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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number:





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PLACER SIERRA BANCSHARES

(Exact name of registrant as specified in its
charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|CALIFORNIA                                                     |  | 94-3411134                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|525 J Street, Sacramento, California                           |  | 95814                                  
|(Address of principal executive offices)                       |  | (Zip Code)                             



(916) 554-4750

(Registrants telephone number, including area code)



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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, as amended 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 ̈No  x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



As of November 1, 2004 there were 14,736,760 shares of the registrants
common stock outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|                             |  |                                                                                              |  |     
|---------------------------- |  | -------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                              |  | Page
|PART IFINANCIAL INFORMATION |  |                                                                                             
|                             |  |                                                                                             
|ITEM 1.                      |  | Unaudited Consolidated Financial Statements                                                  |  | 3   
|                             |  |                                                                                             
|                             |  | Unaudited Consolidated Balance Sheet                                                         |  | 3   
|                             |  |                                                                                             
|                             |  | Unaudited Consolidated Statement of Income                                                   |  | 4   
|                             |  |                                                                                             
|                             |  | Unaudited Consolidated Statement of Changes in Shareholders Equity and Comprehensive Income |  | 5   
|                             |  |                                                                                             
|                             |  | Unaudited Consolidated Statement of Cash Flows                                               |  | 6   
|                             |  |                                                                                             
|                             |  | Notes to Unaudited Consolidated Financial Statements                                         |  | 7   
|                             |  |                                                                                             
|ITEM 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 13  
|                             |  |                                                                                             
|ITEM 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                                   |  | 35  
|                             |  |                                                                                             
|ITEM 4.                      |  | Controls and Procedures                                                                      |  | 35  
|                             | 
|PART IIOTHER INFORMATION    |  |                                                                                             
|                             |  |                                                                                             
|ITEM 1.                      |  | Legal Proceedings                                                                            |  | 36  
|                             |  |                                                                                             
|ITEM 2.                      |  | Unregistered Sales of Equity Securities and Use of Proceeds                                  |  | 36  
|                             |  |                                                                                             
|ITEM 3.                      |  | Defaults Upon Senior Securities                                                              |  | 36  
|                             |  |                                                                                             
|ITEM 4.                      |  | Submission of Matters to a Vote of Security Holders                                          |  | 36  
|                             |  |                                                                                             
|ITEM 5.                      |  | Other Information                                                                            |  | 36  
|                             |  |                                                                                             
|ITEM 6.                      |  | Exhibits                                                                                     |  | 37  
|                             | 
|SIGNATURES                   |  | 38                                                                                          



2



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##### Table of Contents

PART IFINANCIAL INFORMATION



|ITEM 1. | Unaudited Consolidated Financial Statements
|------- | -------------------------------------------



PLACER SIERRA BANCSHARES AND SUBSIDIARIES



UNAUDITED CONSOLIDATED BALANCE SHEET

September 30, 2004 and December 31, 2003

(Dollars in thousands)



|                                                                                                                                                         |  |                   |           |                  |   |          
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                                                                                                                                                         |  | September 30,2004 |           | December 31,2003
|ASSETS                                                                                                                                                   |  |                   |           |                  |   |          
|Cash and due from banks                                                                                                                                  |  | $                 | 68,711    |                  | $ | 55,776   
|Federal funds sold                                                                                                                                       |  |                   | 171,243   |                  |   | 32,729   
|Investment securities available-for-sale                                                                                                                 |  |                   | 72,006    |                  |   | 219,302  
|Federal Reserve Bank and Federal Home Loan Bank stock                                                                                                    |  |                   | 9,343     |                  |   | 7,286    
|Loans held for sale                                                                                                                                      |  |                   |          |                  |   | 67       
|Loans and leases held for investment, net of allowance for loan and lease losses of $12,762 at September 30, 2004 and $13,343 at December
31, 2003       |  |                   | 1,038,237 |                  |   | 939,455  
|Premises and equipment, net                                                                                                                              |  |                   | 18,782    |                  |   | 20,055   
|Cash surrender value of life insurance                                                                                                                   |  |                   | 27,686    |                  |   | 26,834   
|Other real estate                                                                                                                                        |  |                   | 657       |                  |   | 805      
|Goodwill                                                                                                                                                 |  |                   | 72,731    |                  |   | 72,639   
|Other intangible assets                                                                                                                                  |  |                   | 7,299     |                  |   | 8,760    
|Accrued interest receivable and other assets                                                                                                             |  |                   | 11,568    |                  |   | 13,238   
|                                                                                                                                                         |  |                   |           |                  |   |          
|Total assets                                                                                                                                             |  | $                 | 1,498,263 |                  | $ | 1,396,946
|                                                                                                                                                         |  |                   |           |                  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                     |  |                   |           |                  |   |          
|Deposits:                                                                                                                                                |  |                   |           |                  |   |          
|Non-interest bearing                                                                                                                                     |  | $                 | 424,465   |                  | $ | 378,611  
|Interest bearing                                                                                                                                         |  |                   | 824,489   |                  |   | 758,549  
|                                                                                                                                                         |  |                   |           |                  |   |          
|Total deposits                                                                                                                                           |  |                   | 1,248,954 |                  |   | 1,137,160
|Short-term borrowings                                                                                                                                    |  |                   | 13,248    |                  |   | 41,221   
|Accrued interest payable and other liabilities                                                                                                           |  |                   | 12,809    |                  |   | 15,525   
|Junior subordinated deferrable interest debentures                                                                                                       |  |                   | 38,146    |                  |   | 38,146   
|                                                                                                                                                         |  |                   |           |                  |   |          
|Total liabilities                                                                                                                                        |  |                   | 1,313,157 |                  |   | 1,232,052
|Commitments and contingencies                                                                                                                            |  |                   |           |                  |   |          
|Shareholders equity:                                                                                                                                    |  |                   |           |                  |   |          
|Preferred stock, shares authorized: 25,000,000; issued and outstanding: none at September 30, 2004 and December 31, 2003                                 |  |                   |          |                  |   |         
|Common stock, no par value, shares authorized: 100,000,000; issued and outstanding: 14,667,142 at September 30, 2004 and 13,683,493 at
December 31, 2003 |  |                   | 154,822   |                  |   | 142,777  
|Retained earnings                                                                                                                                        |  |                   | 29,587    |                  |   | 21,049   
|Accumulated other comprehensive income                                                                                                                   |  |                   | 697       |                  |   | 1,068    
|                                                                                                                                                         |  |                   |           |                  |   |          
|Total shareholders equity                                                                                                                               |  |                   | 185,106   |                  |   | 164,894  
|                                                                                                                                                         |  |                   |           |                  |   |          
|Total liabilities and shareholders equity                                                                                                               |  | $                 | 1,498,263 |                  | $ | 1,396,946
|                                                                                                                                                         |  |                   |           |                  |   |          



The accompanying notes
are an integral part of these unaudited consolidated financial statements.



3



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PLACER SIERRA BANCSHARES AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENT OF INCOME

For the Three Months and Nine Months Ended September 30, 2004 and
2003

(Dollars in thousands, except per share data)



|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------ | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                            |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30, |       
|                                                                                            |  | 2004                            |        | 2003 |                                |        | 2004 |  |   | 2003   |  
|Interest income:                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Interest and fees on loans and leases held for investment                                   |  | $                               | 15,780 |      | $                              | 14,332 |      |  | $ | 45,779 |   |  | $ | 43,429 |  
|Interest on loans held for sale                                                             |  |                                 | 6      |      |                                | 23     |      |  |   | 9      |   |  |   | 192    |  
|Interest on deposits with other banks                                                       |  |                                 | 1      |      |                                |       |      |  |   | 1      |   |  |   |       |  
|Interest and dividends on investment securities:                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Taxable                                                                                     |  |                                 | 1,496  |      |                                | 2,141  |      |  |   | 5,498  |   |  |   | 6,055  |  
|Tax-exempt                                                                                  |  |                                 | 130    |      |                                | 136    |      |  |   | 394    |   |  |   | 408    |  
|Interest on federal funds sold                                                              |  |                                 | 388    |      |                                | 308    |      |  |   | 586    |   |  |   | 951    |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Total interest income                                                                       |  |                                 | 17,801 |      |                                | 16,940 |      |  |   | 52,267 |   |  |   | 51,035 |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Interest expense:                                                                           |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Interest on deposits                                                                        |  |                                 | 1,930  |      |                                | 1,886  |      |  |   | 5,069  |   |  |   | 6,749  |  
|Interest on short-term borrowings                                                           |  |                                 | 25     |      |                                | 24     |      |  |   | 142    |   |  |   | 70     |  
|Interest on junior subordinated deferrable interest debentures                              |  |                                 | 490    |      |                                | 441    |      |  |   | 1,382  |   |  |   | 1,320  |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Total interest expense                                                                      |  |                                 | 2,445  |      |                                | 2,351  |      |  |   | 6,593  |   |  |   | 8,139  |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Net interest income                                                                         |  |                                 | 15,356 |      |                                | 14,589 |      |  |   | 45,674 |   |  |   | 42,896 |  
|Provision for (credit to) the allowance for loan and lease losses                           |  |                                 |       |      |                                | (146   | )    |  |   | 560    |   |  |   | (216   | )
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Net interest income after provision for (credit to) the allowance for loan and lease losses |  |                                 | 15,356 |      |                                | 14,735 |      |  |   | 45,114 |   |  |   | 43,112 |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Non-interest income:                                                                        |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Service charges and fees on deposit accounts                                                |  |                                 | 1,531  |      |                                | 1,776  |      |  |   | 4,710  |   |  |   | 5,215  |  
|Referral and other loan-related fees                                                        |  |                                 | 808    |      |                                | 653    |      |  |   | 2,132  |   |  |   | 1,441  |  
|Loan servicing income                                                                       |  |                                 | 71     |      |                                | 98     |      |  |   | 242    |   |  |   | 301    |  
|Gain on sale of loans, net                                                                  |  |                                 | 3      |      |                                | 118    |      |  |   | 179    |   |  |   | 563    |  
|Revenues from sales of investment products                                                  |  |                                 | 125    |      |                                | 154    |      |  |   | 497    |   |  |   | 498    |  
|Gain (loss) on sale of investment securities available-for-sale, net                        |  |                                 | 1      |      |                                | 433    |      |  |   | (3,335 | ) |  |   | 740    |  
|Increase in cash surrender value of life insurance                                          |  |                                 | 291    |      |                                | 311    |      |  |   | 918    |   |  |   | 948    |  
|Other                                                                                       |  |                                 | 334    |      |                                | 542    |      |  |   | 1,999  |   |  |   | 1,086  |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Total non-interest income                                                                   |  |                                 | 3,164  |      |                                | 4,085  |      |  |   | 7,342  |   |  |   | 10,792 |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Non-interest expense:                                                                       |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Salaries and employee benefits                                                              |  |                                 | 6,125  |      |                                | 5,651  |      |  |   | 18,789 |   |  |   | 17,009 |  
|Occupancy and equipment                                                                     |  |                                 | 1,747  |      |                                | 1,874  |      |  |   | 5,169  |   |  |   | 5,458  |  
|Merger                                                                                      |  |                                 | 177    |      |                                |       |      |  |   | 2,319  |   |  |   |       |  
|Other                                                                                       |  |                                 | 4,199  |      |                                | 4,430  |      |  |   | 12,784 |   |  |   | 13,578 |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Total non-interest expense                                                                  |  |                                 | 12,248 |      |                                | 11,955 |      |  |   | 39,061 |   |  |   | 36,045 |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Income before income taxes                                                                  |  |                                 | 6,272  |      |                                | 6,865  |      |  |   | 13,395 |   |  |   | 17,859 |  
|Provision for income taxes                                                                  |  |                                 | 2,385  |      |                                | 2,676  |      |  |   | 4,857  |   |  |   | 6,935  |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Net income                                                                                  |  | $                               | 3,887  |      | $                              | 4,189  |      |  | $ | 8,538  |   |  | $ | 10,924 |  
|                                                                                            |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Earnings per share:                                                                         |  |                                 |        |      |                                |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                       |  | $                               | 0.27   |      | $                              | 0.31   |      |  | $ | 0.61   |   |  | $ | 0.81   |  
|Diluted                                                                                     |  | $                               | 0.27   |      | $                              | 0.31   |      |  | $ | 0.60   |   |  | $ | 0.81   |  



The accompanying notes
are an integral part of these unaudited consolidated financial statements.



4



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##### Table of Contents

PLACER SIERRA BANCSHARES AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN

SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2004 and 2003

(Dollars in thousands)



|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | ------------ | - |  | ---------------- | ------- | ----------------------------------- |  | - | ------------------------ |  | - | ----- | - |  | - | ------- | -
|                                                                                      |  | 2004         |  
|                                                                                      |  | Common Stock |   |  | RetainedEarnings |         | AccumulatedOtherComprehensiveIncome |  |   | TotalShareholdersEquity | 
|                                                                                      |  | Shares       |   |  | Amount           |         |                                     |  |  
|Balance, December 31, 2003                                                            |  | 13,683,493   |   |  | $                | 142,777 |                                     |  | $ | 21,049                   |  | $ | 1,068 |   |  | $ | 164,894 |  
|Comprehensive income:                                                                 |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Net income                                                                            |  |              |   |  |                  |         |                                     |  |   | 8,538                    |  |   |       |   |  |   | 8,538   |  
|Net change in unrealized gain on investment securities available-for-sale, net of tax |  |              |   |  |                  |         |                                     |  |   |                          |  |   | (371  | ) |  |   | (371    | )
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Total comprehensive income                                                            |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   | 8,167   |  
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Stock options exercised, including tax benefit                                        |  | 417,201      |   |  |                  | 4,685   |                                     |  |   |                          |  |   |       |   |  |   | 4,685   |  
|Initial public offering, net of issuance costs                                        |  | 568,194      |   |  |                  | 7,262   |                                     |  |   |                          |  |   |       |   |  |   | 7,262   |  
|Stock issued in connection with acquisition of minority interest                      |  |              |   |  |                  | 92      |                                     |  |   |                          |  |   |       |   |  |   | 92      |  
|Repurchase of shares of dissenting minority shareholder                               |  | (1,746       | ) |  |                  | (32     | )                                   |  |   |                          |  |   |       |   |  |   | (32     | )
|Stock-based compensation                                                              |  |              |   |  |                  | 38      |                                     |  |   |                          |  |   |       |   |  |   | 38      |  
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Balance, September 30, 2004                                                           |  | 14,667,142   |   |  | $                | 154,822 |                                     |  | $ | 29,587                   |  | $ | 697   |   |  | $ | 185,106 |  
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|                                                                                      | 
|                                                                                      |  | 2003         |  
|                                                                                      |  | Common Stock |   |  | RetainedEarnings |         | AccumulatedOtherComprehensiveIncome |  |   | TotalShareholdersEquity | 
|                                                                                      |  | Shares       |   |  | Amount           |         |                                     |  |  
|Balance, December 31, 2002                                                            |  | 13,407,401   |   |  | $                | 140,698 |                                     |  | $ | 5,909                    |  | $ | 2,083 |   |  | $ | 148,690 |  
|Comprehensive income:                                                                 |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Net income                                                                            |  |              |   |  |                  |         |                                     |  |   | 10,924                   |  |   |       |   |  |   | 10,924  |  
|Net change in unrealized gain on investment securities available-for-sale, net of tax |  |              |   |  |                  |         |                                     |  |   |                          |  |   | (277  | ) |  |   | (277    | )
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Total comprehensive income                                                            |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   | 10,647  |  
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Stock options exercised                                                               |  | 78,343       |   |  |                  | 701     |                                     |  |   |                          |  |   |       |   |  |   | 701     |  
|Tax liability on redemption of investment in affiliate                                |  |              |   |  |                  | (383    | )                                   |  |   |                          |  |   |       |   |  |   | (383    | )
|Sale of common stock                                                                  |  | 94,444       |   |  |                  | 850     |                                     |  |   |                          |  |   |       |   |  |   | 850     |  
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  
|Balance, September 30, 2003                                                           |  | 13,580,188   |   |  | $                | 141,866 |                                     |  | $ | 16,833                   |  | $ | 1,806 |   |  | $ | 160,505 |  
|                                                                                      |  |              |   |  |                  |         |                                     |  |   |                          |  |   |       |   |  |   |         |  



The accompanying notes
are an integral part of these unaudited consolidated financial statements.



