Exhibit 13


CAPITAL CORP of the WEST
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                                                            Years Ended December 31,
                                                                                  --------------------------------------------------
                                                                                          1996              1995               1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>               <C>                <C>
Interest  income:
Interest  and fees on loans                                                       $ 16,302,000      $ 12,969,000       $ 10,795,000
Interest on deposits with other financial  institutions                                127,000              --                 --
Interest on investment  securities held to maturity:
  Taxable                                                                               60,000            34,000            413,000
  Non-taxable                                                                             --                --              272,000
Interest on  investment  securities  available for sale:
  Taxable                                                                            2,409,000         2,185,000          1,066,000
  Non-taxable                                                                          246,000           327,000               --   
  Interest on federal funds sold                                                       207,000           358,000            261,000
------------------------------------------------------------------------------------------------------------------------------------
Total interest income                                                               19,351,000        15,873,000         12,807,000
------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Negotiable  orders of withdrawal                                                       268,000           239,000            237,000
 Savings                                                                             4,350,000         4,213,000          2,298,000
Time, under $100,000                                                                 1,808,000           950,000          1,040,000
Time,  $100,000 and over                                                               359.000           304,000            272,000
------------------------------------------------------------------------------------------------------------------------------------
Total  interest  on deposits                                                         6,785,000         5,706,000          3,847,000
------------------------------------------------------------------------------------------------------------------------------------
Other                                                                                   80,000            11,000              3,000
------------------------------------------------------------------------------------------------------------------------------------
  Total interest expense                                                             6,865,000         5,717,000          3,850,000
------------------------------------------------------------------------------------------------------------------------------------
 Net interest income                                                                12,486,000        10,156,000          8,957,000
------------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses                                                            1,513,000           228,000               --   
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses                                                                     10,973,000         9,928,000          8,957,000
------------------------------------------------------------------------------------------------------------------------------------
Other income (loss):
 Service charges on
deposit  accounts                                                                    1,274,000           920,000            900,000
  Income  from real estate held for sale or
development                                                                            508,000            88,000             14,000
 Provision for loss on real estate held for sale or
development                                                                               --          (2,881,000)          (798,000)
Gain on sale of premises and equipment                                                    --                --              277,000
Other                                                                                1,153,000           649,000            412,000
------------------------------------------------------------------------------------------------------------------------------------
Total  other  income  (loss)                                                         2,935,000        (1,224,000)           805,000
------------------------------------------------------------------------------------------------------------------------------------
Other expenses:
 Salaries  and  related  benefits                                                    5,283,000         4,161,000          3,540,000
 Premises  and occupancy                                                               835,000           612,000            587,000
 Equipment                                                                           1,022,000           789,000            534,000
Bank assessments                                                                        48,000           183,000            394,000
  Professional  fees                                                                   755,000           404,000            299,000
Supplies                                                                               292,000           234,000            124,000
  Marketing                                                                            370,000           212,000            250,000
 Other                                                                               2,131,000         1,551,000          1,195,000
------------------------------------------------------------------------------------------------------------------------------------
 Total other  expenses                                                              10,736,000         8,146,000          6,923,000
------------------------------------------------------------------------------------------------------------------------------------
 Income before  income taxes                                                         3,172,000           558,000          2,839,000
  Provision for income taxes                                                         1,163,000           223,000          1,103,000
------------------------------------------------------------------------------------------------------------------------------------
 Net income                                                                       $  2,009,000      $    335,000       $  1,736,000
------------------------------------------------------------------------------------------------------------------------------------
Net income per share                                                              $       1.27      $        .24       $       1.24
====================================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements. 



                                                                 9
<PAGE>




CAPITAL CORP of the WEST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                                           December 31,
                                                                                                    1996                     1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                      <C>        
Assets
Cash and noninterest-bearing deposits in other  banks                                         $  12,982,000            $  18,967,000
Federal funds sold                                                                                3,735,000                     --  
Time deposits at other financial institutions                                                     3,101,000                     --  
Investment securities available for sale at fair value                                           43,378,000               45,302,000
Mortgage loans held for sale                                                                        880,000                  501,000
Loans, net                                                                                      180,455,000              132,035,000
Interest receivable                                                                               1,879,000                1,860,000
Premises and equipment, net                                                                       6,266,000                4,138,000
Other assets                                                                                     13,313,000                6,230,000
------------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                                  $ 265,989,000            $ 209,033,000
====================================================================================================================================
Liabilities
Deposits:
Noninterest-bearing demand                                                                    $  39,157,000            $  39,726,000
Negotiable orders of withdrawal                                                                  34,303,000               29,019,000
Savings                                                                                         111,285,000               95,537,000
Time, under $100,000                                                                             46,990,000               21,917,000
Time, $100,000  and  over                                                                         6,610,000                6,402,000
------------------------------------------------------------------------------------------------------------------------------------
     Total  deposits                                                                            238,345,000              192,601,000
------------------------------------------------------------------------------------------------------------------------------------
Accrued interest, taxes and other liabilities                                                     6,670,000                1,339,000
------------------------------------------------------------------------------------------------------------------------------------
Total  liabilities                                                                              245,015,000              193,940,000
------------------------------------------------------------------------------------------------------------------------------------
Shareholders'  equity
Preferred stock, no par value; 10,000,000 shares authorized;
  none outstanding                                                                                     --                       --
Common stock, no par value; 20,000,000 shares authorized;
1,734,474 and 1,334,956 shares issued and outstanding                                            15,321,000                9,870,000
Retained earnings                                                                                 5,722,000                4,911,000
Investment securities  unrealized  (losses)  gains,  net                                            (69,000)                 312,000
------------------------------------------------------------------------------------------------------------------------------------
Total  shareholders' equity                                                                      20,974,000               15,093,000
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                                    $ 265,989,000            $ 209,033,000
====================================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements 



<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF  
SHAREHOLDERS'  EQUITY                                     Common  Stock 
                                                       -----------------------------------------------------------------------------
                                                            Number                             Unrealized  
                                                            of                            Retained  Securities Gains 
                                                            Shares         Amount         Earnings       (Losses), net      Total 
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>         <C>            <C>             <C>             <C>        
Balances - December 31, 1993                                1,002,360   $  5,477,000   $  7,156,000    $       --      $ 12,633,000
====================================================================================================================================
                                                                                                                     
15% stock dividend, including payment
  for fractional shares                                       149,966      1,875,000      1,880,000)           --            (5,000)
Exercise of stock  options                                      7,560         73,000           --              --            73,000
Investment securities  unrealized  losses,
  net of tax  effect of $227,000                                 --             --             --          (355,000)       (355,000)
Net  income                                                      --             --        1,736,000            --         1,736,000
------------------------------------------------------------------------------------------------------------------------------------
Balances - December 31, 1994                                1,159,886      7,425,000      7,012,000        (355,000)     14,082,000
====================================================================================================================================
15% stock dividend, including payment
  for fractional shares                                       173,570      2,430,000     (2,436,000)           --            (6,000)
Exercise of stock options                                       1,500         15,000           --              --            15,000
Net change in fair value of investment
 securities, net of tax effect of $427,000                       --             --             --           667,000         667,000
Net income                                                       --             --          335,000            --           335,000
------------------------------------------------------------------------------------------------------------------------------------
Balances - December 31, 1995                                1,334,956      9,870,000      4,911,000         312,000      15,093,000
====================================================================================================================================
5% stock dividend and $.05 per share cash dividend,
 including  payment  for  fractional  shares                   82,384      1,112,000     (1,198,000)           --           (86,000)
Exercise of stock options                                      20,739        208,000           --              --           208,000
Issuance of shares pursuant to 401K & ESOP plans               11,817        162,000           --              --           162,000
Acquisition of Town & Country Finance & Thrift                284,578      3,969,000           --              --         3,969,000
Change in fair value of investment
 securities, net of tax effect of ($247,000)                     --             --             --          (381,000)       (381,000)
Net Income                                                       --             --        2,009,000            --         2,009,000
------------------------------------------------------------------------------------------------------------------------------------
Balances - December 31, 1996                                1,734,474   $ 15,321,000   $  5,722,000    $    (69,000)   $ 20,974,000
====================================================================================================================================
</TABLE>
See accompanying notes to Consolidated Financial Statements. 



                                                            10

<PAGE>


CAPITAL CORP of the WEST
CONSOLIDATED STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                 Years Ended December 31,
                                                                               -----------------------------------------------------
                                                                                     1996                1995                1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                 <C>                 <C>        

Operating  activities:
Net income                                                                     $  2,009,000        $    335,000        $  1,736,000
Adjustments to reconcile  net income to net cash (used)
      provided by  operating  activities:
Provision for loan losses                                                         1,513,000             228,000                --
Depreciation,  amortization  and accretion, net                                   1,023,000             860,000             707,000
Provision for deferred income taxes                                                (327,000)         (1,191,000)           (235,000)
Gain on sale of premises and equipment                                                 --                  --              (277,000)
Gain on sale of real estate held for sale                                          (348,000)               --                  --
Net increase in interest receivable
      and other assets                                                           (5,044,000)         (3,164,000)         (1,015,000)
Net decrease (increase) in mortgage loans held for sale                            (376,000)          2,241,000          (1,583,000)
Net increase in deferred loan fees                                                   54,000              31,000              63,000
Net increase (decrease) in accrued interest payable and
      other liabilities                                                           1,330,000             499,000             (82,000)
Provision for loss on real estate held for
  sale or development                                                                  --             2,881,000             798,000
Net cash  (used)  provided  by  operating  activities                              (166,000)          2,720,000             112,000
Investing  activities:
Investment  security  purchases                                                 (26,993,000)        (26,622,000)        (23,494,000)
Proceeds  from  maturities  of  investment  securities                           17,599,000          15,022,000           9,578,000
Proceeds from sales of investment  securities                                    14,590,000           3,012,000                --
Proceeds from sales of commercial and real estate loans                           3,230,000           1,037,000           1,691,000
Net increase in loans                                                           (35,017,000)        (21,379,000)         (8,345,000)
Purchases of premises and equipment                                              (2,768,000)         (1,719,000)         (1,501,000)
Proceeds  from sales of premises and  equipment                                       9,000              71,000             739,000
Construction of real estate held for sale
  or development                                                                   (417,000)           (622,000)           (916,000)
Proceeds from sale of real estate held for sale
 or development                                                                     765,000           1,547,000           1,346,000
Purchase  of  subsidiary                                                           (183,000)               --                  --
------------------------------------------------------------------------------------------------------------------------------------
Net  cash  used  by  investing activities                                       (29,185,000)        (29,653,000)        (20,902,000)
------------------------------------------------------------------------------------------------------------------------------------
Financing  activities:
Net increase in demand, NOW and savings deposits                                 13,812,000          26,004,000          30,351,000
Net increase (decrease) in certificates of deposit                                9,109,000           3,397,000          (8,882,000)
Net increase in other borrowings                                                  3,896,000                --               107,000
Issued shares for benefit plan purchases                                            162,000                --                  --
Exercise of stock options                                                           208,000              15,000              73,000
Fractional  shares from stock  dividends                                            (86,000)             (6,000)             (5,000)
------------------------------------------------------------------------------------------------------------------------------------
Net cash  provided by financing  activities                                      27,101,000          29,410,000          21,644,000
------------------------------------------------------------------------------------------------------------------------------------
Net(decrease) increase in cash and cash equivalents                              (2,250,000)          2,477,000             854,000
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                                   18,967,000          16,490,000          15,636,000
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                       $ 16,717,000        $ 18,967,000          16,490,000
====================================================================================================================================
</TABLE>

See accompanying  notes to Consolidated Financial Statements



                                                                 11

<PAGE>

CAPITAL CORP of the WEST


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


December 31, 
1996, 1995, 1994

NOTE 1. Summary of Significant  Accounting Policies Principles of Consolidation:
The  consolidated  financial  statements  of  Capital  Corp  of  the  West  (the
"Company")  include its subsidiaries,  County Bank (the "Bank"),  Town & Country
Finance and Thrift (the  "Thrift")  and Capital West Group.  Effective  June 28,
1996,  the Company  consummated  the  purchase of the  Thrift.  The  transaction
resulted in 284,578 shares of stock being issued and $1,493,000  being disbursed
to the shareholders of the Thrift. The total purchase price was $5,823,000.  The
Thrift is licensed by the California Department of Corporations as an industrial
loan  company,  also  known  as a thrift  and loan  company.  The  purchase  was
accounted  for under the  purchase  method of  accounting.  All of the  Thrift's
operations  since  June 28,  1996  have  been  included  in  these  consolidated
financial statements.

