<PAGE>
                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                      FORM 10-K

     (MARK ONE)
       (X)     Annual Report Pursuant to Section 13 or 15(d) of The Securities
               Exchange Act of 1934 (Fee Required)

                     For the fiscal year ended December 31, 1995

       ( )     Transition Report Pursuant to Section 13 or 15(d) of The
               Securities Exchange Act of 1934 (No Fee Required)

               For the transition period from _________ to ___________
                             Commission File No. 0-16970

                         CALIFORNIA FINANCIAL HOLDING COMPANY
               (Exact name of registrant as specified in its charter)
                        DELAWARE                            68-0150457
              (State or other jurisdiction               (I.R.S. Employer
           of incorporation or organization)            Identification No.)

       501 WEST WEBER AVE., STOCKTON, CALIFORNIA               95203
        (Address of principal executive offices)            (Zip Code)
          Registrant's telephone number, including area code: (209) 948-1675
          Securities registered pursuant to Section 12(b) of the Act:  None
             Securities registered pursuant to Section 12(g) of the Act:

                             COMMON STOCK, $.01 PAR VALUE
                                   (Title of Class)

          Indicate by check mark whether the registrant (1) has filed all
     reports required to be filed by Section 13 or 15(d) of the Securities
     Exchange Act of 1934 during the preceding 12 months (or for such shorter
     period that the registrant was required to file such reports), and (2) has
     been subject to such filing requirements for the past 90 days.
                                                        YES [X]  NO [ ]

          Indicate by check mark if disclosure of delinquent filers pursuant to
     Item 405 of Regulation S-K (Section 229.405 of this chapter) is not
     contained, herein, and will not be contained to the best of registrant's
     knowledge, in definitive proxy or information statements incorporated by
     reference in Part III of this Form 10-K or any amendment to this Form
     10-K.                                                       [  ]

          The aggregate market value of voting stock held by nonaffiliates of
     the registrant as of March 15, 1996:  $79,688,914.  The number of shares
     of Common Stock outstanding as of March 15, 1996:  4,675,907.

                         DOCUMENTS INCORPORATED BY REFERENCE
     PART III:  Portions of the Proxy Statement for the 1996 Annual Meeting of
     Stockholders.
<PAGE>







                         CALIFORNIA FINANCIAL HOLDING COMPANY

                                      FORM 10-K

                             Year Ended December 31, 1995


                                  TABLE OF CONTENTS


     Item Number
       In Form
        10-K                                                                Page
     -----------                                                            ----

                                       PART I

     1.   Business   . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
     2.   Properties   . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
     3.   Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . .  53
     4.   Submission of Matters to a Vote of
                 Security Holders  . . . . . . . . . . . . . . . . . . . . .  53

                                       PART II

     5.   Market for Registrant's Common Equity
                 and Related Stockholder Matters   . . . . . . . . . . . . .  54
     6.   Selected Financial Data  . . . . . . . . . . . . . . . . . . . . .  55
     7.   Management's Discussion and Analysis of
                 Financial Condition and Results of
                 Operations  . . . . . . . . . . . . . . . . . . . . . . . .  56
     8.   Financial Statements and Supplementary
                 Data  . . . . . . . . . . . . . . . . . . . . . . . . . . .  78
     9.   Changes in and Disagreements with
                 Accountants on Accounting and
                 Financial Disclosure  . . . . . . . . . . . . . . . . . .   129

                                       PART III

     10.  Directors and Executive Officers of the
                 Registrant  . . . . . . . . . . . . . . . . . . . . . . .   130
     11.  Executive Compensation   . . . . . . . . . . . . . . . . . . . .   130
     12.  Security Ownership of Certain
                 Beneficial Owners and Management  . . . . . . . . . . . .   130
     13.  Certain Relationships and Related
                 Transactions  . . . . . . . . . . . . . . . . . . . . . .   130

                                       PART IV

     14.  Exhibits, Financial Statement Schedules
                 and Reports on Form 8-K   . . . . . . . . . . . . . . . .   131

                                          2
<PAGE>






                                       PART I


     ITEM 1.  BUSINESS

     GENERAL

          California Financial Holding Company ("California Financial" or the
     "Company"), a Delaware corporation incorporated on June 1, 1988, is a
     financial services holding company engaged primarily in the savings and
     loan business through its wholly-owned subsidiary, Stockton Savings Bank
     (the "Bank" or "Stockton Savings").  No business activities were conducted
     by California Financial during 1994 and very few were conducted in past
     years aside from a third-party borrowing in 1990, 1991 and 1992;
     therefore, unless indicated, discussion of business activities and
     corresponding results relates primarily to the Bank.

          The Bank's business consists predominately of attracting savings
     deposits from the general public through a network of 22 Northern
     California retail branches and originating, for its own portfolio and for
     sale to others, loans secured by mortgages on residential and other real
     estate.  The home office of California Financial and the Bank is located
     in Stockton, California.  Originally organized as a state mutual
     association, the Bank was converted to a federal mutual charter in 1982. 
     In 1983, Stockton Savings became a federally-chartered stock association
     with the issuance of 2,760,000 shares of common stock.  The Bank converted
     to a California-chartered stock association in April 1986.  In June 1986,
     an additional 977,500 shares of common stock were sold.  In 1990, the Bank
     converted to a federally-chartered savings bank.

          The Bank's income is derived primarily from interest charged on real
     estate and other types of loans.  To a lesser extent, additional income is
     obtained through interest on investment securities and fees received in
     connection with loan and deposit activities.  Although not on a consistent
     basis, income is also generated through the sale of loans and investments
     and from the sale of real estate held for development.  The major expenses
     are interest paid on deposits and borrowings and general and
     administrative expenses.  The general economic and interest rate
     environments have a material effect on the financial performance of the
     Bank.  Deposit flows and costs of funds are influenced by market rates and
     alternative investments available in the marketplace.  Lending activity
     levels are also dependent on interest rates, the demand for mortgage
     financing, and the overall health of the real estate market in the Bank's
     primary lending territory - California's Central Valley.  In addition,
     regulatory policies and procedures promulgated by the Office of Thrift
     Supervision ("OTS"), the Board of Governors of the Federal Reserve System
     ("FRB"), and the Federal Deposit Insurance Corporation ("FDIC")
     substantially impact Stockton Savings.  See "Regulation of the Company"
     and "Regulation of the Bank" for further discussion of regulatory issues.




                                          3
<PAGE>






     LENDING ACTIVITIES

          The lending activities of the Bank are conducted through four
     regional loan centers and nine branch facilities concentrated primarily in
     San Joaquin and Stanislaus counties.  With the 1988 purchase of eight
     former Citicorp branches in the Sierra foothills and the Southern Central
     Valley and the opening of a new branch in Elk Grove in Sacramento County
     in the same year, Stockton Savings substantially expanded its geographical
     lending as well as deposit market area to take advantage of projected
     commuter growth in those regions.  The Bank also increased its potential
     market for both savings and lending activities with the opening of a
     branch in Fresno in September 1994.  Expansion of lending activities to
     Sacramento occurred in 1995.

          Stockton Savings generally does not lend on more than 80% of the
     appraised value on residential real property without mortgage insurance.
     In certain special circumstances, usually due to reappraisals or loan
     workouts, the Bank may lend on real estate in excess of 80% value without
     mortgage insurance.  The total of these loans as of December 31, 1995 was
     $5.2 million.  Lending limits on commercial properties do not exceed 75%
     of appraised value.  The Bank's loan portfolio is mainly composed of
     single-family residential loans.  Construction loans on residential
     subdivisions and permanent multi-family residential loans represent most
     of the remaining portfolio.  The Bank also offers secured equity lines of
     credit.

          Title insurance is required for all mortgage loans.  Fire and
     casualty coverage is required for all improved secured properties, and
     private mortgage insurance is usually purchased to indemnify Stockton
     Savings against potential loss on the portion of any loan in excess of 80%
     of the appraised value.

          Loan Originations:  A majority of loans originated by the Bank are
     permanent residential mortgage loans with terms of 10 to 30 years.  Most
     long-term fixed-rate mortgages are sold in the secondary market with
     servicing retained, while adjustable-rate loans ("ARMs") are generally
     retained in portfolio.  The origination of permanent adjustable mortgages
     represented 30%, 37% and 25% of total origination volume in 1995, 1994 and
     1993 respectively.  The demand for adjustable mortgages declines in a
     falling rate environment as borrowers opt for the certainty of fixed
     rates.  Consequently, the volume of adjustable originations as a percent
     of the total was lower in 1993 and 1995, both lower rate environments.  If
     rates remain at their current low level, the origination of adjustable
     rate loans is expected to decline in 1996 and fixed-rate originations are
     expected to increase.

          The Bank originates a substantial volume of short-term speculative
     construction loans, normally written for a three-year period with interest
     rates fixed at a spread over Bank prime for the first year and adjusting
     to a spread over the Federal Home Loan Bank Eleventh District Cost of
     Funds Index ("COFI") for the remaining term. In 1995, 31% of all
     originations were for short-term construction loans as compared to 28% in

                                          4
<PAGE>






     1994 and 20% in 1993.  The increase in construction lending this year  is
     reflective of the Bank's impression that the worst of the real estate
     slowdown is over.  Construction loans for owner-occupied single-family
     residences also represents a considerable amount of loan origination
     volume.  A total of 11%, 10% and 11% of total originations in 1995, 1994
     and 1993, respectively, consisted of this type of lending. 

          Loan origination volume was down significantly in 1995 and 1994 from
     1993 as rising interest rates and lower real estate values reduced
     refinancing demand.  Loan origination volume in 1995 and 1994 totalled
     $283 million and $369 million, respectively, compared to $501 million in
     1993.  Heavy refinance activity beginning in 1992 due to the low-rate
     environment fueled much of the increase in 1993.  Roughly 25% or $71
     million of total originations in the current year was due to refinancing
     compared to 35% in 1994 and 54% in 1993.  Origination volume excluding
     refinance activity remained fairly flat among the three periods.

          Loan Sales:  The Bank continues to be active in the secondary market. 
     Strong underwriting criteria permits the sale of new loan originations in
     the secondary market to both government agencies and private investors.  A
     majority of loan sales by Stockton Savings has been and will continue to
     be composed of long-term, fixed-rate mortgages.  The Bank may sell
     permanent ARMs on an infrequent basis, usually to meet unanticipated cash
     requirements.  Construction and commercial loans are also sold on occasion
     to meet loans-to-one-borrower regulations.

          Typically, the Bank sells, without recourse, all or a major portion
     of a loan balance to an investor and retains servicing. In 1995, $85
     million in loans were sold, primarily to the agencies and consisted of
     long-term, fixed-rate, single-family mortgage loans.  This total compares
     to 1994 loan sales of $64 million.   Sales in 1993 totalled $179 million
     and again, were primarily to the agencies.  Loans serviced for others, an
     off-balance sheet item to the Bank, totalled $549 million and $509 million
     at December 31, 1995 and 1994, respectively.

          Because the Bank sells loans in the secondary market on a regular
     basis, a portion of the portfolio is designated as held for sale and, as
     such, must be accounted for at the lower of cost or market.  The amount of
     loans that is held for sale at any point in time depends on such factors
     as origination volume and mix, as well as cash flow, capital and growth
     requirements of the Bank.  The balance of loans held for sale as of
     December 31, 1995 was up from the prior year, reflecting the increase in
     fixed-rate originations towards the end of the year.  Loans available for
     sale at year-end consisted of single-family, fixed-rate loans saleable to
     the Federal Home Loan Mortgage Corporation ("FHLMC") and totalled $13
     million.

          Gains or losses on the sale of loans are composed of the following:

          .    cash received on loans sold in excess of or less than the
               principal balance;


                                          5
<PAGE>






          .    the present value of expected cash flows on the spread between
               the rate paid by the borrower to the Bank and the net yield to
               the investor, excluding normal servicing fees and considering
               prepayments; and

          .    net unamortized loan fees on loans sold recognized as income at
               the point of sale.

          .    gains and losses on hedging activities.

          The amount of gains in a given year is dependent upon the volume of
     sales and the interest rate environment.  The composition of loan sale
     gains for 1995, 1994 and 1993 is included in Table IV of Management's
     Discussion and Analysis of Financial Condition and Results of Operations,
     Item 7.

          Loan Purchases: Loan purchases have historically represented a minor
     activity for the Bank as origination volume has always been sufficient to
     meet growth needs.  Generally, purchases consist of ARM products that the
     Bank has been unable to generate in adequate volume internally.  Purchase
     activity totalled $480,000, $16 million and $5 million in 1995, 1994 and
     1993, respectively.

          The following table details loan origination, purchase, sale and
     prepayment activities and mortgage-backed security activity during the
     past five calendar years:



























                                                                      6
<PAGE>






     <TABLE>
     <CAPTION>
                                                               Lending Activity
                                                                (in thousands)
                                                       For the Years Ended December 31,
                                                     1995             1994            1993             1992             1991
                                                    ------           ------          ------           ------           ------
             <S>                                   <C>              <C>             <C>              <C>              <C>
             Loans originated:
              Real estate loans:
               Conventional loans
                on existing property                  $103,198         $ 93,980         $ 72,411        $ 85,133       $ 85,416 
               Construction                             71,730          102,514          101,242          80,327         76,808 
               Construction for owner                   31,736           38,956           51,794          53,263         44,490 
               Loans refinanced                         71,372          130,774          272,399         319,539        170,271 
              Loans for other                            5,254            2,641            3,268           5,716         17,076 
               purposes                               --------         --------         --------        --------       -------- 
             Total loans originated                   $283,290         $368,865         $501,114        $543,978       $394,061 
                                                      --------         --------         --------        --------       -------- 
             Loans purchased                          $    481         $ 15,879         $  5,482        $ 28,803       $ 40,599 
                                                      --------         --------         --------        --------       -------- 
             Total loans originated                   $283,771         $384,744         $506,596        $572,781       $434,660 
              and purchased                           --------         --------         --------        --------       -------- 

             Principal repayments and
               payoffs                                 194,011          246,490          280,211         266,039        232,172 
             Whole loans sold                           85,199           64,346          175,110         209,415        187,628 
             Loan participations                            --               --            3,879           7,035          4,665 
              sold
             Loans swapped for
              mortgage-backed
              securities                                    --            8,434               --              --         20,109 
                                                      --------         --------         --------        --------       -------- 
             Total loans sold and
              paid off                                $279,210         $319,270         $459,200        $482,489       $444,574 
                                                      --------         --------         --------        --------      --------- 
             Net loan activity                        $  4,561         $ 65,474         $ 47,396        $ 90,292        $(9,914)
                                                      ========         ========         ========        ========      ==========
             (Does not include deductions for LIP, discounts, or unamortized loan fees.)

     </TABLE>

          Loan Maturity and Prepayments:  The Bank's residential loans are
     amortized by monthly payments over terms ranging from 5 to 30 years;
     however, loans normally remain outstanding for a shorter period of time as
     borrowers refinance or accelerate the repayment of their loans.  The
     likelihood of early repayment increases with higher rate or adjustable
     loans, particularly in a lower rate environment.  Loan repayment activity
     in 1995 was down $52 million from the prior year, corresponding to the
     decline in refinancing activity.  The Bank estimates the life of the
     average permanent residential mortgage loan to be between 5 and 7 years.


                                          7
<PAGE>






          The following table summarizes information regarding the term to
     maturity of Stockton Savings' loan portfolio at December 31, 1995:

     <TABLE>
     <CAPTION>
                                                            Loan Maturity Schedule
                                                                (in thousands)
                                                           As of December 31, 1995
                                                         Real Estate
                                                          Mortgage
                                                            Loans           Construction         Other loans       Total (2)
                                                          --------            Loans (1)            -------          --------
                                                                             -----------
               <S>                                        <C>               <C>                     <C>             <C>
               Due in less than 1 year                       $ 39,346               $ 24,446          $  1,724        $ 65,516
               Due in 1-2 years                                44,781                 51,179               434          96,394
               Due in 2-3 years                                31,205                  3,612                48          34,865
               Due in 3-5 years                                63,396                                        3          63,399
               Due in 5-10 years                               50,878                                      139          51,017

               Due in more than 10 years                      658,430                                      354         658,784
                                                             --------               --------          --------        --------
               Total Portfolio                               $888,036               $ 79,237          $  2,702        $969,975
                                                             ========               ========          ========        ========
                (1)  All current "construction for owner" loans are
                     classified under real estate loans, as they have or
                     will roll over to permanent long-term financing.  All
                     construction loans are adjustable-rate in nature.
                (2)  Excludes deductions for LIP, discounts and unamortized
                     fees.

     </TABLE>

          At December 31, 1995, the Bank's balance of loans maturing after one
     year totalled $904 million; $671 million adjustable in nature and $233
     million fixed rate.

          The following schedule breaks out the loan portfolio by type as of
     the dates indicated:














                                          8
<PAGE>







     <TABLE>
     <CAPTION>
                                                    Loan Composition - By Type
                                                          (in thousands)
                                                        As of December 31,
                                                         1995                     1994                       1993
                                                  Amount         %         Amount          %             Amount       %
                                                 --------      ----       --------        ---          --------      ---
       <S>                                       <C>           <C>       <C>              <C>        <C>              <C>  
       By type of Loan:

       Residential mortgage loans

        Existing structures
         1-4 unit dwellings                        $745,793      79.7        $735,338       79.0       $642,624        74.4
         5 or more unit dwellings                    38,130       4.1          37,110        4.0         46,851         5.4
        Construction
         1-4 unit dwellings                          57,517       6.2          59,793        6.4         71,504         8.3
         5 or more unit dwellings                     1,278        .1           4,853        0.5            821         0.1
                                                   --------     -----        --------      -----       --------        ----
       Total residential                           $842,718      90.1        $837,094       89.9       $761,800        88.2
                                                   --------     -----        --------      -----       --------        ----
       Commercial mortgage loans                   $ 55,518       5.9        $ 57,818        6.2       $ 54,969         6.4

         Existing structures
         Construction                                    --        --              --         --             --          --
                                                   --------      ----        --------       ----       --------        ----
       Total commercial                            $ 55,518       5.9        $ 57,818        6.2       $ 54,969         6.4
                                                   --------     -----        --------      -----       --------        ----
       Land loans                                  $ 34,227       3.7        $ 33,862        3.6       $ 43,668         5.1
                                                   --------     -----        --------      -----       --------        ----
        Other loans                                $     29       0.0        $     80        0.0       $    393         0.0

         Educational loans
         Savings loans                                2,196       0.2           1,953        0.2          2,535         0.3
         Other loans                                    477       0.1             505        0.1            385         0.0
                                                   --------     -----        --------      -----       --------        ----
        Total other loans                          $  2,702       0.3        $  2,538        0.3       $  3,313         0.3
                                                   --------     -----        --------      -----       --------        ----
       Total loans                                 $935,165     100.0        $931,312      100.0       $863,750       100.0
                                                   --------     -----        --------      -----       --------       -----
       Weighted average rate at end of period         7.92%                     7.02%                     7.38%
                                                   ========                  ========                  ========

     </TABLE>







                                                                      9
<PAGE>






     <TABLE>
     <CAPTION>
                                                          Loan Composition - By Type
                                                                (in thousands)
                                                              As of December 31,
                                      1995                  1994                 1993                1992                1991
          <S>                          <C>    <C>      <C>        <C>        <C>       <C>     <C>         <C>     <C>          <C>
                                  Amount        %      Amount       %        Amount     %      Amount       %       Amount      %
                                 --------     ----    --------     ---     --------    ---    --------     ---     --------    ---
          By type of Loan:

          Residential mortgage loans

           Existing structures
            1-4 unit               $745,793    79.7   $735,338     79.0    $642,624    74.4    $596,651    73.2    $497,126     67.9
             dwellings
            5 or more unit
             dwellings               38,130     4.1     37,110      4.0      46,851     5.4      39,428     4.8      41,000      5.6
           Construction
            1-4 unit                 57,517     6.2     59,793      6.4      71,504     8.3      71,039     8.7      66,616      9.1
             dwellings
            5 or more
             unit                     1,278      .1      4,853      0.5         821     0.1       1,449     0.2       1,708      0.2
             dwellings             --------   -----   --------    -----    --------    ----    --------    ----    --------     ----
          Total                    $842,718    90.1   $837,094     89.9    $761,800    88.2    $708,567    86.9    $606,450     82.8
           residential             --------   -----   --------    -----    --------    ----    --------    ----    --------     ----
          Commercial
           mortgage loans

            Existing
             structures
                                   $ 55,518     5.9   $ 57,818      6.2    $ 54,969     6.4    $ 59,774     7.3    $ 66,787      9.1
            Construction
                                         --      --         --       --          --      --         998     0.1       7,560      1.1
                                   --------    ----   --------     ----    --------    ----    --------    ----    --------     ----
          Total
           commercial              $ 55,518     5.9   $ 57,818      6.2    $ 54,969     6.4    $ 60,772     7.4    $ 74,347     10.2
                                   --------   -----   --------    -----    --------    ----    --------    ----    --------     ----
          Land loans               $ 34,227     3.7   $ 33,862      3.6    $ 43,668     5.1    $ 41,334     5.1    $ 45,389      6.2
                                   --------   -----   --------    -----    --------    ----    --------    ----    --------     ----
           Other loans

            Educational
             loans                 $     29     0.0   $     80      0.0    $    393     0.0         535     0.1    $    900      0.1
            Savings
             loans                    2,196     0.2      1,953      0.2       2,535     0.3       3,828     0.5       4,714      0.7
            Other
             loans                      477     0.1        505      0.1         385     0.0         346     0.0         279      0.0
                                   --------   -----   --------    -----    --------    ----    --------    ----    --------     ----
           Total other
            loans                  $  2,702     0.3   $  2,538      0.3    $  3,313     0.3    $  4,709     0.6    $  5,893      0.8
                                   --------   -----   --------    -----    --------    ----    --------    ----    --------     ----

                                                                      10
<PAGE>






          Total loans              $935,165   100.0   $931,312    100.0    $863,750   100.0    $815,382   100.0    $732,079    100.0
                                   --------   -----   --------    -----    --------   -----    --------   -----    --------    -----
          Weighted average
          rate at end of
          period                      7.92%              7.02%                7.38%               8.67%              10.20%
                                   ========           ========             ========            ========            ========

     (Does not include deductions for discounts or unamortized loan fees.)


          The composition of the loan portfolio remained fairly stable as
     compared to the end of the prior year.

          Loan Fee Income:  The Bank generally charges a fee for originating
     loans, as well as for committing to specific interest rates. Modification
     fees, assumption fees and late charges are also collected on existing
     loans.  Fee income is considered a less dependable source of income than
     interest income as it will vary depending on volume, loan mix,
     competition, and the overall economic environment.  The following table
     shows loan origination fees as a percentage of loans originated for the
     periods indicated:

           For the Years Ended       Total Loan Origination Fees as a Percent of
              December 31,                         Loans Originated
            ----------------                    ----------------------
                  1995                                   .98%
                  1994                                  1.55%
                  1993                                  1.79%
                  1992                                  2.03%
                  1991                                  2.13%

          The lower fees collected as a percentage of total originations in the
     current year is due to a change in marketing which has provided the
     borrower with the option of being charged a higher rate in exchange for a
     lesser fee.

          The Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 91 ("FASB 91"), "Accounting for
     Nonrefundable Fees and Costs Associated with Originating and Acquiring
     Loans and Initial Direct Costs of Leases"; and the Bank implemented it
     beginning January 1, 1989.  FASB 91 requires that loan origination fees
     and commitment fees, offset by certain specific direct costs of
     origination, are to be deferred and amortized over the contractual life of
     the loans as an adjustment to yield.  Unamortized fees on loans sold or
     prepaid are taken into income immediately.  The accelerated recognition of
     fees due to loan prepayments is included with regular amortization in loan
     interest income.  Unamortized fees recognized on the sale of loans are
     included as part of "gain on sale of loans".  Deferred loan fees
     outstanding as of December 31 of the years indicated are shown below:




                                          11
<PAGE>






                    At                 Deferred Fees Outstanding (in
               December 31,                     thousands)
                ----------                -----------------------
                   1995                          $   5,628
                   1994                              6,607
                   1993                              7,265
                   1992                              7,762
                   1991                              7,875

          The decline in deferred fees outstanding is due in large part to the
     preference by borrowers to pay less of a fee up front in exchange for a
     higher rate on the loan for the life of the borrowing.

          The amortization of loan origination fees included in 1995 interest
     income totalled $2.8 million, compared to $4.1 million recorded in 1994
     and $4.7 million in 1993.  The steady decline in amortization is due to
     the reduction in prepayment activity over the past several years.  General
     and administrative expense was reduced for specific direct costs of
     origination by $1.4 million, $ 1.9 million, and $2.7 million in 1995, 1994
     and 1993, respectively.  The decline in deferrals in 1995 was due to the
     continued reduction in origination volume mentioned earlier.

          Loan servicing fee income results from sales of loans and loan
     participations.  Under the sales agreements, the Bank is obligated to
     service the sold loans (i.e., to continue to collect payments on the loans
     as they become due and to monitor tax and insurance payments) and to pay
     the purchaser an agreed upon yield.  The differential between the interest
     paid by the borrower and the yield paid by the Bank to the purchaser is
     retained by Stockton Savings.  To the extent that this differential is
     more or less than the estimated normal rate of servicing, after adjustment
     for estimated prepayments using a discount market rate, it is recognized
     as gain or loss by the Bank in accordance with generally accepted
     accounting principles ("GAAP").  The net yield to the Bank on its
     servicing portfolio is indicated below:

                           Weighted Average Yield on Servicing
                                Portfolio for year ending
                                       December 31,
                           -----------------------------------
                               1995                   .28%
                               1994                   .25%
                               1993                   .23%
                               1992                   .25%
                               1991                   .35%

          Net servicing spreads have generally declined since 1991 as most
     agency sales are now made on a cash basis whereby the average spread
     between the underlying loan and the yield retained by the Bank is 25 basis
     points.  In the past, participation sales allowed for a much larger spread
     between the underlying face rate on the note and the pass-through rate.  



                                          12
<PAGE>






          Loan Commitments:  The Bank will generally issue fixed-rate
     commitments to originate conventional mortgages on existing residential
     dwellings for a 30-day period from the receipt of a completed application. 
     Borrowers requesting extensions on the initial commitment period are
     charged a fee commensurate with the extended period.  During this
     commitment period, fixed-rate permanent loans in the pipeline (which the
     Bank generally tends to sell) are subject to interest rate risk.  The Bank
     makes a concerted effort to reduce this exposure by locking in forward
     sales of these loans or hedging through the forward sales of participation
     certificates.

          Asset Quality:  Per Bank policy, a loan is delinquent when a required
     payment has not been received within 15 days of its scheduled due date. 
     It is Bank policy to cease accruing interest on loans that are 90 days or
     more delinquent and on restructured troubled debt.  At December 31, 1995,
     $2.3 million in interest on delinquent and troubled loans was not
     recorded.   Interest income of $628,000 was recorded on these loans during
     1995 and gross interest income that would have been recorded during the
     year had the loans been performing was $1.2 million.  Upon failure of the
     borrower to make a required payment on a loan, the Bank attempts to remedy
     the deficiency through contact with the borrower.  Most defaults are cured
     promptly; however, if the loan remains delinquent, Stockton Savings seeks
     remedy through appropriate legal action, such as foreclosure proceedings 
     or acceptance from the trustor of a voluntary deed on the secured property
     in lieu of foreclosure.  If a foreclosure action is instituted and the
     loan is not reinstated, paid in full or refinanced, the property is sold
     in a proceeding at which the Bank may be the buyer.  The acquired property
     is subsequently listed as "real estate owned" until it is sold.  Real
     estate acquired through settlement of loans is recorded at the lower of
     carrying value or fair value less estimated selling costs.  At the time of
     foreclosure, any excess of the loan amount over the fair value of the
     property is written off.  Specific valuation allowances for estimated
     losses are provided on real estate when a further decline in value occurs
     after the property has been acquired. Specific allowances on foreclosed
     real estate of $3.9 million existed at the end of 1995 and $3.1 million at
     the end of 1994.   Stockton Savings may finance the sale of real estate
     owned with a loan which may involve more favorable terms than normally
     permitted by applicable regulations or the Bank's loan underwriting
     criteria.  If the terms are more favorable than what would normally be
     offered, the differential in terms is discounted and recorded as a loss at
     time of disposition of the foreclosed asset.  If a loan made to facilitate
     the sale of real estate owned involves relaxed underwriting criteria, the
     loan is classified as a "loan to facilitate" on the balance sheet.  No
     loans to facilitate existed for any periods covered under this filing.  

          The level of nonperforming assets declined by 35% in 1995 compared to
     the prior year.  Improvements were noted in all nonperforming asset
     categories with the exception of 1-4 family residential mortgage
     delinquencies.

          Gains and losses on sale and loss provisions on real estate owned
     through foreclosure are summarized below for the calendar years indicated:

                                          13
<PAGE>






     
</TABLE>
<TABLE>
     <CAPTION>
                              Gain or Loss on Sale and Loss Provisions on Real Estate Owned Through Foreclosure
                                                                (in thousands)
                                                       For the Years Ended December 31,
                                                  1995             1994             1993            1992           1991
                                                  -----           -----             -----           -----          -----
                  <S>                              <C>              <C>             <C>         <C>            <C>
                  Gains on sale                    $   236          $   385          $   384         $  263         $   -  
                  Losses on sale                      (228)            (221)            (164)           (97)           (80)
                  Provisions for                                            
                    losses                          (1,630)          (2,385)          (1,245)          (281)          (421)
                                                   -------          -------          -------         ------          ----- 
                  Total impact
                    on income                      $(1,622)         $(2,221)         $(1,025)        $ (115)         $(501)
                                                   -------          -------          -------         ------          ----- 

     </TABLE>

          Loss provisions added on foreclosed real estate in 1995, 1994 and
     1993 totalled $1.6 million, $2.4 million and $1.2 million, respectively. 
     Provisions taken over the past two years related primarily to losses
     inherent in a single property located in Galt, California collateralizing
     a construction loan.

          A summary of loan loss experience by loan type is provided in the
     following table:

     <TABLE>
     <CAPTION>
                                                    Analysis of Allowance for Loan Losses
                                                                (in thousands)
                                                       For the Years Ended December 31,

                                                            1995          1994          1993          1992             1991
                                                           ------        ------        ------        ------           ------
            <S>                                               <C>          <C>           <C>          <C>                  <C>

            Balance at beginning of period                    $7,726       $9,965        $8,042         $5,047             $2,157
            Charge-offs
            Mortgage Loans
             1-4 dwelling units                                  338          197            42             --                 --
             Multifamily and commercial                           --        1,142           630            380                460
            Construction loans
             1-4 dwelling units                                   --          145           220            390                 --
             Land                                                847        1,343           170
                                                              ------       ------        ------         ------             ------
            Total charge-offs                                 $1,185       $2,827        $1,062         $  770             $  460
            Recoveries                                            --          307            --             --                 --
            Net charge-offs                                   $1,185       $2,520        $1,062         $  770             $  435
                                                              ------       ------        ------         ------             ------


                                                                      14
<PAGE>






            Additions to allowances                           $1,633       $  281        $2,985         $3,765             $3,325
                                                              ------       ------        ------         ------             ------
            Balance at end of period                          $8,174       $7,726        $9,965         $8,042             $5,047
                                                              ------       ------        ------         ------             ------
            Ratio of net charge-offs during the
            period to average loans outstanding
            during the period                                   .13%         .29%          .12%           .10%               .06%

     </TABLE>

          The Bank took $1.2 million in charge-offs in the current year,
     largely due to the foreclosure on one large tract of land. Additions to
     loan loss allowances were lower than levels established in 1993, 1992 and
     1991, reflecting the improvement in the level of nonperforming assets
     discussed above.

          Loan Loss Reserves:  The Competitive Equality Banking Act of 1987
     ("CEBA") required that the Federal Home Loan Bank Board ("FHLBB"), now
     OTS, establish an asset classification system for savings and loan
     associations consistent with asset classification practices of national
     banks.  The subsequent regulation, effective December 31, 1987, required
     all institutions to establish an internal asset review system to evaluate
     and classify assets on a regular basis and provide prudent valuation
     allowances.  The regulation calls for the classification of troubled
     assets as either "substandard", "doubtful" or "loss".  An asset is
     considered "substandard" if inadequately protected by the current net
     worth and paying capacity of the obligor or by the collateral pledged, if
     any.  "Substandard" assets include those characterized by the "distinct
     possibility" that the institution will sustain "some loss" if the
     deficiencies are not corrected.  Assets classified as "doubtful" have all
     of the weaknesses inherent in those classified "substandard" with the
     added characteristic that the weaknesses present make "collection or
     liquidation in full", on the basis of currently existing facts,
     conditions, and values, "highly questionable and improbable".  Assets
     classified "loss" are those considered "uncollectible" and of such little
     value that their continuance as assets without the establishment of a loss
     reserve is not warranted.  In addition, the Bank designates certain assets
     that do not currently expose the Bank to a sufficient degree of risk to
     warrant classification but possess credit deficiencies or future potential
     weaknesses as "special mention".