5



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##### Table of Contents

PLACER SIERRA BANCSHARES AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2004 and 2003

(Dollars in thousands)



|                                                                                  |  |                                |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Nine Months EndedSeptember 30, |         
|                                                                                  |  | 2004                           |          |   | 2003 |  
|Cash flows from operating activities:                                             |  |                                |          |   |      |   |          |  
|Net income                                                                        |  | $                              | 8,538    |   |      | $ | 10,924   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |          |   |      |   |          |  
|Provision for (credit to) the allowance for loan and lease losses                 |  |                                | 560      |   |      |   | (216     | )
|Amortization of investment security premiums/discounts, net                       |  |                                | 52       |   |      |   | 375      |  
|Amortization of other intangible assets                                           |  |                                | 1,461    |   |      |   | 1,596    |  
|Decrease (increase) in deferred loan fees, net                                    |  |                                | 1,537    |   |      |   | (34      | )
|Depreciation and amortization                                                     |  |                                | 2,226    |   |      |   | 2,276    |  
|Dividends received on FHLB and FRB stock                                          |  |                                | (92      | ) |      |   | (185     | )
|Stock-based compensation                                                          |  |                                | 38       |   |      |   |         |  
|Loss (gain) on sale of investment securities available-for-sale, net              |  |                                | 3,335    |   |      |   | (740     | )
|Gain on sale of loans held for sale, net                                          |  |                                | (179     | ) |      |   | (563     | )
|Fundings of loans held for sale                                                   |  |                                | (4,607   | ) |      |   | (27,656  | )
|Proceeds from sale of loans held for sale                                         |  |                                | 4,853    |   |      |   | 39,165   |  
|Loss on disposal of premises and equipment                                        |  |                                | 17       |   |      |   | 8        |  
|Gain from life insurance proceeds                                                 |  |                                | (397     | ) |      |   |         |  
|Gain on sale of other real estate                                                 |  |                                |         |   |      |   | (1       | )
|Write down of other real estate                                                   |  |                                | 148      |   |      |   | 263      |  
|Deferred income taxes                                                             |  |                                | (594     | ) |      |   | 1,121    |  
|Increase in cash surrender value of life insurance                                |  |                                | (918     | ) |      |   | (948     | )
|Net decrease in accrued interest receivable and other assets                      |  |                                | 1,670    |   |      |   | 2,169    |  
|Net decrease in accrued interest payable and other liabilities                    |  |                                | (1,842   | ) |      |   | (4,293   | )
|                                                                                  |  |                                |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                                | 15,806   |   |      |   | 23,261   |  
|                                                                                  |  |                                |          |   |      |   |          |  
|Cash flows from investing activities:                                             |  |                                |          |   |      |   |          |  
|Net decrease in interest-bearing deposits with other banks                        |  |                                |         |   |      |   | 100      |  
|Purchases of investment securities available-for-sale                             |  |                                | (122,852 | ) |      |   | (155,979 | )
|Proceeds from the sale of investment securities available-for-sale                |  |                                | 145,805  |   |      |   | 110,249  |  
|Proceeds from calls and maturities of investment securities available-for-sale    |  |                                | 120,195  |   |      |   | 28,501   |  
|Proceeds from principal repayments of investment securities available-for-sale    |  |                                | 121      |   |      |   | 395      |  
|(Purchase) redemption of FHLB stock                                               |  |                                | (1,965   | ) |      |   | 272      |  
|Deposit on single premium cash surrender value life insurance                     |  |                                | (306     | ) |      |   | (305     | )
|Proceeds from cash surrender value life insurance                                 |  |                                | 758      |   |      |   |         |  
|Net increase in loans held for investment                                         |  |                                | (101,682 | ) |      |   | (27,848  | )
|Proceeds from recoveries of charged-off loans                                     |  |                                | 803      |   |      |   | 1,682    |  
|Purchases of premises and equipment                                               |  |                                | (980     | ) |      |   | (933     | )
|Proceeds from sale of premises and equipment                                      |  |                                | 10       |   |      |   | 1,921    |  
|Proceeds from sale of other real estate                                           |  |                                |         |   |      |   | 447      |  
|                                                                                  |  |                                |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                               |  |                                | 39,907   |   |      |   | (41,498  | )
|                                                                                  |  |                                |          |   |      |   |          |  
|Cash flows from financing activities:                                             |  |                                |          |   |      |   |          |  
|Net increase in demand, interest-bearing and savings deposits                     |  |                                | 68,092   |   |      |   | 70,316   |  
|Net increase (decrease) in time deposits                                          |  |                                | 43,702   |   |      |   | (41,984  | )
|Net decrease in short-term borrowings                                             |  |                                | (27,973  | ) |      |   | (112     | )
|Exercise of stock options                                                         |  |                                | 4,685    |   |      |   | 701      |  
|Initial public offering proceeds, net                                             |  |                                | 7,262    |   |      |   |         |  
|Repurchase of shares of dissenting minority shareholder                           |  |                                | (32      | ) |      |   |         |  
|Sale of common stock                                                              |  |                                |         |   |      |   | 850      |  
|                                                                                  |  |                                |          |   |      |   |          |  
|Net cash provided by financing activities                                         |  |                                | 95,736   |   |      |   | 29,771   |  
|                                                                                  |  |                                |          |   |      |   |          |  
|Net increase in cash and cash equivalents                                         |  |                                | 151,449  |   |      |   | 11,534   |  
|Cash and cash equivalents, beginning of period                                    |  |                                | 88,505   |   |      |   | 153,617  |  
|                                                                                  |  |                                |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                              | 239,954  |   |      | $ | 165,151  |  
|                                                                                  |  |                                |          |   |      |   |          |  



The accompanying notes
are an integral part of these unaudited consolidated financial statements.



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##### Table of Contents

PLACER SIERRA BANCSHARES AND SUBSIDIARIES



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



For the Three Months and Nine Months Ended September 30, 2004 and 2003



NOTE 1  BASIS OF PRESENTATION



Consolidation and Basis of Presentation



The
consolidated financial statements include the accounts of Placer Sierra Bancshares (the Company) and the consolidated accounts of its wholly-owned subsidiary, Placer Sierra Bank (PSB). All significant intercompany balances and
transactions have been eliminated. The unaudited consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the
banking industry. The financial statements reflect all adjustments consisting of only normal recurring adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods indicated.
Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. The results of operations for the nine months ended September 30, 2004 are not necessarily indicative of the results of operations to be expected for the remainder of the year.



For financial reporting purposes, the Companys investments in Placer
Statutory Trust II and Southland Statutory Trust I are accounted for under the equity method and are included in other assets on the unaudited consolidated balance sheet. The junior subordinated deferrable interest debentures issued and guaranteed
by the Company and held by the trusts are reflected on the Companys consolidated balance sheet in accordance with provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities.



The accompanying unaudited consolidated financial statements should be read
in conjunction with the Companys audited consolidated financial statements and notes thereto for the year ended December 31, 2003.



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.



Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for loan and lease losses. In connection with the determination of the allowance for loan and lease
losses, management obtains independent appraisals for significant properties, evaluates overall loan portfolio characteristics and delinquencies and monitors economic conditions.



NOTE 2  EARNINGS PER SHARE



Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings
of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS.



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##### Table of Contents

A reconciliation of the numerators and denominators of the basic and diluted earnings per share
computation is as follows (dollars in thousands, except per share data):



|                                    |  |                                         |            |                                        |   |            |  |      |            |  |   |           
|----------------------------------- |  | --------------------------------------- | ---------- | -------------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                    |  | For the Three Months EndedSeptember 30, |            | For the Nine Months EndedSeptember 30,
|                                    |  | 2004                                    |            | 2003                                   |   | 2004       |  | 2003
|Basic                               |  |                                         |            |                                        |   |            |  |      |            |  |   |           
|Net income                          |  | $                                       | 3,887      |                                        | $ | 4,189      |  | $    | 8,538      |  | $ | 10,924    
|Weighted average shares outstanding |  |                                         | 14,213,762 |                                        |   | 13,579,318 |  |      | 13,900,004 |  |   | 13,494,613
|Earnings per share - basic          |  | $                                       | 0.27       |                                        | $ | 0.31       |  | $    | 0.61       |  | $ | 0.81      
|Diluted                             |  |                                         |            |                                        |   |            |  |      |            |  |   |           
|Net income                          |  | $                                       | 3,887      |                                        | $ | 4,189      |  | $    | 8,538      |  | $ | 10,924    
|Weighted average shares outstanding |  |                                         | 14,544,549 |                                        |   | 13,579,318 |  |      | 14,143,456 |  |   | 13,494,613
|Earnings per share - diluted        |  | $                                       | 0.27       |                                        | $ | 0.31       |  | $    | 0.60       |  | $ | 0.81      



For the three months
and nine months ended September 30, 2004 and 2003, certain shares of common stock issuable under stock options and stock purchase agreements were not included in the computation of diluted earnings per share because the exercise and purchase prices
were equal to or greater than the stocks fair value and their effect would be antidilutive.



NOTE 3  STOCK OPTIONS



The Company currently has two stock option plans, the Placer Sierra Bancshares 2002 Stock Option Plan and the Southland Capital Co. 2002 Stock Option Plan. Options in the Southland Capital Co. plan have been converted into options to
purchase shares of the Company. All options granted to date have been nonstatutory stock options. The shares available for grant may be granted to anyone eligible to participate in the plans. The plans require that the option price may not be less
than the fair market value of the stock at the date the option is granted. The options under the plans expire on dates determined by the Board of Directors, but not later than ten years from the date of grant. The vesting period is generally four
years; however, the vesting period can be modified at the discretion of the Board of Directors. Outstanding options under the plans are exercisable until their expiration.



The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees,and related interpretations. In accordance with APB Opinion No. 25, no stock based compensation cost related to stock option plans is reflected in net income as all options granted under these stock option plans
had an exercise price of not less than the fair market value of the underlying common stock on the date of grant.



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##### Table of Contents

Pro forma adjustments to the Companys consolidated net income and earnings per share are disclosed
during the years in which the options become vested. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based compensation (dollars in thousands, except per share data):



|                                                                                                                                       |  |                                         |       |                                         |   |       |  |   |       |   |  |   |       
|-------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ----- | --------------------------------------- | - | ----- |  | - | ----- | - |  | - | ------
|                                                                                                                                       |  | For the Three MonthsEnded September 30, |       | For the Nine Months Ended September 30,
|                                                                                                                                       |  | 2004                                    |       | 2003                                    |   | 2004  |  |   | 2003 
|Net income, as reported                                                                                                                |  | $                                       | 3,887 |                                         | $ | 4,189 |  | $ | 8,538 |   |  | $ | 10,924
|Add: Stock-based compensation expense included in reported net income, net of related tax effects                                      |  |                                         |      |                                         |   |      |  |   | 38    |   |  |   |      
|Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax
effects |  |                                         |      |                                         |   |      |  |   | (38   | ) |  |   |      
|                                                                                                                                       |  |                                         |       |                                         |   |       |  |   |       |   |  |   |       
|Pro forma net income                                                                                                                   |  | $                                       | 3,887 |                                         | $ | 4,189 |  | $ | 8,538 |   |  | $ | 10,924
|                                                                                                                                       |  |                                         |       |                                         |   |       |  |   |       |   |  |   |       
|Basic earnings per share  as reported                                                                                                 |  | $                                       | 0.27  |                                         | $ | 0.31  |  | $ | 0.61  |   |  | $ | 0.81  
|Diluted earnings per share  as reported                                                                                               |  | $                                       | 0.27  |                                         | $ | 0.31  |  | $ | 0.60  |   |  | $ | 0.81  
|Basic earnings per share  pro forma                                                                                                   |  | $                                       | 0.27  |                                         | $ | 0.31  |  | $ | 0.61  |   |  | $ | 0.81  
|Diluted earnings per share  pro forma                                                                                                 |  | $                                       | 0.27  |                                         | $ | 0.31  |  | $ | 0.60  |   |  | $ | 0.81  



The fair value of the
options granted and stock purchase agreements entered into during the three months and nine months ended September 30, 2004 and 2003 are noted below and were based on an option-pricing model with the following assumptions and prices:



|                                                                 |  |                                          |         |   |                                        |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | -------------------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                 |  | For the Three Months Ended September 30, |         |   | For the Nine MonthsEnded September 30, |  
|                                                                 |  | 2004                                     |         |   | 2003                                   |   |         | 2004 |  |   | 2003    |  
|Dividend yield                                                   |  |                                          | 1.50    | % |                                        |   |        |      |  |   | 1.50    | % |  |   |        |  
|Expected volatility                                              |  |                                          | 25.00   | % |                                        |   |        |      |  |   | 25.00   | % |  |   |        |  
|Risk-free interest rate                                          |  |                                          | 3.47    | % |                                        |   | 3.11    | %    |  |   | 3.47    | % |  |   | 3.11    | %
|Expected option life                                             |  |                                          | 5 years |   |                                        |   | 5 years |      |  |   | 5 years |   |  |   | 5 years |  
|Weighted average fair value of options granted during the period |  | $                                        | 4.19    |   |                                        | $ |        |      |  | $ | 4.04    |   |  | $ |        |  



A summary of the
activity in the Placer Sierra Bancshares 2002 Stock Option Plan is as follows:



|                                         |  |                                         |   |      |                              |       |        |         |   |                              |   |     
|---------------------------------------- |  | --------------------------------------- | - | ---- | ---------------------------- | ----- | ------ | ------- | - | ---------------------------- | - | ----
|                                         |  | For the Nine Months Ended September 30,
|                                         |  | 2004                                    |   | 2003
|                                         |  | Shares                                  |   |      | WeightedAverageExercisePrice |       | Shares |         |   | WeightedAverageExercisePrice
|Options outstanding, beginning of period |  | 803,271                                 |   |      | $                            | 9.00  |        | 925,564 |   |                              | $ | 9.00
|Options granted                          |  | 64,000                                  |   |      | $                            | 19.41 |        | 5,000   |   |                              | $ | 9.00
|Options exercised                        |  | (198,494                                | ) |      | $                            | 9.00  |        | (74,735 | ) |                              | $ | 9.00
|Options canceled                         |  | (25,834                                 | ) |      | $                            | 9.00  |        | (32,404 | ) |                              | $ | 9.00
|                                         |  |                                         |   |      |                              |       |        |         |   |                              |   |     
|Options outstanding, end of period       |  | 642,943                                 |   |      | $                            | 10.04 |        | 823,425 |   |                              | $ | 9.00
|                                         |  |                                         |   |      |                              |       |        |         |   |                              |   |     
|Options exercisable, end of period       |  | 416,712                                 |   |      | $                            | 9.00  |        | 556,528 |   |                              | $ | 9.00
|                                         |  |                                         |   |      |                              |       |        |         |   |                              |   |     



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A summary of the activity in the Southland Capital Co. 2002 Stock Option Plan is as follows:



|                                         |  |                                         |   |      |                              |      |        |         |   |                              |   |     
|---------------------------------------- |  | --------------------------------------- | - | ---- | ---------------------------- | ---- | ------ | ------- | - | ---------------------------- | - | ----
|                                         |  | For the Nine Months Ended September 30,
|                                         |  | 2004                                    |   | 2003
|                                         |  | Shares                                  |   |      | WeightedAverageExercisePrice |      | Shares |         |   | WeightedAverageExercisePrice
|Options outstanding, beginning of period |  | 663,114                                 |   |      | $                            | 7.82 |        | 657,092 |   |                              | $ | 7.82
|Options granted                          |  | 31,260                                  |   |      | $                            | 7.82 |        | 14,955  |   |                              | $ | 7.82
|Options exercised                        |  | (216,645                                | ) |      | $                            | 7.82 |        | (2,608  | ) |                              | $ | 7.82
|Options canceled                         |  | (74,319                                 | ) |      | $                            | 7.82 |        | (25,647 | ) |                              | $ | 7.82
|                                         |  |                                         |   |      |                              |      |        |         |   |                              |   |     
|Options outstanding, end of period       |  | 403,410                                 |   |      | $                            | 7.82 |        | 643,792 |   |                              | $ | 7.82
|                                         |  |                                         |   |      |                              |      |        |         |   |                              |   |     
|Options exercisable, end of period       |  | 326,972                                 |   |      | $                            | 7.82 |        | 420,809 |   |                              | $ | 7.82
|                                         |  |                                         |   |      |                              |      |        |         |   |                              |   |     



Notwithstanding the
two stock option plans, an additional 47,897 stock options were granted to past directors of CCB and a former executive officer of the bank during 2002. No additional options have been granted during 2003 or 2004. For the nine months ended September
30, 2004, 6,327 options were exercised and 4,971 options were canceled. At September 30, 2004, a total of 18,921 options were outstanding with a weighted average remaining life of 7.76 years. At September 30, 2004 and 2003, a total of 18,921 and
46,897 options were exercisable, respectively.