A summary of the net assets acquired is set forth in the following table:

Assets  Acquired:
Cash & cash  equivalents                                             $ 1,310,000
Time deposits at other financial  institutions                         6,554,000
Loans,  net                                                           18,203,000
Interest  receivable                                                      60,000
Premises and equipment                                                   212,000
Other assets                                                             114,000
Total assets acquired                                                $26,453,000
--------------------------------------------------------------------------------
Liabilities Assumed:
Deposits                                                             $22,823,000
Other liabilities                                                        105,000
Total liabilities  assumed                                            22,928,000
 Net Assets Acquired                                                 $ 3,525,000
--------------------------------------------------------------------------------


   The total  purchase  price was  allocated to the  tangible  and  identifiable
intangible  assets and liabilities of the Thrift based on their  respective fair
values and the remainder was  allocated to goodwill.  The following  adjustments
were made to allocate  the purchase  price of the Thrift:  equity of the Thrift
$3,525,000;  fair value adjustments to loans ($185,000); core deposit intangible
$460,000;  and goodwill  $2,023,000.  The fair value  adjustments  are amortized
against  (accreted to) net income as follows:  fair value adjustment to loans: 3
years; core deposit intangible:  10 years;  goodwill: 18 years. The amortization
of goodwill  will be evaluated  periodically  in  accordance  with  Statement of
Financial  Accounting  Standards  No.121,   Accounting  for  the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

   In  April of 1996,  the  Company  formed a new  subsidiary  that  engages  in
financial  institution  advisory services,  Capital West Group. The Bank has two
wholly owned subsidiaries, Merced Area Investment and Development, Inc. ("MAID")
and another inactive  subsidiary.  All references  herein to the Company include
the Bank, the Thrift,  Capital West Group and the Bank's subsidiaries unless the
context  otherwise   requires.   All  significant   intercompany   accounts  and
transactions  have been  eliminated in preparing  these  consolidated  financial
statements.

   The  consolidated  financial  statements  are  prepared  in  accordance  with
generally accepted accounting principles and prevailing practices in the banking
industry.  In preparing the  consolidated  financial  statements,  management is
required to make estimates and assumptions  that affect the reported  amounts of
assets and  liabilities  as of the date of the  balance  sheet and  revenue  and
expense for the period. Actual results could differ from those estimates applied
in the  preparation  of the  consolidated  financial  statements. 


Cash and Cash  Equivalents:  The Company maintains deposit balances with various
banks which are necessary for check  collection  and account  activity  charges.
Cash in excess of immediate  requirements  is invested in federal  funds sold or
other short term investments. Generally, federal funds are sold for periods from
one to  thirty  days.  Cash,  noninterest-bearing  deposits  in other  banks and
federal  funds  sold are  considered  to be cash and  cash  equivalents  for the
purposes of the consolidated statements of cash flows. At December 31, 1996, the
Company's  average cash reserve balances as required by the Federal Reserve Bank
were approximately  $2,190,000.  The Company maintained  sufficient  balances of
vault  cash  to  satisfy  its  reserve  requirements. 

Investment  Securities:  Investment  securities  at  December 3 1, 1996 and 1995
consist of U.S.  Treasury  and U.S.  Government  agency  obligations,  municipal
securities  and  mortgage-backed  securities.  At  the  time  of  purchase  of a
security,  the  Company  designates  the  security  as  held-to-maturity  or  as
available-for-sale,  based on its investment  objectives,  operational needs and
intent.  The Company  does not purchase  securities  with the intent of actively
trading  them.  Held-to-maturity  securities  are  recorded at  amortized  cost,
adjusted   for   amortization   or   accretion   of   premiums   or   discounts.
Available-for-sale securities are recorded at fair value with unrealized holding
gains and losses,  net of the related tax effect, and are reported as a separate
component of stockholders' equity until realized.

   A decline in the market value of any  available-for-sale  or held-to-maturity
security below cost that is deemed other than temporary,  results in a charge to
earnings  and  the  corresponding  establishment  of a new  cost  basis  for the
security.  No such declines have occurred.

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

Mortgage  Loans  Held for Sale:  Real  estate  mortgage  loans held for sale are
carried at the lower of cost or market at the balance  sheet date or the date on
which investors have committed to purchase such loans. 

Loans:  Loans are carried at the principal amount  outstanding,  net of deferred
origination  fees,  less an allowance for loan losses.  During 1995, the Company
adopted the provisions of Statement of Financial  Accounting  Standards No. 114,
Accounting by Creditors for the Impairment of a Loan as amended by Statement No.
118,  Accounting by Creditors for  Impairment of a Loan-Income  Recognition  and
Disclosures  (SFAS 114). Under SFAS 114, an impaired loan is measured based upon
the present value of future cash flows  discounted at the loan's effective rate,
the loan's  observable market price, or the fair value of collateral if the loan
is  collateral  dependent.  Interest on impaired  loans is  recognized on a cash
basis. SFAS 114 does not apply to large groups of small balance homogenous loans
that are  collec-tively  evaluated for  impairment. 

   The recognition of interest income on a loan is discontinued,  and previously
accrued interest is reversed, when interest or principal payments become 90 days
past due,  unless the outstanding  principal and interest is adequately  secured
and, in the opinion of management, remains collectible. Interest is subsequently
recognized  only as  received  until the loan is  returned  to  accrual  status.
Nonrefundable  fees and related direct costs  associated with the origination or
purchase of loans are deferred and are amortized  into interest  income over the
loan term using a method which approximates the interest method.

Allowance for Loan Losses: The allowance for loan losses represents management's
recognition  of the risks assumed when  extending  credit and its evaluation of
the quality of the loan  portfolio.  The  allowance is  maintained  at the level
considered to be adequate for potential loan 

                                       12


<PAGE>


                            CAPITAL CORP of the WEST

losses based on management's  assessment of various  factors  affecting the loan
portfolio,  which include a review of problem loans,  business conditions and an
overall  evaluation of the quality of the portfolio.  The allowance is increased
by provisions for loan losses charged to operations and reduced by loans charged
to the  allowance,  net of  recoveries.  The  allowance  for  loan  losses  is a
subjective  estimation  and may be adjusted in the future  depending on economic
conditions.  Also  regulatory  examiners  may require  the Company to  recognize
additions  to  the  allowance  based  upon  their  judgments  about  information
available to them at the time of an examination.

Loan Servicing Income:  The Company services both the sold and retained portions
of United States Small  Business  Administration  (SBA) loans and a portfolio of
mortgage loans. Servicing income is realized through the retention of an ongoing
rate  differential  between the rate paid by the borrower to the Company and the
rate paid by the Company to the investor in the loan. 

Premises  and  Equipment:   Premises  and  equipment  are  stated  at  cost  and
depreciated on the  straight-line  method over the estimated useful lives of the
assets as follows:

            Buildings - 35 years   Leasehold  improvements - term of lease      
                    Furniture and equipment - 3 to 15 years

Real  Estate  Held  for  Sale or  Development:  Real  estate  held  for  sale or
development  is recorded at the lower of cost or net realizable  value. 

   Revenue  recognition on the  disposition of real estate is dependent upon the
transaction meeting certain criteria relating to the nature of the property sold
and the terms of the sale. Under certain circumstances,  revenue recognition may
be deferred until these criteria are met. 

Other Real  Estate:  In  accordance  with the  provisions  of the  Statement  of
Financial Account Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived  Assets to be Disposed Of, other real estate  acquired
through foreclosure is carried at the lower of cost or fair value less estimated
costs to sell at the date of  foreclosure.  Fair value of other  real  estate is
determined based on an appraisal of the property. Credit losses arising from the
acquisition of such  properties  are charged  against the allowance for possible
loan losses.  Any  subsequent  costs or losses are charged  against  income when
incurred.

Investment Tax Credits:  The Company has investments in limited  partnerships in
low income  affordable  housing which provides the investor  affordable  housing
income tax credits. As an investor in these  partnerships,  the Company receives
tax benefits in the form of tax deductions from partnership operating losses and
income tax credits. These income tax credits are earned over a 10-year period as
a result of the investment meeting certain criteria and are subject to recapture
over a 15-year  period.  The  expected  benefit  resulting  from the  affordable
housing  income tax credits is recognized in the period in which the tax benefit
is recognized in the Company's  consolidated tax returns.  These investments are
accounted  for using the cost method.  These  investments  are evaluated at each
reporting period for impairment.  The Bank had investments in these partnerships
of $2,700,000 and $1,701,000 as of December 31, 1996 and 1995 respectively.

Deferred  compensation:  The Company has purchased single premium universal life
insurance  policies in conjunction with  implementation  of salary  continuation
plans for certain members of management and the Board of Directors.  The Company
is the owner and  beneficiary of these plans.  The cash  surrender  value of the
insurance  policies is recorded in other  assets in  accordance  with  Financial
Accounting Standards Board Technical Bulletin No. 85-4, Accounting For Purchases
of Life  Insurance.  Income from the policy is recorded in other  income and the
load, mortality and surrender charges have been recorded in other expenses.  The
accrued  liability  is recorded to reflect  the  present  value of the  expected
retirement benefits. The balance of these life insurance policies was $3,134,000
and $1,290,000 as of December 31, 1996 and 1995 respectively.

Income Taxes:  The Company files a consolidated  federal income tax return and a
combined  state  franchise tax return.  The provision for income taxes  includes
federal  income and state  franchise  taxes.  Income tax expense is allocated to
each entity of the Company  based upon the analyses of the tax  consequences  of
each company on a stand alone basis.

   The Company  accounts for income taxes under the asset and liability  method.
Under the asset and liability  method,  deferred tax assets and  liabilities are
recognized for the future tax consequences  attributable to differences  between
the financial  statement carrying amounts of existing assets and liabilities and
their  respective tax bases.  Deferred tax assets and  liabilities  are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect  on  deferred  tax  assets  and  liabilities  of a change in tax rates is
recognized in income in the period that includes the enactment date.

Stock Option Plan: Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance  with the  provisions of Accounting  Principles  Board
("APB")  Opinion No. 25,  Accounting for Stock Issued to Employees,  and related
interpretations.  As such, compensation expense would be recorded on the date of
grant only if the current  market  price of the  underlying  stock  exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for  Stock-Based  Compensation,  which permits  entities to recognize as expense
over the vesting period the fair value of all stock-based  awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions  of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based  method defined in SFAS No. 123 had been
applied.  The Company has  elected to  continue to apply the  provisions  of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.

