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, 1996        Commission File No. 0-15450

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

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

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

Registrant's telephone number, including Area Code: (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. o

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                              Yes   X       No

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant  as of March 1, 1997:  $52,938,000  (based on closing  sales price at
February 28, 1997)

Number of shares of Common Stock outstanding at March 1, 1997:  2,923,064.




<PAGE>




<TABLE>



                                                 TABLE OF CONTENTS


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

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

ITEM 2.  PROPERTIES..............................................................................................27

ITEM 3.  LEGAL PROCEEDINGS.......................................................................................27

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................27

PART II

ITEM 5.  MARKET FOR THE BANCORP'S COMMON STOCK...................................................................28

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA....................................................................29

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS...............................................................................32

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................44

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................................79

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................................80

ITEM 11.  EXECUTIVE COMPENSATION.................................................................................82

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................ 88

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K..................................... 89


</TABLE>


<PAGE>



                                                        PART I
ITEM 1.  BUSINESS

General Development of the Business

SierraWest Bancorp ("Bancorp",  or together with its subsidiary,  the "Company")
was  incorporated  under the laws of the State of California on December 5, 1985
as a bank holding company. Pursuant to a plan of reorganization and merger dated
December 19, 1985,  Bancorp  acquired 100% of the  outstanding  shares of common
stock of SierraWest Bank (formerly Truckee River Bank) in a one-for-one exchange
of its stock for the stock of SierraWest  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.  During the first  quarter of 1996 Sierra Bank of Nevada's  name
was changed to SierraWest Bank and effective October 1, 1996 this subsidiary was
merged into the California  subsidiary.  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.  Bancorp and
SierraWest Bank collectively comprise the operations of the Company.

SierraWest  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.
SierraWest  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.  SierraWest Bank currently maintains
eleven branches  offices in the following  communities:  Truckee (two branches),
South Lake Tahoe, Tahoe City, Kings Beach,  Grass Valley (two branches),  Auburn
and  Sacramento,   California,  Reno  and  Carson  City,  Nevada.  In  addition,
SierraWest  Bank maintains  seven separate  lending  offices,  primarily for its
United States Small Business  Administration (the "SBA") lending activities,  in
the following  communities:  Truckee,  San Francisco,  Sacramento,  Fresno,  and
Chico, California, and Reno and Las Vegas, Nevada.

The Company  offers  commercial  banking  services,  including the acceptance of
demand,  savings and time deposits,  and the making of commercial,  real estate,
personal, home improvement,  automobile and other installment and term loans. It
offers traveler's checks, safe deposit boxes, note collection  services,  notary
public, ATMs and other customary bank services, except international banking and
trust services.  Annuities and mutual fund  investments are also offered through
third party  providers.  Merchant  drafts are processed  pursuant to established
bank card programs,  and customers are offered  MasterCard and Visa credit cards
through a correspondent  bank.  During 1995 the Company expanded its services to
provide a 24 hour automated telephone inquiry service, introduced a P.C. banking
product for its business customers and opened an equipment leasing division.  In
1996, the Company  started a loan purchase  program for the  acquisition of real
estate loans which it hopes to securitize  in the future in marketable  parcels.
Additionally,  in January 1997, the Company entered into a definitive  agreement
for the acquisition of Mercantile  Bank, a Sacramento bank which  specializes in
commercial  business and has an asset base of  approximately  $46  million.  The
acquisition is expected to be completed by July 1, 1997, subject to the approval
of  Mercantile's  shareholders  and  federal  and state  regulators.  Mercantile
shareholders will receive total compensation of $6.6 million, subject to certain
adjustments  primarily based upon the level of deposits and capital,  consisting
of 50% cash and 50% stock.

Certain statements in this document include  forward-looking  information within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the Securities Exchange Act of 1934, as amended,  and are subject
to the "safe harbor" created by those sections. These forward-looking statements
involve  certain  risks and  uncertainties  that could cause  actual  results to
differ materially from those in the forward-looking  statements.  Such risks and
uncertainties   include,   but  are  not  limited  to,  the  following  factors:
competitive pressure in the banking industry increases significantly; changes in
the interest rate  environment  reduce  margins;  general  economic  conditions,
either nationally or regionally, are less favorable than expected, resulting in,
among other things,  a  deterioration  in credit  quality and an increase in the
provision  for possible  loan  losses;  changes in the  regulatory  environment;
changes  in  business   conditions;   volatility  of  rate  sensitive  deposits;
operational   risks  including  data   processing   system  failures  or  fraud;
asset/liability   matching  risks  and  liquidity  risks;  and  changes  in  the
securities markets.

                                                          -3-

<PAGE>




Narrative Description of Business

The Company's  total assets have grown from $219.6  million at December 31, 1991
to $447.9 million at December 31, 1996, a compound annual increase of 15.3%. The
Company's  assets grew 32.7% in 1996 and are  expected  to grow at a  relatively
high rate in 1997.  The  Company has had  earnings in excess of $1.8  million in
each of the last five years.  For the year ended  December 31, 1996, the Company
reported  net  income  of  $3.3  million,  or a  return  on  average  assets  of
approximately 0.87% and return on average equity of 10.5%. At December 31, 1996,
the  Company  had total  loans of $323.4  million,  loan loss  reserves  of $4.5
million, deposits of $399.7 million and total equity capital of $33.9 million.

General Lending Overview

The five general areas in which the Company has directed its lending  activities
are: SBA loans; residential and non-SBA commercial real estate loans; commercial
loans;  consumer loans to individuals  (including  home equity lines of credit);
and beginning in 1995,  commercial  leases.  As of December 31, 1996, these five
categories accounted for approximately 45%, 30%,18%,4% and 3%, respectively,  of
the Company's total loan portfolio.


SBA Lending

The  Company  ranked 18th in the nation by number of SBA  government  guaranteed
("SBA 7(a)") loans  generated by banks for the SBA's fiscal year ended September
30, 1996 as published by the SBA, and was the 8th largest SBA lending  bank,  by
loan  count,  in Region IX  (consisting  of the far western  states,  Hawaii and
Guam),  the  largest  region  in the  country.  In 1996 the  Federal  government
approved a level of SBA loans  guaranteed of $7.8 billion and in 1997 this level
is expected to increase to over $8.5 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.


                                                          -4-

<PAGE>



The following  table  summarizes the Company's SBA 7(a) activities for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992 (in thousands).
<TABLE>

                                                                   Summary of SBA Loan Activity

                                                                      Year Ended December 31
                                           -------------------------------------------------
                                                       1996         1995        1994       1993        1992
                                                       ----         ----        ----       ----        ----
<S>                                                   <C>         <C>         <C>         <C>        <C>    

SBA loans sold...........................              5,621       5,646      38,238      35,120     42,136
Net SBA servicing income.................              4,087       4,660       4,443       4,332      4,443
Net gain on sale of SBA loans............                339         307       2,300       3,200      2,638
Excess Servicing receivable..............             14,188      14,813      16,027      16,579     18,576
</TABLE>

The  Company  has  historically  sold the  guaranteed  portion of SBA 7(a) loans
(typically  secured by first trust deeds on commercial  real estate),  generally
70% to 90% of the SBA  7(a)  loan  value,  that it  generates  in the  secondary
marketplace  and  retained  the  remaining  percentage  for its  own  portfolio.
Currently,  the maximum guarantee is 80%. The percentage of the retained portion
of SBA 7(a) loans to total loans  included in the loan  portfolio of the Company
at December 31, 1996, 1995 and 1994 was 26%, 30% and 46%, respectively. In 1995,
the Company made a decision to change its  strategy  with respect to the sale of
SBA 7(a) loans. The guaranteed  portion of loans is now being retained,  and the
Company  intends to securitize and sell portions of the  unguaranteed  amount of
the loans. The Company's first  securitization is planned for 1997,  pending SBA
approval,  and will include  approximately $50 million in loans. The Company has
in the past and will continue in the future to sell selected guaranteed portions
of loans to reduce credit  concentrations in a particular  industry or for other
reasons.

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

Since 1983,  to support its SBA  program,  the Company has relied in part on SBA
packagers who refer SBA loans to the Company and provide certain services to the
borrowers.  The  packagers  receive  fees of a fixed  amount from the  borrower,
subject to limits  prescribed by the SBA. The packagers  also receive a fee from
the Company for  referring  SBA loans to the Company.  The referral fee payments
are included in the basis of the loans and hence are not disclosed separately in
the Company's  financial  statements.  Referral fees incurred by the Company for
SBA 7(a) loans from the years ended  December 31,  1996,  1995 and 1994 were $90
thousand, $200 thousand and $481 thousand, respectively.

The Company's relationship with its SBA packagers are informal arrangements. SBA
packagers accounted for approximately 32% and 27% of the Company's SBA 7(a) loan
volume during the years ended December 31, 1996 and 1995,  respectively.  During
these same periods,  a single SBA packager provided 7% and 26% of the Company's
SBA 7(a) loan volume,  respectively.  The  reduction in packagers  volume during
1995 and 1996 includes the loss 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.

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

                                                          -5-

<PAGE>



act.  Currently  the SBA  guarantee  extends to 80% of the loan  amount,  with a
maximum guarantee of $750 thousand.  As of December 31, 1996,  included in total
SBA  loans of  $147.0  million  were  portions  of loans  guaranteed  by the SBA
totaling $37.0 million.

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

SBA  Servicing.  As of December 31, 1996,  1995 and 1994,  the Company  serviced
1,402,  1,370 and 1,355 SBA loans,  respectively,  with a total unpaid principal
balance  of  approximately   $420  million,   $413  million  and  $412  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 7(a) loans are primarily  written at variable  rates of interest
which are limited to a maximum of 275 basis points over the lowest prime lending
rate published in the Western Edition of The Wall Street  Journal.  The interest
rate on most of the  Company's  SBA 7(a) loans  adjusts on the first day of each
month.  With  respect to loans sold,  the  guaranteed  portions of SBA loans are
converted into government guaranteed certificates,  which are sold to investors,
and which yield for the  investor a rate that is lower than the note rates.  The
investor may pay a premium over the principal  amount of the loan  purchased and
additionally  a portion of the  interest on the sold portion of the loan will be
retained by SierraWest Bank. The difference between the rate on the loan that is
retained by the Company and the rate that the  investor  receives  plus a fee of
0.5% collected by the SBA is referred to as the servicing spread.  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
40 basis points of servicing spread unless loans are sold for cash premiums,  in
which case this  increases  to 100 basis  points.  When the SBA  lender  retains
higher  levels of 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, 1996, the remaining  balance of Excess  Servicing  previously
recorded  as a gain was $14.2  million.  In addition  the Company has  purchased
mortgage  servicing  rights on SBA 7(a) loans with a balance of $0.6  million at
December 31, 1996. Income from the servicing spread received for the years ended
December  31,  1996,  1995 and 1994,  was $5.6  million,  $6.2  million and $6.4
million, respectively.  Amortization of the Excess Servicing asset and purchased
mortgage  servicing rights on SBA loans for these same periods was $1.5 million,
$1.5  million  and $2.0  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

                                                          -6-

<PAGE>



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,
1996, 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.

Beginning in 1997, the Company will be required to account for its SBA loan
sales in accordance with Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinquishments
of Liabilities.  See Accounting Pronouncements.

The SBA provides long term  financing to small  businesses  through its 504 loan
program,  by  partnering  with banks to assist small  businesses in buying land,
buildings, machinery and equipment. Under this program, the bank provides 50% of
the financing and obtains a first lien position on the collateral. The SBA works
through a local  Certified  Development  Company to provide 40% of the  required
financing and the small business  provides 10% of the project cost. There are no
government  guarantees  provided under this program,  however the bank mitigates
its risk with these loans by having a low loan to value on the collateral, which
is usually  real  property.  Included in the  Company's  SBA loan  portfolio  at
December 31, 1996 are loans totaling  $24.9 million  related to this and similar
lending programs in conjunction with the SBA.

Other Government Lending

The U.S. Department of Agriculture Rural Development ("USDA")offers a guaranteed
loan  program,  known as the  Business & Industry  ("B&I")  Loan  Program.  This
program is designed to stimulate  economic  activity in rural  communities  with
populations of 50,000 or less.  Commercial  and  industrial  businesses and real
estate  projects  are the  target  of the  program.  The  Bank  participates  by
financing up to  $10,000,000,  with the USDA providing an 80% guarantee on loans
up to  $5,000,000  and  70% on  loans  from  $5,000,000  to  $10,000,000.  These
guarantees are similar to those offered  through the SBA 7(a) program and can be
sold on the secondary  market.  Included in the Company's loan portfolio are B&I
loans totaling $5.8 million at December 31, 1996. In 1996, the Company sold $3.6
million in guaranteed portions of B&I Loans.

Other Lending Activities

The Company's  commercial  loans are primarily  made to small- and  medium-sized
businesses and are for terms ranging from one to ten years, with the majority of
loans  being  due in less  than  five  years.  The  Bank  provides  conventional
commercial term real estate loans,  both owner occupied and investor owned, with
maturities of 5-7 years and monthly amortizing payments scheduled over 20 years.
Construction loans are also provided,  for residential and commercial  purposes,
with terms  ranging  from 6 to 18 months.  Consumer  loans are  typically  for a
maximum  term of 36 months for  unsecured  loans and for a term of not more than
the depreciable life of tangible  property used as collateral for secured loans.
Beginning in 1996, the Company 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,  1996,  the  Company  had  approximately  $78  million in  undisbursed  loan
commitments and $2 million in standby letters of credit. About 26 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
commercial  lines  of  credit.  Off-  balance  sheet  items  undergo  a level of
underwriting  scrutiny  similar to the criteria  applied to the  Company's  loan
portfolio,  and  outstanding  balances are  monitored to minimize  risk and loss
exposure.


                                                          -7-

<PAGE>



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:                                                1996         1995         1994          1993         1992
                                                             ----         ----         ----          ----         ----
  <S>                                                     <C>           <C>         <C>           <C>          <C>     
  SBA loans:
   SBA guaranteed loans in process(1)...                  $ 62,409      $ 45,864    $  16,299     $ 16,825     $ 15,937
   SBA guaranteed loans purchased(2)....                         0             0            0            0        1,132
   Retained portion of SBA loans(3).....                    84,612        71,201       79,649       71,683       71,160
                                                          --------      --------    ---------     --------     --------
  Total SBA Loans.......................                   147,021       117,065       95,948       88,508       88,229
                                                          --------      --------    ---------     --------     --------


  Real estate loans (includes loans secured primarily by real estate, except for
   SBA loans):
    Construction and land development...                    36,261        31,564       18,310       15,450       14,928
    Mortgage ...........................                    62,883        35,484       18,268       17,908       12,634
    Equity lines of credit..............                     4,725         3,735        1,689        1,058        5,980
                                                          --------      --------    ---------     --------     --------
  Total Real Estate Loans...............                   103,869        70,783       38,267       34,416       33,542
                                                          --------      --------    ---------     --------     --------


  Commercial and industrial loans.......                    57,325        42,204       31,157       26,850       22,796

  Individual and other loans............                     6,847         6,537        7,365        9,828       10,270

  Lease receivables.....................                     8,304         3,380          202          217          508
                                                          --------      --------    ---------     --------     --------

  Total Loans...........................                   323,366       239,969      172,939      159,819      155,345

  Less allowance for possible loan losses                    4,546         3,845        3,546        3,472        2,742
                                                          --------      ----------  ---------     --------     --------

  Total Net Loans.......................                  $318,820      $236,124    $ 169,393     $156,347     $152,603
                                                          ========      ========    =========     ========     ========
</TABLE>

(1)      Loans   guaranteed  in  part  by  the  SBA  which  are  in  process  of
         disbursement,   available  for  sale,  or  awaiting   sale.  The  total
         guaranteed  portion was $37.0 million,  $29.2  million,  $11.6 million,
         $12.6 million and $12.7 million at December 31, 1996,  1995, 1994, 1993
         and 1992, respectively.

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

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

                                                          -8-

<PAGE>



receivable, or such other assets as are specified in the SBA loan authorization.
In the case of the Company's SBA loans, approximately 90% were collateralized by
commercial  real  estate  at  December  31,  1996.  Prior to  submission  of the
application  to the  SBA  for  guarantee,  any  real  property  to be  taken  as
collateral is appraised by independent appraisers.

SierraWest  Bank's  management  presents a written report to the Director's Loan
Committee monthly, listing all loans, regardless of amount, which are 30 days or
more past due.  Management  and the board of directors of  SierraWest  Bank also
review all loan  evaluations  made during periodic  examinations by the FDIC and
CSBD. The Director's  Loan Committee of SierraWest Bank reviews and approves the
Bank's credit policy,  as well as management  reports on the quality of the loan
portfolio.

The Company  maintains  an  allowance  for  possible  loan losses to provide for
potential  losses in its loan  portfolio.  The allowance is established  through
charges to earnings in the form of  provision  for possible  loan  losses.  Loan
losses are charged to, and  recoveries  credited to, the  allowance for possible
loan  losses.  The  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 $4.5 million at December 31, 1996 to be adequate.

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

Asset Quality

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

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



                                                          -9-

<PAGE>



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

                                                                              December 31,
                                                        1996         1995         1994         1993         1992
                                                        ----         ----         ----         ----         ----
<S>                                                   <C>           <C>         <C>           <C>         <C> 
Nonperforming Assets:
Nonaccrual loans:
    SBA............................                   $ 4,985       $5,351      $ 2,423       $2,517      $ 2,561
    Other. . . . . . . . . . . . .                        378          125           59          355        1,223
In-substance foreclosures..........                         0            0          572          711          732
Other real estate owned............                       446          758          542          456          460
                                                      -------       ------      -------       ------      -------
    Total nonperforming assets.....                   $ 5,809       $6,234      $ 3,596       $4,039      $ 4,976
                                                      =======       ======      =======       ======      =======

Accruing loans past due 90 days or more:
    SBA............................                   $ 1,071       $  816      $ 1,754       $  496      $   435
    Other. . . . . . . . . . . . .                      1,061          207            9        1,029          538

Restructured loans (in compliance
  with modified terms).............                   $   275       $   78      $   194       $  201      $    61

Nonperforming assets to
  total assets.....................                       1.3%         1.8%         1.4%         1.6%         2.0%
Allowance for possible loan and lease
  losses to nonaccrual loans.......                      84.8%        70.2%       142.9%       120.9%        72.5%

</TABLE>

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

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  received
and recognized on these  impaired  loans in 1995 was $221 thousnad.  The average
recorded investment in impaired loans during 1995 was $3.4 million.

Although the level of  nonperforming  assets will depend on the future  economic
environment,  as of March 1, 1997,  in addition to the assets  disclosed  in the
above  chart,  management  of the  Company  has  identified  approximately  $358
thousand in potential  problem loans as to which it has serious doubts as to the
ability of the  borrowers to comply with the present  repayment  terms and which
may become  nonperforming  assets,  based on known  information  about  possible
credit problems of the borrower.


                                                         -10-

<PAGE>



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

                                                              December 31,
                                               1996         1995         1994         1993        1992
                                               ----         ----         ----         ----        ----
<S>                                         <C>           <C>          <C>          <C>         <C>    

Average loans.......................        $ 284,487     $203,231     $ 166,366    $ 159,463   $ 149,597
Total loans at end of period........          323,366      239,969       172,939      159,819     155,345

Allowance for possible loan and lease
  losses: Balance--beginning of period      $   3,845     $  3,546     $   3,472    $   2,742   $   2,525
                                            ---------     --------     ---------    ---------   ---------
Actual charge-offs:
  SBA...............................              114          595           447          391         671
  Commercial and industrial.........              337          350           467          143          65
  Leases. . . . . . . . . . . . . .                84            0             0            0           0
  Real estate.......................                0           40            60          190          12
  Installment.......................               58           40           101           42          32
                                            ---------     --------     ---------    ---------   ---------
    Total...........................              593        1,025         1,075          766         780
                                            ---------     --------     ---------    ---------   ---------
Less recoveries:
  SBA...............................               87           20            74           14          23
  Commercial and industrial.........              182           26           187           52          57
  Real estate.......................                0            0             0            0           0
  Installment.......................               15            8             3            6           2
                                            ---------     --------     ---------    ---------   ---------
    Total...........................              284           54           264           72          82
                                            ---------     --------     ---------    ---------   ---------
Net charge-offs.....................              309          971           811          694         698
Allowance applicable to sold loans..                0            0             0         (136)          0
Provision for possible loan and lease
  losses............................            1,010        1,270           885        1,560         915
                                            ---------     --------     ---------    ---------   ---------

Balance--end of period..............        $   4,546     $  3,845     $   3,546    $   3,472   $   2,742
                                            =========     ========     =========    =========   =========

Ratios:
  Net loans charged off to average
    loans outstanding..............             0.11%        0.48%        0.49%         0.44%       0.47%
  Net loans charged off to total loans
    at end of period...............             0.10         0.41         0.47          0.43        0.45
  Provision for possible loan and lease
    losses to average loans........             0.36         0.62         0.53          0.98        0.61
  Provision for possible loan and lease
    losses to total loans at end of period      0.31         0.53         0.51          0.98        0.59
  Net loans charged off to end of
    period allowance for possible
    loan and lease losses..........             6.80        25.25        22.87         19.99       25.46


</TABLE>


                                                         -11-

<PAGE>




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

                                                                                 December 31,
                                                                       1996                        1995
                                                              ----------------------       ------------------------
                                                              Amount       Percentage      Amount        Percentage
<S>                                                           <C>               <C>        <C>                <C> 

SBA loans........................................             $1,561             45%       $1,468              38%
Commercial and industrial loans (2)..............              1,720             21         1,592              41
Real estate loans................................              1,010             30           564              15
Consumer loans to individuals(1).................                255              4           221               6
                                                              ------          -----        ------            ----

    Total........................................             $4,546            100%       $3,845             100%
                                                              ======            ===        ======             ===
</TABLE>
<TABLE>

                                                                   December 31,
                                          1994                         1993                        1992
                                -----------------------       ----------------------       ------------------------
                                Amount        Percentage      Amount       Percentage      Amount        Percentage
<S>                             <C>               <C>         <C>               <C>        <C>                <C>

SBA loans...................... $2,372             56%        $2,379             55%       $2,127              57%
Commercial and industrial loans    627             18            541             17           233              15
Real estate loans..............    366             21            334             22           138              18
Consumer loans to
  individuals(1)...............    181              5            218              6           244              10
                                ------        -------         ------           ----        ------           -----

    Total...................... $3,546            100%        $3,472            100%       $2,742             100%
                                ======          =====         ==========        ===        ======             ===
</TABLE>

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

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. From inception of its SBA lending
program in 1983, the Company has sustained a relatively low level of losses from
these loans, averaging less than 0.5% of loans outstanding per year. Most of the
Company's other commercial loan losses have been for loans to businesses  within
the Tahoe basin area or in Reno,  Nevada. 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.


