subdivision, by an amendment of subdivision (b) of this
section adopted by the Board of Directors.

The exact number of directors shall be fourteen (14) until changed as
provided in subdivision (a) of this section.

The maximum or minimum authorized number of directors may only be changed
by an amendment of this section approved by the vote or written consent of
a majority of the outstanding shares entitled to vote; provided, however,
that an amendment reducing the minimum number to a number less than 5 shall
not be adopted if the votes cast against its adoption at a meeting (or the
shares not consenting in the case of action by written consent) exceed 16-
2/3% of such outstanding shares; and provided, further, that in no case
shall the status maximum authorized number of directors exceed two times
the stated minimum number of authorized directors minus one.

<PAGE>

EXHIBIT 4.6.2

APPOINTMENT OF
--------------
SUCCESSOR ADMINISTRATIVE TRUSTEE
--------------------------------
AND
---
FIRST AMENDMENT TO
------------------
AMENDED AND RESTATED TRUST AGREEMENT
------------------------------------

GBB CAPITAL I

This Appointment of Successor Administrative Trustee and First
Amendment to Amended and Restated Trust Agreement (this "First Amendment"), is
dated as of June 24, 1998 and is pursuant to Sections 8.10, 8.11 and 10.2(a) of
the Amended and Restated Trust Agreement between Greater Bay Bancorp, as
Depositor, Wilmington Trust Company, as Property Trustee, Wilmington Trust
Company, as Delaware Trustee and the Administrative Trustees named therein,
dated as of March 31, 1997 (the "Amended and Restated Trust Agreement").
Capitalized terms used herein and not otherwise defined herein have the
respective meanings ascribed thereto in the Amended and Restated Trust
Agreement.

WHEREAS, James R. Ramsey, an Administrative Trustee of GBB Capital I
under the Amended and Restated Trust Agreement, has been removed as an
Administrative Trustee by the Common Securityholder pursuant to Section 8.10 of
the Amended and Restated Trust Agreement;

WHEREAS, Greater Bay Bancorp, as the Common Securityholder, wishes to
appoint a successor Administrative Trustee pursuant to Section 8.10 of the
Amended and Restated Trust Agreement; and

WHEREAS, Shawn E. Saunders, a natural person over the age of 21, and
the person whom the Common Securityholder wishes to appoint as successor
Administrative Trustee, wishes to accept such appointment pursuant to Section
8.11 of the Amended and Restated Trust Agreement.

1. James R. Ramsey, Administrative Trustee under the Amended and
Restated Trust Agreement, is hereby removed as an Administrative Trustee
pursuant to Section 8.10 of the Amended and Restated Trust Agreement by Greater
Bay Bancorp (in its capacity as Common Securityholder). This First Amendment,
when delivered to the removed Trustee, James R. Ramsey, shall constitute
delivery of the required Act of the Common Securityholder pursuant to Section
8.10 of the Amended and Restated Trust Agreement.

2. Greater Bay Bancorp, as Common Securityholder, hereby appoints
Shawn E. Saunders as successor Administrative Trustee. This First Amendment,
when executed and acknowledged by Shawn E. Saunders, the successor Trustee, and
delivered to GBB Capital I and the removed Administrative Trustee, James R.
Ramsey, shall constitute the instrument accepting such appointment pursuant to
Section 8.11 of the Amended and Restated Trust Agreement.

1
<PAGE>

3. Shawn E. Saunders hereby accepts the appointment under the
Amended and Restated Trust Agreement as successor Administrative Trustee, and
accepts the rights, powers, trusts and duties of an Administrative Trustee with
respect to the Trust Securities and the Trust, as if he were an original
signatory in the capacity as Administrative Trustee (and not in an individual
capacity) to the Amended and Restated Trust Agreement. This First Amendment
shall constitute the amendment to the Amended and Restated Trust Agreement
required to be executed and delivered by the retiring Trustee and the successor
Trustee pursuant to Section 8.11 of the Amended and Restated Trust Agreement.

GENERAL PROVISIONS

As amended by this First Amendment, the Amended and Restated Trust
Agreement is in all respects ratified and confirmed and, as amended by this
First Amendment, shall be read, taken and construed as one and the same
instrument.

All other provisions of the Amended and Restated Trust Agreement shall
remain unaffected by the foregoing amendment and shall remain in full force and
effect.

This First Amendment shall become a legally effective and binding
instrument as of the date hereof.

This First Amendment may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all of such
counterparts shall together constitute one and the same instrument.

2
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this First Amendment as
of the day and year first above written.

Greater Bay Bancorp

By: /s/ Steven C. Smith
------------------------------
Name: Steven C. Smith
Title: Executive Vice President, Chief
Operating Officer and Chief
Financial Officer

Wilmington Trust Company,
as Property Trustee

By: /s/ Bruce L. Bisson
------------------------------
Name: Bruce L. Bisson
Title: Vice President

/s/ David L. Kalkbrenner
-------------------------------
David L. Kalkbrenner,
as Administrative Trustee

/s/ Steven C. Smith
-------------------------------
Steven C. Smith,
as Administrative Trustee

/s/ Shawn E. Saunders
-------------------------------
Shawn E. Saunders,
as successor Administrative Trustee

/s/ James R. Ramsey
-------------------------------
James R. Ramsey,
as retiring Administrative Trustee

<PAGE>

Exhibit 4.21

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

SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT

GREATER BAY BANCORP

Dated as of November 27, 1998

===================================================
<PAGE>

TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION

SECTION 1.1 Definitions and Interpretation................................... 2

ARTICLE II
TRUST INDENTURE ACT

SECTION 2.1 Trust Indenture Act; Application................................. 6
SECTION 2.2 Lists of Holders of Securities................................... 6
SECTION 2.3 Reports by the Capital Securities Guarantee Trustee.............. 6
SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee......... 6
SECTION 2.5 Evidence of Compliance with Conditions Precedent................. 7
SECTION 2.6 Waiver of Events of Default...................................... 7
SECTION 2.7 Notice of Events of Default...................................... 7
SECTION 2.8 Conflicting Interests............................................ 7

ARTICLE III
POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 3.1 Powers and Duties of the Capital Securities Guarantee Trustee.... 8
SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee........... 9
SECTION 3.3 Not Responsible for Recitals or Issuance of Series B Capital
Securities Guarantee............................................. 11

ARTICLE IV
CAPITAL SECUCRITIES GUARANTEE TRUSTEE

SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility................ 12
SECTION 4.2 Appointment, Removal and Resignation of Capital Securities
Guarantee Trustee................................................ 12

ARTICLE V
GUARANTEE

SECTION 5.1 Guarantee........................................................ 13
SECTION 5.2 Waiver of Notice and Demand...................................... 13
SECTION 5.3 Obligations Not Affected......................................... 13
SECTION 5.4 Rights of Holders................................................ 14
SECTION 5.5 Guarantee of Payment............................................. 15
SECTION 5.6 Subrogation...................................................... 15
SECTION 5.7 Independent Obligations.......................................... 15
</TABLE>

(i)
<PAGE>

<TABLE>
<CAPTION>
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
<S> <C>
SECTION 6.1 Limitation of Transactions......................................... 15
SECTION 6.2 Ranking............................................................ 16

ARTICLE VII
TERMINATION

SECTION 7.1 Termination........................................................ 16

ARTICLE VIII
INDEMNIFICATION

SECTION 8.1 Exculpation........................................................ 17
SECTION 8.2 Compensation and Indemnification................................... 17

ARTICLE IX
MISCELLANEOUS

SECTION 9.1 Successors and Assigns............................................. 18
SECTION 9.2 Amendments......................................................... 18
SECTION 9.3 Notices............................................................ 18
SECTION 9.4 Benefit............................................................ 19
SECTION 9.5 Governing Law...................................................... 19

</TABLE>

(ii)
<PAGE>

CROSS REFERENCE TABLE

<TABLE>
<CAPTION>
<S> <C>
Section of Trust Section of Guarantee
Indenture Act of Agreement
1939, as amended
310(a)............................................ 4.1(a)
310(b)............................................ 4.1(c), 2.8
310(c)............................................ Inapplicable
311(a)............................................ 2.2(b)
311(b)............................................ 2.2(b)
311(c)............................................ Inapplicable
312(a)............................................ 2.2(a)
312(b)............................................ 2.2(b)
313.............................................. 2.3
314(a)............................................ 2.4
314(b)............................................ Inapplicable
314(c)............................................ 2.5
314(d)............................................ Inapplicable
314(e)............................................ 1.1, 2.5, 3.2
314(f)............................................ 2.1, 3.2
315(a)............................................ 3.1(d)
315(b)............................................ 2.7
315(c)............................................ 3.1(c)
315(d)............................................ 3.1(d)
316(a)............................................ 1.1, 2.6, 5.4
316(b)............................................ 5.3
316(c)............................................ 9.2
317(a)............................................ Inapplicable
317(b)............................................ Inapplicable
318(a)............................................ 2.1(a)
318(c)............................................ 2.1(b)
</TABLE>
_________________________

* This Cross-Reference Table does not constitute part of this Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.

(iii)
<PAGE>

SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT

This SERIES B CAPITAL SECURITIES GUARANTEE AGREEMENT (the "Series B Capital
Securities Guarantee"), dated as of November 27, 1998, is executed and delivered
by GREATER BAY BANCORP, a California corporation (the "Guarantor"), and
WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee (the
"Capital Securities Guarantee Trustee" or "Trustee"), for the benefit of the
Holders (as defined herein) from time to time of the Series B Capital Securities
(as defined herein) of GBB CAPITAL II, a Delaware statutory business trust (the
"Issuer").

WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust
Agreement"), dated as of August 12, 1998, by and among the trustees of the
Issuer named therein, the Guarantor, as sponsor, and the Holders from time to
time of undivided beneficial interests in the assets of the Issuer, the Issuer
(i) issued on August 12, 1998 30,000 capital securities, having an aggregate
liquidation amount of $30,000,000, such capital securities being designated the
Floating Rate Capital Securities, Series A (collectively the "Series A Capital
Securities") and (ii) in connection with an Exchange Offer (as defined in the
Trust Agreement), hereby executes and delivers this Series B Capital Securities
Guarantee for the benefit of Holders of the Series B Capital Securities (as
defined in the Trust Agreement);

WHEREAS, the Series A Capital Securities issued by the Issuer and proceeds
thereof, together with the proceeds from the issuance of the Issuer's Common
Securities (as defined herein), were used to purchase the Junior Subordinated
Debentures due September 15, 2028 (the "Series A Junior Subordinated
Debentures") of the Guarantor which were deposited with the Trustee, as Property
Trustee under the Trust Agreement, as trust assets;

WHEREAS, as incentive for the Holders to purchase the Series A Capital
Securities, the Guarantor irrevocably and unconditionally agreed, to the extent
set forth in the Series A Capital Securities Guarantee Agreement dated as of
August 12, 1998 (the "Series A Capital Securities Guarantee"), to pay to the
Holders of the Series A Capital Securities the Guarantee Payments (as defined
herein) and to make certain other payments on the terms and conditions set forth
herein;

WHEREAS, in connection with the offer of the Series A Capital Securities,
the Guarantor, the Issuer and Sandler O'Neill & Partners, L.P. executed the
Registration Rights Agreement dated August 7, 1998 (the "Registration Rights
Agreement");

WHEREAS, the Issuer, in order to satisfy its obligations under the
Registration Rights Agreement, intends to offer up to $30,000,000 aggregate
Liquidation Amount of its Floating Rate Capital Securities, Series B, which have
been registered under the Securities Act of 1933, as amended, pursuant to a
registration statement in exchange for a like Liquidation Amount of Series A
Capital Securities;

WHEREAS, pursuant to the Exchange Offer, the Guarantor is also exchanging
up to $30,000,000 aggregate principal amount of the Series A Junior Subordinated
Debentures for up to $30,000,000 aggregate principal of the Series B Junior
Subordinated Debentures due September 15, 2028 (the "Series B Junior
Subordinated Debentures") of the Guarantor;
<PAGE>

WHEREAS, pursuant to the Exchange Offer, the Guarantor is required to
execute this Series B Capital Securities Guarantee and exchange the Series A
Capital Securities Guarantee for this Series B Capital Securities Guarantee
Agreement; and

WHEREAS, the Guarantor also executed and delivered the Common Securities
Guarantee Agreement dated as of August 12, 1998, (the "Common Securities
Guarantee"), for the benefit of the holders of the Common Securities (as defined
herein), the terms of which provide that if an Event of Default (as defined in
the Trust Agreement) has occurred and is continuing, the rights of holders of
the Common Securities to receive Guarantee Payments under the Common Securities
Guarantee are subordinated, to the extent and in the manner set forth in the
Common Securities Guarantee, to the rights of Holders of Series A Capital
Securities and the Series B Capital Securities to receive Guarantee Payments
under the Series A Capital Securities Guarantee and this Series B Capital
Securities Guarantee, as the case may be.

NOW, THEREFORE, in consideration of the exchange by each Holder of the
Series A Capital Securities for the Series B Capital Securities, which exchange
the Guarantor hereby acknowledges shall benefit the Guarantor, (or in the event
certain Holders do not exchange their Series A Capital Securities, in order to
fulfill its obligations to such Holders under the Series A Capital Securities
Guarantee) and intending to be legally bound hereby, the Guarantor executes and
delivers this Series B Capital Securities Guarantee Agreement for the benefit of
the Holders from time to time of the Trust Securities (as defined herein).

ARTICLE I

DEFINITIONS AND INTERPRETATION

SECTION 1.1 Definitions and Interpretation
------------------------------

In this Series B Capital Securities Guarantee, unless the context otherwise
requires:

(a) capitalized terms used in this Series B Capital Securities Guarantee
but not defined in the preamble above have the respective meanings assigned to
them in this Section 1.1;

(b) terms defined in the Trust Agreement as at the date of execution of
this Series B Capital Securities Guarantee have the same meaning when used in
this Series B Capital Securities Guarantee unless otherwise defined in this
Series B Capital Securities Guarantee,

(d) all references to "the Series B Capital Securities Guarantee" or "this
Series B Capital Securities Guarantee" are references to this Series B Capital
Securities Guarantee as modified, supplemented or amended from time to time;

(e) all references in this Series B Capital Securities Guarantee to
Articles and Sections references are to Articles and Sections of this Series B
Capital Securities Guarantee, unless otherwise specified;

-2-
<PAGE>

(f) a term defined in the Trust Indenture Act has the same meaning when
used in this Series B Capital Securities Guarantee, unless otherwise defined in
this Series B Capital Securities Guarantee or unless the context otherwise
requires; and

(g) a reference to the singular includes the plural and vice versa.

"Affiliate" has the same meaning as given to that term in Rule 405 under
---------
the Securities Act of 1933, as amended, or any successor rule thereunder.

"Business Day" shall mean any day other than a Saturday or a Sunday, or a
------------
day on which banking institutions in Wilmington, Delaware, San Francisco,
California and New York, New York are authorized or required by law or executive
order to remain closed.

"Capital Securities Guarantee Trustee" shall mean Wilmington Trust Company
------------------------------------
as Trustee under the Series B Capital Securities Guarantee, until a Successor
Capital Securities Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Series B Capital Securities Guarantee
and thereafter means each such Successor Capital Securities Guarantee Trustee.

"Common Securities" shall mean the securities representing common undivided
-----------------
beneficial interests in the assets of the Issuer.

"Corporate Trust Office" shall mean the office of the Capital Securities
----------------------
Guarantee Trustee at which the corporate trust business of the Capital
Securities Guarantee Trustee shall, at any particular time, be principally
administered, which office at the date of execution of this Agreement is located
at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-
0001, Attention: Corporate Trust Administration.

"Covered Person" shall mean any Holder or beneficial owner of Series B
--------------
Capital Securities.

"Debentures" shall mean the series of subordinated debt securities of the
----------
Guarantor designated the Floating Rate Junior Subordinated Deferrable Interest
Debentures due September 15, 2028, Series B, held by the Property Trustee (as
defined in the Trust Agreement) of the Issuer.

"Event of Default" shall mean a default by the Guarantor on any of its
----------------
payment or other obligations under this Series B Capital Securities Guarantee;
provided, however, that, except with respect to default in respect of any
- -------- -------
Guarantee Payment, no default by the Guarantor hereunder shall constitute an
Event of Default unless the Guarantor shall have received written notice of the
default and shall not have cured such default within 60 days after receipt
thereof.

"Guarantee Payments" shall mean the following payments or distributions,
------------------
without duplication, with respect to the Series B Capital Securities, to the
extent not paid or made by or on behalf of the Issuer: (i) any accumulated and
unpaid Distributions (as defined in the Trust Agreement) that are required to be
paid on such Series B Capital Securities, to the extent the Issuer has funds
legally available therefor at such time, (ii) the redemption price, including
all accumulated and unpaid Distributions to the date of redemption (the
"Redemption Price"), to the extent the Issuer

-3-
<PAGE>

has funds legally available therefor at such time, with respect to any Series B
Capital Securities called for redemption, and (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of the Issuer (other than in
connection with the distribution of Debentures to the Holders in exchange for
Series B Capital Securities or in connection with the redemption of the Series B
Capital Securities, in each case as provided in the Trust Agreement), the lesser
of (a) the aggregate of the liquidation amount and all accumulated and unpaid
Distributions on the Series B Capital Securities to the date of payment, to the
extent the Issuer has funds legally available therefor at such time, and (b) the
amount of assets of the Issuer remaining available for distribution to Holders
after satisfaction of liabilities to creditors of the Issuer as required by
applicable law (in either case, the "Liquidation Distribution"). If an Event of
Default has occurred and is continuing, no Guarantee Payments under the Common
Securities Guarantee with respect to the Common Securities or any guarantee
payment under the Common Securities Guarantee or any Other Common Securities
Guarantee shall be made until the Holders of Series B Capital Securities shall
be paid in full the Guarantee Payments to which they are entitled under this
Series B Capital Securities Guarantee.

"Holder" shall mean any holder, as registered on the books and records of
------
the Issuer, of any Series B Capital Securities; provided, however, that, in
-------- -------
determining whether the holders of the requisite percentage of Series B Capital
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Person actually known to a Responsible
Officer of the Capital Securities Guarantee Trustee to be an Affiliate of the
Guarantor.

"Indemnified Person" shall mean the Capital Securities Guarantee Trustee
------------------
(including in its individual capacity), any Affiliate of the Capital Securities
Guarantee Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Capital
Securities Guarantee Trustee.

"Indenture" shall mean the Indenture, dated as of August 12, 1998, between
---------
Greater Bay Bancorp, as issuer of Debentures (the "Debenture Issuer"), and
Wilmington Trust Company, as trustee, pursuant to which the Debentures are to be
issued to the Property Trustee of the Issuer.

"Majority in Liquidation Amount of the Series B Capital Securities" shall
-----------------------------------------------------------------
mean, except as provided by the Trust Indenture Act, a vote by Holder(s) of
Series B Capital Securities, voting separately as a class, of more than 50% of
the aggregate liquidation amount (including the amount that would be paid on
redemption, liquidation or otherwise, plus accumulated and unpaid Distributions
to the date upon which the voting percentages are determined) of all outstanding
Series B Capital Securities.

"Officers' Certificate" shall mean, with respect to any Person, a
---------------------
certificate signed by the Chairman, the Chief Executive Officer, the President,
an Executive or Senior Vice President, a Vice President, the Chief Financial
Officer and the Secretary or an Assistant Secretary. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Series B Capital Securities Guarantee shall include:

(a) a statement that each officer signing the Officers' Certificate has
read the covenants or conditions and the definitions relating thereto;

-4-
<PAGE>

(b) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and

(c) a statement as to whether or not, in the opinion of each such officer,
such condition or covenant has been complied with.

"Other Common Securities Guarantees" shall have the same meaning as "Other
----------------------------------
Guarantees" in the Common Securities Guarantee.

"Other Debentures" shall mean all junior subordinated debentures, other
----------------
than the Debentures and the Series B Debentures (as defined in the Indenture),
issued by the Guarantor from time to time and sold to trusts other than the
Issuer to be established by the Guarantor (if any), in each case similar to the
Issuer.

"Other Guarantees" shall mean all guarantees, other than this Series B
----------------
Capital Securities Guarantee and the Series A Capital Securities Guarantee, to
be issued by the Guarantor with respect to capital securities (if any) similar
to the Series B Capital Securities, issued by trusts other than the Issuer to be
established by the Guarantor (if any), in each case similar to the Issuer.

"Person" shall mean a legal person, including any individual, corporation,
------
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.

"Registration Rights Agreement" shall mean the Registration Rights
-----------------------------
Agreement, dated as of August 7, 1998, by and among the Guarantor, the Issuer
and the Initial Purchasers named therein, as such agreement may be amended,
modified or supplemented from time to time.

"Responsible Officer" shall mean, with respect to a Person, any officer
-------------------
with direct responsibility for the administration of any matters relating to
this Series B Capital Securities Guarantee.

"Successor Capital Securities Guarantee Trustee" shall mean a successor
----------------------------------------------
Capital Securities Guarantee Trustee possessing the qualifications to act as
Capital Securities Guarantee Trustee under Section 4.1.

"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as
-------------------
amended.

"Trust Securities" shall mean the Common Securities and the Series A
----------------
Capital Securities and Series B Capital Securities, collectively.

-5-
<PAGE>

ARTICLE II

TRUST INDENTURE ACT

SECTION 2.1 Trust Indenture Act; Application
--------------------------------

(a) This Series B Capital Securities Guarantee is subject to the provisions
of the Trust Indenture Act that are required to be part of this Series B Capital
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions.

(b) If and to the extent that any provision of this Series B Capital
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control. If any provision of this Capital Securities Guarantee modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the modified or excluded provision of the Trust Indenture Act shall be
deemed to apply to this Capital Securities Guarantee as so modified or excluded,
as the case may be.

