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, 1995         Commission File No. 0-15450

                            SIERRA TAHOE 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: (916) 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, 8 1/2 % Convertible Subordinated Debentures due 
February 1, 2004
                         (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. ____

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, 1996:  $29,323,000  (based on closing sales price at
March 15, 1996)

Number of shares of Common Stock outstanding at March 15, 1996:  2,597,719




<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 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................................43

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
     ACCOUNTING AND FINANCIAL DISCLOSURE........................................................................76

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................................................77

ITEM 11.  EXECUTIVE COMPENSATION................................................................................79

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................................84

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................................................... 86

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.................................... 87
</TABLE>




<PAGE>



                                                        PART I
ITEM 1.  BUSINESS

General Development of the Business

Sierra  Tahoe  Bancorp  ("Bancorp",  or  together  with  its  subsidiaries,  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
and merger dated  December 19, 1985,  Bancorp  acquired 100% of the  outstanding
shares of common stock of Truckee  River Bank in a  one-for-one  exchange of its
stock for the stock of Truckee River Bank.
The merger was consummated on July 31, 1986.

On October 29, 1990,  Bancorp acquired 100% of the outstanding  shares of Sierra
Bank of Nevada in a  one-for-one  exchange  of its stock for the stock of Sierra
Bank of Nevada.  Bancorp,  Truckee River Bank,  Truckee River Bank's subsidiary,
Sierra Tahoe Mortgage Company,  and Sierra Bank of Nevada collectively  comprise
the operations of the Company.

Truckee River Bank was incorporated under the laws of the State of California on
March 19, 1980,  and,  with the approval of the  Superintendent  of Banks of the
State of  California  (the  "CSBD"),  opened for  business on January 20,  1981.
Truckee River Bank commenced operations in 1981 in Truckee,  California, a small
tourist-  based town  located in the County of Nevada and  situated  in the High
Sierras  about 12 miles  north  of Lake  Tahoe.  Truckee  River  Bank  currently
maintains  nine  branches  offices in the  following  communities:  Truckee (two
branches),  South Lake  Tahoe,  Tahoe  City,  Kings  Beach,  Grass  Valley  (two
branches),  Auburn and Sacramento,  California. In addition,  Truckee River Bank
maintains eight separate lending offices,  primarily for its United States Small
Business  Administration  (the  "SBA")  lending  activities,  in  the  following
communities:  Truckee, San Francisco,  Sacramento, Fresno, Buena Park and Chico,
California, and Reno and Las Vegas, Nevada.

Sierra Bank of Nevada was incorporated  under the laws of the State of Nevada on
January 12, 1989,  and, with the approval of the Nevada  Department of Commerce,
Division of Financial  Institutions  (the "NDFI"),  opened for business in Reno,
Nevada on January 9, 1990.  In 1995, a second  branch was opened in Carson City,
Nevada.  Sierra  Bank  of  Nevada  has  its  own  board  of  directors  composed
principally of Reno-based business persons.

Sierra Tahoe Mortgage  Company was incorporated on April 19, 1982 and operated a
traditional  single-family  mortgage  banking  operation  until July,  1995 when
operations were discontinued.

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.  Truckee River Bank processes merchant drafts pursuant to
established  bank card programs,  and customers are offered  MasterCard and Visa
credit  cards  through a  correspondent  bank.  Sierra Bank of Nevada  opened an
equipment leasing division in 1995. In addition during 1995 the Company expanded
its  services  to provide a 24 hour  automated  telephone  inquiry  service  and
introduced a P.C. banking product for its business customers.

Narrative Description of Business

The Company's  total assets have grown  steadily from $174.1 million at December
31, 1990 to $337.5 million at December 31, 1995, a compound  annual  increase of
14.2%.  The  Company has had  earnings in excess of $1.8  million in each of the
last five years.  For the year ended December 31, 1995, the Company reported net
income of $1.9 million, or a return on average assets of approximately 0.67%. At
December  31,  1995,  the Company had total loans of $240.0  million,  loan loss
reserves of $3.8 million, deposits of $293.2 million and total equity capital of
$29.8 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

                                                          -3-

<PAGE>



lines of credit);  and beginning in 1995,  commercial leases. As of December 31,
1995, these five categories  accounted for  approximately  49%, 23%, 23%, 4% and
1%, respectively, of the Company's total loan portfolio.

SBA Lending

The Company  ranked fourth in the nation by dollar volume of loans  generated by
banks for the SBA's  fiscal year ended  September  30, 1995 as  published by the
SBA, and was the second largest SBA lending bank in Region IX (consisting of the
far western states, Hawaii and Guam), the largest region in the country. In 1995
the Federal government  approved a level of SBA loans guaranteed of $7.8 billion
and in 1996 this level is  expected to  increase  to $10.9  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 and Nevada 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.  In addition,  before being granted  Preferred  Lender status in a
particular  SBA district,  the lender must have been a Certified  Lender in such
SBA  district  for at least 12 months.  The Company  may, at its option,  submit
loans for approval under the Certified Lender Program.

The Company has, over the last ten 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.

The following table  summarizes the Company's SBA activities for the years ended
December 31, 1995, 1994, 1993, 1992 and 1991 (in thousands).
<TABLE>

                                                                   Summary of SBA Loan Activity

                                                                      Year Ended December 31
                                                       ----------------------------------------------------
                                                       1995         1994        1993       1992        1991
                                                       ----         ----        ----       ----        ----
<S>                                                 <C>          <C>         <C>        <C>         <C>    
SBA loans originated for sale............           $ 22,163     $36,276     $34,967    $ 36,719    $49,887
SBA loans sold...........................              5,646      38,238      35,120      42,136     51,178
Net SBA servicing income.................              4,660       4,443       4,332       4,443      4,124
Net gain on sale of SBA loans............                307       2,300       3,200       2,638      2,091
Excess Servicing receivable..............             14,813      16,027      16,579      18,576     18,281
SBA loans serviced.......................            413,000     412,000     392,000     391,000    371,000
</TABLE>

The Company has historically sold the guaranteed portion of SBA loans (typically
secured by first trust deeds on commercial real estate), generally 70% to 90% of
the SBA loan value, that it generates in the secondary  marketplace and retained
the remaining  percentage for its own portfolio.  The percentage of the retained
portion  of SBA  loans to total  loans  included  in the loan  portfolio  of the
Company at December 31, 1995, 1994 and 1993 was 30%, 46% and 45%,  respectively.
In 1995,  the Company made a decision to change its strategy with respect to the
sale of SBA loans.  The guaranteed  portion of loans is now being retained,  and
the Company intends to

                                                          -4-

<PAGE>



securitize  and sell  portions  of the  unguaranteed  amount of the  loans.  The
Company's first  securitization is planned for 1996,  pending SBA approval,  and
will include up to $40 million in loans.

At any one time,  the Company  has a number of SBA loans in  process.  These are
loans which have been  partially or fully funded but not yet sold or are not yet
available  for  sale.  The  income  generated  from the  sale of these  loans is
recognized  when the loans are sold.  SBA loans are made for terms  from 7 to 25
years  depending on the purpose of the loan.  The average term for loans sold by
the Company for the years ended December 31, 1995, 1994 and 1993 was 21.5 years,
21.6 years and 21.8 years, respectively.

In addition to being  guaranteed by the SBA, over 90% of the Company's SBA 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
the years  ended  December  31,  1995,  1994 and 1993 were $200  thousand,  $481
thousand and $392 thousand, respectively.

The Company's relationship with its SBA packagers are informal arrangements. SBA
packagers  accounted  for  approximately  27% and 38% of the  Company's SBA loan
volume during the years ended December 31, 1995 and 1994,  respectively.  During
these same periods,  a single SBA packager provided 26% and 18% of the Company's
SBA loan volume,  respectively. A second SBA packager provided 1% and 18% of the
Company's SBA loan volume during the same respective  periods.  The reduction in
packager volume in 1995 includes the loss of loan packages to competition  based
on price and underwriting factors and the focus by the Company on its eight loan
production offices as its primary source for generating new loans.

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. Prior to this
act in the case of loans made under the  Guaranteed  Participant  and  Certified
Lender  Programs,  the SBA guaranteed 90% of loans of $155 thousand or less, and
85% of loans in excess of $155  thousand  with terms of less than 10 years.  For
loans in excess of $155 thousand  with terms greater than 10 years,  the maximum
guarantee  was 75%  available  under the  Guaranteed  Participant  and Certified
Lender Programs.  Under the Preferred Lender Program,  the maximum guarantee was
75%  regardless  of loan size or terms.  Prior to January  1,  1995,  subject to
certain exceptions,  the SBA's maximum guarantee per borrower was $750 thousand.
Late in 1994,  the SBA announced a new ruling that,  beginning  January 1, 1995,
reduced  the  maximum  loan that may be made under the SBA 7(a)  program to $500
thousand.  At the same time,  the SBA agreed that banks would be allowed to make
companion  loans to accommodate  borrowers in need of financing in excess of the
$500 thousand limit.  This ruling was reversed with the October 12, 1995 act. As
of  December  31,  1995,  included  in total SBA loans of  $117.1  million  were
portions of loans guaranteed by the SBA totaling $29.2 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.


                                                          -5-

<PAGE>



SBA  Servicing.  As of December 31, 1995,  1994 and 1993,  the Company  serviced
1,370,  1,355 and 1,292 SBA loans,  respectively,  with a total unpaid principal
balance  of  approximately   $413  million,   $412  million  and  $392  million,
respectively.

The  servicing of SBA loans  entails the  collection  of principal  and interest
payments from borrowers,  the remission 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.  See Note 5 of Notes to the  Company's  Consolidated
Financial Statements.

SBA Sales.  SBA 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 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
Truckee River Bank. The difference  between the rate that the investor  receives
and the prevailing  rate of the loan that is retained by the Company is referred
to as the  servicing  spread.  The  servicing  spread  less the  normal  cost of
servicing is referred to as "Excess Servicing" ("Excess Servicing"). Lenders are
required  by the SBA to  maintain  a minimum  of 100 basis  points of  servicing
spread.  When the SBA lender  retains higher levels of Excess  Servicing,  lower
cash premiums are received from investors.  Prior to 1992, the Company sold most
of its SBA loans for little or no cash  premium,  emphasizing  the  retention of
higher levels of Excess Servicing.  This Excess Servicing was valued in the year
of sale under prevailing  accounting rules and recorded as income in the year of
the  sale.  See Note 5 of  Notes to  Consolidated  Financial  Statements.  As of
December 31, 1995, the remaining balance of Excess Servicing previously recorded
as a gain was $14.8 million.  Income from the servicing  spread received for the
years ended December 31, 1995, 1994 and 1993, was $6.2 million, $6.4 million and
$6.7  million,  respectively.  Amortization  of the Excess  Servicing  asset and
purchased mortgage servicing rights on SBA loans for these same periods was $1.5
million,  $2.0 million and $2.3 million,  respectively.  The surplus income from
the servicing spread over the  amortization  represents an important part of the
Company's  income.  The related Excess Servicing asset included in the Company's
Consolidated  Financial  Statements  represents  the book  value  of the  Excess
Servicing,  which is based on certain  estimates  made by management at the time
loans are sold.  Such estimates 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 Excess Servicing asset may have to be
written down through a charge to earnings in the period of  adjustment.  Through
the period  ending  December 31, 1995,  no write downs have been  necessary.  If
actual  prepayments with respect to sold loans occur more slowly than estimated,
the carrying value of the Excess  Servicing asset on the Company's  Consolidated
Statement of Financial Condition would not increase, although total income would
exceed previously estimated amounts.

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 ten years, with the majority of
loans  being due in less than five years.  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, Sierra Bank of Nevada began to provide 100% equipment lease 
financing to small and medium-sized businesses and municipalities. Terms range 
from two to seven years, with the current average term approximately 50 months.

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, 1995, the Company had approximately $46.0 million in

                                                          -6-

<PAGE>



undisbursed  loan  commitments  and $1.1  million in standby  letters of credit.
About 24 percent of the 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.  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:                                                1995         1994         1993          1992         1991
                                                             ----         ----         ----          ----         ----
  <S>                                                     <C>           <C>         <C>           <C>          <C>   
  SBA loans:
   SBA guaranteed loans in process(1)...                  $ 45,864      $ 16,299    $  16,825     $ 15,937     $ 23,240
   SBA guaranteed loans purchased(2)....                         0             0            0        1,132            0
   Retained portion of SBA loans(3).....                    71,201        79,649       71,683       71,160       65,603
                                                          --------      --------    ---------     --------     --------
  Total SBA Loans.......................                   117,065        95,948       88,508       88,229       88,843
                                                          --------      --------    ---------     --------     --------


  Real estate loans (includes loans secured primarily by real estate, except for
   SBA loans):
    Construction and land development...                    31,564        18,310       15,450       14,928       16,288
    Mortgage ...........................                    22,930        18,268       17,908       12,634       14,359
    Equity lines of credit..............                     3,735         1,689        1,058        5,980        5,719
                                                          --------      --------    ---------     --------     --------
  Total Real Estate Loans...............                    58,229        38,267       34,416       33,542       36,366
                                                          --------      --------    ---------     --------     --------


  Commercial and industrial loans.......                    54,758        31,157       26,850       22,796       12,372

  Individual and other loans............                     6,537         7,365        9,828       10,270        6,848

  Lease receivables.....................                     3,380           202          217          508          264
                                                          --------      --------    ---------     --------     --------

  Total Loans...........................                   239,969       172,939      159,819      155,345      144,693

  Less allowance for possible loan losses                    3,845         3,546        3,472        2,742        2,525
                                                          --------      ----------  ---------     --------     --------

  Total Net Loans.......................                  $236,124      $169,393    $ 156,347     $152,603     $142,168
                                                          ========      ========    =========     ========     ========
</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  at  December  31,  1995 was $29.2  million.  Loans
         available  for or awaiting sale totaled  $21.2  million,  $2.1 million,
         $1.5  million,  $2.8  million,  and $1.6  million at December 31, 1995,
         1994, 1993,  1992, and 1991,  respectively.  The guaranteed  portion of
         those  loans at  December  31,  1995 will be held in the  portfolio  in
         anticipation  of  the  securitization  and  sale  of a  portion  of the
         unguaranteed portfolio.

(2)      SBA guaranteed loans repurchased by the Company under repurchase 
         agreements.  These loans are fully guaranteed by the SBA.

(3)      Includes primarily the unguaranteed retained portion of loans for which
         the guaranteed portion has been sold to investors.



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 each
bank.  Each lending  officer has primary  responsibility  to conduct  credit and
documentation  reviews  of the loans for  which he or she is  responsible.  Each
Bank's  President  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 eligibility  rules,  if applicable.  Recommended
applications  are  approved  by loan  officers  up to their  designated  lending
 -7-

<PAGE>



limits.    Those  loans  in excess of individual lending limits are approved by
the Chief Credit Officer.  If a loan exceeds the Chief Credit Officer's  lending
limit,  it is  forwarded  to loan  committees  for  approval.  Approved SBA loan
applications are then submitted to the district SBA office for approval,  except
in the case of loans made pursuant to the Preferred Lender Program for which SBA
credit approval is not required. 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,  over  90%  were
collateralized  by  commercial  real  estate  at  December  31,  1995.  Prior to
submission of the application to the SBA for guarantee,  any real property to be
taken as collateral is appraised by independent appraisers.

Truckee River Bank's management  presents a written report to the loan committee
monthly, listing all loans, regardless of amount, which are 30 days or more past
due.  Sierra  Bank of  Nevada's  report  reflects  the total  dollar  amount and
percentage  of loans  30 days or more  past  due.  Management  and the  board of
directors  of each Bank also review all loan  evaluations  made during  periodic
examinations  by the  FDIC,  Federal  Reserve,  CSBD  and  the  NDFI.  The  loan
committees of the Banks review their  respective  loan policies,  and review and
approve specific loans which exceed the Chief Credit  Officer's  lending limits.
In 1996,  the loan  committees  of the Banks were  combined into one to increase
efficiencies and achieve consistency in the review and approval of loans.

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  provision  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 $3.8 million at December 31, 1995 to be adequate.

The  Company's  servicing  department,  which  is  responsible  for  monitoring,
collecting and liquidating  loans, has been strengthened by an increase in staff
from five in 1990 to nine in 1995,  including the hiring of an experienced  loan
liquidator.  In addition,  for Truckee River Bank, 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 one of the
following events occurs:  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 classified as OREO or,
if the  collateral  is personal  property,  as other  assets,  on the  Company's
financial statements.

Interest  income on nonaccrual  loans which would have been recognized if all of
such loans had been current in accordance with their original terms totaled $464
thousand  for the  year  ended  December  31,  1995.  Interest  income  actually
recognized  on  nonaccrual  loans for the year ended  December 31, 1995 was $221
thousand.


                                                          -8-

<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,
                                                        1995         1994         1993         1992         1991
                                                        ----         ----         ----         ----         ----
<S>                                                   <C>           <C>         <C>           <C>         <C>   
Nonperforming Assets:
Nonaccrual loans...................                   $ 5,476       $2,482      $ 2,872       $3,784      $ 3,038
In-substance foreclosures..........                         0          572          711          732          385
Other real estate owned............                       758          542          456          460           28
                                                      -------       ------      -------       ------      -------
    Total nonperforming assets.....                   $ 6,234       $3,596      $ 4,039       $4,976      $ 3,451
                                                      =======       ======      =======       ======      =======

Accruing loans past due 90
  days or more.....................                   $ 1,023       $1,763      $ 1,525       $  973      $   681

Restructured loans (in compliance
  with modified terms).............                        78          194          201           61           61

Nonperforming assets to
  total assets.....................                       1.8%         1.4%         1.6%         2.0%         1.6%
Allowance for possible loan and lease
  losses to nonaccrual loans.......                      70.2%       142.9%       120.9%        72.5%        83.1%
</TABLE>

Although the level of  nonperforming  assets will depend on the future  economic
environment,  as of March 15, 1996,  in addition to the assets  disclosed in the
above chart, management of the Company has identified approximately $1.2 million
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.


                                                          -9-

<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,
                                               1995         1994         1993         1992        1991
                                               ----         ----         ----         ----        ----
<S>                                         <C>           <C>          <C>          <C>         <C>    
Average loans.......................        $ 203,231     $166,366     $ 159,463    $ 149,597   $ 141,629
Total loans at end of period........          239,969      172,939       159,819      155,345     144,693

Allowance for possible loan and lease
  losses: Balance--beginning of period      $   3,546     $  3,472     $   2,742    $   2,525   $   2,369
                                            ---------     --------     ---------    ---------   ---------
Actual charge-offs:
  SBA...............................              595          447           391          671         357
  Commercial and industrial.........              350          467           143           65         202
  Real estate.......................               40           60           190           12           0
  Installment.......................               40          101            42           32           5
                                            ---------     --------     ---------    ---------   ---------
    Total...........................            1,025        1,075           766          780         564
                                            ---------     --------     ---------    ---------   ---------
Less recoveries:
  SBA...............................               20           74            14           23         125
  Commercial and industrial.........               26          187            52           57          88
  Real estate.......................                0            0             0            0           0
  Installment.......................                8            3             6            2           2
                                            ---------     --------     ---------    ---------   ---------
    Total...........................               54          264            72           82         215
                                            ---------     --------     ---------    ---------   ---------
Net charge-offs.....................              971          811           694          698         349
Allowance applicable to sold loans..                0            0          (136)           0           0
Provision for possible loan and lease
  losses............................            1,270          885         1,560          915         505
                                            ---------     --------     ---------    ---------   ---------

Balance--end of period..............        $   3,845     $  3,546     $   3,472    $   2,742   $   2,525
                                            =========     ========     =========    =========   =========

Ratios:
  Net loans charged off to average
    loans outstanding..............             0.48%        0.49%        0.44%         0.47%       0.25%
  Net loans charged off to total loans
    at end of period...............             0.41         0.47         0.43          0.45        0.24
  Provision for possible loan and lease
    losses to average loans........             0.62         0.53         0.98          0.61        0.36
  Provision for possible loan and lease
    losses to total loans at end of period      0.53         0.51         0.98          0.59        0.35
  Net loans charged off to end of
    period allowance for possible
    loan and lease losses..........            25.25        22.87        19.99         25.46       13.82
</TABLE>




                                                         -10-

<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 (in thousands except percentage amounts).
<TABLE>

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

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

<TABLE>
                                                                   December 31,
                                          1993                         1992                          1991
                                -----------------------       ----------------------       ------------------------
                                Amount        Percentage      Amount       Percentage      Amount        Percentage
<S>                             <C>               <C>         <C>               <C>        <C>                <C>
SBA loans...................... $2,379             55%        $2,127             57%       $2,057              61%
Commercial and industrial loans    541             17            233             15           126               9
Real estate loans..............    334             22            138             18           153              21
Consumer loans to
  individuals(1)...............    218              6            244             10           189               9
                                ------          -----         ------            ---        ------             ---

    Total...................... $3,472            100%        $2,742            100%       $2,525             100%
                                ======          =====         ======            ===        ======             ===

(1)      Includes equity lines of credit.
</TABLE>

In allocating  the Company's  loan loss reserve,  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.  Since  commencement of its SBA
lending  program  through 1990, the Company  sustained a relatively low level of
losses from these  loans.  Losses from its SBA loans  increased  in 1991 through
1995 due to a  maturing  of the  portfolio  and the impact of the  recession  in
California  on borrowers and  collateral  values.  Most of the  Company's  other
commercial loan losses have been for loans to businesses  within the Tahoe basin
area or in  Reno,  Nevada.  The  Company  believes  that it has  taken  steps to
minimize  its  commercial  loan  losses,  including  centralization  of  lending
approval and  processing  functions.  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.  Through  mid-1995  mortgages  were made on single family
residences  secured  by  first  deeds of trust  and were  generally  sold in the
secondary market. Mortgage operations were terminated in July, 1995.

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


                                                         -11-

<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,  1995.  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, 1995
                                                                After One
                                                Within         But Within           After
                                              One Year(1)      Five Years        Five Years          Total
<S>                                             <C>               <C>              <C>              <C>    
Real estate - construction..................    26,307             4,581               676           31,564
Commercial, except SBA......................    25,469            17,291            11,998           54,758
SBA.........................................    11,563            16,695            88,807          117,065
Distribution between fixed and floating
 interest rate:
   Fixed interest rates.....................    14,763            17,533             1,814           34,110
   Floating interest rates..................    58,123            36,991           110,745          205,859


(1)      Demand loan and overdrafts are shown as "Within One Year"
</TABLE>

                                                         -12-

<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,
                                                  1995                              1994                             1993
                                   ---------------------------------   -------------------------------   --------------------------
                                    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) .....................   $203,231      11.60%     $23,582    $166,366      10.45%    $17,386   $159,463  10.05%  $16,025
  Investment securities(2)           26,546       5.29        1,403      31,168       4.68       1,459     16,350   4.44       726
  Mutual funds .................      1,627       8.05          131       4,178       5.43         227      3,659   3.74       137
  Federal funds sold ...........     10,534       5.64          594      11,872       4.03         478      8,172   2.84       232
  Other deposits ...............      2,097       5.77          121       1,983       5.40         107      1,872   6.73       126
                                   --------      -----      -------    --------      -----     -------   --------  -----   -------
    Total interest-earning
      assets ...................    244,035      10.58       25,831     215,567       9.12      19,657    189,516   9.10    17,246

Allowance for possible
loan losses.....................     (3,685)                             (3,653)                           (3,228)

Non-earning assets:
   Cash and due from
     banks......................     16,444                              15,936                            15,664
   Premises and equipment,
     net........................      7,817                               7,178                             7,616
   Excess Servicing on
     SBA loans..................     15,492                              16,114                            17,661
   Other assets.................      6,091                               6,467                             5,212
                                  ---------                            --------                          --------

   Total average asset..........  $ 286,194                            $257,609                          $232,441
                                  =========                            ========                          ========


Liabilities and Shareholders'
   Equity:
Interest-bearing liabilities:
   Transaction account..........  $  87,600       2.28%    $  1,995    $ 94,430       2.01%    $ 1,894   $ 89,512   2.15%  $ 1,924
   Savings accounts.............     13,409       2.13          286      14,696       2.16         317     11,928   2.65       316
   Certificates of deposit......     91,517       5.85        5,352      61,408       4.17       2,559     54,140   4.03     2,184
   Convertible debentures.......     10,000       8.50          850       9,155       8.55         783        250   9.00        23
   Other liabilities............        376       2.13            8         351      12.54          44        490  11.50        56
                                  ---------                --------    --------               --------   --------          -------
   Total interest-bearing
   liabilities..................    202,902       4.18        8,491     180,040       3.11       5,597    156,320   2.88     4,503

Non-interest-bearing liabilities:
   Transaction accounts.........     51,261                              48,421                            48,504
   Other liabilities............      2,767                               2,289                             3,351
                                  ---------                            --------                          --------
   Total liabilities............    256,930                             230,750                           208,175

Shareholders' equity:
   Common stock.................     10,799                              10,865                            10,825
   Retained earnings............     18,793                              16,338                            13,441
Unrealized loss on
   securities...................       (328)                               (344)                                0
                                  ----------                           --------                          --------
   Total shareholders'
     equity.....................     29,264                              26,859                            24,266
                                  ---------                            --------                          --------

   Total liabilities and
     shareholders'
     equity.....................  $ 286,194                            $257,609                         $ 232,441
                                  =========                --------    ========               --------  =========          ------- 
Net interest income.............                           $ 17,340                           $ 14,060                     $12,743
                                                           ========                           ========                     =======

Interest income as a
   percentage of interest -
      earning assets............                 10.58%                               9.12%                         9.10%
Interest expense as a
      percentage of interest -
  earning assets................                 (3.48)                              (2.60)                        (2.38)
                                                 -----                               -----                         -----

Net interest margin.............                  7.10%                               6.52%                         6.72%
                                                  ====                               =====                         =====
</TABLE>

(1)      Includes nonaccrual loans with an average balance of $3.4 million, $3.0
         million, and $3.4 million for the years ended December 31, 1995, 1994
         and 1993, respectively.