                                                         -12-

<PAGE>



Loan Maturities and Sensitivity to Changes in Interest Rates

The following  table sets forth the  distribution by maturity date of certain of
the  Company's  loan  categories  (in  thousands)  as of December 31,  1996.  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, 1996
                                                                After One
                                                Within         But Within           After
                                              One Year(1)      Five Years        Five Years          Total
<S>                                             <C>             <C>             <C>               <C>   
Real estate - construction..................    27,294           4,109            4,858            36,261
Commercial, except SBA......................    33,939          16,285            7,101            57,325
SBA.........................................    11,229          19,439          116,353           147,021    
Distribution between fixed and floating interest rate:
   Fixed interest rates.....................    17,203          24,314            5,989            47,506
   Floating interest rates..................    69,114          59,737          147,009           275,860
</TABLE>


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

                                                         -13-

<PAGE>




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

The following table presents,  for the periods  indicated,  the  distribution of
average  assets,  liabilities  and share holders'  equity,  as well as the total
dollar  amount of  interest  income  from  average  interest-earning  assets and
resultant  yields  and the  dollar  amounts  of  interest  expense  and  average
interest-bearing liabilities and resultant rates (in thousands except percentage
amounts):
<TABLE>

                                                           Year Ended December 31,
                                    1996                              1995                               1994
                      ---------------------------------   -------------------------------   -----------------
                        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)...........  $ 284,487    10.72%    $  30,506   $203,231    11.60%     $ 23,582   $ 166,366    10.45%    $  17,386
 Investment securities(2)28,712     5.62         1,614     26,546     5.29         1,403      31,168     4.68         1,459
 Mutual funds.......      1,342     7.30            98      1,627     8.05           131       4,178     5.43           227
 Federal funds sold.     18,017     5.21           938     10,534     5.64           594      11,872     4.03           478
 Other deposits.....      2,225     5.08           113      2,097     5.77           121       1,983     5.40           107
                      ---------              ---------   --------               --------   ---------              ---------
    Total interest-earning
      assets.........   334,783     9.94        33,269    244,035    10.58        25,831     215,567     9.12        19,657

Allowance for possible
loan losses.........     (4,497)                           (3,685)                            (3,653)

Non-earning assets:
   Cash and due from
     banks..........     19,894                            16,444                             15,936
   Premises and equipment,
     net............     11,224                             7,817                              7,178
   Excess Servicing on
     SBA loans......     14,304                            15,492                             16,114
   Other assets.....      5,912                             6,091                              6,467
                      ---------                          --------                          ---------

  Total average assets$ 381,620                          $286,194                          $ 257,609
                      =========                          ========                          =========

Liabilities and Shareholders'
   Equity:
Interest-bearing liabilities:
 Transaction account  $ 102,963     2.54%       $2,620   $ 87,600     2.28%     $  1,995   $  94,430     2.01%    $   1,894
 Savings accounts.       13,573     2.09           283     13,409     2.13           286      14,696     2.16           317
 Certificates of deposit155,585     5.68         8,832     91,517     5.85         5,352      61,408     4.17         2,559
 Convertible debentures   9,294     8.22           764     10,000     8.50           850       9,155     8.55           783
 Other liabilities          289    (1.38)           (4)       376     2.13             8         351    12.54            44
                      ---------               --------   ------------            --------   ---------              ---------
   Total interest-bearing
   liabilities......    281,704     4.44        12,495    202,902     4.18         8,491     180,040     3.11         5,597
Non-interest-bearing liabilities:
   Transaction accounts  63,638                            51,261                             48,421
   Other liabilities      4,556                             2,767                              2,289
                      ---------                          --------                          ---------
   Total liabilities    349,898                           256,930                            230,750

Shareholders' equity:
   Common stock.....     11,450                            10,799                             10,865
   Retained earnings     20,399                            18,793                             16,338
Unrealized loss on
   securities.......       (127)                             (328)                              (344)
                      ---------                          ---------                         ---------
   Total shareholders'
     equity.........     31,722                            29,264                             26,859
                      ---------                          --------                          ---------

   Total liabilities and
     shareholders'
     equity.........  $ 381,620                          $ 286,194                         $  257,609
                      =========                          =========                         ==========
                                              --------                          ---------                         --------
Net interest income.                          $ 20,774                          $ 17,340                         $  14,060
                                             -=========                         ==========                         =======

Interest income as a
   percentage of interest -
      earning assets                9.94%                                  10.58%                              9.12%
Interest expense as a
      percentage of interest -
   earning assets. . .             (3.73)                                  (3.48)                             (2.60)
                                    ------                                  -----                             -----

Net interest margin                 6.21%                                   7.10%                              6.52%
                                    ====                                    ====                             =====
</TABLE>

(1)      Includes nonaccrual loans with an average balance of $5.6 million, $3.4
         million, and $3.0 million for the years ended December 31, 1996, 1995 
         and 1994, 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
securities, collateralized mortgage obligations or municipal securities be rated
"A" or better by any

                                                         -14-

<PAGE>



nationally  recognized  rating  agency.  If a local  municipality  is issuing an
unrated  bond,  the Company may  purchase it after  normal  credit  underwriting
procedures are performed.

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

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, 1996 and 1995,  $31.9  million and $25.0  million of the
Company's  investment  securities  were  classified as available  for sale.  The
remaining  $2.0  million and $3.4  million,  consisting  primarily of pledged or
formerly pledged  securities,  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,
                                                         1996                      1995                     1994
                                                 --------------------      --------------------      ------------------
                                                  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....................     $ 19,463    $ 19,462     $ 18,137     $ 18,144     $ 23,873    $ 23,711


Securities of U.S. government
  agencies..................................        1,005       1,005        7,486        7,486        6,363       6,363

Securities of states and
  political subdivisions....................        5,991       5,991        2,608        2,608          418         418

Other securities............................        7,422       7,422          112          112          429         429
                                                   -----       ------     ------------ -----------  ---------   ---------

  Total.....................................     $ 33,881    $ 33,880     $ 28,343     $ 28,350     $ 31,083    $ 30,921
                                                 ========    ========     =========    ==========   ==========  ==========
</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, 1996 and 1995, mutual
funds with an estimated  market value of $1.3 million and $1.4 million have been
classified  as available  for sale. At these same dates the Company had recorded
an  unrealized  loss on  mutual  funds,  net of  tax,  of $99  thousand  and $72
thousand.  The weighted  average  maturity of portfolio  securities  held by the
mutual funds at December 31, 1996 and 1995 was 7.2 and 7.6 years.


                                                         -15-

<PAGE>



Maturity of Investment Securities

The following  table presents the maturities for investment  securities  (except
for investments in mutual funds with a carrying value of $1,335  thousand) as of
December 31, 1996 (in thousands except percentage amounts).
<TABLE>

                                                                                             December 31, 1996
                                                                                                 Weighted
                                                                                      Book        Average       Market
                                                                                      Value        Rate          Value
<S>                                                                                 <C>            <C>        <C>       

U.S. Treasury securities:
  Within 1 year...................................................................  $   7,014      5.41%      $   7,014
    After 1 year but within 5 years...............................................     12,449      6.06          12,448
                                                                                    ---------                 ---------
    Total U.S. Treasury securities................................................     19,463      5.82          19,462
                                                                                    ---------                 ---------

U.S. government agencies:
  Within 1 year...................................................................      1,005      6.00           1,005

Securities of states and political subdivisions(1):
  After 1 year but within 5 years.................................................        344      3.78             344
  After 5 years but within 10 years...............................................         99      4.55              99
  Over 10 years...................................................................      5,548      5.29           5,548
                                                                                    ---------                 ---------
      Total securities of states and political subdivisions ......................      5,991      5.19           5,991
                                                                                    ---------                 ---------

Mortgage - backed securities:.....................................................      7,422      6.39           7,422
                                                                                    ---------                 ---------

Total.............................................................................  $  33,881      5.84       $  33,880
                                                                                    =========                 =========

</TABLE>

(1)      Interest 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,  1996,  the Company had a total of $200.9  million in demand
deposits  (including  money market and NOW  accounts),  with an average  account
balance of  $10,688;  $13.3  million in savings  deposits  for  individuals  and
corporations,  with an average balance of $2,135;  and $185.4 million in CDs, of
which $58.1 million were in the form of CDs in  denominations  greater than $100
thousand. Average CD balances for the year ended December 31, 1994 were 28.1% of
average total deposits.  Average CD balances increased to 37.5% of average total
deposits for the year ended  December 31, 1995 and  increased  again to 46.3% of
average total deposits for the year ended December 31, 1996. Deposit accounts at
SierraWest Bank are insured by the FDIC to the maximum amount permitted by law.

As of December 31, 1996,  approximately 5% of total deposits were held on behalf
of public entities.  Deposits of public entities in excess of amounts insured by
the FDIC are  secured  by  SierraWest  Bank by  pledging  securities  and/or the
guaranteed portion of SBA loans.  Included in deposits at December 31, 1996 were
certificates of deposit of $10.6 million which were generated  directly  through
brokers.

In 1992,  SierraWest  Bank began to make available to its customers money market
investment  funds and annui  ties.  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.


                                                         -16-

<PAGE>



The  following  table  indicates  the maturity of the Company's CDs in excess of
$100  thousand as of December 31, 1996 (amounts in thousands  except  percentage
amounts):
<TABLE>

                                                                                            December 31, 1996
                                                                                                       Percentage
                                                                                         Balance        of Total
<S>                                                                                     <C>              <C>  
Three months or less................................................................... $23,041           39.6%
Over three months through six months...................................................  18,533           31.9
Over six months through twelve months..................................................  12,379           21.3
Over twelve months....................................................................    4,157            7.2
                                                                                        ---------        -------
Total.................................................................................. $58,110          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 interest-earning  assets, as
of December  31, 1996.  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, 1996
                                                       Next Day    Over Three     One Year
                                                       to Three  Months Through    Through      Over
                                         Immediately    Months    Twelve Months  Five Years  Five Years       Total
<S>                                       <C>         <C>           <C>          <C>          <C>          <C>

Assets:
  Federal funds sold...............       $  32,200   $        0    $       0    $       0    $       0    $  32,200
  Mutual funds.....................           1,335            0            0            0            0        1,335
  Taxable investment securities....               0        3,238        5,919       16,209        2,524       27,890
  Non-taxable investment securities               0            0            0          344        5,647        5,991
  Loans............................         128,472(2)   154,064       10,525       24,314        5,991      323,366
                                          ----------  ----------    ---------    ---------    ---------    ---------
         Total interest-earning assets      162,007      157,302       16,444       40,867       14,162      390,782
                                          ----------  -----------  ----------   ----------   ----------   -----------

Liabilities:
  Savings deposits(1)..............         133,706            0            0            0            0      133,706
  Time deposits....................               0       65,497       96,611       23,037          275      185,420
  Convertible debentures...........               0            0            0            0        8,520        8,520
  Lease obligations................               0            2            5           39          227          273
                                          ---------   ----------    ---------    ---------    ---------    ---------
        Total interest-bearing liabilities  133,706       65,499       96,616       23,076        9,022      327,919
                                           ---------   ---------    ---------    ---------    ---------    ---------

Net interest-earning assets (liabilities) $  28,301   $   91,803    $ (80,172)      17,791    $   5,140    $  62,863
                                          =========   ============  ==========   =========    =========    =========
Cumulative net interest earning assets
  (liabilities) ("GAP")............       $  28,301   $  120,104    $  39,932    $  57,723    $  62,863
                                          =========== ===========   ===========  ===========  =========
Cumulative GAP as a percentage of
  total interest-earning assets....             7.2%        30.7%        10.2%        14.8%        16.1%
                                          =========== ===========   ===========  ==========   ==========
</TABLE>

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

(2)      Includes loans which matured on or prior to December 31, 1996.

At  December  31,  1996,  the  Company  had $335.8  million in assets and $295.8
million in liabilities  repricing  within one year.  This means that $40 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.

                                                             -17-

<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.

The Company  ranked 18th in the nation by number of SBA 7(a) loans  generated by
banks for the SBA's fiscal year ended September 30, 1996.

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

                                                     Total                                Deposits Held
                                    # of Company     # of Banking      Deposits Held      by all Banks
County            State             Branches         Offices           by Company         and offices
<S>               <C>                    <C>             <C>           <C>                <C>  
El Dorado         California             1                20           $  22,986          $   548,789
Nevada            California             5                19           $ 157,780          $   588,853
Placer            California             2                49           $  48,098          $ 1,310,081
Sacramento        California             1               162           $  22,887          $ 6,985,162
Carson City       Nevada                 1                10           $   8,198          $   453,899
Washoe            Nevada                 1                59           $  76,255          $ 2,379,689
</TABLE>

A total of 8 banks in Nevada  County at June 30, 1996 were included in the above
survey. Of these eight, SierraWest Bank ranked second in terms of total deposits
held. In Placer County,  SierraWest  Bank ranked sixth out of fourteen banks. As
disclosed  above,  SierraWest  Bank's  presence  in the  other  counties  is not
significant.

(1) Based on the annual  survey of banking  office  deposits as of June 30, 1996
conducted by the FDIC.  Banking  offices  include each banking  office of branch
banking  systems  and each U.S.  branch of a foreign  bank for all FDIC  insured
commercial banks, savings banks, and U.S. branches of foreign banks.

Supervision and Regulation

The Effect of Governmental Policy on Banking

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

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


                                                             -18-

<PAGE>



Regulation and Supervision of Bank Holding Companies

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

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

Under the BHCA,  a company  generally  must  obtain  the prior  approval  of 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.

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

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


                                                             -19-

<PAGE>



Bank Regulation and Supervision

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

Capital Standards

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

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

In addition to the 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 calculating risk based capital.  The final rule did not
put forth the process for measuring a bank's  exposure to interest rate risk. On
June 26, 1996 a joint agency  policy  statement was issued by all of the Federal
banking  agencies  except the OTS to provide  guidance  on sound  practices  for
managing  interest rate risk. The agencies did not in the policy statement elect
to implement a standardized measure and quantitative capital charge,  though the
matter was left open for future  implementation.  Rather,  the policy  statement
provided  standards  for the  banking  agencies  to evaluate  the  adequacy  and
effectiveness  of a bank's interest rate risk management and guidance to bankers
for managing  interest  rate risk.  Specifically,  effective  interest rate risk
management  requires  that there be (i)  effective  board and senior  management
oversight of the bank's interest rate risk activities, (ii) appropriate policies
and practices in place to control and limit risks, (iii) accurate and timely

                                                             -20-

<PAGE>



identification  and  measurement of interest rate risk,  (iv) an adequate system
for  monitoring  and  reporting  risk  exposures  and (v)  appropriate  internal
controls for effective risk management.

In determining the capital level  SierraWest  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  SierraWest  Bank.  These rules are called
Regulatory Accounting Principles ("RAP").  SierraWest Bank's qualifying capital,
as  calculated  under RAP, at December 31, 1996,  totaled  $31.7  million.  This
compares to $37.1  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.
Effective in 1997 regulatory reports of condition and income will be reported on
a GAAP basis;  however  regulatory capital ratios will continue to be calculated
in accordance with the regulatory agency's capital standards. This can result in
significant  differences  in the amount of capital  reported  under GAAP and the
amount included in the regulatory ratios.  Future changes in FDIC regulations or
practices could further reduce the amount of capital  recognized for purposes of
capital  adequacy.  Such changes could affect the ability of the Company to grow
and could restrict the amount of profits,  if any,  available for the payment of
dividends.

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 and
SierraWest  Bank,  computed  in  accordance  with  their  applicable  regulatory
guidelines,   compared  to  the  standards  for  well-  capitalized   depository
institutions,  as of December 31, 1996 (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 SierraWest Bank vary
significantly.
<TABLE>

                                                                             The Company
                                                          Actual                         Well                Minimum
                                                Qualifying                            Capitalized            Capital
                                                 Capital          Ratio                  Ratio              Requirement
<S>                                             <C>                 <C>                     <C>                 <C>

Leverage......................................  $  33,846            7.9%                   N/A                 4.0%
Tier 1 Risk Based.............................     33,846            9.8                    N/A                 4.0
Total Risk Based..............................     46,668           13.6                    N/A                 8.0
</TABLE>
<TABLE>

                                                                           SierraWest Bank
                                                          Actual                         Well                Minimum
                                                Qualifying                            Capitalized            Capital
                                                 Capital          Ratio                  Ratio              Requirement
<S>                                             <C>                 <C>                    <C>                  <C> 
Leverage......................................  $  31,670            7.6%                   5.0%                4.0%
Tier 1 Risk Based.............................     31,670            9.4                    6.0                 4.0
Total Risk Based..............................     35,866           10.7                   10.0                 8.0
</TABLE>


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:


                                                           -21-

<PAGE>



"Well capitalized"
Total risk-based  capital of at least 10%; Tier 1 risk-based capital of at least
6%; and Leverage ratio of at least 5%.
"Adequately  capitalized"  Total  risk-based  capital  of at  least  8%;  Tier 1
risk-based capital of at least 4%; and Leverage ratio of at least 4%.

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

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


An  institution  that,  based upon its capital  levels,  is  classified as "well
capitalized,"  "adequately capitalized" or "under capitalized" 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

                                                           -22-

<PAGE>



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.

On July 10, 1995 the federal banking agencies published  Interagency  Guidelines
Establishing  Standards for Safety and  Soundness.  By adopting the standards as
guidelines,  the agencies  retained the authority to require an  institution  to
submit to an acceptable  compliance  plan as well as the  flexibility  to pursue
other  more  appropriate  or  effective  courses  of action  given the  specific
circumstances  and severity of an institution's  noncompliance  with one or more
standards.

Restrictions on Dividends and Other Distributions

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

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

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

Community Reinvestment Act and Fair Lending Developments

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

On March 8, 1994,  the federal  Interagency  Task Force on Fair Lending issued a
policy statement on  discrimination in lending.  The policy statement  describes
the three methods that federal agencies will use to prove discrimination:  overt
evidence of  discrimination,  evidence of disparate  treatment,  and evidence of
disparate impact.

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

Premiums for Deposit Insurance and Assessments for Examinations

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

                                                           -23-

<PAGE>



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

Recently Enacted Legislation

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

The states  that opt out must 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 (the $100 million
amount was amended to $250 million by the 1996 Act  discussed  below).  The 1994
Act amends the Federal  Deposit  Insurance  Corporation  Improvement Act of 1991
with  respect to 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.

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

                                                           -24-

<PAGE>



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.

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.

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



                                                           -25-

<PAGE>




Accounting Pronouncements

The  Financial   Accounting   Standards  Board  issued  Statement  of  Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed Of, which was adopted by the Company January 1, 1996. SFAS
No. 121 established  standards for the impairment of long-lived assets,  certain
identifiable  intangibles  and goodwill for all  entities.  It does not apply to
financial   instruments,   long-term  customer   relationships  of  a  financial
institution,  mortgage  or other  servicing  rights,  or  deferred  tax  assets.
Adoption  of SFAS No.  121 has not had a  significant  impact  on the  financial
condition or operations of the Company.

In October 1995, the Financial  Accounting  Standards Board issued SFAS No. 123,
Accounting  for  Stock-Based  Compensation.  This 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.  SFAS No. 123
permits companies to continue  accounting for equity transactions with employees
under  existing  accounting  rules,  requiring  disclosure  in the  notes to the
financial statements of the proforma net income and earnings per share as if the
new method had been applied.  This statement was adopted by the Company  January
1, 1996.  The  Company  has  elected to  continue  to  account  for stock  based
compensation  under the  existing  accounting  rules and  include  the pro forma
disclosures;  accordingly, this statement has not had an impact on the financial
condition or operations of the Company.

The  Company is required to adopt SFAS No. 125,  Accounting  for  Transfers  and
Servicing of Financial Assets and Extinquishments of Liabilities,  in 1997. SFAS
No. 125 provides  accounting and reporting standards for transfers and servicing
of financial assets and  extinguishments of liabilities.  This standard is based
on  consistent  application  of a  financial-component  approach that focuses on
control.  Under this approach,  after a transfer of financial  assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred,  derecognizes financial assets when control has been surrendered,  and
derecognizes  liabilities  when  extinguished.  Management  has not assessed the
effect that the adoption of SFAS No. 125 will have on the financial condition or
operations of the Company.

Employees

As of March 1, 1997,  the Company  employed  282 persons (238  full-time  and 44
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.



                                                           -26-

<PAGE>



ITEM 2.  PROPERTIES

The  Company  currently   maintains  an  administrative   facility  in  Truckee,
California  which is utilized by Bancorp and  SierraWest  Bank.  During 1996 the
Company completed construction on a regional facility/branch in Reno, Nevada and
a branch in Carson City,  Nevada.  Additionally,  the Company  maintains  eleven
branches,  four stand-alone loan production offices, and one remote off-site ATM
machine.  All  branches  and loan  production  offices are leased to the Company
except for the  administrative  facility  and the Reno and Caron  City  branches
which are owned by the Company.  The Company believes that it has adequate space
within its current  facilities  to provide for  expansion and growth in the near
future.


ITEM 3.  LEGAL PROCEEDINGS

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

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

The Bank's external and internal  counsel on this matter believe that the Bank's
share of the cost of  remediation  and the costs of defense will not be material
to the Bank's or the Company's  performance and will be within existing reserves
established  by the Bank for this matter.  It is also  expected that clean-up of
the property will be undertaken during 1997.

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


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

No  matters  were  submitted  during  the  fourth  quarter  of 1996 to a vote of
security holders through the solicitation of proxies or otherwise.


                                                           -27-

<PAGE>



                                                          PART II

ITEM 5.  MARKET FOR THE BANCORP'S COMMON STOCK

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

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

1997
  First Quarter (through March 1, 1997)......     19.25           15.38

At March 1, 1997,  there were 956  shareholders of record,  although  management
believes there are approximately  2,200 beneficial  holders of its Common Stock.
On February  28,  1997,  the closing  sales price of  Bancorp's  common stock on
Nasdaq was $19.00.

Bancorp  paid cash  dividends  of $0.30 per share in 1996 and $0.24 per share in
1995.  During 1997,  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 the Company by
the FDIC,  Federal  Reserve and the Nevada  Department of Commerce,  Division of
Financial Institutions.

