UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                                 Washington, D.C.   20549

                                        FORM 10-K

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


For the fiscal year ended December 31, 1997         Commission File No. 0-15450

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

            California                                        68-0091859
(State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                           Identification No.)

10181 Truckee-Tahoe Airport Road
P.O. Box 61000 Truckee, CA                                     96160-9010
(Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including Area Code: (530) 582-3000

Securities registered pursuant to Section 12(b) of the Act:
                                                       Name of each exchange on
Title of each class                                         which registered

       None                                                      None


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

                            Common Stock, no par value,
                                  (Title of class)

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 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. o

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

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant as of March 15, 1998:  $145,509,000  (based on closing sales price at
March 13, 1998)

Number of shares of Common Stock outstanding at March 15, 1998: 4,116,547.

                      DOCUMENTS INCORPORATED BY REFERENCE

Part III Items 10, 11, 12 and 13 are  incorporated  by reference from SierraWest
Bancorp's  annual proxy statement to  shareholders  which will be filed with the
Commission no later than 120 days after December 31, 1997.



<PAGE>






<TABLE>
                               TABLE OF CONTENTS


                                                                                                           Page No.
          PART I
<S>       <C>                                                                                                    <C>

ITEM 1.   BUSINESS...............................................................................................3

ITEM 2.   PROPERTIES.............................................................................................26

ITEM 3.   LEGAL PROCEEDINGS......................................................................................26

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................................................26

          PART II

ITEM 5.   MARKET FOR THE BANCORP'S COMMON STOCK..................................................................27

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA...................................................................28

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS..............................................................................31

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................45

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................48

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE....................................................................87

          PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................................87

ITEM 11. EXECUTIVE COMPENSATION..................................................................................87

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................87

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................... 87

         PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.......................................88
</TABLE>


<PAGE>



                                        PART I
ITEM 1.  BUSINESS

General Development of the Business

SierraWest  Bancorp  ("Bancorp",  "SWB",  or together with its  subsidiary,  the
"Company")  was  incorporated  under  the  laws of the  State of  California  on
December  5,  1985  as  a  bank   holding   company.   Pursuant  to  a  plan  of
reorganization,  SWB acquired 100% of the outstanding  shares of common stock of
SierraWest Bank, then named Truckee River Bank in a one-for-one  exchange of its
stock for the stock of SierraWest  Bank on July 31, 1986.  The activities of SWB
are subject to the  supervision of the Board of Governors of the Federal Reserve
System (the "FRB"). SWB may engage, directly or through subsidiary corporations,
in those activities closely related to banking which are specifically  permitted
under the Bank Holding  Company Act of 1956,  as amended (the "BHC Act").  SWB's
principal  executive  office is located  at 10181  Truckee-Tahoe  Airport  Road,
Truckee, California 96161 and its telephone number is (530) 582-3000.

SierraWest  Bank was  incorporated  under the laws of the State of California as
Truckee River Bank on March 19, 1980,  and, with the approval of the  California
Commissioner of Financial Institutions (the "Commissioner"), opened for business
on January  20,  1981.  Truckee  River Bank  commenced  operations  in  Truckee,
California,  a small  tourist-based  town  located  in the  County of Nevada and
situated in the High Sierra  about 12 miles north of Lake Tahoe.  Truckee  River
Bank  changed  its  name to  SierraWest  Bank in  early  1996.  SierraWest  Bank
maintains  12  branch  offices  in  the  following  communities:   Truckee  (two
branches),  South Lake  Tahoe,  Tahoe  City,  Kings  Beach,  Grass  Valley  (two
branches), Auburn and Sacramento (two branches),  California, and (following the
merger in October of 1996 of SierraWest Bank and SierraWest Bank, Nevada, then a
wholly-owned  Nevada bank subsidiary of SWB) in Reno and Carson City, Nevada. In
addition,  SierraWest Bank maintains 10 lending  offices,  primarily for its SBA
lending  activities,  in the  following  communities:  Truckee,  San  Francisco,
Sacramento,  Fresno and Chico, California; Reno and Las Vegas, Nevada; Portland,
Oregon; Denver, Colorado and Chattanooga,  Tennessee. SierraWest Bank's deposits
are insured by the FDIC up to applicable limits.

In  June  1997,  SWB  acquired   Mercantile  Bank,  formerly  a  state-chartered
commercial bank with its principal office in Sacramento,  California,  through a
merger of Mercantile  Bank with and into  SierraWest  Bank.  On the  acquisition
date, Mercantile Bank had assets of $42.8 million, deposits of $37.7 million and
shareholders'  equity of $4.9 million. The consideration for the acquisition was
a combination of cash and shares of SWB common stock with an aggregate  value of
approximately  $6.6  million.  The  acquisition  was  treated as a purchase  for
accounting purposes.

On November 13, 1997, the Company  signed a definitive  agreement to acquire the
outstanding  common  stock of  California  Community  Bancshares  ("CCBC")  in a
transaction  valued at approximately $39 million,  based on the closing price of
SWB stock on November 13, 1997. CCBC, the parent of Continental Pacific Bank, is
headquartered in Vacaville, California.  Continental Pacific Bank operates eight
banking  offices in Solano and Contra  Costa  counties in  California.  CCBC had
total  assets of $197  million  at  December  31,  1997.  The  merger,  which is
scheduled to close during the first half of 1998,  is subject to the approval of
CCBC's and SWB's  shareholders  and  federal  and state  regulators,  as well as
certain other terms and conditions.

The Company  offers  commercial  banking  services,  including the acceptance of
demand,  savings and time deposits,  and the making of commercial,  real estate,
personal, home improvement,  automobile and other installment and term loans. It
offers traveler's checks, safe deposit boxes, note collection  services,  notary
public, ATMs and other customary bank services, except international banking and
trust services.  Annuities and mutual fund  investments are also offered through
third party  providers.  Merchant  drafts are processed  pursuant to established
bank card  programs.  Additionally,  the  Company  provides a 24 hour  automated
telephone  inquiry  service,  and  a  P.C.  banking  product  for  its  business
customers.  In  1996,  the  Company  started  a loan  purchase  program  for the
acquisition  of real estate loans which it plans to  securitize in the future in
marketable parcels.

Certain statements in this document include  forward-looking  information 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,  and are subject
to the "safe harbor" created by those sections. These forward-looking statements
involve  certain  risks and  uncertainties  that could cause  actual  results to
differ materially from those in the forward-looking  statements.  Such risks and
uncertainties   include,   but  are  not  limited  to,  the  following  factors:
competitive

                                                          -3-

<PAGE>



pressure  in  the  banking  industry  increases  significantly;  changes  in the
interest rate environment reduce margins;  general economic  conditions,  either
nationally or regionally, are less favorable than expected,  resulting in, among
other things, a deterioration in credit quality and an increase in the provision
for possible  loan losses;  changes in the  regulatory  environment;  changes in
business  conditions;  volatility of rate sensitive deposits;  operational risks
including data  processing  system failures or fraud;  asset/liability  matching
risks and liquidity risks; and changes in the securities markets.

Narrative Description of Business

The Company's  total assets have grown from $243.8  million at December 31, 1992
to $589.8 million at December 31, 1997, a compound annual increase of 19.3%. The
Company's  assets grew 31.7% in 1997 and are  expected  to grow at a  relatively
high rate in 1998. For the year ended  December 31, 1997,  the Company  reported
net income of $7.5 million, or a return on average assets of approximately 1.43%
and return on average  equity of 16.5%.  At December 31,  1997,  the Company had
total loans of $426.5 million,  loan loss reserves of $6.6 million,  deposits of
$526.3 million and total equity capital of $53.6 million.

General Lending Overview

The five general areas in which the Company has directed its lending  activities
are: SBA loans; residential and non-SBA commercial real estate loans; commercial
loans;  consumer loans to individuals  (including  home equity lines of credit);
and commercial leases. As of December 31, 1997, these five categories  accounted
for approximately 38%, 39%, 18%, 2% and 3%, respectively, of the Company's total
loan portfolio.  In 1997 the Company exited its commercial leasing activities.

Small Business Administration Lending

The Company ranked 18th in the nation by number of Small Business Administration
("SBA")  government  guaranteed  ("SBA 7(a)")  loans  generated by banks for the
SBA's fiscal year ended  September 30, 1996 as published by the SBA. The SBA has
not published its fiscal 1997  rankings;  however the Company  believes that its
ranking has not changed significantly. In 1997 the Federal government approved a
level of SBA loans guaranteed of $9.5 billion and in 1998 this level is expected
to increase to over $10.0 billion.

The SBA is headquartered  in Washington,  D.C., and operates through ten regions
throughout  the  United  States.  The SBA  administers  three  levels  of lender
participation in its general business loan program,  pursuant to Section 7(a) of
the Small  Business  Act of 1953,  as  amended,  and the  rules and  regulations
promulgated  thereunder  (the "Small  Business  Act").  Under the first level of
lender  participation,  commonly known as the Guaranteed  Participant Program or
"Section  7(a)",  the lender  gathers and  processes  data from  applicants  and
forwards  it, along with its request for the SBA's  guarantee,  to the local SBA
office. The SBA then completes an independent analysis and makes its decision on
the loan application. SBA turnaround time on such applications can vary greatly,
depending on the backlog of loan applications.

Under the second level of lender  participation,  known as the Certified  Lender
Program,   the  lender  (the  "Certified  Lender")  gathers  and  processes  the
application  and makes its request to the SBA, as in the Guaranteed  Participant
Program  procedure.  The SBA then  performs  a  review  of the  lender's  credit
analysis on an expedited basis, which review is generally completed within three
working days.  The SBA requires  that lenders  originate  loans meeting  certain
portfolio quality and volume criteria before authorizing  lenders to participate
as  Certified  Lenders.  Authorization  to act as a Certified  Lender is granted
independently by each SBA district office.

The Company operates in California,  Nevada, Oregon and Tennessee as a Preferred
Lender  ("Preferred  Lender").  This designation is the third and highest lender
status granted by the SBA. Under this level of lender participation,  the lender
has the  authority to approve a loan and to obligate  the SBA to  guarantee  the
loan  without  submitting  an  application  to the SBA for  credit  review.  The
Preferred  Lender is required to promptly  notify the SBA of the approved  loan,
along with the submission of pertinent SBA documents.  The standards established
for  participants in the Preferred  Lender Program are more stringent than those
for  participants  in the  lower  two  levels  and  involve  meeting  additional
portfolio  quality  and volume  requirements.  The  Company  may, at its option,
submit loans for approval under the Certified Lender Program.


                                                          -4-

<PAGE>



The Company has, over the last fifteen years, developed an in-house expertise in
the generation and sale of SBA guaranteed loans. The Company's activities in the
SBA loan  area are  expected  to  continue  to be a  significant  factor  in the
earnings  of the  Company.  In the past,  the Company  has  acquired  SBA loans,
mortgage loans and the rights to service these loans from the RTC and others.

Prior to 1995  the  Company  sold  the  guaranteed  portion  of SBA  7(a)  loans
(typically  secured by first trust deeds on commercial  real estate),  generally
70% to 90% of the SBA  7(a)  loan  value,  that it  generated  in the  secondary
marketplace  and  retained  the  remaining  percentage  for its  own  portfolio.
Currently,  the maximum guarantee is 80%. The percentage of the retained portion
of previously  sold SBA 7(a) loans to total loans included in the loan portfolio
of the  Company  at  December  31,  1997,  1996 and  1995  was 5%,  26% and 30%,
respectively.  In 1995,  the Company made a decision to change its strategy with
respect to the sale of SBA 7(a) loans.  A significant  portion of the guaranteed
portion of loans is now being  retained,  and the Company  intends to securitize
and sell portions of the unguaranteed amount. The Company's first securitization
was completed in June 1997.  The Company has, in the past and will continue in
the  future,  elected to sell  selected  guaranteed  portions of loans to reduce
credit concentrations in a particular industry or for other reasons.

SBA 7(a) loans are made for terms from 7 to 25 years depending on the purpose of
the loan. In addition to being  guaranteed by the SBA, most of the Company's SBA
7(a) loans are  collateralized  by real estate.  In the event of a default,  the
Company  shares in the proceeds  upon the sale of collateral on a pro rata basis
with the SBA,  e.g., if the  unguaranteed  portion of a loan is 20%, then 20% of
the net  liquidation  proceeds  would be available to the Company for payment of
the unguaranteed portion of the loan.

Since 1983,  to support its SBA  program,  the Company has relied in part on SBA
packagers who refer SBA loans to the Company and provide certain services to the
borrowers.  The  packagers  receive  fees of a fixed  amount from the  borrower,
subject to limits  prescribed by the SBA. The packagers  also receive a fee from
the Company for  referring  SBA loans to the Company.  The referral fee payments
are included in the basis of the loans and hence are not disclosed separately in
the Company's  financial  statements.  Referral fees incurred by the Company for
SBA 7(a) loans from the years ended  December 31, 1997,  1996 and 1995 were $242
thousand,   $90  thousand  and  $200  thousand,   respectively.   The  Company's
relationships with its SBA packagers are informal arrangements.

SBA  Guarantees.  On October 12, 1995 the  President  signed the Small  Business
Lending  Enhancement  Act of  1995.  This  act  amended  the  maximum  guarantee
percentage  for loans made  under the SBA's 7(a)  program to 80% for loans up to
$100 thousand and 75% for all loans above $100  thousand.  The maximum amount of
any loan that the guarantee can apply to was set at $750  thousand.  At the same
time,  the fee  structure  was revised to include a fee of 0.5% per annum on the
guaranteed portion of the outstanding  balance of all loans approved on or after
October 12, 1995. As of December 31, 1997, included in total SBA loans of $163.8
million were portions of loans guaranteed by the SBA totaling $57.5 million.

The SBA  guarantee is  conditional  upon  compliance  with SBA  regulations.  In
connection with the  underwriting  and  closing/servicing  process,  the Company
examines all loan files for compliance with SBA regulations;  however, there can
be no  assurance  that  all  loans  will  comply  with  SBA  regulations  in all
instances.  In the event of a default by a borrower  on an SBA loan,  if the SBA
establishes  that any resulting loss is  attributable  to significant  technical
deficiencies  in the  manner in which  the loan was  originated,  documented  or
funded by the Company, the SBA may seek recovery of funds from the Company. With
respect  to the  guaranteed  portion  of SBA  loans  that  have been sold in the
secondary  market,   the  SBA  will  honor  its  guarantee  and  may  then  seek
reimbursement  from the  Company  in the  event a proven  loss is  deemed  to be
attributable to technical deficiencies. Loss of all or part of the SBA guarantee
on a loan could result in a loss to the Company if the underlying  collateral on
the loan is insufficient  to cover the outstanding  loan value on such loan. The
Company maintains  insurance  coverage of $2.5 million against losses of the SBA
guarantee related to technical deficiencies.

SBA  Servicing.  As of December 31, 1997,  1996 and 1995,  the Company  serviced
1,486, 1,402, and 1,370 SBA loans,  respectively,  with a total unpaid principal
balance  of  approximately   $452  million,   $420  million  and  $413  million,
respectively.

The  servicing of SBA loans  entails the  collection  of principal  and interest
payments from borrowers,  and for unguaranteed portions securitized and sold the
remittance of required payments to the trustee. For guaranteed

                                                          -5-

<PAGE>



portions of loans sold to investors the  remittance of the  investor's  share of
principal and interest payments to Colson Securities Corp. (the exclusive Fiscal
and  Transfer  Agent  for the  guaranteed  portion  of SBA  loans  sold into the
secondary  market),  the review of financial  statements  of borrowers  and site
inspections.  Servicing also entails the taking of certain  actions  required to
protect  the  Company's  and the SBA's  position  in the event of default by the
borrower, including the liquidation of collateral.

To compensate it for the cost of servicing,  the Company,  pursuant to generally
accepted  accounting  principles  ("GAAP"),  sets  aside  part  of the  interest
receivable  on the  portion  of  loans  sold to cover  its  future  costs  and a
reasonable future profit.

SBA Sales.  SBA 7(a) loans are primarily  written at variable  rates of interest
which are limited to a maximum of 275 basis points over the lowest prime lending
rate published in the Western Edition of The Wall Street  Journal.  The interest
rate on most of the  Company's  SBA 7(a) loans  adjusts on the first day of each
month.  With  respect to loans sold,  the  guaranteed  portions of SBA loans are
converted into government guaranteed certificates,  which are sold to investors,
and which yield for the  investor a rate that is lower than the note rates.  The
investor may pay a premium over the principal  amount of the loan  purchased and
additionally  a portion of the  interest on the sold portion of the loan will be
retained by SierraWest Bank. The difference between the rate on the loan that is
retained by the Company and the rate that the  investor  receives  plus a fee of
0.5%  collected by the SBA is referred to as the servicing  spread.  Lenders are
required by the SBA to maintain a minimum of 40 basis points of servicing spread
unless  loans are sold for cash  premiums,  in which case this  increases to 100
basis points.  When the SBA lender  retains  higher levels of servicing  spread,
lower cash premiums are received from investors.

Prior to January 1, 1997,  the  unamortized  book value of the servicing  spread
less the normal  servicing  cost was recorded on the Company's  balance sheet as
excess servicing assets.

Effective  January 1, 1997,  the Company  adopted SFAS No. 125,  Accounting  for
Transfers and Servicing of Financial Assets and  Extinguishments of Liabilities.
In accordance with the accounting standards provided by this statement,  after a
transfer of financial  assets,  an entity recognizes the financial and servicing
assets it controls  and  liabilities  it has  incurred,  derecognizes  financial
assets when control has been  surrendered,  and  derecognizes  liabilities  when
extinguished. Implementation of SFAS No. 125 had the effect of reclassifying the
previously  recorded excess servicing asset into two separate assets.  The first
asset represents the servicing spread in excess of 40 basis points and less than
or equal to 100 basis points for those loans sold at a premium. This is referred
to as a  servicing  asset.  All  other  servicing  spread  in  excess  of normal
servicing cost is recorded as an  interest-only  ("I/O") strip  receivable.  I/O
strips receivable are classified as interest-only  strips  receivable  available
for sale and are carried at fair value.  The servicing asset is carried at cost,
less any required valuation allowance and is classified as an other asset.

At December 31, 1997,  the balance of the  servicing  asset was $2.0 million and
its market value was also $2.0 million.  The I/O strip receivables were recorded
at $17.1  million  which  included an unrealized  gain of $700  thousand.  These
assets represent servicing spread generated from sold guaranteed portions of SBA
7(a)  loans,  the  unguaranteed  portion  of SBA  7(a)  loans  sold in the  June
securitization  and sold  guaranteed  portions of Business  and  Industry  loans
("B&I").  See "Other Government Lending" below. Income from the servicing spread
received for the years ended December 31, 1997, 1996 and 1995, was $6.3 million,
$5.6  million  and  $6.2  million,  respectively.  Amortization  of the  related
asset(s) for these same periods was $1.7 million, $1.5 million and $1.5 million,
respectively. The surplus income from the servicing spread over the amortization
represents an important part of the Company's income.

Servicing  spread  primarily  represents the servicing spread on previously sold
guaranteed  portions of SBA 7(a)  loans.  During  1997,  this  servicing  spread
benefitted  from  the  June   securitization,   with  approximately  $1  million
attributable to this source.  In addition to servicing spread generated from the
sale of SBA 7(a) loans,  servicing  spread has been generated on the sale of the
guaranteed  portions of B&I loans. To date servicing spread from this source has
not been significant.

In  recording  the  initial  value  of  the  servicing  assets  and  I/O  strips
receivable,  the Company  uses  estimates  which are made based on  management's
expectations  of future  prepayment  rates and other  considerations.  If actual
prepayments  with respect to sold loans occur more quickly than was projected at
the time such loans were sold,  the carrying  value of the servicing  assets may
have to be written down through a charge to earnings in the period

                                                          -6-

<PAGE>



of  adjustment.  Additionally  a  decrease  in the fair  value of the I/O strips
receivable  would  also  be  expected  under  these  circumstances.   If  actual
prepayments  with  respect to sold loans occur more slowly then  estimated,  the
carrying value of the servicing assets on the Company's  Consolidated  Statement
of Financial  Condition  would not increase,  although total income would exceed
previously estimated amounts.

SBA 504 Loans. The SBA provides long term financing to small businesses  through
its 504 loan  program,  by partnering  with banks to assist small  businesses in
buying land,  buildings,  machinery and equipment.  Under this program, the bank
provides  50%  of the  financing  and  obtains  a  first  lien  position  on the
collateral.  The SBA works  through a local  Certified  Development  Company  to
provide 40% of the required financing and the small business provides 10% of the
project cost.  There are no government  guarantees  provided under this program,
however  the bank  mitigates  its risk with these  loans by having a low loan to
value on the  collateral,  which  is  usually  real  property.  Included  in the
Company's  SBA loan  portfolio  at December  31, 1997 are loans  totaling  $65.6
million  related to this and similar  lending  programs in conjunction  with the
SBA.  Most of these loans are expected to be included in the  Company's  planned
1998 securitization.

SBA  Securitization.  In June 1997 the Company  securitized $51.3 million of the
unguaranteed   portion  of  its  SBA  7(a)  loans.   This  was  the  first  bank
securitization  of this  product.  The Company  booked a gain of $2.6 million on
this securitization.  The Company intends to securitize additional  unguaranteed
portions  of its SBA 7(a)  loans in the  future  but only at such times as it is
able to  accumulate  sufficient  product to provide for an  economically  viable
sized transaction which the Company considers to be in excess of $40 million.

The Company is currently in the process of  completing a  securitization  of its
SBA 504  loans.  This  securitization  is  expected  to include  loans  totaling
approximately  $80 million and is expected to be finalized in the second quarter
of 1998. The securitization  will include loans generated by the Company through
its loan  production  offices and branches and loans  purchased from third party
financial  institutions  through the Company's  wholesale loan purchase program.
The  securitization  will also include a limited amount of similar  conventional
loans where the SBA has not been involved in the loan  origination.  Because the
average  yield on these  loans is lower than the  average  yield on loans in the
Company's  1997  securitization  the  gain on  this  planned  securitization  is
expected to be substantially lower than the 1997 gain.

Other Government Lending

The U.S. Department of Agriculture Rural Development ("USDA")offers a guaranteed
loan  program,  known as the B&I Loan  Program.  This  program  is  designed  to
stimulate  economic  activity in rural communities with populations of 50,000 or
less.  Commercial  and industrial  businesses  and real estate  projects are the
target of the program.  The Bank  participates  by financing up to  $10,000,000,
with the USDA  providing an 80% guarantee on loans up to  $5,000,000  and 70% on
loans from  $5,000,000 to  $10,000,000.  These  guarantees  are similar to those
offered  through the SBA 7(a) program and can be sold on the  secondary  market.
Included in the Company's loan portfolio are B&I loans totaling $13.9 million at
December  31,  1997.  In 1997,  the  Company  sold $10.4  million in  guaranteed
portions of B&I Loans.

Other Lending Activities

The  Company's  commercial  loans are primarily  made to small and  medium-sized
businesses and are for terms ranging from one to seven years,  with the majority
of loans  being due in less  than five  years.  The Bank  provides  conventional
commercial term real estate loans,  both owner occupied and investor owned, with
maturities  of 5-10 years and  monthly  amortizing  payments  scheduled  over 25
years.  Construction  loans are also provided,  for  residential  and commercial
purposes,  with terms ranging from 6 to 18 months.  Consumer loans are typically
for a maximum term of 36 months for  unsecured  loans and for a term of not more
than the  depreciable  life of tangible  property used as collateral for secured
loans. Beginning in 1995, the Company provided 100% equipment lease financing to
small and medium-sized businesses and municipalities with terms ranging from two
to seven years. The Company exited its leasing activities during 1997.

Loan Commitments

In the normal course of business,  there are various outstanding  commitments to
extend credit that are not reflected in the financial statements. As of December
31,  1997,  the Company  had  approximately  $151  million in  undisbursed  loan
commitments and $4.8 million in standby  letters of credit.  About 27 percent of
the

                                                          -7-

<PAGE>
undisbursed loan commitments relate to SBA loans, while the remaining  represent
undisbursed construction,  commercial, real estate and personal loans (including
equity lines of credit).  Most of these  off-balance  sheet items are or will be
secured  by real  estate  or other  assets;  however,  a portion  are  unsecured
commercial  lines  of  credit.  Off-balance  sheet  items  undergo  a  level  of
underwriting  scrutiny  similar to the criteria  applied to the  Company's  loan
portfolio,  and  outstanding  balances are  monitored to minimize  risk and loss
exposure.

Distribution of Loans

The distribution of the Company's loan portfolio,  as of the dates indicated, is
shown in the following table (in thousands):
<TABLE>

                                                                                  December 31,
Type of Loan:                                                1997         1996         1995          1994         1993
                                                             ----         ----         ----          ----         ----
<S>                                                       <C>          <C>          <C>           <C>          <C>
  SBA loans:
   SBA guaranteed loans(1)..............                  $  78,924    $  62,409    $  45,864     $ 16,299     $ 16,825
   Other SBA loans(2)...................                     85,902       84,612       71,201       79,649       71,683
                                                          ---------    ---------    ---------     --------     --------
  Total SBA Loans.......................                    164,826      147,021      117,065       95,948       88,508
                                                          ---------    ---------    ---------     --------     --------
  Real estate loans (includes loans secured
   primarily by real estate, except for SBA loans):
    Construction and land development...                     63,703       36,261       31,564       18,310       15,450
    Mortgage ...........................                     97,982       62,883       35,484       18,268       17,908
    Equity lines of credit..............                      6,641        4,725        3,735        1,689        1,058
                                                          ---------    ---------    ---------     --------     --------
  Total Real Estate Loans...............                    168,326      103,869       70,783       38,267       34,416
                                                          ---------    ---------    ---------     --------     --------

  Commercial and industrial loans.......                     79,938       57,325       42,204       31,157       26,850

  Individual and other loans............                      6,945        6,847        6,537        7,365        9,828

  Lease receivables.....................                     13,114        8,304        3,380          202          217
                                                          ---------    ---------    ---------     --------     --------

  Total Loans...........................                    433,149      323,366      239,969      172,939      159,819

  Less allowance for possible loan losses                     6,649        4,546        3,845        3,546        3,472
                                                          ---------    ---------    ---------     --------     --------

  Total Net Loans.......................                  $ 426,500    $ 318,820    $ 236,124     $169,393     $156,347
                                                          =========    =========    =========     ========     ========
</TABLE>

(1)      Loans   guaranteed  in  part  by  the  SBA  which  are  in  process  of
         disbursement,   available  for  sale,  or  awaiting   sale.  The  total
         guaranteed  portion was $57.5 million,  $37.0  million,  $29.2 million,
         $11.6 million and $12.6 million at December 31, 1997,  1996, 1995, 1994
         and 1993, respectively.

(2)      Includes  the  unguaranteed  retained  portion  of loans  for which the
         guaranteed  portion  has been sold to  investors  and  loans  which the
         Company  has a  first  lien  position  on  collateral  and  the SBA has
         secondary liens.

Credit Risk Management

In managing its loan  portfolio,  the Company  utilizes  procedures  designed to
achieve an  acceptable  level of quality and to bring any  potential  losses or
potential  defaults  in  existing  loans  to the  attention  of the  appropriate
management  personnel.  As used in this discussion,  the term "loan" encompasses
both loans and leases. Each loan officer is granted a lending limit by the Chief
Credit  Officer,  subject to review and  approval by the Board of  Directors  of
SierraWest  Bank.  Each lending  officer has primary  responsibility  to conduct
credit  and  documentation  reviews  of  the  loans  for  which  he  or  she  is
responsible. The Chief Credit Officer is responsible for the general supervision
of the loan  portfolio  and adherence by the loan officers to the loan policy of
such bank.

Loan officers  evaluate the applicant's  financial  statements,  credit reports,
business  reports  and plans and  other  data to  determine  if the  credit  and
collateral satisfy the Company's standards as to historic debt service coverage,
reasonableness  of  projections,  strength  of  management  and  sufficiency  of
secondary   repayment  and  SBA  and  B&I  eligibility   rules,  if  applicable.
Recommended  applications  are approved by loan officers up to their  designated
lending limits.  Those loans in excess of individual lending limits are approved
by the Chief Credit  Officer or other  officer with  appropriate  administrative
lending  authority.  If a loan exceeds the Chief Credit Officer's lending limit,
it is forwarded to the Director's Loan Committee for approval. Approved SBA loan


                                                          -8-
<PAGE>

applications not made under the Preferred Lender Program,  are then submitted to
the  district  SBA office  for  approval.  All SBA loans are  secured by various
collateral including,  where appropriate,  real estate, machinery and equipment,
inventory and accounts receivable,  or such other assets as are specified in the
SBA loan  authorization.  In the case of the Company's SBA loans,  approximately
87% were collateralized by commercial real estate at December 31, 1997. Prior to
submission of the application to the SBA for guarantee,  any real property to be
taken as collateral is appraised by independent appraisers.

SierraWest  Bank's  management  presents a written report to the Director's Loan
Committee  monthly,  listing all loans over $100  thousand  that are 30 days or
more past due.  Management  and the Board of Directors of  SierraWest  Bank also
review  all  loan   evaluations   made  during  periodic   examinations  by  the
Superintendent  of Financial  Institutions  of the State of  California  and the
FDIC. The Director's  Loan Committee of SierraWest Bank reviews and approves the
Bank's credit policy,  as well as management  reports on the quality of the loan
portfolio.

The Company  maintains  an  allowance  for  possible  loan losses to provide for
potential  losses in its loan  portfolio.  The allowance is established  through
charges to earnings in the form of  provision  for possible  loan  losses.  Loan
losses are charged to, and  recoveries  credited to, the  allowance for possible
loan  losses.  The  allowance  for  possible  loan  losses is  determined  after
considering  various  factors  such as loan loss  experience,  current  economic
conditions, maturity of the loan portfolio, size of the loan portfolio, industry
concentrations,  borrower  credit history,  the existing  allowance for possible
loan losses,  independent  loan reviews,  current charges and recoveries and the
overall  quality of the  portfolio,  as  determined  by  management,  regulatory
agencies and  independent  credit  review  consultants  retained by the Company.
While  these  factors  are  essentially  subjective,  management  considers  the
allowance of $6.6 million at December 31, 1997 to be adequate.

The  Company's  credit  services   department  is  responsible  for  monitoring,
collecting  and  liquidating  loans.  In  addition,  on a selective  basis,  the
servicing staff conducts site  inspections  after loan funding and  periodically
during the life of the loan to verify the use of the proceeds and maintenance of
collateral and to assist in the collection  process and management of classified
loans.

Asset Quality

The  performance  of the  Company's  loan  portfolio is  evaluated  regularly by
management.  The Company places a loan on nonaccrual status when any installment
of principal or interest is 90 days or more past due,  unless,  in  management's
opinion,  the loan is well secured and the  collection of principal and interest
is probable,  or management  determines the ultimate  collection of principal or
interest on a loan to be unlikely.  When a loan is placed on nonaccrual  status,
the Company's  general  policy is to reverse and charge  against  current income
previously  accrued  but  unpaid  interest.  Interest  income  on such  loans is
subsequently  recognized  only to the extent  that cash is  received  and future
collection of principal is deemed by management to be probable.

Loans for which the  collateral  has been  repossessed  are written down to fair
value and  classified as Other Real Estate Owned  ("OREO") or, if the collateral
is personal property, as other assets, on the Company's financial statements.



                                                          -9-

<PAGE>

The following table sets forth the amount of the Company's  nonperforming assets
as of the dates indicated (amounts in thousands except percentage amounts).
<TABLE>

                                                                              December 31,
                                                        1997         1996         1995         1994         1993
                                                        ----         ----         ----         ----         ----
<S>                                                   <C>           <C>         <C>           <C>         <C>
Nonperforming Assets:
Nonaccrual loans:
    SBA............................                   $ 5,281       $4,985      $ 5,351       $2,423      $ 2,517
    Other..........................                       702          378          125           59          355
In-substance foreclosures..........                         0            0            0          572          711
Other real estate owned............                     1,438          446          758          542          456
                                                      -------       ------      -------       ------      -------
    Total nonperforming assets.....                   $ 7,421       $5,809      $ 6,234       $3,596      $ 4,039
                                                      =======       ======      =======       ======      =======

Accruing loans past due 90 days or more:
    SBA............................                   $ 1,127       $1,071      $   816       $1,754      $   496
    Other..........................                       255        1,061          207            9        1,029

Restructured loans (in compliance
  with modified terms).............                   $   660       $  275      $    78       $  194      $   201

Nonperforming assets to
  total assets.....................                       1.3%         1.3%         1.8%         1.4%         1.6%
Allowance for possible loan and lease
  losses to nonaccrual loans.......                     111.1%        84.8%        70.2%       142.9%       120.9%
</TABLE>

Of total  gross  loans and  leases at  December  31,  1997,  $6.0  million  were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included $718 thousand related to these loans.  The amount of interest  received
and recognized on these  impaired  loans in 1997 was $413 thousand.  The average
recorded investment in impaired loans during 1997 was $5.7 million.

Of total  gross  loans and  leases at  December  31,  1996,  $5.4  million  were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included $565 thousand related to these loans.  The amount of interest  received
and recognized on these  impaired  loans in 1996 was $310 thousand.  The average
recorded investment in impaired loans during 1996 was $5.6 million.

Although the level of  nonperforming  assets will depend on the future  economic
environment,  as of March 13, 1998,  in addition to the assets  disclosed in the
above  chart,  management  of the  Company  has  identified  approximately  $727
thousand in potential  problem loans as to which it has serious doubts as to the
ability of the  borrowers to comply with the present  repayment  terms and which
may become  nonperforming  assets,  based on known  information  about  possible
credit problems of the borrower.


                                                         -10-

<PAGE>



The following table shows the loans outstanding, actual charge-offs,  recoveries
on loans  previously  charged off, the  allowance  for possible  loan losses and
pertinent  ratios during the periods and as of the dates  indicated  (amounts in
thousands except percentage amounts).
<TABLE>
                                                                   December 31,
                                               1997         1996         1995         1994        1993
                                               ----         ----         ----         ----        ----
<S>                                         <C>           <C>          <C>          <C>         <C>

Average loans.......................        $ 378,732     $284,487     $ 203,231    $ 166,366   $ 159,463
Total loans at end of period........          433,149      323,366       239,969      172,939     159,819

Allowance for possible loan and lease
  losses: Balance--beginning of period      $   4,546     $  3,845     $   3,546    $   3,472   $   2,742
                                            ----------    --------     ---------    ---------   ---------
Actual charge-offs:
  SBA...............................              820          114           595          447         391
  Commercial and industrial.........              593          337           350          467         143
  Leases............................               14           84             0            0           0
  Real estate.......................                0            0            40           60         190
  Installment.......................               63           58            40          101          42
                                            ----------    --------     ---------    ---------   ---------
    Total...........................            1,490          593         1,025        1,075         766
                                            ------------  --------     ---------    ---------   ---------
Less recoveries:
  SBA...............................               57           87            20           74          14
  Commercial and industrial.........              135          182            26          187          52
  Leases............................                6            0             0            0           0
  Real estate.......................                0            0             0            0           0
  Installment.......................               51           15             8            3           6
                                            ---------     --------     ---------    ---------   ---------
    Total...........................              249          284            54          264          72
                                            ---------     --------     ---------    ---------   ---------
Net charge-offs.....................            1,241          309           971          811         694
Allowance applicable to sold loans..                0            0             0            0        (136)
Provision for possible loan and lease
  losses............................            2,480        1,010         1,270          885       1,560
                                            ---------     --------     ---------    ---------   ---------

  Acquisition.......................              864            0             0            0           0
                                            ---------     --------     ---------    ---------   ---------

Balance--end of period..............        $   6,649     $  4,546     $   3,845    $   3,546   $   3,472
                                            =========     ========     =========    =========   =========

Ratios:
  Net loans charged off to average
    loans outstanding..............              0.33%        0.11%         0.48%        0.49%       0.44%
  Net loans charged off to total loans
    at end of period...............              0.29         0.10          0.41         0.47        0.43
  Provision for possible loan and lease
    losses to average loans........              0.65         0.36          0.62         0.53        0.98
  Provision for possible loan and lease
    losses to total loans at end of period       0.57         0.31          0.53         0.51        0.98
  Net loans charged off to end of
    period allowance for possible
    loan and lease losses..........              18.7         6.80         25.25        22.87       19.99
  Allowance for possible loan and lease
    losses to total loans and leases
    at end of period                             1.54         1.41          1.60         2.10        2.17

</TABLE>



                                                         -11-

<PAGE>



The  following  table  sets  forth  management's  historical  allocation  of the
allowance for possible  loan losses by loan category and  percentage of loans in
each category.  Percentage  amounts are the percentage of loans in each category
to total loans at the dates indicated (dollars in thousands).
<TABLE>

                                                                              December 31,
                                                                       1997                        1996
                                                              Amount       Percentage      Amount        Percentage
<S>                                                           <C>           <C>        <C>                <C>
SBA loans........................................             $2,205         38%        $1,561             45%
Commercial and industrial loans (2)..............              2,449         22          1,720             21
Real estate loans................................              1,673         37          1,010             30
Consumer loans to individuals(1).................                322          3            255              4
                                                              ------        ----        ------             ---

    Total........................................             $6,649        100%        $4,546            100%
                                                              ======        ===         ======            ===
</TABLE>
<TABLE>

                                                                   December 31,
                                          1995                         1994                          1993
                                  -----------------------       ----------------------       ------------------------
                                   Amount        Percentage      Amount       Percentage      Amount        Percentage
<S>                                <C>           <C>             <C>            <C>            <C>            <C>
SBA loans......................    $1,468         38%            $2,372          56%           $2,379          55%
Commercial and industrial loans(2)  1,592         41                627          18               541          17
Real estate loans..............       564         15                366          21               334          22
Consumer loans to
  individuals(1)...............       221          6                181           5               218           6
                                   ------        ----            ------         ---            ------         ---

    Total......................    $3,845        100%            $3,546         100%           $3,472         100%
                                   ======        ===             ======         ===            ======         ===
</TABLE>

(1)      Includes equity lines of credit.
(2)      Includes commercial leases.

In allocating  the Company's  allowance for possible loan losses  management has
considered  the credit risk in the various  loan  categories  in its  portfolio.
Historically,  most of the  Company's  loan losses  have been in its  commercial
lending area.  This area includes  local  commercial  loans and SBA loans.  From
inception  of its SBA  lending  program in 1983,  the  Company  has  sustained a
relatively  low level of losses from these  loans,  averaging  less than 0.5% of
loans  outstanding per year. Most of the Company's other  commercial loan losses
have been for  loans to  businesses  within  the  Tahoe  basin  area or in Reno,
Nevada.  It is important to the Company to maintain  good  relations  with local
business  concerns  and, to this end, it supports  small local  businesses  with
commercial  loans. To offset the added risk these loans  represent,  the Company
charges a higher interest rate.  It also attempts to manage risk in this area
through its loan review process.

Because  the  Company's  residential  real estate  loans  consist  primarily  of
construction  lending with prearranged loan takeouts,  losses on such loans have
been  minimal.  The  Company  has not  participated  in  commercial  real estate
development projects.

While  every  effort  has  been  made to  allocate  the  allowance  to  specific
categories of loans,  management  believes that any  allocation of the loan loss
allowance into loan  categories  lends an appearance of exactness which does not
exist,  in that the  allowance  is  utilized as a single  unallocated  allowance
available for losses on all types of loans.


                                                         -12-

<PAGE>



Loan Maturities and Sensitivity to Changes in Interest Rates

The following  table sets forth the  distribution by maturity date of certain of
the  Company's  loan  categories  (in  thousands)  as of December 31,  1997.  In
addition,   the  table  shows  the   distribution   between   total  loans  with
predetermined (fixed) interest rates and those with variable (floating) interest
rates (in  thousands).  Floating rates  generally  fluctuate with changes in the
prime rate of leading banking institutions.
<TABLE>

                                                                        Year Ended
                                                                     December 31, 1997
                                                                After One
                                                Within         But Within           After
                                              One Year(1)      Five Years        Five Years          Total
<S>                                           <C>              <C>              <C>               <C>
Real estate - construction..................  $ 48,881         $ 3,120          $  11,702         $   63,703
Commercial, except SBA......................    47,716          29,611              2,611             79,938
SBA.........................................     6,374          21,140            137,312            164,826
Distribution between fixed and 
 floating interest rate:
   Fixed interest rates.....................    18,110          33,977             44,241             96,328
   Floating interest rates..................   103,677          73,271            159,873            336,821

</TABLE>

(1)      Demand loan and overdrafts are shown as "Within One Year"


                                                         -13-

<PAGE>
Average Assets, Liabilities and Shareholders' Equity; Interest Income and
Expense

The following table presents,  for the periods  indicated,  the  distribution of
average  assets,  liabilities  and share holders'  equity,  as well as the total
dollar  amount of  interest  income  from  average  interest-earning  assets and
resultant  yields  and the  dollar  amounts  of  interest  expense  and  average
interest-bearing liabilities and resultant rates (in thousands except percentage
amounts):
<TABLE>
                                                            Year Ended December 31,
                                     1997                              1996                             1995
                        ---------------------------------   -------------------------------   -------------------------------
                           Average       Yield/              Average     Yield/                Average     Yield/
                           Balance        Rate   Interest    Balance     Rate      Interest    Balance      Rate      Interest
<S>                       <C>           <C>     <C>          <C>        <C>        <C>        <C>        <C>          <C>  
Assets:
Interest-earning assets:
  Loans(1)...........     $ 378,732      10.39% $ 39,357     $284,487    10.72%    $ 30,506   $ 203,231    11.60%     $  23,582
  Investment securities(2)   48,629       5.98     2,909       28,712     5.62        1,614      26,546     5.29          1,403
  Mutual funds.......         2,857       2.35        67        1,342     7.30           98       1,627     8.05            131
  Federal funds sold.        33,616       5.34     1,795       18,017     5.21          938      10,534     5.64            594
  Other .............         3,888       4.68       182        2,225     5.08          113       2,097     5.77            121
                          ---------                -----     --------              --------   ---------               ---------  
    Total interest-earning
      assets.........       467,722       9.47    44,310      334,783     9.94       33,269     244,035    10.58         25,831

Allowance for possible
loan losses.........         (5,737)                           (4,497)                           (3,685)

Non-earning assets:
   Cash and due from
     banks..........         28,107                            19,894                            16,444
   Premises and equipment,
     net............         11,798                            11,224                             7,817
   Excess Servicing on
     SBA loans(3)...         17,621                            14,304                            15,492
   Other assets.....          6,487                             5,912                             6,091
                          ---------                          --------                         ---------

   Total average asset    $ 525,998                          $381,620                         $ 286,194
                          =========                          ========                         =========

Liabilities and Shareholders'
   Equity:
Interest-bearing liabilities:
   Transaction accounts   $ 145,743       2.92     4,259     $102,963     2.54%       2,620   $  87,600     2.28%    $    1,995
   Savings accounts          13,288       2.09       278       13,573     2.09          283      13,409     2.13            286
   Certificates of deposit  212,729       5.79    12,322      155,585     5.68        8,832      91,517     5.85          5,352
   Convertible debentures     2,547       2.36        60        9,294     8.22          764      10,000     8.50            850
   Other liabilities            279      64.52       180          289    (1.38)          (4)        376     2.13              8
                          ---------              -------     --------               -------   ---------              ----------
   Total interest-bearing
   liabilities......        374,586       4.56    17,099      281,704     4.44       12,495     202,902     4.18          8,491
Non-interest-bearing liabilities:
   Transaction accounts      97,082                            63,638                            51,261
   Other liabilities          8,797                             4,556                             2,767
                          ---------                          --------                         ---------
   Total liabilities        480,465                           349,898                           256,930

Shareholders' equity:
   Common stock.....         21,752                            11,450                            10,799
   Retained earnings         23,074                            20,399                            18,793
Unrealized loss on
   securities.......            707                              (127)                             (328)
                          ---------                          --------                         ---------
   Total shareholders'
     equity.........         45,533                            31,722                            29,264
                          ---------                          --------                         ---------              

   Total liabilities and
     shareholders'
     equity.........      $ 525,998                          $381,620                         $ 286,194
                          =========              -------     ========              --------   =========              ----------

Net interest income                              $27,211                           $ 20,774                          $   17,340
                                                 =======                           ========                          ==========

Interest income as a
   percentage of interest-
      earning assets                      9.47%                           9.94%                            10.58%
Interest expense as a
      percentage of interest-
   earning assets...                     (3.65)                          (3.73)                            (3.48)
                                         -----                            ----                              ----

Net interest margin                       5.82%                           6.21%                             7.10%
                                          ====                            ====                              ====
</TABLE>

(1)   Includes nonaccrual loans with an average balance of $5.7 million,
      $5.6 million, and $3.4 million for the years ended December 31, 1997, 1996
      and 1995, respectively.

(2)   Applicable nontaxable securities yields have not been calculated on a 
      tax-equivalent basis because such securities are not significant.

(3)   Represents I/O strips receivable and servicing assets in 1997.

                                                         -14-
<PAGE>



Investment Securities & Investments in Mutual Funds

The  Company's  current  investment  policy  provides  for the  purchase of U.S.
Treasury securities,  obligations of U.S. government  agencies,  U.S. government
sponsored agencies,  corporate bonds,  commercial paper,  banker's  acceptances,
pass-through  mortgage-backed securities,  adjustable rate mortgage pass-through
securities,   collateralized  mortgage  obligations,   asset-backed  securities,
municipal general obligation and revenue bonds, mutual funds and certificates of
deposit.  The Company's policy requires all corporate bonds,  commercial  paper,
mortgage-backed  securities,  collateralized  mortgage  obligations or municipal
securities be rated "A" or better by any nationally recognized rating agency. If
a local  municipality  is issuing an unrated  bond,  the Company may purchase it
after normal credit underwriting procedures are performed.

The Company's  investment  committee  reviews all securities  transactions  on a
monthly  basis and  presents a monthly  report to the Board of  Directors of the
Company  covering this review.  Under  California  law,  SierraWest Bank may not
invest an amount exceeding 15% of its shareholders'  equity in the securities of
any one obligor,  subject to certain exceptions (e.g., obligations of the United
States and the State of California).  Acceptable  securities  (i.e.,  Federal or
state  government or any county or  municipality  securities)  may be pledged to
secure public deposits in excess of $100 thousand.