Per Share  Information:  Per share  information is based on the weighted average
number of shares of common stock outstanding  during the periods presented after
giving retroactive effect to stock dividends. 


NOTE 2:  Investment  Securities  

The carrying  value and  estimated  fair value for each  category of  investment
securities at December 31 are as follows:
<TABLE>
<CAPTION>
                                                                                  Gross                   Gross            Estimated
           1996                                           Amortized cost      unrealized  gains      unrealized  losses   fair value
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                    <C>                 <C>      
Available-for-Sale:
 U.S. Treasury & U.S. government
 agencies  & corporations                                    $38,653,000         $   190,000         $   381,000         $38,462,000
------------------------------------------------------------------------------------------------------------------------------------
State &  political subdivisions                                4,196,000             100,000              25,000           4,271,000
  Total debt securities                                       42,849,000             290,000             406,000          42,733,000
Equity  securities                                               645,000                --                  --               645,000
------------------------------------------------------------------------------------------------------------------------------------
Total Investment  Securities                                 $43,494,000         $   290,000         $   406,000         $43,378,000
====================================================================================================================================
          1995
------------------------------------------------------------------------------------------------------------------------------------
Available-for-Sale:
 U.S.  Treasury & U.S. government
 agencies &  corporations                                    $40,055,000         $   437,000         $    39,000         $40,453,000
------------------------------------------------------------------------------------------------------------------------------------
States &  political  subdivisions                              4,183,000             133,000              19,000           4,297,000
  Total debt securities                                       44,238,000             570,000              58,000          44,750,000
Equity  securities                                               552,000                --                  --               552,000
------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities                                  $44,790,000         $   570,000         $    58,000         $45,302,000
====================================================================================================================================
</TABLE>

                                                                 13


<PAGE>

                            CAPITAL CORP of the WEST

   The  change  in the  net  unrealized  holding  gain  on  available  for  sale
securities during 1996 was $628,000.  At December 31, 1996 and 1995,  investment
securities with carrying values of  approximately  $16,678,000 and  $18,157,000,
respectively,  were  pledged as  collateral  for  deposits  of public  funds and
government  deposits  and for  the  Bank's  use of the  Federal  Reserve  Bank's
discount window and Federal Home Loan Bank line of credit.  The Bank is a member
of the Federal Home Loan Bank and has purchased $645,000 and $552,000 of Federal
Home Loan Bank stock as of December 31, 1996 and 1995 respectively.

   For the years ended December 31, 1996 and 1995, the proceeds from the sale of
securities  were  $14,590,000  and  $3,012,000,   respectively.  There  were  no
securities  sold in 1994. The Bank recognized net gains or losses on the sale of
investment  securities of  approximately  $11,000 in gains in 1996 and $3,000 in
losses in 1995, respectively.

   The carrying and  estimated  fair values of debt  securities  at December 31,
1996  by  contractual  maturity,  are  shown  on  the  following  table.  Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment notice.

                                                                      Estimated
               1996                                 Amortized Cost    Fair Value
--------------------------------------------------------------------------------
Available-for-Sale  Debt Securities:
Due in one year or less                              $   981,000     $   996,000
Due  after one year through five years                 8,894,000       8,922,000
Due after five years through ten years                 7,849,000       7,774,000
Due after ten years                                    4,400,000       4,290,000
Mortgage-backed securities                            20,725,000      20,751,000
--------------------------------------------------------------------------------
Total Debt securities                                $42,849,000     $42,733,000
================================================================================

NOTE 3: Loans 

Loans  outstanding  at  December  31 consist of the  following: 

                                                         1996           1995
--------------------------------------------------------------------------------
Commercial,  financial and  agricultural           $ 71,786,000     $ 65,563,000
Real Estate:
Mortgage                                             57,098,000       42,128,000
Construction                                         13,923,000       12,006,000
Consumer Loans                                       40,440,000       14,039,000
--------------------------------------------------------------------------------
                                                    183,247,000      133,736,000
Less allowance for loan losses                        2,792,000        1,701,000
--------------------------------------------------------------------------------
                                                   $180,455,000     $132,035,000
================================================================================

   These loans are net of deferred loan fees of $765,000 in 1996 and $708,000 in
1995.  The  amount  of  nonaccrual  loans at  December  31,  1996 is  $4,968,000
($4,626,000  at December  31,  1995).  Impaired  loans are loans for which it is
probable  that the Company  will not be able to collect  all amounts  due. As of
December  31,  1996,  the Company had  outstanding  balances  of  $7,020,000  in
impaired  loans which had specific  allowances  for possible loss of $1,827,000.
The average  outstanding  balance of impaired  loans for the year ended December
31, 1996 was approximately  $6,248,000.  Of these impaired loans, $5,090,000 are
loans that have been  restructured.  This compares  with  $4,326,000 in impaired
loans which had specific allowances for possible loss of $605,000 and an average
outstanding  balance  for the  year  ending  December  31,  1995 of  $2,165,000.
Foregone interest on nonaccrual loans was approximately $497,000 and $25,000 for
the years ending December 31, 1996 and 1995 respectively.

Following is a summary of changes in the  allowance  for loan losses  during the
years ended December 31:

                                         1996            1995           1994  
--------------------------------------------------------------------------------
Balance -  beginning  of year         $ 1,701,000    $ 1,621,000    $ 1,747,000
Due to  acquisition  of Thrift            148,000           --             --   
Losses  charged to the allowance         (658,000)      (223,000)      (248,000)
Recoveries of amounts charged off          88,000         75,000        122,000
Provision charged to operations         1,513,000        228,000           --
--------------------------------------------------------------------------------
Balance - end of year                 $ 2,792,000    $ 1,701,000    $ 1,621,000
================================================================================

   In the  ordinary  course of  business,  the Company has made loans to certain
directors and officers and their related  businesses.  In management's  opinion,
these loans were granted on  substantially  the same terms,  including  interest
rates and  collateral,  as those  prevailing  on  comparable  transactions  with
unrelated   parties,   and  do  not  involve   more  than  the  normal  risk  of
collectibility. These loans are summarized below:


                                                      1996               1995  
--------------------------------------------------------------------------------
Balance - beginning of year                        $ 675,000          $ 497,000
Loan advances and renewals                           511,000            633,000
Loans matured or collected                          (613,000)          (455,000)
--------------------------------------------------------------------------------
Balance - end of year                              $ 573,000          $ 675,000
================================================================================


NOTE 4. Premises and Equipment  Premises and equipment consists of the following
at December 31: 


                                                       1996           1995
--------------------------------------------------------------------------------
Land                                                $ 1,139,000      $   955,000
Buildings                                             2,979,000        1,744,000
Leasehold improvements                                  887,000          725,000
Furniture and equipment                               6,363,000        4,505,000
--------------------------------------------------------------------------------
                                                     11,368,000        7,929,000
Less  accumulated  depreciation  and
amortization                                          5,102,000        3,791,000
--------------------------------------------------------------------------------
                                                    $ 6,266,000      $ 4,138,000
================================================================================

                                       14

<PAGE>

                            CAPITAL CORP of the WEST

   Included  in the  totals  on the  previous  page  for  December  31,  1996 is
construction  in progress for the new branch and  administrative  facilities  in
downtown  Merced  and  the  branch  under   construction  in  Turlock   totaling
$1,428,000.

NOTE 5: Real Estate  Operations  

   As of  December  31,  1996,  MAID held two real  estate  projects,  including
improved  and  unimproved  land.  Based on the  general  state of the local real
estate climate, the Bank reduced its carrying value of its remaining projects to
zero as of December 31, 1995.  Total real estate write downs were  $2,881,000 in
1995 and $798,000 in 1994.

  Summarized below is condensed financial information of MAID: 

Condensed                                                      December 31, 
Balance Sheets                                            1996           1995
--------------------------------------------------------------------------------
Assets:
Cash on deposit with the Bank                         $  481,000      $1,359,000
Notes  receivable and other                              103,000            --  
--------------------------------------------------------------------------------
                                                      $  584,000      $1,359,000
Liabilities and Shareholder's equity:
Accounts payable and other                            $  298,000      $  296,000
  Shareholder's  equity                                  286,000       1,063,000
--------------------------------------------------------------------------------
                                                      $  584,000      $1,359,000
================================================================================

Condensed  Statement                                        December  31,
of Operations                                      1996                 1995
--------------------------------------------------------------------------------
Revenues                                       $   812,000          $ 1,643,000
Expenses                                           287,000            4,437,000
--------------------------------------------------------------------------------
                                                   505,000           (2,794,000)
Other,  net                                        (81,000)              94,000)
Income  (loss)  before
income  taxes                                  $   424,000          $(2,888,000)
================================================================================

NOTE 6. Income Taxes 

The provision  for income taxes for the years ended  December 31 is comprised of
the following:

1996                            Federal             State               Total
--------------------------------------------------------------------------------
Current                       $ 1,049,000        $   441,000        $ 1,490,000
Deferred                         (283,000)           (44,000)          (327,000)
--------------------------------------------------------------------------------
                              $   766,000        $   397,000        $ 1,163,000

1995
--------------------------------------------------------------------------------
Current                       $ 1,020,000        $   394,000        $ 1,414,000
Deferred                         (860,000)          (331,000)        (1,191,000)
--------------------------------------------------------------------------------
                              $   160,000        $    63,000        $   223,000

1994
--------------------------------------------------------------------------------
Current                       $   972,000        $   366,000        $ 1,338,000
Deferred                         (204,000)           (31,000)          (235,000)
--------------------------------------------------------------------------------
                              $   768,000        $   335,000        $ 1,103,000
================================================================================

The tax effects of temporary  differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 consists of the following:

                                                       1996             1995  
--------------------------------------------------------------------------------
Deferred tax assets:  
State  franchise tax                               $   162,000      $   115,000
Real estate subsidiary                               1,822,000        2,176,000
Allowance  for  loan  losses                           804,000          535,000
Investment securities unrealized losses                 47,000             --   
Nonaccrual interest                                    335,000             --   
Other                                                  134,000          183,000
--------------------------------------------------------------------------------
Total gross deferred tax assets                      3,301,000        3,009,000
Less valuation  allowance                             (170,000)        (170,000)
--------------------------------------------------------------------------------
Deferred tax assets                                $ 3,134,000      $ 2,839,000
================================================================================
Deferred  tax  liabilities:
Fixed  assets                                      $   127,000      $    58,000
State franchise  taxes                                  61,000          187,000
Deferred  loan  fees                                      --             65,000
Investment securities unrealized gain                     --            200,000
Other                                                   79,000           36,000
--------------------------------------------------------------------------------
Total gross deferred tax liabilities                   267,000          546,000
--------------------------------------------------------------------------------
Net deferred tax assets                            $ 2,867,000      $ 2,293,000
================================================================================

 A valuation  allowance  is  provided  when it is more likely than not that some
portion of the  deferred tax assets will not be  realized.  Management  believes
that the  valuation  allowance is sufficient to cover that portion that will not
be fully  realized.  



