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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
 
                      FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
                                       OR
 
[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
        FOR THE TRANSITION PERIOD FROM ______________ TO ______________
 
                           COMMISSION FILE NO. 0-9584
 
                            ------------------------
 
                          CALIFORNIA BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                              <C>
           DELAWARE                    94-2147553
(State or other jurisdiction of     (I.R.S. Employer
incorporation of organization)    Identification No.)
 
   100 PARK PLACE, SUITE 140
         SAN RAMON, CA                   94583
     (Address of principal             (Zip code)
      executive offices)
</TABLE>
 
       Registrant's telephone number, including area code: (510) 743-4200
 
          Securities registered pursuant to Section 12(b) of the Act:
 
<TABLE>
<CAPTION>
                                           NAME OF EACH EXCHANGE
         TITLE OF EACH CLASS                ON WHICH REGISTERED
--------------------------------------  ---------------------------
<S>                                     <C>
                 None
</TABLE>
 
          Securities registered pursuant to Section 12(g) of the Act:
 
                    Common Stock, $2.50 par value per share
 
                            ------------------------
 
    Indicate  by check  mark whether  the registrant  (1) has  filed all reports
required to be filed by  Section 13 or 15(d) of  the Securities Exchange Act  of
1934  during  the preceding  12  months (or  for  such shorter  period  that the
registrant was required to file such reports), and (2) has been subject to  such
filing requirements for the past 90 days.  Yes _X_ No ____
 
    Indicate  by check mark if disclosure  of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge, in definitive  proxy or information  statements
incorporated  by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. /X/
 
    Aggregate market value  of the voting  stock held by  non-affiliates of  the
registrant at March 7, 1996: $279,630,756
 
    Number of shares of common stock outstanding at March 7, 1996: 10,089,123
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
    The Company's 1996 Proxy Statement to be filed pursuant to Regulation 14A is
incorporated into Part III hereof to the extent indicated therein.
                   THIS REPORT INCLUDES A TOTAL OF ___ PAGES
                          EXHIBIT INDEX IS ON PAGE ___
 
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                                     PART I
 
ITEM 1 -- BUSINESS
 
                                    GENERAL
 
THE COMPANY
 
    California  Bancshares, Inc. (the "Company") was incorporated under the laws
of the State of California in 1969, reincorporated under the laws of Delaware in
1971 and was approved as a bank  holding company under the Bank Holding  Company
Act  ("BHC Act") by the  Federal Reserve Board in 1971.  It was known as Alameda
Bancorporation until 1990  and as Northern  California Community  Bancorporation
("NCCBI")  from then until  its merger with Mission-Valley  Bancorp in 1991. The
Company has ten (10) banking subsidiaries: Alameda First National Bank, The Bank
of Milpitas, N.A.,  The Bank  of San Ramon  Valley, Centennial  Bank (which  was
subsequently  merged into Alameda First National  Bank in 1996), Commercial Bank
of Fremont, Community  First National Bank,  Concord Commercial Bank,  Lamorinda
National  Bank,  Modesto Banking  Company and  Westside Bank,  collectively (the
"Banks").
 
    The Company also has three (3) non-banking subsidiaries: CBI Mortgage, which
engages primarily in the origination of real estate loans for investors,  Island
Bancorp.  Leasing,  Inc., which  engaged primarily  in  the leasing  of imported
automobiles but  is  currently  inactive,  and  LNB  Corp.  which  serves  as  a
third-party  trustee for  deeds of  trust originated or  held by  the Banks. The
Company  owns  100%  of  the  issued  and  outstanding  capital  stock  of   the
subsidiaries.
 
    The  Company itself  does not engage  in any business  activities other than
ownership of  the above-mentioned  subsidiaries  and provides  accounting,  data
processing and other management services to its subsidiaries.
 
BUSINESS OF THE BANKS
 
    GENERAL
 
    The  Banks conduct  their business  through thirty-six  (36) offices located
throughout Alameda,  Contra  Costa,  Santa Clara,  San  Joaquin  and  Stanislaus
counties, in Northern California. They offer individuals and businesses services
commonly  associated with full-service banking  institutions, with the exception
of international banking and trust services.  Eight of the Banks are members  of
the  Federal Reserve System (the "FRS"). The  deposits of each depositor of each
of the  Banks are  insured by  the Federal  Deposit Insurance  Corporation  (the
"FDIC") up to $100,000.
 
    The  Banks also maintain correspondent relationships  with a number of major
banks located within California.
 
    EMPLOYEES
 
    At December 31, 1995 the Company and its subsidiaries had 564 full-time  and
185   part-time  employees.  None  of  the  Company's  employees  are  presently
represented by a union or covered under a collective bargaining agreement.
 
                                  COMPETITION
 
    The banking business in California generally,  and in the Company's and  its
subsidiaries'  primary service  areas specifically,  is highly  competitive with
respect to loans and deposits and is  dominated by a relatively small number  of
major  banks with many offices operating over  a wide geographic area. Among the
advantages such major banks have over the Company and its subsidiaries is  their
ability  to finance  wide ranging  advertising campaigns  and to  allocate their
investment assets  to regions  of highest  yield and  demand. Such  banks  offer
certain services such as trust services and international banking services which
are  not  offered directly  by  the Banks  (but  are offered  indirectly through
correspondent institutions) and, by virtue of their greater total capitalization
(legal lending limits to an individual customer are limited to a percentage of a
bank's total capital accounts), such banks have
 
                                       2
<PAGE>
substantially higher  lending  limits  than  the  Banks.  Other  entities,  both
governmental and private, seeking to raise capital through the issuance and sale
of debt or equity securities, as well as money market mutual funds, also provide
competition  for the  Banks in  the acquisition  of deposits.  These competitors
include savings and  loan associations, finance  companies, money market  funds,
brokerage houses, credit unions and non-financial institutions.
 
    SUPERVISION AND REGULATION
 
    The  Company, as a bank holding company,  is subject to regulation under the
BHC Act, as amended and is registered  with the Federal Reserve Board under  the
BHC  Act. The acquisition of more than 5%  of the voting shares of any bank (not
already majority  owned) requires  the  prior approval  of the  Federal  Reserve
Board.  The BHC Act also  prohibits the Federal Reserve  Board from approving an
application which would result in the Company acquiring all or substantially all
the assets  or more  than 5%  of  the voting  shares of  any bank  (not  already
majority owned) located outside of California unless an acquisition of such bank
by  a California-based  bank holding company  is specifically  authorized by the
laws of the  state in  which the  bank is located.  The laws  of several  states
permit  such acquisitions. The BHC Act  also prohibits the Company, with certain
exceptions, from acquiring direct or indirect ownership or control of more  than
5%  of the voting shares of any company which is not a bank and from engaging in
any business  other than  that of  banking, managing  and controlling  banks  or
furnishing services to its Banks, except that the Company may engage in, and may
own  shares of  companies engaged  in, certain  businesses found  by the Federal
Reserve Board to be so  closely related to banking "as  to be a proper  incident
thereto."  The BHC Act does not place territorial restrictions on the activities
of non-bank subsidiaries of bank holding  companies. The Company is required  by
the  BHC Act to file  annual reports of its  operations with the Federal Reserve
Board and is subject to examination by the Federal Reserve Board.
 
    The Banks, as subsidiaries of the Company within the meaning of Section  23A
of  the Federal Reserve Act, are subject to certain restrictions on loans to the
Company or  its non-bank  subsidiaries, or  investments in  the stock  or  other
securities  of the Company or  its non-bank subsidiaries and  on advances to any
borrower collateralized by such  stock or other  securities. Further, the  Banks
are  also subject to certain restrictions on most types of transactions with the
Company  or  its  non-bank  subsidiaries,  requiring  that  the  terms  of  such
transactions  be substantially equivalent to  terms of similar transactions with
non-affiliated firms.
 
    Four of the Banks are national banks and six are California  state-chartered
banks.   State  banks  are  subject   to  regulation,  supervision  and  regular
examination by the California State Banking Department (the "Department").  Four
of  the state-chartered  Banks are members  of the  FRS and are  also subject to
regulation, supervision and examination by the Federal Reserve Board. Two of the
state-chartered banks are subject to regulation, supervision and examination  by
the  FDIC.  National  banks are  chartered  by  and are  subject  to regulation,
supervision and examination  by the Office  of the Comptroller  of the  Currency
(the "OCC"). The regulations of these agencies govern most aspects of the Banks'
business,  including the making of periodic reports  by the Banks and the Banks'
activities relating to  investments, loans,  borrowings, certain  check-clearing
activities,  branching, mergers and acquisitions,  reserves against deposits and
numerous other areas.
 
    Regulations and policies of the Federal Reserve Board require the Company to
serve as a source of financial and  managerial strength to its Banks. It is  the
Federal Reserve Board's policy that a bank holding company should stand ready to
use  available resources to provide adequate  capital funds to a subsidiary bank
during periods  of  financial  stress  or  adversity  and  should  maintain  the
financial   flexibility  and  capital-raising   capacity  to  obtain  additional
resources for assisting a subsidiary bank. Under certain conditions, the Federal
Reserve Board may conclude that certain actions of a bank holding company,  such
as  payment of cash  dividends, would constitute an  unsafe and unsound practice
because they  violate  the Federal  Reserve  Board's "source  of  financial  and
managerial strength" doctrine.
 
                                       3
<PAGE>
    The  Company is  a legal  entity separate and  distinct from  the Banks. The
principal source  of the  Company's revenues  is dividends  and management  fees
received  from  the  Banks. Various  statutory  provisions limit  the  amount of
dividends the Banks can pay without regulatory approval, and various regulations
also restrict the payment of dividends.
 
    In 1989, Congress enacted a  law that purports to  make banks liable to  the
FDIC  for  expenses the  FDIC  incurs in  the case  of  either its  provision of
financial assistance to, or the failure of, any affiliated bank. Under that law,
the Banks  could theoretically  be  held liable  to the  FDIC  in the  event  of
financial assistance to, or failure of, any other Bank, and that liability could
be  substantial enough to cause the  surviving Banks either to require financial
assistance from the FDIC or to cause the failure of such Banks.
 
    On December 19, 1991, comprehensive legislation was enacted that reforms the
regulation and supervision of banks and  bank holding companies. Among the  more
significant  aspects of the legislation is a requirement that federal regulators
prescribe standards relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate  exposure,
asset  growth, employee,  director and principal  shareholder compensation, fees
and benefits,  standards specifying  a  maximum ratio  of classified  assets  to
capital, minimum earnings sufficient to absorb losses without impairing capital,
and  to the extent  possible, a minimum ratio  of market value  to book value of
publicly traded  shares of  bank holding  companies, such  as the  Company.  The
legislation  also provides for a system  of early intervention by the regulators
and prompt corrective action  at troubled banks. Under  that system, a bank  may
not  pay dividends if its capital fails to meet any required minimum and will be
expected to submit to its regulator an acceptable plan to restore its capital to
adequate levels. While a  bank is undercapitalized,  its regulator may  preclude
its growth, require its recapitalization through the sale of shares, require its
acquisition  or merger, prohibit  its parent from  paying dividends, and require
divestitures by its parent, including divestiture of the bank itself. Its parent
holding company will be expected to guarantee that the bank will comply with the
bank's capital restoration plan until the bank has been adequately  capitalized,
on  average, for four consecutive quarters, unless  the parent is to accept loss
or closure of the bank by regulators. This guarantee is limited to the lesser of
5% of the  bank's total assets  at the  time it became  undercapitalized or  the
amount  necessary to bring the bank  into compliance with all applicable capital
standards.
 
    If the bank does not submit an acceptable capital restoration plan or if its
parent holding company  does not  guarantee such  plan, the  regulators will  be
required  to take one  or more actions,  including requiring recapitalization of
the bank through its  sale of securities or  forced sale or merger,  restricting
transactions  with  affiliates,  restricting interest  rates  paid  on deposits,
restricting asset growth, restructuring activities, replacing management of  the
bank, prohibiting deposits from correspondent banks, requiring prior approval of
dividends  by the holding  company, and requiring  divestiture. The law requires
the regulators, in such cases, to require the sale of securities by the bank  or
to  force a sale or merger of  the bank, to restrict affiliate transactions, and
to restrict interest rates  unless the regulator  determines that these  actions
would  not resolve the problems of the bank at the least possible long-term loss
to the Bank  Insurance Fund of  the FDIC. The  law also limits  advances to  any
undercapitalized  bank by any  Federal Reserve Bank  from being outstanding more
than 60 days in any 120-day period unless the head of the bank regulatory agency
certifies that, giving due  regard to economic  conditions and circumstances  in
the  market  in which  the bank  operates, the  bank is  not expected  to become
critically undercapitalized and is not expected to be placed in  conservatorship
or receivership. None of the Company's Banks are undercapitalized.
 
    The  foregoing references to  applicable statutes and  regulations are brief
summaries thereof, which  do not  purport to be  complete and  are qualified  in
their entirety by reference to such statutes and regulations.
 
                                       4
<PAGE>
    From time to time various bills are introduced in the United States Congress
which  could result in additional  or in less regulation  of the business of the
Company and the Banks. It cannot be predicted whether any such legislation  will
be  adopted or how  such adoption would  affect the business  of the Company and
Banks.
 
    The Federal Reserve Board has established risk-based capital guidelines  for
bank  holding companies. The guidelines define Tier 1 Capital and Total Capital.
Tier 1 Capital consists of common and qualifying preferred shareholders' equity,
before unrealized gains  and losses  on available-for-sale  debt securities  and
minority  interests  in  equity  accounts  of  consolidated  subsidiaries,  less
goodwill, other nonqualifying intangibles, excess deferred tax assets and 50% of
investments in  unconsolidated  subsidiaries.  Total  Capital  consists  of,  in
addition  to Tier  1 Capital,  mandatory convertible  debt, preferred  stock not
qualifying as Tier 1 Capital, subordinated and other qualifying term debt and  a
portion  of the allowance for loan losses  less the remaining 50% of investments
in unconsolidated subsidiaries. The Tier 1 component must comprise at least  50%
of  qualifying  Total Capital.  Risk-based  capital ratios  are  calculated with
reference to risk-weighted assets, as outlined by bank supervisory  authorities,
which  include both  on and  off-balance sheet  exposures. The  minimum required
qualifying Total Capital ratio is 8%, of which at least 4% must consist of  Tier
1  Capital. As  of December  31, 1995,  the Company's  Tier 1  Capital and Total
Capital ratios were 12.03% and 13.28%, respectively.
 
    The Federal  Reserve Board  has  adopted a  "minimum leverage  ratio"  which
requires  bank holding companies  to maintain Tier  1 Capital of  at least 3% of
adjusted quarterly  average  assets,  although the  Federal  Reserve  Board  may
require a higher ratio depending upon the rating of the bank holding company and
its  expected  growth. Regulations  issued  by the  FDIC  to implement  the 1991
legislation referred to above establish five levels of capitalization for banks;
any bank with a  Tier 1 Capital ratio  of 6%, Total Capital  ratio of 10% and  a
leverage  ratio of 5% is considered to be "well capitalized." As of December 31,
1995, the Company's leverage ratio was 7.98%, and all of the Banks had  leverage
ratios exceeding 6.0%.
 
              IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES
 
    The  earnings and growth of the Company  are and will be affected by general
economic conditions, both domestic  and international, and  by the monetary  and
fiscal  policies of the United States  Government and its agencies, particularly
the Federal  Reserve Board.  One function  of the  Federal Reserve  Board is  to
regulate  the national supply  of bank credit in  order to mitigate recessionary
and inflationary pressures.  Among the  instruments of monetary  policy used  to
implement  those  objectives  are  open  market  transactions  in  United States
Government securities, changes in  the discount rate  on member bank  borrowings
and  changes  in  reserve  requirements  held  by  depository  institutions. The
monetary policies of the Federal Reserve Board have had a significant effect  on
the  operating  results of  commercial banks  in  the past  and are  expected to
continue to do so in the future.  However, the effect, if any, of such  policies
on  the  future  business  and  earnings of  the  Company  cannot  be accurately
predicted.
 
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994
 
    INTERSTATE BANKING AND  BRANCHING.  The  Riegle-Neal Interstate Banking  and
Branching  Efficiency Act of  1994 was signed by  President Clinton on September
29, 1994. Generally,  provisions of  this Act authorize  interstate banking  and
interstate branching, subject to certain state options.
 
    - Interstate  acquisition banks will be permitted in all states on and after
      September 29, 1995; state law cannot  vary this rule. However, states  may
      continue to prohibit acquisition of banks that have been in existence less
      than five years and interstate chartering of new banks.
 
    - Interstate  mergers of affiliated or  unaffiliated banks will be permitted
      June 1, 1997,  unless a state  adopts legislation before  June 1, 1997  to
      "opt   out"  of  interstate  merger,   provided  any  limitations  do  not
      discriminate against  out-of-state  banks.  Individual  states  may  enact
      legislation to permit interstate mergers earlier than that date.
 
                                       5
<PAGE>
    - Interstate acquisition of branches will be permitted to a bank only if the
      law  of the state where the branch is located expressly permits interstate
      acquisition of a branch without acquiring the entire bank.
 
    - Interstate DE NOVO branching will be permitted  to a bank only if a  state
      adopts legislation to "opt in" to interstate de novo branching authority.
 
    LIMITATIONS ON CONCENTRATIONS.  An interstate banking application may not be
approved  if  the  applicant  and its  depository  institution  affiliates would
control more than 10% of insured deposits nationwide or more than 30% of insured
deposits in the state in which the bank to be acquired is located. These  limits
do  not apply to mergers solely between affiliates. States may waive the 30% cap
on a nondiscriminatory  basis. Nondiscriminatory  state caps  on deposit  market
share of a depository institution and its affiliates are not affected.
 
    AGENCY  AUTHORITY.   A bank  subsidiary of  a bank  holding company  will be
authorized to receive deposits, renew time deposits, close loans, service  loans
and receive payments on loans as an agent for a depository institution affiliate
without  being deemed a branch of the affiliate. A bank will not be permitted to
engage, as agent for an  affiliate, in any activity as  agent that it could  not
conduct  as a  principal, or  to have  an affiliate,  as its  agent, conduct any
activity that it could not conduct directly, under federal or state law.
 
    HOST STATE REGULATION.  Out-of-state banks seeking to acquire or establish a
branch will be required to comply with any nondiscriminatory filing requirements
of the  host  state  where  the  branch is  located.  The  host  state  may  set
notification  and reporting requirements for a branch of an out-of-state bank. A
branch of an out-of-state bank  will be subject to all  of the laws of the  host
state  regarding  interstate branching,  consumer  protection, fair  lending and
community reinvestment. A branch of an  out-of-state bank will not be  permitted
to  conduct any  activities at the  branch that  are not permissible  for a bank
chartered by the host state.
 
    COMMUNITY REINVESTMENT ACT.  Community Reinvestment Act ("CRA")  evaluations
will  be  required for  each state  in which  an interstate  bank has  a branch.
Interstate banks will be prohibited from using out-of-state branches  "primarily
for the purpose of deposit production". Federal banking agencies are required to
adopt  regulations by June 1, 1997 to  ensure that interstate branches are being
operated with a view to the needs of the host communities.
 
    FOREIGN BANKS.  Foreign banks will be  able to branch to the same extent  as
U.S.  domestic  banks. Interstate  branches acquired  by  foreign banks  will be
subject to the CRA to the extent  the acquired branch was subject to CRA  before
the acquisition.
 
CALIFORNIA LAW
 
    On  September 28, 1995, California's Governor  Wilson signed a bill enacting
state legislation in accordance with  authority under the Riegle-Neal Act.  This
new state law permits banks headquartered outside California to acquire or merge
with  California banks that have been in  existence for at least five years, and
thereby establish one or  more California branch  offices. An out-of-state  bank
may  not enter California by acquiring one or more branches of a California bank
or other operations constituting  less than the whole  bank. The law  authorizes
waiver  of the 30% limit on state-wide market share for deposits as permitted by
the Riegle-Neal Act. This law also authorizes California state-licensed banks to
conduct certain  banking  activities (including  receipt  of deposits  and  loan
payments  and  conducting  loan  closings)  on  an  agency  basis  on  behalf of
out-of-state banks  and  to  have  out-of-state  banks  conduct  similar  agency
activities on their behalf.
 