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


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, and certificates of deposit. The
Company's policy requires all corporate bonds, commercial paper, mortgage-backed

                                                         -13-

<PAGE>



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 Banks' respective Boards of Directors review all securities  transactions on
a monthly  basis.  Under  California  law,  Truckee River 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).  Under Nevada law,  Sierra Bank of Nevada may not
invest an amount exceeding 25% of its shareholders'  equity in the securities of
any one obligor,  excluding U.S.  government and agency  securities.  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.

In May 1993,  FASB issued  Statement of Financial  Accounting  Standards No. 115
("SFAS No. 115") entitled "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires, among other things, that certain investments
in debt and equity  securities be  classified  under three  categories--held  to
maturity,  trading  securities  and  securities  available for sale.  Securities
classified  as held to maturity are to be reported at amortized /accreted  cost.
Securities  classified  as trading  securities  are to be reported at fair value
with unrealized gains and losses included in earnings.  Securities classified as
available  for sale are to be reported at fair value with  unrealized  gains and
losses  excluded  from  earnings  and  reported  as  a  separate   component  of
shareholders' equity. The Company adopted SFAS No. 115 effective at December 31,
1993.  At December  31, 1995 and 1994,  $25.0  million and $25.9  million of the
Company's  investment  securities  were  classified as available  for sale.  The
remaining  $3.4  million and $5.1  million,  consisting  primarily of pledged or
formerly pledged  securities and time deposits with other banks, were classified
as held to maturity.  The Company does not  classify any  securities  as trading
securities.

The following table summarizes the amounts and the distribution of the Company's
investment securities (in thousands):
<TABLE>

                                                       December 31,
                                        1995               1994               1993
                                -----------------   -----------------   -----------------
                                  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 ....   $18,137   $18,144   $23,873   $23,711   $17,893   $17,963

Securities of U.S. government
  agencies ..................     7,486     7,486     6,363     6,363     2,700     2,708

Securities of states and
  political subdivisions ....     2,608     2,608       418       418       195       195

Other securities ............       112       112       429       429     1,118     1,118
                                -------   -------   -------   -------   -------   -------

  Total .....................   $28,343   $28,350   $31,083   $30,921   $21,906   $21,984
                                =======   =======   =======   =======   =======   =======
</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 market.


In  addition  the Company  invests in mutual  funds  whose  assets are  invested
primarily in U.S. government  securities.  At December 31, 1995 and 1994, mutual
funds with an estimated  market value of  $1,391,000  and  $1,734,000  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 $72,000 and $176,000.  The
weighted  average  maturity of portfolio  securities held by the mutual funds at
December 31, 1995 and 1994 was 7.6 and 6.2 years.


                                                         -14-

<PAGE>



Maturity of Investment Securities

The following  table presents the maturities for the investment  portfolio as of
December 31, 1995.
<TABLE>
                                                                                             December 31, 1995
                                                                                                 Weighted
                                                                                      Book        Average       Market
                                                                                      Value        Rate          Value
<S>                                                                                 <C>            <C>        <C>   
U.S. Treasury securities:
  Within 1 year...................................................................  $  11,517      5.03%      $  11,516
  After 1 year but within 5 years.................................................      6,620      5.70           6,628
                                                                                    ---------                 ---------
    Total U.S. Treasury securities................................................     18,137      5.27          18,144
                                                                                    ---------                 ---------

U.S. government agencies:
  Within 1 year...................................................................      2,236      5.36           2,236
  After 1 year but within 5 years.................................................      5,250      5.36           5,250
                                                                                    ---------                 ---------
    Total U.S. Government agencies................................................      7,486      5.36           7,486
                                                                                    ---------                 ---------

Securities of states and political subdivisions(1):
  After 1 year but within 5 years.................................................        343      3.78             343
  After 5 years but within 10 years...............................................         99      4.55              99
  Over 10 years...................................................................      2,166      5.27           2,166
                                                                                    ---------                 ---------
      Total securities of states and political subdivisions ......................      2,608      5.05           2,608
                                                                                    ---------                 ---------

Other securities:
  Over 10 years...................................................................        112      6.00             112
                                                                                    ---------                 ---------

Total.............................................................................  $  28,343      5.28       $  28,350
                                                                                    =========                 =========
</TABLE>


(1)      Interest of $29 thousand on these tax-exempt obligations has not been 
         grossed up for the related tax benefits in calculating the average 
         yield.


Deposits

As of December  31,  1995,  the Company had a total of $151.9  million in demand
deposits  (including  money market and NOW  accounts),  with an average  account
balance  of  $8,761;  $13.7  million in savings  deposits  for  individuals  and
corporations,  with an average balance of $2,343;  and $127.6 million in CDs, of
which $43.3 million were in the form of CDs in  denominations  greater than $100
thousand. Average CD balances for the year ended December 31, 1993 were 26.5% of
average  total  deposits  and average CD balances  increased to 28.1% of average
total  deposits  for the year ended  December  31,  1994.  Average  CD  balances
increased  again to 37.5% of average total  deposits for the year ended December
31, 1995.  Deposit  accounts at each Bank are insured by the FDIC to the maximum
amount permitted by law.

As of December 31, 1995,  approximately 3% 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  the  Banks  by  pledging  securities.  Included  in 
deposits  at December 31, 1995 were  certificates  of  deposit  of $4.3 million
which were generated directly through brokers.

In 1992,  Truckee  River Bank began to make  available  to its  customers  money
market  investment  funds and annuities.  Only a modest  volume of business has
been generated to date. 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, which is between March and May.


                                                         -15-

<PAGE>



The  following  table  indicates  the maturity of the Company's CDs in excess of
$100  thousand as of December 31, 1995 (amounts in thousands  except  percentage
amounts):
<TABLE>

                                                                                            December 31, 1995
                                                                                                       Percentage
                                                                                         Balance        of Total
<S>                                                                                     <C>              <C>  
Three months or less................................................................... $   13,047        30.1%
Over three months through six months...................................................     10,021        23.2
Over six months through twelve months..................................................     16,291        37.6
Over twelve months.....................................................................      3,944         9.1
                                                                                        ----------      ------
Total.................................................................................. $   43,303       100.0%
                                                                                       ==========       =====
</TABLE>

Repricing of Interest Earning Assets and Interest-Bearing Liabilities

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 assets,  as of December 31,
1995. 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 (amounts in thousands except percentage amounts).
<TABLE>

                                                                     December 31, 1995
                                                       Next Day    Over Three     One Year
                                                       to Three  Months Through    Through      Over
                                         Immediately    Months    Twelve Months  Five Years  Five Years       Total
Assets:
<S>                                          <C>           <C>        <C>        <C>          <C>          <C>     
Federal funds sold ........................  $ 20,500      $      0   $     0    $     0      $      0     $ 20,500
Mutual funds ..............................     1,391             0         0          0             0        1,391
Taxable investment securities .............     1,000         4,310     8,443     11,870           112       25,735
Non-taxable investment securities                   0             0         0        343         2,265        2,608
Loans .....................................    90,957(2)    120,222     9,444     17,533         1,813      239,969
                                              --------      --------   -------    -------      --------     --------
                                              113,848       124,532    17,887     29,746         4,190      290,203
                                              --------      --------   -------    -------      --------     --------

Liabilities:
  Savings deposits(1) .....................    104,966            0         0           0            0      104,966
  Time deposits ...........................        129       45,703    72,915       8,587          275      127,609
  Convertible debentures ..................          0            0         0           0       10,000       10,000
  Lease obligations .......................          0            3         6          35          238          282
                                              --------      -------    -------     -------    ---------     --------
                                               105,095      45,706     72,921       8,622       10,513      242,857
                                              --------      -------    -------     -------    ---------     --------

Net interest earning assets (liabilities)     $  8,753     $ 78,826   $(55,034)    $21,124    $ (6,323)    $ 47,346
                                              ========     ========    =======     =======    =========     ========
Cumulative net interest earning assets 
  (liabilities) ("GAP") ...................   $  8,753     $ 87,579   $ 32,545     $53,669    $ 47,346
                                              ========     ========    =======     =======    =========
Cumulative GAP as a percentage of
  total assets ............................       7.7%      36.7%       12.7%       18.8%        16.3%
                                              ========     ========    =======     =======     ========

(1)      Savings deposits include interest-bearing transaction accounts.

(2)      Includes loans which matured on or prior to December 31, 1995.
</TABLE>

At  December  31,  1995,  the  Company  had $256.3  million in assets and $223.7
million in liabilities  repricing within one year. This means that $32.6 million
more in interest rate sensitive assets than interest rate sensitive  liabilities
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.




                                                             -16-

<PAGE>



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.

Supervision and Regulation

The Effect of Governmental Policy on Banking

The  earnings  and  growth of Truckee  River Bank and Sierra  Bank of Nevada 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 Truckee  River Bank or Sierra Bank of
Nevada 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  subsidiaries.  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 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 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 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.

                                                             -17-

<PAGE>



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  subsidiaries  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 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,  Truckee  River  Bank  is  regulated,
supervised and regularly  examined by the CSBD.  Under  California law,  Truckee
River 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.  Whenever it appears  that the  contributed  capital of a California
bank is impaired,  the CSBD shall order the bank to correct such impairment.  If
the bank is unable to correct the impairment,  such bank is required to levy and
collect  an  assessment  upon its  common  shares.  If such  assessment  becomes
delinquent, such common shares are to be sold by the bank. Truckee River Bank is
not a member of the Federal  Reserve  System;  Truckee River Bank,  however,  is
subject  to  certain  regulations  of  the  Federal  Reserve  including  reserve
requirements. The primary Federal regulator of Truckee River Bank is the FDIC.

As a Nevada state-chartered bank, Sierra Bank of Nevada is regulated, supervised
and regularly  examined by the NDFI.  Under Nevada law, Sierra Bank of Nevada 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 surplus  requirements,  deposits and  borrowings,
stockholder  rights and duties,  and investment and lending  activities.  If the
capital of a Nevada bank is impaired  and such bank does not have the  resources
to correct  the  deficiency,  the NDFI is required to cause such bank to make an
assessment  upon the bank's  stockholders.  If the  assessment  is not paid by a
stockholder, the bank is required to subject the stockholder's shares to sale at
a public  auction.  Sierra  Bank of Nevada is a member  of the  Federal  Reserve
System, and as such, its primary Federal regulator is the Federal Reserve. As an
insured  depository  institution,  Sierra  Bank of  Nevada  is also  subject  to
supervision and may be examined by 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

                                                             -18-

<PAGE>



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 risked-based  guidelines,  Federal banking regulators require
banking  organizations  to maintain a minimum  amount of Tier 1 capital to total
assets,  referred to as the leverage ratio. For a banking  organization rated in
the  highest  of  the  five  categories  used  by  regulators  to  rate  banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets must
be 3%. 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 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.  On  September 1, 1995,  the Federal  banking  agencies
(excluding the Office of Thrift Supervision) issued a final rule to take account
of interest rate risk in calcu lating risk based capital. The final rule did not
put forth the process for measuring a bank's exposure to interest rate risk, but
it is  expected  that a future rule will set forth such  process.  In a proposed
joint agency policy statement, a supervisory model to measure interest rate risk
was put forth.  The  supervisory  model  would have  institutions  report  their
assets,  liabilities  and off balance  sheet  positions in time bands based upon
their remaining maturities. The banking agencies would then calculate a net risk
weighted  interest  rate  exposure.  If that  interest rate risk exposure was in
excess of a certain threshold (1% of assets),  the institution could be required
to hold additional capital proportionate to that excess risk. Alternatively, the
agencies have proposed making interest rate risk exposure a subjective factor in
considering capital adequacy. Exposures would be measured in terms of the change
in the present value of an institution's  assets minus the change in the present
value of its liabilities and off-balance  sheet positions for an assumed +/- 200
basis point parallel shift in market  interest rates.  The banking  agencies are
considering  allowing  banks to use their own internal  measurement  of interest
rate risk if it is declared adequate by examiners.

In determining the capital level Truckee River Bank is required to maintain, the
FDIC does not, in all respects, follow GAAP and has special rules which have the
effect of  reducing  the amount of capital it will  recognize  for  purposes  of
determining the capital  adequacy of Truckee River Bank.  These rules are called
Regulatory  Accounting  Principles  ("RAP").  Truckee  River  Bank's  qualifying
capital,  as calculated under RAP, at December 31, 1995,  totaled $21.7 million.
This compares to $27.3 million as  calculated  under GAAP at the same date.  The
most significant  factor in the difference  between the capital level calculated
under RAP and the capital level  calculated  under GAAP is the use of cash basis
accounting for RAP in the  recognition of the gain on sale of SBA loans.  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.

The Company,  as a registered bank holding company,  is regulated by the Federal
Reserve. In computing the capital level required for bank holding companies, the
Federal Reserve follows GAAP in the computation of the components of the capital
ratios. The following tables present the capital ratios for the Company, Truckee
River

                                                             -19-

<PAGE>



Bank and Sierra Bank of Nevada,  computed in  accordance  with their  applicable
regulatory guidelines, compared to the standards for well-capitalized depository
institutions,  as of December 31, 1995 (amounts in thousands  except  percentage
amounts). Because of the above-referred to differences in accounting principles,
the capital  adequacy ratios of the Company as a whole and the individual  banks
vary significantly.
<TABLE>

                                                                             The Company
                                                          Actual                         Well                Minimum
                                                Qualifying                            Capitalized            Capital
                                                 Capital            Ratio                Ratio             Requirement

<S>                                             <C>                 <C>                    <C>                  <C> 
Leverage......................................  $  29,787            9.1%                   5.0%                4.0%
Tier 1 Risk Based.............................     29,787           11.6                    6.0                 4.0
Total Risk Based..............................     42,610           16.6                   10.0                 8.0
</TABLE>
<TABLE>

                                                                         Truckee River Bank
                                                          Actual                         Well                Minimum
                                                Qualifying                            Capitalized            Capital
                                                 Capital            Ratio                Ratio             Requirement

<S>                                             <C>                 <C>                    <C>                  <C> 
Leverage......................................  $  21,685            9.2%                   5.0%                4.0%
Tier 1 Risk Based.............................     21,685           11.3                    6.0                 4.0
Total Risk Based..............................     23,824           12.5                   10.0                 8.0
</TABLE>
<TABLE>

                                                                        Sierra Bank of Nevada
                                                          Actual                         Well                Minimum
                                                Qualifying                            Capitalized            Capital
                                                 Capital           Ratio                 Ratio            Requirement

<S>                                             <C>                 <C>                   <C>                 <C> 
Leverage......................................  $   6,216            7.7%                  5.0%                4.0%
Tier 1 Risk Based.............................      6,216           10.7                   6.0                 4.0
Total Risk Based..............................      6,900           12.0                  10.0                 8.0
</TABLE>

As a start-up bank, Sierra Bank of Nevada was required by the Federal Reserve to
maintain  a  leverage  capital  ratio of 10% for the  first  three  years of its
operation.  Effective July 1991, the required ratio was changed to a 9% leverage
capital  ratio,  and,  effective in December  1992,  this was reduced to an 8.3%
leverage  capital  ratio.  For 1993,  the  Federal  Reserve  lowered the minimum
leverage ratio for Sierra Bank of Nevada to 7%.

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%.


                                                    -20-

<PAGE>



"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 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."

In  December  1992,  the  Federal  banking  agencies  issued  final  regulations
prescribing uniform guidelines for real estate lending.  The regulations,  which
became effective on March 19, 1993, 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.

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

                                                         -21-

<PAGE>



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
CSBD 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.

In addition to the restrictions imposed under Federal law, banks chartered under
Nevada law may not pay  dividends  unless the bank has  capital  and surplus not
less than the minimum capital requirements imposed by Nevada law.  Additionally,
Nevada banks may not declare dividends until surplus earnings of the bank equals
common  capital,  unless  10% of the  previous  year's net profit has first been
transferred to the surplus fund.

Subject to the foregoing,  the board of directors of a Nevada bank is authorized
under Nevada law to declare  dividends of so much of the net profits of the bank
as the board judges expedient.

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.

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.  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.

The FDIC  pursuant  to FDICIA has  adopted a  risk-based  assessment  system for
purposes  of  determining  the  insurance  premium to be paid by a bank for FDIC
deposit insurance.

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  August  10,  1993,  the  President   signed  into  law  the  Omnibus  Budget
Reconciliation  Act of 1993 (the "Budget Act"),  which contains numerous tax and
other  provisions  (some of which are  retroactive)  which may affect  financial
institutions  and their  businesses.  The retroactive  increase in the corporate
Federal  income  tax rate  included  in the Budget  Act is not  material  to the
Company's results of operations for 1993.

The Budget Act also  contained  a  provision  that  establishes  a priority  for
depositors,  or the FDIC as subrogee  thereof,  in the event of a liquidation or
other  resolution of an insured  depository  institution for which a receiver is
appointed  after August 10, 1993.  Formerly,  creditors of national banks shared
the same status as depositories in pro rata  distribution by receivers of failed
banks. In substance, general unsecured creditors of depository institutions will
not receive any payment on their claim unless the deposit  obligations have been
paid in full from recoveries on the failed  institution's  assets.  In addition,
under the existing  cross-guarantee  provisions of Federal banking law, the FDIC
has the power to  estimate  the cost of the  failure  of an  insured  depository
institution  and assess a charge  against any financial  institution  affiliated
with the failed institution. The extent to which the

                                                         -22-

<PAGE>



adoption of the depositor  preference provision will generally increase the cost
of non-deposit liabilities in the banking industry cannot be ascertained at this
time.

On December 17,  1993,  the  President  signed into law  legislation  to provide
additional funding for failed savings associations under the jurisdiction of the
Resolution  Trust  Corporation.  In  addition to  providing  such  funding,  the
legislation, among other things, makes it more difficult for the federal banking
agencies to obtain prejudgment injunctive relief against depository institutions
and  parties  affiliated  with such  institutions,  extends  the  moratorium  on
depository  institutions  converting  from Savings  Association  Insurance  Fund
insurance to Bank Insurance Fund insurance or vice versa, and prohibits the FDIC
from using any deposit  insurance funds to benefit the  shareholders of a failed
or failing depository institution.

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 enact 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.  States  can also "opt in" which  means  states can permit
interstate branching earlier than June 1, 1997.

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.

On  September  23,  1994,  the  President  signed into law the Riegle  Community
Development and Regulatory Improvement Act of 1994 (the "1994 Act") which covers
a wide range of topics  including small business and commercial real estate loan
securitization,  money  laundering,  flood insurance,  consumer home equity loan
disclosure  and  protection  as well as the  funding  of  community  development
projects and regulatory relief.

The major  items of  regulatory  relief  contained  in the 1994 Act  include  an
examination  schedule  that has been  eased for the top rated  banks and will be
every 18 months  for CAMEL 1 banks with less than $250  million in total  assets
and CAMEL 2 banks with less than $100 million in total  assets  (after two years
the $100 million  amount may be increased to $175  million,  if the  appropriate
federal  banking  regulatory  agency so  permits).  The 1994 Act amends  Federal
Deposit  Insurance  Corporation  Improvement  Act of 1991  with  respect  to the
Section  124,  the mandate to the federal  banking  agencies to issue safety and
soundness  regulations,  including regulations concerning executive compensation
allowing the federal banking regulatory  agencies to issue guidelines instead of
regulations.

Further  regulatory  relief is  provided in the 1994 Act, as each of the federal
regulatory banking agencies  including the National Credit Union  Administration
Board is  required  to  establish  an internal  regulatory  appeals  process for
insured depository  institutions within 6 months. In addition, the Department of
Justice 30 day waiting  period for mergers  and  acquisitions  is reduced by the
1994 Act to 15 days for certain acquisitions and mergers.

In the area of currency transaction reports, the 1994 Act requires the Secretary
of  the  Treasury  to  allow   financial   institutions  to  file  such  reports
electronically.  The 1994 Act also  requires  the  Secretary  of the Treasury to
publish written rulings concerning the Bank Secrecy Act, and staff commentary on
Bank Secrecy Act regulations must also be published on an annual basis.


                                                         -23-

<PAGE>



The procedures for forming a bank holding company have also been simplified. The
formal application process is now a simplified 30 day notice procedure.

On September 28, 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.  In  addition  under the  Interstate  Banking  Act,
individual states could also "opt-in" and allow out-of-state banks to merge with
host  state  banks  prior to June 1, 1997.  The host state is allowed  under the
Interstate  Banking Act to impose  certain  nondiscriminatory  conditions on the
resulting  depository  institution  until June 1, 1997.  California  in enacting
CIBBA authorizes out-of-state banks to enter California by the acquisition of or
merger  with a  California  bank that has been in  existence  for at least  five
years.

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.  The early  "opt in" has the  reciprocal  effect of  allowing
California  banks to merge  with  out-of-state  banks  where the  states of such
out-of-state  banks have also "opted in" 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.

Effective September 28, 1995, Nevada also allows for early interstate  branching
and  authorizes  out-of-state  banks to enter  Nevada by the  acquisition  of or
merger with a Nevada bank that was in  existence  at  September  28, 1995 or has
been in existence for at least five years.

Sections  666.400  et seq.  of the  Nevada  Revised  Statutes  provides  for the
"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 Nevada Bank.
Nevada does not allow interstate  branching  through the acquisition of a branch
or a de novo branch in Nevada  without the  acquisition of an entire Nevada bank
except in a county with a population under 100,000 and with the written approval
of the Nevada commissioner.  The Nevada laws were also revised to include agency
provisions to allow banks to establish affiliated insured depository institution
agencies as allowed under the Interstate Banking Act.

Accounting Pronouncements

In  October  1995, the Financial  Accounting  Standards  Board  issued SFAS No.
123,  Accounting for Stock-Based  Compensation. The new standard defines a faiR
value method of accounting for stock options and other equity instruments, such
as stock purchase plans. Under this method,  compensation cost is measured based
on the fair
                                                         -24-

<PAGE>



value of the stock award when granted and is  recognized  as an expense over the
service  period,  which is usually the vesting  period.  This  standard  will be
effective  for the  Company  in 1996 and  requires  measurement  of awards  made
beginning in 1995.