The following table summarizes the amounts and the distribution of the Company's
investment securities (in thousands):
<TABLE>
                                                                            December 31,
                                                         1997                      1996                     1995
                                                 --------------------      --------------------      ---------------------
                                                  Book        Market        Book        Market        Book       Market
                                                 Value(1)     Value        Value(1)      Value       Value(1)     Value
<S>                                            <C>           <C>           <C>          <C>         <C>         <C>
U.S. Treasury securities....................   $ 36,606      $ 36,606      $ 19,463     $ 19,462    $ 18,137    $ 18,144

Securities of U.S. government
  agencies..................................      1,485         1,485         1,005        1,005       7,486       7,486

Securities of states and
  political subdivisions....................      9,387         9,387         5,991        5,991       2,608       2,608

Other securities............................     11,633        11,633         7,422        7,422         112         112
                                               --------      --------      --------     --------    --------    --------

  Total.....................................   $ 59,111      $ 59,111      $ 33,881     $ 33,880    $ 28,343    $ 28,350
                                               ========      ========      ========     ========    =========   ========
</TABLE>

(1)      Securities held to maturity are stated at cost, adjusted for 
         amortization of premium and accretion of discount.  Securities
         available for sale are recorded at fair value.


In  addition  the Company  invests in mutual  funds  whose  assets are  invested
primarily in U.S. government  securities.  At December 31, 1997 and 1996, mutual
funds with an estimated  market value of $0.7 million and $1.3 million have been
classified  as available  for sale. At these same dates the Company had recorded
an  unrealized  loss on  mutual  funds,  net of  tax,  of $47  thousand  and $99
thousand.  The weighted  average  maturity of portfolio  securities  held by the
mutual funds at December 31, 1997 and 1996 was 7.1 and 7.2 years.

                                                         -15-

<PAGE>

Maturity of Investment Securities

The following  table presents the maturities for investment  securities  (except
for  investments  in mutual funds with a carrying  value of $733 thousand) as of
December 31, 1997 (dollars in thousands).
<TABLE>
                                                                                             December 31, 1997
                                                                                                 Weighted
                                                                                      Book        Average       Market
                                                                                      Value        Yield         Value
<S>                                                                                 <C>            <C>        <C>
U.S. Treasury securities:
  Within 1 year...................................................................  $   9,981      5.85%      $   9,981
    After 1 year but within 5 years...............................................     26,625      6.16          26,625
                                                                                    ---------                 ---------
    Total U.S. Treasury securities................................................     36,606      6.08          36,606
                                                                                    ---------                 ---------

U.S. government agencies:
  After 1 year but within 5 years.................................................      1,485      6.52           1,485

Securities of states and political subdivisions(1):
  Within 1 year...................................................................        346      3.78             346
  After 5 years but within 10 years...............................................        608      4.89             608
  Over 10 years...................................................................      8,433      5.24           8,433
                                                                                    ---------                 ---------
      Total securities of states and political subdivisions ......................      9,387      5.16           9,387
                                                                                    ---------                 ---------

Mortgage - backed securities:.....................................................     11,633      6.74          11,633
                                                                                    ---------                 ---------

Total.............................................................................  $  59,111      6.07%      $  59,111
                                                                                    =========                 =========

</TABLE>
(1)      Interest on these tax-exempt obligations has not been tax effected to
         include the related tax benefits in calculating the average yield.

Deposits

As of December  31,  1997,  the Company had a total of $289.0  million in demand
deposits  (including  money market and NOW  accounts),  with an average  account
balance of  $13,680;  $14.0  million in savings  deposits  for  individuals  and
corporations,  with an average balance of $2,231;  and $223.2 million in CDs, of
which $90.6 million were in the form of CDs in  denominations  greater than $100
thousand. Average CD balances for the year ended December 31, 1995 were 37.5% of
average total deposits.  Average CD balances increased to 46.3% of average total
deposits for the year ended December 31, 1996, but decreased to 45.4% of average
total  deposits  for the year ended  December  31,  1997.  Deposit  accounts  at
SierraWest Bank are insured by the FDIC to the maximum amount permitted by law.

As of December 31, 1997,  approximately 6% of total deposits were held on behalf
of public entities.  Deposits of public entities in excess of amounts insured by
the FDIC are  secured by  SierraWest  Bank by pledging  securities.  Included in
deposits at December 31, 1997 were certificates of deposit of $1.4 million which
were generated directly through brokers.

In 1992,  SierraWest  Bank began to make available to its customers money market
investment funds and annuities.  Volume has been increasing during recent years;
however income from this source is not significant. The Company does not believe
that placement by customers of funds in these alternative investment sources has
had any overall negative impact on the level of the Banks' deposits.

The Company's business is subject to some seasonal influences.  Deposits tend to
decrease  during the off- season for tourism in "the  Sierra",  which is between
March and May and between September and November.


                                                         -16-

<PAGE>



The following table indicates the maturity of the Company's CDs of $100 thousand
or more as of December 31, 1997 (dollars in thousands):

                                                       December 31, 1997
                                                                 Percentage
                                                     Balance      of Total

Three months or less.............................  $  42,050        37.3%
Over three months through six months.............     30,415        27.0
Over six months through twelve months............     31,527        28.0
Over twelve months...............................      8,635         7.7
                                                   ---------        ----
Total............................................   $112,627       100.0%
                                                    ========       =====

Competition from Other Financial Institutions

The Company  competes for deposits and loans  principally  with major commercial
banks,  other independent banks,  savings and loan associations,  savings banks,
thrift and loan  associations,  credit  unions,  mortgage  companies,  insurance
companies and other lending institutions.  With respect to deposits,  additional
significant  competition arises from corporate and governmental debt securities,
as well as money market mutual funds.  Several of the nation's  largest  savings
and loan  associations and commercial banks have a significant  number of branch
offices  in the  areas in which  the  Company  conducts  operations.  Among  the
advantages of the larger of these  institutions are their ability to make larger
loans,  finance extensive  advertising  campaigns,  access  international  money
markets and generally  allocate  their  investment  assets to regions of highest
yield and demand.

The Company  ranked 18th in the nation by number of SBA 7(a) loans  generated by
banks for the SBA's  fiscal  year  ended  September  30,  1996.  The SBA has not
published  its fiscal  1997  rankings;  however the  Company  believes  that its
ranking has not changed significantly from 1996.

The  Company's  competitive  position with respect to  deposit-gathering  in its
market places is illustrated in the following chart(1) (dollars in thousands):
<TABLE>

                                                     Total                                Deposits Held
                                    # of Company     # of Banking      Deposits Held      by all Banks
County            State             Branches         Offices           by Company         and offices
<S>               <C>                    <C>            <C>            <C>                <C>

El Dorado         California             1               37            $  27,498          $1,015,301
Nevada            California             5               28            $ 187,014          $1,002,004
Placer            California             2               66            $  60,975          $1,939,540
Sacramento        California             2              192            $  96,290          $9,498,879
Carson City       Nevada                 1               13            $  31,022          $  645,780
Washoe            Nevada                 1               79            $ 107,140          $2,822,519
</TABLE>

A total of 15  financial  institutions  in Nevada  County at June 30,  1997 were
included in the above  survey.  Of these 15,  SierraWest  Bank ranked  second in
terms of total deposits held. In Placer County, SierraWest Bank ranked tenth out
of twenty-two  institutions.  In Washoe County,  Nevada,  SierraWest Bank ranked
seventh out of 12 financial institutions.  As disclosed above, SierraWest Bank's
presence in the other counties is not significant.

(1) Based on the annual  survey of banking  office  deposits as of June 30, 1997
conducted by the FDIC. Banking offices include each banking office of commercial
banks, savings institutions, and each U.S. branch of a foreign bank for all FDIC
insured  commercial banks,  savings  institutions,  and U.S. branches of foreign
banks.


                                                             -17-

<PAGE>

Supervision and Regulation

The Effect of Governmental Policy on Banking

The earnings and growth of SierraWest Bank are affected not only by local market
area factors and general economic  conditions,  but also by government  monetary
and fiscal policies.  For example,  the Federal Reserve influences the supply of
money  through its open market  operations  in U.S.  Government  securities  and
adjustments  to the  discount  rates  applicable  to  borrowings  by  depository
institutions and others. Such actions influence the growth of loans, investments
and  deposits  and also  affect  interest  rates  charged  on loans  and paid on
deposits.  The  nature  and impact of future  changes  in such  policies  on the
business and earnings of SierraWest Bank cannot be predicted.

As a consequence of the extensive regulation of commercial banking activities in
the United States,  the business of the Company is  particularly  susceptible to
being affected by the enactment of Federal and state  legislation which may have
the effect of  increasing or decreasing  the cost of doing  business,  modifying
permissible  activities or enhancing the competitive position of other financial
institutions.  Any change in applicable  laws or regulations may have a material
adverse  effect on the business and  prospects  of the  Company.  See  "Recently
Enacted Legislation" herein.

Regulation and Supervision of Bank Holding Companies

Bancorp is a bank holding  company  subject to the Bank  Holding  Company Act of
1956,  as amended  ("BHCA").  Bancorp  reports to,  registers  with,  and may be
examined by, the Federal Reserve.  The Federal Reserve also has the authority to
examine  Bancorp's  subsidiary.  The  costs of any  examination  by the  Federal
Reserve are payable by Bancorp.

The Federal  Reserve has significant  supervisory and regulatory  authority over
Bancorp and its  affiliates.  The Federal Reserve  requires  Bancorp to maintain
certain levels of capital.  See "--Capital  Standards." The Federal Reserve also
has the authority to take  enforcement  action against any bank holding  company
that  commits  any  unsafe  or  unsound  practice,  or  violates  certain  laws,
regulations  or  conditions  imposed  in  writing by the  Federal  Reserve.  See
"--Prompt Corrective Action and Other Enforcement Mechanisms."

Under the BHCA, a company generally must obtain the prior approval of (or, if it
is considered "well-managed" give prior notice to) the Federal Reserve before it
exercises a controlling influence over, or acquires directly or indirectly, more
than 5% of the voting shares or  substantially  all of the assets of any bank or
bank holding company.  Thus, Bancorp is required to obtain the prior approval of
or give  prior  notice to the  Federal  Reserve  before it  acquires,  merges or
consolidates  with any bank or bank  holding  company;  any  company  seeking to
acquire,  merge or consolidate with Bancorp also would be required to obtain the
approval of or give prior notice to the Federal Reserve.

Bancorp is  generally  prohibited  under the BHCA from  acquiring  ownership  or
control of more than 5% of the voting  shares of any company  that is not a bank
or bank holding  company and from engaging  directly or indirectly in activities
other than banking,  managing banks, or providing  services to affiliates of the
holding  company.  A bank  holding  company,  with the  approval  of the Federal
Reserve,  may engage,  or acquire the voting  shares of  companies  engaged,  in
activities  that the Federal  Reserve has determined to be so closely related to
banking or managing or controlling banks as to be a proper incident  thereto.  A
bank  holding  company must  demonstrate  that the benefits to the public of the
proposed  activity will outweigh the possible  adverse  effects  associated with
such activity.

The Federal Reserve generally prohibits a bank holding company from declaring or
paying a cash  dividend  which  would  impose  undue  pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding  company's  financial  position.  The
Federal  Reserve's policy is that a bank holding company should not continue its
existing  rate of cash  dividends  on its common  stock unless its net income is
sufficient  to fully fund each  dividend  and its  prospective  rate of earnings
retention appears  consistent with its capital needs,  asset quality and overall
financial condition.

Transactions between Bancorp and its subsidiary are subject to a number of other
restrictions.  Federal Reserve policies forbid the payment by bank  subsidiaries
of management fees which are unreasonable in amount or

                                                             -18-

<PAGE>

exceed the fair market value of the services  rendered (or, if no market exists,
actual costs plus a reasonable profit). Additionally, a bank holding company and
its subsidiaries are prohibited from engaging in certain tie-in  arrangements in
connection  with  the  extension  of  credit,  sale or  lease  of  property,  or
furnishing of services.  Subject to certain limitations,  depository institution
subsidiaries  of bank  holding  companies  may extend  credit to,  invest in the
securities of, purchase assets from, or issue a guarantee, acceptance, or letter
of credit on  behalf  of, an  affiliate,  provided  that the  aggregate  of such
transactions with affiliates may not exceed 10% of the capital stock and surplus
of the institution,  and the aggregate of such  transactions with all affiliates
may not exceed 20% of the capital stock and surplus of such institution. Bancorp
may only borrow from depository institution  subsidiaries if the loan is secured
by marketable  obligations with a value of a designated  amount in excess of the
loan.  Further,  Bancorp  may  not  sell a  low-quality  asset  to a  depository
institution subsidiary.

Commercial banking organizations,  insured depository institutions, and mortgage
bankers  are  subject  to  certain  fair  lending   requirements  and  reporting
obligations   involving  home  mortgage  lending  operations.   In  addition  to
substantive  penalties  and  corrective  measures  that  may be  required  for a
violation of such laws, the Federal  banking  agencies may take  compliance with
such laws into account when  regulating and  supervising  other activi ties. The
Federal  Reserve may not approve  applications  to acquire the voting  shares of
another  insured  depository  institution  based on incorrect  reporting of home
mortgage  lending data, and the possibility  that applicants may have engaged in
discriminatory  treatment of minorities in mortgage  lending in violation of the
Equal Credit Opportunity Act.

Bank Regulation and Supervision

As a California  state-chartered bank, SierraWest Bank is regulated,  supervised
and regularly  examined by the California  Department of Financial  Institutions
("DFI").   Under   California  law,   SierraWest  Bank  is  subject  to  various
restrictions on, and requirements  regarding,  its operations and administration
including  the  maintenance  of branch  offices and automated  teller  machines,
capital and reserve  requirements,  deposits and borrowings,  stockholder rights
and duties,  and investment  and lending  activities.  SierraWest  Bank is not a
member of the Federal Reserve System;  SierraWest Bank,  however,  is subject to
certain regulations of the Federal Reserve including reserve  requirements.  The
primary Federal regulator of SierraWest Bank is the FDIC.

Capital Standards

The FDIC and other Federal  banking  agencies  have risk based capital  adequacy
guidelines  intended to provide a measure of capital  adequacy 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.  government  securities,  to 100% for  assets  with
relatively higher credit risk, such as business loans.

A banking  organization's risk based capital ratios are obtained by dividing its
qualifying  capital by its total risk-  adjusted  assets and off  balance  sheet
items. The regulators measure  risk-adjusted  assets and off balance sheet items
against  both total  qualifying  capital  (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common
stock, retained earnings,  noncumulative  perpetual preferred stock and minority
interests in certain  subsidiaries,  less most intangible assets. Tier 2 capital
may consist of a limited  amount of the  allowance  for possible  loan and lease
losses, cumulative preferred stock, term preferred stock, term subordinated debt
and certain  other  instruments  with  certain  characteristics  of equity.  The
inclusion  of  elements  of  Tier  2  capital  are  subject  to  certain   other
requirements and limitations of the Federal banking agencies. Since December 31,
1992, the Federal  banking  agencies have required a minimum ratio of qualifying
total capital to  risk-adjusted  assets and off balance sheet items of 8%, and a
minimum  ratio of Tier 1 capital to  risk-adjusted  assets and off balance sheet
items of 4%.

In addition to the risk-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%. It is improbable,  however,  that an institution with a 3% leverage ratio
would  receive  the  highest  rating by the  regulators  since a strong  capital
position  is a  significant  part of the  regulators'  rating.  For all  banking
organizations not rated in the highest category, the minimum leverage ratio

                                                             -19-

<PAGE>

must be at least  100 to 200  basis  points  above  the 3%  minimum.  Thus,  the
effective minimum leverage ratio, for all practical  purposes,  must be at least
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.

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
requires the  regulators to improve  capital  standards to take account of risks
other than credit risk. In June 1996 a joint agency policy statement was issued
by all of the Federal  banking  agencies to provide  guidance on sound practices
for managing  interest rate risk.  The agencies did not in the policy  statement
elect to  implement a  standardized  measure and  quantitative  capital  charge,
though the matter was left open for future  implementation.  Rather,  the policy
statement  provided  standards for the banking agencies to evaluate the adequacy
and  effectiveness  of a bank's  interest rate risk  management  and guidance to
bankers for managing interest rate risk.  Specifically,  effective interest rate
risk management requires that there be (i) effective board and senior management
oversight of the bank's interest rate risk activities, (ii) appropriate policies
and  practices  in place to control and limit risks,  (iii)  accurate and timely
identification  and  measurement of interest rate risk,  (iv) an adequate system
for  monitoring  and  reporting  risk  exposures  and (v)  appropriate  internal
controls for effective risk management.

The following  tables  present the capital ratios for the Company and SierraWest
Bank,  computed  in  accordance  with their  applicable  regulatory  guidelines,
compared to the standards for well-capitalized  depository  institutions,  as of
December 31, 1997 (dollars in thousands).
<TABLE>
                                                                             The Company
                                                          Actual                     To Be Well Capitalized     For Capital
                                                Qualifying                           Under Prompt Corrective     Adequacy
                                                 Capital          Ratio              Action ProvisionsPurposes
<S>                                             <C>                 <C>                     <C>                    <C>
Leverage......................................  $  51,003            8.9%                   N/A                    4.0%
Tier 1 Risk Based.............................     51,003           11.1                    N/A                    4.0
Total Risk Based..............................     56,742           12.4                    N/A                    8.0
</TABLE>
<TABLE>
                                                                           SierraWest Bank
                                                          Actual                     To Be Well Capitalized     For Capital
                                                Qualifying                           Under Prompt Corrective     Adequacy
                                                 Capital          Ratio              Action ProvisionsPurposes
<S>                                             <C>                 <C>                    <C>                     <C>
Leverage......................................  $  47,898            8.3%                   5.0%                   4.0%
Tier 1 Risk Based.............................     47,898           10.4                    6.0                    4.0
Total Risk Based..............................     53,656           11.7                   10.0                    8.0
</TABLE>
Effective in 1997  regulatory  reports of condition and income are reported on a
GAAP basis;  however regulatory capital ratios are calculated in accordance with
the  regulatory  agency's  capital  standards.  This can  result in  significant
differences in the amount of capital reported under GAAP and the amount included
in the regulatory ratios.  Future changes in FDIC regulations or practices could
further  reduce  the  amount of  capital  recognized  for  purposes  of  capital
adequacy. Such changes could affect the ability of the Company to grow and could
restrict the amount of profits, if any, available for the payment of dividends.


                                                         -20-

<PAGE>
Prompt Corrective Action and Other Enforcement Mechanisms

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

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

"Well capitalized"
Total risk-based  capital of at least 10%; Tier 1 risk-based capital of at least
6%; and Leverage ratio of at least 5%.

"Adequately  capitalized"  Total  risk-based  capital  of at  least  8%;  Tier 1
risk-based capital of at least 4%; and Leverage ratio of at least 4%.

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

"Critically undercapitalized"
Tangible equity to total assets less than 2%.

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

If an insured  depository  institution is  undercapitalized,  it will be closely
monitored  by  the  appropriate   Federal   banking   agency.   Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and sanctions
are  required  to  be  imposed  on  insured  depository  institutions  that  are
critically  undercapitalized.  The most important additional measure is that the
appropriate  Federal banking agency is required to either appoint a receiver for
the institution within 90 days, or obtain the concurrence of the FDIC in another
form of action.

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.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance  of a  cease-and-desist  order  that can be  judicially  enforced,  the
termination of insurance of deposits (in the case of a depository  institution),
the imposition of civil money penalties,  the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and   prohibition   orders  against   institution-affiliated   parties  and  the
enforcement of such actions through injunctions or restraining orders based upon
a  judicial  determination  that the  agency  would be harmed if such  equitable
relief was not granted.  Additionally, a holding company's inability to serve as
a source of strength to its subsidiary banking  organizations  could serve as an
additional basis for a regulatory action against the holding company.

Safety and Soundness Standards

FDICIA also  implemented  certain  specific  restrictions  on  transactions  and
required  Federal  banking  regulators  to adopt  overall  safety and  soundness
standards  for  depository   institutions  related  to  internal  control,  loan
underwriting  and  documentation  and asset growth.  Among other things,  FDICIA
limits the interest rates paid on deposits by undercapitalized institutions, the
use of brokered deposits and the aggregate extensions of credit by

                                                         -21-

<PAGE>



a  depository   institution  to  an  executive  officer,   director,   principal
shareholder or related  interest,  and reduces  deposit  insurance  coverage for
deposits  offered  by  undercapitalized  institutions  for  deposits  by certain
employee benefits accounts.

In addition to the statutory  limitations,  FDICIA  requires the Federal banking
agencies to  prescribe,  by  regulation,  standards  for all insured  depository
institutions  for such things as classified  loans and asset growth.  The Riegle
Community  Development and Regulatory  Improvement Act of 1994 amended FDICIA to
allow the Federal  banking  regulators  to implement  these  standards by either
regulation or guidelines. See "Recently Enacted Legislation."

Federal  regulations  prescribe uniform guidelines for real estate lending.  The
regulations  require insured  depository  institutions to adopt written policies
establishing  standards,  consistent  with such  guidelines,  for  extensions of
credit  secured  by real  estate.  The  policies  must  address  loan  portfolio
management,  underwriting  standards and loan to value limits that do not exceed
the supervisory limits prescribed by the regulations.

In July  1995, the federal banking  agencies  published  Interagency  Guidelines
Establishing  Standards for Safety and  Soundness.  By adopting the standards as
guidelines,  the agencies  retained the authority to require an  institution  to
submit to an acceptable  compliance  plan as well as the  flexibility  to pursue
other  more  appropriate  or  effective  courses  of action  given the  specific
circumstances  and severity of an institution's  noncompliance  with one or more
standards.

The federal banking  agencies have issued an interagency  policy statement that,
among other things,  establishes  certain benchmark ratios of loan loss reserves
to certain  classified  assets. The benchmark set forth by such policy statement
is the sum of (i) 100% of assets  classified loss; (ii) 50% of assets classified
doubtful; (iii) 15% of assets classified substandard;  and (iv) estimated credit
losses on other  assets over the  upcoming  12 months.  This amount is neither a
"floor"  nor a "safe  harbor"  level  for an  institution's  allowance  for loan
losses.

Restrictions on Dividends and Other Distributions

The power of the board of  directors  of an insured  depository  institution  to
declare a cash dividend or other distribution with respect to capital is subject
to statutory and regulatory  restrictions  which limit the amount  available for
such  distribution  depending  upon the earnings,  financial  condition and cash
needs  of the  institution,  as  well as  general  business  conditions.  FDICIA
prohibits  insured  depository  institutions  from paying management fees to any
controlling  persons  or,  with  certain  limited  exceptions,   making  capital
distributions,  including dividends, if, after such transaction, the institution
would be undercapitalized.

In addition to the restrictions imposed under Federal law, banks chartered under
California law generally may only pay cash dividends to the extent such payments
do not  exceed  the lesser of  retained  earnings  of the bank or the bank's net
income for its last three fiscal years (less any  distributions  to shareholders
during such period). In the event a bank desires to pay cash dividends in excess
of such amount,  the bank may pay a cash dividend with the prior approval of the
DFI in an amount not exceeding the greatest of the bank's retained earnings, the
bank's  net income for its last  fiscal  year,  or the bank's net income for its
current fiscal year.

State and  federal  regulators  also have  authority  to  prohibit a  depository
institution  from  engaging in business  practices  which are  considered  to be
unsafe or unsound,  possibly  including  payment of dividends or other  payments
under certain  circumstances even if such payments are not expressly  prohibited
by statute.

Community Reinvestment Act and Fair Lending Developments

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

In March  1994,  the Federal  Interagency  Task Force on Fair Lending  issued a
policy statement on  discrimination in lending.  The policy statement  describes
the three methods that federal agencies will use to prove

                                                         -22-

<PAGE>



discrimination:  overt evidence of discrimination, evidence of disparate
treatment, and evidence of disparate impact.

In 1996, new compliance and examination  guidelines for the CRA were promulgated
by each of the federal banking  regulatory  agencies,  fully replacing the prior
rules and regulatory  expectations  with new ones  ostensibly  more  performance
based  than  before to be fully  phased in as of July 1,  1997.  The  guidelines
provide for streamlined examinations of smaller institutions.

In  January  1998,  the FRB  revised  its  regulations  under the  Equal  Credit
Opportunity Act ("ECOA") to create a legal  privilege for information  developed
by creditors as a result of "self-tests"  they voluntarily  conduct to determine
the level of their  compliance with ECOA. The privilege  protects against use of
such information by a government  agency for examination  purposes or by private
litigants  in any  proceeding  alleging a violation of the ECOA.  The  privilege
applies only if the institution takes  appropriate  corrective action to address
possible violations that are discovered in the test.

Premiums for Deposit Insurance and Assessments for Examinations

FDICIA  established  several  mechanisms to increase  funds to protect  deposits
insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is
authorized  to borrow up to $30 billion from the United States  Treasury;  up to
90% of the fair market value of assets of  institutions  acquired by the FDIC as
receiver from the Federal Financing Bank; and from depository  institutions that
are  members of the BIF.  Any  borrowings  not  repaid by asset  sales are to be
repaid through insurance premiums assessed to member institutions. Such premiums
must be  sufficient  to repay any  borrowed  funds  within 15 years and  provide
insurance fund reserves of $1.25 for each $100 of insured deposits.  FDICIA also
provides  authority  for  special  assessments  against  insured  deposits.  See
Recently Enacted  Legislation - 1996 Act.  Effective  November 14, 1995, the new
assessment  rate  schedule  for  deposit  premiums  ranges  from $0 per  $100 of
deposits to $.27 per $100 of deposits applicable to BIF members.

FDICIA  requires all insured  depository  institutions  to undergo a full-scope,
on-site  examination by their primary Federal banking agency at least once every
12  months.  A special  rule  allows  for  examination  of  certain  small  well
capitalized  and  well  managed  institutions  every  18  months.  The  cost  of
examinations  of  insured  depository  institutions  and any  affiliates  may be
assessed by the appropriate  Federal banking agency against each  institution or
affiliate as it deems necessary or appropriate.

Recently Enacted Legislation

On September 29, 1994, the President signed into law the Riegle-Neal  Interstate
Banking and Branching  Efficiency  Act of 1994 (the  "Interstate  Banking Act"),
which has eliminated many of the current  restrictions to interstate banking and
branching. The Interstate Banking Act permits full nationwide interstate banking
to  adequately   capitalized  and  adequately  managed  bank  holding  companies
beginning  September  29, 1995  without  regard to whether such  transaction  is
expressly  prohibited under the laws of any state. The Interstate  Banking Act's
branching provisions permit full nationwide  interstate bank merger transactions
to adequately  capitalized and adequately  managed banks beginning June 1, 1997.
However,  states  retain  the right to  completely  opt out of  interstate  bank
mergers and to  continue  to require  that  out-of-state  banks  comply with the
states' rules governing entry.

The states  that opt out must have  enacted a law after  September  29, 1994 and
before June 1, 1997 that (i) applies equally to all out-of-state  banks and (ii)
expressly  prohibits merger  transactions with out-of-state  banks. States which
opt out of  allowing  interstate  bank merger  transactions  will  preclude  the
mergers of banks in the opting out state with banks located in other states.  In
addition,  banks  located  in  states  that  opt out are not  permitted  to have
interstate branches. Only Texas has opted out of interstate banking.

The  Riegle-Neal  Amendments  Act of 1997  amends  federal  law to provide  that
branches  of state banks that  operate in other  states will be governed in most
cases by the laws of the home  state,  rather  than the laws of the host  state.
Exceptions  are  that  a  host  state  may  apply  its  own  laws  of  community
reinvestment,  consumer protection,  fair lending and interstate branching. Host
states cannot  supplement or restrict powers granted by a bank's home state. The
amendment will assure state  chartered banks with  interstate  branches  uniform
treatment in most areas of their operation.

                                                         -23-

<PAGE>



The laws governing  interstate  banking and interstate bank mergers provide that
transactions,  which result in the bank holding  company or bank  controlling or
holding in excess of ten  percent  of the total  deposits  nationwide  or thirty
percent of the total  deposits  statewide,  will not be  permitted  except under
certain specified  conditions.  However,  any state may waive the thirty percent
provision  for such state.  In  addition,  a state may impose a cap of less than
thirty percent of the total amount of deposits held by a bank holding company or
bank  provided  such cap is not  discriminatory  to  out-of-state  bank  holding
companies or banks.

In September 1995, Governor Pete Wilson signed Assembly Bill 1482 (known as the
Caldera,  Weggeland,  and Killea California Interstate Banking and Branching Act
of 1995 and referred to herein as the "CIBBA") which allows for early interstate
branching in California.  Under the federally  enacted  Interstate  Banking Act,
discussed above and in more detail below,  individual  states could "opt-out" of
the  federal  law that would  allow  banks on an  interstate  basis to engage in
interstate  branching by merging  out-of-state banks with host state banks after
June 1, 1997.

Section 3824 of the California Financial Code ("Section 3824") as added by CIBBA
provides for the election of California to "opt-in" under the Interstate Banking
Act allowing  interstate  bank merger  transactions  prior to July 1, 1997 of an
out-of-state bank with a California bank that has been in existence for at least
five years.  California banks are therefore permitted to merge with out-of-state
banks where the states of such out-of-state banks have not "opted out" under the
Interstate  Banking Act. The five year age  limitation  is not required when the
California  bank  is  in  danger  of  failing  or  in  certain  other  emergency
situations.

Under the Interstate Banking Act, California may also allow interstate branching
through the acquisition of a branch in California  without the acquisition of an
entire  California bank.  Section 3824 provides an express  prohibition  against
interstate  branching through the acquisition of a branch in California  without
the acquisition of the entire  California bank. The Interstate  Banking Act also
has  a  provision  allowing  states  to  "opt-in"  with  respect  to  permitting
interstate  branching  through the  establishment  of de novo or new branches by
out-of-state  banks.  Section 3824 provides that California  expressly prohibits
interstate   branching   through  the  establishment  of  de  novo  branches  of
out-of-state banks in California, or in other words, California did not "opt-in"
this aspect of the  Interstate  Banking  Act.  CIBBA also amends the  California
Financial  Code to  include  agency  provisions  to  allow  California  banks to
establish  affiliated  insured depository  institution  agencies out of state as
allowed under the Interstate Banking Act.

Other provisions of CIBBA amend the intrastate branching laws, govern the use of
shared ATM's,  allow the  repurchase of stock with the prior written  consent of
the  Superintendent,  and amend  intrastate  branch  acquisition and bank merger
laws.  Another  banking bill enacted in  California  in 1995 was Senate Bill 855
(known as the State Bank Parity Act and is  referred  to herein as the  "SBPA").
SBPA  went  into  effect on  January  1,  1996,  and its  purpose  is to allow a
California state bank to be on a level playing field with a national bank by the
elimination of certain disparities and allowing the California Superintendent of
Banks authority to implement certain changes in California banking law which are
parallel  to changes  in  national  banking  law such as closer  conformance  of
California's version of Regulation O to the FRB's version of Regulation O.

The Economic Growth and Regulatory  Paperwork  Reduction Act (the "1996 Act") as
part of the Omnibus  Appropriations  Bill was enacted on September  30, 1996 and
includes many banking related  provisions.  The most important banking provision
is the recapitalization of the Savings Association Insurance Fund ("SAIF").  The
1996 Act provides for a one time assessment of approximately 65 basis points per
$100 of deposits of SAIF insured  deposits  including Oakar deposits  payable on
November 30, 1996.  For the years 1997  through 1999 the banking  industry  will
assist in the payment of interest on FICO bonds that were issued to help pay for
the clean up of the savings and loan industry.  Banks will pay approximately 1.3
cents per $100 of deposits for this special assessment, and after the year 2000,
banks will pay approximately 2.4 cents per $100 of deposits until the FICO bonds
mature in 2017. There is a three year moratorium on conversions of SAIF deposits
to BIF deposits.  The 1996 Act also has certain regulatory relief provisions for
the banking  industry.  Lender  liability  under the Superfund is eliminated for
lenders who foreclose on property that is contaminated provided that the lenders
were not involved  with the  management  of the entity that  contributed  to the
contamination.  There is a five year sunset  provision  for the  elimination  of
civil  liability  under the Truth in  Savings  Act.  The FRB and  Department  of
Housing  and Urban  Development  are to develop a single  format for Real Estate
Settlement  Procedures Act and Truth in Lending Act ("TILA")  disclosures.  TILA
disclosures  for adjustable  mortgage  loans are to be  simplified.  Significant
revisions are made to the Fair Credit Reporting Act ("FCRA") including requiring
that  entities  which  provide   information   to  credit  bureaus   conduct  an
investigation if a consumer claims the information

                                                         -24-

<PAGE>



to be in error.  Regulatory  agencies may not examine for FCRA compliance unless
there is a consumer  complaint  investigation  that reveals a violation or where
the  agency  otherwise  finds  a  violation.  In the  area of the  Equal  Credit
Opportunity Act, banks that self-test for compliance with fair lending laws will
be protected from the results of the test provided that  appropriate  corrective
action is taken when violations are found.


Accounting Pronouncements

In June 1997,  the Financial  Accounting  Standards  Board adopted SFAS No. 130,
Reporting  Comprehensive Income, and SFAS No. 131, Disclosures about Segments of
an Enterprise and Related  Information.  SFAS No. 130 establishes  standards for
reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains,  and  losses)  in a  full  set  of  general-purpose  financial
statements.  SFAS No. 130 also requires that an enterprise (a) classify items of
other  comprehensive  income by their  nature in a financial  statement  and (b)
display the accumulated  balance of other  comprehensive  income separately from
retained  earnings and  additional  paid-in  capital in the equity  section of a
statement of financial position.

SFAS No. 131 establishes  standards for the way that public business enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial   reports  issued  to  shareholders.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas,  and major  customers.  SFAS No. 131  requires  that a public
business  enterprise  report  financial and  descriptive  information  about its
reportable   operating  segments.   Operating  segments  are  components  of  an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate   resources  and  in  assessing   performance.   Generally,   financial
information  is required to be reported on the basis that it is used  internally
for evaluating  segment  performance  and deciding how to allocate  resources to
segments.  SFAS No. 131 also requires descriptive information about the way that
the operating  segments were determined,  the products and services  provided by
the operating  segments,  differences between the measurements used in reporting
segment information and those used in the enterprise's general-purpose financial
statements,  and changes in the  measurement  of segment  amounts from period to
period.  Both statements are effective for fiscal years beginning after December
15,  1997.  Adoption  of SFAS No. 130 and No. 131 will not impact the  Company's
financial position, results of operations or cash flows.

Employees

As of March 13, 1998,  the Company  employed 277 persons (225  full-time  and 52
part-time). The Company's employees are not represented by a union or covered by
a collective  bargaining agreement and management believes that, in general, its
employee relations are good.


                                                         -25-

<PAGE>



ITEM 2.  PROPERTIES

The  Company  currently   maintains  an  administrative   facility  in  Truckee,
California  which is utilized by Bancorp and SierraWest  Bank.  During 1997, the
Company  sold and leased back its real  property  in Carson  City,  Nevada.  The
Company maintains twelve branches,  ten stand-alone loan production offices, and
one remote off-site ATM machine.  All branches and loan  production  offices are
leased to the Company except for the administrative facility and the Reno branch
which are owned by the Company.  The Company believes that it has adequate space
within its current  facilities  to provide for  expansion and growth in the near
future.


ITEM 3.  LEGAL PROCEEDINGS

During 1987, SierraWest Bank ("the Bank") took title, through foreclosure,  of a
property  located in Placer  County which  subsequent  to the Bank's sale of the
property was determined to be contaminated  with a form of hydrocarbons.  At the
time it owned the property, the Bank became aware of and investigated the status
of certain underground tanks that had existed on the property.  The Bank hired a
consultant to study the tanks and properly seal them.  Several years later,  and
after resale of the property, contamination was observed in the area of at least
one of the buried tanks and along an adjoining  riverbank of the Yuba River. The
Bank, at the time of resale of the property, was not aware of this contamination
adjacent to the tanks but was aware of the  existence of the tanks and disclosed
this to its purchaser.

A formal plan of  remediation  has not been  approved by the County of Placer or
the State Regional Water Quality Board but is being  finalized by an independent
consultant  retained  for this  purpose.  As a result  of the  discovery  of the
contamination,  two civil  lawsuits were  instituted  against the Bank and other
prior owners by the current owner of the property,  Rainbow Holding Company, who
is also the Bank's  borrower.  One of the actions,  the state court matter,  was
dismissed by agreement of the parties.  The other matter, filed in the summer of
1995 in the U.S.  District Court,  Eastern  District of California,  is ongoing,
with mediation ongoing before a retired Superior Court Judge.

The Bank's external and internal  counsel on this matter believe that the Bank's
share of the cost of  remediation  and the costs of defense will not be material
to the Bank's or the Company's  performance and will be within existing reserves
established  by the Bank for this matter.  It is also  expected that clean-up of
the property  will  commence  during 1998 at the  conclusion  of mediation and a
raising of sufficient funds.

In addition,  the Company is subject to some minor pending and threatened  legal
actions  which arise out of the normal course of business and, in the opinion of
Management and the Company's  General  Counsel,  the disposition of these claims
currently  pending  will not have a  material  adverse  affect on the  Company's
financial position or results of operations.


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

No  matters  were  submitted  during  the  fourth  quarter  of 1997 to a vote of
security holders through the solicitation of proxies or otherwise.


                                                         -26-

<PAGE>



                                                        PART II

ITEM 5.  MARKET FOR THE BANCORP'S COMMON STOCK

On July 16, 1991 Bancorp's Common Stock commenced  quotation on Nasdaq under the
symbol  "STBS".  Effective  with the change in the Bancorp's name during 1996 to
SierraWest  Bancorp,  this symbol  changed to "SWBS".  The following  table sets
forth the high and low sales prices of the Bancorp's stock as reported on Nasdaq
for the periods indicated.

                                                   High             Low
1996
  First Quarter..............................     13.13           10.63
  Second Quarter.............................     15.38           12.50
  Third Quarter..............................     15.00           12.88
  Fourth Quarter.............................     15.75           14.13

1997
  First Quarter..............................     19.63           15.38
  Second Quarter.............................     21.13           17.50
  Third Quarter..............................     25.75           19.75
  Fourth Quarter.............................     36.00           24.75

1998
  First Quarter (through March 13, 1998)          37.75           30.00

The above quotes prior to August 20, 1997, have not been restated to give effect
for the 5% stock dividend paid on that date.

At  March  13,  1998,  there  were  959  shareholders  of  record,  additionally
management  believes there are  approximately  1,800  beneficial  holders of its
Common Stock.  On March 13, 1998,  the closing  sales price of Bancorp's  common
stock on Nasdaq was $36.875.

Bancorp paid cash dividends, as adjusted for the 5% stock dividend, of $0.31 per
share in 1997 and $0.29 per share in 1996.  On February  26, 1998 the  Bancorp's
Board of Directors declared a dividend at $0.20 per share,  payable on March 30,
1998.  During 1998,  Bancorp's  Board of Directors  will  continue its policy of
reviewing dividend payments on a semi-annual basis.

During  the first six months of 1997,  $8.5  million  of the  Company's  8 1/2 %
convertible  debentures were converted into 852 thousand shares of common stock.
This represented the balance of debentures outstanding.

On July 24, 1997, the Company's Board of Directors  declared a 5% stock dividend
payable to  shareholders  of record on August 20,  1997.  The  dividend was paid
August 29, 1997.

There are regulatory  limitations on cash dividends that may be paid by Bancorp,
as well as limitations  on cash  dividends  that may be paid by the Bank,  which
could, in turn, limit Bancorp's ability to pay dividends.  Under Federal law and
applicable Federal regulations,  capital distributions would be prohibited, with
limited exceptions,  if a bank were categorized as "undercapitalized."  Further,
the FDIC has the  authority to prohibit  the payment of dividends by  SierraWest
Bank if it finds  that such  payment  would  constitute  an  unsafe  or  unsound
practice.  See "Supervision and Regulation--Bank Regulation and Supervision."


                                                         -27-

<PAGE>



ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

The  following  table  presents  selected  consolidated  financial  data for the
Company as of and for each of the five years in the period  ended  December  31,
1997.  The statements of operations  data and statements of financial  condition
data for each of the  five  years in the  period  ended  December  31,  1997 are
derived from the consolidated  financial statements of the Company and the notes
thereto.  The  information  below is  qualified  in its entirety by the detailed
information  included  elsewhere  herein and should be read in conjunction  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations,"  "Business"  and the  Consolidated  Financial  Statements and Notes
thereto included elsewhere herein. Average assets and equity are computed as the
average of daily balances (dollars in thousands, except per share amounts).
<TABLE>

                                                                                     At or for the Year Ended
                                                                                          December 31,
                                                                    ---------------------------------------------------
                                                                      1997         1996       1995        1994     1993
                                                                      ----         ----       ----        ----     ----
<S>                                                                <C>          <C>        <C>         <C>        <C>
Statements of Operations Data
  Total interest income..................................          $   44,310   $  33,269  $  25,831   $ 19,657   $  17,246
  Total interest expense.................................              17,099      12,495      8,491      5,597       4,503
                                                                   ----------   ---------  ---------   --------   ---------
  Net interest income....................................              27,211      20,774     17,340     14,060      12,743
  Provision for possible loan and lease losses...........               2,480       1,010      1,270        885       1,560
                                                                   ----------   ---------  ---------   --------   ---------
  Net interest income after provision for possible
    loan and lease losses................................              24,731      19,764     16,070     13,175      11,183
  Total non-interest income..............................              11,766       7,338      7,969      9,177      10,214
  Total non-interest expense.............................              24,281      21,697     20,944     17,486      17,023
  Provision for income taxes.............................               4,707       2,077      1,179      1,863       1,670
                                                                   ----------   ---------  ---------   --------   ---------

  Net income.............................................          $    7,509   $   3,328  $   1,916   $  3,003   $   2,704
                                                                   ==========   =========  =========   ========   =========

Statements of Financial Condition Data
  Total assets...........................................          $  589,755   $ 447,889  $ 337,518   $259,975   $ 250,065
  Loans and leases, net(1)...............................             426,500     318,820    236,124    169,393     156,347
  Allowance for possible loan and lease losses...........               6,649       4,546      3,845      3,546       3,472
  Total deposits.........................................             526,269     399,651    293,154    218,876     220,768
  Convertible debentures.................................                   0       8,520     10,000     10,000         250
  Shareholders' equity...................................              53,630      33,916     29,833     28,163      25,645

Per Share Data(2)
  Book value.............................................          $    13.08   $   11.66  $   10.96   $  10.24   $    9.43
  Net income:
    Basic................................................                2.03        1.18       0.70       1.10        0.99
    Diluted..............................................                1.82        0.96       0.63       0.91        0.98
  Cash dividends declared................................                0.31        0.29       0.23          0           0

  Shares used to compute net income per share:
    Basic................................................               3,693       2,809      2,728      2,728       2,720
    Diluted..............................................               4,155       3,920      3,862      3,785       2,783

  Dividend payout ratio:
    Basic................................................                15.3%       24.6%      32.9%       0.0%        0.0%
    Diluted..............................................                17.0        30.2       36.5        0.0         0.0


Selected Ratios
  Return on average assets...............................                 1.4%        0.9%       0.7%       1.2%        1.2%
  Return on average shareholders' equity.................                16.5        10.5        6.5       11.2        11.1
  Net interest margin(3).................................                 5.8         6.2        7.1        6.5         6.7
  Average shareholders' equity to average assets.........                 8.7         8.3       10.2       10.4        10.4

</TABLE>

                                                             -28-

<PAGE>
<TABLE>
                                                                                   At or for the Year Ended
                                                                                         December 31,
                                                                    --------------------------------------------------
                                                                     1997       1996        1995       1994       1993
                                                                     ----       ----        ----       ----       ----
<S>                                                                <C>         <C>         <C>        <C>        <C>
Asset Quality Ratios
  Allowance for possible loan and lease losses
     to total loans and leases..............................         1.5%       1.4%        1.6%        2.1%       2.2%
  Allowance for possible loan and lease
     losses to nonaccrual loans.............................       111.1%      84.8        70.2       142.9      120.9

  Net charge-offs to average loans outstanding..............         0.3        0.1         0.5         0.5        0.4
  Nonaccrual and restructured performing loans to total loans        1.5        1.7         2.3         1.5        1.9
  Nonperforming assets to total assets......................         1.3        1.3         1.8         1.4        1.6
</TABLE>
(1)      The term "Loans and leases, net" means total loans, including loans
         held for sale, less the allowance for possible loan and lease losses.

(2)      All per share data has been  adjusted  to reflect  stock  dividend  and
         stock splits and has been  restated  under the  guidelines of SFAS 128.
         See "Market for the  Bancorp's  Common  Stock." Book value per share is
         calculated  as total  shareholders'  equity  divided  by the  number of
         shares outstanding at the end of the period.

(3)      Ratio of net interest income to total average earning assets.


                                                         -29-

<PAGE>
Selected Quarterly Financial Information

The following table sets forth the Company's unaudited data regarding operations
for  each  quarter  of 1997  and  1996.  This  information,  in the  opinion  of
management,  includes all adjustments  (which are of a normal recurring  nature)
necessary to state fairly the information therein. The operating results for any
quarter are not necessarily indicative of results for any future period (amounts
in thousands except per share data).
<TABLE>
                                                                                  Quarter
                                                       First            Second            Third            Fourth
1997
<S>                                                   <C>              <C>              <C>               <C>
Interest income....................................   $  9,692         $  10,564        $  11,876         $  12,178
Interest expense...................................      3,767             4,069            4,634             4,629
                                                      --------         ---------        ---------         ---------
Net interest income................................      5,925             6,495            7,242             7,549
Provision for possible loan and lease losses.......        450               950              540               540
                                                      --------         ---------        ---------         ---------
Net interest income after provision for possible
  loan and lease losses............................      5,475             5,545            6,702             7,009
Total non-interest income..........................      1,880             4,644            2,581             2,661
Total non-interest expense.........................      5,475             6,622            6,042             6,142
                                                      --------         ---------        ---------         ---------
Income before provision for income taxes...........      1,880             3,567            3,241             3,528
Provision for income taxes.........................        713             1,390            1,245             1,359
                                                      --------         ---------        ---------         ---------

Net income.........................................   $  1,167         $   2,177        $   1,996         $   2,169
                                                      ========         =========        =========         =========
Basic earnings per share(1)........................   $   0.38         $    0.62        $    0.50         $    0.53
Diluted earnings per share(1)......................       0.31              0.54             0.47              0.50


1996

Interest income....................................   $  7,426         $   7,803        $   8,714         $   9,326
Interest expense...................................      2,748             2,889            3,275             3,583
                                                      --------         ---------        ---------         ---------
Net interest income................................      4,678             4,914            5,439             5,743
  Provision for possible loan and lease losses.....        510               150              250               100
                                                      --------         ---------        ---------         ---------
Net interest income after provision for possible
  loan and lease losses............................      4,168             4,764            5,189             5,643
  Total non-interest income........................      1,666             1,755            1,825             2,092
Total non-interest expense.........................      4,910             5,920            5,472             5,395
                                                      --------         ---------        ---------         ---------
Income before provision for income taxes...........        924               599            1,542             2,340
Provision for income taxes.........................        357               211              602               907
                                                      --------         ---------        ---------         ---------

Net income.........................................   $    567         $     388        $     940         $   1,433
                                                      ========         =========        =========         =========
Basic earnings per share(1)........................   $   0.21         $    0.14        $    0.33         $    0.50
Diluted earnings per share(1)......................       0.17              0.13             0.27              0.39
</TABLE>

(1)     All per share data has been adjusted to reflect stock dividend and stock
        splits and has been restated under the guidelines of SFAS 128.

