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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended March 31, 2005



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 000-50652



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PLACER SIERRA BANCSHARES

(Exact name of registrant as specified in its charter)



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|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|CALIFORNIA                                                    |  | 94-3411134                            
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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  x    No ̈



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 May 9, 2005 there were 14,906,845 shares of the registrants common stock outstanding.



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##### Table of Contents

TABLE OF CONTENTS



|                              |  |         |  |                                                                                              |  |     
|----------------------------- |  | ------- |  | -------------------------------------------------------------------------------------------- |  | ----
|                              |  |         |  |                                                                                              |  | Page
|PART I
FINANCIAL INFORMATION |  | 1      
|                              |  |         | 
|                              |  | ITEM 1. |  | Unaudited Consolidated Financial Statements                                                  |  | 1   
|                              |  |         | 
|                              |  |         |  | Unaudited Consolidated Balance Sheet                                                         |  | 1   
|                              |  |         | 
|                              |  |         |  | Unaudited Consolidated Statement of Income                                                   |  | 2   
|                              |  |         | 
|                              |  |         |  | Unaudited Consolidated Statement of Changes in Shareholders Equity and Comprehensive Income |  | 3   
|                              |  |         | 
|                              |  |         |  | Unaudited Consolidated Statement of Cash Flows                                               |  | 4   
|                              |  |         | 
|                              |  |         |  | Notes to Unaudited Consolidated Financial Statements                                         |  | 5   
|                              |  |         | 
|                              |  | ITEM 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 11  
|                              |  |         | 
|                              |  | ITEM 3. |  | Quantitative and Qualitative Disclosure about Market Risk                                    |  | 30  
|                              |  |         | 
|                              |  | ITEM 4. |  | Controls and Procedures                                                                      |  | 30  
|                              | 
|PART II
OTHER INFORMATION    |  | 31     
|                              |  |         | 
|                              |  | ITEM 1. |  | Legal Proceedings                                                                            |  | 31  
|                              |  |         | 
|                              |  | ITEM 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds                                  |  | 31  
|                              |  |         | 
|                              |  | ITEM 3. |  | Defaults Upon Senior Securities                                                              |  | 31  
|                              |  |         | 
|                              |  | ITEM 4. |  | Submission of Matters to a Vote of Security Holders                                          |  | 31  
|                              |  |         | 
|                              |  | ITEM 5. |  | Other Information                                                                            |  | 31  
|                              |  |         | 
|                              |  | ITEM 6. |  | Exhibits                                                                                     |  | 32  
|                              | 
|SIGNATURES                    |  | 33     



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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

(Dollars in thousands)



|                                                                                                                                                                         |  |               |           |   |                  |   |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | --------- | - | ---------------- | - | ---------
|                                                                                                                                                                         |  | March 31,2005 |           |   | December 31,2004
|ASSETS                                                                                                                                                                   |  |               |           |   |                  |   |          
|                                                                                                                                                                         |  |              
|Cash and due from banks                                                                                                                                                  |  | $             | 51,899    |   |                  | $ | 39,255   
|Federal funds sold                                                                                                                                                       |  |               | 68,061    |   |                  |   | 361      
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|Cash and cash equivalents                                                                                                                                                |  |               | 119,960   |   |                  |   | 39,616   
|Interest bearing deposits with other banks                                                                                                                               |  |               | 125       |   |                  |   | 125      
|Investment securities available-for-sale                                                                                                                                 |  |               | 220,534   |   |                  |   | 249,916  
|Federal Reserve Bank and Federal Home Loan Bank stock                                                                                                                    |  |               | 10,430    |   |                  |   | 10,430   
|Loans and leases held for investment, net of allowance for loan and lease losses of $16,738 at March 31, 2005 and $16,200 at December 31,
2004                           |  |               | 1,277,581 |   |                  |   | 1,278,064
|Premises and equipment, net                                                                                                                                              |  |               | 27,560    |   |                  |   | 27,645   
|Cash surrender value of life insurance                                                                                                                                   |  |               | 42,773    |   |                  |   | 42,390   
|Other real estate                                                                                                                                                        |  |               | 657       |   |                  |   | 657      
|Goodwill                                                                                                                                                                 |  |               | 101,364   |   |                  |   | 101,329  
|Other intangible assets                                                                                                                                                  |  |               | 13,523    |   |                  |   | 14,172   
|Other assets                                                                                                                                                             |  |               | 17,530    |   |                  |   | 14,641   
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|Total assets                                                                                                                                                             |  | $             | 1,832,037 |   |                  | $ | 1,778,985
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                     |  |               |           |   |                  |   |          
|                                                                                                                                                                         |  |              
|Deposits:                                                                                                                                                                |  |               |           |   |                  |   |          
|Non-interest bearing                                                                                                                                                     |  | $             | 491,667   |   |                  | $ | 485,193  
|Interest bearing                                                                                                                                                         |  |               | 1,063,143 |   |                  |   | 1,014,866
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|Total deposits                                                                                                                                                           |  |               | 1,554,810 |   |                  |   | 1,500,059
|Short-term borrowings                                                                                                                                                    |  |               | 14,547    |   |                  |   | 16,265   
|Accrued interest payable and other liabilities                                                                                                                           |  |               | 16,078    |   |                  |   | 17,409   
|Junior subordinated deferrable interest debentures                                                                                                                       |  |               | 53,611    |   |                  |   | 53,611   
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|Total liabilities                                                                                                                                                        |  |               | 1,639,046 |   |                  |   | 1,587,344
|Commitments and contingencies                                                                                                                                            |  |               |           |   |                  |   |          
|Shareholders equity:                                                                                                                                                    |  |               |           |   |                  |   |          
|Preferred stock, 25,000,000 shares authorized; none issued or outstanding at March 31, 2005 or December 31, 2004                                                         |  |               |          |   |                  |   |         
|Common stock, no par value, 100,000,000 shares authorized; 14,895,084 and 14,877,056 shares issued and outstanding at March 31, 2005 and
December 31, 2004, respectively |  |               | 158,116   |   |                  |   | 157,834  
|Retained earnings                                                                                                                                                        |  |               | 36,707    |   |                  |   | 33,323   
|Accumulated other comprehensive (loss) income                                                                                                                            |  |               | (1,832    | ) |                  |   | 484      
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|Total shareholders equity                                                                                                                                               |  |               | 192,991   |   |                  |   | 191,641  
|                                                                                                                                                                         |  |               |           |   |                  |   |          
|Total liabilities and shareholders equity                                                                                                                               |  | $             | 1,832,037 |   |                  | $ | 1,778,985
|                                                                                                                                                                         |  |               |           |   |                  |   |          



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

UNAUDITED CONSOLIDATED STATEMENT OF INCOME

(Dollars in thousands, except per share data)