    Before  this new  legislation, California  law allowed  California banks and
bank holding companies to be acquired  by banking organizations in other  states
on  a  reciprocal  basis  (i.e.,  provided  the  other  state's  laws  permitted
California banking organizations to acquire banking organizations in that  state
on   substantially  the  same   terms  and  conditions   applicable  to  banking
organizations whose operations were principally conducted within that state).
 
                                       6
<PAGE>
EXPOSURE TO AND MANAGEMENT RISK
 
    The Federal Reserve Board and OCC  have announced proposals to examine  bank
holding  companies  and national  banks with  respect to  their exposure  to and
management of different categories of risk. Categories of risk identified by the
Federal Reserve Board include legal risk, operational risk, market risk,  credit
risk,  liquidity risk and reputation risk.  Categories of risk identified by the
OCC include interest rate risk,  price risk, foreign exchange risk,  transaction
risk,  compliance  risk,  strategic  risk,  credit  risk,  liquidity  risk,  and
reputation risk. If adopted, this approach would cause bank regulators to  focus
on  risk management  procedures, rather  than simply  examining every  asset and
transaction. This approach,  if adopted,  would supplement  rather than  replace
existing rating systems based on evaluation of an institution's capital, assets,
management,  earnings and  liquidity. Although  the FDIC  has not  announced its
intention to  adopt this  approach to  risk evaluation,  it is  likely that  the
different  bank regulatory agencies will  eventually adopt similar approaches to
this issue.  No assurance  can be  given as  to the  effect, if  any, that  this
examination approach would have on the Company.
 
STATE BANK SALES OF NON-DEPOSIT INVESTMENT PROCEDURES
 
    Securities  activities of state non-member banks,  as well as the activities
of their subsidiaries and affiliates, are governed by guidelines and regulations
issued by the  securities and financial  institution regulatory agencies.  These
agencies  have  taken the  position that  bank  sales of  alternative investment
products, such as mutual funds and annuities, raise substantial bank safety  and
soundness  concerns involving consumer confusion over the nature of the products
offered, as well  as the  potential for  mismanagement of  sales programs  which
could  expose  a bank  to liability  under the  antifraud provisions  of federal
securities laws.
 
    Accordingly, the agencies have issued  guidelines that require, among  other
things,  the establishment of a compliance and audit program to monitor a bank's
mutual funds  sales  activities  and  its  compliance  with  applicable  federal
securities  laws; the provision of full disclosures to customers about the risks
of such investments,  including the  possible loss of  the customer's  principal
investment;  and the  conduct of securities  activities of  bank subsidiaries or
affiliates in  separate  and distinct  locations.  In addition,  the  guidelines
prohibit  bank  employees  involved in  deposit-taking  activities  from selling
investment products  or giving  investment advice.  Banks are  also required  to
establish  a  qualitative  standard  for  the  selection  and  marketing  of the
investments offered  by  the bank,  and  to maintain  appropriate  documentation
regarding the suitability of investments recommended to bank customers.
 
ACCOUNTING CHANGES
 
    In  October  1995, the  Financial Accounting  Standards Board  (FASB) issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),  "Accounting
for  Stock-Based Compensation". This Statement establishes an alternative method
for accounting for stock  based compensation plans  and encourages employers  to
adopt  the new method in place of  the provisions of Accounting Principles Board
Opinion (APB No. 25), "Accounting for  Stock Issued to Employees". SFAS No.  123
establishes  a fair value  based accounting method  for stock-based compensation
arrangements. Companies may continue to  apply the accounting provisions of  APB
No.  25  in determining  net  income; however,  they  must apply  the disclosure
requirements of SFAS No. 123.
 
    The recognition  provisions may  be  adopted immediately  and apply  to  all
awards  granted after the beginning of the  fiscal year in which the recognition
provisions are first applied. The disclosure requirements of this Statement  are
effective  January 1, 1996.  Management believes the  adoption of this Statement
will not have a material effect on the financial condition of the Company.
 
ITEM 2 -- PROPERTIES
 
THE COMPANY
 
    The principal offices of  the Company are located  at 100 Park Place,  Suite
140,  San Ramon, California. The Company leases these offices under an agreement
which expires in 1999. The lease provides for a three-year option to extend. The
Company is  uncertain as  to the  likelihood of  exercising this  option in  the
future.
 
                                       7
<PAGE>
    The  data processing and certain administration functions of the Company are
located at  the former  headquarters of  the Company  at 2320  Blanding  Avenue,
Alameda,  California, a two story freestanding structure. This facility is owned
by Alameda First National Bank.
 
    Of the thirty-six (36)  banking locations and  one (1) nonbanking  location,
twelve  (12) banking facilities are owned by the respective banking subsidiaries
and twenty-five  (25) are  leased  by the  respective banking  subsidiaries  and
nonbank  subsidiary. The lease agreements expire between the years 1996 and 2015
and have a variety of renewal options.
 
    Consideration regarding renegotiated lease provisions, space needs and other
significant factors are all considered in determing extension of leases.
 
ITEM 3 -- LEGAL PROCEEDINGS
 
    Neither the Company nor any of its subsidiaries is a party to, nor is any of
their property the subject of, any material pending legal proceedings other than
ordinary routine litigations incidental to  their respective businesses nor  are
any such proceedings known to be contemplated by governmental authorities.
 
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted in the fourth quarter of 1995.
 
                                    PART II
 
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
 
    The  Company's  common stock  trades on  the Nasdaq  Stock Market  under the
symbol CABI.
 
    The following table sets forth the high, low and closing sales prices of the
Company's common stock, as reported on Nasdaq. Also set forth in this table  are
the dividends declared in each of the periods presented.
 
<TABLE>
<CAPTION>
                                                                                             MARKET PRICE
                                                                        DIVIDENDS   -------------------------------
                                                                        DECLARED      HIGH        LOW       CLOSE
                                                                       -----------  ---------  ---------  ---------
<S>                                                                    <C>          <C>        <C>        <C>
1995
  Fourth Quarter.....................................................   $    0.22       271/4      203/4     269/16
  Third Quarter......................................................        0.18       231/2      193/4      211/4
  Second Quarter.....................................................        0.18         21       163/8       21
  First Quarter......................................................        0.18       181/2      161/2       17
1994
  Fourth Quarter.....................................................   $    0.14       181/2      151/2      171/4
  Third Quarter......................................................        0.14       191/4        17       181/2
  Second Quarter.....................................................        0.14         18         15       171/2
  First Quarter......................................................        0.13         16       141/2      153/8
</TABLE>
 
    As  of December 31, 1995 there were approximately 4,620 holders of record of
the Company's common stock.
 
    The Company  presently intends  to  continue the  policy of  paying  regular
quarterly  cash dividends. Future dividends will depend upon the earnings of the
Company and  management's  assessment  of  the future  need  for  funds  by  its
subsidiaries  and other factors.  For information regarding  restrictions on the
payment of  dividends,  see Note  10  of  the Notes  to  Consolidated  Financial
Statements.
 
                                       8
<PAGE>
ITEM 6 -- SELECTED FINANCIAL DATA
 
    The  following table sets forth certain selected consolidated financial data
of the Company for each year of the five year period ended December 31, 1995 and
should be  read  in  conjunction  with  Consolidated  Financial  Statements  and
Management's  Discussion  and Analysis  of  Financial Condition  and  Results of
Operations presented herein.
 
FIVE YEAR SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                  ---------------------------------------------------------------------
                                                      1995           1994           1993          1992         1991
                                                  -------------  -------------  -------------  -----------  -----------
                                                             (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>            <C>            <C>            <C>          <C>
STATEMENT OF OPERATIONS
  Interest income...............................  $     115,225  $      77,972  $      68,570  $    73,025  $    88,169
  Interest expense..............................         42,966         21,246         20,411       26,739       40,607
                                                  -------------  -------------  -------------  -----------  -----------
  Net interest income...........................         72,259         56,726         48,159       46,286       47,562
  Provision for loan losses.....................          1,485          1,895          3,425        4,065        4,855
                                                  -------------  -------------  -------------  -----------  -----------
  Net interest income after provision for loan
   losses.......................................         70,774         54,831         44,734       42,221       42,707
                                                  -------------  -------------  -------------  -----------  -----------
  Noninterest income............................          9,479          7,506          8,807        8,143        7,971
  Noninterest expense...........................         50,828         44,000         40,546       41,034       40,732
                                                  -------------  -------------  -------------  -----------  -----------
  Income before taxes and cumulative effect of
   change in accounting method..................         29,425         18,337         12,995        9,330        9,946
  Provision for income taxes....................         11,390          6,701          4,206        2,915        3,618
                                                  -------------  -------------  -------------  -----------  -----------
  Income before cumulative effect of change in
   accounting method............................         18,035         11,636          8,789        6,415        6,328
  Cumulative effect of change in accounting
   method.......................................       --             --             --                895          596
                                                  -------------  -------------  -------------  -----------  -----------
  Net Income....................................  $      18,035  $      11,636  $       8,789  $     7,310  $     6,924
                                                  -------------  -------------  -------------  -----------  -----------
                                                  -------------  -------------  -------------  -----------  -----------
PER SHARE DATA
  Income before cumulative effect of change in
   accounting method............................  $        1.80  $        1.24  $        0.94  $      0.69  $      0.69
  Net income....................................           1.80           1.24           0.94         0.79         0.76
  Cash dividend declared per share..............           0.76           0.55           0.52         0.52         0.45
  Book value per share..........................          13.00          12.00          11.33        10.85        10.51
WEIGHTED AVERAGE SHARES OUTSTANDING.............         10,014          9,365          9,318        9,249        9,157
BALANCE SHEET DATA
  Total loans...................................  $   1,030,780  $     913,476  $     609,297  $   612,374  $   646,563
  Total assets..................................      1,570,458      1,329,489      1,046,495      962,434      967,016
  Total deposits................................      1,425,895      1,179,717        933,773      854,813      861,380
  Total shareholders' equity....................        130,761        112,243        105,984      100,650       96,875
SELECTED FINANCIAL RATIOS
  Return on average assets......................           1.23%          1.07%          0.89%        0.76%        0.72%
  Return on average shareholders' equity........          14.57          10.63           8.52         7.38         7.23
  Dividend payout ratio.........................          42.22          44.35          55.32        65.82        59.21
  Average shareholders' equity to average
   assets.......................................           8.43          10.06          10.47        10.29         9.98
  Capital ratios --
    Total risk-based capital ratio..............          13.28          13.90          15.92        15.55        14.21
    Tier 1 risk-based capital ratio.............          12.03          12.65          14.67        14.34        13.11
    Leverage ratio using Tier 1 capital.........           7.98          10.27          10.60        10.46        10.21
</TABLE>
 
                                       9
<PAGE>
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS
 
    California Bancshares, Inc. (Company) is a bank holding company, having  ten
banking  subsidiaries; Alameda First National Bank,  The Bank of Milpitas, N.A.,
The Bank of  San Ramon Valley,  Centennial Bank (which  was subsequently  merged
with Alameda First National Bank in 1996), Commercial Bank of Fremont, Community
First  National Bank, Concord Commercial  Bank, Lamorinda National Bank, Modesto
Banking  Company  and  Westside  Bank  (collectively,  the  Banks),  and   three
nonbanking subsidiaries, CBI Mortgage, Island Bancorp Leasing, Inc. (Island) and
LNB Corp.
 
    The  Banks each provide depository, lending and various specialized services
to the business,  professional and  consumer sectors of  their communities.  The
Banks  also offer installment note collection,  issue cashier's checks and money
orders, sell traveler's  checks and  provide other  customary banking  services,
except for international banking and trust services.
 
    CBI  Mortgage engages primarily in the  origination of real estate loans for
investors. Island engaged primarily in  the leasing of imported automobiles  but
is  currently inactive. LNB Corp.  serves as a third-party  trustee for deeds of
trust originated by the Banks.
 
SUBSEQUENT EVENT
 
    On February 11,  1996, the Company  signed a definitive  agreement for  U.S.
Bancorp  to acquire  the Company.  Under the  terms of  the agreement,  which is
subject to approval by  regulators and the  Company's shareholders, the  Company
will  be merged into U.S. Bancorp, and  each share of the Company's common stock
will be converted into .95 shares of U.S. Bancorp common stock. The total value,
which can change  based on  U.S. Bancorp's  stock price,  is approximately  $327
million,  or $32.53 for each share of  the Company's common stock, based on U.S.
Bancorp's closing  price  of  $34.25  on the  last  trading  day  preceding  the
announcement  of the  agreement. As  of March  19, 1996,  U.S. Bancorp's closing
price was $33.00.  In connection with  the agreement, the  Company granted  U.S.
Bancorp  an option to acquire  19.9% of the Company's  stock, which could become
exercisable under certain circumstances.
 
    The proposed transaction is expected to be accounted for using the  purchase
method  of accounting and is expected to  be completed during the second half of
1996.
 
OVERVIEW
 
    Net income in 1995 was $18.0  million ($1.80 per share) compared with  $11.6
million ($1.24 per share) in 1994 and $8.8 million ($0.94 per share) in 1993.
 
    The  return on average assets was 1.23% in  1995, 1.07% in 1994 and 0.89% in
1993. Return on average shareholders' equity for these same periods was  14.57%,
10.63% and 8.52%, respectively.
 
    Consolidated assets at December 31, 1995 reached $1.57 billion compared with
$1.33  billion at  December 31,  1994. Total loans  were $1.03  billion, up $117
million or 12.8% at year end 1995 compared to $913 million at December 31, 1994.
Total deposits increased $246 million or 20.9% to $1.43 billion at December  31,
1995 compared to $1.18 billion at December 31, 1994.
 
    The  following discusses significant areas  that have affected the Company's
results of operations for the years ended  December 31, 1995, 1994 and 1993  and
financial  position at  December 31, 1995  compared with December  31, 1994. The
discussion should  be  read  in  conjunction  with  the  Consolidated  Financial
Statements and related Notes appearing elsewhere herein.
 
ACQUISITIONS
 
    On  June 30,  1995, the  Company acquired all  of the  outstanding shares of
First Community Bankshares, Inc. (FCB), the holding company for Centennial Bank.
This acquisition was accounted for as a purchase and accordingly, the results of
operations are included in the Company's consolidated financial statements  from
the   acquisition  date.  Centennial  Bank  was   merged  with  another  of  the
 
                                       10
<PAGE>
Company's bank subsidiaries in February 1996.  On January 31, 1995, the  Company
acquired  Bank of  Livermore (Livermore),  in a  transaction accounted  for as a
pooling-of-interests. Livermore is  not material to  the consolidated  financial
condition  or  operating results  of the  Company,  and therefore,  prior period
balances have not been restated. However, 1995 amounts were adjusted to  reflect
the   transaction  as  if  it  had  occurred  January  1,  1995.  Livermore  was
subsequently merged with another of the Company's bank subsidiaries during 1995.
On December 2, 1994, the Company  acquired Old Stone Bank of California,  F.S.B.
(Old  Stone),  which  was  merged  into an  existing  subsidiary  in  1994. This
transaction was  accounted for  using  the purchase  method. Subsequent  to  the
acquisition,  the results of operations of Old Stone were combined with those of
the Company's. On March 31, 1994, the Company acquired MBC Corp. and its banking
subsidiary, Modesto  Banking  Company,  in  a transaction  accounted  for  as  a
pooling-of-interests.  The  Company's  consolidated  financial  statements  were
restated to combine the accounts of MBC Corp. with those of the Company.
 
RESULTS OF OPERATIONS
 
NET INTEREST INCOME
 
    Net interest income is defined as the difference between interest income and
amortized fees on earning assets less interest expense paid on  interest-bearing
liabilities.  Net interest  income on  a taxable-equivalent  basis for  1995 was
$73.5 million compared with $58.1 million in 1994 and $49.7 million in 1993.
 
    The increase  in net  interest income  between 1995  and 1994  is  primarily
attributable to increases in loan volume. Average loans outstanding in 1995 were
$986.8  million,  up $342.6  million or  53.2% compared  to 1994.  A significant
portion of  this  increase  was  attributable  to  the  Company's  acquisitions.
Partially  offsetting  this increased  volume  in earning  assets  in 1995  is a
substantial increase in the  Company's interest-bearing liabilities during  1995
compared  to 1994 which  was also largely acquisition  related. The net interest
margin, which  is  net  interest  income on  a  taxable-equivalent  basis  as  a
percentage  of average  earning assets  decreased to  5.39% in  1995 compared to
5.78% in 1994 and 5.47% in 1993. While the yield in the Company's earning assets
have improved by 64  basis points between  1995 and 1994  this increase did  not
keep  pace with the rates paid  on interest-bearing liabilities, which increased
116 basis points between  these same periods. The  increase in the net  interest
margin  in  1994 compared  to 1993  was attributable  primarily to  increases in
volumes and yields on loans and to  a lesser extent, decreases in rates paid  on
interest-bearing liabilities.
 
                                       11
<PAGE>
    The  following  table presents  the  Company's consolidated  average balance
sheets, including average yields and rates on a taxable-equivalent basis for the
years ended December 31, 1995, 1994 and 1993.
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                               -----------------------------------------------------------------------------------
                                          1995                          1994                        1993
                               ---------------------------   --------------------------   ------------------------
                                                     YIELDS                       YIELDS                     YIELDS
                                AVERAGE                &      AVERAGE               &     AVERAGE              &
                                BALANCE    INTEREST  RATES    BALANCE    INTEREST RATES   BALANCE   INTEREST RATES
                               ----------  --------  -----   ----------  -------  -----   --------  -------  -----
                                                             (DOLLARS IN THOUSANDS)
<S>                            <C>         <C>       <C>     <C>         <C>      <C>     <C>       <C>      <C>
ASSETS:
Interest-bearing time
 deposits....................  $   --      $  --      -- %   $      135  $     5  3.70%   $    546  $    18  3.30%
Federal funds sold...........      73,033     4,222  5.78        46,069    2,119  4.60      73,097    2,129  2.91
Securities:
  Taxable....................     262,789    14,945  5.69       264,240   13,627  5.16     173,344    9,292  5.36
  Non-taxable (TE) (1).......      42,928     3,663  8.53        51,673    4,149  8.03      55,660    4,497  8.08
                               ----------  --------  -----   ----------  -------  -----   --------  -------  -----
    Total securities (1).....     305,717    18,608  6.09       315,913   17,776  5.63     229,004   13,789  6.02
Loans (2)....................     986,796    93,677  9.49       644,205   59,481  9.23     605,412   54,159  8.95
                               ----------  --------  -----   ----------  -------  -----   --------  -------  -----
  Total earning assets.......   1,365,546   116,507  8.53     1,006,322   79,381  7.89     908,059   70,095  7.72
Nonearning assets, net of
 allowance for loan losses...     102,480                        81,696                     76,789
                               ----------                    ----------                   --------
    Total Assets.............  $1,468,026                    $1,088,018                   $984,848
                               ----------                    ----------                   --------
                               ----------                    ----------                   --------
LIABILITIES AND SHAREHOLDERS'
 EQUITY:
Interest-bearing deposits:
  Savings and
   interest-bearing demand
   accounts..................  $  553,847  $ 12,800  2.31    $  482,340  $10,061  2.09    $443,873  $10,005  2.25
  Time.......................     527,412    29,437  5.58       278,197   11,040  3.97     243,579   10,300  4.23
                               ----------  --------  -----   ----------  -------  -----   --------  -------  -----
    Total interest-bearing
     deposits................   1,081,259    42,237  3.91       760,537   21,101  2.77     687,452   20,305  2.95
Other borrowings.............       9,060       729  8.05         3,586      145  4.04       1,500      106  7.07
                               ----------  --------  -----   ----------  -------  -----   --------  -------  -----
    Total interest-bearing
     liabilities.............   1,090,319    42,966  3.94       764,123   21,246  2.78     688,952   20,411  2.96
Demand deposits..............     244,732                       209,410                    187,774
Other liabilities............       9,182                         5,007                      4,999
                               ----------  --------  -----   ----------  -------  -----   --------  -------  -----
    Total liabilities........   1,344,233                       978,540                    881,725
Shareholders' equity.........     123,793                       109,478                    103,123
                               ----------                    ----------                   --------
    Total Liabilities and
     Shareholders' Equity....  $1,468,026                    $1,088,018                   $984,848
                               ----------                    ----------                   --------
                               ----------                    ----------                   --------
  Net Interest Income and
   Margin (3)................              $ 73,541  5.39%               $58,135  5.78%             $49,684  5.47%
                                           --------  -----               -------  -----             -------  -----
                                           --------  -----               -------  -----             -------  -----
</TABLE>
 
------------------------------
(1)  Interest  income   is  presented   on  a   taxable-equivalent  basis.   The
     taxable-equivalent adjustments, were based on a marginal tax rate of 35%.
 