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


                                                           -28-

<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,
1996.  The statements of operations  data and statements of financial  condition
data for each of the  five  years in the  period  ended  December  31,  1996 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,
                                                                    ---------------------------------
                                                                      1996       1995       1994        1993       1992
                                                                      ----       ----       ----        ----       ----
<S>                                                                <C>        <C>        <C>        <C>         <C>
Statements of Operations Data
  Total interest income..................................          $ 33,269   $  25,831  $  19,657  $  17,246   $  16,597
  Total interest expense.................................            12,495       8,491      5,597      4,503       6,876
                                                                   --------   ---------  ---------  ---------   ---------
  Net interest income....................................            20,774      17,340     14,060     12,743       9,721
  Provision for possible loan and lease losses...........             1,010       1,270        885      1,560         915
                                                                   --------   ---------  ---------  ---------   ---------
  Net interest income after provision for possible
    loan and lease losses................................            19,764      16,070     13,175     11,183       8,806
  Total non-interest income..............................             7,338       7,969      9,177     10,214       9,406
  Total non-interest expense.............................            21,697      20,944     17,486     17,023      15,616
  Provision for income taxes.............................             2,077       1,179      1,863      1,670         763
                                                                   --------   ---------  ---------  ---------   ---------

  Net income.............................................          $  3,328   $   1,916  $   3,003  $   2,704   $   1,833
                                                                   ========   =========  =========  =========   =========

Statements of Financial Condition Data
  Total assets...........................................          $447,889   $ 337,518  $ 259,975  $ 250,065   $ 243,758
  Loans and leases, net(1)...............................           318,820     236,124    169,393    156,347     152,603
  Allowance for possible loan and lease losses...........             4,546       3,845      3,546      3,472       2,742
  Total deposits.........................................           399,651     293,154    218,876    220,768     211,976
  Convertible debentures.................................             8,520      10,000     10,000        250         250
  Shareholders' equity...................................            33,916      29,833     28,163     25,645      22,907

Per Share Data(2)
  Book value.............................................          $  12.24   $   11.51  $   10.75  $    9.90   $    8.84
  Net income:
    Primary..............................................              1.19        0.72       1.12       1.04        0.73
    Fully diluted........................................              1.01        0.66       0.96       1.02        0.71
  Cash dividends declared................................              0.30        0.24          0          0           0

  Shares used to compute net income per share:
    Primary..............................................             2,802       2,678      2,678      2,609       2,503
    Fully diluted........................................             3,747       3,687      3,606      2,657       2,642

  Dividend payout ratio:
    Primary..............................................              25.2%       33.3%       0.0%       0.0%        0.0%
    Fully diluted........................................              29.7        36.4        0.0        0.0         0.0


Selected Ratios
  Return on average assets...............................               0.9%        0.7%       1.2%       1.2%        0.8%
  Return on average shareholders' equity.................              10.5         6.5       11.2       11.1         8.6
  Net interest margin(3).................................               6.2         7.1        6.5        6.7         5.4
  Average shareholders' equity to average assets.........               8.3        10.2       10.4       10.4         9.7
</TABLE>


                                                             -29-

<PAGE>
<TABLE>



                                                                                   At or for the Year Ended
                                                                                         December 31,
                                                                    ---------------------------------
                                                                      1996       1995       1994        1993       1992
                                                                      ----       ----       ----        ----       ----
<S>                                                                 <C>        <C>       <C>         <C>         <C>    
Asset Quality Ratios
  Allowance for possible loan and lease losses to total loans        1.4%       1.6%       2.1%        2.2%       1.8%
  Allowance for possible loan and lease
     losses to nonaccrual loans.............................        84.8       70.2      142.9       120.9       72.5

  Net charge-offs to average loans outstanding..............         0.1        0.5        0.5         0.4        0.5
  Nonaccrual and restructured performing loans to total loans        1.7        2.3        1.5         1.9        2.5
  Nonperforming assets to total assets......................         1.3        1.8        1.4         1.6        2.0

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



                                                         -30-

<PAGE>



Selected Quarterly Financial Information

The following table sets forth the Company's unaudited data regarding operations
for  each  quarter  of 1996  and  1995.  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
1996
<S>                                                   <C>              <C>              <C>               <C>  

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

Net income.........................................   $    567        $      388       $      940        $    1,433
                                                      ==========       ============     ============      ============
Primary earnings per share.........................   $   0.21         $    0.14        $    0.33         $    0.50
Fully diluted earnings per share...................       0.18              0.13             0.28              0.41


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 non-interest income..........................      2,157             1,924            1,977             1,911
Total non-interest 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

</TABLE>






























                                                             -31-

<PAGE>



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

Results of Operations For the Years Ended December 31, 1996, 1995 and 1994

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,  1996  increased  73.7%,  from $1.9
million during 1995 to $3.3 million during 1996.  This increase  resulted from a
19.8% increase in net interest income.  Partially offsetting the increase in net
interest income was a decline of 7.9% in non-interest  income and an increase of
3.6% in non-interest expenses.

The  following  table  summarizes  the  operating  results  for the years  ended
December 31,  1996,  1995,  and 1994  (amounts in  thousands  except  percentage
amounts):
<TABLE>

                                           December 31,                    1996 over 1995             1995 over 1994
                               ------------------------------------     ----------------------    ------------------
                                  1996         1995         1994        Amount    Percentage(1)   Amount     Percentage(1)
                                  ----         ----         ----        ------    -------------   ------     -------------
<S>                            <C>           <C>           <C>          <C>            <C>         <C>           <C> 

Total interest income......... $ 33,269      $ 25,831      $19,657      $ 7,438         28.8%      $ 6,174        31.4%
Total interest expense........   12,495         8,491        5,597        4,004         47.2         2,894        51.7
                               -------       -------      -------      -------                    -------
Net interest income...........   20,774        17,340       14,060        3,434         19.8         3,280        23.3
Provision for possible
  loan and lease losses.......    1,010         1,270          885         (260)       (20.5)          385        43.5
                               -------       -------      -------      ---------                  -------
Net interest income after
   provision for possible
   loan and lease losses. .      19,764        16,070       13,175        3,694         23.0         2,895        22.0
Total non-interest income.....    7,338         7,969        9,177         (631)       ( 7.9)       (1,208)      (13.2)
Total non-interest expense....   21,697        20,944       17,486          753          3.6         3,458        19.8
                               -------       -------      -------      -------                    -------
Income before provision for taxes 5,405         3,095        4,866        2,310         74.6        (1,771)      (36.4)
Provision for income taxes . .    2,077         1,179        1,863          898         76.2          (684)      (36.7)
                                -----        -------      -------      -------                    --------

Net Income                     $  3,328       $ 1,916      $ 3,003      $ 1,412         73.7       $(1,087)      (36.2)
                               =======       =======      =======      ========                   ========
</TABLE>

(1)      Increase (decrease) over previous year's amount.


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



                                                         -32-

<PAGE>



The following  table sets forth (in  thousands),  for the periods  indicated,  a
summary of the changes in interest  income and interest  expense  resulting from
changes in volume and from changes in rates.  Income from tax-exempt  securities
has not been presented on a tax-equivalent  basis as it is not significant.  For
purposes of this table, the change not solely attributable to volume or rate has
been  allocated to change due to rate.
<TABLE>

                                                        1996 over 1995                       1995 over 1994
                                             ----------------------------------     -----------------------
                                                Volume        Rate        Total        Volume       Rate       Total
<S>                                           <C>         <C>          <C>           <C>        <C>        <C>

Increase (Decrease) in Interest Income:
Loans.......................................  $  9,429    $  (2,505)   $  6,924      $  3,853   $  2,343   $   6,196
Mutual funds................................       (23)         (10)        (33)         (139)        43         (96)
Taxable securities..........................       (57)          99          42          (231)       163         (68)
Tax-exempt securities.......................       139           30         169            16         (4)         12
Federal funds sold..........................       422          (78)        344           (54)       170         116
Other deposits..............................         7          (15)         (8)            6          8          14
                                              --------    ---------    ---------     --------   --------   ---------

Total.......................................     9,917       (2,479)      7,438         3,451      2,723       6,174
                                              --------    ---------    --------      --------   --------   ---------

Increase (Decrease) in Interest Expense:
Deposits:
  Savings deposits..........................         3           (6)         (3)          (28)        (3)        (31)
  Transaction accounts......................       350          275         625          (137)       238         101
  Time deposits.............................     3,747         (267)      3,480         1,255      1,538       2,793
                                              --------    ---------    --------      --------   --------   ---------

Total.......................................     4,100           2        4,102         1,090      1,773       2,863
                                              --------    --------     --------      --------   --------   ---------

Other borrowings............................         (2)        (10)        (12)            5        (41)        (36)
Convertible debentures......................        (60)        (26)        (86)           72         (5)         67
                                              ---------   ---------    ---------     --------   ---------  ---------

Total.......................................     4,038          (34)      4,004         1,167      1,727       2,894
                                              --------    ---------    --------      --------   --------   ---------
Increase in
  net interest income.......................  $  5,879    $  (2,445)   $  3,434      $  2,284   $    996   $   3,280
                                              ========    =========    ========      ========   ========   =========
</TABLE>

As disclosed in the foregoing  table,  the Company's net interest income in 1996
and 1995 increased over preceding  years. In both 1996 and 1995 volume increases
were  related to an increase in the asset size of the  Company.  During 1996 and
1995,  total daily average  assets  increased by 33.3% and 11.1%,  respectively.
During these same periods,  the volume component of the increase in net interest
income was 33.9% and 16.3%, respectively.

During  1995 and 1996,  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
and  87.7% in 1996.  This  increase  in  average  interest  earning  assets  was
partially  offset by a decrease  in average  non-interest-bearing  deposits as a
percentage  of average  total  deposits  from 22.0% in 1994 to 21.0% in 1995 and
19.0% during 1996.

During 1994 and in 1995 and 1996,  the Company  found  itself in the position of
funding much of its growth  through the use of  interest-bearing  deposits.  The
Company  charges  interest  rates and fees in accordance  with general  economic
conditions,  capital and liquidity constraints,  and desired net interest margin
levels.

Approximately  79% 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.


                                                         -33-

<PAGE>



During the first quarter of 1996 the Company moved to mitigate the effect of the
change in the prime rate on its net  interest  income by  entering  into a three
year $20 million notional amount interest rate swap agreement with a major bank.
Under this agreement the other bank pays a fixed rate of 8.17% and receives from
the Company the prime rate. If prime  increases by 1%, the Company would pay the
other bank $216 thousand on an annual basis.  Conversely,  if prime decreases by
1%, the other bank would pay the Company $184  thousand on an annual  basis.  At
the  current  prime  rate of 8.25%,  the  Company  will pay the  other  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  approximately  7% 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 1996 was 8.27% compared to 8.83% in 1995. This decrease  equates to a
negative price variance in 1996 of $1.3 million  compared to an actual  negative
price  variance  of $2.5  million.  The  difference  includes a decrease  in the
contribution  of  loan  fees.  As a  percentage  of  average  loans,  loan  fees
represented  0.42% in 1996,  0.55% in 1995 and 0.78% in 1994. In addition to the
decrease in prime and the decline in loan fees as a percentage of average loans,
during 1996 the Company has experienced  increased competition in the pricing of
its loans.

In 1995, the average prime rate was 8.83% compared to 7.13% for 1994.  This 1995
increase  equated to a positive price variance in 1995 of $2.9 million  compared
to an  actual  positive  price  variance  of $2.3  million.  The  difference  is
primarily related to a decrease in the contribution of loan fees.

The positive volume variance in federal funds sold during 1996 resulted from the
Company's  increase in liquid assets as its overall size increased.  During 1995
and continuing into 1996 the positive spread between short-term U.S.  Government
securities  and  federal  funds sold  narrowed  from 1994 levels and the Company
therefore increased its reliance on federal funds sold for short-term investment
purposes. In addition, a higher level of federal funds sold was desired given
the increase in loan funding levels.

The 1996 and 1995 rate variances in federal funds sold are primarily  attributed
to the interest rate changes during these periods.  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.

The Company has kept its investment  portfolio  relatively  short-term in recent
years,  with the goal of focusing its attention on short-term  liquidity  needs.
During 1995 and 1996 the Company increased its holding of guaranteed portions of
SBA loans.  These loans,  which can be sold in relatively short periods of time,
provide an available source of additional liquidity. During 1996 the Company has
decreased  its reliance on short-term  U.S.  securities in funding its liquidity
needs while increasing its holdings of longer term tax-exempt securities.  These
tax-exempt  securities  provide an attractive  investment  alternative given the
current  interest rate  environment and the increase in the average  maturity of
the investment portfolio is consistent with the additional sources of short-term
liquidity.

The positive  rate variance  during 1996 in taxable  investment  securities  and
tax-exempt  securities  is  primarily  related  to an  increase  in the  average
maturity of these  portfolios,  from a weighted  average of 2.2 years in 1995 to
4.0 years in 1996, excluding mortgage-backed securities.

Mutual funds  consist of  investments  in mutual funds whose assets are invested
primarily in U.S. government securities.  Mutual funds held during 1995 and 1996
related  to a non money  market  mutual  fund held  principally  for  investment
purposes. The price variances for both 1995 and 1996 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.

Other assets  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 1996 and 1995 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 1995 and 1996 are  associated  with market rate
conditions.


                                                         -34-

<PAGE>



The  average  balance  and average  rate paid on  interest  bearing  transaction
accounts during 1996 and 1995 are as follows:
<TABLE>

                                                     Year Ended December 31,

                                              1996                                  1995
                                     ----------------------------------    -------------

                                                    Money                              Money
                                         NOW       Market               NOW           Market
<S>                                  <C>            <C>               <C>             <C>          
Average Balance..................    $  43,660      $59,303           $36,995         $50,606
Rate paid........................        1.23%        3.51%             1.26%           3.02%
</TABLE>

The  rates  paid on the  Company's  deposits  are  primarily  driven  by  market
conditions in its service areas. During 1995 the Company incurred an increase in
the average rate paid on its time deposits, from 4.17% in 1994 to 5.85% in 1995.
The average  rate paid on interest  bearing  transaction  accounts  increased as
well, however at a slower rate.

In 1996 the average rate paid on time deposits  declined to 5.68%,  but the rate
paid on money  market  accounts  increased.  The  increase in money market rates
includes the effect of tiering  money market  accounts at the  Company's  Nevada
operations and general market conditions in the Company's service area.

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

The Company has relied on time  deposits to fund most of its growth  during 1995
and 1996.  Average time deposits increased by $64.1 million during 1996. Of this
increase,  $23.0  million was  generated  at the four new  branches  and average
out-of-area CD's increased by $8.6 million.  In addition,  average time deposits
held by public  agencies  increased by $8.3  million.  Out-of-area  CD's totaled
$45.8 million at December 31, 1996 or 11.5% of total deposits at that same date.

During the 1995 period the Company's  average time  deposits  increased by $30.1
million or 49.0% while its average  Money  Market  accounts  decreased  by $11.3
million or 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 increase in average time  deposits  during 1995 included both an increase in
out-of-area  CD's as well as retail CD's generated  through 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, 1994 and December 31, 1995 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 rate variances in time deposits for 1995 and 1996 primarily relate to market
conditions.

Other borrowings  consist  primarily of federal funds purchased from other banks
and a $300 thousand capital lease related to the Company's  Gateway branch.  The
negative rate variance  experienced  during 1995 and 1996 includes the effect of
capitalizing  interest expense on the construction of branch  facilities in Reno
and Carson City, Nevada.

The volume variance in convertible debentures in 1995 relates to the issuance of
the  Bancorp's 8 1/2%  optional  convertible  debentures.  The negative rate and
volume variances during 1996 in convertible  debentures relate to the conversion
into common stock of  debentures  having a principal  balance of $1.48  million.
When presented for  conversion any accrued but unpaid  interest on debentures is
forfeited by the debenture holder.

Provision  for  Possible   Loan  and  Lease   Losses.   At  December  31,  1996,
approximately   73%  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

                                                         -35-

<PAGE>



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

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

In evaluating the Company's loan loss reserve,  management  considers the credit
risk in the  various  categories  in its  portfolio.  Historically,  most of the
Company's  loan  losses  have been in its  commercial  lending  portfolio  which
includes SBA loans and local commercial loans. From inception of its SBA lending
program in 1983, the Company has sustained a relatively low level of losses from
these loans, averaging less than 0.5% of loans outstanding per year.

Most of the  Company's  non-SBA  commercial  loan  losses have been for loans to
businesses within the Tahoe basin area and during 1994 and 1995 at the Company's
Reno,  Nevada branch.  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 provision for loan and lease losses for the year ended December 31, 1996 was
$1.0 million and net loan losses were $309  thousand.  The  provision in 1996 is
primarily attributable to growth in the loan portfolio. Excluding the guaranteed
portion of loans,  loans  increased $76 million and $49 million  during 1996 and
1995,  respectively.  The end of period  allowance  for possible  loan and lease
losses  was $4.55  million or 1.41% of loans and leases at  December  31,  1996.
During 1995 the  provision  for possible  loan and lease losses was $1.3 million
and net loan losses were $971  thousand.  The  allowance  for possible  loan and
lease losses at December 31, 1995 totaled $3.85 million, which represented 1.60%
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 1.59% at  December  31,  1996 and 1.83% at
December 31, 1995.

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 leases and the ratio of  nonperforming
loans to total loans and leases as of the dates indicated.
<TABLE>

                                                                                        Year Ended December 31,
<S>                                                                                  <C>         <C>       <C>            
                                                                                     1996        1995      1994
                                                                                     ----        ----      ----
Allowance for possible loan and lease losses to nonperforming loans.............     84.8%       70.2%     142.9%
Allowance for possible loan and lease losses to total loans and leases..........      1.4%        1.6%       2.1%
Nonperforming loans to total loans and leases...................................      1.7%        2.3%       1.4%
</TABLE>

The balance of nonperforming loans at December 31, 1995 includes $564 thousand
in loans which were classified as in-substance foreclosures at December 31,
1994. Non-performing loans at December 31, 1996 and 1995 include loans and
portions of loans guaranteed  by the federal government totaling  $2.2  million
and $1.9 million,  respectively. There were no non-performing  loans  guaranteed
by the federal government at December 31, 1994. Excluding the  guaranteed  loans
the allowance for possible loan and lease losses to nonperforming loans

                                                         -36-

<PAGE>



increases  to 141.8% at  December  31,  1996 and 107.1% at  December  31,  1995.
Additionally,  nonperforming  loans to total  loans and leases  drops to 1.0% at
December 31, 1996 and 1.5% at December 31, 1995.

Management  considers the allowance of $4.55 million at December 31, 1996, to be
adequate as a reserve against foreseeable losses at that time.

Total Non-Interest Income. Total non-interest income for the year ended December
31, 1996  decreased by 7.9% from the 1995 level.  For 1995  non-interest  income
decreased by 13.2% as compared to 1994.

The following  table  summarizes  the principal  elements of total  non-interest
income  and  discloses  the  increases  (decreases)  and  percent  of  increases
(decreases) for 1996 and 1995 (amounts in thousands except percentage amounts):
<TABLE>

                                                                                    Increase (Decrease)
                                      Year Ended December 31,              1996 over 1995           1995 over 1994
                                  1996         1995         1994        Amount     Percentage     Amount   Percentage
<S>                            <C>            <C>          <C>          <C>          <C>       <C>        <C>               
Service charges                $ 1,722        $1,755       $1,517       $  (33)       (1.9)%   $   238        15.7%
Securities (losses)/gains......     (8)          (62)          (4)          54        87.1         (58)   (1,450.0)
Net gain on sale of loans......    373           307        2,300           66        21.5      (1,993)      (86.7)
Net loan servicing income......  4,087         4,667        4,474         (580)      (12.4)        193         4.3
Other income...................  1,164         1,302          890         (138)      (10.6)        412        46.3
                               -------        ------       ------       ------                   -------

                               $ 7,338        $7,969       $9,177       $ (631)      (7.9)     $(1,208)       (13.2)
                               =======        ======       ======       ======                 ========
</TABLE>


Service charges on deposit accounts  increased by 15.7% in 1995 over 1994 levels
and  declined  1.9% in 1996 as compared  to 1995  levels.  The  increase in 1995
includes  the  effect of an  increase  in  average  non-interest-bearing  demand
accounts  and an increase in  overdraft  charges  generated  from the  Company's
Nevada operations.

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 $1.34  million at December  31, 1996 and an original  cost of $1.5 million at
this same date.  The net gain on the sale of loans includes net gains on sale of
SBA loans of $339  thousand,  $307  thousand and $2.3 million in 1996,  1995 and
1994, respectively.

Sales of SBA 7(a) loans in 1996, 1995, and 1994 were $5.6 million, $5.6 million,
and $38.2 million,  respectively.  In 1995 the Company altered its strategy with
respect  to the sale of SBA  7(a)  loans.  Rather  than  continuing  to sell the
guaranteed  portion of the portfolio the Company began to retain the  guaranteed
portion and 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  which were in place  during most of
1995. These temporary  restrictions  reduced the maximum loan that could be made
under  the  SBA  7(a)  program  and in  most  cases  eliminated  guarantees  for
refinanced  debt.  At  December  31,  1996 the  Company  had  $29.1  million  of
guaranteed  portions  of SBA loans,  which it could  sell,  an increase of $13.7
million over the $15.4 million held at December 31, 1995.  SBA loan sales during
1996 primarily  relate to loans to the  hotel/motel  industry.  By selling these
guaranteed  portions  the  Company  is  able to take  advantage  of new  lending
opportunities in this industry while maintaining an acceptable level of loans to
this industry in its  portfolio.  The decline in SBA loan  production in 1996 as
compared to 1994 and earlier years includes the effect of increased  competition
in the SBA market place, a temporary  shortage of qualified SBA underwriters and
a reduction in the dollar volume of loans referred by SBA loan packagers.

To support its SBA program the Company has, since 1983,  relied in part on third
party SBA loan packagers. In 1996,  approximately 32% of the Company's SBA loans
were generated by SBA packagers. This compares to 27% during 1995. 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 1996, 1995, and 1994 totaled $90

                                                         -37-

<PAGE>



thousand,  $200  thousand,  and $481  thousand,  respectively.  The reduction in
packagers  volume  in 1995  and  1996  includes  the  loss 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.

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 personnel at other  offices.  During 1997 the Company
expects to open a new loan production office in Denver, Colorado.

The Company  experienced  disappointing  results at its Buena Park  facility and
closed  it  during  1996.  In lieu  of  providing  a full  office,  the  Company
contracted  with an  established  loan broker to provide SBA loan referrals from
the Southern  California  market.  The  contract  gives the Company an exclusive
right of first refusal on all 7(a) loans referred by this broker. To date, loans
referred through this source have not been significant.

In addition,  the Company has  increased  its efforts to  diversify  its lending
activities  and during 1995 and 1996 has  experienced  significant  gains in its
construction, real estate and non-SBA commercial loan portfolios.

Net loan servicing  income  decreased by 12.4% in 1996 as compared to 1995. This
compares  to an increase of 4.3% in 1995 over 1994.  Net loan  servicing  income
primarily  consists of net  servicing  income on SBA loans.  For the years ended
December 31, 1996, 1995 and 1994, net servicing income on SBA loans totaled $4.1
million,  $4.7 million and $4.5 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  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 from $6.4 million in 1994 to $6.2 million in 1995 and
$5.6 million during 1996.  These  declines  relate to payments on existing loans
including  normal   amortization  and  prepayments.   During  1996  the  Company
experienced  an increase in  prepayments  associated  with  refinancing by other
banks.