|                                                                                |  |                             |        |      |   |       
|------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------
|                                                                                |  | Three Months EndedMarch 31,
|                                                                                |  | 2005                        |        | 2004
|Interest income:                                                                |  |                             |        |      |   |       
|Interest and fees on loans and leases held for investment                       |  | $                           | 20,766 |      | $ | 15,069
|Interest on loans held for sale                                                 |  |                             |       |      |   | 3     
|Interest on deposits with other banks                                           |  |                             | 1      |      |   |      
|Interest and dividends on investment securities:                                |  |                             |        |      |   |       
|Taxable                                                                         |  |                             | 2,373  |      |   | 2,212 
|Tax-exempt                                                                      |  |                             | 163    |      |   | 132   
|Interest on federal funds sold                                                  |  |                             | 126    |      |   | 73    
|                                                                                |  |                             |        |      |   |       
|Total interest income                                                           |  |                             | 23,429 |      |   | 17,489
|                                                                                |  |                             |        |      |   |       
|Interest expense:                                                               |  |                             |        |      |   |       
|Interest on deposits                                                            |  |                             | 2,751  |      |   | 1,524 
|Interest on short-term borrowings                                               |  |                             | 34     |      |   | 89    
|Interest on junior subordinated deferrable interest debentures                  |  |                             | 760    |      |   | 446   
|                                                                                |  |                             |        |      |   |       
|Total interest expense                                                          |  |                             | 3,545  |      |   | 2,059 
|                                                                                |  |                             |        |      |   |       
|Net interest income                                                             |  |                             | 19,884 |      |   | 15,430
|                                                                                |  |                            
|Provision for the allowance for loan and lease losses                           |  |                             |       |      |   | 520   
|                                                                                |  |                             |        |      |   |       
|Net interest income after provision for the allowance for loan and lease losses |  |                             | 19,884 |      |   | 14,910
|                                                                                |  |                             |        |      |   |       
|Non-interest income:                                                            |  |                             |        |      |   |       
|Service charges and fees on deposit accounts                                    |  |                             | 1,725  |      |   | 1,565 
|Referral and other loan-related fees                                            |  |                             | 518    |      |   | 621   
|Loan servicing income                                                           |  |                             | 133    |      |   | 93    
|Gain on sale of loans, net                                                      |  |                             |       |      |   | 70    
|Revenues from sales of non-deposit investment products                          |  |                             | 191    |      |   | 218   
|Gain on sale of investment securities available-for-sale, net                   |  |                             |       |      |   | 206   
|Increase in cash surrender value of life insurance                              |  |                             | 414    |      |   | 319   
|Other                                                                           |  |                             | 482    |      |   | 959   
|                                                                                |  |                             |        |      |   |       
|Total non-interest income                                                       |  |                             | 3,463  |      |   | 4,051 
|                                                                                |  |                             |        |      |   |       
|Non-interest expense:                                                           |  |                             |        |      |   |       
|Salaries and employee benefits                                                  |  |                             | 7,598  |      |   | 6,428 
|Occupancy and equipment                                                         |  |                             | 2,050  |      |   | 1,687 
|Other                                                                           |  |                             | 5,276  |      |   | 4,494 
|                                                                                |  |                             |        |      |   |       
|Total non-interest expense                                                      |  |                             | 14,924 |      |   | 12,609
|                                                                                |  |                             |        |      |   |       
|Income before provision for income taxes                                        |  |                             | 8,423  |      |   | 6,352 
|                                                                                |  |                            
|Provision for income taxes                                                      |  |                             | 3,253  |      |   | 2,172 
|                                                                                |  |                             |        |      |   |       
|Net income                                                                      |  | $                           | 5,170  |      | $ | 4,180 
|                                                                                |  |                             |        |      |   |       
|Earnings per share:                                                             |  |                             |        |      |   |       
|Basic                                                                           |  | $                           | 0.35   |      | $ | 0.30  
|Diluted                                                                         |  | $                           | 0.34   |      | $ | 0.30  



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

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN

SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME

(Dollars in thousands)



|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------- |  | --------------------------------- |  | ---------------- | ------- |  | ------------------------------------------- | ------ | - | ------------------------ | - | ------ | - |  | - | ------- | -
|                                                                                      |  | Three Months Ended March 31, 2005 | 
|                                                                                      |  | Common Stock                      |  | RetainedEarnings |         |  | Accumulated OtherComprehensiveIncome (Loss) |        |   | TotalShareholdersEquity |  
|                                                                                      |  | Shares                            |  | Amount           |         |  |                                            
|Balance, December 31, 2004                                                            |  | 14,877,056                        |  | $                | 157,834 |  | $                                           | 33,323 |   |                          | $ | 484    |   |  | $ | 191,641 |  
|Comprehensive income:                                                                 |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Net income                                                                            |  |                                   |  |                  |         |  |                                             | 5,170  |   |                          |   |        |   |  |   | 5,170   |  
|Net change in unrealized gain on investment securities available-for-sale, net of tax |  |                                   |  |                  |         |  |                                             |        |   |                          |   | (2,316 | ) |  |   | (2,316  | )
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Total comprehensive income                                                            |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   | 2,854   |  
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Stock options exercised, including tax benefit                                        |  | 18,028                            |  |                  | 282     |  |                                             |        |   |                          |   |        |   |  |   | 282     |  
|Dividends paid                                                                        |  |                                   |  |                  |         |  |                                             | (1,786 | ) |                          |   |        |   |  |   | (1,786  | )
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Balance, March 31, 2005                                                               |  | 14,895,084                        |  | $                | 158,116 |  | $                                           | 36,707 |   |                          | $ | (1,832 | ) |  | $ | 192,991 |  
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|                                                                                      | 
|                                                                                      |  | Three Months Ended March 31, 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                                                                            |  |                                   |  |                  |         |  |                                             | 4,180  |   |                          |   |        |   |  |   | 4,180   |  
|Net change in unrealized gain on investment securities available-for-sale, net of tax |  |                                   |  |                  |         |  |                                             |        |   |                          |   | (26    | ) |  |   | (26     | )
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Total comprehensive income                                                            |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   | 4,154   |  
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Stock options exercised, including tax benefit                                        |  | 75,331                            |  |                  | 666     |  |                                             |        |   |                          |   |        |   |  |   | 666     |  
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  
|Balance, March 31, 2004                                                               |  | 13,758,824                        |  | $                | 143,443 |  | $                                           | 25,229 |   |                          | $ | 1,042  |   |  | $ | 169,714 |  
|                                                                                      |  |                                   |  |                  |         |  |                                             |        |   |                          |   |        |   |  |   |         |  



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

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands)



|                                                                               |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                               |  | Three Months EndedMarch 31, |        
|                                                                               |  | 2005                        |         |   | 2004 |  
|Cash flows from operating activities:                                          |  |                             |         |   |      |   |         |  
|Net income                                                                     |  | $                           | 5,170   |   |      | $ | 4,180   |  
|Adjustments to reconcile net income to net cash provided by operations:        |  |                             |         |   |      |   |         |  
|Provision for the allowance for loan and lease losses                          |  |                             |        |   |      |   | 520     |  
|(Accretion) amortization of investment security discounts/premiums, net        |  |                             | (32     | ) |      |   | 56      |  
|Amortization of other intangible assets                                        |  |                             | 649     |   |      |   | 487     |  
|(Decrease) increase in deferred loan fees, net                                 |  |                             | (99     | ) |      |   | 195     |  
|Depreciation and amortization                                                  |  |                             | 784     |   |      |   | 726     |  
|Dividends received on FHLB and FRB stock                                       |  |                             |        |   |      |   | (22     | )
|Gain on sale of investment securities available-for-sale, net                  |  |                             |        |   |      |   | (206    | )
|Gain on sale of loans held for sale, net                                       |  |                             |        |   |      |   | (70     | )
|Fundings of loans held for sale                                                |  |                             |        |   |      |   | (911    | )
|Proceeds from sale of loans held for sale                                      |  |                             |        |   |      |   | 1,908   |  
|Gain from life insurance proceeds                                              |  |                             |        |   |      |   | (397    | )
|Deferred income taxes                                                          |  |                             | 163     |   |      |   | (60     | )
|Increase in cash surrender value of life insurance                             |  |                             | (414    | ) |      |   | (329    | )
|Net (increase) decrease in accrued interest receivable and other assets        |  |                             | (594    | ) |      |   | 3,200   |  
|Net decrease in accrued interest payable and other liabilities                 |  |                             | (1,423  | ) |      |   | (1,148  | )
|                                                                               |  |                             |         |   |      |   |         |  
|Net cash provided by operating activities                                      |  |                             | 4,204   |   |      |   | 8,129   |  
|                                                                               |  |                             |         |   |      |   |         |  
|Cash flows from investing activities:                                          |  |                             |         |   |      |   |         |  
|Purchases of investment securities available-for-sale                          |  |                             | (1,974  | ) |      |   | (26,969 | )
|Proceeds from the sale of investment securities available-for-sale             |  |                             |        |   |      |   | 45,410  |  
|Proceeds from calls and maturities of investment securities available-for-sale |  |                             | 27,337  |   |      |   | 55,500  |  
|Proceeds from principal repayments of investment securities available-for-sale |  |                             | 110     |   |      |   | 30      |  
|Net increase in loans and leases held for investment                           |  |                             | (140    | ) |      |   | (18,794 | )
|Proceeds from recoveries of charged-off loans                                  |  |                             | 722     |   |      |   | 344     |  
|Purchases of premises and equipment                                            |  |                             | (699    | ) |      |   | (151    | )
|Proceeds from sale of premises and equipment                                   |  |                             |        |   |      |   | 9       |  
|                                                                               |  |                             |         |   |      |   |         |  
|Net cash provided by investing activities                                      |  |                             | 25,356  |   |      |   | 55,379  |  
|                                                                               |  |                             |         |   |      |   |         |  
|Cash flows from financing activities:                                          |  |                             |         |   |      |   |         |  
|Net increase (decrease) in demand, interest-bearing and savings deposits       |  |                             | 14,064  |   |      |   | (5,965  | )
|Net increase in time deposits                                                  |  |                             | 40,687  |   |      |   | 15,900  |  
|Net decrease in short-term borrowings                                          |  |                             | (1,718  | ) |      |   | (28,952 | )
|Dividends paid                                                                 |  |                             | (2,531  | ) |      |   |        |  
|Exercise of stock options                                                      |  |                             | 282     |   |      |   | 666     |  
|                                                                               |  |                             |         |   |      |   |         |  
|Net cash provided by (used in) financing activities                            |  |                             | 50,784  |   |      |   | (18,351 | )
|                                                                               |  |                             |         |   |      |   |         |  
|Net increase in cash and cash equivalents                                      |  |                             | 80,344  |   |      |   | 45,157  |  
|Cash and cash equivalents, beginning of period                                 |  |                             | 39,616  |   |      |   | 88,505  |  
|                                                                               |  |                             |         |   |      |   |         |  
|Cash and cash equivalents, end of period                                       |  | $                           | 119,960 |   |      | $ | 133,662 |  
|                                                                               |  |                             |         |   |      |   |         |  