(2)  Nonaccrual  loans are included in total loans, but are not material to this
     presentation.
 
(3)  Net  interest  margin   is  calculated   as  net  interest   income  on   a
     taxable-equivalent basis divided by average earning assets.
 
                                       12
<PAGE>
    The  following table details the approximate effect, on a taxable-equivalent
basis, in net interest income  of volume and rate  changes for 1995 compared  to
1994  and 1994  compared to 1993.  The change in  interest due to  both rate and
volume has been  allocated to change  due to rate  and change due  to volume  in
proportion to the relationship of absolute dollar amounts of change in each.
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                 --------------------------------------------------
                                                   1995 COMPARED TO 1994     1994 COMPARED TO 1993
                                                 -------------------------  -----------------------
                                                 VOLUME    RATE     TOTAL   VOLUME   RATE    TOTAL
                                                 -------  -------  -------  ------  -------  ------
                                                                   (IN THOUSANDS)
<S>                                              <C>      <C>      <C>      <C>     <C>      <C>
Increase (decrease) in interest income:
  Interest-bearing time deposits...............  $    (2) $    (3) $    (5) $  (15) $     2  $  (13)
  Federal funds sold...........................    1,462      641    2,103    (970)     947     (23)
  Securities:
    Taxable....................................      (75)   1,393    1,318   4,699     (351)  4,348
    Non-taxable (TE)...........................     (734)     248     (486)   (320)     (28)   (348)
  Loans........................................   32,478    1,718   34,196   3,545    1,777   5,322
                                                 -------  -------  -------  ------  -------  ------
    Total average earning assets...............   33,129    3,997   37,126   6,939    2,347   9,286
                                                 -------  -------  -------  ------  -------  ------
Increase (decrease) in interest expense:
  Savings and interest-bearing demand
   deposits....................................    1,585    1,154    2,739     832     (776)     56
  Time certificates............................   12,655    5,742   18,397   1,401     (661)    740
  Other borrowings.............................      354      230      584      99      (60)     39
                                                 -------  -------  -------  ------  -------  ------
    Total average interest-bearing
     liabilities...............................   14,594    7,126   21,720   2,332   (1,497)    835
                                                 -------  -------  -------  ------  -------  ------
      Net increase (decrease) in net interest
       income..................................  $18,535  $(3,129) $15,406  $4,607  $ 3,844  $8,451
                                                 -------  -------  -------  ------  -------  ------
                                                 -------  -------  -------  ------  -------  ------
</TABLE>
 
PROVISION FOR LOAN LOSSES
 
    The  provision for loan losses in 1995  was $1.5 million, compared with $1.9
million in 1994 and $3.4 million in  1993. The provision for loan losses,  which
is  charged  to  operations, is  based  on credit  losses,  management's ongoing
evaluation of the portfolio  risk and economic conditions.  The decrease in  the
Company's  provision for loan losses between  these periods reflects the general
economic improvement in  the Company's  primary service areas.  The Company  has
experienced  a substantial reduction  in net chargeoffs,  which declined to $1.8
million in 1995 from $3.1 million in 1994 and $2.8 million in 1993.
 
NONINTEREST INCOME
 
    Noninterest income for 1995 was $9.5 million, compared with $7.5 million  in
1994  and $8.8  million in  1993. The components  of noninterest  income were as
follows:
 
<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                                     -------------------------------
                                                                                       1995       1994       1993
                                                                                     ---------  ---------  ---------
                                                                                             (IN THOUSANDS)
<S>                                                                                  <C>        <C>        <C>
Service charges on deposit accounts................................................  $   5,625  $   4,446  $   4,195
Other fee income...................................................................      1,621      1,185      1,052
Gain (loss) on sale of securities..................................................     --             (4)       223
Gains on sale of loans.............................................................      1,204      1,021      2,649
Other income.......................................................................      1,029        858        688
                                                                                     ---------  ---------  ---------
  Total noninterest income.........................................................  $   9,479  $   7,506  $   8,807
                                                                                     ---------  ---------  ---------
                                                                                     ---------  ---------  ---------
</TABLE>
 
                                       13
<PAGE>
    The increase in service charge income and other fee income between 1995  and
1994  was primarily acquisition related. The increase in this fee income between
1994 and  1993 is  attributable  to the  Company  modifying its  service  charge
schedule  of fees and sales fees on  mutual funds and annuities which were first
introduced in the fourth quarter of 1993.
 
NONINTEREST EXPENSE
 
    Total noninterest expense was $50.8 million  in 1995, $44.0 million in  1994
and  $40.5 in 1993. The ratio of  noninterest expense to operating revenue, on a
taxable-equivalent basis, excluding securities transactions was 61.2%, 67.0% and
69.6% for 1995, 1994 and 1993 respectively.
 
    The following table presents the major components of noninterest expense for
the years ended December 31, 1995, 1994 and 1993.
 
<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,          CHANGE 95/94          CHANGE 94/93
                                            -------------------------------  --------------------  --------------------
                                              1995       1994       1993         $          %          $          %
                                            ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                                                          (IN THOUSANDS)
<S>                                         <C>        <C>        <C>        <C>        <C>        <C>        <C>
Salaries and benefits.....................  $  27,872  $  23,381  $  21,083  $   4,491       19.2% $   2,298       10.9%
Occupancy and equipment...................      8,414      6,729      6,417      1,685       25.0        312        4.9
Regulatory expense........................      2,102      2,502      2,281       (400)     (16.0)       221        9.7
Banking forms and stationery..............      1,495      1,197      1,092        298       24.9        105        9.6
Communications expense....................      1,784      1,359      1,243        425       31.3        116        9.3
Outside data processing expense...........        786        637        960        149       23.4       (323)     (33.6)
Legal expense.............................        548        567        653        (19)      (3.4)       (86)     (13.2)
Foreclosed assets expense, net............        297        200        240         97       48.5        (40)     (16.7)
Consultant fees...........................        497        528        671        (31)      (5.9)      (143)     (21.3)
Courier service...........................        978        805        581        173       21.5        224       38.6
Promotional expense.......................        827      1,010        877       (183)     (18.1)       133       15.2
Other.....................................      5,228      5,085      4,448        143        2.8        637       14.3
                                            ---------  ---------  ---------  ---------  ---------  ---------  ---------
  Total noninterest expense...............  $  50,828  $  44,000  $  40,546  $   6,828       15.5% $   3,454        8.5%
                                            ---------  ---------  ---------  ---------  ---------  ---------  ---------
                                            ---------  ---------  ---------  ---------  ---------  ---------  ---------
</TABLE>
 
    The increase in salaries and benefits  in 1995 compared to 1994 is  directly
related to the Company's expansion, primarily acquisition related. The Company's
full-time equivalent staff numbered approximately 637 at December 31, 1995; this
compares  with 631 at December 31, 1994 and 546 at September 30, 1994 (number of
full-time equivalent employees  prior to  the 1994 year-end  acquisition of  Old
Stone).  The  increase  in  1994  salaries and  benefits  compared  to  1993 was
primarily due to standard merit and promotional increases.
 
    The Company benefited from the significant reduction in premiums paid to the
FDIC for deposit insurance during 1995. Effective June 30, 1995 the FDIC lowered
the amount of the premiums assessed  to all well capitalized insured banks  from
$.23  per $100 in  deposits to $.04 per  $100 in deposits.  The FDIC has further
lowered this assessment in  1996 to a  flat assessment rate  of $2,000 per  well
capitalized insured bank per year.
 
    There  were no other material events,  other than the Company's growth, both
internal and through acquisitions that had a significant effect on the Company's
noninterest expense between 1994 compared to 1995 and 1993 compared to 1994.
 
INCOME TAXES
 
    The provision for  income taxes  was $11.4  million, $6.7  million and  $4.2
million  in 1995, 1994 and 1993, respectively. The effective tax rates for these
periods were  38.7%,  36.5%  and  32.4%,  respectively.  The  increases  in  the
Company's  effective tax rate for these periods is primarily attributable to the
decrease in nontaxable income relative to the Company's earnings.
 
                                       14
<PAGE>
FINANCIAL CONDITION
 
SECURITIES
 
    The Company's securities portfolio increased $41.0 million or 13.8%  between
December  31, 1994, and December 31, 1995. Increases in the securities portfolio
related to acquisitions  were $54.0  million. Excluding  these transactions  the
Company  had 1995 maturities  and repayments totalling  $107.9 million, sales of
$8.8 million and purchases of $103.3 million.
 
    At December 31, 1995 and 1994, the held to maturity securities portfolio had
an estimated unrealized  gain of $1.0  million and an  unrealized loss of  $12.5
million, respectively.
 
    At  December 31,  1995, the available  for sale securities  portfolio had an
unrealized pretax gain of $373,000. At December 31, 1994, the available for sale
securities portfolio had an unrealized  pretax loss of $721,000. The  unrealized
gain  or loss on available for securities is reported on a net of tax basis as a
separate component of shareholders' equity. At December 31, 1995 the  unrealized
gain  on securities classified as  available for sale, net  of tax was $219,000,
compared with an unrealized net loss of $421,000 at December 31, 1994.
 
    The improvement  in  the market  value  of the  Company's  total  securities
portfolio  between  December 31,  1994 and  1995, was  predominately due  to the
improved market valuation of its  mortgage-backed securities. As interest  rates
declined  during  1995,  these  securities,  as  well  as  the  Company's  other
securities, increased in market value.
 
    The following  tables set  forth  the amortized  cost and  estimated  market
values of securities at the dates indicated.
 
<TABLE>
<CAPTION>
                                                                            SECURITIES AVAILABLE FOR SALE
                                                                    ---------------------------------------------
                                                                                                        ESTIMATED
                                                                    AMORTIZED  UNREALIZED  UNREALIZED    MARKET
                                                                      COST       GAINS       LOSSES       VALUE
                                                                    ---------  ----------  ----------   ---------
                                                                                   (IN THOUSANDS)
<S>                                                                 <C>        <C>         <C>          <C>
December 31, 1995
------------------------------------------------------------------
U.S. Treasury securities..........................................  $ 20,332   $     171   $     (28)   $  20,475
Securities of U.S. Government agencies and
 corporations.....................................................    50,759         249         (60)      50,948
Obligations of states and political subdivisions..................     1,178          41      --            1,219
Federal Reserve stock.............................................     1,234      --          --            1,234
                                                                    ---------      -----   ----------   ---------
  Total...........................................................  $ 73,503   $     461   $     (88)   $  73,876
                                                                    ---------      -----   ----------   ---------
                                                                    ---------      -----   ----------   ---------
December 31, 1994
------------------------------------------------------------------
U.S. Treasury securities..........................................  $ 45,591      --       $    (651)   $  44,940
Securities of U.S. Government agencies and corporations...........     5,464      --             (70)       5,394
Federal Reserve stock.............................................     1,092      --          --            1,092
                                                                    ---------      -----   ----------   ---------
  Total...........................................................  $ 52,147   $  --       $    (721)   $  51,426
                                                                    ---------      -----   ----------   ---------
                                                                    ---------      -----   ----------   ---------
December 31, 1993
------------------------------------------------------------------
U.S. Treasury securities..........................................  $ 46,830   $     205   $     (10)   $  47,025
Securities of U.S. Government agencies and corporations...........     3,518         113      --            3,631
                                                                    ---------      -----   ----------   ---------
  Total...........................................................  $ 50,348   $     318   $     (10)   $  50,656
                                                                    ---------      -----   ----------   ---------
                                                                    ---------      -----   ----------   ---------
</TABLE>
 
                                       15
<PAGE>
 
<TABLE>
<CAPTION>
                                                                            SECURITIES HELD TO MATURITY
                                                                 -------------------------------------------------
                                                                                                        ESTIMATED
                                                                  AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                                                    COST         GAINS       LOSSES       VALUE
                                                                 -----------  -----------  ----------  -----------
                                                                                  (IN THOUSANDS)
<S>                                                              <C>          <C>          <C>         <C>
December 31, 1995
---------------------------------------------------------------
U.S. Treasury securities.......................................  $    63,300   $     366   $     (186) $    63,480
Securities of U.S. Government agencies and corporations........      150,989         563         (865)     150,687
Obligations of states and political subdivisions...............       50,113       1,194          (49)      51,258
Other securities...............................................          150      --           --              150
                                                                 -----------  -----------  ----------  -----------
  Total........................................................  $   264,552   $   2,123   $   (1,100) $   265,575
                                                                 -----------  -----------  ----------  -----------
                                                                 -----------  -----------  ----------  -----------
December 31, 1994
---------------------------------------------------------------
U.S. Treasury securities.......................................  $    74,050   $       4   $   (3,381) $    70,673
Securities of U.S. Government agencies and corporations........      109,787          10   $   (8,111)     101,686
Obligations of states and political subdivisions...............       61,997         347       (1,374)      60,970
Other securities...............................................          150      --           --              150
                                                                 -----------  -----------  ----------  -----------
  Total........................................................  $   245,984   $     361   $  (12,866) $   233,479
                                                                 -----------  -----------  ----------  -----------
                                                                 -----------  -----------  ----------  -----------
December 31, 1993
---------------------------------------------------------------
U.S. Treasury securities.......................................  $    69,969   $     525   $      (41) $    70,453
Securities of U.S. Government agencies and corporations........      110,642         241         (613)     110,270
Obligations of states and political subdivisions...............       66,943       2,591          (29)      69,505
Other securities...............................................        1,267      --           --            1,267
                                                                 -----------  -----------  ----------  -----------
  Total........................................................  $   248,821   $   3,357   $     (683) $   251,495
                                                                 -----------  -----------  ----------  -----------
                                                                 -----------  -----------  ----------  -----------
</TABLE>
 
    The amortized cost and estimated market values of securities at December 31,
1995 by contractual maturity are shown on the following table. Actual maturities
will differ from contractual maturities because borrowers have the right to call
or prepay obligations with or without call or prepayment penalties.
 
    For  asset/liability purposes,  the Company  monitors these  securities with
consideration of prepayment assumptions. Yields have been calculated by dividing
the taxable-equivalent interest income, including  discount or premium, by  book
value. Yields on nontaxable securities of states and political subdivisions were
presented on a taxable-equivalent basis using a marginal tax rate of 35%.
 
<TABLE>
<CAPTION>
                                                     SECURITIES AVAILABLE FOR SALE
                             ------------------------------------------------------------------------------
                                               AFTER ONE       AFTER FIVE
                               WITHIN ONE     THROUGH FIVE    THROUGH TEN      AFTER TEN
                                  YEAR           YEARS           YEARS           YEARS           TOTAL
                             --------------  --------------  --------------  --------------  --------------
                             AMOUNT   YIELD  AMOUNT   YIELD  AMOUNT   YIELD  AMOUNT   YIELD  AMOUNT   YIELD
                             -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
                                                         (DOLLARS IN THOUSANDS)
<S>                          <C>      <C>    <C>      <C>    <C>      <C>    <C>      <C>    <C>      <C>
U.S. Treasury securities...  $12,829  5.20 % $ 7,503  6.05 % $ --      --  % $ --      --  % $20,332  5.52 %
Securities of U.S.
 Government agencies and
  corporations.............    2,991  6.20    20,597  6.57    21,666  6.78    5,505   6.58    50,759  6.64
Obligations of states and
 political subdivisions....      230  9.64       549  8.69       399  8.42     --      --      1,178  8.78
Federal Reserve stock......    --      --      --      --      --      --     1,234   6.00     1,234  6.00
                             -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
Total......................  $16,050  5.45 % $28,649  6.47 % $22,065  6.81 % $6,739   6.47 % $73,503  6.35 %
                             -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
                             -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
Market Value...............  $16,027         $28,898         $22,160         $6,791          $73,876
                             -------         -------         -------         -------         -------
                             -------         -------         -------         -------         -------
</TABLE>
 
                                       16
<PAGE>
 
<TABLE>
<CAPTION>
                                                    SECURITIES HELD TO MATURITY
                           ------------------------------------------------------------------------------
                                             AFTER ONE       AFTER FIVE
                             WITHIN ONE     THROUGH FIVE    THROUGH TEN      AFTER TEN
                                YEAR           YEARS           YEARS           YEARS           TOTAL
                           --------------  --------------  --------------  --------------  --------------
                           AMOUNT   YIELD  AMOUNT   YIELD  AMOUNT   YIELD  AMOUNT   YIELD  AMOUNT   YIELD
                           -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
                                                       (DOLLARS IN THOUSANDS)
<S>                        <C>      <C>    <C>      <C>    <C>      <C>    <C>      <C>    <C>      <C>
U.S. Treasury
 securities..............  $20,676  4.83 % $42,624  5.51 % $ --      --  % $ --      --  % $63,300  5.29 %
Securities of U.S.
 Government agencies and
 corporations............   16,243  6.02    66,065  5.82    36,409  6.87    32,272  6.82   150,989  6.31
Obligations of states and
 political
 subdivisions............   11,144  8.30    25,311  7.64    12,236  7.77     1,422  7.37    50,113  7.81
Other securities.........    --      --        150  8.37     --      --      --      --        150  8.37
                           -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
Total....................  $48,063  6.04 % $134,150 6.07 % $48,645  7.10 % $33,694  6.84 % $264,552 6.35 %
                           -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
                           -------  -----  -------  -----  -------  -----  -------  -----  -------  -----
Market Value.............  $48,203         $134,522        $49,357         $33,493         $265,575
                           -------         -------         -------         -------         -------
                           -------         -------         -------         -------         -------
</TABLE>
 
LOAN PORTFOLIO
 
    The Company's lending activities are geographically concentrated in Northern
California, specifically the San Francisco Bay Area and Central Valley. The loan
portfolio  mix  consists primarily  of  commercial, industrial  and agricultural
loans, real  estate construction  and land  development loans,  residential  and
commercial  real  estate mortgages,  consumer  installment loans  and individual
lines of  credit.  The  following  table  sets  forth  the  breakdown  of  loans
outstanding by type at the dates indicated.
 
<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                -----------------------------------------------------------------
                                                    1995          1994         1993         1992         1991
                                                -------------  -----------  -----------  -----------  -----------
                                                                         (IN THOUSANDS)
<S>                                             <C>            <C>          <C>          <C>          <C>
Real estate --
  Construction and land development...........  $     125,837  $    99,975  $    74,748  $    83,156  $    93,792
  1 - 4 family residential mortgages..........        344,561      348,361      119,633      117,350      138,105
  Other real estate mortgages.................        236,717      186,638      168,866      146,254      113,372
Commercial, industrial and agricultural.......        183,930      159,266      145,662      160,946      176,599
Consumer......................................        139,735      119,236      100,388      104,668      124,695
                                                -------------  -----------  -----------  -----------  -----------
  Total loans.................................  $   1,030,780  $   913,476  $   609,297  $   612,374  $   646,563
                                                -------------  -----------  -----------  -----------  -----------
                                                -------------  -----------  -----------  -----------  -----------
</TABLE>
 
    The  Company's loan portfolio increased $117.3  million or 12.8% at December
31, 1995 compared to December 31, 1994.  The increase was primarily due to  1995
acquisitions.
 