  A  reconciliation  of the provision for income taxes to the statutory  federal
income  tax rate  follows:
<TABLE>
<CAPTION>
                                                            1996     1995     1994  
--------------------------------------------------------------------------------------
<S>                                                         <C>      <C>      <C>
Statutory federal  income tax rate                          34.0%    34.0%    34.0%
State franchise  tax, net of federal income tax benefit      8.3      7.5      7.7
Tax-exempt  interest  income, net                           (2.7)   (17.7)    (3.0)
Housing tax credits                                          (.7)     --       --   
Other                                                       (2.2)     3.5       .1
Increase in valuation allowance for deferred tax assets      --      12.6      --   
--------------------------------------------------------------------------------------
Effective  income tax rate                                  36.7%    39.9%    38.8%
======================================================================================
</TABLE>

                                       15

<PAGE>

                            CAPITAL CORP of the WEST

NOTE 7: Lines of Credit

At  December  31,  1996,  the  Company  has  available   lines  of  credit  with
correspondent  banks and the  Federal  Reserve  Bank  aggregating  approximately
$7,623,000 of which $105,000 were outstanding.

NOTE 8.  Regulatory  Matters  

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

   Quantitative  measures  established by regulation to ensure capital  adequacy
require  the Company to  maintain  minimum  amounts and ratios (set forth in the
table below).

   First,  a bank must meet a minimum  Tier I (as  defined  in the  regulations)
capital  ratio  ranging  from 3% to 5% based  upon  the  bank's  CAMEL  (capital
adequacy, asset quality, management, earnings and liquidity) rating.

   Second,  a bank must meet minimum total  risk-based  capital to risk-weighted
assets ratio of 8%.  Risk-based  capital and asset  guidelines  vary from Tier I
capital guidelines by redefining the components of capital,  categorizing assets
into different risk classes,  and including  certain  off-balance sheet items in
the  calculation  of the capital  ratio.  The effect of the  risk-based  capital
guidelines is that banks with high exposure will be required to raise additional
capital while institutions with low risk exposure could, with the concurrence of
regulatory  authorities,  be permitted to operate with lower capital ratios.  In
addition, a bank must meet minimum Tier I capital to average assets ratio of 4%.

   Management  believes,  as of December 31, 1996, that the Company and the Bank
meet all capital adequacy requirements to which they are subject. As of December
31,  1996,  the  most  recent   notification,   the  Federal  Deposit  Insurance
Corporation  (FDIC)  categorized  the Bank as meeting  the ratio test for a well
capitalized bank under the regulatory framework for prompt corrective action. To
be categorized as adequately capitalized,  the Bank must meet the minimum ratios
as set forth below.  There are no conditions  or events since that  notification
that management believes have changed the institution's classification.


   The Company's and Bank's actual capital amounts and ratios as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>

                                                                                                         To Be Well Capitalized 
                                                                                For Capital              Under Prompt Corrective 
                                                            Actual           Adequacy Purposes:             Action Provisions:  
------------------------------------------------------------------------------------------------------------------------------------
Consolidated:                                        Amount      Ratio      Amount         Ratio         Amount         Ratio
                                                                         (less than      (less than     (less than     (less than
                                                                         or equal to)    (or equal to)(or equal to)   (or equal to)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>           <C>     <C>             <C>          <C>             <C>         
As of December  31, 1996                                                                                              
Total  capital (to risk  weighted  assets)         $23,670,000    11.2%   $16,914,000       8.0%      $21,142,000        10.0%
Tier I capital (to risk weighted assets)            21,043,000     9.6    $ 8,407,000       4.0       $12,686,000         6.0
Tier  I  capital  (to average assets)               21,043,000     8.2    $10,293,000       4.0       $12,868,000         5.0
------------------------------------------------------------------------------------------------------------------------------------
The Bank:                                                                                                             
As of December 31, 1996                                                                                               
Total  capital (to risk weighted assets)            19,007,000    10.2    $14,965,000       8.0       $18,707,000        10.0
Tier I capital  (to  risk  weighted assets)         16,667,000     8.9    $ 7,483,000       4.0       $11,224,000         6.0
Tier I capital (to  average  assets)               $16,667,000     7.3%   $ 9,150,000       4.0%      $11,438,000         5.0%
====================================================================================================================================
</TABLE>


NOTE 9. Commitments and Financial Instruments With Off-Balance Sheet Credit Risk

   At December 31, 1996, the Company has operating lease rental  commitments for
remaining terms of one to ten years. The Company has options to renew one of its
leases  for  a  period  of  15  years.  The  minimum  future  commitments  under
noncancellable  lease agreements  having terms in excess of one year at December
31, 1996 aggregates approximately $2,469,000 as follows:

1997: $451,000 1998: $427,000 1999: $385,000 2000: $323,000 2001: $171,000 
Thereafter: $712,000 = $2,469,000

   Rent expense was approximately $391,000, $272,000, and $248,000 for the years
ended December 31, 1996,  1995 and 1994,  respectively.  Effective July 15, 1995
the Company  entered into an  agreement to relocate its existing  administrative
office and an existing  branch in downtown  Merced to a new facility in downtown
Merced.  Construction began in the summer of 1996 and is expected to be complete
in late summer of 1997. The estimated construction cost of the new 29,000 square
foot facility  including a parking structure is estimated at approximately  $4.7
million.  In  conjunction  with the  construction  of the  facility,  the Merced
Redevelopment  Agency has  provided the Bank with an  interest-free  loan in the
amount of $3.0 million.  The loan matures on August 31, 1997. It is  anticipated
that upon completion of the facility, a permanent mortgage loan will be obtained
from an unaffiliated lender.

   In  addition,  the  Company  has a loan with an  unaffiliated  lender with an
outstanding  balance of $791,000 as of December  31,  1996.  The loan matures in
July of 1998.  The loan was related to the cash  portion of the  purchase of the
Thrift.

   At December 31, 1996 the aggregate  maturities for time deposits in excess of
one year are as follows:

1997: $10,263,000 1998: $863,000 1999: $417,000 2000: --- 2001: ---- 
= $11,543,000

   In the ordinary course of business,  the Company enters into various types of
transactions  which involve  financial  instruments with off-balance sheet risk.
These  instruments  include  commitments to extend credit and standby letters of
credit  and  are  not  reflected  in  the  accompanying   balance  sheet.  These
transactions may involve, to varying degrees, credit and interest risk in excess
of the amount, if any, recognized in the balance sheet.

   The  Company's  off-balance  sheet  credit risk  exposure is the  contractual
amount of  commitments  to extend  credit and  standby  letters  of credit.  The
Company  applies the same credit  standards to these contracts as it uses in its
lending process. Additionally,  commitments to extend credit and standby letters
of credit bear similar credit risk  characteristics  as  outstanding  loans (see
note 10).

                December  31,                           1996           1995
--------------------------------------------------------------------------------
Financial instruments  whose  contractual  
  amount  represents risk:  
Commitments to extend credit                         $46,159,000     $28,321,000
Standby letters of credit                              3,231,000      2,465,000
================================================================================

   Commitments  to extend  credit are  agreements  to lend to  customers.  These
commitments  have specified  interest rates and generally have fixed  expiration
dates but may be terminated by the Company if certain conditions of the contract
are violated.  Although currently subject to drawdown, many of these commitments
are  expected  to expire or  terminate  without  funding.  Therefore,  the total
commitment  amounts  do not  necessarily  represent  future  cash  requirements.
Collateral  held  relating  to  these  commitments   varies,   but  may  include
securities, equipment, inventory and real estate.

   Standby letters of credit are conditional  commitments  issued by the Company
to guarantee the performance of the customer to a third party.

                                       16


<PAGE>



                            CAPITAL CORP of the WEST

The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending  loan  facilities to customers.  Collateral  held for
standby  letters  of  credit  is  based  on an  individual  evaluation  of  each
customer's credit  worthiness,  but may include cash,  equipment,  inventory and
securities.  

NOTE 10. Concentrations of Credit Risk

   The Bank's  business  activity is with  customers  located  primarily  within
Merced and  Stanislaus  and  Tuolomne  counties.  The Bank  specializes  in real
estate,  real estate  construction,  commercial and dairy lending.  Although the
Bank has a diversified loan portfolio,  a significant  portion of its customers'
ability to repay loans is dependent upon economic factors affecting  residential
real estate,  construction,  dairy,  agribusiness  and consumer goods retailing.
Generally,  loans are secured by various  forms of  collateral.  The Bank's loan
policy requires sufficient collateral be secured as necessary to meet the Bank's
relative  risk  criteria  for each  borrower.  The  Bank's  collateral  consists
primarily  of  real  estate,  dairy  cattle,  accounts  receivable,   inventory,
equipment and marketable securities. A small portion of the Bank's loans are not
supported by specific collateral but rather by the general financial strength of
the borrower.

   The Thrift's  business  activity is with customers  located  primarily within
Stanislaus,  Fresno  and  Tulare  counties.  The  Thrift  specializes  in direct
consumer  loans  and  the  purchase  of  financing  contracts  principally  from
automobile  dealerships and furniture  stores.  Generally,  loans are secured by
various  forms of  collateral.  The Thrift's  collateral  consists  primarily of
automobiles  and flooring  inventory.  A small portion of the Thrift's loans are
not  supported  by  specific  collateral  but  rather by the  general  financial
strength of the  borrower.  In addition the  contracts  are  purchased  from the
dealers with recourse to the dealer and dealer reserves are established for each
borrower. 

   Although  the  slowdown  in the real  estate  market has been a factor in the
local  economy  for the last  several  years and has  played a role in  reducing
economic growth in California,  it is  management's  opinion that the underlying
strength and diversity of the Central  Valley's economy should mitigate a severe
deterioration  in the  borrowers'  ability  to repay  their  obligations  to the
Company.

NOTE 11.  Employee  Benefit  Plans 

   The Company has a noncontributory  employee stock ownership plan ("ESOP") and
an employee  savings plan covering  substantially  all  employees.  During 1996,
1995, and 1994, the Company contributed  approximately  $114,000,  $100,000, and
$101,000,   respectively,  to  the  ESOP  and  $38,000,  $27,000,  and  $30,000,
respectively,  to the employee  savings plan. 

   Under   provisions   of  the  ESOP,   the  Company  can  make   discretionary
contributions to be allocated based on eligible individual annual  compensation,
as approved by the Board of Directors.  Contributions to the ESOP are recognized
as compensation  expense.  For the years December 31, 1996,  1995, and 1994, the
ESOP owned 106,247,  95,263,  and 86,899 shares,  respectively.  ESOP shares are
included in the weighted  average number of shares  outstanding for earnings per
share computations.

   The employee savings plan allowed participating employees to contribute up to
$9,500  in  1996.  The  Company  will  match  25%  of  the  employees'  elective
contribution, as defined, not to exceed 6% of eligible annual compensation.