                                                         -30-
<PAGE>
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

Results of Operations For the Years Ended December 31, 1997, 1996 and 1995

The Company derives or has derived income from four principal areas of business:
(1) net interest income, which is the difference between the interest income the
Company  receives on  interest-bearing  loans and  investments  and the interest
expense it pays on interest-bearing liabilities such as deposits and borrowings;
(2) the origination and sale of SBA loans  including the  securitization  during
1997 of $51 million in  unguaranteed  portions of SBA loans;  (3)  servicing fee
income and interest only strip income which  results from the ongoing  servicing
of loans sold by the  Company and other loans  pursuant to  purchased  servicing
rights; and (4) service charges and fees on deposit accounts.

Net  income for the year ended  December  31,  1997  increased  126%,  from $3.3
million during 1996 to $7.5 million during 1997.  This increase  resulted from a
31%  increase in net  interest  income and from a 60%  increase in  non-interest
income.  Partially  offsetting  the increase in income was an increase of 12% in
non-interest  expense and an increase of 146% in the provision for possible loan
and lease losses.

The  following  table  summarizes  the  operating  results  for the years  ended
December 31,  1997,  1996,  and 1995  (amounts in  thousands  except  percentage
amounts):
<TABLE>
                                           December 31,                    1997 over 1996             1996 over 1995
                                           ------------                    --------------             --------------
                                    1997         1996        1995        Amount    Percentage(1)   Amount     Percentage(1)
                                    ----         ----        ----        ------    -------------   ------     -------------
<S>                               <C>           <C>          <C>         <C>           <C>         <C>           <C>
Total interest income.........    $ 44,310      $33,269      $25,831     $ 11,041       33.2%      $  7,438       28.8%
Total interest expense........      17,099       12,495        8,491        4,604       36.8          4,004       47.2
                                  --------      -------      -------     --------                  --------
Net interest income...........      27,211       20,774       17,340        6,437       31.0          3,434       19.8
Provision for possible
   loan and lease losses.......      2,480        1,010        1,270        1,470      145.5           (260)     (20.5)
                                  --------      -------      -------     --------                  --------
Net interest income after
   provision for possible
   loan and lease losses......      24,731       19,764       16,070        4,967       25.1          3,694       23.0
Total non-interest income.....      11,766        7,338        7,969        4,428       60.3           (631)      (7.9)
Total non-interest expense....      24,281       21,697       20,944        2,584       11.9            753        3.6
                                  --------      -------      -------     --------                  --------
Income before provision for taxes   12,216        5,405        3,095        6,811      126.0          2,310       74.6
Provision for income taxes....       4,707        2,077        1,179        2,630      126.6            898       76.2
                                  --------      -------      -------     --------                  -------- 

Net Income                        $  7,509      $ 3,328      $ 1,916     $  4,181      125.6       $  1,412       73.7
                                  ========      =======      =======     ========                  ========
</TABLE>
(1)      Increase (decrease) over previous year's amount.


Net Interest  Income.  Net interest  income is influenced by a number of factors
such as the  volume and  distribu  tion of  interest  earning  assets,  the rate
charged on loans for  interest  and fees,  the rate  earned on  investments  and
federal funds sold and the rate paid for deposits and other liabilities.


                                                         -31-

<PAGE>

The following  table sets forth (in  thousands),  for the periods  indicated,  a
summary of the changes in interest  income and interest  expense  resulting from
changes in volume and from changes in rates.  Income from tax-exempt  securities
has not been presented on a tax-equivalent  basis as it is not significant.  For
purposes of this table, the change not solely attributable to volume or rate has
been allocated to change due to rate.
<TABLE>
                                                        1997 over 1996                        1996 over 1995
                                                        --------------                        --------------
                                                Volume       Rate         Total         Volume        Rate       Total
<S>                                           <C>         <C>          <C>           <C>          <C>          <C>
Increase (Decrease) in Interest Income:
Loans.......................................  $  10,106   $  (1,255)   $   8,851     $   9,429    $  (2,505)   $   6,924
Mutual funds................................        111        (142)         (31)          (23)         (10)         (33)
Taxable securities..........................        935         176        1,111           (57)          99           42
Tax-exempt securities.......................        179           5          184           139           30          169
Federal funds sold..........................        812          45          857           422          (78)         344
Other.......................................          7          62           69             7          (15)          (8)
                                              ---------   ---------    ---------     ---------    ---------    ---------

Total.......................................     12,150      (1,109)      11,041         9,917       (2,479)       7,438
                                              ---------   ---------    ---------     ---------    ---------    ---------

Increase (Decrease) in Interest Expense:
Deposits:
  Savings deposits..........................         (5)          0           (5)            3           (6)          (3)
  Transaction accounts......................      1,089         550        1,639           350          275          625
  Time deposits.............................      3,244         246        3,490         3,747         (267)       3,480
                                              ---------   ---------    ---------     ---------    ---------    ---------

Total.......................................      4,328         796        5,124         4,100            2        4,102
                                              ---------   ---------    ---------     ---------    ---------    ---------

Other ......................................          0         184          184            (2)         (10)         (12)
Convertible debentures......................       (555)       (149)        (704)          (60)         (26)         (86)
                                              ---------   ---------    ---------     ---------    ---------    ---------

Total.......................................      3,773         831        4,604         4,038          (34)       4,004
                                              ---------   ---------    ---------     ---------    ---------    ---------
Increase in
  net interest income.......................  $   8,377   $  (1,940)   $   6,437     $   5,879    $  (2,445)   $   3,434
                                              =========   =========    =========     =========    =========    =========
</TABLE>

As disclosed in the foregoing  table,  the Company's net interest income in 1997
and 1996 increased over preceding  years. In both 1997 and 1996 volume increases
were primarily  related to an increase in the asset size of the Company.  During
1997 and  1996,  total  daily  average  assets  increased  by 37.8%  and  33.3%,
respectively. During these same periods, the volume component of the increase in
net interest income was 40.3% and 33.9%, respectively.

During  1996 and 1997,  the rate of  increase  in the  volume  component  of the
increase in net interest  income  exceeded the increase in average daily assets,
primarily  as a result of an  increase  in the  percentage  of average  interest
earning  assets to average  total assets from 85.3% in 1995 to 87.7% during 1996
and  88.9% in 1997.  This  increase  in  average  interest  earning  assets  was
partially offset in 1996 by a decrease in average non-interest-bearing  deposits
as a percentage of average  total  deposits from 21.0% in 1995 to 19.0% in 1996.
During 1997 this percent increased to 20.7%.

During  1995,  1996 and in 1997,  the Company  found  itself in the  position of
funding much of its growth  through the use of  interest-bearing  deposits.  The
Company  charges  interest  rates and fees in accordance  with general  economic
conditions,  capital and liquidity constraints,  and desired net interest margin
levels.

Approximately  69% of the  Company's  loan  portfolio  consists of variable rate
loans  tied to the  prime  rate for  leading  banks  and as used by the  Company
("prime rate").  An additional 9% are variable rates tied to other indexes.  The
prime rate is influenced by forces  outside the Company's  control.  Because the
Company has a lower volume of variable  rate  deposits than variable rate loans,
the Company  would expect to incur a reduction  in its net interest  margin when
interest rates fall, and when interest rates rise, the reverse would be expected
to apply.



                                                         -32-

<PAGE>

During the first quarter of 1996 the Company moved to mitigate the effect of the
change in the prime rate on its net  interest  income by  entering  into a three
year $20 million notional amount interest rate swap agreement with a major bank.
Under this agreement the other bank pays a fixed rate of 8.17% and receives from
the Company the prime rate. If prime  increases by 1%, the Company would pay the
other bank $216 thousand on an annual basis.  Conversely,  if prime decreases by
1%, the other bank would pay the Company $184  thousand on an annual  basis.  At
the current prime rate of 8.5%, the Company will pay the other bank $66 thousand
annually.  Any payments  made or received by the Company  under the terms of the
agreement  are more than  offset by the  corresponding  increase  or decrease in
interest on its variable rate loans.  This  transaction  has a similar effect to
that of converting  approximately  6% of the Company's  variable rate loans to a
fixed rate.

The  average  prime  rate for 1997 was  8.44%  compared  to 8.27% in 1996.  This
increase  equates to a positive price variance in 1997 of $0.5 million  compared
to an actual negative price variance of $1.3 million.  The difference includes a
decrease in the  contribution  of loan fees. As a percentage  of average  loans,
loan  fees  represented  0.27% in 1997,  0.42%  in 1996  and  0.55% in 1995.  In
addition to the  decrease in prime and the decline in loan fees as a  percentage
of average  loans,  during 1996 and 1997 the Company has  experienced  increased
competition in the pricing of its loans.

The  Company  has  been  aggressive  in  growing  its  loan  portfolio  and  has
encountered price competition in its service areas,  particularly the Sacramento
and Reno  markets.  There is strong  competition  in these  markets  for larger,
higher quality loans, and the decrease in loan yields reflects this.

In 1996, the average prime rate was 8.27% compared to 8.83% for 1995.  This 1996
decrease  equated to a negative price variance in 1996 of $1.3 million  compared
to an actual negative price variance of $2.5 million.  The difference includes a
decrease in the contribution of loan fees, and increased competitive pressures.

The positive volume variance in federal funds sold during 1997 and 1996 resulted
from the  Company's  increase in liquid  assets as its overall  size  increased.
During 1997 the Company  also  experienced  several  months when it held a large
amount of federal funds sold related to the cash  infusion  from its June,  1997
securitization.  Those  funds  were used to support  loan  growth and lessen the
Company's reliance on out-of-area C.D.'s. In addition, a higher level of federal
funds sold was desired given the increase in loan funding levels.

The 1997 and 1996 rate variances in federal funds sold are primarily  attributed
to the interest rate changes during these periods.

During 1996 and 1997 the Company increased its holding of guaranteed portions of
SBA loans.  These loans,  which can be sold in relatively short periods of time,
provide an available  source of additional  liquidity.  During 1996 and 1997 the
Company has decreased its reliance on short-term U.S.  securities in funding its
liquidity  needs  while  increasing  its  holdings  of  longer  term  tax-exempt
securities.   These  tax-exempt  securities  provide  an  attractive  investment
alternative  given the current interest rate environment and the increase in the
average  maturity of the investment  portfolio is consistent with the additional
sources of short-term liquidity.

The Company has increased its U.S.  Government  security  portfolio  during 1997
primarily  to meet  its  requirement  for the  pledging  of  these  and  similar
securities to support public  deposits.  Average public deposits  increased from
$13.8 million in 1996 to $26.8 million in 1997.

The positive  rate  variance in 1996 and 1997 in taxable  investment  securities
includes the effect of the introduction of  mortgage-backed  securities into the
Company's investment portfolio and market interest rate conditions. The weighted
average  original  maturity of the tax-exempt  portfolio has increased from 12.1
years at December 31, 1995 to 14.0 years at December 31, 1996. The positive rate
variance in tax-exempt securities primarily relates to this increase.

Mutual funds  consist of  investments  in mutual funds whose assets are invested
primarily in U.S. government  securities.  The increase in volume and decline in
rate during 1997 relates to the acquisition of a mutual fund purchased primarily
for tax planning purchases. This fund was sold during December of 1997 resulting
in a gain of $87 thousand, however no interest was received from the fund during
the time the Company held this investment.


                                                         -33-

<PAGE>



The  average  balance  and average  rate paid on  interest  bearing  transaction
accounts during 1997 and 1996 are as follows:

                                                Year Ended December 31,

                                         1997                     1996
                                ------------------------- --------------------
                                              Money                     Money
                                    NOW       Market       NOW          Market

Average Balance.............    $  54,631      $91,112    $43,660       $59,303
Rate paid...................        1.41%        3.83%      1.23%         3.51%

The  rates  paid on the  Company's  deposits  are  primarily  driven  by  market
conditions in its service areas.  In 1995 the average rate paid on time deposits
declined  to 5.68% from 5.85%  during  1995,  but the rate paid on money  market
accounts  increased.  This increase in money market rates includes the effect of
tiering money market  accounts at the Company's  Nevada  operations  and general
market conditions in the Company's service area.

Average interest bearing transaction accounts increased by $42.8 million in 1997
and $15.4  million in 1996.  During  1995 the  Company  added four new  branches
located in Carson  City,  Nevada,  and in  Sacramento,  South  Grass  Valley and
Auburn,  California.  Average interest bearing transaction accounts increased in
1997 by $22.2 million at these branches and by $14.9 million during 1996.

In addition to the branches opened in 1995 the Company acquired  Mercantile Bank
located  in  downtown  Sacramento,  California,  in June of 1997 and moved to an
enlarged Reno, Nevada facility during 1996. The former Mercantile facility added
average interest bearing  transaction  accounts  totaling $8.4 million while the
Reno  facility grew its average  interest  bearing  transaction  accounts by $12
million.

Average time deposits  increased by $57.1 million  during 1997. Of this increase
$33.3 million was generated at the four branches opened in 1995, $7.3 at the new
downtown  Sacramento  facility  and $7.6 million at the Reno  facility.  Average
out-of-area  CD's  decreased by $4.7  million.  In 1997 the average rate paid on
time deposits increased to 5.79%.

The  Company  relied on time  deposits to fund most of its growth  during  1996.
Average time deposits  increased by $64.1 million during 1996. Of this increase,
$23.0  million was  generated at the four new  branches and average  out-of-area
CD's  increased by $8.6  million.  In addition,  average time  deposits  held by
public  agencies  increased by $8.3  million.  Out-of-area  CD's  totaled  $45.8
million at December 31, 1996 or 11.5% of total  deposits at that same date.  The
rate  variances in time  deposits for 1996 and 1997  primarily  relate to market
conditions.

The rate variance in other interest bearing liabilities during 1997 includes the
effect  of the  Company's  $20  million  interest  rate swap  agreement  and the
interest component of payments made under the Company's Salary  Continuation and
Director Emeritus plans.

The  negative  rate and volume  variances  during  1997 and 1996 in  convertible
debentures  relate to the  conversion  into common  stock.  When  presented  for
conversion  any accrued but unpaid  interest on debentures  was forfeited by the
debenture holder.

During 1997 the Company's outstanding convertible debentures were converted into
Company  stock.  During the period  from  January 1, 1997 to May 4, 1997,  $4.85
million of the Company's 8 1/2% convertible debentures were converted into 485.1
thousand shares of common stock. On May 5, 1997, the Company  announced it would
redeem the remaining $3.67 million in debentures  effective June 30, 1997. These
debentures  were converted into 366.9 thousand  shares of Company stock.  During
1996 $1.48 million in debentures were converted into common stock.

Provision  for  Possible   Loan  and  Lease   Losses.   At  December  31,  1997,
approximately   74%  of  the  Company's   loan   portfolio  was  held  in  loans
collateralized  primarily by real estate.  Particular  attention is given by the
Company to factors affecting the real estate markets.  The primary risk elements
considered  by  management  with  respect to  commercial  real estate  loans are
changes in real estate values in the Company's market area and

                                                         -34-

<PAGE>

general economic conditions.  The primary risks associated with other commercial
loans are the financial  condition of the borrower,  general economic conditions
in the Company's  market area, the sufficiency of collateral,  the timeliness of
payment and interest rate fluctuations. The primary risk elements considered by
management  with  respect to other loans are the lack of timely  payment and the
value of collateral.  The Company has a reporting  system that monitors past due
loans and management has adopted policies to preserve the Company's  position as
a creditor.

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

In  evaluating  the  Company's  allowance  for possible  loan and lease  losses,
management  considers  the credit risk in the  various  loan  categories  in its
portfolio.  Historically,  most of the  Company's  loan  losses have been in its
commercial  lending  portfolio  which  includes  SBA loans and local  commercial
loans.  From  inception  of its SBA  lending  program in 1983,  the  Company has
sustained  relatively low level of losses from these loans,  averaging less than
0.5% of loans outstanding per year. Net losses in 1995 for these loans were $575
thousand.  During 1996,  net losses in the SBA loan  portfolio  decreased to $27
thousand. For 1997, SBA net loan losses, totaled $763 thousand.

Most of the Company's other loan losses have been for loans to businesses within
the Tahoe  basin  area and in its Nevada  operations.  It is  important  for the
Company to maintain good  relations  with local  business  concerns and, to this
end, it supports small local businesses with commercial  loans. The Company also
attempts to mitigate  this risk  inherent in these loans through the loan review
and approval process.

The provision for loan and lease losses was $2,480  thousand and $1,010 thousand
for the years ended December 31, 1997 and 1996, respectively.  The provision for
both years  includes  the effect of growth in the loan  portfolio.  Unguaranteed
loans   increased   $87.2  million  and  $76  million   during  1997  and  1996,
respectively.  The 1997 increase is after the  securitization  and sale of $51.3
million of unguaranteed portions of SBA loans. The increase in provision in 1997
includes  additional amounts to reestablish the level of reserves after net loan
losses of $1,241 thousand.

The  allowance  for possible  loan and lease losses as a percentage of loans and
leases was 1.54% at December 31,  1997,  1.41% at December 31, 1996 and 1.60% at
December 31, 1995.  The increase of 0.13% in the allowance for possible loan and
lease losses as a percentage of loans from December, 1996 includes 0.11% related
to the acquisition of Mercantile Bank.  Guaranteed  portions of loans were $60.0
million and $37.4 million at December 31, 1997 and 1996, respectively. Excluding
loans and portions of loans guaranteed by the federal government,  the allowance
for  possible  loan and lease  losses to total  loans  and  leases  was 1.78% at
December 31, 1997 and 1.59% at December 31, 1996.

Of total  gross  loans and  leases at  December  31,  1997,  $6.0  million  were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included $718 thousand related to these loans.  The average recorded  investment
in impaired loans during the year ended December 31, 1997 was $5.7 million.


                                                         -35-

<PAGE>



The following table sets forth the ratio of nonaccrual loans to total loans, the
allowance for possible  loan and lease losses to nonaccrual  loans and the ratio
of the  allowance  for possible loan and lease losses to total loans and leases,
as of the dates indicated.
<TABLE>
                                                                                          December 31
                                                                                 1997       1996       1995
                                                                                -------     ------    ------
<S>                                                                             <C>          <C>       <C>
Nonaccrual loans to total loans and leases                                        1.4%        1.7%      2.3%
Allowance for possible loan and lease
 losses to nonaccrual loans                                                     111.1%       84.8%     70.2%
Allowance for possible loan and lease
 losses to total loans and leases                                                 1.5%        1.4%      1.6%
</TABLE>

If the  guaranteed  portions  of loans on  nonaccrual  status,  which total $1.9
million,  are excluded from the  calculations,  the ratio of nonaccrual loans to
total loans and leases at December 31, 1997  declines to 1.0% and the  allowance
for possible loan and lease losses to nonaccrual loans increases to 161.3%.

At December 31, 1996,  excluding the guaranteed portions of loans on nonaccrual,
these same percentages are 1.0% and 141.8%, respectively.

The following table sets forth the amount of the Company's  nonperforming  loans
as of the dates indicated (amounts in thousands).
<TABLE>
                                                                                              December 31

                                                                                       1997       1996       1995
                                                                                     -------     ------    ------
<S>                                                                                  <C>         <C>       <C>
Nonaccrual loans:

 SBA ..................................................................              $5,281      $4,985    $5,351
 Other.................................................................                 702         378       125

Accruing loans past due 90 days or more:

 SBA ..................................................................              $1,127      $1,071    $  816
 Other.................................................................                 255       1,061       207

Restructured loans (in compliance with modified terms).................              $  660      $  275    $   78
</TABLE>

Management  considers  the allowance of $6.6 million at December 31, 1997, to be
adequate as a reserve against foreseeable losses at that time.

Total Non-Interest Income. Total non-interest income for the year ended December
31, 1997 increased by 60.3% from the 1996 level.  For 1996  non-interest  income
decreased by 7.9% as compared to 1995.



                                                         -36-

<PAGE>



The following  table  summarizes  the principal  elements of total  non-interest
income  and  discloses  the  increases  (decreases)  and  percent  of  increases
(decreases) for 1997 and 1996 (amounts in thousands except percentage amounts):
<TABLE>
                                                                                       Increase (Decrease)
                                      Year Ended December 31,              1997 over 1996           1996 over 1995
                                  1997          1996         1995        Amount     Percentage     Amount    Percentage
<S>                             <C>           <C>           <C>          <C>         <C>         <C>          <C>
Service charges................ $ 2,299       $ 1,722       $1,755       $  577       33.5%      $   (33)      (1.9)%
Securities (losses)/gains......       8            (8)         (62)          16      200.0            54       87.1
Net gain on sale of loans......     694           373          307          321       86.1            66       21.5
Net gain on securitization.....   2,626             0            0        2,626      100.0             0        N/A
Net loan servicing income
 and I/O strip income..........   4,577         4,087        4,667          490       12.0          (580)     (12.4)

Other income...................   1,562         1,164        1,302          398       34.2          (138)     (10.6)
                                -------       -------       ------       ------                  -------

                                $11,766       $ 7,338       $7,969       $4,428       60.3       $  (631)      (7.9)
                                =======       =======       ======       ======                  =======
</TABLE>

Service  charges  on deposit  accounts  increased  by 33.5%  during  1997.  This
increase  resulted from a change in service charge  structure during February of
1997 and an increase in average non-interest-bearing demand deposits.

During  June  1997  the  Company  completed  its  first  securitization  of the
unguaranteed  portion of SBA 7(a) loans.  This sale included over $51 million in
loans. A gain of approximately $2.6 million was recorded upon this sale. Related
to this transaction the Company recorded a recourse  obligation of $3.3 million.
This represents the present value of projected future losses, discounted using a
risk-free interest rate of 5.65%. In addition the Company's interest-only strips
receivable,   excluding   the  fair  market  value   adjustment,   increased  by
approximately  $4 million  related to the  securitization  and discount on loans
decreased  by  approximately  $2.6  million.  Included  in loans  and  leases at
December 31, 1997 are discounts on the retained portion of government guaranteed
loans of $3.4 million. This compares to $5.6 million at December 31, 1996.

The Company is planning a securitization of approximately $80 million of SBA 504
and similar  loans.  Because the average  yield on these loans is lower than the
average yield on loans in the  Company's  1997  securitization  the gain on this
planned securitization is expected to be substantially lower than the 1997 gain.

Sales of the  guaranteed  portion of SBA 7(a) loans in 1997,  1996 and 1995 were
$9.6 million, $5.6 million, and $5.6 million,  respectively. In 1996 the Company
altered its  strategy  with  respect to the sale of SBA 7(a) loans.  Rather than
continuing to sell the guaranteed  portion of the portfolio the Company began to
retain  the   guaranteed   portion  and  to  securitize  and  sell  portions  of
unguaranteed  SBA loans. The SBA loan sales in 1997 were made both to facilitate
the  securitization and to reduce industry  concentrations.  The 1996 sales were
made  primarily  to reduce the  Company's  balance  of loans to the  hotel/motel
industry.  By selling  these  guaranteed  portions  the  Company is able to take
advantage of new lending  opportunities  in this industry  while  maintaining an
acceptable concentration level.

In addition to sales of SBA 7(a) loans the Company sells the guaranteed  portion
of the  Business &  Industry  loans  ("B&I")  loans it  generates.  Sales of the
guaranteed  portion of B&I loans  totaled $10.4 million in 1997 and $3.6 million
in 1996.  Because  B&I loans  tend to have a lower  yield  than SBA  loans,  the
Company  intends to sell the government  guaranteed  portion of the B&I loans it
originates.

The net gain on sale of the guaranteed portion of SBA and B&I loans during 1997
totaled $694 thousand.  This compares to $373 thousand during 1996.

At December 31, 1997 the Company had $46.7 million of guaranteed portions of SBA
loans which it could sell,  an increase of $17.6  million over the $29.1 million
held at December 31, 1996.

To support its SBA program the Company has, since 1983,  relied in part on third
party SBA loan packagers.  The packagers refer proposed SBA loans to the Company
and provide certain services to the borrowers.  The packagers  receive fees of a
fixed amount from the borrowers, not exceeding limits prescribed by the SBA, for
preparing the SBA loan  application  for the  borrower.  They also receive a fee
from the Company for referring

                                                         -37-

<PAGE>



the loans.  These referral fee payments are included in the basis of loans and
hence are not disclosed separately in the Company's financial statements.

The Company  expanded its ability to generate an  increased  volume of SBA loans
through  the  establishment  of new loan  production  offices  in Buena  Park in
Southern  California  in  February  1995,  in Fresno in  December  1995,  and in
Portland  Oregon,  Denver Colorado,  and Chattanooga,  Tennessee during 1997. In
addition, the Company added personnel at other offices.

The Company  experienced  disappointing  results at its Buena Park  facility and
closed  it  during  1996.  In lieu  of  providing  a full  office,  the  Company
contracted  with an  established  loan broker to provide SBA loan referrals from
the Southern  California  market.  The  contract  gives the Company an exclusive
right of first refusal on all 7(a) loans referred by this broker.

In addition,  the Company has  increased  its efforts to  diversify  its lending
activities  and during 1996 and 1997 has  experienced  significant  gains in its
construction, real estate and non-SBA commercial loan portfolios.

Net loan  servicing and I/O strip income  increased by 12.0% in 1997 compared to
1996. This compares to a decrease of 12.4% in 1996 from 1995. Net loan servicing
and I/O strip income primarily consists of income generated from previously sold
or  securitized  SBA  loans.  Servicing  and I/O  strip  income  on SBA loans is
reported net of the amortization of the related  servicing and I/O strip assets.
Amortization  is based on the  expected  average life of the related  loans.  To
date,  actual  prepayment  experience  reflects an average life in excess of the
estimated life.

The increase in net  servicing  and I/O strip income  during 1997 relates to the
June 1997 securitization of $51 million in unguaranteed  portions of SBA loans.
Servicing and I/O strip income exclusive of amortization has increased from $5.6
million in 1996 to $6.3 million in 1997.  This  compares to a decline in 1996 of
$600  thousand  from $6.2  million  in 1995.  A decline  of  approximately  $300
thousand would have been  experienced in 1997 absent the  securitization.  These
declines relate to payments on existing loans including normal  amortization and
prepayments.  During  1997 and 1996,  the  Company  experienced  an  increase in
prepayments associated with refinancing by other banks.

Other  income  consists  primarily  of merchant  credit card fees,  the sales of
mutual funds,  and annuities  through a third party marketer,  rental income and
gains during 1995 on sale of the right to service  mortgage loans.  Beginning in
1996 the Company increased its staffing and emphasis on sale of mutual funds and
annuities  generating  revenue of $333 thousand from this source, an increase of
$240  thousand  from the $93  thousand  generated  from these sales during 1995.
During 1997 an increase was again  achieved  with revenue of $483  thousand from
this source.

Merchant  credit card revenue  totaled $517  thousand in 1997,  $473 thousand in
1996 and $442 thousand in 1995.  Rental income totaled $203 thousand in 1997 and
$129  thousand in 1996.  An  additional  source of the  increase in other income
during 1997 was a $131 thousand  insurance  recovery of legal costs related to a
litigation matter settled in the Company's favor during 1996.

Gain on sales of servicing  rights on mortgage  loans  totaled $190  thousand in
1995. During 1995, as a result of the decline in profitability of this operation
and to focus on the  Company's  most  strategically  important  activities,  the
Company closed its mortgage banking operations.  As a result of a termination of
its mortgage  banking  operations,  the Company did not generate  gains from the
sale of mortgage servicing rights in 1996 or 1997.

During 1995 the Company recorded income of $242 thousand related to its mortgage
banking  operations  and $83  thousand in rental  income.  Additionally,  during
December  1995,  the Company sold $5.3 million in  commercial  real estate loans
from the portfolio and recorded a gain of $176 thousand on this sale.

Non-Interest Expense. The ratio of the Company's  non-interest expenses to total
assets is higher than for California  banks in general  because  SierraWest Bank
experiences  higher  operating  expenses in its Lake Tahoe area of operation and
employs additional  personnel and utilizes  additional  facilities to manage its
SBA loan program.  Because of the extreme climatic  conditions in the Lake Tahoe
area of  operations  (temperatures  range from -35  degrees to +100  degrees and
average snow levels exceed 150 inches per year),  local  building  codes require
more expensive  construction and the Company  experiences added costs of heating
and snow removal

                                                         -38-

<PAGE>



which  increase  occupancy  costs.  Additionally,  the  Company's  supplies  are
generally  more  expensive than in larger  metropolitan  regions  because of the
added cost of freight.

The following table computes the ratio of major non-interest  expense categories
to total average assets (in thousands except for percentage amounts):
<TABLE>

                                                          Salaries              Occupancy
                                                             and                   and                  Other
             Year Ended              Average               Related              Equipment           Non-Interest
            December 31,             Assets              Benefits(1)            Expenses              Expenses
<S>             <C>                <C>                       <C>                   <C>                   <C>
                1997               $525,998                  2.4%                  0.8%                  1.3%
                1996                381,620                  3.1                   0.9                   1.6
                1995                286,194                  3.7                   1.2                   2.4
</TABLE>

(1)      Excludes bonuses.  Including bonuses, percentages would be 2.6%, 3.2%
         and 3.7% for the years ended December 31, 1997, 1996 and 1995,
         respectively.

The following table summarizes the principal  elements of non-interest  expenses
and discloses the increases (decreases) and percent of increases (decreases) for
1997 and 1996 (amounts in thousands except percentage amounts):
<TABLE>
                                                                                       Increase (Decrease)
                                      Year Ended December 31,              1997 over 1996             1996 over 1995
                                   1997          1996         1995         Amount     Percentage     Amount      Percentage
<S>                              <C>           <C>          <C>          <C>          <C>           <C>           <C>   
Salaries and related benefits    $12,599       $11,884      $10,564      $   715          6.0%      $ 1,320        12.5%
Bonuses......................        810           202           63          608        300.8           139       220.6
Occupancy and equipment......      4,180         3,486        3,401          694         19.9            85         2.5
Insurance....................        233           242          277           (9)        (3.7)          (35)      (12.6)
Postage......................        364           337          304           27          8.0            33        10.9
Stationery and supplies......        369           416          334          (47)       (11.3)           82        24.6
Telephone....................        425           374          350           51         13.6            24         6.9
Advertising..................        697           600          715           97         16.2          (115)      (16.1)
Legal fees...................        190           484          470         (294)       (60.7)           14         3.0
Consulting fees..............      1,082           506          263          576        113.8           243        92.4
Audit and accounting fees....        202           151          150           51         33.8             1         0.7
Directors' fees and expenses.        508           429          909           79         18.4          (480)      (52.8)
FDIC assessments.............         51             4          284           47      1,175.0          (280)      (98.6)
Other........................      2,571         2,582        2,860          (11)        (0.4)         (278)       (9.7)
                                 -------       -------      -------      --------                   -------

                                 $24,281       $21,697      $20,944      $ 2,584         11.9       $   753         3.6
                                 =======       =======      =======      =======                    =======

</TABLE>

The increase in base salary expense during 1997 relates to the Company's  growth
including  the new downtown  Sacramento  branch and the newly opened  government
guaranteed  lending  offices,  and an  increase  in loan  and  deposit  volumes.
Additionally,  this reflects normal annual merit  increases.  This was partially
offset  by  reductions  in  the  Company's   workforce  related  to  an  outside
consultant's  review of the Company's  operations.  In total,  base salaries and
wages increased by $91 thousand over 1996 levels. Commission and incentive costs
increased by $860 thousand from 1996 levels.  SBA and B&I loan volume  increased
in  1997,  and  commission   expense   related  to  these  loans   increased  by
approximately  $303  thousand.  In 1997,  the Company  expanded  its  commission
program  to  increase  the  benefits  available  to loan  offices  and  business
development officers,  resulting in an increase of $351 thousand.  Incentives of
$74 thousand were incurred in 1997 as a result of the securitization. Consistent
with an increase in volume, commissions paid to the Company's noninsured product
representatives increased by $90 thousand in 1997 as compared to 1996.

The increase in salary  expense in 1996 as compared to 1995  includes the effect
of the four new branches opened in 1995,  partially offset by the termination of
the Company's mortgage operations. Commissions and incentive pay have, exclusive
of  mortgage  banking  operations,  increased  by $883  thousand  during 1996 as
compared to 1995, including a $438 thousand increase in commissions paid for the
generation of SBA and other  government  guaranteed  loans. In 1996, the Company
increased the number of employees whose compensation

                                                         -39-

<PAGE>



is partially  commission  based and changed the commission  structure of many of
its loan production personnel. The increase includes these changes as well as an
increase in volume of loan originations.

The increase in bonus expense in 1997 relates to bonuses earned by the Company's
Senior  Management.  Bonuses are payable under the Company's  Senior  Management
Bonus Plan to  non-commissioned  Senior Vice Presidents and above,  exclusive of
the CEO, Chief Counsel and Chief  Auditor,  upon  achieving  certain  predefined
goals.  Bonus  expense  related to this plan totaled $422  thousand in 1997.  No
bonuses  were  paid  under  this plan in 1996,  although  bonuses  totaling  $35
thousand were paid to Senior Management in 1996, based on  recommendations  made
by the CEO to the Director's Personnel Committee.

The  CEO,  the  head of the  Company's  legal  department  and  the  head of the
Company's audit department are not included in the Senior  Management  incentive
plan.  Their bonuses are determined by the Company's  Board of Directors.  Bonus
expense for these  individuals  totaled $200 thousand in 1997.  This compares to
$37 thousand in 1996 related to the Audit and Legal departments.

The increase in bonus  expense in 1996 over 1995 was primarily  attributable  to
bonus payments to full time  noncommissioned  employees below the rank of Senior
Vice  President.  The  bonus  expense  in 1995  relates  to the  Legal and Audit
departments. In addition, during 1995 the Company had an incentive plan in place
covering all non-commissioned  employees;  however, no bonuses were earned under
this plan.

The  rise  in  occupancy  and  equipment   expense   during  1997  is  primarily
attributable  to maintenance and repair costs on an expanded  computer  hardware
and data communications network, as well as depreciation on an increased base of
fixed  assets.  Specifically,  $388  thousand  relates  to  the  acquisition  of
Mercantile Bank and expansion of our branches in Reno and Carson City, Nevada.

The Company  maintains  a financial  institutions  bond for its  operations  and
directors and officers  insurance.  The decrease in overall insurance costs from
1995 levels  resulted  from a softening of the  insurance  market for  financial
institutions and a change in insurance carriers. The increase in postage relates
to the  increase  in the size of the  Company.  Stationery  and  supplies  costs
increased  in excess of the  increase in average  assets  during 1995  primarily
related to $45  thousand  incurred for the start up and 1995  operations  of the
four new branches.  This cost remained high in 1996 because of costs  associated
with printing forms and supplies following the change in the Company's name.

Telephone  costs during 1996 and 1997  included the costs of an expanded  branch
system  and an  upgrade  and  expansion  of  the  Company's  data  communication
telephone  lines.  Advertising  in 1995  includes an  expanded  budget and costs
related to the new branches.  In 1997 the increase in  advertising  includes the
effect of an expansion of the Company's SBA advertising efforts, the acquisition
of Mercantile Bank and the costs of printing new product brochures.

The increase in legal expense  during 1996 relates  primarily to two  litigation
matters.  One matter went to trial in June 1996 and was decided in the Company's
favor.  Increased costs were incurred in the second matter, which is ongoing and
relates  to  a  property  acquired  by  the  Company  through   foreclosure  and
subsequently  sold. (See Item 3. "Legal  Proceedings"  for a description of this
matter.)  Legal  expenses  during 1995  primarily  relate to general  litigation
matters and a voluntary internal investigation of the Company's investment in an
entity known as Community Assets Management.

During the first quarter of 1997, the Company engaged an outside consulting firm
to assist in  identifying  opportunities  to reduce  operating  expenses  and to
recommend more efficient methods of operating.  The increase in consulting costs
is primarily  related to this engagement.  Total  consulting  expense related to
this  engagement in 1997 was $544 thousand.  Additionally,  consulting  costs in
1997 included $150 thousand paid related to the Company's pending acquisition of
CCBC. The increase in audit and accounting fees during 1997 primarily relates to
costs associated with the June 1997 securitization.

The increase in consulting  during 1996  primarily  relates to costs  associated
with the changing of the name of the  Company's  subsidiary.  Other  significant
components of consulting  expenses during 1996 include payments made for outside
credit  reviews of the Company's  loan portfolio and $90 thousand paid to an SBA
loan broker who provides referrals from the southern California marketplace.


                                                         -40-

<PAGE>



Directors' expenses in 1995 includes a one-time $528 thousand pre-tax charge for
the Director Emeritus  Program,  which provides  retirement  benefits to certain
directors who chose to  participate  in the program.  The increase in Directors'
expenses in 1997 relates to the Company's  Directors  Deferred  Compensation and
Stock Award Plan. This plan allows for the deferral of Director fees in the form
of phantom  shares of common  stock.  As the market  value of the Company  stock
increases,  an  adjustment  to  reflect  the  increased  value of this  stock is
recorded as Director Expense.  Conversely, if the stock should decrease in value
a credit to expense would be recorded.

The decrease in FDIC  assessments  from 1995 levels is related to a reduction in
rates. Effective June 1, 1995, the FDIC revised its rate schedule reducing rates
to reflect the fact that the Bank Insurance Fund was fully  recapitalized at the
end of May  1995.  The  increase  in 1997  relates  to the newly  assessed  FICO
premium.

Included in other  expense in 1997 is a charge of $442  thousand for a reduction
in staffing.  The Company recorded as a reduction of other expense $250 thousand
related to a decrease in the estimated recourse obligation recorded on its June
1997 securitization.

Included in other  expenses in 1996 are $352 thousand  related to a reduction in
staffing  effective  May 1, 1996,  $70 thousand on a litigation  matter and $114
thousand  related to a  servicing  error on an SBA loan.  Other  expense in 1995
includes a $100 thousand  business loss related to other real estate owned, $232
thousand  related  to two  litigation  matters,  $243  thousand  related  to the
termination of the Company's  mortgage  operations,  and a pretax charge of $530
thousand  during the fourth  quarter  related  to the  closing of the  Company's
branch  located  in  the  Crescent  V  Shopping  Center  in  South  Lake  Tahoe,
California.  The  customer  accounts  formerly  maintained  in this  branch were
transferred  to the Company's  Bijou branch which is located  approximately  one
mile away.

Provision  for Income  Taxes.  The  provision for income taxes was $4.7 million,
$2.1  million and $1.2 million for the years ended  December 31, 1997,  1996 and
1995,  respectively,  representing  38.5%,  38.4% and  38.1%,  of income  before
taxation for the respective years.

Included in the Company's  earnings are items which are exempt from federal and,
in some cases, state income taxes. These items include interest on certain loans
and securities of state and county  municipalities  and the increase in the cash
surrender value of life insurance policies on certain officers and directors.


Liquidity

Liquidity  refers to the  Company's  ability to maintain  adequate cash flows to
fund operations and meet  obligations  and other  commitments on a timely basis.
The Company's liquidity management policies are structured so as to maximize the
probability  of funds  being  available  to meet  present  and future  financial
obligations  and  to  take  advantage  of  business   opportunities.   Financial
obligations  arise from  withdrawals  of  deposits,  repayment  on  maturity  of
purchased  funds,  extensions  of loans or other  forms of credit,  purchase  of
loans,  payment of interest on deposits  and  borrowings,  payment of  operating
expenses, and capital expenditures.

The Company has various sources of liquidity. Increases in liquidity result from
the maturity or sale of assets. Other than cash itself,  short-term  investments
like federal funds sold are the most liquid assets. Also,  investment securities
available   for  sale  can  be  sold  prior  to  maturity  as  part  of  prudent
asset/liability  management  in  response to changes in  interest  rates  and/or
prepayment risk as well as to meet liquidity needs.  Additionally,  liquidity is
provided  by loan  repayments  and by  selling  loans in the  normal  course  of
business.  At December 31,  1997,  the Company had $46.7  million in  guaranteed
portions of SBA loans  available for sale,  most of which could be sold within a
short period of time compared to $29.1  million of SBA loans  available for sale
at December 31, 1996. In management's  view,  these loans represent an available
source of liquidity.  Deposits  such as demand  deposits,  savings  deposits and
retail time deposits also provide a source of liquidity.  They tend to be stable
sources of funds  except  that they are subject to  seasonal  fluctuations.  The
Company  maintains an adequate  level of cash and  quasi-cash  items to meet its
day-to-day  needs and in  addition,  at December  31,  1997,  the Company had an
unsecured  line of credit  totaling  $7.5 million with one of its  correspondent
banks.

During 1995 the Company  changed its strategy from the selling of the guaranteed
portion of SBA loans to  retaining  these  portions  of loans in its  portfolio.
Additionally, the Company announced its intention to securitize

                                                         -41-

<PAGE>



and sell the unguaranteed  portion of SBA loans. The Company completed the first
such  securitization  during  June,  1997  which  included  $51  million  of the
unguaranteed portions of SBA loans.

Cash and due from banks and federal funds sold as a percentage of total deposits
were 11.6% at December  31, 1997 as  compared  to 14.7% at  December  31,  1996.
Although a decrease in the percentage for 1997 was  experienced  this was offset
by the additional  liquidity provided by the increase in SBA loans available for
sale.  Cash and due from banks  totaled  $47.7  million at December  31, 1997 as
compared to $26.4  million at December 31, 1996,  and federal funds sold totaled
$13.5  million at December 31, 1997 as compared to $32.2 million at December 31,
1996.   Federal  funds  sold  represent   deposits  with  major  banks  and  are
predominantly  uninsured.  The uninsured portion of these deposits together with
the uninsured  portion of cash deposited with other  institutions  totaled $15.9
million  as of  December  31,  1997.  In the event of a failure  of any of these
institutions,  the Company could lose all or part of its  deposits.  To mitigate
this risk, the Company  periodically  examines the financial statements of these
institutions and limits the amount it deposits with any single institution.

Total  gross  loans and  leases,  exclusive  of  unearned  income on leases  and
deferred loan  fees/costs,  increased by $110.7  million from $325.1  million at
December 31, 1996 to $435.8 million at December 31, 1997. The increase  included
$17.5  million in SBA loans,  $22.1  million in other  commercial  loans,  $37.4
million in real estate - mortgage,  $27.5  million in real  estate-construction,
$6.1  million in leases and $0.1  million in  individual  and other  loans.  The
increase in SBA loans relates to the Company's decision to retain the guaranteed
portion of SBA loans, to an increase in lending  directed  towards the SBA's 504
program and to an increase in the volume of new loan originations.  Exclusive of
the securitization this increase would have totaled $62 million. The increase in
other loans  reflects the Company's  efforts to expand and diversify its non-SBA
lending activities. The increase in real estate and construction loans primarily
relates to Sacramento and Reno  operations.  The $110.7 million  increase in the
loan portfolio  since December 31, 1996 was funded with increased time deposits,
an increase in other deposits  acquired at the Company's four branches opened in
1995, the  acquisition of Mercantile  Bank and growth in the Company's  Northern
Nevada Operations.

The Company is planning a  securitization  approximately  $80 million of SBA 504
and similar loans in 1998.  These loans are  transferred to held for sale status
once they are identified.  Loans held for sale decreased by $12.4 million due to
the completion of the SBA 7(a) Securitization.

Deposits increased by $126.6 million from $399.7 million at December 31, 1996 to
$526.3 million at December 31, 1997. This included increases of $38.5 million in
interest-bearing  transaction  accounts,  $49.6 million in  non-interest-bearing
demand  accounts,  $37.8  million in time  deposits  and $0.7 million in savings
accounts.

The increase in deposits is primarily attributable to the Mercantile acquisition
and growth in our larger branches.  Deposits at the downtown  Sacramento  branch
were $41.5 million at December 31, 1997.  Total  deposits at the Company's  main
Sacramento  branch and its northern Nevada  branches  increased by $35.5 million
and $55.3 million, respectively,  from December 31, 1996 levels. During the same
period,  out-of-area  certificates of deposit decreased by $35.7 million, as the
proceeds of the  securitization  were used to reduce the  Company's  reliance on
these funds.

In part to mitigate the effect of  seasonality  of its deposit  sources which is
due to the local tourist-based economy in part of the Company's service area and
in part to provide interim financing of loans the Company intends to securitize,
SierraWest  Bank utilizes a "money desk" to solicit  out-of-area  CDS. These CDs
supplement  its  other  deposit  sources,   provide  additional   liquidity  and
additionally,  help support its loan growth.  These deposits,  which at December
31, 1995, 1996 and 1997 totaled $34.7 million,  $45.8 million and $10.1 million,
respectively, represented 11.9%, 11.5% and 1.9% of total deposits as of December
31, 1995, 1996 and 1997, respectively.