The  new  standard   permits   companies  to  continue   accounting  for  equity
transactions  with  employees  under  existing   accounting   rules,   requiring
disclosure in a note to the financial statements of the pro forma net income and
earnings  per share as if the new method had been  applied.  Because the Company
intends to follow these disclosure  requirements,  adoption of SFAS No. 123 will
not impact reported earnings or cash flows.

Employees

As of March 15, 1996,  the Company  employed 284 persons (234  full-time  and 50
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 Truckee  River Bank.  Additionally,
the Company maintains nine Truckee River Bank branches, eight Truckee River Bank
loan production offices,  one remote off-site Truckee River Bank ATM machine and
two branches for Sierra Bank of Nevada. All branches and loan production offices
are leased to the  Company  or its  subsidiaries  except for the  administrative
facility which is owned by Truckee River Bank. The Company believes that Truckee
River Bank has  adequate  space  within its  current  facilities  to provide for
expansion and growth in the near future.

Sierra Bank of Nevada is outgrowing its present  facility and during July,  1994
purchased  land at a cost of $700  thousand for the site of a new facility to be
constructed  in southwest  Reno.  Construction  on the new facility began during
September  1995 and  completion is expected by June 1996. The total cost of this
facility  is not  expected  to  exceed  $4.2  million.  Sierra  Bank  of  Nevada
anticipates  that it will  initially  occupy  18,000  square feet in this 29,000
square foot  facility.  The remaining  space is to be leased until needed by the
bank for expansion.

During  February 1996,  the Company  acquired land at a cost of $478 thousand in
Carson City,  Nevada.  At this site,  the Company  plans to build a 5,300 square
foot facility for Sierra Bank of Nevada's Carson City branch.  The total cost of
this  facility  is not  expected  to  exceed  $1.2  million  and  completion  is
anticipated by the fourth quarter of 1996. Currently,  the Carson City branch is
located in a 780 square foot leased facility.

ITEM 3.  LEGAL PROCEEDINGS

During 1987, Truckee River Bank took title, through  foreclosure,  of a property
located in Placer  County which  subsequent  to Truckee River Bank's sale of the
property was determined to be contaminated  with a form of hydrocarbons.  At the
time it owned the property,  Truckee River Bank became aware of and investigated
the  status of certain  underground  tanks  that had  existed  on the  property.
Truckee River 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.  Truckee  River Bank,  at the time of resale of the
property,  was not aware of this contamination 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.  As a result of the discovery of the
contamination,  two civil lawsuits have been  instituted  against  Truckee River
Bank and other prior owners by the current owner of the property,  who is also a
borrower of Truckee River Bank.  One of the actions has been stayed to allow the
other action to resolve various issues.

Truckee River Bank's  external and internal  counsel on this matter believe that
Truckee River Bank's share of the cost of  remediation  and the costs of defense
will not be material to Truckee  River Bank's or the Company's  performance  and
will be within  existing  reserves  established  by Truckee  River Bank for this
matter.

In  addition,  the Company is subject to minor  pending and  threatened  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  effect on the  Company's
financial position.

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

No  matters  were  submitted  during  the  fourth  quarter  of 1995 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".  The following  table sets forth the high and low sales prices of
the Bancorp's stock as reported on Nasdaq for the periods indicated.
<TABLE>

                                                   High             Low
1994
  <S>                                             <C>             <C>  
  First Quarter..............................      9.00            6.75
  Second Quarter.............................      9.50            7.75
  Third Quarter..............................     10.25            8.75
  Fourth Quarter.............................     11.00            8.25

1995
  First Quarter..............................      9.25            7.50
  Second Quarter.............................      9.50            8.25
  Third Quarter..............................     11.25            8.25
  Fourth Quarter.............................     12.00           10.50

1996
  First Quarter (through March 15, 1996)          13.125          10.625
</TABLE>

At March 15, 1996, there were 1,012 shareholders of record,  although management
believes there are approximately  2,300 beneficial  holders of its Common Stock.
On this same date the closing  sales price of  Bancorp's  common stock on Nasdaq
was $12.625.

Bancorp   paid   cash   dividends  of  $0.24  per  share in 1995.  During  1996,
Bancorp's  Board of Directors  will  continue  its policy of reviewing  dividend
payments on a semi-annual  basis.  No dividends were paid in 1994,  1993 or 1992
because of temporary  restrictions  placed on Truckee River Bank and Sierra Bank
of Nevada by the FDIC,  Federal  Reserve and NDFI.  Dividends of $0.16 per share
were paid in 1991.

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 Banks,  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, as to Truckee River Bank, and the Federal  Reserve,  as to Sierra Bank
of Nevada,  have the  authority  to  prohibit  the payment of  dividends  if the
applicable  regulator  finds that such  payment  would  constitute  an unsafe or
unsound  practice.   See  "Supervision  and   Regulation--Bank   Regulation  and
Supervision." Additionally, further restrictions on the payment of dividends are
imposed  by  covenants  under  the  Company's  8 1/2%  convertible  subordinated
debentures,  including the  prohibition of the payment of dividends in the event
of default on payment of  principal  or  interest on the  debentures  until such
default is cured.


                                                         -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,
1995.  The statements of operations  data and statements of financial  condition
data for each of the  five  years in the  period  ended  December  31,  1995 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,
                                                                    ---------------------------------
                                                                      1995       1994       1993        1992       1991
                                                                      ----       ----       ----        ----       ----
<S>                                                                <C>        <C>        <C>        <C>         <C>   
Statements of Operations Data 
  Total interest income..................................          $ 25,831   $  19,657  $  17,246  $  16,597   $  18,852
  Total interest expense.................................             8,491       5,597      4,503      6,876       9,437
                                                                   --------   ---------  ---------  ---------   ---------
  Net interest income....................................            17,340      14,060     12,743      9,721       9,415
  Provision for possible loan and lease losses...........             1,270         885      1,560        915         505
                                                                   --------   ---------  ---------  ---------   ---------
  Net interest income after provision for possible
    loan and lease losses................................            16,070      13,175     11,183      8,806       8,910
  Total other operating income...........................             7,969       9,177     10,214      9,406       8,069
  Total other operating expenses.........................            20,944      17,486     17,023     15,616      14,194
  Provision for income taxes.............................             1,179       1,863      1,670        763         985
                                                                   --------   ---------  ---------  ---------   ---------

  Net income.............................................          $  1,916   $   3,003  $   2,704  $   1,833   $   1,800
                                                                   ========   =========  =========  =========   =========

Statements of Financial Condition Data
  Total assets...........................................          $337,518   $ 259,975  $ 250,065  $ 243,758   $ 219,622
  Loans and leases, net(1)...............................           236,124     169,393    156,347    152,603     142,168
  Allowance for possible loan and lease losses...........             3,845       3,546      3,472      2,742       2,525
  Total deposits.........................................           293,154     218,876    220,768    211,976     193,894
  Convertible debentures.................................            10,000      10,000        250        250       1,000
  Shareholders' equity...................................            29,833      28,163     25,645     22,907      20,267

Per Share Data(2)
  Book value.............................................          $  11.51   $   10.75  $    9.90  $    8.84   $    8.23
  Net income:
    Primary..............................................              0.72        1.12       1.04       0.73        0.76
    Fully diluted........................................              0.66        0.96       1.02       0.71        0.73
  Cash dividends declared................................              0.24           0          0          0        0.16

  Shares used to compute net income per share:
    Primary..............................................             2,678       2,678      2,609      2,503       2,368
    Fully diluted........................................             3,687       3,606      2,657      2,642       2,682

  Dividend payout ratio:
    Primary..............................................              33.3%        0.0%       0.0%       0.0%       21.1%
    Fully diluted........................................              36.4         0.0        0.0        0.0        21.9


Selected Ratios
  Return on average assets...............................               0.7%        1.2%       1.2%       0.8%        0.9%
  Return on average shareholders' equity.................               6.5        11.2       11.1        8.6         9.6
  Net interest margin(3).................................               7.1         6.5        6.7        5.4         5.8
  Average shareholders' equity to average assets.........              10.2        10.4       10.4        9.7         9.5
</TABLE>


                                                             -28-

<PAGE>

<TABLE>


                                                                                   At or for the Year Ended
                                                                                         December 31,
                                                                    ---------------------------------
                                                                      1995       1994       1993        1992       1991
                                                                      ----       ----       ----        ----       ----
<S>                                                                 <C>       <C>        <C>          <C>        <C>    
Asset Quality Ratios
  Allowance for possible loan and lease losses to total loans        1.6%       2.1%       2.2%        1.8%       1.8%
  Allowance for possible loan and lease
     losses to nonaccrual loans.............................        70.2      142.9      120.9        72.5       83.1

  Net charge-offs to average loans outstanding..............         0.5        0.5        0.4         0.5        0.3
  Nonaccrual and restructured performing loans to total loans        2.3        1.5        1.9         2.5        2.1
  Nonperforming assets to total assets......................         1.8        1.4        1.6         2.0        1.6

Ratio of Earnings to Fixed Charges(4)
    Excluding interest paid on deposits.....................        3.2x       5.0x      13.1x        8.2x       3.9x
    Including interest paid on deposits.....................        1.3x       1.8x       1.9x        1.4x       1.3x
</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.  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.

(4)      Computed by dividing  income  before income taxes plus fixed charges by
         fixed  charges.  Fixed  charges  excluding  interest  paid on  deposits
         consist  of  interest  on other  borrowings,  interest  on  convertible
         debentures and  amortization of debt expense.  Fixed charges  including
         interest  paid on deposits  consist of the  foregoing  plus interest on
         deposits.




                                                         -29-

<PAGE>



Selected Quarterly Financial Information

The following table sets forth the Company's unaudited data regarding operations
for  each  quarter  of 1995  and  1994.  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
<S>                                                   <C>              <C>              <C>               <C>    
1995
Interest income....................................   $  5,601         $   6,134        $   6,766         $   7,330
Interest expense...................................      1,625             1,930            2,286             2,650
                                                      --------         ---------        ---------         ---------
Net interest income................................      3,976             4,204            4,480             4,680
Provision for possible loan and lease losses.......        270               320              390               290
                                                      --------         ---------        ---------         ---------
Net interest income after provision for possible
  loan and lease losses............................      3,706             3,884            4,090             4,390
Total other operating income.......................      2,157             1,924            1,977             1,911
Total other operating expense......................      5,034             5,105            5,020             5,785
                                                      --------         ---------        ---------         ---------
Income before provision for income taxes...........        829               703            1,047               516
Provision for income taxes.........................        301               267              424               187
                                                      --------         ---------        ---------         ---------

Net income.........................................   $    528         $     436        $     623         $     329
                                                      ========         =========        =========         =========
Primary earnings per share.........................   $   0.20         $    0.16        $    0.23         $    0.12
Fully diluted earnings per share...................       0.18              0.15             0.20              0.12

1994

Interest income....................................   $  4,403         $   4,626        $   5,242         $   5,386
Interest expense...................................      1,283             1,391            1,450             1,473
                                                      --------         ---------        ---------         ---------
Net interest income................................      3,120             3,235            3,792             3,913
Provision for possible loan and lease losses.......        270               270              260                85
                                                      --------         ---------        ---------         ---------
Net interest income after provision for possible
  loan and lease losses............................      2,850             2,965            3,532             3,828
Total other operating income.......................      1,997             2,324            2,218             2,638
Total other operating expense......................      4,042             4,318            4,372             4,754
                                                      --------         ---------        ---------         ---------
Income before provision for income taxes...........        805               971            1,378             1,712
Provision for income taxes.........................        291               377              526               669
                                                      --------         ---------        ---------         ---------

Net income.........................................   $    514         $     594        $     852         $   1,043
                                                      ========         =========        =========         =========
Primary earnings per share.........................   $   0.19         $    0.22        $    0.32         $    0.38
Fully diluted earnings per share...................       0.18              0.19             0.26              0.32
</TABLE>


                                                             -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, 1995, 1994 and 1993

The  Company  derives  or has  derived  income  from  three  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;  and (3) servicing fee
income which results from the ongoing servicing of loans sold by the Company and
other loans pursuant to purchased servicing rights.

Net  income for the year ended  December  31,  1995  declined  36.2%,  from $3.0
million  during 1994 to $1.9  million.  While the Company was able to generate a
23.3% increase in net interest  income,  net income was adversely  affected by a
19.8% increase in operating costs which included start up costs on four branches
opened  during 1995,  costs  associated  with the  termination  of the Company's
mortgage-banking  operations,  the costs to shut down one of the  Company's  two
branches  located in South Lake Tahoe,  California and the costs associated with
the Company's Director's Retirement Plan. Additionally, during 1995, the Company
altered  its  strategy  with  respect  to the  sale of SBA  loans.  Rather  than
continuing  to sell the  guaranteed  portion of the SBA  portfolio,  the Company
retained both the guaranteed and unguaranteed portions in its portfolio.  During
1996 the Company plans to securitize and sell portions of its  unguaranteed  SBA
loans.  The first such  securitization  is expected to be  completed  during the
second quarter of 1996.

The  following  table  summarizes  the  operating  results  for the years  ended
December 31,  1995,  1994,  and 1993  (amounts in  thousands  except  percentage
amounts):
<TABLE>

                                           December 31,                    1995 over 1994             1994 over 1993
                               ------------------------------------     ----------------------    ------------------
                                  1995         1994         1993        Amount    Percentage(1)   Amount     Percentage(1)
                                  ----         ----         ----        ------    -------------   ------     -------------
<S>                            <C>           <C>          <C>          <C>            <C>         <C>           <C>
Total interest income......... $25,831       $19,657      $17,246      $ 6,174         31.4%      $ 2,411        14.0%
Total interest expense........   8,491         5,597        4,503        2,894         51.7         1,094        24.3
                               -------       -------      -------      -------                    -------
Net interest income...........  17,340        14,060       12,743        3,280         23.3         1,317        10.3
Provision for possible
  loan and lease losses.......   1,270           885        1,560          385         43.5          (675)      (43.3)
                               -------       -------      -------      -------                    -------
Net interest income after
  provision for possible
  loan and lease losses.......  16,070        13,175       11,183        2,895         22.0         1,992        17.8
Total other operating income..   7,969         9,177       10,214       (1,208)       (13.2)         (1,037)    (10.2)
Total other operating
  expense.....................  20,944        17,486       17,023        3,458          19.8          463         2.7
                               -------       -------      -------      -------                    -------
Income before provision
  for taxes...................   3,095         4,866        4,374        (1,771)      (36.4)          492        11.2
Provision for income taxes....   1,179         1,863        1,670         (684)       (36.7)          193        11.6
                               -------       -------      -------      -------                    -------

Net Income.................... $ 1,916       $ 3,003      $ 2,704      $(1,087)       (36.2)      $   299        11.1
                               =======       =======      =======      =======                    =======

(1)      Increase (decrease) over previous year's amount.
</TABLE>


Net Interest  Income.  Net interest  income is influenced by a number of factors
such as the volume and distribution 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,  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 volume and change due to rate in  proportion  to the
relationship of absolute dollar amounts (in thousands) of the change in each.
<TABLE>

                                                        1995 over 1994                       1994 over 1993
                                             ----------------------------------     -----------------------
                                                Volume        Rate        Total        Volume       Rate       Total
<S>                                           <C>         <C>          <C>           <C>        <C>        <C>
Increase (Decrease) in Interest Income:
Loans.......................................  $   3,853   $   2,343    $   6,196     $     694  $     667  $    1,361
Mutual funds................................       (139)         43          (96)           19         71          90
Taxable securities..........................       (231)        163          (68)          643         73         716
Tax-exempt securities.......................         16          (4)          12             0         17          17
Federal funds sold..........................        (54)        170          116           105        141         246
Other deposits..............................          6           8           14             7        (26)        (19)
                                              ---------   ---------    ---------     ---------  ---------  ----------

Total.......................................      3,451       2,723        6,174         1,468        943       2,411
                                              ---------   ---------    ---------     ---------  ---------  ----------

Increase (Decrease) in Interest Expense:
Deposits:
  Savings deposits..........................        (28)         (3)         (31)           73        (72)          1
  Transaction accounts......................       (137)        238          101           106       (136)        (30)
  Time deposits.............................      1,255       1,538        2,793           293         82         375
                                              ---------   ---------    ---------     ---------  ---------  ----------

Total.......................................      1,090       1,773        2,863           472       (126)        346
                                              ---------   ---------    ---------     ---------  ---------  ----------

Other borrowings............................          5         (41)         (36)          (17)         5         (12)
Convertible debentures......................         72          (5)          67           819        (59)        760
                                              ---------   ---------    ---------     ---------  ---------  ----------

Total.......................................      1,167       1,727        2,894         1,274       (180)      1,094
                                              ---------   ---------    ---------     ---------  ---------  ----------
Increase in
  net interest income.......................  $   2,284   $     996    $   3,280     $     194  $   1,123  $    1,317
                                              =========   =========    =========     =========  =========  ==========
</TABLE>

As disclosed in the foregoing  table,  the Company's net interest income in 1995
and 1994 increased over preceding  years. In both 1995 and 1994 volume increases
were  related to an increase in the asset size of the  Company.  During 1995 and
1994,  total daily average  assets  increased by 11.1% and 10.8%,  respectively.
During these same periods,  the volume component of the increase in net interest
income was 16.3% and 1.5%, respectively.

For 1994 the rate of increase  in the volume  component  of the  increase in net
interest  income was lower than the increase in average daily assets due both to
the fact that the percentage of average non-interest-bearing  deposits decreased
to 22.0% from 23.8%  during 1993 and  additionally  due to the increase in other
interest bearing liabilities related to the issuance of the Debentures.

During 1995 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 83.7% in 1994 to 85.3% during 1995.  This increase in
average  interest  earning assets was partially  offset by a decrease in average
non-interest-bearing deposits to 21.0%.

Because the Company  funded more of its growth  between 1986 and 1991 by the use
of interest-bearing  deposits versus  non-interest-bearing  demand deposits, the
ratio of  non-interest-bearing  deposits to total deposits declined. In 1992 and
1993,   largely   because  of  the   success  of  the   Company  in   attracting
non-interest-bearing  deposits,  this declining trend was reversed.  During 1994
and  escalating  in 1995,  the  Company  again 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.


                                                         -32-

<PAGE>



Approximately  84% of the  Company's  loan  portfolio  consists of variable rate
loans  tied to the prime rate for  leading  west  coast  U.S.  banks.  The prime
interest rate is influenced by forces outside the Company's control. Because the
Company has less 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.

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  (the  "Bank").  Under  this agreement  the 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 Bank $216 thousand on an annual basis. Conversely,
if prime  decreases  by 1%, the Bank would pay the Company  $184  thousand on an
annual basis. At the current prime rate of 8.25%,  the Company will pay the Bank
$16  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  10% of the Company's  variable rate
loans to a fixed rate.

The  average  prime rate for leading  banks and as used by the  Company  ("prime
rate") for 1995 was 8.83% compared to 7.13% in 1994. This increase  equates to a
price  variance in 1995 of $2.9 million  compared to an actual price variance of
$2.34 million.  The difference  includes a decrease in the  contribution of loan
fees.  Loan fees totaled $1.12 million,  $1.30 million and $1.98 million for the
years ending December 31, 1995, 1994 and 1993, respectively.  As a percentage of
average loans,  loan fees represented  0.55% in 1995, 0.78% in 1994 and 1.24% in
1993.

In 1994, the average prime rate was 7.13%  compared to 6.0% for 1993.  This 1994
increase  equated to a positive price variance in 1994 of $1.66 million compared
to an actual  positive  price  variance  of $667  thousand.  The  difference  is
primarily related to a decrease in the contribution of loan fees.

Starting in the fourth  quarter of 1992,  and  continuing  into 1994 the Company
increased its investment in U.S.  government  securities  with a maturity of one
year or less,  while  decreasing  its  holding of federal  funds sold and mutual
funds.  Investment  in these  securities  allowed the  Company to  maintain  its
short-term  liquidity  needs while earning  interest at a rate greater than that
for mutual funds or federal funds sold. Additionally,  during the fourth quarter
of 1993,  at the request of the CSBD,  Truckee  River Bank raised its  liquidity
levels.  See "Liquidity".  These two actions were the primary factors associated
with the increased  volume variance in taxable  securities  during 1994.  During
1995 the Company  increased  its holdings of  guaranteed  portions of SBA loans.
These loans,  which can be sold in relatively short periods of time,  provide an
available  source of  liquidity.  The negative  volume  variance  during 1995 in
investment  securities included the effect of funding the increase in guaranteed
portions of SBA loans both with an increase in time  deposits  and a decrease in
taxable  investment  securities.  Additionally  during 1995 the positive  spread
between short term U.S.  Government  securities  and federal funds sold narrowed
considerably  from prior year levels and the  Company  therefore  increased  its
reliance on federal funds sold for short term investment purposes.  The positive
rate variances for 1994 and 1995 in taxable investment securities are consistent
with market conditions.

The 1995 and 1994 rate variances in federal funds sold are primarily  attributed
to the interest rate changes during these periods.  The positive volume variance
in 1994  resulted  from the  Company's  increase in liquid assets as its overall
asset size increased,  partially offset by the use of short term U.S. government
securities for this purpose.  The negative  volume variance in 1995 includes the
effect of the  Company's  lowering its average  investment  in these funds while
increasing its holdings of the guaranteed portion of SBA loans.

Mutual funds  consist of  investments  in mutual funds whose assets are invested
primarily in U.S. government securities.  Interest earned on mutual funds during
1994 and 1993 includes  interest on both money market mutual funds and non money
market  mutual funds.  These funds have no stated  maturity and can be bought or
sold daily.  Money market  mutual funds in most cases earn  interest at a higher
rate than  federal  funds and,  like  federal  funds,  provide a daily source of
liquidity.  During 1994 the Company stopped using money market mutual funds as a
source of  liquidity.  Mutual  funds held at  December  31, 1994 and during 1995
related  to a non money  market  mutual  fund held  principally  for  investment
purposes. The price variances for both 1994 and 1995 reflect the general changes
in interest rates during these periods and additionally during 1995 includes the
effect of the  discontinuance  of the use of money  market  mutual  funds in the
Company's investment portfolio.

                                                         -33-

<PAGE>



Other deposits  consist  primarily of the cash surrender value of officers' life
insurance  policies.  Interest  earned on these policies is reduced by insurance
costs  incurred  including,  at the start of the second and third years for each
policy, a surrender charge. The modest volume increases in both 1995 and 1994 is
due to retention of accrued interest in the policies. Because the Company is now
funding new employee participation with traditional pay as you go life insurance
versus single premium life  insurance,  the volume  increases in this asset will
for the  future be limited  to  retained  income  for  existing  single  premium
policies.  The rate variances in 1994 and 1995 are  associated  with market rate
conditions.

The  average  balance  and average  rate paid on  interest  bearing  transaction
accounts during 1995 and 1994 are as follows:
<TABLE>
                                                     Year Ended December 31,
                                              1995                               1994
                                                    Money                             Money
                                         NOW        Market              NOW           Market
<S>                                  <C>           <C>                <C>           <C>   
Average Balance..................    $  36,995     $  50,606          $32,502       $61,928
Rate paid........................        1.26%         3.02%            1.25%         2.40%
</TABLE>

The  Company  prices  its  interest  bearing  deposits  consistent  with  market
conditions.  During 1994 and 1995 the  increase in the rate paid on its interest
bearing transaction  accounts has lagged behind the increase in the rate paid on
the Company's time deposits.  During the 1995 period the Company's  average time
deposits increased by 49.0% while its average Money Market accounts decreased by
18.3%.  The Company  attributes the decrease in Money Market  accounts both to a
movement  into higher  interest  rate time deposits and a movement into non-bank
money market  accounts.  The Company has relied on time deposits to fund most of
its growth  during  1995.  During  1994 the  Company  funded  much of its growth
through   out-of-area  CDs  and  the  Company's  $10  million  8  1/2%  optional
convertible   subordinate   debenture   issuance   during   February  1994  (the
"Debentures").