          Classified assets reported to OTS as of December 31, 1995, 1994 and
     1993 are shown in the following schedule:










                                          15
<PAGE>







     <TABLE>
     <CAPTION>

                                        Classified Assets
                                         (in thousands)
                                         At December 31,
                                          1995               1994               1993
                                         ------             ------             ------
       <S>                                  <C>                <C>                <C>
       Substandard assets                   $ 37,841           $ 47,310           $ 54,737
       Doubtful assets                          --                 --                  400
       Loss assets                             6,370              6,348              5,267
                                            --------           --------           --------
          Total                             $ 44,211           $ 53,658           $ 60,404
                                            ========           ========           ========

     </TABLE>

          Loss reserves are established on all assets classified as "loss". 
     General loan loss reserves are established on a percentage of loans
     classified as substandard and doubtful, as well as special mention and
     unclassified assets, according to the type of asset, historical loss
     experience and its perceived relative risk.  A breakdown of the general
     allowance for loan losses is provided below:




























                                          16
<PAGE>






     <TABLE>
     <CAPTION>
                                       Allocation of Allowance for Loan Losses
                                                (Dollars in thousands)
                                                   At December 31,

                                             1995                       1994                      1993
                                         Amt          %            Amt            %          Amt          %
       <S>                                <C>         <C>            <C>          <C>         <C>          <C> 
       Mortgage loans
       1-4 dwelling units                  $1,069     13.1            $  818       10.6       $  751        7.5
       Multifamily and Commercial           2,426     29.7             2,120       27.4        2,639       26.5
       Construction loans                   1,022     12.5             1,727       22.4        1,092       10.9
       Land loans                           2,070     25.3             2,144       27.8        3,804       38.2
       Other loans                            508      6.2                58         .7           57         .6
       Unallocated                          1,079     13.2               859       11.1        1,622       16.3
                                           ------     ----             -----       ----       ------       ----
                                           $8,174     100%            $7,726       100%       $9,965       100%
                                           ======     ====            ======       ====       ======       ====

     </TABLE>


     <TABLE>
     <CAPTION>

                                Allocation of General Allowance for Loan Losses
                                             (Dollars in thousands)
                                                At December 31,

                                                     1992                              1991
                                             Amt               %               Amt               %
       <S>                                     <C>                <C>             <C>                <C> 
       Mortgage loans
       1-4 dwelling units                       $1,129            14.0            $  217              4.3
       Multifamily and Commercial                2,991            37.3             2,206             43.7
       Construction loans                        1,239            15.4               792             15.7
       Land loans                                2,133            26.5               944             18.7
       Other loans                                  --              --                --                0
       Unallocated                                 550             6.8               888             17.6
                                                ------            ----             -----             ----
                                                $8,042            100%            $5,047             100%
                                                ======            ====            ======             ====


     </TABLE>

          For a more detailed discussion of asset quality, see the "Asset
     Quality" section in Management's Discussion and Analysis of Financial
     Condition and Results of Operations, Item 7.



                                          17
<PAGE>






     INVESTMENT ACTIVITIES

          Stockton Savings' second largest source of income is interest earned
     on investments.  The Bank is required by federal regulation to maintain a
     balance of 5% of its average deposits and short-term borrowings in liquid
     assets with terms of five years or less.  At December 31, 1995, the Bank's
     liquidity ratio was 6.18%.  The Bank's liquidity qualifying investments
     generally consist of government-backed obligations and federal funds
     alternatives.  Realistically, management seeks to maintain a liquidity
     ratio in the range of 5.5% and 6%.  These levels are generally met only
     after all short-term borrowings have been retired.

          In addition to its liquidity qualifying assets, the Bank also has a
     large portfolio of mortgage-backed securities and collateralized mortgage
     obligations.  These investments supplement the Bank's own lending
     portfolio and are utilized frequently as collateral for borrowings.

          The following table summarizes the Bank's investments at December 31
     for the periods indicated:


     <TABLE>
     <CAPTION>

                                                    Investment Security Composition
                                                        (Dollars in thousands)
                                                           At December 31,

                                                 1995             1994             1993             1992              1991
                                                ------           ------           ------           ------            ------

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

       Securities Available
         for Sale (1):
       Federal funds                              $    255         $     --          $    --           $    --         $     --
       Mutual fund investment                        4,424               --               --                --               --
       U.S. Government and
         agency securities                          48,020           39,249               --                --               --
       Collateralized
        mortgage obligations                        95,050           11,190               --                --               --
       Mortgage-backed
        securities                                 117,200            7,154               --                --               --
       Other                                         1,087               --               --                --               --
                                                  --------         --------          -------           -------         --------
       Total Available for Sale                   $266,036         $ 57,593          $     0           $     0         $      0
                                                  --------         --------          -------           -------         --------






                                                                      18
<PAGE>






       Securities Held to
        Maturity (2):
       Federal funds                              $     --         $    350         $ 11,400          $    925         $  2,250
       Mutual fund investment                           --            2,901           19,233             9,212           30,311
       Securities purchased
        under agreements to
        resell                                          --               --               --               700           51,000
       U.S. Government and
        agency securities                               --            6,335           20,905            24,068            7,202
       Collateralized
        mortgage obligations                            --           46,414           30,575            33,910           15,214
       Mortgage-backed
        securities                                      --          159,436           80,405            84,603          101,275
       Other                                            --               74               10                10              517
                                                  --------         --------         --------          --------         --------
       Total Held to Maturity                     $      0         $215,510         $162,528          $153,428         $207,769
                                                  --------         --------         --------          --------         --------

       Trading Account
        Securities (3):
       Mutual fund investment                     $     --         $     --         $  3,244          $    233         $  5,743
       U.S. Government and
        agency securities                               --               --           17,858            20,381           16,708
                                                  --------         --------         --------          --------         --------
       Total Trading Account                      $      0         $      0         $ 21,102          $ 20,614         $ 22,451
                                                  --------         --------         --------          --------         --------
       Total Investment
        Securities                                $266,036         $273,103         $183,630          $174,042         $230,220
                                                  ========         ========         ========          ========         ========
       Weighted average
        rate at end of                               6.66%            6.70%            5.58%             6.75%            6.93%
        period                                    ========         ========         ========          ========         ========



     </TABLE>

          Statement of Financial Accounting Standards 115 ("SFAS 115")
     "Accounting for Certain Investments in Debt and Equity Securities",
     adopted on January 1, 1994, requires the classification of  securities as
     available for sale or held to maturity.

          The Bank designated its entire investment portfolio as available for
     sale as of year-end 1995.  During the year, $52.1 million in securities
     classified as available for sale were sold with net losses of $27,000
     recorded.  The designation made by management in August 1995 was the
     result of a decision by management at that point in time to restructure
     its balance sheet.  See Notes 2 and 3 of the Financial Statements in Item
     8.

          At December 31, 1994, the Bank had classified $52.8 million of
     securities and $159.4 million of mortgage-backed securities as held to

                                          19
<PAGE>






     maturity.  An additional $50.4 million in securities were classified as
     available for sale.  During the year, $14.2 million in securities
     classified as available for sale were sold with net losses of $66,000
     recorded.

          The Bank designated $17.9 million in treasury securities at December
     31, 1993 as held for trading purposes.  These assets were under active
     management by portfolio managers and, as such, were marked-to-market value
     with the resulting gain or loss shown as an adjustment to pretax income. 
     Net losses recognized on trading activities during 1994, 1993 and 1992
     totalled $416,000, $15,000 and $471,000, respectively.  No investments
     designated as held for trading purposes were outstanding at year-end, 1995
     or 1994 as all such assets were transferred to other portfolios at market
     value in 1994 as described in Note 2 of the Financial Statements and
     Supplementary Data, Item 8.

          The Bank's securities held for investment purposes totalled $51.5
     million at December 31, 1993.  The Bank had the intent and ability to hold
     investment-designated securities to maturity.  No securities designated as
     held for investment purposes were sold during 1993.  No securities were
     classified as held for sale at December 31, 1993.

     REAL ESTATE DEVELOPMENT ACTIVITIES

          The Bank has historically been involved in the development of real
     estate through its wholly-owned subsidiary, Stockton Service Corporation
     ("SSC").  All current real estate investments are in residential
     development, primarily single-family homes and lots.  All real estate is
     currently owned 100% by SSC which has traditionally contracted with local
     developers to build projects in exchange for a construction fee and a
     split in profits. SSC is allowed a preferential return (before any profit
     splits) that is equivalent to interest and fees that would normally have
     been earned on a construction loan.  The breakout of SSC's gross income
     before reduction for the effect of capitalized interest relieved is shown
     in the following table for the periods indicated:


















                                          20
<PAGE>






     <TABLE>
     <CAPTION>

                                            SSC Profit
                                          (in thousands)
                                 For the Years Ended December 31,
                                       1995                 1994                 1993
                                      ------               ------               ------
       <S>                               <C>                     <C>               <C>
       Preferential return                $    9                 $  973             $ 1,993
       SSC profit split                      (39)                  (155)                207
                                          ------                 ------              ------
       Total gross  profits               $  (30)                $  818             $ 2,200
                                          ======                 ======              ======

     </TABLE>

          The slow real estate market has led to declining sales, reduced
     profit margins and significant loss provisions established on the Bank's
     remaining real estate investment inventory.

          SSC recorded $4.1 million in loss reserves in 1995 despite
     significant increases in reserves established in previous years. For a
     more detailed discussion of real estate development activities see the
     "Real Estate Investment" section in Management's Discussion and Analysis
     of Financial Condition and Results of Operations, Item 7.

          The 1995 Annual Report to Shareholders (incorporated within this
     filing by reference), as well as the regulatory section of this text,
     discusses the implications of current regulatory constraints on real
     estate investment opportunities for savings banks.  The constraints no
     longer make investment in real estate through a subsidiary of Stockton
     Savings a feasible alternative.  The Bank's indirect investment in real
     estate through SSC will be limited to 2% of assets.  In addition, this
     investment can no longer be included in capital when calculating the
     Bank's regulatory capital.  Both of these provisions are phased-in over a
     stated time frame.  See "Regulation - General".

          The Bank anticipates selling or completing development of all
     projects currently owned by SSC by the end of 1996.  Any future projects
     will be developed through a separate wholly-owned subsidiary of California
     Financial.  


     SAVINGS AND CHECKING ACTIVITY

          The Bank's asset base is financed primarily through savings and
     checking accounts located throughout its branch system.  Accounts offered
     include certificates of deposit, NOW/checking accounts, money market
     accounts, passbook accounts and Individual Retirement Accounts. 
     Certificate accounts differ as to rate and term to maturity.  Account


                                          21
<PAGE>






     activity by type is shown in the following table for the periods
     indicated:

     <TABLE>
     <CAPTION>
                                                     Savings and Checking Activity
                                                         (Dollars in thousands)
                                                    For the Years Ended December 31,
                                           1995              1994               1993                1992               1991
       <S>                                  <C>                <C>               <C>                 <C>                <C>
       Interest credits                     $ 39,995           $ 30,584          $ 30,986            $ 39,670           $ 46,364 
       Net deposits                          (80,918)            85,429           (38,429)            (35,839)           (38,378)
        (withdrawals)                       --------           --------          --------            --------           -------- 
       Net increase                         $(40,923)          $116,013          $ (7,443)           $  3,831           $  7,986 
        (decrease)                         ========           ========          ========              ========          ======== 
                                                4.75%             4.19%              3.67%               4.26%              5.87%
       Cost of savings                                                                                        

       Number of accounts:
         Savings                              59,496             56,751            53,357               53,963            56,551 
         Checking                             35,778             32,871            29,106               25,288            22,647 

     </TABLE>

          Deposits were down by $41 million in 1995.  The declining rate
     environment in 1995, making these investments a less attractive
     alternative, as well as the runoff of $56.7 million in brokered funds,
     were responsible for the decline.  Conversely, deposits increased by $116
     million in 1994, the result of a higher, more favorable rate environment
     as well as the acquisition of $61 million in brokered funds.

          Net deposit balances are shown below for the dates indicated:





















                                          22
<PAGE>







     <TABLE>
     <CAPTION>

                                          Deposits by Type and Interest Rate
                                                (Dollars in thousands)
                                                   At December 31,

                                           1995           % of Total           1994              % of Total
       <S>                                  <C>                  <C>              <C>                    <C>
       Passbook accounts                    $ 47,423             4.94%            $ 53,376                5.33 
       Checking accounts:
       Interest-bearing                       91,231             9.50               98,250                9.81 
       Noninterest-bearing                    17,381             1.81               11,967                1.20 
       Money Market accounts                  66,066             6.88               85,844                8.58 
       Certificate Accounts:
         2.00% to 2.99%                          509              .05                5,820                 .58 
         3.00% to 3.99%                        9,819             1.02              119,104               11.90 
         4.00% to 4.99%                      132,274            13.78              263,036               26.27 
         5.00% to 5.99%                      372,310            38.78              222,917               22.27 
         6.00% to 6.99%                      213,362            22.22              131,620               13.15 
         7.00% to 7.99%                        9,360              .97                7,069                 .71 
         8.00% to 8.99%                          272              .03                1,246                 .12 
         9.00% to 9.99%                          141              .02                  592                 .06 
        10.00% to 10.99%                          --               --                  229                 .02 
        11.00% to 11.99%                          --               --                   --                  -- 
        12.00% to 12.99%                          --               --                   --                  -- 
        13.00% to 13.99%                          --               --                   --                  -- 
                                            --------            ------           ---------               ------
       Total Deposits                       $960,148           100.00%          $1,001,070              100.00%
                                            ========           ======           ==========              ====== 

     </TABLE>




















                                                                      23
<PAGE>






     <TABLE>
     <CAPTION>

                                                      Deposits by Type and Interest Rate
                                                            (Dollars in thousands)
                                                               At December 31,
                                                                           1993                % of Total
                                 <S>                                     <C>                          <C>
                                 Passbook accounts                       $ 56,256                      6.39 
                                 Checking accounts:
                                 Interest-bearing                         106,060                     11.98 
                                 Noninterest-bearing                        2,243                       .25 
                                 Money Market accounts                    101,070                     11.42 
                                 Certificate Accounts:
                                   2.00% to 2.99%                          52,431                      5.92 
                                   3.00% to 3.99%                         175,090                     19.78 
                                   4.00% to 4.99%                         253,504                     28.64 
                                   5.00% to 5.99%                          76,030                      8.59 
                                   6.00% to 6.99%                          45,870                      5.18 
                                   7.00% to 7.99%                          10,837                      1.22 
                                   8.00% to 8.99%                           3,757                       .43 
                                   9.00% to 9.99%                             805                       .09 
                                  10.00% to 10.99%                            225                       .03 
                                  11.00% to 11.99%                            505                       .06 
                                  12.00% to 12.99%                             27                       .03 
                                  13.00% to 13.99%                            148                       .02 
                                                                         --------                     ------
                                 Total Deposits                          $885,058                    100.00%
                                                                         ========                    ====== 

     </TABLE>

          The maturities of Stockton Savings' certificate accounts are an
     indication of the relative stability of the supply of lendable funds. 
     Every effort is made to extend the maturities of accounts to simulate the
     maturities and rate adjustments of the Bank's loan portfolio.    The

















                                          24
<PAGE>






     following schedule illustrates the Bank's certificate accounts by maturity
     as of December 31, 1995:

     <TABLE>
     <CAPTION>
                                           Savings Certificates by Maturity
                                                    (in thousands)
                                                 At December 31, 1995
           Interest Rate            1996           1997            1998          After 1998           Total
                                   ------         ------          ------         ----------          -------
       <S>                         <C>              <C>             <C>               <C>               <C>
        2.00% to  2.99%             $    437        $     24       $     48           $     --          $    509
        3.00% to  3.99%                9,790              24              4                  1             9,819
        4.00% to  4.99%              128,466           2,529          1,007                272           132,274
        5.00% to  5.99%              250,160          98,595         17,023              6,532           372,310
        6.00% to  6.99%              183,024          11,633         11,045              7,660           213,362
        7.00% to  7.99%                3,863           2,505            873              2,119             9,360
        8.00% to  8.99%                  121             143              3                  5               272
        9.00% to  9.99%                  141              --             --                 --               141
                                    --------        --------       --------           --------          --------
                                    $576,002        $115,453       $ 30,003           $ 16,589          $738,047
                                    ========        ========       ========           ========          ========

     </TABLE>

          The Bank's deposit maturity structure was shortened during 1995,
     reflecting the depositor's bias towards decreasing interest rates and
     their corresponding desire not to want to lock in current interest rates
     long term.

          Average balances and rates for deposits are shown below for the
     periods indicated:

     <TABLE>
     <CAPTION>
                                       Average Deposits by Type and Interest Rate
                                                 (Dollars in thousands)
                                              For Years Ended December 31,
                                               1995                       1994                      1993
                                        Balance         Rate       Balance        Rate       Balance        Rate
       <S>                                 <C>         <C>           <C>           <C>        <C>          <C>
       Checking Accounts
         Interest-bearing                 $ 92,701       1.56%       $102,925     1.58%        $101,873      1.91%
         Non interest-bearing               14,858         --           7,984       --            6,843        -- 
       Savings Accounts                    132,228       2.72%        150,134     2.35%         156,501      2.63%
       Certificate Accounts                758,778       5.54%        672,957     4.43%         621,807      4.68%
                                          --------       ----        --------     ----         --------      ---- 
       Total                              $989,565       4.85%       $934,000     3.75%        $887,024      3.96%
                                          ========       ====        ========     ====         ========      ==== 




                                          25
<PAGE>






          Does not include impact of interest rate swaps of interest
          forfeitures.


          The balance of less rate sensitive checking and savings accounts
     declined by $30 million in 1995 as funds were attracted out of money
     market accounts into higher-yielding 3 month certificates.  The actual
     number of checking accounts, a product the Bank is emphasizing, grew by
     2,907, even though net balances actually fell by $3 million.  The
     difference in yield between these accounts and current interest rates
     became too great, causing depositors to invest excess funds in higher-
     yielding certificates.

          The Bank held "jumbo" certificates of deposit (deposits of $100,000
     or more) of $223 million at December 31, 1995. Certificate maturities as
     of that date were as follows:

                                  Jumbo Maturities
                                    (in thousands)
                                At December 31, 1995
                3 months or less                             $ 43,947
                3 to 6 months                                  31,643
                6 to 12 months                                 52,938
                More than 12 months                            42,499
                                                             --------
                Total                                        $171,027
                                                             ========

          Brokered accounts with terms of three months or less declined
     compared to the prior year, reflecting the desire by jumbo customers to
     take advantage of attractive yields offered by the Bank in non-jumbo
     three-month maturities.

          At December 31, 1995, savings of out-of-state account holders
     amounted to $11.9 million, less than 1.3% of total savings.

     BORROWING ACTIVITY

          Reverse Repurchase Agreements:  Periodically, the Bank uses its
     investments in U.S. Government and agency securities, mortgage-backed
     securities and mortgage derivative securities as collateral to borrow
     funds on a short-term basis through reverse repurchase agreements. 
     Reverse repurchase agreements consist of sales of securities to securities
     dealers with the commitment by the Bank to repurchase such securities for
     a predetermined price at a specified date in the future, usually 1 to 90
     days.  If the Bank decides to replace a maturing repurchase agreement with
     another agreement, the amount of the new borrowing will be based on the
     market value of the underlying collateral at the date of refinancing. 
     Statistical information regarding these borrowing arrangements is detailed
     in Note 10 of the Financial Statements and Supplementary Data, Item 8. 
     Due to the additional growth taken on by the Bank in 1994, reverse


                                          26
<PAGE>






     repurchase agreements totalled $35 million and $65 million at year-end
     1995 and 1994, respectively.  The weighted average maturity of these
     borrowings at year-end was less than one month.

          Collateralized Mortgage Obligations:  The Bank's finance subsidiary,
     Stockton Securities Corporation, exists primarily to issue debt as
     securities.  In March 1985, a $50 million CMO was issued (Series A),
     secured by $57 million in fixed-rate mortgage loans converted to FHLMC
     participation certificates.  In December 1987, an additional $57 million
     CMO was issued (Series B), collateralized by $57 million in FHLMC
     certificates.  The debt service on the CMOs corresponds with the cash flow
     on the participation certificates and, therefore, provides a close
     matching of the underlying asset and liability maturities, reducing
     exposure to interest rate risk.  The Series A bonds were paid off in total
     during 1992.

          The bonds carried a weighted average face rate of 8.25% at December
     31, 1995 and an effective rate of 8.25% compared to an average face rate
     of 8.25% and an effective rate of 10.97% at December 31, 1994.  For
     additional statistical information on these borrowings, see Note 9 of the
     Financial Statements and Supplementary Data, Item 8.

          Federal Home Loan Bank Advances:  As a member of the Federal Home
     Loan Bank ("FHLB") System, the Bank is entitled to borrow funds from the
     FHLB of San Francisco on the security of capital stock of FHLB owned by
     Stockton Savings, certain mortgage loans and other specified securities. 
     Funds are advanced to an association based on its creditworthiness and
     ability to pay.  There are currently no restrictions on the Bank's ability
     to borrow from the FHLB.  The weighted average rate on advances at
     December 31, 1995 and 1994 was 5.98% and 5.49%, respectively.  The
     following table identifies FHLB advances by type of borrowing for each
     period indicated:

     
</TABLE>
<TABLE>
     <CAPTION>

                                                Federal Home Loan Bank Advances By Type
                                                            (In thousands)
                                                            At December 31,
                                                          1995                        1994                       1993
                                    Reprice         %                          %                           %
                                     Freq.        Rate        Balance         Rate        Balance        Rate        Balance 
       <S>                          <C>            <C>         <C>             <C>          <C>           <C>            <C>










                                                                      27
<PAGE>






       Long-term 
        fixed rate                    --            6.06         $110,000       5.80        $ 65,000       5.53           45,000
       Adjustable-rate credit
       Variable-rate                 Mtly           5.63           25,000       5.04          45,000       3.65           55,800
        line of credit
       Short-term
       collateralized                Daily           --               --         --               --        .66           10,000
       Total FHLB
        advances                     Wkly/          5.95           27,500                         --         --              -- 
                                     Mtly           ----         --------     ------        --------       ----          -------
                                                    5.98         $162,500       5.49        $110,000       4.42         $110,800
                                                    ====         ========       ====        ========       ====         ========

     </TABLE>

          The increase in the average rate on advances in the current year is
     due to the increase in the cost of adjustable-rate advances indexed to
     COFI due to the increase in that index as well as to increases in the
     balance of higher-costing fixed-rate advances and the addition of $27
     million in higher-costing short-term borrowings.

          The following table summarizes consolidated borrowings as of December
     31 for the years indicated:

     <TABLE>
     <CAPTION>
                                                              Borrowings By Type
                                                            (Dollars in thousands)
                                                               At December 31,
                                                  1995             1994              1993             1992             1991
             <S>                                   <C>               <C>             <C>               <C>              <C>
             Federal Home Loan
              Bank advances                        $162,500          $110,000         $110,800         $ 52,800         $ 25,000
             Collateralized
              mortgage
              obligations                             6,463             7,898           14,147           28,873           43,519

             Bank borrowings    Reverse                  --                --               --               --            3,000
             repurchase
              agreements  
                                                    35,408             64,978              396              544              110
             Weighted average cost of              --------          --------         --------         --------         --------
             borrowings                            $204,371          $182,876         $125,343         $ 82,217         $ 71,629
                                                   ========          ========         ========         ========         ========

                                                      6.02%             5.92%            5.64%            7.12%            9.72%
                                                   ========          ========         ========         ========         ========

     </TABLE>

     NET INTEREST INCOME


                                          28
<PAGE>






          Net interest income is affected primarily by three factors:

          1)   the weighted average yield on interest-earning assets less the
               weighted average cost of interest-bearing liabilities,

          2)   the balance of interest-earning assets, and

          3)   the balance of interest-earning assets relative to interest-
               bearing liabilities.

          The impact of the first two factors on net interest income is
     illustrated on Table II of Management's Discussion and Analysis of
     Financial Condition and Results of Operations, Item 7.  Discussion of
     changes in the components of net interest income in 1995 and 1994 is
     reflected under "Net Interest Income" of Management's Discussion and
     Analysis of Financial Condition and Results of Operations, Item 7.

          Net interest income, before capitalized interest, increased by $1.2
     million in 1993 compared to 1992.  A $43 million increase in the average
     balance of loans outstanding was primarily responsible for the increase in
     net interest income for the year as the reduced cost of funds was
     virtually offset by declining asset yields.

          A 103 basis point drop in the loan portfolio yield was primarily
     offset by a 79 basis point drop in the cost of deposits and a 301 basis
     point decline in the cost of borrowings.  The drop in loan yields was due
     to the continued prepayment of higher yielding loans, the lower initial
     start rate on adjustable-rate product as well as to the decline in COFI.

          The downward repricing of higher-costing long-term deposits as well
     as the drop in rates on transaction accounts led to the decline in deposit
     costs in 1993.  Additionally, $32 million in higher-costing FHLB advances
     matured in 1993 and were replaced with lower-costing fixed and adjustable-
     rate advances.

          As indicated above, changes in the balance of interest-earning assets
     relative to interest-bearing liabilities also impact net interest income. 
     The table below reflects the composition of the Bank's average balance
     sheet for the three periods indicated and highlights these changes:

     <TABLE>
     <CAPTION>
                                              Average Balance Sheet
                                                  (In thousands)
                                         For the Years Ended December 31,
                                                        1995                1994                 1993
       <S>                                              <C>                 <C>                  <C>






                                                                      29
<PAGE>






       ASSETS
         Interest-earning assets:
       Federal funds sold and securities
         purchased under agreements to resell            $      513          $    7,863          $   22,305
       U.S. Government and agency securities                 44,463              39,719              37,369
       Mortgage Derivative securities                        68,303              50,389              30,065
       Mutual fund investments                                4,002               8,067               5,091
       Other investment securities including
        FHLB stock                                           10,072              12,646               6,418
       Mortgage-backed securities (net)                     153,618             130,324              82,211
       Loans receivable (net)                               927,151             879,293             821,506
                                                         ----------          ----------          ----------
         Total interest-earning assets                   $1,208,122          $1,128,301          $1,004,965
         All other assets                                    65,931              73,756              71,010
                                                         ----------          ----------          ----------
         Total average assets                            $1,274,053          $1,202,057          $1,075,975
                                                         ==========          ==========          ==========
       LIABILITIES AND STOCKHOLDERS' EQUITY
         Interest-bearing liabilities:
       Deposits                                          $  989,565          $  934,000          $  887,024
       Federal Home Loan Bank advances                      120,715             118,113              72,916
       Securities sold under agreements to
        repurchase                                           59,120              37,506               2,111
       Mortgage-backed bonds                                  7,235               9,378              21,588
       Other borrowings                                         --                   49                 419
                                                         ----------          ----------          ----------
         Total interest-bearing liabilities              $1,176,635          $1,099,046          $  984,058
         All other liabilities                               13,331              20,022              14,052
         Stockholders'equity                                 84,087              82,989              77,865
                                                         ----------          ----------          ----------
       Total average liabilities and equity              $1,274,053          $1,202,057          $1,075,975
                                                         ==========          ==========          ==========

     </TABLE>

          Averages are calculated on a daily basis.

          Net interest income has benefitted over the past two years from a
     decline in the level of real estate owned.  As the level of problem assets
     and real estate investments is expected to continue to decline, net
     interest income should continue to benefit.

     ASSET/LIABILITY MANAGEMENT

          The ability of the Bank to maintain consistent earnings under varying
     interest rate environments is largely dependent on how successfully it
     manages interest rate risk.  One of management's major objectives is to
     match the repricing and maturity characteristics of its interest-earning
     assets and interest-bearing liabilities to reduce earnings volatility in
     fluctuating interest rate environments.



                                          30
<PAGE>






          The primary methods utilized by the Bank to control interest rate
     risk include:

          .    the origination and purchase of permanent ARMs for portfolio
               purposes,

          .    the sale of originated fixed-rate product,

          .    forward commitments for sale of originated fixed-rate product,

          .    the origination of short-term, adjustable-rate construction
               loans,

          .    obtaining longer-term, fixed-rate borrowings or otherwise
               extending the repricing terms on liabilities through the use of
               fixed-pay interest rate swaps, and

          .    emphasizing passbook and checking accounts as these deposit
               types are less sensitive to changes in interest rates.

          Most of the Bank's permanent ARMs are indexed to a spread over the
     11th District COFI.  These loans assist in reducing interest rate exposure
     and maintaining spreads, particularly when the Bank is able to keep its
     average cost of funds below that of the Eleventh District.  The Bank's
     cost of funds was roughly equal to the Eleventh District during 1995 and
     significantly higher in 1994.  High-costing short-term borrowings and
     interest rate swaps were responsible for the higher-funding costs in 1994. 
     Although ARMs are effective in reducing risk in less volatile interest
     rate environments, periodic and lifetime interest rate adjustment "caps"
     contained in all permanent ARM product, as well as the lagging nature of
     the COFI index, limit the ability of these loans to reduce rate
     vulnerability in volatile rate environments.  As a result, the benefits
     derived from the rising rate environment in 1994 on asset yields did not
     really begin to occur until 1995.

          Although the Bank makes every effort to originate adjustable-rate
     product, certain market conditions may make it difficult to do so.  In a
     low-rate environment, the difference between the start rate on an
     adjustable-rate mortgage and the rate on a fixed-rate mortgage is much
     less than the difference in a higher interest rate environment, making the
     adjustable-rate loan less attractive to the borrower.  In addition,
     adjustable loans tend to prepay faster in lower-rate environments further
     reducing the balance of these loans outstanding.

          The average repricing period on deposits declined in 1995 due to the
     flatness of the yield curve, allowing a depositor to lock in a higher
     yield for a shorter time frame.  In 1994, repricing periods also shortened
     up, due to the consumers bias towards increasing rates and a desire not to
     lock in perceived lower yields for an extended time.  A concerted effort
     was made in 1993 and 1992 to extend the Bank's repricing periods on its
     deposits by offering more competitive pricing on longer-term accounts.  As
     a result, the percentage of total certificates repricing within one year

                                          31
<PAGE>






     dropped to 69% at December 31, 1993, down from 77% one year earlier.  The
     inability to increase the average life of the deposit base in 1994 was
     reflected in the percentage of total certificates repricing within one
     year, which increased to 77% at the end of 1994.

          In an effort to reduce balance sheet vulnerability to rising interest
     rates, the Bank reduced its level of long-term fixed-rate assets by $84
     million, increased its level of current index floating rate assets by $40
     million and COFI product by $33 million.  The level of long-term fixed-
     rate borrowings increased by $45 million while the maturity structure of
     deposits remained fairly constant.  The Bank took advantage of a higher
     capital position in 1994 by growing assets 15.5% or $171.5 million from
     the prior year.  The purchase of $88.3 million in 15-year, fixed-rate
     mortgage-backed securities as well as a $91.3 million increase in the
     balance of loans receivable, provided most of the growth.  The increase in
     loans receivable came primarily through growth in the balance of COFI
     mortgages held.  Asset growth was funded through an increase in retail
     deposits, long-term fixed-rate borrowings and short-term debt.  The
     increase in the balance of short-term funds made the Bank more vulnerable
     to declining spreads in rising rate environments.

     LIQUIDITY

          The Bank's primary source of liquidity to fund new loan originations
     comes from repayments of loans already in the portfolio and sales of loans
     in the secondary market.  Desired asset growth may be funded through
     deposit growth by pricing deposits more competitively or through deposit
     acquisitions.  FHLB advances are also an alternative to fund growth.  For
     short-term liquidity needs, the Bank's portfolio of mortgage-backed
     securities and other security investments totaling $144 million can be
     utilized as collateral to borrow under reverse repurchase agreements.  A
     significant portion of the Bank's single-family loan portfolio is also
     available as collateral for FHLB advances.  The Bank can also use brokered
     deposits as a short-term funding vehicle in place of reverse repurchase
     agreements.

          Excess liquidity is usually utilized to pay off short-term borrowings
     and, in some cases, absorb deposit runoff, particularly when taking
     advantage of a reduction in the cost of funds.  Excess funds may also be
     used to purchase loans, particularly if management is attempting to
     maintain or increase asset size.

          The Bank has been unable to absorb significant additional growth as a
     result of regulatory capital constraints due to the continued acceleration
     in the phase-out of real estate.  However, due to its stronger regulatory
     capital position, additional asset growth occurred in 1994.  Due to
     uncertainties surrounding an interest-rate risk component to risk-based
     regulatory capital, as well as to reduced earnings in 1995 and 1994, asset
     growth was not significant in 1995.




                                          32
<PAGE>






          Moderate asset growth is expected in 1996 as the Bank continues to
     liquidate the balance of its real estate investments which have restrained
     growth in the past due to regulatory capital implications.