To attract  out-of-area  CDS,  SierraWest  Bank  subscribes to a listing service
which lists  nationally  the rate the Bank is prepared  to pay.  Customers  call
SierraWest  Bank directly and place  deposits.  Additionally,  beginning in 1995
SierraWest  Bank began  accepting  referrals  by  brokers  which can result in a
slightly lower cost of those deposits. At December 31, 1997 $1.4 million of CD's
have been acquired through broker  referrals.  To attract  deposits,  SierraWest
Bank pays a market rate which may at times be above the comparable  rate offered
by SierraWest Bank to its local  depositors.  The overhead costs associated with
these out-of-area deposits is, however, lower than that for local deposits since
local deposits  require the use of bank branch  facilities and hence the Company
believes  the cost of these funds does not normally  exceed the cost  SierraWest
Bank incurs

                                                         -42-

<PAGE>



to generate  comparable  deposits through its branch system.  While  out-of-area
deposits are acquired at an acceptable cost,  SierraWest Bank monitors the level
of these  deposits  because it is concerned that  out-of-area  deposits are more
rate  sensitive  and volatile and that there may be some  exposure for increased
costs in the future should the supply  tighten.  If interest rates rise rapidly,
the Company's  reliance on these  deposits  could have an adverse  impact on net
interest  income if the costs to retain  those  deposits  rise faster than rates
charged on interest-earning assets.

Effective January 1, 1997, upon implementation of SFAS 125, the Company's excess
servicing  receivable  and purchased  servicing  rights were  reclassified  as a
servicing  asset  for  that  portion  of the  receivables  that  did not  exceed
contractually  specified servicing fees and interest-only  strips receivable for
the portion which exceeds contractually  specified servicing fees. The amortized
book value of the  servicing  asset was $2.0 million at December  31, 1997.  The
interest-only strips receivable are measured like available-for-sale investments
in debt securities  under SFAS 115.  Included in other assets December 31, 1997,
are interest  only strips  receivable  with an  estimated  market value of $17.1
million. This includes an unrealized gain of $0.7 million.

Capital Resources

At December 31, 1997, the Company had  shareholders'  equity of $53.6 million as
compared to $33.9 million at December 31, 1996. The Company's growth strategy is
to expand its banking  business,  internally and through possible  acquisitions.
Such expansion is contingent on the retention of internally  generated earnings,
and the  possible  issuance  of new equity or  additional  debt,  as well as the
satisfaction of other factors including obtaining regulatory approvals.

The  Company's  strategy is to expand its  banking  business,  through  internal
growth and acquisitions,  both within its present service areas, particularly in
the Reno  metropolitan  market and adjacent  areas,  and the  Sacramento  Valley
locations.  It also plans to increase the volume and geographic scope of its SBA
lending to leverage on its SBA loan origination and servicing  capabilities.  In
connection with this objective, the Company established loan production offices,
during 1995 in Buena Park in southern  California and in Fresno,  California and
during 1997 in Portland,  Oregon, Denver,  Colorado and Chattanooga,  Tennessee.
The Buena Park office was closed in 1996.

Effective  June  30,  1997  the  Company  acquired  Mercantile  Bank.  Based  in
Sacramento,  Mercantile was a business bank  primarily  servicing the commercial
and real estate loan industry and had total assets of $42.8  million.  Loans and
deposits  acquired  pursuant to the  acquisition  of  Mercantile  totaled  $26.1
million and $37.7 million.  Under the terms of the transaction,  shareholders of
Mercantile  received total compensation of $6.6 million on the acquisition date.
The  compensation  consisted of $170,790 shares of Company common stock and $3.3
million  in  cash.  Goodwill  and  other  intangible  assets  recorded  upon the
acquisition  of  Mercantile  totaled  $1.8  million.  See  Note 19 of  Notes  to
Consolidated Financial Statements.

On November 13, 1997, the Company  signed a definitive  agreement to acquire the
outstanding  common  stock of  California  Community  Bancshares  ("CCBC")  in a
transaction  valued at approximately $39 million,  based on the closing price of
SWB stock on November 13, 1997. CCBC, the parent of Continental Pacific Bank, is
headquartered in Vacaville, California.  Continental Pacific Bank operates eight
banking  offices in Solano and Contra  Costa  counties in  California.  CCBC had
total  assets of $197  million  at  December  31,  1997.  The  merger,  which is
scheduled to close during the first half of 1998,  is subject to the approval of
CCBC's and SWB's  shareholders  and  federal  and state  regulators,  as well as
certain other terms and conditions.

Under the terms of the proposed  transaction,  shareholders of CCBC will receive
shares of SWB common stock at an exchange  ratio to be  determined  by a formula
based on the average of the closing  prices of SWB common stock during a defined
20-day period prior to the effective date of the  transaction.  For example,  if
the average price during the 20-day period were $33.75, the closing price of SWB
stock on December  31,  1997,  each share of CCBC stock would be  exchanged  for
approximately  0.90 shares of SWB common stock.  This transaction is expected to
be accounted for as a pooling-of-interests.

During June 1996 the Company  completed  construction of a new regional facility
in Reno, Nevada.  Total costs incurred for the land and building at December 31,
1997 were $3.9 million.  The Company  currently  occupies  approximately  15,257
square feet of this 28,600 square foot facility.  The remaining  space is leased
or to be

                                                         -43-

<PAGE>



leased until needed by the Company for  expansion.  At February 28, 1998 a total
of 3,375  square feet had been leased  out,  with 5,870  square feet of leasable
space remaining.

On July 30,  1997,  the Company sold its real  property in Carson City,  Nevada.
This property is being leased back on behalf of the Company's Carson City branch
for an initial term of thirteen years at an annual rate of $134 thousand for the
first  five  years  and  increasing  thereafter.  The  gain on the sale was $164
thousand which has been deferred and is being amortized as a reduction of future
rental expense.

On  February  8, 1994,  the  Company  sold to the public  $10,000,000  of 8 1/2%
optional convertible subordinated  debentures,  convertible at the option of the
holder at $10.00 per share.  These debentures mature on February 1, 2004 and are
redeemable on or after February 1, 1997 in whole or in part at the option of the
Company.  Convertible  debentures  outstanding  at  December  31,  1996 and 1995
consisted of $8,520,000 and  $10,000,000,  respectively of these 8 1/2% optional
convertible  subordinated  debentures.  A total of $1,480,000 of debentures were
converted into 148,000 shares of common stock during 1996. During the six months
ended  June 30,  1997,  the  remaining  $8.5  million of these  debentures  were
converted to common stock.

On December 21, 1995,  the Company  designated  200,000 shares of its 10,000,000
authorized  preferred shares as Series A Junior  Participating  Preferred Stock.
These shares were created by the Company to facilitate a shareholder  protection
rights  plan.  During  January of 1996 a dividend of rights was made to existing
stockholders  to acquire stock of the Company.  This plan is designed to protect
the Company and its stockholders  against abusive takeover attempts and tactics.
In essence,  the rights plan would dilute the interests of an entity  attempting
to take  control  of the  Company  if the  attempt is not deemed by the Board of
Directors  to be in the best  interests  of all  stockholders.  If the  Board of
Directors determines that an offer is in the best interests of the stockholders,
the stock  rights may be redeemed  for  nominal  value,  allowing  the entity to
acquire control of the Company.

Year 2000

Many  existing  computer  programs use only two digits to identify a year in the
date datum field (e.g., "98" for "1998").  As a result,  the Company,  like most
other companies,  will face a potentially serious information systems (computer)
problem because many software  applications and operational  programs written in
the past may not properly  recognize  calendar dates beginning in the year 2000.
If not  corrected,  many computer  applications  could fail or create  erroneous
results by or at the year 2000.

The Company is in the process of  communicating  with customers that the Company
has significant lending  relationships with and other third parties to determine
their Year 2000  Compliance  readiness  and the  extent to which the  Company is
vulnerable  to any  third  party  Year  2000  issues.  However,  there can be no
guarantee that the systems of other companies will be timely converted,  or that
a failure  to  convert by  another  company,  would not have a material  adverse
effect on the Company.

The  Company  began the  process of  identifying  the  changes  required  to its
software  and  hardware in 1997  in  consultation  with  software  and hardware
providers, a consulting firm and bank regulators.  While the Company believes it
is taking all  appropriate  steps to assure  that its  information  systems  are
prepared for the year 2000, it is dependent on vendor compliance to some extent.
The Company is requiring its systems and software  vendors to represent that the
services  and  products  provided  are,  or will be,  year 2000  compliant,  and
contemplates  a program of testing  compliance to commence in 1998.  The Company
estimates  that its  costs  related  to year  2000  compliance  will be at least
$200,000  and may be  significantly  more.  This  cost is being  funded  through
operating  cash  flows.  The "year  2000"  problem is  pervasive  and complex as
virtually every computer  operation will be affected in some way by the rollover
of the two digit year value to 00. Consequently,  no assurance can be given that
year 2000 compliance can be achieved without costs and uncertainties  that might
affect future financial results or cause reported  financial  information not to
be  necessarily  indicative  of future  operating  results  or future  financial
condition.




                                                         -44-

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's  market risk arises  primarily from interest rate risk inherent in
its lending and deposit  taking  activities.  To that end,  management  actively
monitors and manages its interest rate risk exposure.  The Company does not have
any  market  risk  sensitive  instruments  entered  into for  trading  purposes.
Management  uses several  different tools to monitor its interest rate risk. One
measure of exposure to interest rate risk is gap analysis.  A positive gap for a
given  period  means  that the amount of  interest-earning  assets  maturing  or
otherwise   repricing   within  such  period  is  greater  than  the  amount  of
interest-bearing  liabilities  maturing or otherwise  repricing  within the same
period.  The Company has a positive  gap.  Also,  the Company uses interest rate
shock  simulations to estimate the effect of certain  hypothetical rate changes.
Based upon the Company's  shock  simulations  net interest income is expected to
rise with increasing rates and fall with declining rates.

The  Company's  positive  gap is the result  the  majority  of its loans  having
floating rates and a significant portion of its investments having a maturity of
one  year or  less,  while a  significant  portion  of its  liabilities  are non
interest and low interest bearing accounts that are insensitive to rate changes.

Management has taken several steps to reduce the positive gap of the Company. In
1997, the Company added fixed rate loans and increased the number of longer term
investments.  Also, in 1996, the Company  entered into a fixed for floating swap
agreement with a correspondent  bank. The swap agreement requires the Company to
pay a floating rate tied to prime and receive a fixed rate. The Company  intends
to continue  increasing the number of fixed rate loans and investments  held and
the use of  derivative  products  such as  swaps.  Also,  in 1997,  the  Company
securitized  the  unguaranteed  portions of loans made under the Small  Business
Administration's  7(a) program.  Securitization  is an effective asset liability
management  tool because the asset and liability  cash flows and  repricings are
closely  matched.  The Company  intends to continue  using  securitization  as a
source of funding its loans in the future.


                                                         -45-

<PAGE>



The following table sets forth the  distribution of repricing  opportunities  of
the Company's  interest-earning  assets and  interest-bearing  liabilities,  the
interest  rate  sensitivity  gap (i.e.,  interest  rate  sensitive  assets  less
interest rate sensitive  liabilities),  the cumulative interest rate sensitivity
gap and the cumulative gap as a percentage of total interest-earning  assets, as
of December  31, 1997.  The table also sets forth the time periods  during which
interest-earning  assets and  interest-bearing  liabilities  will  mature or may
reprice  in  accordance  with  their   contractual   terms.  The  interest  rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of  customers  in  response  to changes in interest  rates.  This table  should,
therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net margins of the Company (dollars in thousands).
<TABLE>

                                                                     December 31, 1997
                                                       Next Day    Over Three     One Year
                                                       to Three  Months Through    Through      Over
                                          Immediately    Months    Twelve Months  Five Years  Five Years       Total
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>
Assets:
  Federal funds sold...............         $  13,500    $       0    $       0    $       0    $       0    $  13,500
  Mutual funds.....................               733            0            0            0            0          733
  Interest-bearing deposits........                 0          396            0            0            0          396
  Taxable investment securities....                 0        3,402        9,266       33,320        3,736       49,724
  Non-taxable investment securities                 0            0          346            0        9,041        9,387
  Loans............................           183,082      130,072       16,460       58,386       45,149      433,149
                                            ---------    ---------    ---------    ---------    ---------    ---------
         Total interest-earning assets        197,315      133,870       26,072       91,706       57,926      506,889
                                            ---------    ---------    ---------    ---------    ---------    ---------

Liabilities:
  Savings deposits(1)..............           172,910            0            0            0            0      172,910
  Time deposits....................                 0       84,918      116,575       21,659           85      223,237
  Lease obligations................                 0            2            7           49          239          297
                                            ---------    ---------    ---------    ---------    ---------    ---------
        Total interest-bearing liabilities    172,910       84,920      116,582       21,708          324      396,444
                                            ---------    ---------    ---------    ---------    ---------    ---------

Net interest-earning assets (liabilities)   $  24,405    $  48,950    $ (90,510)   $  69,998    $  57,602    $ 110,445
                                            =========    =========    =========    =========    =========    =========
Cumulative net interest earning assets
  (liabilities) ("GAP")............         $  24,405    $  73,355    $ (17,155)   $  52,843    $ 110,445
                                            =========    =========    =========    =========    =========
Cumulative GAP as a percentage of
  total interest-earning assets....              4.8%         14.5%        (3.4)%       10.4%        21.8%
                                            ========     =========    =========    =========    =========
</TABLE>
(1)  Savings deposits include interest-bearing transaction accounts.

(2)  Includes loans which matured on or prior to December 31, 1997.

At  December  31,  1997,  the  Company  had $357.3  million in assets and $374.4
million in liabilities  repricing within one year. This means that $17.1 million
more in interest rate sensitive  liabilities than interest rate sensitive assets
will change to the then current rate (changes occur due to the instruments being
at a variable  rate or because  the  maturity  of the  instrument  requires  its
replacement at the then current rate).  Interest income is likely to be affected
to a greater  extent than  interest  expense  for any changes in interest  rates
during the  Immediately  to Twelve Month  periods.  If rates were to fall during
this period,  interest  income would  decline by a greater  amount than interest
expense and net income would be reduced.  Conversely, if rates were to rise, the
reverse would apply.


                                                         -46-

<PAGE>



The following table sets forth the  distribution  of the expected  maturities of
the Company's  interest-earning assets and interest-bearing  liabilities as well
as the  fair  value of  these  instruments.  Expected  maturities  are  based on
contractual  payments  adjusted for the estimated  effect of prepayments.  Loans
have been  assumed  to prepay at an  average  rate of 8% per year.  This rate is
consistent with historical information on the Company's SBA loan portfolio. With
respect to other loans the Company has not tracked its historical  prepay speed;
but for the purposes of this table has utilized an 8% rate. Savings accounts and
interest-bearing  transaction  accounts,  which  have no  stated  maturity,  are
included in the one year or less maturity category (dollars in thousands).
<TABLE>
                                                                    December 31, 1997
                                           1998     1999     2000     2001    2002    Thereafter   Total     Fair Value
                                           ----     ----     ----     ----    ----    ----------   -----     ----------
<S>                                     <C>        <C>      <C>      <C>     <C>      <C>         <C>        <C>
  Federal funds sold................    $  13,500  $     0  $     0  $     0 $     0  $      0    $ 13,500   $ 13,500
    Weighted average rate...........         5.32                                                     5.32
  Interest-bearing deposits.........          396        0        0        0       0         0         396        396
    Weighted average rate...........         5.79                                                     5.79
  Mutual Funds......................          733        0        0        0       0         0         733        733
    Weighted average yield..........         6.35                                                     6.35
  Investment securities.............       13,014   27,125    1,319    1,110   3,766    12,777      59,111     59,111
    Weighted average yield(3).......         5.92     6.07     6.72     6.74    7.35      5.73        6.07
  Fixed rate loans..................       24,353   16,379   13,330    9,386   8,203    24,677      96,328     97,041
    Weighted average rate...........         9.24     9.77     9.63     9.58    9.54      8.38        9.22
  Variable rate loans (1)...........      122,129   39,207   27,942   27,906  24,106    95,531     336,821    340,193
    Weighted average rate...........         9.97    10.36    10.18    10.23   10.34     10.24       10.16
                                        ---------   ------  -------  ------- -------  --------    --------   --------

  Total Interest-earning assets         $ 174,125  $82,711  $42,591  $38,402 $36,075  $132,985    $506,889   $510,974
                                        =========  =======  =======  ======= =======  ========    ========   ========

  Savings deposits(2)...............    $ 172,910  $     0  $     0  $     0 $     0  $      0    $172,910   $172,910
    Weighted average rate...........         2.88                                                     2.88
  Time Deposits.....................      201,493   16,473    2,645    1,109   1,432        85     223,237    223,932
    Weighted average rate...........         5.75     5.98     6.13     6.19    6.19      6.80        5.78
  Lease Obligations.................            9       10       12       13      14       239         297        297
    Weighted average yield..........        11.23    11.23    11.23    11.23   11.23     11.23       11.23
                                        ---------  -------  -------  ------- -------  --------    --------   --------

  Total interest-bearing liabilities    $ 374,412  $16,483  $ 2,657  $ 1,122 $ 1,446  $    324    $396,444   $397,139
                                        =========  =======  =======  ======= =======  ========    ========   ========
</TABLE>

(1) Of the total  variable  rate  loans  92.5%  reprice or mature in one year
    or less.
(2) Savings deposits include interest-bearing transaction accounts.
(3) Interest on tax-exempt  obligations has not been tax effected to include the
    related tax benefits in calculating the weighted average yield.

The  Company's $20 million  notional  amount  interest  rate swap  maturities in
March,  1999. Under this agreement the other party to the swap pays a fixed rate
of 8.17% and receives from the Company the prime rate. The swap had an estimated
fair value of a negative $47 thousand at December 31, 1997.




                                                         -47-

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                          Page

Independent Auditors' Report................................................49

Consolidated Financial Statements of SierraWest Bancorp
  Consolidated Statements of Financial Condition............................50
  Consolidated Statements of Income.........................................52
  Consolidated Statements of Shareholders' Equity...........................54
  Consolidated Statements of Cash Flows.....................................55
  Notes to Consolidated Financial Statements................................59


                                                         -48-

<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
  SierraWest Bancorp
Truckee, California


We have audited the accompanying  consolidated statements of financial condition
of SierraWest  Bancorp and  subsidiary  ("Company")  as of December 31, 1997 and
1996, and the related consolidated  statements of income,  shareholders' equity,
and cash flows for each of the three  years in the  period  ended  December  31,
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of SierraWest Bancorp and subsidiary
at December  31, 1997 and 1996,  and the results of their  operations  and their
cash flows for each of the three years in the period ended  December 31, 1997 in
conformity with generally accepted accounting principles.

As discussed in Note 4, to the consolidated financial statements,  on January 1,
1997 the Company adopted  Statement of Financial  Accounting  Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and  Extinguishments
of Debt."


/s/ Deloitte & Touche LLP

Sacramento, California
February 10, 1998



                                                           -49-

<PAGE>


                                 SIERRAWEST BANCORP AND SUBSIDIARY

                            CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                           ASSETS
<TABLE>


                                                                                 December 31,
                                                                            1997             1996

                                                                             (in thousands)
<S>                                                                  <C>               <C>
Cash and cash equivalents:
   Cash and due from banks...................................        $    47,660       $   26,434
   Interest-bearing deposits
     in other banks..........................................                396                0
   Federal funds sold........................................             13,500           32,200
                                                                     -----------       ----------

   Total Cash and Cash Equivalents...........................             61,556           58,634

Investment securities and investments in mutual funds:
   Mutual funds available for sale...........................                733            1,335
   Held to maturity, market value $1,000 and $2,000..........              1,000            2,001
   Available for sale........................................             58,111           31,880

Loans held for sale..........................................             17,061           29,489
Loans and leases, net of unearned lease income,
   deferred loan fees/costs and allowance for
   possible loan and lease losses............................            409,439          289,331
Interest-only strips receivable..............................             17,076                0
Excess servicing on SBA loans................................                  0           14,338
Bank premises, leasehold improvements
   and equipment, net........................................             10,780           12,358
Accrued interest receivable and
   other assets..............................................             13,999            8,523
                                                                     -----------       ----------

   TOTAL ASSETS..............................................        $   589,755       $  447,889
                                                                     ===========       ==========
</TABLE>






              See  notes  to  consolidated   financial statements.

                                                             -50-

<PAGE>


                           SIERRAWEST BANCORP AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                     (continued)


                            LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>

                                                                               December 31,
                                                                        1997                  1996

                                                                    (in thousands except share amounts)
<S>                                                                   <C>                  <C>

Deposits:
   Non-interest-bearing demand...............................         $   130,122          $    80,525
   Savings...................................................              14,023               13,289
   Interest bearing transaction accounts.....................             158,887              120,417
   Time .....................................................             223,237              185,420
                                                                      -----------          -----------

   Total Deposits............................................             526,269              399,651

Other liabilities and interest payable.......................               9,856                5,802
Convertible debentures.......................................                   0                8,520
                                                                      -----------          -----------

   Total Liabilities.........................................             536,125              413,973

Shareholders' equity:
   Preferred stock, no par value;
     9,800,000 shares authorized;
     none issued.............................................                   0                    0
   Preferred stock series A, no par value; 200,000
     shares authorized; none issued..........................                   0                    0
   Common stock, no par value; 10,000,000
     shares authorized; 4,099,811 and 2,771,139 shares
     issued and outstanding at December 31, 1997 and
     1996, respectively......................................              29,587               12,291
   Retained earnings.........................................              23,281               21,654
   Unrealized gain(loss) on investment securities and
     interest-only strips receivable, net of tax of
     $535 and $21............................................                 762                  (29)
                                                                      -----------          -----------

   Total Shareholders' Equity................................              53,630               33,916
                                                                      -----------          -----------

   TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY....................................         $   589,755          $   447,889
                                                                      ===========          ===========
</TABLE>









                   See  notes  to  consolidated   financial statements.

                                                             -51-

<PAGE>


                                               SIERRAWEST BANCORP AND SUBSIDIARY

                                               CONSOLIDATED STATEMENTS OF INCOME
                                                          (continued)
<TABLE>

                                                                                         Year Ended December 31,
                                                                                  1997           1996          1995

                                                                           (in thousands, except per share amounts)
<S>                                                                           <C>            <C>           <C>

Interest income:
   Loans and leases..............................................             $   39,357      $  30,506    $    23,582
   Federal funds sold............................................                  1,795            938            594
   Investment securities
     U.S. Treasury...............................................                  1,765            931            976
     U.S. Government agencies....................................                    120             85            385
     States and political subdivisions...........................                    382            198             29
     Other.......................................................                    709            498            144
   Other assets..................................................                    182            113            121
                                                                              ----------      ----------   -----------

   Total Interest Income.........................................                 44,310         33,269         25,831

Interest expense:
   Savings deposits..............................................                    278            283            286
   Transaction accounts..........................................                  4,259          2,620          1,995
   Time deposits ................................................                 12,322          8,832          5,352
   Convertible debentures........................................                     60            764            850
   Other.........................................................                    180             (4)             8
                                                                              ----------      ---------    -----------

   Total Interest Expense........................................                 17,099         12,495          8,491
                                                                              ----------      ---------    -----------

   Net Interest Income...........................................                 27,211         20,774         17,340

   Provision for possible loan and lease losses..................                  2,480          1,010          1,270
                                                                              ----------      ---------    -----------
   Net Interest Income After Provision for Possible
     Loan and Lease Losses.......................................                 24,731         19,764         16,070


</TABLE>









                  See  notes  to  consolidated   financial statements.

                                                             -52-

<PAGE>


                           SIERRAWEST BANCORP AND SUBSIDIARY

                           CONSOLIDATED STATEMENTS OF INCOME
                                     (continued)

<TABLE>
                                                                                   Year Ended December 31,
                                                                                  1997           1996          1995

                                                                           (in thousands, except per share amounts)
<S>                                                                           <C>            <C>           <C>

Non-interest income:
  Net servicing and interest-only strip income...............                 $    4,577     $    4,087    $     4,667
  Net gain on sale and securitization of loans...............                      3,320            373            307
  Service charges on deposit accounts........................                      2,299          1,722          1,755
  Other......................................................                      1,570          1,156          1,240
                                                                              ----------     ----------    -----------

  Total Non-interest  Income.................................                     11,766          7,338          7,969

Non-interest expense:
  Salaries and related benefits..............................                     13,409         12,086         10,627
  Net occupancy and equipment expense........................                      4,180          3,486          3,401
  Other expense..............................................                      6,692          6,125          6,916
                                                                              ----------     ----------    -----------
  Total Non-interest Expense.................................                     24,281         21,697         20,944
                                                                              ----------     ----------    -----------

  Income before provision for income taxes...................                     12,216          5,405          3,095
  Provision for income taxes.................................                      4,707          2,077          1,179
                                                                              ----------     ----------    -----------

  Net Income.................................................                 $    7,509     $    3,328    $     1,916
                                                                              ==========     ==========    ===========

  Basic Earnings per share...................................                 $     2.03    $      1.18   $      0.70
                                                                              ==========    ===========   ===========

Weighted average shares used to calculate
  basic earnings per share...................................                      3,693          2,809         2,728
                                                                              ==========    ===========   ===========

  Diluted Earnings per share.................................                 $     1.82    $      0.96   $      0.63
                                                                              ==========    ===========   ===========

Weighted average shares used to calculate
  diluted earnings per share.................................                      4,155          3,920         3,862
                                                                              ==========    ===========   ===========
</TABLE>













                See  notes  to  consolidated   financial statements.

                                                             -53-



<PAGE>





                             SIERRAWEST BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                    (In thousands)
<TABLE>
                                                                                        Unrealized
                                                   Common Stock           Retained      Gain/(Loss)
                                                Shares      Amounts       Earnings      Net of Taxes     Total

<S>                                              <C>       <C>            <C>            <C>         <C>
Balance at January 1, 1995..................     2,620     $ 11,002       $  17,839      $  (678)    $28,163

   Net Income...............................         0            0           1,916            0       1,916
   Stock options exercised..................        20          142               0            0         142
   Common stock issued on
     conversion of debentures...............         2           10               0            0          10
   Common stock repurchased.................       (50)        (445)              0            0        (445)
   Cash dividends paid......................         0            0            (624)           0        (624)
   Net change in unrealized gain(loss)
     on available for sale securities,
     net of tax.............................         0            0               0          671         671
                                                 -----     --------       ---------      -------    --------

Balance at December 31, 1995 ...............     2,592       10,709          19,131           (7)     29,833
                                                 -----     ---------      ---------      -------    --------

   Net Income...............................         0            0           3,328            0       3,328
   Stock options exercised..................        31          212               0            0         212
   Common stock issued on
     conversion of debentures...............       148        1,370               0            0       1,370
   Cash dividends paid......................         0            0            (805)           0        (805)
   Net change in unrealized gain(loss)
     on available  for sale securities,
     net of tax.............................         0            0               0          (22)        (22)
                                                 -----     --------       ---------      -------    --------

Balance at December 31, 1996 ...............     2,771       12,291          21,654          (29)     33,916
                                                 -----     --------       ---------      -------    --------

   Net Income...............................         0            0           7,509            0       7,509
   Stock options exercised..................       112          877               0            0         877
   Tax benefit derived from the
     exercise of stock options..............         0          457               0            0         457
   Common stock issued on
     conversion of debentures...............       852        7,952               0            0       7,952
   Cash dividend paid ......................         0            0          (1,178)           0      (1,178)
   Common stock issued for
     acquisition............................       171        3,317               0            0       3,317
   Stock dividend on common stock...........       194        4,693          (4,693)           0           0
   Cash paid in lieu of
    fractional shares.......................         0            0             (11)           0         (11)
   Net change in unrealized gain(loss) on
   interest-only strips receivable and
   available for sale securities,
   net of tax...............................         0            0               0          791         791
                                                 -----     --------       ---------      -------    --------

Balance at December 31, 1997................     4,100     $29,587        $  23,281      $   762    $ 53,630
                                                 =====     ========       =========      =======    ========
</TABLE>










                  See  notes  to  consolidated   financial statements.

                                                             -54-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
                                                                               Year Ended December 31,
                                                                        1997              1996            1995
                                                                                    (in thousands)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
<S>                                                                 <C>              <C>                <C>
Cash flows from operating activities:
  Interest and fees received.................................       $  44,053        $   32,506         $  24,411
  Service charges............................................           2,299             1,722             1,754
  Servicing income and interest-only strips
   receivable income received................................           6,295             5,574             6,186
  Interest paid..............................................         (17,130)          (12,292)           (8,251)
  Cash paid to suppliers and employees.......................         (22,502)          (20,141)          (18,142)
  Income taxes paid..........................................          (4,225)           (1,640)           (1,334)
  Mortgage and other loans originated or purchased
   for sale..................................................          (9,220)                0           (25,176)
  Government loans originated or purchased for sale..........         (78,062)           (7,672)          (22,163)
  Mortgage and other loans sold..............................           9,220                 0            27,000
  Government loans sold or securitized.......................          71,338             9,214             5,646
  Other .....................................................           1,056             1,179             1,230
                                                                    ---------        ----------         ---------
  Net cash provided by (used in) operating activities........           3,122             8,450            (8,839)

Cash flows from investing activities:
  Proceeds from:
     Sales of mutual funds...................................           2,697                 0               454
     Maturities of investment securities held to maturity....           1,012             1,378               773
     Maturities of investment securities available for
       sale..................................................          11,168            10,958             3,500
     Sales of investment securities available for sale.......               0             8,239             8,484
     Sales of investment securities -
       held to maturity......................................               0                 0               999
  Purchase of investment securities -
    available for sale.......................................         (33,491)          (26,248)           (9,999)
  Purchase of mutual funds -
    available for sale.......................................          (2,000)                0                 0
  Loans and leases made net of principal collections.........         (77,597)          (84,700)          (52,571)
  Capital expenditures.......................................            (687)           (4,536)           (3,012)
  Proceeds from sale of assets...............................           1,523                 0                 0
  Net cash received in acquisition.........................             8,570                 0                 0
                                                                    ---------        ----------         ---------
  Net cash used in investing activities......................         (88,805)          (94,909)          (51,372)

</TABLE>













                See   notes   to   consolidated    financial statements.

                                                         -55-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)

<TABLE>
                                                                                        Year Ended December 31,
                                                                                  1997           1996          1995

                                                                                            (in thousands)

<S>                                                                           <C>          <C>            <C>
Cash flows from financing activities:
  Net increase in demand, interest bearing,
    and savings accounts........................................                 65,695         48,686        3,606
  Net increase in time deposits.................................                 23,222         57,811       70,672
  Cash dividends paid...........................................                 (1,178)          (805)        (624)
  Cash paid in lieu of fractional shares.......................                     (11)             0            0
  Cash received for stock options exercised.....................                    877            212          142
  Repurchase of common stock....................................                      0              0         (445)
                                                                              ---------    -----------    ---------

  Net cash provided by financing activities.....................                 88,605        105,904       73,351
                                                                              ---------    -----------    ---------

  Net increase in cash and cash equivalents.....................                  2,922         19,445       13,140

  Cash and cash equivalents - beginning of period...............                 58,634         39,189       26,049
                                                                              ---------    -----------    ---------

  Cash and cash equivalents - end of period.....................              $  61,556    $    58,634    $  39,189
                                                                              =========    ===========    =========
</TABLE>




















                    See notes to consolidated financial statements.

                                                         -56-

<PAGE>
                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)
<TABLE>
                                                                                        Year Ended December 31,

                                                                                  1997           1996          1995
                                                                                  ----           ----          ----
                                                                                     (in thousands)
<S>                                                                           <C>            <C>           <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES

Net income....................................................                $   7,509      $   3,328     $    1,916
Adjustments to reconcile net income to net cash provided:.....
   Depreciation and amortization..............................                    1,461          1,197          1,119
   Provision for possible loan and lease losses...............                    2,480          1,010          1,270
   Amortization of servicing asset and interest-only
    strips receivable.........................................                    1,718              0              0
   Amortization of excess servicing...........................                        0          1,315          1,348
   Amortization of purchased mortgage servicing
    rights....................................................                        0            172            172
   Gain on sale of government loans...........................                   (3,748)          (392)           108
   Loans originated or purchased for sale.....................                  (87,282)        (7,672)       (47,339)
   Loans sold.................................................                   80,558          9,214         32,646
   Effect of changes in assets and liabilities-
     net of effects from acquisition:
    Interest receivable.......................................                     (896)          (347)          (534)
    Interest payable..........................................                      (31)           203            241
    Deferred loan fees........................................                      833             14           (312)
    Prepaid expenses..........................................                       34           (313)           110
    Other assets..............................................                     (473)           141             83
    Accrued expenses..........................................                      961            671          1,139
    Current taxes payable.....................................                      680            127            (15)
    Deferred taxes............................................                     (198)           309           (140)
    Other.....................................................                     (484)          (527)          (651)
                                                                              ---------      ---------     ----------

   Total adjustments..........................................                   (4,387)         5,122        (10,755)
                                                                              ---------      ---------     ----------

   Net cash provided by (used in) operating activities                        $   3,122      $   8,450     $   (8,839)
                                                                              =========      =========     ==========
</TABLE>














                     See notes to consolidated financial statements.

                                                         -57-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)

Supplemental Schedule of Non Cash Investing and Financing Activities

     On June 30, 1997, the Company purchased all the capital stock of Mercantile
Bank for $6.6 million.  In conjunction  with the  acquisition,  liabilities were
assumed as follows:

     Fair value of assets acquired          $       44,609,000
     Cash paid for capital stock                     3,301,000
     Common stock issued for capital stock           3,317,000
                                            ------------------
     Liabilities assumed                    $       37,991,000
                                            ==================

     Common stock was issued in conversion of $8,520,000, $1,370,000 and $10,000
of convertible  debentures in 1997, 1996 and 1995,  respectively.  These amounts
are net of debenture  offering costs of $568,000,  $110,000 and $0 in 1997, 1996
and 1995.

     For the years ended December 31, 1997, 1996 and 1995, $1,361,000,  $446,000
and  $373,000  of loans,  respectively,  were  transferred  to other real estate
owned.

     On  August  20,  1997,  the  Company  issued a 5% stock  dividend  totaling
approximately $4.7 million.

     In 1997 and 1996, $35.4 million and $15.7 million of unguaranteed SBA loans
were  transferred  to held for sale status.  In addition,  $9.6 million and $9.2
million of government  guaranteed  SBA loans were  transferred  to held for sale
status and subsequently sold and included in the Consolidated Statements of Cash
Flows.

     In  1995,   $572,000  of  assets   formerly   classified  as   in-substance
foreclosures were reclassified as loans.

     In 1995,  $20.0  million of  unguaranteed  SBA loans  originated in earlier
years were transferred to held for sale status.  Concurrently,  $21.4 million of
guaranteed SBA loans were transferred to the Company's  investment  portfolio at
cost, which was lower than market.








                See notes to consolidated financial statements.

                                                         -58-

<PAGE>
                            SIERRAWEST BANCORP AND SUBSIDIARY

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Significant Accounting and Reporting Policies:

     The accompanying  consolidated financial statements include the accounts of
SierraWest Bancorp ("Bancorp") and its subsidiary, SierraWest Bank (collectively
referred to as the "Company").  Bancorp was  incorporated  under the laws of the
State of California on December 5, 1985. During 1996,  SierraWest  Bancorp's two
banking subsidiaries changed their names to SierraWest Bank (the "Bank"), and on
October 1, 1996,  Bancorp's Nevada  subsidiary,  formerly Sierra Bank of Nevada,
was  merged  into  its  California  subsidiary,  formerly  Truckee  River  Bank.
Effective December 19, 1996, SierraWest Bank's subsidiary, Sierra Tahoe Mortgage
Company,  was dissolved.  Operations of this line of business were terminated in
1995.

     The accounting and reporting policies of the Company conform with generally
accepted  accounting   principles  and  general  practices  within  the  banking
industry.  The more significant  accounting and reporting policies not described
elsewhere  in  these  notes  to  financial   statements  are  discussed   below.
Significant intercompany transactions have been eliminated in consolidation.

     Nature of  Operations.  The  Company  is a  one-bank  holding  company  and
operates ten branches in Northern  California  and two in Northern  Nevada.  Its
primary source of revenue is interest on SBA, real estate,  and other commercial
loans  provided  to  customers,  who  are  predominantly  small  businesses  and
individuals.

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

     Cash and Cash  Equivalents.  Cash and cash  equivalents in the consolidated
statements  of cash  flows  include  cash and due from  banks,  interest-bearing
deposits in other banks and federal funds sold.

     Investments in Mutual Funds.  Investments in mutual funds consist of mutual
funds whose assets are  invested  primarily in U.S.  Government  securities.  At
December  31,  1997 and 1996,  all mutual fund  investments  are  classified  as
available for sale and carried at market value.  Unrealized  gains and losses on
mutual funds are reported,  net of tax, as a separate component of shareholders'
equity. Interest income on mutual funds is recorded as earned.

     Investment Securities. In accordance with Statement of Financial Accounting
Standards ("SFAS") 115,  "Accounting for Certain  Investments in Debt and Equity
Securities",  the Company has classified  its  investment  securities and mutual
funds as held to maturity or available for sale. Securities held to maturity are
carried at cost  adjusted by the  accretion of  discounts  and  amortization  of
premiums.  The  Company's  policy of  carrying  such  investment  securities  at
amortized cost is based upon its ability and  management's  intent to hold these
investment securities to maturity.  Securities available for sale may be sold to
implement the Company's asset/liability management strategies and in response to
changes  in  interest  rates,   prepayment  rates  and  similar  factors.  These
securities are recorded at their market values.  Unrealized  gains or losses are
included as a separate  component of shareholders'  equity, net of tax. Gains or
losses  on  sales  of   investment   securities   are  based  on  the   specific
identification method.

     Loans Held for Sale. Loans held for sale are valued at the lower of cost or
market  value.  Valuation  adjustments,  if any, are charged  through the income
statement.  In practice,  the  adjustment is charged  against the gain (loss) on
sale of  loans.  At  December  31,  1997,  loans  held for sale  consist  of the
unguaranteed portion of loans which the Company intends to sell on a securitized
basis and the  guaranteed  portions of Business and Industry  ("B&I")  loans the
Company  intends  to sell in 1998.  At  December  31,  1996  loans held for sale
consist of the  unguaranteed  portion of loans which the Company intends to sell
on a securitized basis.



                                                         -59-

<PAGE>

                              SIERRAWEST BANCORP AND SUBSIDIARY

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                       (Continued)

     Loans and Loan Fees.  Loans  receivable  that Management has the intent and
ability  to hold for the  foreseeable  future or until  maturity  or payoff  are
reported at their outstanding  principal balances reduced by any charge-offs and
net of any deferred  fees or costs and  unamortized  premiums  and  discounts on
purchased  loans.  Interest  income on loans and leases is recognized as earned.
When a loan is 90 days past due with respect to  principal  or interest,  and in
the opinion of Management,  interest or principal is not collectible, or at such
earlier time as Management  determines that the collectibility of such principal
or interest is unlikely, the accrual of interest is discontinued and all accrued
but uncollected interest income is reversed. Cash payments subsequently received
on nonaccrual loans are recognized as income only where the future collection of
the recorded value of the loan is considered by management to be probable.  Loan
fees net of certain  related  direct costs to  originate  loans are deferred and
amortized over the contractual life of the loan using a method that approximates
a level yield method.

     Allowance for Possible  Loan and Lease  Losses.  The allowance for possible
loan and lease losses is  maintained at a level  considered  adequate to provide
for losses that can be  reasonably  anticipated.  The  allowance is increased by
provisions  and  reduced  by  charge-offs  (net of  recoveries).  The  Company's
provision is based on Management's  overall  evaluation of the inherent risks in
the loan and lease portfolio and detailed  evaluations of the  collectibility of
specific loans. This evaluation  process requires the use of current  estimates,
which may vary from the ultimate  collectibility  experienced in the future. The
estimates used are reviewed periodically,  and, as adjustments become necessary,
they are charged to operations in the period in which they become known.

     The Company  accounts for impaired  loans in accordance  with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure". SFAS
No. 114 requires that impaired  loans be measured  based on the present value of
expected future cash flows discounted at the loan's  effective  interest rate or
as a practical  expedient at the loan's observable market rate or the fair value
of the collateral if the loan is collateral  dependent.  The Company's  impaired
loans are  collateral  dependent and therefore  measured using the fair value of
the  collateral.  SFAS No.  114 also  requires  that  impaired  loans  for which
foreclosure  is probable  should be accounted for as loans.  SFAS No. 118 amends
SFAS  No.  114 to allow a  creditor  to use  existing  methods  for  recognizing
interest  income  on  impaired  loans and  requires  certain  information  to be
disclosed.  Interest is recognized  on impaired  loans when cash is received and
the future collection of principal is considered by management to be probable.

     A loan is impaired when, based upon current  information and events,  it is
probable that the Company will be unable to collect all amounts due according to
the contractual  terms of the loan agreement.  Loans are measured for impairment
as part of the  Company's  normal loan  review  process.  Impairment  losses are
included in the allowance for possible loan and lease losses through a charge to
provision for loan and lease losses.

     Lease Receivables.  Leases are accounted for as direct financing leases and
are carried net of unearned income.  Income from these leases is recognized on a
basis which  produces a level yield on the  outstanding  net  investment  in the
lease.

     Sales and  Servicing  of SBA 7(a) Loans.  The Company  originates  loans to
customers under a Small Business  Administration  ("SBA") program that generally
provides  for SBA  guarantees  of up to 80% of each  loan.  Prior to  1995,  the
Company sold the  guaranteed  portion of each loan to a third party and retained
the  unguaranteed  portion in its own portfolio.  Beginning in 1995, the Company
retained  both the  guaranteed  and  unguaranteed  portions of most of the loans
generated in its portfolio.  For the  guaranteed  portion of SBA loans sold, the
Company may be required to refund the sales premium  received on such sales,  if
the borrower defaults or the loan prepays within 90 days of the settlement date.
A gain is recognized  on the sale of SBA loans  through  collection on sale of a
premium over the adjusted  carrying value,  through retention of an ongoing rate
differential  less a normal service fee (excess  servicing fee) between the rate
paid by the  borrower  to the  Company  and the rate paid by the  Company to the
purchaser, or both.


                                                         -60-

<PAGE>

                         SIERRAWEST BANCORP AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (continued)

     On  January 1, 1997,  the  Company  adopted  SFAS No. 125  "Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
The statement  provides  accounting  and  reporting  standards for transfers and
servicing  of  financial  assets  and  extinguishments  of  liabilities.   These
standards are based on consistent application of a financial-component  approach
that  focuses on control.  Under this  approach,  after a transfer of  financial
assets,  an entity recognizes the financial and servicing assets it controls and
liabilities it has incurred, derecognizes financial assets when control has been
surrendered,  and derecognizes  liabilities when extinguished.  Adoption of SFAS
125 has not had a significant impact on the financial condition or operations of
the Company.

     To  calculate  the gain  (loss) on sale of SBA 7(a)  loans,  the  Company's
investment in an SBA loan is allocated  among the retained  portion of the loan,
the  servicing  retained,  the  interest-only  strip and the sold portion of the
loan,  based on the relative fair market value of each portion.  The gain (loss)
on the sold portion of the loan is  recognized  at the time of sale based on the
difference between the sale proceeds and the allocated  investment.  As a result
of the  relative  fair value  allocation,  the  carrying  value of the  retained
portion is discounted,  with the discount  accreted to interest  income over the
life of the loan.  That  portion of the  excess  servicing  fees that  represent
contractually  specified servicing fees (contractual servicing) are reflected as
a  servicing  asset which is  amortized  over an  estimated  life using a method
approximating  the level yield method;  in the event future  prepayments  exceed
Management's  estimates and future  expected cash flows are  inadequate to cover
the unamortized  servicing asset,  additional  amortization would be recognized.
The portion of excess servicing fees in excess of the contractual servicing fees
is reflected as  interest-only  (I/O) strips  receivable which are classified as
interest-only  strips  receivable  available  for sale and are  carried  at fair
value.  Prior to the  adoption  of SFAS No.  125 on  January  1, 1997 the excess
servicing  fees were reflected as excess  servicing  assets which were amortized
over an estimated life using a method  approximating  the level yield method. In
its  calculation  of  excess  servicing  fees the  Company  has used 0.4% as its
estimate of a normal servicing fee.

     The Company  accounts for the sales of the  guaranteed  portion of Business
and Industry loans in a similar manner.

     Bank Premises,  Leasehold Improvements and Equipment.  Premises,  leasehold
improvements and equipment are stated at cost, less accumulated depreciation and
amortization.  Depreciation is computed  principally by the straight-line method
over the estimated useful lives of the assets,  which are: buildings,  30 years;
leasehold  improvements,  1 to 10 years;  furniture and equipment, 3 to 5 years.
Fixed  assets are  assessed  for  impairment  in  accordance  with SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
Be Disposed Of."

     Other  Real  Estate  Owned.   Property  acquired  by  the  Company  through
foreclosure is initially  recorded in the  consolidated  statements of financial
condition at the lower of estimated  fair value less the cost to sell or cost at
the date of foreclosure.  At the time a property is acquired,  if the fair value
is less than the loan amounts outstanding, any difference is charged against the
allowance for possible loan and lease losses. After acquisition,  valuations are
periodically  performed and, if the carrying  value of the property  exceeds the
fair value,  less estimated costs to sell, a valuation  allowance is established
by a charge to operations.

     Operating costs on foreclosed  real estate are expensed as incurred.  Costs
incurred for physical improve ments to foreclosed real estate are capitalized if
the value is recoverable through future sale.

     Stock-Based  Compensation.  The Company accounts for stock-based  awards to
employees  using the  intrinsic  value  method  in  accordance  with  Accounting
Principles  Board  (APB)  Opinion  No.  25,  "Accounting  for  Stock  Issued  to
Employees."  No  compensation  expense  has  been  recognized  in the  financial
statements for employee stock  arrangements.  The Company  presents the required
pro forma  disclosures of the effect of stock based  compensation  on net income
and earnings per share using the fair value method in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation".


                                                         -61-

<PAGE>
                          SIERRAWEST BANCORP AND SUBSIDIARY

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (continued)

     Income  Taxes.  Deferred  tax  assets  and  liabilities  are  reflected  at
currently  enacted  income  tax  rates  applicable  to the  period  in which the
deferred tax assets or  liabilities  are expected to be realized or settled.  As
changes in tax laws or rates are enacted,  deferred  tax assets and  liabilities
are adjusted through the provision for income taxes.