    The  Company has historically been active  in financing the construction and
development of  residential  properties.  This portion  of  the  loan  portfolio
increased  $25.9 million (25.9%)  at December 31, 1995  compared to December 31,
1994. Although a  significant percentage  of the  Company's nonperforming  loans
come  from  this portion  of  the portfolio,  the  Company has  not historically
suffered any material losses in this area.
 
    Loans secured by 1 - 4 family residential properties decreased $3.8  million
(1.1%)  in 1995  compared to 1994.  This decrease was  primarily attributable to
loan repayments on single family residences secured by first deeds of trust. The
Company acquired  a  significant  portion of  these  loans  (approximately  $240
million)  in connection with the Old  Stone acquisition during 1994. These loans
have experienced an accelerated level of repayments and refinancings during 1995
due to favorable market rates.
 
    Other  real  estate  mortgages,  the   majority  of  which  are   commercial
properties,  are  another  active  market  for  the  Company.  The  underwriting
standards and administrative guidelines regarding these
 
                                       17
<PAGE>
credits are specific  and stringent.  These loans are  generally owner  occupied
business  properties  that are  limited to  specific  types of  properties. This
portion of the portfolio increased $50.1 million (26.8%) during 1995 compared to
1994.
 
    Commercial,  industrial  and  agricultural  loans  increased  $24.7  million
(15.5%)  at December 31, 1995 compared to December 31, 1994. This segment of the
portfolio consists of secured  and unsecured lines of  credit for the  operation
and  expansion needs  of small  and middle-market  businesses and professionals,
including inventory,  accounts  receivable  and  equipment.  Agricultural  loans
consist  of loans to finance agricultural production and other loans to farmers.
Agricultural loans that are  secured by real estate  (farmland) are included  in
other real estate mortgages.
 
    Consumer  loans  increased by  $20.5 million  (17.2%)  at December  31, 1995
compared  to  December  31,  1994.  The  consumer  loan  portfolio  consists  of
automobile  loans, personal  lines of credit  to individuals  and other personal
loans.
 
    Inherent in any loan  portfolio are risks associated  with certain types  of
loans.  The  Company's objective  is to  limit these  risks through  strict loan
policies  and  review  procedures.  Included  in  these  policies  are  specific
loan-to-value limitations as to various categories of real estate related loans.
The  Company  has also  established policies  to limit  the degree  of portfolio
concentration in any product type or to any individual borrower.
 
    At December  31, 1995  there was  no concentration  of loans  in any  single
category   that  was  not  otherwise  disclosed  in  the  loan  portfolio  table
previously.
 
    The following table presents information for selected loans concerning  loan
maturities  and sensitivity to change in the loan portfolio as well as the total
of all such loans due after one year that have fixed or floating interest  rates
at December 31, 1995.
 
<TABLE>
<CAPTION>
                                                                                AFTER ONE     AFTER
                                                                  ONE YEAR OR    THROUGH      FIVE
                                                                     LESS      FIVE YEARS     YEARS       TOTAL
                                                                  -----------  -----------  ---------  -----------
<S>                                                               <C>          <C>          <C>        <C>
Maturity Distribution of Selected Loans:
  Construction and land development.............................  $    99,222   $  11,051   $  15,564  $   125,837
  Commercial, industrial and agricultural.......................       92,382      79,042      12,506      183,930
                                                                  -----------  -----------  ---------  -----------
    Total.......................................................  $   191,604   $  90,093   $  28,070  $   309,767
                                                                  -----------  -----------  ---------  -----------
                                                                  -----------  -----------  ---------  -----------
Sensitivity to Changes in Interest Rates:
  Loans with fixed interest rates...............................                $  20,636   $   8,386
  Loans with floating interest rates............................                   69,457      19,684
                                                                               -----------  ---------
    Total.......................................................                $  90,093   $  28,070
                                                                               -----------  ---------
                                                                               -----------  ---------
</TABLE>
 
                                       18
<PAGE>
ALLOWANCE FOR LOAN LOSSES
 
    The  following table summarizes  the changes in  the Company's allowance for
loan losses for the years indicated.
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                  ---------------------------------------------------------------
                                                     1995         1994         1993         1992         1991
                                                  -----------  -----------  -----------  -----------  -----------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                               <C>          <C>          <C>          <C>          <C>
Balance, beginning of year......................  $    12,822  $    11,547  $     9,855  $     9,459  $    11,450
                                                  -----------  -----------  -----------  -----------  -----------
Deduct loans charged-off:
  Real estate...................................         (540)        (465)        (740)        (467)      (1,138)
  Commercial, industrial and agricultural.......       (1,292)      (2,059)      (1,820)      (2,598)      (5,366)
  Consumer......................................         (896)      (1,178)      (1,182)      (1,673)        (962)
                                                  -----------  -----------  -----------  -----------  -----------
    Total charge-offs...........................       (2,728)      (3,702)      (3,742)      (4,738)      (7,466)
                                                  -----------  -----------  -----------  -----------  -----------
Add recoveries of loans charged-off:
  Real estate...................................          145            8          177           46           16
  Commercial, industrial and agricultural.......          597          320          384          721          349
  Consumer......................................          177          282          336          302          255
                                                  -----------  -----------  -----------  -----------  -----------
    Total recoveries............................          919          610          897        1,069          620
                                                  -----------  -----------  -----------  -----------  -----------
  Net charge-offs...............................       (1,809)      (3,092)      (2,845)      (3,669)      (6,846)
                                                  -----------  -----------  -----------  -----------  -----------
Provision for loan losses.......................        1,485        1,895        3,425        4,065        4,855
Allowance related to acquisitions...............        2,338        2,472        1,112      --           --
                                                  -----------  -----------  -----------  -----------  -----------
Balance, end of year............................  $    14,836  $    12,822  $    11,547  $     9,855  $     9,459
                                                  -----------  -----------  -----------  -----------  -----------
                                                  -----------  -----------  -----------  -----------  -----------
Net charge-offs to average loans outstanding....         0.18%        0.48%        0.47%        0.58%        1.03%
Average loans outstanding.......................  $   986,796  $   644,205  $   605,412  $   632,616  $   663,444
Allowance at end of year to loans outstanding...         1.44%        1.40%        1.90%        1.61%        1.46%
</TABLE>
 
    Net charge-offs decreased $1.3 million or 41.5% during 1995 compared to 1994
which increased  $247,000  (8.7%) compared  to  1993. An  improved  economy  and
successful   collection  efforts  were  major   factors  contributing  to  lower
charge-off levels.
 
    The Company's  determination  of  the  allowance for  loan  losses  and  the
corresponding  provision  for  loan losses  is  based on  various  judgments and
assumptions including,  but not  limited to,  general economic  conditions,  the
composition  of  the  loan portfolio,  prior  loss experience  and  estimates of
potential future  losses.  In  addition,  various  regulatory  agencies,  as  an
integral  part  of their  examination  process, periodically  review  the Banks'
allowances for loan losses.
 
    On January 1, 1995,  the Company adopted  Statement of Financial  Accounting
Standards  No. 114 (SFAS No. 114), "Accounting  by Creditors for Impairment of a
Loan", as amended by SFAS No. 118 (collectively referred to as SFAS No. 114), on
a prospective  basis.  These  Statements address  the  accounting  treatment  of
certain impaired loans and amend SFAS No. 5 and 15. However, these Statements do
not  address the overall  adequacy of the  allowance for loan  losses and do not
apply to large groups of smaller-balance homogeneous loans unless they have been
involved in a restructuring.
 
    A loan is considered impaired, within the scope of SFAS No. 114, when, based
on current  information and  events, it  is probable  that the  Company will  be
unable  to collect principal or interest  due according to the contractual terms
of the original loan agreement.
 
                                       19
<PAGE>
    The  Company measures the impairment  of a loan when and  while a loan is on
nonaccrual or  the loan  has  been restructured.  The  amount of  impairment  is
calculated by the Company using discounted cash flows, except when the source of
repayment  for the loan is through the liquidation of the underlying collateral.
For these loans, the net realizable value of the collateral (current fair  value
less  estimated costs to sell) is used in place of discounted cash flows. If the
measurement of the  impaired loan is  less than the  recorded investment in  the
loan,  the  Company  recognizes such  impairment  by creating  or  adjusting the
existing allowance  for  loan losses.  If  full collection  is  uncertain,  cash
receipts  are applied first to principal, then to recovery of amounts previously
charged-off, then  to interest  income. An  analysis of  the Company's  recorded
investment  in impaired loans  and the related  SFAS No. 114  allowance for loan
losses at December 31, 1995 is presented  in Note 1, Allowance for Loan  Losses,
in the Notes to the Consolidated Financial Statements.
 
    The  Company performs  a quarterly  assessment to  determine the appropriate
level of the allowance for loan losses. This process uses a series of allocation
methods  including  specific  credit   allocations  for  individual  loans   and
historical loss experience for each loan category and degree of criticism within
each  category.  The total  of  these allocations  is  then supplemented  by the
unallocated portion  of the  allowance for  loan losses.  Based on  management's
analysis of the Company's overall allowance for loan losses, management believes
that  the provision for loan losses for  1995 is appropriate. It is management's
opinion that the allowance for loan losses at December 31, 1995, is adequate  to
provide for potential losses in the current loan portfolio. No assurances can be
given  that  adverse economic  conditions or  other factors  will not  result in
increased losses  in  the  Company's  loan  portfolio.  The  allocation  of  the
allowance  for loan losses ("Allocation") and the  ratio of the loan category to
outstanding loans ("Ratio") are summarized in the following table.
 
<TABLE>
<CAPTION>
                                                         COMPONENTS OF ALLOWANCE FOR LOAN LOSSES
                            --------------------------------------------------------------------------------------------------
                                                                       DECEMBER 31,
                            --------------------------------------------------------------------------------------------------
                                   1995                1994                1993                1992                1991
                            ------------------  ------------------  ------------------  ------------------  ------------------
                            ALLOCATION   RATIO  ALLOCATION   RATIO  ALLOCATION   RATIO  ALLOCATION   RATIO  ALLOCATION   RATIO
                            ----------   -----  ----------   -----  ----------   -----  ----------   -----  ----------   -----
                                                                      (IN THOUSANDS)
<S>                         <C>          <C>    <C>          <C>    <C>          <C>    <C>          <C>    <C>          <C>
Real estate...............   $ 4,764      68.6   $ 4,736      69.5   $ 3,085      59.6    $2,586      56.6    $4,377      53.4
Commercial, industrial and
 agricultural.............     4,148      17.8     3,510      17.4     3,991      23.9     4,158      26.3     2,381      27.3
Consumer..................       308      13.6       580      13.1       352      16.5       377      17.1       734      19.3
Unallocated(1)............     5,616      n/a      3,996      n/a      4,119      n/a      2,734      n/a      1,967      n/a
                            ----------   -----  ----------   -----  ----------   -----  ----------   -----  ----------   -----
  Total...................   $14,836     100.0   $12,822     100.0   $11,547     100.0    $9,855     100.0    $9,459     100.0
                            ----------   -----  ----------   -----  ----------   -----  ----------   -----  ----------   -----
                            ----------   -----  ----------   -----  ----------   -----  ----------   -----  ----------   -----
</TABLE>
 
--------------------------
(1) The unallocated portion of the allowance is evaluated as part of the overall
    evaluation of the  adequacy of  the allowance and  takes into  consideration
    various   loan   portfolio   risk  factors,   including   loan   growth  and
    concentrations, lending policies,  delinquency trends  and general  economic
    conditions.  This  amount  and  any  unabsorbed  portion  of  the  allocated
    allowance is also available for any of the above listed loan categories.
 
    The allowance for  loan losses should  not be interpreted  as an  indication
that  charge-offs in the future  will occur in these  amounts or proportions, or
that the allocation indicates future charge-off trends. Furthermore, the portion
allocated to each  loan category is  not the total  amount available for  future
losses that might occur within such categories.
 
NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS AND FORECLOSED ASSETS
 
    The following table presents the Company's nonaccrual and restructured loans
and  foreclosed assets  as well  as loans  past due  90 days  and still accruing
interest, covering a five year period.
 
                                       20
<PAGE>
Classification of  a loan  as nonaccrual  or restructured  does not  necessarily
indicate  the loan is not performing with respect to collection of principal and
interest nor does it  mean that the  principal of the  loan is uncollectible  in
whole or in part.
 
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                         -------------------------------------------
                                                          1995     1994     1993     1992     1991
                                                         -------  -------  -------  -------  -------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                      <C>      <C>      <C>      <C>      <C>
Nonaccrual loans:
  Construction and land development....................  $ 3,198  $ 4,052  $ 3,227  $ 3,410  $ 7,300
  1-4 family residential mortgages.....................    5,341    3,359      510      325      110
  Other real estate mortgages..........................    2,720       53    1,041    1,923       59
Commercial, industrial and agricultural................      679    1,209    2,364    1,029      298
Consumer...............................................      435       78      573      386      201
                                                         -------  -------  -------  -------  -------
  Total nonaccrual loans...............................   12,373    8,751    7,715    7,073    7,968
Restructured loans.....................................    2,544    4,285    3,724    1,697    --
                                                         -------  -------  -------  -------  -------
  Total nonperforming loans............................   14,917   13,036   11,439    8,770    7,968
Foreclosed assets......................................    3,215    2,415    2,842    6,388    9,967
                                                         -------  -------  -------  -------  -------
  Total nonperforming assets...........................  $18,132  $15,451  $14,281  $15,158  $17,935
                                                         -------  -------  -------  -------  -------
                                                         -------  -------  -------  -------  -------
Nonperforming loans as a percentage of total loans.....      1.4%     1.4%     1.9%     1.4%     1.2%
Nonperforming assets as a percentage of total loans and
 foreclosed assets.....................................      1.8%     1.7%     2.3%     2.4%     2.7%
Loans past due 90 days and still accruing interest.....  $   161  $   659  $   640  $   214  $   505
Foregone interest......................................  $ 1,200  $   665  $   670  $   747  $ 1,404
</TABLE>
 
    Loans  are placed on nonaccrual status when full collectibility of principal
or interest is uncertain or when principal  or interest is past due for 90  days
(unless  the loan is  well secured and  in the process  of collection). From the
time a loan is placed on nonaccrual status, interest previously accrued but  not
collected  is  reversed and  charged against  interest  income. Any  interest or
principal payments  received on  a nonaccrual  loan are  normally applied  as  a
principal  reduction. A nonaccrual  loan may be restored  to accrual status when
none of its principal and interest is  past due and unpaid or when it  otherwise
becomes  well  secured and  in  the process  of collection.  In  a case  where a
borrower experiences  financial  difficulties  and  the  Company  makes  certain
concessionary  modifications to contractual terms (i.e., the reduction of either
interest or principal  or other such  modifications that the  Company would  not
otherwise  consider),  the loan  is classified  as a  restructured loan.  If the
borrower is not able to meet the  revised payment schedule and the loan  becomes
delinquent, the loan is placed on nonaccrual status.
 
    Foreclosed  assets  include  property  acquired  through  foreclosure. These
properties are carried at the  lower of (i) fair  value less estimated costs  to
sell  or (ii) the  recorded cost of  the asset. Upon  foreclosure, any necessary
write-downs are charged to the allowance for loan losses. The difference between
cost and fair  value less estimated  cost to sell,  if lower, is  recorded as  a
valuation  allowance. Subsequent declines in the  fair value of the property are
recorded as an addition to the valuation allowance.
 
    Management is not  aware of  any significant potential  problem loans  which
have  not  otherwise been  disclosed  as a  nonaccrual  or restructured  loan at
December 31, 1995,  in which there  is known information  about possible  credit
problems  of a borrower that has caused  management to have serious doubts as to
the ability of such borrowers to comply with the present loan repayment terms.
 
                                       21
<PAGE>
DEPOSITS
 
    Total deposits  increased  $246.2 million  or  20.9% at  December  31,  1995
compared  to December 31,  1994. Average daily deposits,  along with the average
rates paid thereon, for  the years ended  December 31, 1995,  1994 and 1993  are
summarized in the following table.
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                             ---------------------------------------------------
                                                   1995              1994             1993
                                             -----------------  ---------------  ---------------
                                               AMOUNT    RATE    AMOUNT   RATE    AMOUNT   RATE
                                             ----------  -----  --------  -----  --------  -----
                                                           (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>    <C>       <C>    <C>       <C>
Noninterest-bearing demand.................  $  244,732     --% $209,410     --% $187,774     --%
Savings and interest-bearing demand........     553,847   2.31   482,340   2.09   443,873   2.25
Time certificates $100,000 or more.........     103,259   5.25    67,737   3.66    73,181   3.82
Other time.................................     424,153   5.66   210,460   4.07   170,398   4.41
                                             ----------  -----  --------  -----  --------  -----
  Total deposits...........................  $1,325,991   3.19% $969,947   2.18% $875,226   2.32%
                                             ----------  -----  --------  -----  --------  -----
                                             ----------  -----  --------  -----  --------  -----
</TABLE>
 
    The  total  amount held  in  the accounts  of  any single  depositor  is not
material in relationship to total deposits.
 
    Summarized below,  by  time remaining  until  maturity, are  the  amount  of
outstanding  time certificates of  deposit issued in the  amounts of $100,000 or
more:
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31, 1995
                                                                             -----------------
                                                                              (IN THOUSANDS)
<S>                                                                          <C>
Three months or less.......................................................     $    66,401
Over three through six months..............................................          23,620
Over six through twelve months.............................................          33,989
Over twelve months.........................................................          21,398
                                                                             -----------------
  Total....................................................................     $   145,408
                                                                             -----------------
                                                                             -----------------
</TABLE>
 
ASSET/LIABILITY MANAGEMENT
 
    The Company has separate policies and guidelines for managing the  Company's
balance  sheet  and  off-balance  sheet activities  which  are  incorporated and
considered integral parts  of the asset/  liability management process.  Certain
policies may be governed and implemented by committees or persons other than the
Asset/Liability  Committee (ALCO) as directed by the Board of Directors. Overall
asset/liability management encompasses  the management and  monitoring of  asset
quality, liquidity and capital needs and interest rate risk.
 
INTEREST RATE RISK
 
    One  of the principal objectives of  asset/liability management is to manage
the risks associated with changing interest rates and their impact on  earnings.
The ALCO regularly evaluates and sets predetermined limits on the sensitivity of
each Bank's net interest income to changes in interest rates.
 
    Interest  rate risk can be viewed  from a variety of perspectives, including
the sensitivity of earnings to rate movements and the sensitivity of the  market
value  of the Company's equity to changes  in interest rates. One way to measure
how a change in interest rates will impact net interest income in specific  time
frames is through a cumulative gap analysis. Traditional gap analysis represents
interest  rate risk in terms of the mismatch between the stated repricing of the
Company's earning assets  and interest-bearing liabilities  within defined  time
periods. As shown in the following
 
                                       22
<PAGE>
table,  at December  31, 1995, the  cumulative one-year contractual  gap for the
Company was a  negative $77.4  million, or (5.4%)  of earning  assets. In  other
words,  5.4% of the Company's interest-bearing  liabilities has the potential to
reprice or mature more quickly than its earning assets in one year.
 