NOTE 4  COMMITMENTS
AND CONTINGENCIES



Legal Proceedings



We have settled, in principle, a lawsuit involving the Reed Slatkin
Investment Club, in which Bank of Orange County, a division of Placer Sierra Bank, was one of four named defendants. The complaint was filed on September 5, 2002 in the United States District Court, Central District of California by the trustee of
the bankruptcy estate of Reed Slatkin and a group of individuals and entities, naming Bank of Orange County, Union Bank of California, Comerica Bank-California and Imperial Management Incorporated as defendants and alleging, among other things,
aiding and abetting fraud, breach of fiduciary duty, fraud and negligence. The initial complaint sought damages of $250 million plus interest and punitive damages as well as compensatory damages on behalf of the subclass plaintiffs of $25 million
plus punitive damages. The banks were named in the suit based on the various banks alleged support of and participation in Mr. Slatkins fraudulent activities discovered in 2001, and the banks alleged role as administrator for
investors custodial accounts. Bank of Orange County was being sued as the direct successor-in-interest to Pacific Inland Bank, or PIB, which was acquired by Bank of Orange County in 1999. PIB sold its trust assets to another bank that is also
a defendant in the case in October 1993. The claims against Bank of Orange County were based on alleged acts and omissions of PIB that occurred on or before the sale of the trust assets. Upon execution and delivery of definitive settlement documents
and approval of the settlement by the court, we expect the action to be dismissed. Pursuant to the settlement, we will contribute $200,000. This amount is included in accrued interest payable and other liabilities as of September 30, 2004.



We may, from time to time, be involved in other legal
proceedings in the ordinary course of business. We do not believe that any of the other pending legal proceedings in which we are currently involved are reasonably likely, either individually or taken as a whole, to materially harm our business,
financial condition, results of operations or cash flows.



Environmental
Compliance



In the process of selling a property owned by
a subsidiary of PSB, we learned that a small parcel of the property was used as a gasoline station in the early 1970s. We retained an environmental consulting company to conduct both Phase I and Phase II environmental studies, the results of which
have been reviewed and accepted



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##### Table of Contents

by the California Regional Water Quality Control Board (Control Board). We believe it is likely that the Control Board will require soil
abatement. The cost of soil abatement was originally estimated to be between $450,000 and $570,000, and we recorded a reserve in the first quarter of 2004 of $450,000. In the second quarter of 2004, $205,000 of this reserve was reversed due to
revised remediation cost estimates. Pursuant to legal investigation of potentially responsible former gas station operators, PSB made demand upon ConocoPhillips and ChevronTexaco to investigate and remediate the site. In the third quarter of 2004,
ChevronTexaco responded that it would take the lead on behalf of both oil companies, and that its operating company Texaco Downstream Properties Inc. is willing to take responsibility for remediation of contamination arising from operations under
the lease between former owners of the site and Tidewater Oil Company. However, agreement regarding ChevronTexacos commitment has not yet been reached and ChevronTexaco has indicated it wishes to first conclude determination of whether
additional parties are responsible for the contamination. Although we cannot be certain, we do not expect our expenditures for the monitoring and the cost of soil abatement to have a material adverse effect on our business, financial condition,
results of operations and cash flows.



Financial Instruments with
Off-Balance-Sheet Risk



PSB is party to financial
instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit and standby letters of credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheet.



PSBs exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented
by the contractual amount of those instruments. PSB uses the same credit policies in making commitments and letters of credit as it does for loans and leases included on the consolidated balance sheet.



The following financial instruments represent off-balance-sheet credit risk
(dollars in thousands):



|                             |  |                   |         |                  |   |        
|---------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                             |  | September 30,2004 |         | December 31,2003
|Commitments to extend credit |  | $                 | 306,316 |                  | $ | 283,931
|Standby letters of credit    |  | $                 | 3,815   |                  | $ | 3,595  



Commitments to extend
credit consist primarily of unfunded home equity lines of credit, single-family residential and commercial real estate construction loans, and commercial revolving lines of credit. Construction loans are established under standard underwriting
guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction. Commercial revolving lines of credit have a high degree of industry diversification. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.



Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party and are accounted for under Financial Accounting Standards Board Interpretation 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Others (FIN 45). FIN 45 requires that the guarantor recognize a liability for the guarantee equal to its fair value represented by the fees received for issuing the guarantee. Such fees were not considered to be material for recognition as a
liability at September 30, 2004 or December 31, 2003. Standby letters of credit are generally issued for one year or less and secured by certificates of deposit or are issued as sub-features under existing revolving credit commitments.



NOTE 5  COMPREHENSIVE INCOME



Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of other comprehensive (loss) income that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Companys available-for-sale investment securities are included in
other



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##### Table of Contents

comprehensive (loss) income. Total comprehensive income and the components of accumulated other comprehensive (loss) income for the nine months ended
September 30, 2004 and 2003 are presented in the consolidated statement of changes in shareholders equity and comprehensive income. Total comprehensive income for the three months ended September 30, 2004 and 2003 totaled $4.6 million and $3.3
million, respectively.



The components of other comprehensive
income (loss) follows (dollars in thousands):



|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|----------------------------------------------------------------------- |  | --------- | ------ | - | ------------------- | - | ----- | -------- |  | - | ------ | -
|                                                                        |  | BeforeTax |        |   | TaxBenefit(Expense) |   |       | AfterTax | 
|For the Three Months Ended September 30, 2004                           |  |           |        |   |                     |   |       |          |  |   |        |  
|Other comprehensive income:                                             |  |           |        |   |                     |   |       |          |  |   |        |  
|Unrealized holding gains                                                |  | $         | 1,216  |   |                     | $ | (511  | )        |  | $ | 705    |  
|Less: reclassification adjustment for net gains included in net income  |  |           | 1      |   |                     |   |      |          |  |   | 1      |  
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|Total other comprehensive income                                        |  | $         | 1,215  |   |                     | $ | (511  | )        |  | $ | 704    |  
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|For the Three Months Ended September 30, 2003                           |  |           |        |   |                     |   |       |          |  |   |        |  
|Other comprehensive loss:                                               |  |           |        |   |                     |   |       |          |  |   |        |  
|Unrealized holding losses                                               |  | $         | (1,142 | ) |                     | $ | 480   |          |  | $ | (662   | )
|Less: reclassification adjustment for net gains included in net income  |  |           | 433    |   |                     |   | (182  | )        |  |   | 251    |  
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|Total other comprehensive loss                                          |  | $         | (1,575 | ) |                     | $ | 662   |          |  | $ | (913   | )
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|For the Nine Months Ended September 30, 2004                            |  |           |        |   |                     |   |       |          |  |   |        |  
|Other comprehensive loss:                                               |  |           |        |   |                     |   |       |          |  |   |        |  
|Unrealized holding losses                                               |  | $         | (3,975 | ) |                     | $ | 1,671 |          |  | $ | (2,304 | )
|Less: reclassification adjustment for net losses included in net income |  |           | (3,335 | ) |                     |   | 1,402 |          |  |   | (1,933 | )
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|Total other comprehensive loss                                          |  | $         | (640   | ) |                     | $ | 269   |          |  | $ | (371   | )
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|For the Nine Months Ended September 30, 2003                            |  |           |        |   |                     |   |       |          |  |   |        |  
|Other comprehensive loss:                                               |  |           |        |   |                     |   |       |          |  |   |        |  
|Unrealized holding gains                                                |  | $         | 262    |   |                     | $ | (110  | )        |  | $ | 152    |  
|Less: reclassification adjustment for net gains included in net income  |  |           | 740    |   |                     |   | (311  | )        |  |   | 429    |  
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  
|Total other comprehensive loss                                          |  | $         | (478   | ) |                     | $ | 201   |          |  | $ | (277   | )
|                                                                        |  |           |        |   |                     |   |       |          |  |   |        |  



NOTE 6  ACQUISITIONS



On July 23, 2004, Bank of Orange County was merged with
and into our wholly-owned subsidiary, Placer Sierra Bank.



On
September 7, 2004, Placer Sierra Bancshares signed a definitive agreement to acquire First Financial Bancorp (FFB), the parent holding company for Bank of Lodi. As of September 30, 2004, FFB had total assets of $331.6 million, total
loans and leases of $216.1 million, total deposits of $277.0 million and total shareholders equity of $24.5 million. Bank of Lodi operates nine branches located in Sacramento, El Dorado, San Joaquin, Amador, and Calaveras Counties in Northern
California. At September 30, 2004, the combined companies had total assets of $1.830 billion, total loans and leases of $1.267 billion, total deposits of $1.526 billion and total shareholders equity of $209.6 million.



Under the terms of the agreement, the Company will pay $50.0 million in cash
to acquire all the outstanding shares of common stock and outstanding stock options of FFB. Subject to receipt of regulatory and shareholder approval, the Company expects this transaction will be completed during the fourth quarter of 2004. Placer
expects to fund the acquisition consideration with cash on hand. The transaction will be accounted for under the purchase method of accounting. On a pro forma basis at December 31, 2004, following the close of the transaction, management anticipates
all regulatory capital ratios at both the bank and holding company levels will be within those limits defined as well capitalized.



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|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



Forward Looking Information



This Quarterly Report on Form 10-Q (the Quarterly Report) may include forward-looking information, which is
subject to the safe harbor set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When we make statements that are not based on historical information or
are forward-looking, including when we use or incorporate by reference in this Quarterly Report the words anticipate, estimate, expect, project, intend, commit,
believe and similar expressions, we are making forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. Such risks and uncertainties include, but are
not limited to, the following factors:



| |  | Competitive pressure in the banking industry and changes in the regulatory environment.
| | - | ---------------------------------------------------------------------------------------



| |  | Changes in the interest rate environment and volatility of rate sensitive loans and deposits.
| | - | ---------------------------------------------------------------------------------------------



| |  | A decline in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of our loans.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Credit quality deterioration, which could cause an increase in the provision for loan and lease losses.
| | - | -------------------------------------------------------------------------------------------------------



| |  | Dividend restrictions.
| | - | ----------------------



| |  | Regulatory discretion.
| | - | ----------------------



| |  | Changes in the securities markets.
| | - | ----------------------------------



| |  | Asset/liability repricing risks and liquidity risks.
| | - | ----------------------------------------------------



| |  | Terrorist activity.
| | - | -------------------



We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. For further discussion of risk
factors related to our business, please see Exhibit 99.1 Risk Factors.



Description of Business



Placer Sierra Bancshares (formerly First California Bancshares and Placer Capital Co. II) (the Company) was incorporated on November 13, 2001 and, as of September 30, 2004, operated one banking subsidiary, Placer Sierra Bank
(PSB). The Company was incorporated for the purpose of acquiring PSB in a one bank holding company reorganization. PSB was previously a wholly-owned subsidiary of Placer Capital Co. (PCC), a wholly-owned subsidiary of
California Community Bancshares (CCB).



Bank of
Orange County (BOC) was merged with and into our wholly-owned subsidiary, Placer Sierra Bank, on July 23, 2004. BOC was previously a wholly-owned subsidiary of Southland Capital Co. (SCC). SCC was incorporated on November 9,
2001 for the purpose of acquiring BOC in a one bank holding company reorganization. BOC was also previously a wholly-owned subsidiary of CCB.



SCC was merged with and into the Company on May 25, 2004, in a stock-for-stock transaction whereby the shareholders of SCC received 0.5752 of a share of
Company common stock for each outstanding share of SCC common stock. The acquisition was principally accounted for as a combination of companies under common control similar to a pooling of interests. Immediately prior to the acquisition of SCC, the
Companys principal shareholder, the California Community Financial Institutions Fund Limited Partnership (the Fund), owned 99.75% of SCC and 93.18% of the Company. The acquisition of the 0.25% minority interest in SCC by the
Company was accounted for using the purchase method of accounting. The excess of the purchase price over the estimated fair value of the 0.25% minority interest in the net assets acquired was approximately $92,000, which was recorded as goodwill.



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##### Table of Contents

For the periods presented, the Companys wholly-owned subsidiaries include Placer Sierra Bank,
Placer Statutory Trust II and Southland Statutory Trust I. The bank is a California state-chartered commercial bank. Placer Statutory Trust II and Southland Statutory Trust I, both Connecticut statutory business trusts, were formed in October 2001
for the exclusive purpose of issuing and selling trust preferred securities.



Pending Acquisition



On September 7, 2004, the Company signed a definitive agreement to acquire First Financial Bancorp (FFB), the parent holding company for Bank of Lodi. Bank of Lodis branches will provide a unique fit within Companys
Northern California footprint. The acquisition provides for a strong foothold in San Joaquin County, which the Company believes is currently underserved by existing financial institutions and presents excellent de novo branching opportunities. The
market served by these branches is one of rapid customer growth evidenced by FFBs growth between 1999 and 2003, whereby total assets and total deposits grew at compound annual rates of 16.1% and 15.5%, respectively.



Management believes that this merger will result in accretion to earnings per
share of approximately $0.30 in the year 2005, principally through improvements in operating efficiencies which are targeted at 35% to 45% of pre-acquisition overhead. The Company may fail to achieve some or all of the anticipated cost savings and
the time frame to achieve those cost savings may be longer than anticipated. For further discussion of risk factors related to our business, see Exhibit 99.1 Risk Factors.



The Company will continue to seek merger and/or acquisition candidates and growth through de novo branching within markets
along the 99 freeway between the greater Sacramento area and Fresno, California. The Company will also seek merger and/or acquisition candidates and de novo branch opportunities in the four counties of Southern California of Los Angeles, Orange,
Riverside and San Bernardino to enhance its Bank of Orange County Division. For further discussion of risk factors related to our business, please see Exhibit 99.1 Risk Factors.



Nature of Operations



The Company conducts its business through PSB, which is subject to the laws
of the state of California and federal laws and regulations governing the financial services industry. The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to regulation and
supervision by the Board of Governors of the Federal Reserve System. The bank provides a full range of banking services to individual and corporate customers through its 23 northern California branches located in Placer, Sacramento, Nevada and El
Dorado Counties and nine southern California branches located in Orange and Los Angeles Counties. The bank derives its income primarily from interest received on real estate, commercial and consumer loans and, to a lesser extent, fees from the sale
of loans, interest on investment securities and fees received in connection with servicing loans and deposit customers. The banks major operating expenses are interest paid on deposits and borrowings, and general operating expenses. The bank
relies primarily on locally generated deposits.



Consolidation and Basis of Presentation



The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly-owned subsidiary, PSB. All significant intercompany balances and transactions have been eliminated. The accounting and
reporting policies of the Company conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry.



For financial reporting purposes, the Companys investments in Placer Statutory Trust II and Southland Statutory Trust
I are accounted for under the equity method and are included in other assets on the consolidated balance sheet. The junior subordinated debentures issued and guaranteed by the Company and held by the trusts are reflected on the Companys
consolidated balance sheet in accordance with provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities.



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##### Table of Contents

Use of Estimates



The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from these estimates.



Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for loan and
lease losses. In connection with the determination of the allowance for loan and lease losses, management obtains independent appraisals for significant properties, evaluates overall loan portfolio characteristics and delinquencies and monitors
economic conditions.