Other income  consists  primarily of merchant  credit card fees and gains during
1995  and 1994 on sale of the  right  to  service  mortgage  loans.  In 1996 the
Company  increased  its  staffing  and  emphasis  on sale of  mutual  funds  and
annuities  through a third party  marketer  generating  revenue of $333 thousand
from this source,  an increase of $240 thousand from the $93 thousand  generated
from these sales during 1995.

Merchant  credit card revenue  totaled $473  thousand in 1996,  $442 thousand in
1995 and $410 thousand in 1994.

Gain on sales of servicing  rights on mortgage  loans  totaled $190  thousand in
1995 and  $223  thousand  in  1994.  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.  As a
result of a termination of its mortgage banking operations,  the Company did not
generate gains from the sale of mortgage servicing rights in 1996.

Other  significant  sources of Other income during 1996 include rental income of
$129 thousand and an $84 thousand insurance recovery on a 1995 foreclosure loss.
During 1995 the Company recorded income of $242 thousand related to its mortgage
banking  operations  and $83  thousand in rental  income.  Additionally,  during
December  1995,  the Company sold $5.3 million in  commercial  real estate loans
from the portfolio and recorded a gain of $176 thousand on this sale.

Non-Interest Expense. The ratio of the Company's  non-interest expenses to total
assets is higher than for California  banks in general  because  SierraWest Bank
experiences  higher  operating  expenses in its Lake Tahoe area of operation and
employs additional  personnel and utilizes  additional  facilities to manage its
SBA loan program.  Because of the extreme climatic  conditions in the Lake Tahoe
area of operations (temperatures range

                                                         -38-

<PAGE>



from -35 degrees to +100 degrees and average  snow levels  exceed 150 inches per
year), local building codes require more expensive  construction and the Company
experiences  added costs of heating and snow removal  which  increase  occupancy
costs. Additionally, the Company's supplies are generally more expensive than in
larger metropolitan regions because of the added cost of freight.

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

                                                          Salaries              Occupancy
                                                             and                   and                  Other
             Year Ended              Average               Related              Equipment           Non-Interest
            December 31,             Assets              Benefits(1)            Expenses              Expenses
<S>             <C>                <C>                       <C>                   <C>                   <C>    

                1996               $381,620                  3.1%                  0.9%                  1.6%
                1995                286,194                  3.7                   1.2                   2.4
                1994                257,609                  3.7                   1.1                   1.7
</TABLE>


(1) Excludes bonuses.  Including bonuses, percentages would be 3.2%, 3.7% and
    3.9% for the years ended December 31, 1996, 1995 and 1994, respectively.


The following table summarizes the principal  elements of non-interest  expenses
and discloses the increases (decreases) and percent of increases (decreases) for
1996 and 1995 (amounts in thousands except percentage amounts):
<TABLE>
                                                                                     Increase (Decrease)
                                      Year Ended December 31,              1996 over 1995             1995 over 1994
                                  1996         1995         1994        Amount     Percentage     Amount      Percentage
<S>                            <C>           <C>          <C>          <C>            <C>         <C>           <C>
Salaries and related benefits  $11,884       $10,564      $ 9,537      $ 1,320         12.5%      $ 1,027        10.8%
Bonuses......................      202            63          544          139        220.6          (481)      (88.4)
Occupancy and equipment......    3,486         3,401        2,960           85          2.5           441        14.9
Insurance....................      242           277          286          (35)       (12.6)           (9)       (3.1)
Postage......................      337           304          249           33         10.9            55        22.1
Stationery and supplies......      416           334          252           82         24.6            82        32.5
Telephone....................      374           350          262           24          6.9            88        33.6
Advertising..................      600           715          298         (115)       (16.1)          417       139.9
Legal fees...................      484           470          149           14          3.0           321       215.4
Consulting fees..............      506           263          128          243         92.4           135       105.5
Audit and accounting fees....      151           150          131            1          0.7            19        14.5
Directors' fees and expenses.      429           909          349         (480)       (52.8)          560       160.5
FDIC assessments.............        4           284          575         (280)       (98.6)         (291)      (50.6)
Other........................    2,582         2,860        1,766         (278)        (9.7)        1,094        61.9
                               -------       -------      -------      --------                   -------

                               $21,697       $20,944      $17,486      $   753          3.6       $ 3,458        19.8
                               =======       =======      =======      =======                    =======
</TABLE>


The  increase in salary  expense  includes  the effect of the four new  branches
opened in 1995,  partially  offset by the termination of the Company's  mortgage
operations.  In  addition  in 1996,  the  Company  has  increased  the number of
employees whose  compensation is partially  commission based and has changed the
commission  structure  of many  of its  loan  production  personnel.  In  total,
commissions and incentive pay have,  exclusive of mortgage  banking  operations,
increased  by $883  thousand  during 1996 as compared to 1995,  including a $438
thousand  increase  in  commissions  paid for the  generation  of SBA and  other
government  guaranteed loans. This increase includes the changes described above
as well as an increase in volume of loan originations.

During  1996,  the  Company  maintained  four bonus  plans.  The first plan pays
bonuses to full time  noncommissioned  employees  below the rank of Senior  Vice
President.  A total of $93  thousand  was paid under this plan  during  1996.  A
second plan provides  optional  bonuses to employees below the rank of Assistant
Vice President for  accomplishments  that are beyond the general  expectation of
their supervisor. Payments totaled $37 thousand under this plan in 1996. A third
plan is reserved for the Audit and Legal departments of the

                                                         -39-

<PAGE>



Company  whose  bonus  is  determined  by  the  Company's  Audit  and  Personnel
Committees. A total of $37 thousand is included in bonus expense at December 31,
1996 for this plan. The fourth plan covers Senior  management of the Company and
is payable upon achieving  certain  predefined  goals. No incentive bonuses were
earned  in 1996  under  this  plan.  Additionally,  the  Company's  CEO may make
recommendations  to the  Personnel  Committee  outside  of the  plans  for bonus
payments to Senior Management  employees.  Included in the 1996 bonus expense is
$35 thousand related to these recommendations.

The bonus  expense  in 1995  relates  to the Legal  and  Audit  departments.  In
addition,  during 1995 the Company had an incentive  plan in place  covering all
non-commissioned  employees;  however, no bonuses were earned under this plan. A
total of $544 thousand was earned under bonus plans in place during 1994.

The Company  maintains  a financial  institutions  bond for its  operations  and
directors and officers  insurance.  The decrease in overall insurance costs from
1994 levels  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  during 1995  primarily  related to $45 thousand
incurred for the start up and 1995  operations  of the four new  branches.  This
cost remained high in 1996 because of costs  associated  with printing forms and
supplies following the change in the Company's name. Telephone costs during 1995
and 1996  included  the costs of an  expanded  branch  system and an upgrade and
expansion of the Company's data  communication  telephone lines.  Advertising in
1995 includes an expanded budget and costs related to the new branches.

The increase in legal expense  during 1996 relates  primarily to two  litigation
matters.  One matter went to trial in June 1996 and was decided in the Company's
favor.  Increased costs were incurred in the second matter, which is ongoing and
relates  to  a  property  acquired  by  the  Company  through   foreclosure  and
subsequently  sold.  See Item 3. "Legal  Proceedings"  for a description of this
matter. 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.  The increase in
consulting  during 1996 primarily  relates to costs associated with the changing
of the  name  of the  Company's  subsidiary.  Other  significant  components  of
consulting expenses during 1996 include payments made for outside credit reviews
of the Company's  loan portfolio and $90 thousand paid to an SBA loan broker who
provides referrals from the southern California marketplace.

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.

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

Provision  for Income Taxes.  The provision for income taxes was $2.08  million,
$1.18 million and $1.86 million for the years ended December 31, 1996,  1995 and
1994,  respectively,  representing  38.4%,  38.1% and  38.3%,  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.


                                                         -40-

<PAGE>




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,  1996,  the Company had $29.1  million in  guaranteed
portions of SBA loans  available for sale,  most of which could be sold within a
short period of time compared to $15.4  million of SBA loans  available for sale
at December 31, 1995. 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,  1996,  the  Company  had
unsecured lines of credit totaling $6 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 1997 and expects to include up to $50 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 14.7% at December 31, 1996 as compared to 13.4% at December 31, 1995.  Cash
and due from banks  totaled  $26.4  million at December  31, 1996 as compared to
$18.7 million at December 31, 1995, and federal funds sold totaled $32.2 million
at December 31, 1996 as compared to $20.5 million at December 31, 1995.  Federal
funds sold represent deposits with major banks and are predominantly  uninsured.
The uninsured  portion of these deposits  together with the uninsured portion of
cash deposited with other institutions  totaled $32.6 million as of December 31,
1996. 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.

The  federal  funds  levels at  December  31,  1996 is higher  than the  Company
currently  considers necessary for day-to-day  liquidity needs.  Consistent with
the Company's on-going asset/liability management policies the Company will look
to  invest   excess   federal   fund   holdings   in   appropriate   alternative
interest-earning assets.

Total  gross  loans and  leases,  exclusive  of  unearned  income on leases  and
deferred  loan  fees/costs,  increased by $84.3  million from $240.8  million at
December 31, 1995 to $325.1 million at December 31, 1996. The increase  included
$29.7  million in SBA loans,  $15.1  million in other  commercial  loans,  $28.5
million in real estate mortgage, $4.9 million in real estate-construction,  $5.8
million in leases and $0.3 million in individual  and other loans.  The increase
in SBA  loans  relates  primarily  to  the  Company's  decision  to  retain  the
guaranteed  portion  of SBA loans and  additionally  to an  increase  in lending
directed towards the SBA's 504 program. The increase in other loans reflects the
Company's  efforts to expand and diversify its non-SBA lending  activities.  The
increase in real estate - mortgage  loans  primarily  relates to Sacramento  and
Reno operations. The $84.3 million increase in the loan portfolio since December
31, 1995 was primarily  funded with  increased  time deposits and an increase in
other deposits acquired at the Company's four branches opened in 1995.

Deposits increased by $106.5 million from $293.2 million at December 31, 1995 to
$399.7  million at December  31,  1996.  A decrease  of $0.4  million in savings
accounts  was  offset  by  increases  of  $29.1   million  in   interest-bearing
transaction accounts, $20.0 million in non-interest-bearing  demand accounts and
$57.8 million in time deposits.

                                                         -41-

<PAGE>



The increase in time deposits  includes an increase in out-of-area  certificates
of deposit of $11.1 million,  an increase in time deposits to public entities of
$11.6 million and time deposit growth at the four new branches of $26.7 million.
Non-interest  bearing  demand  accounts grew by $7.4 million at the new branches
and  interest-bearing  transaction  accounts  grew by $19.0  million at the same
branches.

In part to mitigate the effect of  seasonality  of its deposit  sources which is
due to the local  tourist-based  economy in much of the Company's  service area,
SierraWest  Bank utilizes a "money desk" to solicit  out-of-area  CDS. These CDs
supplement  its  other  deposit  sources,   provide  additional   liquidity  and
additionally,  help support its loan growth.  These deposits,  which at December
31, 1994, 1995 and 1996 totaled $17.6 million,  $34.7 million and $45.8 million,
respectively, represented 8.0%, 11.9% and 11.5% of total deposits as of December
31, 1994, 1995 and 1996, respectively.

To attract  out-of-area  CDS,  SierraWest  Bank  subscribes to a listing service
which lists  nationally  the rate the Bank is prepared  to pay.  Customers  call
SierraWest  Bank directly and place  deposits.  Additionally,  beginning in 1995
SierraWest  Bank began  accepting  referrals  by  brokers  which can result in a
slightly  lower cost of those  deposits.  At December 31, 1996 $10.6  million of
out-of-area  CD's  have been  acquired  through  broker  referrals.  To  attract
deposits,  SierraWest  Bank pays a market  rate  which may at times be above the
comparable rate offered by SierraWest Bank to its local depositors. The overhead
costs associated with these  out-of-area  deposits is, however,  lower than that
for  local  deposits  since  local  deposits  require  the  use of  bank  branch
facilities  and hence the  Company  believes  the cost of these  funds  does not
normally exceed the cost SierraWest Bank incurs to generate  comparable deposits
through  its branch  system.  While  out-of-area  deposits  are  acquired  at an
acceptable cost, SierraWest Bank monitors the level of these deposits because it
is concerned that out-of- area deposits are more rate sensitive and volatile and
that there may be some  exposure for  increased  costs in the future  should the
supply tighten. If interest rates rise rapidly,  the Company's reliance on these
deposits  could have an adverse  impact on net  interest  income if the costs to
retain those deposits rise faster than rates charged on interest-earning assets.

Capital Resources

At December 31, 1996, the Company had  shareholders'  equity of $33.9 million as
compared to $29.8 million at December 31, 1995. The Company's growth strategy is
to expand its banking  business,  internally and through possible  acquisitions.
Such expansion is contingent on the retention of internally  generated earnings,
and the  possible  issuance  of new equity or  additional  debt,  as well as the
satisfaction of other factors including obtaining regulatory approvals.

The  Company's  strategy is to expand its  banking  business,  through  internal
growth and acquisitions,  both within its present service areas, particularly in
the Reno  metropolitan  market and adjacent  areas,  and the  Sacramento  Valley
locations.  It also plans to increase the volume and geographic scope of its SBA
lending to leverage on its SBA loan origination and servicing  capabilities.  In
connection with this objective, the Company established 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 Buena Park
office was closed in 1996. See page 38 herein.  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.

On January  24,  1997 the  Company  announced  that it had  signed a  definitive
agreement to acquire  Mercantile  Bank.  Based in  Sacramento,  Mercantile  is a
business bank  primarily  servicing the commercial and real estate loan industry
and has total  assets of $46  million.  The  acquisition,  which is scheduled to
close in June, 1997, is subject to the approval of Mercantile's shareholders and
federal  and state  regulators.  Under the  terms of the  proposed  transaction,
shareholders  of  Mercantile  will receive total  compensation  of $6.6 million,
subject to certain  adjustments  primarily  based upon the level of deposits and
capital. The compensation will consist of 50% cash and 50% stock.

During June 1996 the Company  completed  construction of a new regional facility
in Reno, Nevada.  Total costs incurred for the land and building at December 31,
1996 was $3.8 million. The Company currently occupies

                                                         -42-

<PAGE>



approximately  13,000  square feet of this  28,600  square  foot  facility.  The
remaining  space is leased  or to be leased  until  needed  by the  Company  for
expansion.  At February  28,  1997 a total of 3,375  square feet had been leased
out. Tenant improvements paid for by the Company are not expected to exceed $0.3
million on this facility.

During  December 1996,  the Company  completed  construction  on its Carson City
facility.  This 5,200 square foot  facility was built at a cost of $1.3 million.
Prior to  occupying  this new  building,  the  Company's  Carson City office was
located in a 780 square foot leased facility.

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

A portion of the net proceeds  from these  debentures  have been utilized to pay
operating  expenses of the holding  company,  to provide a $2.3  million  equity
infusion into the  Company's  subsidiary  bank,  to repurchase  50,000 shares of
stock on the open market and to pay dividends to the Company's shareholders.  Of
the $2.7 million  remainder at December 31, 1996,  $1.8 million has been used to
reduce the Company's  reliance on out-of-area  time  deposits,  and $0.9 million
provides operating cash resources for the holding company.

The Company paid dividends of fifteen cents per share during April and September
1996 and 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 the  first  quarter  of  1996,  the  names  of  both  the  Bancorp's  banking
subsidiaries  were changed to  SierraWest  Bank.  Effective  October 1, 1996 the
operations of the Company's  Nevada  subsidiary  were merged into the California
subsidiary.

                                                         -43-

<PAGE>

<TABLE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                                          Page
<S>                                                                                                         <C>
Independent Auditors' Report................................................................................45

Consolidated Financial Statements of SierraWest Bancorp
  Consolidated Statements of Financial Condition............................................................46
  Consolidated Statements of Income.........................................................................48
  Consolidated Statements of Shareholders' Equity...........................................................50
  Consolidated Statements of Cash Flows.....................................................................51
  Notes to Consolidated Financial Statements................................................................55
</TABLE>


                                                         -44-

<PAGE>



INDEPENDENT AUDITORS' REPORT


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


We have audited the consolidated statements of financial condition of SierraWest
Bancorp and  Subsidiary  ("Company")  as of December 31, 1996 and 1995,  and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the  three  years in the  period  ended  December  31,  1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

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


/s/ Deloitte & Touche LLP

Sacramento, California
January 24, 1997



                                                           -45-

<PAGE>


<TABLE>
                                              


                                               SIERRAWEST BANCORP AND SUBSIDIARY

                                        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                                                            ASSETS


                                                                              December 31,
                                                                         1996              1995

                                                                             (in thousands)

Cash and cash equivalents:
<S>                                                                  <C>               <C>    

   Cash and due from banks...................................        $  26,434         $   18,689
   Federal funds sold........................................           32,200             20,500
                                                                     ----------        -----------

   Total Cash and Cash Equivalents...........................           58,634             39,189

Investment securities (Note 2):
   Investments in mutual funds available for sale............             1,335             1,391
   Held to maturity, market value $2,000 and $3,380..........             2,001             3,373
   Available for sale........................................            31,880            24,970

Loans held for sale (Note 3).................................            29,489            16,529
Loans and leases, net of allowance for possible loan
   and lease losses of $4,546 and $3,845 (Note 3)............           289,331           219,595
Excess servicing on SBA loans (Note 5).......................            14,338            14,813
Bank premises, leasehold improvements
   and equipment, net (Note 4)...............................            12,358             8,972
Accrued interest receivable and
   other assets..............................................             8,523             8,686
                                                                     -----------       ----------

   TOTAL ASSETS..............................................          $447,889          $337,518
                                                                       ========          ========
</TABLE>





































                                        See  notes  to  consolidated   financial
statements.

                                                             -46-

<PAGE>

<TABLE>
                                               SIERRAWEST BANCORP AND SUBSIDIARY

                                        CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                                          (continued)


                                             LIABILITIES AND SHAREHOLDERS' EQUITY


                                                                               December 31,
                                                                         1996                  1995

                                                                    (in thousands except share amounts)

Deposits (Note 6):

<S>                                                                  <C>                  <C>         
   Non-interest-bearing demand...............................        $     80,525         $     60,579
   Savings...................................................              13,289               13,693
   Interest bearing transaction accounts.....................             120,417               91,273
   Time .....................................................             185,420              127,609
                                                                     ------------         ------------

   Total Deposits............................................             399,651              293,154

Other liabilities and interest payable.......................               5,802                4,531
Convertible debentures (Note 13).............................               8,520               10,000
                                                                     ------------         ------------

   Total Liabilities.........................................             413,973              307,685

Shareholders' equity (Notes 15 and 16):
   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; 2,771,139 and 2,592,419 shares
     issued and outstanding at December 31, 1996 and
     1995, respectively......................................              12,291               10,709
   Retained earnings.........................................              21,654               19,131
   Unrealized loss on investment securities
     available for sale, net of tax of
     $21 and $6..............................................                 (29)                  (7)
                                                                     ------------         ------------

   Total Shareholders' Equity................................              33,916               29,833
                                                                     ------------         ------------

   TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY....................................        $   447,889          $    337,518
                                                                     ===========          ============
</TABLE>





























                                        See  notes  to  consolidated   financial
statements.

                                                             -47-

<PAGE>

<TABLE>
                                              
                                               SIERRAWEST BANCORP AND SUBSIDIARY

                                               CONSOLIDATED STATEMENTS OF INCOME



                                                                                            Year Ended December 31,
                                                                                  1996           1995          1994

                                                                           (in thousands, except per share amounts)

Interest income:
<S>                                                                            <C>             <C>         <C>         

   Loans and leases..............................................              $  30,506       $ 23,582    $    17,386
   Federal funds sold............................................                    938            594            478
   Investment securities
     U.S. Treasury...............................................                    931            976          1,103
     U.S. Government agencies....................................                     85            385            272
     States and political subdivisions...........................                    198             29             17
     Other.......................................................                    498            144            294
   Other assets..................................................                    113            121            107
                                                                              ----------     ----------    -----------

   Total Interest Income.........................................                 33,269         25,831         19,657

Interest expense:
   Savings deposits..............................................                    283            286            317
   Transaction accounts..........................................                  2,620          1,995          1,894
   Time deposits ................................................                  8,832          5,352          2,559
   Convertible debentures (Note 13)..............................                    764            850            783   
   Other.........................................................                    (4)              8             44
                                                                              ----------     ----------    -----------

   Total Interest Expense........................................                 12,495          8,491          5,597
                                                                              ----------     ----------    -----------

   Net Interest Income...........................................                 20,774         17,340         14,060

   Provision for possible loan and lease losses (Note 3).........                  1,010          1,270            885
                                                                              ----------     ----------    -----------
   Net Interest Income After Provision for Possible
     Loan and Lease Losses.......................................                 19,764         16,070         13,175
</TABLE>

































                                        See  notes  to  consolidated   financial
statements.

                                                             -48-

<PAGE>

<TABLE>
                                               SIERRAWEST BANCORP AND SUBSIDIARY

                                               CONSOLIDATED STATEMENTS OF INCOME
                                                          (continued)


                                                                                   Year Ended December 31,
                                                                                  1996           1995          1994

                                                                           (in thousands, except per share amounts)

Non-interest income:
<S>                                                                           <C>            <C>           <C>        

  Net servicing income (Note 5)..............................                 $    4,087     $    4,667    $     4,474
  Net gain on sale of loans (Note 5).........................                        373            307          2,300
  Service charges on deposit accounts........................                      1,722          1,755          1,517
  Other......................................................                      1,156          1,240            886
                                                                              ----------     ----------    -----------

  Total Non-interest  Income.................................                      7,338          7,969          9,177

Non-interest expense:
  Salaries and related benefits..............................                     12,086         10,627         10,081
  Net occupancy and equipment expense (Notes 4 and 8)                              3,486          3,401          2,960
  Other expense (Note 17)....................................                      6,125          6,916          4,445
                                                                              ----------     -----------   -----------

  Total Non-interest Expense.................................                     21,697         20,944         17,486
                                                                              ----------     ----------    -----------

  Income before provision for income taxes...................                      5,405          3,095          4,866
  Provision for income taxes (Note 7)........................                      2,077          1,179          1,863
                                                                              ----------     ----------    -----------

  Net Income.................................................                 $    3,328          1,916    $     3,003
                                                                              ==========     ==========    ===========

Income per common and equivalent share, based on
  weighted average shares outstanding (including dilutive
  effect of options)
  (Notes 1, 12 and 13):
  Primary....................................................                 $     1.19     $     0.72    $      1.12
  Weighted average shares outstanding........................                      2,802          2,678          2,678
  Fully diluted..............................................                 $     1.01     $     0.66    $      0.96
  Weighted average shares outstanding........................                      3,747          3,687          3,606

Dividends per share..........................................                 $     0.30     $     0.24    $      0.00
</TABLE>


































                                        See  notes  to  consolidated   financial
statements.