NOTE 12.  Stock  Option Plan 

During  1992,  shareholders  approved the adoption of an
incentive stock option plan for bank management and a nonstatutory  stock option
plan for directors.  The maximum  number of shares  issuable under the plans was
126,000.  Options  are  available  for grant  under  the  plans at  prices  that
approximate  fair market value at the date of grant.  Options granted under both
plans become  exercisable  25% at the time of grant and 25% each year thereafter
and expire 10 years from the date of grant.  In 1995,  shareholders  approved an
amendment to the stock  option plans  increasing  the number of  authorized  but
unissued shares available for future grant of the Company's common stock. 
<TABLE>
<CAPTION>

                       Shares Available For Grant      Options Outstanding      Exercise Price per Share 
----------------------------------------------------------------------------------------------------------
<S>                    <C>                             <C>                      <C> 
Balance, December 31, 1994               21,122               130,708                 $ 8.10-$14.13
Additional  shares added to plan        148,170                                      
Options  granted                        (29,000)               29,000                 $12.25-$13.50
Options  exercised                         --                  (1,500)                       $ 9.90
Stock dividend  declared                 24,494                20,506                        --
----------------------------------------------------------------------------------------------------------
Balance,  December 31, 1995             163,886               179,614                 $ 8.10-$13.86
Options granted                         (29,500)               29,500                 $12.63-$14.00
Options exercised                          --                 (20,739)                $ 9.90-$12.25
Stock dividend declared                   6,844                 9,294                       --   
----------------------------------------------------------------------------------------------------------
Balance,  December 31, 1996             141,230               197,669                 $ 8.10-$14.00
==========================================================================================================
</TABLE>

   At December 31, 1996,  options for 156,310 shares were  exercisable at prices
varying from $8.10 to $14.00 per share.  The  exercise  price per share has been
adjusted for stock dividends in periods in which the exercise price exceeded the
then current fair market value.

   The per share  weighted-average  fair value of stock options  granted  during
1996 and 1995 was $8.59 and $5.24 on the date of grant  using the Black  Scholes
option-pricing model with the following weighted-average assumptions:  1995-1996
- an expected dividend yield of 0%; a risk-free interest rate of 5.48% and 6.31%
respectively;  and an expected life of 7 years. 



   The  Company  applies  APB  Opinion  No. 25 in  accounting  for its plan and,
accordingly,  no compensation  cost has been recognized for its stock options in
the accompanying  consolidated financial statements.  Had the Company determined
compensation  cost  based on the  fair  value at the  grant  date for its  stock
options  under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                           1996           1995                           1996           1995 
----------------------------------------------------------------       ------------------------------------------
<S>                                      <C>            <C>            <C>            <C>            <C> 
Net income           As reported         $2,009,000     $335,000       Pro forma      $1,857,000     $250,000 
Net income per share As reported              $1.27         $.24       Pro forma           $1.17        $ .19
================================================================       ==========================================
</TABLE>

   Pro  forma  net  income  reflects  only  options  granted  in 1996 and  1995.
Therefore,  the full impact of calculating  compensation  cost for stock options
under  SFAS  No.  123 is not  reflected  in the pro  forma  net  income  amounts
presented above because compensation cost is reflected over the options' vesting
period of ten years and  compensation  cost for options granted prior to January
1, 1995 is not considered.  

NOTE 13: Supplementary Cash Flow Information 

For the years ended December 31, 1996,  1995 and 1994, the Company paid interest
of  $6,244,000,  $5,678,000,  and  $3,906,000  and income  taxes of  $1,126,000,
$1,471,000,  and  $1,242,000,  respectively.  

NOTE 14: Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial  instruments:  

Financial  Assets:  

Cash and cash equivalents: For these assets, the carrying amount is a reasonable
estimate for fair value. 

                                       17


<PAGE>



                            CAPITAL CORP of the WEST

Investments:  Fair values for investment securities  available-for-sale  are the
amounts  reported on the consolidated  balance sheets and investment  securities
held-to-maturity  are based on quoted market prices where  available.  If quoted
market  prices were not  available,  fair  values were based upon quoted  market
prices  of  comparable  instruments.  

Net loans: The fair value of loans is estimated by utilizing  discounted  future
cash flow  calculations  using the interest  rates  currently  being offered for
similar  loans to borrowers  with similar  credit risks and for the remaining or
estimated maturities considering  pre-payments.  The carrying value of loans are
net of the allowance for possible loan losses and unearned loan fees.

Loans held for sale: The fair value of loans held for sale is the carrying value
as the loans are under commitments to be sold at carrying value.

Financial Liabilities:

Deposits:  The fair values  disclosed  for deposits  generally  paid upon demand
(i.e., noninterest-bearing and interest-bearing demand, savings and money market
accounts) are considered equal to their respective  carrying amounts as reported
on the consolidated balance sheets. The fair value of fixed rate certificates of
deposit is estimated using the rates  currently  offered for deposits of similar
remaining maturities.

Borrowings:  For these  instruments,  the fair value is  estimated  using  rates
currently  available  for  similar  loans with  similar  credit risk and for the
remaining  maturities.  

Commitments  to extend credit and 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  counter  parties.  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 letters of credit is
based on fees currently charged for similar  agreements or on the estimated cost
to terminate them or otherwise settle the obligation with the counter parties at
the reporting date.

Fair values for financial  instruments are management's  estimates of the values
at which the  instruments  could be exchanged in a transaction  between  willing
parties.  These estimates are subjective and may vary significantly from amounts
that would be realized in actual  transactions.  In addition,  other significant
assets are not  considered  financial  assets  including,  any mortgage  banking
operations,  deferred tax assets, and premises and equipment.  Further,  the tax
ramifications  related to the realization of the unrealized gains and losses can
have a  significant  effect  on the  fair  value  estimates  and  have  not been
considered in any of these estimates.

1996                                             Carrying Amount     Fair Value
--------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents                        $ 16,717,000       $ 16,717,000
Investment securities:
Available-for-sale                                 43,378,000         43,378,000
Net  loans                                        180,455,000        180,259,000
Mortgage loans held for sale                          880,000            880,000
--------------------------------------------------------------------------------
Financial  Liabilities:
Deposits:
Noninterest-bearing demand                         39,157,000         39,157,000
Interest-bearing demand                            34,303,000         34,303,000
Savings and money market                          111,285,000        111,285,000
Time deposits                                      53,600,000         53,753,000
Borrowings                                       $  3,896,000       $  3,575,000
--------------------------------------------------------------------------------
                                                         Contract  Amount
                                                  ------------------------------
Off-balance  sheet:
Commitments                                      $ 46,159,000       $  4,615,900
Standby letters of credit                           3,231,000             32,300
================================================================================

1995                                              Carrying Amount  Fair Value
--------------------------------------------------------------------------------
Financial assets:
Cash  and  cash  equivalents                     $ 18,967,000       $ 18,967,000
Investment securities:
Available-for-sale                                 45,302,000         45,302,000
Net  loans                                        132,035,000        131,708,000
Mortgage loans held for sale                          501,000            501,000
--------------------------------------------------------------------------------
Financial  Liabilities:
Deposits:
Noninterest-bearing  demand                        39,726,000         39,726,000
Interest-bearing demand                            29,019,000         29,019,000
Savings and money market                           95,537,000         95,537,000
Time deposits                                      28,319,000         28,559,000
Borrowings                                       $    106,000       $    106,000
--------------------------------------------------------------------------------
                                                         Contract  Amount
                                                  ------------------------------
Off-balance  sheet:
Commitments                                      $ 28,321,000       $  2,832,100
Standby  letters of credit                          2,465,000             24,600
================================================================================

NOTE 15: Derivative Financial Instruments 

As of December 31, 1996 and 1995 the Company had no off-balance sheet derivative
financial  instruments.   The  Company  held  one  step-up  bond,  considered  a
structured  note,  with a fair market  value of $497,000 as of December 31, 1995
which  matured  during 1996.  The Company held no derivative  instruments  as of
December 31, 1996. 

NOTE 16:  Parent  Company Only  Financial  Information  

This  information  should be read in  conjunction  with the  other  notes to the
consolidated  financial  statements.  The parent company was formed  November 1,
1995.  During  the year  ended  December  31,  1996,  the Bank paid the  Company
$100,000 in cash  dividends  and the Thrift  paid the  Company  $825,000 in cash
dividends.  The  following is the  condensed  balance sheet of the Company as of
December 31, 1996 and the  condensed  statement of income and cash flows for the
year ended December 31, 1996:

--------------------------------------------------------------------------------
Condensed Balance Sheets (In thousands)                     1996        1995
Cash  deposited in subsidiary  bank                       $    159     $     51
Investment  in  subsidiary, County Bank                     16,574       14,968
Investment in  subsidiary,  Town & Country                   5,061         --
Investment  in  subsidiary,  Capital West Group                 81         --   
Other assets                                                    98          107
--------------------------------------------------------------------------------
Total Assets                                              $ 21,973     $ 15,126
================================================================================
Accrued  expenses  and  other  liabilities                $    999     $     33
Stockholders'  equity                                       20,974       15,093
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity                $ 21,973     $ 15,126
================================================================================

--------------------------------------------------------------------------------
Condensed  Statements of Income (In  thousands)             1996         1995
Equity in  undistributed  income of subsidiary            $  2,094     $    335
Expenses                                                        85         --   
Net income                                                $  2,009     $    335
================================================================================
Condensed Statements of Cash Flows (In thousands)           1996         1995
Net cash used by operating activities                     $   (712)    $    (74)
Net cash (used)/provided by investing  activities             (233)         125
Net cash provided by financing  activities                   1,053         --
Net increase in cash                                           108           51
Cash at the beginning of the year                               51         --
Cash at the end of the year                               $    159     $     51
================================================================================

NOTE 17: Prospective Accounting Pronouncements 

In June 1996,  the  Financial  Accounting  Standards  Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments
of  Liabilities.  SFAS No. 125 is  effective  for  transfers  and  servicing  of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively.  This Statement provides accounting and
reporting  standards  for  transfers  and  servicing  of  financial  assets  and
extinguishments  of liabilities  based on consistent  application of a financial
components  approach  that  focuses on control.  It  distinguishes  transfers of
financial  assets that are sales from  transfers  that are  secured  borrowings.
Management  of the Company  does not expect  that  adoption of SFAS No. 125 will
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations, or liquidity.

                                       18


<PAGE>



                            CAPITAL CORP of the WEST

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

The  following   discussion  and  analysis  is  designed  to  provide  a  better
understanding  of the significant  changes and trends related to the Company and
its subsidiaries' financial condition,  operating results, liquidity and capital
resources.  The  following  discussion  should be read in  conjunction  with the
Consolidated  Financial  Statements  of the Company and the Notes  thereto.  The
consolidated  financial  statements of Capital Corp of the West (the  "Company")
include its subsidiaries,  County Bank (the "Bank"),  Town & Country Finance and
Thrift (the  "Thrift")  and  Capital  West Group.  It also  includes  the Bank's
subsidiary,  Merced Area Investment Development,  Inc. ("MAID").  

Overview Total net income for 1996 was  $2,009,000  compared to $335,000 in 1995
and  $1,736,000 in 1994.  Earnings per share were $1.27 in 1996 compared to $.24
in 1995 and $1.24 in 1994.  The  return on  average  assets  was .90% in 1996 as
compared with .18% in 1995 and 1.05% in 1994. The Company's  return on beginning
equity for the same periods was 13.3%, 2.4% and 13.7%, respectively. Included in
1995  earnings is a complete  write-off of the Bank's  investment in real estate
held by its real estate  subsidiary.  This real estate write-off in 1995 totaled
$2,881,000  and resulted in a $1,757,000  reduction in 1995 after tax  earnings.

   Total assets at December 31, 1996 reached $266 million, up $57 million or 27%
from  December 31, 1995.  Net loans grew to $180 million at year end 1996, a 37%
increase and deposits grew to $238 million, a 16% increase. Total equity capital
grew to $21 million, a 39% increase over year end 1995. Growth is in part due to
the  acquisition of the Thrift as of June 28, 1996. As of December 31, 1996, the
Thrift  had $28  million  in assets,  $20  million  in loans and $23  million in
deposits.