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



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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2005 and 2004



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 pursuant to the rules and regulations of the
Securities and Exchange Commission for interim reporting. 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 the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have
been condensed or omitted. The results of operations for the three months ended March 31, 2005 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 III, Placer Statutory Trust II, Southland Statutory Trust I and First Financial Bancorp Trust I are accounted for under the equity method and are included in other assets on the unaudited consolidated balance sheet. The junior
subordinated debentures issued and guaranteed by the Company and held by the trusts are reflected on the Companys unaudited consolidated balance sheet.



The accompanying unaudited consolidated financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year
ended December 31, 2004.



The preparation of unaudited
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.



Management has determined that since all of the banking products and services
offered by the Company are available in each branch of the bank, all branches are located within the state of California and management does not allocate resources based on the performance of different transaction activities, it is appropriate to
aggregate the bank branches and report them as a single operating segment. No single customer accounts for more than 10% of the revenues of the Company or bank.



A material estimate that is particularly susceptible to significant changes in the near-term relates 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.



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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.



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 Ended March 31,
|                                    |  | 2005                                 |            | 2004
|Basic                               |  |                                      |            |      |   |           
|Net income                          |  | $                                    | 5,170      |      | $ | 4,180     
|Weighted average shares outstanding |  |                                      | 14,887,729 |      |   | 13,714,085
|Earnings per share - basic          |  | $                                    | 0.35       |      | $ | 0.30      
|                                    |  |                                     
|Diluted                             |  |                                      |            |      |   |           
|Net income                          |  | $                                    | 5,170      |      | $ | 4,180     
|Weighted average shares outstanding |  |                                      | 15,197,096 |      |   | 13,837,023
|Earnings per share - diluted        |  | $                                    | 0.34       |      | $ | 0.30      



For the three months
ended March 31, 2005 and 2004, 140,000 and 18,000 shares, respectively, of common stock issuable under stock option agreements were not included in the computation of diluted earnings per share because the exercise price was equal to or greater than
the stocks average market price and their effect would be antidilutive.



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NOTE 3  STOCK OPTIONS



The Company currently has two stock option plans, the Placer Sierra Bancshares 2002 Amended and Restated 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 and no additional options will be granted under this plan. 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 Companys 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.



Pro forma adjustments to the Companys consolidated net income and earnings per share are disclosed during the periods 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 March 31,
|                                                                                                                                       |  | 2005                                |       |   | 2004
|Net income, as reported                                                                                                                |  | $                                   | 5,170 |   |      | $ | 4,180
|Deduct: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax
effects |  |                                     | (10   | ) |      |   |     
|                                                                                                                                       |  |                                     |       |   |      |   |      
|Pro forma net income                                                                                                                   |  | $                                   | 5,160 |   |      | $ | 4,180
|                                                                                                                                       |  |                                     |       |   |      |   |      
|Basic earnings per share  as reported                                                                                                 |  | $                                   | 0.35  |   |      | $ | 0.30 
|Diluted earnings per share  as reported                                                                                               |  | $                                   | 0.34  |   |      | $ | 0.30 
|Basic earnings per share  pro forma                                                                                                   |  | $                                   | 0.35  |   |      | $ | 0.30 
|Diluted earnings per share  pro forma                                                                                                 |  | $                                   | 0.34  |   |      | $ | 0.30 



The fair value of the
options granted during the three months ended March 31, 2005 and 2004 are noted below and were based on an option-pricing model with the following assumptions and prices:



|                                                                 |  |                                     |         |   |      |   |         |  
|---------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                 |  | For the Three MonthsEnded March 31, |        
|                                                                 |  | 2005                                |         |   | 2004 |  
|Dividend yield                                                   |  |                                     | 1.50    | % |      |   | 1.50    | %
|Expected volatility                                              |  |                                     | 25.00   | % |      |   |        |  
|Risk-free interest rate                                          |  |                                     | 3.89    | % |      |   | 3.38    | %
|Expected option life                                             |  |                                     | 5 years |   |      |   | 5 years |  
|Weighted average fair value of options granted during the period |  | $                                   | 6.26    |   |      | $ | 1.01    |  



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##### Table of Contents

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



|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      
|-------------------------------------------------------------------------------------------- |  | ------------------------------------ | - | ---- | ---------------------------- | ----- | ------ | ------- | - | ---------------------------- | - | -----
|                                                                                             |  | For the Three Months Ended March 31,
|                                                                                             |  | 2005                                 |   | 2004
|                                                                                             |  | Shares                               |   |      | WeightedAverageExercisePrice |       | Shares |         |   | WeightedAverageExercisePrice
|Options outstanding, beginning of period                                                     |  | 591,031                              |   |      | $                            | 12.40 |        | 803,271 |   |                              | $ | 9.00 
|                                                                                             |  |                                      |   |     
|Options granted                                                                              |  | 183,000                              |   |      | $                            | 25.27 |        | 7,500   |   |                              | $ | 15.00
|Options exercised                                                                            |  | (8,874                               | ) |      | $                            | 9.00  |        | (65,034 | ) |                              | $ | 9.00 
|Options canceled                                                                             |  |                                     |   |      | $                            |      |        | (11,340 | ) |                              | $ | 9.00 
|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      
|Options outstanding, end of period                                                           |  | 765,157                              |   |      | $                            | 15.52 |        | 734,397 |   |                              | $ | 9.06 
|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      
|Options exercisable, end of period                                                           |  | 338,317                              |   |      | $                            | 9.28  |        | 510,519 |   |                              | $ | 9.00 
|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      
|                                                                                            
|A summary of the activity in the Southland Capital Co. 2002 Stock Option Plan is as follows:
|                                                                                             |  | For the Three Months Ended March 31,
|                                                                                             |  | 2005                                 |   | 2004
|                                                                                             |  | Shares                               |   |      | WeightedAverageExercisePrice |       | Shares |         |   | WeightedAverageExercisePrice
|Options outstanding, beginning of period                                                     |  | 308,976                              |   |      | $                            | 7.82  |        | 663,114 |   |                              | $ | 7.82 
|                                                                                             |  |                                      |   |     
|Options granted                                                                              |  |                                     |   |      | $                            |      |        | 31,260  |   |                              | $ | 7.82 
|Options exercised                                                                            |  | (9,154                               | ) |      | $                            | 7.82  |        | (3,970  | ) |                              | $ | 7.82 
|Options canceled                                                                             |  |                                     |   |      | $                            |      |        | (10,885 | ) |                              | $ | 7.82 
|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      
|Options outstanding, end of period                                                           |  | 299,822                              |   |      | $                            | 7.82  |        | 679,519 |   |                              | $ | 7.82 
|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      
|Options exercisable, end of period                                                           |  | 250,602                              |   |      | $                            | 7.82  |        | 468,463 |   |                              | $ | 7.82 
|                                                                                             |  |                                      |   |      |                              |       |        |         |   |                              |   |      



In addition to the
above plans, during 2002 stock options for 47,897 shares were granted to past directors and a former executive officer of PSB. No additional options have been granted. During the three months ended March 31, 2005, none of these options were
exercised or canceled. During the three months ended March 31, 2004, a total of 6,327 options were exercised and none of these options were canceled. At March 31, 2005, a total of 18,921 options were outstanding related to these grants with a
weighted average remaining life of 0.26 years and a weighted average exercise price of $8.54. At March 31, 2005 and 2004, a total of 18,921 and 23,892 options were exercisable, respectively.