                                                             -49-

<PAGE>

<TABLE>
                                          

                                              SIERRAWEST BANCORP AND SUBSIDIARY

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


                                                                                         Unrealized
                                                                                           Loss on
                                                   Common Stock           Retained       Investment
                                               Shares       Amounts       Earnings       Securities     Total
                                                                       (in thousands)
<S>                                               <C>      <C>           <C>              <C>            <C>    

Balance at January 1, 1994..................      2,591    $ 10,825      $   14,836       $  (16)       $ 25,645

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

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

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

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


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

Balance at December 31, 1996 ...............      2,771    $ 12,291      $   21,654      $   (29)       $ 33,916
                                            ============= ========       ==========      =========       ========
</TABLE>























                                        See  notes  to  consolidated   financial
statements.

                                                             -50-

<PAGE>
<TABLE>

                                           

                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                               Year Ended December 31,
                                                                        1996              1995              1994

                                                                                    (in thousands)

INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS

Cash flows from operating activities:
<S>                                                                 <C>              <C>                <C>    
  Interest and fees received.................................       $   32,506       $    24,411        $   18,900
  Service charges............................................            1,722             1,754             1,517
  Servicing income received..................................            5,574             6,186             6,439
  Other income received......................................            1,038             1,147               877
  Interest paid..............................................          (12,292)           (8,251)           (5,221)
  Cash paid to suppliers and employees.......................          (20,141)          (18,142)          (13,916)
  Income taxes paid..........................................           (1,640)           (1,334)           (1,838)
  Mortgage loans originated or purchased for sale............                0           (25,176)          (26,769)
  Government guaranteed loans originated for sale............           (7,672)          (22,163)          (36,276)
  Mortgage loans sold........................................                0            27,000            28,352
  Government guaranteed loans sold...........................            9,214             5,646            38,238
                                                                    ----------       -----------        ----------
  Net cash provided by (used in) operating activities........            8,309            (8,922)           10,303

Cash flows from investing activities:
  Proceeds from:
     Sales of mutual funds...................................                0               454             6,516
     Maturities of investment securities held to maturity....            1,378               773             1,854
     Maturities of investment securities available for
       sale..................................................           10,958             3,500            13,025
     Sales of investment securities available for sale.......            8,239             8,484             4,986
     Sales of investment securities -
       held to maturity (Note 2).............................                0               999                 0
  Purchase of investment securities -
    held to maturity.........................................                0                 0            (1,488)
  Purchase of investment securities -
    available for sale.......................................          (26,248)           (9,999)          (28,370)
  Loans made net of principal collections....................          (84,700)          (52,571)          (19,531)
  Capital expenditures.......................................           (4,536)           (3,012)           (1,317)
  Decrease (increase) in other assets........................              141                83              (109)
                                                                    ----------         ---------            ------- 
  Net cash used in investing activities......................          (94,768)          (51,289)          (24,434)

</TABLE>


























                                    See   notes   to   consolidated    financial
statements.

                                                         -51-

<PAGE>

<TABLE>

                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)


                                                                                        Year Ended December 31,
                                                                                  1996           1995          1994

                                                                                                (in thousands)


Cash flows from financing activities:
<S>                                                                            <C>           <C>           <C>    
  Net increase in demand, interest bearing,
    and savings accounts........................................                  48,686          3,606          5,389
  Net increase (decrease) in time deposits......................                  57,811         70,672         (7,281)
  Proceeds from issuance of debentures..........................                       0              0         10,000
  Net proceeds from issuance of common stock ...................                     212            142             12
  Dividend paid.................................................                    (805)          (624)             0
  Repurchase of common stock....................................                       0           (445)             0
  Cash paid to redeem debentures................................                       0              0            (73)
                                                                              ----------      ----------     -----------
  Net cash provided by financing activities.....................                 105,904         73,351          8,047
                                                                              ----------      ----------     -----------

  Net  increase (decrease) in cash and cash equivalents.........                  19,445         13,140         (6,084)

  Cash and cash equivalents - beginning of period...............                  39,189         26,049         32,133
                                                                              ----------     ----------    -----------

  Cash and cash equivalents - end of period.....................               $  58,634     $   39,189    $    26,049
                                                                               =========     ==========    ===========

</TABLE>














































                                    See   notes   to   consolidated    financial
statements.

                                                         -52-

<PAGE>

<TABLE>

                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)


                                                                                Year Ended December 31,

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

                                                                                            (in thousands)

RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES
<S>                                                                           <C>            <C>           <C>   
Net income....................................................                $    3,328     $    1,916    $     3,003
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization..............................                     1,197          1,119          1,139
   Provision for possible loan and lease losses...............                     1,010          1,270            885
   Deferred taxes.............................................                       309           (140)            29
   (Increase) decrease in prepaid expenses....................                      (313)           110             44
   Gain on sale of government guaranteed loans
    (over)/under cash received ...............................                      (392)           108            321
   Amortization of excess servicing on SBA loans..............                     1,315          1,348          1,793
   Amortization of purchased mortgage servicing
    rights....................................................                       172            172            172
   Change in:
    Interest receivable.......................................                      (347)          (534)          (501)
    Interest payable..........................................                       203            241            376
    Deferred loan fees........................................                        14           (312)           309
    Other deferred income.....................................                       (13)          (101)            17
    Accrued expenses..........................................                       671          1,139           (261)
    Current taxes payable.....................................                       127            (15)            (6)
   Write down of other real estate owned .....................                        21             16             54
   Amortization of premium/discount on securities.............                       133           (104)           (58)
   Amortization of premium/discount on loans..................                      (563)          (469)          (507)
   Increase in cash surrender value of life
    insurance policies........................................                      (113)          (121)          (105)
   Deferred gain on sale of other loans.......................                         0             66              0
   Loss on sale of securities.................................                         8             62              4
   Decrease (increase) in loans originated for sale...........                     1,542        (14,693)         3,545
   Write off of investments...................................                         0              0             50
                                                                              ----------     ----------    -----------

   Total adjustments..........................................                     4,981        (10,838)         7,300
                                                                              ----------     -----------   -----------

   Net cash provided by (used in) operating activities                        $    8,309     $   (8,922)   $    10,303
                                                                              ==========     ===========   ===========

</TABLE>




























                                    See   notes   to   consolidated    financial
statements.

                                                         -53-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                      (continued)

Supplemental Schedule of Non Cash Investing and Financing Activities

     Common stock was issued in conversion of  $1,370,000,  $10,000 and $167,000
of convertible debentures in 1996, 1995 and 1994,  respectively.  The $1,370,000
is net of $110,000 of debenture offering costs.

     For the years ended December 31, 1996,  1995 and 1994,  $446,000,  $373,000
and  $682,000  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 1996, $9.2 million of government  guaranteed  loans were  transferred to
held for sale status and subsequently sold and included in the Statement of Cash
Flows.

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





















































                                    See   notes   to   consolidated    financial
statements.

                                                         -54-

<PAGE>


                                       

                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Significant Accounting and Reporting Policies:

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

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

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

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

     Cash and Cash  Equivalents.  Cash and cash  equivalents in the consolidated
statements of cash flows include cash and due from banks and federal funds sold.

     Investments in Mutual Funds.  Investments in mutual funds consist of mutual
funds whose assets are  invested  primarily in U.S.  Government  securities.  At
December  31,  1996 and 1995,  all mutual fund  investments  are  classified  as
available for sale and carried at market value.  Unrealized  gains and losses on
mutual funds are reported,  net of tax, as a separate component of shareholders'
equity. Interest income on mutual funds is recorded as earned.

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

     Loans Held for Sale. Loans held for sale are valued at the lower of cost or
market  value.  Valuation  adjustments,  if any, are charged  through the income
statement.  In practice,  the  adjustment is charged  against the gain (loss) on
sale of loans. At December 31, 1996 and 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).

     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.

                                                         -55-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

Interest  income on loans and leases is recognized as earned.  When a loan is 90
days past due with  respect to  principal  or  interest,  and in the  opinion of
Management, interest or principal is not collectible, or at such earlier time as
Management  determines that the  collectibility of such principal or interest is
unlikely,   the  accrual  of  interest  is  discontinued  and  all  accrued  but
uncollected interest income is reversed.  Cash payments subsequently received on
nonaccrual  loans are  recognized as income only where the future  collection of
the recorded value of the loan is considered by management to be probable.  Loan
fees net of certain  related  direct costs to  originate  loans are deferred and
amortized over the contractual life of the loan using a method that approximates
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.

     The Company has adopted Statement 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.  The
Company's  impaired loans are collateral  dependent and therefore measured using
the fair value of the collateral. SFAS No. 114 also requires that impaired loans
for which foreclosure is probable should be accounted for as loans. SFAS No. 118
amends SFAS No. 114 to allow a creditor to use existing  methods for recognizing
interest  income  on  impaired  loans and  requires  certain  information  to be
disclosed.  Interest is recognized  on impaired  loans when cash is received and
the future collection of principal is considered by management to be probable.

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

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

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

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

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

                                                         -56-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)



     Property  held at December 31, 1996 and 1995 in the amounts of $446,000 and
$714,000, respectively, are expected to be disposed of within one year.

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

     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
accreted to interest income 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.

     Stock-Based Compensation. The Company accounts for stock-based awards to 
employees using the intrinsic value method in accordance with APB No. 25, 
Accounting for Stock Issued to Employees.  Accordingly, nocompensation expense
has been recognized in the financial statements for employee stock arrangements.
However, the required pro forma disclosures have been presented in accordance
with SFAS No. 123.

     Accounting Pronouncements. On January 1, 1996 the Company adopted SFAS 121,
Accounting for the  Impairment of Long-Lived  Assets to Be Disposed Of. SFAS 121
establishes   standards  for  the  impairment  of  long-lived  assets,   certain
identifiable  intangibles,  and goodwill for all entities.  It does not apply to
financial   instruments,   long-term  customer   relationships  of  a  financial
institution,  mortgage  or other  servicing  rights,  or  deferred  tax  assets.
Adoption of SFAS 121 has not had a significant impact on the financial condition
or operations of the Company.

     The Company is required to adopt SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and  Extinguishments  of Liabilities" in 1997. The
statement  provides   accounting  and  reporting  standards  for  transfers  and
servicing  of  financial  assets  and  extinguishments  of  liabilities.   These
standards are based on consistent application of a financial-component  approach
that  focuses on control.  Under this  approach,  after a transfer of  financial
assets,  an entity recognizes the financial and servicing assets it controls and
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.  Management has not
assessed  the effect that the  adoption  of SFAS 125 will have on the  financial
condition or results of operations of the Company.

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


                                                         -57-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

     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.  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  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.

     During the first quarter of 1996, the Company entered into an interest rate
swap  agreement  with a major bank to reduce its  exposure  to  fluctuations  in
interest rates. The notional  principal  amount is $20 million,  and the term is
three years. Under the agreement,  the other bank pays a fixed rate of 8.17% and
receives  from the  Company  the prime  rate.  Net  interest  income or  expense
resulting from the differential between the fixed and prime rates is recorded on
a current  basis and any  resultant  accrual is settled  quarterly.  The related
amount  payable  to or  receivable  from the  other  bank is  included  in other
liabilities  or  assets.  The fair  value of the swap is not  recognized  in the
financial   statements.   The  net  interest  expense  recognized  in  1996  was
approximately $13,000.

Reclassifications.  Certain items in the 1995 financial statements have been
reclassified to conform to the 1996 presentation.


                                                         -58-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      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, 1996

Held to Maturity:
<S>                                       <C>             <C>               <C>           <C>               <C>

U.S. Treasury securities................  $     2,001     $       0         $     1       $  2,000          $  2,001
Other securities........................            0             0               0              0                 0
                                          -----------   ------------        --------      --------          --------
Total held to maturity..................  $     2,001     $       0         $     1       $  2,000          $  2,001
                                          ===========   =============       ========      ========          =========

Available for Sale:

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

Mutual funds............................   $    1,500     $       0         $   165       $  1,335          $  1,335
                                           ===========    ==========        ==========    ==========        ========

December 31, 1995

Held to Maturity:

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
                                           ============   ===========       ========      ===========       ==========
</TABLE>








                                                              -59-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


Scheduled  maturities  of  investment  securities  at December  31, 1996 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..............................................       $  1,001        $  1,001     $   7,015   $    7,018
After 1 year but within 5 years............................          1,000             999        11,759       11,792
After 5 years but within 10 years..........................              0               0           100           99
After 10 years.............................................              0               0         5,504        5,549
                                                                  --------        --------     ----------   ----------
                                                                     2,001           2,000        24,378       24,458

Mortgage-backed securities. . . . . . . . . . . . . . . . .              0              0          7,387        7,422
                                                                      ----        --------    ----------    ----------

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . .      $  2,001        $  2,000     $  31,765    $  31,880
                                                                    =======        =========    ==========   ==========

</TABLE>

       Expected  maturities  of  mortgage-backed   securities  can  differ  from
contractual  maturities  because  borrowers  have the  right  to call or  prepay
obligations  with or without call or  prepayment  penalties.  In addition,  such
factors as prepayments  and interest rates may affect the yield and the carrying
value of mortgage-backed  securities. At December 31, 1996 and 1995, the Company
had no high-risk  collateralized  mortgage  obligations as defined by regulatory
agencies.

       The  weighted  average  maturity of portfolio  securities  held by mutual
funds classified as available for sale was 7.2 years at December 31, 1996.

       Assets,   principally  loans  and  investment   securities,   carried  at
approximately  $24,201,000 at December 31, 1996 and  $14,594,000 at December 31,
1995 were pledged to secure public  deposits and for other purposes  required or
permitted by law.

       Proceeds from sales of investments  in debt  securities  were  $8,351,000
during 1996, and $9,483,000 and $4,986,000  during 1995 and 1994,  respectively.
The Company recorded gross realized losses of $8,000 and $62,000 on the sales of
investment securities during 1996 and 1995,  respectively.  The Company realized
tax  benefits  of $3,000  and  $25,000  on  securities  losses in 1996 and 1995,
respectively.  Sales of investment  securities classified as held to maturity in
1995  consisted  of a  single  security  which  was sold  within  90 days of its
maturity  date. The amortized cost at the date of sale was $998,203 and the loss
realized was $1,172.

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

      The Company's  customers are located throughout its service areas covering
primarily  the  whole  of  Northern  California   including  San  Francisco  and
Sacramento  and  Reno,  Nevada.  Approximately  45% of the  Company's  loans  at
December  31,  1996,  have been  generated  through  the  Company's  SBA lending
activities.  Of these loans,  the SBA guarantee  extends to  approximately  25%.
$69,030,000 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.


                                                           -60-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

      At  December  31,  1996 and  1995,  the loan  portfolio  consisted  of the
following (amounts in thousands):
<TABLE>

                                                                                                         
                                                                                            1996         1995                       
                                                                                           -----         ----
<S>                                                                                     <C>            <C>   

Commercial................................................................              $ 174,445      $ 142,622
Real estate--mortgage.....................................................                 67,690         39,219
Real estate--construction.................................................                 36,633         31,718
Individual and other......................................................                  6,824          6,530
Lease receivables.........................................................                  9,994          4,164
                                                                                        -------------    --------

Total gross loans and leases..............................................                295,586        224,253

Unearned income on leases.................................................                  1,690            808
Net deferred loan fees....................................................                     19              5
Allowance for possible loan and lease losses..............................                  4,546          3,845
                                                                                        -------------    -----------
Total loans and leases, net of unearned income on leases, net
   deferred fees and allowance for possible loan and lease losses.........              $ 289,331      $  219,595
                                                                                        ===========      ===========

Loans held for sale.......................................................              $  29,489      $   16,529
                                                                                        ============     ============
</TABLE>

      Included  in  commercial  loans  and  loans  held for  sale are SBA  loans
totaling   $146,266,000   and  $116,529,000  at  December  31,  1996  and  1995,
respectively.  The  guaranteed  portion of SBA loans in process of  disbursement
totaled $5,559,000 and $11,448,000 at December 31, 1996 and 1995,  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  $29,066,000 and $15,377,000 at December 31, 1996 and
1995,  respectively.  Loans and  portions  of loans  guaranteed  by the  federal
government were  approximately  $37,444,000 and $29,947,000 at December 31, 1996
and 1995, respectively.

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


                                       1997              $  2,924
                                       1998                 2,725
                                       1999                 1,837
                                       2000                 1,336
                                       2001                   750
                                       Thereafter             422
                                                         --------

                                       Total             $  9,994
                                                         ========

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

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

      Of total gross  loans and leases at December  31,  1995,  $5,500,000  were
considered  to be impaired.  The  allowance  for possible  loan and lease losses
included  $446,000 related to these loans.  The amount of interest  received and
recognized on these  impaired loans in 1995 was $221,000.  The average  recorded
investment in impaired loans during 1995 was $3,400,000.

                                                           -61-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

      The changes in the  allowance  for possible  loan and lease losses for the
years  ended  December  31,  1996,  1995,  and 1994 were as follows  (amounts in
thousands):
<TABLE>
                                                                                             Year Ended
                                                                                                December 31,
                                                                                     1996           1995           1994
<S>                                                                                <C>          <C>             <C>     

Balance, beginning of year....................................                     $  3,845     $   3,546       $ 3,472

Provision for possible loan and lease losses..................                        1,010         1,270           885
Loans charged off.............................................                         (593)       (1,025)       (1,075)
Recoveries....................................................                          284            54           264
                                                                                   ---------     ---------      --------
Balance, end of period........................................                     $  4,546      $  3,845       $ 3,546
                                                                                    ========      ========      ========

</TABLE>

     As of December 31, 1996 and 1995, loans totaling $5,363,000 and $5,476,000,
respectively,  were on nonaccrual  status.  Interest  earned but not recorded on
loans that were on nonaccrual status for the years ended December 31, 1996, 1995
and 1994, was $320,000, $243,000, and $97,000, respectively. Cash collections of
interest on  nonaccrual  loans for the same periods of $310,000,  $221,000,  and
$145,000,  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 $2,132,000  ,$1,023,000,  and $1,763,000,  as of December 31, 1996, 1995
and 1994,  respectively.  These  loans are  adequately  secured  and  Management
believes interest recorded on these loans will be collected.

     Other real estate owned was $446,000 and $758,000 at December 31, 1996, and
1995,  respectively,  and is recorded in other assets.  At December 31, 1996 and
1995 the  balance in the  allowance  for losses on other real  estate  owned was
zero.  During  the  years  ended  December  31,  1996  and  1995,  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, 1996
and 1995, consisted of the following (amounts in thousands):

<TABLE>
                                                                                  December 31, 1996
                                                                                     Accumulated
                                                                                    Depreciation/              Net
                                                                  Cost              Amortization           Book Value
<S>                                                          <C>                    <C>                    <C>         

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

Total.....................................................   $       18,317         $       5,959          $     12,358
                                                             ==============         =============          ============

</TABLE>

                                                           -62-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)
<TABLE>

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

Land......................................................   $          958        $           0         $         958
Building .................................................            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>

      Depreciation  and  amortization  amounts  included  in net  occupancy  and
equipment  expenses were  $1,145,000,  $1,076,000 and $1,061,000,  for the years
ended December 31, 1996, 1995 and 1994, respectively.


5.    Sales and Servicing of SBA Loans:

      A summary of the  activity in SBA loans for the years ended  December  31,
1996, 1995 and 1994, is as follows (amounts in thousands):
<TABLE>

                                                                                                December 31,
                                                                                     1996           1995           1994
<S>                                                                                  <C>          <C>           <C>    

SBA loans sold.............................................................          $  5,621     $ 5,646       $ 38,238
Premium received at sale...................................................                52         496          3,132
Excess servicing retained(1)...............................................               690         134          1,241
Amortization charged against earnings......................................             1,315       1,348          1,793
Balance of excess servicing retained at period end.........................            14,188      14,813         16,027
</TABLE>

(1)   Net of estimated future servicing fee rate.

      For the years ended  December  31, 1996 and 1995,  $7.3  million and $22.2
million of unguaranteed portions of SBA loans, respectively, were originated for
sale. For the year ended December 31, 1994, $36.3 million of guaranteed portions
of SBA loans were originated for sale.

      In addition to the above,  excess servicing  retained at December 31, 1996
includes  $150,000  generated  on  the  sale  of  business  and  industry  loans
guaranteed by Farmer Mac.

      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.

      During  June  1990,  the  Company  purchased  the  rights to  service  the
guaranteed portion of SBA loans from a third party. The unpaid principal balance
of such loans serviced for others by the Company  exclusive of nonaccrual loans,
was $11,651,000 and 11,580,000 at December 31, 1996 and 1995, respectively.  The
balance of purchased  servicing rights was $600,000 and $772,000 at December 31,
1996 and 1995,  respectively.  Amortization  of purchased  servicing  rights was
$172,000 in 1996, 1995 and 1994.







                                                           -63-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)




6.    Deposits:

      The aggregate amount of certificates of deposit with balances in excess of
$100,000,  was  $58,110,000  and  $31,595,000  at  December  31,  1996 and 1995,
respectively.

      Maturities of certificates of deposit at December 31, 1996 were as follows
(amounts in thousands):


                 Year

                 1997......................................     $157,908
                 1998......................................       25,024
                 1999......................................        1,477
                 2000......................................          857
                 2001......................................          154
                                                             ------------
                                                                $185,420
                                                             ============ 


7.    Income Taxes:

      The current and deferred  amounts of the tax provision for the years ended
December 31, 1996, 1995 and 1994 are as follows (amounts in thousands):
<TABLE>

                                                                                    December 31,
                                                             -----------------------------------
                                                                  1996                  1995                  1994
                                                                  ----                  ----                  ----
<S>                                                           <C>                   <C>                   <C>  

Federal               Currently payable...................... $    1,392            $    1,030            $   1,439
                      Deferred...............................        234                   (93)                  50

State                 Currently payable......................        376                   289                  395
                      Deferred...............................         75                   (47)                 (21)
                                                              ----------              ----------           ----------

                                                              $    2,077            $    1,179            $   1,863
                                                              ==========            ===========           ==========

Total                 Currently payable...................... $    1,768            $    1,319            $   1,834
                      Deferred...............................        309                  (140)                  29
                                                              ----------            ----------            ----------

                                                              $    2,077            $    1,179            $   1,863
                                                              ==========            ===========           ==========

</TABLE>

                                                           -64-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


      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, 1996 and 1995 are as follows
(amounts in thousands):
<TABLE>

    
                                                                               
                                                                                               December 31,
Deferred Tax Liabilities:                                                           1996                     1995
                                                                                   ------                   ------ 
<S>                                                                                <C>                   <C> 
                                                                                    
     Unamortized book gain in excess of unamortized tax gain
       on sale of SBA loans                                                        $  2,285              $   2,091
     Deferred loan costs                                                                618                    342
     Loans marked to market                                                             573                    339
     Other                                                                              351                    250
                                                                                   --------              ---------
                                                                                      3,827                  3,022
Deferred Tax Assets:
     Book loan loss allowance in excess of tax loan loss allowance                    1,603                  1,363
     State taxes paid or accrued                                                        153                    109
     Accrued personal leave                                                             248                    234
     Deferred compensation                                                              222                    159
     Unrealized loss on investment securities                                            21                      0
     Accrued expenses                                                                   582                    586
     Other                                                                              275                    157
                                                                                   --------              ---------
                                                                                      3,104                  2,608
                                                                                   --------              ---------
Net deferred tax liability                                                         $    723              $     414
                                                                                   ========              =========
</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.