     Earnings per Share.  In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings Per Share".  This Statement replaces
previous earnings per share reporting requirements.  Earnings per share under
the new methods must be dually presented on the Statement of Income for all
periods presented.  In addition, the Statement requires a reconciliation of the
numerators and denominators of basic and diluted per-share computations.  SFAS
No. 128 is effective for interim and annual periods ending after December 15,
1997.  All earnings per share information has been restated in accordance with
SFAS No. 128.

     Basic earnings per share excludes  dilution and is computed by dividing net
income by the  weighted  average of common  shares  outstanding  for the period.
Diluted  earnings per share reflects the potential  dilution that would occur if
securities or other  contracts to issue common stock were exercised or converted
into common stock.  Reconciliation of the numerators and denominators is
presented in Note 13.

     Derivative  Financial  Instruments.  During the first quarter of 1996,  the
Company entered into an interest rate swap agreement with a major bank to reduce
its exposure to fluctuations in interest rates.  The Company  accounts for these
activities  as  matched  swaps in  accordance  with  settlement  accounting.  An
interest rate swap is  considered  to be a matched swap if it is linked  through
designation  with an asset or liability,  or both, that is on the balance sheet,
provided that it has the opposite interest characteristics of such balance sheet
items.  The  notional  principal  amount is $20  million,  and the term is three
years.  Under  the  agreement,  the other  bank  pays a fixed  rate of 8.17% and
receives  from the  Company  the prime  rate.  Net  interest  income or  expense
resulting  from the  differential  between the fixed and prime rates is recorded
under  settlement  accounting on a current  basis and any  resultant  accrual is
settled  quarterly.  The related amount payable to or receivable  from the other
bank is included in other  liabilities or assets.  The fair value of the swap is
not recognized in the financial statements.  The net interest expense recognized
in 1997 and 1996 was approximately $55,000 and $13,000, respectively.

     Accounting Pronouncements. In June 1997, the financial Accounting Standards
Board issued SFAS No. 130, "Reporting  Comprehensive  Income", and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".  SFAS No.
130 establishes  standards for reporting and display of comprehensive income and
its  components  (revenues,  expenses,  gains,  and  losses)  in a  full  set of
general-purpose  financial  statements.  SFAS  No.  130  also  requires  that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial   statement  and  (b)  display  the   accumulated   balance  of  other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the equity section of a statement of financial position.

SFAS No. 131 establishes  standards for the way that public business enterprises
report information about operating  segments in annual financial  statements and
requires that those  enterprises  report  selected  information  about operating
segments  in  interim  financial   reports  issued  to  shareholders.   It  also
establishes  standards  for related  disclosures  about  products and  services,
geographic  areas,  and major  customers.  SFAS No. 131  requires  that a public
business  enterprise  report  financial and  descriptive  information  about its
reportable   operating  segments.   Operating  segments  are  components  of  an
enterprise  about which  separate  financial  information  is available  that is
evaluated  regularly by the chief  operating  decision  maker in deciding how to
allocate   resources  and  in  assessing   performance.   Generally,   financial
information  is required to be reported on the basis that it is used  internally
for evaluating  segment  performance  and deciding how to allocate  resources to
segments.  SFAS No. 131 also requires descriptive information about the way that
the operating  segments were determined,  the products and services  provided by
the operating  segments,  differences between the measurements used in reporting
segment information and those used in the enterprise's general-purpose financial
statements,  and changes in the  measurement  of segment  amounts from period to
period.  Both statements are effective for fiscal years beginning after December
15,  1997.  Adoption  of SFAS No. 130 and No. 131 will not impact the  Company's
financial position, results of operations or cash flows.

                                                         -62-

<PAGE>


                              SIERRAWEST BANCORP AND SUBSIDIARY

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                       (continued)

Reclassifications.  Certain items in the 1996 financial statements have been
reclassified to conform to the 1997 presentation.

2. Investment Securities and Investments in Mutual Funds:

     The amortized cost and estimated market values of investments in securities
and mutual funds are as follows (amounts in thousands):
<TABLE>

                                                              Gross           Gross        Estimated
                                            Amortized      Unrealized      Unrealized         Market        Carrying
                                               Cost           Gains          Losses            Value          Value

<S>                                        <C>            <C>               <C>            <C>             <C>
December 31, 1997

Held to Maturity:

U.S. Treasury securities................   $    1,000     $       0         $       0      $    1,000      $    1,000

Available for Sale:

U.S. Treasury securities................   $   35,398     $     208         $       0      $   35,606      $   35,606
Securities of U.S.
    government agencies.................        1,478             7                 0           1,485           1,485
Securities of states and
    political subdivisions..............        9,014           373                 0           9,387           9,387
Mortgage-backed securities..............       11,520           113                 0          11,633          11,633
                                           ----------     ---------         ---------      ----------      ----------
Total available for sale................   $   57,410     $     701         $       0      $   58,111      $   58,111
                                           ==========     =========         =========      ==========      ==========

Mutual funds available for sale.........   $      812     $       0         $     (79)     $      733      $      733
                                           ==========     =========         =========      ==========      ==========


December 31, 1996

Held to Maturity:

U.S. Treasury securities................   $    2,001     $       0         $       1      $    2,000      $    2,001

Available for Sale:

U.S. Treasury securities................   $   17,428     $      49         $      15      $   17,462      $   17,462
Securities of U.S.
    government agencies.................          999             6                 0           1,005           1,005
Securities of states and
    political subdivisions..............        5,951            59                19           5,991           5,991
Mortgage-backed securities..............        7,387            45                10           7,422           7,422
                                           ----------     ---------         ---------      ----------      ----------
Total available for sale................   $   31,765     $     159         $      44      $   31,880      $   31,880
                                           ==========     =========         =========      ==========      ==========

Mutual funds available for sale.........   $    1,500     $       0         $     165      $    1,335      $    1,335
                                           ==========     =========         =========      ==========      ==========
</TABLE>






                                                         -63-
<PAGE>

                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

Scheduled  maturities  of  investment  securities  at December  31, 1997 were as
follows (amounts in thousands):
<TABLE>
                                                               Held to Maturity           Available for Sale
                                                              Amortized      Fair         Amortized     Fair
                                                                Cost        Value           Cost        Value
<S>                                                           <C>          <C>         <C>          <C>
Within 1 year..........................................       $  1,000     $   1,000   $    9,312   $     9,327
After 1 year but within 5 years........................              0             0       27,910        28,110
After 5 years but within 10 years......................              0             0          590           608
After 10 years.........................................              0             0        8,078         8,433
                                                              --------     ---------   ----------   -----------
                                                                 1,000         1,000       45,890        46,478

Mortgage-backed securities.............................              0             0       11,520        11,633
                                                              --------     ---------   ----------   -----------
Total..................................................       $  1,000     $   1,000   $   57,410   $    58,111
                                                              ========     =========   ==========   ===========
</TABLE>

  Expected maturities of mortgage-backed  securities can differ from contractual
maturities  because borrowers have the right to call or prepay  obligations with
or  without  call  or  prepayment  penalties.   In  addition,  such  factors  as
prepayments  and interest  rates may affect the yield and the carrying  value of
mortgage-backed  securities.  At December 31, 1997 and 1996,  the Company had no
high-risk collateralized mortgage obligations as defined by regulatory agencies.

  The average  maturity of portfolio  securities held by mutual funds classified
as available for sale was 7.1 years at December 31, 1997.

  Assets  pledged to secure public  deposits  include  investment  securities at
December  31,  1997  of  approximately  $35,013,000  and  loans  and  investment
securities at December 31, 1996, of approximately $24,201,000.

  No debt securities  were sold during 1997.  Proceeds from sales of investments
in debt  securities  were  $8,351,000  and  $9,483,000  during  1996  and  1995,
respectively.  The Company  recorded gross realized losses of $8,000 and $62,000
on  the  sales  of  investments  in  debt  securities   during  1996  and  1995,
respectively.  The Company  realized  tax benefits of $3,000 and $25,000 on debt
securities losses in 1996 and 1995, respectively.  Proceeds from sales of mutual
funds were $2,697,000 in 1997 with a related gain of  approximately  $9,000.  No
mutual funds were sold in 1996 or 1995.

Sales of investment  securities classified as held to maturity in 1995 consisted
of a single  security  which was sold within 90 days of its maturity  date.  The
amortized  cost at the  date of sale was  $998,203  and the  loss  realized  was
$1,172.

3. Loans,  Leases,  Allowance  for Possible Loan and Lease Losses and Loans Held
for Sale:

      The Company's  customers are located throughout its service areas covering
primarily  the  whole  of  Northern  California   including  San  Francisco  and
Sacramento and Reno and Carson City, Nevada.  Approximately 38% of the Company's
loans at December  31,  1997,  have been  generated  through the  Company's  SBA
lending  activities.  Of these loans, the SBA guarantee extends to approximately
35%. $20,080,000 of the Company's loan portfolio represents the retained portion
of SBA loans for which the SBA  guaranteed  portion has been sold to  investors.
Approximately  87% of these loans are  collateralized  by commercial real estate
and  the  balance  by  other  business  assets.  The  Company's  loans  are  not
concentrated in any particular industry segment.


                                                           -64-

<PAGE>
                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)
<TABLE>

      At  December  31,  1997 and  1996,  the loan  portfolio  consisted  of the
following (amounts in thousands):
                                                                                            1997          1996
                                                                                            ----          ----
<S>                                                                                    <C>            <C>

Commercial................................................................             $   228,996    $   174,445
Real estate--mortgage.....................................................                 102,602         67,690
Real estate--construction.................................................                  64,151         36,633
Individual and other......................................................                   6,920          6,824
Lease receivables.........................................................                  16,055          9,994
                                                                                       -----------    -----------
Total gross loans and leases..............................................                 418,724        295,586

Unearned income on leases.................................................                   2,941          1,690
Net deferred loan fees....................................................                    (305)            19
Allowance for possible loan and lease losses..............................                   6,649          4,546
                                                                                       -----------    -----------
Total loans and leases, net of unearned income on leases, net
   deferred fees and allowance for possible loan and lease losses.........             $   409,439    $   289,331
                                                                                       ===========    ===========

Loans held for sale.......................................................             $    17,061    $    29,489
                                                                                       ===========    ===========
</TABLE>

      Included  in  commercial  loans  and  loans  held for  sale are SBA  loans
totaling   $163,764,000   and  $146,266,000  at  December  31,  1997  and  1996,
respectively.  The  guaranteed  portion of SBA loans in process of  disbursement
totaled  $8,897,000 and $5,559,000 at December 31, 1997 and 1996,  respectively.
When these  loans are fully  disbursed,  they will be  available  for sale.  The
guaranteed  portion of loans which are in the Company's loan  portfolio  totaled
$46,710,000  and  $29,066,000 at December 31, 1997 and 1996,  respectively.  The
Company  plans to hold  these  loans  in the  portfolio,  but may  sell  them if
necessary. Loans and portions of loans guaranteed by the federal government were
approximately  $60,030,000  and  $37,444,000  at  December  31,  1997 and  1996,
respectively.

      The  following  schedule  provides a summary of the future  minimum  lease
receivable payments to be received over the next five years (in thousands).

                                       1998              $  4,842
                                       1999                 4,056
                                       2000                 3,145
                                       2001                 2,261
                                       2002                 1,030
                                       Thereafter             721
                                                         --------
                                       Total             $ 16,055
                                                         ========

There are no contingent  rentals  included in income for each of the three years
in the period ended December 31, 1996.

      Of total gross  loans and leases at December  31,  1997,  $5,983,000  were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included  $718,000 related to these loans.  The amount of interest  received and
recognized on these  impaired loans in 1997 was $413,000.  The average  recorded
investment in impaired loans during 1997 was $5,715,000.

      Of total gross  loans and leases at December  31,  1996,  $5,400,000  were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included  $565,000 related to these loans.  The amount of interest  received and
recognized on these  impaired loans in 1996 was $310,000.  The average  recorded
investment in impaired loans during 1996 was $5,600,000.


                                                           -65-

<PAGE>


                               SIERRAWEST BANCORP AND SUBSIDIARY

                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                         (continued)

      The changes in the  allowance  for possible  loan and lease losses for the
years  ended  December  31,  1997,  1996,  and 1995 were as follows  (amounts in
thousands):
<TABLE>
                                                                                                 Year Ended
                                                                                                December 31,
                                                                                     1997           1996         1995
<S>                                                                                <C>           <C>           <C>
Balance, beginning of year....................................                     $   4,546     $   3,845     $   3,546

Provision for possible loan and lease losses..................                         2,480         1,010         1,270
Loans charged off.............................................                        (1,490)         (593)       (1,025)
Recoveries....................................................                           249           284            54
Acquisition...................................................                           864             0             0
                                                                                   ---------     ---------     ---------
Balance, end of period........................................                     $   6,649     $   4,546     $   3,845
                                                                                   =========     =========     =========
</TABLE>

     As of December 31, 1997 and 1996, loans totaling $5,983,000 and $5,363,000,
respectively,  were on nonaccrual status. Forgone interest on loans that were on
nonaccrual  status  for the  years  ended  December  31,  1997,  1996 and  1995,
approximated $237,000, $320,000 and $243,000,  respectively. Cash collections of
interest on  nonaccrual  loans for the same periods of $413,000,  $310,000,  and
$221,000,  respectively,  were included in interest on loans in the Consolidated
Statements of Income.  The principal  balance of loans where scheduled  payments
are 90 days or more  past  their due date and where  interest  has been  accrued
totaled $1,382,000,  $2,132,000,  and $1,023,000,  as of December 31, 1997, 1996
and 1995,  respectively.  Management believes these loans are adequately secured
and interest recorded on these loans will be collected.

     Other real estate owned was  $1,438,000  and $446,000 at December 31, 1997,
and 1996,  respectively,  and is recorded in other assets.  At December 31, 1997
and 1996 the balance in the  allowance for losses on other real estate owned was
zero.  During  the  years  ended  December  31,  1997  and  1996,  there  was no
significant activity in the allowance for losses on other real estate owned.


                                                           -66-

<PAGE>


                            SIERRAWEST BANCORP AND SUBSIDIARY

                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (continued)

4.   Sales and Servicing of SBA Loans:

     Prior to January 1, 1997 the Company's  excess servicing fees were recorded
as excess  servicing  assets which were amortized over the estimated life of the
related loans.  Effective  January 1, 1997, under provisions of SFAS 125, excess
servicing  assets of $12.0  million  recognized on SBA, and $0.15 million on B&I
loans  sold  prior to  January  1, 1997 and  mortgage  servicing  assets of $0.6
million,  were reclassified to interest-only  strips receivable.  The balance of
excess  servicing  assets at  January  1, 1997 were  reclassified  to  servicing
assets. These assets are amortized as an offset to loan servicing income and I/O
strip income over the estimated life of the related loans.

     Interest-only  strip  receivables  are classified as  interest-only  strips
receivable  available  for sale and are  carried at fair  value.  On a quarterly
basis the Company  reviews its servicing  assets,  stratified by loan type,  for
impairment.  The  amount of  impairment  recognized  is the  amount by which the
carrying amount of the servicing assets exceeds their fair value. This amount is
recorded  as a  valuation  allowance.  There was no  activity  in the  valuation
allowance  during  1997.  The fair value of the  Company's  servicing  assets at
December  31,  1997  based on the  current  quoted  market  prices  for  similar
instruments was estimated at $2.1 million. The carrying amount at this same date
was also $2.1 million.

A summary of the  activity in SBA loans for the years ended  December  31, 1997,
1996 and 1995, is as follows (amounts in thousands):
<TABLE>
                                                                                               December 31,
                                                                                        1997         1996          1995
<S>                                                                                  <C>            <C>          <C>
Excess servicing retained on January 1, ...................................          $ 14,188       $14,813      $  16,027
Reclassification to servicing assets.......................................             2,180             0              0
Reclassification to I/O strips (1).........................................            12,758             0              0
Additions to excess servicing assets at sale...............................                 0           690            134
Additions to servicing assets at sale......................................               114             0              0
Additions to I/O strips at sale (2)........................................             5,089             0              0
Amortization charged against earnings -
 servicing assets/excess servicing.........................................               273         1,315          1,348
Amortization charged against earnings - I/O strips.........................             1,446             0              0
Balance of excess servicing retained at December 31........................                 0        14,188         14,813
Balance of servicing assets at December 31.................................             2,021             0              0
Balance of I/O strips at December 31.......................................            16,401             0              0
Unrealized gain on I/O strips at December 31...............................               675             0              0
</TABLE>

(1)  Includes  $600  thousand in purchased  mortgage  servicing  rights and $150
     thousand in excess servicing on B&I loans.
(2)  Includes $367 thousand related to B&I loan sales.

      Included  in the fair value of I/O  strips at  December  31,  1997 is $512
thousand  related to B&I loans of which $15 thousand  represents  the unrealized
gain on these assets.  Excess  servicing  retained at December 31, 1996 includes
$150 thousand generated on the sale of B&I loans.

      Sales of  guaranteed  portions of SBA loans  totaled  $9.6  million,  $5.6
million and $5.6 million for the years ended  December 31, 1997,  1996 and 1995,
respectively.

      In June,  1997 $51.3  million of  unguaranteed  portions of SBA loans were
securitized.  A gain  of $2.6  million  was  recorded  upon  securitization  and
approximately  $4 million in additional I/O strips  receivable  was recorded.  A
recourse  obligation of $3,272 thousand was recorded at  securitization of which
$250  thousand was  subsequently  credited to expense  related to the paydown of
loans included in the securitization.


                                                           -67-

<PAGE>

                              SIERRAWEST BANCORP AND SUBSIDIARY

                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                         (continued)

      For the years ended December 31, 1997, 1996 and 1995, $78.1 million,  $7.3
million and $22.2  million of  unguaranteed  portions of SBA and similar  loans,
respectively, were originated for sale.

      During  June  1990,  the  Company  purchased  the  rights to  service  the
guaranteed portion of SBA loans from a third party. The unpaid principal balance
of such loans serviced for others by the Company  exclusive of nonaccrual loans,
was $11,651,000 and $11,580,000 at December 31, 1996 and 1995, respectively. The
balance of purchased servicing rights was $600,000 and $772,000 at December 1996
and 1995, respectively.  Amortization of purchased servicing rights was $172,000
in 1996 and 1995.

5.    Bank Premises, Leasehold Improvements and Equipment:

      Bank premises,  leasehold  improvements and equipment at December 31, 1997
and 1996, consisted of the following (amounts in thousands):
<TABLE>
                                                                                  December 31, 1997
                                                                                     Accumulated
                                                                                    Depreciation/              Net
                                                                  Cost              Amortization           Book Value
<S>                                                          <C>                   <C>                   <C>
Land......................................................   $          948        $          0          $        948
Buildings.................................................            8,749               1,361                 7,388
Leasehold improvements....................................              732                 541                   191
Furniture and equipment...................................            7,504               5,251                 2,253
                                                             --------------        ------------          ------------

Total.....................................................   $       17,933        $      7,153          $     10,780
                                                             ==============        ============          ============

                                                                                  December 31, 1996
                                                                                     Accumulated
                                                                                    Depreciation/              Net
                                                                  Cost              Amortization           Book Value

Land......................................................   $        1,425        $          0          $      1,425
Buildings.................................................            9,439               1,059                 8,380
Leasehold improvements....................................              639                 501                   138
Furniture and equipment...................................            6,814               4,399                 2,415
                                                             --------------        ------------          ------------

Total.....................................................   $       18,317        $      5,959          $     12,358
                                                             ==============        ============          ============
</TABLE>

      Depreciation  and  amortization  amounts  included  in net  occupancy  and
equipment  expenses were  $1,352,000,  $1,145,000 and $1,076,000,  for the years
ended December 31, 1997, 1996 and 1995, respectively.

6.    Deposits:

      The aggregate amount of certificates of deposits with balances of $100,000
or more,  was  $112,627,000  and  $84,911,000  at  December  31,  1997 and 1996,
respectively.



                                                           -68-

<PAGE>


                             SIERRAWEST BANCORP AND SUBSIDIARY

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      (continued)

      Maturities of certificates of deposit at December 31, 1997 were as follows
(amounts in thousands):

                 Year

                 1998......................................      201,493
                 1999......................................       16,473
                 2000......................................        2,645
                 2001......................................        1,109
                 2002......................................        1,432
                 Thereafter................................           85
                                                              ----------
                                                              $  223,237
                                                              ==========
7.    Convertible Debentures:

      On  February 8, 1994,  Bancorp  sold to the public  $10,000,000  of 8 1/2%
optional convertible subordinated  debentures,  convertible at the option of the
holder at  $10.00  per  share.  These  debentures  were  scheduled  to mature on
February 1, 2004 and are  redeemable on or after February 1, 1997 in whole or in
part at the option of Bancorp.  During  1997  notice was given to the  debenture
holders that the remaining  outstanding  debentures would be redeemed  effective
June 30, 1997, if not converted by June 30, 1997. Prior to the close of business
on June 30, 1997,  the  remaining  balance of $8,520,000 of the Company's 8 1/2%
convertible  debentures  were converted to 852 thousand  shares of common stock.
The balance of  convertible  debentures  outstanding  at  December  31, 1996 was
$8,520,000.

8.    Salary Continuation Plan:

      The Company has a Salary  Continuation Plan covering certain of its senior
officers and  directors.  Under this plan,  the officers and  directors or their
beneficiaries  will receive  monthly  payments  after  retirement or if earlier,
death.  Certain officers and directors agreements provide for an acceleration of
benefits such that the full amount due under the agreement  would become payable
in the case of a change of control  of the  Company.  The  Company  has  accrued
$114,197,  $104,820 and $66,818 as compensation  expense in 1997, 1996 and 1995,
respectively,  under this plan.  To  protect  the  Company in the event of death
prior to retirement,  the Company has secured life insurance on the lives of the
covered officers and directors.


9.    Commitments and Contingent Liabilities:

      Lease Payments. The Company is obligated for rental payments under certain
operating  lease,  capitalized  lease  and  contract  agreements,  some of which
contain  renewal  options.  Total rental  expense  included in net occupancy and
equipment  expense  amounted to $1,152,000,  $1,106,000 and $1,211,000,  for the
years ended  December 31,  1997,  1996 and 1995,  respectively.  At December 31,
1997, future minimum rentals to be received under noncancellable  subleases were
approximately $362,000.



                                                           -69-

<PAGE>

                           SIERRAWEST BANCORP AND SUBSIDIARY

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (continued)

      At  December  31,  1997,  future  minimum  payments,  by  year  and in the
aggregate,  under the capital leases and  noncancellable  operating  leases with
initial or remaining  terms of one year or more  consisted of the  following (in
thousands):

                                                 Capital      Operating
Year                                             Leases         Leases

1998......................................     $     42      $  1,134
1999......................................           42         1,003
2000......................................           42           900
2001......................................           42           667
2002......................................           42           790
Thereafter................................          383         1,304
                                               --------      --------
Total minimum lease payments..............          593      $  5,798
                                                             ========
Less amount representing interest.........         (296)
                                               --------

Present value of net minimum
   lease payments..........................    $    297
                                               ========

      Commitments  to  Lend.  In  the  normal  course  of  business,  there  are
outstanding various commitments and contingent liabilities,  such as commitments
to  extend  credit  and  letters  of  credit,  which  are not  reflected  in the
consolidated financial statements. As of December 31, 1997 and 1996, the Company
had outstanding  $151,044,000 and $78,053,000,  respectively,  in commitments to
extend credit and $4,780,000 and $2,024,000, respectively, in standby letters of
credit.  At December 31, 1997,  no losses are  anticipated  as a result of these
commitments.

      Loan  commitments  are  typically  contingent  upon the  borrower  meeting
certain financial and other covenants, and such commitments typically have fixed
expiration   dates  and  sometimes   require  payment  of  fees.   Approximately
$40,352,000 of the  commitments at December 31, 1997,  relate to SBA loans which
may require a construction  phase,  generally  lasting less than 12 months.  The
remainder relate primarily to commercial  lines of credit,  construction  loans,
equity  lines of credit,  and  commercial  loans.  The  Company  evaluates  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.

      Standby  letters  of credit  are  conditional  commitments  written by the
Company  to  guarantee  the  performance  of a client  to a third  party.  These
guarantees  are issued to the Company's  commercial  clients,  and are typically
short-term in nature.  Credit risk is similar to that involved in extending loan
commitments  to  customers,  and the Company  accordingly  uses  evaluation  and
collateral  requirements  similar  to those  for  loan  commitments.  Most  such
commitments are collateralized.

      Legal Actions. During 1987, the Bank took title, through foreclosure, of a
property  located in Placer  County which  subsequent  to the Bank's sale of the
property was determined to be contaminated  with a form of hydrocarbons.  At the
time it owned the property, the Bank became aware of and investigated the status
of certain underground tanks that had existed on the property.  The Bank hired a
consultant to study the tanks and properly seal them.  Several years later,  and
after resale of the property, contamination was observed in the area of at least
one of the buried tanks and along an adjoining  riverbank of the Yuba River. The
Bank, at the time of resale of the property, was not aware of this contamination
adjacent to the tanks but was aware of the  existence of the tanks and disclosed
this to its purchaser.

A formal plan of  remediation  has not been  approved by the County of Placer or
the State Regional Water Quality Board but is being  finalized by an independent
consultant  retained  for this  purpose.  As a result  of the  discovery  of the
contamination,  two civil  lawsuits were  instituted  against the Bank and other
prior owners by the current owner of the property,  Rainbow Holding Company, who
is also the Bank's borrower. One of the actions, the state court

                                                           -70-

<PAGE>


                          SIERRAWEST BANCORP AND SUBSIDIARY

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    (continued)

matter,  was dismissed by agreement of the parties.  The other matter,  filed in
the summer of 1995 in the U.S.  District Court,  Eastern District of California,
is ongoing, with mediation before a retired Superior Court Judge.

The  Company's  external  and internal  counsel on this matter  believe that the
Bank's  share of the cost of  remediation  and the costs of defense  will not be
material to the Bank's or the Company's  performance and will be within existing
reserves  established by the Bank for this matter.  It is expected that clean-up
of the property will commence during 1998 at the conclusion of remediation and a
raising of sufficient funds.

In addition,  the Company is subject to some minor pending and threatened  legal
actions  which arise out of the normal course of business and, in the opinion of
Management and the Company's  General  Counsel,  the disposition of these claims
currently  pending  will not have a  material  adverse  affect on the  Company's
financial position or results of operations.

      Reserves.  The Company is required to maintain  reserves  with the Federal
Reserve Bank of San Francisco equal to a percentage of its reservable  deposits.
The reserve  requirement  at  December  31,  1997 and 1996 was  $10,486,000  and
$5,054,000,   respectively.   As  compensation  for   check-clearing   services,
additional compensating balances of $2,750,000 and $1,500,000 are required to be
maintained with the Federal Reserve Bank. In addition, at December 31, 1997, the
Company had  restricted  access to  approximately  $2.2 million in cash balances
which are required to be maintained pursuant to its 1997 securitization.

10.   Income Taxes:

      The current and deferred  amounts of the tax provision for the years ended
December 31, 1997, 1996 and 1995 are as follows (amounts in thousands):
<TABLE>
                                                                                    December 31,
                                                                                    ------------
                                                                  1997                 1996                 1995
                                                                  ----                 ----                 ----
<S>                                                           <C>                  <C>                   <C>
Federal               Currently payable...................... $    3,901           $     1,392           $    1,030
                      Deferred...............................       (206)                  234                  (93)

State                 Currently payable......................      1,004                   376                  289
                      Deferred...............................          8                    75                  (47)
                                                              ----------           -----------           ----------

                                                              $    4,707           $     2,077           $    1,179
                                                              ==========           ===========           ==========

Total                 Currently payable...................... $    4,905           $     1,768           $    1,319
                      Deferred...............................       (198)                  309                 (140)
                                                              ----------           -----------           ----------

                                                              $    4,707           $     2,077           $    1,179
                                                              ==========           ===========           ==========

</TABLE>

                                                           -71-

<PAGE>


                                  SIERRAWEST BANCORP AND SUBSIDIARY

                              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                             (continued)

In the  carrying  amounts  of assets and  liabilities  for  financial  reporting
purposes and for income tax  purposes.  Significant  components of the Company's
net  deferred  tax  liability  as of  December  31, 1997 and 1996 are as follows
(amounts in thousands):
<TABLE>
                                                                                                December 31,
Deferred Tax Assets:                                                                1997                     1996
                                                                                    ----                     ----
<S>                                                                                <C>                     <C>
     Book loan loss allowance in excess of tax loan loss allowance                 $ 2,469                 $ 1,603
     State taxes paid or accrued                                                       341                     153
     Accrued personal leave                                                            232                     248
     Deferred compensation                                                             351                     222
     Unrealized loss on investment securities                                            0                      21
     Accrued expenses                                                                  502                     582
     Other                                                                             450                     275
                                                                                   -------                 -------
                                                                                     4,345                   3,104
                                                                                   -------                 -------

Deferred Tax Liabilities:
     Unamortized book gain in excess of unamortized tax gain
       on sale of SBA loans                                                        $ 2,217                 $ 2,285
     Deferred loan costs                                                             1,104                     618
     Loans marked to market                                                            665                     573
     Unrealized gain on investment securities and I/O strips receivable                535                       0
     Other                                                                             309                     351
                                                                                   -------                 -------
                                                                                     4,830                   3,827
                                                                                   -------                 -------
Net deferred tax liability                                                         $   485                 $   723
                                                                                   =======                 =======
</TABLE>

      The total tax  provision  differs from the  statutory  federal  income tax
rates for the reasons shown in the following table:
<TABLE>
                                                                                    December 31,
                                                                                    ------------
                                                                    1997                1996                1995
                                                                    ----                ----                ----
<S>                                                                <C>                  <C>                 <C>
Tax at statutory federal rate ...............................      35.0%                35.0%               35.0%
State taxes, net of federal benefit..........................       5.4                  5.0                 4.4
Income exempt from federal taxation..........................      (1.1)                (1.7)               (0.4)
Increase in cash surrender value
  of life insurance policies.................................      (0.4)                (0.7)               (1.3)
Other, net...................................................      (0.4)                 0.8                 0.4
                                                                   -----                -----               ----

Effective tax rate...........................................      38.5%                38.4%               38.1%
                                                                   ====                 ====                ====
</TABLE>

                                                           -72-
<PAGE>

                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

11.   Preferred Stock

      On  December  21,  1995,  the  Company  designated  200,000  shares of its
10,000,000   authorized  preferred  shares  as  Series  A  Junior  Participating
Preferred  Stock  (Series  A  stock).  One  share of Series A stock has the same
voting and  participation  rights as one hundred shares of common stock. On this
same  date,  the  Company's  Board of  Directors  adopted a  shareholder  rights
protection  plan (the Plan) and  declared a dividend of one stock right for each
share of common stock  outstanding  on January 16, 1996.  Upon the occurrence of
certain events,  the right is convertible  into one  one-hundredth of a share of
Series A stock for an exercise  price of $40. As the rights are not  convertible
at the  option of the  holder and there is no  assurance  that they will  become
convertible, the Company has not assigned a value to the rights. The Plan became
effective  March 3, 1996. On January 29, 1998, the Company  amended the Plan and
increased the exercise price of the stock rights from $40 to $100.

12.   Other Expense:

      Other expense for the years ended December 31, 1997, 1996 and 1995 include
the following (amounts in thousands):
<TABLE>
                                                                      Year Ended December 31,

                                                                  1997         1996         1995
                                                                  ----         ----         ----
<S>                                                             <C>          <C>           <C>
Advertising.................................                    $    697     $      600    $      715
Consulting..................................                       1,082            506           263
Directors' fees and expenses................                         508            429           909
FDIC assessments............................                          51              4           284
Insurance(1)................................                         233            242           277
Legal fees..................................                         190            484           470
Postage.....................................                         364            337           304
Stationery and supplies.....................                         369            416           334
Telephone...................................                         425            374           350
Sundry losses...............................                         534            808         1,370
Other.......................................                       2,239          1,925         1,640
                                                                --------     ----------    ----------

                                                                $  6,692     $    6,125    $    6,916
                                                                ========     ==========    ==========
</TABLE>

(1)   Excludes medical  insurance and workers'  compensation  premiums which are
      included in salaries and related benefits.


13.   Earnings Per Share:

During the fourth  quarter of 1997, the Company  adopted SFAS No. 128,  Earnings
Per  Share.  This  statement  replaces  previous  earnings  per share  reporting
requirements  and requires  presentation of both basic and diluted  earnings per
share.  All  earnings  per  common and  equivalent  share  information  has been
restated to give effect to the  adoption of SFAS No.  128.  Basic  earnings  per
share is computed by dividing net income by the weighted  average  common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution  that could occur if options or other  contracts  to issue common stock
were exercised and converted into common stock.



                                                           -73-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

The following  reconciles the numerator and denominator  used in the calculation
of both the basic earnings per share and diluted  earnings per share for each of
the years ended December 31:
<TABLE>
                                                                    1997            1996            1995
                                                                    ----            ----            ----
<S>                                                                <C>             <C>             <C>
Calculation of Basic Earnings Per Share

Numerator - net income                                             $7,509          $3,328          $ 1,916
Denominator - weighted average common shares
 outstanding                                                        3,693           2,809            2,728
                                                                   ------          ------          -------

Basic Earnings Per Share                                           $ 2.03          $ 1.18          $  0.70
                                                                   ======          ======          =======

Calculation of Diluted Earnings Per Share

Numerator:
 Net Income                                                        $7,509          $3,328          $ 1,916
 Effect of convertible debentures                                      35             448              499
                                                                   ------          ------          -------

Net Income and assumed conversions                                 $7,544          $3,776          $ 2,415

Denominator:
 Weighted average common shares outstanding                         3,693           2,809          $ 2,728
 Dilutive effect of options                                           189             134               84
 Dilutive effect of convertible debentures                            273             977            1,050
                                                                   ------          ------          -------
                                                                    4,155           3,920            3,862
                                                                   ------          ------          -------

Diluted Earnings Per Share                                         $ 1.82          $ 0.96          $  0.63
                                                                   ======          ======          =======
</TABLE>

14.     Employee Stock Option Plan:

Under the  Company's  1988  stock  option  plan,  519,750  shares of stock  were
reserved for employee stock options. Options under this plan could be granted to
full-time  salaried  officers and  employees and to directors of Bancorp and its
subsidiaries  at the fair market  value of the stock on the date of grant.  With
the exception of  non-employee  director  options granted after August 16, 1995,
options  granted under the 1988 plan are exercisable for a period of five years,
with 20% of the  options  vesting  each year.  Options  granted to  non-employee
directors  after August 16, 1995 are fully vested upon grant and have a term and
exercise period of ten years.  The 1988 plan was terminated in 1996 and replaced
by a new plan,  under which 472,500  shares are available for issuance.  Options
under this plan may be granted to full-time  salaried  officers and employees at
the fair market value of the stock on the date of the grant.  The options have a
term of ten years and vesting  provisions  are  determined by a committee of the
Board of Directors, with a minimum of 20% of the options vesting each year.



                                                           -74-

<PAGE>


                                 SIERRAWEST BANCORP AND SUBSIDIARY

                             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                           (continued)

        The following is a summary of stock option activity:
        (Adjusted to reflect the 5% stock dividend paid August 29, 1997)
<TABLE>

                                                                             Number of           Weighted Average
                                                                              Shares              Exercise Price
<S>                                                                        <C>                       <C>

       Outstanding, January 1, 1995.....................................     356,636                 $  6.56
          Granted ......................................................     171,452                    9.85
          Terminated ............................................ . . .     (114,201)                   6.38
          Exercised ....................................................     (21,619)                   6.58
                                                                           ---------
       Outstanding, December 31, 1995 (156,658 exercisable
        at a weighted average price of $7.93)...........................     392,268                    8.05
          Granted.......................................................      78,750                   13.63
          Terminated....................................................     (26,607)                   7.43
          Exercised.....................................................     (32,256)                   6.58
                                                                           ---------
       Outstanding, December 31, 1996 (242,419 exercisable
        at a weighted average price of $9.27)...........................     412,155                    9.28
          Granted.......................................................      64,550                   18.63
          Terminated....................................................     (15,750)                  10.41
          Exercised.....................................................    (116,647)                   7.52
                                                                           ---------
       Outstanding, December 31, 1997...................................     344,308                   11.57
</TABLE>

Additional  information regarding options outstanding as of December 31, 1997 is
as follows:
<TABLE>
                                       Options Outstanding                                 Options Exercisable

                                        Weighted Average
                                            Remaining
    Range of             Number            Contractual         Weighted Average        Number        Weighted Average
 Exercise Prices       Outstanding         Life (Yrs)           Exercise Price       Exercisable      Exercise Price
<S>                     <C>                   <C>                  <C>                <C>                 <C>
$ 4.76                    8,663               0.1                  $  4.76              6,930             $  4.76
$ 6.19 -  7.62           64,370               0.7                     6.74             30,450                6.71
$ 8.81 -  9.29           75,370               6.2                     9.20             64,871                9.25
$10.71 - 11.19           61,005               3.0                    10.75             20,685               10.74
$12.50 - 22.86          129,150               8.8                    15.56             55,650               13.63
$24.13 - 27.63            5,750               9.7                    25.96                  0
                        -------                                                       -------
                        344,308                                                       178,586
                        =======                                                       =======
</TABLE>

At December 31, 1997,  335,500 shares were available for future grants under the
1996 plan.

      SFAS No.  123,  Accounting  for  Stock-Based  Compensation,  requires  the
disclosure  of pro forma  net  income  and  earnings  per share had the  Company
adopted the fair value method as of the  beginning of 1995.  Under SFAS No. 123,
the fair value of stock-based  awards to employees is calculated through the use
of option pricing models, even though such models were developed to estimate the
fair  value of freely  tradable,  fully  transferable  options  without  vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective  assumptions,  including future stock price
volatility  and expected time to exercise,  which greatly  affect the calculated
values.  The fair value of the options  granted  during  1997,  1996 and 1995 is
estimated  as  $397,000,  $352,000  and  $516,000  on the date of grant  using a
binomial  options  pricing  model with the following  assumptions:  For employee
grants made in 1997: expected life, seven and one-half years;  average risk free
interest rate 6.19%. For non-employee  grants made in 1995: expected life, seven
years;  risk free interest  rate,  5.93%.  For fully vested grants made in 1996:
expected  life,  seven years;  risk free  interest  rate,  5.97%.  For all other
employee  grants made in 1996 and 1995:  expected  life,  four years;  risk free
interest rates, 5.76% in 1996 and 5.79% in 1995.

                                                           -75-

<PAGE>


                                SIERRAWEST BANCORP AND SUBSIDIARY

                            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          (continued)

For 1997 grants stock volatility was assumed to be 25%.  For all grants made in
1996 and 1995, stock volatility was assumed to be 30%.

Dividends  were  assumed to be payable at 2.5% during all years  presented.  The
weighted  average  per share  fair value of the 1997,  1996 and 1995  awards was
$6.15, $4.69 and $3.24, respectively.  The Company's calculations are based on a
multiple option valuation approach and forfeitures are recognized as they occur.
Had  compensation  cost for the grants been determined based upon the fair value
method, the Company's net income and earnings per share would have been adjusted
to the pro forma amounts indicated below.
<TABLE>

                                                                  1997                  1996                  1995
                                                                  ----                  ----                  ----
<S>                                                           <C>                   <C>                   <C>
               Net income
                 As reported................................  $   7,509             $    3,328            $    1,916
                 Pro forma-basic............................      7,426                  3,133                 1,722
                 Pro forma-diluted..........................      7,461                  3,581                 2,221

               Basic earnings per share
                 As reported................................  $    2.03             $     1.18            $     0.70
                 Pro forma..................................       2.01                   1.12                  0.63

               Diluted earnings per share
                 As reported................................  $    1.82             $     0.96            $     0.63
                 Pro forma..................................       1.80                   0.92                  0.58
</TABLE>

The impact of  outstanding  non-vested  stock options  granted prior to 1995 has
been  excluded  from  the pro  forma  calculation;  accordingly,  the pro  forma
adjustments are not indicative of future period pro forma adjustments,  when the
calculation will apply to all applicable stock options.

15.   Employee Stock Ownership Plan:

      Officers and other  employees of Bancorp and its  subsidiary  are eligible
for  participation  in the  "SierraWest  Bancorp KSOP Plan" (the  "KSOP")  which
provides for a qualified cash or deferred arrangement and discretionary employer
matching and profit sharing  contributions.  The Company contributes to the plan
at the discretion of the Board of Directors.  Contributions can take the form of
cash contributions or Bancorp common stock. Contributions of $317,000, $238,000,
and $198,000 were made to the KSOP in 1997, 1996 and 1995, respectively.

16.   Capital Requirements and Regulatory Restrictions:

The Company is regulated by the Federal  Reserve  Board and is limited as to the
payment of dividends by  California  corporate law to the amount of its retained
earnings.  SierraWest  Bank  is  regulated  by  the  Federal  Deposit  Insurance
Corporation (the "FDIC"),  whose regulations  generally do not limit the payment
of dividends.  In addition to the FDIC, SierraWest Bank is also regulated by the
California  State  Banking  Department.   California  banking  laws  limit  cash
dividends  to the lesser of  retained  earnings or net income for the last three
years,  net of the amount of  distributions  made to  shareholders  during  such
period.  At December  31,  1997,  in  accordance  with  statutory  restrictions,
$11,587,000 of Bancorp's  retained earnings were restricted as to the payment of
dividends;  however,  banking  regulations  also require that each bank maintain
certain capital ratios.  These requirements may further act to limit the payment
of dividends.

      The  Company  and the Bank  are  subject  to  various  regulatory  capital
requirements administered by federal and state 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 material  effect on the Company's  consolidated  financial  statements.  Under
capital adequacy guidelines, the Company and the Bank must meet specific capital
guidelines  that involve  quantitative  measures of the Company's and the Bank's
assets,

                                                           -76-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

liabilities,  and certain off-balance sheet items as calculated under regulatory
accounting  practices.  The  Company's  and the Bank's  capital  amounts and the
Bank's prompt corrective action  classification  are also subject to qualitative
judgements  by the  regulators  about  components,  risk  weightings  and  other
factors.

      Quantitative measures established by regulation to ensure capital adequacy
require the Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the  table  below)  of total  and Tier I  capital  (as  defined  in the
regulations)  to  risk-weighted  assets  (as  defined)  and Tier I  capital  (as
defined) to average assets (as defined). Management believes, as of December 31,
1997,  that the Company and the Bank meet all capital  adequacy  requirements to
which they are subject.

      The  most  recent   notifications   from  the  Federal  Deposit  Insurance
Corporation  for the Bank as of December 31, 1997 and 1996  categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be  categorized  as well  capitalized  the Bank must  maintain  minimum total
risk-based,  Tier I  risk-based  and Tier I leverage  ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the Bank's category.

The Company's and the Bank's actual  capital  amounts (in  thousands) and ratios
are also presented, respectively, in the following tables.
<TABLE>
                                                                                                   To Be Well Capitalized
                                                                          For Capital              Under Prompt Corrective
                                                       Actual         Adequacy Purposes               Action Provisions
                                                 Amount       Ratio        Amount        Ratio        Amount      Ratio
<S>                                             <C>           <C>         <C>             <C>         <C>           <C>
As of December 31, 1997:

    Total Capital (to Risk Weighted Assets):
        Consolidated                            $ 56,742      12.4%       $ 36,660        8.0%           N/A          N/A
        SierraWest Bank                           53,656      11.7%         36,782        8.0%        45,978        10.0%

    Tier I Capital (to Risk Weighted Assets):
        Consolidated                              51,003      11.1%         18,330        4.0%          N/A          N/A
        SierraWest Bank                           47,898      10.4%         18,391        4.0%       27,587         6.0%

    Tier I Capital (to Average Assets):
        Consolidated                              51,003       8.9%         23,030        4.0%           N/A         N/A
        SierraWest Bank                           47,898       8.3%         23,030        4.0%        28,787        5.0%


As of December 31, 1996:

    Total Capital (to Risk Weighted Assets):
        Consolidated                            $ 46,668      13.6%       $ 27,452        8.0%           N/A         N/A
        SierraWest Bank                           35,866      10.7%         26,816        8.0%        33,520       10.0%

    Tier I Capital (to Risk Weighted Assets):
        Consolidated                              33,846       9.8%         13,815        4.0%           N/A         N/A
        SierraWest Bank                           31,670       9.4%         13,477        4.0%        20,215        6.0%

    Tier I Capital (to Average Assets):
        Consolidated                              33,846       7.9%         17,137        4.0%           N/A         N/A
        SierraWest Bank                           31,670       7.6%         16,668        4.0%        20,836        5.0%

</TABLE>

SierraWest Bank's ratios are calculated under regulatory accounting principles.



                                                           -77-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

17.   Related Party Transactions:

      In the ordinary course of business,  the Company makes loans to directors,
senior officers and  shareholders  on  substantially  the same terms,  including
interest rates and  collateral,  as comparable  transactions  with  unaffiliated
persons.  During  1997,  there was one such loan with a balance  of in excess of
$60,000.  At December 31, 1997 the balance was  $1,048,000.  Loan  disbursements
during 1997 on this loan totaled  $1,065,000 and payments made totaled  $17,000.
As of December 31, 1996,  there were no loans  outstanding to directors,  senior
officers,  and  principal  shareholders  and their known  associates  which,  in
aggregate, exceeded $60,000.

18. Disclosures About Fair Value of Financial Instruments:

SFAS No. 107, "Disclosures About Fair Value of Financial  Instruments," requires
that the Company  disclose the fair value of financial  instruments for which it
is  practicable  to  estimate  that  value.  Although  Management  uses its best
judgment  in  assessing  fair  value,  there  are  inherent  weaknesses  in  any
estimating  technique  that may be reflected in the fair values  disclosed.  The
fair  value  estimates  are made at a discrete  point in time based on  relevant
market data,  information  about the financial  instruments  and other  factors.
Estimates  of fair  value  of  instruments  without  quoted  market  prices  are
subjective in nature and involve  various  assumptions  and  estimates  that are
matters of judgment.  Changes in the assumptions used could significantly affect
these  estimates.  Fair value has not been adjusted to reflect changes in market
condition for the period  subsequent  to December 31, 1997 and 1996.  Therefore,
estimates presented herein are not necessarily indicative of amounts which could
be realized in a current transaction.

The following estimates and assumptions were used at December 31, 1997 and 1996,
to estimate the fair value of each class of financial  instruments  for which it
is practicable to estimate that value:

Cash and Cash Equivalents.  For cash and cash equivalents, the carrying amount
is estimated to be fair value.