NOTE 4COMMITMENTS AND CONTINGENCIES



Legal Proceedings



In the ordinary course of our business, the Company is party to various
other legal actions, which the Company believes are incidental to the operation of its business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions to which the Company is currently a party cannot
presently be ascertained with certainty, in the opinion of management, based upon information currently available to management, 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.



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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):



|                             |  |               |         |                  |   |        
|---------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                             |  | March 31,2005 |         | December 31,2004
|Commitments to extend credit |  | $             | 395,433 |                  | $ | 373,935
|Standby letters of credit    |  | $             | 4,253   |                  | $ | 5,706  



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 PSB to
guarantee the performance of a customer to a third party. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not significant as of March 31, 2005 or December
31, 2004. The Company recognizes these fees as revenue over the term of the commitment, or when the commitment is used. 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 (loss) 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 comprehensive (loss) income. Total comprehensive (loss) income and the components of accumulated other comprehensive (loss) income for the three months ended March 31, 2005 and 2004 are
presented net of taxes in the consolidated statement of changes in shareholders equity and comprehensive income. Total comprehensive income for the three months ended March 31, 2005 and 2004 totaled $2.9 million and $4.2 million, respectively.



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



|                                                                       |  |            |        |   |                     |   |       |           |  |   |        |  
|---------------------------------------------------------------------- |  | ---------- | ------ | - | ------------------- | - | ----- | --------- |  | - | ------ | -
|                                                                       |  | Before Tax |        |   | TaxBenefit(Expense) |   |       | After Tax | 
|For the Three Months Ended March 31, 2005                              |  |            |        |   |                     |   |       |           |  |   |        |  
|Other comprehensive loss:                                              |  |            |        |   |                     |   |       |           |  |   |        |  
|Unrealized holding losses                                              |  | $          | (3,936 | ) |                     | $ | 1,620 |           |  | $ | (2,316 | )
|Less: reclassification adjustment for net gains included in net income |  |            |       |   |                     |   |      |           |  |   |       |  
|                                                                       |  |            |        |   |                     |   |       |           |  |   |        |  
|Total other comprehensive loss                                         |  | $          | (3,936 | ) |                     | $ | 1,620 |           |  | $ | (2,316 | )
|                                                                       |  |            |        |   |                     |   |       |           |  |   |        |  
|For the Three Months Ended March 31, 2004                              |  |            |        |   |                     |   |       |           |  |   |        |  
|Other comprehensive loss:                                              |  |            |        |   |                     |   |       |           |  |   |        |  
|Unrealized holding gains                                               |  | $          | 158    |   |                     | $ | (65   | )         |  | $ | 93     |  
|Less: reclassification adjustment for net gains included in net income |  |            | 206    |   |                     |   | (87   | )         |  |   | 119    |  
|                                                                       |  |            |        |   |                     |   |       |           |  |   |        |  
|Total other comprehensive loss                                         |  | $          | (48    | ) |                     | $ | 22    |           |  | $ | (26    | )
|                                                                       |  |            |        |   |                     |   |       |           |  |   |        |  



NOTE 6Recent Accounting
Developments



Stock-Based Payments



In December 2004, the FASB issued Statement Number 123 (revised 2004) (FAS
123 (R)), Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. In April 2005, the Securities and
Exchange Commission adopted a rule that defers the compliance date of FAS 123 (R) from the first reporting period beginning after June 15, 2005 to the first fiscal year beginning after June 15, 2005, effectively January 1, 2006 for the Company.
Management has not completed its evaluation of the effect that FAS 123 (R) will have, but believes that the effect will be consistent with its previous pro forma disclosures.



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



Discussions of certain matters contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the Exchange Act), and as such, may involve risks and uncertainties. These forward-looking statements relate to, among
other things, expectations of the business environment in which Placer Sierra Bancshares and its subsidiaries operates, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. Our
actual results, performance and achievements may differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. For a discussion of some of the factors that might cause such a difference,
see Item 1. BUSINESS. Factors That May Affect Future Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2004 and other factors we discuss in our filings with the Securities and Exchange Commission. We
do not undertake and specifically disclaim any obligation to update such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.



Overview



Who We Are



We are the bank holding company for Placer Sierra Bank, a California state-chartered commercial bank. Our bank conducts a
portion of its banking business through the following divisions: Sacramento Commercial Bank, Bank of Lodi and Bank of Orange County. The bank has one active subsidiary, Central Square Company, Inc., which derives its income from a third-party
provider of non-deposit investment products.



For the periods
presented in this quarterly report on Form 10-Q, we owned 100% of our banking subsidiary, Placer Sierra Bank, and also owned 100% of the common stock of Placer Statutory Trust II and Southland Statutory Trust I. In addition, for the three months
ended March 31, 2005, we owned 100% of the common stock of Placer Statutory Trust III and First Financial Bancorp Trust I. The trusts were formed for the exclusive purpose of issuing and selling trust preferred securities.



How We Generate Revenues



Our bank derives its income primarily from interest on real estate-related
loans, commercial loans and leases, consumer loans and interest on investment securities. To a lesser extent, we earn income from fees from the sale and referral of loans, fees received in connection with servicing loans and service charges on
deposit accounts. We also earn income through a subsidiary, Central Square Company, Inc., from the sales of non-deposit investment products through a third-party provider. The banks major expenses are salaries and benefits, the interest it
pays on deposits and borrowings and general operating expenses.



Information about Regulation



We conduct our business through the bank. The bank is subject to the laws of the state of California and federal regulations governing the financial services industry. We are registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. Bank holding companies are subject to regulation and supervision by the Board of Governors of the Federal Reserve System.



Our Principal Products and Services and Locations of Operations



We provide banking and other financial services throughout our targeted Northern, Central and Southern California markets to
consumers and to small- and medium-sized businesses, including the owners and employees of those businesses. We offer a broad range of banking products and services including many types of commercial and personal checking and savings accounts and
other consumer banking products, including electronic banking products. We also originate a variety of loans including secured and unsecured commercial and consumer loans, commercial and residential real estate mortgage loans, SBA loans and
construction loans, both commercial and residential.



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We have 31 Northern California branches that serve an eight-county area including Placer, Sacramento and
El Dorado, commonly known as the greater Sacramento metropolitan region, and the adjacent counties of Amador, Calaveras, Nevada, Sierra, and San Joaquin. We have nine Southern California branches that serve both Los Angeles and Orange counties.



How Economic Factors Impact Us



We are subject to competition from other financial
institutions and our operating results, like those of other financial institutions operating in California, are significantly influenced by economic conditions in California, including the strength of the real estate market. In addition, both the
fiscal and regulatory policies of the federal government and regulatory authorities that govern financial institutions and market interest rates impact the banks financial condition, results of operations and cash flows.



The earnings and growth of the bank are subject to the influence of certain
economic conditions, including inflation, recession and unemployment. The earnings of the bank are affected not only by general economic conditions but also by the monetary and fiscal policies of the United States and federal agencies, particularly
the Federal Reserve. The Federal Reserve can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United States Government securities and by its control of the discount
rates applicable to borrowings by banks from the Federal Reserve. The actions of the Federal Reserve in these areas influence the growth of bank loans and leases, investments and deposits and affect the interest rates charged on loans and leases and
paid on deposits. The Federal Reserves policies have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. The nature and timing of any future changes in monetary policies
are not predictable.



Our Acquisitions



One of our strategic objectives is to geographically
focus our activities in Californias faster growing metropolitan regions. Consistent with this objective, we acquired First Financial Bancorp in December of 2004 and Southland Capital Co. in May of 2004.