The positive volume variance in time deposits for 1994 was primarily  related to
out-of-area  CDs.  These CDs pay on  average a  greater  rate than CDs  gathered
through the Company's branch network and are the key factor in the 1994 positive
rate variance in this category.  The average rate paid on time deposits for 1994
was 4.17% and for 1993 was 4.03%.  The average  rate paid on time  deposits  for
1995 increased to 5.85%.

The increase in average time  deposits  during 1995 included both an increase in
out-of-area  CD's as well as retail CD's generated  though the Company's  branch
network. Out-of-area CD's at December 31, 1995 totaled $34.8 million or 11.9% of
total deposits at this same date.  This  represents an increase of $17.1 million
over the  December  31, 1994  balance.  Total CD's  increased  by $70.7  million
between  December 31, 1995 and December 31, 1994 while average CD's increased by
$30.1  million  during  this same time period of which $6.5  million  represents
out-of-area time deposits. The positive rate variance for 1995 primarily relates
to market conditions.

Other borrowings  consist  primarily of federal funds purchased from other banks
and,  beginning in August 1992, a $300 thousand capital lease related to Truckee
River Bank's Gateway branch. The negative rate variance  experienced during 1995
includes the effect of capitalizing interest expense on the Company's new Sierra
Bank of  Nevada  headquarters  building  currently  being  constructed  in Reno,
Nevada.

The variances in convertible  debentures in 1994 and 1995 relate to the issuance
of the Debentures.

Provision  for  Possible   Loan  and  Lease   Losses.   At  December  31,  1995,
approximately   68%  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 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 provision for possible

                                                         -34-

<PAGE>



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.

The provision for loan and lease losses for the year ended December 31, 1995 was
$1.3 million and net loan losses were $971 thousand. The end of period allowance
for  possible  loan and lease  losses  was $3.85  million  or 1.60% of loans and
leases at December 31, 1995.  During 1994,  the  provision for possible loan and
lease  losses was $885  thousand  and net loan  losses were $811  thousand.  The
allowance  for possible loan and lease losses at December 31, 1994 totaled $3.55
million,  which  represented  2.05% of loans and leases  outstanding.  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 1.83% at
December 31, 1995 and 2.20% at December 31, 1994.

In evaluating the Company's loan loss reserve,  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 local commercial loans and SBA loans. From inception of its SBA lending
program in 1983 through 1990,  the Company  sustained a relatively  low level of
losses from these loans. Losses, net of recoveries from the unguaranteed portion
of SBA loans  retained in the  Company's  loan  portfolio,  increased  from $232
thousand in 1991 to $648 thousand in 1992 and decreased to $377 thousand in 1993
and $373  thousand  in 1994.  During  1995 net losses in the SBA loan  portfolio
again increased to $575 thousand. The increase in 1992, 1993, 1994 and 1995 over
1991 includes the effect of the maturing of the SBA loan  portfolio,  the impact
of the  recession in  California  on borrowers  and  collateral  values,  and an
increase  in the size of the SBA loan  portfolio.  Most of the  Company's  other
commercial loan losses have been for loans to businesses  within the Tahoe basin
area and during  1993,  1994 and 1995,  at the  Company's  Sierra Bank of Nevada
subsidiary.  The  Company  believes  that it has  taken  steps to  minimize  its
commercial  loan  losses,  including  centralization  of  lending  approval  and
processing functions. 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.  To offset the added  risk these  loans may
represent,  the  Company  typically  charges  a higher  interest  rate.  It also
attempts to mitigate this risk through the loan review and approval process.

The following  table sets forth the ratio of the allowance for possible loan and
lease losses to  nonperforming  loans,  the ratio of the  allowance for possible
loan and lease  losses to total  loans and the ratio of  nonperforming  loans to
total loans and leases as of the dates indicated.

<TABLE>
                                                                           Year Ended December 31,
                                                                           1995     1994     1993
                                                                          ------   ------   ------

<S>                                                                        <C>     <C>      <C>   
Allowance for possible loan and lease losses to nonperforming loans ..     70.2%   142.9%   120.9%
Allowance for possible loan and lease losses to total loans and leases      1.6%     2.1%     2.2%
Nonperforming loans to total loans and leases ........................      2.3%     1.4%     1.8%
</TABLE>

The balance of nonperforming loans at December 31, 1995 include $564 thousand in
loans which were  classified as  in-substance  foreclosures at December 31, 1994
and $1.9  million  in loans and  portions  of loans  guaranteed  by the  federal
government.  Excluding the guaranteed  loans the allowance for possible loan and
lease losses to nonperforming loans at December 31, 1995 increases to 107.1% and
nonperforming loans to total loans and leases drops to 1.5% at this same date.

Management  considers the allowance of $3.85 million at December 31, 1995, to be
adequate as a reserve against foreseeable losses at that time.

Total Other Operating  Income.  Total other operating  income for the year ended
December  31,  1995  decreased  by 13.2%  from the 1994  level.  For 1994  other
operating income decreased by 10.2% as compared to 1993.





                                                         -35-

<PAGE>



The following table  summarizes the principal  elements of total other operating
income  and  discloses  the  increases  (decreases)  and  percent  of  increases
(decreases) for 1995 and 1994 (amounts in thousands except percentage amounts):
<TABLE>
                                                                                       Increase (Decrease)
                                      Year Ended December 31,              1995 over 1994           1994 over 1993
                                  1995         1994         1993        Amount     Percentage     Amount     Percentage
<S>                            <C>            <C>          <C>          <C>        <C>            <C>          <C>         
Service charges................$ 1,755        $1,517       $1,461       $  238         15.7%      $    56         3.8%
Securities (losses)/gains......    (62)           (4)         121          (58)    (1,450.0)         (125)     (103.3)
Net gain on sale of SBA loans..    307         2,300        3,200       (1,993)       (86.7)         (900)      (28.1)
Net loan servicing income......  4,667         4,474        4,436          193          4.3            38         0.9
Other income...................  1,302           890          996          412         46.3          (106)      (10.6)
                               -------        ------       ------       ------                    --------

                               $ 7,969        $9,177       $10,214      $(1,208)      (13.2)      $ (1,037)     (10.2)
                               =======        ======       =======      =======                   ========
</TABLE>


Service charges on deposit accounts  increased by 15.7% in 1995 over 1994 levels
and 3.8% in 1994 over 1993 levels.  The increase in 1995  includes the effect of
an increase in average  non-interest-bearing  demand accounts and an increase in
overdraft  charges at Sierra Bank of Nevada.  The  increase in 1994 is primarily
related to an increase in service charge rates at Sierra Bank of Nevada.

The  securities  loss of $62  thousand  incurred in 1995  included a loss of $46
thousand  generated on the sale of $500  thousand in mutual  funds.  The Company
currently maintains in its investment portfolio mutual funds with a market value
of $1.39  million at December  31, 1995 and an original  cost of $1.5 million at
this same date. The Company's current  investment  strategy does not include the
holding of any additional investment in mutual funds.

Legislative  changes to the SBA's loan program have lowered the gain recorded on
the sale of SBA loans by the Company  since August 31, 1993.  These  legislative
changes include the reduction of the guaranteed percentage on loans made through
the  SBA's  Preferred  Lender  Program  to  70%;  reduction  of  the  guaranteed
percentage on loans made through the SBA's  Certified  Lender  Program for loans
over $155 thousand with terms over ten years to 75%; charging a fee equal to 50%
of any cash  premiums  in excess of 10% of the  guaranteed  portion  of the sold
loan; and charging a fee of 0.4% on the declining balance of loans sold into the
secondary market after August 31, 1993.

In December 1994, the SBA announced a temporary ruling that,  beginning  January
1, 1995, reduced the maximum loan that may be made under the SBA 7(a) program to
$500  thousand.  Additionally,   effective  May  15,  1995  a  temporary  ruling
eliminated  guarantees for refinanced  debt with limited  exceptions.  Effective
October 12, 1995, these temporary restrictions were removed. The SBA established
new guarantee  percentages  of 80% for loans of $100,000 or less and 75% for all
other loans,  subject to a maximum  guaranteed  amount of $750,000.  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 and to increase the guarantee fees charged borrowers.

Sales of SBA loans in 1995, 1994, and 1993 were $5.6 million, $38.2 million, and
$35.1  million,  respectively.  In 1995 the Company  altered its  strategy  with
respect to the sale of SBA loans.  Rather than continuing to sell the guaranteed
portion of the portfolio the Company began to retain the guaranteed  portion and
plans to securitize  and sell portions of  unguaranteed  SBA loans.  The Company
estimates  that the  decline  in sales  between  1994 and 1995  would  have been
reduced  by up to $15.4  million  if it had  continued  to sell  the  guaranteed
portion of loans available for sale in 1995,  resulting in an estimated  decline
in sales of  approximately  $17.2 million.  This decline  includes the effect of
temporary  restrictions  in the SBA  program.  In  addition to the effect of the
changes  in  the  SBA  program,  the  Company  has  in the  last  several  years
experienced increased competition in the SBA market place.

To support its SBA program the Company has, since 1983,  relied in part on third
party SBA loan packagers. In 1995,  approximately 27% of the Company's SBA loans
were generated by SBA packagers. This compares to 38% during 1994. 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  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.  Referral
fees for 1995,  1994,  and 1993 totaled $200 thousand,  $481 thousand,  and $392
thousand,  respectively.  The reduction in packager  volume in 1995 includes the
loss

                                                         -36-

<PAGE>



of loan packages to competition based on price and underwriting  factors and the
focus by the Company on its loan  production  offices as its primary  source for
generating new loans.

The reduction in the profit  margins  recorded on SBA loan sales during 1994 and
1995 as compared to 1993, includes the effect of the legislative changes made in
1993 and 1994 and,  additionally,  the  Company  has  experienced  a market rate
decrease in the premium paid as a percentage of loans sold.

To mitigate the effect of the changes in the SBA program,  the Company has begun
expanding  its ability to generate an increased  volume of SBA loans through the
establishment  of new loan production  offices in Las Vegas in December 1993, in
Buena Park in Southern  California  in  February  1995 and in Fresno in December
1995, and the addition of supporting personnel at other offices. In addition the
Company has increased its efforts to diversify its lending activities and during
1995 has  experienced  significant  gains in its  construction,  real estate and
non-SBA commercial loan portfolios.

Net loan servicing income increased by 4.3% in 1995 as compared to 1994. For the
year ended  December 31, 1994 net loan servicing  income  increased by 0.9% over
1993 levels.  Net loan  servicing  income  primarily  consists of net  servicing
income on SBA loans.  For the years ended December 31, 1995,  1994 and 1993, net
servicing  income on SBA loans  totaled  $4.7  million,  $4.4  million  and $4.3
million,  respectively.  Servicing  income on SBA loans is  reported  net of the
amortization of the Excess Servicing  recorded on the sale of the same loans and
the amortization of purchased  servicing.  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  income on SBA loans in 1994 and 1995 is primarily
attributable  to a change made by the Company  during the third  quarter of 1994
related to its estimates of the prepayment  speeds of the SBA loans it services.
The effect of this change was to decrease  amortization expense by approximately
$400 thousand in 1994 and $800 thousand in 1995.  Servicing  income exclusive of
amortization,  has declined in both years as a result of prepayments on existing
loans plus a lowered  level of SBA sales and the change  during late 1992 to the
sale of loans for cash premiums.

During 1994 and into 1995 the Company  experienced  a reduction  in demand and a
decline in profit margins in its mortgage banking operations.  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.

Other income  consists  primarily of merchant credit card fees and gains on sale
of the right to service  mortgage loans.  Additionally,  during 1994 the Company
recorded a loss on sale of Other Real  Estate  Owned  ("OREO")  property  of $68
thousand and during  December  1995, the Company sold $5.3 million in commercial
real estate loans and recorded a gain of $176 thousand on this sale.

Merchant  credit card revenue  totaled $442  thousand in 1995,  $410 thousand in
1994 and $384  thousand  in 1993.  During the third  quarter of 1993 the Company
terminated its relationship with its outside processor and contracted with a new
processor. With the change in processors the Company has chosen to eliminate its
processing  of  merchant  accounts  outside of its service  area.  The change in
processors and the related reduction in merchant accounts processed did not have
a significant impact on the Company's operations.

Gain  on  sales  of  servicing  rights on mortgage  loans totaled $190 thousand
in 1995,  $223  thousand in 1994,  and $329  thousand in 1993.  As a result of a
termination of its mortgage banking  operations,  the Company does not expect to
generate  gains  from the sale of  mortgage  rights  in the  future.  Additional
significant sources of other income during 1995 include $242 thousand related to
the Company's mortgage banking operations, $83 thousand in rental income and $93
thousand related to the sale of mutual funds and annuities through a third party
marketer.

Other Operating Expense.  The ratio of the Company's other operating expenses to
total  assets is higher than for  California  banks in general  because  Truckee
River Bank experiences  higher  operating  expenses in its area of operation and
employs additional  personnel and utilizes  additional  facilities to manage its
SBA loan program and other services  related to income  activities which provide
non-interest  income.  Because of the extreme climatic conditions in much of the
Company's  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

                                                         -37-

<PAGE>



and the  Company  experiences  added  costs of heating  and snow  removal  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  other  operating  expense
categories to total average assets (in thousands except for percentage amounts):
<TABLE>


                                                          Salaries              Occupancy
                                                             and                   and                  Other
             Year Ended              Average               Related              Equipment             Operating
            December 31,             Assets              Benefits(1)            Expenses              Expenses
                <S>                <C>                       <C>                   <C>                   <C>    
                1995               $286,194                  3.6%                  1.2%                  2.4%
                1994                257,609                  3.6                   1.1                   1.7
                1993                232,441                  3.8                   1.1                   2.1

</TABLE>
(1)      Excludes bonuses and contribution to KSOP plan.  Including these items,
         percentages would be 3.7%, 3.9% and 4.1% for the years ended December
         31, 1995, 1994 and 1993, respectively.



The following table summarizes the principal  elements of operating expenses and
discloses the increases  (decreases)  and percent of increases  (decreases)  for
1995 and 1994 (amounts in thousands except percentage amounts):
<TABLE>

                                                                                       Increase (Decrease)
                                      Year Ended December 31,              1995 over 1994             1994 over 1993
                                  1995         1994         1993        Amount     Percentage     Amount      Percentage

<S>                            <C>           <C>          <C>          <C>            <C>         <C>           <C> 
Salaries and related benefits  $10,366       $ 9,370      $ 8,823      $   996        10.63%      $   547         6.2%
Bonuses......................       63           544          461         (481)       (88.4)           83        18.0
KSOP contribution............      198           167          150           31         18.6            17        11.3
Occupancy and equipment......    3,401         2,960        2,672          441         14.9           288        10.8
Insurance....................      277           286          321           (9)        (3.1)          (35)      (10.9)
Postage......................      304           249          265           55         22.1           (16)       (6.0)
Stationery and supplies......      334           252          279           82         32.5           (27)       (9.7)
Telephone....................      350           262          245           88         33.6            17         6.9
Advertising..................      715           298          259          417        139.9            39        15.1
Legal fees...................      470           149          184          321        215.4           (35)      (19.0)
Consulting fees..............      263           128          176          135        105.5           (48)      (27.3)
Audit and accounting fees....      150           131          132           19         14.5            (1)       (0.8)
Directors' fees and expenses.      909           349          331          560        160.5            18         5.4
FDIC assessments.............      284           575          537         (291)       (50.6)           38         7.1
Other........................    2,860         1,766        2,188        1,094         61.9          (422)      (19.3)
                               -------       -------      -------      -------                    --------

                               $20,944       $17,486      $17,023      $ 3,458         19.8       $   463         2.7
                               =======       =======      =======      =======                    =======
</TABLE>

The Company maintains a management  incentive plan which provides for bonuses to
be payable to all  noncommissioned  employees upon achieving certain  predefined
goals.  No  incentive  bonuses  were  earned in 1995 under this plan.  The bonus
expense  recorded  in 1995  relates  to the Legal and Audit  departments  of the
Company.  Bonuses for these  departments  were determined by the Company's Audit
and Personnel Committees. A total of $544 thousand and $461 thousand were earned
in 1994 and 1993,  respectively,  under the Company's  incentive plans. The KSOP
contribution includes a $50 thousand contribution to the stock ownership portion
of the KSOP plan during 1994 and 1995 and $60 thousand in 1993 and the remainder
of the  expense is related to  employees  matching  contributions  to the 401(k)
portion of the plan.  The increase in occupancy and equipment  costs during 1995
includes $349 thousand related to the Company's four new branch locations.

The Company  maintains  a financial  institutions  bond for its  operations  and
directors and officers  insurance.  The decrease in overall  insurance  costs in
1994  resulted   from  a  softening  of  the  insurance   market  for  financial
institutions  and a change  in  insurance  carriers.  The  increase  in  postage
includes  both an  increase  in the size of the Company and an increase in rates
effective  January,  1995.  Stationery and supplies costs increased in excess of
the increase in average assets  primarily  related to $45 thousand  incurred for
the  start up and 1995  operations  of the four new  branches.  Telephone  costs
during 1995 included the costs of an expanded branch system and

                                                         -38-

<PAGE>



an upgrade and expansion of the Company's data  communication  telephone  lines.
Advertising in 1995 includes an expanded budget for Truckee River Bank and costs
related to Truckee  River Bank's new  branches.  The increase in legal  expenses
during 1995  relates to general  litigation  matters  and a  voluntary  internal
investigation of the Company's investment in an entity known as Community Assets
Management. The change in consulting costs during 1995 is primarily related to a
corporate identity study, a review of directors'  compensation and assistance in
strategic planning.  Directors' expenses in 1995 include a one-time $528
thousand pre-tax charge for the Director Emeritus Program,  which provides 
retirement benefits to certain directors who choose to participate in the 
program, and $25 thousand for an additional retirement plan for Truckee River 
Bank's past Chairman.

The decrease in FDIC  assessments 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.  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 Truckee  River Bank'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 Truckee  River Bank's Bijou branch which is located
approximately one mile away.

Provision  for Income Taxes.  The provision for income taxes was $1.18  million,
$1.86 million and $1.67 million for the years ended December 31, 1995,  1994 and
1993,  respectively,  representing  38.1%,  38.3% and  38.2%,  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,  1995,  the Company had $15.4  million in  guaranteed
portions of SBA loans  available  for sale,  all of which could be sold within a
short period of time compared to $636  thousand of SBA loans  available for sale
at December 31, 1994. 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,  1995,  the  Company  had
unsecured lines of credit totaling $5.3 million with 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  that it intends to securitize and sell the
unguaranteed  portion of SBA loans.  The Company  expects to complete  the first
such securitization  during the second quarter of 1996 and expects to include up
to $40 million of the unguaranteed portion of SBA loans in this securitization.

Cash and due  from  banks,  and  federal  funds  sold as a  percentage  of total
deposits  were 13% at December 31, 1995 as compared to 12% at December 31, 1994.
Cash and due from banks  totaled  $18.7 million at December 31, 1995 as compared
to $18.0  million at December 31,  1994,  and federal  funds sold totaled  $20.5
million at December  31, 1995 as compared to $8.0  million at December 31, 1994.
Federal funds sold represent deposits

                                                         -39-

<PAGE>



which are  predominantly  uninsured.  The  uninsured  portion of these  deposits
together with the uninsured  portion of cash deposited  with other  institutions
totaled  $21.0 million as of December 31, 1995. 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.

During  1994 the  Company  chose  to  increase  its  investment  in  short  term
investment securities as an additional source of liquidity primarily as a result
of the rate  differential  between  these  securities  and  federal  funds sold.
However  during  the  second  half  of  1995,  this  differential   became  less
significant  and the Company  increased its holdings of federal funds sold while
decreasing its investment securities classified as available for sale from $25.9
million at December 31, 1994 to $25.0 million on December 31, 1995.

Total loans increased from $172.9 million at December 31, 1994 to $240.0 million
at December 31, 1995. The increase  included  $20.6 million in SBA loans,  $24.0
million in other commercial loans, $6.7 million in real  estate-mortgage,  $13.4
million in real  estate-construction and $3.2 million in leases.  Individual and
other  loans  decreased  by $0.8  million.  The  increase  in SBA loans  relates
primarily  to the  Company's  decision to retain the  guaranteed  portion of SBA
loans. The increase in other loans includes the Company's  program to expand and
diversify its non-SBA lending activities. The $67.1 million increase in the loan
portfolio  since  December 31, 1994 was  primarily  funded with  increased  time
deposits.

Deposits  increased by $74.3 million from $218.9 million at December 31, 1994 to
$293.2   million  at  December   31,   1995.  A  decrease  of  $1.8  million  in
interest-bearing transaction accounts was offset by increases of $5.2 million in
non-interest-bearing  demand accounts,  $70.7 million in time deposits, and $0.2
million  in  savings   accounts.   The  Company   attributes   the  decrease  in
interest-bearing  transaction accounts primarily to two factors, the transfer of
funds into higher  yielding  time  certificates  of deposit and the  movement of
funds into nonbank  investment  vehicles such as money market mutual funds.  The
increase in time deposits  includes an increase in out-of-area  certificates  of
deposit of $17.1 million.

To  mitigate  the  effect  of seasonality  of its deposit  sources which is due
to the local tourist-based  economy,  Truckee River Bank utilizes a "money desk"
to solicit  out-of-area CDs to supplement its other deposit sources,  to provide
additional  liquidity and additionally,  to help support its loan growth.  These
deposits, which at December 31, 1993, 1994 and 1995 totaled $28.9 million, $17.6
million and $34.7 million,  respectively,  represented  13.1%, 8.0% and 11.9% of
total  deposits  as of  December  31,  1993,  1994 and 1995,  respectively.  The
increase in 1993  resulted from the CSBD's  requirement  beginning in the fourth
quarter  of 1993 that  Truckee  River  Bank raise its  liquidity  levels.  Until
December  1995,  the  CSBD  did not  include  loans  available  for  sale in its
calculation of liquidity and therefore required a higher level of liquidity than
is required  by the FDIC.  In the  opinion of the  Company,  because of seasonal
conditions,  these  actions by the CSBD  caused  Truckee  River Bank to maintain
levels of liquidity  above those it might  otherwise have  maintained at certain
peak times of the year and  required  the use of  additional  capital to support
these increased levels.

To attract  out-of-area  CDs, Truckee River Bank subscribes to a listing service
which lists nationally the rate Truckee River Bank is prepared to pay. Customers
call Truckee River Bank directly and place deposits. Additionally,  beginning in
1995 Truckee River Bank began accepting referrals by brokers which can result in
a slightly  lower cost of those  deposits.  At December 31, 1995 $4.3 million of
out-of-area  CD's  have been  acquired  through  broker  referrals.  To  attract
deposits,  Truckee River Bank pays a market rate which may at times be above the
comparable  rate  offered by Truckee  River  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  Truckee  River  Bank  incurs to  generate  comparable
deposits through its branch system.  While out-of-area  deposits are acquired at
an acceptable  cost,  Truckee  River 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.

In order to reduce the Company's  reliance on  out-of-area  time deposits and to
generate additional deposits needed to fund loan growth, the Company opened four
new branches  during 1995. On April 17, 1995,  Truckee River Bank opened two new
branches, one in Auburn and a second branch in Grass Valley, California. On July
17, 1995,

                                                         -40-

<PAGE>



Truckee River Bank opened a regional facility in Sacramento,  California. Sierra
Bank of Nevada  opened a branch in Carson  City,  Nevada on  September  6, 1995.
Total  deposits  raised  from these  branches  at  December  31, 1995 were $26.9
million.

During  December 1995, the Company sold $5.3 million of commercial  loans.  This
sale had a positive  effect both on the  Company's  liquidity  position  and its
risk-based capital ratios.