Investment  Securities and Mutual Funds.  For  investment  securities and mutual
funds,  fair values are based on quoted  market  prices or dealer  quotes.  If a
quoted  price is not  available,  fair value is estimated  using  quoted  market
prices for similar securities.

Loan  Receivables.  The fair value of non-SBA loans is estimated by  discounting
the future cash flows using the current  rates at which  similar  loans would be
made to  borrowers  with  similar  credit  ratings  and for the  same  remaining
maturities.  The fair value of loans  held or  available  for sale is  estimated
using quoted market prices for similar loans or the expected gain in the case of
loans being pooled for  securitization.  SBA loans in process  which will become
available  for  sale  after  final  disbursement  are  valued  at cost  plus the
estimated  gain on sale but  excluding  any gain  allocable  to the  undisbursed
portion of the loans.  In assigning  current  market rates,  it has been assumed
that these reflect  future losses and that no additional  provision for loan and
lease losses is required. The unguaranteed portion of SBA loans not being pooled
have  been  valued  at book  value,  which  approximates  fair  value.  Loans on
nonaccrual  or  work  out  status  have  been  valued  at an  estimated  average
realization  value for the  underlying  collateral  based on past  experience in
liquidation of comparable loans.

Excess Servicing/Servicing Asset/I/O Strips Receivable. The servicing spread net
of normal  servicing  is valued at the  current  rate paid by the market for SBA
interest  strips at  December  31,  1997 and 1996.  A discount  to the SBA strip
pricing is applied to reflect a reduction in marketability  for servicing spread
included in the Company's June, 1997 securitization.

Cash Surrender Value of Life Insurance.  The carrying amount is estimated to be
the fair value.

Deposit  Liabilities.  The fair value of demand  deposits,  savings accounts and
certain money market  deposits is the amount  payable on demand at the reporting
date.  The fair value of  fixed-maturity  certificates  of deposit is  estimated
using the rates currently offered for deposits of similar remaining maturities.


                                                           -78-

<PAGE>


                             SIERRAWEST BANCORP AND SUBSIDIARY

                         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                       (continued)

Convertible Debentures.  Fair value is based on quoted market prices at December
31, 1996.

Commitments to Fund Loans. The Company's commitments to fund loans are primarily
for  adjustable  rate loans  indexed to the prime rate.  For these  commitments,
there is no difference  between the committed amount and fair value. At December
31, 1997 and 1996,  the Company's  commitments  to fund fixed rate loans were at
rates which approximated market. The unrealized gain from the subsequent sale of
the commitment  portion of government  loans in process at December 31, 1997 and
1996 is estimated to be $334 thousand and $839 thousand, respectively.

Derivative Financial Instruments.  Based on quoted market prices at December 31,
1997 and December 31, 1996,  the interest rate swap had a negative fair value of
$47 thousand and $149 thousand, respectively.

Letters of Credit.  The  Company's  standby  letters of credit  have been valued
based on the fees  charged for such  instruments  at December 31, 1997 and 1996.
The  difference  between the letter of credit amounts and the fair value of such
amounts is immaterial.

The Company did not hold any  commitments  to sell loans at December 31, 1997 or
1996.

The estimated fair values of the Company's financial  instruments are as follows
(in thousands):
<TABLE>

                                                                                     December 31, 1997
                                                                                Carrying                  Fair
                                                                                Amount                    Value
<S>                                                                            <C>                     <C>
Financial Assets:
      Cash and cash equivalents.............................................   $      61,556           $      61,556
      Mutual funds..........................................................             733                     733
      Investment securities.................................................          59,111                  59,111
      Loans receivable......................................................         426,500                 437,234
      I/O strips receivable.................................................          17,076                  17,076
      Servicing asset.......................................................           2,021                   2,021
      Cash surrender value of life insurance................................           2,437                   2,437
                                                                               -------------           -------------

                                                                               $     569,434           $     580,168
                                                                               =============           =============

Financial Liabilities:
      Deposits..............................................................   $     526,269           $     526,964
                                                                               =============           =============


</TABLE>
                                                           -79-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)
<TABLE>
                                                                                           December 31, 1996
                                                                                  Carrying                    Fair
                                                                                  Amount                      Value
<S>                                                                            <C>                       <C>
Financial Assets:
      Cash and cash equivalents.............................................   $      58,634             $    58,634
      Mutual funds..........................................................           1,335                   1,335
      Investment securities.................................................          33,881                  33,880
      Loans receivable......................................................         318,820                 328,971
      Excess servicing......................................................          14,338                  17,242
      Cash surrender value of life insurance................................           2,292                   2,292
                                                                               -------------             -----------

                                                                               $     429,300             $   442,354
                                                                               =============             ===========

Financial Liabilities:
      Deposits..............................................................   $     399,651             $   400,471
      Convertible debentures................................................           8,520                  13,036
                                                                               -------------             -----------

                                                                               $     408,171             $   413,507
                                                                               =============             ===========
</TABLE>

19.     Mergers and Acquisition:

On June 30, 1997, SierraWest Bancorp and its subsidiary SierraWest Bank acquired
Mercantile Bank (Mercantile),  a California Banking Corporation headquartered in
Sacramento,  California. The results of operations of Mercantile are included in
the Statements of Income from date of acquisition. The transaction was accounted
for under the  purchase  method of  accounting.  This method  requires  that the
purchase price be allocated to the acquired assets and liabilities of Mercantile
on the basis of their estimated fair values.

The  purchase  price  totaled   $6,618,000   comprised  of  $3,301,000  of  cash
compensation  and $3,317,000 of stock including costs to issue the stock. At the
merger  date,  the fair value of assets  acquired  totaled  approximately  $42.8
million  including  net loans of  approximately  $26.1  million  and  investment
securities  of  approximately  $3.5 million.  The fair value of the  liabilities
assumed  approximated  $37.9 million  including  deposits of $37.7 million.  The
Company  recorded  goodwill of $1,072,000 which is being amortized over 15 years
and core deposit  intangibles of $737,000 which is being amortized over 5 years,
both on a straight-line basis.



                                                           -80-

<PAGE>


                          SIERRAWEST BANCORP AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

The following  unaudited  pro-forma  combined  Summary of Operations  presents a
pro-forma  combined  summary of operations  of both  companies for the years end
December  31,  1996 and  1997  and it is  presented  as if the  merger  had been
effective  on January  1, 1996 and  January 1,  1997.  This  pro-forma  reflects
adjustments for amortization of purchase accounting  adjustments.  The unaudited
pro-forma of the Combined Summary of Operations data is intended for information
purposes only and is not necessarily  indicative of future results of operations
of the Company or the results of operations  that would have  actually  occurred
had the merger been effected during the periods presented.

                     Unaudited Pro Forma Combined Summary of Operations
                            (In thousands, except per share data)
<TABLE>
                                                                                For the Years Ended December 31,


                                                                                      1997                 1996
                                                                                     -----                -----
<S>                                                                              <C>                    <C>
Interest income.............................................................     $    46,110            $   37,146
Interest Expense............................................................          17,823                14,184
                                                                                 -----------            ----------
 Net interest income........................................................          28,287                22,962
Provision for loan losses...................................................           2,621                 1,438
                                                                                 ------------           -----------
 Net interest income after provision for loan losses........................          25,666                21,524
Other operating income......................................................          11,960                 7,762
Other operating expense.....................................................          25,594                23,574
                                                                                 -----------            ----------
 Income before income taxes.................................................          12,032                 5,712
Provision for income taxes..................................................           4,634                 2,235
                                                                                ------------            ----------
 Net income . ..............................................................     $     7,398                 3,477
                                                                                 ===========            ==========

Basic Earnings Per Share....................................................     $       1.96           $     1.17
Weighted average common shares used
 to calculate basic earnings per share......................................            3,779                2,980

Net income adjusted for effect of convertible debentures. ..................     $      7,433           $    3,925
Diluted Earnings Per Share..................................................     $       1.75           $     0.96
Weighted average common shares adjusted for dilutive
 effect of options and convertible debentures...............................            4,240                4,091

</TABLE>

                                                          -81-

<PAGE>


                          SIERRAWEST BANCORP AND SUBSIDIARY

                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    (continued)

On November 13, 1997,  the Company and its wholly  owned  subsidiary  SierraWest
Bank,  and California  Community  Bancshares  Corporation  (CCBC) and its wholly
owned subsidiary Continental Pacific Bank (CPB) signed a Plan of Acquisition and
Merger  (the  Plan).  The Plan  provides  that CPB will be merged  with and into
SierraWest Bank.  SierraWest Bank will be the surviving  corporation in the bank
merger.  The  Company  will also  merge  with  California  Community  Bancshares
Corporation and will become the surviving corporation upon merging.

Under the terms of the proposed  transaction,  shareholders of CCBC will receive
shares of the Company's  common stock at an exchange ratio to be determined by a
formula prior to the effective date of the transaction,  based on the average of
the closing prices of the Company's common stock during a defined 20-day period.
For example,  if the average  price  during the 20-day  period were $33.75 , the
closing price of SWB stock on December 31, 1997,  each share of CCBC stock would
be exchanged for  approximately  .90 shares of the Company's common stock.  This
transaction  is  expected  to be  accounted  for under  the  pooling-of-interest
accounting method.

The following unaudited pro-forma combined financial  information,  based on the
historical financial statements of the parties,  summarizes the combined results
of operations of the Company and CCBC based on the  pooling-of-interests  method
of accounting,  as if the combination had been  consummated on January 1 of each
of the periods  presented.  Weighted  average shares and earnings per share were
calculated  based on an assumed exchange ratio of .90 subject to adjustments set
forth in the Plan.

                     Unaudited Pro-Forma Combined Summary of Operations
                            (In thousands, except per share data)

<TABLE>

                                                                        For the Years Ended December 31,
<S>                                                                     <C>         <C>          <C>
                                                                         1997          1996        1995


Net interest income..........................................           $35,344     $28,411      $ 24,169
Net income(1)................................................           $ 8,948     $ 4,887      $  3,321

Basic Earnings Per Share.....................................           $  1.93     $  1.32      $   0.92
                                                                        =======     =======      ========
Weighted average shares used
 to calculate basic earnings per share.......................             4,642       3,693         3,594

Net income adjusted for effect of
 convertible debentures......................................           $ 9,112      $5,513      $  4,020

Diluted Earnings Per Share...................................           $  1.69      $ 1.08      $   0.80
                                                                        =======      ======      ========
Weighted average common shares adjusted for
 dilutive effect of options and convertible debentures.......             5,378       5,109         5,045

</TABLE>

(1) Certain  merger-related  expenses have been  recorded  prior to December 31,
1997.  Merger-related expenses to be incurred by the Company and CCBC subsequent
to December 31, 1997 are currently estimated to be $2.8 million after-tax. These
expenses,  relating to separation and benefit costs, professional and investment
banking fees, and other non-recurring  Merger-related  expenses, will be charged
against income of the combined  company upon  consummation  of the Merger or the
period in which such costs are incurred.  Accordingly, the effect of these costs
have not  been  reflected  in the  unaudited  pro  forma  combined  consolidated
financial information shown above. The amount of Merger-related costs may change
as additional information becomes available.



                                                           -82-

<PAGE>


                              SIERRAWEST BANCORP AND SUBSIDIARY

                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          (continued)

20.   Condensed Parent Company Only Financial Statements:

SIERRAWEST  BANCORP STATEMENTS OF FINANCIAL CONDITION
December 31,  (in thousands except for share amounts)
<TABLE>

                                                                                         1997                1996
                                                                                         ----                ----
<S>                                                                                  <C>                   <C>
ASSETS

Cash and cash equivalents.........................................................   $     3,403           $     3,655
Investment in subsidiaries........................................................        50,595                37,106
Due from subsidiary...............................................................             0                    29
Other  ...........................................................................           216                 2,705
                                                                                     -----------           -----------

      TOTAL ASSETS................................................................   $    54,214           $    43,495
                                                                                     ===========           ===========

LIABILITIES

Accrued expenses..................................................................   $       417           $     1,007
Due to subsidiary.................................................................             8                    51
Accounts payable..................................................................             0                     1
Convertible debentures............................................................             0                 8,520
Deferred Income...................................................................           159                     0
                                                                                     -----------           -----------

      Total Liabilities...........................................................           584                 9,579
                                                                                     -----------           -----------

SHAREHOLDERS' EQUITY

Preferred stock, no par value; 9,800,000 shares
      authorized; none issued.....................................................             0                     0
Preferred stock series A, no par value; 200,000
      shares authorized; none issued..............................................             0                     0
Common stock, no par value; 10,000,000 shares authorized;
      4,099,811 and 2,771,139 shares issued and outstanding .....................         29,587                12,291
Retained earnings.................................................................        23,281                21,654
Unrealized loss on investment securities available for sale, net of
  tax of $535 and $21.............................................................           762                   (29)
                                                                                     -----------           -----------

      Total Shareholders' Equity..................................................        53,630                33,916
                                                                                     -----------           -----------

      TOTAL LIABILITIES & SHAREHOLDERS' EQUITY....................................   $    54,214             $  43,495
                                                                                     ===========           ===========

</TABLE>


                                                           -83-

<PAGE>


                                      SIERRAWEST BANCORP AND SUBSIDIARY

                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                (continued)

SIERRAWEST  BANCORP  STATEMENTS  OF INCOME For the Years Ended  December 31, (in
thousands):
<TABLE>
                                                                 1997                  1996                  1995
                                                                 ----                  ----                  ----
Income
<S>                                                            <C>                 <C>                   <C>
Service fees................................................   $       0           $     1,185           $     1,389
Dividends from subsidiary...................................       2,154                 1,000                   300
Interest income.............................................         129                   166                   464
Other income................................................         194                   283                   430
                                                               ---------           -----------           -----------

       Total Income.........................................       2,477                 2,634                 2,583
                                                               ---------           -----------           -----------

Expense

Salaries and related benefits...............................         (17)                1,553                 1,820
Interest expense............................................          75                   728                   861
Other expense...............................................         432                 1,362                 1,291
                                                               ---------           -----------           -----------

       Total Expense........................................         490                 3,643                 3,972
                                                               ---------           -----------           -----------

Gain (Loss) Before Income Tax Benefit
      and Equity in Undistributed Income
       of Subsidiary........................................       1,987                (1,009)               (1,389)
Applicable income tax benefit...............................          28                   777                   665
                                                               ---------           -----------           -----------

Income (Loss) Before Equity in Undistributed
      Income of Subsidiary..................................       2,015                  (232)                 (724)
Equity in Undistributed Income of
      Subsidiary............................................       5,494                 3,560                 2,640
                                                               ---------           -----------           -----------

       NET INCOME...........................................   $   7,509           $     3,328           $     1,916
                                                               =========           ===========           ===========
</TABLE>


                                                           -84-

<PAGE>


                                   SIERRAWEST BANCORP AND SUBSIDIARY

                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                            (continued)

SIERRAWEST BANCORP STATEMENTS OF CASH FLOWS For the Years Ended December 31, (in
thousands):
<TABLE>

                                                                   1997                  1996                  1995
                                                                   ----                  ----                  ----
<S>                                                            <C>                   <C>                  <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS

Cash flows from operating activities:
      Service fees received.................................   $       22            $    1,163           $      1,389
      Interest received.....................................          136                   172                    477
      Other income received.................................          211                   283                    325
      Interest paid.........................................         (377)                 (780)                  (861)
      Cash paid to suppliers and employees..................         (576)               (2,723)                (2,767)
      Income tax refund.....................................          340                 1,098                    564
                                                               ----------            ----------           ------------
Net cash used in operating activities.......................         (244)                 (787)                  (873)
                                                               ----------            ----------           ------------

Cash flows from investing activities:
      Capital expenditures..................................          (72)               (1,131)                  (164)
      Proceeds from sale of building........................        1,523                     0                      0
      Loans sold............................................            0                     0                  1,813
      Principal payments collected on loans.................            0                     0                     42
      Dividend received.....................................        2,154                 1,000                    300
      Increase in investment in subsidiary..................            0                     0                 (2,000)
      Acquisition...........................................       (3,301)                    0                      0
                                                               ----------            ----------           ------------
Net cash provided by (used in) investing activities.........          304                  (131)                    (9)
                                                               ----------            ----------           ------------

Cash flows from financing activities:
      Proceeds from issuance of common stock................          877                   212                    142
      Dividend paid.........................................       (1,178)                 (805)                  (624)
      Cash paid in stock dividend - fractional shares.......          (11)                    0                      0
      Repurchase of common stock............................            0                     0                   (445)
                                                               ----------            ----------           ------------
Net cash (used in) provided by financing activities.........         (312)                 (593)                  (927)
                                                               ----------            ----------           ------------

Net (decrease) increase in cash and
      cash equivalents......................................         (252)               (1,511)                (1,809)
Cash and cash equivalents beginning of year.................        3,655                 5,166                  6,975
                                                               ----------            ----------           ------------
Cash and cash equivalents end of year ......................   $    3,403            $    3,655           $      5,166
                                                               ==========            ==========           ============
</TABLE>

                                                           -85-

<PAGE>


                                SIERRAWEST BANCORP AND SUBSIDIARY

                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                         (continued)
<TABLE>
RECONCILIATION OF NET INCOME                                       1997                    1996                  1995
TO NET CASH USED IN                                                ----                    ----                  ----
OPERATING ACTIVITIES
<S>                                                              <C>                   <C>                   <C>
Net income..................................................     $     7,509           $     3,328           $    1,916
Adjustments to reconcile net income to net
      cash used in operating activities:
      Depreciation and amortization expense.................             113                   241                  228
      Effect of changes in:
       Due from subsidiary..................................              22                   (22)                   0
       Due to subsidiary....................................             (43)                   51                    0
       Other assets.........................................              16                   124                   92
       Accrued expenses.....................................            (525)                 (270)                  37
       Taxes payable........................................             312                   321                 (101)
      Gain on loan sales....................................               0                     0                 (105)
      Dividend from subsidiary..............................          (2,154)               (1,000)                (300)
      Equity in undistributed income of  
       subsidiaries.........................................          (5,494)               (3,560)              (2,640)
                                                                 -----------           -----------           ----------

       Total Adjustments....................................          (7,753)               (4,115)              (2,789)
                                                                 -----------           -----------           ----------

Net cash used in operating
      activities............................................     $      (244)          $      (787)          $     (873)
                                                                 ===========           ===========           ==========
</TABLE>

     Supplemental Schedule of Non-Cash Investing and Financing Activities

In 1997,  $530,000 of I/O strips  receivable  were  transferred to the Bancorp's
Subsidiary.


                                                           -86-

<PAGE>



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

There  were no  changes  in or  disagreements  on  accounting  disclosures  with
accountants.

                                  PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For information  concerning directors and executive officers of the Company, see
"ELECTION OF DIRECTORS" in the Company's  definitive proxy statement to be filed
pursuant to Regulation 14A (the "Proxy Statement") which is incorporated  herein
by reference.

ITEM 11.EXECUTIVE COMPENSATION

For information concerning executive  compensation,  see "ELECTION OF DIRECTORS"
in the Proxy Statement which is incorporated herein by reference.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

For information  concerning  security ownership of certain beneficial owners and
management,  see  "SHAREHOLDERS OF CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT" in
the Proxy Statement which is incorporated herein by reference.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For information  concerning certain relationships and related transactions,  see
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" in the Proxy Statement which is
incorporated herein by reference.

                                                           -87-

<PAGE>



                                 PART IV

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

     A.       The following documents are filed as a part of this report:

              1.       Financial Statements set forth on pages 48 through 87:

                             (i) Consolidated  Statements of Financial Condition
                                 as of December 31, 1997, and 1996.

                             (ii)Consolidated Statements of Income for the years
                                 ended December 31, 1997, 1996 and 1995.

                             (iii)Consolidated  Statements  of  Changes  in
                                  Shareholders'  Equity for the years ended
                                  December 31, 1997, 1996 and 1995.

                             (iv)Consolidated  Statements  of Cash Flows for the
                                 years ended December 31, 1997, 1996 and 1995.

                             (v) Notes to Consolidated  Financial Statements for
                                 the years ended  December  31,  1997,  1996 and
                                 1995.

                             (vi)Report of Independent Auditor.


              2.       Financial Schedules:

                       None required.

                       Reports on Form 8-K:

                       The  Company  filed one Form 8-K since the  filing of the
                       last Form 10-Q.  Dated November 14, 1997, it reported the
                       signing  of  a  definitive   agreement  by  Bancorp  with
                       California Community Bancshares Corporation to merge with
                       SierraWest Bancorp.

                                                           -88-

<PAGE>



Exhibits

Exhibit
Number        Description

2.1      Plan of  Acquisition  and  Merger by and  between  SierraWest  Bancorp,
         SierraWest Bank and Mercantile Bank, filed as Exhibit 2 to Registrant's
         Form 8-K dated  January 24, 1997,  and by this  reference  incorporated
         herein.

2.2      Merger Agreement between SierraWest Bank and Mercantile Bank dated June
         26, 1997, filed as Exhibit 2.1 on the Registrant's  Form 8-K dated June
         30, 1997, and by this reference incorporated herein.

2.3      Plan of  Acquisition  and  Merger by and  between  SierraWest  Bancorp,
         SierraWest  Bank  and  California  Community  Bancshares,   Continental
         Pacific  Bank,  filed as  Exhibit  2 to  Registrant's  Form  8-K  dated
         November 14, 1997, and by this reference incorporated herein.

3.1      Articles of Incorporation and by-laws, filed as Exhibit 3.1 to
         Registrant's 1993 Annual Report on Form 10-K, and by this reference
         incorporated herein.

3.2      Amendment to Articles of  Incorporation  and by-laws,  filed as Exhibit
         3.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
         June 30, 1996, and by this reference incorporated herein.

4.1      Form of Indenture  between the Registrant and American Stock Transfer &
         Trust  Company,  as  Trustee,  relating  to the  issuance  of the  8.5%
         Subordinated  Convertible  Debentures due 2004, filed as Exhibit 4.1 to
         Registrant's Registration Statement on Form S-2, dated February 5, 1994
         (Registration NO. 33-72498), and by this reference incorporated herein.

4.2      Form of Debenture (included in Exhibit 4.1).

4.3      Rights  Agreement  between  Sierra  Tahoe  Bancorp and  American  Stock
         Transfer & Trust Co.,  dated  January 16,  1996,  filed as Exhibit 4 to
         Registrant's  Form 8-A dated  January 3, 1996,  as amended by Amendment
         No.
         1 filed January 30, 1998, and by reference incorporated herein.

10.1     Form of Financial Advisory and Sales Agency Agreement, filed as Exhibit
         10.1 to Registrant's Registration Statement on Form S-2, dated February
         5, 1994 (Registration NO. 33-72498), and by this reference incorporated
         herein.

10.2     Sierra Tahoe  Bancorp KSOP Plan, filed as Exhibit 10(m) to the
         Registrant's 1992 Annual Report on Form 10-K, and by this reference
         incorporated herein.

10.3     Interest Rate Swap Agreement  between Truckee River Bank and Sanwa Bank
         California,  dated March 1, 1996, filed as Exhibit 10.3 to Registrant's
         1995  Annual  Report  on Form 10-K and by this  reference  incorporated
         herein.

10.4     Sublease Agreement between Truckee River Bank and Pacific  Pawnbrokers,
         effective  February 1, 1996, filed as Exhibit 10.4 to Registrant's 1995
         Annual Report on Form 10-K and by this reference incorporated herein.

10.5     License  and  Service  Agreement   between   Registrant  and  Essieh  &
         Associates,  Inc.,  dated  October 6, 1992,  filed as Exhibit  10(r) to
         Registrant's  1992 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.6     Rental  lease  between  Truckee  River  Bank  and  Haciett   Management
         Corporation (SBA Reno office), dated January 28, 1993, filed as Exhibit
         10(t) to  Registrant's  1992  Annual  Report on Form 10-K,  and by this
         reference incorporated herein.

10.7     Senior  Manager  Separation  Benefits  Agreement  between  Sierra Tahoe
         Bancorp and Mary Jane Posnien, dated January 10, 1996, filed as Exhibit
         10.7 to  Registrant's  1996  Annual  Report on Form  10-K,  and by this
         reference incorporated herein.

                                                           -89-

<PAGE>



10.8     Purchase and Sale Agreement between Rubin-Sadd  Development Company and
         Sierra Bank of Nevada dated December 15, 1995, filed as Exhibit 10.8 to
         Registrant's  1995 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.9     Agreement    between    Registrant    and    American    Institute   of
         Banking/California,  filed as Exhibit 10(v) to Registrant's 1992 Annual
         Report on Form 10-K, and by this reference incorporated herein.

10.10    Amendments to Sierra Tahoe  Bancorp KSOP Plan,  dated June 24, 1993 and
         September 14, 1994, filed as Exhibit 10.10 to Registrant's  1994 Annual
         Report on Form 10-K, and by this reference incorporated herein.


10.11    Three Agreements re Deferred Compensation for Executives, filed as
         Exhibit 10(d) to the Registrant's 1986 Annual Report on Form 10-K, and
         by this reference incorporated herein.

10.12    Stock  Plan  Agreement,   Incentive   Stock  Option   Agreement  and  a
         Non-Qualified  Stock  Option  Agreement  for the  Registrant,  filed as
         Exhibit 10(b) to  Registrant's  1988 Annual Report on Form 10-K, and by
         this reference incorporated herein.

10.13    Equipment  Sale  Agreement  between  Sierra Tahoe  Service  Company and
         Information  Technology Inc., dated November 22, 1991, filed as Exhibit
         10(g) to  Registrant's  1991  Annual  Report on Form 10-K,  and by this
         reference incorporated herein.

10.14    Employment  Agreement  between  Registrant  and William T. Fike,  dated
         December 22, 1994,  filed as Exhibit 10.14 to Registrant's  1994 Annual
         Report on Form 10-K, and by this reference incorporated herein.

10.15    Stock Option  Agreement  between  Sierra  Tahoe  Bancorp and Richard S.
         Gaston dated August 17, 1995,  filed as Exhibit  10.15 to  Registrant's
         1995 Annual  Report on Form 10-K,  and by this  reference  incorporated
         herein.

10.16    Contract between Registrant and Federal Home Loan Mortgage Corporation,
         dated March 31, 1992,  and Attachment to Master  Commitment  Agreement,
         dated April 9, 1992,  filed as Exhibit 28(5) to Registrant's  March 31,
         1992 Quarterly Report on Form 10-Q, and by this reference  incorporated
         herein.

10.17    Stock Option Agreement  between Sierra Tahoe Bancorp and David W. Clark
         dated  August 17, 1995,  filed as Exhibit  10.17 to  Registrant's  1995
         Annual Report on Form 10-K, and by this reference incorporated herein.

10.18    Stock Option  Agreement  between  Sierra  Tahoe  Bancorp and William W.
         McClintock   dated  August  17,  1995,   filed  as  Exhibit   10.18  to
         Registrant's  1995 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.19    Sierra Tahoe  Bancorp  1996 Stock  Appreciation  Rights Plan,  filed as
         Exhibit C to Registrant's  Proxy Statement for its July 23, 1996 annual
         meeting of shareholders, and by this reference incorporated herein.


10.20    Employee  Stock  Ownership  Plan,  filed as  Exhibit 9 to  Registrant's
         Registration  Statement on Form S-4, (Registration No. 33-3915), and by
         this reference incorporated herein.

10.21    Cafeteria Plan Agreement, filed as Exhibit 10(f) to Registrant's 1986
         Annual Report on Form 10-K, and by this reference incorporated herein.

10.22    Form  of  Trust   Indenture,   filed  as  Exhibit  4  to   Registrant's
         Registration  Statement on Form S-2, dated June 25, 1991  (Registration
         No. 33-41398), and by this reference incorporated herein.

10.23    Directors' Agreement, filed as Exhibit 2.3 to Registrant's Registration
         Statement  on  Form  S-4,  (Registration  No.  33-34954),  and by  this
         reference incorporated herein.


                                                           -90-

<PAGE>



10.24    Sierra Tahoe  Bancorp  1988 Stock  Option Plan,  filed as Exhibit 28 to
         Registrant's  Registration  Statement on Form S-8, dated April 10, 1989
         (Registration No. 33-28004), and by this reference incorporated herein.


10.25    Lease Agreement  "Gateway at Donner Pass Limited" between Truckee River
         Bank  (Tenants) and Gateway at Donner Pass Limited  (Landlords),  dated
         May 21, 1991, filed as Exhibit 28(G) to Registrant's September 30, 1991
         Quarterly  Report  on Form  10-Q,  and by this  reference  incorporated
         herein.

10.26    Grass Valley Lease Agreement between Ray Stone Incorporated and Truckee
         River Bank,  filed as Exhibit 28(G) to Registrant's  September 30, 1990
         Quarterly  Report  on Form  10-Q,  and by this  reference  incorporated
         herein.

10.27    Lease and  Memorandum of Lease  between  Walter Neal Olson and Patricia
         Olson (Lessors) and Wells Fargo Bank, a California banking  corporation
         (Lessee), dated November 5, 1962, as amended on March 8, 1973, filed as
         Exhibit 10.29 to Registrant's Registration Statement on Form S-2, dated
         February 5, 1994  (Registration  NO.  33-72498),  and by this reference
         incorporated herein.

10.28    Sublease between Wells Fargo Bank, N.A., a national banking association
         (Sublessor),  and  Truckee  River Bank,  a  California  Statement  Bank
         (Sublessee),  dated  December  1,  1984,  filed  as  Exhibit  10.30  to
         Registrant's Registration Statement on Form S-2, dated February 5, 1994
         (Registration NO. 33-72498), and by this reference incorporated herein.

10.29    Lease between Jerome Bunch, for himself and his assigns  (Lessor),  and
         Truckee  River Bank  (Lessee),  dated July 10,  1984,  filed as Exhibit
         10.31  to  Registrant's  Registration  Statement  on  Form  S-2,  dated
         February 5, 1994  (Registration  NO.  33-72498),  and by this reference
         incorporated herein.

10.30    Lease  between  Charles E. Nagy and Martha  Nagy  (Lessor)  and Truckee
         River Bank  (Lessee),  dated June 10, 1989,  filed as Exhibit  10.32 to
         Registrant's Registration Statement on Form S-2, dated February 5, 1994
         (Registration NO. 33-72498), and by this reference incorporated herein.

10.31    Lease  between   Truckee  River  Bank   (Sublessor)   and   Tran-Sierra
         Investment, Inc. (Sublessee), dated February 27, 1991, filed as Exhibit
         10.33  to  Registrant's  Registration  Statement  on  Form  S-2,  dated
         February 5, 1994  (Registration  NO.  33-72498),  and by this reference
         incorporated herein.

10.32    Credit  Agreement  between Sanwa Bank California and Truckee River Bank
         dated October 10, 1995, filed as Exhibit 10.2 to Registrant's Quarterly
         Report on Form 10-Q for the quarter  ended March 31, 1996,  and by this
         reference incorporated herein.

10.33    Equipment  Sale Agreement  between  Information  Technology,  Inc., and
         Truckee  River Bank,  filed as Exhibit 10.3 to  Registrant's  Quarterly
         Report on Form 10-Q for the quarter  ended March 31, 1996,  and by this
         reference incorporated herein.

10.34    Lease between Midby-Rancho  Partnership (Lessor) and Truckee River Bank
         (Lessee),   dated  November  23,  1993,   filed  as  Exhibit  10.34  to
         Registrant's  1993 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.35    Stock  Option  Agreement  between  Sierra  Tahoe  Bancorp and Thomas M.
         Watson dated August 17, 1995,  filed as Exhibit  10.35 to  Registrant's
         1995 Annual  Report on Form 10-K , and by this  reference  incorporated
         herein.

10.36    Stock Option  Agreement  between  Sierra  Tahoe  Bancorp and Jerrold T.
         Henley dated August 17, 1995,  filed as Exhibit  10.36 to  Registrant's
         1995 Annual  Report on Form 10-K , and by this  reference  incorporated
         herein.

10.37    Stock Option Agreement between Sierra Tahoe Bancorp and A. Morgan Jones
         dated  August 17, 1995,  filed as Exhibit  10.37 to  Registrant's  1995
         Annual Report on Form 10-K , and by this reference incorporated herein.


                                                           -91-

<PAGE>



10.38    Sierra Tahoe  Bancorp  1996 Stock  Option  Plan,  filed as Exhibit A to
         Registrant's  Proxy  Statement for its July 23, 1996 annual  meeting of
         shareholders, and by this reference incorporated herein.

10.39    Director's  remuneration  continuation  agreement  between Sierra Tahoe
         Bancorp and David Clark,  dated October 1, 1993, filed as Exhibit 10.39
         to Registrant's  1993 Annual Report on Form 10-K, and by this reference
         incorporated herein.

10.40    Settlement Agreement and Mutual Release of All Claims re: American
         River Bank, et al. v. Mutual Fund, Inc., et al. dated March 22, 1996,
         filed as Exhibit 10.40 to Registrant's 1995 Annual Report on Form 10-K,
         and by this reference incorporated herein.

10.41    Federal funds facility  agreement  between Union Bank of California and
         Truckee  River Bank  dated  April 8,  1996,  filed as  Exhibit  10.4 to
         Registrant's  Quarterly Report on Form 10-Q for the quarter ended March
         31, 1996, and by this reference incorporated herein.

10.42    First Amendment to Senior Management  Benefits Agreement between Sierra
         Tahoe  Bancorp and David C.  Broadley,  dated  April 2, 1996,  filed as
         Exhibit  10.6 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter  ended  March  31,  1996,  and by this  reference  incorporated
         herein.

10.43    Incentive  Stock  Option  Agreement  between  Registrant  and Martin R.
         Sorensen,  dated May 18, 1994,  filed as Exhibit 10.44 to  Registrant's
         1994 Annual  Report on Form 10-K,  and by this  reference  incorporated
         herein.

10.44    Senior  Manager  Separation  Benefits  Agreement  between  Sierra Tahoe
         Bancorp and Patrick S. Day,  dated  January 10, 1996,  including  First
         Amendment  dated April 2, 1996,  filed as Exhibit 10.1 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.45    Deferred  Fee  Agreement  between  Sierra  Tahoe  Bancorp and Thomas M.
         Watson,  dated June 19,  1996,  filed as Exhibit  10.2 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.46    Federal Funds  Agreement  between Bank of California  and Truckee River
         Bank, dated March 31, 1994, filed as Exhibit 10.47 to Registrant's 1995
         Annual Report on Form 10-K , and by this reference incorporated herein.

10.47    Agreement between American  Financial Skylink and Sierra Tahoe Bancorp,
         dated August 1, 1994,  filed as Exhibit 10.1 to Registrant's  Quarterly
         Report on Form 10-Q for the quarter ended  September  30, 1994,  and by
         this reference incorporated herein.

10.48    Deferred Fee  Agreement  between  Sierra Tahoe  Bancorp and R. Coppola,
         dated June 12, 1996,  filed as Exhibit 10.3 to  Registrant's  Quarterly
         Report on Form 10-Q for the quarter  ended June 30,  1996,  and by this
         reference incorporated herein.

10.49    Revolving Line of Credit Agreement between First Security Bank of Idaho
         and Truckee  River Bank,  dated  September  23, 1994,  filed as Exhibit
         10.50 to  Registrant's  1994  Annual  Report on Form 10-K,  and by this
         reference incorporated herein.

10.50    Credit Agreement  between Sanwa Bank California and Truckee River Bank,
         dated July 29, 1994, filed as Exhibit 10.51 to Registrant's 1994 Annual
         Report on Form 10-K, and by this reference incorporated herein.

10.51    Modification  to  sublease  dated  September  24,  1994  between  First
         Commercial Title, Inc. and Sierra Tahoe Mortgage Company, dated January
         31, 1995, filed as Exhibit 10.52 to Registrant's  1994 Annual Report on
         Form 10-K, and by this reference incorporated herein.

10.52    Lease  Agreement  between  Hulse-Kinsey  Trust and Truckee  River Bank,
         dated February 10, 1995,  filed as Exhibit 10.53 to  Registrant's  1994
         Annual Report on Form 10-K, and by this reference incorporated herein.


                                                           -92-

<PAGE>



10.53    Assignment of License Agreements between Information Technology,  Inc.,
         Sierra Tahoe Servicing  Corporation and Truckee River Bank, dated March
         3, 1993,  filed as Exhibit 10.54 to Registrant's  1994 Annual Report on
         Form 10-K, and by this reference incorporated herein.

10.54    Deferred  Fee  Agreement  between  Sierra  Tahoe  Bancorp and Ronald A.
         Johnson,  dated May 23,  1996,  filed as Exhibit  10.4 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.55    Fourth Addendum to Lease  Agreement  between Edwin Holt and Sierra Bank
         of  Nevada,   dated  February  17,  1995,  filed  as  Exhibit  10.1  to
         Registrant's  Quarterly Report on Form 10-Q for the quarter ended March
         31, 1995, and by this reference incorporated herein.

10.56    Credit Agreement  between Sierra Bank of Nevada and Bank of California,
         dated March 21, 1995,  filed as Exhibit 10.2 to Registrant's  Quarterly
         Report on Form 10-Q for the quarter  ended March 31, 1995,  and by this
         reference incorporated herein.

10.57    Lease Agreement  between Truckee River Bank and Realty Advisors,  Inc.,
         filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for
         the quarter  ended June 30, 1995,  and by this  reference  incorporated
         herein.

10.58    Lease Agreement Between Truckee River Bank and Western  Investment Real
         Estate Trust and Pinecreek Shopping Center Associates, filed as Exhibit
         10.2 to  Registrant's  Quarterly  Report on Form  10-Q for the  quarter
         ended June 30, 1995, and by this reference incorporated herein.

10.59    Construction agreement between Sierra Bank of Nevada and Shaver
         Construction, Inc., filed as Exhibit 10.1 to Registrant's Quarterly
         Report on Form 10-Q for the quarter ended September 30, 1995, and by
         this reference incorporated herein.

10.60    Senior  Manager  Separation  Benefits  Agreement  between  Sierra Tahoe
         Bancorp and Martin R. Sorensen dated January 17, 1996, filed as Exhibit
         10.61 to  Registrant's  1995  Annual  Report on Form 10-K,  and by this
         reference incorporated herein.

10.61    Executive Salary  Continuation  Agreement  between Sierra Tahoe Bancorp
         and Martin R. Sorensen, dated March 31, 1995, filed as Exhibit 10.63 to
         Registrant's  1995 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.62    Incentive  Stock Option  Agreement  between  Sierra  Tahoe  Bancorp and
         Martin R. Sorensen dated  December 20, 1995,  filed as Exhibit 10.64 to
         Registrant's  1995 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.63    Incentive  Stock Option  Agreement  between  Sierra  Tahoe  Bancorp and
         William T. Fike dated  December  20,  1995,  filed as Exhibit  10.67 to
         Registrant's  1995 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.64    Incentive Stock Option  Agreement  between Sierra Tahoe Bancorp and Pat
         Day dated  December 20, 1995,  filed as Exhibit  10.68 to  Registrant's
         1995 Annual  Report on Form 10-K,  and by this  reference  incorporated
         herein.

10.65    Incentive Stock Option Agreement between Sierra Tahoe Bancorp and David
         Broadley   dated   December  20,  1995,   filed  as  Exhibit  10.69  to
         Registrant's  1995 Annual  Report on Form 10-K,  and by this  reference
         incorporated herein.

10.66    Incentive Stock Option Agreement  between  SierraWest  Bancorp and Mary
         Jane Posnien, dated December 23, 1996.

10.67    Senior  Manager  Separation  Benefits  Agreement  between  Sierra Tahoe
         Bancorp and David C. Broadley dated January 17, 1996,  filed as Exhibit
         10.71 to  Registrant's  1995  Annual  Report on Form 10-K,  and by this
         reference incorporated herein.

                                                           -93-

<PAGE>



10.68    Deferred Fee Agreement between Sierra Tahoe Bancorp and David W. Clark,
         dated May 28,  1996,  filed as Exhibit 10.5 to  Registrant's  Quarterly
         Report on Form 10-Q for the quarter  ended June 30,  1996,  and by this
         reference incorporated herein.

10.69    Deferred Fee  Agreement  between  Sierra  Tahoe  Bancorp and Richard S.
         Gaston,  dated June 19,  1996,  filed as Exhibit  10.6 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.70    Deferred  Fee  Agreement  between  Sierra  Tahoe  Bancorp and A. Morgan
         Jones,  dated  June 7,  1996,  filed as  Exhibit  10.7 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.71    Deferred  Fee  Agreement  between  Sierra  Tahoe  Bancorp  and  John J.
         Johnson,  dated June 20, 1996,  filed as Exhibit  10.8 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.72    Deferred  Fee  Agreement  between  Sierra  Tahoe  Bancorp  and  Jack V.
         Leonesio,  dated June 19, 1996,  filed as Exhibit 10.9 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.73    Deferred  Fee  Agreement  between  Sierra  Tahoe  Bancorp  and  William
         McClintock, dated June 13, 1996, filed as Exhibit 10.10 to Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.74    Deferred Fee  Agreement  between  Sierra  Tahoe  Bancorp and Jerrold T.
         Henley,  dated May 29,  1996,  filed as Exhibit  10.11 to  Registrant's
         Quarterly  Report on Form 10-Q for the quarter ended June 30, 1996, and
         by this reference incorporated herein.

10.75    Incentive  Stock Option  Agreement  between  Sierra  Tahoe  Bancorp and
         William  T.  Fike,  dated  July 1,  1996,  filed  as  Exhibit  10.12 to
         Registrant's  Quarterly  Report on Form 10-Q for the quarter ended June
         30, 1996, and by this reference incorporated herein.

10.76    Nonqualified  Stock Option  Agreement  between Sierra Tahoe Bancorp and
         William  T.  Fike,  dated  July 1,  1996,  filed  as  Exhibit  10.13 to
         Registrant's  Quarterly  Report on Form 10-Q for the quarter ended June
         30, 1996, and by this reference incorporated herein.

10.77    Fixed Price  Construction  Agreement between SierraWest Bank and Shaver
         Construction,   dated  June  12,  1996,   filed  as  Exhibit  10.14  to
         Registrant's  Quarterly  Report on Form 10-Q for the quarter ended June
         30, 1996, and by this reference incorporated herein.

10.78    Amendment No. 1 to Employment  Agreement between SierraWest Bancorp and
         William  T.  Fike,  dated  June  27,  1996,  filed as  Exhibit  10.2 to
         Registrant's  Quarterly  Report  on Form  10-Q  for the  quarter  ended
         September 30, 1996 and by this reference incorporated herein.

10.79    Amendment  No. 1 to Executive  Salary  Continuation  Agreement  between
         SierraWest  Bancorp and William T. Fike,  dated June 27, 1996, filed as
         Exhibit  10.3 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter  ended  September 30, 1996 and by this  reference  incorporated
         herein.

10.80    Amendment  No. 1 to Executive  Salary  Continuation  Agreement  between
         SierraWest Bancorp and David C. Broadley, dated June 27, 1996, filed as
         Exhibit  10.4 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter  ended  September 30, 1996 and by this  reference  incorporated
         herein.

10.81    Amendment  No. 1 to Executive  Salary  Continuation  Agreement  between
         SierraWest  Bancorp and Martin R. Sorensen,  dated June 27, 1996, filed
         as Exhibit 10.5 to Registrant's  Quarterly  Report on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.


                                                           -94-

<PAGE>

10.82    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest  Bancorp and  William W.  McClintock,  dated June 27,  1996,
         filed as Exhibit 10.6 to Registrant's Quarterly Report on Form 10-Q for
         the  quarter  ended   September  30,  1996,   and  by  this   reference
         incorporated herein.

10.83    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest Bancorp and Jerrold T. Henley, dated June 27, 1996, filed as
         Exhibit  10.7 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.84    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest  Bancorp and A. Morgan Jones,  dated June 27, 1996, filed as
         Exhibit  10.8 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.85    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest Bancorp and Jack V. Leonesio,  dated June 27, 1996, filed as
         Exhibit  10.9 to  Registrant's  Quarterly  Report  on Form 10-Q for the
         quarter  ended  September 30, 1996 and by this  reference  incorporated
         herein.

10.86    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest Bancorp and Thomas M. Watson,  dated June 27, 1996, filed as
         Exhibit  10.10 to  Registrant's  Quarterly  Report on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.87    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest  Bancorp and David W. Clark,  dated June 27, 1996,  filed as
         Exhibit  10.11 to  Registrant's  Quarterly  Report on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.88    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest Bancorp and Richard S. Gaston, dated June 27, 1996, filed as
         Exhibit 10.12 to  Registrant's  Quarterly  Report on Form 10- Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.89    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest  Bancorp and John J. Johnson,  dated June 27, 1996, filed as
         Exhibit  10.13 to  Registrant's  Quarterly  Report on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.90    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest Bancorp and Ralph J. Coppola,  dated June 27, 1996, filed as
         Exhibit  10.14 to  Registrant's  Quarterly  Report on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.91    Director's Amended and Restated Payment Continuation  Agreement between
         SierraWest Bancorp and Ronald A. Johnson, dated June 27, 1996, filed as
         Exhibit  10.15 to  Registrant's  Quarterly  Report on Form 10-Q for the
         quarter ended  September 30, 1996, and by this  reference  incorporated
         herein.

10.92    Sierra Tahoe Bancorp Board of Directors Deferred Compensation and Stock
         Award Plan, filed as Exhibit B to Registrant's  Proxy Statement for its
         July 23, 1996 annual  meeting of  shareholders,  and by this  reference
         incorporated herein.

10.93    Loan  commitment   agreement  between  Union  Bank  of  California  and
         SierraWest  Bancorp dated  February 25, 1997,  filed as Exhibit 10.1 to
         Registrant's  Quarterly Report on Form 10-Q for the quarter ended March
         31, 1997, and by this reference incorporated herein.

10.94    The Pooling and Servicing  Agreement between SierraWest Bank, as Seller
         and Servicer,  and Marine  Midland  Bank,  as Trustee,  dated April 30,
         1997, filed as Exhibit 28.1 on the Registrant's Form 8-K filed June 20,
         1997, and by this reference incorporated herein.

10.95    Certificate  Purchase  Agreement between SierraWest Bank and Prudential
         Securities  regarding  $51.4 million SBA  loan-backed  adjustable  rate
         certificates  dated  June  13,  1997,  filed  as  Exhibit  28.2  on the
         Registrant's  Form 8-K  filed  June  20,  1997,  and by this  reference
         incorporated herein.