In May of 2004, we acquired Southland Capital Co. and its subsidiary Bank of
Orange County to participate in the high growth Southern California banking market. Bank of Orange County has always been a community-focused commercial bank with core relationship-based depositors and borrowers. In connection with the Southland
Capital Co. acquisition, Southland merged into us, and Bank of Orange County became our subsidiary. We merged Bank of Orange County into the bank in July 2004 and operate it as a division of the bank, under the name Bank of Orange County. The
Southland merger was a stock-for-stock transaction whereby the shareholders of Southland received 0.5752 of a share of our common stock for each outstanding share of Southland common stock. Immediately prior to the acquisition of Southland, our
principal shareholder, the Fund, owned 99.75% of Southland and 93.18% of us. The acquisition was principally accounted for as a combination of companies under common control similar to a pooling of interests. Thus, our historical consolidated
financial statements presented herein include the financial results of Southland and its subsidiary, Bank of Orange County, as if the merger occurred on January 1, 2004. Our simultaneous acquisition of the 0.25% minority interest in Southland 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.



In December of 2004, we acquired First Financial Bancorp, parent company of
Bank of Lodi, to begin our northern California expansion southward through the high growth California central valley. The fair value of assets of First Financial Bancorp totaling $345.7 million were incorporated in our balance sheet on December 10,
2004 upon closing of the acquisition. The acquisition was accounted for under the purchase method of accounting. Bank of Lodi operated nine branches located in Sacramento, El Dorado, San Joaquin, Amador, and Calaveras Counties in Northern
California. We operate seven of the acquired branches under the brand name Bank of Lodi, a division of the bank, we rebranded one acquired branch under our banks name and we closed one location, consolidating its operations into our Sacramento
Commercial Bank location.



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Our Opportunities, Challenges and Risks



Our strategy is to be the premier banking company for the long-term benefit
of our shareholders, customers and employees. We believe we have opportunities for internal loan and deposit growth, because our primary operations are located in two of the best growth markets in Northern, Central and Southern California and we
plan to position our company to take full advantage of these markets.



Despite our position of being in two of the best growth markets in California, we face the risk of being particularly sensitive to changes in the California economy. In particular, real estate values could be affected by earthquakes, fires
and other natural disasters in California. If the economy weakens, it could cause loan demand to decline and also affect our core deposit growth. Geographic distance between our operations may also hinder our consistency and efficiency.



We believe we have additional opportunities for growth by identifying
potential acquisition candidates and acting on those opportunities. The ability to successfully identify potential acquisition candidates and marshal our resources to take advantage of those opportunities is another challenge for us. Even if we are
able to marshal our resources to take advantage of acquisition opportunities, there can be no assurance that we will be able to effectively manage our growth or successfully integrate acquired institutions. Further, as we attempt to capitalize on
our growth opportunities, another challenge will be to attract and retain talented people. Competition for qualified employees and personnel in the banking industry is high and there are a limited number of qualified persons with knowledge of and
experience in the California banking community.



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 with our Annual Report on Form 10-K for the year ended December 31, 2004.



Results of Operations



Key Performance Indicators



The following sections contain tables and data setting forth certain statistical information about us for the three months ended March 31, 2005 and 2004.
This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto for the three months ended March 31, 2005 and 2004 included herein, and our audited consolidated financial statements and notes
thereto for the year ended December 31, 2004, filed with our Annual Report on Form 10-K.



As of March 31, 2005 we had total assets of $1.832 billion, total loans and leases held for investment of $1.294 billion, total deposits of $1.555 billion and shareholders equity of $193.0 million. For the three
months ended March 31, 2005 total deposits increased $54.8 million (a 14.8% growth rate on an annualized basis) from December 31, 2004, while total loans and leases held for investment remained unchanged at $1.294 billion. As of March 31, 2005,
14,895,084 shares of our common stock were outstanding, having a book value per share of $12.96.



For the three months ended March 31, 2005 we recorded net income of $5.2 million, or $0.34 per share, on a diluted basis.



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Our financial results for the three months ended March 31, 2005, as compared to the three months ended
March 31, 2004, reflect strong earnings growth and expense management. Our earnings were impacted by lower than expected revenues from the referral of commercial real estate loans to third parties, but were benefited by our expense management. Our
net interest margin was 5.20% for the three months ended March 31, 2005, as compared to 5.22% for the three months ended March 31, 2004. This was a significant improvement over our net interest margin of 4.77% in the fourth quarter of 2004.



The following table presents our key performance indicators
for the three months ended March 31, 2005 and 2004 and the basis for calculating these indicators:



|                                                      |  |                                              |            |   |      |   |            |  
|----------------------------------------------------- |  | -------------------------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                      |  | Three Months Ended March 31,                 |           
|                                                      |  | 2005                                         |            |   | 2004 |  
|                                                      |  | (Dollars in thousands, except pershare data) |           
|Net interest income                                   |  | $                                            | 19,884     |   |      | $ | 15,430     |  
|Non-interest income                                   |  |                                              | 3,463      |   |      |   | 4,051      |  
|                                                      |  |                                              |            |   |      |   |            |  
|Revenues                                              |  |                                              | 23,347     |   |      |   | 19,481     |  
|Provision for the allowance for loan and lease losses |  |                                              |           |   |      |   | 520        |  
|Non-interest expense                                  |  |                                              | 14,924     |   |      |   | 12,609     |  
|Provision for income taxes                            |  |                                              | 3,253      |   |      |   | 2,172      |  
|                                                      |  |                                              |            |   |      |   |            |  
|Net income                                            |  | $                                            | 5,170      |   |      | $ | 4,180      |  
|                                                      |  |                                              |            |   |      |   |            |  
|Average assets                                        |  | $                                            | 1,803,758  |   |      | $ | 1,384,164  |  
|                                                      |  |                                             
|Average shareholders equity                          |  | $                                            | 191,840    |   |      | $ | 167,843    |  
|                                                      |  |                                             
|Share Information:                                    |  |                                              |            |   |      |   |            |  
|Weighted average shares outstanding  basic           |  |                                              | 14,887,729 |   |      |   | 13,714,085 |  
|Weighted average shares outstanding - diluted         |  |                                              | 15,197,096 |   |      |   | 13,837,023 |  
|                                                      |  |                                             
|Profitability Measures:                               |  |                                              |            |   |      |   |            |  
|Earnings per share - basic                            |  | $                                            | 0.35       |   |      | $ | 0.30       |  
|Earnings per share - diluted                          |  | $                                            | 0.34       |   |      | $ | 0.30       |  
|Return on average assets                              |  |                                              | 1.16       | % |      |   | 1.21       | %
|Return on average shareholders equity                |  |                                              | 10.93      | % |      |   | 10.02      | %
|Efficiency ratio                                      |  |                                              | 63.92      | % |      |   | 64.72      | %



Consolidated net
income for the three months ended March 31, 2005 was $5.2 million, or $0.34 per diluted share. Net income for the three months ended March 31, 2004 was $4.2 million or $0.30 per diluted share. Return on average assets was 1.16%, compared to 1.21%
for the same period of 2004. Return on average equity was 10.93%, compared to 10.02% for the same period of 2004.



Net interest income for the three months ended March 31, 2005 was $19.9 million, an increase of 28.9% over net interest income of $15.4 million in the
same period of 2004. The increase in net interest income is primarily the result of the acquisition of First Financial Bancorp on December 10, 2004 and organic loan growth of 11.3% during the twelve months ended March 31, 2005.



Total non-interest income for the three months ended March 31, 2005 totaled
$3.5 million, compared with $4.1 million for the same period of 2004. Excluding the gain from life insurance proceeds and recovery of an operational charge-off during the three months ended March 31, 2004, total non-interest income for the three
months ended March 31, 2004 was $3.4 million. Total non-interest income increased by 5.8% over fourth quarter of 2004 non-interest income of $3.3 million. The improvement is principally



-14-



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##### Table of Contents

the result of the acquisition of First Financial Bancorp. Total non-interest expense for the three months ended March 31,
2005 was $14.9 million, compared with $12.6 million for the same period of 2004. The increase in non-interest expense is also principally attributable to the acquisition of First Financial Bancorp.



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. The efficiency ratio for the three months ended March 31, 2005 was 63.92%, compared to 64.72% for the same period of 2004.



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 slightly 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.