Capital Resources

At December 31, 1995, the Company had  shareholders'  equity of $29.8 million as
compared to $28.2 million at December 31, 1994. 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,  Auburn and
Grass  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 a loan
production  office in Las Vegas during  December 1993, in February 1995 in Buena
Park in Southern California, and during December 1995 in Fresno, California. The
Company  plans to  finance  its  expansion  program  through  the  retention  of
internally  generated  earnings,  through  the  use of the  proceeds  of its $10
million  debt  offering  completed  in February  1994,  and through the possible
future issue of equity and/or further debt offerings. Factors which could impede
the Company's  growth  strategy  include  possible  non-approval  by the banking
regulators of applications  for  acquisitions or new branches,  and the possible
inability of Bancorp to raise future  capital  through the issuance of equity or
debt.

Sierra Bank of Nevada is rapidly outgrowing its present facility and during July
1994 purchased land at a cost of $700 thousand for the site of a new facility to
be constructed in southwest Reno.  Construction on the new facility began during
September  1995 with  completion  expected by June 1996.  The total cost of this
facility  is not  expected  to  exceed  $4.2  million.  Sierra  Bank  of  Nevada
anticipates that it will initially occupy up to 18,000 square feet in the 29,000
square foot  facility.  The remaining  space is to be leased until needed by the
bank for expansion.  The Company anticipates  incurring certain costs related to
relocation  expenses,  as well as increased occupancy expenses due to additional
space, none of which are expected by management to be material to the Company.
The lease on Sierra Bank of Nevada's current facility expires June 30, 1996.

During  February 1996,  the Company  acquired land at a cost of $478 thousand in
Carson City, Nevada. At this site the Company plans to build a 5,300 square foot
facility to house its Carson City Branch. The total cost of this facility is not
expected to exceed $1.2  million and is expected to be  completed  by the fourth
quarter of 1996.
Currently  the  Carson  City  branch is  located  in a 780  square  foot  leased
facility.

During 1987, the Company sold to the public $250,000 of 9% optional  convertible
debentures,  convertible  at the option of the holder at the end of seven  years
from the date of issue at $6.06 per share or  redeemable  at par.  During  1994,
$167,400 of the Company's 9% optional convertible debentures were converted into
27,619 shares of the Company's  common stock.  The conversion rate was $6.06 per
share. Of the remaining debentures,  $72,600 were redeemed for cash, and $10,000
were converted into 1,650 shares in 1995.

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,  1995 and 1994
consisted  of  $10,000,000  of these 8 1/2%  optional  convertible  subordinated
debentures.  A portion of the net proceeds from this offering have been utilized
to pay  operating  expenses of the holding  company,  to provide a $300 thousand
equity infusion into Sierra Bank of Nevada,  a $2.0 million equity infusion into
Truckee River Bank, to repurchase 50,000 shares of stock on the open market, and
to pay dividends to the Company's shareholders. Of the $5.2 million remainder at
December 31, 1995,  $3.5 million has been used to reduce the Company's  reliance
on  out-of-area  time  deposits,  and $1.7 million  provides the operating  cash
resources for the holding company.


                                                         -41-

<PAGE>



The Company paid  dividends of twelve cents per share during March and September
1995.  During June 1995,  the Company  repurchased  50,000  shares of its common
stock on the open market at a total cost of $445 thousand.

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.

In 1990 and 1991,  the  Federal  Reserve  and the FDIC  established  new capital
guidelines for banks and bank holding companies.  Bancorp, Sierra Bank of Nevada
and Truckee River Bank exceed minimum requirements for these capital ratios. See
"Supervision and Regulation-Capital Standards".

                                                         -42-

<PAGE>


<TABLE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                                          Page
<S>                                                                                                         <C>   
Independent Auditors' Report................................................................................44

Consolidated Financial Statements of Sierra Tahoe Bancorp
  Consolidated Statements of Financial Condition............................................................45
  Consolidated Statements of Income.........................................................................47
  Consolidated Statements of Shareholders' Equity...........................................................49
  Consolidated Statements of Cash Flows.....................................................................50
  Notes to Consolidated Financial Statements................................................................54
</TABLE>



                                                         -43-

<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
  Sierra Tahoe Bancorp
Truckee, California


We have audited the  consolidated  statements  of financial  condition of Sierra
Tahoe Bancorp and Subsidiaries ("Company") as of December 31, 1995 and 1994, and
the related consolidated  statements of income,  shareholders'  equity, and cash
flows for each of the three years in the period ended  December 31, 1995.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material   respects,   the  financial  position  of  Sierra  Tahoe  Bancorp  and
Subsidiaries at December 31, 1995 and 1994, and the results of their  operations
and their cash flows for each of the three  years in the period  ended  December
31, 1995, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP


Sacramento, California
January 31, 1996



                                                           -44-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                   
<TABLE>

                                     ASSETS


                                                                              December 31,
                                                                         1995              1994

                                                                             (in thousands)
Cash and cash equivalents:
<S>                                                                  <C>               <C>       
   Cash and due from banks...................................        $    18,689       $   18,049
   Federal funds sold........................................             20,500            8,000
                                                                     -----------       ----------

   Total Cash and Cash Equivalents...........................             39,189           26,049

Investments in mutual funds (Note 2).........................              1,391            1,734

Investment securities (Note 2):
   Held to maturity..........................................              3,373            5,147
   Available for sale........................................             24,970           25,936

Loans held for sale (Note 3).................................             16,529            2,067
Loans and leases, net of allowance for possible loan
   and lease losses of $3,845 and $3,546 (Note 3)............            219,595          167,326
Excess servicing on SBA loans (Note 5).......................             14,813           16,027
Bank premises, leasehold improvements
   and equipment, net (Note 4)...............................              8,972            7,248
Accrued interest receivable and
   other assets..............................................              8,686            8,441
                                                                     -----------       ----------

   TOTAL ASSETS..............................................        $   337,518       $  259,975
                                                                     ===========       ==========
</TABLE>

































                    See  notes  to  consolidated   financial statements.

                                                             -45-

<PAGE>

<TABLE>

                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                   (continued)


                      LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                               December 31,
                                                                         1995                  1994

                                                                    (in thousands except share amounts)

Deposits:
<S>                                                                  <C>                  <C>         
   Non-interest-bearing demand...............................        $     60,579         $     55,381
   Savings...................................................              13,693               13,439
   Interest bearing transaction accounts.....................              91,273               93,119
   Time .....................................................             127,609               56,937
                                                                     ------------         ------------

   Total Deposits............................................             293,154              218,876

Other liabilities and interest payable.......................               4,531                2,936
Convertible debentures (Note 12).............................              10,000               10,000
                                                                     ------------         ------------

   Total Liabilities.........................................             307,685              231,812

Shareholders' equity (Notes 14 and 15):
   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; 2,592,419 and 2,620,179 shares
     issued and outstanding..................................              10,709               11,002
   Retained earnings.........................................              19,131               17,839
   Unrealized loss on investment securities
     available for sale, net of tax of
     $6 and ($409)...........................................                  (7)                (678)
                                                                     ------------         ------------

   Total Shareholders' Equity................................              29,833               28,163
                                                                     ------------         ------------

   TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY....................................        $    337,518         $    259,975
                                                                     ============         ============
</TABLE>































                       See notes to consolidated financial
                                  statements.

                                                             -46-

<PAGE>

<TABLE>
                                             SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                               CONSOLIDATED STATEMENTS OF INCOME
                                                          (continued)



                                                                                        Year Ended December 31,
                                                                                  1995           1994          1993

                                                                              (in thousands, except per share amounts)
Interest income:
<S>                                                                           <C>            <C>           <C>        
   Loans and leases..............................................             $   23,582     $   17,386    $    16,025
   Federal funds sold............................................                    594            478            232
   Investment securities
     U.S. Treasury...............................................                    976          1,103            644
     U.S. Government agencies....................................                    385            272             35
     States and political subdivisions...........................                     29             17              0
     Other.......................................................                    144            294            184
   Other deposits................................................                    121            107            126
                                                                              ----------     ----------    -----------

   Total Interest Income.........................................                 25,831         19,657         17,246

Interest expense:
   Savings deposits..............................................                    286            317            316
   Transaction accounts..........................................                  1,995          1,894          1,924
   Time deposits ................................................                  5,352          2,559          2,184
   Convertible debentures (Note 12)..............................                    850            783             23
   Other.........................................................                      8             44             56
                                                                              ----------     ----------    -----------

   Total Interest Expense........................................                  8,491          5,597          4,503
                                                                              ----------     ----------    -----------

   Net Interest Income...........................................                 17,340         14,060         12,743

   Provision for possible loan and lease losses (Note 3).........                  1,270            885          1,560
                                                                              ----------     ----------    -----------
   Net Interest Income After Provision for Possible
     Loan and Lease Losses.......................................                 16,070         13,175         11,183
</TABLE>






























                       See notes to consolidated financial
                                  statements.

                                                             -47-

<PAGE>

<TABLE>
                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (continued)



                                                                                   Year Ended December 31,
                                                                                  1995           1994          1993

                                                                           (in thousands, except per share amounts)

Other operating income:
<S>                                                                           <C>            <C>           <C>        
  Net servicing income (Note 5)..............................                 $    4,667     $    4,474    $     4,436
  Net gain on sale of loans (Note 5).........................                        307          2,300          3,200
  Service charges on deposit accounts........................                      1,755          1,517          1,461
  Other......................................................                      1,240            886          1,117
                                                                              ----------     ----------    -----------

  Total Other Operating Income...............................                      7,969          9,177         10,214

Other operating expense:
  Salaries and related benefits..............................                     10,627         10,081          9,434
  Net occupancy and equipment expense (Notes 4 and 7)                              3,401          2,960          2,672
  Other expense (Note 17)....................................                      6,916          4,445          4,917
                                                                              -----------    ----------    -----------

  Total Other Operating Expense..............................                     20,944         17,486         17,023
                                                                              ----------     ----------    -----------

  Income before provision for income taxes...................                      3,095          4,866          4,374
  Provision for income taxes (Note 6)........................                      1,179          1,863          1,670
                                                                              ----------     ----------    -----------

  Net Income.................................................                 $    1,916     $    3,003    $     2,704
                                                                              ==========     ==========    ===========

Earnings per share, based on weighted average shares
  outstanding (including dilutive effect of options)
  (Notes 1, 11 and 12):
  Primary....................................................                 $     0.72     $     1.12    $      1.04
  Weighted average shares outstanding........................                      2,678          2,678          2,609
  Fully diluted..............................................                 $     0.66     $     0.96    $      1.02
  Weighted average shares outstanding........................                      3,687          3,606          2,657

Dividends per share..........................................                 $     0.24     $     0.00    $      0.00

</TABLE>


































                       See notes to consolidated financial
                                  statements.

                                                             -48-

<PAGE>

<TABLE>
                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 

                                                                                          Unrealized
                                                                                           Loss on    Deferred
                                                           Common Stock       Retained    Investment   Comp
                                                        Shares     Amounts    Earnings    Securities   KSOP     Total
                                                                           (in thousands)

<S>                                                      <C>      <C>         <C>           <C>       <C>     <C>     
Balance at January 1, 1993 ..........................    2,591    $ 10,825    $ 12,132      $   0     $(50)   $ 22,907

   Net Income .......................................        0           0       2,704          0        0       2,704
   Reduction in deferred
     compensation - KSOP ............................        0           0           0          0       50          50
   Unrealized loss on investment securities
     available for sale, net of tax .................        0           0           0        (16)       0         (16)
                                                        ------    --------    --------      -----     ----    --------

Balance at December 31, 1993 ........................    2,591      10,825      14,836        (16)       0      25,645

   Net Income .......................................        0           0       3,003          0        0       3,003
   Stock options exercised ..........................        2          12           0          0        0          12
   Common stock issued on
     conversion of debentures .......................       27         165           0          0        0         165
   Net change in unrealized loss on
     investment securities available for
     sale, net of tax ...............................        0           0           0       (662)       0        (662)
                                                        ------    --------    --------      -----

Balance at December 31, 1994 ........................    2,620      11,002      17,839       (678)       0      28,163


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

Balance at December 31, 1995 ........................    2,592    $ 10,709    $ 19,131      $  (7)    $  0    $ 29,833
                                                        ======    ========    ========      =====     ====    ========
</TABLE>



























                       See notes to consolidated financial
                                  statements.

                                                             -49-

<PAGE>

<TABLE>

                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)


                                                                               Year Ended December 31,
                                                                        1995              1994              1993

                                                                                    (in thousands)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS

Cash flows from operating activities:
  <S>                                                               <C>              <C>                <C>       
  Interest and fees received.................................       $   25,219       $    18,900        $   16,579
  Service charges............................................            1,754             1,517             1,461
  Servicing income received..................................            6,186             6,439             6,819
  Other income received......................................            1,147               877             1,426
  Interest paid..............................................           (8,251)           (5,221)           (4,954)
  Cash paid to suppliers and employees.......................          (18,142)          (13,916)          (12,130)
  Income taxes paid..........................................           (1,334)           (1,838)           (2,614)
  Mortgage loans originated or purchased for sale............          (25,176)          (26,769)          (63,199)
  SBA loans originated for sale..............................          (22,163)          (36,276)          (34,967)
  Mortgage loans sold........................................           27,000            28,352            58,483
  SBA loans sold.............................................            5,646            38,238            35,120
                                                                    ----------       -----------        ----------
  Net cash (used in) provided by operating activities........           (8,114)           10,303             2,024

Cash flows from investing activities:
  Purchase of mutual funds...................................                0                 0            (8,519)
  Proceeds from:
     Sales of mutual funds...................................              454             6,516                 0
     Maturities of investment securities held to maturity....              773             1,854            20,010
     Maturities of investment securities available for sale..            3,500            13,025                 0
      Sales of investment securities available for sale......            8,484             4,986                 0
     Sales of other investment securities....................                0                 0             8,893
     Sales of investment securities -........................
     held to maturity (Note 2)...............................              999                 0                 0
  Purchase of investment securities -
     held to maturity........................................                0            (1,488)          (29,144)
  Purchase of investment securities -
    available for sale.......................................           (9,999)          (28,370)                0
  Loans made net of principal collections....................          (58,674)          (19,531)          (12,528)
  Other loans sold...........................................            5,295                 0            11,357
  Loans purchased............................................                0                 0               (77)
  Capital expenditures.......................................           (3,012)           (1,317)             (552)
  Decrease (increase) in other assets........................               83              (109)              433
                                                                    ----------       ------------       ----------
  Net cash used in investing activities......................          (52,097)          (24,434)          (10,127)
</TABLE>
























                       See notes to consolidated financial
                                  statements.

                                                         -50-

<PAGE>

<TABLE>

                      SIERRA TAHOE BANCORP AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)


                                                                                        Year Ended December 31,
                                                                                  1995           1994          1993

                                                                                                (in thousands)



Cash flows from financing activities:
<S>                                                                           <C>            <C>            <C>  
  Net increase in demand, interest bearing,
    and savings accounts........................................                   3,606          5,389          5,221
  Net increase (decrease) in time deposits......................                  70,672         (7,281)         3,571
  Net decrease in federal funds purchased.......................                       0              0         (4,500)
  Proceeds from issuance of debentures..........................                       0         10,000              0
  Net proceeds from issuance of common stock ...................                     142             12              0
  Dividend paid.................................................                    (624)             0              0
  Repurchase of common stock....................................                    (445)             0              0
  Cash paid to redeem debentures................................                       0            (73)             0
                                                                              ----------     ----------    -----------
  Net cash provided by financing activities.....................                  73,351          8,047          4,292
                                                                              ----------     ----------    -----------

  Net  increase (decrease) in cash and cash equivalents.........                  13,140         (6,084)        (3,811)

  Cash and cash equivalents - beginning of period...............                  26,049         32,133         35,944
                                                                                --------     ----------    -----------

  Cash and cash equivalents - end of period.....................                 $39,189     $   26,049    $    32,133
                                                                                 =======     ==========    ===========


</TABLE>










































                       See notes to consolidated financial
                                  statements.

                                                         -51-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES
 

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)
<TABLE>

                                                                                Year Ended December 31,

                                                                                  1995           1994          1993
                                                                                  ----           ----          ----

                                                                                            (in thousands)


RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES
<S>                                                                           <C>            <C>           <C>        
Net income....................................................                $    1,916     $    3,003    $     2,704
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization..............................                     1,119          1,139          1,105
   Provision for possible loan and lease losses...............                     1,270            885          1,560
   Deferred taxes.............................................                      (140)            29           (692)
   Decrease (increase) in prepaid expenses....................                       110             44            (30)
   Gain on sale of SBA loans under/(over) cash received                              108            321           (312)
   Amortization of excess servicing on SBA loans..............                     1,348          1,793          2,211
   Amortization of purchased mortgage servicing
    rights....................................................                       172            172            172
   Change in:
    Interest receivable.......................................                      (534)          (501)           (34)
    Interest payable..........................................                       241            376           (451)
    Deferred loan fees........................................                       496            309             (1)
    Other deferred income.....................................                      (101)            17            (56)
    Accrued expenses..........................................                     1,139           (261)           778
    Current taxes payable.....................................                       (15)            (6)          (252)
   Write down of other real estate owned .....................                        16             54            152
   Amortization of premium/discount on securities.............                      (104)           (58)          (131)
   Amortization of premium/discount on loans..................                      (469)          (507)          (501)
   Increase in cash surrender value of life
    insurance policies........................................                      (121)          (105)          (109)
   Loss on sale of other loans................................                         0              0            595
   Deferred gain on sale of other loans.......................                        66              0              0
   Loss (gain) on sale of securities..........................                        62              4           (121)
   (Increase) decrease in loans originated for sale...........                   (14,693)         3,545         (4,563)
   Write off of investments...................................                         0             50              0
                                                                              ----------     ----------    -----------

   Total adjustments..........................................                   (10,030)         7,300           (680)
                                                                              ----------     ----------    -----------

   Net cash (used in) provided by operating activities                        $   (8,114)     $  10,303    $     2,024
                                                                              ==========      =========    ===========
</TABLE>





























                       See notes to consolidated financial
                                  statements.

                                                         -52-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (continued)

Supplemental Schedule of Non Cash Investing and Financing Activities

     Common  stock  was  issued  in   conversion  of  $10,000  and  $167,000  of
convertible debentures in 1995 and 1994, respectively.

     For the years ended December 31, 1995,  1994 and 1993,  $373,000,  $682,000
and  $844,000  of loans,  respectively,  were  transferred  to other real estate
owned.

     In the 1995 period,  $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.

     During 1993, the Company  financed a sale of land  previously  owned by the
Company totaling $360,000.






















































                       See notes to consolidated financial
                                  statements.

                                                         -53-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Significant Accounting and Reporting Policies:

     The accompanying  financial statements include the accounts of Sierra Tahoe
Bancorp  and its  subsidiaries  Sierra  Bank of Nevada,  Truckee  River Bank and
Sierra  Tahoe  Mortgage  Company  (collectively  referred to as the  "Company").
Bancorp was  incorporated  under the laws of the State of California on December
5, 1985.

     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  two-bank  holding  company  and
operates  eleven  branches  from  Sacramento,  California to Reno,  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 December 31, 1995 and the reported amounts
of revenue and expenses during the year then ended.
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 and federal funds sold.

     Investments  in Mutual  Funds.  Mutual  funds at December 31, 1995 and 1994
consist of mutual funds whose assets are invested  primarily in U.S.  Government
securities.  At December  31, 1995 and 1994,  all mutual  fund  investments  are
classified as available for sale and carried at fair 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.  At December 31, 1993, the Company adopted Statement
of  Financial   Accounting  Standards  ("SFAS")  115,  "Accounting  for  Certain
Investments  in Debt and Equity  Securities".  The effect of the adoption on the
Company's  financial  position and results of operations  was not material.  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
has the  ability and 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 in  shareholders'
equity,  net of tax. Gain or loss on sale of  investment  securities is 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 against the gain (loss)
on sale of loans.  At December 31, 1995,  SBA loans held for sale consist of the
unguaranteed portion of loans which the Company intends to sell on a securitized
basis.  (See Note 3). At December 31,  1994,  SBA loans held for sale consist of
the guaranteed portion of loans to be sold to investors.

     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

                                                         -54-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

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 the interest 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.

     Lease  Receivables.  Truckee  River Bank has  invested in leases  which are
being accounted for as direct financing  leases.  In 1995, Sierra Bank of Nevada
started an equipment  leasing  division  whose leases are also  accounted for as
direct financing leases.  Leases 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.

     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.

     Other  Real  Estate  Owned.   Property  acquired  by  the  Company  through
foreclosure or which, prior to January 1, 1995, was considered an "in-substance"
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, or prior to January
1, 1995, when the property was determined to be  "in-substance"  foreclosed,  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.  Subsequent increases in the
fair value may reduce or eliminate the allowance. "In substance" foreclosures at
December 31, 1994 were reclassified as loans on January 1, 1995. See "Accounting
Pronouncements" below.

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

     Sales and Servicing of SBA Loans. The Company originates loans to customers
under a Small Business  Administration  ("SBA") program that generally  provides
for SBA  guarantees of 70% to 90% 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.  In 1995, the Company  retained both
the guaranteed and  unguaranteed  portions of most of the loans generated in its
portfolio.  For loans  sold,  the Company may be required to refund a portion of
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.

     To calculate the gain (loss) on sale,  the  Company's  investment in an SBA
loan is allocated among the retained  portion of the loan, the excess  servicing
retained  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
accredited to interest income

                                                         -55-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

over the life of the loan.  The excess  servicing fees are reflected as an 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  excess
servicing asset, additional amortization would be recognized. In its calculation
of excess  servicing  fees the Company has used 0.4% as its estimate of a normal
servicing fee.

     Accounting  Pronouncements.   On  January  1,  1995,  the  Company  adopted
Statements of Financial  Accounting  Standards  (SFAS) No. 114,  "Accounting  by
Creditors for  Impairment of a Loan" and 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.  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.  The Company had previously  calculated its
allowance for possible loan and lease losses using methods  approximating  those
prescribed by SFAS No. 114. The adoption of SFAS No. 114 did not have a material
impact on the Company's financial condition or results of operations.

     The principal  effect on the Company of the adoption of SFAS No. 114 is the
elimination of the category of loans  classified as  in-substance  foreclosures,
resulting in the  reclassification  of such amounts from other real estate owned
to loans. The Company accordingly reclassified $572,000 of such loans at January
1, 1995.

     In October 1995, the Financial  Accounting  Standards Board issued SFAS No.
123, "Accounting for Stock- Based Compensation". The new standard defines a fair
value method of accounting for stock options and other equity instruments,  such
as stock purchase plans. Under this method,  compensation cost is measured based
on the fair  value of the stock  award  when  granted  and is  recognized  as an
expense  over the service  period,  which is usually the  vesting  period.  This
standard  will be  effective  for the Company  beginning  in 1996,  and requires
measurement of awards made beginning in 1995.

     The new  standard  permits  companies  to  continue  to account  for equity
transactions  with  employees  under  existing  accounting  rules,  but requires
disclosure in a note to the financial statements of the pro forma net income and
earnings  per share as if the Company had applied the new method of  accounting.
The Company  intends to follow these  disclosure  requirements  for its employee
stock plans. As a result,  adoption of the new standard will not impact reported
earnings or earnings per share,  and will have no effect on the  Company's  cash
flows.

     Income  Taxes.  Income taxes  reported in the  consolidated  statements  of
income are  computed  at current  tax rates.  Deferred  taxes are  provided  for
temporary  differences  between the  recognition  of items for tax and financial
reporting purposes.

     Earnings  per Share.  Primary  earnings  per share are based on net income,
divided by the  weighted  average  shares  outstanding  (including  the dilutive
effect of stock  options).  Fully diluted  earnings per share are  determined by
adjusting  net  income  for the after  tax  effect of  interest  on  convertible
debentures and dividing this by the weighted average shares outstanding adjusted
for the conversion of the convertible debentures.