SECTION 2.2 Lists of Holders of Securities
------------------------------

(a) The Guarantor shall provide the Capital Securities Guarantee Trustee
(unless the Capital Securities Guarantee Trustee is otherwise the registrar of
the Capital Securities) with a list, in such form as the Capital Securities
Guarantee Trustee may reasonably require, of the names and addresses of the
Holders of the Series B Capital Securities ("List of Holders") as of such date,
(i) within fourteen (14) days after each record date for payment of
Distributions (as defined in the Trust Agreement), and (ii) at any other time
within 30 days of receipt by the Guarantor of a written request for a List of
Holders as of a date no more than 14 days before such List of Holders is given
to the Capital Securities Guarantee Trustee; provided, however, that the
-------- -------
Guarantor shall not be obligated to provide such List of Holders at any time the
List of Holders does not differ from the most recent List of Holders given to
the Capital Securities Guarantee Trustee by the Guarantor. The Capital
Securities Guarantee Trustee may destroy any List of Holders previously given to
it on receipt of a new List of Holders.

(b) The Capital Securities Guarantee Trustee shall comply with its
obligations under Sections 31l(a), 31l(b) and Section 312(b) of the Trust
Indenture Act.

SECTION 2.3 Reports by the Capital Securities Guarantee Trustee
---------------------------------------------------

Within 60 days after August 12 of each year, commencing August 12, 1999,
the Capital Securities Guarantee Trustee shall provide to the Holders of the
Series B Capital Securities such reports as are required by Section 313 of the
Trust Indenture Act, if any, in the form and in the manner provided by Section
313 of the Trust Indenture Act. The Capital Securities Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.

SECTION 2.4 Periodic Reports to Capital Securities Guarantee Trustee
--------------------------------------------------------

The Guarantor shall provide to the Capital Securities Guarantee Trustee
such documents, reports and information as are required by Section 314 (if any)
and the compliance certificate

-6-
<PAGE>

required by Section 314 of the Trust Indenture Act in the form, in the manner
and at the times required by Section 314 of the Trust Indenture Act. Delivery of
such reports, information and documents to the Capital Securities Guarantee
Trustee is for informational purposes only and the Capital Securities Guarantee
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Guarantor's compliance with any of its covenants
hereunder (as to which the Capital Securities Guarantee Trustee is entitled to
rely exclusively on Officers' Certificates).

SECTION 2.5 Evidence of Compliance with Conditions Precedent
------------------------------------------------

The Guarantor shall provide to the Capital Securities Guarantee Trustee
such evidence of compliance with the conditions precedent, if any, provided for
in this Series B Capital Securities Guarantee that relate to any of the matters
set forth in Section 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to Section 314(c)(1) may be
given in the form of an Officers' Certificate.

SECTION 2.6 Waiver of Events of Default
---------------------------

The Holders of a Majority in Liquidation Amount of Series B Capital
Securities may, by vote, on behalf of the Holders of all of the Series B Capital
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured, for every purpose of this
Series B Capital Securities Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.

SECTION 2.7 Notice of Events of Default
---------------------------

(a) The Capital Securities Guarantee Trustee shall, within 10 Business Days
after the occurrence of an Event of Default with respect to this Capital
Securities Guarantee actually known to a Responsible Officer of the Capital
Securities Guarantee Trustee, transmit by mail, first class postage prepaid, to
all Holders of the Series B Capital Securities, notices of all such Events of
Default, unless such Events of Default have been cured before the giving of such
notice; provided, however, that, except in the case of an Event of Default
-------- -------
arising from the non-payment of any Guarantee Payment, the Capital Securities
Guarantee Trustee shall be protected in withholding such notice if and so long
as a Responsible Officer of the Capital Securities Guarantee Trustee in good
faith determines that the withholding of such notice is in the interests of the
Holders of the Series B Capital Securities.

(b) The Capital Securities Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Capital Securities Guarantee
Trustee shall have received written notice, or a Responsible Officer of the
Capital Securities Guarantee Trustee charged with the administration of the
Trust Agreement shall have obtained actual knowledge, of such Event of Default.

SECTION 2.8 Conflicting Interests
---------------------

-7-
<PAGE>

The Trust Agreement shall be deemed to be specifically described in this
Series B Capital Securities Guarantee for the purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.

ARTICLE III

POWERS, DUTIES AND RIGHTS OF
CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 3.1 Powers and Duties of the Capital Securities Guarantee
-----------------------------------------------------
Trustee
- -------

(a) This Series B Capital Securities Guarantee shall be held by the Capital
Securities Guarantee Trustee for the benefit of the Holders of the Series B
Capital Securities, and the Capital Securities Guarantee Trustee shall not
transfer this Series B Capital Securities Guarantee to any Person except a
Holder of Series B Capital Securities exercising his or her rights pursuant to
Section 5.4(b) or to a Successor Capital Securities Guarantee Trustee on
acceptance by such Successor Capital Securities Guarantee Trustee of its
appointment to act as Successor Capital Securities Guarantee Trustee. The right,
title and interest of the Capital Securities Guarantee Trustee shall
automatically vest in any Successor Capital Securities Guarantee Trustee, and
such vesting and succession of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Capital Securities Guarantee Trustee.

(b) If an Event of Default actually known to a Responsible Officer of the
Capital Securities Guarantee Trustee has occurred and is continuing, the Capital
Securities Guarantee Trustee shall enforce this Series B Capital Securities
Guarantee for the benefit of the Holders of the Series B Capital Securities.

(c) The Capital Securities Guarantee Trustee, before the occurrence of any
Event of Default (of which, other than an Event of Default consisting of a
default in payment, a Responsible Officer of the Property Trustee has actual
knowledge) and after the curing of all such Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Series B Capital Securities Guarantee, and no implied covenants or
obligations shall be read into this Series B Capital Securities Guarantee
against the Capital Securities Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.6) and is
actually known to a Responsible Officer of the Capital Securities Guarantee
Trustee, the Capital Securities Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Series B Capital Securities Guarantee,
and use the same degree of care and skill in its exercise thereof, as a prudent
person would exercise or use under the circumstances in the conduct of his or
her own affairs.

(d) No provision of this Series B Capital Securities Guarantee shall be
construed to relieve the Capital Securities Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:

(i) prior to the occurrence of any Event of Default (of which, other
than an Event of Default consisting of a default in payment, a Responsible
Officer of the Property Trustee

-8-
<PAGE>

has actual knowledge) and after the curing or waiving of all such Events of
Default that may have occurred:

(A) the duties and obligations of the Capital Securities Guarantee
Trustee shall be determined solely by the express provisions of this Series
B Capital Securities Guarantee, and the Capital Securities Guarantee
Trustee shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Series B Capital
Securities Guarantee, and no implied covenants or obligations shall be read
into this Series B Capital Securities Guarantee against the Capital
Securities Guarantee Trustee; and

(B) in the absence of bad faith on the part of the Capital Securities
Guarantee Trustee, the Capital Securities Guarantee Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished
to the Capital Securities Guarantee Trustee and conforming to the
requirements of this Series B Capital Securities Guarantee; provided,
--------
however, that in the case of any such certificates or opinions that by any
-------
provision hereof are specifically required to be furnished to the Capital
Securities Guarantee Trustee, the Capital Securities Guarantee Trustee
shall be under a duty to examine the same to determine whether or not on
their face they conform to the requirements of this Series B Capital
Securities Guarantee;

(ii) the Capital Securities Guarantee Trustee shall not be liable for
any errors of judgment made in good faith by a Responsible Officer of the
Capital Securities Guarantee Trustee, unless it shall be proved that the
Capital Securities Guarantee Trustee or such Responsible Officer was
negligent in ascertaining the pertinent facts upon which such judgment was
made;

(iii) the Capital Securities Guarantee Trustee shall not be liable
with respect to any actions taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of a Majority in
Liquidation Amount of the Series B Capital Securities relating to the time,
method and place of conducting any proceeding for any remedy available to
the Capital Securities Guarantee Trustee, or exercising any trust or power
conferred upon the Capital Securities Guarantee Trustee under this Series B
Capital Securities Guarantee; and

(iv) no provision of this Series B Capital Securities Guarantee shall
require the Capital Securities Guarantee Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance of
any of its duties or in the exercise of any of its rights or powers, if the
Capital Securities Guarantee Trustee shall have reasonable grounds for
believing that the repayment of such funds or liability is not reasonably
assured to it under the terms of this Series B Capital Securities Guarantee
or indemnity, reasonably satisfactory to the Capital Securities Guarantee
Trustee, against such risk or liability is not reasonably assured to it.

SECTION 3.2 Certain Rights of Capital Securities Guarantee Trustee
------------------------------------------------------

(a) Subject to the provisions of Section 3.1:

(i) the Capital Securities Guarantee Trustee may conclusively rely,
and shall be fully protected in acting or refraining from acting, upon any
resolution, certificate, statement,

-9-
<PAGE>

instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties;

(ii) any direction or act of the Guarantor contemplated by this
Series B Capital Securities Guarantee may be sufficiently evidenced by an
Officers' Certificate;

(iii) whenever, in the administration of this Series B Capital
Securities Guarantee, the Capital Securities Guarantee Trustee shall deem
it desirable that a matter be proved or established before taking,
suffering or omitting any action hereunder, the Capital Securities
Guarantee Trustee (unless other evidence is herein specifically prescribed)
may, in the absence of bad faith on its part, request and conclusively rely
upon an Officers' Certificate, which, upon receipt of such request, shall
be promptly delivered by the Guarantor;

(iv) the Capital Securities Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument or other
document (or any rerecording, refiling or registration thereof);

(v) the Capital Securities Guarantee Trustee may consult with
counsel of its selection, and the advice or opinion of such counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with such advice or opinion; and
such counsel may be counsel to the Guarantor or any of its Affiliates and
may include any of its employees; the Capital Securities Guarantee Trustee
shall have the right at any time to seek instructions concerning the
administration of this Series B Capital Securities Guarantee from any court
of competent jurisdiction;

(vi) the Capital Securities Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by this
Series B Capital Securities Guarantee at the request or direction of any
Holder, unless such Holder shall have provided to the Capital Securities
Guarantee Trustee such security and indemnity, reasonably satisfactory to
the Capital Securities Guarantee Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the Capital
Securities Guarantee Trustee's agents, nominees or custodians) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Capital Securities Guarantee Trustee, provided, however, that nothing
-------- -------
contained in this Section 3.2(a)(vi) shall be taken to relieve the Capital
Securities Guarantee Trustee, upon the occurrence of an Event of Default,
of its obligation to exercise the rights and powers vested in it by this
Series B Capital Securities Guarantee;

(vii) the Capital Securities Guarantee Trustee shall have no
obligation to make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Capital
Securities Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see fit;

-10-
<PAGE>

(viii) the Capital Securities Guarantee Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either directly
or by or through agents, nominees, custodians or attorneys, and the Capital
Securities Guarantee Trustee shall not be responsible for any misconduct or
negligence on the part of any such person appointed with due care by it
hereunder;

(ix) any action taken by the Capital Securities Guarantee Trustee or
its agents hereunder shall bind the Holders of the Series B Capital
Securities, and the signature of the Capital Securities Guarantee Trustee
or its agents alone shall be sufficient and effective to perform any such
action; and no third party shall be required to inquire as to the authority
of the Capital Securities Guarantee Trustee to so act or as to its
compliance with any of the terms and provisions of this Series B Capital
Securities Guarantee, both of which shall be conclusively evidenced by the
Capital Securities Guarantee Trustee's or its agent's taking such action;

(x) whenever in the administration of this Series B Capital
Securities Guarantee the Capital Securities Guarantee Trustee shall deem it
desirable to receive instructions with respect to enforcing any remedy or
right or taking any other action hereunder, the Capital Securities
Guarantee Trustee (i) may request instructions from the Holders of a
Majority in Liquidation Amount of the Series B Capital Securities, (ii) may
refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions; and

(xi) the Capital Securities Guarantee Trustee shall not be liable
for any action taken, suffered, or omitted to be taken by it in good faith,
without negligence, and reasonably believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this Series
B Capital Securities Guarantee.