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 Ended March 31, 2005 |           |                          | Three Months Ended March 31, 2004 |                    
|                                                 |  | AverageBalance                    |           | InterestIncome orExpense |                                   | AverageYield orCost |  |      | AverageBalance |  | InterestIncome orExpense |           | AverageYield orCost |  
|                                                 |  | (Dollars in thousands)            |          
|ASSETS                                           |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-earning assets:                         |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Loans held for sale                              |  | $                                 |          |                          | $                                 |                    |  | 0.00 | %              |  | $                        | 242       |                     | $ | 3      |  | 4.99 | %
|Loans and leases held for investment (1) (2) (3) |  |                                   | 1,292,276 |                          |                                   | 20,766              |  | 6.52 | %              |  |                          | 963,176   |                     |   | 15,069 |  | 6.29 | %
|Investment securities:                           |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Taxable                                          |  |                                   | 209,992   |                          |                                   | 2,244               |  | 4.33 | %              |  |                          | 171,272   |                     |   | 2,117  |  | 4.97 | %
|Tax-exempt (1)                                   |  |                                   | 18,658    |                          |                                   | 163                 |  | 3.54 | %              |  |                          | 12,218    |                     |   | 132    |  | 4.35 | %
|Federal funds sold                               |  |                                   | 19,865    |                          |                                   | 126                 |  | 2.57 | %              |  |                          | 34,362    |                     |   | 73     |  | 0.85 | %
|Interest-bearing deposits with other banks       |  |                                   | 125       |                          |                                   | 1                   |  | 3.24 | %              |  |                          |          |                     |   |       |  | 0.00 | %
|Other earnings assets (4)                        |  |                                   | 10,430    |                          |                                   | 129                 |  | 5.02 | %              |  |                          | 7,289     |                     |   | 95     |  | 5.24 | %
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-earning assets                    |  |                                   | 1,551,346 |                          |                                   | 23,429              |  | 6.12 | %              |  |                          | 1,188,559 |                     |   | 17,489 |  | 5.92 | %
|Non-interest-earning assets:                     |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Cash and due from banks                          |  |                                   | 70,752    |                          |                                   |                     |  |      |                |  |                          | 65,134    |                     |   |        |  |      |  
|Other assets                                     |  |                                   | 181,660   |                          |                                   |                     |  |      |                |  |                          | 130,471   |                     |   |        |  |      |  
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total assets                                     |  | $                                 | 1,803,758 |                          |                                   |                     |  |      |                |  | $                        | 1,384,164 |                     |   |        |  |      |  
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY             |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-bearing liabilities:                    |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Deposits                                         |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Interest-bearing demand                          |  | $                                 | 256,515   |                          |                                   | 217                 |  | 0.34 | %              |  | $                        | 190,922   |                     |   | 163    |  | 0.34 | %
|Money market                                     |  |                                   | 270,779   |                          |                                   | 600                 |  | 0.90 | %              |  |                          | 202,912   |                     |   | 302    |  | 0.60 | %
|Savings                                          |  |                                   | 181,066   |                          |                                   | 154                 |  | 0.34 | %              |  |                          | 130,880   |                     |   | 114    |  | 0.35 | %
|Time certificates of deposit                     |  |                                   | 331,209   |                          |                                   | 1,780               |  | 2.18 | %              |  |                          | 228,627   |                     |   | 945    |  | 1.66 | %
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-bearing deposits                  |  |                                   | 1,039,569 |                          |                                   | 2,751               |  | 1.07 | %              |  |                          | 753,341   |                     |   | 1,524  |  | 0.81 | %
|Short-term borrowings                            |  |                                   | 15,691    |                          |                                   | 34                  |  | 0.88 | %              |  |                          | 35,079    |                     |   | 89     |  | 1.02 | %
|Long-term debt                                   |  |                                   | 53,611    |                          |                                   | 760                 |  | 5.75 | %              |  |                          | 38,146    |                     |   | 446    |  | 4.70 | %
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total interest-bearing liabilities               |  |                                   | 1,108,871 |                          |                                   | 3,545               |  | 1.30 | %              |  |                          | 826,566   |                     |   | 2,059  |  | 1.00 | %
|Non-interest bearing liabilities:                |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Demand deposits                                  |  |                                   | 485,395   |                          |                                   |                     |  |      |                |  |                          | 371,796   |                     |   |        |  |      |  
|Other liabilities                                |  |                                   | 17,652    |                          |                                   |                     |  |      |                |  |                          | 17,959    |                     |   |        |  |      |  
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total liabilities                                |  |                                   | 1,611,918 |                          |                                   |                     |  |      |                |  |                          | 1,216,321 |                     |   |        |  |      |  
|Shareholders equity                             |  |                                   | 191,840   |                          |                                   |                     |  |      |                |  |                          | 167,843   |                     |   |        |  |      |  
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Total liabilities and shareholders equity       |  | $                                 | 1,803,758 |                          |                                   |                     |  |      |                |  | $                        | 1,384,164 |                     |   |        |  |      |  
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Net interest income                              |  |                                   |           |                          | $                                 | 19,884              |  |      |                |  |                          |           |                     | $ | 15,430 |  |      |  
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  
|Net interest margin (5)                          |  |                                   |           |                          |                                   |                     |  | 5.20 | %              |  |                          |           |                     |   |        |  | 5.22 | %
|                                                 |  |                                   |           |                          |                                   |                     |  |      |                |  |                          |           |                     |   |        |  |      |  

---

|(1) | Yields on loans and leases and tax exempt securities have not been adjusted to a tax-equivalent basis because the impact is not material.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes average non-accrual loans and leases of $2.7 million and $2.4 million for the three months ended March 31, 2005 and 2004, respectively, are included in the yield
computations.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Net loan and lease fees of $332,000 and $206,000 for the three months ended March 31, 2005 and 2004, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------

|(4) | Includes Federal Reserve Bank stock and Federal Home Loan Bank stock.
|--- | ---------------------------------------------------------------------

|(5) | Net interest margin is computed by dividing annualized net interest income by total average earning assets.
|--- | -----------------------------------------------------------------------------------------------------------



15



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##### Table of Contents

The following table shows 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:



|                                           |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|------------------------------------------ |  | ------------------------------------------------------------------------------ | ----- | - | ---- | - | ---- | ------ |  | - | ----- | - |  | - | ---- | -
|                                           |  | Three Months Ended March 31, 2005Compared to Three Months Ended March 31, 2004 |      
|                                           |  | NetChange                                                                      |       |   | Rate |   |      | Volume |  |   | Mix   |  
|                                           |  | (Dollars in thousands)                                                         |      
|Interest income:                           |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|Loans held for sale                        |  | $                                                                              | (3    | ) |      | $ | (3   | )      |  | $ | (3    | ) |  | $ | 3    |  
|Loans and leases held for investment       |  |                                                                                | 5,697 |   |      |   | 538  |        |  |   | 5,149 |   |  |   | 10   |  
|Investment securities available-for-sale:  |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|Taxable                                    |  |                                                                                | 127   |   |      |   | (271 | )      |  |   | 479   |   |  |   | (81  | )
|Tax-exempt                                 |  |                                                                                | 31    |   |      |   | (24  | )      |  |   | 70    |   |  |   | (15  | )
|Federal funds sold                         |  |                                                                                | 53    |   |      |   | 147  |        |  |   | (31   | ) |  |   | (63  | )
|Interest-bearing deposits with other banks |  |                                                                                | 1     |   |      |   |     |        |  |   |      |   |  |   | 1    |  
|Other earning assets                       |  |                                                                                | 34    |   |      |   | (4   | )      |  |   | 41    |   |  |   | (3   | )
|                                           |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|Total interest income                      |  |                                                                                | 5,940 |   |      |   | 383  |        |  |   | 5,705 |   |  |   | (148 | )
|Interest expense:                          |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|Interest-bearing demand                    |  |                                                                                | 54    |   |      |   |     |        |  |   | 56    |   |  |   | (2   | )
|Money market                               |  |                                                                                | 298   |   |      |   | 151  |        |  |   | 101   |   |  |   | 46   |  
|Savings                                    |  |                                                                                | 40    |   |      |   | (2   | )      |  |   | 44    |   |  |   | (2   | )
|Time certificates of deposit               |  |                                                                                | 835   |   |      |   | 294  |        |  |   | 424   |   |  |   | 117  |  
|Short-term borrowings                      |  |                                                                                | (55   | ) |      |   | (12  | )      |  |   | (49   | ) |  |   | 6    |  
|Long-term debt                             |  |                                                                                | 314   |   |      |   | 99   |        |  |   | 181   |   |  |   | 34   |  
|                                           |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|Total interest expense                     |  |                                                                                | 1,486 |   |      |   | 530  |        |  |   | 757   |   |  |   | 199  |  
|                                           |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  
|Net interest income                        |  | $                                                                              | 4,454 |   |      | $ | (147 | )      |  | $ | 4,948 |   |  | $ | (347 | )
|                                           |  |                                                                                |       |   |      |   |      |        |  |   |       |   |  |   |      |  