Critical Accounting Policies



Our accounting policies are integral to understanding
the financial results reported. Our most complex accounting policies require managements judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures
that are intended to ensure valuation methods are well controlled and consistently applied from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate
manner. We have identified our policy for the allowance for loan and lease losses, our estimate of the fair value of financial instruments and our calculation of goodwill and other intangible assets as critical accounting policies. Please see the
section entitled Allowance for Loan and Lease Losses for a discussion related to this policy. Our significant and critical accounting policies and practices are described in further detail in Note 2 to our consolidated financial
statements filed on Form S-1 dated August 10, 2004.



Results of Operations



Key Performance Indicators



The following sections contain tables and data setting forth certain
statistical information relating to the Company for the three and nine months ended September 30, 2004 and 2003. This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto for the three and
nine months ended September 30, 2004 included herein, and the Companys consolidated financial statements and notes thereto for the year ended December 31, 2003.



As of September 30, 2004 we had total assets of $1.498 billion, total loans and leases held for investment of $1.051
billion, total deposits of $1.249 billion and shareholders equity of $185.1 million. In the quarter ended September 30, 2004 total loans and leases held for investment increased $47.0 million (an 18.6% growth rate on an annualized basis) and
total deposits increased $48.9 million (a 16.2% growth rate on an annualized basis). As of September 30, 2004, 14,667,142 shares of our common stock were outstanding, having a book value per share of $12.62.



For the three months and nine months ended September 30, 2004, we recorded
net income of $3.9 million and $8.5 million, or $0.27 per share and $0.60 per share, respectively, on a diluted basis.



The Companys financial results for the third quarter of 2004 were significantly impacted by a liquidity strategy put in place to facilitate the
acquisition of First Financial Bancorp, as well as by the earlier decision to restructure Bank of Orange Countys securities portfolio. Throughout the third quarter, the Company maintained $50 million of liquidity to fund its all cash purchase
of First Financial Bancorp, which is scheduled to close in the fourth quarter of 2004. In addition, significant liquidity was added as a result of the second quarter liquidation of $72 million of long-term securities held by Bank of Orange County.
These funds were not reinvested during the third quarter due to the uncertain direction of the Treasury market.



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##### Table of Contents

In connection with the merger of Bank of Orange County with and into Placer Sierra Bank, we incurred
merger-related costs of $177,000 ($109,000 after tax) and $2.3 million ($1.6 million after tax) for the three and nine months ended September 30, 2004, respectively. In addition, the Company recorded a loss of $3.8 million ($2.2 million after tax)
related to the restructuring of Bank of Orange Countys investment securities portfolio in the second quarter of 2004. Excluding merger-related costs and the investment security restructuring loss, our operating earnings for the three and nine
months ended September 30, 2004 would have been $4.0 million and $12.3 million, or $0.27 per share and $0.87 per share, respectively, on a diluted basis. These operating earnings for 2004 represent a 12.6 % improvement in operating earnings over the
nine months ended September 30, 2003. We believe that the presentation of our operating earnings excluding the merger-related costs and investment security restructuring loss is important to gaining an understanding of the financial performance of
our core banking operations.



The following table presents the
key performance indicators for the three and nine months ended September 30, 2004 and 2003 and the basis for calculating these indicators (dollars in thousands, except per share information):



|                                                                  |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------- |  | --------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                  |  | For the Three MonthsEnded September 30, |            |   | For the Nine MonthsEnded September 30, |  
|                                                                  |  | 2004                                    |            |   | 2003                                   |   |            | 2004 |  |   | 2003       |  
|Net interest income                                               |  | $                                       | 15,356     |   |                                        | $ | 14,589     |      |  | $ | 45,674     |   |  | $ | 42,896     |  
|Non-interest income                                               |  |                                         | 3,164      |   |                                        |   | 4,085      |      |  |   | 7,342      |   |  |   | 10,792     |  
|                                                                  |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |            |  
|Revenues                                                          |  |                                         | 18,520     |   |                                        |   | 18,674     |      |  |   | 53,016     |   |  |   | 53,688     |  
|Provision for (credit to) the allowance for loan and lease losses |  |                                         |           |   |                                        |   | (146       | )    |  |   | 560        |   |  |   | (216       | )
|Non-interest expense                                              |  |                                         | 12,248     |   |                                        |   | 11,955     |      |  |   | 39,061     |   |  |   | 36,045     |  
|Provision for income taxes                                        |  |                                         | 2,385      |   |                                        |   | 2,676      |      |  |   | 4,857      |   |  |   | 6,935      |  
|                                                                  |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |            |  
|Net income                                                        |  | $                                       | 3,887      |   |                                        | $ | 4,189      |      |  | $ | 8,538      |   |  | $ | 10,924     |  
|                                                                  |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |            |  
|Average assets                                                    |  | $                                       | 1,473,663  |   |                                        | $ | 1,436,221  |      |  | $ | 1,418,867  |   |  | $ | 1,406,163  |  
|Average shareholders equity                                      |  | $                                       | 176,681    |   |                                        | $ | 158,180    |      |  | $ | 171,481    |   |  | $ | 156,781    |  
|Share Information:                                                |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares outstanding - basic                       |  |                                         | 14,213,762 |   |                                        |   | 13,579,318 |      |  |   | 13,900,004 |   |  |   | 13,494,613 |  
|Weighted average shares outstanding - diluted                     |  |                                         | 14,544,549 |   |                                        |   | 13,579,318 |      |  |   | 14,143,456 |   |  |   | 13,494,613 |  
|Profitability Measures:                                           |  |                                         |            |   |                                        |   |            |      |  |   |            |   |  |   |            |  
|Earnings per share - basic                                        |  | $                                       | 0.27       |   |                                        | $ | 0.31       |      |  | $ | 0.61       |   |  | $ | 0.81       |  
|Earnings per share - diluted                                      |  | $                                       | 0.27       |   |                                        | $ | 0.31       |      |  | $ | 0.60       |   |  | $ | 0.81       |  
|Return on average assets                                          |  |                                         | 1.05       | % |                                        |   | 1.16       | %    |  |   | 0.80       | % |  |   | 1.04       | %
|Return on average shareholders equity                            |  |                                         | 8.75       | % |                                        |   | 10.51      | %    |  |   | 6.65       | % |  |   | 9.32       | %
|Efficiency ratio                                                  |  |                                         | 66.13      | % |                                        |   | 64.02      | %    |  |   | 73.68      | % |  |   | 67.14      | %



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##### Table of Contents

The following table presents for the three and nine months ended September 30, 2004 and 2003 our
operating earnings and key performance indicators after excluding merger expenses and the loss from the investment security restructuring (dollars in thousands, except per share data):



|                                                          |  |                                         |       |   |                                        |   |       |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------- |  | --------------------------------------- | ----- | - | -------------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                          |  | For the Three MonthsEnded September 30, |       |   | For the Nine MonthsEnded September 30, |  
|                                                          |  | 2004                                    |       |   | 2003                                   |   |       | 2004 |  |   | 2003   |  
|Net income                                                |  | $                                       | 3,887 |   |                                        | $ | 4,189 |      |  | $ | 8,538  |   |  | $ | 10,924 |  
|Acquisition related:                                      |  |                                         |       |   |                                        |   |       |      |  |   |        |   |  |   |        |  
|Merger expenses, net of tax effect                        |  |                                         | 109   |   |                                        |   |      |      |  |   | 1,550  |   |  |   |       |  
|Investment security restructuring loss, net of tax effect |  |                                         |      |   |                                        |   |      |      |  |   | 2,210  |   |  |   |       |  
|                                                          |  |                                         |       |   |                                        |   |       |      |  |   |        |   |  |   |        |  
|Operating earnings                                        |  | $                                       | 3,996 |   |                                        | $ | 4,189 |      |  | $ | 12,298 |   |  | $ | 10,924 |  
|                                                          |  |                                         |       |   |                                        |   |       |      |  |   |        |   |  |   |        |  
|Profitability Measures:                                   |  |                                         |       |   |                                        |   |       |      |  |   |        |   |  |   |        |  
|Operating earnings per share - basic                      |  | $                                       | 0.28  |   |                                        | $ | 0.31  |      |  | $ | 0.88   |   |  | $ | 0.81   |  
|Operating earnings per share - diluted                    |  | $                                       | 0.27  |   |                                        | $ | 0.31  |      |  | $ | 0.87   |   |  | $ | 0.81   |  
|Operating return on average assets                        |  |                                         | 1.08  | % |                                        |   | 1.16  | %    |  |   | 1.16   | % |  |   | 1.04   | %
|Operating return on average shareholders equity          |  |                                         | 9.58  | % |                                        |   | 10.51 | %    |  |   | 9.00   | % |  |   | 9.32   | %
|Operating efficiency ratio                                |  |                                         | 65.18 | % |                                        |   | 64.02 | %    |  |   | 64.65  | % |  |   | 67.14  | %



Third quarter
analysis. Consolidated net income for the three months ended September 30, 2004 was $3.9 million, or $0.27 per diluted share. Net income for the three months ended September 30, 2003 was $4.2 million, or $0.31 per diluted share. Return on
average assets was 1.05%, compared to 1.16% for the same period of 2003. Return on average equity was 8.75%, compared to 10.51% for the same period of 2003.



Net income for the quarter ended September 30, 2004 was impacted by merger expenses of $177,000 ($109,000 after tax) related to the merger with Bank of
Orange County, by the Companys liquidity strategy put in place to facilitate the acquisition of First Financial Bancorp, and by the liquidity created by selling Bank of Orange Countys long-term securities portfolio.



Operating earnings for the three months ended September 30, 2004 were $4.0
million after excluding merger-related costs of $177,000. Operating earnings of $4.0 million result in diluted operating earnings per share of $0.27, a return on average assets of 1.08% and a return on average equity of 9.58%. The Company calculates
that earnings for the third quarter of 2004 were negatively impacted by approximately $0.03 per diluted share as a result of retaining approximately $103 million of excess liquidity in federal funds sold. This excess liquidity is related to the $50
million of funds needed for the pending acquisition of First Financial Bancorp and our decision not to reinvest the proceeds of the liquidation of $72 million of long-term securities of Bank of Orange County. These securities were liquidated prior
to the merger with Bank of Orange County and were not reinvested during the third quarter due to uncertainties in the Treasury market.



The efficiency ratio is a measure of how effective we are at managing our non-interest expense dollars. A lower or declining ratio indicates improving
efficiency. Excluding the merger related costs, the efficiency ratio for the third quarter of 2004 was 65.18%.



Nine month analysis.Net income for the nine months ended September 30, 2004 was $8.5 million, or $0.60 per diluted share. Net income for the nine
months ended September 30, 2003 was $10.9 million, or $0.81 per diluted share. Return on average assets was 0.80%, compared to 1.04% for the same period of 2003. Return on average equity was 6.65%, compared to 9.32% for the same period of 2003.



Operating earnings for the nine months ended September 30,
2004 were $12.3 million after excluding merger-related costs of $2.3 million and the Bank of Orange Countys investment security portfolio restructuring



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##### Table of Contents

loss of $3.8 million. These operating earnings represent an increase of $1.4 million, or 12.6%, over the $10.9 million earned for the nine months ended
September 30, 2003. Operating earnings of $12.3 million result in diluted operating earnings per share of $0.87, a return on average assets of 1.16%, and a return on average equity of 9.00%. Excluding the merger related costs and Bank of Orange
Countys investment portfolio restructuring loss, the efficiency ratio improved to 64.65% during the nine months ended September 30, 2004 compared to 67.14% for the same period in 2003.



Net Interest Income



Net interest income is the difference between interest earned on assets and
interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. Our balance sheet is asset sensitive, and as a result, our net interest margin tends to expand in a rising
interest rate environment and decline in a falling interest rate environment. The majority of our earning assets are tied to market rates, such as the prime rate, and therefore rates on our earning assets generally reprice along with a movement in
market rates while interest-bearing liabilities, mainly deposits, tend to reprice more slowly and usually incorporate only a portion of the movement in market rates.



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##### Table of Contents

The following tables present, for the periods indicated, the distribution of average assets, liabilities
and shareholders equity, as well as the net interest income from average interest-earning assets and the resultant yields expressed in percentages. Non-accrual loans are included in the calculation of average loans and leases while non-accrued
interest thereon is excluded from the computation of yields earned.



|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|------------------------------------------ |  | ------------------------------------ | --------- | ------------------------ | ------------------------------------ | ------------------- |  | ---- | -------------- |  | ------------------------ | --------- | ------------------- | - | ------ |  | ---- | -
|                                           |  | Three Months EndedSeptember 30, 2004 |           |                          | Three Months EndedSeptember 30, 2003 |                    
|                                           |  | AverageBalance                       |           | InterestIncome orExpense |                                      | AverageYield orCost |  |      | AverageBalance |  | InterestIncome orExpense |           | AverageYield orCost |  
|                                           |  | (Dollars in thousands)               |          
|ASSETS                                     |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-earning assets:                   |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Loans held for sale                        |  | $                                    | 536       |                          | $                                    | 6                   |  | 4.45 | %              |  | $                        | 1,684     |                     | $ | 23     |  | 5.42 | %
|Loans and leases held for investment       |  |                                      | 1,022,290 |                          |                                      | 15,780              |  | 6.14 | %              |  |                          | 880,733   |                     |   | 14,332 |  | 6.46 | %
|Investment securities                      |  |                                      | 125,257   |                          |                                      | 1,497               |  | 4.75 | %              |  |                          | 204,270   |                     |   | 2,184  |  | 4.24 | %
|Federal funds sold                         |  |                                      | 118,066   |                          |                                      | 388                 |  | 1.31 | %              |  |                          | 140,467   |                     |   | 309    |  | 0.87 | %
|Interest-bearing deposits with other banks |  |                                      | 125       |                          |                                      | 1                   |  | 3.18 | %              |  |                          |          |                     |   |       |  |     |  
|Other earnings assets                      |  |                                      | 9,317     |                          |                                      | 129                 |  | 5.51 | %              |  |                          | 7,249     |                     |   | 92     |  | 5.04 | %
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-earning assets              |  |                                      | 1,275,591 |                          |                                      | 17,801              |  | 5.55 | %              |  |                          | 1,234,403 |                     |   | 16,940 |  | 5.44 | %
|Non-interest-earning assets:               |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Cash and demand deposits                   |  |                                      | 72,080    |                          |                                      |                     |  |      |                |  |                          | 71,843    |                     |   |        |  |      |  
|Other assets                               |  |                                      | 125,992   |                          |                                      |                     |  |      |                |  |                          | 129,975   |                     |   |        |  |      |  
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total assets                               |  | $                                    | 1,473,663 |                          |                                      |                     |  |      |                |  | $                        | 1,436,221 |                     |   |        |  |      |  
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-bearing liabilities:              |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Deposits -                                 |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-bearing demand                    |  | $                                    | 195,766   |                          |                                      | 182                 |  | 0.37 | %              |  | $                        | 203,644   |                     |   | 184    |  | 0.36 | %
|Money market                               |  |                                      | 214,957   |                          |                                      | 394                 |  | 0.73 | %              |  |                          | 219,262   |                     |   | 345    |  | 0.62 | %
|Savings                                    |  |                                      | 135,624   |                          |                                      | 118                 |  | 0.35 | %              |  |                          | 133,443   |                     |   | 117    |  | 0.35 | %
|Time certificates of deposit               |  |                                      | 260,651   |                          |                                      | 1,236               |  | 1.89 | %              |  |                          | 260,848   |                     |   | 1,240  |  | 1.89 | %
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-bearing deposits            |  |                                      | 806,998   |                          |                                      | 1,930               |  | 0.95 | %              |  |                          | 817,197   |                     |   | 1,886  |  | 0.92 | %
|Short-term borrowings                      |  |                                      | 14,696    |                          |                                      | 25                  |  | 0.68 | %              |  |                          | 12,088    |                     |   | 24     |  | 0.79 | %
|Long-term debt                             |  |                                      | 38,146    |                          |                                      | 490                 |  | 5.11 | %              |  |                          | 38,146    |                     |   | 441    |  | 4.59 | %
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                      | 859,840   |                          |                                      | 2,445               |  | 1.13 | %              |  |                          | 867,431   |                     |   | 2,351  |  | 1.08 | %
|Non-interest bearing liabilities:          |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Demand deposits                            |  |                                      | 423,639   |                          |                                      |                     |  |      |                |  |                          | 400,042   |                     |   |        |  |      |  
|Other liabilities                          |  |                                      | 13,503    |                          |                                      |                     |  |      |                |  |                          | 10,568    |                     |   |        |  |      |  
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total liabilities                          |  |                                      | 1,296,982 |                          |                                      |                     |  |      |                |  |                          | 1,278,041 |                     |   |        |  |      |  
|Shareholders equity                       |  |                                      | 176,681   |                          |                                      |                     |  |      |                |  |                          | 158,180   |                     |   |        |  |      |  
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                                    | 1,473,663 |                          |                                      |                     |  |      |                |  | $                        | 1,436,221 |                     |   |        |  |      |  
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Net interest income                        |  |                                      |           |                          | $                                    | 15,356              |  |      |                |  |                          |           |                     | $ | 14,589 |  |      |  
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Net interest margin                        |  |                                      |           |                          |                                      |                     |  | 4.79 | %              |  |                          |           |                     |   |        |  | 4.69 | %
|                                           |  |                                      |           |                          |                                      |                     |  |      |                |  |                          |           |                     |   |        |  |      |  