<TABLE>
<CAPTION>
                                                    INTEREST RATE SENSITIVITY
                               -------------------------------------------------------------------
                                  0-3                               OVER
                                MONTHS    3-12 MONTHS  1-5 YEARS   5 YEARS   NON-MARKET   TOTAL
                               ---------  -----------  ---------  ---------  ---------  ----------
                                                     (DOLLARS IN THOUSANDS)
<S>                            <C>        <C>          <C>        <C>        <C>        <C>
Assets:
Federal funds sold...........  $  76,175   $  --       $  --      $  --      $  --      $   76,175
Securities (1)...............     48,027      54,143     148,546     86,478      1,234     338,428
Loans (2)....................    490,539     279,089     170,899     77,880     12,373   1,030,780
                               ---------  -----------  ---------  ---------  ---------  ----------
    Total earning assets.....    614,741     333,232     319,445    164,358     13,607   1,445,383
Noninterest-earning assets...     --          --          --         --        125,075     125,075
                               ---------  -----------  ---------  ---------  ---------  ----------
  Total assets...............    614,741     333,232     319,445    164,358    138,682   1,570,458
                               ---------  -----------  ---------  ---------  ---------  ----------
Liabilities and Shareholders'
 Equity:
Deposits:
  Savings and
   interest-bearing demand
   deposits..................  $ 565,370   $  --       $  --      $  --      $  --      $  565,370
  Time certificates, $100,000
   or more...................     66,401      57,609      21,198        200     --         145,408
  Other time.................    157,286     178,715      87,681     --         --         423,682
                               ---------  -----------  ---------  ---------  ---------  ----------
  Total interest-bearing
   deposits..................    789,057     236,324     108,879        200     --       1,134,460
Borrowed funds...............     --          --          --         --             90          90
                               ---------  -----------  ---------  ---------  ---------  ----------
  Total interest-bearing
   liabilities...............    789,057     236,324     108,879        200         90   1,134,550
                               ---------  -----------  ---------  ---------  ---------  ----------
Noninterest-bearing
 liabilities.................     --          --          --         --        305,147     305,147
Shareholders' equity.........     --          --          --         --        130,761     130,761
                               ---------  -----------  ---------  ---------  ---------  ----------
  Total liabilities and
   shareholders' equity......    789,057     236,324     108,879        200    435,998   1,570,458
                               ---------  -----------  ---------  ---------  ---------  ----------
Incremental gap..............   (174,316)     96,908     210,566    164,158   (297,316)     --
                               ---------  -----------  ---------  ---------  ---------  ----------
Cumulative gap...............  $(174,316)  $ (77,408)  $ 133,158  $ 297,316  $  --
                               ---------  -----------  ---------  ---------  ---------
                               ---------  -----------  ---------  ---------  ---------
% to earning assets..........      (12.1)       (5.4)        9.2       20.6     --
                               ---------  -----------  ---------  ---------  ---------
                               ---------  -----------  ---------  ---------  ---------
</TABLE>
 
------------------------
(1) The nonmarket column consists of Federal Reserve Bank stock
 
(2) The nonmarket column consists of nonaccrual loans of $12,373
 
    Over the short period  (one year or less)  changes in interest rates  affect
net  interest income to the extent that there is a timing difference between the
repricing of  assets and  liabilities. For  instance, if  more liabilities  than
assets  reprice  during  a  time  period, such  as  the  Company's  gap analysis
indicates, given a  rising rate  environment, net  interest income  will have  a
tendency  to  decrease  if  the  assets  and  liabilities  reprice  in  rate  by
approximately the same amount. Conversely, if an institution is considered to be
asset sensitive, or as having a positive gap, when the amount of its liabilities
maturing or repricing is  less than the  amount of its  assets also maturing  or
repricing  during  the same  period, net  interest income  would benefit  from a
rising rate environment.
 
    However, shortcomings are  inherent in  a simplified gap  analysis that  may
result  in an  institution with  a nominally  negative gap  having interest rate
behavior associated with an asset sensitive balance sheet. For example, although
certain assets  and  liabilities  may  have similar  maturities  or  periods  to
 
                                       23
<PAGE>
repricing,  they may  react in different  degrees to changes  in market interest
rates. Furthermore, repricing characteristics of certain assets and  liabilities
vary  substantially within  a given  time period.  In the  event of  a change in
interest rates,  prepayment  and  early withdrawal  levels  could  also  deviate
significantly  from those  assumed in calculating  gap. The  Company attempts to
quantify these characteristics by taking into account the expected repricing  or
maturities   of  earning  assets  and  funding  sources,  as  opposed  to  their
contractual maturities.
 
    Because net interest income is not necessarily a conclusive indication of an
institution's ongoing net worth,  a second measure of  interest rate risk -  the
market  value of portfolio equity (MVPE)  is important. This measure attempts to
quantify the ongoing  worth of the  institution by considering  all cash  flows,
regardless  of  their timing,  and discounting  these back  to the  present. The
difference between the discounted assets less the discounted liabilities is  the
present value of equity or the economic measure of the institution's net worth.
 
    These two approaches to interest rate risk measurement are complementary and
are used in tandem by the individual Banks to provide a more complete picture of
the  interest rate  risk associated with  their balance sheets.  Included in the
Company's Asset/Liability  Management  Policy  are limitations  on  the  maximum
volatility  each  Bank  may  undertake associated  with  possible  interest rate
movement.
 
LIQUIDITY
 
    Liquidity is  defined as  the Company's  ability to  provide funds  to  meet
customers'  loan and deposit needs and to fund operations in the most timely and
cost effective basis.  The Company's  liquidity is  measured and  managed on  an
individual  bank  basis. The  holding company  (parent)  is funded  primarily by
dividends and management fee income from its subsidiaries.
 
    Core deposits have historically provided  the Company with funding  sources.
The  Company also  utilizes repurchase agreements.  In addition,  the Banks have
informal federal funds borrowing arrangements  with correspondent banks to  meet
unforeseen  deposit outflows.  At December 31,  1995 and December  31, 1994, the
Company's loan to deposit ratio was 72.3% and 77.4%, respectively.
 
CAPITAL
 
    The Company reviews various capital adequacy ratios on a quarterly basis  to
ensure  that each  banking subsidiary  and the  consolidated Company  are within
established internal  and  external  guidelines. The  Company  and  its  banking
subsidiaries are subject to risk-based capital regulations.
 
    These  guidelines are used to evaluate capital  adequacy and are based on an
institution's balance sheet risk and off-balance sheet risk. Current regulations
define capital  adequacy  into  five categories;  well  capitalized,  adequately
capitalized,  undercapitalized, significantly  under capitalized  and critically
undercapitalized. Each of  these capital categories  have predefined  risk-based
capital  ratio minimums. At December 31, 1995 and December 31, 1994, the capital
ratios of the Company exceeded the "well capitalized" threshold as prescribed by
banking regulators. An institution's  deposit insurance premiums are  determined
through  a matrix  based on the  institution's capital  category and supervisory
subgroup. Any reduction in an  institution's capital category can  significantly
increase premiums.
 
                                       24
<PAGE>
    The following table presents the Company's capital positions at December 31,
1995  and December 31, 1994, including the risk-based capital ratio and leverage
ratio.
 
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                        --------------------------
                                                                                            1995          1994
                                                                                        -------------  -----------
                                                                                          (DOLLARS IN THOUSANDS)
<S>                                                                                     <C>            <C>
Tier 1:
    Shareholders' equity..............................................................  $     130,761  $   112,243
    Less: Intangibles.................................................................         (6,975)        (906)
    Adjust: Unrealized (gains) losses on securities available for sale, net...........           (219)         421
                                                                                        -------------  -----------
      Total Tier 1 capital............................................................        123,567      111,758
Tier 2 capital........................................................................         12,838       11,042
                                                                                        -------------  -----------
      Total risk-based capital........................................................  $     136,405  $   122,800
                                                                                        -------------  -----------
                                                                                        -------------  -----------
Risk-adjusted assets..................................................................  $   1,027,057  $   883,325
                                                                                        -------------  -----------
                                                                                        -------------  -----------
Tier 1 capital/risk-adjusted assets
    Capital ratio.....................................................................         12.03%       12.65%
    Minimum ratio.....................................................................           4.00         4.00
Total risk-based capital/risk-adjusted assets
    Capital ratio.....................................................................          13.28        13.90
    Minimum...........................................................................           8.00         8.00
Leverage ratio........................................................................           7.98        10.27
</TABLE>
 
                                       25
<PAGE>
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION
 
    The  following  quarterly  financial  information  for  1995  and  1994   is
unaudited.  In the opinion  of management, all  adjustments necessary to present
fairly the results of operations for the periods shown have been made.
 
<TABLE>
<CAPTION>
                                                                              1995 QUARTER ENDED
                                                                     ------------------------------------
                                                                     DEC. 31  SEPT. 30   JUNE 30  MAR. 31
                                                                     -------  --------   -------  -------
                                                                       (IN THOUSANDS EXCEPT PER SHARE)
<S>                                                                  <C>      <C>        <C>      <C>
Interest income....................................................  $30,627  $ 30,326   $27,541  $26,731
Interest expense...................................................   11,585    11,524    10,366    9,491
                                                                     -------  --------   -------  -------
  Net interest income..............................................   19,042    18,802    17,175   17,240
Provision for loan losses..........................................      440       445       210      390
                                                                     -------  --------   -------  -------
  Net interest income after provision for loan losses..............   18,602    18,357    16,965   16,850
Noninterest income.................................................    2,608     2,611     2,250    2,010
Noninterest expense................................................   12,920    13,020    12,500   12,388
Provision for income taxes.........................................    3,207     3,206     2,505    2,472
                                                                     -------  --------   -------  -------
  Net income.......................................................  $ 5,083  $  4,742   $ 4,210  $ 4,000
                                                                     -------  --------   -------  -------
                                                                     -------  --------   -------  -------
  Net income per share.............................................  $  0.51  $   0.47   $  0.42  $  0.40
                                                                     -------  --------   -------  -------
                                                                     -------  --------   -------  -------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                              1994 QUARTER ENDED
                                                                     ------------------------------------
                                                                     DEC. 31  SEPT. 30   JUNE 30  MAR. 31
                                                                     -------  --------   -------  -------
                                                                       (IN THOUSANDS EXCEPT PER SHARE)
<S>                                                                  <C>      <C>        <C>      <C>
Interest income....................................................  $21,906  $ 19,774   $18,722  $17,570
Interest expense...................................................    6,252     5,221     4,943    4,830
                                                                     -------  --------   -------  -------
  Net interest income..............................................   15,654    14,553    13,779   12,740
Provision for loan losses..........................................      415       425       585      470
                                                                     -------  --------   -------  -------
  Net interest income after provision for loan losses..............   15,239    14,128    13,194   12,270
Noninterest income.................................................    2,068     1,724     1,716    1,998
Noninterest expense................................................   11,907    10,903    10,592   10,598
Provision for income taxes.........................................    2,057     1,852     1,552    1,240
                                                                     -------  --------   -------  -------
  Net income.......................................................  $ 3,343  $  3,097   $ 2,766  $ 2,430
                                                                     -------  --------   -------  -------
                                                                     -------  --------   -------  -------
  Net income per share.............................................  $  0.36  $   0.33   $  0.30  $  0.26
                                                                     -------  --------   -------  -------
                                                                     -------  --------   -------  -------
</TABLE>
 
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    See index to Financial Statements and Schedules included on page 29 of  this
report.
 
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE
 
    None
 
                                       26
<PAGE>
                                    PART III
 
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    (a) DIRECTORS.
 
    Set  forth below are the names and ages of the directors of the Company, the
principal occupations at present and for  the past five years of each  director,
certain  directorships held by each,  and the year since  which the director has
been continuously  a director  of  the Company.  Except as  otherwise  indicated
below,  each director has been engaged  in the indicated principal occupation or
employment for more than the past five  years. The information set forth in  the
following table has been furnished to the Company by the respective directors.
 
<TABLE>
<CAPTION>
                                         YEAR FIRST ELECTED DIRECTOR, POSITION AND OFFICES WITH
                                         THE COMPANY; PRINCIPAL OCCUPATION DURING THE PAST FIVE
           NAME                 AGE                              YEARS
---------------------------     ---     --------------------------------------------------------
<S>                          <C>        <C>
Dale C. Adams                   54      Director of the Company (1991-present). Attorney at law
                                         and partner in the law firm of Boatwright, Adams and
                                         Bechelli.
Harry A. Avila                  57      Director of the Company (1991-present). President of
                                         Essanay Property Management, a real estate investment
                                         firm.
Wayne W. Bennett                47      Director of the Company (1991-present). Certified Public
                                         Accountant.
Richard J. Clancy               63      Director of the Company (1991-present). Chairman and CEO
                                         of Security Pacific Real Estate.
Joseph P. Colmery               42      Director, President and CEO of the Company
                                         (1991-present). President and CEO of Mission-Valley
                                         Bancorp (1987-1991).
Keith S. Fraser                 59      Director of the Company (1988-present). Attorney at law
                                         and partner in the law firm of Varni, Fraser, Hartwell
                                         & Rodgers.
Donald J. Gehb                  64      Director and Chairman of the Company (1991-present).
                                         Director, President and CEO of the Company (1971-1991).
Thomas F. Matthews              65      Director of the Company (1990-present). Co-publisher of
                                         Tracy Press, newspaper.
James L. McKenna, Jr.           60      Director of the Company (1984-present). Certified public
                                         accountant, and a partner in the accounting firm of
                                         Kimbell, McKenna & von Kaschnitz.
Ralph N. Mendelson              65      Director of the Company (1971-present). Attorney, of
                                         counsel for the law firm of Mendelson & Brown, a
                                         partnership composed of professional corporations and
                                         individuals.
A. Steve Simi                   62      Director of the Company (1976-present). President of
                                         Cochran & Celli, automobile dealerships.
</TABLE>
 
                                       27
<PAGE>
    (b) EXECUTIVE OFFICERS OF THE REGISTRANT.
 
<TABLE>
<CAPTION>
           NAME                 AGE       POSITIONS AND OFFICES HELD AND DATE FROM WHICH HELD
---------------------------     ---     --------------------------------------------------------
<S>                          <C>        <C>
Donald J. Gehb                  64      Chairman of the Board of the Company (1991 to present),
                                         Director, President and Chief Executive Officer of the
                                         Company (1971 to 1991).
Joseph P. Colmery               42      Director, President and Chief Executive Officer of the
                                         Company (1991 to present), Director, President and
                                         Chief Executive Officer of Mission-Valley Bancorp (1987
                                         to 1991).
John W. Larsen                  60      Executive Vice President and Senior Credit Officer of
                                         the Company (1991 to present), Senior Vice President
                                         and Senior Credit Officer of Mission-Valley Bancorp
                                         (1987 to 1991).
Vincent M. Leveroni             48      Executive Vice President and Chief Financial Officer of
                                         the Company (1979 to present).
Ted Teruo Kitada                47      Executive Vice President, General Counsel and Assistant
                                         Corporate Secretary of the Company (1994 to present),
                                         Executive Vice President, General Counsel and Assistant
                                         Corporate Secretary of Pacific Western Bancshares, Inc.
                                         (1986 to 1994).
James A. Mayer                  54      Executive Vice President of the Company (1994 to
                                         present) President and Chief Executive Officer of
                                         Lamorinda National Bank (1990 to 1994).
</TABLE>
 
    (c) OFFICER AND DIRECTOR REPORTS.
 
    None.
 
ITEM 11 -- EXECUTIVE COMPENSATION
 
    Information  regarding  executive  compensation  will  be  included  in  the
Company's Proxy Statement to be filed with the SEC by April 30, 1996, under  the
caption  "EXECUTIVE COMPENSATION."  Such information  is incorporated  herein by
reference.
 
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The security ownership of certain  beneficial owners and of management  will
be  included in the Company's Proxy Statement to  be filed with the SEC by April
30, 1996, under the caption "STOCK OWNERSHIP OF MANAGEMENT." Such information is
incorporated herein by reference.
 
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    Information regarding  certain  transactions to  which  the Company  or  its
subsidiaries  and directors  or executive  officers of  the Company  have been a
party will be included in the Company's Proxy Statement to be filed with the SEC
by April 30,  1996, under  the caption "TRANSACTIONS  WITH DIRECTORS,  EXECUTIVE
OFFICERS AND OTHERS." Such information is incorporated herein by reference.
 
                                       28
<PAGE>
                                    PART IV
 
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
    (a) 1.  Financial Statement Schedule
 
    The following is an index of the financial statements filed in this report.
 
    CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                           -------------
<S>                                                                                        <C>
Consolidated Balance Sheet -- December 31, 1995 and 1994.................................       F-1
Consolidated Statement of Income -- For Each of the Years in the Three-Year Period Ended
 December 31, 1995.......................................................................       F-2
Consolidated Statement of Changes in Shareholders' Equity -- For Each of the Years in the
 Three-Year Period Ended December 31, 1995...............................................       F-3
Consolidated Statement of Cash Flows -- For Each of the Years in the Three-Year Period
 Ended December 31, 1995.................................................................      F-4,5
Notes to Consolidated Financial Statements...............................................   F-6 to F-21
Independent Auditors' Report.............................................................      F-22
</TABLE>
 
    2.   All  of the  schedules for  which provision  is made  in the applicable
accounting regulations of the Securities and Exchange Commission are either  not
required  under the related  instruction, the required  information is contained
elsewhere in the Form 10-K, or the schedules are inapplicable and therefore have
been omitted.
 
    3.  Exhibits are listed  on Exhibit Index on pages  32-33 of this report  on
Form 10-K.
 
    (b) Reports of Form 8-K
 
    No  reports on Form 8-K were filed by the Company during the last quarter of
1995.
 