Liquidity To maintain adequate liquidity  requires that sufficient  resources be
available at all times to meet cash flow  requirements of the Company.  The need
for liquidity in a banking institution arises principally to provide for deposit
withdrawals,  the  credit  needs  of its  customers  and to  take  advantage  of
investment  opportunities as they arise. A company may achieve desired liquidity
from both assets and liabilities.  The Company  considers cash and deposits held
in other banks, federal funds sold, other short term investments, maturing loans
and investments, payments of principal and interest on loans and investments and
potential loan sales as sources of asset liquidity. Deposit growth and access to
credit lines  established with  correspondent  banks and market sources of funds
are considered by the Company as sources of liability liquidity.

   The Company reviews its liquidity  position on a regular basis based upon its
current position and expected trends of loans and deposits.  Management believes
that the  Company  maintains  adequate  amounts  of  liquid  assets  to meet its
liquidity  needs.  These  assets  include  cash and  deposits  in  other  banks,
available-for-sale  securities  and federal  funds sold.  The  Company's  liquid
assets  totaled  $63,196,000  and  $64,269,000  at  December  31, 1996 and 1995,
respectively,  and are 23.8% and 30.7%,  respectively,  of total assets on those
dates.  The decrease in liquid assets in 1996 is primarily due to loan growth in
excess of deposit  growth during the 1996 year.  In analyzing  liquidity for the
Company,  consideration  is also  taken  for the  pledging  requirements  of the
Company's investment  securities.  Total pledged securities were  $16,678,000 at
December 31, 1996 and  $18,157,00 at December 31, 1995,  respectively. 

   Although the Company's primary sources of liquidity include liquid assets and
a stable  deposit  base,  the Company  maintains  lines of credit  with  certain
correspondent banks and the Federal Reserve Bank aggregating $7,623,000 of which
$105,000 was  outstanding  as of December 31, 1996.  This compares with lines of
credit of $5,270,000 of which $106,000 was  outstanding as of December 31, 1995.

Capital  Resources  Capital  serves  as a source  of  funds  and  helps  protect
depositors  against  potential  losses.  The  primary  source of capital for the
Company has been internally  generated  capital through retained  earnings.  The
Company's  shareholders'  equity  had a net  increase  of  $5,881,000  in  1996,
$1,011,000 in 1995,  and $1,449,000 in 1994. The increase in 1996 was the result
of net income for the year of  $2,009,000,  $208,000 in stock options  exercised
and  $162,000 due to the  issuance of shares  pursuant to the  employee  benefit
plans.  This is partially  offset by a total of $86,000 in cash  dividends  paid
lieu of  fractional  shares on stock  dividends  and the 5 cents per share  cash
dividend   and  a  net   reduction   in  the  net   unrealized   value   in  the
available-for-sale  investment  portfolio of $381,000.  Finally, the purchase of
the Thrift added  $3,969,000  to capital for the Company.  The 1995 increase was
the result of net income of $335,000,  $15,000 on the exercise of stock  options
and  $667,000  increase  in  the  unrealized  gain  in  the   available-for-sale
investment portfolio. This is in part offset by $6,000 in cash dividends paid in
lieu of fractional shares on stock dividends.

   The   Company  is  subject  to  various   regulatory   capital   requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements  can  initiate  mandatory  and  possibly  additional  discretionary
actions by the regulators  that, if undertaken,  could have a material effect on
the Company's  financial  statements.  Management  believes,  as of December 31,
1996, that the Company, the Bank and the Thrift meet all capital requirements to
which they are subject.  The  Company's  leverage  capital ratio at December 31,
1996 was 8.2% as  compared  with 7.4% as of December  31,  1995.  The  Company's
risk-based capital ratio at December 31, 1996 was 11.2% of which 9.6% was common
shareholders' equity as compared to 10.3% (9.2% was common shareholders' equity)
as  of  December  31,  1995.   Management   believes  that,  under  the  current
regulations,  the Company will continue to meet its minimum capital requirements
in the foreseeable future.

Results of Operations Net income in 1996 was $2,009,000  compared to $335,000 in
the prior year and  $1,736,000  in 1994.  This  represents  a 500%  increase  in
earnings  compared to 1995,  following a 81%  decrease in 1995  compared to 1994
results.  Earnings  per share in 1996 were  $1.27  compared  to $.24 in 1995 and
$1.24  in  1994.  Included  in 1995  earnings  is a  complete  write-off  of the
Company's  investment  in real estate held by its real estate  subsidiary.  This
real estate  write-off in 1995 totaled  $2,881,000 and result-ed in a $1,757,000
reduction in 1995 earnings. 

   The increase in earnings in 1996 as compared to 1995 is primarily  due to the
complete  write-off of the real estate subsidiary in 1995.  Excluding that item,
earnings were down  approximately  $83,000.  The areas where the Company  showed
earnings  improvement  include a net interest  income  increase of $2,330,000 or
23%, and  increases  in  noninterest  income,  exclusive of the 1995 real estate
writeoff,  of  $1,278,000  or 77%.  This is more  than  offset by  increases  in
provisions for loan losses of $1,285,000 or 564% and in noninterest  expenses of
$2,591,000 or 32%.

   The  decrease  in  earnings  in 1995  resulted  primarily  from the  complete
write-off of the Bank's remaining investment in its real estate held by its real
estate subsidiary totaling $2,881,000. This compares with provisions for loss on
real estate held for sale or  development  of  $798,000  in 1994.  Net  interest
income increased  $1,199,000 or 13%.  Noninterest income,  exclusive of the real
estate provisions increased by $324,000. These increases are partially offset by
increased loan loss provisions of $228,000 and increased noninterest expenses of
$1,223,000 or 18%.

                                       19


<PAGE>
                            CAPITAL CORP of the WEST

   When  evaluating  the  earnings  performance  of banking  organizations,  two
measures of profitability  commonly used are return on average assets and return
on  beginning  equity.  Return on average  assets  measures a bank's  ability to
profitably employ its resources. Return on average assets in 1996 was .90%. This
compares  with .18% in 1995 and 1.05% in 1994.  Return on beginning  equity is a
measure of a bank's  ability to generate  income on the capital  invested in the
company by its  shareholders.  Return on  beginning  equity was 13.3% in 1996 as
compared  to 2.4% in 1995 and 13.7% in 1994.  The  decrease in return on average
assets and beginning equity in 1996, exclusive of the real estate write-off, was
generally  attributed  to a moderate  increase  in the net  interest  income and
increases  in  noninterest  income  which was more than offset by  increases  in
noninterest expenses and loan loss provisions.

Net Interest  Income The Company's  primary  source of income is the  difference
between  interest  income and fees derived from earning assets and interest paid
on liabilities  obtained to fund those assets. The difference between the two is
referred to as net interest income.

   Total interest and fee income on earning assets increased from $15,873,000 to
$19,351,000,  a  $3,478,000  or 22%  increase  in 1996.  This  compares  with an
increase from $12,807,000 to $15,873,000,  a $3,066,000 or 24% increase in 1995.
The level of interest  income is affected by changes in the volume  (growth) and
the rates earned on interest  earning  assets.  Interest-earning  assets consist
pri-marily  of loans,  investment  securities  and federal  funds sold.  Average
interest-earning  assets in 1996 were $203,046,000 as compared with $166,826,000
in 1995, a $36,220,000 or 22% increase.  Of the 1996 increase in interest income
of  $3,478,000,  $3,451,000 was the result of growth in these assets and $27,000
was a result of increases  in yields on these  assets.  Of the 1995  increase in
interest  income of  $3,066,000,  $1,663,000  was the  result of growth in these
assets and $1,403,000 was as a result of increases in yields on these assets.

   Interest  expense is a function of the volume  (growth) of and rates paid for
interest-bearing liabilities.  Interest-bearing liabilities consist primarily of
certain deposits and borrowed funds. Total average interest-bearing  liabilities
in 1996 were  $176,333,000 as compared with  $143,131,000 in 1995, a $33,202,000
or 23%  increase.  Total  interest  expense  increased  $1,148,000  or  20%  and
increased $1,867,000 or 48% in 1995. Of the 1996 increase in interest expense of
$1,148,000,  $1,289,000  was the result of growth in these  liabilities  and was
partially   offset  by  $141,000  as  a  result  of  decreased  costs  of  these
liabilities.  Of the 1995  increase of  $1,867,000,  $568,000  was the result of
growth in these  liabilities and $1,299,000 was the result of increases in costs
of these liabilities.

   The Bank's net interest margin, the ratio of net interest income expressed as
a percent of  average  interest-earning  assets  for 1996 was 6.16%.  This is an
increase of .07%  compared to the 1995 margin of 6.09% and .06%  compared to the
1994  margin of 6.03%.  This  provides a  measurement  of the Bank's  ability to
purchase  and employ funds  profitably  during the period  being  measured.  The
mod-est improvement in net interest margin is due to increases in loan volume as
a percentage of earning assets,  which was partially  off-set by the increase in
nonearning loans.

Asset and Liability  Management  Asset and  liability  management is an integral
part of managing a banking  institution's primary source of income, net interest
income.  The  Company  manages  the balance  between  rate-sensitive  assets and
rate-sensitive liabilities being repriced in any given period with the objective
of stabilizing net interest income during periods of fluctuating interest rates.
The Company considers its rate-sensitive assets to be those which either contain
a provision to adjust the interest rate  periodically or mature within one year.
These assets include  certain loans and investment  securities and federal funds
sold.  Rate-sensitive  liabilities  are those which allow for periodic  interest
rate  changes  and  include  maturing  time  certificates,  certain  savings and
interest-bearing demand deposits. The difference between the aggregate amount of
assets and  liabilities  that are repricing at various time frames is called the
"gap."  Generally,  if repricing assets exceed  repricing  liabilities in a time
period  the  Company  would be  deemed  to be  "asset-sensitive."  If  repricing
liabilities exceed repricing assets in a time period the Company would be deemed
to be "  liability-sensitive."  Generally,  the  Company  seeks  to  maintain  a
balanced   position  whereby  there  is  no  significant   "asset  or  liability
sensitivity"  to ensure  net  interest  margin  stability  in times of  volatile
interest rates. This is accomplished  through maintaining a significant level of
loans,  investment  securities and deposits  available for repricing  within one
year.

   As of December 31, 1996 the Company was moderately "liability-sensitive" with
a cumulative  negative one-year gap of $42,922,000 or 16% of total assets.  This
compares  with  the  Company  being  moderately   "liability-sensitive"  with  a
cumulative  negative  one-year  gap of  $14,718,000  or 7% of  total  assets  at
December 31, 1995. In general,  based upon the Company's mix of deposits,  loans
and  investments,  declines  in interest  rates would be expected to  moderately
increase the Company's net interest margin. Increases in interest rates would be
expected to have the opposite  effect.  The increase in the cumulative  negative
one  year  gap  is  due  primarily  to  the  purchase  of  the  Thrift  and  its
"liability-sensitive"  profile  as of  December  31,  1996.

   The change in net interest income may not, however, always follow the general
expectations  of an  "asset-sensitive"  or  "liability-sensitive"  balance sheet
during periods of changing interest rates. This results from interest rates paid
changing by differing  increments  and at different time intervals for each type
of  interest-sensitive  asset and liability.