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|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|------------------------------------------ |  | ----------------------------------- | --------- | ------------------------ | ----------------------------------- | ------------------- |  | ---- | -------------- |  | ------------------------ | --------- | ------------------- | - | ------ |  | ---- | -
|                                           |  | Nine Months EndedSeptember 30, 2004 |           |                          | Nine Months EndedSeptember 30, 2003 |                    
|                                           |  | AverageBalance                      |           | InterestIncome orExpense |                                     | AverageYield orCost |  |      | AverageBalance |  | InterestIncome orExpense |           | AverageYield orCost |  
|                                           |  | (Dollars in thousands)              |          
|ASSETS                                     |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-earning assets:                   |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Loans held for sale                        |  | $                                   | 267       |                          | $                                   | 9                   |  | 4.50 | %              |  | $                        | 4,475     |                     | $ | 192    |  | 5.74 | %
|Loans and leases held for investment       |  |                                     | 991,294   |                          |                                     | 45,778              |  | 6.17 | %              |  |                          | 866,690   |                     |   | 43,426 |  | 6.70 | %
|Investment securities                      |  |                                     | 153,827   |                          |                                     | 5,550               |  | 4.82 | %              |  |                          | 200,100   |                     |   | 6,165  |  | 4.12 | %
|Federal funds sold                         |  |                                     | 70,052    |                          |                                     | 586                 |  | 1.12 | %              |  |                          | 124,358   |                     |   | 952    |  | 1.02 | %
|Interest-bearing deposits with other banks |  |                                     | 42        |                          |                                     | 1                   |  | 3.18 | %              |  |                          | 44        |                     |   |       |  |     |  
|Other earnings assets                      |  |                                     | 8,633     |                          |                                     | 343                 |  | 5.31 | %              |  |                          | 7,282     |                     |   | 300    |  | 5.51 | %
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-earning assets              |  |                                     | 1,224,115 |                          |                                     | 52,267              |  | 5.70 | %              |  |                          | 1,202,949 |                     |   | 51,035 |  | 5.67 | %
|Non-interest-earning assets:               |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Cash and demand deposits                   |  |                                     | 68,304    |                          |                                     |                     |  |      |                |  |                          | 69,914    |                     |   |        |  |      |  
|Other assets                               |  |                                     | 126,448   |                          |                                     |                     |  |      |                |  |                          | 133,300   |                     |   |        |  |      |  
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total assets                               |  | $                                   | 1,418,867 |                          |                                     |                     |  |      |                |  | $                        | 1,406,163 |                     |   |        |  |      |  
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY       |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-bearing liabilities:              |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Deposits -                                 |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-bearing demand                    |  | $                                   | 192,757   |                          |                                     | 508                 |  | 0.35 | %              |  | $                        | 199,343   |                     |   | 677    |  | 0.45 | %
|Money market                               |  |                                     | 208,454   |                          |                                     | 1,007               |  | 0.65 | %              |  |                          | 205,309   |                     |   | 1,165  |  | 0.76 | %
|Savings                                    |  |                                     | 132,774   |                          |                                     | 344                 |  | 0.35 | %              |  |                          | 128,764   |                     |   | 448    |  | 0.47 | %
|Time certificates of deposit               |  |                                     | 243,474   |                          |                                     | 3,210               |  | 1.76 | %              |  |                          | 273,293   |                     |   | 4,457  |  | 2.18 | %
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-bearing deposits            |  |                                     | 777,459   |                          |                                     | 5,069               |  | 0.87 | %              |  |                          | 806,709   |                     |   | 6,747  |  | 1.12 | %
|Short-term borrowings                      |  |                                     | 21,780    |                          |                                     | 142                 |  | 0.87 | %              |  |                          | 10,981    |                     |   | 70     |  | 0.85 | %
|Long-term debt                             |  |                                     | 38,146    |                          |                                     | 1,382               |  | 4.84 | %              |  |                          | 38,146    |                     |   | 1,322  |  | 4.63 | %
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-bearing liabilities         |  |                                     | 837,385   |                          |                                     | 6,593               |  | 1.05 | %              |  |                          | 855,836   |                     |   | 8,139  |  | 1.27 | %
|Non-interest bearing liabilities:          |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Demand deposits                            |  |                                     | 395,235   |                          |                                     |                     |  |      |                |  |                          | 378,037   |                     |   |        |  |      |  
|Other liabilities                          |  |                                     | 14,766    |                          |                                     |                     |  |      |                |  |                          | 15,509    |                     |   |        |  |      |  
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total liabilities                          |  |                                     | 1,247,386 |                          |                                     |                     |  |      |                |  |                          | 1,249,382 |                     |   |        |  |      |  
|Shareholders equity                       |  |                                     | 171,481   |                          |                                     |                     |  |      |                |  |                          | 156,781   |                     |   |        |  |      |  
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total liabilities and shareholders equity |  | $                                   | 1,418,867 |                          |                                     |                     |  |      |                |  | $                        | 1,406,163 |                     |   |        |  |      |  
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Net interest income                        |  |                                     |           |                          | $                                   | 45,674              |  |      |                |  |                          |           |                     | $ | 42,896 |  |      |  
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Net interest margin                        |  |                                     |           |                          |                                     |                     |  | 4.98 | %              |  |                          |           |                     |   |        |  | 4.77 | %
|                                           |  |                                     |           |                          |                                     |                     |  |      |                |  |                          |           |                     |   |        |  |      |  



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##### Table of Contents

The following tables show the change in interest income and interest expense and the amount of change
attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates (dollars in thousands):



|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|------------------------------------------ |  | ------------------------------------------------------------------------------------- | ------ | - | ---- | - | ------ | ------ |  | - | ------ | - |  | - | ---- | -
|                                           |  | Three Months Ended September 30, 2004Compared to Three MonthsEnded September 30, 2003 |       
|                                           |  | NetChange                                                                             |        |   | Rate |   |        | Volume |  |   | Mix    |  
|Interest income:                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Loans held for sale                        |  | $                                                                                     | (17    | ) |      | $ | (4     | )      |  | $ | (16    | ) |  | $ | 3    |  
|Loans and leases held for investment       |  |                                                                                       | 1,448  |   |      |   | (700   | )      |  |   | 2,304  |   |  |   | (156 | )
|Investment securities                      |  |                                                                                       | (687   | ) |      |   | 264    |        |  |   | (845   | ) |  |   | (106 | )
|Federal funds sold                         |  |                                                                                       | 79     |   |      |   | 154    |        |  |   | (49    | ) |  |   | (26  | )
|Interest-bearing deposits with other banks |  |                                                                                       | 1      |   |      |   |       |        |  |   |       |   |  |   | 1    |  
|Other earning assets                       |  |                                                                                       | 37     |   |      |   | 9      |        |  |   | 26     |   |  |   | 2    |  
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Total interest income                      |  |                                                                                       | 861    |   |      |   | (277   | )      |  |   | 1,420  |   |  |   | (282 | )
|Interest expense:                          |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Interest-bearing demand                    |  |                                                                                       | (2     | ) |      |   | 6      |        |  |   | (7     | ) |  |   | (1   | )
|Money market                               |  |                                                                                       | 49     |   |      |   | 58     |        |  |   | (7     | ) |  |   | (2   | )
|Savings                                    |  |                                                                                       | 1      |   |      |   | (1     | )      |  |   | 2      |   |  |   |     |  
|Time certificates of deposit               |  |                                                                                       | (4     | ) |      |   |       |        |  |   | (1     | ) |  |   | (3   | )
|Short-term borrowings                      |  |                                                                                       | 1      |   |      |   | (3     | )      |  |   | 5      |   |  |   | (1   | )
|Long-term debt                             |  |                                                                                       | 49     |   |      |   | 50     |        |  |   |       |   |  |   | (1   | )
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Total interest expense                     |  |                                                                                       | 94     |   |      |   | 110    |        |  |   | (8     | ) |  |   | (8   | )
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Net interest income                        |  | $                                                                                     | 767    |   |      | $ | (387   | )      |  | $ | 1,428  |   |  | $ | (274 | )
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|                                           | 
|                                           |  | Nine Months Ended September 30, 2004Compared to Nine MonthsEnded September 30, 2003   |       
|                                           |  | NetChange                                                                             |        |   | Rate |   |        | Volume |  |   | Mix    |  
|Interest income:                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Loans held for sale                        |  | $                                                                                     | (183   | ) |      | $ | (41    | )      |  | $ | (181   | ) |  | $ | 39   |  
|Loans and leases held for investment       |  |                                                                                       | 2,352  |   |      |   | (3,439 | )      |  |   | 6,243  |   |  |   | (452 | )
|Investment securities                      |  |                                                                                       | (615   | ) |      |   | 1,048  |        |  |   | (1,426 | ) |  |   | (237 | )
|Federal funds sold                         |  |                                                                                       | (366   | ) |      |   | 87     |        |  |   | (416   | ) |  |   | (37  | )
|Interest-bearing deposits with other banks |  |                                                                                       | 1      |   |      |   |       |        |  |   |       |   |  |   | 1    |  
|Other earning assets                       |  |                                                                                       | 43     |   |      |   | (11    | )      |  |   | 56     |   |  |   | (2   | )
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Total interest income                      |  |                                                                                       | 1,232  |   |      |   | (2,356 | )      |  |   | 4,276  |   |  |   | (688 | )
|Interest expense:                          |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Interest-bearing demand                    |  |                                                                                       | (169   | ) |      |   | (152   | )      |  |   | (22    | ) |  |   | 5    |  
|Money market                               |  |                                                                                       | (158   | ) |      |   | (174   | )      |  |   | 18     |   |  |   | (2   | )
|Savings                                    |  |                                                                                       | (104   | ) |      |   | (115   | )      |  |   | 14     |   |  |   | (3   | )
|Time certificates of deposit               |  |                                                                                       | (1,247 | ) |      |   | (857   | )      |  |   | (486   | ) |  |   | 96   |  
|Short-term borrowings                      |  |                                                                                       | 72     |   |      |   | 2      |        |  |   | 69     |   |  |   | 1    |  
|Long-term debt                             |  |                                                                                       | 60     |   |      |   | 59     |        |  |   |       |   |  |   | 1    |  
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Total interest expense                     |  |                                                                                       | (1,546 | ) |      |   | (1,237 | )      |  |   | (407   | ) |  |   | 98   |  
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  
|Net interest income                        |  | $                                                                                     | 2,778  |   |      | $ | (1,119 | )      |  | $ | 4,683  |   |  | $ | (786 | )
|                                           |  |                                                                                       |        |   |      |   |        |        |  |   |        |   |  |   |      |  



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Third quarter analysis. Net interest income increased 5.3%, or $767,000, to $15.4 million for the
third quarter of 2004 from $14.6 million for the third quarter of 2003. Average earning assets increased to $1.276 billion for the third quarter of 2004 from $1.234 billion for the same period of 2003. Average loans and leases held for investment,
net of fees and costs, increased by 16.1%, or $141.6 million, to $1.022 billion for the third quarter of 2004 from $880.7 million for the same period of 2003. Average core deposits (all deposit categories other than time certificates of deposit)
increased 1.42%, or $13.6 million, to $970.0 million for the third quarter of 2004 from $956.4 million for the same period of 2003. This modest growth is net of the sale of approximately $37 million of core deposits in five branches in the fourth
quarter of 2003.



The net interest margin for the third quarter
of 2004 was 4.79% and represents an increase of 10 basis points from the net interest margin of 4.69% for the same period of 2003. The improvement in the margin is almost entirely the result of the growth in our loan portfolio.



Interest income increased 5.1%, or $861,000, to $17.8 million for the third
quarter of 2004 compared to $16.9 million for the third quarter of 2003. The yield on total interest-earning assets for the third quarter of 2004 was 5.55%, compared to 5.44% for the same period of 2003. This is a result of the increase in average
loans and leases held for investment for the third quarter of 2004 as compared to the third quarter of 2003. Average loans, including loans held for sale, as a percentage of average earning assets were 80.2% for the third quarter of 2004 and 71.5%
for the same period of 2003. The yield on average loans declined to 6.14% for the third quarter of 2004 from 6.46% for the same period of 2003, which reflects the overall decline in long-term commercial real estate rates. The yield on investment
securities increased by 51 basis points to 4.75% for the third quarter of 2004 from 4.24% for the same period of 2003, reflecting a larger percentage of total investments being held in higher yielding municipal securities. This was the result of the
sale of agency securities and the proceeds not being reinvested due to uncertainties in the Treasury market.



Interest expense on interest-bearing deposits increased by 2.3% in the third quarter of 2004 compared to the same quarter of 2003. Bank of Orange
Countys deposits re-priced to Placer Sierra Banks interest rate schedule after the merger on July 23, 2004, which caused an increase in the average rate paid on money market deposits. A substantial percentage of our funding sources are
non-interest bearing demand deposits which represented approximately 34.4% of average total deposits for the third quarter of 2004, an increase from 32.9% in the same period of 2003. Increasing the percentage of non-interest bearing demand deposits
to total deposits off-set by higher rates paid on money market deposits increased our overall cost of deposits to 0.62% for the third quarter of 2004 from 0.61% for the same period of 2003. As a percentage of average total deposits, time deposits
declined to 21.2% for the third quarter of 2004, down from 21.4% for the same period of 2003.



Interest expense on all interest-bearing liabilities was $2.4 million for the third quarters of 2004 and 2003, increasing by 4.0%, or $94,000. Total average interest-bearing liabilities decreased 0.9%, or $7.6
million, to $859.8 million for the third quarter of 2004 from $867.4 million for the same period of 2003. The cost of our interest-bearing liabilities increased to 1.13% for the third quarter of 2004 from 1.08% for the same period of 2003. This five
basis point increase was the result of the slightly higher cost of money market deposits and interest paid on junior subordinated deferrable interest debentures. Interest paid on junior subordinated deferrable interest debentures is tied to the
90-day LIBOR which re-prices quarterly and increased during the third quarter of 2004.



Nine month analysis. Net interest income increased 6.5%, or $2.8 million, to $45.7 million for the nine months ended September 30, 2004 from $42.9 million for the same period of 2003. Average earning assets
increased to $1.224 billion for the nine months ended September 30, 2004 from $1.203 billion for the same period of 2003. Average loans and leases held for investment, net of deferred fees and costs, increased by 14.4%, or $124.6 million to $991.3
million for the nine months ended September 30, 2004 from $866.7 million for the same period of 2003. Average core deposits (all deposit categories other than time certificates of deposit) increased 1.9%, or $17.8 million, to $929.2 million for the
nine months ended September 30, 2004 from $911.5 million for the same period of 2003. This modest growth is net of the sale of approximately $37 million of core deposits in five branches in the fourth quarter of 2003.



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The net interest margin for the nine months ended September 30, 2004 was 4.98% and represents an increase
of 21 basis points from the net interest margin of 4.77% for the same period of 2003. The improvement in the margin was principally the result of our loan growth in combination with our lower cost of funds primarily related to our lower rates on
time certificates of deposit.