     Derivative  Financial  Instruments.   In  1994  and  through  the  date  of
termination of mortgage banking operations in 1995, the Company utilized forward
sales commitments on mortgage loans as part of its interest rate risk
                                                         -56-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

management  strategy.  These commitments  could be optional or mandatory.  Under
optional commitments,  a commitment fee was paid and the Company was not at risk
of loss if it did not fulfill the commitment. Mandatory commitments could entail
possible financial risk to the Company if it did not deliver sufficient mortgage
loans to  fulfill  the  commitment.  The  Company  does not hold any  derivative
financial instruments at December 31, 1995.



                                                         -57-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

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
December 31, 1995

Held to Maturity:

<S>                                         <C>           <C>             <C>               <C>             <C>      
U.S. Treasury securities................    $   3,261     $        10     $         3       $   3,268       $   3,261
Other securities........................          112               0               0             112             112
                                            ---------     -----------     -----------       ---------       ---------
Total held to maturity..................    $   3,373     $        10     $         3       $   3,380       $   3,373
                                            =========     ===========     ===========       =========       =========

Available for Sale:

U.S. Treasury securities................    $  14,792      $      105      $       21        $ 14,876       $  14,876
Securities of U.S.
    government agencies.................        7,494              40              48           7,486           7,486
Securities of states and
    political subdivisions..............        2,575              38               5           2,608           2,608
                                            ---------      ----------      ----------        --------       ---------
Total available for sale................    $  24,861      $      183      $       74        $ 24,970       $  24,970
                                            =========      ==========      ==========        ========       =========

Mutual funds............................    $   1,500      $        0      $      109        $  1,391       $   1,391
                                            =========      ==========      ==========        ========       =========

December 31, 1994

Held to Maturity:

U.S. Treasury securities................    $   4,468      $        0      $      162        $  4,306      $    4,468
Securities of U.S. government
    agencies............................          250               0               0             250             250
Other securities........................          429               0               0             429             429
                                            ---------      ----------      ----------       ---------      ----------
Total held to maturity..................    $   5,147      $        0      $      162       $   4,985      $    5,147
                                            =========      ==========      ==========       =========      ==========

Available for Sale:

U.S. Treasury securities................  $    19,817   $           0     $       412      $      19,405   $   19,405
Securities of U.S.
    government agencies.................        6,492               0             379           6,113           6,113
Securities of states and
    political subdivisions..............          448               0              30             418             418
Other securities........................                0           0               0               0               0
                                          ---------------------------     -----------      ----------      ----------
Total available for sale................  $    26,757   $           0     $       821      $      25,936   $   25,936
                                          ===========   =============     ===========      =============   ==========

Mutual funds............................  $      2,000  $           0     $       266      $       1,734   $    1,734
                                          ============  =============     ===========      =============   ==========

</TABLE>






                                                              -58-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

Scheduled  maturities  of  investment  securities  at December  31, 1995 were as
follows:
<TABLE>

                                                                       Held to Maturity          Available for Sale
                                                                  Amortized        Fair         Amortized       Fair
                                                                      Cost        Value           Cost      Value

<S>                                                               <C>           <C>          <C>          <C>       
Within 1 year..............................................       $  1,250      $   1,249    $   12,510   $   12,503
After 1 year but within 5 years............................          2,011          2,019        10,123       10,202
After 5 years but within 10 years..........................              0              0           100           99
After 10 years.............................................            112            112         2,128        2,166
                                                                  --------      ---------    ----------   ----------

Total .....................................................       $  3,373      $   3,380    $   24,861   $   24,970
                                                                  ========      =========    ==========   ==========
</TABLE>


       The  weighted  average  maturity of portfolio  securities  held by mutual
funds classified as available for sale was 7.6 years at December 31, 1995.

       Other  securities  at  December  31,  1994  consisted  primarily  of bank
certificates of deposit.  Assets,  principally loans and investment  securities,
carried at  approximately  $14,594,000  at December 31, 1995 and  $12,272,000 at
December 31, 1994 were pledged to secure public  deposits and for other purposes
required or permitted by law.

       Proceeds from sales of investments  in debt  securities  were  $9,483,000
during 1995, and $4,986,000 and $8,893,000  during 1994 and 1993,  respectively.
The Company recorded gross realized losses of $62,000 and $4,000 on the sales of
investment securities during 1995 and 1994,  respectively.  The Company realized
tax  benefits  of  $25,000  and  $2,000 on  securities  losses in 1995 and 1994,
respectively.  Sales of  investment  securities  classified  as held to maturity
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  the service areas of its
banking  subsidiaries  covering  primarily  the  whole  of  Northern  California
including San Francisco and Sacramento and Reno,  Nevada.  Approximately  49% of
the Company's loans at December 31, 1995, have been generated  through the Small
Business  Administration  ("SBA") government guaranteed program. Of these loans,
the SBA guarantee  extends to  approximately  25%.  $71,467,000 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 90% 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.


                                                           -59-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

       At December 31, 1995 and 1994, the loan portfolio consisted of the
following (amounts in thousands):
<TABLE>
                                                                     1995          1994
                                                                     ----          ----

<S>                                                                 <C>        <C>    
Commercial ......................................................   $155,176   $126,495
Real estate--mortgage ...........................................     26,665     18,526
Real estate--construction .......................................     31,718     18,599
Individual and other ............................................      6,530      7,367
Lease receivables ...............................................      4,164        202
                                                                    --------   --------
Total gross loans and leases ....................................    224,253    171,189

Unearned income on leases .......................................        808          0
Net deferred loan fees ..........................................          5        317
Allowance for possible loan and lease losses ....................      3,845      3,546
                                                                    --------   --------
Total loans and leases, net of unearned income on leases, net
   deferred fees and allowance for possible loan and lease losses   $219,595   $167,326
                                                                    ========   ========

Unguaranteed portion of SBA loans held for sale .................   $ 16,529   $      0
Guaranteed portion of SBA loans held for sale ...................          0        636
Mortgage loans held for sale ....................................          0      1,431
                                                                    --------   --------

Total loans held for sale .......................................   $ 16,529   $  2,067
                                                                    ========   ========
</TABLE>


      Included  in  commercial  loans and SBA loans  held for sale are SBA loans
totaling   $116,529,000   and   $95,948,000  at  December  31,  1995  and  1994,
respectively.  The  guaranteed  portion of SBA loans in process of  disbursement
totaled $11,448,000 and $8,292,000 at December 31, 1995 and 1994,  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  and
available  for sale  totaled  $15,377,000  and $636,000 at December 31, 1995 and
1994,  respectively.  Loans and  portions  of loans  guaranteed  by the  federal
government were  approximately  $29,947,000 and $11,563,000 at December 31, 1995
and 1994, respectively.

      Mortgage  loans  held for  sale at  December  31,  1994  were  1-4  family
residential  loans  complying with secondary  market  standards.  Sales of these
loans to the  Federal  Home Loan  Mortgage  Corporation  ("FHLMC"),  the Federal
National Mortgage  Association  ("FNMA") and others for the years ended December
31, 1995 and 1994, totaled $27.0 million and $28.4 million, respectively.

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


                                       1996              $  1,110
                                       1997                   994
                                       1998                   843
                                       1999                   585
                                       2000                   360
                                       Thereafter             272
                                                         --------

                                       Total             $  4,164
                                                         ========


There are no contingent  rentals  included in income for each of the three years
in the period ended December 31, 1995.


                                                           -60-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

      Of total gross loans and leases at December  31,  1995,  $5.5 million were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included $446 thousand related to these loans. The amount of interest recognized
on these impaired loans in 1995 was $221,000. The average recorded investment in
impaired loans during 1995 was $3.4 million.

      The changes in the  allowance  for possible  loan and lease losses for the
years  ended  December  31,  1995,  1994,  and 1993 were as follows  (amounts in
thousands):
<TABLE>
                                                                                                 Year Ended
                                                                                                December 31,
                                                                                     1995           1994           1993
<S>                                                                                <C>           <C>            <C>   

Balance, beginning of year....................................                     $ 3,546       $   3,472      $  2,742

Provision for possible loan and lease losses..................                       1,270             885         1,560
Loans charged off.............................................                      (1,025)         (1,075)         (766)
Recoveries....................................................                          54             264            72
Allowance applicable to sold loans............................                           0               0          (136)
                                                                                    --------     ---------       -------
Balance, end of period........................................                      $  3,845     $   3,546       $ 3,472
                                                                                    ========     =========       =======
</TABLE>


     As of December 31, 1995 and 1994, loans totaling $5,476,000 and $2,482,000,
respectively,  were on nonaccrual  status.  Interest  earned but not recorded on
loans that were on nonaccrual status for the years ended December 31, 1995, 1994
and 1993, was $243,000, $97,000, and $55,000, respectively.  Cash collections of
interest on  nonaccrual  loans for the same periods of $221,000,  $145,000,  and
$207,000,  respectively,  were included in interest on loans in the Consolidated
Statements of Income.  The principal  balance of loans where scheduled  payments
are more than 90 days past their due date and where  interest  has been  accrued
totaled $1,023,000,  $1,763,000,  and $1,525,000,  as of December 31, 1995, 1994
and 1993,  respectively.  These  loans are  adequately  secured  and  Management
believes interest recorded on these loans will be collected.

     Other real estate owned was $758,000 and $1,114,000,  at December 31, 1995,
and  1994,  respectively,  and is  recorded  in other  assets.  Included  in the
December   31,  1994  balance  is  $572,000   related  to  property   considered
"in-substance"  foreclosed.  On January 1, 1995, such amount was reclassified to
loans in accordance  with SFAS 114. At December 31, 1995 and 1994 the balance in
the allowance  for losses on other real estate owned was zero.  During the years
ended  December  31,  1995 and 1994,  there was no  significant  activity in the
allowance for losses on other real estate owned.

4.   Bank Premises, Leasehold Improvements and Equipment:

     Bank premises,  leasehold  improvements  and equipment at December 31, 1995
and 1994, consisted of the following (amounts in thousands):
<TABLE>

                                                                                  December 31, 1995
                                                                                     Accumulated
                                                                                    Depreciation/              Net
                                                                  Cost              Amortization           Book Value
<S>                                                          <C>                   <C>                    <C>   

Land......................................................   $          958        $           0          $        958
Buildings.................................................            6,729                  796                 5,933
Leasehold improvements....................................              740                  603                   137
Furniture and equipment...................................            5,890                3,946                 1,944
                                                             --------------        -------------          ------------

Total.....................................................   $       14,317        $       5,345          $      8,972
                                                             ==============        =============          ============
</TABLE>


                                                           -61-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)
<TABLE>

                                                                                  December 31, 1994
                                                                                     Accumulated
                                                                                    Depreciation/              Net
                                                                  Cost              Amortization           Book Value
<S>                                                          <C>                   <C>                   <C>   

Land......................................................   $          931        $           0         $         931
Building .................................................            5,614                  596                 5,018
Leasehold improvements....................................              691                  605                    86
Furniture and equipment...................................            4,704                3,491                 1,213
                                                             --------------        -------------         -------------

Total.....................................................   $       11,940        $       4,692         $       7,248
                                                             ==============        =============         =============
</TABLE>

      Depreciation  and  amortization  amounts  included  in net  occupancy  and
equipment  expenses were  $1,076,000  $1,061,000 and  $1,044,000,  for the years
ended December 31, 1995, 1994 and 1993, respectively.


5.    Sales and Servicing of SBA Loans:

      A summary of the  activity in SBA loans for the years ended  December  31,
1995, 1994 and 1993, is as follows (amounts in thousands):
<TABLE>

                                                                                                December 31,
                                                                                     1995           1994           1993
<S>                                                                               <C>           <C>             <C>       

SBA loans originated for sale..............................................       $   22,163    $  36,276       $ 34,967
SBA loans sold.............................................................            5,646       38,238         35,120
Premium received at sale...................................................              496        3,132          3,820
Excess servicing retained(1)...............................................              134        1,241          1,116
Amortization charged against earnings......................................            1,348        1,793          2,211
Sale of excess servicing...................................................                0            0           (902)
Balance of excess servicing retained at period end.........................           14,813       16,027         16,579
</TABLE>

(1)   Net of estimated future servicing fee rate.

      During 1994,  the Company  changed its estimates  regarding the prepayment
speeds of SBA loans it originates and services for investors.  The net effect on
income  before   provision  for  income  taxes  for  1994  was  an  increase  of
approximately $330,000.

      The Company has 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
$11,580,000  and  $13,703,000 at December 31, 1995 and 1994,  respectively.  The
balance of purchased  servicing rights was $772,000 and $944,000 at December 31,
1995 and 1994,  respectively.  Amortization  of purchased  servicing  rights was
$172,000 in 1995, 1994 and 1993.








                                                           -62-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


6.    Income Taxes:

      The current and deferred  amounts of the tax provision for the years ended
December 31, 1995, 1994 and 1993 are as follows (amounts in thousands):
<TABLE>

                                                                                    December 31,
                                                             -------------------------------------------------------
                                                                  1995                  1994                  1993
                                                                  ----                  ----                  ----
<S>                                                           <C>                   <C>                   <C>  

Federal               Currently payable...................... $    1,030            $    1,439           $    1,882
                      Deferred...............................        (93)                   50                 (565)

State                 Currently payable......................        289                   395                  480
                      Deferred...............................        (47)                  (21)                (127)
                                                              ----------            ----------            ----------

                                                              $    1,179            $    1,863           $    1,670
                                                              ==========            ===========           ==========

Total                 Currently payable...................... $    1,319            $    1,834           $    2,362
                      Deferred...............................       (140)                   29                 (692)
                                                              ----------            ----------            ----------

                                                              $    1,179            $    1,863           $    1,670
                                                              ==========            ===========           ==========
</TABLE>

      Deferred income taxes reflect the net tax effects of temporary differences
between 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, 1995 and 1994 are as follows
(amounts in thousands):
<TABLE>

<S>                                                                                <C>                   <C>              
Deferred Tax Liabilities:                                                            1995                   1994
                                                                                     ----                   ----
     Unamortized book gain in excess of unamortized tax gain
       on sale of SBA loans                                                        $  2,091              $   1,924
     Accrued expenses                                                                     0                     63
     Loans marked to market                                                             339                    247
     Other                                                                              592                    227
                                                                                   --------              ---------
                                                                                      3,022                  2,461
Deferred Tax Assets:
     Book loan loss allowance in excess of tax loan loss allowance                    1,363                  1,382
     State taxes paid or accrued                                                        109                    172
     Accrued personal leave                                                             234                    176
     Deferred compensation                                                              159                    154
     Unrealized loss on investment securities                                             0                    409
     Accrued expenses                                                                   586                      0
     Other                                                                              157                     64
                                                                                   --------              ---------
                                                                                      2,608                  2,357
                                                                                   --------              ---------
Net deferred tax liability                                                         $    414              $     104
                                                                                   ========              =========
</TABLE>

      The Company  believes that it is more likely than not that it will realize
the above  deferred  tax  assets  in future  periods;  therefore,  no  valuation
allowance has been provided against its deferred tax assets.


                                                           -63-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

      The total tax  provision  differs from the  statutory  federal  income tax
rates for the reasons shown in the following table:
<TABLE>


                                                                                    December 31,
                                                             -------------------------------------------------------
                                                                   1995                   1994                  1993
                                                                   ----                   ----                  ----
<S>                                                               <C>                     <C>                   <C>   
Tax at statutory federal rate ...............................     35.0%                   35.0%                 35.0%
State taxes, net of federal benefit..........................      4.4                     5.4                   5.1
Income exempt from federal taxation..........................     (0.4)                   (0.1)                  0.0
Increase in cash surrender value
  of life insurance policies.................................     (1.3)                   (0.9)                 (1.0)
Other, net...................................................      0.4                    (1.1)                 (0.9)
                                                                 -------                 -------              -------

Effective tax rate...........................................     38.1%                   38.3%                38.2%
                                                                 =======                 =======              =======
</TABLE>


7.    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 $1,211,000,  $922,000 and $849,000,  for the years
ended  December 31,  1995,  1994 and 1993,  respectively.  At December 31, 1995,
future  minimum  rentals  to be  received  under  noncancelable  subleases  were
approximately $465,000.

      At  December  31,  1995,  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):
<TABLE>


                                                                  Capital      Operating
                 Year                                             Leases         Leases
                 <S>                                            <C>           <C>    
                 1996......................................     $     40      $    949
                 1997......................................           38           940
                 1998......................................           38           785
                 1999......................................           38           816
                 2000......................................           38           752
                 Thereafter................................          416         2,315
                                                                --------      --------
                 Total minimum lease payments..............          608      $  6,557
                                                                              ========
                 Less amount representing interest.........         (326)
                                                                --------

                 Present value of net minimum
                   lease payments..........................     $    282
                                                                ========
</TABLE>

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, 1995 and 1994, the Company
had outstanding  $46,030,000 and  $57,671,000,  respectively,  in commitments to
extend credit and $1,083,000 and $1,159,000, respectively, in standby letters of
credit.  At December 31, 1995,  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
$11,277,000 of the  commitments at December 31, 1995,  relate to SBA loans which
may require a construction  phase,  generally  lasting less than 12 months.  The
remainder relate primarily to equity lines of credit, mortgage loans, commercial
and other construction  loans. The Company evaluates each potential borrower and
the necessary

                                                           -64-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

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 Company took title,  through foreclosure,
of a property  located in Placer County which subsequent to Truckee River Bank's
sale  of  the  property  was  determined  to be  contaminated  with  a  form  of
hydrocarbons. At the time it owned the property, Truckee River Bank became aware
of and investigated the status of certain  underground tanks that had existed on
the  property.  Truckee  River  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.  Truckee River Bank, at the time
of resale of the property,  was not aware of this contamination 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.  As a result of the discovery of the
contamination,  two civil lawsuits have been  instituted  against  Truckee River
Bank by the current  owner of the  property,  who is also  Truckee  River Bank's
borrower.  One of the actions may be stayed to allow the other action to resolve
various issues.

      Truckee River Bank's external and internal  counsel on this matter believe
that  Truckee  River Bank's  share of the cost of  remediation  and the costs of
defense  will  not  be  material  to  Truckee  River  Bank's  or  the  Company's
performance.

      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,  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,  1995 and 1994 was  $2,855,000  and
$1,882,000, respectively.

8.    Capital Requirements and Regulatory Restrictions:

      Bancorp is limited as to the payment of dividends by California  corporate
law to the amount of its retained  earnings.  Truckee River 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,
Truckee River 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.  Sierra Bank of Nevada is regulated by the
Nevada Department of Commerce,  Division of Financial  Institutions (the "NDFI")
and by the Board of  Governors  of the  Federal  Reserve  System  (the  "Federal
Reserve").  Under  Nevada law,  Sierra Bank of Nevada may not declare  dividends
until the surplus fund of Sierra Bank of Nevada equals its common capital unless
there has first been carried to the surplus  account ten percent of the previous
year's  net  profit.   At  December  31,  1995,  in  accordance  with  statutory
restrictions,  $12,160,000 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.

      In  conjunction  with its start up of  operations,  Sierra  Bank of Nevada
agreed with the Federal  Reserve to maintain a leverage  capital  ratio of 10.0%
for the first three years of its  operations.  Effective in December 1992,  this
was

                                                           -65-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

reduced to an 8.3% leverage capital ratio.  Effective  January 1, 1993, this was
further reduced to a 7% leverage capital ratio.

      Quantitative measures established by regulation to ensure capital adequacy
require  the Company 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 the Tier I capital to average assets (as
defined).  Management  believes,  as of December 31, 1995, the Company meets all
capital adequacy requirements to which it is subject and that, under the current
regulations,  the Company will continue to meet its minimum capital requirements
in the foreseeable future.

      As of December 31, 1995, the most recent  notifications  from the FDIC and
Federal Reserve categorized the Company as well-capitalized under the regulatory
framework for prompt corrective  action. To be categorized as well- capitalized,
the  Company  must  maintain  minimum  total  and Tier I  risk-based  and Tier I
leverage  ratios as set forth in the table  below.  There are no  conditions  or
events  since  the  notification  that  management  believes  have  changed  the
Company's category.

      The Company's  actual capital amounts and ratios are also presented in the
following table:
<TABLE>

                                                                                                     To Be Well Capitalized
                                                                               For Capital           Under Prompt Corrective
                                                           Actual         Adequacy Purposes            Action Provisions
                                                 Amount       Ratio         Amount       Ratio        Amount       Ratio
As of December 31, 1995:
<S>                                            <C>            <C>        <C>             <C>       <C>            <C>
    Total Capital (to Risk Weighted Assets):
        Consolidated                           $  42,610      16.60%     $  20,535       8.00%     $  25,669      10.00%
        Truckee River Bank                        23,824      12.50%        15,247       8.00%        19,059      10.00%
        Sierra Bank of Nevada                      6,900      12.00%         4,600       8.00%         5,750      10.00%

    Tier I Capital (to Risk Weighted Assets):
        Consolidated                              29,787      11.60%        10,271       4.00%        15,407       6.00%
        Truckee River Bank                        21,685      11.30%         7,676       4.00%        11,514       6.00%
        Sierra Bank of Nevada                      6,216      10.70%         2,324       4.00%         3,486       6.00%

    Tier I Capital (to Average Assets):
        Consolidated                              29,787       9.10%        13,093       4.00%        16,366       5.00%
        Truckee River Bank                        21,685       9.20%         9,428       4.00%        11,785       5.00%
        Sierra Bank of Nevada                      6,216       7.70%         3,229       4.00%         4,036       5.00%


As of December 31, 1994:

    Total Capital (to Risk Weighted Assets):
        Consolidated                           $  41,205      20.30%     $  16,238       8.00%     $  20,298      10.00%
        Truckee River Bank                        18,509      12.40%        11,941       8.00%        14,927      10.00%
        Sierra Bank of Nevada                      5,860      13.80%         3,397       8.00%         4,247      10.00%

    Tier I Capital (to Risk Weighted Assets):
        Consolidated                              28,666      14.10%         8,132       4.00%        12,198       6.00%
        Truckee River Bank                        16,650      11.20%         5,946       4.00%         8,920       6.00%
        Sierra Bank of Nevada                      5,320      12.30%         1,730       4.00%         2,595       6.00%

    Tier I Capital (to Average Assets):
        Consolidated                              28,666      11.00%        10,424       4.00%        13,030       5.00%
        Truckee River Bank                        16,650       9.00%         7,400       4.00%         9,250       5.00%
        Sierra Bank of Nevada                      5,320       8.00%         2,660       4.00%         3,325       5.00%

</TABLE>


                                                           -66-

<PAGE>


                     SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)


      Truckee  River  Bank's and Sierra Bank of Nevada's  ratios are  calculated
under regulatory  accounting  principles,  which differ from generally  accepted
accounting principles.

9.    Disclosures About Fair Value of Financial Instruments:

      Statement of Financial  Accounting  Standards 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,
1995  and  1994.  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, 1995 and
1994,  to estimate  the fair value of each class of  financial  instruments  for
which it is practicable to estimate that value:

      Cash and Short-Term Investments.  For cash and short-term instruments, 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.  The fair value of  investments  in  commercial
deposits of other financial  institutions is estimated using the rates currently
demanded for deposits of similar remaining maturities.

      Loan  Receivables.  For certain  homogeneous  categories of loans, such as
some  residential  mortgages in 1994,  fair value is estimated  using the quoted
market prices for securities backed by similar loans adjusted for differences in
loan  characteristics.  The fair value of other  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.  The unsold  interest  element of portions of SBA loans
that have been sold is valued at the  current  rate paid by the  market  for SBA
interest strips at December 31, 1995 and 1994.

      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.

      Long-Term Debt. Fair value is based on quoted market prices at December 
31, 1995 and 1994.

      Commitments to Fund/Sell  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, 1995 and 1994,  the  Company's  commitments  to fund fixed rate
loans were at rates which

                                                           -67-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)

approximated  market.  The  unrealized  gain  from  the  subsequent  sale of the
commitment  portion  of SBA loans in process at  December  31,  1995 and 1994 is
estimated to be $596 thousand and $377 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, 1995 and
1994. 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,
1995 nor any significant commitments at December 31, 1994.