(b) No provision of this Series B Capital Securities Guarantee shall be
deemed to impose any duty or obligation on the Capital Securities Guarantee
Trustee to perform any act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any jurisdiction in which it shall be
illegal, or in which the Capital Securities Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Capital Securities Guarantee
Trustee shall be construed to be a duty.

SECTION 3.3 Not Responsible for Recitals or Issuance of Series
--------------------------------------------------
B Capital Securities Guarantee
------------------------------

The recitals contained in this Series B Capital Securities Guarantee shall
be taken as the statements of the Guarantor, and the Capital Securities
Guarantee Trustee does not assume any responsibility for their correctness. The
Capital Securities Guarantee Trustee makes no representation as to the validity
or sufficiency of this Series B Capital Securities Guarantee.

-11-
<PAGE>

ARTICLE IV

CAPITAL SECURITIES GUARANTEE TRUSTEE

SECTION 4.1 Capital Securities Guarantee Trustee; Eligibility
-------------------------------------------------

(a) There shall at all times be a Capital Securities Guarantee Trustee that
shall

(i) not be an Affiliate of the Guarantor; and

(ii) be a corporation or other Person organized and doing business
under the laws of the United States of America or any state or territory
thereof or of the District of Columbia, or a corporation or other Person
permitted by the Securities and Exchange Commission to act as an indenture
trustee under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of
at least ten million U.S. dollars ($10,000,000), and subject to supervision
or examination by federal, state, territorial or District of Columbia
authority; it being understood that if such corporation or other Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority referred to above,
then, for the purposes of this Section 4.1(a)(ii), the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.

(b) If at any time the Capital Securities Guarantee Trustee shall cease to
be eligible to so act under Section 4.1(a), the Capital Securities Guarantee
Trustee shall immediately resign in the manner and with the effect set out in
Section 4.2(c).

(c) If the Capital Securities Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Capital Securities Guarantee Trustee and Guarantor shall in
all respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.

SECTION 4.2 Appointment, Removal and Resignation of Capital Securities
----------------------------------------------------------
Guarantee Trustee
-----------------

(a) Subject to Section 4.2(b), the Capital Securities Guarantee Trustee may
be appointed or removed without cause at any time by the Guarantor except during
an Event of Default.

(b) The Capital Securities Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Capital Securities Guarantee
Trustee has been appointed and has accepted such appointment by written
instrument executed by such Successor Capital Securities Guarantee Trustee and
delivered to the Guarantor.

(c) The Capital Securities Guarantee Trustee shall hold office until a
Successor Capital Securities Guarantee Trustee shall have been appointed or
until its removal or resignation. The Capital Securities Guarantee Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Capital Securities Guarantee Trustee and

-12-
<PAGE>

delivered to the Guarantor, which resignation shall not take effect until a
Successor Capital Securities Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Capital Securities Guarantee Trustee and delivered to the Guarantor and the
resigning Capital Securities Guarantee Trustee.

(d) If no Successor Capital Securities Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery of an instrument of removal or resignation, the Capital
Securities Guarantee Trustee resigning or being removed may petition any court
of competent jurisdiction for appointment of a Successor Capital Securities
Guarantee Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Capital Securities Guarantee
Trustee.

(e) No Capital Securities Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Capital Securities Guarantee Trustee.

(f) Upon termination of this Series B Capital Securities Guarantee or
removal or resignation of the Capital Securities Guarantee Trustee pursuant to
this Section 4.2, the Guarantor shall pay to the Capital Securities Guarantee
Trustee all amounts due to the Capital Securities Guarantee Trustee accrued to
the date of such termination, removal or resignation.

ARTICLE V

GUARANTEE

SECTION 5.1 Guarantee
---------

The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Issuer), as and when due, regardless of any defense, right of set-off or
counterclaim that the Issuer may have or assert. The Guarantor fully, knowingly
and unconditionally waives any right the Guarantor may have to revoke this
Guarantee under Section 2815 of the California Civil Code or otherwise. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Issuer to pay such amounts to the Holders.

SECTION 5.2 Waiver of Notice and Demand
---------------------------

The Guarantor hereby waives notice of acceptance of this Series B Capital
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first against
the Issuer or any other Person before proceeding against the Guarantor, protest,
notice of nonpayment, notice of dishonor, notice of redemption and all other
notices and demands.

SECTION 5.3 Obligations Not Affected
------------------------

The obligations, covenants, agreements and duties of the Guarantor under
this Series B Capital Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:

-13-
<PAGE>

(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the Series B Capital Securities to be
performed or observed by the Issuer;

(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Series B Capital Securities or the
extension of time for the performance of any other obligation under, arising out
of, or in connection with, the Series B Capital Securities;

(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Series B Capital
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;

(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;

(e) any invalidity of, or defect or deficiency in, the Series B Capital
Securities;

(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred;

(g) the consummation of the Exchange Offer (subject to Section 7.1 hereof);
or

(h) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor;

it being the intent of this Section 5.3 that the obligations of the Guarantor
with respect to the Guarantee Payments shall be absolute and unconditional under
any and all circumstances.

There shall be no obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.

SECTION 5.4 Rights of Holders
-----------------

(a) The Holders of a Majority in Liquidation Amount of the Series B Capital
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Capital Securities Guarantee Trustee
in respect of this Series B Capital Securities Guarantee or exercising any trust
or power conferred upon the Capital Securities Guarantee Trustee under this
Series B Capital Securities Guarantee.

(b) If the Capital Securities Guarantee Trustee fails to enforce this
Series B Capital Securities Guarantee, any Holder of Series B Capital Securities
may institute a legal proceeding directly against the Guarantor to enforce the
Capital Securities Guarantee Trustee's rights under this Series B Capital
Securities Guarantee, without first instituting a legal proceeding against the
Issuer, the Capital Securities Guarantee Trustee or any other person or entity.
The Guarantor waives any

-14-
<PAGE>

right or remedy to require that any action be brought first against the Issuer
or any other person or entity before proceeding directly against the Guarantor.

SECTION 5.5 Guarantee of Payment
--------------------

This Series B Capital Securities Guarantee creates a guarantee of payment
and not of collection.

SECTION 5.6 Subrogation
-----------

The Guarantor shall be subrogated to all (if any) rights of the Holders of
Series B Capital Securities against the Issuer in respect of any amounts paid to
such Holders by the Guarantor under this Series B Capital Securities Guarantee;
provided, however, that the Guarantor shall not (except to the extent required
- -------- -------
by mandatory provisions of law) be entitled to enforce or exercise any right
that it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Series B Capital
Securities Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Series B Capital Securities Guarantee. If any amount shall
be paid to the Guarantor in violation of the preceding sentence, the Guarantor
agrees to hold such amount in trust for the Holders and to pay over such amount
to the Holders.

SECTION 5.7 Independent Obligations
-----------------------

The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Series B Capital
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Series B
Capital Securities Guarantee notwithstanding the occurrence of any event
referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof.

ARTICLE VI

LIMITATION OF TRANSACTIONS; SUBORDINATION

SECTION 6.1 Limitation of Transactions
--------------------------

So long as any Capital Securities remain outstanding, the Guarantor shall
not (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Guarantor's
capital stock, (ii) make any payment of principal of or interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Guarantor
(including Other Debentures) that rank pari passu with or junior in right of
payment to the Debentures or (iii) make any guarantee payments with respect to
any guarantee by the Guarantor of the debt securities of any subsidiary of the
Guarantor (including Other Guarantees) if such guarantee ranks pari passu with
or junior in right of payment to the Debentures (other than (a) dividends or
distributions in shares of, or options, warrants, rights to subscribe for or
purchase shares of, common stock of the Guarantor, (b) any Trust Agreement of a
dividend in connection with the implementation of a shareholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the Series A
Capital Securities Guarantee and this Series B Capital Securities Guarantee, (d)
as a result of a

-15-
<PAGE>

reclassification of the Guarantor's capital stock or the exchange or the
conversion of one class or series of the Guarantor's capital stock for another
class or series of the Guarantor's capital stock, (e) the purchase of fractional
interests in shares of the Guarantor's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted or
exchanged, and (f) purchases of common stock related to the issuance of common
stock or rights under any of the Guarantor's benefit or compensation plans for
its directors, officers or employees or any of the Guarantor's dividend
reinvestment plans) if at such time (l) there shall have occurred any event of
which the Guarantor has actual knowledge that (A) is a Default (as defined in
the Indenture) or an Event of Default (as defined in the Indenture) and (B) in
respect of which the Guarantor shall not have taken reasonable steps to cure,
(2) if the Debentures are held by the Property Trustee, the Guarantor shall be
in default with respect to its payment of any obligations under this Series B
Capital Securities Guarantee or (3) the Guarantor shall have given notice of its
election of the exercise of its right to commence an Extended Interest Payment
Period as provided in the Indenture and shall not have rescinded such notice,
and such Extended Interest Payment Period, or an extension thereof, shall have
commenced and be continuing.

SECTION 6.2 Ranking
-------

This Series B Capital Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) subordinate and junior in right of
payment to Senior Indebtedness (as defined in the Indenture), to the same extent
and in the same manner that the Debentures are subordinated to Senior
Indebtedness pursuant to the Indenture, it being understood that the terms of
Article XV of the Indenture shall apply to the obligations of the Guarantor
under this Series B Capital Securities Guarantee as if such Article XV were set
forth herein in full, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Guarantor and with the Series A
Capital Securities Guarantee, any Other Guarantee and, except to the extent set
forth therein, the Common Securities Guarantee, any Other Common Securities
Guarantee, and any guarantee now or hereafter entered into by the Guarantor in
respect of any preferred or preference stock of any Affiliate of the Guarantor,
and (iii) senior to the Guarantor's common stock.

ARTICLE VII

TERMINATION

SECTION 7.1 Termination
-----------

This Series B Capital Securities Guarantee shall terminate and be of no
further force and effect upon (i) full payment of the Redemption Price of all
Series B Capital Securities, or (ii) dissolution, winding up or liquidation of
the Issuer, immediately following the full payment of the amounts payable in
accordance with the Trust Agreement or the distribution of all of the Debentures
to the holders of the Trust Securities. Notwithstanding the foregoing, this
Series B Capital Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder of Series B Capital
Securities must restore payment of any sums paid under the Series B Capital
Securities or under this Series B Capital Securities Guarantee.

-16-
<PAGE>

ARTICLE VII

INDEMNIFICATION

SECTION 8.1 Exculpation
-----------

(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Series B Capital
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Series B Capital Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.

(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Guarantor and upon such information, opinions, reports
or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses, or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Series B Capital Securities might properly be
paid.