Interest income increased 2.4%,
or $1.2 million, to $52.3 million for the nine months ended September 30, 2004 from $51.0 million for the same period of 2003. The yield on total interest-earning assets for the nine months ended September 30, 2004 increased to 5.70% from 5.67% for
the same period of 2003. The Company was successful in shifting the mix of interest-earning assets away from lower-yielding federal funds sold and into relatively higher-yielding loans and leases. This is reflected by a $54.3 million decrease in
average federal funds sold and a $124.6 million increase in average loans and leases held for investment for the nine months ended September 30, 2004 as compared to the same period of 2003. Average loans as a percentage of average earning assets
were 81.0% for the nine months ended September 30, 2004, and 72.4% for the same period of 2003. The yield on average loans declined to 6.17% for the nine months ended September 30, 2004 from 6.70% for the same period of 2003. The yield on investment
securities increased by 70 basis points to 4.82% for the nine months ended September 30, 2004 from 4.12% for the same period of 2003, reflecting a larger percentage of total investments being held in higher yielding municipal securities. This was
the result of the sale of agency securities and the proceeds not being reinvested due to uncertainties in the Treasury market.



A substantial percentage of our funding sources are non-interest bearing demand deposits which represented approximately 33.7% of average total deposits
for the nine months ended September 30, 2004, an increase from 31.9% in the same period of 2003. Increasing the percentage of non-interest bearing demand deposits to total deposits, coupled with the broad decline in the cost of interest-bearing
deposits, lowered our overall cost of deposits to 0.58% for the nine months ended September 30, 2004 from 0.76% for the same period of 2003. Interest expense on interest-bearing deposits decreased by 24.9%, or $1.7 million, to $5.1 million for the
nine months ended September 30, 2004 as compared to $6.7 million for the same period of 2003. As a percentage of average total deposits, time deposits declined to 20.8% for the nine months ended September 30, 2004, down from 23.1% for the same
period of 2003.



Interest expense on all interest-bearing
liabilities decreased by 19.0%, or $1.5 million, to $6.6 million for the nine months ended September 30, 2004 as compared to $8.1 million for the same period of 2003. Total average interest-bearing liabilities decreased 2.1%, or $18.5 million, to
$837.4 million for the nine months ended September 30, 2004 from $855.8 million for the same period of 2003. The cost of our average interest-bearing liabilities declined to 1.05% for the nine months ended September 30, 2004 from 1.27% for the same
period of 2003. This 22 basis point decline is the result of a declining interest rate environment as well as our ability to reduce the percentage of more expensive time deposits in our deposit portfolio.



Provision for Loan and Lease Losses



The provision for loan and lease losses in each period is a charge against
earnings in that period. The provision is that amount required to maintain the allowance for loan and lease losses at a level which, in managements judgment, is appropriate based on loan and lease losses inherent in the loan and lease
portfolio.



There was no provision for loan and lease losses
for the third quarter of 2004 as a result of a decrease in non-performing assets in the current year and an improvement in the level of performing but adversely classified loans and leases. In the third quarter of 2004, we experienced net loan and
lease charge-offs of $402,000 as compared to recoveries of $175,000 for the third quarter of 2003 when we recorded a credit to the allowance for loan and lease losses of $146,000. Non-performing loans and leases as a percentage of total loans and
leases held for investment improved to 0.21% at September 30, 2004 from 0.31% at December 31, 2003, while the ratio was 0.15% at September 30, 2003.



The provision for loan and lease losses for the nine months ended September 30, 2004 was $560,000 as compared to the same period of 2003 when we recorded
a credit to the allowance for loan and lease losses of



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##### Table of Contents

$216,000. For the nine months ended September 30, 2004, we experienced net loan and lease charge-offs of $1.1 million as compared to net loan and lease
recoveries of $896,000 for the same period of 2003.



There were
no other changes in loan and lease concentrations or terms during the periods indicated which significantly affected the provision or allowance for loan and lease losses.



Non-Interest Income



The following table summarizes non-interest income by category for the periods indicated (dollars in thousands):



|                                                   |  |                                 |       |                                |   |       |  |   |        |   |  |   |       
|-------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ----- |  | - | ------ | - |  | - | ------
|                                                   |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                                   |  | 2004                            |       | 2003                           |   | 2004  |  |   | 2003  
|Service charges and fees on deposit accounts       |  | $                               | 1,531 |                                | $ | 1,776 |  | $ | 4,710  |   |  | $ | 5,215 
|Referral and other loan-related fees               |  |                                 | 808   |                                |   | 653   |  |   | 2,132  |   |  |   | 1,441 
|Loan servicing income                              |  |                                 | 71    |                                |   | 98    |  |   | 242    |   |  |   | 301   
|Gain on sale of loans, net                         |  |                                 | 3     |                                |   | 118   |  |   | 179    |   |  |   | 563   
|Revenues from sales of investment products         |  |                                 | 125   |                                |   | 154   |  |   | 497    |   |  |   | 498   
|Gain (loss) on sale of investment securities, net  |  |                                 | 1     |                                |   | 433   |  |   | (3,335 | ) |  |   | 740   
|Increase in cash surrender value of life insurance |  |                                 | 291   |                                |   | 311   |  |   | 918    |   |  |   | 948   
|Other                                              |  |                                 | 334   |                                |   | 542   |  |   | 1,999  |   |  |   | 1,086 
|                                                   |  |                                 |       |                                |   |       |  |   |        |   |  |   |       
|Total non-interest income                          |  | $                               | 3,164 |                                | $ | 4,085 |  | $ | 7,342  |   |  | $ | 10,792
|                                                   |  |                                 |       |                                |   |       |  |   |        |   |  |   |       



Third quarter
analysis.Total non-interest income decreased to $3.2 million for the third quarter of 2004, compared to $4.1 million for the same period of 2003. Service charges on deposit accounts decreased by 13.8%, or $245,000, to $1.5 million for the third
quarter of 2004 as compared to $1.8 million for the same period of 2003 reflecting the sale of five branches in the fourth quarter of 2003. Additionally, service charges on commercial demand deposit accounts declined in the third quarter of 2004, as
a result of an increase in short-term interest rates that are the basis for credits against such service charges. Referral and other loan-related fees increased by 23.7%, or $155,000, as our loan referral program was more fully implemented. Gain on
sale of loans declined between periods reflecting our decision to retain 1-4 family home loans for our portfolio as compared to selling them as in prior periods. Gain on sale of investment securities decreased to $1,000 for the third quarter of 2004
from $433,000 for the same period of 2003. Non-interest income excluding gains on the sale of loans and investment securities, was $3.2 million in the third quarter of 2004, compared to $3.5 million in the same period of the prior year. Other income
decreased 38.4%, or $208,000, to $334,000 from the same period in 2003 largely due to a one-time recovery of legal fees in the third quarter of 2003.



Nine month analysis. Total non-interest income decreased to $7.3 million for the nine months ended September 30, 2004, compared to $10.8 million
for the same period of 2003 primarily due to the restructuring of Bank of Orange Countys investment securities portfolio. Excluding the $3.8 million loss from restructuring BOCs investment portfolio, non-interest income would have
increased to $11.2 million, an increase of 3.4%, or $364,000, from the same period of 2003. Service charges on deposit accounts decreased by 9.7%, or $505,000, to $4.7 million for the nine months ended September 30, 2004 as compared to $5.2 million
for the same period of 2003 primarily due to the sale of five branches in the fourth quarter of 2003. Referral and other loan-related fees increased by 48.0%, or $691,000, as our loan referral program was more fully implemented. Gain on sale of
loans declined between periods reflecting our decision to retain 1-4 family home loans for our portfolio as compared to selling them as in prior periods. Other income of $2.0 million increased 84.1%, or $913,000, compared to $1.1 million for the
same period in 2003. This was primarily due to the full recovery of a $586,000 operational charge-off and receipt of $397,000 in life insurance proceeds.



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Non-Interest Expense



The following table summarizes non-interest expense by category for the periods indicated (dollars in thousands):



|                                                                   |  |                                 |        |                                |   |        |  |      |        |  |   |       
|------------------------------------------------------------------ |  | ------------------------------- | ------ | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                                                   |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                                                   |  | 2004                            |        | 2003                           |   | 2004   |  | 2003
|Salaries and employee benefits                                     |  | $                               | 6,125  |                                | $ | 5,651  |  | $    | 18,789 |  | $ | 17,009
|Occupancy and equipment                                            |  |                                 | 1,747  |                                |   | 1,874  |  |      | 5,169  |  |   | 5,458 
|Data and item processing                                           |  |                                 | 1,129  |                                |   | 1,190  |  |      | 3,523  |  |   | 3,605 
|Amortization of core deposit intangible and favorable lease rights |  |                                 | 487    |                                |   | 532    |  |      | 1,461  |  |   | 1,596 
|Communication and postage                                          |  |                                 | 424    |                                |   | 482    |  |      | 1,269  |  |   | 1,428 
|Professional fees                                                  |  |                                 | 421    |                                |   | 470    |  |      | 1,612  |  |   | 1,678 
|Administration                                                     |  |                                 | 352    |                                |   | 499    |  |      | 1,288  |  |   | 1,535 
|Loan-related costs                                                 |  |                                 | 226    |                                |   | 210    |  |      | 393    |  |   | 785   
|Advertising and business development                               |  |                                 | 167    |                                |   | 228    |  |      | 657    |  |   | 632   
|Stationery and supplies                                            |  |                                 | 220    |                                |   | 201    |  |      | 642    |  |   | 624   
|Merger expenses                                                    |  |                                 | 177    |                                |   |       |  |      | 2,319  |  |   |      
|Other                                                              |  |                                 | 773    |                                |   | 618    |  |      | 1,939  |  |   | 1,695 
|                                                                   |  |                                 |        |                                |   |        |  |      |        |  |   |       
|Total non-interest expense                                         |  | $                               | 12,248 |                                | $ | 11,955 |  | $    | 39,061 |  | $ | 36,045
|                                                                   |  |                                 |        |                                |   |        |  |      |        |  |   |       



Third quarter
analysis. Non-interest expense totaled $12.2 million for the third quarter of 2004, compared to $12.0 million for the same period of 2003. The increase of $293,000 in the third quarter of 2004 is due partially to merger related expenses of
$177,000 associated with the acquisition of Southland Capital Co. and its subsidiary Bank of Orange County. Excluding merger costs, non-interest expense was $12.1 million, an increase of 1.0%, or $116,000, from the third quarter of 2003.



Salaries and employee benefits expense increased by 8.4%, or $474,000, to
$6.1 million for the quarter ended September 30, 2004 as compared to $5.7 million for the same period of 2003 due to an increase in personnel associated with the Companys increased size, complexity, revenue growth goals and an increase in the
cost of employee benefits and insurance. Occupancy and equipment, data and item processing, administration, and advertising and business development expenses all decreased from the third quarter of 2003 from the consolidation of various functions
across the Company as a result of the merger on July 23, 2004, of the Bank of Orange County with and into the bank. The above reductions were partially offset by current quarter merger expenses and other non-interest expenses.



Other non-interest expense increased 25.1%, or $155,000, from the same period
of 2003 due to a $120,000 loss from a check kiting fraud and the $149,000 write-down of the Companys only OREO property.



Nine month analysis.Non-interest expense totaled $39.1 million for the nine months ended September 30, 2004, compared to $36.0 million for
the same period of 2003. The increase in 2004 is due primarily to merger related expenses of $2.3 million associated with the acquisition of Southland Capital Co. and its subsidiary Bank of Orange County. Excluding merger costs, non-interest expense
increased to $36.7 million, an increase of 1.9%, or $697,000, from the same period of 2003.



Salaries and employee benefits expense increased by 10.5%, or $1.8 million, to $18.8 million for the nine months ended September 30, 2004 as compared to $17.0 million for the same period of 2003 due to an increase in
personnel associated with the Companys increased size, complexity, revenue growth goals and an increase in the cost of employee benefits and insurance. Loan-related costs were significantly lower in the nine months ended September 30, 2004
than the same period of 2003 due to a reduction of our allowance for losses related to undisbursed loans and leases.



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Other non-interest expense increased by 14.5%, or $246,000, in the nine months ended September 30, 2004,
as compared to the same period of 2003. In the first quarter of 2004, a $450,000 contingency reserve was recorded in connection with estimated environmental remediation costs associated with an unimproved piece of property acquired in the 1999
purchase of Placer Sierra Bank. In the second quarter of 2004, $205,000 of this reserve was reversed due to revised remediation cost estimates.



Provision for Income Taxes



Our statutory income tax rate is approximately 41.4%, representing a blend of the statutory Federal income tax rate of 34.3% and the California income tax
rate of 10.8%. Due to the nontaxable nature of income from municipal securities and bank owned life insurance, our actual effective income tax rate was 38.0% and 39.0% for the three months ended September 30, 2004 and 2003, and 36.3% and 38.8% for
the nine months ended September 30, 2004 and 2003, respectively.



Financial
Condition



Our total assets at September 30, 2004 were
$1.498 billion compared to $1.397 billion at December 31, 2003. Our earning assets at September 30, 2004 totaled $1.304 billion compared to $1.212 billion at December 31, 2003. Total deposits at September 30, 2004 and December 31, 2003 were $1.249
billion and $1.137 billion, respectively.



Loans and
Leases



The following table presents the balance of
each major category of loans and leases at the end of each of the periods indicated (dollars in thousands):



|                                                 |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  
|------------------------------------------------ |  | ------------------ | --------- | - | ----------------- | ----- | - | ------ | - | ------- | --------- |  | ----- | -
|                                                 |  | September 30, 2004 |           |   | December 31, 2003 |      
|                                                 |  | Amount             |           |   | % ofLoans         |       |   | Amount |   |         | % ofLoans | 
|Loans and leases held for investment:            |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  
|Real estate - mortgage                           |  | $                  | 735,971   |   |                   | 69.9  | % |        | $ | 665,738 |           |  | 69.8  | %
|Real estate - construction                       |  |                    | 153,552   |   |                   | 14.6  | % |        |   | 116,052 |           |  | 12.2  | %
|Commercial                                       |  |                    | 127,342   |   |                   | 12.1  | % |        |   | 132,979 |           |  | 13.9  | %
|Consumer                                         |  |                    | 10,688    |   |                   | 1.0   | % |        |   | 11,086  |           |  | 1.2   | %
|Leases receivable and other                      |  |                    | 24,914    |   |                   | 2.4   | % |        |   | 27,571  |           |  | 2.9   | %
|                                                 |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  
|Total gross loans and leases held for investment |  |                    | 1,052,467 |   |                   | 100.0 | % |        |   | 953,426 |           |  | 100.0 | %
|                                                 |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  
|Less: allowance for loan and lease losses        |  |                    | (12,762   | ) |                   |       |   |        |   | (13,343 | )         |  |       |  
|Deferred loan and lease fees, net                |  |                    | (1,468    | ) |                   |       |   |        |   | (628    | )         |  |       |  
|                                                 |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  
|Total net loans and leases held for investment   |  | $                  | 1,038,237 |   |                   |       |   |        | $ | 939,455 |           |  |       |  
|                                                 |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  
|Loans held for sale, at lower of cost or market  |  | $                  |          |   |                   |       |   |        | $ | 67      |           |  |       |  
|                                                 |  |                    |           |   |                   |       |   |        |   |         |           |  |       |  



Net loans and leases
held for investment increased by $98.8 million to $1.038 billion at September 30, 2004 from $939.5 million at year-end 2003. The increase resulted primarily from a $70.2 million and $37.5 million increase in mortgages and construction loans,
respectively, off-set by other minor decreases in other loan and lease categories. The growth in our lending portfolio between December 31, 2003 and September 30, 2004 occurred during a period of low interest rates where demand for credit was
greatest in long-term fixed rate products, primarily single family and commercial real estate mortgage loans.



Our loan portfolio is heavily real estate weighted. Management believes that undue risk does not reside within this concentration as our credit policies
and procedures provide adequate controls for managing risk within this concentration. The category of real estate-mortgage at September 30, 2004 was comprised of 71.6% of commercial real estate mortgages and 28.4% of loans secured by 1-4 family
mortgages.