          Short-term liquidity is not expected to increase in 1996,
     particularly if rates remain stable and the level of prepayment and sale
     activity is weak.

     SUBSIDIARIES AND AFFILIATES

          Stockton Service Corporation is a wholly-owned subsidiary of Stockton
     Savings, formed primarily for the purpose of investing in real estate. 
     See "Real Estate Development Activities".  The Bank's loans to and
     investments in this subsidiary totalled $8.9 million at December 31, 1995. 
     The Subsidiary is incorporated in the State of California.

          Stockton Securities Corporation is a wholly-owned finance subsidiary
     of the Bank, organized to issue collateralized mortgage obligations.  The
     subsidiary recorded a net loss after tax of $41,000 for 1995 compared to
     an after tax loss of $203,000 and $434,000 in 1994 and 1993, respectively. 
     See "Borrowing Activity - Collateralized Mortgage Obligations" for a
     further discussion of this subsidiary's activities.  The Bank's investment
     in this subsidiary totalled $1.6 million at December 31, 1995.  The
     Subsidiary is incorporated in the State of California.

          Stockton Financial Corporation was formed to act as the trustee for
     the deeds of trust that secure the loans made by the Bank.  Stockton
     Financial Corporation also operates as a life and disability insurance
     agent, collecting premiums on policies sold to Bank borrowers.  In 1988,
     Stockton Financial contracted with Marketing One, a licensed insurance and
     securities brokerage firm, to offer single-premium deferred annuities and
     securities products to Bank depositors.  Stockton Financial Corporation
     receives a commission on all products sold.  During 1995, commissions
     earned from Marketing One sales totalled $573,000 compared to commissions
     of $724,000 and $1.2 million recorded in 1994 and 1993, respectively.  The
     1995 after-tax income of Stockton Financial was $396,000, compared to
     $471,000 and $738,000 in 1994 and 1993, respectively.  This year's decline
     in income was due entirely to the lower level of Marketing One commissions
     earned.  The Bank's investment in this subsidiary totalled $177,000 at
     December 31, 1995.  The Subsidiary is incorporated in the State of
     California.

     COMPETITION AND ECONOMIC CONDITIONS

          The Bank's principal competitive market is in San Joaquin and
     Stanislaus counties in the northern part of California's Central Valley. 
     The Bank competes for real estate loans against other savings and loan
     associations, mortgage companies, banks, insurance companies, government
     agencies and real estate investment trusts.  Interest rates, loan fee
     charges, types of mortgages and quality of services rendered are the
     primary competitive factors.  The Bank is the largest real estate lender
     in San Joaquin County and one of the largest in Stanislaus County. 

                                          33
<PAGE>






     Competition has increased substantially as many major California savings
     and loan associations, banks and mortgage brokers have come to the
     Northern Central Valley looking for lending opportunities.  In order to
     continue to grow, the Bank continued to focus in 1995 on expanding lending
     activities to surrounding areas such as greater Sacramento and Fresno.

          The Bank competes for deposits against other savings and loan
     associations, commercial banks, brokerage firms, money market funds and
     credit unions.  Primary competitive factors include convenience of office
     location and hours, available services and rates of return on invested
     funds.  The Bank's offices held $573 million in deposits in San Joaquin
     County, $190 million in Stanislaus County and an additional $197 million
     in other counties in Northern Central California at December 31, 1995.  In
     terms of market share of deposits, the Bank is among the largest in both
     San Joaquin and Stanislaus counties.

          It is anticipated that the Bank will continue to be a major
     participant in the real estate lending market in its area and in outlying
     areas, as well as a viable force in attracting savings capital to fund
     lending demands.

































                                          34
<PAGE>






     EMPLOYEES

          The Bank had 345 full-time equivalent employees, including executive
     personnel on December 31, 1995.  Employee relations are considered
     excellent.  Employees are not represented by any collective bargaining
     agent.  The Bank provides employees with health, major medical and life
     insurance benefits and maintains a 401k plan.

     REGULATION OF THE COMPANY

          HOME OWNERS' LOAN ACT.  The Company is subject to regulation as a
     savings and loan holding company under the Home Owners' Loan Act ("HOLA"). 
     As such, the Company is subject to regulations of the OTS, as well as
     examinations and reporting requirements relating to savings and loan
     holding companies.  In addition, the OTS has enforcement authority over
     the Company and the Bank.  Among other things, this authority permits the
     OTS to restrict or prohibit activities that are determined to be a serious
     risk to the Bank.  See "Regulation of the Bank -- Enforcement Authority."

          The Company is a nondiversified unitary savings and loan holding
     company.  As a unitary savings and loan holding company, the Company
     generally is not subject to activity restrictions, as long as the Bank
     remains a qualified thrift lender ("QTL").  If the Bank fails the QTL
     test, the Company may not engage in or continue after such failure,
     directly or through its other subsidiaries, any business activities not
     permitted to multiple savings and loan holding companies or their
     subsidiaries.  In addition, the Company would have to register as and be
     subject to limits on a bank holding company if the Bank ceased to be a
     QTL.  The Federal Deposit Insurance Corporation Improvement Act of 1991
     ("FDICIA"), made certain changes to the QTL test.  See "Regulation of the
     Bank -- Qualified Thrift Lender Test" and "FDICIA."

          RESTRICTIONS ON ACQUISITION.  If the Company acquires control of
     another savings institution as a separate subsidiary, the Company would
     become a multiple savings and loan holding company, and the activities of
     the Company and any of its subsidiaries (other than the Bank or any other
     savings association) would become subject to restrictions under HOLA.  No
     multiple savings and loan holding company or subsidiary thereof that is
     not a savings association may commence, or continue for more than two
     years after becoming a multiple savings and loan holding company or
     subsidiary thereof, any business activity other than (i) furnishing or
     performing management services for a subsidiary savings association; (ii)
     conducting an insurance agency or an escrow business; (iii) holding,
     managing or liquidating assets owned or acquired from a savings
     association subsidiary; (iv) holding or managing properties used or
     occupied by a subsidiary savings association; or (v) acting as a trustee
     under deeds of trust.  In addition, unless prohibited or limited by the
     OTS, a multiple savings and loan holding company may engage in nonbanking
     activities permissible for bank holding companies, including, but not
     limited to, investment advice, leasing, underwriting credit insurance,
     management consulting services, and securities brokerage activities, as
     the Federal Reserve Board ("FRB") determines under Section 4(c)(8) of the

                                          35
<PAGE>






     Bank Holding Company Act of 1956 ("Bank Holding Company Act"), and may
     engage in those activities authorized by the FHLBB, the predecessor to the
     OTS, for multiple savings and loan holding companies as of March 5, 1987. 
     A multiple savings and loan holding company must obtain prior OTS approval
     before it may engage in any particular activity permissible for bank
     holding companies under Section 4(c)(8) of the Bank Holding Company Act. 
     Moreover, the insured depository institution subsidiaries of a multiple
     savings and loan holding company are subject to the provisions of the
     Federal Deposit Insurance Act ("FDI Act") added by the Financial
     Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"),
     which imposes liability for losses incurred by the FDIC in connection with
     the default of, or assistance provided to, a commonly controlled insured
     depository institution.

          The Company must obtain approval from the OTS before acquiring
     control of any other FDIC-insured Savings Association Insurance Fund
     ("SAIF") member savings association or a savings and loan holding company. 
     Such acquisitions are generally prohibited if they result in a multiple
     savings and loan holding company controlling savings associations in more
     than one state.  However, such interstate acquisitions are permitted based
     on specific state authorization or in a supervisory acquisition of a
     failing savings association.

          The Company and any nonsavings association subsidiary thereof may
     acquire up to 5%, in the aggregate, of the voting stock of any
     nonsubsidiary savings association or savings association holding company
     without being deemed to acquire "control" of the association or holding
     company.  In addition, a savings and loan holding company may hold shares
     of a savings association or a savings and loan holding company for certain
     purposes, including as a bona fide fiduciary, as an underwriter or in an
     account solely for trading purposes.

          The OTS has adopted a regulation that requires persons or companies
     that control a savings association and are subject to capital maintenance
     agreements with respect thereto to provide the OTS with notice prior to
     divesting control of the association.  A divestiture may be completed only
     upon providing such notice and paying or agreeing to pay any amount then
     due under the capital maintenance obligation.  The OTS may conduct an
     examination of the association to determine whether any capital deficiency
     exists.

          The Company entered into a capital maintenance agreement with the OTS
     in connection with the holding company reorganization of the Bank. 
     Accordingly, this regulation would apply to the Company if it ever sought
     to divest control of the Bank.  The Company currently has no plans to
     divest control of the Bank.

          RESTRICTIONS ON ACQUISITION.  Under the Bank Holding Company Act, the
     approval of the FRB would be required before any company that controlled a
     "bank" as defined in the Bank Holding Company Act (e.g., a commercial
     bank) could acquire and operate a savings association, such as the Bank. 
     The Change in Bank Control Act and the savings and loan holding company

                                          36
<PAGE>






     provisions of the Home Owners' Loan Act, together with the regulations of
     the OTS under those Acts, require that the consent or nondisapproval of
     the OTS be obtained prior to any person or company acquiring "control" of
     a savings association or a savings and loan holding company.  Under the
     OTS regulations, control is conclusively presumed to exist if an
     individual or company acquires more than 25% of any class of voting stock
     of the association.  Control is rebuttably presumed to exist if a person
     acquires more than 10% of any class of voting stock (or more than 25% of
     any class of nonvoting stock) and is subject to any of several "control
     factors."  The control factors relate, among other matters, to the
     relative ownership position of a person, the percentage of debt and/or
     equity of the association controlled by the person, agreements giving the
     person influence over a material aspect of the operations of the
     association and the number of seats on the board of directors of the
     association held by the person or his designees.  The regulations provide
     a procedure for challenge of the rebuttable control presumption. 
     Restrictions applicable to the operations of savings and loan holding
     companies and conditions imposed by the OTS in connection with its
     approval of companies to become savings and loan holding companies may
     deter companies from seeking to obtain control of the Company.

          TRANSACTIONS WITH AFFILIATES.  The Bank's authority to engage in
     transactions with related parties or "affiliates," including the Company
     and any nonsavings association subsidiaries of the Company, is limited by
     certain provisions of law and regulations. Savings associations are
     prohibited from making extensions of credit to any affiliate that engages
     in an activity not permissible under the regulations of the FRB for a bank
     holding company.  In addition, savings associations, such as the Bank, are
     subject to substantially similar restrictions regarding affiliate
     transactions to those imposed upon member banks under Section 23A and 23B
     of the Federal Reserve Act.  The affiliates of the Bank include persons
     who directly or indirectly own, control or vote more than 25% of any class
     of stock of the Bank, any other persons who exercise a controlling
     influence over the management of the Bank, any company controlled by
     controlling stockholders of the Bank or with a majority of interlocking
     directors with the Bank, any company sponsored and advised on a
     contractual basis by the Bank and any company (other than a subsidiary)
     under common control with the Bank, as "control" is defined in the
     regulations of OTS relating to changes in control.  See "Restrictions on
     Acquisition."  Transactions between the Bank and its affiliates are
     subject to certain requirements and limitations.  Among other things,
     these provisions limit the amounts of such transactions that may be
     undertaken with any one affiliate and with all affiliates in the aggregate
     and require that transactions with affiliates be on terms and conditions
     comparable to those for similar transactions with unaffiliated parties. 
     The Director of the OTS may further restrict such transactions in the
     interest of safety and soundness.

          FEDERAL SECURITIES LAWS.  The Company is subject to the reporting
     requirements of the Securities Exchange Act of 1934 and, accordingly, is
     required to file periodic and other reports with the Securities and
     Exchange Commission ("SEC").

                                          37
<PAGE>






          PAYMENT OF DIVIDENDS.   Under Delaware law, dividends generally may
     be paid in cash or in property owned by the Company only from the profits
     and earned surplus of the Company and only when the Company does not have,
     and the payment of a dividend would not create, a capital deficit.

          The Company's principal source of income, however, is dividends to
     the extent declared and paid by the Bank.  Existing restrictions on the
     Bank's ability to pay dividends to the Company may impact the Company's
     ability to pay dividends to stockholders.  Current OTS regulations require
     the Bank to give the OTS 30 days advance notice of any proposed
     declaration of dividends to the Company, as its holding company. 
     Furthermore, the right of the Company to receive dividends from the Bank
     will be subject to the right of the OTS to object to such dividends under
     certain circumstances.  See "Regulation of the Bank -- Capital
     Distributions." 

     REGULATION OF THE BANK

          GENERAL.  The Bank is a federally-chartered stock savings bank, the
     deposits of which are insured by the FDIC through the SAIF.  The Bank
     converted from a California-chartered savings and loan association to a
     federally-chartered savings bank on June 29, 1990.  The Bank is subject to
     broad federal regulation and oversight extending to all aspects of its
     operations.  The OTS has extensive authority over the operations of the
     Bank.  As part of this authority, the Bank is required to file periodic
     reports with the OTS and is subject to periodic examinations by the OTS. 
     The Bank is also a member of the FHLB of San Francisco and is subject to
     certain limited regulation by the FRB.

          The investment and lending authority of the Bank is prescribed by
     federal laws and regulations, and the Bank is prohibited from engaging in
     any activities not permitted by such laws and regulations.  These laws and
     regulations generally prohibit the Bank's investment in real estate (other
     than that acquired through, or in lieu of, foreclosure or used by the Bank
     for offices and related facilities) and equity securities of companies
     that are not subsidiaries, and limit to a specified percentage of assets
     the Bank's investment in service corporations, consumer loans, tangible
     personal property, commercial loans, corporate debt securities, and
     nonresidential real estate loans.

          FIRREA acts as a deterrent to investment by savings associations in
     subsidiaries such as SSC that engage in activities that are not
     permissible for national banks by imposing higher capital requirements on
     such investments.  See "Capital Requirements."

          A savings association seeking to establish or acquire a new
     subsidiary, or conduct any new activity through a subsidiary, must provide
     30 days' prior notice to the FDIC and the OTS and conduct the activities
     of the subsidiary in accordance with OTS orders and regulations.  The
     Director of the OTS has the power to force divestiture of any subsidiary
     or termination of any activity the Director determines to be a serious
     threat to the safety, soundness or stability of such savings association

                                          38
<PAGE>






     or otherwise to be inconsistent with sound banking principles. 
     Additionally, the FDIC is authorized to determine whether any specific
     activity poses a threat to the SAIF and to prohibit any SAIF member from
     engaging directly in such activity, even if it is an activity that is
     permissible for a federally-chartered savings association.

          CAPITAL REQUIREMENTS. General.  The Bank must meet three primary
     capital requirements: a leverage requirement, a tangible capital
     requirement, and a risk-based capital requirement.  As of December 31,
     1994, the Bank was in compliance with all three requirements, as described
     in the following paragraphs:

          LEVERAGE REQUIREMENT.  The leverage requirement mandates that a
     savings association maintain "core capital" of at least 3% of its adjusted
     total assets.  For purposes of this requirement, total assets are adjusted
     to exclude intangible assets and investments in certain subsidiaries and
     to include the assets of certain other subsidiaries, certain intangibles
     arising from prior period supervisory transactions, and permissible
     mortgage servicing rights.  "Core capital" includes (i) common
     stockholders' equity and retained earnings, noncumulative preferred stock
     and related earnings and minority interests in the equity accounts of
     consolidated subsidiaries, minus (ii) the sum of those intangibles
     (including goodwill) and investments in subsidiaries not permitted as
     capital for national banks and those mortgage servicing rights not
     includable in core capital. 

          Intangible assets such as core deposit premiums are generally
     deducted from core capital.  FIRREA also requires deductions from core
     capital for certain investments in service corporations and other
     subsidiaries.  In determining core capital, all investments in and loans
     to subsidiaries engaged in activities not permissible for national banks
     (which are generally more limited than activities permissible for savings
     associations and their subsidiaries), after April 12, 1989, must generally
     be deducted in calculating a savings association's core capital.  This
     exclusion of investments in and loans to pre-existing subsidiaries engaged
     in activities not permissible for national banks as of April 12, 1989 is
     generally phased in through June 30, 1994.  However, Section 953 of the
     Housing and Community Development Act of 1992 authorizes the Director of
     OTS to prescribe by order greater percentages than the foregoing for
     specified associations until June 30, 1996.  The Bank was granted an
     extension by OTS, which allowed the inclusion of the lesser of the
     investments in and loans to impermissible subsidiaries on April 12, 1989
     or as of the calculation of capital date, to remain at the rate of 75%
     through June 30, 1994.  The applicable percentage was reduced to 60% on
     July 1, 1994 and to 40% on July 1, 1995.  After June 30, 1996, the
     percentage will be zero.  Generally, except for special rules applicable
     during the phase-out of investments in nonconforming subsidiaries and
     except for subsidiaries that are insured depository institutions, all
     subsidiaries engaged in permissible activities are required to be
     consolidated for purposes of calculating capital compliance by the parent.



                                          39
<PAGE>






          SSC, the wholly-owned subsidiary service corporation of the Bank, is
     engaged in real estate development, an activity impermissible for the
     Bank.  Accordingly, loans to and investments in SSC by the Bank must be
     deducted from the Bank's capital.  The amount of loans and investments
     made on or prior to April 12, 1989 must be deducted in accordance with the
     phase-out schedule described above; currently, 60% of such loans and
     investments must be deducted.  In addition, the total dollar amount of
     loans and investments made subsequent to April 12, 1989, must be deducted
     immediately from capital.

          As of December 31, 1995, 60% of loans to and investments in SSC made
     on or prior to April 12, 1989 or $5.3 million was deducted from the Bank's
     capital in accordance with the amended schedule set forth above; and $3.6
     million was still included in the Bank's regulatory capital.  As of
     July 1, 1996, none of the loans and investments will be includable in the
     Bank's capital for regulatory purposes.

          TANGIBLE CAPITAL REQUIREMENT.  The tangible capital requirement
     mandates that a savings association maintain tangible capital of at least
     1.5% of adjusted total assets.  For purposes of this requirement, adjusted
     total assets are calculated on the same basis as for the leverage limit. 
     Tangible capital is defined in the same manner as core capital, except
     that all formerly includable goodwill must be deducted.  Because the Bank
     has no goodwill, its tangible capital is equal to its core capital.

          RISK-BASED CAPITAL REQUIREMENT.  The risk-based requirement
     promulgated by the OTS is required by FIRREA to track the standard
     applicable to national banks, except as the OTS may determine to reflect
     interest rate and other risks not specifically included in that standard. 
     However, such deviations from the national bank standard may not result in
     a materially lower risk-based requirement for savings associations than
     for national banks.  The risk-based standard adopted by the OTS is similar
     to the standard prescribed by the Office of the Controller of the Currency
     ("OCC") for national banks.  Although the OTS has adopted regulations that
     require associations with significantly more than normal interest rate
     risk to meet higher risk-based capital requirements, the effective date
     for these regulations has been deferred indefinitely.  See "Interest Rate
     Risk Component" below.

          The risk-based standards of the OTS require maintenance of core
     capital equal to at least 4% of risk-weighted assets and total capital
     equal to at least 8% of risk-weighted assets.  Total capital includes core
     capital plus supplementary capital (except that includable supplementary
     capital may not exceed core capital).  Supplementary capital includes:
     cumulative perpetual preferred stock; mutual capital, income capital and
     net worth certificates; nonwithdrawable accounts and pledged deposits to
     the extent not included in core capital; perpetual and mandatory
     convertible subordinated debt and maturing capital instruments meeting
     specified requirements; and general loan loss allowances, up to a maximum
     of 1.25% of risk-weighted assets. 



                                          40
<PAGE>






          In determining the amount of risk-weighted assets, all assets,
     including certain off-balance sheet assets, are multiplied by a risk
     factor ranging from 0% to 100%, as assigned by the OTS based on the risks
     it believes are inherent in the type of asset. Comparable weights are
     assigned to off-balance sheet activities.  

          See Management's Discussion and Analysis of Financial Condition and
     Results of Operations, Item 7, for a more detailed discussion of the
     Bank's regulatory capital position.

          INTEREST RATE RISK COMPONENT.  On August 31, 1993, the OTS issued a
     final rule that a savings association's risk-based capital requirement
     would be based, in part, on the level of its exposure to interest rate
     risk.  However, the initial effective date of the regulation has been
     postponed indefinitely.  Under this rule, an association with a greater
     than normal level of interest rate risk is subject to an "add on" to its
     risk-based capital requirements.  This "add on" equals 50% of the decline
     in the market value of the association's assets that would result from
     either a 200-basis point increase or a 200-basis point decrease in market
     interest rates, whichever results in a greater decline.  Management
     believes that, if the interest rate risk regulation had been effective as
     of December 31, 1995, it would not have reduced the amount of the Bank's
     risk-based capital available to meet its risk-based capital requirement.

          FAILURE TO MEET REQUIREMENTS.  Any savings association that fails to
     meet its regulatory capital requirements is subject to enforcement actions
     by the OTS or the FDIC.  A savings association that fails to meet its
     capital requirements may not increase its liabilities during any two
     consecutive calendar quarters at a rate in excess of 12.5% or make any
     capital distributions without regulatory approval.  See "Capital
     Distributions."  The OTS must limit the asset growth of any
     undercapitalized association and issue a capital directive against the
     association.  Associations may seek exemptions from the various sanctions
     or penalties for failure to meet their capital requirements (other than
     appointment of a conservator or receiver); however, exemptions are not
     allowed with respect to mandatory growth restrictions.  

          The FDICIA authorizes and, under certain circumstances, requires the
     OTS to take certain actions against associations that fail to meet certain
     new capital-based requirements.  See "FDICIA".

          CAPITAL DISTRIBUTIONS.  Limitations are imposed by OTS regulation
     upon all "capital distributions" by savings associations, including cash
     dividends, payments by institutions in a cash-out merger and other
     distributions charged against capital.  A three-tiered system of
     regulation is established, with the greatest flexibility afforded to well
     capitalized institutions.  Under the capital distribution regulation, an
     association that immediately prior to a proposed capital distribution, and
     on a pro forma basis after giving effect to a proposed capital
     distribution, has capital that is equal to or greater than the amount of
     its fully phased-in capital requirement is a Tier 1 association ("Tier 1
     Association"). 

                                          41
<PAGE>






          An association that immediately prior to a proposed capital
     distribution, and on a pro forma basis after giving effect to a proposed
     capital distribution, has capital that is equal to or in excess of its
     minimum capital requirement is a Tier 2 association ("Tier 2
     Association").

          An association that immediately prior to a proposed capital
     distribution, and on a pro forma basis after giving effect to a proposed
     capital distribution, has capital that is less than its minimum regulatory
     capital requirement is a Tier 3 association ("Tier 3 Association").

          The Bank currently qualifies as a Tier 1 Association and, as such, is
     authorized to make capital distributions during a calendar year up to the
     higher of:  A) 100 percent of net income to date during the calendar year
     plus the amount that would reduce by one-half its surplus capital ratio at
     the beginning of the calendar year; or B) 75% of its net income over the
     most recent four-quarter period.

          QUALIFIED THRIFT LENDER TEST.   Under the QTL test, an association
     must have invested at least 65% of its portfolio tangible assets in
     qualifying investments and must maintain this level of qualifying
     investments, measured on a monthly average basis, in 9 out of every 12
     months.

          Portfolio tangible assets are defined as total assets less
     intangibles, properties used to conduct business and liquid assets (up to
     20% of total assets).  The following assets may be included as qualifying
     investments without limit: domestic residential housing or manufactured
     housing loans; home equity loans and mortgage-backed securities backed by
     residential housing or manufactured housing loans; FHLB stock; and certain
     obligations of the FDIC and certain other related entities.  Other
     qualifying assets, which may be included up to an aggregate of 20% of
     portfolio assets, are:  (i) 50% of originated residential mortgage loans
     sold within 90 days of origination; (ii) investments in debt or equity of
     service corporations that derive 80% of their gross revenues from housing-
     related activities; (iii) 200% of certain loans to and investments in low
     cost, one-to-four family housing; (iv) 200% of loans for residential real
     property, churches, nursing homes, schools and small businesses in areas
     where the credit needs of low to moderate income families are not met; (v)
     other loans for churches, schools, nursing homes and hospitals; (vi)
     consumer and education loans up to 10% of total portfolio assets; and
     (vii) stock of the FHLMC or Federal National Mortgage Association.  

          As of December 31, 1995, the Bank was in full compliance with the QTL
     test.   

          Any savings association that fails to meet the QTL test must convert
     to a commercial bank charter, unless it requalifies as a QTL on an average
     basis in at least three out of every four quarters for two out of three
     years and thereafter remains a QTL.  If an institution that fails the QTL
     test has not yet requalified and has not converted to a commercial bank,
     its new investments and activities are limited to those permissible for a

                                          42
<PAGE>






     national bank, and it is limited to national bank branching rights in its
     home state.  In addition, the institution is immediately ineligible to
     receive any new FHLB advances and is subject to national bank limits for
     payment of dividends.  If such association has not requalified or
     converted to a commercial bank charter three years after the failure, it
     must divest all investments and cease all activities not permissible for a
     national bank.  In addition, it must repay promptly any outstanding FHLB
     advances.  If any institution that fails the QTL test and is subject to
     these restrictions on activities is controlled by a holding company, then,
     within one year after the failure, the holding company must register as a
     bank holding company and would be subject to all restrictions on bank
     holding companies.  These restrictions would limit the activities of the
     holding company to those activities that the FRB has determined are
     closely related to banking.  Certain temporary and limited exceptions from
     meeting the QTL test may be granted by the OTS.

          LIQUIDITY.  All savings associations, including the Bank, are
     required to maintain an average daily balance of liquid assets equal to a
     certain percentage of the sum of average daily balances of net
     withdrawable deposit accounts and borrowings payable in one year or less. 
     The liquidity requirement may vary from time to time (between 4% and 10%)
     depending upon economic conditions and savings flows of all savings
     associations.  At the present time, the required liquid asset ratio is 5%. 
     Short-term liquid assets currently must constitute at least 1% of the
     institution's average daily balance of net withdrawable deposit accounts
     and current borrowings.

          Liquid assets for purposes of this ratio include specified short-term
     assets (e.g., cash, certain time deposits, certain bankers acceptances and
     short-term U.S. treasury obligations) and long-term assets (e.g., U.S.
     treasury obligations of more than one and less than five years and certain
     federal and state agency obligations).  The regulations governing
     liquidity requirements include as liquid assets debt securities hedged
     with forward commitments obtained from, or debt securities subject to
     repurchase agreements with, members of the Association of Primary Dealers
     in U.S. Government securities or banks whose accounts are insured by the
     FDIC, debt securities directly hedged with a short financial futures
     position, and debt securities that provide the holder with a right to
     redeem the security at par value, regardless of the stated maturities of
     such securities.  The OTS may designate as liquid assets certain mortgage
     related securities and certain mortgage loans qualifying as backing for
     certain mortgage-backed securities with less than one year to maturity. 
     Penalties may be imposed upon associations for violations of liquidity
     requirements.  At December 31, 1995, the Bank was in compliance with these
     requirements, with an overall liquidity ratio of 6.18% and a short-term
     liquidity ratio of 1.81%.

          TRANSACTIONS WITH RELATED PARTIES.  Transactions involving  a savings
     association and its affiliates are subject to Sections 23A and 23B of the
     Federal Reserve Act.  See "Regulation of the Company -- Transactions with
     Affiliates."


                                          43
<PAGE>






          In addition, the Bank is subject to various limitations and
     requirements with respect to extensions of credit to insiders as set forth
     in Sections 22(g) and (h) of the Federal Reserve Act and as implemented by
     Regulation O of the FRB.  Pursuant to Section 22(g) and relevant
     regulations, the Bank may not extend credit to an individual executive
     officer in an amount in excess of $100,000, subject to certain limited
     exceptions for first mortgage or educational loans.  Section 22(h)
     requires that all extensions of credit to insiders, who include executive
     officers, directors, and principal shareholders, be on nonpreferential
     terms and be made consistent with specified procedural requirements. 
     Section 22(h) also limits extensions of credit to any one insider and his
     or her related interests generally to 15% of unimpaired capital and
     unimpaired surplus, subject to certain exceptions, and limits the
     aggregate level of extensions of credit by a depository institution to all
     of its insiders and their related interests to 100% of the institution's
     capital.

          The Bank believes that it is in compliance with all relevant
     limitations on transactions with affiliates and insiders.

          BRANCHING AND MERGERS.  As a federal savings bank, the Bank may
     establish branch offices and merge only in accordance with OTS regulations
     and with OTS approval.  Pursuant to these regulations, a federal savings
     bank is authorized to branch nationwide except in certain limited
     circumstances, provided that the association satisfies certain tests
     relating to its asset composition based upon criteria set forth in the
     Internal Revenue Code of 1986, (the "Code") as amended (see "Federal and
     State Taxation"), and OTS approval for the branch is obtained.  

          LENDING LIMITATIONS.  FIRREA reduced the amount a savings association
     is permitted to lend to one borrower to the greater of $500,000 or 15% of
     an association's unimpaired capital and unimpaired surplus (subject to
     certain exceptions, including higher limits for loans fully secured by
     certain readily marketable collateral and for loans to develop domestic
     residential housing units if certain requirements are met and OTS approval
     is obtained).

          This limitation is applicable on a prospective basis only.  At
     December 31, 1995, the maximum amount that the Bank could lend to one
     borrower (and related entities) under the limit imposed by FIRREA was
     approximately $12.6 million.  At that date, the largest amount of loans
     that the Bank had outstanding to any one borrower was approximately $8.3
     million.

          ENFORCEMENT AUTHORITY.  The OTS has extensive enforcement authority
     over all savings associations, including the Bank and the Company.  This
     enforcement authority includes, among other things, the ability to assess
     civil money penalties, to issue cease and desist or removal orders and to
     initiate injunctive actions.  In general, these enforcement actions may be
     initiated for violations of laws and regulations and unsafe or unsound
     practices.  Other actions or inactions may provide the basis for
     enforcement action, including misleading or untimely reports filed with

                                          44
<PAGE>






     the OTS.  FIRREA significantly increased the amount of and grounds for
     civil money penalties.

          The grounds for appointment of a conservator or receiver for a
     savings association include: insolvency in that the assets of the
     association are less than its liabilities to depositors and others,
     substantial dissipation of assets or earnings through violations of law or
     unsafe or unsound practices, existence of an unsafe or unsound condition
     to transact business, likelihood that the association will be unable to
     meet the demands of its depositors or to pay its obligations in the normal
     course of business, and insufficient capital or the incurring or likely
     incurring of losses that will deplete substantially all of the
     institution's capital with no reasonable prospect for replenishment of
     capital without federal assistance.

          INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC.  The Bank's
     deposits are insured up to $100,000 per insured depositor (as defined by
     law and regulation) by the FDIC through the SAIF.  The SAIF is
     administered and managed by the FDIC.  As insurer, the FDIC is authorized
     to conduct examinations of and to require reporting by SAIF member
     institutions.  The FDIC may prohibit any SAIF member institution from
     engaging in any activity the FDIC determines by regulation or order poses
     a serious threat to the SAIF.  The FDIC also has the authority to initiate
     enforcement actions against savings associations, after first giving the
     OTS an opportunity to take such action.

          Since January 1, 1994, the annual FDIC deposit insurance assessment
     rate for SAIF members has varied between 0.23% and 0.31% of insured
     deposits, depending upon the classifications of each institution made by
     the FDIC based upon the association's capital level and a supervisory
     evaluation by the institution's primary federal supervisor and, if
     appropriate, state supervisor.  During the year ended December 31, 1995,
     the Bank incurred $2.3 million in expenses for deposit insurance.  On
     November 14, 1995, the FDIC adopted a resolution to reduce the assessment
     rates for Bank Insurance Fund ("BIF") members to a range of 0 to 27 basis
     points.  The action could have negative implications for the Bank in its
     ability to compete with BIF insured institutions.

          As part of the funding of the resolution of insolvency of the FSLIC,
     Congress created the Financing Corporation and the Resolution Funding
     Corporation ("REFCO").  Each of these entities, under specified
     conditions, may assess premiums on SAIF member associations.  Such
     premiums may not exceed assessments able to be made by the SAIF and are
     payable in lieu thereof.  FIRREA provides that the Treasury Department
     shall make contributions to the SAIF, if assessments actually paid to it
     are insufficient to maintain certain statutorily prescribed capital levels
     for the SAIF.

          The FDIC may terminate the deposit insurance of any insured
     depository institution, including the Bank, if it determines, after a
     hearing, that the institution has engaged or is engaging in unsafe or
     unsound practices, is in an unsafe or unsound condition to continue

                                          45
<PAGE>






     operations or has violated any applicable law, regulation, order or any
     condition imposed in writing by the FDIC.  It also may suspend deposit
     insurance temporarily during the hearing process for the permanent
     termination of insurance if the institution has no tangible capital.  If
     deposit insurance is terminated, the deposits at the institution at the
     time of the termination, less subsequent withdrawals, continue to be
     insured for a period of six months or two years, as determined by the
     FDIC.