                                       29
<PAGE>
                                   SIGNATURES
 
    Pursuant to  the requirements  of  Section 13  or  15(d) of  the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
Date: March 20, 1996                         CALIFORNIA BANCSHARES, INC.
                                             (Registrant)
 
                                          By: ____/S/__JOSEPH P. COLMERY________
                                                      Joseph P. Colmery
                                                PRESIDENT AND CHIEF EXECUTIVE
                                                           OFFICER
 
    Pursuant  to the requirements  of the Securities Exchange  Act of 1934, this
report has  been  signed  below  by  the following  persons  on  behalf  of  the
registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                   SIGNATURE                                      TITLE                            DATE
------------------------------------------------  --------------------------------------  -----------------------
 
<C>                                               <S>                                     <C>
               /S/  JOSEPH P. COLMERY             President and Chief Executive Officer
     --------------------------------------        (Principal Executive Officer),         March 20, 1996
               Joseph P. Colmery                   Director
 
                  /S/  DONALD J. GEHB
     --------------------------------------                                               March 20, 1996
                 Donald J. Gehb                   Chairman of the Board and Director
 
              /S/  VINCENT M. LEVERONI            Executive Vice President and Chief
     --------------------------------------        Financial Officer and Principal        March 20, 1996
              Vincent M. Leveroni                  Accounting Officer
 
                   /S/  DALE C. ADAMS
     --------------------------------------                                               March 20, 1996
                 Dale C. Adams                    Director
 
                  /S/  HARRY A. AVILA
     --------------------------------------                                               March 20, 1996
                 Harry A. Avila                   Director
 
                /S/  WAYNE W. BENNETT
     --------------------------------------                                               March 20, 1996
                Wayne W. Bennett                  Director
 
                /S/  RICHARD J. CLANCY
     --------------------------------------                                               March 20, 1996
               Richard J. Clancy                  Director
 
                 /S/  KEITH S. FRASER
     --------------------------------------                                               March 20, 1996
                Keith S. Fraser                   Director
 
              /S/  THOMAS F. MATTHEWS
     --------------------------------------                                               March 20, 1996
               Thomas F. Matthews                 Director
</TABLE>
 
                                       30
<PAGE>
<TABLE>
<CAPTION>
                   SIGNATURE                                      TITLE                            DATE
------------------------------------------------  --------------------------------------  -----------------------
 
<C>                                               <S>                                     <C>
             /S/  JAMES L. MCKENNA, JR.
     --------------------------------------                                               March 20, 1996
             James L. McKenna, Jr.                Director
 
              /S/  RALPH N. MENDELSON
     --------------------------------------                                               March 20, 1996
               Ralph N. Mendelson                 Director
 
                   /S/  A. STEVE SIMI
     --------------------------------------                                               March 20, 1996
                 A. Steve Simi                    Director
</TABLE>
 
                                       31
<PAGE>
                  CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES
 
                           CONSOLIDATED BALANCE SHEET
 
                                     ASSETS
<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                      ----------------------------
                                                                                          1995           1994
                                                                                      -------------  -------------
                                                                                       (IN THOUSANDS EXCEPT SHARE
                                                                                                AMOUNTS)
<S>                                                                                   <C>            <C>
Cash and due from banks.............................................................  $      81,606  $      66,587
Federal funds sold..................................................................         76,175         14,800
                                                                                      -------------  -------------
  Total cash and cash equivalents...................................................        157,781         81,387
Securities:
  Available for sale................................................................         73,876         51,426
  Held to maturity (approximate market values of $265,575 in 1995 and $233,479 in
   1994)............................................................................        264,552        245,984
                                                                                      -------------  -------------
    Total securities................................................................        338,428        297,410
Loans, net of allowance for loan losses of $14,836 in 1995 and $12,822 in 1994......      1,015,944        900,654
Premises and equipment, net.........................................................         20,040         17,329
Interest receivable and other assets................................................         38,265         36,516
                                                                                      -------------  -------------
TOTAL ASSETS........................................................................  $   1,570,458  $   1,333,296
                                                                                      -------------  -------------
                                                                                      -------------  -------------
 
                                                   LIABILITIES
Deposits:
  Non interest-bearing demand.......................................................  $     291,435  $     228,211
  Savings and interest-bearing demand...............................................        565,370        519,431
  Time certificates, $100,000 or more...............................................        145,408         86,338
  Other time........................................................................        423,682        345,737
                                                                                      -------------  -------------
    Total deposits..................................................................      1,425,895      1,179,717
Borrowed funds......................................................................             90         29,747
Interest payable and other liabilities..............................................         13,712         11,589
                                                                                      -------------  -------------
    Total liabilities...............................................................      1,439,697      1,221,053
                                                                                      -------------  -------------
Commitments and contingent liabilities
 
<CAPTION>
 
                                               SHAREHOLDERS' EQUITY
<S>                                                                                   <C>            <C>
Preferred stock, no par value
  Shares authorized: 2,000,000
  Shares issued: none
Common stock, $2.50 par value
  Shares authorized: 16,000,000
  Shares issued and outstanding: 1995 -- 10,060,685
                               1994 --  9,353,364...................................         25,152         23,383
Capital surplus.....................................................................         38,766         35,707
Unrealized gain (loss) on securities available for sale, net........................            219           (421)
Retained earnings...................................................................         66,624         53,574
                                                                                      -------------  -------------
    Total shareholders' equity......................................................        130,761        112,243
                                                                                      -------------  -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..........................................  $   1,570,458  $   1,333,296
                                                                                      -------------  -------------
                                                                                      -------------  -------------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-1
<PAGE>
                  CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES
 
                        CONSOLIDATED STATEMENT OF INCOME
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                ---------------------------------
                                                                                   1995        1994       1993
                                                                                -----------  ---------  ---------
                                                                                 (IN THOUSANDS EXCEPT PER SHARE
                                                                                            AMOUNTS)
<S>                                                                             <C>          <C>        <C>
INTEREST INCOME
Loans.........................................................................  $    93,677  $  59,481  $  54,159
Securities:
  Taxable.....................................................................       14,945     13,627      9,292
  Exempt from Federal income taxes............................................        2,381      2,740      2,972
Other interest income.........................................................        4,222      2,124      2,147
                                                                                -----------  ---------  ---------
  Total interest income.......................................................      115,225     77,972     68,570
                                                                                -----------  ---------  ---------
INTEREST EXPENSE
Interest on deposits..........................................................       42,237     21,101     20,305
Interest on borrowed funds....................................................          729        145        106
                                                                                -----------  ---------  ---------
  Total interest expense......................................................       42,966     21,246     20,411
                                                                                -----------  ---------  ---------
  Net interest income.........................................................       72,259     56,726     48,159
Provision for loan losses.....................................................        1,485      1,895      3,425
                                                                                -----------  ---------  ---------
  Net interest income after provision for loan losses.........................       70,774     54,831     44,734
                                                                                -----------  ---------  ---------
NONINTEREST INCOME
Service charges on deposit accounts...........................................        5,625      4,446      4,195
(Loss) gain on sale of securities, net........................................      --              (4)       223
Other operating income........................................................        3,854      3,064      4,389
                                                                                -----------  ---------  ---------
  Total noninterest income....................................................        9,479      7,506      8,807
                                                                                -----------  ---------  ---------
NONINTEREST EXPENSE
Salaries and employee benefits................................................       27,872     23,381     21,083
Occupancy.....................................................................        4,635      3,416      3,352
Equipment.....................................................................        3,779      3,313      3,065
Other operating expense.......................................................       14,542     13,890     13,046
                                                                                -----------  ---------  ---------
  Total noninterest expense...................................................       50,828     44,000     40,546
                                                                                -----------  ---------  ---------
Income before provision for income taxes......................................       29,425     18,337     12,995
Provision for income taxes....................................................       11,390      6,701      4,206
                                                                                -----------  ---------  ---------
NET INCOME....................................................................  $    18,035  $  11,636  $   8,789
                                                                                -----------  ---------  ---------
                                                                                -----------  ---------  ---------
PER SHARE
  Net Income..................................................................  $      1.80  $    1.24  $    0.94
                                                                                -----------  ---------  ---------
                                                                                -----------  ---------  ---------
  Weighted average shares outstanding.........................................       10,014      9,365      9,318
                                                                                -----------  ---------  ---------
                                                                                -----------  ---------  ---------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-2
<PAGE>
                  CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES
 
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                                               UNREALIZED
                                                                                              GAIN (LOSS)
                                                                                                   ON
                                                                                               SECURITIES
                                                                                               AVAILABLE
                                                  SHARES      COMMON     CAPITAL   RETAINED    FOR SALE,
                                                OUTSTANDING    STOCK     SURPLUS   EARNINGS       NET          TOTAL
                                                -----------  ---------  ---------  ---------  ------------  -----------
                                                                            (IN THOUSANDS)
<S>                                             <C>          <C>        <C>        <C>        <C>           <C>
BALANCE, DECEMBER 31, 1992....................       9,279   $  23,199  $  32,782  $  44,669   $   --       $   100,650
  Issuance of stock for dividend reinvestment
   and stock option plans.....................         127         316        878                                 1,194
  Common stock repurchased....................         (54)       (135)                 (531)                      (666)
  Tax benefit of stock options exercised......                                 95                                    95
  Cash dividends declared ($0.52 per share)...                                        (4,078)                    (4,078)
  Net income..................................                                         8,789                      8,789
                                                -----------  ---------  ---------  ---------  ------------  -----------
BALANCE, DECEMBER 31, 1993....................       9,352      23,380     33,755     48,849       --           105,984
  Issuance of stock for dividend reinvestment
   and stock option plans.....................         139         348      1,767                                 2,115
  Common stock repurchased....................        (138)       (345)               (1,946)                    (2,291)
  Tax benefit of stock options exercised......                                185                                   185
  Payment of merger related fractional
   shares.....................................                                            (6)                        (6)
  Cash dividends declared ($0.55 per share)...                                        (4,959)                    (4,959)
  Unrealized loss on securities available for
   sale, net..................................                                                       (421)         (421)
  Net income..................................                                        11,636                     11,636
                                                -----------  ---------  ---------  ---------  ------------  -----------
BALANCE, DECEMBER 31, 1994....................       9,353      23,383     35,707     53,574         (421)      112,243
  Equity accounts of immaterial pooling.......         634       1,585      1,528      3,439            4         6,556
  Issuance of stock for dividend reinvestment
   and stock option plans.....................         123         307      1,451                                 1,758
  Common stock repurchased....................         (49)       (123)                 (808)                      (931)
  Tax benefit of stock options exercised......                                 80                                    80
  Payment of merger related fractional
   shares.....................................                                            (2)                        (2)
  Cash dividends declared ($0.76 per share)...                                        (7,614)                    (7,614)
  Unrealized gain on securities available for
   sale, net..................................                                                        636           636
  Net income..................................                                        18,035                     18,035
                                                -----------  ---------  ---------  ---------  ------------  -----------
BALANCE, DECEMBER 31, 1995....................      10,061   $  25,152  $  38,766  $  66,624   $      219   $   130,761
                                                -----------  ---------  ---------  ---------  ------------  -----------
                                                -----------  ---------  ---------  ---------  ------------  -----------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-3
<PAGE>
                  CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES
 
                      CONSOLIDATED STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                             -------------------------------------
                                                                                1995         1994         1993
                                                                             -----------  -----------  -----------
                                                                                        (IN THOUSANDS)
<S>                                                                          <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................  $    18,035  $    11,636  $     8,789
Adjustments to reconcile net income to net cash provided by operating
 activities:
  Depreciation and amortization............................................        3,297        2,790        2,582
  Provision for loan losses................................................        1,485        1,895        3,425
  Net loss (gain) on sales of securities...................................      --                 4         (223)
  Net gain on sales of premises and equipment and foreclosed assets........         (521)         (66)        (279)
  Gain on sale of loans....................................................       (1,496)      (1,021)      (2,649)
  Provision for foreclosed assets..........................................          444          140          179
  Net (disbursements) proceeds from sales of mortgages held for sale.......       (6,200)       3,744          312
  Net change in interest receivable, other assets interest payable and
   other liabilities.......................................................        2,344        1,607        1,823
                                                                             -----------  -----------  -----------
  Net cash provided by operations..........................................       17,388       20,729       13,959
                                                                             -----------  -----------  -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities:
  Held to Maturity:
    Proceeds from prepayments and maturities...............................       64,625       68,912       73,597
    Purchases..............................................................      (56,815)     (68,854)    (184,041)
  Available for Sale:
    Sales..................................................................        8,838        8,985       13,274
    Proceeds from prepayments and maturities...............................       43,245       27,400       22,691
    Purchases..............................................................      (46,539)     (37,047)     (29,502)
Loans made to customers less principal payments collected..................          824      (53,514)         171
Net cash provided by (used in) acquisitions................................        3,651       (9,299)     --
Net change in interest-bearing time deposits...............................      --               300          495
Capital expenditures.......................................................       (2,979)      (3,154)      (2,752)
Proceeds from sales of premises and equipment..............................           17           16           62
Proceeds from sales of foreclosed assets...................................        3,632        1,847        6,006
                                                                             -----------  -----------  -----------
    Net cash provided by (used in) investing activities....................       18,499      (64,408)     (99,999)
                                                                             -----------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits...................................................       76,058       18,586       78,960
Net decrease in borrowed funds.............................................      (29,657)      (3,500)     --
Cash dividends paid........................................................       (6,717)      (4,671)      (4,078)
Proceeds from issuance of common stock for stock options exercised and
 dividend reinvestment plan................................................        1,758        2,630        1,194
Repurchase of common stock.................................................         (933)      (2,291)        (666)
Payment of merger related fractional shares................................           (2)          (6)     --
                                                                             -----------  -----------  -----------
    Net cash provided by financing actvities...............................       40,507       10,748       75,410
                                                                             -----------  -----------  -----------
Net change in cash and cash equivalents....................................       76,394      (32,931)     (10,630)
Cash and cash equivalents at beginning of year.............................       81,387      114,318      124,948
                                                                             -----------  -----------  -----------
Cash and cash equivalents at end of year...................................  $   157,781  $    81,387  $   114,318
                                                                             -----------  -----------  -----------
                                                                             -----------  -----------  -----------
</TABLE>
 
  The accompanying notes are an integral part of theses consolidated financial
                                  statements.
 
                                      F-4
<PAGE>
                  CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES
 
               CONSOLIDATED STATEMENT OF CASH FLOWS -- CONTINUED
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                              -----------------------------------
                                                                                 1995         1994        1993
                                                                              -----------  -----------  ---------
                                                                                        (IN THOUSANDS)
<S>                                                                           <C>          <C>          <C>
Supplemental disclosure of cash flow information
  Cash paid during the year for:
    Interest................................................................  $    42,285  $    21,199  $  20,593
    Income taxes............................................................  $     7,058  $     5,595  $   5,053
  Supplemental disclosure of non-cash activities:
    Loans transferred to foreclosed assets..................................  $     3,750  $     1,181  $   2,775
    Purchase of FCB (1995) and Old Stone (1994):
    Fair value of assets assumed --
      Cash and cash equivalents.............................................  $    15,134  $     7,401  $  --
      Loans, net of allowance...............................................       71,477      250,079     --
      Other.................................................................       36,358       23,772     --
                                                                              -----------  -----------  ---------
        Total assets........................................................      122,969      281,252     --
                                                                              -----------  -----------  ---------
    Liabilities assumed --
      Deposits..............................................................      105,622      227,358     --
      Borrowed funds........................................................      --            31,747     --
      Other.................................................................        1,097        5,447     --
                                                                              -----------  -----------  ---------
        Total liabilities...................................................      106,719      264,552     --
                                                                              -----------  -----------  ---------
  Cash paid in transaction..................................................  $    16,250  $    16,700  $  --
                                                                              -----------  -----------  ---------
                                                                              -----------  -----------  ---------
</TABLE>
 
  The accompanying notes are an integral part of theses consolidated financial
                                  statements.
 
                                      F-5
<PAGE>
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    The   consolidated  financial  statements  of  California  Bancshares,  Inc.
(Company) and subsidiaries  are prepared in  conformity with generally  accepted
accounting  principles and prevailing practices within the banking industry. The
following is a summary of the significant accounting and reporting policies.
 
CONSOLIDATION
 
    The consolidated financial statements include  the accounts of the  Company,
its  bank  subsidiaries  (Banks):  Alameda  First  National  Bank,  The  Bank of
Milpitas, N.A., The Bank of San  Ramon Valley, Centennial Bank, Commercial  Bank
of  Fremont, Community First  National Bank, Concord  Commercial Bank, Lamorinda
National Bank,  Modesto Banking  Company  and Westside  Bank; and  its  non-bank
subsidiaries:   CBI  Mortgage,  LNB  Corp.  and  Island  Bancorp  Leasing,  Inc.
Significant inter-company  accounts and  transactions  have been  eliminated  in
consolidation.
 
SECURITIES
 
    The  Company's securities  portfolio includes  U.S. Treasury  securities and
other government agency  securities, mortgage-backed  securities, state,  county
and  municipal  securities  and  Federal  Reserve  Bank  stock.  Securities  are
accounted for according to their purpose and holding period. Realized gains  and
losses  are  recorded in  noninterest income  using the  specific identification
method. The  Company  classifies its  securities  portfolio in  accordance  with
Statement  of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting
for Certain Investments in Debt and Equity Securities".
 
    Securities are classified as "available  for sale" when the Company  intends
to  hold the securities for  an indefinite period of  time. These securities are
carried at fair value, with unrealized gains or losses, net of applicable taxes,
reported as a separate component of shareholders' equity. Declines in the  value
of  securities  that  are  considered  other  than  temporary  are  recorded  in
noninterest income as a loss on securities.
 
    Securities acquired with the positive intent and ability to hold to maturity
are classified as "held to maturity". These securities are carried at historical
cost, adjusted for amortization of premium and accretion of discount to maturity
or, in the case  of mortgage-backed securities, over  the estimated life of  the
security.
 
LOANS
 
    Loans  held for  investment are stated  at the  principal amount outstanding
less unearned income, while loans held for sale are carried at the lower of cost
or market  on an  aggregate basis.  Market is  based upon  quoted market  rates.
Interest income on loans, other than discounted loans, is accrued daily based on
the  outstanding loan  balance. Interest income  on discounted  loans is accrued
based on a method that approximates the interest method.
 
    All nonrefundable loan origination fees, net of related costs, are  deferred
and amortized, using the interest method, over the term of the loan.
 
    It  is  management's  policy  to  place a  loan  on  nonaccrual  status when
principal or interest is past due for  90 days (unless the loan is well  secured
and  in the process of collection). Classification  of a loan as nonaccrual does
not necessarily indicate the loan is  not performing with respect to  collection
of  principal and interest  nor does it mean  that the principal  of the loan is
uncollectible in whole or in part. A  loan may also be classified as  nonaccrual
if  the borrower's financial condition  deteriorates resulting in uncertainty as
to the amounts  or timing of  future cash flows  to service the  loan. This  can
occur  regardless of whether the loan is performing according to its contractual
terms. From the time a loan is placed on nonaccrual status, interest is recorded
only when cash is received, and  any interest income previously accrued but  not
collected is reversed.
 
                                      F-6
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
 
    The  allowance for loan  losses is maintained  at a level  adequate to cover
potential losses  which  may exist  in  the  portfolio. The  evaluation  of  the
allowance  is an  ongoing process involving  many factors  including current and
projected economic conditions, portfolio composition and prior loss experience.
 
    While management uses  available information to  recognize losses on  loans,
future  additions to the allowance may be necessary based on changes in economic
conditions. In addition,  various regulatory  agencies, as an  integral part  of
their  examination process, periodically  review the Banks'  allowances based on
their  judgment  of  information  available  to  them  at  the  time  of   their
examination.
 
    On  January  1,  1995, the  Company  adopted  SFAS No.  114,  "Accounting by
Creditors for Impairment of  a Loan", as amended  by SFAS No. 118  (collectively
referred  to as SFAS No. 114), on  a prospective basis. These Statements address
the accounting treatment of certain impaired loans and amend SFAS No. 5 and  15.
However,  these Statements do not address  the overall adequacy of the allowance
for loan losses and do not apply to large groups of smaller-balance  homogeneous
loans unless they have been involved in restructuring.
 
    A  loan is considered impaired, within the scope of SFAS No. 114, when based
on current  information and  events, it  is probable  that the  Company will  be
unable  to collect principal or interest  due according to the contractual terms
of the loan. For a loan that has been restructured the contractual terms of  the
loan refer to the contractual terms of the original loan agreement.
 
    The  Company measures the impairment  of a loan when and  while a loan is on
nonaccrual or  the loan  has  been restructured.  The  amount of  impairment  is
calculated by the Company using discounted cash flows, except when the source of
repayment  for the loan is through the liquidation of the underlying collateral.
For these loans, the net realizable value of the collateral (current fair  value
less  estimated costs to sell) is used in place of discounted cash flows. If the
measurement of the  impaired loan is  less than the  recorded investment in  the
loan,  the  Company  recognizes such  impairment  by creating  or  adjusting the
existing allowance  for  loan losses.  If  full collection  is  uncertain,  cash
receipts  are applied first to principal, then to recovery of amounts previously
charged off, then to interest income.
 
    The following table presents the  recorded investment in impaired loans  and
the related SFAS No. 114 allowance for loan losses at December 31, 1995:
 
<TABLE>
<CAPTION>
                                                                                 RELATED SFAS
                                                                    RECORDED        NO. 114
                                                                 INVESTMENT IN   ALLOWANCE FOR
                                                                 IMPAIRED LOANS   LOAN LOSSES
                                                                 --------------  -------------
                                                                        (IN THOUSANDS)
<S>                                                              <C>             <C>
Impaired loans with a required allowance.......................  $       3,177   $       771
Impaired loans not requiring an allowance......................          9,196       --
                                                                 --------------        -----
    Total......................................................  $      12,373   $       771
                                                                 --------------        -----
                                                                 --------------        -----
</TABLE>
 
    The  Company's average  investment in impaired  loans during  1995 was $10.8
million.
 