SECTION 8.2 Compensation and Indemnification
--------------------------------

The Guarantor agrees to pay to the Capital Securities Guarantee Trustee
such compensation for its services as shall be mutually agreed upon by the
Guarantor and the Capital Securities Guarantee Trustee. The Guarantor shall
reimburse the Capital Securities Guarantee Trustee upon request for all
reasonable out-of-pocket expenses incurred by it, including the reasonable
compensation and expenses of the Capital Securities Guarantee Trustee's agents
and counsel, except any expense as may be attributable to the negligence or bad
faith of the Capital Securities Guarantee Trustee.

The Guarantor agrees to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any and all loss, liability, damage,
action, suit, claim or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the trust or trusts hereunder, including the costs and expenses (including
reasonable legal fees and expenses) of defending itself against, or
investigating, any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The provisions of this
Section 8.2 shall survive the termination of this Series B Capital Securities
Guarantee and shall survive the resignation or removal of the Capital Securities
Guarantee Trustee.

-17-
<PAGE>

ARTICLE IX

MISCELLANEOUS

SECTION 9.1 Successors and Assigns
----------------------

All guarantees and agreements contained in this Series B Capital Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Series B Capital Securities then outstanding.

SECTION 9.2 Amendments
----------

Except with respect to any changes that do not materially adversely affect
the rights of Holders of the Capital Securities (in which case no consent of
such Holders will be required), this Series B Capital Securities Guarantee may
only be amended with the prior approval of the Holders of a Majority in
Liquidation Amount of the Series B Capital Securities. The provisions of Section
12.2 of the Trust Agreement with respect to meetings of Holders of the Trust
Securities apply to the giving of such approval. This Series B Capital
Securities Guarantee may not be amended, and no amendment hereof that affects
the Capital Securities Guarantee Trustee's rights, duties or immunities
hereunder or otherwise, shall be effective, unless such amendment is executed by
the Capital Securities Guarantee Trustee (which shall have no obligation to
execute any such amendment, but may do so in its sole discretion).

SECTION 9.3 Notices
-------

All notices provided for in this Series B Capital Securities Guarantee
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:

(a) If given to the Issuer, in care of the Administrative Trustee at the
Issuer's mailing address set forth below (or such other address as the Issuer
may give notice of to the Capital Securities Guarantee Trustee and the Holders
of the Series B Capital Securities):

GBB CAPITAL II
c/o Greater Bay Bancorp
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Steven C. Smith
Telecopy: (650) 494-9193
Telephone: (650) 813-8200

-18-
<PAGE>

(b) If given to the Capital Securities Guarantee Trustee, at the Capital
Securities Guarantee Trustee's mailing address set forth below (or such other
address as the Capital Securities Guarantee Trustee may give notice of to the
Holders of the Series B Capital Securities):

WILMINGTON TRUST COMPANY
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890-0001
Attention: Corporate Trust Administration
Telecopy: (302) 651-1576
Telephone: (302) 651-1000

(c) If given to the Guarantor, at the Guarantor's mailing address set forth
below (or such other address as the Guarantor may give notice of to the Capital
Securities Guarantee Trustee and the Holders of the Series B Capital
Securities):

GREATER BAY BANCORP
2860 West Bayshore Road
Palo Alto, California 94303
Attention: Steven C. Smith
Telecopy: (650) 494-9193
Telephone: (650) 813-8200

(d) If given to any Holder of Series B Capital Securities, at the address
set forth on the books and records of the Issuer.

All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.

SECTION 9.4 Benefit
-------

This Series B Capital Securities Guarantee is solely for the benefit of the
Holders of the Series B Capital Securities and, subject to Section 3.1(a), is
not separately transferable from the Series B Capital Securities.

SECTION 9.5 Governing Law
-------------

THIS SERIES B CAPITAL SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.

This Series B Capital Securities Guarantee is executed as of the day and
year first above written.

-19-
<PAGE>

GREATER BAY BANCORP
as Guarantor

By: /s/ Steven C. Smith
-------------------------------------
Steven C. Smith
Executive Vice President, Chief Operating Officer
and Chief Financial Officer

WILMINGTON TRUST COMPANY,
as Capital Securities Guarantee Trustee

By: /s/ Bruce L. Bisson
-------------------------------------
Bruce L. Bisson
Vice President

-20-

<PAGE>

EXHIBIT 10.4

GREATER BAY BANCORP 1996 STOCK OPTION PLAN,
As Amended Effective July 21, 1998
<PAGE>

TABLE OF CONTENTS
-----------------

Page

1. PURPOSE...........................................................1

2. DEFINITIONS.......................................................1
(a) "Board of Directors"......................................1
(b) "Change in Control".......................................1
(c) "Code"....................................................1
(d) "Committee"...............................................1
(e) "Company".................................................1
(f) "Employee"................................................2
(g) "Exchange Act"............................................2
(h) "Exercise Price"..........................................2
(i) "Fair Market Value".......................................2
(j) "Grantee".................................................3
(k) "ISO".....................................................3
(l) "Nonstatutory Option".....................................3
(m) "Option"..................................................3
(n) "Optionee"................................................3
(o) "Plan"....................................................3
(p) "Restricted Stock"........................................3
(q) "Restricted Stock Award"..................................3
(r) "Restricted Stock Award Agreement"........................3
(s) "Restrict"................................................3
(t) "Retirement"..............................................3
(u) "Service".................................................3
(v) "Share"...................................................3
(w) "Stock"...................................................3
(x) "Stock Option Agreement"..................................3
(y) "Subsidiary"..............................................4
(z) "Substitute Option".......................................4
(aa) "Substitute Restricted Stock Award".......................4
(bb) "Total and Permanent Disability"..........................4

3. ADMINISTRATION....................................................4
(a) Committee Membership......................................4
(b) Committee Procedures......................................4
(c) Committee Responsibilities................................4
<PAGE>

4. ELIGIBILITY........................................................5
(a) General Rules...............................................5
(b) Ten-Percent Stockholders....................................5
(c) Attribution Rules...........................................6
(d) Outstanding Stock...........................................6

5. STOCK SUBJECT TO PLAN..............................................6
(a) Basic Limitation............................................6
(b) Additional Shares...........................................6

6. TERMS AND CONDITIONS OF OPTIONS....................................6
(a) Stock Option Agreement......................................6
(b) Number of Shares............................................7
(c) Exercise Price..............................................7
(d) Withholding Taxes...........................................7
(e) Exercisability..............................................7
(f) Term........................................................7
(g) Transferability.............................................8
(h) No Rights as a Stockholder..................................8
(i) Modification, Extension and Renewal of Options..............8
(j) Substitute Options..........................................8

7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS....................9
(a) Restricted Stock Award Agreement............................9
(b) Number of Shares............................................9
(c) Withholding Taxes...........................................9
(d) Restrictions...............................................10
(e) Escrow of Restricted Stock.................................10
(f) Termination of Service and Forfeiture of Restricted Stock..10
(g) No Fractional Shares.......................................11
(h) Timing of Distributions: General Rule......................11
(i) Conditions to Issuance of Certificates.....................11
(j) Transferability............................................11
(k) Rights as Stockholder......................................11
(l) Modification, Extension and Renewal of Options.............12
(m) Substitute Restricted Stock Award..........................12

8. PAYMENT FOR SHARES................................................12
(a) General Rule...............................................12
(i) ISOs..............................................12
(ii) Nonstatutory Options..............................12
(iii) Restricted Stock Awards...........................13

ii
<PAGE>

(b) Surrender of Stock.........................................13
(c) Exercise/Sale..............................................13
(d) Exercise/Pledge............................................13

9. ADJUSTMENT OF SHARES..............................................13
(a) General....................................................13
(b) Reorganizations............................................14
(c) Reservation of Rights......................................14

10. SECURITIES LAWS...................................................14

11. NO RETENTION RIGHTS...............................................14

12. DURATION AND AMENDMENTS...........................................15
(a) Term of the Plan...........................................15
(b) Right to Amend or Terminate the Plan.......................15
(c) Effect of Amendment or Termination.........................15

iii
<PAGE>

GREATER BAY BANCORP 1996 STOCK OPTION PLAN
------------------------------------------
As Amended Effective July 21, 1998

1. PURPOSE.
-------

The purpose of the Plan is to offer selected employees, directors and
consultants an opportunity to acquire a proprietary interest in the success of
the Company, or to increase such interest, by purchasing Shares of the Company's
Common Stock. The Plan provides for the grant of Nonstatutory Options, ISOs
intended to qualify under Section 422 of the Code, and the grant of Restricted
Stock Awards.

2. DEFINITIONS.
-----------

(a) "Board of Directors" shall mean the Board of Directors of the Company,
------------------
as constituted from time to time.

(b) "Change in Control" shall mean the occurrence of either of the
-----------------
following events:

(i) A change in the composition of the Board of Directors, as a
result of which fewer than one-half of the incumbent directors are
directors who either:

(A) Had been directors of the Company 24 months prior to such
change; or

(B) Were elected, or nominated for election, to the Board of
Directors 24 months prior to such change and who were still in office
at the time of the election or nomination; or

(ii) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) by the acquisition or aggregation of securities is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 50 percent or more of the combined voting power of the
Company's then outstanding securities. For purposes of this Paragraph (ii),
the term "person" shall not include an employee benefit plan maintained by
the Company.

(d) "Committee" shall mean a committee of the Board of Directors, as
---------
described in Section 3(a), or in the absence of such a committee, the Board of
Directors.

(e) "Company" shall mean Greater Bay Bancorp, a California corporation,
-------
formerly known as Mid-Peninsula Bancorp, a California corporation.
<PAGE>

(f) "Employee" shall mean:
--------

(i) Any individual who is a common-law employee of the Company or of
a Subsidiary;

(ii) A member of the Board of Directors; and

(iii) An independent contractor who performs services for the Company
or a Subsidiary and who is not a member of the Board of Directors.

Service as an independent contractor or member of the Board of Directors shall
be considered employment for all purposes of the Plan, except as provided in
Section 4(a).

(g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.

(h) "Exercise Price" shall mean the amount for which one Share may be
--------------
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement.

(i) "Fair Market Value" shall mean the market price of Stock, determined
-----------------
by the Committee as follows:

(i) If Stock was traded over-the-counter on the date in question but
was not traded on the Nasdaq system or the Nasdaq National Market System,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted for such date by the
principal automated inter-dealer quotation system on which Stock is quoted
or, if Stock is not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.;

(ii) If Stock was traded over-the-counter on the date in question and
was traded on the Nasdaq system or the Nasdaq National Market System, then
the Fair Market Value shall be equal to the last-transaction price quoted
for such date by the Nasdaq system or the Nasdaq National Market System;

(iii) If Stock was traded on a stock exchange on the date in question,
then the Fair Market Value shall be equal to the closing price reported by
the applicable composite transactions report for such date; and

(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.

In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.

2
<PAGE>

(j) "Grantee" means an individual who holds a Restricted Stock Award.
-------

(k) "ISO" shall mean an employee incentive stock option described in
---
Section 422(b) of the Code.

(l) "Nonstatutory Option" shall mean a stock option not described in
-------------------
Sections 422(b) or 423(b) of the Code.

(m) "Option" shall mean an ISO or Nonstatutory Option granted under the
------
Plan and entitling the holder to purchase Shares.

(n) "Optionee" shall mean an individual who holds an Option.
--------

(o) "Plan" shall mean this Greater Bay Bancorp 1996 Stock Option Plan, as
----
it may be amended from time to time.