          FEDERAL HOME LOAN BANK SYSTEM.  The Bank is a member of the FHLB of
     San Francisco, which is 1 of 12 regional FHLBs which are subject to
     oversight by the Federal Housing Finance Board ("FHFB").  As a member of
     the FHLB system, the Bank is required to purchase and maintain stock in
     the FHLB of San Francisco in an amount equal to the greater of 1% of its
     aggregate unpaid residential mortgage loans, home purchase contracts or
     similar obligations at the beginning of each year, 0.3% of its assets, or
     5% (or such greater fraction as established by the FHLB) of outstanding
     FHLB advances.  At December 31, 1995, the Bank had $10.4 million in FHLB
     stock, which was in compliance with this requirement.  At December 31,
     1995, the Bank had $162.5 million in FHLB advances outstanding.

          Each FHLB serves as a reserve or central bank for its members within
     its assigned region.  It is funded primarily from proceeds derived from
     the sale of consolidated obligations of the FHLB System.  It makes
     advances to members (i.e., loans) in accordance with policies and
     procedures established by the board of directors of the FHLB.  These
     policies and procedures are subject to the regulation and oversight of the
     FHFB.

          FIRREA established collateral requirements for FHLB advances.  All
     long-term advances are required to provide funds for residential home
     financing, and members must meet standards of community service to
     maintain access to long-term advances.

          In past years, the Bank has received substantial dividends on its
     FHLB stock.  During the past 5 years, such dividends have averaged 4.29%
     and were 4.90%  or $501,000 for fiscal year 1995. Certain provisions of
     FIRREA require all 12 FHLBs to contribute funds to REFCO.  In addition,
     pursuant to FIRREA, each FHLB is required to establish programs for
     affordable housing that involve interest subsidies from the FHLBs on
     advances to members engaged in lending at subsidized interest rates for
     low and moderate income, owner-occupied housing and affordable rental
     housing, and certain have adversely affected other community purposes. 
     These contributions affect the level of FHLB dividends paid and the value
     of FHLB stock, as well as interest rates payable on FHLB advances.

          FEDERAL RESERVE SYSTEM.  The FRB requires all depository institutions
     to maintain reserves against their transaction accounts (primarily NOW and
     Super NOW checking accounts) and nonpersonal time deposits.   At December
     31, 1995, the Bank was in compliance with these reserve requirements.  The
     balances maintained to meet the reserve requirements imposed by the FRB


                                          46
<PAGE>






     may be used to satisfy liquidity requirements that may be imposed by the
     OTS.  See "Liquidity."

          Savings associations are authorized to borrow from the FRB "discount
     window"; but FRB regulations require associations to exhaust other
     reasonable alternative sources of funds, including FHLB advances, before
     borrowing from the FRB.

          FDICIA.  On December 19, 1991, FDICIA was enacted to recapitalize the
     Bank Insurance Fund and impose certain supervisory and regulatory reforms
     on insured depository institutions.

          FDICIA required the federal banking agencies, including the OTS, to
     establish the levels at which insured depository institutions are well
     capitalized, adequately capitalized, undercapitalized, significantly
     undercapitalized, or critically undercapitalized.  As a result, the
     federal banking agencies established the following applicable capital
     levels for institutions within their jurisdictions:  well capitalized
     institutions have a total risk-based capital ratio of 10.0% or greater, a
     Tier 1 risk-based capital ratio of 6.0% or greater and a leverage ratio of
     5.0% or greater; adequately capitalized institutions have a total risk-
     based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio
     and leverage ratio of 4.0% or greater; undercapitalized institutions have
     a total risk-based capital ratio below 8.0% or a Tier 1 risk-based capital
     ratio or leverage ratio below 4.0%; significantly undercapitalized
     institutions have a total risk-based capital ratio below 6.0% or a Tier 1
     risk-based capital ratio or leverage ratio below 3.0%; and critically
     undercapitalized institutions have a ratio of tangible equity to total
     assets equal to or below 2.0%.  The Bank was considered well capitalized
     under the above definition as of December 31, 1995 as its total risk-
     based, Tier 1 risk-based and leverage ratios were 12.12%, 11.16% and
     6.07%, respectively.

          Undercapitalized institutions are required to submit capital
     restoration plans to the appropriate federal banking regulator and are
     subject to certain operational restrictions.  Moreover, companies
     controlling an undercapitalized institution are required to guarantee the
     subsidiary institution's compliance with the capital restoration plan
     subject to an aggregate limitation of the lesser of 5% of the
     institution's assets or the amount of the capital deficiency when the
     institution first failed to meet the plan.

          Significantly or critically undercapitalized institutions and
     undercapitalized institutions that do not submit or comply with acceptable
     capital restoration plans are subject to one or more of an enumerated
     group of more stringent sanctions than those applied to undercapitalized
     institutions.  A forced sale of shares or merger, restrictions on
     affiliate transactions and restrictions on rates paid on deposits must be
     imposed by the regulator unless the regulator determines that they would
     not resolve problems of insured depository institutions at the least
     possible long-term loss to the deposit insurance fund.


                                          47
<PAGE>






          A critically undercapitalized institution is prohibited from making
     payments on subordinated debt and engaging in certain other corporate
     transactions without regulatory approval.  FDICIA generally requires the
     appointment of a conservator or receiver within 90 days after an
     institution becomes critically undercapitalized.

          On July 10, 1995, the federal bank regulatory agencies published
     minimum operational standards, including standards with respect to
     internal controls, loan documentation, credit underwriting and
     compensation arrangements.  Institutions failing to meet one or more of
     the operational standards may be required to submit corrective plans and
     may be subject to sanctions for failure to submit or comply with a plan. 
     The acceptance and renewal of brokered deposits is limited generally to
     well capitalized institutions.

          FDICIA provides for certain consumer and low and moderate income
     lending and deposit programs and increases the aggregate authority of
     federal savings associations to invest in consumer loans, corporate debt
     securities and commercial paper from 30% to 35% of assets.

          ACCOUNTING.  FIRREA requires the OTS to establish accounting
     standards to be applicable to all savings associations for purposes of
     complying with regulations, except to the extent otherwise specified in
     the capital standards.  Such standards must incorporate GAAP to the same
     degree as is prescribed by the federal banking agencies for banks or may
     be more stringent than such requirements.

          Under FDICIA, the federal bank regulatory agencies are required to
     adopt uniform capital and accounting rules with respect to reports filed
     with those agencies.  The accounting rules require the disclosure of the
     market value of assets and liabilities and the disclosure of contingent
     liabilities in the regulatory reports of a depository institution. The
     investment activities of a savings association must be in compliance with
     approved and documented investment policies and strategies and must be
     accounted for in accordance with GAAP.  Management must support its
     classification of and, to the extent feasible, accounting for loans and
     securities (i.e., whether held for investment, sale or trading) with
     appropriate documentation.  Management of the Bank believes that it is in
     compliance with these requirements.  At December 31, 1995, the Bank had
     designated approximately $13.2 million of loans as held for sale and
     approximately $261.3 million of investments and mortgage-backed securities
     as available for sale.  The effect of these requirements may be to reduce
     the ability of the Bank to respond in a timely manner to changes in the
     market for its investments without resulting in a change in the valuation
     of such investments from cost basis to market value.

          The Company will be implementing several new accounting standards in
     1996.  For a detailed discussion of the standards and their potential
     impact on the Company, see "Recent Accounting Developments" in
     Management's Discussion and Analysis of Financial Condition and Results of
     Operations, Item 7.  No new accounting standards were adopted in 1995.


                                          48
<PAGE>






     DELAWARE TAXATION

          As a Delaware holding company, the Company is exempted from Delaware
     corporate income tax but is required to file an annual report with and pay
     an annual fee to the State of Delaware.  The Company is also subject to an
     annual franchise tax imposed by the State of Delaware.















































                                          49
<PAGE>






     FEDERAL AND STATE TAXATION

          Under applicable provisions of the Code, thrift institutions who meet
     certain definitional tests related to the composition of assets and nature
     of their business, such as Stockton Savings, are permitted to establish
     reserves for bad debts and to make annual additions thereto that qualify
     as deductions from taxable income.  The amount allowable as a bad debt
     deduction is generally based upon a thrift institution's actual loss
     experience (the "experience method"), or a thrift institution may elect
     annually to compute the allowable addition to its bad debt reserves for
     "qualifying real property loans" (generally loans secured by improved real
     estate) by reference to a percentage of its taxable income (the
     "percentage of taxable income method").  The Bank used the percentage of
     taxable income method for 1994 and 1993.  The Bank expects to utilize this
     method in 1995.

          For taxable years beginning after 1986, a thrift institution's bad
     debt reserve deduction under the percentage of taxable income method (the
     "percentage bad debt deduction") is computed by multiplying its taxable
     income (before the percentage bad debt  deduction and certain other
     deductions) by 8%.  The percentage bad debt deduction thus computed is
     reduced by the amount permitted as a deduction for nonqualifying loans
     under the experience method.  The availability of the percentage of
     taxable income method permits qualifying thrift institutions to be taxed
     at a lower effective federal income tax rate than that generally
     applicable to corporations.  The effective maximum federal income tax rate
     applicable to a qualifying savings institution (exclusive of the
     corporation minimum tax), assuming the maximum percentage bad debt
     deduction, is approximately 31.3% (except for 1987 when, due to the 1986
     Act transition rules, the rate was 36.8%).

          For all taxable years, if an institution's specified qualifying
     assets constitute less than 60% of its total assets, the institution is
     not eligible to compute its bad debt deduction under the percentage of
     taxable income method.  In addition, certain large thrift institutions,
     such as the Bank, are required to recapture all or part of their existing
     bad debt reserve according to a statutory schedule in the event less than
     60% of the thrift's assets for any taxable year are specified assets. 
     (See also "Qualified Thrift Lender" above.)


          The percentage of taxable income method is available to thrift
     institutions only to the extent that (i) the amounts accumulated in
     reserves for losses on qualifying real estate loans do not exceed 6% of
     such loans outstanding at the end of the taxable year and (ii) the bad
     debt deduction does not exceed the amount by which 12% of the amount
     comprising savings accounts at year-end exceeds the sum of surplus,
     undivided profits and reserves at the beginning of the taxable year.  At
     December 31, 1995, the 6% and 12% limitations did not restrict the
     percentage bad debt deduction available to the Bank.



                                          50
<PAGE>






          Under the experience method, the bad debt deduction for an addition
     to the reserve for "qualifying real property loans" or "nonqualifying
     loans" is an amount determined under a formula based generally upon bad
     debts actually sustained by a thrift institution over a period of years.

          In addition to the regular income tax, corporations, including thrift
     institutions such as the Bank, generally are subject to the corporate
     minimum tax.  For taxable years beginning after 1986, the alternative
     minimum tax is imposed at a minimum tax rate of 20% on the sum of a
     corporation's regular taxable income (with certain adjustments) and tax
     preference items, less any available exemption.  For any taxable year
     beginning after 1986, the alternative minimum taxable income that may be
     offset by alternative minimum net operating losses is limited to 90%.  The
     alternative minimum tax is imposed to the extent it exceeds the
     corporation's regular income tax.  Payments of alternative minimum tax may
     be used as credits against regular tax liabilities in future years.  In
     addition, for taxable years beginning after 1986 and before 1996,
     corporations, including thrift institutions such as Stockton Savings, are
     also subject to an environmental tax equal to 0.12% of the excess of
     alternative minimum taxable income for the taxable year (determined
     without regard to net operating losses and the deduction for the
     environmental tax) exceeding $2 million.

          The "excess" portion of a thrift institution's bad debt reserves
     generally may be utilized only to absorb bad debt losses and to meet
     regulatory reserve requirements.  If such excess is used for any other
     purpose including the payment of cash dividends or other distributions to
     stockholders (including distributions on redemption or liquidation), the
     thrift institution would be treated for federal income tax purposes as
     having received taxable income in such an amount which, when reduced by
     the federal income tax liability, if any, attributable to the inclusion of
     such amount in gross income, is equal to the amount of such distribution. 
     The amount that would be deemed removed from the bad debt reserve in the
     event of such a distribution would be the amount treated as taxable income
     received.  Certain distributions (including dividends), however, made by
     thrift institutions to shareholders are treated as being made first out of
     current tax earnings and profits, next out of previously taxed earnings
     and profits and only then out of bad debt reserves.  The "excess" portion
     of such bad debt reserves means (a) that portion of the reserve for
     qualifying  real property loans that exceeds the allowable bad debt
     deduction amount computed using the experience method, plus (b) the
     supplemental reserve for losses on loans.  The Bank does not expect to
     make any distributions out of its excess bad debt reserves.

          In 1994, the Internal Revenue Service concluded its examination of
     the tax returns for tax years 1989 through 1992.  One of the issues raised
     by the IRS was the amortization of deposit base intangibles.  The issue
     was resolved under the IRS' Global Intangibles Settlement Offer.  Under
     this offer, taxpayers have the following options for amortization of
     certain intangibles:  a basis adjustment of the amortizable intangible or
     the extension of the assets' useful life. The Company accepted the useful


                                          51
<PAGE>






     life extension option.  The IRS did not make any other adjustments to the
     taxable income for the years under examination.

          The California franchise tax applicable to the Bank is a variable-
     rate tax.  This rate is computed under a formula that results in a rate
     higher than the rate applicable to nonfinancial corporations, because it
     reflects an amount "in lieu" of local personal property and business
     license taxes paid by such corporations (but not generally paid by banks
     or financial corporations such as the Bank).  The total tax rate was 11.3%
     in 1995, 11.47% in 1994 and 11.11% in 1993.  Under California regulations,
     bad debt deductions are available in computing California franchise taxes
     using a maximum reserve balance limitation computed based on a six or a
     three-year moving average.  The Bank and its subsidiaries file California
     state franchise tax returns on a combined reporting basis.

          The Company changed its method of accounting for income taxes as of
     January 1, 1992.  See Note 11 of the Financial Statements and
     Supplementary Data, Item 8, for further discussion of the implementation
     of SFAS 109.


































                                          52
<PAGE>






     ITEM 2.   OFFICE PROPERTIES

     The Bank owned or leased the following offices at December 31, 1995:

     STOCKTON:                 501 W. Weber Ave. (Corporate Offices)
                               212 N. San Joaquin St. (Former Corporate Offices)
                               131 N. San Joaquin St. (Main Branch)
                               209 E. Channel St. (Parking Lot)
                               1110 W. Robinhood Dr. (Former Branch)
                               1782 W. Hammer Ln. (Branch)
                               2562 Pacific Ave. (Branch)
                               2287 W. March Ln. (Branch)
                               8135 N. West Ln. (Branch)
     LODI:                     200 N. Church St. (Branch)
                               1150 W. Kettleman Ln. (Branch)

     MANTECA:                  201 N. Main St. (Branch)
     TRACY:                    1070 N. Tracy Blvd. (Branch)
     MODESTO:                  3013 McHenry Ave. (Branch)
                               2601 T Oakdale Rd. (Branch)
                               1101 J St. (Branch)
     TURLOCK:                  2846 Geer Rd. (Branch)
                               501 E. Olive St. (Branch)
     ELK GROVE:                150 Elk Grove-Florin Road (Branch)
     ANGELS CAMP:              479 S. Main St. (Branch)
     SONORA:                   13755 A Mono Way (Branch)
     ATWATER:                  1329 Broadway Ave. (Branch)
     MERCED:                   3065 "G" St. (Branch)
     JACKSON:                  P.O. Box 636 (2048 W. Hwy. 88 - Martell) (Branch)
     ESCALON:                  1701 Main St. (Branch)
     FRESNO:                   1015 W. Shaw Avenue (Branch)
     SACRAMENTO:               640 Watt Avenue, Suite 200 (Loan Center)

     The total net book value of the offices at December 31, 1995 was $15.9
     million.

     ITEM 3.   LEGAL PROCEEDINGS

          California Financial and its subsidiary are involved in various
     routine legal actions incidental to the business, none of which is
     believed to be material to the Company on an overall basis.

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

               NONE








                                          53
<PAGE>






                                       PART II


     ITEM 5.   MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
               STOCKHOLDER MATTERS

                                     COMMON STOCK

     As of June 1, 1988, Stockton Savings Bank reorganized into a holding
     company -- California Financial Holding Company. The common stock is
     listed on the National Association of Securities Dealers Automated
     Quotations (NASDAQ) under the exchange symbol CFHC (California Financial
     Holding Company).

     <TABLE>
     <CAPTION>                                                 STOCK BID PRICES

       1993                   High        Low                1995                           High          Low

       <S>                   <C>          <C>                <S>                             <C>          <C>
       1st Quarter           18 1/4        12                1st Quarter                     15           12

       2nd Quarter           16 1/4      13 1/4              2nd Quarter                   17 1/2         14

       3rd Quarter             20        15 1/4              3rd Quarter                   20 1/4       15 3/8

       4th Quarter           21 1/4        17                4th Quarter                     22         18 3/8



       1994                   High        Low                1996                           High          Low

       1st Quarter             18        15 3/4              Jan. 1 - Mar. 1               20 7/8       18 7/8

       2nd Quarter           19 1/2        16

       3rd Quarter           18 3/4      15 1/4

       4th Quarter             16          12


     </TABLE>


     California Financial paid regular quarterly dividend payments of 11 cents
     per share on February 15, May 16, August 15,  November 15, 1995 and
     February 15, 1996. California Financial also paid a 10% stock dividend on
     December 15, 1993.

     The Company had 1,097 stockholders as of December 31, 1995.



                                          54
<PAGE>






     ITEM 6.   SELECTED FINANCIAL AND OTHER DATA

     <TABLE>
     <CAPTION>
                                          Selected Five-Year Financial Information


                                                                     (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

       AT OR FOR THE YEARS ENDED DECEMBER 31                 1995           1994          1993          1992           1991

       SELECTED FINANCIAL CONDITION INFORMATION

       <S>                                                <C>           <C>           <C>            <C>           <C>
       TOTAL ASSETS                                       $ 1,257,585   $ 1,275,127   $  1,103,648   $ 1,058,409   $  1,041,429

       LOANS RECEIVABLE, NET                                  921,070       916,757        846,489       799,622        719,213

       MORTGAGE-BACKED SECURITIES                             117,200       166,591         80,405        84,603        101,275

       SAVINGS DEPOSITS                                       960,148     1,001,070        885,058       892,501        888,670

       BORROWINGS                                             204,371       182,876        125,343        82,217         71,629

       STOCKHOLDERS' EQUITY                                    85,602        83,217         81,462        72,939         65,997

       SELECTED OPERATIONS INFORMATION

       INTEREST INCOME                                    $    91,128   $    81,127   $     79,600   $    85,569   $     95,481

       INTEREST EXPENSE                                        59,373        46,851         43,331        50,134         65,658

       NET INTEREST INCOME                                $    31,755   $    34,276   $     36,269   $    35,435   $     29,823

       PROVISION FOR LOAN LOSSES                                1,634           281          2,985         3,765          3,350

       FEE INCOME                                               5,407         5,004          5,345         4,718          4,557

       OTHER INCOME (LOSS)                                    (7,282)       (6,910)          1,560         (838)          6,792

       OTHER EXPENSES                                          24,818        25,271         23,325        22,895         24,431
       INCOME BEFORE TAXES AND ACCOUNTING CHANGE          $     3,428   $     6,818   $     16,864   $    12,655   $     13,391

       INCOME TAX PROVISION                                     1,530         2,316          7,465         5,318          6,107

       INCOME BEFORE ACCOUNTING CHANGE                    $     1,898   $     4,502   $      9,399   $     7,337   $      7,284

       ACCOUNTING CHANGE                                            -             -              -         1,000              -

       NET INCOME                                         $     1,898   $     4,502   $      9,399   $     8,337   $      7,284



                                                                      55
<PAGE>






       EARNINGS PER SHARE                                 $      0.40   $      0.96   $       2.04   $      1.84   $       1.64

       DIVIDENDS PER SHARE                                $      0.44   $      0.44   $       0.44   $      0.40   $       0.40

       SELECTED OTHER INFORMATION

       RATIO OF NET INCOME TO AVERAGE ASSETS                    0.15%         0.37%          0.87%         0.80%          0.70%

       RATIO OF NET INCOME TO AVERAGE SHAREHOLDERS'             2.26%         5.42%         12.07%        11.96%         11.60%
         EQUITY

       RATIO OF GENERAL AND ADMINISTRATIVE EXPENSES
         TO AVERAGE ASSETS                                      1.86%         2.01%          2.05%         2.08%          2.23%

       INTEREST RATE SPREAD-END OF YEAR                         2.62%         2.23%          2.82%         3.23%          2.92%

       BRANCH OFFICES                                              22            23             22            22             23

     </TABLE>

          Per share calculations for 1992 and 1991 have been adjusted for a 10%
     stock dividend in 1993.

     <TABLE>
     <CAPTION>
                                                       Statistical Ratios
                                                          December 31,
                                                       1995           1994          1993           1992          1991
                                                      -----          -----          -----         -----          -----
       <S>                                          <C>             <C>           <C>           <C>            <C>
       Net income/average stockholders' equity
                                                          2.26%          5.42%        12.07%         11.96%        11.60%
       General and administrative
       expenses/gross income
                                                         26.51%         30.43%        25.44%         24.30%        21.78%
       Dividend payout ratio
                                                        108.97%         45.06%        21.60%         19.44%        22.06%

     </TABLE>

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

          California Financial Holding Company ("the Company" or "California
     Financial") is the holding company for its principal subsidiary, Stockton
     Savings Bank ("Stockton Savings" or "the Bank"). Virtually all financial
     activity of the holding company is conducted through the Bank.

          The financial results of the Company are impacted primarily by the
     interest rate environment and the health of the real estate market in the
     Bank's lending territory.


                                          56
<PAGE>






          Although interest rates began a steady decline during 1995,
     short-term rates remained stubbornly high, keeping the Bank's cost of
     funds up while asset yields increased by a lesser amount. The end result
     was a narrowing of margins in 1995 and a $2.5 million reduction in net
     interest income. The real estate market also continued to show signs of
     weakness during the year, leading to further provisions on real estate
     investments and to a lesser degree, foreclosed properties.

          The weakness in the real estate market, as well as relatively high
     mortgage rates for most of the year, also reduced the amount of loan
     refinance activity, leading to reduced origination volume and low loan
     sale activity. Similar to 1994, gains recorded on the sale of loans in
     1995 were minimal.

          Noninterest expense declined by $452,000 in 1995 as the Company
     changed from a defined benefit pension plan to a lower costing 401k plan,
     allowing for the reversal of $1.5 million in accrued pension expense.

          The continued reduction in the Federal Funds rate in late 1995 and
     early 1996 by the Federal Reserve, the upward repricing of the Bank's
     loans indexed to the lagging Eleventh District Cost of Funds ("COFI") and
     the decline in deposit and borrowing costs caused by the lower rate
     environment, bode well for improved interest rate margins over the coming
     year. In addition, aggressive writedowns taken in 1995 on real estate
     investments as well as real estate owned, coupled with significant
     declines in the level of troubled assets, indicate that losses recorded on
     problem assets should also decline substantially in 1996.

          The Bank expects to focus on growth in loan origination volume over
     the next year, primarily in its two newest market areas, Fresno and
     Sacramento counties. The introduction of a Federal Housing Administration 
     ("FHA") lending program, to capture speculative construction take-out
     business, as well as an increased focus on construction loan originations,
     should facilitate this growth. Construction lending is however, an
     inherently riskier form of business than lending on single-family
     residences.

          The balance of nonperforming assets and nonearning real estate
     declined significantly by year-end as the level of nonperforming assets
     was $22.7 million  compared to $32.5 million a year earlier. The balance
     of real estate held for development purposes, which is not considered a
     nonperforming asset, totalled $6.5 million compared to $14.7 million a
     year earlier. The lower balance of nonearning assets should have a
     positive impact on the Bank's margin in 1996.


                                RESULTS OF OPERATIONS

          The Company reported earnings of $1.9 million or $.40 per share in
     1995 compared to earnings of $4.5 million or $.96 per share in 1994 and
     $9.4 million or $2.04 per share in 1993. Earnings trends over the three
     year period are highlighted as follows:

                                          57
<PAGE>






          -    Net interest income, the major component of income for the Bank,
               has declined steadily over the past three years due primarily to
               the significant rise in interest rates beginning early in 1994.
               Although rates began to drop in 1995, the decline was gradual
               and occurred primarily on the long end of the yield curve,
               having little positive impact on the Bank's short-term funding
               costs.

          -    Loss provisions established on the loan portfolio remained at
               lower levels than 1993, reflective of the decline in the level
               of nonperforming assets.

          -    Operating expenses decreased in 1995 relative to 1994, largely
               due to the positive impact of the change in employee benefit
               plans. Operating expenses increased in 1994 compared to 1993.
               Additional expenses in 1994 occurred primarily in salaries and
               compensation as the result of annual increases as well as to the
               opening of a new branch in Fresno in 1994. Deferred loan
               origination costs declined in 1994 and 1995 due to the decline
               in origination volume, having a negative impact on expense.

          -    Noninterest income, in the past a source of considerable revenue
               to the Bank, was completely eliminated in 1995 and 1994, due in
               large part to losses taken on real estate investments as well as
               to reduced income recognized on the sale of loans. Net
               noninterest losses of $1.9 million were recorded in 1995 and
               1994, while net noninterest income totalled $6.9 million in
               1993.

                                 NET INTEREST INCOME

          Net interest income is impacted by the yield on interest-earning
     assets, the cost of interest-bearing liabilities, the amount and type of
     interest-earning assets and the level of interest-earning assets relative
     to interest-bearing liabilities. Net interest income totalled $31.8
     million in 1995, down from $34.3 million in 1994 and $36.3 million in
     1993. Table 1 breaks out the components of interest-earning assets and
     interest-bearing liabilities for the three years ending December 31, 1995.

          The Bank's average spread or the difference between the weighted
     average yield on interest-earning assets and the weighted average cost of
     interest-bearing liabilities, dropped to 2.49% in 1995 from 2.93% in 1994
     and 3.52% in 1993. Although asset yields increased in 1995, largely the
     result of increases in yields on adjustables due to increases in the
     index, the cost of funds increased by significantly more, reflecting the
     Bank's sensitivity to changes in interest rates on interest-bearing
     liabilities and the lagging impact of changes in interest rates on
     interest-earning assets. The relatively short maturity structure of the
     Bank's liabilities and the large portfolio of adjustable-rate mortgages
     that reprice on an infrequent basis, create the balance sheet disparity to
     interest rate changes. In 1994, asset yields declined much more
     significantly than funding costs, as the large increase in rates that

                                          58
<PAGE>






     occurred in 1994 began to negatively impact funding costs while asset
     yields had still not received any benefits from the rising rate
     environment.

     <TABLE>
     <CAPTION>

                                                                   Table I

                                                     AVERAGE BALANCES (1) / AVERAGE RATES

                                                                             (Dollars in Thousands)

       Years Ended December 31                                     1995               1994              1993
       -----------------------                                     ----               ----              ----

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

       Loans: (2)
           Average balances                                      927,151        $  879,293         $  821,506

           Interest income                                        72,589            65,923             69,057

           Weighted average yield                                  7.83%             7.50%              8.41%

       Investment and mortgage-backed securities: (3)

           Average balances                                      280,971           249,008            183,459
           Interest income                                        18,540            15,204             10,543

           Weighted average yield                                  6.60%             6.11%              5.75%

       Total average interest-earning assets                  $1,208,122        $1,128,301         $1,004,965

       Total interest income                                      91,129            81,127             79,600

       Weighted average yield on all 
       interest-earning assets                                     7.54%             7.19%              7.92%

       Deposits:

           Average balances                                   $  989,565        $  934,000         $  887,024

           Interest expense                                       48,030            38,220             37,842

           Weighted average rate                                   4.85%             4.09%              4.27%
       Borrowings:

           Average balances                                      187,070           165,046             97,034

           Interest expense                                       11,506             9,163              6,250


                                                                      59
<PAGE>






                                                                             (Dollars in Thousands)

       Years Ended December 31                                     1995               1994              1993
       -----------------------                                     ----               ----              ----

           Weighted average rate                                   6.15%             5.55%              6.44%

       Total average interest-bearing liabilities             $1,176,635        $1,099,046         $  984,058

       Total interest expense                                     59,536            47,383             44,092

       Weighted average rate on all interest-bearing               5.06%             4.31%              4.48%
       liabilities

       Interest expense (net of capitalized interest)             59,373            46,851             43,331

       Net weighted average rate on all interest-bearing           5.05%             4.26%              4.40%
       liabilities
       Average interest-earning assets in excess of (less
       than) average interest-bearing liabilities             $   31,487        $   29,255         $   20,907

       Net interest income                                        31,756            34,276             36,269

       Interest rate spread                                        2.49%             2.93%              3.52%

       Net interest margin                                         2.63%             3.04%              3.61%


     </TABLE>


     (1)  Average balances were calculated on a daily basis.

     (2)  Nonaccruing loans were included in the average loan amounts
          outstanding.

     (3)  Investment and mortgage-backed securities are based on amortized
          cost.


          Table II shows the relative impact of changes in average volume and
     average interest rates to changes in net interest income for the periods
     indicated.










                                          60
<PAGE>






     <TABLE>
     <CAPTION>
                                                                   Table II

                                                            RATE/VOLUME VARIANCES

                                                                           (Dollars in Thousands)
       For the Years Ended December 31                         Total               Volume                 Rate
       -------------------------------                         -----               ------                 ----
       <S>                                                   <C>                <C>                   <C>
       1995 compared to 1994
            Loans                                           $  6,666             $  4,519             $  2,147
            Investments and mortgage-backed securities         3,336                2,053                1,283
            Deposits                                          (9,810)              (2,379)              (7,431)
            Borrowings                                        (2,342)              (1,906)                (436)

       Change in net interest income                        $ (2,150)             $ 2,287             $ (4,437)

       1994 compared to 1993
            Loans                                           $ (3,134)             $ 4,731             $ (7,865)
            Investments and mortgage-backed securities         4,660                3,965                  695
            Deposits                                            (379)              (1,989)               1,610
            Borrowings                                        (2,913)              (3,876)                 963

       Change in net interest income                        $ (1,766)             $ 2,831             $ (4,597)

       1993 compared to 1992
            Loans                                           $ (3,512)             $ 5,160             $ (8,672)
            Investments and mortgage-backed securities        (2,457)              (1,094)              (1,363)
            Deposits                                           7,393                  330                7,063
            Borrowings                                          (201)              (2,507)               2,306

       Change in net interest income                        $  1,223              $ 1,889             $   (666)

     </TABLE>



       Interest income increased by $10.0 million in 1995 as compared to 1994.
     The increase was the result of both increases in asset yields and
     increases in the average balance of interest-earning assets. An increase
     in the average balance of assets outstanding of $79.8 million added
     roughly $6.7 million to interest income while a 35 basis point increase in
     the average yield on interest-earning assets added an additional $3.3
     million to interest income. Average asset growth in 1995 occurred in both
     the loan and investment portfolios although by year-end, both asset types
     had declined from year-end 1994 as the Bank took advantage of the lower
     rate environment later in the year to sell some lower-yielding fixed-rate
     investments. In addition, less loan product was added to portfolio as the
     decline in interest rates reduced the volume of adjustable mortgages



                                          61
<PAGE>






     originated. At the same time, prepayment speeds by year-end began to
     increase.

       The increase in asset yields this year was primarily due to the upward
     repricing of the Bank's adjustable-rate loan portfolio indexed to the
     COFI. The index is a composite average of the cost of funds of savings
     institutions in the Eleventh District of the Federal Home Loan Bank. Like
     the Bank's own cost of funds, COFI increased in 1995 as a direct result of
     the rise in interest rates in 1994 and the minimal change in short-term
     rates in 1995.

       Interest income increased by $1.5 million in 1994 relative to 1993. The
     benefit of average interest-earning asset growth of $123.3 million
     experienced in 1994 as compared to the prior year was almost completely
     offset by a 73 basis point decline in the weighted average yield between
     the two periods. Most of the asset growth during 1994 occurred in the
     balance of loans and mortgage-backed securities as $148 million in
     primarily mortgage-backed securities and $15.8 million in loans were
     purchased in order to take advantage of underutilized capital. The decline
     in asset yields was caused by the downward repricing on the Bank's COFI
     loan portfolio as the index declined during 1994, despite the increase in
     rates that occurred during the period, again reflecting COFI's tendency to
     lag the general interest rate environment. The addition of lower-yielding
     COFI product added during the year also contributed to the decline in
     average loan portfolio yield.

       Interest expense of $59.5 million was recorded in 1995, up $12.2 million
     from $47.3 million recorded in 1994. The increase can be attributed to
     $77.6 million in average liability growth and to a larger extent,
     increases in the weighted average cost of funds. A $55.6 million increase
     in the average balance of deposits outstanding, created mostly through the
     addition of $61.0 million in brokered funds during the latter part of
     1994, added $2.4 million to interest expense in 1995. The Bank funded a
     portion of its asset growth in 1994 through the use of wholesale deposits.
     Average borrowings also increased by $22.0 million during the year, adding
     $1.9 million to interest expense. The growth in borrowings consisted
     primarily of short-term reverse repurchase agreements and again was used
     to fund asset growth.