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


                                                                                    December 31,
                                                             -------------------------------------------------------
                                                                   1996                   1995                  1994
                                                                   ----                   ----                  ----
<S>                                                               <C>                     <C>                   <C>

Tax at statutory federal rate ...............................     35.0%                   35.0%                 35.0%
State taxes, net of federal benefit..........................      5.0                     4.4                   5.4
Income exempt from federal taxation..........................     (1.7)                   (0.4)                 (0.1)
Increase in cash surrender value
  of life insurance policies.................................     (0.7)                   (1.3)                 (0.9)
Other, net...................................................      0.8                     0.4                  (1.1)
                                                                  -----                   ------                ------

Effective tax rate...........................................     38.4%                   38.1%                 38.3%
                                                                  ====                    =====                 =====
</TABLE>

8.    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 $1,106,000, $1,211,000 and $922,000, for the years
ended  December 31,  1996,  1995 and 1994,  respectively.  At December 31, 1996,
future  minimum  rentals  to be  received  under  noncancelable  subleases  were
approximately $419,000.


                                                           -65-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


      At  December  31,  1996,  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>    

                 1997......................................      $    38      $    997
                 1998......................................           38           828
                 1999......................................           38           860
                 2000......................................           38           789
                 2001......................................           38           556
                 Thereafter................................          378         1,789
                                                                  -------      --------
                 Total minimum lease payments..............          568      $  5,819
                                                                               ========
                 Less amount representing interest.........         (295)
                                                                  -------

                 Present value of net minimum
                   lease payments..........................      $   273
                                                                  =======
</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, 1996 and 1995, the Company
had outstanding  $78,053,000 and  $46,030,000,  respectively,  in commitments to
extend credit and $2,024,000 and $1,083,000, respectively, in standby letters of
credit.  At December 31, 1996,  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
$20,639,000 of the  commitments at December 31, 1996,  relate to SBA loans which
may require a construction  phase,  generally  lasting less than 12 months.  The
remainder relate primarily to commercial  lines of credit,  construction  loans,
equity  lines of credit,  and  commercial  loans.  The  Company  evaluates  each
potential  borrower  and  the  necessary  collateral  on  an  individual  basis.
Collateral varies, but may include real property,  bank deposits, debt or equity
securities, or business assets.

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

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

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

                                                           -66-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

matter,  was dismissed by agreement of the parties.  The other matter,  filed in
the summer of 1995 in the U.S.  District Court,  Eastern District of California,
is ongoing, with a settlement conference anticipated in the next several months.

The Bank's external and internal  counsel on this matter believe that the Bank's
share of the cost of  remediation  and the costs of defense will not be material
to the Bank's or the Company's  performance and will be within existing reserves
established  by the Bank for this matter.  It is also  expected that clean-up of
the property will be undertaken during 1997.

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

      Reserves.  The Company is required to maintain  reserves  with the Federal
Reserve Bank of San Francisco equal to a percentage of its reservable  deposits.
The  reserve  requirement  at  December  31,  1996 and 1995 was  $5,054,000  and
$2,855,000, respectively.

9.    Capital Requirements and Regulatory Restrictions:

      The Company is regulated by the Federal Reserve Board and is limited as to
the  payment  of  dividends  by  California  corporate  law to the amount of its
retained earnings. SierraWest Bank is regulated by the Federal Deposit Insurance
Corporation (the "FDIC"),  whose regulations  generally do not limit the payment
of dividends.  In addition to the FDIC, SierraWest Bank is also regulated by the
California  State  Banking  Department.   California  banking  laws  limit  cash
dividends  to the lesser of  retained  earnings or net income for the last three
years,  net of the amount of  distributions  made to  shareholders  during  such
period.  At December  31,  1996,  in  accordance  with  statutory  restrictions,
$11,647,000 of Bancorp's  retained earnings were restricted as to the payment of
dividends;  however,  banking  regulations  also require that each bank maintain
certain capital ratios.  These requirements may further act to limit the payment
of dividends.

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

      Quantitative measures established by regulation to ensure capital adequacy
require the Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the  table  below)  of total  and Tier I  capital  (as  defined  in the
regulations)  to  risk-weighted  assets  (as  defined)  and Tier I  capital  (as
defined) to average assets (as defined). Management believes, as of December 31,
1996,  that the Company and the Bank meet all capital  adequacy  requirements to
which they are subject.

      The  most  recent   notification   from  the  Federal  Deposit   Insurance
Corporation  for the Bank as of December 31, 1996 and 1995  categorized the Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be  categorized  as well  capitalized  the Bank must  maintain  minimum total
risk-based,  Tier I  risk-based  and Tier I leverage  ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed the Bank's category.



                                                           -67-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)




The Company's and the Bank's actual  capital  amounts (in  thousands) and ratios
are also presented, respectively, in the following tables.
<TABLE>
                                                                                                     To Be Well Capitalized
                                                                               For Capital           Under Prompt Corrective
                                                           Actual         Adequacy Purposes            Action Provisions
                                                 Amount       Ratio         Amount       Ratio        Amount       Ratio
As of December 31, 1996:
<S>                                            <C>             <C>       <C>              <C>         <C>          <C>

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

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

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


As of December 31, 1995:

    Total Capital (to Risk Weighted Assets):
        Consolidated                           $  42,610       16.6%     $  20,535        8.0%           N/A         N/A
        Truckee River Bank                        23,824       12.5%        15,247        8.0%        19,059       10.0%
        Sierra Bank of Nevada                      6,900       12.0%         4,600        8.0%         5,750       10.0%

    Tier I Capital (to Risk Weighted Assets):
        Consolidated                              29,787       11.6%        10,271        4.0%           N/A         N/A
        Truckee River Bank                        21,685       11.3%         7,676        4.0%        11,514        6.0%
        Sierra Bank of Nevada                      6,216       10.7%         2,324        4.0%         3,486        6.0%

    Tier I Capital (to Average Assets):
        Consolidated                              29,787        9.1%        13,093        4.0%           N/A         N/A
        Truckee River Bank                        21,685        9.2%         9,428        4.0%        11,785        5.0%
        Sierra Bank of Nevada                      6,216        7.7%         3,229        4.0%         4,036        5.0%

</TABLE>

      SierraWest  Bank's  ratios  are  calculated  under  regulatory  accounting
principles, which differ from generally accepted accounting principles.


10.   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

                                                           -68-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

these  estimates.  Fair value has not been adjusted to reflect changes in market
condition for the period  subsequent  to December 31, 1996 and 1995.  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, 1996 and
1995,  to estimate  the fair value of each class of  financial  instruments  for
which it is practicable to estimate that value:

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

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

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

      Excess  Servicing.  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, 1996 and 1995.

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

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

      Convertible Debentures.  Fair value is based on quoted market prices at
December 31, 1996 and 1995.

      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, 1996 and 1995,  the  Company's  commitments  to fund fixed rate
loans were at rates which  approximated  market.  The  unrealized  gain from the
subsequent  sale of the  commitment  portion of SBA loans in process at December
31,  1996  and  1995  is  estimated  to be  $839  thousand  and  $596  thousand,
respectively.

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

      Letters of  Credit.  The  Company's  standby  letters of credit  have been
valued based on the fees charged for such  instruments  at December 31, 1996 and
1995. 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,
1996 or 1995.





                                                           -69-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

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

                                                                                           December 31, 1996
                                                                                  Carrying                    Fair
                                                                                   Amount                    Value

Financial Assets:
<S>                                                                            <C>                     <C>       
      Cash and cash equivalents.............................................   $      58,634           $      58,634
      Mutual funds..........................................................           1,335                   1,335
      Investment securities.................................................          33,881                  33,880
      Loans receivable......................................................         318,820                 328,971
      Excess servicing......................................................          14,338                  17,242
      Cash surrender value of life insurance................................           2,292                   2,292
                                                                               -------------           -------------

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

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

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

<TABLE>


                                                                                           December 31, 1995
                                                                                 Carrying                    Fair
                                                                                  Amount                     Value
<S>                                                                            <C>                     <C>  

Financial Assets:
      Cash and cash equivalents.............................................   $      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
      Convertible debentures................................................          10,000                  11,200
                                                                               -------------           -------------

                                                                               $     303,154           $     305,246
                                                                               =============           ==============

</TABLE>

11.   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,  loans  outstanding  to  directors,  senior
officers,  and  principal  shareholders  and  their  known  associates  which in
aggregate  exceeded $60,000 were  approximately  $208,000,  including loans to a
director who retired in 1996.  There were no such loans  outstanding at December
31, 1996.  During 1996 there were $90,000 in loan  disbursements and $234,000 in
loan payments with respect to the loans outstanding at December 31, 1995.

                                                           -70-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

12.   Employee Stock Option Plan:

      Under the Company's  1988 stock option plan,  495,000 shares of stock were
reserved for employee stock options. Options under this plan could be granted to
full-time  salaried  officers and  employees and to directors of Bancorp and its
subsidiaries  at the fair market  value of the stock on the date of grant.  With
the exception of  non-employee  director  options granted after August 16, 1995,
options  granted under the 1988 plan are exercisable for a period of five years,
with 20% of the  options  vesting  each year.  Options  granted to  non-employee
directors  after August 16, 1995 are fully vested upon grant and have a term and
exercise period of ten years.  The 1988 plan was terminated in 1996 and replaced
by a new plan,  under which 450,000  shares are available for issuance.  Options
under this plan may be granted to full-time  salaried  officers and employees at
the fair market value of the stock on the date of the grant.  The options have a
term of ten years and vesting  provisions  are  determined by a committee of the
Board of Directors, with a minimum of 20% of the options vesting each year.

      The following is a summary of stock option activity:
<TABLE>

                                                                             Number of           Weighted Average
                                                                              Shares              Exercise Price

        <S>                                                                   <C>                      <C>    

        Outstanding, January 1, 1994 ...................................      359,148                  $6.86
           Granted......................................................       25,000                   8.60
           Terminated...................................................      (42,604)                  7.68
           Exercised....................................................       (1,890)                  6.40
                                                                           ----------
        Outstanding, December 31, 1994 (65,626 exercisable
        at a weighted average price of $6.79)...........................      339,654                   6.89
           Granted .....................................................      163,288                  10.34
           Terminated ........................................... . . .      (108,763)                  6.70
           Exercised ...................................................      (20,590)                  6.91
                                                                            ---------
        Outstanding, December 31, 1995 (149,198 exercisable
         at a weighted average price of $8.33)..........................      373,589                   8.45
           Granted......................................................       75,000                  14.31
           Terminated...................................................      (25,340)                  7.80
           Exercised....................................................      (30,720)                  6.91
                                                                           ----------
        Outstanding, December 31, 1996..................................      392,529                   9.74
</TABLE>

Additional  information regarding options outstanding as of December 31, 1996 is
as follows:
<TABLE>

                                       Options Outstanding                                  Options Exercisable

                                        Weighted Average
                                            Remaining
    Range of             Number            Contractual         Weighted Average         Number       Weighted Average
 Exercise Prices       Outstanding         Life (Yrs)           Exercise Price        Exercisable     Exercise Price
<S>                       <C>                  <C>                    <C>              <C>                <C>            

$  4.75 -  5.00            13,250              0.9                    $4.91              8,950            $4.89
$  6.50 -  8.00           139,916              1.7                     7.03             75,162             7.01
$  9.25 -  9.75            96,163              7.5                     9.67             82,163             9.73
$ 11.25 - 15.50           143,200              6.9                    12.87             64,000            13.60
                          -------                                                      --------
 $  4.75 -15.50           392,529              5.0                     9.74            230,275             9.73
                          =======                                                      =======
</TABLE>

At December 31, 1996,  375,000 shares were available for future grants under the
1996 plan.



                                                           -71-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

      Statement  of  Financial  Accounting  Standards  No. 123,  Accounting  for
Stock-Based  Compensation,  (SFAS 123) requires the  disclosure of pro forma net
income and earnings  per share had the Company  adopted the fair value method as
of the beginning of 1995.  Under SFAS 123, the fair value of stock-based  awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable,  fully
transferable  options without vesting  restrictions,  which significantly differ
from the Company's  stock option  awards.  These models also require  subjective
assumptions,  including  future  stock price  volatility  and  expected  time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using a binomial options pricing model with the following assumptions:
For  non-employee  grants made in 1995:  expected life,  seven years;  risk free
interest rate, 5.93%. For fully vested grants made in 1996: expected life, seven
years;  risk free interest rate,  5.97%.  For all other employee  grants made in
1996 and 1995:  expected life, four years;  risk free interest  rates,  5.76% in
1996 and 5.79% in 1995. For all grants made in 1996 and 1995,  stock  volatility
was  assumed to be 30% and  dividends  were  assumed to be payable at 2.5%.  The
Company's  calculations  are based on a multiple option  valuation  approach and
forfeitures  are  recognized  as they occur.  If the computed fair values of the
1995 and 1996 awards had been  amortized to expense  over the vesting  period of
the  awards,  pro forma net income  would have been $1,722  thousand  ($0.60 per
share fully diluted) in 1995 and $3,133 thousand ($0.96 per share fully diluted)
in 1996.  However,  the impact of outstanding  non-vested  stock options granted
prior to 1995 has been excluded from the pro forma calculation; accordingly, the
1995 and 1996 pro forma  adjustments  are not  indicative  of future  period pro
forma  adjustments,  when the  calculation  will apply to all  applicable  stock
options.


13.   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. The balance of convertible  debentures outstanding at December 31, 1996
and 1995 was $8,520,000 and $10,000,000, respectively.

14.   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  $104,820,  $66,818 and $77,708 as  compensation
expense in 1996,  1995 and 1994,  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.

15.   Employee Stock Ownership Plan:

      Officers and other  employees of Bancorp and its  subsidiary  are eligible
for  participation  in the  "SierraWest  Bancorp KSOP Plan" (the  "KSOP")  which
provides for a qualified cash or deferred arrangement and discretionary employer
matching and profit sharing  contributions.  The Company contributes to the plan
at the discretion of the Board of Directors.  Contributions can take the form of
cash contributions or Bancorp common stock. $238,000, $198,000, and $167,000 was
contributed to the KSOP in 1996, 1995 and 1994, respectively.


                                                           -72-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

16.   Preferred Stock

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

                                                           -73-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


17.   Other Expense:

      Other expense for the years ended December 31, 1996, 1995 and 1994 include
the following (amounts in thousands):
<TABLE>

                                                                      Year Ended December 31,

                                                                  1996          1995           1994
                                                                  ----          ----           ----
<S>                                                           <C>            <C>           <C>    

Advertising.................................                  $      600     $      715    $      298
Directors' fees and expenses................                         429            909           349
FDIC assessments............................                           4            284           575
Insurance(1)................................                         242            277           286
Legal fees..................................                         484            470           149
Postage.....................................                         337            304           249
Stationery and supplies.....................                         416            334           252
Telephone...................................                         374            350           262
Sundry losses...............................                         808          1,370           351
Other.......................................                       2,431          1,903         1,674
                                                              ----------     ----------    ----------

                                                              $    6,125     $    6,916    $    4,445
                                                              ==========     ==========    ==========
</TABLE>

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


                                                           -74-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)


18.   Condensed Parent Company Only Financial Statements:

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

                                                                                          1996                 1995
                                                                                          ----                 ----
ASSETS
<S>                                                                                  <C>                   <C>                

Cash and cash equivalents.........................................................   $     3,655           $     5,166
Investment in subsidiaries........................................................        37,106                33,568
Due from subsidiary...............................................................            29                    13
Other   ..........................................................................         2,705                 2,133
                                                                                     -----------           -----------

      TOTAL ASSETS................................................................   $    43,495           $    40,880
                                                                                     ===========           ===========

LIABILITIES

Accrued expenses..................................................................   $     1,007           $     1,047
Due to subsidiary.................................................................            51                     0
Accounts payable..................................................................             1                     0
Convertible debentures............................................................         8,520                10,000
                                                                                     -----------           -----------

      Total Liabilities...........................................................         9,579                11,047
                                                                                     -----------           -----------

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;
      2,771,139 and 2,592,419 shares issued and outstanding .....................         12,291                10,709
Retained earnings.................................................................        21,654                19,131
Unrealized loss on investment securities available for sale, net of
  tax of $21 and $6...............................................................           (29)                   (7)
                                                                                     -----------            -----------

      Total Shareholders' Equity..................................................        33,916                29,833
                                                                                     -----------           -----------

      TOTAL LIABILITIES & SHAREHOLDERS' EQUITY....................................   $    43,495           $    40,880
                                                                                     ===========           ===========

</TABLE>


                                                           -75-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)
<TABLE>

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

                                                                   1996                  1995                  1994
                                                                   ----                  ----                  ----
Income
<S>                                                            <C>                   <C>                   <C>            

Service fees.................................................  $     1,185           $     1,389           $     1,339
Dividends from subsidiary....................................        1,000                   300                     0
Interest income..............................................          166                   464                   355
Other income.................................................          283                   430                   382
                                                               -----------           -----------           -----------

        Total Income.........................................        2,634                 2,583                 2,076
                                                               -----------           -----------           -----------

Expense

Salaries and related benefits................................        1,553                 1,820                 1,693
Interest expense.............................................          728                   861                   792
Other expense................................................        1,362                 1,291                   967
                                                               -----------           -----------           -----------

        Total Expense........................................        3,643                 3,972                 3,452
                                                               -----------           -----------           -----------

Loss Before Income Tax Benefit
      and Equity in Undistributed Income
      of Subsidiary..........................................       (1,009)               (1,389)               (1,376)
Applicable income tax benefit................................          777                   665                   572
                                                               -----------           -----------           -----------

Income (Loss) Before Equity in Undistributed
      Income of Subsidiary...................................         (232)                 (724)                 (804)
Equity in Undistributed Income of
      Subsidiary.............................................        3,560                 2,640                 3,807
                                                               -----------           -----------           -----------

        NET INCOME...........................................  $     3,328           $     1,916           $     3,003
                                                               ===========           ===========           ===========
</TABLE>

                                                           -76-

<PAGE>


                                           SIERRAWEST BANCORP AND SUBSIDIARY

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                      (continued)

<TABLE>

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

                                                                   1996                  1995                  1994

                                                                   ----                  ----                  ----
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
<S>                                                            <C>                   <C>                   <C>  
Cash flows from operating activities:
      Service fees received..................................  $     1,163           $     1,389           $     1,359
      Interest received......................................          172                   477                   329
      Other income received..................................          283                   325                   434
      Interest paid..........................................         (780)                 (861)                 (443)
      Cash paid to suppliers and employees...................       (2,723)               (2,767)               (3,330)
      Income tax refund......................................        1,098                   564                   536
                                                               -----------           -----------           -----------
Net cash used in operating activities........................         (787)                 (873)               (1,115)
                                                               -----------           -----------           -----------

Cash flows from investing activities:
      Capital expenditures...................................       (1,131)                 (164)                  (99)
      Loans purchased........................................            0                     0                (1,750)
      Loans sold.............................................            0                 1,813                     0
      Principal payments collected on loans..................            0                    42                     0
      Dividend received......................................        1,000                   300                     0
      Increase in investment in subsidiary...................            0                (2,000)                 (300)
                                                               -----------           -----------           ------------
Net cash used in investing activities........................         (131)                   (9)               (2,149)
                                                               -----------           -----------           -----------

Cash flows from financing activities:
      Net proceeds from issuance of common stock.............          212                   142                    12
      Dividend paid..........................................         (805)                 (624)                    0
      Proceeds from issuance of debentures...................            0                     0                10,000
      Cash paid to redeem debentures.........................            0                     0                   (73)
      Repurchase of common stock.............................            0                  (445)                    0
                                                               -----------           -----------           -----------
Net cash (used in) provided by financing activities..........         (593)                 (927)                9,939
                                                               -----------           -----------           -----------

Net (decrease) increase in cash and
      cash equivalents.......................................       (1,511)               (1,809)                6,675
Cash and cash equivalents beginning of year..................        5,166                 6,975                   300
                                                               -----------           -----------           -----------
Cash and cash equivalents end of year .......................  $     3,655           $     5,166           $     6,975
                                                               ===========           ===========           ===========
</TABLE>

                                                           -77-

<PAGE>


<TABLE>

                                             SIERRAWEST BANCORP AND SUBSIDIARY

                                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                        (continued)


                                                                   1996                  1995                  1994
                                                                   ----                  ----                  ----
<S>                                                            <C>                   <C>                   <C>    
RECONCILIATION OF NET INCOME
TO NET CASH USED IN
OPERATING ACTIVITIES

Net income...................................................  $     3,328           $     1,916           $     3,003
Adjustments to reconcile net income to net
      cash used in operating activities:
      Depreciation and amortization expense..................          241                   228                   217
      (Increase) decrease in due from subsidiary.............          (22)                    0                    28
      Increase (decrease) in due to subsidiary...............           51                     0                    (1)
      (Increase) decrease in prepaid expenses................           13                   (16)                   (3)
      Decrease (increase) in other assets....................          111                   108                  (717)
      (Decrease) increase in accrued expenses................         (270)                   37                   201
      Increase (decrease) in taxes payable...................          321                  (101)                  (36)
      Gain on loan sales.....................................            0                  (105)                    0
      Dividend from subsidiary...............................       (1,000)                 (300)                    0
      Equity in undistributed income of
        subsidiaries.........................................       (3,560)               (2,640)               (3,807)
                                                               -----------           -----------           -----------

        Total Adjustments....................................       (4,115)               (2,789)               (4,118)
                                                               -----------           -----------           -----------

Net cash used in operating
      activities.............................................  $      (787)          $      (873)          $    (1,115)
                                                               ===========           ===========           ===========
</TABLE>


19.   Subsequent Event:

        In  January  1997,  Bancorp  signed a  definitive  agreement  to acquire
      Mercantile Bank, based in Sacramento,  California. Mercantile shareholders
      will  receive  total  compensation  of $6.6  million,  subject  to certain
      adjustments  primarily  based  upon the  level of  deposits  and  capital,
      consisting  of 50% cash and 50%  stock.  Mercantile  has  total  assets of
      approximately  $46 million,  and the  transaction  is expected to close in
      June,  1997,  subject to the  approval of  Mercantile's  shareholders  and
      federal and state regulators.



