(p) "Restricted Stock" means shares of Common Stock issued or issuable
----------------
pursuant to a grant of Restricted Stock Award.

(q) "Restricted Stock Award" means the right to earn Restricted Stock
----------------------
under the Plan.

(r) "Restricted Stock Award Agreement" means a written agreement between
--------------------------------
the Company and the Grantee which contains the terms, conditions and
restrictions pertaining to his or her Restricted Stock Award.

(s) "Restrictions" shall mean (a) the restrictions on sale or other
------------
transfer (b) the exposure to forfeiture set forth in Section 4 of the Restricted
Award Agreement and/or (c) the restrictions relating to performance, if any, set
forth on Appendix A of the Restricted Stock Award Agreement.

(t) "Retirement" shall have the same meaning as "Retirement," as defined
----------
in the Greater Bay Bancorp 401(k) Profit Sharing Plan.

(u) "Service" shall mean service as an Employee.
-------

(v) "Share" shall mean one share of Stock, as adjusted in accordance with
-----
Section 9 (if applicable).

(w) "Stock" shall mean the Common Stock of the Company.
-----

(x) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his or her Option.

3
<PAGE>

(y) "Subsidiary" shall mean any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than 50 percent of the total combined
voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.

(z) "Substitute Option" shall mean an option described in Section 6(j).
-----------------

(aa) "Substitute Restricted Stock Award" shall mean a restricted stock
---------------------------------
award described in Section 7(m).

(bb) "Total and Permanent Disability" shall mean that the Optionee or
------------------------------
Grantee is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted, or can be expected to last, for a
continuous period of not less than one year.

3. ADMINISTRATION.
--------------

(a) Committee Membership. The Board of Directors shall have the authority
--------------------
to administer the Plan but may delegate its administrative powers under the
Plan, in whole or in part, to one or more committees of the Board of Directors.
With respect to the participation of Employees who are subject to Section 16 of
the Exchange Act, the Plan may be administered by a committee composed solely of
two or more members of the Board of Directors who qualify as "nonemployee
directors" as defined in Securities and Exchange Commission Rule 16b-3 under the
Exchange Act. The Plan may be administered by a committee composed solely of two
or more members of the Board of Directors who qualify as "outside directors" as
defined by the Internal Revenue Service for awards intended to qualify for an
exemption under Section 162(m)(4)(C) of the Code.

(b) Committee Procedures. The Board of Directors shall designate one of
--------------------
the members of any Committee appointed under paragraph (a) as chairman. Any
such Committee may hold meetings at such times and places as it shall determine.
The acts of a majority of the Committee members present at meetings at which a
quorum exists, or acts reduced to or approved in writing by all Committee
members, shall be valid acts of the Committee.

(c) Committee Responsibilities. Subject to the provisions of the Plan,
--------------------------
any such Committee shall have full authority and discretion to take the
following actions:

(i) To interpret the Plan and to apply its provisions;

(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;

(iii) To authorize any person to execute, on behalf of the Company,
any instrument (including, but not limited to, Stock Option Agreements and
Restricted Stock Award Agreements) required to carry out the purposes of
the Plan;

4
<PAGE>

(iv) To determine when Options and Restricted Stock Awards are to be
granted under the Plan;

(v) To select the Optionees and Grantees;

(vi) To determine the number of Shares to be made subject to each
Option and Restricted Stock Award;

(vii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, to determine whether such Option
is to be classified as an ISO or as a Nonstatutory Option, and to specify
the provisions of the Stock Option Agreement relating to such Option;

(viii) To prescribe the terms and conditions of each Restricted Stock
Award, including (without limitation) Restrictions (if any), and to specify
the provisions of the Restricted Stock Award Agreement relating to such
Restricted Stock Award;

(ix) To amend any outstanding Stock Option Agreement and Restricted
Stock Award Agreement, subject to applicable legal restrictions and to the
consent of the Optionee or Grantee who entered into such agreement;

(x) To prescribe the consideration for the grant of each Option and
Restricted Stock Award under the Plan and to determine the sufficiency of
such consideration; and

(xi) To take any other actions deemed necessary or advisable for the
administration of the Plan.

All decisions, interpretations and other actions of the Committee shall be final
and binding on all Optionees and Grantees, and all persons deriving their rights
from an Optionee or Grantee. No member of the Committee shall be liable for any
action that he or she has taken or has failed to take in good faith with respect
to the Plan or any Option or Restricted Stock Award.

4. ELIGIBILITY.
-----------

(a) General Rules. Only Employees shall be eligible for designation as
-------------
Optionees or Grantees by the Committee. In addition, only Employees who are
common-law employees of the Company or a Subsidiary shall be eligible for the
grant of ISOs.

(b) Ten-Percent Stockholders. An Employee who owns more than 10 percent
------------------------
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless:

5
<PAGE>

(i) The Exercise Price is at least 110 percent of the Fair Market
Value of a Share on the date of grant; and

(ii) Such ISO by its terms is not exercisable after the expiration of
five years from the date of grant.

(c) Attribution Rules. For purposes of Subsection (b) above, in
-----------------
determining stock ownership, the rules of Section 424(d) of the Code shall
apply.

(d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.

5. STOCK SUBJECT TO PLAN.
---------------------

(a) Basic Limitation. Shares reserved for issuance pursuant to the
----------------
exercise of Options and Restricted Stock Awards granted under the Plan shall be
authorized but unissued Shares. The aggregate number of Shares which may be
issued pursuant to the exercise of Options and Restricted Stock Awards granted
under the Plan shall be 1,207,890, all of which may be issued pursuant to the
exercise of ISOs, Nonstatutory Options or Restricted Stock Awards granted under
the Plan. The number of Shares which are subject to Options or Restricted Stock
Awards outstanding at any time under the Plan shall not exceed the number of
Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.

(b) Additional Shares. In the event that any outstanding option granted
-----------------
under this Plan, including Substitute Options, or the Prior Plan, for any reason
expires or is canceled or otherwise terminated, the Shares allocable to the
unexercised portion of such option shall become available for the purposes of
this Plan. In the event that any outstanding Restricted Stock Award granted
under this Plan, including Substitute Restricted Stock Awards, for any reason
expires or is canceled, forfeited or otherwise terminated, the Shares allocable
to the unearned portion of such Restricted Stock Award shall become available
for the purposes of this Plan.

6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------

(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement executed by the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.

6
<PAGE>

(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 9. Options granted to any
Optionee in a single calendar year shall in no event cover more than 30,000
------
Shares, subject to adjustment in accordance with Section 9. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.

(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an Option shall not be less than 100
percent of the Fair Market Value of a Share on the date of grant, except as
otherwise provided in Section 4(b) with respect to ISO's and Section 6(i) with
respect to Substitute Options. The Exercise Price shall be payable in a form
described in Section 8.

(d) Withholding Taxes. As a condition to the exercise of an Option, the
-----------------
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state, local or foreign withholding tax obligations that may arise in connection
with the disposition of Shares acquired by exercising an Option. The Committee
may permit the Optionee to satisfy all or part of his or her tax obligations
related to the Option by having the Company withhold a portion of any Shares
that otherwise would be issued to him or her or by surrendering any Shares that
previously were acquired by him or her. Such Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld in cash.
The payment of taxes by assigning Shares to the Company, if permitted by the
Committee, shall be subject to such restrictions as the Committee may impose.

(e) Exercisability. Each Stock Option Agreement shall specify the date
--------------
when all or any installment of the Option is to become exercisable. The vesting
of any Option shall be determined by the Committee at its sole discretion;
provided however, that:

(i) Each Stock Option Agreement shall provide for immediate
exercisability of the entire Option in the event of a Change in Control.

(ii) In the event that an Optionee's Service terminates, the Option
shall be exercisable only to the extent the Option was vested as of the
date of such termination, unless otherwise specified in the Optionee's
Stock Option Agreement.

(f) Term. Each Stock Option Agreement shall specify the term of the
----
Option. The term of an ISO shall not exceed 10 years from the date of grant,
except as otherwise provided in Section 4(b). Subject to the preceding
sentence, the Committee at its sole discretion shall determine when an Option is
to expire. In the event that the Optionee's Service terminates:

(i) As a result of such Optionee's death or Total and Permanent
Disability, the term of the Option shall expire twelve months (or such
other period specified in the

7
<PAGE>

Optionee's Stock Option Agreement) after such death or Total and Permanent
Disability but not later than the original expiration date specified in the
Stock Option Agreement.

(ii) As a result of termination by the Company for cause, the term of
the Option shall expire thirty days after the Company's notice or advice of
such termination is dispatched to Employee, but not later than the original
expiration date specified in the Stock Option Agreement. For purposes of
this Paragraph (ii), "cause" shall mean an act of embezzlement, disclosure
of any of the secrets or confidential information of the Company, the
inducement of any client or customer of the Company to break any contract
with the Company, or the inducement of any principal for whom the Company
acts as agent to terminate such agency relationship, the engagement of any
conduct which constitutes unfair competition with the Company, the removal
of Optionee from office by any court or bank regulatory agency, or such
other similar acts which the Committee in its discretion determine to
constitute good cause for termination of Optionee's Service. As used in
this Paragraph (ii), Company includes Subsidiaries of the Company.

(iii) As a result of termination for any reason other than Total and
Permanent Disability, death or cause, the term of the Option shall expire
three months (or such other period specified in the Optionee's Stock Option
Agreement) after such termination, but not later than the original
expiration date specified in the Stock Option Agreement.

(g) Transferability. During an Optionee's lifetime, such Optionee's
---------------
ISO(s) shall be exercisable only by him or her and shall not be transferable.
An Optionee's Nonstatutory Options shall also not be transferable during the
Optionee's lifetime, except to the extent otherwise permitted in the Optionee's
Stock Option Agreement. Subject to prior permitted transfers, in the event of
an Optionee's death, such Optionee's Option(s) shall not be transferable other
than by will, by written beneficiary designation or by the laws of descent and
distribution.

(h) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided
in Section 9.

(i) Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent not
previously exercised) in return for the grant of new Options at the same or a
different price. The foregoing notwithstanding, no modification of an Option
shall, without the consent of the Optionee, impair such Optionee's rights or
increase his or her obligations under such Option.

(j) Substitute Options. If the Company at any time should succeed to the
------------------
business of another corporation through merger or consolidation, or through the
acquisition of stock or assets of such corporation, Options may be granted under
the Plan in substitution of options previously

8
<PAGE>

granted by such corporation to purchase shares of its stock which options are
outstanding at the date of the succession ("Surrendered Options"). It is
specifically intended that this section of the Plan shall authorize the granting
and issuance of Substitute Options pursuant to the terms of: (i) the Amended and
Restated Agreement and Plan of Reorganization by and between Mid-Peninsula
Bancorp and Cupertino National Bancorp dated June 26, 1996, and (ii) the
Agreement and Plan of Reorganization by and among the Company, GBB Acquisition
Corp., and Peninsula Bank of Commerce dated November 3, 1997. The Committee
shall have discretion to determine the extent to which such Substitute Options
shall be granted, the persons to receive such Substitute Options, the number of
Shares to be subject to such Substitute Options, and the terms and conditions of
such Substitute Options which shall, to the extent permissible within the terms
and conditions of the Plan, be equivalent to the terms and conditions of the
Surrendered Options. The Exercise Price may be determined without regard to
Section 6(c); provided however, that the Exercise Price of each Substitute
Option shall be an amount such that, in the sole and absolute judgment of the
Committee (and if the Substitute Options are to be ISO's, in compliance with
Section 424(a) of the Code), the economic benefit provided by such Substitute
Option is not greater than the economic benefit represented by the Surrendered
Option as of the date of the succession.

7. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS.
-----------------------------------------------

(a) Restricted Stock Award Agreement. Each grant of a Restricted Stock
--------------------------------
Award under the Plan shall be evidenced by a Restricted Stock Award Agreement
executed by the Grantee and the Company. Such Restricted Stock Award shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions, including any Restrictions, which are not
inconsistent with the Plan and which the Committee deems appropriate for
inclusion in a Restricted Stock Award Agreement. The Restricted Stock Award
Agreement shall specify the purchase price (if any) for the Restricted Stock.
The provisions of the various Restricted Stock Award Agreements entered into
under the Plan need not be identical.

(b) Number of Shares. Each Restricted Stock Award Agreement shall specify
----------------
the number of Shares that are subject to the Restricted Stock Award and shall
provide for the adjustment of such number in accordance with Section 9.

(c) Withholding Taxes. As a condition to the lapse of any Restrictions to
-----------------
the Restricted Stock Award, the Grantee shall make such arrangements as the
Committee may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that arise in connection with such lapse.
The Committee may permit the Grantee to satisfy all or part of his or her tax
obligations related to the Restricted Stock Award by having the Company withhold
a portion of any Shares that otherwise would be issued to him or her or by
surrendering any Shares that previously were acquired by him or her. Such
Shares shall be valued at their Fair Market Value on the date when taxes
otherwise would be withheld in cash. The payment of taxes by assigning Shares
to the Company, if permitted by the Committee, shall be subject to such
restrictions as the Committee may impose.

9
<PAGE>

(d) Restrictions. Each Restricted Stock Award Agreement shall specify any
------------
Restrictions on the Restricted Stock Award. Each Restricted Stock Award
Agreement shall specify the date(s) when all or any Restrictions to the
Restricted Stock Award shall lapse or the Restrictions (if any) relating to
performance satisfaction of which shall cause such Restrictions to lapse. The
lapse of any Restrictions shall be determined by the Committee at its sole
discretion.

(e) Escrow of Restricted Stock. Until all Restrictions have expired or
--------------------------
been removed, the Secretary or such other escrow holder as the Board of
Directors may appoint shall retain custody of the stock certificates
representing the Restricted Stock subject to the Award; provided, however, that
in no event shall the Grantee retain physical custody of any certificates
representing shares of Restricted Stock awarded to him or her.

(f) Termination of Service and Forfeiture of Restricted Stock. Each
---------------------------------------------------------
Restricted Stock Award Agreement shall specify the term of the Restricted Stock
Award. Subject to the preceding sentence, the Committee at its sole discretion
shall determine when a Restricted Stock Award is to expire. In the event that
the Grantee's Service terminates:

(i) As a result of such Grantee's death or Total and Permanent
Disability, or in the event of Grantee's Retirement, the term of the
Restricted Stock Award shall expire and any Restrictions on the Restricted
Stock Awards immediately shall lapse upon such death, Total and Permanent
Disability or Retirement but not later than the original expiration date
specified in the Restricted Stock Award Agreement.

(ii) As a result of termination by the Company for cause, or any
other event resulting in the termination of Grantee's Service not specified
in Section 7(f)(i) above, the term of the Restricted Stock Award shall
expire thirty days after the Company's notice or advice of such termination
is dispatched to Employee, but not later than the original expiration date
specified in the Restricted Stock Award Agreement. In the event that a
Grantee's Service terminates for cause, or any other event resulting in the
termination of Grantee's service not specified in Section 7(f)(i) above,
the Shares subject to the Restricted Stock Award shall be earned only to
the extent the such Shares were earned as of the date of such termination,
unless otherwise specified in the Grantee's Restricted Stock Award
Agreement. In such event, the Grantee shall forfeit the right to earn any
Restricted Stock subject to the Restricted Stock Award as to which vesting
has not yet occurred, and the Restricted Stock so forfeited shall be
returned to the Company.

For purposes of this Paragraph (ii), "cause" shall mean an act of
embezzlement, disclosure of any of the secrets or confidential information
of the Company, the inducement of any client or customer of the Company to
break any contract with the Company, or the inducement of any principal for
whom the Company acts as agent to terminate such agency relationship, the
engagement of any conduct which constitutes unfair competition with the
Company, the removal of Grantee from office by any court or bank regulatory
agency, or such other similar acts which the Committee in its discretion
determine to constitute good

10
<PAGE>

cause for termination of Grantee's Service. As used in this Paragraph (ii),
Company includes Subsidiaries of the Company.

(g) No Fractional Shares. In determining the number of shares of
--------------------
Restricted Stock which are earned, fractional shares shall be rounded down to
the nearest whole number, provided that such fractional shares shall be
aggregated and earned at such time as all Restrictions lapse or expire.

(h) Timing of Distributions: General Rule. Except as provided in
-------------------------------------
Subsection (i) below, certificates representing Restricted Stock shall be
distributed to the Grantee as soon as practicable after all Restrictions have
lapsed or expired.

(i) Conditions to Issuance of Certificates. The Company shall not be
--------------------------------------
required to issue or deliver any certificate or certificates for shares of stock
pursuant to this Agreement prior to fulfillment of all of the following
conditions:

(a) The listing of such shares on all stock exchanges on which such
class of stock is then listed;

(b) The registration or qualification of such shares under any
federal or state securities laws or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Board of Directors shall, in its sole and absolute discretion, deem
necessary or advisable;

(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Board of Directors shall, in its sole
and absolute discretion, determine to be necessary or advisable;

(d) The lapse of such reasonable period of time as the Board of
Directors may from time to time establish for reasons of administrative
convenience;

(e) The receipt by the Company of full payment for any applicable
withholding tax.

(j) Transferability. A Grantee's Restricted Stock Award shall not be
---------------
transferable during the Grantee's lifetime, except to the extent otherwise
permitted in the Grantee's Restricted Stock Award Agreement. Subject to prior
permitted transfers, in the event of a Grantee's death, such Grantee's
Restricted Stock Award(s) shall not be transferable other than by will, by
written beneficiary designation or by the laws of descent and distribution.

(k) Rights as Stockholder. Upon the delivery of Restricted Stock to the
---------------------
escrow holder pursuant to the Restricted Stock Award Agreement, the Grantee
shall have all the rights of a stockholder of the Company with respect to the
Restricted Stock, subject to the Restrictions and the Restricted Stock
Agreement, including the right to vote the Restricted Stock and the right to
receive

11
<PAGE>

all dividends or other distributions paid or made with respect to the
Restricted Stock; provided, however, that any additional Shares of Restricted
Stock to which Grantee shall be entitled as a result of stock dividends, stock
splits or any other form of recapitalization in respect of Shares of Restricted
Stock subject to Restrictions shall also be subject to the Restrictions until
the Restrictions on the underlying shares of Restricted Stock lapse or expire.

(l) Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
Restricted Stock Awards or may accept the cancellation of outstanding Restricted
Stock Awards (to the extent not previously earned) in return for the grant of
new Restricted Stock Awards at the same or a different price. The foregoing
notwithstanding, no modification of an Restricted Stock Award shall, without the
consent of the Grantee, impair such Grantee's rights or increase his or her
obligations under such Restricted Stock Award.

(m) Substitute Restricted Stock Award. If the Company at any time should
---------------------------------
succeed to the business of another corporation through merger or consolidation,
or through the acquisition of stock or assets of such corporation, Restricted
Stock Awards may be granted under the Plan in substitution of restricted stock
awards previously granted by such corporation with respect to shares of its
stock which restricted stock awards are outstanding at the date of the
succession ("Surrendered Restricted Stock Awards"). The Committee shall have
discretion to determine the extent to which such Substitute Restricted Stock
Awards shall be granted, the persons to receive such Substitute Restricted Stock
Awards, the number of Shares to be subject to such Restricted Stock Awards, and
the terms, conditions and restrictions of such Substitute Restricted Stock
Awards which shall, to the extent permissible within the terms and conditions of
the Plan, be equivalent to the terms, conditions and restrictions of the
Surrendered Restricted Stock Awards. The Restrictions may be determined in the
sole discretion of the Committee; provided however, that the Restrictions of
each Substitute Restricted Stock Award shall be equivalent to the Restrictions
represented by the Surrendered Restricted Stock Award as of the date of the
succession.

8. PAYMENT FOR SHARES.
------------------

(a) General Rule. The entire consideration for Shares issued under the
------------
Plan shall be payable in lawful money of the United States of America at the
time when such Shares are purchased, except as follows:

(i) ISOs. In the case of an ISO granted under the Plan, payment
----
shall be made only pursuant to the express provisions of the applicable
Stock Option Agreement. However, the Committee (at its sole discretion) may
specify in the Stock Option Agreement that payment may be made pursuant to
Subsections (b), (c) or (d) below.

(ii) Nonstatutory Options. In the case of a Nonstatutory Option
--------------------
granted under the Plan, the Committee (at its sole discretion) may accept
payment pursuant to Subsections (b), (c), or (d) below.

12
<PAGE>

(iii) Restricted Stock Awards. In the case of a Restricted Stock
-----------------------
Award granted under the Plan, payment (if any) shall be made only pursuant
to the express provisions of the applicable Restricted Stock Award
Agreement.

(b) Surrender of Stock. To the extent that this Subsection (b) is
------------------
applicable, payment may be made all or in part with Shares which have already
been owned by the Optionee or Grantee or his or her representative for more than
6 months and which are surrendered to the Company in good form for transfer.
Such Shares shall be valued at their Fair Market Value on the date when the new
Shares are purchased under the Plan.

(c) Exercise/Sale. To the extent that this Subsection (c) is applicable,
-------------
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price of the Option, or the consideration
for the Restricted Stock Award, whichever the case may be, and any withholding
taxes.

(d) Exercise/Pledge. To the extent that this Subsection (d) is
---------------
applicable, payment may be made by the delivery (on a form prescribed by the
Company) of an irrevocable direction to pledge Shares to a securities broker or
lender approved by the Company, as security for a loan, and to deliver all or
part of the loan proceeds to the Company in payment of all or part of the
Exercise Price of the Option, or the consideration for the Restricted Stock
Award, whichever the case may be, and any withholding taxes.

9. ADJUSTMENT OF SHARES.
--------------------

(a) General. In the event of a subdivision of the outstanding Stock, a
-------
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the value
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spinoff or a similar occurrence, the Committee shall make
appropriate adjustments in one or more of:

(i) The number of Shares available under Section 5 for future
grants;

(ii) The limit set forth in Section 6(b) and Section 7(b);

(iii) The number of Shares covered by each outstanding Option and
consideration for each outstanding Restricted Stock Award; or

(iv) The Exercise Price under each outstanding Option and Restricted
Stock Award.