Net interest income
increased 28.9%, or $4.5 million, to $19.9 million for the first quarter of 2005 from $15.4 million for the same period of 2004. Average earning assets increased to $1.551 billion for the first quarter of 2005 from $1.189 billion for the same period
of 2004. Average loans and leases held for investment, net of deferred fees and costs, increased by 34.2%, or $329.1 million, to $1.292 billion for the first quarter of 2005 from $963.2 million for the same period of 2004. These increases are
primarily attributable to the acquisition of First Financial Bancorp. Average core deposits (all deposit categories other than time certificates of deposit) increased 33.1%, or $297.2 million, to $1.194 billion for the first quarter of 2005 from
$896.5 million for the same period of 2004. Excluding average core deposits of $202.8 million held in our First Financial Bancorp branches during the first quarter of 2005, average core deposits grew 10.5% or $94.5 million from the same period of
2004.



The net interest margin for the first quarter of 2005
was 5.20% and remained relatively unchanged from the net interest margin of 5.22% for the same period of 2004. Our net interest margin of 5.20% in the first quarter of 2005 was a significant improvement from 4.77% in the fourth quarter of 2004,
primarily attributable to the increase in yields on loans and leases held for investment.



Interest income increased 34.0%, or $5.9 million, to $23.4 million for the first quarter of 2005 compared to $17.5 million for the same period of 2004. The yield on total interest-earning assets for the first quarter
of 2005 was 6.12%, compared to 5.92% for the same period of 2004. This is a result of the increase in both the rate and level of average loans and leases held for investment for the first quarter of 2005 as compared to the same period of 2004.
Average loans and leases, including loans held for sale, as a percentage of average earning assets were 83.3% for the first quarter of 2005 compared to 81.1% for the same period of 2004. The yield on average loans and leases increased to 6.52% for
the first quarter of 2005



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##### Table of Contents

from 6.29% for the same period of 2004, which is a result of the rising interest rate environment. The yield on
investment securities decreased by 66 basis points to 4.27% for the first quarter of 2005 from 4.93% for the same period of 2004. Between April 1, 2004 and March 31, 2005, the majority of the investment portfolio was either sold, matured, or was
called as a consequence of a rising interest rate environment. The decline in the yield of the investment portfolio between 2004 and 2005 reflects the shorter duration and correspondingly lower yields associated with preparing for a rising rate
environment of reinvestment activities during that time period.



Interest expense on interest-bearing deposits increased to $2.8 million in the first quarter of 2005 from $1.5 million for the same period of 2004. The increase is primarily attributable to our acquisition of First Financial Bancorp. In the
first quarter of 2005, we also focused on attracting longer-duration time certificates of deposit, through new product offerings, which should help mitigate net interest margin compression over the next 12 to 24 months. Another contributing factor
to the increase in interest expense was the alignment of the Bank of Orange County and Placer Sierra Bank deposit rate schedules after the merger of the two banks on July 23, 2004, which resulted in 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 31.8% of average total deposits for the first quarter of 2005, a decrease from 33.0% for the same period of
2004. The decrease in the percentage of non-interest bearing demand deposits to total deposits along with higher rates paid on both time certificates of deposit and money market deposits increased our overall cost of deposits to 0.73% for the first
quarter of 2005 from 0.54% for the same period of 2004. As a percentage of average total deposits, time deposits increased to 21.7% for the first quarter of 2005, up from 20.3% for the same period of 2004.



Interest expense on all interest-bearing liabilities increased to $3.5
million for the first quarter of 2005 from $2.1 million in the same period of 2004. The increase is primarily attributable to our acquisition of First Financial Bancorp. Total average interest-bearing liabilities increased 34.1%, or $282.3 million,
to $1.109 billion for the first quarter of 2005 from $826.6 million for the same period of 2004. The cost of our interest-bearing liabilities increased to 1.30% for the first quarter of 2005 from 1.00% for the same period of 2004. This 30 basis
point increase was the result of the higher cost of money market deposits and time certificates of deposit, as well as higher interest paid on junior subordinated deferrable interest debentures. Interest paid on junior subordinated deferrable
interest debentures reprices quarterly and is tied to the 90-day LIBOR which has been steadily increasing since mid 2004.



Provision for Loan and Lease Losses



The provision for loan and lease losses in each period is a charge against earnings of the 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 first quarter of 2005 as a result of loan recoveries exceeding loan
charge-offs by $538,000. In the first quarter of 2005, we experienced loan and lease charge-offs of $184,000 and recoveries of $722,000, as compared to loan and lease charge-offs of $1.4 million and recoveries of $343,000 for the same period of
2004, when we recorded a provision for loan and lease losses of $520,000. Non-performing loans and leases as a percentage of total loans and leases held for investment were 0.24% at March 31, 2005, 0.22% at December 31, 2004, and 0.17% at March 31,
2004. The increase as of March 31, 2005 is centered in one commercial lease.



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.



-17-



---

##### Table of Contents

Non-Interest Income



The following table summarizes non-interest income by category for the
periods indicated:



|                                                       |  |                              |       |      |   |      
|------------------------------------------------------ |  | ---------------------------- | ----- | ---- | - | -----
|                                                       |  | Three Months Ended March 31,
|                                                       |  | 2005                         |       | 2004
|                                                       |  | (Dollars in thousands)      
|Service charges and fees on deposit accounts           |  | $                            | 1,725 |      | $ | 1,565
|Referral and other loan-related fees                   |  |                              | 518   |      |   | 621  
|Loan servicing income                                  |  |                              | 133   |      |   | 93   
|Gain on sale of loans, net                             |  |                              |      |      |   | 70   
|Revenues from sales of non-deposit investment products |  |                              | 191   |      |   | 218  
|Gain on sale of investment securities, net             |  |                              |      |      |   | 206  
|Increase in cash surrender value of life insurance     |  |                              | 414   |      |   | 319  
|Other                                                  |  |                              | 482   |      |   | 959  
|                                                       |  |                              |       |      |   |      
|Total non-interest income                              |  | $                            | 3,463 |      | $ | 4,051
|                                                       |  |                              |       |      |   |      



Total non-interest
income decreased by 14.5%, or $588,000, to $3.5 million for the first quarter of 2005, as compared to $4.1 million for the same period of 2004.



Service charges on deposit accounts increased by 10.2%, or $160,000, to $1.7 million for the first quarter of 2005, as compared to $1.6 million for the
same period of 2004 reflecting the additional deposits acquired from First Financial Bancorp in the fourth quarter of 2004. Service charges on commercial demand deposit accounts continued to be challenged by an increase in earnings credits on
business accounts associated with an increase in short-term interest rates during the quarter that are the basis for credits against such service charges. Referral and other loan-related fees decreased by 16.6%, or $103,000, as a result of this
product pipeline taking longer to build than in prior years. The cash surrender value of life insurance increased by 29.8%, or $95,000, to $414,000 for the first quarter of 2005 as compared to $319,000 for the same period in 2004. This increase
reflects the additional life insurance acquired in conjunction with the acquisition of First Financial Bancorp.



Other non-interest income decreased by 49.7%, or $477,000, to $482,000 for the first quarter of 2005, as compared to $959,000 for the same period in 2004
largely due to a gain of $397,000 from life insurance proceeds and a $275,000 recovery of an operational charge-off in the first quarter of 2004. Other non-interest income in the first quarter of 2005 includes a $63,000 reimbursement of prior year
expenses incurred in connection with estimated environmental remediation costs associated with an unimproved piece of property acquired in the 1999 purchase of Placer Sierra Bank. Excluding these one-time transactions, non-interest income for the
first quarters of 2005 and 2004 would have each totaled $3.4 million.