       Interest expense was influenced the most in 1995 by the rapid increase
     in interest rates in 1994. The weighted average cost of deposits increased
     by 76 basis points in 1995 relative to 1994, adding $7.4 million to
     interest expense during the period. Most of the decline in interest rates
     that occurred in 1995 was in the long end of the yield curve, having very
     little impact on the Bank's shorter-maturity deposit base. A 60 basis
     point increase in the average cost of borrowings, again the result of
     higher short-term rates and the heavier use of short-term borrowings,
     added $436,000 to interest expense in 1995.

       Interest expense of $47.3 million was recorded in 1994, up $3.3 million
     or 7.5% from $44.1 million reported in 1993. The entire increase can be
     attributed to a $115.0 million increase in the average balance of

                                          62
<PAGE>






     interest-bearing liabilities in 1994 compared to 1993.  Savings balances
     increased an average of $47.0 million between the two periods, adding $2.0
     million to interest expense. Roughly $20.1 million of the average savings
     balance increase was retail in nature, the remaining increase consisting
     of wholesale deposits. Wholesale funding was utilized as a cheaper funding
     source than borrowings to grow the institution. Average borrowings also
     increased by $68.0 million, increasing interest expense by $3.9 million.
     The increase in average borrowings consisted of $35.0 million in reverse
     repurchase agreements with terms not exceeding three months and roughly
     $31.0 million in Federal Home Loan Bank advances. The additional funds
     were utilized to fund the mortgage-backed securities purchased during the
     year. The average cost of deposits declined in 1994 as compared to 1993 by
     18 basis points, reducing interest expense by $1.6 million. Borrowing
     costs declined by 89 basis points, reducing the impact associated with the
     growth in borrowings by just under $1.0 million.

       Included in interest expense is the cost of off-balance sheet interest
     rate swaps which are designed to protect the Bank's cost of funds in
     rising rate environments. The cost of these hedges totalled $1.2 million
     in 1995, and $3.4 and $3.1 million in 1994 and 1993, respectively. Swaps
     added 10 basis points to the Bank's overall cost of funds in 1995 and 31
     basis points in both 1994 and 1993. The impact of swaps on the Bank's cost
     of funds is largely dependent on movements in COFI as a large percentage
     of the swaps are tied to this index. If rates increase significantly, the
     Bank receives a benefit from the swaps which serves to offset the increase
     in the overall cost of funds. Swap costs declined in 1995 relative to
     1994, due to both an increase in COFI as well as to a $55 million
     reduction in the overall balance of swaps outstanding. These instruments
     are used only to hedge asset and liability portfolios, and are not used
     for speculative purposes.

       Spread is expected to continue to widen in 1996 as the yield on the
     Bank's large portfolio of six-month adjustable-rate mortgages indexed to
     COFI continues to widen, while the cost of funds declines in conjunction
     with the recent decline in short-term rates. Although COFI may begin to
     decline, the impact on the Bank's asset yields will be somewhat mitigated
     by the lagging effect of the index as well as the infrequent repricing of
     these assets.

       Interest rate spread does not take into consideration the impact that
     the relationship between the level of interest-earning assets and
     interest-bearing liabilities has on net interest income. Net interest
     margin or net interest income as a percentage of average interest-earning
     assets does consider the relationship and as a result is a better measure
     of current and future net interest income. By comparing the difference
     between net margin and net spread between two periods, the impact of this
     additional factor on net interest income can be explained. The Bank's net
     margin was 2.63%, 3.04% and 3.61% in 1995, 1994 and 1993, respectively.
     Net margin exceeded net spread by 14, 11 and 9 basis points for each of
     the three periods, respectively. The improvement noted from 1993 to 1995
     is indicative of a reduced level of nonperforming assets and real estate
     held for investment purposes, as well as the continued increase in the

                                          63
<PAGE>






     balance of equity outstanding. Average noninterest-bearing liabilities and
     equity exceeded average noninterest-earning assets by $32.3 million, $30.1
     million and $20.9 million at December 31, 1995, 1994 and 1993, respec-
     tively. Margin relative to spread is expected to continue to improve as
     the level of nonperforming assets and real estate held for development
     purposes declined by year-end 1995 from the average for the year.
     Table III highlights the improvements discussed above.

     <TABLE>
     <CAPTION>
                                                                  Table III

                                                             ANALYSIS OF AVERAGE
                                                          NONINTEREST-EARNING ASSETS
                                                  & AVERAGE NONINTEREST-BEARING LIABILITIES

                                                                     (Dollars in Thousands)
       Years Ended December 31                              1995              1994              1993
       -----------------------                              ----              ----              ----
       <S>                                             <C>               <C>               <C>
       Noninterest-earning assets:
         Real estate held for development                  $ 11,660          $ 17,501          $ 22,595
         Real estate acquired through foreclosure             8,226             7,330            14,054
         Office property and equipment                       20,933            21,285            17,473
         Deposit base premium                                 1,672             3,184             4,469
         Other                                               22,592            23,599            12,419

       Total                                               $ 65,083          $ 72,899          $ 71,010

       Noninterest-bearing liabilities and equity:
         Miscellaneous liabilities                         $ 13,331          $ 20,022          $ 14,052
         Capital stock                                       26,415            26,095            18,277
         Retained earnings                                   57,672            56,894            59,588

       Total                                               $ 97,418          $103,011          $ 91,917
       Noninterest-earning assets less than                $(32,335)         $(30,112)         $(20,907)
       noninterest-bearing liabilities and equity

     </TABLE>

     Average balances are calculated on a daily basis.


                                  NONINTEREST INCOME

       In the past, Management has relied heavily on noninterest income for
     profitability, however, noninterest losses of $1.9 million have been
     recorded in both 1995 and 1994. In contrast, noninterest income of $6.9
     million was recorded in 1993. A deteriorating real estate environment can
     explain most of the noninterest losses recorded over the past two years as
     total loss provisions, operating losses and writedowns taken on real


                                          64
<PAGE>






     estate were $7.3 million and $5.3 million in 1995 and 1994, respectively.
     The lack of gains recorded on the sale of loans due to a volatile interest
     rate climate and a lack of gains on the sale of real estate investments
     also hampered earnings. Increased emphasis on fee income generation, cost
     reductions and redeployment of funds currently invested in real estate
     development should significantly reduce the previous reliance on volatile
     noninterest income.

       Gains recognized on the sale of loans were virtually nonexistent in 1995
     and 1994 although sales totalled $85.2 million and $64.3 million,
     respectively. Alternatively, loan sale gains totalled $2.2 million in 1993
     on sales of $179.0 million, indicating a margin on sale of 1.20%. The lack
     of sale margins over the past two years was due to the increasing and
     volatile interest rate environment experienced during these periods and
     the corresponding increase in hedge protection taken on by the Bank.
     Similarly, the declining rate environment in 1993, as well as the reduced
     hedging activity, allowed for the improvement in sales margins during that
     period. Table IV provides a detailed breakdown of loan sale gains during
     the three-year period.

     <TABLE>
     <CAPTION>
                                       Table IV

                                   LOAN SALE GAINS

                                              (Dollars in Thousands)
       Years Ended December 31           1995          1994          1993
       -----------------------           ----          ----          ----
       <S>                           <C>             <C>         <C>
       Net cash losses                 $(1,178)      $(610)        $  (22)
       Fees recognized on sale           1,389         673          2,223
       Premium write-offs                  -            -             (50)

       Net gains on sale               $   211       $  63         $2,151

       Total gains as a percentage       0.17%         0.10%         1.20%
       of sales

     </TABLE>


       Gains recorded on the sale of real estate held for investment purposes
     totalled $607,000 and $1.4 million in 1994 and 1993, respectively. No
     gains were recorded in 1995 due to the extensive loss provisions taken.
     Loss provisions of $5.7 million, $5.0 million and $1.2 million were
     established in 1995, 1994 and 1993, respectively. Most of the loss
     provisions taken in each of the last three years have been on real estate
     the Bank purchased in the late 1980's for development purposes and not on
     real estate obtained through the foreclosure process. The Bank is in the
     process of divesting all real estate held for development purposes as the


                                          65
<PAGE>






     result of changes in regulation. Due to the lack of future anticipated
     acquisitions as well as to the relatively small balance of real estate
     remaining, future losses in this area should be minimal.

       Miscellaneous fee and servicing revenues continue to provide a stable
     source of income to the Bank. Fee and servicing income of $5.4 million,
     $5.0 million and $5.3 million was recorded in 1995, 1994 and 1993,
     respectively. Fee income increased in the current year relative to 1994 as
     a result of an increase in the balance of loans serviced for others as
     well as a significant increase in fees collected on checking accounts. Fee
     income was negatively impacted in both 1995 and 1994 from decreases in the
     level of annuity sales. The higher rate environment tends to reduce the
     level of mutual funds and annuity sales as additional investment
     alternatives become available. Alternatively, mutual funds and annuity
     sales are anticipated to increase in the current lower rate environment.
     Regardless of the direction of interest rates, fee income is anticipated
     to continue to grow in the future, given the Bank's current emphasis on
     increasing the level of fee-generating transaction accounts.


                                 NONINTEREST EXPENSE

       Noninterest expense totalled $24.8 million in 1995, down $452,000 or 2%
     from $25.3 million reported in 1994. The Bank's change from a defined
     contribution pension plan to a less expensive 401K plan permitted the
     reduction of $1.5 million in benefit expense in 1995. The $1.5 million
     benefit achieved through the change in plan was somewhat mitigated by a
     $372,000 decline in deferred loan origination expense as a result of the
     decline in loan origination volume. The Bank's earnings are negatively
     impacted when loan volume declines as all loan officers are on salary
     rather than commissioned and in-house appraisers are utilized to perform
     most appraisals. Occupancy and data processing expense also increased in
     the current year as a new branch and loan facility were built and a branch
     added last year was fully occupied in the current year. Additional
     occupancy costs incurred in the current year were somewhat offset by a
     branch consolidation during the year. Noninterest expenses in 1994
     totalled $25.3 million, up from $23.3 million recorded in 1993. A
     reduction in deferred costs of origination of $800,000 due to reduced loan
     volume and higher occupancy costs due to the move to a new corporate
     headquarters were reflected in 1994 expenses.


                                INCOME TAX PROVISION

       The Company recorded income tax provisions of $1.5 million, $2.3 million
     and $7.5 million in 1995, 1994 and 1993, respectively. The Company's
     effective tax rate was 44.6%, 34.0% and 44.3% in 1995, 1994 and 1993,
     respectively. The effective tax rate decreased in 1994 relative to 1993
     due primarily to a $500,000 one-time tax benefit taken as a result of a
     settlement with the IRS regarding the tax treatment for amortization of
     core deposit intangibles. 


                                          66
<PAGE>






                                      LIQUIDITY

       The Bank derives its liquidity primarily from the payment, payoff or
     sale of loans, the acquisition of new deposits, both retail and wholesale,
     Federal Home Loan Bank advances and borrowings securitized by investments.
     Total assets of the Company remained fairly flat during the year,
     decreasing by $17.5 million or slightly over 1%. Although total asset
     balances changed very little, asset composition did change somewhat as the
     Bank sought to reduce its susceptibility to rising interest rates by
     selling fixed-rate mortgage-backed securities. These assets were replaced
     by floating-rate current-index collateralized mortgage obligations which
     respond more rapidly to changes in the interest rate environment. The
     Bank's collateralized mortgage obligations carry little credit risk as
     they are all agency-backed or AAA-rated (with the exception of a $5
     million A-rated security purchased in December, 1995) and are therefore
     not subject to permanent impairment. Floating rate securities are,
     however, subject to market value volatility, particularly in rising
     interest rate environments when the level of rates approaches the
     life-time caps on these instruments.

       The decline in loan origination volume to $283.3 million from $368.9
     million also reduced the balance of mortgages added to the portfolio.
     Principal payments on mortgages completely offset the amount of new loans
     originated for portfolio, providing no ability to grow assets through
     originations. Loan purchase activity was minimal in the current year,
     providing for no additional asset growth.

       The Bank reclassified its entire investment portfolio as "available for
     sale" in August 1995 so that it would have the flexibility to sell any of
     its investments in an effort to reduce the interest sensitivity in its
     balance sheet. At the time of reclassification, the Bank's portfolio of
     investments previously designated as held to maturity was adjusted to
     market value and reclassified as available for sale. The market value
     adjustment also impacted net worth. As a result of the reclassification,
     the Bank will be unable to classify any investment purchases over a one
     year period following the date of reclassification as held to maturity.
     Net worth in future periods will therefore be subject to some level of
     volatility due to the required classification of all current investments
     and any investments purchased over the following year as available for
     sale. Sales of investments totalled $52.1 million in 1995 compared to
     investment sales of $14.2 million in 1994. No sales occurred in 1993. The
     majority of sales in 1995 consisted of long-term fixed-rate
     mortgage-backed securities.

       Total liability balances also changed very little although deposits and
     reverse repurchase agreements declined by $40.9 million and $29.5 million,
     respectively in 1995, and were replaced by Federal Home Loan Bank
     advances. Brokered deposits totalled $61.0 million as of December 31, 1994
     compared to $4.3 million outstanding as of year-end 1995. The $56.7
     million decline in brokered certificates was partially offset by a $15.8
     million increase in retail deposits. The decline in short-term reverse


                                          67
<PAGE>






     repurchase agreements was replaced by like-term Federal Home Loan Bank
     advances.


                             ASSET/LIABILITY MANAGEMENT

       The level of net interest income, the primary source of revenue to the
     Bank, is largely dependent on the level of interest rates and how key
     rates interact in that environment. The repricing and maturity structures
     of both assets and liabilities also impact the volatility in net interest
     income. Historically, the Bank's level of net interest income has been
     negatively impacted in rising rate environments as most of its assets
     adjust to an index that lags the general interest rate environment while
     most of its liabilities tend to reprice on a much more frequent basis,
     responding more quickly to changes in rates. The significant increase in
     rates experienced in 1994 reduced margins in the latter half of that year
     and into 1995 as the yields on assets increased slowly while the cost of
     deposits and borrowings increased much more quickly. Alternatively, the
     decline in rates in 1995 has started to reduce the Bank's cost of funds
     while asset yields are continuing to increase, leading to wider margins.

       The Bank undertook some balance sheet restructuring in 1995 in an effort
     to reduce its susceptibility to rising rates. More specifically:

       - The level of long-term fixed-rate mortgages and mortgage-backed
         securities was reduced by $76.6 million as a result of sale and
         prepayment activity.

       - Permanent adjustable-rate mortgages and mortgage-backed securities
         increased by $31.5 million as all $140 million of adjustable mortgages
         originated during 1995 were retained in the portfolio.

       - Current-index floating-rate securities of $40.3 million were added to
         the investment portfolio.

       Further restructuring is expected in 1996 as the emphasis will continue
     to be placed on the origination and retention of current-index adjustable
     mortgages and one-month COFI product. In addition, the Bank expects to
     take advantage of the current low rate environment to increase the level
     of long-term fixed-rate borrowings with the Federal Home Loan Bank to
     replace short-term borrowings.


                LOAN ORIGINATION VOLUME AND MORTGAGE BANKING ACTIVITY

       The amount and type of loans originated are largely dependent on the
     interest rate environment as well as the overall health of the Bank's real
     estate lending market. A continued weak real estate market as well as a
     rate environment, although falling, that was still higher than the market
     of 1992-1993, led to a significantly lower level of loan origination
     volume in 1995.


                                          68
<PAGE>






       Originations totalled $283.3 million in 1995, $368.9 million in 1994 and
     $501.1 million in 1993. Refinance activity represented 25% of total loan
     volume in 1995, down from 35.5% and 57.0% in 1994 and 1993, respectively.
     All types of loans originated declined during the year relative to 1994.
     However, adjustable-rate mortgage loan originations declined the most from
     the previous year, a reflection of the current declining rate environment.
     Table V provides a breakout of loan volume by type of loan for the three
     years. The volume of fixed-rate loan originations was highest in 1993 when
     refinance activity was still high and COFI was lagging the general
     interest rate decline. The rate differential between COFI and current
     fixed rates was not wide enough to attract borrowers away from the
     certainty of a fixed-rate mortgage compared to the uncertainty of an
     adjustable.

                                       TABLE V

                                    LENDING VOLUME

                                              (Dollars in Thousands)
       Years Ended December 31         1995            1994           1993
       -----------------------         ----            ----           ----

       Short-term construction      $ 88,299       $102,014       $101,242
       Long-term fixed-rate           90,060        111,522        262,778
       Long-term adjustable-rate      85,073        136,631        125,807
       Other                          19,858         18,698         11,288

         Total originations         $283,290       $368,865       $501,115


       Loan origination volume is expected to increase in 1996 due to the low
     current rate environment, leading to increased refinancing activity and
     the offering of FHA loans, which represent roughly 30% of total loans
     originated in the Bank's current market area.

       The Bank has traditionally sold a majority of fixed-rate mortgages
     originated in an effort to reduce its balance sheet susceptibility to
     rising interest rates. The level of interest rates tends to have a major
     impact on the type of loan originated and thus, on the level of mortgage
     banking activities undertaken. In periods of falling interest rates, the
     rate differential between a fixed and adjustable-rate mortgage is usually
     not significant enough to draw a consumer to the uncertainty of an
     adjustable-rate mortgage so the level of fixed-rate mortgage originations
     increases. Volume is further impacted by increased refinance activity in
     low rate environments. The reverse holds true in a rising rate environment
     and the consumer tends to move to adjustable-rate mortgages. At the same
     time, total originations decline due to a reduction in refinance activity.
     This phenomenon creates a large amount of volatility in mortgage loan sale
     activity for the Bank, depending on the level of rates. Loan sale volume
     totalled $85.2 million, $64.3 million and $179.0 million for 1995, 1994
     and 1993, respectively. In 1995 and 1993, both relatively low rate


                                          69
<PAGE>






     environments, sales represented 30.1% and 35.6% of total origination
     volume, respectively. Alternatively, in the higher rate environment of
     1994, sales volume only represented 17.4% of total originations,
     reflecting the increase in volume of adjustable-rate originations.

       Consistent with the volatility in sales over the past three years, gains
     recognized on loans sales also fluctuated significantly. Gains of
     $211,000, $63,000 and $2.2 million were recognized in 1995, 1994 and 1993,
     respectively. In addition to the volume of loan sales, loan sale gains are
     also impacted by the direction and degree of change in interest rates. In
     1995, with interest rates heading down, the Bank's gain on loan sales as a
     percentage of sales totalled 25 basis points. In 1994, with rates
     increasing rather rapidly, loan sale margins were only 10 basis points. In
     1993, a declining rate environment, margins averaged 120 basis points. The
     significant difference in margins between 1995 and 1993, both periods of
     declining rates, was the result of increased hedging activity in the
     current year.

       The Bank has made it a practice to retain servicing on all loans sold in
     order to insure good customer service, generate consistent servicing
     revenues and provide an opportunity to cross-sell the servicing customer
     other Bank products. Servicing income totalled $1.5 million, $1.3 million
     and $1.2 million in 1995, 1994 and 1993, respectively. The Bank's
     portfolio of loans serviced for others totalled $548.5 million, $509.1
     million and $519.5 million as of December 31, 1995, 1994 and 1993,
     respectively. Effective January 1, 1996, the Bank will implement SFAS122-
     "Accounting for Mortgage Servicing Rights." FAS 122 requires that the
     rights to servicing mortgage loans for others be recognized as a separate
     asset, however those servicing assets are acquired. Additionally, the
     recognized mortgage servicing asset must be regularly evaluated for
     impairment. The impact of adoption of this standard will be to increase
     the level of loan sale gains recognized as a percentage of loans sold.
     Based on currently available information, management estimates loan sale
     gain margins will increase by roughly 100 basis points. In addition,
     future servicing income should decline, a trade-off for recognition at the
     time of sale of the servicing asset. Income volatility may also increase
     due to the potential impairment and corresponding writedown of the
     servicing asset.


                                    ASSET QUALITY

       The Bank's level of nonperforming assets, which consists of nonaccruing
     loans, restructured troubled debt and real estate owned through
     foreclosure, declined significantly over the past year. Table VI breaks
     out nonperforming assets by type for the five periods indicated.
     Nonperformers totalled $22.7 million, $35.2 million and $37.9 million at
     December 31, 1995, 1994 and 1993, respectively.





                                                                      70
<PAGE>






     <TABLE>
     <CAPTION>
                                                                   TABLE VI
                                                       SUMMARY OF NONPERFORMING ASSETS

                                                                   (Dollars in thousands)
       At December 31                              1995         1994        1993         1992        1991
       --------------                              ----         ----        ----         ----        ----
       <S>                                              <C>         <C>         <C>          <C>         <C>
       Non-accrual loans:
         1-4 family residential mortgages           $ 4,606     $ 3,734     $ 3,894      $ 4,242     $ 2,269
         Commercial real estate mortgages               555         450       2,510        3,066       1,428
         Construction and land                           18       2,180       5,198        4,034       9,254

       Troubled debt restructured:
         1-4 family residential mortgages             2,382       1,718         681          681           -
         Commercial real estate mortgages                 -       4,529       4,531        5,202           -
         Construction and land                        5,338       8,948      10,914        5,159       1,758

       Gross nonperforming loans                    $12,899     $21,559     $27,728      $22,384     $14,709

       Real estate owned:
         1-4 family residential property            $ 2,722     $ 3,929     $   885      $ 2,005     $    82
         Commercial real estate property              3,743       8,039       6,392        8,366       3,451
         Construction and land                        3,365       1,717       2,881        5,181       4,917

       Gross real estate owned                      $ 9,830     $13,685     $10,158      $15,552     $ 8,450

       Gross nonperforming assets                   $22,729     $35,244     $37,886      $37,936     $23,159

         Loan losses reserves                       $ 8,174     $ 7,726     $ 9,965      $ 8,042     $ 5,047

       Real estate owned loss reserves              $ 3,853     $ 3,142     $ 1,675      $   702     $   421

       Loan loss reserves/gross
       nonperforming loans                           35.96%      21.92%      26.30%       21.20%      21.79%
     </TABLE>


       Generally, loans are considered nonaccruing once they become 90 days or
     more delinquent or have been classified as impaired. The nonaccrual of a
     loan is generally the first sign that a loan is in trouble. In many
     circumstances, once a loan becomes delinquent to this extent, it is either
     restructured or goes into foreclosure. Deferred interest income on
     delinquent loans totalled $263,000, $371,000 and $1.0 million at December
     31, 1995, 1994 and 1993, respectively.

       Restructured debt is usually considered troubled when the terms or
     conditions of the restructure are more advantageous to the borrower than
     what would normally be offered. It is generally the Bank's position when
     restructuring debt that it is in the Bank's best interest to allow the


                                          71
<PAGE>






     borrower to continue the financing under revised terms rather than to take
     the property back through the foreclosure process. The level of troubled
     restructured debt decreased to $7.7 million at December 31, 1995 from
     $15.2 million at the end of 1994 and $16.1 million at the end of 1993.
     Three large acquisition and development loans totalling $7.0 million
     comprised most of the troubled debt outstanding as of year-end. All three
     loans were made to facilitate the sale of real estate development in 1989
     due to regulatory divestiture requirements. Most of the debt was
     restructured by lowering the interest rate or advancing funds for taxes,
     insurance or interest. Interest income on troubled debt is normally
     deferred by the Bank and recognized on a cash basis only. The amount of
     interest deferred by the Bank on troubled debt totalled $1.7 million, $1.8
     million and $2.0 million at December 31, 1995, 1994 and 1993,
     respectively. Of the balance of troubled debt outstanding, $2.8 million,
     $1.1 million and $2.8 million was more than 90-days delinquent at year-end
     1995, 1994 and 1993, respectively. The delinquent debt at year-end 1995
     included the land loans on two of the three large debt restructurings
     discussed above. The level of provisions established on loans has declined
     significantly as compared to 1993, an indication of declining troubled
     loans and management's opinion that Stockton's loan portfolio is
     improving. Loan loss provisions totalled $1.6 million in 1995, $281,000 in
     1994 and $3.0 million in 1993.

       The Bank's level of real estate owned, totalled $9.8 million at the end
     of 1995, compared to $13.7 million and $10.2 million at the end of 1994
     and 1993, respectively. Real estate outstanding as of year-end consisted
     of single-family residences, two office buildings and land in four
     different subdivisions. Loss reserves on real estate of $1.5 million at
     the end of 1994 had not been allocated to specific assets but were
     outstanding to cover uncertainties in the valuation of several properties.
     The unallocated reserves for real estate owned were fully allocated in
     1995.

       In connection with foreclosures during the year, the Bank's loan
     charge-offs totalled $1.2 million, compared to charge-offs taken of $2.5
     million and $1.0 million in 1994 and 1993, respectively. Subsequent to
     foreclosure, valuation concerns resulted in loss provisions that were
     established on real estate owned totalling $1.6 million for 1995, $2.4
     million in 1994 and $1.2 million in 1993. Charge-offs taken on the sale of
     real estate owned totalled $920,000 in 1995, $917,000 in 1994 and $272,000
     in 1993. The sale of an apartment building was the single largest
     charge-off in 1995 on real estate taken back.

       Loan charge-offs in 1995 related primarily to the foreclosure of a
     speculative construction subdivision in the Galt area, a city just south
     of Sacramento, California.  A portion of this subdivision was taken back
     in 1994, when significant charge-offs also occurred. A majority of the
     reserves established on real estate owned in 1995 also related to the
     portion of the Galt subdivision taken back in 1994. Real estate values in
     the Galt area have fallen tremendously over the past year, necessitating
     the additional reserves. Land values have declined due to very high fees
     charged by the City of Galt and by liquidation sales by developers. 

                                          72
<PAGE>






     Further declines in land value in that market should have little impact on
     the Bank as the remaining book value of this land at December 31, 1995 was
     $122,000. The remaining loss reserves established on real estate owned in
     1995 related to property owned in Downtown Stockton.

       The Bank uses an asset classification process to identify troubled loans
     in its portfolio. Paying capacity of the borrower as well as the adequacy
     of collateral value are evaluated. Assets identified through this process
     as possessing some weakness are classified by the Bank and are monitored
     on an ongoing basis. By definition, all nonperforming assets are
     immediately classified. The level and type of nonperforming and classified
     assets, historical experience, current economic conditions and trends, as
     well as the lending mix are all reviewed when determining the level and
     adequacy of loan loss reserves. The balance of classified assets totalled
     $47.0 million, $63.1 million and $65.8 million at December 31, 1995, 1994
     and 1993, respectively. Alternatively, loan loss reserves totalled $8.2
     million, $7.7 million, and $10.0 million at year-end, 1995, 1994 and 1993,
     respectively. The slight increase in loan loss reserves in 1995 can be
     primarily attributed to the decline in nonperforming loans and reduced
     level of charge-offs taken in the current year. The decline in loan loss
     reserves in 1994 relative to 1993, despite the increase in the overall
     loan portfolio and level of charge-offs, is the result of a decline in the
     balance of total nonperforming loans in the fourth quarter of 22%, as well
     as a decline in the overall balance of higher-risk construction and land
     loans. The reduction in nonperforming loans also occurred in higher-risk
     loans. The higher than normal level of charge-offs taken in 1994 was
     isolated to one large block of land.


                               REAL ESTATE INVESTMENTS

       The Bank has, for many years, invested in real estate for development
     purposes through a wholly-owned subsidiary, Stockton Service Corporation,
     ("Stockton Service"). Stockton Service would generally acquire land and
     then contract with a developer to build out and manage the project in
     exchange for a share in profits after Stockton Service received a
     preferential return equivalent to interest and fees earned on a
     construction loan. All profits earned in excess of the preferential return
     are then split between the two parties in an agreed-upon manner. All
     projects currently outstanding involve the build out of single family
     subdivisions.

       All income, including the preferential return, is reported as gain on
     the sale of real estate in the Bank's financial statement. Gains were
     nonexistent in 1995 and totalled $444,000 and $1.2 million for 1994 and
     1993, respectively, and are shown in more detail at Table VII. Loss
     provisions of $4.1 million and $2.7 million were recorded in 1995 and
     1994, respectively. No reserves were recorded in 1993. Loss reserves on
     real estate investments totalled $3.1 million at year-end 1995, $3.7
     million at December 31, 1994 and $2.0 million at year-end 1993.  The
     significant amount of losses taken on the Bank's real estate development
     activities over the past several years is due to the significant amount of

                                          73
<PAGE>






     purchases that occurred in 1989, a period when real estate values were at
     their peak, and the decline in values that has occurred subsequently. The
     decision by the Bank in 1995 to accelerate the disposition of real estate
     through bulk sales also increased the level of reserves necessary.

     <TABLE>
     <CAPTION>
                                                                  TABLE VII

                                                              SALES AND PROFITS
                                                     ON REAL ESTATE HELD FOR DEVELOPMENT

                                                                   (Dollars In Thousands)
       Years Ended December 31                                1995         1994          1993
       -----------------------                                ----         ----          ----

       <S>                                                        <C>           <C>           <C>
       Gross sales of real estate                           $10,514       $11,858       $ 18,785
       Profits consisting of preferential returns                 9           973          1,993
       Additional (losses) gains                                 (39)         (155)          207

       Total (losses) gains before capitalized interest      $   (30)     $   818       $  2,200
       Capitalized interest relieved                              5           374          1,019

       Net (losses) profits                                  $   (35)     $   444       $  1,181

       Profit margins                                          (.33%)         3.74%         6.29%

     </TABLE>


       The level of reserves on real estate development outstanding at December
     31, 1995 was based on bonafide bulk sales anticipated in 1996 as well as
     the anticipated sales of 24 remaining homes. Conservative absorption and
     pricing estimates were used in the valuation of homes. As a result, the
     current level of reserves should be adequate and no material additional
     provisions are anticipated.

       The enactment of FIRREA in 1989 required the divestiture of all real
     estate held for development purposes by financial institutions in excess
     of 2% of assets. Consequently, no new projects have been taken on by
     Stockton Service since then. The balance of real estate currently
     outstanding represents the remaining build-out of older projects which
     Stockton Service is attempting to divest itself of as expeditiously as
     possible. As a result, the balance of real estate outstanding has steadily
     declined over the past several years; from $19.9 million at the end of
     1993 to $6.5 million at the end of 1995. Even though the balance currently
     outstanding is less than the 2% of the permissible limit of $25.3 million,
     the full balance of this investment must be deducted from regulatory
     capital, subject to a phase-out schedule. Further discussion of the impact



                                          74
<PAGE>






     of this investment on regulatory capital can be found under the "Capital
     Resources and Regulatory Compliance" section of this discussion.


                     CAPITAL RESOURCES AND REGULATORY COMPLIANCE

       The Company's capital position increased by $2.4 million or roughly 3%
     from the previous year. Income recorded of $1.9 million and a positive
     mark to market of the Bank's investment portfolio designated as available
     for sale of $2.3 million were partially offset by dividends paid of $2.0
     million. The investment portfolio increased in value in the current year
     due to the decreasing interest rate environment. Dividends paid during the
     year of $.44 per share represented 108% of total income earned in 1995.

       Total capital increased by $1.8 million or roughly 2% in 1994 compared
     to 1993. Earnings of $4.5 million were partially offset by dividends paid
     of $2.0 million and a negative mark to market adjustment on the Bank's
     investment portfolio classified as available for sale totalling $1.2
     million. The increasing rate environment during that period was
     responsible for the negative adjustment. During 1994, dividends
     represented 45.8% of total net income.

       A 10% stock dividend was affected in December of 1993. All per share
     calculations within this report have been adjusted to reflect the dividend
     and assure comparability.

       The Bank is under the regulatory guidance of both the Office of Thrift
     Supervision ("OTS") and the Federal Deposit Insurance Corporation
     ("FDIC").

       Three minimum capital requirements were mandated by FIRREA, requiring
     that financial institutions must maintain minimum risk-based capital of at
     least 8% of risk-weighted assets, core capital of at least 3% of adjusted
     total assets and tangible capital of at least 1.5% of adjusted total
     assets. Under FIRREA's risk-based capital guidelines, the Bank is required
     to maintain higher levels of capital against assets deemed to involve
     higher degrees of credit risk. In addition, the Bank must deduct from
     regulatory capital, subject to a phase-in schedule, its investments and
     loans to subsidiaries engaged in nonpermissable activities such as real
     estate development. The Bank's capital ratios and net requirements as of
     December 31, 1995 are detailed on Table VIII. At December 31, 1995, the
     Bank exceeded all minimum regulatory capital requirements mandated by
     FIRREA with risk-based, core/tangible capital of 12.12% and 6.07%,
     respectively. At December 31, 1995, the Bank's fully phased-in risk-based,
     core/tangible capital ratios were 11.67% and 5.71%, respectively. The
     decrease in capital ratios on a fully phased-in basis is due to the 100%
     deduction from capital due to investments in subsidiaries involved in
     impermissible activities. According to the phase-in schedule mandated by
     FIRREA, the Bank is currently only required to deduct 60% of its
     investments in Stockton Service from capital. This percentage increases to
     100% on July 1, 1996.