                                                                    -78-

<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.




                                                         -79-

<PAGE>


<TABLE>
                                                       PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<S>                                 <C>     <C>                 <C>


                                            Year
                                            First
                                            Appointed            Principal Occupation
Name and Title                      Age     Director               During the Past Five Years

Current Directors

David W. Clark                      59      1990                Chairman/CEO of Clark and Sullivan
                                                                Constructors, Inc. since January 1977.

Ralph J. Coppola                    62      1996                Self-employed physician and auto dealer.

William T. Fike                     49      1992                President/CEO and Director of Bancorp since July
                                                                1992.  President/CEO of SierraWest Bank since
                                                                October 1996.  Executive Vice President and
                                                                Chief Operating Officer of the Company from May
                                                                1991 to July 1992.

Richard S. Gaston                   63      1995                President and director of GAC Corporation and
                                                                Gaston & Wilkerson Management Group, real estate                    
                                                                management companies.

Jerrold T. Henley                   58      1986                Chairman of the Company since July 1992.  President/CEO
                                                                of the Company from its inception to June 1992.
                                                                Holds directorship in Community Assets Management,
                                                                a registered investment company.
                                                                
John J. Johnson                     63      1996                Retired.  Owner, Johnson's Sporting World, Reno,
                                                                Nevada until April 1992.

Ronald A. Johnson                   56      1996                Self-employed CPA and financial consultant.

A. Morgan Jones                     64      1986                Attorney.  President and director of Truckee River
                                                                Associates (commercial real estate management,
                                                                development and sales).

Jack V. Leonesio                    53      1986                Owner of a restaurant/bar in Truckee, California
                                                                since 1973 and co-owner of a bar in Reno, Nevada
                                                                since April 1994.

William W.  McClintock              51      1986                Self-employed CPA and financial consultant.

Thomas M. Watson                    53      1986                Managing Officer, Truckee River Associates.

Executive Officers

William T. Fike                     49                          President/CEO and Director of Bancorp since July
                                                                1992. President/CEO of SierraWest Bank since
                                                                October 1996.  Executive Vice President and
                                                                Chief  Operating Officer of the Company from
                                                                May 1991 to July 1992.
                                                                                                                             
</TABLE>


                                                         -80-

<PAGE>



<TABLE>


                                                                            
<S>                                 <C>                         <C>    
                                                                            Principal Occupation      
Name                                Age                                     During the Past Five Years

David C. Broadley                   53                          Executive Vice President and Chief Financial
                                                                Officer of Bancorp since February 1994.
                                                                Executive Vice President and Chief Financial
                                                                Officer of SierraWest Bank since February 1995.
                                                                Senior Vice President and Chief Financial Officer
                                                                of Bancorp, from 1985 to 1994.

Martin R. Sorensen                  53                          Executive Vice President and Chief Banking
                                                                Officer of SierraWest Bank since October, 1996.
                                                                President, CEO and Chief Banking Officer of
                                                                SierraWest Bank from May 1994 to October 1996.
                                                                Executive Vice President of Bancorp from
                                                                November 1995 to October 1996.  President and
                                                                CEO of Codding Bank from March 1992 through
                                                                April 1994.

Patrick S. Day                      47                          Executive Vice President and Chief Credit Officer
                                                                of the Company 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.

Mary Jane Posnien                   53                          Senior Vice President of Operations for
                                                                SierraWest Bank since November 1995. Senior
                                                                Vice President of Operations for Sierra Bank of
                                                                Nevada from March 1995 to November 1995.
                                                                Vice President of Operations for Sierra Bank of
                                                                Nevada from December 1993 to March 1995.
                                                                Manager of Gotcha Covered, a carpet/window
                                                                covering store from 1991 through 1993.
</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 until the 1997 Annual Meeting
of  Shareholders  and until  their  successors  have  qualified.  The  executive
officers are appointed  until the 1997 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.

Section 16(a) Beneficial Ownership and Compliance

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


                                                         -81-

<PAGE>



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,  the Company  believes that from January 1, 1996, to
December 31, 1996, all filing  requirements  applicable to its Reporting Persons
were complied with,  except that Mr. McClintock and Mr. Peter Raffetto were each
late in filing a Form 4 covering one transaction, Mr. A. Milton Seymour was late
in filing a Form 4 covering three transactions and Mr. Watson reported on Form 5
a sale that should have been reported earlier on Form 4.


ITEM 11.  EXECUTIVE COMPENSATION
<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         1996       $ 230,384(1) $      0     $  4,643        0           50,000         0     $  17,371
President/CEO of        1995       $ 200,000    $      0     $  3,451        0           10,000         0     $  16,444
the Company             1994       $ 197,083    $ 62,601     $  3,360        0           10,000         0     $  15,296

David C. Broadley       1996       $ 131,256    $      0     $    106        0                0         0     $  19,787
Executive Vice          1995       $ 130,214    $      0     $      0        0            6,000         0     $  18,634
President/CFO           1994       $ 122,170    $ 31,045     $      0        0                0         0     $  17,289
of the Company

Martin R. Sorensen      1996       $ 147,565    $      0     $  1,530        0                0         0     $  22,233
Executive Vice          1995       $ 145,834    $      0     $  2,808        0            6,000         0     $  32,032
President of the Bank   1994       $  93,333    $ 30,047     $  3,617        0           15,000         0     $   5,552

Patrick S. Day(2)       1996       $ 126,519    $      0     $  3,858        0                0         0     $   1,891
Executive Vice          1995       $  57,293    $      0     $  1,005        0           14,000         0     $     123
President of the
Company
</TABLE>

Notes:

(1) Includes payment of accrued vacation pay of $30,384.
(2) Hired in 1995.

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 or 1996.

Other Annual  Compensation - Includes value of personal use of Company  provided
automobiles and reimbursements for the personal portion of club dues and spousal
travel expenses.





                                                         -82-

<PAGE>




All Other Compensation - Includes the following:
<TABLE>


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

Company Contribution to 401(k) Plan For:
<S>                                                               <C>              <C>           <C>

Mr. Fike                                                          $    4,652       $    4,750    $    4,264
Mr. Broadley                                                      $    3,896       $    3,742    $    3,485
Mr. Sorensen                                                      $    4,427       $    4,375    $        0
Mr. Day                                                           $      938       $        0    $        0

Company Contributions to ESOP Plan For:

Mr. Fike                                                          $    1,260(1)    $    1,169     $    1,353
Mr. Broadley                                                      $      718(1)    $    1,015     $    1,102
Mr. Sorensen                                                      $      807(1)    $    1,159     $        0
Mr. Day                                                           $      692(1)    $        0     $        0

(1)  Amount estimated for 1996,  pending final plan accounting for the 1996 plan year.

Moving Expense Reimbursement Paid To:

Mr. Sorensen                                                      $        0       $    2,229     $    4,846

Allocations to Salary Continuation Plan For:

Mr. Fike                                                          $     9,858      $     8,924    $    8,078
Mr. Broadley                                                      $    13,675      $    12,379    $   11,204
Mr. Sorensen                                                      $    15,789      $    23,059    $        0

Cost of life insurance provided by Company of which the benefit exceeded $50,000
For:

Mr. Fike                                                          $    1,601       $    1,601    $    1,601
Mr. Broadley                                                      $    1,498       $    1,498    $    1,498
Mr. Sorensen                                                      $    1,210       $    1,210    $      706
Mr. Day                                                           $      261       $      123    $        0
</TABLE>


                                                         -83-

<PAGE>



The following  table shows the options issued during 1996 for those  individuals
listed in the summary table:
<TABLE>

                                       Option/SAR Grants During 1996 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            50,000              66.7          $  14.25         June 30, 2006        $448,087     $1,135,542

-------------------------------------------------------------------------------------------------------------------
</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>
                    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           Exercisable/                   Exercisable/
Name              Exercise       Realized        Unexercisable                  Unexercisable
----              --------       --------        ------------------             -------------
<S>                    <C>          <C>           <C>                           <C>    
Mr. Fike               0            $0            70,850 / 23,900               $231,125 /160,750
Mr. Broadley           0            $0            16,050 / 14,700               $133,800 /106,200
Mr. Sorensen           0            $0             7,200 / 13,800               $ 50,100 / 87,900
Mr. Day                0            $0             2,800 / 11,200               $ 15,900 / 63,600
</TABLE>
The value of unexercised  In-the-Money  options is calculated by subtracting the
exercise price from the fair market value at December 31, 1996 of the securities
underlying the options.

Salary Continuation Plan

The Company has entered into agreements  with certain  directors of the Company,
the Bank and the Bank's former  subsidiary,  Sierra Tahoe Mortgage Company,  and
certain executive  officers of the Company,  to provide for salary  continuation
benefits  upon the  retirement  or earlier  death of the directors and executive
officers.  The benefits  pursuant to this plan are: $50,000 per year for Messrs.
Fike and Sorensen and $40,000 per year for Mr. Broadley  payable for a period of
20 years  following  retirement  at age 65 or earlier  death.  Benefits  for the
participating  directors  are $4,000 per year for 15 years,  beginning  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  or early  termination  of office or
employment  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 from
engaging in any competing  occupation upon  retirement and provisions  requiring
the covered  individual to perform advisory  services,  for compensation,  for a
period of five (5) years following  retirement or early termination of office or
employment.


                                                         -84-

<PAGE>



During 1996 the  agreements of Messrs.  Fike,  Broadley and Sorensen and certain
directors of SWB were modified to provide for an  acceleration  of benefits such
that the full amount due under the agreement would become payable in the case of
a change of control of the Company.  For the  Directors'  plans this would be in
the form of a lump sum  payment  based on a  discounted  formula.  The plans for
Messrs.  Fike, Broadley and Sorensen provide for this payment in the form of 240
equal monthly  installments.  The agreements were further  modified to eliminate
the restrictions  described above related to engaging in a competing  occupation
and the performance of advisory services upon a change in control.

As of December 31, 1996,  executive  officers  were  credited with the following
accrued benefits under this Plan:

David C. Broadley                         $ 94,163
William T. Fike                             44,851
Martin R. Sorensen                          38,848


Employment Agreements

Effective October 1, 1994, the Company 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. His base salary was set
initially at $200,000 per year and he is 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, be provided with a Company car and
a country club membership.  In the event of termination  without cause, 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.  During the month of
February 1997, Mr. Fike's base salary was increased to $250,000 per year.

In 1996,  Messrs.  Broadley,  Sorensen,  and Day  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.
Day)  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. Day), at the
election of the  executive  officer.  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 Company,  the executive officer may, within a
nine month  period,  resign from the  Company  and receive the same  benefits as
would be payable upon involuntary termination.

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                $3,383/month              $0               $0                   $0
Director                             $1,500 - 1,600/month      $0 (1)           $0                   $150/meeting(2)
Committee Chairman                   N/A                       N/A              $100/month           $150/meeting(2)
</TABLE>

(1)  Compensation  for attendance at special board meetings is $100 per director
     per meeting.
(2)  Attendance at Directors' Loan Committee is $250 per meeting.

In addition to the above fees, an educational  allowance is determined  annually
by the Board. The Chairman of the Board allocates funds for educational expenses
pursuant  to  requests  submitted  by  each  director  until  the  allowance  is
exhausted.

The Company's Deferred  Compensation and Stock Award plan is provided to members
of the Board of Directors who are not employees of SWB ("Outside  Directors") or
of its subsidiary. Under this plan Outside Directors are

                                                         -85-

<PAGE>



required to defer one-third of their fees for regular board meetings in the form
of a promise by SWB to deliver common stock and the remaining amount of director
fees may  also be  deferred  and paid in  common  stock at the  election  of the
director.  The  purpose  of this plan is to enable  Outside  Directors  to defer
receipt of compensation for their services to later years and to provide part of
the compensation for their services in a promise to deliver shares of SWB common
stock in order to better align the interests of Outside  Directors with those of
the Company's shareholders.

Expenses  for the  directors  and their  spouses  related to  attendance  at the
Company's  Annual  weekend  directors'  retreat  are  paid  for by the  Company.
Directors are eligible for coverage under the Company's  group health  insurance
plan. Premiums for health insurance coverage are shared between the director and
the Company on the same basis as that for Company employees.  Additionally,  the
Company  pays for  premiums  covering  the first  $25,000  of  accidental  death
benefits and the  administration of KEOGH plans for directors,  if they elect to
participate.

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, 1996, the Company's non-employee directors were credited with
$72,184 in accrued benefits under the directors' salary  continuation  plan. The
Company allocated  $14,691 to the Salary  Continuation Plan in 1996 on behalf of
its non-employee directors.

Personnel/Compensation Committee Interlocks and Insider Participation

With the  exception  of  Jerrold  Henley  and  William  Fike,  no  member of the
Personnel/Compensation Committee is a former or current  officer or employee of
the Company.  Mr.  Henley  retired as  President and CEO of the Company in June
1992. Mr. Fike succeeded Mr. Henley as President and CEO of the Company.  There
are no compensation  committee interlocks between the Company and other entities
involving Company executive officers and Company directors.


                                                         -86-

<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 1, 1997,  the number and
percentage of shares of Bancorp's  outstanding common stock beneficially  owned,
directly or indirectly, by each of Bancorp's directors, named executive officers
and principal  shareholders,  and by the directors and executive 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 executive 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 1,  1997.  Management  is not
aware of any arrangements which may, at a subsequent date, result in a change of
control of Bancorp.
<TABLE>

                               Shares                     Shares
                               Owned with                 Owned with
                               Sole Voting                Shared                Shares
                               and                        Voting and            Acquirable                    Percent
                               Investment                 Investment            within                        of
Beneficial Owner               Power                      Power                 60 days(1)    Total Shares    Class
----------------               ------------               ------------          ----------    -------------   -----

Directors and Named
Executive Officers
<S>                                 <C>                          <C>             <C>             <C>             <C>
David W. Clark                         981                       19,064            6,316          26,361            *
William T. Fike                      4,594                          726           72,500          77,820         2.6%
Ralph J. Coppola                     2,941                        1,148            1,124           5,213            *
Jerrold T. Henley                                                49,452           11,964          61,416         2.1%
John J. Johnson                      1,217                        2,157            1,829           5,203            *
Ronald A. Johnson                    2,788                                           773           3,561            *
A. Morgan Jones                      1,164                          619            8,449          10,232            *
Jack V. Leonesio                    14,181                                           199          14,380            *
William W. McClintock               12,650                                        10,449          23,099            *
Richard Gaston                         110                        3,429            1,784           5,323            *
Thomas M. Watson                     7,202                          344            8,893          16,439            *
David C. Broadley                    9,067                        1,431           16,050          26,548            *
Patrick S. Day                       1,500                                           800           2,300            *
Martin R. Sorensen                      38                                                            38            *

Total for Directors
and Executive Officers
(numbering 15)                      58,501                       78,370          141,730         278,601         9.1%

Principal Shareholders

Investors of America, L.P.
39 Glen Eagles Drive
St. Louis, MO 63124                                                              282,900         282,900         8.8%

------------
* less than one percent
</TABLE>
(1) Includes shares that can be purchased through Bancorp's stock option plan.
Also includes 3,500 and 2,000 shares acquirable through debenture conversion for
Mr. Henley and Mr. McClintock, respectively.  For non-employee directors,
includes 199 shares earned under the Directors Deferred Compensation and Stock
Award Plan for all but Mr. Clark and Mr. Henley (214 shares), Mr. Watson (643
shares), and Mr. Coppola (596 shares).


                                                         -87-

<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,  SierraWest
Bank in the ordinary  course of their  business and  SierraWest  Bank expects to
have banking  transactions  with these  persons in the future.  In  Management's
opinion,  since January 1, 1996,  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
collectibility or present other unfavorable features.


                                                         -88-

<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 44 through 78:

                          (i)      Consolidated Statements of Financial Condi-
                                   tion as of December 31, 1996, and 1995.

                         (ii)      Consolidated Statements of Income for the
                                   years ended December 31, 1996, 1995 and 1994.

                        (iii)      Consolidated   Statements   of   Changes   in
                                   Shareholders'  Equity  for  the  years  ended
                                   December 31, 1996, 1995 and 1994.

                         (iv)      Consolidated Statements of Cash Flows for the
                                   years ended December 31, 1996, 1995 and 1994.

                          (v)      Notes to Consolidated Financial Statements
                                   for the years ended December 31, 1996, 1995
                                   and 1994.

                         (vi)      Report of Independent Auditor.


                  2.    Financial Schedules:

                        None required.

                        Reports on Form 8-K:

                        The  Bancorp  filed one Form 8-K since the filing of the
                        last Form 10-Q.  Dated January 24, 1997, it reported the
                        signing of a definitive  agreement by Bancorp to acquire
                        Mercantile Bank.

                                                         -89-

<PAGE>



Exhibits

Exhibit
Number        Description

    2.1       Plan of Acquisition and Merger by and between SierraWest  Bancorp,
              SierraWest  Bank  and  Mercantile  Bank,  filed  as  Exhibit  2 to
              Registrant's  Form  8-K  dated  January  24,  1997,  and  by  this
              reference incorporated herein.
 
    3.1       Articles of Incorporation and by-laws, filed as Exhibit 3.1 to
              Registrant's 1993 Annual Report on Form 10-K, and by this
              reference incorporated herein.

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

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

    4.2       Form of Debenture (included in Exhibit 4.1).

    4.3       Rights  Agreement  between Sierra Tahoe Bancorp and American Stock
              Transfer & Trust Co.,  dated January 16, 1996,  filed as Exhibit 4
              to  Registrant's  Form 8-A  dated  January  3,  1996,  and by this
              reference incorporated herein.

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

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

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

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

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

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

   10.7       Senior Manager Separation Benefits Agreement between Sierra Tahoe
              Bancorp and Mary Jane Posnien, dated January 10, 1996.

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

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

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

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

                                                         -90-

<PAGE>



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

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

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

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

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

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

   10.18      Stock Option Agreement between Sierra Tahoe Bancorp and William W.
              McClintock  dated  August  17,  1995,  filed as  Exhibit  10.18 to
              Registrant's  1995  Annual  Report  on  Form  10-K,  and  by  this
              reference incorporated herein.
    
   10.19      Sierra Tahoe Bancorp 1996 Stock Appreciation Rights Plan, filed as
              Exhibit C to  Registrant's  Proxy  Statement for its July 23, 1996
              annual meeting of shareholders, and by this reference incorporated
              herein.

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

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

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

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

   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.


                                                         -91-

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                                         -92-

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                                         -93-

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                                         -94-

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                                         -95-

<PAGE>



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

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

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

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

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

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

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

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

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

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

  11.1        Statement re Computation of Per Share Earnings.

  12.1        Statement re Ratio of Earnings to Fixed Charges.

  21.1        Significant Subsidiaries of the Registrant

              SierraWest Bank - Incorporated in California

  23.1        Consent of Deloitte & Touche LLP, independent auditors

  27.1        Financial Data Schedule


                                                         -96-

<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 10, 1997                        By:    /s/ William T. Fike
                                               -----------------------
                                                       William T. Fike

                                                         -97-

<PAGE>



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

<S>                                       <C>                                                            <C>
/s/ William T. Fike                       President and Chief Executive Officer                          March 10, 1997
-------------------
William T. Fike                           Director

/s/ David C. Broadley                     Executive Vice President/                                      March 10, 1997
---------------------
David C. Broadley                         Principal Financial Officer
                                          and Principal Accounting Officer

/s/ Jerrold T. Henley                     Chairman of the Board                                          March 10, 1997
---------------------
Jerrold T. Henley

/s/ David W. Clark                        Director                                                       March 10, 1997
------------------
David W. Clark

/s/ A. Morgan Jones                       Director and Corporate Secretary                               March 10, 1997
-------------------
A. Morgan Jones

/s/ Jack V. Leonesio                      Director                                                       March 10, 1997
--------------------
Jack V. Leonesio

/s/ William W. McClintock                 Director                                                       March 10, 1997
-------------------------
William W. McClintock

/s/ Richard Gaston                        Director                                                       March 10, 1997
------------------
Richard Gaston

/s/ Thomas M. Watson                      Director                                                       March 10, 1997
--------------------
Thomas M. Watson

/s/ Ralph J. Coppola                      Director                                                       March 10, 1997
--------------------
Ralph J. Coppola

/s/ John J. Johnson                       Director                                                       March 10, 1997
-------------------
John J. Johnson

/s/ Ronald A. Johnson                     Director                                                       March 10, 1997
---------------------
Ronald A. Johnson
</TABLE>


















                                                         -98-

<PAGE>


                                     Exhibit 10.7

                     SENIOR MANAGER SEPARATION BENEFITS AGREEMENT

  THIS SENIOR MANAGER  SEPARATION  BENEFITS  AGREEMENT (the "Agreement") is made
and entered into as of January 10, 1996, by and between SIERRA TAHOE BANCORP,  a
California  Corporation  and its  banking  subsidiaries  TRUCKEE  RIVER BANK and
SIERRA BANK OF NEVADA (hereinafter "STB"), with its principal offices located at
10181 Truckee Tahoe Airport Road, P.O. Box 61000, Truckee,  California 96161 and
MARY JANE POSNIEN, an individual ("MJP").


                                          WITNESSETH


  WHEREAS,  MJP is currently  designated a senior officer and 'at will' employee
  of Truckee River Bank and Sierra Bank fo Nevada and expects to remain a senior
  officer and employee  subject to the policies and conditions  contained within
  the STB Personnel Policies and Procedures;

  WHEREAS,  both STB and MJP  feel it is in their  respective  and  mutual  best
  interests to preagree upon appropriate and reasonable separation  compensation
  that  will be paid to MJP  should  STB ever  determine  that MJP  should,  for
  whatever reason, be terminated from her position and leave the company;

  WHEREAS,  STB and MJP agree that the benefits described herein constitute full
  payment of and shall completely  supersede and constitute full satisfaction of
  any and all other  monetary or  nonmonetary  benefits  paid as a result of the
  termination  of MJP  for  any  reason  by STB  except  as may be  additionally
  required beyond the sums and benefits paid hereunder by law.

  WHEREAS,  nothing in this  Agreement is intended to change the current at will
  employment of MJP or create a contract of employment.  Further, this Agreement
  shall only cover  situations  wherein STB requests the  termination of MJP and
  shall not apply if MJP elects to voluntarily leave STB.