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

                                                                                           December 31, 1995
                                                                                  Carrying                    Fair
                                                                                   Amount                    Value

Financial Assets:
<S>                                                                            <C>                     <C>    
      Cash and federal funds sold...........................................   $      39,189           $      39,189
      Mutual funds..........................................................           1,391                   1,391
      Investment securities.................................................          28,343                  28,350
      Loans receivable......................................................         236,124                 240,099
      Excess servicing......................................................          14,813                   16,797
      Cash surrender value of life insurance................................           2,170                   2,170
                                                                               -------------           -------------

                                                                               $     322,030           $     327,996
                                                                               =============           =============

Financial Liabilities:
      Deposits..............................................................   $     293,154           $     294,046
      Long-term debt........................................................          10,000                  11,200
                                                                               -------------           -------------

                                                                               $     303,154           $     305,246
                                                                               =============           =============
</TABLE>
<TABLE>


                                                                                           December 31, 1994
                                                                                 Carrying                    Fair
                                                                                  Amount                     Value

Financial Assets:
<S>                                                                            <C>                     <C>          
      Cash and federal funds sold...........................................   $      26,049           $      26,049
      Mutual funds..........................................................           1,734                   1,734
      Investment securities.................................................          31,083                  30,921
      Loans receivable......................................................         169,393                 167,666
      Excess servicing......................................................          16,027                  21,020
      Cash surrender value of life insurance................................           2,042                   2,042
                                                                               -------------           -------------

                                                                               $     246,328           $      249,432
                                                                               =============           ==============

Financial Liabilities:
      Deposits..............................................................   $     218,876           $      218,427
      Long-term debt........................................................          10,000                  10,500
                                                                               -------------           -------------

                                                                               $     228,876           $      228,927
                                                                               =============           ==============
</TABLE>


                                                           -68-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


10.   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.  As of December  31, 1995 and 1994,  loans  outstanding  to  directors,
senior officers,  and principal shareholders and their known associates which in
aggregate   exceeded   $60,000  were   approximately   $208,000  and   $163,000,
respectively. During 1995 there were $169,000 in loan disbursements and $124,000
in loan payments with respect to the loans aggregating $208,000 at year end.

11.   Employee Stock Option Plan:

      Under the Company's  stock option plan,  495,000 shares of stock have been
reserved  for  employee  stock  options.  Options  may 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 are
exercisable  for a period of five years,  with 20% of the options  vesting  each
year. The plan was amended in 1995 for options granted to non-employee directors
after August 16, 1995. These options are fully vested upon grant and have a term
and exercise period of ten years.

      During 1993 the  Company's  Board of  Directors  offered  all  outstanding
option  holders the right to cancel  their  existing  options and to receive new
replacement  options.  Under  this  agreement  a total of 317,778  options  with
exercise  prices  between  $6.06 and $10.91 were  terminated  and reissued  with
exercise prices between $6.50 and $7.00.

      The  following is a summary of stock  option  activity for the years ended
December 31, 1995, 1994 and 1993.
<TABLE>

                                                                Options                 Options Outstanding
                                                               Available           Number                Price
                                                               For Grant          of Shares            Per Share

<S>                                                           <C>                <C>                <C>   
Balance, December 31, 1992.................................     108,049              382,483        $  4.75-10.91

        Options granted....................................    (349,528)             349,528        $   5.00-7.00
        Options terminated.................................     372,863             (372,863)       $  6.06-10.91
                                                              ---------          -----------

Balance, December 31, 1993 ................................     131,384              359,148        $   4.75-9.09

        Options granted....................................     (25,000)              25,000        $   8.00-9.50
        Options terminated.................................      42,604              (42,604)       $   6.36-9.09
        Options exercised..................................           0               (1,890)       $   6.36-6.50
                                                              ---------          -----------

Balance, December 31, 1994.................................     148,988              339,654        $   4.75-9.50

        Options granted ...................................    (163,288)             163,288        $  7.00-11.75
        Options terminated ............................. .      108,763             (108,763)       $   6.50-7.00
        Options exercised .................................           0              (20,590)       $   6.50-7.00
                                                              ---------          -----------


Balance, December 31, 1995.................................      94,463              373,589        $  4.75-11.75
                                                              =========          ===========
</TABLE>

      At December 31, 1995 and 1994, 149,198, and 65,626 options,  respectively,
were exercisable.


                                                           -69-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


12.   Convertible Debentures:

      During  1987,   Bancorp  sold  to  the  public  $250,000  of  9%  optional
convertible  debentures,  convertible  at the option of the holder at the end of
seven years from the date of issue at $6.06 per share or redeemable at par.

      During 1994, $167,400 of Bancorp's 9% optional convertible debentures were
converted  into 27,619 shares of Bancorp common stock.  The conversion  rate was
$6.06 per share.  Of the remaining  debentures,  $72,600 were redeemed for cash,
and $10,000 were converted into 1,650 shares in 1995.

      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 mature on February 1, 2004 and are
redeemable  on or after  February  1, 1997 in whole or in part at the  option of
Bancorp.  Convertible  debentures  outstanding  at  December  31,  1995 and 1994
consisted  of  $10,000,000  of these 8 1/2%  optional  convertible  subordinated
debentures.

13.   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.  The  Company has accrued  $66,818,  $77,708 and $37,648 as  compensation
expense in 1995,  1994 and 1993,  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.

14.   Employee Stock Ownership Plan:

      Officers and other employees of Bancorp and its  subsidiaries are eligible
for  participation  in the "Sierra  Tahoe  Bancorp KSOP Plan" (the "KSOP") which
provides for a qualified cash or deferred arrangement and discretionary employer
matching and profit sharing  contributions.  Bancorp,  Sierra Bank of Nevada and
Truckee River Bank contribute to the plan at the discretion of their  respective
Boards of Directors.  Contributions  can take the form of cash  contributions or
Bancorp common stock.  $198,000,  $167,000,  and $150,000 was contributed to the
KSOP in 1995, 1994 and 1993, respectively.

15.   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 has an
effective date of March 3, 1996.

16.   Management Bonus:

      The Company  maintains a  management  incentive  plan which  provides  for
bonuses  to be  paid  to  executive  officers,  senior  officers,  managers  and
supervisors  upon  achieving  certain  predefined  goals.  In 1993 this plan was
extended to cover all  noncommissioned  employees.  Although the Company's audit
and legal  departments  are not  included in this plan,  they are  eligible  for
bonuses at the  discretion  of the  Company's  Audit and  Personnel  Committees.
Included in "Salaries and Related  Benefits" in the  Consolidated  Statements of
Income  for the  years  ended  December  31,  1995,  1994 and 1993 are  $63,000,
$544,000, and $461,000, respectively, for the payment of bonuses.

                                                           -70-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


17.   Other Expense:

      Other expense for the years ended December 31, 1995, 1994 and 1993 include
the following (amounts in thousands):
<TABLE>


                                                                      Year Ended December 31,

                                                                  1995          1994           1993
                                                                  ----          ----           ----

<S>                                                           <C>            <C>           <C>   
Advertising.................................                  $      715     $      298    $      259
Directors' fees and expenses................                         909            349           331
FDIC assessments............................                         284            575           537
Insurance(1)................................                         277            286           321
Legal fees..................................                         470            149           184
Postage.....................................                         304            249           265
Stationery and supplies.....................                         334            252           279
Telephone...................................                         350            262           245
Sundry losses...............................                       1,370            351           644
Other.......................................                       1,903          1,674         1,852
                                                              ----------     ----------    ----------

                                                              $    6,916     $    4,445    $    4,917
                                                              ==========     ==========    ==========
</TABLE>

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


                                                           -71-

<PAGE>


                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


18.   Condensed Parent Company Only Financial Statements:

SIERRA  TAHOE  BANCORP  STATEMENTS  OF  FINANCIAL  CONDITION  December  31,  (in
thousands except for share amounts)

<TABLE>
                                                                                          1995                 1994
                                                                                          ----                 ----
ASSETS
<S>                                                                                  <C>                   <C>    
Cash and cash equivalents.........................................................   $     5,166           $     6,975
Investment in subsidiaries........................................................        33,568                28,257
Other investments.................................................................             0                     0
Due from subsidiary...............................................................            13                     0
Loans.............................................................................             0                 1,750
Other   ..........................................................................         2,133                 2,197
                                                                                     -----------           -----------

      TOTAL ASSETS................................................................   $    40,880           $    39,179
                                                                                     ===========           ===========

LIABILITIES

Accrued expenses..................................................................   $     1,047           $     1,009
Due to subsidiary.................................................................             0                     0
Accounts payable..................................................................             0                     7
Convertible debentures............................................................        10,000                10,000
                                                                                     -----------           -----------

      Total Liabilities...........................................................        11,047                11,016
                                                                                     -----------           -----------

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;
      2,592,419 and 2,620,179 shares issued and outstanding .....................         10,709                11,002
Retained earnings.................................................................        19,131                17,839
Unrealized loss on investment securities available for sale, net of
  tax of $6 and $409..............................................................            (7)                 (678)
                                                                                     -----------           -----------

      Total Shareholders' Equity..................................................        29,833                28,163
                                                                                     -----------           -----------

      TOTAL LIABILITIES & SHAREHOLDERS' EQUITY....................................   $    40,880           $    39,179
                                                                                     ===========           ===========
</TABLE>





                                                           -72-

<PAGE>


                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)
<TABLE>

                              STATEMENTS OF INCOME
                For the Years Ended December 31, (in thousands):

                                                                   1995                  1994                  1993
                                                                   ----                  ----                  ----
Income
<S>                                                            <C>                   <C>                   <C>    
Service fees.................................................  $     1,389           $     1,339           $     1,247
Dividends from subsidiary....................................          300                     0                     0
Interest income..............................................          464                   355                     7
Other income.................................................          430                   382                   417
                                                               -----------           -----------           -----------

        Total Income.........................................        2,583                 2,076                 1,671
                                                               -----------           -----------           -----------

Expense

Salaries and related benefits................................        1,820                 1,693                 1,479
Interest expense.............................................          861                   792                    31
Other expense................................................        1,291                   967                   925
                                                               -----------           -----------           -----------

        Total Expense........................................        3,972                 3,452                 2,435
                                                               -----------           -----------           -----------

Loss Before Income Tax Benefit
      and Equity in Undistributed Income
      of Subsidiary..........................................       (1,389)               (1,376)                 (764)
Applicable income tax benefit................................          665                   572                   315
                                                               -----------           -----------           -----------

Income (Loss) Before Equity in Undistributed
      Income of Subsidiary...................................         (724)                 (804)                 (449)
Equity in Undistributed Income of
      Subsidiary.............................................        2,640                 3,807                 3,153
                                                               -----------           -----------           -----------

        NET INCOME...........................................  $     1,916           $     3,003           $     2,704
                                                               ===========           ===========           ===========
</TABLE>


                                                           -73-

<PAGE>

                                         SIERRA TAHOE BANCORP AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

<TABLE>

STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (in thousands):

                                                                   1995                  1994                  1993
                                                                   ----                  ----                  ----
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
<S>                                                            <C>                   <C>                   <C>   
Cash flows from operating activities:
      Service fees received..................................  $     1,389           $     1,359           $     1,407
      Interest received......................................          477                   329                     7
      Other income received..................................          325                   434                   459
      Interest paid..........................................         (861)                 (443)                  (31)
      Cash paid to suppliers and employees...................       (2,767)               (3,330)               (2,068)
      Income tax refund......................................          564                   536                   192
                                                               -----------           -----------           -----------
Net cash used in operating activities........................         (873)               (1,115)                  (34)
                                                               ------------          -----------           -----------

Cash flows from investing activities:
      Capital expenditures...................................         (164)                  (99)                  (20)
      Loans purchased........................................            0                (1,750)                    0
      Loans sold.............................................        1,813                     0                     0
      Principal payments collected on loans..................           42                     0                     0
      Dividend received......................................          300                     0                     0
      Increase in investment in subsidiary...................       (2,000)                 (300)                    0
                                                               -----------           -----------           -----------
Net cash used in investing activities........................           (9)               (2,149)                  (20)
                                                               -----------           -----------           -----------

Cash flows from financing activities:
      Net proceeds from issuance of common stock.............          142                    12                     0
      Dividend paid..........................................         (624)                    0                     0
      Proceeds from issuance of debentures...................            0                10,000                     0
      Cash paid to redeem debentures.........................            0                   (73)                    0
      Repurchase of common stock.............................         (445)                    0                     0
                                                               -----------           -----------           -----------
Net cash (used in) provided by financing activities..........         (927)                9,939                     0
                                                               -----------           -----------           -----------

Net (decrease) increase in cash and
      cash equivalents.......................................       (1,809)                6,675                   (54)
Cash and cash equivalents beginning of year..................        6,975                   300                   354
                                                               -----------           -----------           -----------
Cash and cash equivalents end of year .......................  $     5,166           $     6,975           $       300
                                                               ===========           ===========           ===========
</TABLE>


                                                           -74-

<PAGE>



                      SIERRA TAHOE BANCORP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (continued)
                                    <TABLE>


                                                                   1995                  1994                  1993
                                                                   ----                  ----                  ----
RECONCILIATION OF NET INCOME
TO NET CASH USED IN
OPERATING ACTIVITIES
<S>                                                            <C>                   <C>                   <C>   
Net income...................................................  $     1,916           $     3,003           $     2,704
Adjustments to reconcile net income to net
      cash used in operating activities:
      Depreciation and amortization expense..................          228                   217                   206
      Decrease in due from subsidiary........................            0                    28                   296
      Decrease in due to subsidiary..........................            0                    (1)                 (136)
      (Increase) decrease in prepaid expenses................          (16)                   (3)                   24
      Decrease (increase) in other assets....................          108                  (717)                 (164)
      Increase in accrued expenses...........................           37                   201                   312
      Decrease in taxes payable..............................         (101)                  (36)                 (123)
      Gain on loan sales.....................................         (105)                    0                     0
      Dividend from subsidiary...............................         (300)                    0                     0
      Equity in undistributed income of
        subsidiaries.........................................       (2,640)               (3,807)               (3,153)
                                                               -----------           -----------           -----------

        Total Adjustments....................................       (2,789)               (4,118)               (2,738)

Net cash used in operating
      activities.............................................  $      (873)          $    (1,115)          $       (34)
                                                               ===========           ===========           ===========


</TABLE>






                                                                    -75-

<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.




                                                         -76-

<PAGE>


<TABLE>

                                                       PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

                                        Year First
                                        Appointed                              Principal Occupation
  Name and Title            Age          Director                           During the Past Five Years
Current Directors
<S>                         <C>      <C>              <C>    
David W. Clark              58       1990             Chairman/CEO of Clark and Sullivan Constructors, Inc. since
                                                      January 1977.
William T. Fike             48       1992             President/CEO and Director of Bancorp since July 1992.
                                                      Executive Vice President and Chief Operating Officer of
                                                      Bancorp, from May 1991 to July 1992.  Former Executive Vice
                                                      President CapitolBank, Sacramento, CA (1988 to 1991).
Jerrold T. Henley           58       1986             Chairman of Bancorp since July 1992.  President/CEO of
                                                      Bancorp from its inception to June 1992.  Holds directorship in
                                                      Community Assets Management, a registered investment
                                                      company.
A. Morgan Jones             63       1986             Attorney.  President and director of  Truckee River Associates,
                                                      a real estate brokerage company.
Jack V. Leonesio            52       1986             Owner of a restaurant/bar in Truckee, California since 1973 and
                                                      co-owner of a second bar in Reno, Nevada since April 1994.
William W. McClintock       50       1986             CPA.  Since 1990, Mr. McClintock has served as an officer of
                                                      Foundation for Life Action, an educational foundation.  Director
                                                      of Truckee Tahoe Lumber Company since 1989 and director of
                                                      Joseph Plan Foundation.
Thomas M. Watson            52       1986             Commercial Real Estate; Managing Officer and co-owner,
                                                      Truckee River Associates (real estate management and sales)
                                                      since 1980.
Richard S. Gaston           62       1995             President and director of GAC Corporation and Gaston &
                                                      Wilkerson Management Group, real estate management
                                                      companies.
Executive Officers
William T. Fike             48                        President/CEO and Director of Bancorp since July 1992.
                                                      Executive Vice President and Chief Operating Officer of
                                                      Bancorp, from May 1991 to July 1992. Former Executive Vice
                                                      President CapitolBank, Sacramento CA (1988 to 1991).
David C. Broadley           52                        Executive Vice President and Chief Financial Officer of Bancorp,
                                                      since February 1994.  Executive Vice President and Chief
                                                      Financial Officer of Truckee River Bank and Sierra Bank of
                                                      Nevada since February 1995.  Senior Vice President and Chief
                                                      Financial Officer of Bancorp, from 1985 to 1994. Executive Vice
                                                      President, Chief Financial Officer of Truckee River Bank, from
                                                      1988 to 1991. President and Chief Operating Officer of Sierra
                                                      Tahoe Mortgage Company, (formerly Sierra Tahoe Service Co.,
                                                      Inc.) a subsidiary of Truckee River Bank, from 1989 to 1992.
</TABLE>



                                                         -77-

<PAGE>

<TABLE>


                                        Year First
                                        Appointed                              Principal Occupation
  Name and Title            Age          Director                          During the Past Five Years
<S>                         <C>                       <C>
David A. Funk               52                        President and CEO of Sierra Bank of Nevada since September
                                                      1991. Executive Vice President of Sierra Bank of Nevada from
                                                      December 1990 until September 1991.  Senior Vice President of
                                                      Sierra Bank of Nevada from November 15, 1989, until November
                                                      30, 1990.
Martin R. Sorensen          52                        President and CEO of Truckee River Bank since May 1994.
                                                      Executive Vice President of Bancorp since November 1995.
                                                      President and CEO of Codding Bank from March 1992 through
                                                      April 1994.  President and CEO of John Muir National Bank from
                                                      1984 through February 1992.
Patrick S. Day              46                        Executive Vice President and Chief Credit Officer of Bancorp
                                                      since July 1995.  Executive Vice President and Chief Operating
                                                      Officer of Business & Professional Bank from January through
                                                      June 1995.  Principal of PSD Associates,  a bank consulting
                                                      company, from 1993 to 1995. Executive Vice President and
                                                      Chief Credit Officer of Bank of San Francisco from 1991 to 1993.
                                                      Vice President of First Interstate Bank of California from 1988 to
                                                      1991.
Peter Raffetto              58                        Sacramento Valley Regional President of Truckee River Bank
                                                      since May 1995.  Senior Vice President of Physician Clinical
                                                      Labs from December 1992 to May 1995.  President and CEO of
                                                      River City Bank from 1975 to 1992.
</TABLE>

None of the  directors  or  executive  officers  were  selected  pursuant to any
arrangement  or  understanding  other  than  with the  directors  and  executive
officers of the Company  acting within their  capacities  as such.  There are no
family  relationships  between any of the directors  and  executive  officers of
Bancorp.  The directors  have been elected to serve for a term of one year until
the 1996  Annual  Meeting  of  Shareholders  and  until  their  successors  have
qualified. The executive officers are appointed for a term of one year until the
1996 Annual Meeting of  Shareholders  and are subject to at-will  termination by
the Company, except as provided in any applicable employment contract. There are
no legal proceedings involving directors or executive officers.

Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires Bancorp's officers
and directors,  and persons who own more than ten percent of a registered  class
of Bancorp's  equity  securities,  to file  reports of ownership  and changes in
ownership  with the Securities  and Exchange  Commission  and NASDAQ.  Officers,
directors  and  greater  than  ten-percent  shareholders  are  required  by  SEC
regulation to furnish Bancorp with copies of all Section 16(a) forms they file.

Based  solely on its  review  of the  copies of such  forms  received  by it, or
written  representations  from  certain  reporting  persons that no Forms 5 were
required for those  persons,  Bancorp  believes  that from  January 1, 1995,  to
December  31,  1995,  all  filing  requirements   applicable  to  its  officers,
directors,  and greater than ten-percent  beneficial  owners were complied with,
except  that Mr.  Gaston  and Mr.  Raffetto  were  each  late in filing a Form 3
covering one  transaction,  Mr.  Donald  Strand was late in reporting two Form 4
transactions,  Mr.  Norman  Okada failed to disclose his holdings in his initial
Form 3,  reporting it on a  subsequent  Form 5, and Mr. Milt Seymour was late in
filing three Forms 4 and one Form 5.


                                                         -78-

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

General.  The following table sets forth the total annual  compensation  paid or
accrued by Bancorp to or for the  account of each of the  executive  officers of
Bancorp  whose total cash  compensation  for the year ended  December  31, 1995,
exceeded $100,000.
<TABLE>

                                   Summary Compensation Table
                                                                                  Long-Term Compensation
                                       Annual Compensation                       Awards           Payouts

                                                                         (# of
                                                                         Shares)       # of
Name and                                                     Other       Restricted    Shares        LTIP     All
Principal                                                    Annual      Stock         Options/      Pay-     Other
Position                Year        Salary       Bonus       Comp.       Awards        SARS          Outs     Comp.
--------                ----        ------       -----       ------      ----------    --------      ----     -----
<S>                     <C>        <C>          <C>          <C>             <C>         <C>            <C>   <C>
William T. Fike         1995       $ 203,451    $      0     $  3,451        0           10,000         0     $  16,427
President/CEO of        1994       $ 197,083    $ 62,601     $  3,360        0           10,000         0     $  16,059
Bancorp                 1993       $ 162,500    $ 40,000     $  5,068        0           24,750         0     $  13,587

David C. Broadley       1995       $ 130,214    $      0     $      0        0            6,000         0     $  18,619
Executive Vice          1994       $ 122,170    $ 31,045     $      0        0                0         0     $  17,498
President/CFO           1993       $ 106,666    $ 24,000     $  1,272        0           24,750         0     $  14,846
of Bancorp

David A. Funk           1995       $ 106,476    $      0     $  1,076        0            4,000         0     $  13,004
President/CEO           1994       $ 101,168    $ 24,288     $    445        0                0         0     $  12,408
of Sierra Bank          1993       $  94,840    $  7,500     $    483        0           16,500         0     $  11,586
of Nevada

Martin R. Sorensen(1)   1995       $ 148,641    $      0     $  2,808        0            6,000         0     $  32,014
President/CEO           1994       $  93,333    $ 30,407     $  3,617        0           15,000         0     $   5,552
of Truckee River
Bank
</TABLE>

Notes:

(1) Mr. Sorensen was hired in May 1994.

Bonus - Bonuses are paid in the year after they are earned. For purposes of this
table,  bonuses have been  reflected in the year earned,  not the year paid.  No
bonuses were earned by the executives listed above in 1995.

Other Annual  Compensation - Includes value of personal use of Company  provided
automobiles.





                                                         -79-

<PAGE>




All Other Compensation - Includes the following:
<TABLE>

                                                                       1995             1994              1993
                                                                       ----             ----              ----

    Company Contribution to 401(k) Plan ("KSOP") For:
    <S>                                                              <C>               <C>               <C>   
    Mr. Fike                                                         $    4,750        $  4,264          $   2,837
    Mr. Broadley                                                     $    3,742        $  3,485          $   2,133
    Mr. Funk                                                         $    2,042        $  2,023          $   1,897
    Mr. Sorensen                                                     $    4,375        $      0          $       0

    Company Contributions to ESOP Plan For:
    Mr. Fike                                                         $ 1,152(1)        $  1,353          $   2,090
    Mr. Broadley                                                     $ 1,000(1)        $  1,102          $   1,384
    Mr. Funk                                                         $   817(1)        $    913          $   1,215
    Mr. Sorensen                                                     $ 1,141(1)        $      0          $       0

    (1)  Amount estimated for 1995, pending final plan accounting for the 1995 plan year.