   An additional  measure of interest rate sensitivity that the Company monitors
is its expected  change in earnings.  This  model's  esti-mate of interest  rate
sensitivity  takes into account the differing  time intervals and differing rate
change  increments of each type of  interest-sensitive  asset and liability.  It
then measures the projected  impact of changes in market  interest  rates on the
Company's   return  on  equity.   Based  upon  the  December  31,  1996  mix  of
interest-sensitive  assets and  liabilities,  given an immediate  and  sustained
increase in the federal  funds rate of 1%, this model  estimates  the  Company's
cumulative  return on equity over the next year would  decrease by less than 1%.
This compares with a cumulative  one year expected  decrease in return on equity
of less than 1% as of December 31, 1995.  As both of these  measures of interest
rate risk indicate,  the Company is not subject to significant risk of change in
its net interest margin as a result of changes in interest rates. 

Allowance and  Provision for Loan Losses The Company  maintains an allowance for
loan  losses at a level  considered  by  Management  to be adequate to cover the
inherent risks of loss associated  with its loan portfolio under  prevailing and
anticipated  economic  conditions.  In determining the adequacy of the allowance
for loan losses,  Management  takes into  consideration  the growth trend in the
portfolio,   examinations  of  financial  institution  supervisory  authorities,
internal  and  external  credit  reviews,  prior  loan loss  experience  for the
Company,  concentrations of credit risk,  delinquency  trends,  general economic
conditions  and the  interest  rate  environment.  The  allowance  is  based  on
estimates  and ultimate  future  losses may vary from current  estimates.  It is
always possible that future  economic or other factors may adversely  affect the
Company's  borrowers,  and  thereby  cause  loan  losses to exceed  the  current
allowance. 

                                       20


<PAGE>



                            CAPITAL CORP of the WEST

   The  balance in the  allowance  is  affected  by the  amounts  provided  from
operations,  amounts charged off and recoveries of loans previously charged off.
The Company had provisions to the allowance in 1996 of $1,513,000 as compared to
228,000 in 1995 and none in 1994. 

   The  Company's  charge-offs,  net of  recoveries,  were  $570,000  in 1996 as
compared with $148,000 in 1995 and $126,000 in 1994.  This  represents loan loss
experience  ratios of .32%, .12% and .12% in those  respective years stated as a
percentage  of average net loans  outstanding  for each year. As of December 31,
1996 the  allowance  for  loan  losses  was  $2,792,000  or 1.5% of total  loans
outstanding.  This  compares  with an allowance for loan losses of $1,701,000 or
1.3% in 1995 and $1,621,000 or 1.5% in 1994. The increase in loan loss provision
in  1996  was  primarily  due to  increased  reserves  established  for a  large
commercial real estate loan that was deemed  impaired,  reserves  required for a
portfolio of lease receivables purchased in 1994 and to support the general loan
growth of the Company.  The increase in net chargeoffs in 1996 was primarily due
to the loss recognized on the foreclosure of a real estate secured  agricultural
loan  currently  held as other  real  estate  owned. 

Asset Quality  Management  recognizes  the  importance of asset quality as a key
ingredient to the successful financial  performance of a financial  institution.
The level of nonperforming  loans and real estate acquired  through  foreclosure
are two indicators of asset quality.  Nonperforming loans are those in which the
borrower  fails to perform under the original  terms of the  obligation  and are
cat-egorized as loans past due 90 days or more,  loans on nonaccrual  status and
restructured  loans. Loans are generally placed on nonaccrual status and accrued
but unpaid  interest is reversed  against  current year income when  interest or
principal payments become 90 days past due unless the outstanding  principal and
interest is adequately  secured and, in the opinion of Management,  is deemed to
be in the process of collection. Additional loans which are not 90 days past due
may also be placed on nonaccrual  status if Management  reasonably  believes the
borrower will not be able to comply with the  contractual  loan repayment  terms
and the collection of principal or interest is in question.

   Management  defines  impaired  loans as those loans,  regardless  of past due
status,  in which  principal and interest is not expected to be collected  under
the original  contractual  loan repayment terms. An impaired loan is charged off
at the time management believes the collection of principal and interest process
has been exhausted.  At December 31, 1996 and 1995, impaired loans were measured
based  upon the  present  value of future  cash flows  discounted  at the loan's
effective  rate,  the  loan's  observable  market  price,  or the fair  value of
collateral if the loan is collateral  dependent. 

   The Company had  nonperforming  loans at December 31, 1996 of  $5,568,000  as
compared  with  $4,850,000  at year  end  1995 and  $699,000  at year end  1994.
Included  in the 1996  totals,  $3,626,000  are loans  secured by first deeds of
trust on real property as compared with $3,286,000 in 1995 and $422,000 in 1994.
Impaired  loans as of  December  31,  1996 were  $7,020,000  which had  specific
allowances  for possible loss of  $1,827,000  as compared with  $4,326,000 as of
December 31, 1995 which had specific  allowances  for possible loss of $605,000.
Other forms of collateral, such as inventory,  chattel and equipment, secure the
remaining nonperforming loans as of each date. Included in the nonperforming and
impaired loans in 1996 and 1995 was a $3.4 million  commercial  real estate loan
that has been restructured but is still shown as a nonperforming  loan. The loan
is expected to remain on nonaccrual status until substantial  performance on the
loan occurs. The restructured loan matures in 1998.

   In addition, the Bank purchased a portfolio of lease receivables in 1994. The
company which packages and sells these leases to financial  institutions filed a
Chapter 11 reorganization in April 1996 and its chief financial officer has been
charged by the Securities  Exchange  Commission with participating in securities
fraud.  More than 360 banks  nationwide  had acquired  similar lease  receivable
contracts.  The Bank has  $1,281,000 of these leases on nonaccrual  status as of
December 31, 1996. The Bank has retained  counsel jointly with other  California
banks and is  monitoring  its position to ascertain  the extent of loss the Bank
may incur.  As of December  31,  1996  specific  reserves of $385,000  have been
established  for this  portfolio.  As of February  12,  1997,  the Bank signed a
settlement agreement in regards to this portfolio of leases that established the
projected  recovery rate at 78.5% or approximately  $1,006,000. 

   At December 31, 1996 the Bank had  $1,466,000  in two real estate  properties
acquired through  foreclosure  compared with $47,000 as of December 31, 1995 and
at year end 1994 the Company had no real estate  acquired  through  foreclosure.

   Total  nonperforming  assets represented 30% of the allowance for loan losses
and   shareholders'   equity  as  of  December  31,  1996.  This  compares  with
nonperforming  assets of 29% and 5% of the  allowance  for loan losses and total
equity as of December 31, 1995 and December  31, 1994,  respectively. 

   Net loans grew to  $180,455,000  at December 31, 1996, a  $48,420,000  or 37%
increase from the end of the prior year. The Company's  loan portfolio  consists
primarily  of  commercial,  agricultural,  real  estate  mortgage,  real  estate
construction  and consumer  installment  loans.  Loan growth was  principally in
agricultural, real estate mortgage, real estate construction and consumer loans.
In addition,  the Company purchased the Thrift and its approximately $20 million
consumer  finance  operation as of June 1996. As of December 31, 1996,  the loan
portfolio  mix was  comprised as follows:  commercial  loans (15%),  agriculture
loans (24%),  real estate  construction  loans (8%),  real estate mortgage loans
(31%) and  consumer  loans (22%).  The largest  segment  within the  agriculture
portfolio  is the  Company's  dairy  loans.  Dairy  loans  comprised  15% of the
Company's  loan  portfolio as of December 31, 1996.  

   The above  referenced loan portfolio mix has not materially  changed from the
prior year. There have been moderate increases in consumer loans as a percentage
of the portfolio due primarily to the purchase of the Thrift.

   As a result of the Company's  loan portfolio mix, the future quality of these
assets could be affected by adverse  trends in these local or regional  economic
sectors.  There have been  significant  floods  throughout  parts of  California
occurring in January 1997. The Company has done an analysis of its collateral as
a result of the recent  floods.  Current  estimates  indicate that there were no
mate-rial  adverse  effects to the collateral  position of the Company as of the
date of this report.

   Additionally,  the  Company has  investments  in  residential  real estate in
Merced County through its wholly owned  subsidiary,  Merced Area  Investment and
Development,  Inc.  (MAID).  MAID held two separate  properties held for sale or
development at December 31, 1996. These investments were completely  written-off
in 1995,  although  the Bank  still  retains  title  to these  properties.  This
compares  with a carrying  value of  $3,853,000  at  December  31,  1994.  These
properties  consist of residential lots in varying stages of development. 

Other Income or Loss Total noninterest income in 1996 increased by $4,159,000 or
340%.  Total  noninterest  income in 1995  includes a complete  write-off of its
remaining  real estate held by the Bank's real estate  subsidiary of $2,881,000.
In 1996,  service charges  increased  $354,000 or 38%, other income increased by
$504,000  or 78% and gains on the sale of real estate  increased  by $420,000 or
474%.  Increases in service charge income are due to Company's growth as well as
increased service charges implemented in 1996. 

                                       21


<PAGE>



                            CAPITAL CORP of the WEST

Other  income  has  increased  primarily  due to  increased  revenues  on retail
investment products,  loan servicing income, gains on the sale of Small Business
Administration  loans  and  gains on the sale of  securities. 

   In 1995, service charge income showed increases of $20,000 or 2%, income from
the sale of real estate held for sale or  development  show increases of $74,000
and other income shows an increase of $237,000 or 57%. Other income increases in
1995 are due to the addition of  commission  fees earned on  investment  product
sales and  increases  in loan  servicing  fee  income.

   The Company recognized  $508,000 in gains on the sale of real estate held for
sale in 1996.  This was the  result  of the  sale of 40  improved  lots and four
single family homes in two real estate  projects.  This compares with $88,000 in
gains on the sale of real estate held for sale or development  in 1995.  This is
the result of sales of 8 single  family homes and 56 improved lots in three real
estate  projects.  This  compares with gains of $14,000 in 1994 on the sale of 9
single  family  homes and 2 improved  lots in three real  estate  projects.

   The  Company  records  its  investment  in  real  estate  held  for  sale  or
development at the lower of cost or net realizable value,  based on management's
best estimate of the local real estate market,  along with appraised  values and
prospects for sales in the future.  In 1995, the Bank decided to take a complete
write-off  of its  remaining  investment  of its real estate held by MAID.  This
resulted  in  provisions  for  loss of  $2,881,000  in 1995.  The Bank  provided
$798,000 for future  losses on the sales of certain of its real estate  projects
in 1994.

Other Expense Total noninterest  expense increased  $2,590,000 or 32% in 1996 as
compared with an increase of $1,223,000 or 18% in 1995 as compared to 1994.

   Salaries  and related  benefits  increased  by  $1,122,000  or 27% in 1996 as
compared  with an increase of  $621,000 or 17% in 1995.  The salary  increase in
1996 was primarily due to two factors. First, the purchase of Town & Country and
the  establishment  of Capital West Group added $473,000 to total  salaries.  In
addition,  the Bank  underwent a  reengineering  project in 1996,  whereby  Bank
operations were  streamlined and voluntary  separation  packages were offered to
all  employees.  A  total  of 23  employees  accepted  the  package,  and  total
separation  expenses were  $286,000.  Current  projections  are that the project
resulted  in salary  savings in  existing  branch  operations  of  approximately
$114,000  per quarter with  benefits  being  realized  starting in the third and
fourth quarters of 1996.  Other  increases  relate to overall Bank growth in new
branches in late 1995 through 1996. The salary and related benefits  increase in
1995 was primarily due to an increase in full time equivalents. This was in part
due to the opening of a new branch and two new loan production  offices in 1995.
Full time  equivalents  were 115 on average in 1995,  compared to 103 in 1994, a
11.7%  increase.  Normal  merit  increases  and related  benefit  expenses  also
contributed to the overall increase.