  NOW, THEREFORE, in consideration of the promises set forth below and for other
  good and valuable consideration, including the mutual covenants and agreements
  herein contained, the receipt and sufficiency of which is hereby acknowledged,
  STB and MJP hereby agree as follows:



                                                         -99-

<PAGE>



  1.  Applicability  of Agreement;  Definition of  Termination:  This  Agreement
coveys  additional  benefits not otherwise due to employees  generally and shall
become operative upon MJP's termination of employment for any reason by STB, its
affiliates  and,  their  respective  officers  or  directors,  so  long  as that
termination  did not result from a final  determination  of the Human  Resources
Director and the Personnel Committee of the Board of Directors of STB that MJP's
termination resulted from a material violation of the STB Personnel policies and
procedures  (i.e.  termination  for  cause)  (hereinafter  referred  to  as  the
"Termination"). This Agreement shall not apply as to any event not covered under
the definition of the term 'Termination'. Following the defined Termination, and
the  payment  of  benefits  under this  Agreement,  it is  expressly  agreed and
understood  that STB shall not be precluded from rehiring MJP's position  either
now or in the future and such rehiring  shall not be deemed to nullify or change
this Agreement if it is otherwise applicable.

2.    Conditions For Payment of Separation Benefits.  STB shall pay the separa-
tion benefitsset forth in Paragraph 3 to MJP after each of the following
requirements have been satisfied in the reasonable discretion of STB:

         A. A defined Termination as set forth in Paragraph 1 has occurred and
         MJP has left (or will promptly thereafter leave) the employment of STB;
         and

         B. MJP consent to and does  expressly  waive,  release,  indemnify  and
         fully hold STB, its subsidiary  companies and each of their  employees,
         officers and directors  harmless with regard to his  employment at STB;
         the manner of his Termination; and any other matters reasonably related
         to his  employment.  MJP agrees to initiate  no action,  of any type or
         kind,  regarding his employment or Termination and if such an action is
         initiated he agrees that such action may be promptly closed,  dismissed
         or  summarily  disallowed,  or,  if it  shall  continue,  that MJP will
         indemnify  STB for the legal fees,  costs and expenses  resulting  from
         their defense of that action; and

         C. MJP agrees to and shall maintain the confidentiality of any and all
         proprietary secrets, processes and plans of STB and its subsidiaries
         made known to MJP during his employment.

STB may elect to advance the separation  benefits set forth in Paragraph 2 prior
to the satisfaction of each of the above requirements in this Paragraph 3, or in
anticipation  of full  performance  by MJP,  and should any  requirement  not be
satisfied within a reasonable period thereafter or continuously performed,  MJP,
upon request of STB and presentation of proof of nonperformance and a reasonable
period  to  cure  the  continuing  nonperformance,  shall  promptly  return  the
separation benefit(s) paid or granted to him and this Agreement shall terminate.

  3. Separation Benefits. STB shall, in addition to any final salary,  vacation,
personal  leave,  retirement  plan and other monetary or nonmonetary  benefit(s)
covered under one or more separate  agreement(s) and otherwise due or applicable
to MJP upon  Termination  (except  benefits  due  under an  agreement  or policy
concerning office closure or reduction in force laws

                                                         -100-

<PAGE>



so long as less than the sums being paid hereunder), pay to MJP upon Termination
one of the following benefits, at the election and option of MJP:

         A. A lump sum payment equal to SIX (6) months of monthly  salary,  less
         any and all applicable taxes, deductions arising from benefit elections
         or any other sums required to be deducted by law,  rule or  regulation.
         If this option is elected,  and MJP elects  continued  health  coverage
         under COBRA, STB will require MJP to pay the full rate allowed by COBRA
         for any  continued  health  insurance  coverage  elected at the time of
         Termination; or

         B. Continuation of monthly salary for SIX (6) months,  less any and all
         applicable  taxes,  deductions  arising from benefit elections or other
         sums required to be deducted by law, rule or regulation. If this option
         is elected,  and if MJP elects to continue  health  insurance  coverage
         under COBRA, STB will continue to charge MJP's the applicable  employee
         coverage rate for Six (6) months if said  applicable  employee rate may
         be properly granted to MJP without violating any existing policy or law
         and if said rate is lower than the COBRA rate that may be assessed.

The  payment  option  elected  shall be deemed the  "Separation  Benefit".  Said
Separation Benefit shall result in a waiver of any other separation benefits due
to MJP following the Termination as more fully set forth in Paragraph 4.

  4. Express Waiver and Release of Other Separation Benefits.  By executing this
Agreement,  MJP  agrees  that  the  Separation  Benefit  paid  pursuant  to this
Agreement,  provided the  payments or benefits at least equal those  payments or
benefits that must be paid to terminated employees by law, shall be deemed to be
the equivalent and substitute for any legally or customarily required separation
payments  due to MJP and STB shall be given full credit for sums paid  hereunder
as to any legal or  customarily  requirements  to pay  separation  and  payments
hereunder shall be deemed to have fully satisfied STB's  obligations with regard
to any legally or customarily  mandated  separation payments due to MJP upon his
termination,  including,  but not  limited  to,  any laws or  customs  regarding
reduction in force or job-site closing. If additional sums are legally required,
or  are  adjudicated  as  required,   this  Agreement  shall  be  deemed  to  be
automatically  amended to credit  against the sums due the amount paid hereunder
and this Agreement shall be deemed to include any additionally required benefits
or payments.

  5. Reserved.

  6. Binding Effect of Agreement.  This Agreement shall inure to the benefit of
and be binding upon the heirs, administrators, personal representatives,
successors and assigns of MJP and STB, as the case may be.

  7. No Contest; Reimbursement of Benefits:  The parties hereby mutually agree
that in the event that MJP contests this Agreement, or any of the provisions
hereunder, by the filing or commencement of any action or proceeding relating
to his employment or Termination of any kind or nature whatsoever against STB,

                                                         -101-

<PAGE>



its parent company or affiliate companies or is re-employed by STB involuntarily
by court order, or an enforceable judgment is obtained  against STB, then STB 
shall have the absolute right: (i) to enforce repayment in full on the date of
such re-employment of all sums paid to MJP hereunder, which sums shall include
the payment or value of any benefits  received  by MJP  hereunder,  as a credit
in offset, reduction and satisfaction of all or any  portion of such judgment,
or, (ii) if there is no judgment, against wages due to MJP.

  8. Captions:  The captions set forth herein are included solely for ease and
convenience of reference and are not to be considered or construed in the
interpretation of this Agreement.

  9. Entire  Agreement:  This  Agreement  constitutes  and  contains  the entire
agreement between the parties and no statement or representation of either party
hereto, their agents, officers, directors or employees made outside of this
Agreement and not contained herein shall form a part of this Agreement or be
binding upon the other party.  This Agreement shall not be changed, modified,
altered or amended, except by written instrument signed by the parties hereto.

  10.Governing  Law:  This  Agreement  shall  be  construed  and  governed  in
accordance  with the laws of the State  wherein MJP is  predominantly  employed,
with venue appropriate in the County wherein MJP is predominantly  employed. Any
provision of this Agreement  prohibited by law shall be ineffective  only to the
extent of such prohibition or invalidity,  without invalidating the remainder of
such provision or the remaining  provisions of this  Agreement.  In the event of
any  litigation or action being  commenced  with regard to this  Agreement,  the
prevailing  party shall be awarded their  reasonable  attorneys fees,  costs and
expenses.

11.  Informed  Consent and Waiver:  MJP has executed  this  Agreement on a fully
informed,  voluntary  basis.  MJP  understands  and agrees  that the  separation
benefit  provided for herein will preclude MJP's right to seek other  separation
benefits,  except as allowed  by law,  and that MJP has been given the right and
opportunity  to consult  with an advisor or attorney  prior to the  execution of
this Agreement.

IN WITNESS  WHEREOF,  the parties hereto have made,  executed and delivered this
Agreement as of the day and year first above written.



/s/ Mary Jane Posnien
MARY JANE POSNIEN



SIERRA TAHOE BANCORP,
a California Corporation


                                                         -102-

<PAGE>




By: /s/ W. T. Fike
  William T. Fike

Its:   President/CEO




                                                         -103-

<PAGE>



STATE OF CALIFORNIA                       )
                                          )  SS.
COUNTY OF NEVADA                          )

  On 30 day of January, 1996, personally appeared before me, a Notary Public, in
and for said County and State,  MARY JANE POSNIEN,  known to me to be the person
described in and who executed the foregoing  instrument,  who acknowledged to me
that she executed the same freely and  voluntarily and for the uses and purposes
therein mentioned.

  (Seal)                                   /s/ Cynthia Perry
                                              Notary Public



STATE OF CALIFORNIA                       )
                                          )  SS.
COUNTY OF NEVADA                          )

  On this 13 day of  February,  1996,  personally  appeared  before me, a Notary
Public,  in and for said County and State,  WILLIAM T. FIKE,  in his capacity as
President  and  CEO of  SIERRA  TAHOE  BANCORP,  known  to me to be  the  person
described in and who executed the foregoing  instrument,  who  acknowledge to me
that he executed the same freely and  voluntarily  and for the uses and purposes
therein mentioned.

  (Seal)                                    /s/ Julie Roberts
                                                Notary Public

                                                      -104-

<PAGE>



                                             Exhibit 10.66

NOTWITHSTANDING  ANY OTHER PROVISION OF THIS AGREEMENT,  NO SHARES OF SIERRAWEST
BANCORP'S  COMMON STOCK SHALL BE ISSUED  PURSUANT  HERETO UNLESS THE  SIERRAWEST
BANCORP  1996  STOCK  OPTION  PLAN  SHALL  HAVE  FIRST  BEEN   APPROVED  BY  THE
SHAREHOLDERS OF SIERRAWEST BANCORP.

                                                  SIERRAWEST BANCORP

                                           INCENTIVE STOCK OPTION AGREEMENT


  This Incentive  Stock Option  Agreement (the  "Agreement") is made and entered
into as of the 23rd day of December,  1996, by and between SierraWest Bancorp, a
California corporation (the "Bancorp"), and MaryJane Posnien ("Optionee");
  WHEREAS,  pursuant  to the  SierraWest  Bancorp  1996 Stock  Option  Plan (the
"Plan"),  a copy of which is attached  hereto,  the Stock Option  Committee  has
authorized granting to Optionee an incentive stock option to purchase all or any
part of seven thousand five hundred  (7,500)  authorized but unissued  shares of
the Bancorp's common stock for cash at the price of fifteen dollars and thirteen
cents ($15.13) per share,  such option to be for the term and upon the terms and
conditions hereinafter stated;
  NOW, THEREFORE, it is hereby agreed:
  1. Grant of Option. Pursuant to said action of the Stock Option Committee, the
Bancorp  hereby  grants to Optionee the option to purchase,  upon and subject to
the terms and  conditions  of the Plan which is  incorporated  in full herein by
this reference, all or any part of seven thousand five hundred (7,500) shares of
the Bancorp's common stock (hereinafter  called "stock") at the price of fifteen
dollars and thirteen cents ($15.13) per share,  which price is not less than one
hundred  percent  (100%) of the fair market value of the stock (or not less than
110% of the fair market value of the stock for  Optionee-  shareholders  who own
securities possessing more than ten percent (10%) of the total combined voting

                                                         -105-

<PAGE>



power of all classes of  securities  of the Bancorp) as of the date of action of
the Stock Option Committee granting this option.
  2.  Exercisability.  This option shall be  exercisable  as to fifteen  hundred
(1,500)  shares on or after 12 months,  an additional  fifteen  hundred  (1,500)
shares on or after 24 months, an additional fifteen hundred (1,500) shares on or
after 36 months,  an additional  fifteen  hundred  (1,500) shares on or after 48
months,  and an additional fifteen hundred (1,500) shares on or after 60 months.
This option shall remain exercisable as to all of such shares until December 23,
2006 (but not later than ten (10) years  from the date this  option is  granted)
unless this  option has expired or  terminated  earlier in  accordance  with the
provisions hereof.  Shares as to which this option becomes exercisable  pursuant
to the  foregoing  provision may be purchased at any time prior to expiration of
this option.
  3.  Exercise  of Option.  This  option  may be  exercised  by  written  notice
delivered to the Bancorp stating the number of shares with respect to which this
option is being exercised,  together with cash or shares of the Bancorp's stock,
as applicable, in the amount of the purchase price of such shares. Not less than
ten (10) shares may be purchased at any one time unless the number  purchased is
the total number  which may be  purchased  under this option and in no event may
the option be  exercised  with  respect to  fractional  shares.  Upon  exercise,
Optionee shall make  appropriate  arrangements  and shall be responsible for the
withholding of any federal and state taxes then due.
  4. Cessation of  Employment.  Except as provided in Paragraphs 2 and 5 hereof,
if  Optionee  shall  cease to be an  employee  of the  Bancorp  or a  subsidiary
corporation  for any  reason  other than  Optionee's  death or  disability,  [as
defined in Section  22(e)(3) of the Internal  Revenue  Code of 1986,  as amended
from time to time (the  "Code")],  this  option  shall  expire  three (3) months
thereafter.  During the three (3) month period this option shall be  exercisable
only as to those  installments,  if any,  which had  accrued as of the date when
Optionee ceased to be an employee of the Bancorp or the subsidiary corporation.

                                                         -106-

<PAGE>



  5.  Termination of Employment  for Cause.  If Optionee's  employment  with the
Bancorp or a subsidiary  corporation is terminated for cause,  this option shall
expire thirty (30) days from the date of such termination. Termination for cause
shall  include,  but not be limited to,  termination  for  malfeasance  or gross
misfeasance  in the  performance  of duties or conviction  of a crime  involving
moral turpitude,  and, in any event, the determination of the Board of Directors
with respect thereto shall be final and conclusive.
  6. Nontransferability;  Death or Disability of Optionee. This option shall not
be transferable  except by will or by the laws of descent and  distribution  and
shall be exercisable  during Optionee's  lifetime only by Optionee.  If Optionee
dies while an employee of the Bancorp or a subsidiary corporation, or during the
three (3) month  period  referred to in  Paragraph 4 hereof,  this option  shall
expire one (1) year after the date of  Optionee's  death or on the day specified
in Paragraph 2 hereof,  whichever is earlier.  After Optionee's death but before
such expiration,  the persons to whom Optionee's  rights under this option shall
have passed by will or by the applicable laws of descent and distribution or the
executor or administrator of Optionee's  estate shall have the right to exercise
this  option  as to those  shares  for  which  installments  had  accrued  under
Paragraph 2 hereof as of the date on which Optionee  ceased to be an employee of
the Bancorp or a subsidiary corporation.
  If  Optionee  terminates  his or her  employment  because of  disability,  (as
defined in Section  22(e)(3) of the Code),  Optionee may exercise this option to
the extent he or she is  entitled  to do so at the date of  termination,  at any
time within one (1) year of the date of  termination,  or before the  expiration
date specified in Paragraph 2 hereof, whichever is earlier.
  7.  Employment.  This Agreement shall not obligate the Bancorp or a subsidiary
corporation to employ Optionee for any period, nor shall it interfere in any way
with the right of the Bancorp or a subsidiary corporation to reduce Optionee's
compensation.

                                                         -107-

<PAGE>



  8.  Privileges  of  Stock  Ownership.  Optionee  shall  have  no  rights  as a
shareholder with respect to the Bancorp's stock subject to this option until the
date of issuance of stock  certificates  to Optionee.  Except as provided in the
Plan,  no  adjustment  will be made for  dividends or other rights for which the
record date is prior to the date such stock certificates are issued.
  9.  Modification and Termination.  The rights of Optionee are subject to modi-
fication and termination upon the occurrence of certain events as provided in
Sections 13 and 14 of the Plan.
  10.  Notification  of Sale.  Optionee  agrees  that  Optionee,  or any  person
acquiring shares upon exercise of this option,  will notify the Bancorp not more
than five (5) days after any sale or other disposition of such shares.
  11.  Representations of Optionee. No shares issuable upon the exercise of this
option shall be issued and  delivered  unless and until the Bancorp has complied
with all  applicable  requirements  of  California  and  federal  law and of the
Securities and Exchange Commission and the California Department of Corporations
pertaining to the issuance and sale of such shares,  and all applicable  listing
requirements of the securities exchanges, if any, on which shares of the Bancorp
of the same  class  are then  listed.  Optionee  agrees to  ascertain  that such
requirements  shall have been  complied with at the time of any exercise of this
option.  In  addition,  if the  Optionee is an  "affiliate"  for purposes of the
Securities Act of 1933,  there may be additional  restrictions  on the resale of
stock, and Optionee  therefore  agrees to ascertain what those  restrictions are
and to  abide  by the  restrictions  and  other  applicable  federal  and  state
securities laws.
  Furthermore,  the Bancorp may, if it deems  appropriate,  issue stop  transfer
instructions  against any shares of stock  purchased  upon the  exercise of this
option and affix to any certificate  representing  such shares the legends which
the Bancorp deems appropriate.

                                                         -108-

<PAGE>



  Optionee represents that the Bancorp, its directors,  officers,  employees and
agents have not and will not provide tax advice with respect to the option,  and
Optionee  agrees to consult  with his or her own tax advisor as to the  specific
tax consequences of the option, including the application and effect of federal,
state, local and other tax laws.
  12. Notices. Any notice to the Bancorp provided for in this Agreement shall be
addressed to it in care of its President or Chief Financial  Officer at its main
office and any notice to Optionee  shall be addressed to  Optionee's  address on
file with the Bancorp or a subsidiary  corporation,  or to such other address as
either may  designate to the other in writing.  Any notice shall be deemed to be
duly given if and when enclosed in a properly  sealed  envelope and addressed as
stated above and  deposited,  postage  prepaid,  with the United  States  Postal
Service. In lieu of giving notice by mail as aforesaid, any written notice under
this  Agreement  may be given to  Optionee  in  person,  and to the  Bancorp  by
personal delivery to its President or Chief Financial Officer.
  13.  Incentive Stock Option.  This Agreement is intended to be an incentive
stock option agreement as defined in Section 422 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.

OPTIONEE
 SIERRAWEST BANCORP

By /s/ Mary Jane Posnien                    By /s/ W. T. Fike
     MaryJane Posnien                       William T. Fike


                                            By /s/ Robert C. Silver
                                            Robert C. Silver



                                            -109-

<PAGE>




                                       EXHIBIT 11.1
<TABLE>
                      SierraWest Bancorp  and  Subsidiary  Computation  of
                               Earnings Per Common Share (in  thousands,
                                       except per share amounts)


                                                                       Year Ended December 31,
                                                                1996               1995           1994 
                                                              ------              ----           ----
Primary
<S>                                                         <C>                   <C>            <C>                        
Net income............................................      $   3,328             $  1,916       $  3,003
                                                            =========             =========      =========

Shares
  Weighted average number of common shares
   outstanding.........................................         2,675                2,599          2,598

 Assuming exercise of options reduced by the number of
  shares which could have been purchased with the 
  the proceeds from exercise of such options                      127                   79             80
                                                            -----------           ----------     ---------

Weighted average number of common shares
  outstanding as adjusted . . . . . . . . . . . . . . . . .     2,802                2,678          2,678
                                                            ===========           ==========     =========

Net income per share  . . . . . . . . . . . . . . . . . . . $    1.19             $   0.72       $   1.12
                                                            ===========           ==========     =========

Assuming full dilution

Earnings                                                    $   3,328             $  1,916       $  3,003

Add after tax interest expense applicable to
  convertible debentures . . . . . . . . . . . . . . . . .        449                  499            460
                                                            ----------            ----------   -----------

Net income . . . . . . . . . . . . . . . . . . . . . . . . .$    3,777            $  2,415    $     3,463
                                                            ===========           ==========    ===========
Shares
  Weighted average number of common shares
   outstanding..........................                         2,675               2,599          2,592

 Assuming conversion of convertible
  debentures............................                           930               1,000            926

 Assuming exercise of options  reduced by the
  number of shares which could have been
   purchased with the proceeds from exercise of
   such options.........................                           142                  88             88
                                                            ------------          ----------     ---------

 Weighted average number of common shares
  outstanding as adjusted...............                         3,747               3,687          3,606
                                                            ===========           ==========     =========

Net income per share assuming
  full dilution.........................                    $      1.01           $   0.66     $     0.96
                                                            ===========           ==========     =========
</TABLE>


                                                         -110-

<PAGE>



                                                         EXHIBIT 12.1

<TABLE>
                             SierraWest Bancorp and Subsidiary Ratio of Earnings to Fixed Charges
                                                        (in thousands)



                                                                        Year Ended December 31,
                                                          1996        1995       1994       1993        1992

Fixed Charges
<S>                                                      <C>         <C>       <C>         <C>         <C> 
Interest on debt                                         $   760     $  858    $   827     $    79     $  105

Amortization of debt expense                                  93         97         86           0          7

Interest element of rentals                                  369        404        307         283        247

Capitalized interest                                         104         41          0           0          0  
                                                           -----       -----      -----      ------      -----

  Total fixed charges excluding interest on deposits       1,326      1,400      1,220         362        359

Interest on deposits                                      11,735      7,633      4,770       4,424      6,771
                                                         --------     ------     ------     -------     ------

  Total fixed charges including interest on deposits     $13,061     $9,033    $ 5,990     $ 4,786     $7,130
                                                         ========    =======   ========     =======     ======


Earnings

Consolidated net income                                  $ 3,328      1,916      3,003     $ 2,704     $1,833

Add back:
  Provision for income taxes                               2,077      1,179      1,863       1,670        763

  Total fixed charges excluding interest on deposits       1,222      1,359      1,220         362        359
                                                         --------    -------    -------    --------      -----

Total earnings excluding interest on deposits              6,627      4,454      6,086       4,736      2,955

Add back:
  Interest on deposits                                    11,735      7,633      4,770       4,424      6,771
                                                         --------    -------    -------    --------    -------


Total earnings including interest on deposits            $18,362     12,087     10,856     $ 9,160     $9,726
                                                         ========    =======   ========    ========    =======


Ratio of earnings to fixed charges
  excluding interest on deposits                             5.0        3.2        5.0        13.1        8.2

Ratio of earnings to fixed charges including
interest on deposits                                         1.4        1.3        1.8         1.9        1.4

</TABLE>

                                                             -111-

<PAGE>


                              Exhibit 23.1

INDEPENDENT AUDITOR'S CONSENT

We consent to the incorporation by reference in Registration Statement No.
33-28004 on Form S-8, Registration Statement No. 33-13031 on Form S-8 and
Registration Statement No. 33-15013 on Form S-8 of SierraWest Bancorp of our
report dated January 24, 1997, appearing in the Annual Report on Form 10-K of
SierraWest Bancorp for the year ended December 31, 1996.

/s/ Deloitte & Touche LLP

Sacramento, California
March 14, 1997