                                          75
<PAGE>







                                     TABLE VIII 

                                CAPITAL REQUIREMENTS 
                                     (UNAUDITED) 

                                             (Dollars In Thousands)

       At December 31                     1995                    1994

                                      $           %           $           %

       Current capital:

         Risk-based capital       $  83,083     12.12%    $  79,695     11.55%
         Excess over minimum         28,264                  24,472

         Core capital             $  76,440      6.07%    $  73,036      5.73%
         Excess over minimum         38,634                  34,784

         Tangible capital         $  76,440      6.07%    $  73,036      5.73%
         Excess over minimum         57,537                  53,909

       Fully phased-in capital:
         Risk-based capital       $  79,967     11.67%    $  70,529     10.37%
         Core capital                71,958      5.71%       63,870      5.05%
         Tangible capital            71,958      5.71%       63,870      5.05%



       The Federal Deposit Insurance Corporation Act of 1991 ("FDICIA")
     provided for increased funding for FDIC deposit insurance and for expanded
     regulation of the banking industry. Among other things, FDICIA requires
     that the federal banking regulators take prompt corrective action with
     respect to institutions failing to meet minimum capital standards.
     Specific categories defined in the act include "well capitalized,"
     "adequately capitalized," "undercapitalized," "significantly
     undercapitalized," and "critically undercapitalized." Various restrictions
     are to be applied on institutions characterized as undercapitalized.

       To be considered "well capitalized," an institution must generally have
     a leverage ratio of at least 5%, a tier-one, risk-based capital ratio of
     at least 6%, and a total risk-based capital ratio of at least 10%. The
     Bank was in the "well capitalized" category as of December 31, 1995, even
     on a fully phased-in basis with the 100% deduction from capital for
     investments in subsidiaries involved in impermissible activities. As the
     Bank meets its fully phased-in capital requirements, it is allowed to make
     capital distributions (primarily dividends) to the Company upon 30 days
     notice to the OTS, up to an amount that would reduce its surplus capital
     ratio by one-half of the surplus outstanding at the beginning of the year,



                                          76
<PAGE>






     plus all of its income for the year, as long as it still meets its fully
     phased-in capital requirements after the proposed capital distribution.

       The OTS adopted a final rule in August of 1993 for calculating an
     interest rate risk component for risk-based capital. Under the rule, the
     component will be an addition to the existing 8% minimum risk-based
     capital requirement. Implementation has been delayed for an indefinite
     period. The rule provides that the OTS will calculate the interest rate
     risk component on a quarterly basis for the Bank. The rule provides that
     if an institution's market value of portfolio equity or the relationship
     of its market value of interest-earning assets to the market value of
     interest-bearing liabilities declines by more than 2% of the market value
     of interest-earning assets with a 200 basis point shift in interest rates,
     then an institution must maintain additional capital equivalent to
     one-half the measured difference between its current market value of
     portfolio equity and the calculated decline in value with the interest
     rate shift. Based on current interest rate risk calculations provided by
     OTS to the Bank, there would have been no interest rate risk component for
     the Bank at December 31, 1995. Therefore, even if the interest rate risk
     component were in effect at year-end, it would have no impact on the
     Bank's regulatory capital designation as "well capitalized." Regulatory
     capital increased in 1995 compared to the prior year. The reduced level of
     investment in subsidiaries with impermissible activities and lower balance
     of core deposit premium, which are both deducted from regulatory capital,
     are responsible for the improvement in capital position. The adjustment to
     capital for marking to market the investment portfolio is not includable
     in the calculation of regulatory capital and thus has no impact on the
     Bank's capital position.

       The Treasury Department, the Office of Thrift Supervision and the
     Federal Deposit Insurance Corporation have recommended to Congress that
     institutions with SAIF-assessable deposits pay a special assessment in an
     amount sufficient to recapitalize the fund. The issue is currently
     included in the Budget Reconciliation Bill, waiting to be approved by
     Congress. Once approved, it is estimated that SAIF-insured institutions
     such as the Bank will be charged a one-time assessment of approximately 80
     basis points on all deposits outstanding as of March 31, 1995. This
     assessment would approximate $8.1 million for the Bank, assuming the
     foregoing assessment rate and date. Under a separate bill, the assessment
     would be fully deductible for income tax purposes. If the above-described
     legislation is enacted, it is anticipated to have an estimated $5 million
     negative impact on the Bank's earnings in the year of enactment. Going
     forward, however, the level of SAIF premiums paid is expected to drop
     significantly. If the assessment was paid as of year-end 1995, the Bank
     would have still been well capitalized by regulatory definition.








                                          77
<PAGE>






                            RECENT ACCOUNTING DEVELOPMENTS

       In March 1995, the Financial Accounting Standards Board issued SFAS 121,
     "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to be Disposed Of." This statement applies to financial statements
     for fiscal years beginning after December 15, 1995.  It requires that
     long-lived assets and certain identifiable intangibles to be held and used
     by an entity be reviewed for impairment whenever events or changes in
     circumstances indicated that the carrying amount of an asset may not be
     recoverable.  Additionally, this statement requires that long-lived assets
     and certain identifiable intangibles to be disposed of be reported at the
     lower of carrying amount or fair value less cost to sell.  It is
     management's opinion that applying the provisions of this statement will
     not have a significant effect on the Company's financial position.

       In October 1995, the FASB issued SFAS No. 123, "Accounting for
     Stock-Based Compensation," which is effective beginning in 1996.  SFAS No.
     123 allows companies either to continue to account for stock-based
     employee compensation plans under existing accounting standards or adopt a
     fair value based method of accounting for stock options as compensation
     expense over the service period (generally the vesting period) as defined
     in the new standard.  SFAS No. 123 requires that if a company continues to
     account for stock options under Accounting Principles Board ("APB")
     Opinion No. 25, it must provide pro forma net income and earnings per
     share information "as if" the new fair value approach had been adopted. 
     The Company will continue to account for stock based compensation under
     APB Opinion No. 25 and will make the required disclosures in 1996.



     ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                         California Financial Holding Company

                             Independent Auditors' Report

     The Board of Directors, California Financial Holding Company:

     We have audited the accompanying consolidated statements of financial
     condition of California Financial Holding Company and Subsidiary as of
     December 31, 1995 and 1994, and the related consolidated statements of
     operations, stockholders' equity, and cash flows for each of the years in
     the three-year period ended December 31, 1995. These consolidated
     financial statements are the responsibility of the Company's management.
     Our responsibility is to express an opinion on these consolidated
     financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
     standards. Those standards require that we plan and perform the audit to
     obtain reasonable assurance about whether the financial statements are
     free of material misstatement. An audit includes examining, on a test

                                          78
<PAGE>






     basis, evidence supporting the amounts and disclosures in the financial
     statements. An audit also includes assessing the accounting principles
     used and significant estimates made by management, as well as evaluating
     the overall financial statement presentation. We believe that our audits
     provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
     present fairly, in all material respects, the financial position of
     California Financial Holding Company and Subsidiary as of December 31,
     1995 and 1994, and the results of their operations and their cash flows
     for each of the years in the three-year period ended December 31, 1995 in
     conformity with generally accepted accounting principles.


     /s/ KPMG Peat Marwick LLP
     KPMG Peat Marwick LLP
     Sacramento, California 
     February 16, 1996



































                                                                      79
<PAGE>






     <TABLE>
     <CAPTION>
                                                Consolidated Statements of Financial Condition

      At December 31                                                                                  1995               1994
      <S>                                                                                      <C>                <C>        
      ASSETS

      Cash, including noninterest-bearing deposits                                          $   13,162,431     $   15,523,626
      Interest-bearing deposits (Note 2)                                                         4,691,615          3,313,882
      Investment securities (Notes 2 and 10)
       Securities held to maturity (market value: 1995 - $0; 1994 - $47,713,390)                        -          52,759,609
       Securities available for sale, at market                                                144,144,806         50,438,489
      Mortgage-backed securities (Note 3) 
       Held to maturity (market value: 1995 - $0; 1994 - $151,247,851)                                   -        159,436,288
       Available for sale, at market                                                           117,199,924          7,154,572
      Loans held for sale (Note 4) (market value: 1995 - $13,260,317; 1994 - $2,656,737)        13,153,264          2,655,408
      Loans receivable, net (Notes 4 and 8) (allowance for loan losses:
       1995 - $8,173,807; 1994 - $7,725,500)                                                   907,917,036        914,101,218
      Real estate held for development or sale, net (Note 5) 
       (allowance for losses: 1995 - $6,958,757; 1994 - $6,850,636)                             12,480,183         25,233,861
      Office property and equipment, at cost, less accumulated depreciation: 
       1995 - $14,721,731; 1994 - $12,894,036                                                   20,769,858         21,111,844
      Federal Home Loan Bank stock, at cost, and FHLMC preferred stock (Note 8)                 10,395,200          8,736,900
      Accrued interest and dividends receivable (Note 6)                                         6,092,335          5,308,083
      Deposit base premium                                                                       1,058,444          2,219,999
      Other assets (Note 11)                                                                     6,519,971          7,133,371

      TOTAL ASSETS                                                                          $1,257,585,067     $1,275,127,150

      At December 31                                                                                1995               1994  
      LIABILITIES AND STOCKHOLDERS' EQUITY

      Liabilities:
      Savings and checking accounts (Note 7)                                                $  960,147,775     $1,001,070,420
      Advances from Federal Home Loan Bank (Note 8)                                            162,500,000        110,000,000
      Collateralized mortgage obligations (Note 9)                                               6,462,509          7,897,795
      Securities sold under agreements to repurchase (Note 10)                                  35,408,000         64,978,000
      Advances by borrowers for taxes and insurance                                                782,113            942,262
      Accrued interest payable                                                                   1,181,068          1,610,640
      Other liabilities (Note 11)                                                                5,501,381          5,410,543

      TOTAL LIABILITIES                                                                     $1,171,982,846     $1,191,909,660
      Stockholders' equity: (Note 12 and 14)
      Serial preferred stock (par value $.01 per share; 4,000,000 shares authorized;
       none issued and outstanding)                                                          $           -      $          -    
      Common stock (par value $.01 per share; 12,000,000 shares authorized;
       4,662,779 and 4,626,063 outstanding on December 31, 1995 and 1994)                           46,628             46,261
      Paid in capital in excess of par                                                          26,553,810         26,207,166
      Unrealized gain (loss) on marketable equity securities, net of tax                           998,198         (1,186,069)
      Retained earnings (restricted: 1995 - $50,967,000; 1994 - $38,130,000)                    58,003,585         58,150,132


                                                                      80
<PAGE>






      TOTAL STOCKHOLDERS' EQUITY                                                            $   85,602,221     $   83,217,490
      Commitments (Note 17)

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $1,257,585,067     $1,275,127,150

     </TABLE>

     See accompanying Notes to Consolidated Financial Statements.













































                                          81
<PAGE>






     <TABLE>
     <CAPTION>
                                            Consolidated Statements of Operations 

       Years ended December 31                                          1995               1994                   1993     
       <S>                                                                    <C>                <C>                    <C>
       Interest income:

         Interest and fees on loans                                  $72,588,415        $65,922,870            $69,057,100 
         Interest on mortgage-backed securities                       10,703,543          9,069,179              5,858,569 
         Interest and dividends on investments                         7,512,907          5,727,784              4,031,915 
         Other interest income                                           323,649            406,799                652,418 

           TOTAL INTEREST INCOME                                     $91,128,514        $81,126,632            $79,600,002 
       Interest expense:

        Interest on savings (Note 7)                                 $48,029,879        $38,220,211            $37,841,869 
        Interest on short-term borrowings                              3,750,929          1,966,014                116,818 
        Interest on long-term borrowings                               7,754,619          7,197,138              6,133,219 
           TOTAL INTEREST EXPENSE                                    $59,535,427        $47,383,363            $44,091,906 
           LESS: INTEREST CAPITALIZED (NOTE 5)                          (162,292)          (532,566)              (761,271)

           NET INTEREST EXPENSE                                      $59,373,135        $46,850,797            $43,330,635 
           NET INTEREST INCOME                                       $31,755,379        $34,275,835            $36,269,367 
           Provision for loan losses                                   1,633,500            281,000              2,985,000 

           NET INTEREST INCOME AFTER PROVISION FOR LOAN              $30,121,879        $33,994,835            $33,284,367 
                       LOSSES
       Noninterest (Loss) income:

        Gain (Loss) on sale of:
           Loans                                                      $  210,907        $    62,926            $ 2,151,387 
           Investment securities                                          90,119            (40,274)                      -
           Real estate held for development or sale, net                 (27,519)           607,270              1,400,939 
           Less: provision for losses on real estate held for         (5,751,878)        (5,035,000)            (1,245,000)
              development
        Other Writedowns                                                (908,271)          (635,068)              (210,115)
        Operating losses on real estate held for sale, net              (671,172)          (868,551)              (726,844)
        Trading securities activities                                         -            (415,511)               (15,278)
        Servicing fee income                                           1,510,271          1,297,761              1,206,034 
        Other Fee income                                               3,896,855          3,706,663              4,138,845 
        Other (Loss) income                                             (225,143)          (586,014)               205,258 

           TOTAL NONINTEREST (LOSS) INCOME                           $(1,875,831)       $(1,905,798)           $ 6,905,226 
       Noninterest expense:

         Compensation and related benefits                           $10,715,096        $11,639,362            $10,437,397 
         Occupancy                                                     3,128,654          2,987,245              2,643,535 
         Advertising and promotion                                     1,086,841          1,149,699                821,141 
         Data processing                                               2,138,038          1,946,619              1,732,818 
         Insurance                                                     2,794,970          2,626,868              2,760,576 


                                                                      82
<PAGE>






         Amortization of deposit base premium                          1,161,555          1,161,555              1,317,950 
         Other                                                         3,793,385          3,759,632              3,611,940 

           TOTAL NONINTEREST EXPENSE                                 $24,818,539        $25,270,980            $23,325,357 
         Income before taxes                                         $ 3,427,509        $ 6,818,057            $16,864,236 
         Income taxes (Note 11)                                        1,530,000          2,316,000              7,465,000 
           NET INCOME                                                $ 1,897,509        $ 4,502,057            $ 9,399,236 
         INCOME PER SHARE                                            $      0.40        $      0.96            $      2.04 

     </TABLE>

     Net income per share calculations for 1995, 1994, and 1993 were based upon
     4,721,778, 4,674,234 and 4,618,605 shares, respectively.

     See accompanying Notes to Consolidated Financial Statements.






































                                          83
<PAGE>






     <TABLE>
     <CAPTION>
                                     Consolidated Statements of Stockholders' Equity

     Years Ended December 31, 1995, 1994 and 1993
                                                       Capital Stock                        Substantially
                                                        Authorized                            Restricted
                                                     12,000,000 shares                        (Note 12)

                                                                                           Unrealized Loss
                                                                                            on Marketable
                                                                                                Equity             Total
                                                                              Retained     Securities, Net     Stockholders'
                                                   Shares       Amount        Earnings         of Tax             Equity

       <S>                                    <C>          <C>              <C>                <C>            <C>        
       Balance, December 31, 1992              4,476,828   $17,496,105      $55,489,897      $   (46,922)     $72,939,080



       Shares exercised under Incentive Stock

         Option Plan (Note 14)                    95,360   $   792,257      $      -         $       -        $   792,257

       Shares issued under the Dividend
          Reinvestment Plan (Note 14)             11,339       165,829             -                 -            165,829

       Shares issued in payment of 10% stock
          dividend to shareholders                  -        7,394,347      (7,394,347)              -                -  

       Dividends paid ($.44 per share)              -             -         (1,818,094)              -         (1,818,094)

       Increase in unrealized losses on
          marketable equity securities
          (Note 2)                                  -             -               -              (15,944)         (15,944)

       Net income for year ended December 31,
          1993                                      -             -          9,399,236              -           9,399,236



       Balance, December 31, 1993              4,583,527   $25,848,538      $55,676,692      $   (62,866)     $81,462,364



       Shares exercised under Incentive Stock
          Option Plan (Note 14)                   30,195    $  209,734      $       -        $       -        $   209,734

       Shares issued under the Dividend
          Reinvestment Plan (Note 14)             12,341       195,155              -                -            195,155



                                                                      84
<PAGE>






       Dividends paid ($.44 per share)              -             -         (2,028,617)              -         (2,028,617)

       Unrealized gains upon implementation
          of FASB 115 (Note 2)                      -             -                -             563,606             -   

       Unrealized losses on available for sale
         securities (Note 2)                        -             -                -          (1,686,809)      (1,123,203)

       Net income for year ended December 31,
         1994                                       -             -          4,502,057              -           4,502,057



       Balance, December 31, 1994              4,626,063   $26,253,427      $58,150,132      $(1,186,069)     $83,217,490



       Shares exercised under Incentive Stock 
         Option Plan (Note 14)                    26,532   $   185,471       $     -         $      -         $   185,471

       Shares issued under the Dividend 
         Reinvestment Plan (Note 14)              10,184       161,540             -                -            161,540 

       Dividends paid ($.44 per share)              -             -         (2,044,056)             -          (2,044,056)

       Unrealized gains on available for sale
         securities (Note 2)                        -             -                -           2,184,267        2,184,267

       Net income for year ended December 31,
         1995                                       -             -          1,897,509              -           1,897,509



       Balance, December 31, 1995              4,662,779   $26,600,438      $58,003,585      $   998,198      $85,602,221

     </TABLE>

     Number of shares adjusted for a 10% stock dividend in 1993.
     See accompanying Notes to Consolidated Financial Statements.














                                          85
<PAGE>






     <TABLE>
     <CAPTION>


                                            Consolidated Statements of Cash Flows 

       YEARS ENDED DECEMBER 31                                                     1995             1994              1993
       <S>                                                                     <C>              <C>                <C>          
       Cash Flows From Operating Activities:                                   $  1,897,509     $   4,502,057     $   9,399,236 
       Net Income
       Adjustments to reconcile net income to net cash (used in) provided
         by operating activities:
            Amortization of:
              Loan premium                                                              -             227,329           513,247 
            Deferred loan fees                                                   (2,811,971)       (4,093,454)       (4,735,171)
            Discount amortization on mortgage-backed bonds                           85,456           488,344           653,399 
            Deposit base premium                                                  1,161,555         1,161,555         1,317,950 
         Net (gain) loss on sale of:
            Loans                                                                  (210,907)          (62,926)       (2,151,387)
            Real estate held for development or sale                                 27,519          (607,270)       (1,400,939)
         Net (gain) loss on securities activities                                   (90,119)          455,785            15,278 
         Provision for losses on:
            Loans                                                                 1,633,500           281,000         2,985,000 
            Real estate held for development or sale                              5,751,878         5,035,000         1,245,000 
         Depreciation and amortization                                            2,594,707         2,324,433         2,105,072 
         Decrease in income taxes payable                                          (625,072)       (3,429,970)       (1,330,693)
         Net increase (decrease) in accrued interest payable                       (429,572)          850,897           144,935 
         Net (increase) decrease in accrued interest receivable                    (784,252)         (824,047)        1,481,623 
         Mortgage loans originated as held for sale                             (95,486,430)      (43,243,567)     (183,665,936)
         Proceeds from loans sold                                                85,199,481        64,345,990       178,989,245 
         Purchase of trading account securities                                         -         (38,632,428)     (210,132,378)
         Sale of trading account securities                                             -          41,186,243       212,639,909 
         Other, net                                                              (1,413,193)       (3,257,118)          173,587 

         NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                   $ (3,499,911)    $  26,707,853     $   8,246,977 

       Cash Flows From Investing Activities:
         Principal payments on loans                                           $189,475,781     $ 232,721,340     $ 280,143,541 
         Mortgage loans originated as held for investment                      (187,803,991)     (325,621,537)     (317,448,569)
         Purchase of loan participations                                           (480,600)      (15,878,519)       (5,481,737)
         Purchase of securities held for investment                             (25,439,665)     (112,933,571)      (45,080,541)
         Maturity and payments of securities held for investment                  4,407,494         1,950,000        55,777,208 
         Purchase of securities available for sale                              (44,599,634)      (37,569,321)             -    
         Maturity and payments of securities available for sale                  25,868,987        17,362,213              -    
         Sale of securities available for sale                                   52,059,260        14,154,170              -    
         Purchase of office property and equipment, net                          (2,252,721)       (3,524,626)       (7,234,096)
         Purchase of FHLB stock and FHLMC preferred stock                        (1,658,300)         (624,017)         (560,000)
         Investment in real estate held for development or sale                  (7,395,962)       (7,483,809)      (13,511,132)
         Proceeds from sales of real estate held for development or sale         10,514,376        11,857,704        18,785,248 
         Proceeds from sale of foreclosed property                               10,027,330         7,420,578        10,089,769 
         Other, net                                                               1,004,526          (743,186)        1,779,598 


                                                                      86
<PAGE>






       YEARS ENDED DECEMBER 31                                                     1995             1994              1993
            NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                $ 23,726,881     $(218,912,581)    $ (22,740,711)

       Cash Flows from Financing Activities:
         Net (decreases) additions to deposit accounts                         $(39,317,075)    $ 114,098,168     $  (9,646,118)
         Net (decrease) increase in checking accounts                            (1,605,570)        1,914,368         2,203,358 
         Proceeds from FHLB advances                                            253,200,000       183,000,000       158,000,000 
         Repayments of FHLB advances                                           (200,700,000)     (183,800,000)     (100,000,000)
         Securities sold under agreements to repurchase, net                    (29,570,000)       64,978,000              -    
         Payments on mortgage-backed bonds                                       (1,520,742)       (6,737,652)      (15,379,140)
         Bank and other borrowings, net                                                -             (396,236)         (148,254)
         Proceeds from stock options exercised and dividends reinvested             347,011           404,889           958,086 
         Dividends paid to shareholders                                          (2,044,056)       (2,028,617)       (1,818,094)
            NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                $(21,210,432)    $ 171,432,920     $  34,169,838 
       Net (decrease) increase in cash and cash equivalents                    $   (983,462)    $ (20,771,808)    $  19,676,104 
       Cash and cash equivalents at the beginning of the year                    18,837,508        39,609,316        19,933,212 


            CASH AND CASH EQUIVALENTS AT DECEMBER 31                           $ 17,854,046     $  18,837,508     $  39,609,316 

       Supplemental disclosures of cash flow information:
         Interest paid                                                         $ 59,964,999     $  43,128,214     $  40,878,359 
         Cash payments of income taxes                                            1,908,100         5,238,392         9,494,700 

       Supplemental disclosures of noncash investing and financing
       activities:
       Loans exchanged for mortgage-backed securities                          $      -         $   8,434,201     $      94,533 
         Additions to real estate acquired through foreclosure                    6,171,463        11,905,163         4,498,030 
         Transfer of securities from trading to held to maturity portfolio            -             4,875,000             -     
         Transfer of securities from trading to available for sale
            portfolio                                                                 -            10,014,089             -     
         Transfer of securities from held to maturity to available for sale
            portfolio                                                           223,766,211              -                -     
         Unrealized (gains) losses on available for sale securities              (3,762,095)        2,175,077             -     

     </TABLE>

     See accompanying Notes to Consolidated Financial Statements.


                      Notes to Consolidated Financial Statements

                 California Financial Holding Company and Subsidiary
                 For the years ended December 31, 1995, 1994 and 1993

     NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The following describes the significant accounting policies, not disclosed
     elsewhere in the notes to the consolidated financial statements, which
     California Financial Holding Company and Stockton Savings Bank, its



                                          87
<PAGE>






     subsidiary, follow in preparing and presenting their consolidated
     financial statements.

     Basis of Consolidation

     The accompanying consolidated financial statements include the accounts of
     the Company and its subsidiary. The Company is a financial services
     holding company engaged primarily in the savings and loan business through
     Stockton Savings Bank. The Bank, organized in 1887, converted in 1990 from
     a state-chartered to a federally-chartered institution which provides
     financial services through traditional banking activities. In addition,
     the Bank has other subsidiaries which are engaged primarily in real estate
     acquisition, development and financing activities. All significant
     intercompany balances and transactions have been eliminated in
     consolidation. Certain reclassifications have been made to prior years'
     consolidated financial statements to conform to the 1995 presentation.

     Cash and Cash Equivalents

     The Company considers all highly liquid assets purchased with maturities
     of three months or less to be cash equivalents. These include
     interest-bearing deposits at other financial institutions, other
     short-term investments and securities purchased under agreements to
     resell.

     Investment and Mortgage-Backed Securities

     In accordance with regulation, the Bank maintains an amount at least equal
     to 5% of average daily withdrawable savings accounts plus short-term
     borrowings in U.S. Government and other securities that are readily
     convertible to cash. In 1994, the Bank adopted the provisions of Statement
     of Financial Accounting Standards No. 115. "Accounting for Certain
     Investments in Debt and Equity Securities" (SFAS 115). SFAS 115 requires
     debt and equity securities to be classified into one of three categories:
     held to maturity, available for sale or trading. Securities held to
     maturity are limited to debt securities that the holder has the positive
     intent and ability to hold to maturity, and are reported at amortized
     cost. Amortization is computed using a method which approximates the
     interest method. Securities held for trading are limited to debt and
     equity securities that are held principally to be sold in the near term,
     and are reported at fair value with unrealized gains and losses reflected
     in earnings. Securities held as available for sale consist of all other
     securities and are reported at fair value with unrealized gains and losses
     reflected as a separate component of stockholders' equity. Realized gains
     and losses for securities classified as available for sale are included in
     earnings, and are derived using the specific identification method for
     determining the cost of securities sold. SFAS 115 prohibits retroactive
     application to prior statements.

     Interest and dividends on investment and mortgage-backed securities
     include interest earned on these securities, amortization of related


                                          88
<PAGE>






     premiums and discounts, and dividends earned on stock of the Federal Home
     Loan Bank of San Francisco.

     Loans Held for Sale

     Loans held for sale are carried at the lower of cost or estimated market
     value, determined on an aggregate basis. Market values are calculated
     based on direct market quotes for sales of similar loans. The Bank
     protects the value of its loan origination pipeline and loans held for
     sale portfolio against a potential rise in interest rates by utilizing
     forward commitments to sell loans and mortgage-backed securities. These
     forward sales are entered into at the time a rate is committed to a
     potential borrower.

     Loans Receivable

     Loans are recorded at cost, net of discounts or premiums, unearned fees
     and deferred fees. Discounts and premiums on purchased loans are amortized
     using the interest method over the remaining contractual life of the
     portfolio adjusted for anticipated prepayments. During 1994, the Bank
     adopted the provisions of Statement of Financial Accounting Standards No.
     114 "Accounting by Creditors for Impairment of a Loan" (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 loans
     observable market price, or fair value if the loan is collateral
     dependent. Generally, the factors utilized to determine impairment include
     delinquency, borrower financial weaknesses and collateral value
     deterioration. Interest is normally accrued to income as earned. All loans
     defined as impaired and all loans 90 days or more delinquent, record
     interest income on a cash basis. Since all of the Bank's loans are
     collateral-dependent, losses are charged-off at the point of foreclosure
     and the asset is written down to fair market value. SFAS 114 does not
     apply to large groups of homogeneous loans under $500,000 that are
     collectively evaluated for impairment, consisting of primarily residential
     loans.

     Real Estate Held for Development or Sale

     Real estate held for development or sale consists of real estate
     investments and foreclosed properties. Real estate investments are carried
     at the lower of cost or net realizable value. Interest and carrying
     charges related to certain properties held for development are capitalized
     throughout the construction and development period using the Bank's cost
     of funds.

     Real estate acquired through settlement of loans is recorded at lower of
     carrying value or fair value at the date of foreclosure and at the lower
     of such amount or market value less estimated selling costs thereafter. 

     Revenue recognition on the disposition of real estate is dependent on the
     transaction meeting certain criteria relating to the nature of the
     property sold and terms of sale.

                                          89
<PAGE>






     Gain or Loss on Sale of Mortgage Loans and Loan Participations

     Gains or losses resulting from sales of mortgage loans and loan
     participations are recorded at the settlement of sale. A cash gain or loss
     is recognized to the extent that the sales proceeds of the mortgage loans
     or participations sold exceed or are less than the book value, net of
     unearned discount or premium, at the time of sale. A present value gain or
     loss is measured by the difference between the effective loan interest
     rate paid by the borrower to the Bank and the net yield to the investor,
     excluding normal servicing fees and considering estimated prepayments on
     such loans. The resulting deferred premium or discount is amortized or
     accredited to interest income using the interest method, adjusted as
     necessary for loan prepayments in excess of estimated prepayments. No
     deferred premium remained at December 31, 1995 or 1994.

     Allowance for Losses

     The Bank regularly reviews assets to determine that loss allowances are
     maintained at adequate levels. In determining the level to be maintained,
     management evaluates many factors including prevailing and anticipated
     economic conditions, industry experience, historical loss experience, the
     borrower's ability to repay and repayment performance and estimated
     collateral values. During 1993, the Bank increased loan loss reserves
     significantly as a result of declining economic conditions and
     subsequently increasing delinquencies. During 1995 and 1994, loan loss
     exposure improved, measured in part by the dollar amount of nonperforming
     loans. Accordingly, the provision for loan losses was less significant. 

     Management uses the best information available for estimates of value.
     Future adjustments to the allowance may be necessary if economic
     conditions differ substantially from the assumptions and information used
     in making the evaluation. When it is anticipated that real estate will be
     held for an extended period of time, holding costs, including a discount
     factor to give effect to the time value of money, are considered in
     providing the valuation allowance. Regulatory examiners may require the
     Bank to recognize additions to the allowances based upon their judgements
     at the time of their examination.

     Interest Rate Exchange Contracts

     Interest rate exchange contracts (swaps and caps) are used by the Bank in
     the management of its interest rate risk. Swaps are agreements in which
     the Bank and another party agree to exchange interest payments on notional
     principal amounts. Caps are agreements in which the Bank pays a fixed
     option premium to an issuing party, and in return receives a specified
     return on a notional principal amount should interest rates exceed a
     specified minimum. The objective of these financial instruments is to
     match estimated repricing periods of interest-sensitive assets and
     liabilities in order to reduce interest rate exposure. 

     The effect on interest expense from these swaps is recognized currently
     over the terms of the agreements and is shown as an adjustment to interest

                                          90
<PAGE>






     on the hedged liability. The option premium paid on caps is included in
     other assets in the statement of financial condition and is amortized to
     interest expense on a straight-line basis over the term of the agreement.
     Amounts receivable, if any, are recognized as a reduction of interest
     expense. These instruments are used only to hedge asset and liability
     portfolios, and are not used for speculative purposes.

     Deposit Base Premium

     The Company's branch acquisitions have been accounted for under the
     purchase method of accounting in accordance with applicable accounting
     requirements. Assets acquired and liabilities assumed were recorded at
     their fair values at the date of acquisition. The excess of cost over fair
     value of the net assets acquired in the amount of $9.3 million was
     classified as deposit base premium based upon a core deposit study and is
     being amortized over eight years on a straight-line basis. At December 31,
     1995, $1.1 million of deposit base premium had a remaining life of two
     years.

     Loan Origination Fees

     Loan origination fees, offset by certain direct costs of origination, are
     recognized as an adjustment to yield over the life of the loan using the
     effective interest method, which results in a constant return. 

     Federal Home Loan Bank Stock

     The Bank is a member of the Federal Home Loan Bank System and as such is
     required to own capital stock in an amount specified by regulation,
     generally 1% of net outstanding residential loans receivable. At December
     31, 1995 and 1994, the Bank owned 103,952 and 87,369 shares, respectively,
     of $100 par value capital stock of the Federal Home Loan Bank of San
     Francisco.

     Office Property and Equipment

     Depreciation of office, property and equipment is computed on a
     straight-line basis over the estimated useful lives of the various classes
     of assets. Leasehold improvements are amortized on a straight-line basis
     over the remaining term of the lease or the estimated useful life of the
     asset, whichever is less. Maintenance and repairs are charged to expense
     when incurred, and improvements are capitalized.

     Fair Value of Financial Instruments

     In accordance with Statement of Financial Accounting Standards No. 107
     (SFAS 107), fair value of financial instruments is disclosed throughout
     the various notes herein as of December 31, 1995 and 1994. Market quotes
     for investments and borrowings were obtained from representative
     over-the-counter quotations based on transactions from major market
     publications. Fair value of loans and savings deposits was calculated by
     estimating the net present value of future cash flows using current market

                                          91
<PAGE>






     rates of interest. Prepayment assumptions were obtained from standard
     industry publications.