FORECLOSED ASSETS
 
    Foreclosed assets are recorded in other assets at the lower of cost or  fair
value  less estimated  costs to  sell. Fair  value is  determined by independent
appraisals. Upon  foreclosure  any  necessary  writedowns  are  charged  to  the
allowance  for loan losses. Any subsequent writedowns to the carrying value that
may be required are charged to  operations and recorded in a valuation  reserve.
Expenses  for holding costs  are charged to operations  as incurred. At December
31, 1995 and 1994, the Company had $3.2 million and $2.4 million,  respectively,
in foreclosed assets.
 
                                      F-7
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
 
    Premises,  equipment  and leasehold  improvements  are stated  at  cost less
accumulated depreciation  and amortization.  Depreciation and  amortization  are
computed on a straight-line basis over the estimated useful lives of the related
assets,  which are generally between three and  thirty years, or the lease term.
Cost  of   improvements  are   capitalized.  Maintenance,   repairs  and   minor
improvements are expensed as incurred.
 
INCOME TAXES
 
    The  Company and its subsidiaries file a consolidated Federal tax return and
a combined  California franchise  tax  return. Income  taxes are  calculated  by
individual  subsidiaries as though each subsidiary  had filed a separate return.
Payments or refunds between  the Company and its  subsidiaries are made on  this
basis.
 
    The Company computes its income taxes for financial statement purposes using
the  asset and liability  method. Under the  asset/liability method deferred tax
assets and liabilities are recognized  for the expected future tax  consequences
of  existing differences between financial reporting  and tax reporting bases of
assets and  liabilities,  as  well  as  for  operating  losses  and  tax  credit
carryforwards, using enacted tax laws and rates. Deferred tax expense represents
the  net change in the deferred tax  asset or liability balance during the year.
This amount, together with income taxes currently payable or refundable for  the
current year, represents the total income tax expense for the year.
 
BENEFIT PLANS
 
    The  Company and its subsidiaries have a profit sharing-salary deferral plan
which covers substantially all  employees with one  year of continuous  service.
Contributions  to  the  profit sharing  portion  of  the plan  are  made  at the
discretion of the  Board of  Directors. In the  salary deferral  portion of  the
plan,  the Company matches one-half of  the employee's 401(k) plan contributions
up to 2% of their annual salary.
 
PER SHARE CALCULATIONS
 
    Earnings per common share are  calculated using the weighted average  number
of common shares outstanding during the years presented. Exercise of outstanding
stock  options would  not have  had a material  dilutive effect  on earnings per
share.
 
CASH FLOWS
 
    For purposes of reporting cash flows, cash and cash equivalents include cash
and due from  banks and federal  funds sold. Generally,  federal funds sold  are
sold for one business day.
 
GOODWILL
 
    Goodwill,  which represents the excess of  purchase price over fair value of
net assets acquired  is amortized  on a straight  line basis  over the  expected
periods  to be benefited, generally five  to fifteen years. The Company assesses
the  recoverability  of  this  intangible  asset  by  determining  whether   the
amortization  of the goodwill  balance over its remaining  life can be recovered
through undiscounted future operating cash flows of the acquired operations. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating  cash flows  using  a discount  rate reflecting  the  Company's
average  cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
 
    Negative goodwill, which  represents the  excess of  the fair  value of  net
assets  acquired over the  purchase price, is  accreted to income  on a straight
line basis over five years.
 
                                      F-8
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
 
    The management of the Company has made a number of estimates and assumptions
relating to the reporting of assets  and liabilities to prepare these  financial
statements  in conformity with generally  accepted accounting principles. Actual
results could differ from those estimates.
 
RECLASSIFICATIONS
 
    Certain amounts for prior years have  been reclassified to conform with  the
1995 presentation.
 
(2) ACQUISITIONS
    On  June 30,  1995, the  Company acquired all  of the  outstanding shares of
First Community Bankshares, Inc. (FCB), the holding company for Centennial Bank.
FCB had assets of $118 million at June 30, 1995. This acquisition was  accounted
for  as a  purchase and  accordingly, the results  of operations,  which are not
material to the consolidated financial statements, are included in the Company's
consolidated financial statements  from the acquisition  date. FCB's assets  and
liabilities  were revalued to  reflect the estimated  fair value at  the time of
acquisition. The total cost of the  acquisition was $16.25 million in cash.  The
excess  of the purchase  price over fair  value of net  assets acquired was $5.1
million.
 
    On January  31, 1995,  the  Company completed  the  acquisition of  Bank  of
Livermore  (Livermore),  which  was  subsequently  merged  with  another  of the
Company's subsidiaries. Livermore had  $71 million in  total assets at  December
31,  1994.  The  Company  issued  633,908  shares  of  common  stock  valued  at
approximately $10.9 million at the time  of the transaction. The acquisition  of
Livermore was accounted for as a pooling-of-interests. Livermore is not material
to  the financial condition or operating  results of the Company, and therefore,
prior period balances were not restated. However, 1995 amounts were adjusted  to
reflect the transaction as if it had occurred January 1, 1995.
 
    On  December 2,  1994, the  Company acquired  Old Stone  Bank of California,
F.S.B. (Old Stone).  The transaction  was a taxable  acquisition of  all of  the
outstanding  stock  of  Old Stone  by  a  subsidiary bank  of  the  Company. The
consideration for the purchase  was $16.7 million paid  in cash at closing.  The
acquisition   was  recorded  under   the  purchase  method   of  accounting  and
accordingly, the Company's consolidated financial statements include Old Stone's
results of  operations  beginning  December  2, 1994.  Old  Stone's  assets  and
liabilities  were revalued to  reflect the estimated  fair value at  the time of
acquisition. The purchase accounting valuations resulted in negative goodwill in
the amount of $3.4 million, which will amortize over a five year period.
 
    On March 31,  1994, the  Company acquired MBC  Corp. (MBC)  and its  banking
subsidiary,  Modesto Banking Company. Each share of MBC common stock outstanding
on March  31, 1994,  was converted  into .7271  shares of  the Company's  common
stock.  The Company  issued approximately 1,478,000  shares of  common stock and
cash in lieu of fractional shares for all of the outstanding shares of MBC.  The
consolidated  financial statements  of the  Company give  effect to  the merger,
which has  been  accounted  for  as  a  pooling-of-interests.  Accordingly,  the
accounts  of MBC have  been combined with  those of the  Company for all periods
presented.
 
                                      F-9
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(3) SECURITIES
    The amortized cost and estimated market values of securities at December 31,
1995 and 1994 are as follows:
 
<TABLE>
<CAPTION>
                                                                            SECURITIES AVAILABLE FOR SALE
                                                                    ---------------------------------------------
                                                                                                        ESTIMATED
                                                                    AMORTIZED  UNREALIZED  UNREALIZED    MARKET
                                                                      COST       GAINS       LOSSES       VALUE
                                                                    ---------  ----------  ----------   ---------
                                                                                   (IN THOUSANDS)
<S>                                                                 <C>        <C>         <C>          <C>
December 31, 1995
  U.S. Treasury securities........................................  $ 20,332   $     171   $     (28)   $  20,475
  Securities of U.S. Government agencies and corporations.........    50,759         249         (60)      50,948
  Obligations of states and political subdivisions................     1,178          41      --            1,219
  Federal Reserve stock...........................................     1,234      --          --            1,234
                                                                    ---------      -----   ----------   ---------
    Total.........................................................  $ 73,503   $     461   $     (88)   $  73,876
                                                                    ---------      -----   ----------   ---------
                                                                    ---------      -----   ----------   ---------
December 31, 1994
  U.S. Treasury securities........................................  $ 45,591      --       $    (651)   $  44,940
  Securities of U.S. Government agencies and corporations.........     5,464      --             (70)       5,394
  Federal Reserve stock...........................................     1,092      --          --            1,092
                                                                    ---------      -----   ----------   ---------
    Total.........................................................  $ 52,147   $  --       $    (721)   $  51,426
                                                                    ---------      -----   ----------   ---------
                                                                    ---------      -----   ----------   ---------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                          SECURITIES HELD TO MATURITY
                                                                 ---------------------------------------------
                                                                                                     ESTIMATED
                                                                 AMORTIZED  UNREALIZED  UNREALIZED    MARKET
                                                                   COST       GAINS       LOSSES       VALUE
                                                                 ---------  ----------  ----------   ---------
                                                                                (IN THOUSANDS)
<S>                                                              <C>        <C>         <C>          <C>
December 31, 1995
  U.S. Treasury securities.....................................  $  63,300  $     366   $     (186)  $  63,480
  Securities of U.S. Government agencies and corporations......    150,989        563         (865)    150,687
  Obligations of states and political subdivisions.............     50,113      1,194          (49)     51,258
  Other securities.............................................        150     --           --             150
                                                                 ---------  ----------  ----------   ---------
    Total......................................................  $ 264,552  $   2,123   $   (1,100)  $ 265,575
                                                                 ---------  ----------  ----------   ---------
                                                                 ---------  ----------  ----------   ---------
December 31, 1994
  U.S. Treasury securities.....................................  $  74,050  $       4   $   (3,381)  $  70,673
  Securities of U.S. Government agencies and corporations......    109,787         10       (8,111)    101,686
  Obligations of states and political subdivisions.............     61,997        347       (1,374)     60,970
  Other securities.............................................        150     --           --             150
                                                                 ---------  ----------  ----------   ---------
    Total......................................................  $ 245,984  $     361   $  (12,866)  $ 233,479
                                                                 ---------  ----------  ----------   ---------
                                                                 ---------  ----------  ----------   ---------
</TABLE>
 
                                      F-10
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(3) SECURITIES (CONTINUED)
 
<TABLE>
<CAPTION>
                                                                                         SECURITIES HELD TO
                                                                  SECURITIES AVAILABLE
                                                                        FOR SALE              MATURIIY
                                                                  --------------------  --------------------
                                                                             ESTIMATED             ESTIMATED
                                                                  AMORTIZED   MARKET    AMORTIZED   MARKET
                                                                    COST       VALUE      COST       VALUE
                                                                  ---------  ---------  ---------  ---------
                                                                                (IN THOUSANDS)
<S>                                                               <C>        <C>        <C>        <C>
Due in one year or less.........................................  $ 16,008   $  16,027  $  48,063  $  48,203
Due after one year through five years...........................    25,230      25,198     80,390     81,077
Due after five years through ten years..........................    13,441      13,497     25,110     25,879
Due after ten years.............................................     3,133       3,235      2,015      2,034
                                                                  ---------  ---------  ---------  ---------
                                                                    57,812      57,957    155,578    157,193
Mortgage-backed securities......................................    15,691      15,919    108,974    108,382
                                                                  ---------  ---------  ---------  ---------
    Total.......................................................  $ 73,503   $  73,876  $ 264,552  $ 265,575
                                                                  ---------  ---------  ---------  ---------
                                                                  ---------  ---------  ---------  ---------
</TABLE>
 
    Proceeds from  sales of  securities during  1995, 1994  and 1993  were  $8.8
million, $9.0 million and $13.3 million, respectively.
 
    Securities  carried  at approximately  $44.9 million  and $48.5  million, at
December 31, 1995 and 1994,  respectively, were pledged to collateralize  public
deposits and other deposits as required by law.
 
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
    A summary of the major categories of the loan portfolio at December 31, 1995
and  1994  is shown  in  the following  table.  Most of  the  Company's business
activity is with customers located  within Northern California. The majority  of
the  Company's portfolio of real estate  construction and land development loans
consisted of loans to  contractors who specialize  in single family  residential
construction.  Real estate mortgages encompass a  variety of real estate secured
loans, including residential mortgage loans and commercial loans secured by real
estate. Commercial, industrial and agricultural loans are unsecured and  secured
loans  and lines of  credit for the  operation and expansion  needs of business,
including inventory, agricultural production, accounts receivable and equipment.
Consumer loans are  primarily automobile loans.  The following is  a summary  of
loans by category:
 
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                        --------------------------
                                                                                            1995          1994
                                                                                        -------------  -----------
                                                                                              (IN THOUSANDS)
<S>                                                                                     <C>            <C>
Real estate --
  Construction and land development...................................................  $     125,837  $    99,975
  Mortgage............................................................................        573,810      533,731
  Loans held for sale.................................................................          7,468        1,268
Commercial, industrial and agricultural...............................................        183,930      159,266
Consumer..............................................................................        143,515      123,030
                                                                                        -------------  -----------
                                                                                            1,034,560      917,270
Unearned income.......................................................................         (3,780)      (3,794)
                                                                                        -------------  -----------
                                                                                            1,030,780      913,476
Allowance for loan losses.............................................................        (14,836)     (12,822)
                                                                                        -------------  -----------
  Loans, net..........................................................................  $   1,015,944  $   900,654
                                                                                        -------------  -----------
                                                                                        -------------  -----------
</TABLE>
 
                                      F-11
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
    The  following is a summary of transactions in the allowance for loan losses
account:
 
<TABLE>
<CAPTION>
                                                                                     YEAR ENDED DECEMBER 31,
                                                                                 -------------------------------
                                                                                   1995       1994       1993
                                                                                 ---------  ---------  ---------
                                                                                         (IN THOUSANDS)
<S>                                                                              <C>        <C>        <C>
Balance beginning of year......................................................  $  12,822  $  11,547  $   9,855
                                                                                 ---------  ---------  ---------
Loan losses....................................................................     (2,728)    (3,702)    (3,742)
Recoveries.....................................................................        919        610        897
                                                                                 ---------  ---------  ---------
  Net loan losses..............................................................     (1,809)    (3,092)    (2,845)
Provision charged to expense...................................................      1,485      1,895      3,425
Allowance related to acquisitions..............................................      2,338      2,472      1,112
                                                                                 ---------  ---------  ---------
Balance, end of year...........................................................  $  14,836  $  12,822  $  11,547
                                                                                 ---------  ---------  ---------
                                                                                 ---------  ---------  ---------
</TABLE>
 
    The Company had nonaccrual  and restructured loans  of $14.9 million,  $13.0
million  and $11.4  million at December  31, 1995, 1994  and 1993, respectively.
Foregone interest  was  $1.2 million,  $665,000  and $670,000  for  the  related
periods.
 
(5) PREMISES AND EQUIPMENT
    The  following is  a summary  of the  major classifications  of premises and
equipment:
 
<TABLE>
<CAPTION>
                                                                                               DECEMBER 31,
                                                                                         ------------------------
                                                                                             1995         1994
                                                                                         ------------  ----------
                                                                                              (IN THOUSANDS)
<S>                                                                                      <C>           <C>
Land...................................................................................   $    3,814   $    3,090
Premises and leasehold improvements....................................................       19,900       16,875
Furniture and equipment................................................................       16,705       16,064
                                                                                         ------------  ----------
  Total................................................................................       40,419       36,029
Accumulated depreciation and amortization..............................................      (20,379)     (18,700)
                                                                                         ------------  ----------
  Net book value.......................................................................   $   20,040   $   17,329
                                                                                         ------------  ----------
                                                                                         ------------  ----------
</TABLE>
 
    The Company leases  certain premises under  agreements expiring between  the
years  1996 and 2015. Future minimum rental payments as of December 31, 1995 are
as follows:
 
<TABLE>
<CAPTION>
                                                                                          (IN THOUSANDS)
                                                                                          --------------
<S>                                                                                       <C>
1996....................................................................................    $    2,093
1997....................................................................................         1,803
1998....................................................................................         1,721
1999....................................................................................         1,611
2000....................................................................................         1,347
Thereafter..............................................................................         7,404
                                                                                          --------------
    Total...............................................................................    $   15,979
                                                                                          --------------
                                                                                          --------------
</TABLE>
 
    Rental expense included  in occupancy expense  for 1995, 1994  and 1993  was
$1.5  million,  $1.1 million  and $973,000  (net of  rental income  of $736,000,
$624,000 and $666,000), respectively.
 
                                      F-12
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(6) INCOME TAXES
    The  provision for income  taxes reflected in  the consolidated statement of
income consisted of the following:
 
<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                          -------------------------------
                                                                            1995       1994       1993
                                                                          ---------  ---------  ---------
<S>                                                                       <C>        <C>        <C>
                                                                                  (IN THOUSANDS)
Current
  Federal...............................................................  $   5,235  $   5,063  $   3,494
  State.................................................................      2,201      2,084      1,415
                                                                          ---------  ---------  ---------
                                                                              7,436      7,147      4,909
                                                                          ---------  ---------  ---------
Deferred
  Federal...............................................................      2,844       (549)      (643)
  State.................................................................      1,110        103        (60)
                                                                          ---------  ---------  ---------
                                                                              3,954       (446)      (703)
                                                                          ---------  ---------  ---------
    Total...............................................................  $  11,390  $   6,701  $   4,206
                                                                          ---------  ---------  ---------
                                                                          ---------  ---------  ---------
</TABLE>
 
    The provision for income taxes differs from the amount computed by  applying
the  statutory Federal income tax  rate to income before  taxes. The reasons for
these differences are as follows:
 
<TABLE>
<CAPTION>
                                                                          PERCENTAGE OF PRETAX
                                                                                 INCOME
                                                                          ---------------------
                                                                          1995    1994    1993
                                                                          -----   -----   -----
<S>                                                                       <C>     <C>     <C>
Federal income tax based on statutory tax rate..........................   35.0    35.0    35.0
Increase (decrease) resulting from:
  California franchise tax, net of Federal benefit......................    7.3     7.7     7.1
  Interest on state and municipal securities not taxable for Federal
   income tax purposes..................................................   (3.3)   (6.6)   (9.1)
  Nondeductible merger expenses.........................................   --       1.0     0.5
  Other, net............................................................   (0.3)   (0.6)   (1.1)
                                                                          -----   -----   -----
    Total...............................................................   38.7    36.5    32.4
                                                                          -----   -----   -----
                                                                          -----   -----   -----
</TABLE>
 
    At December 31, 1995, accrued taxes were comprised of current taxes  payable
of  $786,000 and  deferred tax  assets of $11.4  million. At  December 31, 1994,
accrued taxes consisted of  current taxes payable of  $819,000 and deferred  tax
assets of $13.9 million.
 
                                      F-13
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(6) INCOME TAXES (CONTINUED)
    Significant components of deferred tax assets are presented below:
 
<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             --------------------
                                                                                               1995       1994
                                                                                             ---------  ---------
                                                                                                (IN THOUSANDS)
<S>                                                                                          <C>        <C>
Deferred Tax Assets:
  Allowance for loan losses................................................................  $   5,802  $   5,135
  Net operating loss carryforward..........................................................      3,297      3,297
  Loan origination fees....................................................................        132        120
  California franchise taxes...............................................................        167     --
  Foreclosed assets........................................................................        340        282
  Deferred compensation....................................................................        362        332
  Available for sale securities............................................................     --            300
  Loans....................................................................................        372        366
  Fixed assets.............................................................................        994      1,389
  Real estate investment reserves..........................................................         51      3,799
  Amortization of intangibles..............................................................        176     --
  Acquisition costs........................................................................        232        144
  Other....................................................................................     --             20
                                                                                             ---------  ---------
    Gross deferred tax assets..............................................................     11,925     15,184
    Less valuation allowance...............................................................     --           (317)
                                                                                             ---------  ---------
    Total deferred tax assets..............................................................     11,925     14,867
                                                                                             ---------  ---------
Deferred Tax Liabilities:
  California franchise taxes...............................................................     --           (125)
  Amortization of intangibles..............................................................     --           (184)
  Available for sale securities............................................................       (173)    --
  Excess servicing.........................................................................     --           (295)
  Deposits.................................................................................       (220)      (389)
  Other....................................................................................        (95)    --
                                                                                             ---------  ---------
    Total deferred tax liabilities.........................................................       (488)      (993)
                                                                                             ---------  ---------
    Net deferred tax assets................................................................  $  11,437  $  13,874
                                                                                             ---------  ---------
                                                                                             ---------  ---------
</TABLE>
 
    Amounts  for the current year are based upon estimates and assumptions as of
the date of this report and could  vary significantly from amounts shown on  the
tax  returns as  filed. Accordingly, the  variances from  the amounts previously
reported for  1994 are  primarily a  result  of adjustments  to conform  to  tax
returns as filed.
 