10.96    Agreement for Purchase and sale of Carson City property, dated June 24,
         1997,  filed as  Exhibit  10.1 on the  Registrant's  Form  10-Q for the
         quarter ended June 30, 1997, and by this reference incorporated herein.

                                                           -95-

<PAGE>




10.97    Expression of Interest between Sanwa Bank California and SierraWest
         Bank.

10.98    Financial Institutions Credit Agreement between Sanwa Bank California
         and SierraWest Bank.

10.99    Revolving Credit and Collateral Loan Agreement dated as of May 1, 1997 
         by and between SierraWest Bank, and Imperial Bank.

21.1     Significant Subsidiaries of the Registrant
              SierraWest Bank, a California Corporation.

23.1     Consent of Deloitte & Touche LLP, independent auditors.


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.




Date: March 25, 1998                             By: /s/ William T. Fike
                                                    --------------------
                                                    William T. Fike





                                                           -96-

<PAGE>



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

<TABLE>
<S>                                           <C>                                                            <C>


/s/ William T. Fike                           President and Chief Executive Officer                          March 25, 1998
-------------------------------
William T. Fike                               Director

/s/ David C. Broadley                         Executive Vice President/                                      March 25, 1998
----------------------------                  Principal Financial Officer
David C. Broadley                             

/s/ Richard L. Belstock                       Senior Vice President/                                         March 25, 1998
----------------------------                  Principal Accounting Officer
Richard L. Belstock                           

/s/ Jerrold T. Henley                         Chairman of the Board                                          March 25, 1998
------------------------------
Jerrold T. Henley

/s/ David W. Clark                            Director                                                       March 25, 1998
-----------------------------
David W. Clark

/s/ A. Morgan Jones                           Director and Corporate Secretary                               March 25, 1998
----------------------------
A. Morgan Jones

/s/ Jack V. Leonesio                          Director                                                       March 25, 1998
-----------------------------
Jack V. Leonesio

----------------------------                  Director                                                       
William W. McClintock

/s/ Richard Gaston                            Director                                                       March 25, 1998
----------------------------
Richard Gaston

/s/ Thomas M. Watson                          Director                                                       March 25, 1998
-------------------------
Thomas M. Watson

/s/ Ralph J. Coppola                          Director                                                       March 25, 1998
----------------------------
Ralph J. Coppola

/s/ John J. Johnson                           Director                                                       March 25, 1998
-----------------------------
John J. Johnson

/s/ Ronald A. Johnson                         Director                                                       March 25, 1998
---------------------------
Ronald A. Johnson

</TABLE>














                                                           -97-

<PAGE>
 
                                 Exhibit 10.97


                            EXPRESSION OF INTEREST
 


     Effective  as of  October 1 , 1997,  SANWA  BANK  CALIFORNIA  ("Sanwa")  is
interested  in being  allowed  the  opportunity  to  consider  the  requests  of
SIERRAWEST BANK ("Client") for the credit accommodations described below.


     THIS IS NOT A COMMITMENT OR OFFER TO EXTEND CREDIT. RATHER, THIS EXPRESSION
OF INTEREST  PROVIDES  THE TERMS UNDER WHICH SANWA MAY BID FOR  SPECIFIC  CREDIT
REQUESTS OF CLIENT AND SOME OF THE BASIC TERMS WHICH WILL GOVERN SHOULD  SANWA'S
BID BE ACCEPTED.

     Purpose(s). Extensions of credit shall be limited to the following types of
credit facilities:

     [NA] A. Commercial  Letters of Credit.  For the (check as appropriate) [NA]
issuance [NA] confirmation of sight and/or usance commercial  letters of credit.
All  commercial  letters of credit  issued  and/or  confirmed  under this credit
facility,  together with any related drafts,  shall aggregate to no greater than
$NA and  have an  expiry  date of not  later  than one  year  after  the date of
issuance.

     [NA] B. Standby Letters of Credit.  For the [NA] issuance [NA] confirmation
of standby  letters of  credit.  All  standby  letters of credit  issued  and/or
confirmed under this credit facility, shall aggregate to no greater than $NA and
have an expiry date of not later than one year after the date of issuance.

     [ X ] C. Federal Funds. In Sanwa's sole  discretion,  which shall depend on
its activity in the Fed Funds market,  Sanwa shall permit Client [X] to purchase
[X] overnight [X] term (up to 30 days) Federal Funds ("Fed Funds")  market up to
a maximum aggregate amount of $5,000,000.00.

    [ X ] D. Foreign  Exchange.  For the [X] purchase [X] sale through Sanwa of
[X] spot  (requiring  completion  within two  business  days) [X]  forward  (any
foreign  exchange  transaction  which is to be completed after two business days
but not later than 183 days) contract to buy or sell foreign currency at a given
date up to a maximum aggregate amount of $5,000,000.00.

     Delivery. Sanwa reserves the right to require payment in collected funds at
least one  business  day prior to the  delivery  date  specified  in any forward
contract as a condition of delivery of the specified  currency.  If such advance
payment  will be required,  Sanwa will so notify you at least two business  days
prior to the stated delivery date.

     Rates and Fees.  As quoted at the time of a requested  transaction.  Client
acknowledges  that in some  instances  the bid  includes  Sanwa's rate or profit
margin which may or may not be disclosed to Client.

     Quotes.  Any  quotation  given by Sanwa  will be valid  only as of the time
given. If not accepted by Client at that,  which acceptance will be irrevocable,
the quote shall be deemed automatically withdrawn and cannot be accepted later.

     Maximum  Indebtedness.  The maximum  aggregate  amount of all of the credit
accommodations which Sanwa is interested in considering is $5,000,000.00.

                                   1
<PAGE>

     Representations  and  Warranties.  Should  Sanwa  elect  to bid  on  credit
facilities   to  Client  and  should  Client  accept  such  bid,  the  following
representations  and warranties (and any others that may be required by Sanwa at
the time of such bid) shall  apply to such  credit  facilities  (and a breach of
which shall constitute a default under any signed agreement with respect to such
facilities):

     (a) Client is a corporation  duly organized and validly  existing under the
laws of [X] the State of California or [NA] of the United States of America, and
is properly  licensed,  qualified to do business  and in good  standing in, and,
where necessary to maintain Client's rights and privileges.

     (b) The  execution,  delivery  and  performance  by Client under any of the
documents  executed by Client with respect to the credit  facilities  shall have
been duly  authorized  and does not then and will not: (i) violate any provision
of any law,  rule,  regulation,  writ,  judgment  or  injunction  then in effect
affecting  Client;  (ii) result in a breach of or constitute a default under any
material  agreement  to  which  Client  is then a party  or by  which  it or its
properties may then be bound or affected;  (iii) require any consent or approval
of its stockholders or violate any provision of its articles of incorporation or
by-laws;  or (iv)  require  any  consent  or  approval  of any  federal or state
regulatory authority.

     (c) All financial  statements,  call  reports,  thrift  financial  reports,
information  and  other  data  which may have  been or which  may  hereafter  be
submitted  by Client to Sanwa are true,  accurate  and  correct and have been or
will be prepared in accordance  with generally  accepted  accounting  principles
consistently  applied and accurately  represent Client's financial condition or,
as applicable,  the other information  disclosed  herein.  Since the most recent
submission of any such financial statement, information, or other data to Sanwa,
Client  represents  and  warrants  that no material  adverse  change in Client's
financial  condition  or  operations  has  occurred  which  has not  been  fully
disclosed to Sanwa in writing.

     Additional  Covenants.  Should Sanwa elect to bid on credit  facilities  to
Client and should Client accept such bid, the following covenants and agreements
(and any  others  that may be  required  by Sanwa at the time of such bid) shall
apply to such  credit  facilities  (and a breach  of which  shall  constitute  a
default under each signed agreement with respect to such facilities):

     (a) Client  shall  maintain at all times  equity  (Tier 1, total equity and
risk based capital) in accordance with applicable federal regulations.

     (b) Client shall record on its Call Report or Thrift  Financial  Report and
in all other  financial  records  appropriate  notations  reporting  any  credit
extended by Sanwa as a borrowing and not as a deposit.

     (c) Client shall  maintain the  resolution of its Board of Directors  which
authorizes  this  borrowing and the execution,  delivery and  performance of the
obligations  hereunder as an official  record of the Client and,  further,  will
maintain as the  official  records of Client the  minutes of any  meeting  which
mention this borrowing.

     (d) This provision is intended to establish a "netting contract" as defined
in Section 402(14) of the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") with respect to the entirety of obligations between Sanwa and
Client.  All words and expressions  used in this section which are defined in
FDICIA Section 402 shall have the same  meaning  herein as therein.  If at any 
time either Sanwa or Client becomes a failed financial institution, then, from
and after such time,

                                        2
<PAGE>

regardless  of their source or  derivation,  including  but not limited to those
arising out of the credit arrangement  contemplated  hereunder,  shall be netted
and FDICIA Section 403 shall apply thereto.

                  Expiration Date.  This expression of interest shall expire on
July 31, 1998.
 
         IN WITNESS  WHEREOF,  this Expression of Interest has been executed by
the parties hereto as of the date first  hereinabove written.


SANWA BANK CALIFORNIA                    SIERRAWEST BANK

By: /s/Robert Solomon                    By: /s/William H. McGaughey
       Robert Solomon, Vice President           William H. McGaughey,
             (Name/Title)                       SVP/Treasurer
Address: 601 S. Figueroa St.,  W8-17            (Name/Title)
         Los Angeles, CA 90017           Address:10181 Truckee-Tahoe Airport Rd.
                                                 Truckee, CA  96160



                                        3
<PAGE>
                                 Exhibit 10.98

                         FINANCIAL INSTITUTIONS AGREEMENT
                                CREDIT AGREEMENT

     This Credit  Agreement  ("Agreement") is made and entered into this 1st day
of October,  1997, by and between SANWA BANK CALIFORNIA ("Sanwa") and SIERRAWEST
BANK ("Client"), with respect to the following:

         1.00  Agreement to Lend.

     1.01 Line of Credit. Subject to the terms and conditions hereof and so long
as no Event of Default  occurs,  Sanwa agrees to extend to Client certain credit
accommodations  up to a total principal  amount,  including any sublimits,  from
time to time outstanding of $250,000.00 ( the "Line of Credit"), as follows:

     1.02  Purpose(s).  Extensions  of credit shall be limited to the  following
types of credit facilities:

     [X] A. Commercial  Letters of Credit. For the [X] issuance [X] confirmation
of sight and/or usance commercial  letters of credit.  All commercial letters of
credit issued and/or  confirmed  under this credit  facility,  together with any
related  drafts,  shall  aggregate  to no greater than  $250,000.00  and have an
expiry date of not later than one year after the date of issuance.

     [X] B. Standby Letters of Credit.  For the [X] issuance [X] confirmation of
standby letters of credit. All standby letters of credit issued and/or confirmed
under this credit facility shall aggregate to no greater than  $250,000.00,  and
have an expiry date of not later than one year after the date of issuance.

Sanwa may decline to issue a letter of credit for any reason,  including without
limitation,  the nature of the  transaction,  or its terms or in connection with
any  transaction  where  Sanwa,  due  to the  nationality  or  residence  of the
beneficiary, would be prohibited by any applicable law, regulation or order from
issuing or confirming such letter of credit. Client may, but is not required, to
make  such  amendments  as it deems  appropriate  to make the  letter  of credit
application or request for confirmation of letter of credit acceptable to Sanwa.

     [X] C. Federal Funds.  In Sanwa's sole  discretion,  which shall depend on,
among other  things,  its activity in the Fed Funds  market,  Sanwa shall permit
Client to purchase [X]  overnight  [X] term (up to 30 days)  Federal Funds ("Fed
Funds") up to a maximum  aggregate  amount of  $250,000.00;  [NA] provided that,
absent Sanwa's prior approval and a 30 day out-of-debt period, Client shall have
no more than NA consecutive business days of borrowing in the Fed Funds market.

     [X] D. Foreign Exchange. For the purchase and/or sale through Sanwa of [NA]
spot (requiring  completion  within two business days) [NA] forward (any foreign
exchange contract which is to be completed after two business days but not later
than NA days)  contract to buy or sell foreign  currency at a given date up to a
maximum aggregate face amount of $NA.

Sanwa may refuse to enter into a foreign exchange  transaction with Client where
Sanwa,  in its  sole  discretion,  determines  that  such  foreign  currency  is
unavailable,  or  where  Sanwa  would  be  prohibited  by  any  applicable  law,
regulation or order from purchasing such foreign currency.

     [NA] E. Line of Credit Advances. Line of Credit Advances ("Advances") up to
a maximum aggregate amount of $NA.

     Quotes.  Any  quotation  given by Sanwa  will be valid  only as of the time
given.  If not  accepted  by  Client  at that  time,  which  acceptance  will be
irrevocable,  the quote shall be deemed  automatically  withdrawn  and cannot be
accepted later.

     Aggregate  Limits.  In  addition  to the Line of Credit  limit set forth in
Section  1.01 above,  in no event shall the  outstanding  and  requested  credit
accommodations described in Section 1.02 and NA above exceed $250,000.00.

         1.03  Fees and Interest.

                  A.  Commercial and/or Standby Letters of Credit.

                  1.  Commercial Letters of Credit.

     The fee for  issuing  any  commercial  letter of credit and any  additional
letter  of credit  fees  which may  arise in  connection  therewith,  including,
without  limitation,  the fees for  amendment  and  payment,  shall be:  Sanwa's
minimum letter of credit fee for the applicable service plus 50% of the standard
letter of credit fee for such  service in excess of the minimum  fee. The letter
of credit fees are published  from time to time in Sanwa's  Schedule of Fees and
Charges.  Client  acknowledges  receipt of Sanwa's current  Schedule of Fees and
Charges.

     The fee for confirming  any commercial  letter of credit and any additional
letter  of credit  fees  which may  arise in  connection  therewith,  including,
without  limitation,  the fees for  amendment  and  payment,  shall be:  Sanwa's

                                        1
<PAGE>
minimum letter of credit fee for the applicable service plus 50% of the standard
letter of credit fee for such  service in excess of the minimum  fee. The letter
of credit fees are published  from time to time in Sanwa's  Schedule of Fees and
Charges.

                  2.  Standby Letters of Credit.

     The fee for issuing any standby letter of credit shall be: Sanwa's  minimum
letter of credit fee for the applicable  service plus 50% of the standard letter
of credit  fee for such  service  in excess of the  minimum  fee.  The letter of
credit  fees are  published  from time to time in Sanwa's  Schedule  of Fees and
Charges.

     The fee for  confirming  any  standby  letter of credit  shall be:  Sanwa's
standard  fee for such  service,  as set forth in Sanwa's  Schedule  of Fees and
Charges.

     Any  additional  fees which may arise in  connection  with such  letters of
credit, including, without limitation, the fees for amendment and payment, shall
be: Sanwa's minimum letter of credit fee for the applicable  service plus 50% of
the standard letter of credit fee for such service in excess of the minimum fee.
The letter of credit fees are published from time to time in Sanwa's Schedule of
Fees and Charges.

     B. Overnight Fed Funds.  Interest shall accrue on any purchase of Fed Funds
at the rate quoted by Sanwa's Fed Funds trader in the Treasury  Department  (the
"Fed Funds Rate").

     C. Foreign  Exchange.  Client  acknowledges  that the purchase  and/or sale
price for foreign  currency quoted to Client  includes  Sanwa's profit margin on
the transaction,  which margin shall not be disclosed to Client.  Client further
acknowledges that Client may seek to purchase or sell foreign exchange contracts
through  another  source  which may offer Client a more  favorable  price on any
given date.  Sanwa reserves the right to require  payment in collected  funds at
least one  business  day prior to the  delivery  date  specified  in any forward
contract as a condition of delivery of the specified  currency.  If such advance
payment  will be required,  Sanwa will so notify you at least two business  days
prior to the stated delivery date.

     D. Draws under  Letters of Credit.  Advances to pay any draw under a letter
of credit shall accrue interest at the rate set forth in the Loan Documents,  as
defined herein, including, without limitation, the applicable Security Agreement
for Issuance of Commercial  Letter of Credit or Security  Agreement for Issuance
of Stand-by Letter of Credit.

     E. Line of Credit Advances.  Interest shall accrue on each Advance from the
date of the  Advance at a variable  rate  equivalent  to an index for a variable
interest rate which is quoted, published or announced from time to time by Sanwa
as its  reference  rate and as to which loans may be made by Sanwa at,  below or
above such reference rate (the "Reference  Rate")  plus/minus NA% per annum (the
"Variable Rate"). Interest shall be adjusted concurrently with any change in the
Reference Rate. Interest hereunder shall be computed on the basis of NA days per
year, but charged on the actual number of days elapsed.

     [NA] In addition to Variable Rate  Advances,  Sanwa agrees to make Advances
to Client,  at Client's  election,  at a fixed rate for such period of time that
Sanwa may quote and offer, provided that any such period of time shall be for at
least NA days and shall not exceed NA days and  provided  further  that any such
period  of time does not  extend  beyond  the  Expiration  Date  (the  "Interest
Period")  for  Advances  in  the  minimum  amount  $NA  and  in  $NA  increments
thereafter. Such interest rate shall be a percentage approximately equivalent to
NA% per annum in  excess  of the rate  which  Sanwa  determines  in its sole and
absolute discretion to be equal to Sanwa's cost of acquiring funds (adjusted for
any and all assessments,  surcharges and reserve requirements  pertaining to the
borrowing or purchase by Sanwa of such funds) in an amount  approximately  equal
to the amount of the  relevant  Advance  and for a period of time  approximately
equal to the relevant  Interest  Period (the "Fixed Rate").  Advances based upon
the Fixed Rate are hereinafter referred to as "Fixed Rate Advances".

     Interest  on any Fixed Rate  Advance  shall be  computed on the basis of NA
days per year, but charged on the actual number of days elapsed.

     Client hereby promises and agrees to pay Sanwa interest as follows:  (i) On
Variable Rate Advances at the time and in the manner  provided in any note;  and
(ii) on Fixed Rate Advances at the time and in the manner provided in any note.

     If  interest  is not paid as and when it is due,  the amount of such unpaid
interest  shall  bear  interest,  until  paid in full,  at the  then  applicable
interest rate.

     1.  Notice of  Borrowing.  Client  may  borrow  under the Line of Credit by
requesting:

     (a) [NA] A Variable  Rate  Advance.  A Variable Rate Advance may be made on
the day notice is received by Sanwa; provided,  however, that if Sanwa shall not
have received notice at or before 3:30 p.m. on the day such Advance is requested
to be made,  such Variable Rate Advance may be made, at Sanwa's  option,  on the
next business day.

                                        2
<PAGE>
     (b) [NA] A Fixed Rate  Advance.  Notice of any Fixed Rate Advance  shall be
received by Sanwa no later 11:00 a.m. two business  days prior to the day (which
shall be a business day) on which Client  requests such Fixed Rate Advance to be
made.

     2. Prohibition  Against Prepayment of Fixed Rate Advances.  Notwithstanding
anything to the contrary  herein or in any note, no prepayment  shall be made on
any Fixed  Rate  Advance  except on a day which is the last day of the  Interest
Period pertaining thereto. If the whole or any part of any Fixed Rate Advance is
prepaid by reason of  acceleration  or  otherwise,  Client  shall,  upon Sanwa's
request,  promptly  pay to and  indemnify  Sanwa  for all  costs  and  any  loss
(including  interest) actually incurred by Sanwa and any loss (including loss of
profit  resulting  from the  re-employment  of  funds)  sustained  by Sanwa as a
consequence of such prepayment.

     3. Indemnification for Fixed Rate Costs. During any period of time in which
interest  on any  Advance is  accruing  on the basis of the Fixed  Rate,  Client
shall,  upon Sanwa's request,  promptly pay to and reimburse Sanwa for all costs
incurred and payments made by Sanwa by reason of any future assessment, reserve,
deposit or similar requirements or any surcharge,  tax or fee imposed upon Sanwa
or as a result of Sanwa's  compliance  with any directive or  requirement of any
regulatory  authority  pertaining  or relating to funds used by Sanwa in quoting
and determining the Fixed Rate.

     4.  Conversion  from Fixed Rate to Variable  Rate.  In the event that Sanwa
shall,  at any time,  determine that the accrual of interest on the basis of the
Fixed Rate (i) is infeasible because Sanwa is unable to determine the Fixed Rate
due to the unavailability of U.S. dollar deposits,  contracts or certificates of
deposit in an amount  approximately  equal to the amount of the relevant Advance
and for a period of time approximately equal to the relevant Interest Period; or
(ii) is or has become  unlawful or  infeasible  by reason of Sanwa's  compliance
with  any  new  law,  rule,   regulation,   guideline  or  order,   or  any  new
interpretation  of any present law, rule,  regulation,  guideline or order, then
Sanwa shall give telephonic notice thereof  (confirmed in writing) to Client, in
which event any Fixed Rate Advance shall be deemed to be a Variable Rate Advance
and interest shall thereupon immediately accrue at the Variable Rate.

     1.04 Compensating Balances;  Fee-in-Lieu of Compensating Balances. Maintain
demand  deposits  with Sanwa with net free  compensating  balances  in an amount
equivalent  to not less than  $131,250.00  on an average daily basis during each
[NA] month [X] calendar quarter (the "Compensating Balance Requirement"). Client
shall pay to Sanwa on the 10th day  following  the last day of each  [NA]  month
[NA]  calendar  quarter  (the  "Time  Period")  a fee  equivalent  to  (check as
applicable):

          [X] the  product  of (i) the  earnings  credit  rate for  account
          analysis  purposes  during the preceding  Time Period;  times (ii) the
          difference,   if  any,  by  which  the  compensating  balances  to  be
          maintained  by Client  pursuant  to this  paragraph  shall  exceed the
          amount of average daily balances actually  maintained by Client during
          such preceding Time Period.

          [NA]  NA%  of  the  sum  of  $NA  if  the  Compensating   Balance
          Requirement is not met.

     For purposes of this paragraph,  the term "net free compensating  balances"
means balances of all accounts included in Client's account analysis statement.

     1.05 Line Account. Sanwa shall maintain on its books a record of account in
which Sanwa shall make  entries for each letter of credit,  borrowing in the Fed
Funds  market  or  Advance  and  such  other  debits  and  credits  as  shall be
appropriate in connection with the credit facility (the "Line  Account").  Sanwa
shall provide  Client with a monthly  statement of Client's Line Account,  which
statement shall be considered to be correct and  conclusively  binding on Client
unless  Client  notifies  Sanwa to the  contrary  within 30 days after  Client's
receipt of any statement which it deems to be incorrect.

     1.06  Principal.  Unless  sooner due in  accordance  with the terms of this
Agreement or any note issued hereunder,  Client promises and agrees to pay Sanwa
the amount of each (i)  borrowing  in the Fed Funds market upon  maturity;  (ii)
Advance at the Expiration  Date; (iii) drawing under a letter of credit or draft
issued thereunder (each a "Drawing") on Sanwa's demand  therefore;  and (iv) pay
any foreign exchange transaction on the settlement date.

     1.07 Expiration of Line of Credit.

     1.07 A. Unless  earlier  terminated  in  accordance  with the terms of this
Agreement,  Sanwa's  commitment  to extend credit under the Line of Credit shall
automatically expire on July 31, 1998 (the "Expiration Date").

     1.07 B. The  commitment by Sanwa to issue  Letters of Credit shall,  unless
earlier terminated in accordance with the terms of this Agreement, automatically
terminate on the Expiration  Date and no Letter of Credit shall expire on a date
which is (check as applicable)  [NA] after the Expiration Date [X] more than 365
days after the Expiration Date.

     1.07 C. The commitment by Sanwa to enter into foreign exchange transactions
shall,   unless   earlier   terminated  in  accordance   with  this   Agreement,
automatically  terminate on the Expiration Date and no foreign exchange contract

                                        4
<PAGE>
shall expire on a date which is (check as applicable)  [NA] after the Expiration
Date [NA] more than 183 days after the Expiration Date.

     2.00 Conditions Precedent.

     2.01 Conditions  Precedent to any  Transactions.  Prior to the extension of
credit under the Line of Credit,  Client shall  deliver or cause to be delivered
to Sanwa,  in form and substance  satisfactory  to Sanwa:  (i) Loan Fees of $NA;
(ii) evidence  relating to the duly given approval and authorization to execute,
deliver and perform this Agreement, including, without limitation, a certificate
by Client's  secretary that: (a) the Client's Board of Directors has adopted the
agreements encompassed hereunder;  and (b) that such agreements are noted on the
Client's books and records as part of Client's official records; (iii) all other
documents,  instruments and agreements  required hereunder or by Sanwa; and (iv)
all other actions to be taken by Client  hereunder or  thereunder  together with
such other  documents  and  opinions  as Sanwa may require  with  respect to the
transactions described herein (the "Loan Documents").

          2.02  Conditions  Precedent  to Each  Transaction  under  the  Line of
     Credit.

          A. Representations and Warranties.  The representations and warranties
     set  forth  below  and in any  other  document,  instrument,  agreement  or
     certificate delivered to Sanwa hereunder are true and correct.

          B. Event of Default.  No event has  occurred and is  continuing  which
     constitutes,  or, with the lapse of time or giving of notice or both, would
     constitute an Event of Default, as defined below.

          C. Form of Letter of Credit  Application.  If Client seeks a letter of
     credit  pursuant  to  paragraph  1.02A or 1.02B  above,  Client  shall have
     delivered to Sanwa,  Sanwa's  standard  form of  application  for letter of
     credit duly completed and executed by and on behalf of Client. If Client is
     seeking a letter of credit  pursuant to  paragraph  1.02A or 1.02B above in
     connection  with a letter of credit  sought by one of  Client's  customers,
     Client shall have delivered to Sanwa,  Sanwa's standard form of application
     for a letter of credit duly completed and executed by Client's customer and
     by Client.  Sanwa may  decline to issue or confirm  any letter of credit if
     the  application is not in a form acceptable to Sanwa, as determined at the
     sole discretion of Sanwa.

          D. Fees.  Client shall have paid to Sanwa the fee  applicable  for any
     letter of credit issued hereunder.

     3.00  Representations  and  Warranties.  Client  hereby makes the following
representations  and warranties to Sanwa, which  representations  and warranties
are continuing:

     3.01 Status.  Client is a corporation  duly organized and validly  existing
under the laws of [X] the State of  California  or [NA] of the United  States of
America, and is properly licensed, qualified to do business and in good standing
in, and, where necessary to maintain Client's rights and privileges.

     3.02 Authority. The execution, delivery and performance by Client hereunder
of the transactions  contemplated hereby, and by any security agreement executed
in  connection   herewith   (including   the  providing  of  any  collateral  or
compensating  balances  for any  credit  extended  hereunder),  have  been  duly
authorized  and does and will not: (i) violate any  provision of any law,  rule,
regulation,  writ, judgment or injunction  presently in effect affecting Client;
(ii) result in a breach of or constitute a default under any material  agreement
to which  Client  is a party or by  which it or its  properties  may be bound or
affected;  (iii) require any consent or approval of its  stockholders or violate
any provision of its articles of incorporation  or by-laws;  or (iv) require any
consent or approval of any federal or state regulatory authority.

     3.03 Financial Statements.  All financial statements,  call reports, thrift
financial  reports,  information and other data which may have been or which may
hereafter  be  submitted  by Client to Sanwa are true,  accurate and correct and
have been or will be prepared in accordance with generally  accepted  accounting
principles  consistently  applied and accurately  represent  Client's  financial
condition or, as applicable,  the other information  disclosed herein. Since the
most recent submission of any such financial  statement,  information,  or other
data to Sanwa, Client represents and warrants that no material adverse change in
Client's financial condition or operations has occurred which has not been fully
disclosed to Sanwa in writing.

     4.00 Other Agreements. Client covenants and agrees that, during the term of
this Agreement, and so long thereafter as Client is indebted to Sanwa hereunder,
Client shall, unless Sanwa otherwise consents in writing:

     4.01 Reporting  Requirements.  Deliver or cause to be delivered to Sanwa in
form and detail satisfactory to Sanwa:

     A.  Annual  Statements.  Not later  than 120 days  after the end of each of
Client's fiscal years, a copy of the annual  financial report of Client for such
year, which report shall be a CPA audited report.


     B. Call Reports or Thrift Financial  Reports.  Not later than 60 days after

                                        5
<PAGE>
the end of each  calendar  quarter a copy of Client's most recent Call Report or
Thrift  Financial  Reports (or such other  similar  report  required by Client's
regulator).

     C. Other Information. Promptly upon Sanwa's request, such other information
pertaining to Client as Sanwa may reasonably request.

     4.02  Financial  Condition.  Maintain  at all times  equity  (Tier 1, total
equity  and  risk  based  capital)  in  accordance   with   applicable   federal
regulations.

     4.03  Borrowing/Not  Deposit.  Client  shall  record on its Call  Report or
Thrift Financial Report and in all other financial records appropriate notations
reporting the credit hereunder as a borrowing and not as a deposit.

     4.04 Maintain  Corporate  Records.  Client shall maintain the resolution of
its Board of  Directors  which  authorizes  this  borrowing  and the  execution,
delivery and performance of the  obligations  hereunder as an official record of
the Client and,  further,  will  maintain as the official  records of Client the
minutes of any meeting which mention this borrowing.

     4.05  Senior  Officer's  Certificate.  Upon  request by Sanwa,  Client must
deliver to Sanwa a  certificate  of a Senior  Officer which  certifies  that the
transaction  is  governed  by  this  Credit  Agreement  and  related  documents;
reconfirming the truth of all representations and warranties of Section 3.00, et
seq.; and certifying to compliance  with all Other  Agreements,  as specified in
Section 4.00, et.seq.

     4.06                                          Other.
___________NA__________________________________________________________________
_________________________________________________________________________.

     5.00 Events of Default.  Any one or more of the following  described events
shall  constitute  an event of  default  (an  "Event  of  Default")  under  this
Agreement:

     5.01  Non-Payment.  Client  shall fail to pay any payment of  principal  or
interest or any other sum referred to in this  Agreement  within 10 days of when
due.

     5.02 Performance Under This and Other Agreements.  Client shall fail in any
material respect to perform or observe any term, covenant or agreement contained
in this  Agreement or in any  document,  instrument  or agreement  evidencing or
relating to any indebtedness of Client (whether owed to Sanwa or third persons),
and any such  failure  (exclusive  of the  payment of money to Sanwa  under this
Agreement or under any other  document,  instrument or agreement,  which failure
shall  constitute  and be an immediate  Event of Default if not paid when due or
when  demanded  to be due) shall  continue  for more than 30 days after  written
notice  from Sanwa to Client of the  existence  and  character  of such Event of
Default.

     5.03   Representations   and   Warranties:    Financial   Statements.   Any
representation  or  warranty  made by Client  under or in  connection  with this
Agreement or any  financial  statement  given by Client shall prove to have been
incorrect in any material respect when made or given.

     5.04 Insolvency. An order shall be made, appointing any receiver, custodian
or trustee for itself or any of its properties, assets or businesses.

     5.05  Insurance.  Client  shall  terminate or have  terminated  its deposit
insurance coverage as administered by the Federal Deposit Insurance  Corporation
("FDIC") or any successor thereto or any other regulatory agency.

     5.06  Suspension.  Client  shall  voluntarily  suspend the  transaction  of
business or allow to be  suspended,  revoked or expired  any permit,  license or
approval of any governmental  body necessary to conduct Client's business as now
conducted.

     6.00 Remedies on Default.

     Upon  the  occurrence  of any  Event of  Default,  Sanwa  may,  at its sole
election, without demand and upon only such notice as may be required by law:

     6.01 Acceleration. Declare any or all of the Client's indebtedness owing to
the Bank,  whether under this Agreement or under any other document,  instrument
or  agreement,  immediately  due and payable,  whether or not  otherwise due and
payable.

     6.02 Cease Extending Credit.  Cease making Advances or otherwise  extending
credit to or for the  account of the Client  under this  Agreement  or under any
other  agreement  now existing or hereafter  entered into between the Client and
Sanwa.

     6.03  Termination.  Terminate this Agreement as to any future obligation of
Sanwa without affecting the Client's  obligations to Sanwa or Sanwa's rights and
remedies  under  this  Agreement  or under any  other  document,  instrument  or
agreement.

     6.04  Defaults and Letters of Credit.  Upon the  occurrence of any Event of

                                        6
<PAGE>
Default,  Sanwa may, at its sole and absolute  discretion and in addition to any
other remedies available to it under the Agreement or otherwise,  require Client
to pay  immediately  to  Sanwa,  for  application  against  drawings  under  any
outstanding letters of credit, the outstanding  principal of any such letters of
credit which have not expired.  Any portion of the amount so paid to Sanwa which
is not applied to satisfy  draws  under any such  letters of credit or any other
obligation  of the  Client  to  Sanwa  shall be  repaid  to the  Client  without
interest.

     6.05 Defaults and Foreign Exchange Transactions. Upon the occurrence of any
Event of Default, Sanwa may, at its sole and absolute discretion and in addition
to any other remedies available to it under the Agreement or otherwise,  require
the Client to pay  immediately  to Sanwa,  for  application  against  the future
settlement  price  under  any  outstanding  foreign  exchange  transaction,  the
outstanding  face amount of any such foreign  exchange  contract  which have not
matured or settled and Client hereby grants to Sanwa a security  interest in and
to such funds.  Any portion of the amount so paid to Sanwa which is subsequently
applied to satisfy  repayment on any such matured foreign  exchange  contract or
any  other  obligations  of the  Client to Sanwa  shall be repaid to the  Client
without interest.

     6.06  Non-Exclusivity  of Remedies.  Exercise one or more of Sanwa's rights
set forth herein or seek such other rights or pursue such other  remedies as may
be  provided  by law,  in equity  or in any  other  agreement  now  existing  or
hereafter entered into between the Client and Sanwa, or otherwise.

     7.00 Miscellaneous Provisions.

     7.01 Amounts Payable on Demand. If Client fails to pay on demand any amount
so payable under this Agreement,  such amount shall bear interest as provided in
the Loan  Documents.  If the Loan  Documents  do not provide a rate of interest,
where a Line of Credit for Client  exists,  Sanwa may, at its option and without
any obligation to do so and without  waiving any default  occasioned by Client's
failure to pay such  amount,  create an Advance in an amount equal to the amount
so payable,  which Advance shall  thereafter bear interest as provided under the
Line of Credit. If no Line of Credit is in existence, the amount due and payable
shall accrue  interest at the Reference  Rate (the  "Variable  Rate").  Interest
shall be adjusted  concurrently with any change in the Reference Rate.  Interest
hereunder  shall be computed  on the basis of 360 days per year,  but charged on
the actual number of days elapsed.

     7.02  Default  Interest  Rate.  Client  shall pay to Sanwa  interest on any
indebtedness  or amount  payable under this  Agreement,  from the date that such
indebtedness  or amount became due or was demanded to be due until paid in full,
at a rate  which is 3% in  excess  of the rate  otherwise  provided  under  this
Agreement.

     7.03 Indemnification for Letter of Credit Costs. Client shall, upon Sanwa's
request, promptly pay to and reimburse Sanwa for all costs incurred and payments
made by Sanwa by reason of any future  assessment,  reserve,  deposit or similar
requirement  or any  surcharge,  tax or fee imposed upon Sanwa or as a result of
Sanwa's compliance with any directive or requirement of any regulatory authority
pertaining or relating to any letter of credit or acceptance.

     7.04 Indemnification for Foreign Exchange Transactions.  Client shall, upon
Sanwa's request,  promptly pay to and reimburse Sanwa for all costs incurred and
payments made by Sanwa by reason of any assessment,  reserve,  deposit,  capital
maintenance or similar  requirement  or any  surcharge,  tax or fee imposed upon
Sanwa or as a result of Sanwa's  compliance with any directive or requirement of
any  regulatory  authority  pertaining  or  relating  to  any  foreign  exchange
contract.

     7.05  "Netting"  Provision.  This  provision  is  intended  to  establish a
"netting  contract"  as  defined  in  Section  402(14)  of the  Federal  Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), as may be amended from
time to time,  with respect to the  entirety of  obligations  between  Sanwa and
Client.  All words and  expressions  used in this  section  which are defined in
FDICIA Section 402 shall have the same meaning herein as therein. If at any time
either Sanwa or Client becomes a failed  financial  institution,  then, from and
after such time, all covered  contractual  payment  entitlements and all covered
contractual payment  obligations  between Sanwa and Client,  regardless of their
source or  derivation,  including  but not  limited to those  arising out of the
credit arrangement  contemplated  hereunder,  shall be netted and FDICIA Section
403 shall apply thereto.

     7.06  Accounting and Other Terms.  All references to financial  statements,
assets,  liabilities and similar  accounting terms not  specifically  defined in
this  Agreement  shall mean such  financial  statements  prepared and such terms
determined  in  accordance  with  generally   accepted   accounting   principles
consistently  applied.  Except where otherwise specified in this Agreement,  all
financial  data submitted or to be submitted to Sanwa pursuant to this Agreement
shall be prepared in accordance with generally  accepted  accounting  principles
consistently  applied.  Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the California Uniform Commercial Code.

     7.07  Attorney's  Fees.  In the  event of any  action in  relation  to this
Agreement or any  document,  instrument  or agreement  executed with respect to,
evidencing or securing the  indebtedness  hereunder,  the prevailing  party,  in
addition  to all other sums to which it may be  entitled,  shall be  entitled to

                                        8
<PAGE>
reasonable attorneys' fees.

     7.08 Notices.  All notices,  payments,  requests,  information  and demands
which either party hereto may desire,  or may be required to give or make to the
other  party  shall be given or made to such party by hand  delivery  or through
deposit  in the  United  States  mail,  postage  prepaid,  or by  Western  Union
telegram,  addressed  to the address set forth below such  party's  signature to
this Agreement or to such other address as may be specified from time to time in
writing by either party to the other.

     7.09 Waiver. Neither the failure nor delay by Sanwa in exercising any right
hereunder or under any document,  instrument or agreement mentioned herein shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
right hereunder or under any document,  instrument or agreement mentioned herein
preclude other or further  exercise  thereof or the exercise of any other right;
nor  shall  any  waiver of any  right or  default  hereunder  or under any other
document,  instrument or agreement  mentioned herein  constitute a waiver of any
other right or default or  constitute a waiver of any other  default of the same
or any other term or provision.

     7.10  Conflicting  Provisions.  To the  extent  that  any of the  terms  or
provisions  contained in this Agreement are inconsistent with those contained in
any other document,  instrument or agreement executed pursuant hereto, the terms
and provisions contained herein shall control.  Otherwise, such provisions shall
be considered cumulative.

     7.11 Binding Effect;  Assignment.  This Agreement shall be binding upon and
inure to the  benefit of Client and Sanwa and their  respective  successors  and
assigns,  except  that  Client  shall not have the right to  assign  its  rights
hereunder or any interest  herein without Sanwa's prior written  consent.  Sanwa
may sell, assign or grant participations in all or any portion of its rights and
benefits hereunder.  Client agrees that, in connection with any such sale, grant
or  assignment,  Sanwa may  deliver to the  prospective  buyer,  participant  or
assignee financial statements and other relevant information relating to Client.

     7.12  Jurisdiction.  This Agreement,  any notes issued  hereunder,  and any
documents,  instruments  or agreements  mentioned or referred to herein shall be
governed by and construed  according to the laws of the State of California,  to
the jurisdiction of whose courts the parties hereby submit.

     7.13  Entire  Agreement.  This  Agreement  and  the  Loan  Documents  shall
constitute the entire and complete  understanding of the parties with respect to
the transactions contemplated hereunder.

     IN WITNESS WHEREOF,  this Agreement has been executed by the parties hereto
as of the date first hereinabove written.


SANWA BANK CALIFORNIA:                 SIERRAWEST BANK:

By: /s/ Robert Solomon                 By: /s/ William H. McGaughey
Robert Solomon, Vice President         William H. McGaughey, SVP/Treasurer
(Name/Title)                           (Name/Title)


Address: 601 S. Figueroa Street        By: /s/David Broadley
           Los Angeles, CA 90017       David Broadley, EVP/CFO
                                       (Name/Title)
                                       Address:  10181 Truckee-Tahoe Airport Rd.
                                       Truckee, CA  96160



                                   9
<PAGE>

                              Exhibit 10.99

                  REVOLVING CREDIT AND COLLATERAL LOAN AGREEMENT


     REVOLVING  CREDIT AND COLLATERAL  LOAN AGREEMENT dated as of May 1, 1997 by
and between  SierraWest  Bank, a  California  banking  corporation  (hereinafter
called  "Company"),   and  IMPERIAL  BANK,  a  California  banking   corporation
(hereinafter called "Bank").

     In consideration of the mutual covenants and agreements  contained  herein,
Company and Bank agree as follows:

Section 1.  DEFINITIONS

Defined  Terms.  All terms  defined in this  Agreement  shall  have the  defined
meanings when used herein or in any note, certificate,  report or other document
made or  delivered  pursuant to this  Agreement,  unless the  context  otherwise
requires. The following terms shall have the following meanings:

     "Agreement"  means this Revolving  Credit and Collateral  Loan Agreement as
originally  executed  and as the  same  may  from  time to time  be  amended  or
supplemented.
     "Business  Day" means any day other than a Saturday,  Sunday, or holiday
on which  banks in the State of  California  are  authorized  by law to
close.  
     "Collateral" means all property referred to and described in Section 2.6
hereof.
     "Deed of Trust" means a deed of trust or mortgage in form  satisfactory
to Bank (a) which secures a Mortgage Note and (b) the lien of which  constitutes
a first lien on the real property  described  therein  subject only to (i) liens
for taxes, assessments, or similar governmental charges not yet due and payable,
(ii) zoning  restrictions,  (iii) mineral  reservations,  easements,  covenants,
conditions  and  restrictions  of record which shall  neither  defeat nor render
invalid such lien, nor materially impair the  merchantability,  or value of such
real property,  and (iv) such other exceptions to title as have been approved in
writing by Bank.
     "Event of Default means any event  described  in Section 8.1
hereof.
     "FHA"  means  the  Federal  Housing  Administration  and any  successor
thereto.
     "FHA Mortgage" means a mortgage loan within  acceptable limits insured
by the FHA.
     "FHLMC" means the Federal Home Loan Mortgage  Corporation  and any
successor  thereto.
     "FNMA" means the Federal National Mortgage  Association and
any successor thereto.
     "GNMA" means the Government National Mortgage Association
and any successor thereto.

                                        1
<PAGE>

     "Interest Period" means the period commencing on the borrowing  date on 
which a Loan is disbursed and ending on the date three months thereafter when
selected by the Company in its notice of borrowing.
     "Interest Rate" shall mean as to: (a) Prime Rate Loans, equal to the Prime
Rate; and (b) LIBOR Rate Loans, a rate of 2.00% per annum in excess of the LIBOR
Rate (based on the LIBOR Rate applicable for the Interest Period designated by
the Borrower).
     "Investor" means a bank, trust company, savings and loan association,
pension fund, governmental authority, insurance company, investment company, or
securities broker or dealer, designated by Company and approved by Bank.
     "Investor Commitment" means an existing, written agreement, in form and
substance satisfactory to Bank, to Company from an investor to purchase Mortgage
Loans.
     "LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate Loan, the
rate of interest per annum determined by Bank (to be the per annum rate of
interest at which deposits in United States Dollars are offered to Bank in the
London interbank market in which Bank customarily participates) at 11:00AM 
(local time in such interbank market) two (2) Business Days before the first day
of such Interest Period for a period approximately equal to such Interest Period
and in an amount approximately equal to the amount of such Loan.
     "LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate Loan,
a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1% equal
to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1 minus the
Reserve Requirement for such Interest Period.
     "LIBOR Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the LIBOR Rate in accordance with the terms hereof.
     "Loan" means each extension of credit by Bank to the Company hereunder.
     "Loans" mean any or all of the loans from Bank to Company pursuant to this
Agreement.
     "Mortgage Loan" means any loan evidenced by a Mortgage Note.
     "Mortgage Note" means a negotiable promissory note executed by a bona fide
third party who has the capability to contract, payable to Company in monthly
installments, matures in thirty (30) years or less, and is secured by a Deed of
Trust on such real property described therein.
     "Person" means a corporation, association, partnership, trust,
organization, business, individual or government or governmental agency or
political subdivision thereof.
     "Prime Rate" means the floating commercial loan base or reference rate of
interest announced by Bank from time to time as its Prime Rate, which is not
necessarily the lowest rate offered by Bank at such time.
     "Prime Rate Loans" means any Loans made or a portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms hereof.
     "Regulatory Change" means, with respect to Bank, any change on or after the
date of this Loan Agreement in United States  federal,  state or foreign laws or
regulations,  including Regulation D, or the adoption or making on or after such
date of

                                        2
<PAGE>
any  interpretations,  directives  or  requests  applying to a class of lenders,
including  Bank, of or under any United States federal or state, or any foreign,
laws or  regulations  (whether  or not  having the force of law) by any court or
governmental  or  monetary   authority   charged  with  the   interpretation  or
administration thereof.
     "Reserve  Requirement"  means, for any Interest Period, the average maximum
rate at which  reserves  (including  any  marginal,  supplemental  or  emergency
reserves)  are  required to be  maintained  during such  Interest  Period  under
Regulation  D  against  "Eurocurrency  liabilities"  (as  such  term  is used in
Regulation D) by member banks of the Federal  Reserve System.  Without  limiting
the effect of the  foregoing,  the Reserve  Requirement  shall reflect any other
reserves  required to be maintained by Bank by reason of any  Regulatory  Change
against (i) any category of liabilities  which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any  category of  extensions  of credit or other assets which
include Loans.
     "Revolving  Note"  means  the  Company's  promissory  note  issued  to Bank
pursuant to Section 2.2 hereof with appropriate insertions.
     "SBA" means the Small  Business  Association  and any  successor  thereto.
     "SBA  Loan"  means a Mortgage  Loan  within  acceptable  limits  guaranteed
by the  SBA.
     "Servicing  Portfolio" means the Mortgage Notes serviced by Company for the
purpose of processing  payments thereon on behalf of the owner(s)  thereof,  for
which services Company is paid a fee.
     "Tangible  Net Worth shall mean the excess of all of the  Company's  assets
(excluding any value for goodwill, trademarks, patents, copyrights, organization
expense  and  other  similar  intangible  items)  over  all its  liabilities  as
determined  and  computed  in  accordance  with  generally  accepted  accounting
principles consistently applied.
     "Total Debt" shall mean the total of all items of indebtedness,  obligation
or liability which would be included in determining  total  liabilities as shown
on the liability  side of a balance sheet of the Company at the date as of which
Total Debt is to be determined.
     "VA" means the  Veterans'  Administration  and any successor  thereto.
     "VA Loan" means a Mortgage Loan within acceptable limits guaranteed by the
VA.