    Moving Expense Reimbursement Paid To:
    Mr. Sorensen                                                     $    2,229        $  4,846          $       0

    Allocations to Salary Continuation Plan For:
    Mr. Fike                                                         $    8,924        $  8,078          $   7,312
    Mr. Broadley                                                     $   12,379        $ 11,204          $  10,144
    Mr. Funk                                                         $    8,924        $  8,078          $   7,312
    Mr. Sorensen                                                     $   23,059        $      0          $       0

    Cost of life  insurance  provided by Company of which the  benefit  exceeded
    $50,000 For:
    Mr. Fike                                                         $    1,601        $  1,601          $   1,348
    Mr. Broadley                                                     $    1,498        $  1,498          $   1,272
    Mr. Funk                                                         $    1,221        $  1,221          $   1,161
    Mr. Sorensen                                                     $    1,210        $    706          $       0
</TABLE>


                                                         -80-

<PAGE>



The following  table shows the options issued during 1995 for those  individuals
listed in the summary table:
<TABLE>


                                                  Option Grants Table
                                         Option Grants During 1995 Fiscal Year

                                            Percent of
                                               total
                                           options/SARs                                        Potential realizable value
                                            granted to                                         at assumed annual rates of
                         Options/SARs      employees in     Exercise or                       stock price appreciation for
                            granted         fiscal year     base price         Expiration              option term
        Name                  (#)               (%)            (/Sh)              date                   5%          10%
-------------------------------------------------------------------------------------------------------------------

<S>                        <C>                 <C>           <C>         <C>                       <C>          <C>
William T. Fike            10,000              12.0          $  11.25    December 21, 2000         $   31,082   $   68,682
Martin R. Sorensen          6,000               7.2          $  11.25    December 21, 2000         $   18,649   $   41,209
David C. Broadley           6,000               7.2          $  11.25    December 21, 2000         $   18,649   $   41,209
David A. Funk               4,000               4.8          $  11.25    December 21, 2000         $   12,433   $   27,473

-------------------------------------------------------------------------------------------------------------------
</TABLE>


The following table shows the number of unexercised  options at year-end and the
value of the unexercised In-the- Money options at year-end for those individuals
listed in the summary table:
<TABLE>

                                     Option/SAR Exercises and Year-End Value Table
                    Aggregated Option/SAR Exercises In Last Fiscal Year and FY-End Option/SAR Value
                                                                                Value of
                                                 Number of                      Unexercised
                                                 Unexercised                    In-The-Money
                  Shares                         Options/SARS at                Options/SARS At
                  Acquired                       FY-End-#Shares                 FY End-$
                  on Value       Value           Exercisable/                   Exercisable/
Name              Exercise       Realized        Unexercisable                  Unexercisable
----              --------       --------        -----------------              -------------
<S>                    <C>          <C>           <C>                           <C>    
Mr. Fike               0            $0            11,900 / 32,850               $    44,738 / 72,731
Mr. Broadley           0            $0             9,900 / 20,850               $    37,538 / 56,306
Mr. Funk               0            $0             6,600 /  13,900              $    23,925 / 35,888
Mr. Sorensen           0            $0             3,000 / 18,000               $     7,875 / 31,500
</TABLE>

The value of unexercised  In-the-Money  options is calculated by subtracting the
exercise price from the fair market value at December 31, 1995 of the securities
underlying the options.

Salary Continuation Plan

In 1985,  the  Company  entered  into  agreements  with  three of its  executive
officers,   one  of  whom  retired  in  January  1991,  to  provide  for  salary
continuation  benefits upon the retirement or earlier death of the officers.  In
1988,  the Company  extended this plan to cover its then existing  directors and
directors of Truckee  River Bank and Sierra  Tahoe  Mortgage  Company.  In 1991,
Messrs. Fike and Funk were added to this plan. In 1992, Director Clark was added
and in 1995, Mr. Sorensen and Mr. Raffetto were added. The benefits  pursuant to
this plan are: $50,000 per year for Messrs.  Fike, Funk and Sorensen and $40,000
per year for Mr.  Broadley  and Mr.  Raffetto,  payable for a period of 20 years
following  retirement  at age 65 or earlier  death.  Benefits for  directors are
$4,000 per year for 15 years after their respective plan commencement dates.

In the event of earlier  death,  the  benefits  are payable to the  officer's or
director's  designated  beneficiary.  The  Company has  secured  life  insurance
policies  for the  purpose  of  protecting  it from loss in the event of earlier
death. In the event of earlier retirement of the officer or director,  a reduced
benefit is payable.  At the option of the officer or director the benefit may be
received in a lump sum based on a discounted formula.  Accrued benefits for both
officers and directors  vest 20% per year over a five-year  period from the date
of association  with the Company.  Additionally,  there are  restrictions on the
covered individual engaging in any competing occupation upon retirement.

                                                         -81-

<PAGE>



As of December 31, 1995,  executive  officers  were  credited with the following
accrued benefits under this Plan:


David C. Broadley         $   80,488
William T. Fike               34,993
David A. Funk                 34,993
Martin R. Sorensen            23,059
Peter J. Raffetto             21,693


Employment Agreements

Effective October 1, 1994, Bancorp entered into an employment agreement with Mr.
Fike  covering the terms of his  employment,  compensation,  and  conditions  of
termination.  Unless employment is terminated or the agreement is extended,  Mr.
Fike's  employment will continue until December 31, 1999. He will receive a base
salary of $200,000 per year and be eligible for bonuses and participation in all
employee benefit programs.  He will be considered for periodic increases in base
salary  at the  discretion  of the  Board  of  Directors.  He will  continue  to
participate in the Salary  Continuation Plan and be provided with a company car.
In the event of termination without cause or upon reorganization,  Mr. Fike will
receive  all  amounts  owing to him at the date of  termination  and a  lump-sum
severance payment equal to eighteen months' base salary.

In addition to the above,  salary  continuation  agreements  provide for certain
consulting  arrangements after the retirement of executive officers.  The Salary
Continuation  Agreements of Messrs. Fike, Broadley,  Funk, Sorensen and Raffetto
include a provision  whereby,  in the event of a successful  tender  offer,  the
acceptance  of which was not  recommended  by a  majority  of the  Directors  of
Bancorp, the executive is entitled to one cash payment equal to the total amount
due under the plan, including amounts not yet accrued under the plan.

In January 1996,  Messrs.  Broadley,  Sorensen and Raffetto  entered into Senior
Manager  Separation  Benefits  Agreements.  Under the terms of these agreements,
certain  benefits  would  become  payable  to the  manager  in the  event of the
termination of employment for any reason, other than a material violation of the
Company's  personnel  policies and procedures.  The benefit  includes one year's
base salary (as to Messrs.  Broadley  and  Sorensen) or nine months' base salary
(as to Mr. Raffetto) paid as a lump sum or in 24 equal semi-monthly payments (as
to Messrs.  Broadley and Sorensen) or 18 equal semi-monthly  payments (as to Mr.
Raffetto),  at the election of the  manager.  If the  semi-monthly  payments are
chosen,  health  benefits  continue  to be  provided on the same terms as during
active employment.  For Messrs.  Broadley and Sorensen, in the event of a change
in control or  reorganization  of the Bancorp,  the manager  may,  within a nine
month period,  resign from the Company and receive the same benefits as would be
payable upon termination.

Agreements with Messrs. Funk and Day are currently in process and are expected
to contain provisions similar to Mr. Raffetto's agreement.

Compensation of Directors

Directors fees for board and committee meetings are as follows:
<TABLE>

                                           Board Meetings                     Committee Meetings
                               Retainer                   Attendance            Retainer         Attendance
<S>                            <C>                        <C>                   <C>              <C>   
Chairman of the Board          $2,550/month               0                     $0               $0
Director                       $1,250-1,350/month         $0 (1)                $0               $100/meeting
Committee Chairman             N/A                        N/A                   $0               $125/meeting
</TABLE>

(1) Compensation for attendance at special board meetings is $100 per director
    per meeting.

In  addition to the above  fees,  $1,500 per  director  has been  allocated  for
educational expenses.

Expenses for the directors and their spouses  related to attendance at Bancorp's
Annual  weekend  directors'  retreat  are paid  for by  Bancorp.  Directors  are
eligible for coverage under Bancorp's group health insurance coverage.  Premiums
for health insurance coverage are shared between the director and Bancorp on the
same basis as that for Bancorp employees. Bancorp pays for the administration of
KEOGH plans for directors, if they elect to participate.

                                                         -82-

<PAGE>



The Company maintains a salary continuation plan (see "Salary Continuation Plan"
herein) for its executive  officers,  certain senior officers and its directors.
As of December 31, 1995,  Bancorp's  non-employee  directors  were credited with
$57,493 in accrued  benefits  under the  directors'  salary  continuation  plan.
Bancorp allocated  $10,559 to the Salary  Continuation Plan in 1995 on behalf of
its non-employee directors.

Under Bancorp's Stock Option Plan, all Bancorp  directors serving as such during
1988, including all current directors except Mr. Clark, Mr. Fike, and Mr. Gaston
were granted  stock  options on November  16,  1988,  for 8,250 shares each at a
price of $6.06 per share. Mr. Clark and Mr. Gaston were granted stock options by
Sierra  Bank  of  Nevada  on  March  26,  1990,  for  6,102  and  1,585  shares,
respectively,  at a price of $9.09 per share.  These options were converted into
Bancorp stock options under the same terms and  conditions as originally  issued
upon the acquisition of Sierra Bank of Nevada by Bancorp on October 29, 1990. On
January 6, 1993 Mr.  Fike was granted a stock  option  related to his service as
director of Bancorp,  totaling  8,250  shares at a price of $5.00 per share.  On
September 1, 1993, at the election of the optionee,  all stock options issued to
directors were canceled and new stock options for the same number of shares were
granted at a price of $6.50 per share. All directors,  with the exception of Mr.
Fike,  elected  to cancel  their  existing  options  and enter  into new  option
agreements.  Stock options granted under Bancorp's 1988 stock option plan expire
five years and one day from the date of grant.

On August 17, 1995, at the election of the optionee, all stock options issued to
non-employee  directors  were canceled and new stock options for the same number
of  shares  were  granted  at a price  of  $9.75  per  share.  All  non-employee
directors, with the exception of Mr. Leonesio,  elected to cancel their existing
options and enter into new option  agreements.  Stock options  granted under the
amended  plan  vest  immediately  and have a term and  expiration  period of ten
years.

Personnel Committee Interlocks and Insider Participation

Personnel Committee:

The Personnel Committee consists of David W. Clark, Chairman, Jerrold T. Henley,
Jack V. Leonesio, William W. McClintock, A. Milton Seymour, and William T. Fike 
(ex-officio).

With the  exception  of  Jerrold  Henley  and  William  Fike,  no  member of the
Personnel  Committee is a former or current  officer or employee of the Company.
Mr. Henley retired as President and CEO of Bancorp in June 1992.
Mr. Fike succeeded Mr. Henley as President and CEO of Bancorp.


                                                         -83-

<PAGE>



ITEM 12.   SHARE HOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Management  of Bancorp knows of no person who owns,  beneficially  or of record,
either  individually or together with  associates,  five percent (5%) or more of
the  outstanding  shares of Bancorp's  common stock,  except as set forth in the
table below.  This table also sets forth,  as of March 15, 1996,  the number and
percentage of shares of Bancorp's  outstanding common stock beneficially  owned,
directly or indirectly,  by each of Bancorp's  directors,  executive officers of
Bancorp  whose  salary and bonus  exceeded  $100,000  during 1995 and  principal
shareholders,  and by the directors and officers of the Company as a group.  The
shares  "beneficially  owned"  are  determined  under  Securities  and  Exchange
Commission  Rules,  and do not  necessarily  indicate  ownership  for any  other
purpose. In general, beneficial ownership includes shares over which a director,
principal shareholder,  or officer has sole or shared voting or investment power
and shares which such person has the right to acquire  within sixty (60) days of
March 15, 1996. Unless otherwise  indicated,  the persons listed below have sole
voting and investment powers of the shares beneficially owned. Management is not
aware of any arrangements which may, at a subsequent date, result in a change of
control of Bancorp.
<TABLE>


                                       Amount and Nature of            Percent
Beneficial Owner                       Beneficial Ownership            of Class
----------------                       --------------------            --------
Directors and Named
Executive Officers
<S>                                       <C>                         <C>    
David W. Clark                             30,147 (1)(2)               1.2%
William T. Fike                            33,416 (3)(4)(19)           1.3%
Jerrold T. Henley                          69,274 (5)(6)               2.7%
A. Morgan Jones                            10,032 (7)(8)               Less than 1%
Jack V. Leonesio                           17,481 (9)                  Less than 1%
William W. McClintock                      20,900 (8)                  Less than 1%
Thomas M. Watson                           17,466 (8)(10)              Less than 1%
Richard Gaston                              5,124 (11)(12)             Less than 1%
David A. Funk                               7,230 (13)(14)             Less than 1%
David C. Broadley                          36,449 (15)(16)(19)         1.4%
Martin R. Sorensen                          3,000 (17)                 Less than 1%

Total for Directors and
Executive Officers
(numbering 12)                            235,935 (18)(19)             8.8%

Principal Shareholders
Dierberg Four, L.P.
39 Glen Eagles Dr.
St. Louis, MO  63124                      282,900 (20)                 9.8%


</TABLE>  

(1)   Mr. Clark has shared voting and investment powers as to 23,064 shares.
(2)   Includes 6,102 shares subject to stock options.
(3)   Includes 13,550 shares subject to stock options.
(4)   Mr. Fike has shared voting and investment powers as to 726 shares.
(5)   Mr. Henley has shared voting and investment power as to 42,986 shares.
(6)   Includes 8,250 shares subject to stock options and $3,500 of convertible
      debentures which are convertible to 350 shares.
(7)   Mr. Jones has shared voting and investment power as to 619 shares.
(8)   Includes 8,250 shares subject to stock options.
(9)   Includes 3,300 shares subject to stock options.
(10)  Mr. Watson has shared voting and investment powers as to 3,476 shares.
(11)  Mr. Gaston has shared voting and investment powers as to 3,429 shares.
(12)  Includes 1,585 shares subject to stock options.


                                                         -84-

<PAGE>



(13)  Mr. Funk has shared voting and investment power as to 113 shares.
(14)  Includes 6,600 shares subject to stock options.
(15)  Includes 9,900 shares subject to stock options.
(16)  Mr. Broadley has shared voting and investment powers as to 1,431 shares.
(17)  Subject to stock options which are exercisable.
(18)  Includes 77,387 shares subject to stock options and convertible 
      debentures.
(19)  Includes  16,084 shares Mr. Fike and Mr. Broadley have shared voting power
      over in their  capacities as members of the Sierra Tahoe Bancorp KSOP Plan
      Administrative Committee. This includes only unallocated shares. Allocated
      shares are to be voted on by the KSOP participants.
(20)  Represents  $2,829,000 of the Company's  convertible  debentures which
      are convertible to 282,900 shares.

                                                         -85-

<PAGE>



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Some of the  directors  of  Bancorp  and  the  companies  with  which  they  are
associated  are customers  of, or have had banking  transactions  with,  Truckee
River Bank or Sierra Bank of Nevada in the ordinary course of their business and
Truckee River Bank and Sierra Bank of Nevada expect to have banking transactions
with these  persons in the future.  In  Management's  opinion,  since January 1,
1995, all loans and commitments to lend included in such  transactions were made
in the ordinary course of business on  substantially  the same terms,  including
interest rates and collateral,  as those prevailing for comparable  transactions
with  other  persons  of  similar   creditworthiness  and,  in  the  opinion  of
Management, did not involve more than a normal risk of collectability or present
other unfavorable features.  Sierra Bank of Nevada and Truckee River Bank have a
strong policy  regarding review of the adequacy and fairness of their loans made
to directors and officers.


                                                         -86-

<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 43 through 75:

                          (i)      Consolidated Statements of Financial 
                                   Condition as of December 31, 1995, and
                                   1994.

                         (ii)      Consolidated Statements of Income for the
                                   years ended December 31, 1995, 1994 and 1993.

                        (iii)      Consolidated   Statements   of   Changes   in
                                   Shareholders'  Equity  for  the  years  ended
                                   December 31, 1995, 1994 and 1993.

                         (iv)      Consolidated Statements of Cash Flows for the
                                   years ended December 31, 1995, 1994 and 1993.

                          (v)      Notes to Consolidated Financial Statements 
                                   for the years ended December 31, 1995, 1994
                                   and 1993.

                         (vi)      Report of Independent Auditor.


                  2.    Financial Schedules:

                        None required.

                        Reports on Form 8-K:

                        The  Bancorp  filed  three Forms 8-K since the filing of
                        the last form 10-Q.  Forms 8-K dated  December  21, 1995
                        and January 3, 1996 reported adoption and execution of a
                        Shareholder Protection Rights Plan,  respectively.  Form
                        8-K dated January 2, 1996 reported the announced closing
                        of a South Lake Tahoe branch of Truckee River Bank.


                                                         -87-

<PAGE>



Exhibits

Exhibit
Number        Description

    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.

    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).

   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.

   10.4       Sublease Agreement between Truckee River Bank and Pacific 
              Pawnbrokers, effective February 1, 1996.

   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       Rental lease between  Truckee River Bank and  Hampton-Roberts-III,
              Ltd. (SBA San Francisco office),  dated December 8, 1992, filed as
              Exhibit 10(s) to Registrant's 1992 Annual Report on Form 10-K, and
              by this reference incorporated herein.

   10.8       Purchase and Sale Agreement between Rubin-Sadd Development Company
              and Sierra Bank of Nevada dated December 15, 1995.

   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.

                                                         -88-

<PAGE>



   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.

   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.

   10.18      Stock Option Agreement between Sierra Tahoe Bancorp and William W.
              McClintock dated August 17, 1995.

   10.19      Stock  Option  Plan of Truckee  River Bank,  as amended,  filed as
              Exhibit 10.3 to Registrant's  Registration  Statement on Form S-1,
              dated  May  13,  1987  (Registration  No.  33-13218),  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  Annua  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.

   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.




                                                         -89-

<PAGE>



   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      Lease between  Frontier  Savings  Association  (Lessor) and Sierra
              Bank of Nevada (Lessee), dated November 19, 1992, filed as Exhibit
              10.34 to  Registrant's  Registration  Statement on Form S-2, dated
              February  5,  1994  (Registration  NO.  33-72498),   and  by  this
              reference incorporated herein.

   10.33      Lease between  Frontier  Savings  Association  (Lessor) and Sierra
              Bank of Nevada  (Lessee),  dated  November 22, 1988, as amended on
              August  1,   1989,   filed  as  Exhibit   10.35  to   Registrant's
              Registration  Statement  on  Form  S-2,  dated  February  5,  1994
              (Registration  NO. 33-72498),  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.

   10.36      Stock Option Agreement between Sierra Tahoe Bancorp and Jerrold T.
              Henley dated August 17, 1995.

   10.37      Stock Option Agreement between Sierra Tahoe Bancorp and A. Morgan
              Jones dated August 17, 1995.

   10.38      Fed funds line of credit  between Sierra Bank of Nevada and Nevada
              State  Bank,  dated  December 7, 1993,  filed as Exhibit  10.38 to
              Registrant's  1993  Annual  Report  on  Form  10-K,  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.

   10.41      Purchase  and sale  agreement  between Witt  Properties,  Inc. and
              Sierra Bank of Nevada,  dated November 29, 1993,  filed as Exhibit
              10.41 to Registrant's 1993 Annual Report on Form 10-K, and by this
              reference incorporated herein.

   10.42      First  amendment  to  purchase  and sale  agreement  between  Witt
              Properties,  Inc.  and Sierra  Bank of Nevada,  dated  January 27,
              1994, filed as Exhibit 10.42 to Registrant's 1993 Annual Report on
              Form 10-K, and by this reference incorporated herein.


                                                         -90-

<PAGE>



   10.43      Second  amendment  to purchase  and sale  agreement  between  Witt
              Properties,  Inc. and Sierra Bank of Nevada,  dated March 8, 1994,
              filed as Exhibit 10.43 to Registrant's  1993 Annual Report on Form
              10-K, and by this reference incorporated herein.

   10.44      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.

   10.45      Agreement   between  Truckee  River  Bank  and  Invest   Financial
              Corporation,  filed  as  Exhibit  10.1 to  Registrant's  Quarterly
              Report on Form 10-Q for the quarter  ended June 30,  1994,  and by
              this reference incorporated herein.

   10.46      Second Addendum to Lease  Agreement  between Edwin Holt and Sierra
              Bank of Nevada,  filed as Exhibit 10.2 to  Registrant's  Quarterly
              Report on Form 10-Q for the quarter  ended June 30,  1994,  and by
              this reference incorporated herein.

   10.47      Federal Funds Agreement between Bank of California and Truckee 
              River Bank, dated March 31, 1994.

   10.48      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.

   10.49      Lease Agreement  between First Commercial Title Company,  Inc. and
              Sierra Tahoe Mortgage Company,  dated September 29, 1994, filed as
              Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the
              quarter  ended   September  30,  1994,   and  by  this   reference
              incorporated herein.

   10.50      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.

   10.51      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.

   10.52      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.

   10.53      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.

   10.54      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.

   10.55      Third  addendum to Lease  Agreement  between Edwin Holt and Sierra
              Bank of Nevada,  dated October 20, 1994, filed as Exhibit 10.55 to
              Registrant's  1994  Annual  Report  on  Form  10-K,  and  by  this
              reference incorporated herein.

   10.56      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.

   10.57      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.


                                                         -91-

<PAGE>



   10.58      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.

   10.59      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.

   10.60      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.

   10.61      Senior Manager Separation Benefits Agreement between Sierra Tahoe 
              Bancorp and Martin R.Sorensen dated January 17, 1996.

   10.62      Senior Manager Separation Benefits Agreement between Sierra Tahoe
              Bancorp and Peter J. Raffetto dated January 17, 1996.

   10.63      Executive Salary Continuation Agreement between Sierra Tahoe
              Bancorp and Martin R. Sorensen, dated March 31, 1995.

   10.64      Incentive Stock Option Agreement between Sierra Tahoe Bancorp 
              and Martin R. Sorensen dated December 20, 1995.

   10.65      Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
              Peter Raffetto dated December 20, 1995.

   10.66      Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
              David Funk dated December 20, 1995.

   10.67      Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
              William T. Fike dated December 20, 1995.

   10.68      Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
              Pat Day dated December 20, 1995.

   10.69      Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
              David Broadley dated December 20, 1995.

   10.70      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,  and by this
              reference incorporated herein.

   10.71      Senior Manager Separation Benefits Agreement between Sierra Tahoe 
              Bancorp and David C. Broadley dated January 17, 1996.

   11.1       Statement re Computation of Per Share Earnings.

   12.1       Statement re Ratio of Earnings to Fixed Charges.

   21.1       Subsidiaries of the Registrant

              Sierra Bank of Nevada - Incorporated in Nevada
              Truckee River Bank - Incorporated in California
              Sierra Tahoe Mortgage Company (100% owned by Truckee River Bank)
              - Incorporated in California

   23.1       Consent of Deloitte & Touche LLP, independent auditors

   27         Financial Data Schedule

                                                         -92-

<PAGE>



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 27, 1996                            By: /s/W.T. Fike
                                                      William T. Fike


                                                         -93-

<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/W.T. Fike                              President and Chief Executive Officer/                           March 27, 1996
----------------------------
William T. Fike                           Director

/s/D. Broadley                            Executive Vice President/                                        March 27, 1996
----------------------------
David C. Broadley                         Principal Financial Officer
                                           and Principal Accounting Officer

/s/J.T. Henley                            Chairman of the Board                                            March 27, 1996
----------------------------  
Jerrold T. Henley


/s/ David W. Clark                        Director                                                         March 27, 1996
----------------------------
David W. Clark

/s/ A. Morgan Jones                       Director and Corporate Secretary                                 March 27, 1996
----------------------------
A. Morgan Jones

/s/Jack V. Leonesio                       Director                                                         March 27, 1996
----------------------------
Jack V. Leonesio

/s/William W. McClintock                  Director                                                         March 27, 1996
-------------------------------
William W. McClintock

/s/Richard Gaston                         Director                                                         March 27, 1996
----------------------------
Richard Gaston

                                          Director
Thomas M. Watson
</TABLE>


                                                         -94-

<PAGE>