    As  indicated in Note 2, Acquisitions, the Company completed the acquisition
of Old Stone in  1994 and Livermore  and FCB in 1995.  In connection with  these
acquisitions, cumulative temporary differences reflecting the difference between
the  tax basis  and assigned  values of assets  and liabilities  resulted in net
deferred tax  assets of  $9.0  million, $750,000  and  $870,000 for  Old  Stone,
Livermore and FCB, respectively, being recorded on the balance sheet.
 
    During  1995, management evaluated the  deferred tax assets recognized under
SFAS 109 and determined that the valuation allowance of $317,000 established  in
connection  with the  acquisition of  Old Stone was  no longer  necessary. It is
currently anticipated that  the total  amount of  deferred tax  assets are  more
likely than not to be realized through recovery of previously paid federal taxes
and by claiming deductions against future taxable income.
 
    The  Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating loss  carryforwards
if an "ownership change", as
 
                                      F-14
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(6) INCOME TAXES (CONTINUED)
defined in the Internal Revenue Code, has occurred. Accordingly, the Company has
determined  its ability to utilize its net operating loss carryforwards pursuant
to the limitations set forth in the  Code resulting from the acquisition of  Old
Stone.  At  December 31,  1995, the  Company had  approximately $3.3  million of
deferred tax assets related to that portion of net operating loss  carryforwards
which are expected to be utilized through the year 2005.
 
    During  1995, the Company agreed to  pay additional tax assessments proposed
by the California Franchise Tax Board  principally related to the tax  treatment
of  direct financing leases in its tax  returns for the years 1977 through 1979,
1983 and 1984. The resolution of the  dispute did not have a material effect  on
the Company's financial position.
 
(7) STOCK OPTION PLANS
    The  Company  grants  options to  purchase  shares  of its  common  stock to
officers and key employees  through a stock incentive  plan (employee plan).  In
addition,  the  Company offers  options to  purchase shares  of common  stock to
directors of the Company and  its subsidiaries (director plan). Options  granted
under  both  plans are  protected  against dilution  by  stock splits  and other
changes in capitalization.
 
    Options awarded under  the two  plans by the  Board of  Directors allow  the
recipients  to purchase shares of the Company's common stock at a price not less
than the fair market value of the stock  at the time the option is granted.  The
employee  plan reserved 2,126,231  shares for issuance  and had 1,418,628 shares
available for  grant at  December  31, 1995  while  the director  plan  reserved
262,760  shares  for  issuance and  had  28,528  shares available  for  grant at
December 31, 1995.
 
    The following is a summary of changes in employee and director plan  options
outstanding.
 
<TABLE>
<CAPTION>
                                                                                     NUMBER OF
                                                                                      OPTIONS       OPTION PRICE
                                                                                    -----------  ------------------
<S>                                                                                 <C>          <C>
Balance, December 31, 1993........................................................     561,439   $    5.50 - $21.07
Exercised.........................................................................     (90,554)       5.50 -  13.50
Forfeited.........................................................................     (33,574)       7.54 -  21.07
Granted...........................................................................     187,750       15.50 -  17.00
                                                                                    -----------  ------------------
Balance, December 31, 1994........................................................     625,061        5.50 -  21.07
Exercised.........................................................................     (62,820)       5.50 -  20.10
Forfeited.........................................................................     (15,008)      13.50 -  19.56
Granted...........................................................................     101,000         18.25
Livermore Exchange................................................................      29,321          7.33
                                                                                    -----------  ------------------
Balance, December 31, 1995........................................................     677,554   $    5.50 - $21.07
                                                                                    -----------  ------------------
                                                                                    -----------  ------------------
</TABLE>
 
    Of the 677,554 options outstanding 324,144 are currently exercisable.
 
    In  addition to options,  the employee plan allows  for awards of restricted
shares, stock units  and stock  appreciation rights.  No such  awards have  been
granted.
 
(8) EMPLOYEE BENEFITS
    The   Company  has  a  profit  sharing/salary  deferral  plan.  The  Company
contributed $660,000, $594,000 and $440,000 to the plan in 1995, 1994 and  1993,
respectively.
 
    In  October  1995, the  Financial Accounting  Standards Board  (FASB) issued
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),  "Accounting
for  Stock-Based Compensation". This Statement establishes an alternative method
for accounting for  stock based-compensation plans  and encourages employers  to
adopt  the new method in place of  the provisions of Accounting Principles Board
Opinion (APB No. 25), "Accounting for  Stock Issued to Employees". SFAS No.  123
establishes a
 
                                      F-15
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(8) EMPLOYEE BENEFITS (CONTINUED)
fair  value based  accounting method for  stock-based compensation arrangements.
Companies may  continue to  apply the  accounting provisions  of APB  No. 25  in
determining  net income; however, they must apply the disclosure requirements of
SFAS No. 123.
 
    The recognition  provisions may  be  adopted immediately  and apply  to  all
awards  granted after the beginning of the  fiscal year in which the recognition
provisions are first applied. The disclosure requirements of this Statement  are
effective  January 1, 1996.  Management believes the  adoption of this Statement
will not have a material effect on the financial condition of the Company.
 
(9) OTHER OPERATING EXPENSE
    Components of  other operating  expense,  including all  expense  categories
which  exceeded one  percent of total  operating income  in at least  one of the
periods presented are outlined below:
 
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                       -------------------------------
                                                                         1995       1994       1993
                                                                       ---------  ---------  ---------
                                                                               (IN THOUSANDS)
<S>                                                                    <C>        <C>        <C>
Regulatory expense...................................................  $   2,102  $   2,502  $   2,281
Banking forms and stationery.........................................      1,495      1,197      1,092
Communications expense...............................................      1,784      1,359      1,243
Outside data processing expense......................................        786        637        960
Legal expense........................................................        548        567        653
Foreclosed assets expense, net.......................................        297        200        240
Consultant fees......................................................        497        528        671
Courier service......................................................        978        805        581
Promotional expense..................................................        827      1,010        877
Other................................................................      5,228      5,085      4,448
                                                                       ---------  ---------  ---------
    Total other operating expense....................................  $  14,542  $  13,890  $  13,046
                                                                       ---------  ---------  ---------
                                                                       ---------  ---------  ---------
</TABLE>
 
(10) REGULATORY RESTRICTIONS
    The Company is subject to regulation  under the Bank Holding Company Act  of
1956 and to regulation by the Federal Reserve Board. The regulations require the
maintenance  of cash reserve balances at the  Federal Reserve Bank and limit the
extension of credit  to affiliates  by the  Banks. The  average reserve  balance
maintained in accordance with such requirements for the years ended December 31,
1995 and 1994 was $9.6 million and $9.2 million, respectively.
 
    The Banks are also restricted by banking regulations that limit the transfer
of  funds by  the Banks  to the Company  and its  nonbank subsidiaries including
dividends that can be paid to the Company. At December 31, 1995, the Banks could
pay  dividends  of  $5.5   million  (subject  to   minimum  capital  and   other
requirements)  without prior written approval  of banking regulators. The Banks'
combined shareholders' equity at December 31, 1995 was $116.3 million.
 
    The Banks are  subject to regulation  by the Federal  Reserve Board and  the
Office  of the  Comptroller of  the Currency,  as well  as the  California State
Banking Department and the FDIC. Each of the Banks' deposits are insured by  the
Federal Deposit Insurance Corporation up to the maximum limits allowed.
 
(11) COMMITMENTS AND CONTINGENCIES
    In  the normal course of business  there are outstanding various commitments
to extend credit,  letters of  credit and  contingent liabilities  that are  not
reflected  in the consolidated financial statements. While no related losses are
anticipated, such instruments do  involve elements of  credit and interest  rate
risk   in  excess  of  amounts  recorded  in  the  consolidated  balance  sheet.
Commitments to extend credit  are agreements to  lend to a  customer as long  as
there is no violation of any condition
 
                                      F-16
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(11) COMMITMENTS AND CONTINGENCIES (CONTINUED)
established  in the contract. Commitments  generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitments  are  expected  to  expire  without  being  drawn  upon,  the  total
commitment  amount  does  not necessarily  represent  future  cash requirements.
Standby and commercial  letters of  credit are  written conditional  commitments
issued by the Banks to guarantee the performance of a customer to a third party.
Letters of credit have fixed expiration dates and require payment of a fee. When
making  commitments  or  issuing  letters of  credit,  the  Banks  evaluate each
customer's creditworthiness on  a case-by-case basis.  The same credit  policies
are  used  in making  commitments and  conditional obligations  as are  used for
on-balance sheet  instruments.  The  Banks  control the  credit  risk  of  these
transactions through credit approvals, credit limits, and monitoring procedures.
The amount of collateral obtained, if deemed necessary, is based on management's
credit  evaluation of  the customer.  Exposure to credit  loss, in  the event of
nonperformance by the other party  to the financial instrument, for  commitments
to  extend  credit  and letters  of  credit  is represented  by  the contractual
notional amount of  those instruments.  Approximate amounts  of these  financial
instruments are summarized below:
 
<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                          ------------------------
                                                                                             1995         1994
                                                                                          -----------  -----------
                                                                                               (IN THOUSANDS)
<S>                                                                                       <C>          <C>
Commitments to extend credit............................................................  $   249,753  $   195,217
Standby letters of credit...............................................................       10,554        5,837
</TABLE>
 
(12) CALIFORNIA BANCSHARES, INC. (PARENT COMPANY ONLY)
 
    The  Balance  Sheet, Statement  of Income  and Statement  of Cash  Flows for
California Bancshares, Inc. (Parent Company Only) are shown below:
 
BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                          ------------------------
                                                                                             1995         1994
                                                                                          -----------  -----------
                                                                                               (IN THOUSANDS)
<S>                                                                                       <C>          <C>
Assets
Cash and cash equivalents...............................................................  $     8,852  $     5,475
Premises and equipment, net.............................................................        2,266        2,305
Investments in subsidiaries at equity in net assets:
  Bank..................................................................................      116,252      104,656
  Non-bank..............................................................................          633        1,142
Other assets............................................................................        7,096        1,507
                                                                                          -----------  -----------
    Total Assets........................................................................  $   135,099  $   115,085
                                                                                          -----------  -----------
                                                                                          -----------  -----------
Liabilities and Shareholders' Equity
Dividends payable.......................................................................  $     2,209  $     1,312
Other liabilities.......................................................................        2,129        1,530
                                                                                          -----------  -----------
    Total Liabilities...................................................................        4,338        2,842
                                                                                          -----------  -----------
Shareholders' Equity....................................................................      130,761      112,243
                                                                                          -----------  -----------
    Total Liabilities and Shareholders' Equity..........................................  $   135,099  $   115,085
                                                                                          -----------  -----------
                                                                                          -----------  -----------
</TABLE>
 
                                      F-17
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(12) CALIFORNIA BANCSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED)
 
STATEMENT OF INCOME
 
<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                  -------------------------------
                                                                                    1995       1994       1993
                                                                                  ---------  ---------  ---------
                                                                                          (IN THOUSANDS)
<S>                                                                               <C>        <C>        <C>
Income
Dividends from subsidiaries:
  Bank..........................................................................  $  27,340  $   4,941  $   3,688
  Non-bank......................................................................     --            185     --
Interest from subsidiaries......................................................        157        208        314
Management fees from subsidiaries...............................................     11,350      9,138      7,875
Other income....................................................................        148        156         13
                                                                                  ---------  ---------  ---------
    Total income................................................................     38,995     14,628     11,890
                                                                                  ---------  ---------  ---------
Expense
Interest expense................................................................     --             89        111
Other expense...................................................................     13,912     11,893      9,092
                                                                                  ---------  ---------  ---------
    Total expense...............................................................     13,912     11,982      9,203
                                                                                  ---------  ---------  ---------
  Income before provision for income taxes and equity in undistributed income of
   subsidiaries.................................................................     25,083      2,646      2,687
Allocated income tax benefit....................................................        776        832        292
                                                                                  ---------  ---------  ---------
  Income before equity in undistributed income of subsidiaries..................     25,859      3,478      2,979
Equity in undistributed income of subsidiaries:
  Bank..........................................................................     (7,315)     8,608      5,770
  Non-bank......................................................................       (509)      (450)        40
                                                                                  ---------  ---------  ---------
    Net income..................................................................  $  18,035  $  11,636  $   8,789
                                                                                  ---------  ---------  ---------
                                                                                  ---------  ---------  ---------
</TABLE>
 
                                      F-18
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(12)CALIFORNIA BANCSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED)
 
STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                               ---------------------------------
                                                                                  1995       1994        1993
                                                                               ----------  ---------  ----------
                                                                                        (IN THOUSANDS)
<S>                                                                            <C>         <C>        <C>
Cash flows from operating activities:
Net income...................................................................  $   18,035  $  11,636  $    8,789
Adjustments to reconcile net income to net cash provided from operations:
  Net change in other assets and other liabilities...........................         (34)       700         674
  Goodwill amortization......................................................         254         81          81
  Depreciation and amortization..............................................         828        669         389
  Equity in undistributed income of subsidiaries.............................       7,824     (8,158)     (5,810)
                                                                               ----------  ---------  ----------
Net cash provided by operations..............................................      26,907      4,928       4,123
                                                                               ----------  ---------  ----------
Cash flows from investing activities:
Capital contribution to subsidiary...........................................        (600)    --          --
Cash used in acquisition.....................................................     (16,250)    --          --
Capital expenditures.........................................................        (789)    (1,565)       (807)
Proceeds from sales of premises and equipment................................           3          5          37
Principal payments collected on loans to non-bank subsidiary.................      --          2,420      22,210
Principal payments collected on loans to bank subsidiary.....................      --          1,500      --
Loans made to non-bank subsidiary............................................      --         (1,870)    (21,900)
                                                                               ----------  ---------  ----------
    Net cash (used in) provided by investing activities......................     (17,636)       490        (460)
                                                                               ----------  ---------  ----------
Cash flows from financing activities:
Repayment of debt............................................................      --         (1,500)     --
Proceeds from the issuance of stock for stock option and dividend
 reinvestment plans..........................................................       1,758      2,115       1,194
Repurchase of common stock...................................................        (933)    (2,291)       (666)
Payment of merger related fractional shares..................................          (2)        (6)     --
Cash dividends paid..........................................................      (6,717)    (4,671)     (4,078)
                                                                               ----------  ---------  ----------
    Net cash used in financing activities....................................      (5,894)    (6,353)     (3,550)
                                                                               ----------  ---------  ----------
    Net change in cash and cash equivalents..................................       3,377       (935)        113
Cash and cash equivalents at beginning of year...............................       5,475      6,410       6,297
                                                                               ----------  ---------  ----------
Cash and cash equivalents at end of year.....................................  $    8,852  $   5,475  $    6,410
                                                                               ----------  ---------  ----------
                                                                               ----------  ---------  ----------
</TABLE>
 
For  purposes of reporting  cash flows, cash and  cash equivalents are comprised
solely of cash on deposit with the subsidiary banks.
 
                                      F-19
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
    The carrying amounts and  estimated fair values  of the Company's  financial
instruments are as follows:
 
<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                       ----------------------------------------------------------
                                                                   1995                          1994
                                                       ----------------------------  ----------------------------
                                                         CARRYING       ESTIMATED      CARRYING       ESTIMATED
                                                          AMOUNT       FAIR VALUE       AMOUNT       FAIR VALUE
                                                       -------------  -------------  -------------  -------------
                                                                             (IN THOUSANDS)
<S>                                                    <C>            <C>            <C>            <C>
Financial assets:
  Cash and short term investments....................  $     157,781  $     157,781  $      81,387  $      81,387
  Securities available for sale......................         73,876         73,876         51,426         51,426
  Securities held to maturity........................        264,552        265,575        245,984        233,479
  Loans..............................................      1,015,944      1,035,356        900,654        895,168
Financial liabilities:
  Deposits...........................................      1,425,895      1,430,199      1,179,717      1,174,796
  Other borrowings...................................             90             90         29,747         29,747
Off balance sheet:
  Commitments to extend credit.......................          1,406          1,406          2,015          2,015
  Standby letters of credit..........................             54             54              8              8
</TABLE>
 
    These estimated fair values do not necessarily represent actual amounts that
may  be  realized  upon  any  sale  or  liquidation  of  the  related  assets or
liabilities. In addition, these values do  not give effect to discounts to  fair
value  which may occur when financial  instruments are sold in large quantities.
The fair value  presented above represent  the Company's best  estimate of  fair
value using the following methodologies:
 
CASH AND SHORT TERM INVESTMENTS
 
    For  cash and  short term investments,  the carrying amount  is a reasonable
estimate of fair value.
 
SECURITIES
 
    For securities available  for sale  and held  to maturity,  fair values  are
primarily based on quoted market prices.
 
LOANS
 
    The  fair value of 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.
 
DEPOSIT LIABILITIES
 
    The  fair value of noninterest-bearing and interest-bearing demand accounts,
savings accounts and 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.
 
COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT
 
    The  fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements, and  the  present  credit  worthiness  of  the  counterparties.  For
fixed-rate  loan commitments, fair  value also considers  the difference between
current levels of  interest rates  and the committed  rates. The  fair value  of
guarantees  and letters of credit is based on fees currently charged for similar
agreements or on the  estimated cost to terminate  them or otherwise settle  the
obligations with the counterparties at the reporting date.
 
                                      F-20
<PAGE>
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
(14) PROPOSED ACQUISITION OF CALIFORNIA BANCSHARES, INC. BY U.S. BANCORP
    On  February 11,  1996, the Company  signed a definitive  agreement for U.S.
Bancorp to  acquire the  Company. Under  the terms  of the  agreement, which  is
subject  to approval by  regulators and the  Company's shareholders, the Company
will be merged into U.S. Bancorp, and  each share of the Company's common  stock
will be converted into .95 shares of U.S. Bancorp common stock. The total value,
which  can change  based on  U.S. Bancorp's  stock price,  is approximately $327
million, or $32.53 for each share of  the Company's common stock, based on  U.S.
Bancorp's  closing  price  of  $34.25  on the  last  trading  day  preceding the
announcement of the  agreement. In  connection with the  agreement, the  Company
granted  U.S. Bancorp an option  to acquire 19.9% of  the Company's stock, which
could become exercisable under  certain circumstances. The proposed  transaction
is  expected to be accounted for using  the purchase method of accounting and is
expected to be completed during the second half of 1996.
 
                                      F-21
<PAGE>
                          INDEPENDENT AUDITORS' REPORT
 
KPMG PEAT MARWICK LLP
 
The Board of Directors and Shareholders
of California Bancshares, Inc.:
 
    We have audited  the accompanying consolidated  balance sheet of  California
Bancshares,  Inc. and  subsidiaries as  of December 31,  1995 and  1994, and the
related consolidated statement of income,  changes in shareholders' equity,  and
cash  flows for each  of the years  in the three-year  period ended December 31,
1995. These  consolidated financial  statements are  the responsibility  of  the
Company's  management.  Our responsibility  is to  express  an opinion  on these
consolidated financial statements based on our audits.
 
    We conducted  our  audits in  accordance  with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the  amounts and disclosures in the financial statements. An audit also includes
assessing the  accounting  principles used  and  significant estimates  made  by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our  opinion, the  consolidated financial  statements referred  to  above
present  fairly, in all material respects,  the financial position of California
Bancshares, Inc. and  subsidiaries as  of December 31,  1995 and  1994, and  the
results  of their operations and  their cash flows for each  of the years in the
three-year period ended December 31, 1995 in conformity with generally  accepted
accounting principles.
 
/s/ KPMG Peat Marwick LLP
 
Oakland, California
January 17, 1996, except as to Note 14,
which is as of February 12, 1996
 
                                      F-22