   Premises and occupancy expenses increased $223,000 or 36% in 1996 and $25,000
or 4% in 1995 as compared  with an  increase of $50,000 or 9% in 1994.  The 1996
and 1995  increases are primarily due to the purchase of the Thrift and its four
branch  offices  as of June  1996 and the  opening  of  branches  of the Bank in
November 1995, April 1996 and two in December 1996.

   Bank assessments by both the FDIC and the California State Banking Department
totaled $48,000,  $183,000 and $394,000 respectively in the years ended December
31, 1996,  1995 and 1994. The decreases in 1995 and 1996 are due to reduced FDIC
premiums  beginning in May of 1995. FDIC assessment  levels for the Company were
$2,000 in 1996 as compared with $.04 cents per $100 in deposits in 1995 and $.26
cents per $100 in deposits in 1994.

   The Bank's professional fees increased by $351,000 or 87% in 1996 as compared
with an  increase  of  $105,000  or 35% in 1995  over the same  period  in 1994.
Professional  fees include legal,  consulting,  audit and  accounting  fees. The
primary reason for the 1996 increase was consulting fees incurred in conjunction
with the reengineering  project undertaken by the Bank in 1996. The increases in
1995 were  primarily  due to legal fees  increases  which  related to  corporate
matters  such as the bank  holding  company  formation  and the  expanded  proxy
statement.

   Other noninterest  expenses changed as follows:  equipment expenses increased
by  $233,000 or 30% in 1996 as compared  with  $48,000 or 10% in 1995;  supplies
increased  by $58,000 or 25% in 1996 as compared  with  increases of $110,000 or
89% in 1995; marketing expenses increased by $158,000 or 75% in 1996 as compared
with increases of $38,000 or 16% in 1995; and other operating expenses increased
by $280,000 or 32% in 1996 as compared with $356,000 in 1995.  Increases  relate
primarily to overall  growth of the Company  through the purchase of the Thrift,
branch  expansion in late 1995 and 1996, and the  establishment  of Capital West
Group.

Provision  for  Income  Taxes  The  Company's  provision  for  income  taxes was
$1,163,000  in 1996,  $223,000 in 1995 and  $1,103,000  in 1994.  The  effective
income  tax rate was 36.7% in 1996 as  compared  with 39.9% in 1995 and 38.8% in
1994. In part the effective tax rate of the Company has been reduced in 1996 due
to the tax  credits  earned by the  purchase of housing tax credits in late 1995
and 1996.  Total housing tax credits for 1996 were  approximately  $67,000.  The
change in the  effective  tax rate for the three years was also  impacted by the
effective  tax benefit  derived  from  interest  income on loans and  securities
exempt from federal  taxation.  The tax benefit from such income as a percentage
of income before taxes was 2.7% in 1996, 17.7% in 1995 and 3.0% in 1994.

Impact of Inflation The primary impact of inflation on the Company is its effect
on interest rates. The Company's primary source of income is net interest income
which is affected by changes in interest  rates.  The Company  attempts to limit
inflation's   impact  on  its  net  interest   margin   through   management  of
rate-sensitive  assets  and  liabilities  and  the  analysis  of  interest  rate
sensitivity.  The effect of  inflation  on  premises  and  equipment  as well as
noninterest  expenses has not been  significant  for the periods covered in this
report. 

                                       22


<PAGE>
                            CAPITAL CORP of the WEST

MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCK MATTERS

Effective January 18, 1996, the Company's stock was listed on NASDAQ, a national
market symbol with a stock quotation symbol of CCOW.  During 1995, the Company's
common stock was not listed on any stock  exchange nor quoted on NASDAQ,  it was
traded through the electronic  bulletin board.

   The  following  table  indicates  the  range  of high and low  sales  prices,
excluding  brokers'  commissions,  for the periods shown, based upon information
provided  by the NASDAQ for 1996 and the  Company's  market  makers and known to
management for 1995.

1996                                                 High             Low
--------------------------------------------------------------------------------
4th  quarter                                    $   16.25          $   13.75
3rd  quarter                                        14.75              12.63
2nd quarter                                         15.00              13.00
1st quarter                                     $   15.00          $   12.50
================================================================================

1995                                                High               Low
--------------------------------------------------------------------------------
4th quarter                                     $   12.25          $   12.00
3rd quarter                                         13.25              12.00
2nd quarter                                         14.00              12.50
1st quarter                                     $   13.50          $   12.00
================================================================================


   As of December 31, 1996, the number of  stockholders of the Company on record
was  approximately  1,175. A California  corporation  may pay a cash dividend or
other shareholder distribution only if (i) the distribution would not exceed its
retained  earnings or (ii)  either (a) the sum of its assets  (net of  goodwill,
capitalized  research and  development  expenses and deferred  charges) would be
less than 125% of its  liabilities  (net of  deferred  taxes,  income  and other
credits),  or (b)  current  assets  would not be less than  current  liabilities
(except  that if its average  earnings  before  taxes for the last two years had
been less than average interest  expenses,  current assets must be not less than
125% of current  liabilities). 

   Under the California  Financial  Code, a state licensed bank may declare cash
dividends in an amount not to exceed the lesser of the bank's retained  earnings
or net  income  for its last  three  fiscal  years  (less any  distributions  to
shareholders  made during the such  period)  or, with the prior  approval of the
California  Superintendent  of Banks, in an amount not to exceed the greatest of
(i) retained  earnings of the bank; (ii) the net income of the bank for its last
fiscal year; or (iii) the net income of the bank for its current fiscal year. If
the Superintendent finds that the shareholders' equity in a bank is not adequate
or that the payment of a dividend would be unsafe or unsound, the Superintendent
may order  the bank not to pay a  dividend  to  shareholders. 

   Federal  law  also   restricts   the  payment  of  dividends   under  certain
circumstances.  The FDIC  Improvement Act prohibits a bank from paying dividends
if after  making  such  payment,  the bank would fail to meet any of its capital
requirements.  Also, under the Financial  Institution  Supervisory Act, the FDIC
has the authority to prohibit a bank from engaging in business  practices  which
the  FDIC  considers  unsafe  or  unsound.  It is  possible,  depending  on the
financial  condition of the bank and other  factors,  that the FDIC could assert
that the payment of dividends or other payments in some  circumstances  might be
such an  unsafe  or  unsound  practice  and  therefore  prohibit  such  payment.

   Generally,  the  Company has  retained  earnings to support the growth of the
Company and has not paid regular cash dividends. The Company declared a 5% stock
dividend and a $.05 per share cash  dividend in August of 1996 for  shareholders
of  record as of  September  15,  1996.  This  resulted  in the  issuance  of an
additional  82,384 shares in 1996 and cash dividends to shareholders of $86,000.
In addition in 1996, the Bank paid $100,000 and the Thrift paid $825,000 in cash
dividends  to the  holding  company.  The  Thrift  dividend  was due to the cash
portion  of the  purchase  price of the Thrift  and was in  accordance  with its
dividend  authority as defined by the  Department of  Corporations. 

INDEPENDENT AUDITORS'  REPORT 

   To the Board of Directors  and  Shareholders  of Capital Corp of the West: We
have audited the accompanying consolidated balance sheets of Capital Corp of the
West and  subsidiaries  (the  Company) as of December  31, 1996 and 1995 and the
related consolidated  statements of income, cash flows, and shareholders' equity
for each of the years in the three year period ended  December  31, 1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  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 Capital Corp
of the West and subsidiaries as of December 31, 1996 and 1995 and the results of
their  operations  and their  cash flows for each of the years in the three year
period ended December 31, 1996 in conformity with generally accepted  accounting
principles. 

   As discussed in Note 1 to the consolidated financial statements,  the Company
changed  its  method  of  accounting  for  impaired  loans in 1995 to adopt  the
provisions of the Financial  Accounting Standards Board's Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by Statement No. 118, Accounting by Creditors for Impairment of
a Loan  -  Income  Recognition  and  Disclosures.  

/s/ KPMG Peat Marwick LLP

Sacramento, California 
January 31, 1997 

                                       23

<PAGE>



CAPITAL CORP of the WEST
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>

                                                                                                            Years Ended December 31,
                                          ------------------------------------------------------------------------------------------
                                                      1996              1995              1994            1993               1992
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>               <C>              <C>               <C>
Summary of  operations
Total  interest  income                          $  19,351,000    $  15,873,000     $  12,807,000    $  11,483,000     $  11,370,000
Total interest expense                               6,865,000        5,717,000         3,850,000        3,061,000         3,948,000
Net interest income                                 12,486,000       10,156,000         8,957,000        8,422,000         7,422,000
Provision for loan losses                            1,513,000          228,000              --            254,000           162,000
Net interest income after provision
for loan losses                                     10,973,000        9,928,000         8,957,000        8,168,000         7,260,000
Total other income                                   2,935,000       (1,224,000)          805,000          679,000           884,000
Total other expense                                 10,736,000        8,146,000         6,923,000        6,459,000         6,302,000
Income before income taxes                           3,172,000          558,000         2,839,000        2,388,000         1,842,000
Provision for income taxes                           1,163,000          223,000         1,103,000          905,000           676,000
Cumulative effect of change
in accounting  for income taxes                           --               --                --           (300,000)             --
------------------------------------------------------------------------------------------------------------------------------------
Net income                                       $   2,009,000    $     335,000     $   1,736,000    $   1,783,000     $   1,166,000
------------------------------------------------------------------------------------------------------------------------------------
Per share
Weighted average number of
shares outstanding                                   1,578,198        1,333,923         1,333,456        1,332,414         1,332,414
Net income                                       $        1.27    $         .24     $        1.24    $        1.27     $         .84
Cash  dividends                                  $         .05             --                --               --                --
Shareholders'  equity (book value)               $       12.09    $       10.74     $       10.03    $        9.01     $        7.74
------------------------------------------------------------------------------------------------------------------------------------
Balance  sheet
Cash and  noninterest-bearing
deposit  in other  banks                         $  12,982,000    $  18,967,000     $  14,190,000    $  10,936,000     $   5,539,000
Time  deposits and federal                           6,836,000             --           2,300,000        4,700,000         5,300,000
funds sold
Investment securities                               43,378,000       45,302,000        35,826,000       22,823,000        21,980,000
Loans, net                                         180,455,000      132,035,000       111,979,000      105,377,000        95,719,000
Other  assets                                       22,338,000       12,729,000        13,826,000       11,342,000        13,450,000
------------------------------------------------------------------------------------------------------------------------------------
Total  assets                                      265,989,000      209,033,000       178,121,000      155,178,000       141,988,000
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing  deposits                       39,157,000       39,726,000        31,924,000       29,392,000        24,041,000
Interest-bearing  deposits                         199,188,000      152,875,000       131,275,000      112,338,000       106,467,000
Other  liabilities                                   6,670,000        1,339,000           840,000          815,000           627,000
Shareholders' equity                                20,974,000       15,093,000        14,082,000       12,633,000        10,853,000
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity                             $ 265,989,000    $ 209,033,000     $ 178,121,000    $ 155,178,000     $ 141,988,000
====================================================================================================================================
</TABLE>

See  accompanying  notes to  Consolidated  Financial Statements. 



                                       24