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Our commercial real estate mortgage underwriting criteria include requirements of cash flow coverage
ratios of greater than 120% and cash flow coverage ratios on variable rate loans that are tested with an upward shock of 200 basis points. Our commercial real estate mortgage portfolio has a high concentration of owner occupied loans and a weighted
average portfolio loan to value at origination of less than 70%.



The credit characteristic of our 1-4 family loan portfolio is representative of our relationship-based approach to lending in this category. Our 1-4 family portfolio is almost evenly split as between 1-4 family first trust deeds and home
equity lines of credit. Our portfolio of 1-4 family mortgage first trust deed loans and home equity lines of credit have a weighted average loan to value at origination of less than 70%. Our first trust deed loans are generally fixed rate, and our
home equity lines of credit are all variable rate that adjust with prime.



Our construction loan portfolio is also principally relationship-based, with the portfolio principally consisting of loans to owner occupants. Developer loans generally require the borrower to own the underlying land,
with construction financing generally established as funding a specific number of units ahead of sales.



Non-Performing Assets



Generally, loans and leases are placed on non-accrual status when they become 90 days or more past due or at such earlier time as management determines
timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan or lease when management believes, after considering economic and business conditions and collection efforts that the borrowers financial condition is
such that collection of interest is doubtful. The following table summarizes the loans and leases for which the accrual of interest has been discontinued and loans and leases more than 90 days past due and still accruing interest, including those
loans and leases that have been restructured, and other real estate owned, which we refer to as OREO (dollars in thousands):



|                                                   |  |                   |       |   |                  |   |       |  
|-------------------------------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | -
|                                                   |  | September 30,2003 |       |   | December 31,2003 |  
|Non-accrual loans and leases, not restructured     |  | $                 | 2,199 |   |                  | $ | 2,981 |  
|Accruing loans and leases past due 90 days or more |  |                   |      |   |                  |   |      |  
|Restructured loans and leases                      |  |                   |      |   |                  |   |      |  
|                                                   |  |                   |       |   |                  |   |       |  
|Total non-performing loans (NPLs)                  |  |                   | 2,199 |   |                  |   | 2,981 |  
|OREO                                               |  |                   | 657   |   |                  |   | 805   |  
|                                                   |  |                   |       |   |                  |   |       |  
|Total non-performing assets (NPAs)                 |  | $                 | 2,856 |   |                  | $ | 3,786 |  
|                                                   |  |                   |       |   |                  |   |       |  
|Selected ratios:                                   |  |                   |       |   |                  |   |       |  
|NPLs to total loans and leases held for investment |  |                   | 0.21  | % |                  |   | 0.31  | %
|NPAs to total assets                               |  |                   | 0.19  | % |                  |   | 0.27  | %



Non-performing loans
to total loans and leases decreased to 0.21% as of September 30, 2004, compared to 0.31% as of the prior year end.



Allowance for Loan and Lease Losses



The allowance for loan and lease losses is maintained at a level which, in managements judgment, is based on loan and lease losses inherent in the
loan and lease portfolio. The amount of the allowance is based on managements evaluation of the collectibility of the loan and lease portfolio, historical loss experience, and other significant factors affecting loan and lease portfolio
collectibility. These other significant factors include the level and trends in delinquent, non-accrual and adversely classified loans and leases, trends in volume and terms of



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loans and leases, levels and trends in credit concentrations, effects of changes in underwriting standards, policies, procedures and practices, national and
local economic trends and conditions, changes in capabilities and experience of lending management and staff and other external factors including industry conditions, competition and regulatory requirements.



Our methodology for evaluating the adequacy of the allowance for loan and
lease losses has two basic elements: first the identification of impaired loans and leases and the measurement of impairment for each individual loan identified; and second, a method for estimating an allowance for all other loans and leases.



A loan or lease is considered impaired when it is probable
that we will be unable to collect all contractual principal and interest payments due in accordance with terms of the loan or lease agreement. Losses on individually identified impaired loans or leases that are not collateral dependent are measured
based on the present value of expected future cash flows discounted at the original effective interest rate of each loan or lease. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less
estimated selling costs.



In estimating the general allowance
for loan and lease losses, we group the balance of the loan and lease portfolio into segments that have common characteristics, such as loan or lease type, collateral type or risk rating. Loans typically segregated by risk rating are those that have
been assigned risk ratings using regulatory definitions of special mention, substandard, and doubtful. Loans graded loss are generally charged off immediately.



For each general allowance portfolio segment, we apply loss factors to
calculate the required allowance. These loss factors are based upon three years of historical loss rates, adjusted for qualitative factors affecting loan and lease portfolio collectibility as described above. Qualitative adjustment factors are
expressed in basis points and adjust historical loss factors downward up to 40 basis points and upward up to 75 basis points.



The specific allowance for impaired loans and leases and the general allowance are combined to determine the required allowance for loan and lease losses.
The amount calculated is compared to the actual allowance for loan and lease losses at each quarter end and any shortfall is covered by an additional provision for loan and lease losses. As a practical matter, our allowance methodology may show that
an unallocated allowance exists at quarter end. Any such amounts exceeding a minor percentage of the allowance will be removed from the allowance for loan and lease losses by a reduction of the allowance for loan and lease losses as of quarter end.



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The following table presents the changes in our allowance for loan and lease losses for the periods indicated (dollars in
thousands):



|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | - | ------------------------------ | - | ------- | ---- |  | - | --------- | - |  | - | ------- | --
|                                                                                                                  |  | Three Months EndedSeptember 30, |           |   | Nine Months EndedSeptember 30, |  
|                                                                                                                  |  | 2004                            |           |   | 2003                           |   |         | 2004 |  |   | 2003      |  
|Allowance for loan and lease losses:                                                                              |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Balance at beginning of period                                                                                    |  | $                               | 13,164    |   |                                | $ | 13,101  |      |  | $ | 13,343    |   |  | $ | 12,450  |   
|Charge-offs:                                                                                                      |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Real estate - mortgage                                                                                            |  |                                 | 143       |   |                                |   |        |      |  |   | 143       |   |  |   |        |   
|Real estate - construction                                                                                        |  |                                 |          |   |                                |   |        |      |  |   |          |   |  |   |        |   
|Commercial                                                                                                        |  |                                 | 340       |   |                                |   | 122     |      |  |   | 1,732     |   |  |   | 232     |   
|Consumer                                                                                                          |  |                                 | 42        |   |                                |   | 9       |      |  |   | 69        |   |  |   | 57      |   
|Leases receivable and other                                                                                       |  |                                 |          |   |                                |   |        |      |  |   |          |   |  |   | 497     |   
|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Total                                                                                                             |  |                                 | 525       |   |                                |   | 131     |      |  |   | 1,944     |   |  |   | 786     |   
|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Recoveries:                                                                                                       |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Real estate - mortgage                                                                                            |  |                                 | 1         |   |                                |   | 175     |      |  |   | 92        |   |  |   | 297     |   
|Real estate - construction                                                                                        |  |                                 |          |   |                                |   |        |      |  |   |          |   |  |   |        |   
|Commercial                                                                                                        |  |                                 | 114       |   |                                |   | 119     |      |  |   | 411       |   |  |   | 1,349   |   
|Consumer                                                                                                          |  |                                 | 7         |   |                                |   | 6       |      |  |   | 83        |   |  |   | 30      |   
|Leases receivable and other                                                                                       |  |                                 | 1         |   |                                |   | 6       |      |  |   | 217       |   |  |   | 6       |   
|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Total                                                                                                             |  |                                 | 123       |   |                                |   | 306     |      |  |   | 803       |   |  |   | 1,682   |   
|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Net loan and lease charge-offs (recoveries)                                                                       |  |                                 | 402       |   |                                |   | (175    | )    |  |   | 1,141     |   |  |   | (896    | ) 
|Provision for (credit to) the allowance for loan and lease losses                                                 |  |                                 |          |   |                                |   | (146    | )    |  |   | 560       |   |  |   | (216    | ) 
|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Balance at end of period                                                                                          |  | $                               | 12,762    |   |                                | $ | 13,130  |      |  | $ | 12,762    |   |  | $ | 13,130  |   
|                                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Loans and leases held for investment                                                                              |  | $                               | 1,050,999 |   |                                | $ | 901,061 |      |  | $ | 1,050,999 |   |  | $ | 901,061 |   
|Average loans and leases held for investment                                                                      |  |                                 | 1,022,290 |   |                                |   | 880,733 |      |  |   | 991,294   |   |  |   | 866,690 |   
|Non-performing loans and leases                                                                                   |  |                                 | 2,199     |   |                                |   | 1,392   |      |  |   | 2,199     |   |  |   | 1,392   |   
|Selected ratios:                                                                                                  |  |                                 |           |   |                                |   |         |      |  |   |           |   |  |   |         |   
|Net charge-offs (recoveries) to average loans and leases held for investment                                      |  |                                 | 0.16      | % |                                |   | (0.08   | )%   |  |   | 0.15      | % |  |   | (0.14   | )%
|Provision for (credit to) the allowance for loan and lease losses to average loans and leases held for investment |  |                                 |          |   |                                |   | (0.07   | )%   |  |   | 0.08      | % |  |   | (0.03   | )%
|Allowance for loan and lease losses to loans and leases held for investment at end of period                      |  |                                 | 1.21      | % |                                |   | 1.46    | %    |  |   | 1.21      | % |  |   | 1.46    | % 
|Allowance for loan and lease losses to non-performing loans and leases at end of period                           |  |                                 | 580.35    | % |                                |   | 943.25  | %    |  |   | 580.35    | % |  |   | 943.25  | % 



Investments



The carrying value of our investment securities
available for sale at September 30, 2004 totaled $72.0 million, a decline of $147.2 million, or 67.2%, from year-end 2003. The decline principally related to the sale during the second quarter of 2004 of approximately $72.0 million of investment
securities held by Bank of Orange County which was executed in conjunction with the merger of Bank of Orange County with and into Placer Sierra Bank for the purpose of aligning the liquidity and interest rate risk profiles of the combined banks. The
decline also reflects $7.0 million of U.S. treasury securities that matured during the third quarter and $50.0 million of agency securities that were called on September 30, 2004. Security sales during the nine months ended September 30, 2004 were
executed for the purpose of shortening the duration of the investment portfolio in preparation for a rising interest rate environment and to support anticipated loan growth for the balance of 2004. Proceeds from the securities sales were not
reinvested during the third quarter of 2004 due to uncertainties in the



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Treasury markets. Our portfolio of investment securities consists primarily of U.S. Government agency securities and obligations of states and political
subdivisions.



We manage our investment portfolio principally
to provide liquidity and balance our overall interest rate risk. To a lesser extent, we manage our investment portfolio to provide earnings with a view to minimizing credit risk.



The carrying value of our portfolio of investment securities at September 30, 2004 and December 31, 2003 was as follows:



|                                                 |  |                        |        |                  |   |        
|------------------------------------------------ |  | ---------------------- | ------ | ---------------- | - | -------
|                                                 |  | Estimated Market Value
|                                                 |  | September 30,2004      |        | December 31,2003
|U.S. Treasury securities                         |  | $                      | 1,996  |                  | $ | 1,998  
|U.S. Government agencies                         |  |                        | 52,991 |                  |   | 199,615
|Obligations of states and political subdivisions |  |                        | 11,737 |                  |   | 12,278 
|Other securities                                 |  |                        | 5,282  |                  |   | 5,411  
|                                                 |  |                        |        |                  |   |        
|Total available-for-sale                         |  | $                      | 72,006 |                  | $ | 219,302
|                                                 |  |                        |        |                  |   |        



Deposits



The following table presents the balance of each
major category of deposits at the dates indicated (dollars in thousands):



|                                |  |                       |           |              |                      |   |        |   |              |  |       |  
|------------------------------- |  | --------------------- | --------- | ------------ | -------------------- | - | ------ | - | ------------ |  | ----- | -
|                                |  | At September 30, 2004 |           |              | At December 31, 2003 |  
|                                |  | Amount                |           | % ofDeposits |                      |   | Amount |   | % ofDeposits | 
|Non-interest bearing deposits   |  | $                     | 424,465   |              | 34.0                 | % |        | $ | 378,611      |  | 33.3  | %
|Interest-bearing deposits:      |  |                       |           |              |                      |   |        |   |              |  |       |  
|Interest-bearing demand         |  |                       | 191,129   |              | 15.3                 | % |        |   | 192,426      |  | 16.9  | %
|Money market                    |  |                       | 229,738   |              | 18.3                 | % |        |   | 212,632      |  | 18.7  | %
|Savings                         |  |                       | 135,974   |              | 11.0                 | % |        |   | 129,545      |  | 11.4  | %
|Time, under $100                |  |                       | 155,403   |              | 12.4                 | % |        |   | 140,796      |  | 12.4  | %
|Time, $100 or more              |  |                       | 112,245   |              | 9.0                  | % |        |   | 83,150       |  | 7.3   | %
|                                |  |                       |           |              |                      |   |        |   |              |  |       |  
|Total-interest bearing deposits |  |                       | 824,489   |              | 66.0                 | % |        |   | 758,549      |  | 66.7  | %
|                                |  |                       |           |              |                      |   |        |   |              |  |       |  
|Total deposits                  |  | $                     | 1,248,954 |              | 100.0                | % |        | $ | 1,137,160    |  | 100.0 | %
|                                |  |                       |           |              |                      |   |        |   |              |  |       |  



Non-interest bearing
deposits increased 12.1%, or $45.9 million, to $424.5 million and total deposits increased 9.8%, or $111.8 million, to $1.249 billion as of September 30, 2004 from year-end 2003. The increase in all deposits other than time deposits is the result of
our highly disciplined and results-focused sales culture combined with the robust growth being experienced in our market areas. The increase in time deposits is attributed to a CD campaign during the first quarter of 2004 initiated by management to
capture lower rate and longer term funding sources in anticipation of a rising interest rate environment and the desire to replace short-term borrowings with time deposits.



Short-Term Borrowings



The Company enters into sales of securities under agreements to repurchase which generally have a duration of one day.
Borrowings of this nature increased noticeably in the fourth quarter of 2003. Management elected to repay most of these borrowings during the first quarter of 2004 and by September 30, 2004, short-term borrowings had decreased by $28.0 million to
$13.2 million. The borrowings were repaid by the increase in time certificates of deposit.



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##### Table of Contents

Shareholders Equity



Our total shareholders equity at September 30, 2004 was $185.1 million compared to $164.9 million at December 31,
2003. This increase year-to-date through September 30, 2004 of $20.2 million is primarily the result of net income of $8.5 million, and increases to common stock related to proceeds from stock option exercises of $4.7 million and initial public
offering proceeds, net of issuance costs, of $7.3 million.



Capital
Resources



Current risk-based regulatory capital standards
generally require banks and bank holding companies to maintain a ratio of core or Tier 1 capital (consisting principally of common equity and, for bank holding companies, a specified percentage of trust preferred securities)
to risk-weighted assets of at least 4%, a ratio of Tier 1 capital to adjusted average assets (leverage ratio) of at least 4% and a ratio of total capital (which includes Tier 1 capital plus certain forms of subordinated debt, a portion of the
allowance for loan and lease losses and preferred stock) to risk-weighted assets of at least 8%. Risk-weighted assets are calculated by multiplying the balance in each category of assets by a risk factor, which ranges from zero for cash assets and
certain government obligations to 100% for some types of loans, and adding the products together.



The regulatory capital guidelines as well as the actual capital ratios for Placer Sierra Bank and the Company as of September 30, 2004 are as follows:



|                                                       |  |      |  
|------------------------------------------------------ |  | ---- | -
|Leverage Ratio                                         |  |      |  
|Placer Sierra Bancshares and Subsidiaries              |  | 10.2 | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Placer Sierra Bank                                     |  | 9.0  | %
|Minimum requirement for Well-Capitalized institution |  | 5.0  | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Tier 1 Risk-Based Capital Ratio                        |  |      |  
|Placer Sierra Bancshares and Subsidiaries              |  | 13.2 | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Placer Sierra Bank                                     |  | 11.4 | %
|Minimum requirement for Well-Capitalized institution |  | 6.0  | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Total Risk-Based Capital Ratio                         |  |      |  
|Placer Sierra Bancshares and Subsidiaries              |  | 14.4 | %
|Minimum regulatory requirement                         |  | 8.0  | %
|                                                       | 
|Placer Sierra Bank                                     |  | 12.6 | %
|Minimum requirement for Well-Capitalized institution |  | 10.0 | %
|Minimum regulatory requirement                         |  | 8.0  | %



Asset/Liability Management,
Liquidity and Interest Rate Sensitivity



On a stand-alone
basis, the Companys sources of liquidity include dividends from the bank and outside borrowings. The amount of dividends that the bank can pay to the Company is restricted by regulatory guidelines.