     Taxes on Income

     The Company accounts for income taxes in accordance with SFAS 109
     "Accounting for Income Taxes". Under the deferred method, annual income
     tax expense is matched with pre-tax accounting income by providing
     deferred taxes at current tax rates for timing differences between the
     determination of net income for financial reporting and tax purposes. The
     objective of the asset and liability method is to establish deferred tax
     assets and liabilities for the temporary differences between the financial
     reporting basis and the tax basis of the Company's assets and liabilities
     at enacted tax rates expected to be in effect when such amounts are
     realized or settled.

     Income Per Share

     Income per share is calculated by dividing net income by the weighted
     average number of common shares outstanding during the year. Common stock
     equivalents do not have a material effect on the income per share
     calculation. 

     Impact of New Accounting Standards

     In May, 1995, FASB issued Statement of Financial Accounting Standards No.
     122 (SFAS122), an amendment of FASB statement FAS65 "Accounting for
     Mortgage Servicing Rights". SFAS122 requires that the rights to service
     mortgage loans for others be recognized as a separate asset, however those
     servicing rights are acquired. The total cost of originating or purchasing
     mortgage loans should be allocated between the loan and the servicing
     rights based upon their relative fair values. The statement also requires
     the assessment of all capitalized mortgage servicing rights for impairment
     to be based on current fair value of those rights.  The Bank will
     implement SFAS122 starting January 1, 1996. The impact of SFAS122 on the
     Bank's results of operations will be to increase reported earnings by an
     amount which will vary with the level of loans sold and market conditions.


                             NOTE 2:  CASH AND SECURITIES

     Cash and Short-Term Securities

     The Bank's short-term liquid investments consist primarily of deposits
     with the Federal Home Loan Bank and mutual fund investments. The mutual
     fund investments consist of overnight and short-term maturity type funds.
     The Bank's investment in overnight mutual funds totalled $4,423,776 and
     $2,901,268 at December 31, 1995 and 1994, respectively. These funds
     yielded 5.86% and 6.14%, respectively, and are backed by U.S. Government
     securities bought under repurchase agreements and Federal Funds. 

     Securities Purchased Under Agreements to Resell

                                          92
<PAGE>






     The Bank enters into purchases of U.S. Government securities under
     agreements to resell (repurchase agreements). Due to the short-term nature
     of the securities and the creditworthiness of primary dealers, the Bank
     does not obtain control of the underlying securities. The following is a
     summary of these securities at December 31:

     <TABLE>
     <CAPTION>

                                                                                   1995                        1994        
       <S>                                                                     <C>                        <C>              
       U.S. Government securities                                              $     -                    $      -         
       Average balance during each year                                              -                         16,667      
       Maximum balance at any month-end                                              -                        100,000      
       Weighted average interest rate                                                -                           -         
       Weighted average days to maturity                                             -                           -         
     </TABLE>

     Investment Securities

     The Bank's investment portfolio is comprised primarily of U.S. Government
     and agency securities and collateralized mortgage obligations (CMO's)
     which are generally backed by mortgage-backed securities issued by
     agencies and private issues. The amortized cost and estimated market
     values of investment securities are as follows at December 31:




























                                                                      93
<PAGE>






     <TABLE>
     <CAPTION>
                                                                   GROSS               GROSS             ESTIMATED
                                          AMORTIZED COST      UNREALIZED GAINS   UNREALIZED LOSSES     MARKET VALUE

       <S>
       1995 AVAILABLE FOR SALE:           <C>                 <C>                <C>                 <C>

       U.S. Government and Agency
         Securities                       $ 47,808,939        $ 327,903          $   117,333         $ 48,019,509

       CMO's                                95,329,548          494,824              774,257           95,050,115

       Other securities                      1,075,462             -                     280            1,075,182

       TOTAL AVAILABLE
         FOR SALE                         $144,213,949        $ 822,727          $   891,870         $144,144,806

       1994 AVAILABLE FOR SALE:
       U.S. Government & Agency
         Securities                       $ 40,548,985        $   2,169          $ 1,302,426         $ 39,248,728

       CMO's                                11,677,479            3,922              491,640           11,189,761

       TOTAL AVAILABLE 
         FOR SALE                         $ 52,226,464        $   6,091          $ 1,794,066         $ 50,438,489

       1994 HELD TO MATURITY:
       U.S. Government & Agency
         Securities                       $  6,335,270        $     258          $   392,119         $  5,943,409

       CMO's                                46,414,339             -             $ 4,654,358           41,759,981

       Other Securities                         10,000             -                   -                   10,000

       TOTAL HELD TO MATURITY             $ 52,759,609        $     258          $ 5,046,477         $ 47,713,390

     </TABLE>

     The market value of these investment securities is estimated based on
     prices published in financial newspapers or bids received from securities
     dealers.

     The Bank held investments in privately issued CMO's totalling $11,303,649
     and $835,980 at December 31, 1995 and 1994, respectively. At December 31,
     1995, the Bank held one A-rated CMO with an amortized book value of $5.8
     million. All other privately issued CMO's were AAA-rated. All of the
     Bank's CMO investments are considered REMIC issues. The Bank did not hold
     investments of any private issues where the aggregate book value exceeded
     10% of stockholders' equity. 



                                          94
<PAGE>






     The Bank held $7.5 million in structured notes issued by government
     agencies at December 31, 1995 and 1994, and are included with the U.S.
     Government and agency issues.


















































                                          95
<PAGE>






     The maturities of Bank investments as of December 31, 1995 are as follows:

     <TABLE>
     <CAPTION>

                                           Estimated Amortized Cost           Market Value          Yield By
                                                                                                    Maturity

       Available for Sale:
       <S>                                <C>                          <C>                          <C>
       Within 1 year                      $  15,017,498                $   15,133,239               6.34%

       1-5 years                             32,332,878                    32,362,984               5.84%

       6-10 years                             7,500,000                     7,536,158               5.15%

       Over ten years                        89,363,573                    89,112,425               6.83%

                                          $ 144,213,949                $  144,144,806               6.47%

     </TABLE>

     Issuers may have the right to call or prepay obligations with or without
     call or prepayment penalties.  This right may cause actual maturities to
     differ from contractual maturities summarized above. 

     Upon adoption of SFAS 115, the Bank was permitted to make a one-time
     transfer of investment and mortgage-backed securities into the available
     for sale portfolio. The amortized cost and market value at the time of
     transfer for these securities was $39,203,191 and $39,766,797,
     respectively. This resulted in an unrealized gain of $563,606. During
     1995, the Bank made a decision to restructure its balance sheet by selling
     mortgage-backed securities from the held to maturity portfolio.  As a
     result, the Bank's entire held to maturity portfolio, consisting of
     securities with an amortized cost of $69,381,748 and a market value of
     $68,425,509, was transferred to the available for sale portfolio.  At
     December 31, 1995, the Bank recorded an increase to shareholders' equity
     of $2,184,267 as a result of net unrealized gains on securities, net of
     tax effect. The Bank recorded unrealized losses, net of tax effect, of
     $1,686,809 at December 31, 1994, resulting in a reduction to shareholders'
     equity.

     During 1995, the Bank sold $6,987,813 of securities available for sale,
     recognizing gross gains of $4,989 and gross losses of $40,916.  This
     compares to sales of $14,154,170 during 1994, recognizing gross losses of
     $66,374. No sales of securities occurred from the investment portfolio
     during 1993.






                                          96
<PAGE>






     Trading Account Securities

     During 1994, trading account operations were discontinued by the Bank, and
     the remaining securities were transferred out of the trading portfolio at
     market value. As a result, the Bank had no balance in the trading
     portfolio as of December 31, 1995 and 1994. In 1994, the Bank transferred
     $10,014,089 of trading securities to the available for sale portfolio
     after recognizing gross losses of $309,563, and $4,875,000 to the held to
     maturity portfolio after recognizing gross losses of $126,563. The Bank
     sold $41,186,243 of U.S. Government and agency securities from the trading
     portfolio in 1994, realizing gross gains of $38,285 and gross losses of
     $226,708. This compares to sales of $212,655,187 in 1993, with gross
     realized gains of $391,498 and gross losses of $427,200. 


                         NOTE 3:  MORTGAGE-BACKED SECURITIES

     Amortized cost and estimated market values of mortgage-backed securities
     at December 31 are as follows:

     <TABLE>
     <CAPTION>

                                                                           GROSS
                                                   GROSS UNREALIZED      UNREALIZED        ESTIMATED
                                  AMORTIZED COST         GAINS             LOSSES        MARKET VALUE

       <S>
       1995
       AVAILABLE FOR SALE:
       FHLMC MORTGAGE-BACKED    <C>                    <C>            <C>              <C>         
         SECURITIES             $  82,793,531      $  2,007,281       $    57,592      $ 84,743,220

       FNMA MORTGAGE-BACKED        30,169,481           505,419                --        30,674,900
         SECURITIES

       FHA TITLE 1 SECURITIES       2,580,751                --           798,947         1,781,804

       TOTAL AVAILABLE FOR      $ 115,543,763      $  2,512,700        $  856,539      $117,199,924
       SALE:

       1994

       AVAILABLE FOR SALE:
       FHLMC MORTGAGE-BACKED
         SECURITIES             $   7,541,674      $         --        $  387,102      $  7,154,572

       HELD TO MATURITY:
       FHLMC MORTGAGE-BACKED
         SECURITIES             $ 117,690,955      $    239,112        $6,351,753      $111,578,314



                                                                      97
<PAGE>






       FNMA MORTGAGE-BACKED        37,990,105                --         1,903,076        36,087,029
         SECURITIES

       FHA TITLE 1 SECURITIES       3,755,228                --           172,720         3,582,508

       TOTAL HELD TO MATURITY   $ 159,436,288      $    239,112        $8,427,549      $151,247,851

     </TABLE>

     The market value of mortgage-backed securities is estimated based on
     prices published in financial newspapers or bids received from securities
     dealers.  The weighted average interest rate of the mortgage-backed
     securities was 6.84% and 7.42% as of December 31, 1995 and 1994,
     respectively.

     During 1995, the Bank made a decision to restructure its balance sheet by
     selling mortgage-backed securities from the held to maturity portfolio. 
     As a result, the Bank's entire held to maturity portfolio, consisting of
     mortgage backed securities with an amortized cost of $154,384,463 and a
     market value of $154,351,057, was transferred to the available for sale
     portfolio.  Sales of mortgage-backed securities totalled $45,071,447 in
     1995, recognizing gross gains of $561,867 and gross losses of $435,821. 
     No sales of mortgage-backed securities occurred in 1994 or 1993.

     The following mortgage-backed securities were pledged as collateral for
     borrowings at December 31:

     <TABLE>
     <CAPTION>
                                                                            1995                     1994

       <S>                                                              <C>                      <C>         
       COLLATERALIZED MORTGAGE OBLIGATION (NOTE 9) SERIES B             $  6,477,805             $  7,955,746

     </TABLE>


                           NOTE 4:  LOANS RECEIVABLE, NET 

     Loans receivable, net by type of loan, at December 31, are summarized as
     follows:

     <TABLE>
     <CAPTION>

                                                                 1995                         1994
       <S>
       Residential mortgage loans:
         Existing structures:                                  <C>                            <C>         
            1-4 Unit dwellings                                 $ 745,793,031                  $735,338,613
            5 or more unit dwellings                              38,129,869                    37,109,786


                                                                      98
<PAGE>






         Construction:
            1-4 Unit Dwellings                                    57,516,807                    59,792,760
            5 or more unit dwellings                               1,278,289                     4,852,865
       Total residential                                       $ 842,717,996                  $837,094,204
       Commercial loans                                        $  55,517,994                  $ 57,818,197
       Land loans                                              $  34,226,637                  $ 33,861,805
       Other loans:
         Educational loans                                     $      28,850                  $     79,788

         Savings loans                                             2,196,837                     1,952,447
         Credit reserve loans and other                              476,876                       505,507
       Total other loans                                       $   2,702,563                  $  2,537,742
       Total loans                                             $ 935,165,190                  $931,311,768
       Less:                                                   $   5,628,452                  $  6,607,048
         Unamortized loan fees
         Discounts and premiums, net                                 292,631                       222,594
         Allowance for loan losses                                 8,173,807                     7,725,500
         Loans receivable, net                                 $ 921,070,300                  $916,756,626
       Weighted average interest rate                              7.92%                        7.02%


       At December 31, 1995 and 1994, the above table includes $13,153,264 and $2,655,408 of loans held for
       sale at book value, which were less than market.  The estimated fair value of loans, as of December 31,
       is as follows:

                                                              1995                            1994
       Residential                                             $ 849,085,000                 $ 801,224,000
       Commercial                                                 51,059,000                    57,677,000
       Land                                                       32,733,000                    30,435,000
       Other loans                                                 2,703,000                     2,383,000
       Total                                                   $ 935,580,000                 $ 891,719,000


     </TABLE>

     Fair values are estimated for portfolios of loans with similar financial
     characteristics.  Loans are segregated by type such as residential,
     commercial, land and other loans.  Each loan is further segmented into
     account types with similar characteristics.

     The fair value of loans is calculated by discounting scheduled cash flows
     through the estimated maturity using estimated discount and prepayment
     rates.  Discount rates were based on published information with
     adjustments made, as required, by an estimate of the differences among
     products.  Estimates of prepayment speeds were obtained from published
     information.  Fair value of nonperforming loans was based on estimated
     cash flows.  Assumptions regarding credit risk, cash flows and discount
     rates were judgementally determined using available market information and
     specific borrower information.




                                          99
<PAGE>






     Loans in process, primarily related to construction loans, are netted in
     total loans.  They amounted to $34,810,00 and $34,102,000 at December 31,
     1995 and 1994, respectively.

     The Bank serviced loans and participating interests in loans owned by
     investors in the amount of $548,462,487 and $509,128,597 as of December
     31, 1995 and 1994, respectively.

     Activity in the premium account from present value gains and losses on
     loans sold is shown in the table below for the periods ending December 31:











































                                                                     100
<PAGE>






     <TABLE>
     <CAPTION>

                                                      1995               1994                      1993

       <S>                                         <C>                  <C>                     <C>        
       Beginning net premium balance                  $ -               $  227,329               $  790,576

       Net present value losses recognized              -                     -                     (50,000)

       Less:  premium amortized and written off         -               $ (227,329)                (513,247)

                                                      $ -               $     -                   $ 227,329



     </TABLE>


     Certain of the Bank's real estate loans are pledged as collateral for
     borrowings as set forth in Note 8.

     At December 31, 1995, 1994 and 1993, there were 79, 82 and 103 mortgage
     loans, respectively, with unpaid principal balances of approximately
     $8,010,000, $7,466,000 and $11,600,000, respectively, which were past due
     for three months or more or were in the process of foreclosure. The
     interest that would have been accrued on these loans, but was not,
     amounted to $262,975, $370,911 and $993,320 for 1995, 1994 and 1993,
     respectively.

     Impaired loans include troubled debt restructurings and loans on which
     there is a probability that the Bank will not be able to collect all
     amounts due. The Bank adopted SFAS 114 pertaining to impaired loans on
     January 1, 1994. The following summarizes the balances relating to SFAS
     114 impaired loans at December 31:

     <TABLE>
     <CAPTION>

                                                                        1995                         1994
       <S>                                                                <C>                        <C>       
       Outstanding loan balances                                         $ 10,270,248              $  9,740,207
       Loans with valuation allowances                                      5,218,830                 3,519,432
       Valuation allowances                                                 1,190,000                   724,000
       Commitments to advance funds                                           666,893                   829,235
       Average balance for year                                             9,053,868                15,267,712

     </TABLE>





                                         101
<PAGE>






     The Bank records interest income on loans classified as impaired or past
     due for three or more months on a cash basis.

     Interest income recorded on SFAS 114 impaired loans at year-end was
     $387,681 and $424,294 for 1995 and 1994, respectively. At December 31,
     1993 the Bank recorded $445,074 in interest income on restructured
     troubled debt loans.

     Activity in the allowance for loan losses is as follows:

     <TABLE>
     <CAPTION>
       <S>                                                                                              <C>       
       Balance at December 31, 1992                                                                   $ 8,042,000 
         Provision for losses                                                                           2,985,000 
         Charge-offs                                                                                   (1,062,000)

       Balance at December 31, 1993                                                                   $ 9,965,000 
         Provision for losses                                                                             281,000 
         Charge-offs                                                                                   (2,520,500)

       Balance at December 31, 1994                                                                   $ 7,725,500 
         Provision for losses                                                                           1,633,500 
         Charge-offs                                                                                   (1,185,193)

       Balance at December 31, 1995                                                                   $ 8,173,807 

     </TABLE>

     The allowance for loan losses relates entirely to loans secured by real
     estate. Consumer loans represent a minor portion of the Bank's total
     portfolio. Losses in this portfolio are written off directly against the
     asset.

     All mortgage loans are secured by real estate in California, generally
     located within the Bank's primary lending territory (i.e., Central
     Northern California). The Bank's credit risk is therefore related to the
     economic condition of the Central Valley. Loans are made on the basis of
     the borrowers' ability to repay; however, collateral is generally a
     secondary source for loan qualification. On occasion, loans have been
     purchased that are secured by single-family residences in Southern
     California and Northern California's Bay Area.


                  NOTE 5:  REAL ESTATE HELD FOR DEVELOPMENT OR SALE

     Real estate development and sale activities are conducted primarily
     through Stockton Service Corporation, a wholly-owned service corporation
     of the Bank. Capsulized financial information for Stockton Service
     Corporation follows:



                                         102
<PAGE>






     Statements of Financial Condition

     <TABLE>
     <CAPTION>

       At December 31                                                        1995                          1994



       <S>                                                                       <C>                           <C>      
       Assets:                                                                $   413,057                    $   260,227
         Cash

         Real estate held for development at cost:

            Partially developed and completed projects                          6,542,931                     15,597,723

            Land held for development/sale                                      2,547,910                      1,571,840

            Capitalized interest                                                  518,483                      1,229,451

            Less: loss reserves                                                (3,106,250)                    (3,708,275)

            Total real estate held                                            $ 6,503,074                    $14,690,739

            Other assets                                                        3,174,030                      1,948,971

         Total assets                                                         $10,090,161                    $16,899,937

       Liabilities: 

         Notes payable - Stockton Savings                                      $8,900,000                    $13,800,000

         Notes payable - others                                                         0                              0

         Other liabilities                                                      2,823,194                      1,625,011

       Stockholder's (deficit) equity                                          (1,633,033)                     1,474,926

             Total liabilities and stockholder's equity                       $10,090,161                    $16,899,937
     </TABLE>












                                         103
<PAGE>






     <TABLE>
     <CAPTION>

       Statements of Operations

       Years ended December 31                      1995                  1994                 1993

       <S>                                      <C>                    <C>                <C>          
       Income:

         (Loss) gain on sale of real              $   (27,985)         $   472,766         $  1,186,493
         estate held for development, net

         Provision for losses                      (4,121,878)          (2,650,000)                -   

         Other income                                  54,531                7,959               14,061

       Total (loss) income                        $(4,095,332)         $(2,169,275)        $  1,200,554

       Expenses:

         Interest expense                         $   977,921          $ 1,250,225         $  1,478,131

         Less:  interest capitalized                 (162,292)            (532,566)            (761,271)

         General and administrative                   280,910              377,312              336,268
            expense

       Total expenses                             $ 1,096,539          $ 1,094,971         $  1,053,128

       (Loss) income before tax                   $(5,191,871)         $(3,264,246)        $    147,426

       Income tax (benefit) expense                (2,083,913)          (1,310,203)              60,511

       Net (loss) income                          $(3,107,958)         $(1,954,043)        $     86,915

       Statements of Cash Flows

       Years ended December 31                           1995                 1994                 1993
       Cash Flows From Operations:

         Net (loss) income                        $(3,107,958)         $(1,954,043)        $     86,915

         Provision for losses                       4,121,878            2,650,000                  -  

         Loss (gain) on sale of real                   27,985             (472,766)          (1,186,493)
           estate

         (Decrease) increase in income                 (6,611)            (173,744)              60,511
           taxes payable



                                                                     104
<PAGE>






         (Decrease) increase in net                   (21,156)                 632              (25,508)
           accrued interest

         Other, net                                       891             (296,178)             123,867

       Net cash used by operations                $ 1,015,029          $  (246,099)        $   (940,708)

       Cash Flows From Investing
         Activities:

            Investments in real estate            $(6,476,575)         $(8,852,726)        $(13,155,457)

            Proceeds from sales                    10,514,376           11,857,704           18,785,248
              of real estate 

            Decrease in notes                            -                 378,265              256,696
              receivables, net 

       Net cash provided by
         Investing activities                     $ 4,037,801          $ 3,383,243         $  5,886,487

       Cash Flows From
         Financing Activities:
           Notes payable, net                     $(4,900,000)         $(3,135,802)        $ (5,668,254)

       Net Cash Used
         By Financing Activities                  $(4,900,000)         $(3,135,802)        $ (5,668,254)

       Net increase (decrease) in cash            $   152,830          $     1,342         $   (722,475)

       Cash at the beginning of the year              260,227              258,885              981,360

       Cash at the end of the year                    413,057              260,227              258,885
     </TABLE>

     Activity in the allowance for losses is as follows:

     <TABLE>
     <CAPTION>


       <S>                                                       <C>
       Balance at December 31, 1992                              $  3,709,153

       Provision for losses                                           -

       Charge-offs                                                 (1,619,295)

       Balance at December 31, 1993                              $  2,089,858

       Provision for losses                                         2,650,000


                                                                     105
<PAGE>






       Charge-Offs                                                 (1,031,583)

       Balance at December 31, 1994                              $  3,708,275

       Provision for losses                                         4,121,878

       Charge-offs                                                 (4,723,903)

       Balance at December 31, 1995                              $  3,106,250


     </TABLE>

     Also included in real estate held for development or sale is foreclosed
     real estate held by the Bank at December 31 as follows:






































                                                                     106
<PAGE>






     <TABLE>
     <CAPTION>
                                                                          1995                         1994  

       <S>                                                          <C>                         <C>          
       Gross foreclosed real estate                                 $  9,829,615                $  13,685,483

       Allowance for losses                                           (3,852,507)                  (3,142,361)

       Net balance of foreclosed real estate                        $  5,977,109                $  10,543,122


     </TABLE>

     Activity in the allowance for losses on foreclosed property is as follows:

     <TABLE>
     <CAPTION>

       <S>                                                     <C>
       Balance at December 31, 1992                            $  702,000
       Provision for losses                                     1,245,000
       Charge-offs                                               (272,345)

       Balance at December 31, 1993                            $1,674,655
       Provision for losses                                     2,385,000
       Charge-offs                                               (917,294)

       Balance at December 31, 1994                            $3,142,361
       Provision for losses                                     1,630,000
       Charge-offs                                               (919,854)

       Balance at December 31, 1995                            $3,852,507

     </TABLE>
                  NOTE 6:  ACCRUED INTEREST AND DIVIDENDS RECEIVABLE

       Accrued interest and dividends receivable at December 31 are summarized
     as follows:

     <TABLE>
     <CAPTION>
                                                                      1995                         1994
       <S>                                                             <C>                          <C>        
       Loans receivable                                                 $4,076,669                   $3,112,506
       Mortgage-backed securities                                          775,906                    1,055,280
       Investment securities                                             1,046,078                      987,280
       Other                                                               193,682                      153,017

       Interest and Dividends Receivable                                $6,092,335                   $5,308,083

     </TABLE>

                                         107
<PAGE>







                        NOTE 7:  SAVINGS AND CHECKING ACCOUNTS

       Savings and checking accounts by type and rate as of December 31 are
     summarized as follows:

     <TABLE>
     <CAPTION>

                                                                              1995                            1994

       <S>                                                                    <C>                                <C>        


       Passbook accounts at 2.20%                                            $ 47,423,181                     $   53,375,855

       NOW accounts at 1.10% and 1.30%                                        108,611,667                        110,217,237

       Money market deposits at 2.60% and 2.40%                                66,066,290                         85,843,980

                                                                             $222,101,138                     $  249,437,072

       Weighted average interest rate                                               1.96%                              2.05%    

       Certificate Accounts:

         2.00% to 2.99%                                                      $    509,137                     $    5,819,000

         3.00% to 3.99%                                                         9,818,635                        119,104,201

         4.00% to 4.99%                                                       132,273,975                        263,035,827

         5.00% to 5.99%                                                       372,309,964                        222,917,030

         6.00% to 6.99%                                                       213,362,130                        131,619,588

         7.00% to 7.99%                                                         9,360,344                          7,068,805

         8.00% to 8.99%                                                           271,416                          1,246,668

         9.00% to 9.99%                                                           141,036                            592,024

         10.00% to 10.99%                                                               -                            229,325

                                                                             $738,046,637                     $  751,633,348

       Weighted average interest rate                                               5.59%                              4.91%    

       Total Savings                                                         $960,147,775                     $1,001,070,420




                                                                     108
<PAGE>






       Weighted average interest rate                                               4.75%                              4.19%    
         (as of dates indicated above)

     </TABLE>

     Under SFAS 107, the fair value of deposits with no stated maturity, such
     as noninterest bearing demand deposits, savings and NOW accounts, and
     money market and checking accounts, is equal to the amount payable on
     demand as of December 31. The fair value of certificates of deposit is
     based on the discounted value of contractual cash flows. The discount rate
     is estimated using the rates currently offered for deposits of similar
     remaining maturities. The estimated fair value of savings and checking
     accounts as of December 31, 1995 and 1994 was $961,625,000 and
     $986,437,000, respectively.

     Certificate accounts with balances of $100,000 or more totalled
     $171,026,736 and $223,382,000 at December 31, 1995 and 1994, respectively.
     Broker-acquired deposits were $4,312,943 and $61,024,000 at December 31,
     1995 and 1994, respectively.

     At December 31, 1995, certificate maturities were as follows:

     <TABLE>
     <CAPTION>

       <S>                                                            <C>
       1996                                                           $576,001,944
       1997                                                            115,452,586
       1998                                                             30,002,545
       1999                                                              5,831,088
       2000                                                                 -
       2001 and thereafter                                              10,758,474

                                                                      $738,046,637

     </TABLE>


     Interest on savings accounts for the years ended December 31 is summarized
     as follows:

     <TABLE>
     <CAPTION>

                                                                1995                     1994                      1993
       <S>                                                   <C>                       <C>                        <C>        
       Passbook accounts                                     $  1,147,524              $ 1,237,088                $ 1,329,324
       NOW accounts (including money market NOW                 1,445,350                1,628,824                  1,946,633
         accounts)
       Money market and certificate accounts                   44,256,997               32,265,255                 31,792,727
       Interest forfeitures                                      (204,825)                (152,166)                  (144,653)


                                                                     109
<PAGE>






       Hedging effect of interest rate swaps                    1,384,833                3,241,210                  2,917,838
         (note 18)

       Net interest expense                                  $ 48,029,879              $38,220,211                $37,841,869
     </TABLE>


     Interest credited to customer deposits amounted to $39,994,929,
     $30,584,198 and $30,986,076  in 1995, 1994 and 1993, respectively.


                    NOTE 8:  ADVANCES FROM THE FEDERAL HOME LOAN 
                                BANK OF SAN FRANCISCO

     Each Federal Home Loan Bank is authorized to make advances to its member
     associations, subject to such regulations and limitations as the Bank may
     prescribe. As of December 31, 1995 and 1994, the Bank had pledged its
     stock in the Federal Home Loan Bank of San Francisco and real estate loans
     with outstanding principal balances of approximately $318,461,647 and
     $357,208,102, respectively, to secure current as well as future
     borrowings. 

     The maturity schedules for advances outstanding as of December 31, 1995
     and 1994 is shown in the following table:

     <TABLE>
     <CAPTION>

                                                                                        Principal Amount


       Maturity                               Interest Rates                       1995                      1994

       <S>                                             <C>                      <C>                       <C>         
       1995                                            4.61%                    $         -               $ 35,000,000

       1996                                        5.44 - 4.36%                  62,500,000                 15,000,000
       1997                                        6.04 - 6.44%                  10,000,000                  5,000,000

       1998                                        6.00 - 5.90%                  60,000,000                 35,000,000

       1999                                            6.94%                     20,000,000                 20,000,000

       Thereafter                                      7.24%                     10,000,000                          -

                                                                               $162,500,000               $110,000,000

       Weighted average interest rate (as
         of dates indicated above)                                                    5.98%                      5.49%   

     </TABLE>


                                         110
<PAGE>






     The fair value of FHLB advances was based on the discounted cash flows.
     The discount rate is estimated using the rates currently offered for
     advances of similar remaining maturities. The estimated market value of
     advances from the Federal Home Loan Bank at December 31, 1995 and 1994 was
     $163,607,000 and $105,261,000, respectively.

     The interest on advances is payable monthly. The Bank paid interest on
     advances of $7,145,216, $5,811,011 and $3,582,302 for the years ended
     December 31, 1995, 1994 and 1993, respectively.


                    NOTE 9:  COLLATERALIZED MORTGAGE OBLIGATIONS 

     On December 16, 1987, Stockton Securities Corporation issued Series B
     Collateralized Mortgage Obligations (the "Bonds"), totalling $56,700,000
     (net of discounts, $50,959,288) pursuant to an indenture dated January 1,
     1985. Concurrent with the issuance of the Bonds, the Bank transferred
     Federal Home Loan Mortgage Corporation participation securities (the
     "FHLMC Securities") to Stockton Securities Corporation with aggregate
     principal balances of approximately $56,960,000 to serve as collateral for
     the Bonds. The weighted average pass-through rates on the FHLMC Securities
     were 9.0%. The outstanding principal balances of the FHLMC Securities
     amounted to approximately $6,738,000 and $7,956,000 at December 31, 1995
     and 1994, respectively.

         The following table summarizes certain information with regard to the
     Bonds at December 31:


























                                                                     111
<PAGE>






     <TABLE>
     <CAPTION>

       SERIES B:
                                                                                                   REMAINING
                                          ORIGINAL          REMAINING         FAIR MARKET          PRINCIPAL         FAIR MARKET
                          INTEREST        PRINCIPAL         PRINCIPAL            VALUE              BALANCE             VALUE
       STATED MATURITY      RATE           BALANCE         BALANCE 1995           1995               1994                1994

       <S>
       Class B-1            <C>        <C>               <C>                    <C>             <C>                <C>        
         Dec. 20, 2000        8.25%    $30,770,000       $         -        $         -         $         -        $         -
       Class B-2
         Dec. 20, 2002        8.25%      8,750,000                 -                  -                   -                  -
       Class B-3
         Dec. 20, 2007        8.25%     13,110,000                 -                  -             739,906            736,000
       Class B-4
         Dec. 20, 2017        8.25%      4,070,000         6,462,509          6,477,000           7,243,345          6,968,000

                                       $56,700,000       $ 6,462,509        $ 6,477,000         $ 7,983,251        $ 7,704,000
       Less discount                   $ 5,740,712       $         -        $         -         $    85,456                  -

                                       $50,959,288       $ 6,462,509        $ 6,477,000         $ 7,897,795        $ 7,704,000

     </TABLE>


     The fair market value of Series B was calculated from actual market quotes
     of the Bonds. 

     In accordance with the terms of the indenture, all payments of principal
     on the Bonds have been allocated among the Classes in the order of their
     respective stated maturities so that no payment of principal has been made
     on any of the Bonds until all Bonds having an earlier stated maturity have
     been paid in full. Payments of principal are made monthly in an amount
     equal to the excess of principal and interest collected each month on the
     FHLMC Securities, plus the reinvestment income thereon, over interest and
     expenses payable on the Bonds. Since the rate of payment of principal of
     each Class of Bonds depends on the rate of payment (including prepayments)
     on the FHLMC Securities, the actual maturity of any Class of Bonds may
     occur earlier than its stated maturity. Interest on the Class B-4 Bonds
     was accrued and added to the principal thereof until April 1995 when all
     earlier classes of Bonds had been paid and certain other conditions in the
     indenture were met, at which time semiannual and monthly payments of
     principal and interest on the Class B-4 Bonds commenced.

     The following is a schedule of the estimated repayments on the Bonds for
     the next five years and thereafter. The schedule is based upon the
     assumption that repayments of the loans underlying the FHLMC Securities
     are at 175% of standard prepayment assumptions on Series B Bonds, which is



                                         112
<PAGE>






     consistent with historical prepayments, and assumes that future
     prepayments will follow the same trend.