Section 2.  AMOUNT AND TERMS OF CREDIT

     2.1 Loans.  Subject to the terms and  conditions  of this  Agreement,  Bank
agrees to make Loans  (herein the "Loan" ) to Company,  which  amount  shall not
exceed  the  sum of  ten  million  dollars  ($10,000,000.00)  in  the  aggregate
outstanding at any one time. Bank's obligation to make the Loans shall terminate
on the maturity date set forth in the Revolving Note as described in Section 2.2
hereof subject to any renewal  extension of the Revolving  Note. Each LIBOR Rate
Loan shall be made upon the irrevocable  written request of Borrower received by
Bank not later than  11:00AM  (California  time) on the  Business  Day three (3)
Business Days prior to the date such

                                           3
<PAGE>
  
Loan is to be made.  Each such notice shall  specify the date such Loan is to be
made,  which day shall be a Business Day, the amount of such Loan,  the Interest
Period for such Loan, and comply with such other requirements as Bank determines
are reasonable or desirable in connection  herewith.  Each written request for a
LIBOR Rate Loan shall be in the form of a LIBOR Rate Loan Borrowing  Certificate
as set forth on Exhibit A, which shall be duly executed by the Borrower.


     2.2 Revolving  Note.  The obligation of Company to repay the Loans shall be
evidenced  by a Revolving  Note,  payable as set forth in  Sections  2.4 and 2.5
hereof, all amounts outstanding becoming finally due and payable as specified in
the Revolving Note if not paid before. Bank shall record the principal amount of
the initial Loan on the books and records of Bank. Additional Loans made by Bank
and payments and  prepayments  of principal  with respect to the Revolving  Note
shall be evidenced  by notations  made by Bank on the books and records of Bank.
The aggregate  unpaid amount of Loans set forth on the books and records of Bank
shall be  presumptive  evidence of the principal  amount owing and unpaid on the
Revolving Note.

     2.3  Interest.  a. The  Revolving  Note shall bear interest upon the unpaid
principal  balance which is not a LIBOR Loan from its date at a fluctuating rate
per annum equal to Bank's Prime Rate.  All interest  shall be  calculated on the
basis of a year of 360 days and the  actual  number of days.  Any  change in the
interest rate on the Revolving  Note  resulting  from a change in the Prime Rate
shall  become  effective  as of the day on which  such  change in the Prime Rate
shall become effective.
     b. Any LIBOR Rate  Loans  shall  automatically  convert to Prime Rate Loans
upon the last day of the applicable  Interest  Period,  unless Bank has received
and approved a complete and proper  request to continue  such LIBOR Rate Loan at
least  three (3)  Business  Days prior to such last day in  accordance  with the
terms hereof.  Any LIBOR Rate Loans shall,  at Bank's  option,  convert to Prime
Rate Loans in the event that (i) a  Default,  or event  which with the notice or
passage  of time or both would  constitute  a Default,  shall  exist,  (ii) this
Agreement shall terminate, or (iii) the aggregate principal amount of LIBOR Rate
Loans at any time exceeds the Maximum  Availability.  Borrower  agrees to pay to
Bank, upon demand by Bank ( or Bank may, at its option,  charge  Borrower's loan
account) any amounts required to compensate Bank for any loss (including loss of
anticipated  profits),  cost or expense incurred by such person,  as a result of
the  conversion  of LIBOR Rate Loans to Prime Rate Loans  pursuant to any of the
foregoing.
     c. On all Loans,  Interest  shall be payable by Borrower to Bank monthly in
arrears  not  later  than the tenth  (10th)  day of each  calendar  month at the
applicable  Interest Rate.  Should  interest not be paid before the tenth day of
the month, it shall thereafter bear like interest as the principal.

                                        4
<PAGE>

     2.4 Regular Principal Payments.  The amount received directly by Company or
from sale of said Mortgage Loans to any designated  government or  institutional
investor or by any other  collection  of any  principal  amount shall be due and
payable to Bank  immediately  following  such receipt for  application to unpaid
principal and interest on the Loans.

     2.5 Payment of  Principal  on Demand.  Company  will pay Bank on demand the
full amount of any  outstanding  Loan in the event  that:
     A. Said Loan shall be outstanding  for more than 90 days.
     B. Any default  shall occur with respect to the corresponding  Mortgage
Loan.
     2.6  Collateral.  As security  for the Loans and any other  obligations  of
Company under this Agreement, Company does hereby pledge, assign and hypothecate
to Bank, and grant to Bank a security interest in, the following:
     A. Mortgage Notes, Deeds of Trust, documents and other property as shall be
deposited  with or held by Bank or its agent in trust for Bank  pursuant to this
Agreement, the Mortgage Loans evidenced thereby and the proceeds thereof;
     B.  All  hazard  insurance  policies,  title  insurance  policies,  and any
proceeds thereof, and any condemnation proceeds;
     C. All files, surveys, certificates,  correspondence,  appraisals, computer
programs,  tapes,  discs,  cards,  accounting  records  and all  other  records,
information  and  data  of  Company  relating  to the  Mortgage  Loans  assigned
hereunder;
     D. Any and all deposit accounts maintained by Company with Bank; and
     E. Any  other  property  and  proceeds  thereof  that may from time to time
hereafter  be  delivered  by Company to Bank or to its agent to be held in trust
for Bank pursuant to this Agreement.
     F. Any and all assets of Company, real or personal.
     G. All Investor  Commitments covering the Mortgage Loans assigned hereunder
to the extent that the granting of a security interest in same shall not violate
any restrictions against assignment contained in said investor commitments,  and
in the proceeds resulting from sales by Company pursuant thereto.
     H. All Servicing Rights and proceeds thereof.

     2.7 Limitations on Amounts Funded.  In no event shall any advance under any
Loan  exceed  the  maximum  investor  commitment  ceiling  of the  corresponding
Mortgage  Loan  assigned  hereunder,  as those  ceilings may change from time to
time. Bank reserves the right to approve any changes in these ceilings.

     2.8  Transmittal of Mortgage Loans.
     A. So long as no Event of Default  shall  occur or exist,  Bank may, in its
discretion, deliver or release any Mortgage Loan constituting Collateral and all
related  documents to Company so that Company may transmit such documents to the
appropriate  investor for purchase in accordance  with the Purchase  Contract or
Investor Commitment.

                                        5
<PAGE>
     B.  Transmittal  shall be in such  form as shall be  satisfactory  to Bank,
including,  without limitation,  (a) Company's execution and delivery of a Trust
Receipt with  appropriate  insertions for any Mortgage Loan released to Company,
and (b) written notice to Bank from any officer of Company authorized to request
a Revolving Loan specified herein.
     C. In the case of Mortgage Loans, the approved  investor shall  immediately
return all loan documents to Bank if payment is not made within thirty (30) days
from the date of transmittal by Bank, and Company shall  immediately  return all
loan documents to Bank if  transmittal to an approved  investor is not completed
within three (3) days from the date of  transmittal by Bank.  Payments  received
from approved  investors shall be applied first to the satisfaction of Company's
obligations under this Agreement,  and charges in connection therewith,  and the
remainder, if any, shall be paid to Company.
     2.9 Redemption of Collateral. So long as no Event of Default shall occur or
exist, Company may redeem, free from any security interest of Bank, any Mortgage
Loan  constituting  Collateral and all related documents upon payment to Bank of
the  principal  amount  of the Loan  advanced  therefor  plus  interest  accrued
thereon.
     2.10 Disbursement of Loans. Bank shall fund according to a funding schedule
submitted by Company into a pre-designated funding account maintained by Company
at Bank.
     2.11 Holiday  Payments.  If any payment to be made by Company  hereunder or
under the  Revolving  Note shall become due on a day other than a Business  Day,
such  payment  shall  be made  on the  next  succeeding  Business  Day and  such
extension of time shall be included in computing any interest in respect of such
payment.

     2.12 Additional Requirements/Provisions Regarding LIBOR Rate Loans; etc.

     A. If for any  reason  (including  voluntary  or  mandatory  prepayment  or
acceleration), Bank receives all or part of the principal amount of a LIBOR Rate
Loan prior to the last day of the Interest Period for such Loan,  Borrower shall
immediately  notify  Borrower's  account officer at Bank and, on demand by Bank,
pay Bank the amount (if any) by which (i) the  additional  interest  which would
have been payable on the amount so received had it not been  received  until the
last day of such Interest Period exceeds (ii) the interest which would have been
recoverable  by Bank by  placing  the  amount  so  received  on  deposit  in the
certificate of deposit  markets or the offshore  currency  interbank  markets or
United States  Treasury  investment  products,  as the case may be, for a period
starting on the date on which it was so  received  and ending on the last day of
such Interest  Period at the interest rate  determined by Bank in its reasonable
discretion.  Bank's  determination as to such amount shall be conclusive  absent
manifest error.

     B. Borrower shall pay to Bank,  upon demand by Bank, from time to time such
amounts as Bank may  determine to be necessary  to  compensate  it for any costs
incurred  by Bank  that  Bank  determines  are  attributable  to its  making  or
maintaining  of any amount  receivable by Bank hereunder in respect of any Loans
relating thereto

                                        6
<PAGE>
(such  increases  in costs and  reductions  in amounts  receivable  being herein
called  "Additional  Costs"),  in each case resulting from any Regulatory Change
which:

     i. changes the basis of taxation of any amounts  payable to Bank under this
Supplement  in respect of any Loans  (other  than  changes  which  affect  taxes
measured by or imposed on the overall net income of Bank by the  jurisdiction in
which such Bank has its principal office); or

     ii.   imposes  or  modifies  any  reserve,   special   deposit  or  similar
requirements  relating to any  extensions  of credit or other  assets of, or any
deposits with or other  liabilities of Bank (including any Loans or any deposits
referred to in the definition of "LIBOR Base Rate"); or

     iii. imposes any other condition  affecting this Supplement (or any of such
extensions  of credit or  liabilities).  Bank will notify  Borrower of any event
occurring  after  the date of the Loan  Agreement  which  will  entitle  Bank to
compensation  pursuant  to this  section as  promptly  as  practicable  after it
obtains knowledge thereof and determines to request such compensation. Bank will
furnish  Borrower  with a statement  setting  forth the basis and amount of each
request by Bank for  compensation  under  this  Section  4.  Determinations  and
allocations  by  Bank  for  purposes  of this  Section  4 of the  effect  of any
Regulatory  Change on its costs of maintaining  its obligations to make Loans or
of making or  maintaining  Loans or on  amounts  receivable  by it in respect of
Loans,  and of the additional  amounts required to compensate Bank in respect of
any Additional Costs, shall be conclusive absent manifest error.

     C.  Borrower  shall pay to Bank,  upon the request of Bank,  such amount or
amounts as shall be sufficient  (in the sole good faith opinion of such Bank) to
compensate it for any loss,  costs or expense  incurred by it as a result of any
failure by Borrower to borrow a Loan on the date for such borrowing specified in
the relevant notice of borrowing hereunder.

     d. If Bank shall  determine  that the  adoption  or  implementation  of any
applicable law, rule,  regulation or treaty regarding capital  adequacy,  or any
change therein, or any change in the interpretation or administration thereof by
any governmental  authority,  central bank or comparable agency charged with the
interpretation  or  administration  thereof,  or  compliance  by  Bank  (or  its
applicable  lending  office)  with any respect or  directive  regarding  capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable  agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person on entity  controlling Bank (a "Parent")
as a consequence of its  obligations  hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption,  change or compliance
(taking into  consideration its policies with respect to capital adequacy) by an
amount  deemed by Bank to be material,  then from time to time,  within 125 days
after demand by Bank, Borrower shall pay to Bank such additional amount

                                        7
<PAGE>

or amounts as will  compensate  Bank for such  reduction.  A  statement  of Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive absent manifest error.

     E. If at any time Bank,  in its sole and  absolute  discretion,  determines
that:  (i)  the  amount  of the  LIBOR  Rate  Loans  for  periods  equal  to the
corresponding  Interest  Periods  are not  available  to  Bank  in the  offshore
currency interbank  markets,  or (ii) the LIBOR Rate does not accurately reflect
the cost to Bank of lending the LIBOR Rate Loan,  then Bank shall  promptly give
notice thereof to Borrower, and upon the giving of such notice Bank's obligation
to make the LIBOR Rate Loans shall terminate, unless Bank and the Borrower agree
in writing to a different  interest rate  applicable to LIBOR Rate Loans.  If it
shall become  unlawful for Bank to continue to fund or maintain any Loans, or to
perform its obligations  hereunder,  upon demand by Bank,  Borrower shall prepay
the Loans in full with accrued interest thereon and all other amounts payable by
Borrower  hereunder  (including,  without  limitation,  any  amount  payable  in
connection with such prepayment).

Section 3.  CONDITIONS OF LENDING

     3.1 Conditions Precedent to Borrowing.  Bank shall not be obligated to lend
to Company and no Loan shall be made to Company under this Agreement  unless the
following conditions precedent have been satisfied:

     A.Company shall comply, and shall have complied, with all of the covenants,
representations  and  warranties  under this  Agreement  and no Event of Default
shall have occurred and be continuing.

     B.Company shall have validly executed and delivered to Bank in form and
substance satisfactory to Bank the following:
          1.   A corporate resolution of the Board of Directors of Company
authorizing the execution of this Agreement, the Revolving Note, and any and all
other documents related to this Agreement;
          2.   This Agreement duly executed;
          3.   The Revolving Note duly executed;
          4.   Such other  documents as Bank may reasonably  request or as
               otherwise  specified  herein in order to effect fully the 
               purposes of this Agreement.

     3.2 Conditions Precedent to First Borrowing and Each Subsequent  Borrowing.
The  obligation of Bank to make each Loan  hereunder is subject to the following
conditions:
     A.  Each  Mortgage  Loan  constituting  Collateral  is  on  residential  or
commercial property in such jurisdictions as may be approved by Bank; is secured
by a first lien on said  property  and  originated  under the SBA 504 program or
have an SBA 7(a) loan in junior  position on the property.  There shall exist no
default under any assigned  Mortgage Note or  corresponding  Mortgage  Loan, and
each Mortgage Loan must be approved by Bank for use as Collateral hereunder;

                                        8
<PAGE>
     B.       Bank shall have received the following in form and substance
satisfactory to Bank:
                  1.       Original Mortgage Note endorsed in blank by Company;
                  2.       Assignment  to Bank of the Deed of Trust.  Such
Assignment  shall be recorded at Bank's discretion;
                  3.       Certified Copy of the Deed of Trust;
                  4.       Collateral Transmittal Sheet;
                  5.       U.S. Small Business Association PLP confirmation
letter;
                  6.       SBA  Authorization  and Loan Agreement or
Authorization  for Debenture  Guarantee to PLP or CLP lender; and
                  7.       Other documentation as Bank may reasonably require.
 
Section 4.  COMPANY'S REPRESENTATIONS AND WARRANTIES

Company makes the following representations and warranties which shall be deemed
to be continuing  representations and warranties so long as any credit hereunder
shall be available and until payment in full of the Revolving Note:

     4.1  Existence  and Rights.  Company is a  corporation  duly  organized and
existing  in good  standing  under the laws of the State of  California  without
limit as to the  duration of its  existence;  Company has  corporate  powers and
adequate  authority,  rights and  franchises to own its property and to carry on
its business as now  conducted,  and is duly  qualified  and in good standing in
each State in which the  character  of its  business  makes  such  qualification
necessary;  Company has the corporate  power and adequate  authority to make and
carry out this Agreement and to issue the Revolving Note as herein provided; and
Company's chief executive office is located in the State of California.

     4.2 Agreement and Revolving Note  Authorized.  The execution,  delivery and
performance of this  Agreement,  and the execution and delivery of the Revolving
Note are duly  authorized  and do not  require  the  consent or  approval of any
governmental body or other regulatory authority;  are not in contravention of or
conflict  with any law or regulation or any term or provision of its Articles of
Incorporation  or bylaws;  and this  Agreement is, and the  Revolving  Note when
delivered for value received will be, the valid, binding and legally enforceable
obligations of Company in accordance with their terms.

     4.3 No Conflict. The execution,  delivery and performance of this Agreement
and of the  Revolving  Note will not breach or  constitute  a default  under any
agreement,  indenture,  undertaking  or other  instrument  to which Company is a
party or by which it or any of its property may be bound or affected, and, other
than in favor of Bank, such execution,  delivery and performance will not result
in the creation or  imposition  of (or the  obligation  to create or impose) any
lien,  charge or  encumbrance  on, or security  interest in, any of its property
pursuant to the provisions of any of the foregoing.

                                        9
<PAGE>
     4.4 Litigation.  There is no litigation or other proceeding  pending or, to
the knowledge of Company,  threatened  against or affecting it or its properties
which,  if  determined  adversely to Company,  would have a  materially  adverse
effect on the financial  condition,  properties or operations of Company, and it
is not in default with respect to any order, writ, injunction,  decree or demand
of any court or other governmental or regulatory authority.

     4.5  Financial  Condition.  The  opening  balance  sheet of  Company  as of
December  31,  1996, a copy of which has  heretofore  been  delivered to Bank by
Company,  and all other  statements  and data submitted in writing in connection
with the request for the credit  granted by this Agreement are true and correct,
and said balance sheet truly represents the financial condition of Company as at
the date thereof,  and have been prepared in accordance with generally  accepted
accounting principles on a basis consistently maintained.  Since said date there
have been no changes in the assets or  liabilities  or  financial  condition  of
Company  other than  changes in the  ordinary  course of  business,  and no such
changes have been materially  adverse  changes.  Company has no knowledge of any
liabilities, contingent or otherwise, at said date not reflected in said balance
sheet,  and Company has not entered into any  commitments or contracts which are
not  reflected  in said  balance  sheet,  other than in the  ordinary and normal
course of its  business,  which may have a  materially  adverse  effect upon its
financial condition, operations or business as conducted.

     4.6 Tax and Renegotiation.  Company's federal income tax liability has been
finally  determined for all years to and including fiscal year 1996, and Company
has no liability for  renegotiation  of profits;  all applicable state franchise
and income taxes have been paid.

     4.7 Regulations G, T, & U. Company is not engaged  principally or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying any margin stock (as defined within Regulations G, T, & U
of the Board of  Governors  of the Federal  Reserve  System),  and not more than
twenty-five  percent  (25%)  of the  value of the  Company's  assets  and  other
property consists of such margin stock.

     4.8 Other Regulations. Neither Company nor any affiliate thereof is subject
to any statute or regulation restricting the ability of company or any affiliate
thereof to incur indebtedness or encumber its respective properties.

     4.9 Compliance With Real Estate Legislation. Any Mortgage Loan constituting
Collateral  will have been made in compliance  with the  following  laws and any
regulations  promulgated  thereunder,  including  the  making  of  all  required
disclosures  correctly  to all Persons  entitled to receive them within the time
specified  by such law or rules.  

     A. Real Estate Settlement Procedures Act of 1974;

     B. Equal Credit Opportunity Act - Regulation B;

                                   10
<PAGE>

     C. Truth In Lending Act - Regulation Z.
Further,  Company is fully  familiar  with the  requirements  of the laws of the
applicable  jurisdiction  which assigned Mortgage Loans originate with regard to
fair  lending  practices,  and all  Mortgage  Loans which are assigned to secure
Loans  hereunder  shall be made in strict  compliance with the provisions of any
act,  law or  regulation  which  governs  lending  practices  in the  applicable
jurisdiction.

     4.11 Title to Notes and Mortgages.  At the time of their assignment to Bank
as Collateral,  the Mortgage Notes and Deeds of Trust will be held by Company as
the true and lawful owner thereof,  each Mortgage Note will evidence a bona fide
indebtedness  incurred by the maker thereof in the amount of such Mortgage Note,
and  each  Deed of Trust  will  represent  a valid  first  lien on the  property
described therein. There are, or will be, no defenses, counterclaims, or setoffs
to the knowledge of Company which may be asserted  against the Mortgage Notes or
the holder  thereof.  All  financial  information  relating  to the  Collateral,
submitted by Company to Bank, whether previously or in the future, is or will be
true and correct.

     4.12 Compliance  with  Commitments.  Each Mortgage Loan assigned  hereunder
will comply in all  respects  with  underwriting  standards as appicable of SBA,
FNMA,  FHLMC,  GNMA, HUD, or institutional  investor  designated and approved by
Bank as amended from time to time.

     4.13 Loans in Special Flood Hazard Areas.  Company will not make, increase,
extend or renew any  Mortgage  Loan  secured by real  property  located or to be
located in a Special Floor Hazard Area so designated by the Secretary of Housing
and Urban  Development  if said  Mortgage  Loan is to be assigned as  Collateral
under this  Agreement,  unless the  community  in which such area is situated is
then  participating  in the National Flood Insurance  Program,  and the property
covered by the related Deed of Trust is insured under such program.

Section 5.  BANK'S REPRESENTATIONS

     5.1 Non-reliance. Bank is not relying on or looking to any capital stock or
other  security  (as defined in  Regulation  U of the Board of  Governors of the
Federal  Reserve  System) now or hereafter owned by Company for the repayment of
the Revolving Loans.

     5.2 Investment Intent. Bank is making the Revolving Loans and receiving the
Revolving  Note  for its own  account  and not  with a view to the  distribution
thereof subject, nevertheless, to any requirement that its property shall at all
times be within its  control,  and  subject  further to Bank's  right  (reserved
hereby) to sell participations in the Revolving Note.

Section 6.  COMPANY'S AFFIRMATIVE COVENANTS

                                        11
<PAGE>

Company  covenants  and agrees that,  so long as any credit  hereunder  shall be
available  and until payment in full of the  Revolving  Note,  unless Bank shall
otherwise consent in writing, Company shall do all of the following:
     6.1 Corporate  Rights and  Facilities.  Maintain and preserve its corporate
existence and all rights,  privileges,  franchises and other authority  adequate
for  the  conduct  of its  business;  maintain  its  properties,  equipment  and
facilities in good order and repair;  conduct its business in an orderly  manner
without voluntary  interruption;  and maintain its chief executive office in the
State of California.

     6.2 Insurance.  Maintain  insurance  with  responsible  insurance  carriers
against  such  risks and in such  amounts as is  customarily  carried by similar
businesses,  including,  without limitation,  errors and omissions, fire, public
liability,  property damage,  workers' compensation and interruption of business
insurance.

     6.3 Taxes and Other Liabilities.  Pay and discharge, before the same become
delinquent and before  penalties  accrue  thereon,  all taxes,  assessments  and
governmental  charges upon or against it or any of its  properties,  and all its
other liabilities at any time existing, except to the extent and so long as:


     A.  The  same  are  being  contested  in  good  faith  and  by  appropriate
proceedings  in such manner as not to cause any  materially  adverse effect upon
its financial  condition or the loss of any rights of  redemption  from any sale
thereunder; and
     B. It shall have set aside on its books reserves  (segregated to the extent
required by generally  accepted  accounting  principles)  adequate  with respect
thereto.
     6.4 Other Taxes and Charges.  Pay all governmental charges or taxes (except
income,  franchise  or other  similar  taxes) at any time payable or ruled to be
payable in respect of the existence,  execution or delivery of this Agreement or
the  existence  or issuance of the  Revolving  Note by reason of any existing or
hereafter enacted federal or state statute.
     6.5 Records and Report.  Maintain a system of accounting in accordance with
generally accepted  accounting  principles on a basis  consistently  maintained;
permit  representatives of Bank to have access to and to examine its properties,
books and records at all reasonable  times; and furnish at Company's  expense to
the Bank:
     A. As soon as available, and in any event within 45 days after the close of
each  quarter  of the first  three  quarters  of each  fiscal  year of  Company,
commencing  with the quarter ending  December 31, 1996, a balance sheet,  profit
and loss statement and  reconciliation  of capital accounts of Company as at the
close of such  quarter and  covering  operations  for the  portion of  Company's
fiscal year ending on the last day of such quarter, all in reasonable detail and
stating in comparative form the figures for the corresponding date and period in
the  previous  fiscal  year,  prepared in  accordance  with  generally  accepted
accounting  principles  on  a  basis  consistently  maintained  by  Company  and

                                        12
<PAGE>

certified by an appropriate  officer of company,  subject,  however, to year-end
audit adjustments;
     B. As soon as available, and in any event within 90 days after the close of
each fiscal year  respectively,  a balance sheet,  profit and loss statement and
reconciliation  of capital  accounts  of Company as at the close of and for such
fiscal  year,  all in  reasonable  detail and  stating in  comparative  form the
figures as at the close of and for the previous fiscal year, audited by and with
the unqualified opinion of certified public accountants satisfactory to Bank;
     C. Promptly after thereof by Company,  copies of any detailed audit reports
submitted to Company by independent  accountants in connection  with each annual
or interim audit of the accounts of the Company made by such accountants;
     D.  Currently  with delivery of the documents  provided for in Section 6.5B
hereof,  a certificate of the President and Executive Vice President of Company,
stating  that  Company  has  performed  and  observed  each and  every  covenant
contained  in this  Agreement to be performed by it and that no Event of Default
has occurred and no condition then exists which  constitutes an Event of Default
hereunder  or would  constitute  such an Event of  Default  upon the  giving  of
notice, the lapse of time, or both,  specified herein; or, if any such event has
occurred or any such condition exists, specifying the nature thereof; and

     E. Such other  information  relating  to the affairs of Company as Bank may
reasonably request from time to time.

     6.6  Notice of  Certain  Events.  Promptly  notify  Bank in  writing of the
occurrence of any (a) Event of Default  hereunder or event which would become an
Event of Default  hereunder  upon giving of notice,  the lapse of time, or both;
(b) event which  entitles Bank to accelerate  the maturity of any Mortgage note;
(c) event which entitles Bank to receive the proceeds of any insurance  policies
associated with any Mortgage Loan assigned  hereunder;  (d) event which entitles
Bank to receive any  proceeds  payable to Bank by the terms of the Deed of Trust
securing  any  Mortgage  Note;  (e)  assignment,   transfer,   pledge  or  other
encumbrance of any shares of FNMA, FHLMC,  GNMA, or HUD stock which Company owns
or may hereafter  acquire and which are restricted  from sale under any existing
or future Investor  servicing  agreement;  (f)  contemplated  sale,  assignment,
transfer,  pledge or other  encumbrance of twenty-five  percent (25%) or more of
Company's  total  Servicing  Portfolio;  (g) change in the location of Company's
executive headquarters;  (h) change in the name or trade name of Company; or (i)
event  which  entitles  Bank to payment on demand of any  Revolving  Loan as set
forth in Section 2.5 hereof.

     6.7 Bank Expenses.  Pay all  out-of-pocket  expenses and processing fees to
the Bank in connection with the administration and enforcement of this Agreement
and the Revolving Loans and security therefor, or any waiver or amendment of any
provision  hereof.  Company  agrees to indemnify  Bank from and hold it harmless
against any transfer taxes,  documentary  taxes,  assessments or charges made by
any governmental authority by reason of the execution,  delivery and performance
of this Agreement, the Revolving Loans and security therefor. The obligations of

                                        13
<PAGE>

Company under this Section 6.7 shall survive  payment of any Revolving  Loan and
assignment of any rights hereunder.

     6.8 Regulatory Compliance.  Originate Mortgage Loans in compliance with all
applicable  federal,  state and local laws and  regulations,  including  without
limitation those specified in Section 4.9 hereof, and, at Bank's request provide
Bank with an opinion of counsel  for  Company  with  respect to the  matters set
forth in Section 4.1,  4.2, 4.3, 4.7, 4.8, and 4.9 hereof and such other matters
as Bank shall reasonably request.

Section 7.  COMPANY'S NEGATIVE COVENANTS

Company  covenants  and  agrees  that so long as any credit  hereunder  shall be
available and until payment in full of the Revolving Note,  Company shall not do
any of the following without the written consent of Bank:

     7.1 Type of Business.  Make any substantial change in the present character
of its business.

     7.2 Loans and  Investments.  Lend money or extend  credit other than in the
ordinary and normal course of its business as presently conducted;  invest other
than in (a) direct  obligations  of the United States  Government,  (b) interest
bearing  certificates of deposit issued by any commercial banking institution or
savings  and loan  association  with total  assets of not less than One  Hundred
Fifty Million Dollars  ($150,000,000) and organized under the laws of the United
States or any State thereof,  (c) prime commercial paper rated Prime 1 or higher
by Moody,  A-1 or higher by Standard and Poors,  and F-1 or higher by Fitch, (d)
stock of FNMA and FHLMC, and (e) GNMA securities.

     7.3 Sale of  Business.  Sell any assets  except in the  ordinary and normal
course of its business as now conducted; or sell, lease, assign, or transfer any
substantial part of its business or fixed assets,  or twenty-five  percent (25%)
or more of its affiliate's total Servicing  Portfolio,  or any property or other
assets  necessary  for  the  continuance  of  its  business  as  now  conducted,
including,  without  limitation,  the  selling of any  property  or other  asset
accompanied by the leasing back of the same.

     7.4  Regulations  G, T, and U. Use the  proceeds  of the  Revolving  Loans,
directly  or  indirectly,  to  purchase  or carry any margin  stock  (within the
meaning of  Regulations  G, T, and U of the Board of  Governors  of the  Federal
Reserve  System) or extend  credit to others for the  purpose of  purchasing  or
carrying, directly or indirectly, any margin stock.

     7.5 Transfers,  Encumbrances,  and  Subordination of Collateral.  Transfer,
further  encumber or subordinate  Company's  interest in any of the  collateral,
including without  limitation the real property  described in the Deeds of Trust
assigned hereunder.

                                        14
<PAGE>

     7.6 Liens.  Create,  incur,  assume, or permit to exist any lien,  security
interest, pledge, assignment, encumbrance or charge of any kind, except in favor
of Bank,  of or on  twenty-five  percent  (25%) or more of its  total  Servicing
Portfolio or any accounts maintained with Bank.

     7.7 Other Borrowings.  Incur any indebtedness not in the ordinary course of
its business including deposts.

Section 8.  EVENTS OF DEFAULT

          8.1 Events of Default.  Events of Default,  as used herein,  means any
one or more of the following events:
     A. Failure to Pay Note.  Failure to pay any installment of principal of, or
interest on, the Revolving  Note when due or any other  monetary  obligations as
required hereunder.
     B.  Default  in Other  Agreements.  Failure to pay,  or any  default on the
payment of, any principal of or any interest on any indebtedness of Company,  or
any breach with respect to any term of any evidence of such indebtedness,  or of
any loan agreement,  mortgage,  indenture or other agreement  relating  thereto,
whether or not waived by the note holder or obligee.
     C.  Breach of  Covenant.  Failure of Company to perform  any other terms or
condition of this Agreement binding upon Company.
     D. Breach of Representation or Warranty.  Any of Company's  representations
or warranties  made herein or any statement or  certificate at any time given in
writing  pursuant hereto or in connection  herewith shall be false or misleading
in any material respect.
     E.  Bankruptcy or  Insolvency.  A court having  jurisdiction  shall enter a
decree or order for  relief in respect of the  Company  in an  involuntary  case
under any applicable insolvency or other similar law now or hereafter in effect,
or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or  similar  official)  of the  Company,  or for  any  substantial  part of its
properties,  or ordering the winding up or  liquidation  of its affairs;  or the
Company  shall  commence  a  voluntary  case  under any  applicable  bankruptcy,
insolvency or other similar law now or hereafter in effect,  or shall consent to
the entry of an order for relief in an  involuntary  case under any such law, or
shall  consent  to  the  appointment  of or  taking  possession  by a  receiver,
liquidator, assignee, trustee, custodian,  sequestrator (or similar official) of
the Company,  or for any substantial  part of its properties,  or shall make any
general assignment for the benefit of creditors,  or shall fail generally to pay
its debts as they become due or shall take any corporate  action in  furtherance
of any of the foregoing.
     F.  Judgments,   Attachments.  Any  money  judgment,  writ  or  warrant  of
attachment,  or similar process shall be entered or filed against Company or any
of its assets and shall remain  unvacated,  unbonded or unstayed for a period of
30 days or in any event  later than five days prior to the date of any  proposed
sale thereunder.

         8.2      Remedies Upon Default.

                                        15

<PAGE>
     A.  Upon the  occurrence  of an Event of  Default,  automatically  upon the
happening of any Event of Default  specified  in Section  8.1E hereof,  and with
respect  to  the  other  Events  of  Default  at  its  option,  without  demand,
presentment or notice, all of which hereby are expressly waived by Company, Bank
(or the holder of the Revolving  Note) may exercise one or more of the following
remedies:
     1. Terminate all credit  hereunder and all  obligations of Bank to make any
Revolving Loan hereunder.
     2. Declare the Revolving Note to be immediately due and payable,  whereupon
it shall be due and payable.
     3. Notify all  obligors on or under the  Collateral  that the same has been
assigned to Bank and that all payments  thereon are to be made  directly to Bank
or such  other  party as may be  designated  by  Bank;  settle,  compromise,  or
release, in whole or in part, any amounts owing on the Collateral or any portion
thereof  by any  obligor  on terms  acceptable  to  Bank;  enforce  payment  and
prosecute  any action or  proceeding  with  respect  to any and all  Collateral;
extend the time of payment, make allowances and adjustments and issue credits in
Bank's  name or in the name of the  Company;  where  any such  Collateral  is in
default, foreclose on, and enforce security interests in, such Collateral by any
available judicial procedure or with judicial process and sell property acquired
as  a  result  of  such  foreclosure;  pay,  purchase,  contest,  interplead  or
compromise any encumbrance, charge or lien which in the judgment of Bank appears
to be prior or superior to Bank's  interest.
     4. Act as  servicer  of each item of  collateral  requiring  servicing  and
perform all obligations  required in connection with FNMA,  FHLMC,  GNMA, or HUD
Commitments,  or contract  with a third  party to so act or perform,  such third
party's  fees to be paid by Company.
     5. Proceed in the foreclosure of Bank's security interest in the Collateral
in any manner  permitted by law or provided for herein,  and exercise all rights
and remedies under the Uniform  Commercial Code including selling the Collateral
at public or private sale,  without  having the Collateral at the place of sale,
and upon terms and in such manner as Bank may  determine,  and Bank may purchase
same at any such sale.  Bank may retain the Collateral in full  satisfaction  of
the  indebtedness  secured  thereby.
     6.  Exercise any and all other rights and remedies of Bank as it shall deem
appropriate  at law,  in  equity,  or  otherwise.

     B.  Upon any  Event of  Default  hereunder  and any  default  by any  party
obligated under any of the  Collateral,  Bank may, but shall not be obligated to
(a) collect by legal proceedings all interest, principal payments and other sums
payable on account of such  Collateral,  (b) grant  extensions of time, (c) make
any compromise or settlement it seems desirable with respect to such Collateral,
(d) waive or  release  security,  (e)  foreclose  by any  appropriate  means any
Mortgage  Loan which is in  default,  (f) pursue any other  rights and  remedies
available to Company,  and/or (g) require Company to pursue, in its own name but
for the  benefit  of  Bank,  any one or more of the  remedies  described  in (a)
through (f) above.
     If any  Mortgage  Loan  shall  be  foreclosed  pursuant  to  the  preceding
sentence,  such  foreclosure may be by judicial or  non-judicial  sale, and Bank
shall be

                                   16
<PAGE>

entitled to direct the order and manner of sale and cause the sale to be made on
any terms and conditions it deems  appropriate and to apply all cash proceeds of
the sale (after  deduction  of  expenses  of sale) to the  balance  owing on the
Revolving Note.  Without limiting the generality of the foregoing,  Bank may bid
all or a portion  of the  indebtedness  owing  under the  Mortgage  Note and may
become the  purchaser  of and take title to the  property  securing the Mortgage
Loan. In such event,  Company shall receive  credit against the balance owing on
the Revolving  Note only to the amount of the  indebtedness  bid by Bank, and in
connection  with any such sale,  Company  hereby waives any defenses or benefits
that may be derived from  California Code of Civil  Procedure  Sections  580(a),
580(d), or 726 or any similar laws of any other  jurisdiction and all suretyship
defenses.

     C. Bank  shall  have the right to enforce  one or more  remedies  hereunder
successively or concurrently, and any such action shall not stop or prevent Bank
from pursuing any further remedy which it may have hereunder or by law.

     8.3  Application  of  Proceeds.  Any money  collected  by Bank  pursuant to
Section  8.2 hereof  (whether by means of  voluntary  payment,  foreclosure,  or
otherwise)  shall be promptly  applied as follows unless  otherwise  required by
provision of applicable law: 
     A.  First,  to the  payment  of all  expenses  incurred  by Bank under this
Agreement and in enforcing its rights hereunder,  including  without  limitation
all  costs and  expenses  of  collection,  attorneys'  fees,  court  costs,  and
foreclosure expenses.
     B. Next, to the payment of all Revolving Loans due and unpaid by Company to
Bank (including interest accrued on the Revolving Note).
     C. Next,  to the payment of any other amounts owed by Company to Bank under
this Agreement.
     D. Next, to Company. It is expressly  understood between the parties hereto
that Bank's  ability to collect any deficiency on the Revolving Note shall in no
way be impaired by the above-referenced application of proceeds.

Section 9.  MISCELLANEOUS

     9.1 Survival of Warranties. All agreements,  representations and warranties
made herein shall  survive the  execution  and delivery of this  Agreement,  the
making of the  Revolving  Loans  hereunder and the execution and delivery of the
Revolving Note.

     9.2 Failure of  Indulgence  Not Waiver.  No failure or delay on the part of
Bank or any holder of the Revolving Note in the exercise of any power,  right or
privilege  hereunder  shall operate as a waiver  thereof nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise  thereof  or of any other  right,  power or  privilege.  All rights and
remedies existing under this Agreement and the Revolving Note are cumulative to,
and not exclusive of, any rights or remedies otherwise available.

                                        17
<PAGE>

     9.3 Modification. This Agreement and the Revolving Note may not be amended,
waived or  modified  in any  manner  without  the  written  consent  of Bank and
Company.

     9.4 Notices.  Except as otherwise  expressly  provided  herein,  any notice
herein  required  or  permitted  to be  given  shall  be in  writing  and may be
personally served or sent by United States mail and shall be deemed to have been
given when deposited in the United States mail, registered, with postage prepaid
and properly  addressed.  For the purposes hereof,  the addresses of the parties
hereto (until notice of a change thereof served as provided in this Section 9.4)
shall be as follows:

                                    IMPERIAL BANK
                                    9920 South La Cienega Blvd., Suite 1001
                                    Inglewood, California  90301
                                    Attn:  Paul Ng, Vice President

     9.5  Separability.  In  case  any  provision  in this  Agreement  or in the
Revolving Note shall be invalid, illegal or unenforceable,  such provision shall
be severable from the remainder of such contract and the validity,  legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

     9.6  Applicable  Law. This  Agreement,  the Revolving  Note,  all documents
provided for herein and the rights and  obligations of the parties thereto shall
be governed by the laws of the State of California.  The Bank retains all of its
rights under federal law,  including  those relating to the charging of interest
rates.

     9.7 Assignability. This Agreement is not assignable by Company.

     9.8   Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall  be  deemed  an  original  but all of which
together shall constitute one and the same instrument.

     9.9 Section  Headings.  The various  headings  used in this  Agreement  are
inserted   for   convenience   only  and  shall  not  affect   the   meaning  or
interpretations  of  this  Agreement  or  any  provision  hereof.

     9.10 Further Assurances.  At any time or from time to time upon the request
of Bank,  Company will execute and deliver  such further  documents  and do such
other acts and things as Bank may  reasonably  request in order to effect  fully
the purposes of this  Agreement  and the  Revolving  Note and to provide for the
payment of the Revolving Loans and interest thereon in accordance with the terms
of this Agreement and the Revolving Note.

     9.11 Indemnity by Company.

                                        18
<PAGE>

     A.  Company  agrees  to  indemnify,  save  and hold  harmless  Bank and its
directors, officers, agents, and employees (collectively the "indemnitees") from
and against:
     1. Any and all writs,  subpoenas,  claims,  demands,  actions, or causes of
action of any Person which may be served on or asserted  against any  indemnitee
if the writ, subpoena, claim, demand, action, or cause of action that the Person
has,  serves  on or  asserts  against  the  Company  or any of its  officers  or
employees arises from the enforcement of this Agreement; and
     2. Any and all liabilities,  losses,  costs, or expenses (including without
limitation  reasonable attorneys' fees) that any indemnitee suffers or incurs as
a result of the  service or  assertion  of any writ,  subpoena,  claim,  demand,
action, or cause of action specified in Section 9.11A.1.
     B. Performance  and/or payment of any obligation or liability of Company to
any  indemnitee  as  provided  for herein  shall be and hereby is secured by the
Collateral.

     9.12 Power of Attorney.  Company does hereby make,  constitute  and appoint
Bank its  irrevocable,  true and lawful  attorney  with the power to endorse the
name of Company upon any checks or other  evidence of payment that may come into
the  possession  of Bank,  upon Mortgage  Notes and Deeds of Trust  constituting
Collateral  hereunder;  to endorse  the name of  Company  upon any  document  or
instrument  relating to the  Collateral,  including,  but not limited to, deeds,
trust  deeds,   subordinations,   releases,   reconveyances   and   modification
agreements;  in its name or  otherwise,  to demand,  sue for,  collect  and give
acquittances  for, any and all moneys due or to become due upon the  Collateral;
to compromise,  prosecute or defend any action, claim or proceeding with respect
thereto;  and to do any and all  things  necessary  and  proper to carry out the
purposes herein  contemplated.  Company further agrees, upon request of Bank, to
execute powers of attorney in recordable form and deliver same to Bank.

     9.13  Termination.  Either  party may  terminate  this  Agreement by giving
written  notice  to the  other  party  at  least  120  days in  advance  of such
termination  date. In the event of any  termination  of this  Agreement,  either
automatically  or by notice,  the terms of this  Agreement  shall remain in full
force and effect  until the  Revolving  Note and all other  obligations  to Bank
hereunder have been paid and/or performed in full.

     9.14  Reference  Provision.  a. Other  than  non-judicial  foreclosures  of
Collateral  and the  granting of  provisional  remedies by a court of  competent
jurisdiction,  each controversy,  dispute or claim ("Claim") between the parties
arising out of or relating  to this  Agreement,  which is not settled in writing
within  ten days after the "Claim  Date"  (defined  as the date on which a party
gives written notice to all other parties that a  controversy,  dispute or claim
exists), will be settled by a reference proceeding in Los Angeles, California in
accordance  with the provisions of Section 638 et seq. of the California Code of
Civil Procedure,  or their successor section ("CCP"), which shall constitute the
exclusive remedy for the settlement of any Claim,  including  whether such Claim
is subject to the reference proceeding and

                                        19
<PAGE>

the parties  waive their rights to initiate any legal  proceedings  against each
other in any court or jurisdiction  other than the Superior Court of Los Angeles
(the "Court"). The referee shall be a retired Judge selected by mutual agreement
of the parties,  and if they cannot so agree within  thirty days after the Claim
Date,  the referee  shall be selected by the Presiding  Judge of the Court.  The
referee  shall be appointed to sit as a temporary  judge,  as authorized by law.
The referee  shall (a) be requested  to set the matter for hearing  within sixty
(60) days after the Claim Date and (b) try any and all issues of law or fact and
report a statement of decision upon them,  if possible,  within ninety (90) days
of the Claim Date. Any decision  rendered by the referee will be final,  binding
and conclusive and judgment shall entered  pursuant to CCP 644 in the Court. All
discovery  permitted by this Agreement  shall be completed no later than fifteen
(15) days before the first hearing date established by the referee.  The referee
may extend  such period in the event of a party's  refusal to provide  requested
discovery  for any  reason  whatsoever,  including,  without  limitation,  legal
objections  raised to such  discovery  or  unavailability  of a  witness  due to
absence or  illness.  No party shall be entitled  to  "priority"  in  conducting
discovery.  Depositions may be taken by either party upon seven (7) days written
notice,  and,  request  for  production  or  inspection  of  documents  shall be
responded  to within ten (10) days  after  service.  All  disputes  relating  to
discovery  which  cannot be resolved by the parties  shall be  submitted  to the
referee whose decision shall be final and binding upon the parties.

     b. The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of  California.  The rules
of evidence  applicable to proceedings at law in the State of California will be
applicable to the reference proceeding.  The referee shall be empowered to enter
equitable as well as legal relief,  to provide all temporary and/or  provisional
remedies  and to enter  equitable  orders that will be binding upon the parties.
The  referee  shall  issue a  single  judgment  at the  close  of the  reference
proceeding  which shall dispose of all of the claims of the parties that are the
subject of the  reference.  The parties  hereto  expressly  reserve the right to
contest or appeal from the final judgment or any appealable  order or appealable
judgment  entered by the  referee.  The parties  expressly  reserve the right to
findings of fact,  conclusions of law, a written statement of decision,  and the
right to move for a new  trial or a  different  judgment,  which new  trial,  if
granted, is also to be a reference proceeding under this provision.

                                   20
<PAGE>

     This  Agreement  is executed  on behalf of the  parties by duly  authorized
representatives as of the date first above written.

                                       SIERRAWEST BANK


                                       BY: /s/William H. McGaughey
                                           -----------------------  
                                           William H. McGaughey 
                                           Senior Vice President/Treasurer  


                                       IMPERIAL BANK



                                       BY: /s/Kathy Rosner-Galitz
                                           ----------------------
                                           Kathy Rosner-Galitz
                                           Vice President





                                        21

<PAGE>

                                Exhibit 23.1



INDEPENDENT AUDITOR'S CONSENT

We consent to the  incorporation  by reference  in  Registration  Statement  No.
33-28004  on Form  S-8,  Registration  Statement  No.  33-13031  on Form S-8 and
Registration  Statement No.  33-15013 on Form S-8 of  SierraWest  Bancorp of our
report dated February 10, 1998,  appearing in this Annual Report on Form 10-K of
SierraWest Bancorp for the year ended December 31, 1997.



/s/ Deloitte & Touche LLP

Sacramento, California
March 26, 1998





                                     1

                    

<PAGE>