The primary function of asset/liability management is to ensure adequate
liquidity and maintain an appropriate balance between interest sensitive earning assets and interest-bearing liabilities at the bank. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either
depositors



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##### Table of Contents

wanting to withdraw funds or borrowers who may need assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity
management seeks to avoid fluctuating interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.



The Companys liquidity strategy of maintaining higher fed funds balances was put in place to facilitate the acquisition of First Financial Bancorp.
Throughout the third quarter, the Company maintained $50 million of liquidity to fund its all cash purchase of First Financial Bancorp, which is scheduled to close in the fourth quarter of 2004. In addition, significant liquidity was added as a
result of the liquidation of $72 million of long-term securities held by Bank of Orange County, which was not reinvested during the third quarter due to the uncertain direction of the Treasury market.



Historically, the overall liquidity source of the bank is its core deposit
base and the bank has not relied on large denomination time deposits. To meet short term liquidity needs, the Company has maintained at the bank what it believes are adequate balances in cash, federal funds sold, and investment securities available
for sale. Liquid assets (cash, Federal funds sold, interest bearing deposits in other financial institutions and unpledged investment securities available-for-sale) as a percent of total deposits were 22.4% and 20.5% as of September 30, 2004 and
December 31, 2003, respectively.



Market risk sensitive
instruments are generally defined as derivatives and other financial instruments. At September 30, 2004 and December 31, 2003, we had not used any derivatives to alter our interest rate risk profile. The Companys financial instruments include
loans receivable, Federal funds sold, Federal Reserve Bank and Federal Home Loan Bank stock, investment securities, bank-owned life insurance, deposits, short term borrowings, and junior subordinated deferrable interest debentures. At September 30,
2004, our interest-sensitive assets totaled approximately $1.304 billion while interest-sensitive liabilities totaled approximately $875.9 million. At December 31, 2003, we had approximately $1.212 billion in interest-sensitive assets and
approximately $837.9 million in interest-sensitive liabilities.



The yield on interest-sensitive assets and the cost of interest-sensitive liabilities for the nine months ended September 30, 2004 was 5.70% and 1.05%, respectively, compared to 5.67% and 1.27%, respectively, for the nine months ended
September 30, 2003. The increase in the yield on interest-sensitive assets along with the decrease in the cost of interest-sensitive liabilities during 2003 and the first nine months of 2004 is primarily a result of the declining interest rate
environment coupled with a shift in the composition of interest bearing deposits from higher-cost certificates of deposit to lower-cost products, such as money market accounts. In addition, certificates of deposit continued to mature and re-price
downward.



Our interest-sensitive assets and interest-sensitive
liabilities were reported to have estimated fair values of $1.306 billion and $832.6 million, respectively, at September 30, 2004. At December 31, 2003, those amounts were $1.210 billion and $803.3 million, respectively.



We evaluated the results of our net interest income simulation and market
value of equity model prepared as of September 30, 2004 for interest rate risk management purposes. Overall, the model results indicate that the Companys interest rate risk sensitivity is within limits set by the Companys Board of
Directors and the Companys balance sheet is slightly asset sensitive. An asset sensitive balance sheet suggests that in a rising interest rate environment, our net interest margin would increase and during a falling interest rate environment,
our net interest margin would decrease.



Net Interest
Income Simulation



We use a simulation model to
measure the changes in net interest income that would result from immediate and sustained changes in interest rates. This model is an interest rate risk management tool and the results are not necessarily an indication of the Companys future
net interest income. The results are based on input of period end balance sheet amounts and a given set of rate changes and assumptions. Significant variances from our assumptions may have significant effects on our net interest income.



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As of September 30, 2004, the following table presents forecasted net interest income and net interest
margin using a base market rate and the estimated change to the base scenario given an immediate and sustained upward and downward movement in interest rates of 100 basis points and 200 basis points (dollars in thousands).



|                       |  |                            |        |                           |       |    |                           |      |   |                                           |     |  
|---------------------- |  | -------------------------- | ------ | ------------------------- | ----- | -- | ------------------------- | ---- | - | ----------------------------------------- | --- | -
|Interest Rate Scenario |  | Adjusted NetInterestIncome |        | PercentageChange fromBase |       |    | Net InterestMarginPercent |      |   | Net InterestMarginChange (inbasis points) |    
|Up 200 basis points    |  | $                          | 64,042 |                           | 8.09  | %  |                           | 4.91 | % |                                           | 37  |  
|Up 100 basis points    |  | $                          | 61,666 |                           | 4.08  | %  |                           | 4.73 | % |                                           | 19  |  
|BASE CASE              |  | $                          | 59,247 |                           |      |    |                           | 4.54 | % |                                           |    |  
|Down 100 basis points  |  | $                          | 56,109 |                           | (5.30 | )% |                           | 4.30 | % |                                           | (24 | )
|Down 200 basis points  |  | $                          | 54,098 |                           | (8.69 | )% |                           | 4.15 | % |                                           | (39 | )



Our simulation results
as of September 30, 2004 indicate our interest rate risk position was asset sensitive as the simulated impact of an immediate upward movement in interest rates of 200 basis points would result in a 8.09% increase in net interest income over the
subsequent 12 month period while an immediate downward movement in interest rates of 200 basis points would result in an 8.69% decrease in net interest income over the next 12 months. The simulation results indicate that a 100 basis point upward
shift in interest rates would result in a 19 basis point increase in our net interest margin, assuming all other variables remained unchanged. Conversely, a 100 basis point decline in interest rates would cause a 24 basis point decrease in our net
interest margin.



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Gap Analysis



As part of the interest rate management process, we use a gap analysis. A gap analysis provides information about the volume
and re-pricing characteristics and relationship between the amounts of interest-sensitive assets and interest-sensitive liabilities at a particular point in time. An effective interest rate strategy attempts to match the volume of interest-sensitive
assets and interest-sensitive liabilities re-pricing over different time intervals. The main focus of this interest rate management tool is the gap sensitivity identified as the one year cumulative gap.



|                                               |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|---------------------------------------------- |  | ------------------------------------------------------- | -------- | -- | ------------------------ | - | -------- | --------------------- |  | - | ----------- | -- |  | ------------- | --------- | - | ----- | - | -------- | - |  | - | ---------
|                                               |  | At September 30, 2004 Amounts Maturing or Re-pricing in
|                                               |  | 3 months or Less                                        |          |    | Over 3Months to12 Months |   |          | Over 1Year to 5 Years |  |   | Over 5Years |    |  | Non-Sensitive |           |   | Total
|ASSETS                                         |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|Cash and due from banks                        |  | $                                                       |         |    |                          | $ |         |                       |  | $ |            |    |  | $             |          |   |       | $ | 68,711   |   |  | $ | 68,711   
|Federal funds sold                             |  |                                                         | 171,243  |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   |         |   |  |   | 171,243  
|Investment securities                          |  |                                                         | 16,741   |    |                          |   | 272      |                       |  |   | 25,598      |    |  |               | 38,738    |   |       |   |         |   |  |   | 81,349   
|Loans, net of deferred fees and costs          |  |                                                         | 384,594  |    |                          |   | 54,261   |                       |  |   | 170,586     |    |  |               | 441,558   |   |       |   |         |   |  |   | 1,050,999
|Other assets                                   |  |                                                         |         |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   | 125,961  |   |  |   | 125,961  
|                                               |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|Total assets                                   |  | $                                                       | 572,578  |    |                          | $ | 54,533   |                       |  | $ | 196,184     |    |  | $             | 480,296   |   |       | $ | 194,672  |   |  | $ | 1,498,263
|                                               |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|Non-interest bearing deposits                  |  | $                                                       |         |    |                          | $ |         |                       |  | $ |            |    |  | $             |          |   |       | $ | 424,465  |   |  | $ | 424,465  
|Savings, money market, NOW accounts            |  |                                                         | 556,841  |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   |         |   |  |   | 556,841  
|Time deposits                                  |  |                                                         | 95,914   |    |                          |   | 124,399  |                       |  |   | 47,320      |    |  |               | 15        |   |       |   |         |   |  |   | 267,648  
|Short term debt                                |  |                                                         | 13,248   |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   |         |   |  |   | 13,248   
|Long term debt                                 |  |                                                         | 38,146   |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   |         |   |  |   | 38,146   
|Other liabilities                              |  |                                                         |         |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   | 12,809   |   |  |   | 12,809   
|Shareholders equity                           |  |                                                         |         |    |                          |   |         |                       |  |   |            |    |  |               |          |   |       |   | 185,106  |   |  |   | 185,106  
|                                               |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|Total liabilities and shareholders equity     |  | $                                                       | 704,149  |    |                          | $ | 124,399  |                       |  | $ | 47,320      |    |  | $             | 15        |   |       | $ | 622,380  |   |  | $ | 1,498,263
|                                               |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|Period gap                                     |  | $                                                       | (131,571 | )  |                          | $ | (69,866  | )                     |  | $ | 148,864     |    |  | $             | 480,281   |   |       | $ | (427,708 | ) |  |   |          
|Cumulative interest rate-sensitive assets      |  | $                                                       | 572,578  |    |                          | $ | 627,111  |                       |  | $ | 823,295     |    |  | $             | 1,303,591 |   |       |   |          |   |  |   |          
|Cumulative interest rate-sensitive liabilities |  | $                                                       | 704,149  |    |                          | $ | 828,548  |                       |  | $ | 875,868     |    |  | $             | 875,883   |   |       |   |          |   |  |   |          
|Cumulative gap                                 |  | $                                                       | (131,571 | )  |                          | $ | (201,437 | )                     |  | $ | (52,573     | )  |  | $             | 427,708   |   |       |   |          |   |  |   |          
|Cumulative gap as a percent of:                |  |                                                         |          |    |                          |   |          |                       |  |   |             |    |  |               |           |   |       |   |          |   |  |   |          
|Total assets                                   |  |                                                         | (8.8     | )% |                          |   | (13.4    | )%                    |  |   | (3.5        | )% |  |               | 28.5      | % |       |   |          |   |  |   |          
|Interest earning assets                        |  |                                                         | (10.1    | )% |                          |   | (15.5    | )%                    |  |   | (4.0        | )% |  |               | 32.8      | % |       |   |          |   |  |   |          



The preceding table
indicates that as of September 30, 2004, we had a negative one year cumulative gap of $201.4 million, or 13.4% of total assets. This one year gap of a negative $201.4 million means more liabilities than assets would re-price if there were a change
in interest rates over the next year. This gap position suggests that if interest rates were to increase, our net interest margin would most likely decrease. However, because in total there are more rate sensitive assets than liabilities and deposit
liabilities tend to re-price more slowly and because asset and liability rates do not adjust on a one-to-one relationship, more sophisticated modeling indicates that our net interest margin would increase if interest rates were to rise.



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|ITEM 3. | Quantitative and Qualitative Disclosure about Market Risk
|------- | ---------------------------------------------------------



Please see the section above titled Asset/Liability Management, Liquidity and Interest Rate Sensitivity in Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations which provides an update to our quantitative and qualitative disclosure about market risk. This analysis should be read in conjunction with text under the caption
Quantitative and Qualitative Disclosure About Market Risk in our Registration Statement on Form S-1 dated August 10, 2004. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is
subject to the disclosure at the beginning of Item 2 of this report regarding such forward-looking information.



|ITEM 4. | Controls and Procedures
|------- | -----------------------



As of November 2, 2004, an evaluation was carried out by the Companys management, with the participation of the Chief Executive Officer and the
Chief Financial Officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.



There have been no changes in the Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act
of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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##### Table of Contents

PART IIOTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------



In the ordinary course of our business, we are party to various other legal actions, which we believe are incidental to the operation of our business. Although the ultimate outcome and amount of liability, if any, with respect to these
legal actions to which we are currently a party cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect
on the Companys consolidated financial position, results of operations or cash flows. This statement represents a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from
managements opinion based on a variety of factors, including the uncertainties involved in the proof of legal and factual matters in legal proceedings.



The discussion at footnote 4 to the unaudited consolidated financial statements appearing in Part I of this report regarding developments in the Reed
Slatkin Investment Club litigation are hereby incorporated by reference into this Item.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



(b) On August 10, 2004, the registration statement on Form S-1, registration file number 333-112778, relating to the initial public offering of 5,730,000
shares of common stock, was declared effective. The offering commenced on August 11, 2004. The offering with respect to those 5,730,000 shares was terminated on August 16, 2004, with the underwriters purchasing 5,230,000 shares from a selling
shareholder and 500,000 shares from us. The underwriters exercised a portion of their over-allotment option on September 8, 2004 and purchased 68,194 shares of common stock from us and 713,306 shares of common stock from a selling shareholder on
September 13, 2004. The underwriters over-allotment option was terminated as of September 13, 2004. The underwriters were Friedman Billings Ramsey; Keefe, Bruyette & Woods; and RBC Capital Markets.



A total of 6,589,500 shares of common stock were registered, including
859,500 shares reserved for issuance in the event of exercise of the underwriters over-allotment option. The aggregate price of the registered shares at the $20.00 offering price was $131,790,000. A total of 6,511,500 shares of common stock
were sold, at an aggregate offering price of $130,230,000. The expenses incurred by Place Sierra Bancshares for underwriters commissions were $796,000, and other expenses of the offering are estimated at $3,306,000. The net offering proceeds
to Placer Sierra Bancshares after deducting the foregoing expenses are estimated to be $7,262,000.



On September 7, 2004, Placer Sierra Bancshares entered into an Agreement and Plan of Merger with First Financial Bancorp pursuant to which Placer Sierra
Bancshares would acquire First Financial Bancorp, and First Financial Bancorps subsidiary, Bank of Lodi, N.A., would be merged into the sole subsidiary of Placer Sierra Bancshares, Placer Sierra Bank. Placer Sierra Bancshares will use $50.0
million of its existing capital, including the proceeds of the offering, to pay merger consideration.



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None.



|ITEM 5. | Other Information
|------- | -----------------



None.



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##### Table of Contents

|ITEM 6. | Exhibits
|------- | --------



|(a) | Exhibits.
|--- | ---------



|              |  |                                                                                                                                                                                                                                                                             
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                                                                                                                                                                                                 
|              | 
|2.1           |  | The Agreement and Plan of Merger by and among Placer Sierra Bancshares, Placer Sierra Bank, First Financial Bancorp, and Bank of Lodi, N.A., dated September 7, 2004 (incorporated by reference
to Exhibit 2.1 to Report on Form 8-K filed by Company on September 8, 2004).
|              | 
|31.1*         |  | Certification of Ronald W. Bachli, Esq., Chairman of the Board and Chief Executive Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                                                                            
|              | 
|31.2*         |  | Certification of David E. Hooston, Executive Vice President and Chief Financial Officer of the Company, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                               
|              | 
|32.1*         |  | Certification of Ronald W. Bachli, Esq., Chairman of the Board and Chief Executive Officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                
|              | 
|32.2*         |  | Certification of David E. Hooston, Executive Vice President and Chief Financial Officer of the Company, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                   
|              | 
|99.1*         |  | Risk Factors                                                                                                                                                                                                                                                                

---

|* | Filed herewith.
|- | ---------------



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SIGNATURES



Pursuant to the
requirements 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.



|                       |  |  |  |                         
|---------------------- |  |  |  | ------------------------
|                       |  |  |  | PLACER SIERRA BANCSHARES
|                       |  | 
|Date: November 4, 2004 |  |  |  | /s/    DAVID E. HOOSTON 
|                       |  |  |  | David E. Hooston        
|                       |  |  |  | Chief Financial Officer 



38