     <TABLE>
     <CAPTION>

       Series B:
       
       <S>                                                                                    <C>         
       1996                                                                                   $  1,424,500
       1997                                                                                        691,900
       1998                                                                                        610,500
       1999                                                                                        529,100
       2000                                                                                        488,400
       Thereafter                                                                                2,718,109

                                                                                              $  6,462,509

     </TABLE>


               NOTE 10:  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     The Bank enters into sales of U.S. Government securities and
     mortgage-backed securities under agreements to repurchase (reverse
     repurchase agreements). Reverse repurchase agreements are treated as
     financings, and the obligations to repurchase securities sold are
     reflected as a liability in the consolidated statements of financial
     condition. The dollar amount of securities underlying the agreements
     remains in the asset accounts. The following is a summary of these
     securities at December 31:

     <TABLE>
     <CAPTION>

                                                              1995                        1994

       <S>                                                           <C>                         <C>        
       Securities sold under agreements to repurchase                $35,408,000                 $64,978,000
       Average balance during the year                                59,197,595                  37,506,451
       Maximum balance at any month-end                               95,571,000                  70,712,900
       Weighted average interest rate                                       5.90%                      6.03%   

     </TABLE>


     These agreements are collateralized by U.S. Government securities and
     mortgage-backed securities. The related collateral was held by the dealer.
     The estimated market value of securities sold under agreements to
     repurchase as of December 31, 1995 and 1994 was $35,404,000 and



                                         113
<PAGE>






     $64,933,000, respectively. The fair market value was calculated using the
     rates currently offered for agreements of similar remaining maturities.


                                NOTE 11:  INCOME TAXES

     The Company and Bank file consolidated federal income tax returns on a
     calendar year basis. If certain conditions are met in determining taxable
     income, the Bank is allowed a special bad debt deduction based on a
     percentage of taxable income (presently 8%) or on specified experience
     formulas. The Bank used the percentage of taxable income method for bad
     debt deductions in 1994, 1993 and anticipates using such method in 1995.

     Under the provisions of SFAS 109, savings and loan associations: (1) do
     not recognize a deferred tax liability for the tax effects of the "base
     year" (December 31, 1987) tax bad debt reserve unless it becomes apparent
     that the reserve will reverse in the foreseeable future, (2) do recognize
     a deferred tax liability for increases in the tax bad debt reserve over
     the "base year" tax bad debt reserve and (3) do recognize a deferred tax
     asset, reduced by any necessary valuation allowances for the allowance for
     loan losses for financial reporting purposes.

     Federal income and state franchise tax expense (benefit) in the
     consolidated statements of operations is comprised of the following:

     <TABLE>
     <CAPTION>

                1995                                         Current                     Deferred                     Total      
     <S>                                                    <C>                       <C>                         <C>        
     Federal income tax expense                           $  1,476,000                 $  (354,000)               $ 1,122,000
     California franchise tax expense                        1,272,000                    (864,000)                   408,000
                                                          $  2,748,000                 $(1,218,000)               $ 1,530,000

     1994
     Federal income tax expense                           $  4,271,000                 $(2,719,000)               $ 1,552,000
     California franchise tax expense                          919,000                    (155,000)                   764,000
                                                          $  5,190,000                 $(2,874,000)               $ 2,316,000
     1993

     Federal income tax expense                           $  5,815,000                 $  (246,000)               $ 5,569,000
     California franchise tax expense                         2,076,00                    (180,000)                 1,896,000
                                                          $  7,891,000                 $  (426,000)               $ 7,465,000

     </TABLE>


     Amounts for the current year are based upon estimates and assumptions as
     of the date of this report and could vary from amounts shown on the tax
     returns filed. Accordingly, the variances from amounts reported for prior



                                         114
<PAGE>






     years are primarily the result of adjustments to conform to prior years'
     tax returns as filed.

     Under SFAS 109, the temporary differences between the financial statement
     carrying amounts and tax bases of assets and liabilities that give rise to
     significant components of the deferred tax asset and liability amounts for
     the years ended December 31, 1995 and 1994 relate to the following:

     <TABLE>
     <CAPTION>

                                                                                     1995                            1994



       <S>
       Deferred Tax Assets:                                             <C>                            <C>

         Book provision for loan losses in excess of tax                              $ 3,398,000                    $ 3,251,000

         Book provision for losses on real estate in excess of tax                      2,931,000                      2,673,000

         State franchise taxes                                                            240,000                        341,000

         Tax effect of unrealized losses                                                        -                        989,000

         REMIC discount and other amortization                                          1,488,000                        585,000

         Other income deferred for tax purposes                                         1,177,000                        757,000



         Total gross deferred tax assets                                              $ 9,234,000                    $ 8,596,000

         Less:  valuation allowance                                                             -                              -

         Net deferred tax assets                                                      $ 9,234,000                    $ 8,596,000



       Deferred Tax Liabilities:

         Loan fee income deferred for tax purposes                                    $ 4,544,000                    $ 4,414,000

         FHLB stock dividends deferred for tax purposes                                 2,131,000                      1,924,000

         Tax depreciation in excess of book depreciation                                  231,000                        134,000

         Tax effect of unrealized gains                                                 1,579,000                              -

         Mark to market                                                                         -                         25,000


                                                                     115
<PAGE>






                                                                                     1995                            1994



         Total deferred tax liabilities                                               $ 8,485,000                    $ 6,497,000

         Net deferred taxes                                                           $   749,000                    $ 2,099,000


     </TABLE>

     Management believes a valuation allowance is not needed to reduce the
     deferred tax asset because there is no material portion of the deferred
     tax asset that will not be realized through sufficient taxable income
     within the carryback and carryforward periods.

     The reconciliation from the statutory income tax rate to the consolidated
     effective tax rate, expressed as a percentage of pre-tax income, is as
     follows:


































                                                                     116
<PAGE>






     <TABLE>
     <CAPTION>

       Years ended December 31                                  1995                     1994              1993



       <S>                                                      <C>                      <C>               <C>
       Statutory federal tax rate                                35.0%                   34.0%             35.0%

       California franchise tax, net of federal income tax
         benefit                                                  7.9%                    7.4%              7.2%

       Adjustments to amortization

         Expenses as a result of change in tax law                 -                     (7.4%)              -

         Other                                                    1.7%                      -               2.1%

                                                                 44.6%                   34.0%             44.3%


     </TABLE>


                 NOTE 12:  REGULATORY CAPITAL & STOCKHOLDERS' EQUITY

       As a result of the Financial Institutions Reform, Recovery and
     Enforcement Act, regulatory capital requirements were issued by the Office
     of Thrift Supervision in December 1989. The regulations require that
     savings associations meet a three-part capital test that consists of the
     following:  i) core capital must equal 3% of total assets, ii) tangible
     capital must equal 1.5% of total assets, and iii) risk-based capital must
     equal 8% of risk-weighted assets. In measuring compliance with the three
     capital standards, loans to and investments in subsidiaries engaged in
     activities impermissible to national banks (notably investing in real
     estate) must be deducted from capital. There is a phase-in on the
     impermissible activity deduction using the balance of investments held at
     April 12, 1989. Any investment beyond this amount is considered excess
     investment and is deducted from capital immediately. At December 31, 1995,
     the Bank was required to deduct from capital 60% of its investment in real
     estate. This compares to 40% at December 31, 1994. As of July 1, 1996,
     100% of the Bank's investment in real estate must be deducted from
     capital. The Bank's loans to and investments in its real estate investment
     subsidiary totalled $8.9 million and $15.3 million at December 31, 1995
     and 1994, respectively.

       Retained earnings at December 31, 1995 includes $8,168,000 which has
     been allocated on a tax basis by the Bank to bad debt reserves for federal
     income tax purposes and for which no provision for income taxes has been
     made. If, in future periods, this amount is used for any purpose other
     than absorbing losses for bad debts, the Bank will be liable for federal

                                         117
<PAGE>






     income tax at the then current corporate tax rate. The Bank does not
     anticipate using this amount in a manner which will create a federal
     income tax liability. In addition, a liquidation account with a current
     balance of $487,507 is reserved by the Bank as a result of the Bank's
     conversion from a mutual to a stock association.

       The Treasury Department, the OTS, and the Federal Deposit Insurance
     Corporation have all recommended to Congress that institutions with
     SAIF-assessable deposits pay a special assessment in an amount sufficient
     to increase the SAIF reserve ratio to 1.25%. Representatives from the
     Senate and House Banking Committees have agreed on a proposal under which
     SAIF institutions will pay a one-time assessment of approximately 80 basis
     points on all deposits held as of March 31, 1995. The resulting assessment
     for the Bank would be approximately $8.1 million. The resulting after tax
     effect of the assessment would be to reduce the stockholders' equity of
     the Bank by approximately $4.7 million.


                                NOTE 13:  PENSION PLAN

       Due to escalating costs, the Bank curtailed future benefit accruals and
     service under the noncontributory defined benefit pension plan (the
     "Plan") by "freezing" the Plan June 30, 1995 under the provisions of
     Statement of Financial Accounting Standards No. 88. Assets of the Plan are
     maintained by a trustee and administered by the Bank's advisory board. In
     January 1987, the Bank adopted the provisions of Statement of Financial
     Accounting Standards No. 87 on a prospective basis. The purpose of this
     policy is to reflect in the projected benefit obligation all benefit
     improvements to which the Bank is committed as of the current valuation
     date and to use a market-related value of assets to determine pension
     cost. The Bank's policy is to fund the pension cost accrued on a projected
     benefit cost method. Due to the Plan curtailment, the Bank experienced a
     pension gain of $1,167,587 for the year ended December 31, 1995, compared
     to pension expenses of $859,110 and $616,415 for 1994 and 1993
     respectively. The December 31, 1995 and 1994 disclosure values are
     projected from calculations prepared as of July 1, 1995 and 1994,
     respectively. These values utilized a 7.00%, 8.50%, and 7.00% discount
     rate for December 31, 1995, 1994 and 1993, respectively. A 4.50% rate of
     compensation increase was used for December 31, 1994 and 1993; however,
     due to the Plan curtailment, compensation increases will have no future
     impact to the plan obligations. The pension expense is based on market
     conditions as of January 1, 1996, 1995 and 1994 and has been based on a
     discount rate of 7.00% for 1995, 8.50% for 1994, and 7.00% for 1993. The
     expected long-term rate of return on assets was 9.00% for all three years.









                                         118
<PAGE>






       The following table provides a reconciliation of the Plan's estimated
     funded status and amounts recognized in the Bank's financial statements at
     December 31:


















































                                                                     119
<PAGE>






     <TABLE>
     <CAPTION>


                                                               1995                  1994                  1993   

       <S>                                                 <C>                   <C>                   <C>        
       Pension benefit obligations:
       Accumulated benefit obligation:

         Vested                                            $3,762,661            $2,674,534           $ 2,805,714 

         Nonvested                                            421,039               365,979               391,151 

                                                           $4,183,700            $3,040,513           $ 3,196,865 

       Projected benefit obligation                        $4,183,700            $4,794,442           $ 5,466,394 

       Market value of plan assets                         (3,925,856)           (3,912,583)           (3,080,654)

       Unfunded projected benefit                          $  257,844            $  881,859           $ 2,385,740 
         obligation

       Unrecognized net transition                                   -                     -                     -
         obligation

       Unrecognized net transition                                   -              386,174               407,274 
         asset

       Unrecognized prior service costs                              -             (305,251)             (348,737)

       Unrecognized net gain (loss)                            50,404               513,053              (764,064)

       Additional liability                                          -                     -                     -

       Pension liability recognized                        $  308,248            $1,475,835           $ 1,680,213 

       Net pension cost for the year included the following components:

                                                                1995                 1994                  1993   

       Service cost                                        $  321,604            $  822,657            $  642,022 

       Interest cost                                          346,988               365,148               309,837 

       Actual return on plan assets                        (1,011,502)               16,482              (269,962)

       Other components - net                                (824,677)             (345,177)              (65,482)

       Net periodic pension cost                          $(1,167,587)           $  859,110           $   616,415 

     </TABLE>

                                         120
<PAGE>







     Included in the Plan assets are 6,290 common shares of the Company's
     stock. The market value of these shares as of December 31, 1995 and 1994
     was $128,945 and $75,840, respectively. The market price of the Company's
     stock held in the Plan as of January 31, 1996 was $122,655. Dividends
     received on Company stock were $2,767.

     On August 1, 1995, the Bank modified its 401(k) plan. Prior to August 1,
     the 401(k) was funded by the employees. On August 1, 1995, the 401(k) plan
     became a defined contribution profit sharing plan. The Bank makes a
     monthly cash contribution equal to 5% of each employee's base salary and
     an employer matching contribution of .25% for each 1.00% of employee
     contribution up to a maximum contribution of 1.00% by the Bank. The Bank
     also contributes 1.50% of each employee's base salary in CFHC stock on a
     monthly basis.  The Bank's total contribution ranges therefore from 6.50%
     of base salary to 7.50% of base salary, depending on the level of employee
     contribution. The assets of the 401(k) plan are maintained by a trustee
     and administered by the employer. The administrative costs of the plan are
     paid by the Bank. These costs amounted to $21,784, $20,574 and $8,263 for
     the years ended December 31, 1995, 1994 and 1993, respectively.


               NOTE 14:  STOCK OPTIONS AND DIVIDEND REINVESTMENT PLAN 

     At December 31, 1983, 264,000 shares of common stock were reserved for
     issuance to key employees under the Bank's 1982 Incentive Stock Option
     Plan. On July 15, 1985, April 25, 1988 and March 15, 1993, the Board of
     Directors reserved options for an additional 191,466, 196,340 and 220,000
     shares of common stock, respectively. The exercise price of all options is
     the market price of the common stock at the date of grant. Options are
     exercisable on various conditions but generally not more than 10 years
     from date of grant. 

     Information with respect to options under the above plan is summarized as
     follows:


















                                                                     121
<PAGE>






     <TABLE>
     <CAPTION>

                                                                                             Number of Shares


       Outstanding, December 31, 1992                                                                252,167 

       <S>                                                                                            <C>    
       Granted (Price - $13.41)                                                                      110,000 

       Exercised (Price - $4.89)                                                                     (14,554)

       Exercised (Price - $8.18)                                                                     (14,806)

       Exercised (Price - $9.09)                                                                     (66,000)

       Outstanding, December 31, 1993                                                                266,807 

       Granted (Price - $12.75)                                                                       50,000 

       Exercised (Price - $4.89)                                                                     (10,910)

       Exercised (Price - $7.95)                                                                     (11,000)

       Exercised (Price - $8.18)                                                                      (6,531)

       Exercised (Price - $8.86)                                                                      (1,756)

       Outstanding, December 31, 1994                                                                286,610 

       Exercised (Price - $4.89)                                                                     (12,463)

       Exercised (Price - $8.18)                                                                     (10,993)

       Exercised (Price - $8.86)                                                                      (1,463)
       Exercised (Price - $13.41)                                                                     (1,619)

       Expired                                                                                          (691)

       Outstanding, December 31, 1995                                                                259,381 


       (Price - $8.18)                                                                                75,513 
       (Price - $8.86)                                                                                25,487 

       (Price - $12.75)                                                                               50,000 

       (Price - $13.41)                                                                              108,381 




                                                                     122
<PAGE>






                                                                                             Number of Shares


                                                                                                     259,381 

       Shares currently exercisable                                                                  222,722 

       Shares available for future grants                                                            111,888 
     </TABLE>

     A 10% stock dividend was declared and effected in 1993. As a result, the
     Company transferred $7,394,347 from retained earnings to capital accounts
     reflecting 416,583 shares at the market price of $17.75. All calculated
     per share information in these financial statements has been restated to
     give effect to the stock dividend.

     The Company also paid $.44 per share in cash dividends during 1995, 1994
     and 1993 totalling $2,044,056 and $2,028,617 and $1,818,094, respectively.


     A dividend reinvestment program was introduced in October, 1991. This plan
     provides for the issuance of additional stock at a 3% discount from
     prevailing market prices. During 1995 and 1994, 10,184 and 12,341 shares
     were issued under this plan, adding $161,540 and $195,155, respectively,
     to stockholders' equity.


                   NOTE 15:  PARENT COMPANY FINANCIAL INFORMATION 

     On June 1, 1988, all shares of stock of the Bank were exchanged for stock
     in the Company, making the Bank a wholly-owned subsidiary of the Company.
     Prior to the reorganization, the Company had conducted no business and had
     no material assets.

     The Company and its Subsidiary file a consolidated federal income tax
     return in which the taxable income or loss of the Company is combined with
     that of its Subsidiary. The Company's share of income tax expense is based
     on the amount which would be payable if separate returns were filed.
     Accordingly, the Company's equity in net income of its subsidiary is
     excluded from the computation of the provision for income taxes for
     financial statement purposes.

       Unconsolidated financial information for the Company follows:










                                                                     123
<PAGE>






     <TABLE>
     <CAPTION>

       STATEMENTS OF FINANCIAL CONDITION

       At December 31,                                                           1995                 1994   

       <S>                                      <C>                          <C>                  <C>        
       Assets:
         Cash                                                                $ 1,797,993          $ 3,055,353

         Investment in subsidiary                                             83,836,341           80,181,496

         Other assets                                                                933                    -
       Total assets                                                          $85,635,267          $83,236,849

       Liabilities:
         Accounts payable to subsidiary                                      $    33,046          $    19,359

         Stockholders' equity                                                 85,602,221           83,217,490

       Total liabilities and stockholders'                                   $85,635,267          $83,236,849
       equity


       Statements of Operations

       Years ended December 31,                             1995                  1994                 1993  

       Income:
         Interest income                              $   118,106           $     97,533           $   52,791

         Dividend from subsidiary                         550,000              2,350,000            2,400,000
         Undistributed net income                       1,470,578              2,344,328            7,206,582
           of subsidiary

       Gross operating income                         $ 2,138,684           $  4,791,861           $9,659,373

       General and administrative                         246,474                231,155              200,437
         expenses
       Income before taxes                            $ 1,892,210           $  4,560,706           $9,458,936

       Income tax (benefit) expense                        (5,299)                58,649               59,700

       Net Income                                     $ 1,897,509           $  4,502,057           $9,399,236
       Statements of Cash Flows

       Years ended December 31,                            1995                  1994                 1993   

       Cash Flows From Operations:
       Net income                                     $ 1,897,509          $  4,502,057          $ 9,399,236 


                                                                     124
<PAGE>






         Adjustments to reconcile net income
           to net cash provided by
           operations:
           Undistributed net income of                 (1,470,578)           (2,344,328)          (7,206,582)
             subsidiary

       Decrease (increase) in other assets
         and other liabilities                             12,754               (25,185)             (10,182)

       Net cash provided by operations               $    439,685          $  2,132,544          $ 2,182,472 
       Cash Flows From Financing Activities:
         Dividends paid                               $(2,044,056)          $(2,028,617)         $(1,818,094)
         Proceeds from issuance of
           stock                                          347,011               404,889              958,085 

       Net cash used by financing 
         activities                                   $(1,697,045)          $(1,623,728)         $  (860,009)

       Net (decrease) increase in
         cash                                         $(1,257,360)         $    508,816          $  1,322,463
       Cash at beginning of year                        3,055,353             2,546,537             1,224,074

       Cash at end of year                            $ 1,797,993          $  3,055,353          $  2,546,537

     </TABLE>

                      NOTE 16:  INTEREST RATE EXCHANGE CONTRACTS

     Results from interest rate swap agreements, exchanging interest rate flows
     on notional principal amounts for 1995, 1994 and 1993 were as follows:























                                                                     125
<PAGE>






     <TABLE>
     <CAPTION>


                                                                                      Net Interest
       Notional                                Interest Rate                        Expense for the
       Principal         Termination       at December 31, 1995                 Years Ended December 31,
       Amount                Date          Paid         Received         1995           1994             1993


       <S>                   <C>        <C>                             <C>          <C>               <C>        
       $25,000,000           2/95                 Matured            $  158,671       $1,184,678        $1,081,762
                                           Fixed        Variable
       25,000,000           12/95                 Matured               700,959        1,035,751           948,737
                                           Fixed        Variable
       5,000,000             8/94                 Matured                      -          35,234            32,396
                                           Fixed        Variable
       5,000,000             3/95                 Matured                21,316          142,739           124,975
                                           Fixed        Variable
       5,000,000             7/96          5.63%         5.12%           35,558           88,767            68,052
                                           Fixed        Variable
       15,000,000            3/97          7.36%         5.12%          350,237          522,116           468,825
                                           Fixed        Variable
       10,000,000            7/97          6.18%         5.12%          120,091          231,925           193,092
                                           Fixed        Variable
       15,000,000            6/98          5.44%         5.70%         (152,690)         163,042           150,774

                                                                     $1,232,142       $3,404,252        $3,068,613
     </TABLE>


     Although interest rate exchange contracts have no book value of principal,
     SFAS 107 requires disclosure of fair value based upon the cost of
     terminating these agreements which is estimated to be $628,000 and
     $203,000 at December 31, 1995 and 1994, respectively.

     Of the variable rates paid to the Bank on the agreements, $30,000,000 are
     indexed to the FHLB Eleventh District Cost of Funds and the remaining
     $15,000,000 are indexed to one-month LIBOR.

     On December 30, 1994, the Bank paid a fixed option premium of $255,000 for
     an interest rate cap agreement in exchange for future interest income on a
     $30,000,000 national principal amount to the extent that LIBOR exceeds
     7.50% and is less than 10%. The agreement expires on December 30, 1997.
     Amortization of the premium totalled $85,000 in 1995. No amortization of
     the premium was affected in 1994.

     The fair market value of the interest rate cap agreement was $15,500 and
     $255,000 on December 31, 1995 and 1994, respectively.




                                         126
<PAGE>






                                NOTE 17:  COMMITMENTS

     The Bank's off-balance sheet credit risk exposure is the contractual
     amount of commitments to extend credit and stand-by letters of credit. The
     Bank applies the same credit standards to these contracts as it uses in
     its lending process. As of December 31, 1995 and 1994, the Bank had
     outstanding commitments to fund or purchase real estate loans in the
     amount of $12,865,845 and $12,769,252, respectively. Of these,
     approximately 50% and 66% were for variable rate loans in 1995 and 1994,
     respectively. The Bank also had a commitment to purchase mortgage pool
     securities at December 31, 1995 of $1,000,000. The Bank typically sells
     the major portion of its fixed-rate loan originations to minimize interest
     rate risk. The Bank generally enters into forward sales of loans or
     mortgage-backed securities to protect the loans held for sale and loans
     committed from market pricing losses resulting from rising interest rates.
     At December 31, 1995, 1994 and 1993, the Bank had outstanding commitments
     to sell loans and mortgage-backed securities of $9,024,000, $4,297,000 and
     $30,229,000, respectively to provide this protection for its unsold loans
     held for sale and committed loans. These commitments are short-term in
     nature, and the fair value is based on prevailing offering prices in the
     secondary market for similar loans expected to fund within 30 days. The
     Bank also had outstanding optional commitments to sell mortgage-backed
     securities in the amount of $5,000,000 at December 31,1995. The net gains
     from the resulting loan sales were $211,000, $63,000 and $2,151,000 for
     1995, 1994 and 1993, respectively. 

     The Bank issues letters of credit relating to its real estate development
     and real estate development loans. The balance of these commitments was
     $9,443,000 and $9,058,000 as of December 31, 1995 and 1994. Loans sold
     with recourse totalled $4,979,016 and $5,100,518 as of December 31, 1995
     and 1994, respectively. 

     The Board of Directors of the Company has established a quarterly dividend
     policy. The Board declared cash dividends totalling $.44 in 1995 and 1994.
     On January 23, 1996, the Board of Directors of the Company declared a
     regular quarterly dividend of $.11 per share, payable February 15, 1996,
     to holders of record on February 1, 1996. The total dividend was
     approximately $513,000.

     Certain properties are leased by the Bank under operating-type leases
     expiring at various dates through the year 2019. Lease rental expense for
     1995, 1994 and 1993 amounted to $518,327, $487,751 and $484,044,
     respectively.

     The following summarizes, by year, the future minimum rental payments as
     of December 31, 1995:







                                         127
<PAGE>







       Years Ending December 31      Rental Payments

       1996           $  506,518
       1997              528,846
       1998              535,721
       1999              456,240
       2000              378,287
       2001 and thereafter        4,301,518

                  $6,707,130


     <TABLE>
     <CAPTION>
                                                 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
                                                            (Dollars in Thousands)

                                         Selected quarterly results of operations for the years ended
                                         December 31, 1995, 1994, and 1993 are summarized as follows:


                                                                               Income
                                                                               Before
                                                                             Accounting
                                                     Net        Provision      Change
                                     Interest      Interest     for Loan     and Income       Net      Earnings
                                      Income        Income       Losses         Taxes       Income     Per Share

      <S>                            <C>           <C>          <C>               <C>        <C>         <C>
      First quarter 1995             $21,758       $ 7,646       $  265          $ 1,451     $  834       $0.18
      Second quarter 1995             22,614         7,535        1,301           (1,266)      (794)      (0.17)
      Third quarter 1995              23,391         7,990           68            2,625      1,524        0.32 
      Fourth quarter 1995             23,365         8,584           -               618        334        0.07 
                                     $91,128       $31,755       $1,634          $ 3,428     $1,898       $0.40 

      First quarter 1994             $19,073       $ 8,821       $ (221)         $ 3,007     $1,869       $0.40 
      Second quarter 1994             19,970         8,952          262            2,476      1,349        0.29 
      Third quarter 1994              20,869         8,488          740             (637)       120        0.02 
      Fourth quarter 1994             21,215         8,015         (500)           1,972      1,164        0.25 
                                     $81,127       $34,276       $  281          $ 6,818     $4,502       $0.96 

      First quarter 1993             $19,840       $ 8,908       $  880          $ 3,966     $2,269       $0.50 
      Second quarter 1993             20,117         9,414        1,070            4,437      2,509        0.55 
      Third quarter 1993              19,765         8,847          250            4,428      2,598        0.56 
      Fourth quarter 1993             19,878         9,100          785            4,033      2,023        0.43 
                                     $79,600       $36,269       $2,985          $16,864     $9,399       $2.04 


     </TABLE>



                                         128
<PAGE>








     ITEM  9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

       Not applicable.
















































                                         129
<PAGE>






                                       PART III


     ITEM 10.   DIRECTORS AND OFFICERS OF THE REGISTRANT

       Information regarding Directors and Officers of California Financial
     Holding Company is contained in the Proxy Statement and Notice of Annual
     Meeting of Stockholders to be held on May 13, 1996 and incorporated herein
     by reference.

     ITEM 11.  EXECUTIVE COMPENSATION

       Information regarding Executive Remuneration and Transactions is
     contained in the Proxy Statement and Notice of Annual Meeting of
     Stockholders to be held on May 13, 1996 and incorporated herein by
     reference.

     ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

       Information regarding Security Ownership of Certain Beneficial Owners
     and Management is contained in the Proxy Statement and Notice of Annual
     Meeting of Stockholders to be held on May 13, 1996 and incorporated herein
     by reference.


     ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Information regarding Certain Relationships and Related Transactions is
     contained in the Proxy Statement and Notice of Annual Meeting of
     Stockholders to be held on May 13, 1996 and incorporated herein by
     reference.






















                                         130
<PAGE>






                                       PART IV

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

       A.  Index to Consolidated Financial Statements

         1.   a.  Independent Auditors' Report
              b.  Consolidated Statements of Financial Condition at December
                  31, 1995 and 1994
              c.  Consolidated Statements of Operations for the years ended
                  December 31, 1995, 1994 and 1993
              d.  Consolidated Statements of Stockholders' Equity for the years
                  ended December 31, 1995, 1994 and 1993
              e.  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1995, 1994 and 1993
              f.  Notes to the Consolidated Financial Statements

         2.   All schedules are omitted because they are not applicable, not
              required or the information is included in the consolidated
              financial statements or notes thereto.

       B.  Exhibits

         See Exhibit Index on page 134.

       C.  Reports on Form 8-K

         No reports on Form 8-K were filed by the Company during the fourth
         quarter of 1995.
























                                         131
<PAGE>






                                     SIGNATURES

       Pursuant to the requirements of Section 13 or 15(d) of the Securities
     Exchange Act of 1934, the registrant has duly caused this report to be
     signed on its behalf by the undersigned, thereunto duly authorized.
                                     CALIFORNIA FINANCIAL HOLDING COMPANY 
                                                   Registrant

          03-25-96                BY: /s/Robert V. Kavanaugh
     ----------------------           ----------------------------------
            DATE                                 ROBERT V. KAVANAUGH
                                           President, Chief Operating Officer

          03-25-96                      BY: /s/JANE R. BUTTERFIELD
     ----------------------                ----------------------------------
            DATE                                 JANE R. BUTTERFIELD
                                           Senior Vice President, Treasurer,
                                           Chief Financial Officer
                                           (Principal Financial Officer and 
                                           Principal Accounting Officer)

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


     BY: /s/DAVID K. REA                                03-25-96 
         -----------------------------------      --------------------
         DAVID K. REA, Chairman of the Board             DATE

     BY: /s/ROBERT V. KAVANAUGH                         03-25-96 
         -----------------------------------      --------------------
         ROBERT V. KAVANAUGH        Director             DATE

     BY: /s/DENNIS DONALD GEIGER                        03-25-96 
         -----------------------------------      --------------------
         DENNIS DONALD GEIGER       Director             DATE

     BY: /s/G. THOMAS EGAN                              03-25-96 
         -----------------------------------      --------------------
         G. THOMAS EGAN             Director             DATE

     BY: /s/JERALD KIRSTEN                              03-25-96 
         -----------------------------------      --------------------
         JERALD KIRSTEN             Director             DATE

     BY: 
         -----------------------------------      --------------------
         GERALD L. BARTON           Director             DATE

     BY: /s/DEAN A. CORTOPASSI                          03-25-96 
         -----------------------------------      --------------------

                                         132
<PAGE>






         DEAN A. CORTOPASSI         Director             DATE




















































                                         133
<PAGE>






                                    EXHIBIT INDEX



       Exhibit No.          Exhibit                                         Page
       -----------          -------                                         ----

       3.1                  Certificate of Incorporation of California
                            Financial Holding Company. (Incorporated by
                            reference to Exhibit C to the Prospectus and
                            Proxy Statement filed as part of the Post-
                            Effective Amendment on Form S-8 to the
                            Registration Statement on Form S-4,
                            Registration No. 33-19998 ("Registration
                            Statement").

       3.2                  Bylaws of California Financial Holding
                            Company. 

       10.1                 Incentive Stock Plan. (Incorporated by
                            reference to Exhibit A to the Prospectus and
                            Proxy Statement files as part of the
                            Registration Statement.)

       10.2                 1982 Stockton Savings Incentive Stock Option
                            Plan.  (Incorporated by reference to Exhibit
                            B to the Prospectus and Proxy Statement filed
                            as part of the Registration Statement.)

       10.3                 Amendments to the Incentive Stock Plan.
                            (Incorporated by reference to Exhibit 4.3 to
                            Post-Effective Amendment No. 1 to the
                            Registration Statement.)

       10.4                 Amended and Restated Incentive Stock Plan.
                            (Incorporated by reference to Exhibit 4.4 to
                            post-effective amendment number 1 to the
                            Registration Statement on Form S-8 (Reg. #33-
                            62584) filed on June 25, 1993.)

       10.5                 Severance Agreement dated June 21, 1993
                            between Stockton Savings Bank, FSB ("Stockton
                            Savings") and David K. Rea.  (Incorporated by
                            reference to Exhibit 10.5 to Annual Report on
                            Form 10-K for the year ended December 31,
                            1993.)

       10.6                 Severance Agreement dated as of June 21,
                            1993, as amended and restated as of March 18,
                            1996, between Stockton Savings and Robert V.
                            Kavanaugh.


                                         134
<PAGE>






       Exhibit No.          Exhibit                                         Page
       -----------          -------                                         ----

       10.7                 Severance Agreement dated as of June 21,
                            1993, as amended and restated as of March 18,
                            1996, between Stockton Savings and Jane R.
                            Butterfield.

       10.8                 Severance Agreement dated as of June 21,
                            1993, as amended and restated as of March 18,
                            1996, between Stockton Savings and W. Henry
                            Claussen.

       10.9                 Severance Agreement dated as of June 21,
                            1993, as amended and restated as of March 18,
                            1996, between Stockton Savings and Morris W.
                            Knight.

       10.10                Stockton Savings Bank Executive Compensation
                            Plan.

       10.11                Stockton Savings and Loan Association
                            Directors' Retirement Plan.

       10.12                Stockton Savings Tax Deferred 401(k) Plan-
                            Defined Contribution Plan. (Incorporated by
                            reference to Exhibit 4.1(a) to the
                            Registration Statement on Form S-8
                            (Registration No. 33-96308) filed on August
                            29, 1995.)

       10.13                Stockton Savings Tax Deferred 401(k) Plan -
                            Adoption Agreement #003.  (Incorporated by
                            reference to Exhibit 4.1(b) to Post -
                            Effective Amendment No. 1 to Registration
                            Statement on Form S-8 (Registration No. 33-
                            96308) filed on November 3, 1995.)

       10.14                Amendment dated March 26, 1996, effective as
                            of November 21, 1994, to Severance Agreement
                            dated as of June 21, 1993 between Stockton
                            Savings and David K. Rea.

       21.1                 Subsidiaries of the Registrant. 
                            (Incorporated by reference to Item 1. 
                            "Business in Subsidiaries and Affiliates in
                            this Form 10-K.) 

       23.1                 Consent of KPMG Peat Marwick LLP.

       27                   Financial Data Schedule


                                         135
<PAGE>