13
<PAGE>

(b) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Options and Restricted Stock Awards shall
be subject to the agreement of merger or reorganization. Subject to the
provisions of Section 6(e)(i) and Section 7(d)(i), such agreement may provide,
without limitation, for the assumption of outstanding Options and Restricted
Stock Awards by the surviving corporation or its parent, for their continuation
by the Company (if the Company is a surviving corporation), for payment of a
cash settlement equal to the difference between the amount to be paid for one
Share under such agreement and the then-current Fair Market Value of such Share
on an unrestricted basis, or for the acceleration of their exercisability
followed by the cancellation of Options not exercised, or the removal of any or
all Restrictions on Restricted Stock Awards, in all cases without the Optionees'
or Grantees' consent. Any cancellation of Options shall not occur until after
such acceleration is effective and Optionees have been notified of such
acceleration and have had reasonable opportunity to exercise their Options.

(c) Reservation of Rights. Except as provided in this Section 9, an
---------------------
Optionee or Grantee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option and the number of or consideration
for Shares subject to a Restricted Stock Award. The grant of an Option or
Restricted Stock Award pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.

10. SECURITIES LAWS.
---------------

Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations, and the regulations of any stock exchange on which the Company's
securities may then be listed.

11. NO RETENTION RIGHTS.
-------------------

Neither the Plan nor any Option or Restricted Stock Award shall be deemed
to give any individual a right to remain an employee or consultant of the
Company or a Subsidiary. The Company and its Subsidiaries reserve the right to
terminate the service of any employee or consultant at any time, with or without
cause, subject to applicable laws and a written employment agreement (if any).

14
<PAGE>

12. DURATION AND AMENDMENTS.
-----------------------

(a) Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective as of the Effective Date, provided that the Plan has been approved by
the shareholders of the Company in the manner required by applicable law or
regulation. The Plan, if not extended, shall terminate automatically ten years
after the Effective Date, except that any ISO's granted under the Plan must be
granted by September 18, 2006, ten years after the Plan was adopted by the Board
of Directors. It may be terminated on any earlier date pursuant to Subsection
(b) below.

(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend, suspend or terminate the Plan at any time and for any reason. An
amendment of the Plan shall be subject to the approval of the Company's
shareholders only to the extent required by applicable laws or regulations.

(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option or
Restricted Stock Award previously granted under the Plan.

<PAGE>

EXHIBIT 10.11.2

AMENDMENT 1998A
TO
GREATER BAY BANCORP
1997 ELECTIVE
DEFERRED COMPENSATION PLAN

THIS AMENDMENT 1998A TO THE GREATER BAY BANCORP 1997 ELECTIVE DEFERRED
COMPENSATION PLAN ("Amendment 1998A") is made effective as of November 1, 1998,
and is made pursuant to the following recitals:

A. Greater Bay Bancorp, a California corporation (the "Company"),
adopted the Greater Bay Bancorp 1997 Elective Deferred Compensation Plan (the
"Plan") at a meeting of the Company's Board of Directors ("Board") on November
19, 1997. Terms used in this Amendment 1998A have the same meanings as in the
Plan.

B. Section 8.01 of the Plan provides rules for amendment of the Plan.

C. The Company has determined that it is in the best interests of the
Company and the Subsidiaries (as defined in the Plan) to amend the Plan as set
forth in this Amendment 1998A.

NOW THEREFORE, in consideration of the foregoing recitals (which are
incorporated herein and made an integral part hereof), the Plan is amended as
follows:

1. Section 3.02 of the Plan is amended to read in its entirety as
follows:

Sections 3.02 Election Procedure. The Committee shall provide an
------------------
Election Form to each Employee who is selected by the Committee to participate
in the Plan and to become a Participant. Each such selected eligible Employee
who elects to make a Deferred Compensation Contribution for the applicable Plan
Year shall so specify on the Election Form and shall agree to a corresponding
reduction in his or her cash Compensation. A Participant must complete his or
her annual Election Form and return it to the Committee on or before such date
as the Committee shall specify. In the case of a Participant making an election
for the next Plan Year, such date shall be no later than the last day of the
calendar month prior to commencement of the Plan Year for which the
Participant's election shall be effective. For the initial Plan Year or for an
eligible Employee selected for participation during the course of a Plan Year,
an eligible selected Employee shall elect to participate during the Plan Year in
which he or she first becomes eligible for participation by returning to the
Committee his or her properly completed Election Form on the deferral of
Compensation for services rendered by such Employee after his or her deferral
election. If such eligible Employee does not make an election during the Plan
Year in which he or she first becomes eligible, a subsequent election may only
be made at the commencement of any succeeding Plan Year. An election made by an
eligible selected Employee shall apply only for one Plan Year, and each eligible
Employee selected for participation for a subsequent Plan Year must make a
separate election for that Plan Year.
<PAGE>

2. Any corporation that hereafter becomes a Subsidiary and that
adopts the Plan in accordance with Section 9.12 of the Plan shall automatically
be deemed to have adopted this Amendment 1998A as part of the Plan.

3. Except as set forth herein, the Plan shall remain in full force
and effect.

IN WITNESS WHEREOF, the Company has caused this Amendment 1998A to be
executed in its name and behalf by its officers thereunto duly authorized.

GREATER BAY BANCORP,
a California corporation

By: /s/ Steven C. Smith
---------------------------------
Name: Steven C. Smith
Title: Executive Vice President,
Chief Operating Officer and
Chief Financial Officer

CERTIFICATE OF ASSISTANT SECRETARY

The undersigned, being duly appointed Assistant Secretary of Greater
Bay Bancorp, a California corporation, hereby certifies that the foregoing
Amendment 1998A was duly adopted by the Board of Directors of such corporation
at a Board meeting on November 17, 1998.

/s/ Steven C. Smith
---------------------------------
Steven C. Smith
Assistant Secretary

<PAGE>

Exhibit 11.1

GREATER BAY BANCORP FORM 10-K

EXHIBIT 11.1 -- STATEMENTS RE COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1998 1997
------------ ------------
(Dollars and shares in
thousands, except per
share amounts)
<S> <C> <C>
Basic Earnings Per Share:
Income available to common shareholders.............. $ 16,578 $ 11,619
============ ===========
Weighted average common shares outstanding........... 9,485,000 9,196,000
============ ===========
Basic earnings per share............................. $ 1.75 $ 1.26
============ ===========
Diluted Earnings Per Share:
Income available to common shareholders.............. $ 16,578 $ 11,619
============ ===========
Weighted average common shares outstanding........... 9,485,000 9,196,000
Effect of dilutive securities........................ 746,000 696,000
------------ -----------
Weighted average common and common equivalent shares
outstanding......................................... 10,231,000 9,892,000
============ ===========
Diluted earnings per share........................... $ 1.62 $ 1.17
============ ===========
</TABLE>

<PAGE>

Exhibit 12.1

GREATER BAY BANCORP ANNUAL REPORT OF FORM 10-K

EXHIBIT 12.1--STATEMENTS RE COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before income taxes....... $23,954 $18,093 $10,326 $ 7,826 $ 6,945
Fixed charges:
Interest expense............... 47,472 34,059 22,379 18,961 11,804
Interest factor of rental
expense....................... 986 841 706 614 537
------- ------- ------- ------- -------
Fixed charges................ 48,458 34,900 23,085 19,575 12,341
Less: interest expense on
deposits........................ 39,398 30,640 21,220 17,743 11,361
------- ------- ------- ------- -------
Net fixed charges............ 9,060 4,260 1,865 1,832 980
------- ------- ------- ------- -------
Earnings, excluding interest on
deposits........................ $33,014 $22,353 $12,191 $ 9,658 $ 7,925
======= ======= ======= ======= =======
Ratio of earnings, excluding
interest on deposits, to net
fixed charges(1)................ 3.64x 5.25x 6.54x 5.27x 8.09x
Earnings, including interest on
deposits........................ $72,412 $52,993 $33,411 $27,401 $19,286
======= ======= ======= ======= =======
Ratio of earnings, including
interest on deposits, to fixed
charges(2)...................... 1.49x 1.52x 1.45x 1.40x 1.56x
</TABLE>
- --------
(1) For the purposes of computing the ratio of earnings, excluding interest on
deposits, to net fixed charges, earnings represent income before income
taxes plus net fixed charges. Net fixed charges include interest expense,
other than interest on deposits, and that portion of rental expense,
generally one third, deemed representative of the interest factor.
(2) For the purposes of computing the ratio of earnings, including interest on
deposits, to fixed charges, earnings represent income before income taxes
plus fixed charges. Fixed charges include interest expense and that
portion of rental expense, generally one third, deemed representative of
the interest factor.

<PAGE>

Exhibit 21.1

GREATER BAY BANCORP ANNUAL REPORT ON FORM 10-K

EXHIBIT 21.1--SUBSIDIARIES OF THE REGISTRANT

Greater Bay Bancorp owns 100.0% of the outstanding voting securities of the
following corporations, all of which are included in Greater Bay Bancorp's
consolidated financial statements:

<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Mid-Peninsula Bank........................... California
Cupertino National Bank...................... California
Peninsula Bank of Commerce................... California
Golden Gate Bank............................. California
Pacific Business Funding Corporation......... California
GBB Capital I................................ Delaware
GBB Capital II............................... Delaware
</TABLE>

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the registration statements on
Form S-8 (dated November 20, 1998, March 11, 1998, July 8, 1997 and July 8,
1997) and Form S-3 (No. 333-61679) of our report dated February 8, 1999, on
our audits of the consolidated financial statements of Greater Bay Bancorp and
Subsidiaries as of December 31, 1998 and 1997, and for the years ended
December 31, 1998, 1997 and 1996, which report is included in this Annual
Report on Form 10-K. We also consent to the reference to our firm under the
caption "Experts."

/s/ PricewaterhouseCoopers, LLP

February 16, 1999

<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 1998
ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 59,975
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 43,600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 255,483
<INVESTMENTS-CARRYING> 81,157
<INVESTMENTS-MARKET> 81,717
<LOANS> 1,005,791
<ALLOWANCE> (21,304)
<TOTAL-ASSETS> 1,582,865
<DEPOSITS> 1,342,492
<SHORT-TERM> 0
<LIABILITIES-OTHER> 94,697
<LONG-TERM> 53,000
0
0
<COMMON> 57,283
<OTHER-SE> 35,393
<TOTAL-LIABILITIES-AND-EQUITY> 1,582,865
<INTEREST-LOAN> 83,650
<INTEREST-INVEST> 19,218
<INTEREST-OTHER> 10,052
<INTEREST-TOTAL> 112,920
<INTEREST-DEPOSIT> 39,398
<INTEREST-EXPENSE> 47,472
<INTEREST-INCOME-NET> 65,448
<LOAN-LOSSES> 6,035
<SECURITIES-GAINS> 374
<EXPENSE-OTHER> 42,714
<INCOME-PRETAX> 23,954
<INCOME-PRE-EXTRAORDINARY> 23,954
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,578
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.62
<YIELD-ACTUAL> 4.25
<LOANS-NON> 1,858
<LOANS-PAST> 0
<LOANS-TROUBLED> 327
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,394
<CHARGE-OFFS> (1,420)
<RECOVERIES> 112
<ALLOWANCE-CLOSE> 21,304
<ALLOWANCE-DOMESTIC> 21,304
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0

</TABLE>