-18-



---

##### Table of Contents

Non-Interest Expense



The following table summarizes non-interest expense by category for the
periods indicated:



|                                                                   |  |                             |        |      |   |        |  
|------------------------------------------------------------------ |  | --------------------------- | ------ | ---- | - | ------ | -
|                                                                   |  | Three Months EndedMarch 31, |       
|                                                                   |  | 2005                        |        | 2004 |  
|                                                                   |  | (Dollars in thousands)      |       
|Salaries and employee benefits                                     |  | $                           | 7,598  |      | $ | 6,428  |  
|Occupancy and equipment                                            |  |                             | 2,050  |      |   | 1,687  |  
|Data and item processing                                           |  |                             | 1,381  |      |   | 1,195  |  
|Amortization of core deposit intangible and favorable lease rights |  |                             | 649    |      |   | 487    |  
|Communication and postage                                          |  |                             | 633    |      |   | 438    |  
|Professional fees                                                  |  |                             | 586    |      |   | 547    |  
|Administration                                                     |  |                             | 530    |      |   | 486    |  
|Loan-related costs                                                 |  |                             | 237    |      |   | (3     | )
|Advertising and business development                               |  |                             | 286    |      |   | 266    |  
|Stationery and supplies                                            |  |                             | 354    |      |   | 218    |  
|Other                                                              |  |                             | 620    |      |   | 860    |  
|                                                                   |  |                             |        |      |   |        |  
|Total non-interest expense                                         |  | $                           | 14,924 |      | $ | 12,609 |  
|                                                                   |  |                             |        |      |   |        |  



Non-interest expense
increased by 18.4%, or $2.3 million, to $14.9 million for the first quarter of 2005, as compared to $12.6 million for the same period of 2004. This increase of $2.3 million in the first quarter of 2005 is primarily attributable to the expanded
operation resulting from our acquisition of First Financial Bancorp in the fourth quarter of 2004.



Salaries and employee benefits expense increased by 18.2%, or $1.2 million, to $7.6 million for the first quarter of 2005, as compared to $6.4 million for
the same period of 2004 due to an increase in personnel associated with our increased size, complexity, revenue growth goals and an increase in the cost of employee benefits and insurance. Occupancy and equipment, data and item processing,
amortization of core deposit intangible, communications and postage and stationery and supplies all increased from the first quarter of 2004 from the integration of additional branches we acquired from First Financial Bancorp.



Other non-interest expense decreased by 27.9%, or $240,000, to $620,000 for
the first quarter of 2005, as compared to $860,000 for the same period of 2004. The 2004 first quarter expense includes the accrual of a $450,000 contingency reserve in connection with estimated environmental remediation costs associated with an
unimproved piece of property acquired in the 1999 purchase of Placer Sierra Bank. This accrual was subsequently reversed prior to year-end 2004. Excluding this transaction, other non-interest expense increased by 51.2%, or $210,000, to $620,000 as a
result of an increase in third party payments to business customers, as well as an increase in staff travel and recruiting efforts, all of which are the result of our First Financial Bancorp acquisition and our increased size.



Provision for Income Taxes



Our statutory income tax rate is approximately 41.2%, representing a blend
of the statutory Federal income tax rate of 34.0% 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 38.6% and 34.2%
for the three months ended March 31, 2005 and 2004.



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Financial Condition



Our total assets at March 31, 2005 were $1.832 billion compared to $1.779 billion at December 31, 2004. Our earning assets at March 31, 2005 totaled
$1.593 billion compared to $1.555 billion at December 31, 2004. Total deposits at March 31, 2005 and December 31, 2004 were $1.555 billion and $1.500 billion, respectively.



Loans and Leases Held for Investment



The following table presents the balance of each major category of loans and
leases held for investment at the end of each of the periods indicated:



|                                                 |  |                        |           |   |                   |       |   |        |   |           |           |  |       |  
|------------------------------------------------ |  | ---------------------- | --------- | - | ----------------- | ----- | - | ------ | - | --------- | --------- |  | ----- | -
|                                                 |  | March 31, 2005         |           |   | December 31, 2004 |      
|                                                 |  | Amount                 |           |   | % ofLoans         |       |   | Amount |   |           | % ofLoans | 
|                                                 |  | (Dollars in thousands) |          
|Loans and leases held for investment:            |  |                        |           |   |                   |       |   |        |   |           |           |  |       |  
|Real estate - mortgage                           |  | $                      | 901,956   |   |                   | 69.5  | % |        | $ | 892,136   |           |  | 68.8  | %
|Real estate - construction                       |  |                        | 191,834   |   |                   | 14.8  |   |        |   | 184,317   |           |  | 14.2  |  
|Commercial                                       |  |                        | 155,478   |   |                   | 12.0  |   |        |   | 167,035   |           |  | 12.9  |  
|Agricultural                                     |  |                        | 14,539    |   |                   | 1.1   |   |        |   | 17,423    |           |  | 1.3   |  
|Consumer                                         |  |                        | 9,961     |   |                   | 0.8   |   |        |   | 11,110    |           |  | 0.9   |  
|Leases receivable and other                      |  |                        | 22,784    |   |                   | 1.8   |   |        |   | 24,575    |           |  | 1.9   |  
|                                                 |  |                        |           |   |                   |       |   |        |   |           |           |  |       |  
|Total gross loans and leases held for investment |  |                        | 1,296,552 |   |                   | 100.0 | % |        |   | 1,296,596 |           |  | 100.0 | %
|                                                 |  |                        |           |   |                   |       |   |        |   |           |           |  |       |  
|Less: allowance for loan and lease losses        |  |                        | (16,738   | ) |                   |       |   |        |   | (16,200   | )         |  |       |  
|Deferred loan and lease fees, net                |  |                        | (2,233    | ) |                   |       |   |        |   | (2,332    | )         |  |       |  
|                                                 |  |                        |           |   |                   |       |   |        |   |           |           |  |       |  
|Total net loans and leases held for investment   |  | $                      | 1,277,581 |   |                   |       |   |        | $ | 1,278,064 |           |  |       |  
|                                                 |  |                        |           |   |                   |       |   |        |   |           |           |  |       |  



Gross loans and leases
held for investment remained unchanged at $1.297 billion at March 31, 2005 and December 31, 2004. We experienced increases of $9.8 million and $7.5 million in mortgages and construction loans, respectively, off-set by decreases of $11.6 million,
$2.9 million and $1.1 million in commercial, agricultural, and consumer loans, respectively. Leases receivable and other loans also decreased by $1.8 million. While we recorded $128.3 million of new loan commitments during the first quarter of 2005,
we also experienced an unusually large amount of loan prepayments of $73.9 million. We typically experience slower loan growth during the first quarter of each year. Excluding the impact of First Financial Bancorps loan portfolio, our gross
loans and leases grew 11.3%, or $109.5 million, for the twelve months ended March 31, 2005.



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 March 31, 2005 was comprised 71.0% of commercial real estate mortgages and 29.0% of loans secured by 1-4 family mortgages.



Our commercial real estate mortgages have a number of lower risk underwriting
criteria that 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 to its variable rate profile. Our commercial real
estate mortgage portfolio has a weighted average portfolio loan to value at origination of less than 70%. Approximately 50% of our commercial real estate mortgages are variable rate.



The credit characteristic of our 1-4 family loan portfolio is representative of our relationship-based approach to lending
in this category. At March 31, 2005, our 1-4 family portfolio is split between 1-4



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##### Table of Contents

family first trust deed mortgages, representing 57% of the total, and home equity lines of credit, representing 43% of
the total. 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.



Approximately 40% of our construction loan portfolio at March 31, 2005 consists of loans to owner occupants building 1-4 family residences. The balance of this portfolio consists of residential and commercial loans for a variety of property
types to owner occupants, investors and developers. Our underwriting guidelines for construction loans set minimum borrower equity and pre-leasing requirements for commercial projects and generally limit the number of units ahead of sales for
residential projects.



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:



|                                                   |  |                        |       |   |                  |   |       |  
|-------------------------------------------------- |  | ---------------------- | ----- | - | ---------------- | - | ----- | -
|                                                   |  | March 31,2005          |       |   | December 31,2004 |  
|                                                   |  | (Dollars in thousands) |      
|Non-accrual loans and leases, not restructured     |  | $                      | 3,046 |   |                  | $ | 2,899 |  
|Accruing loans and leases past due 90 days or more |  |                        |      |   |                  |   |      |  
|Restructured loans and leases                      |  |                        |      |   |                  |   |      |  
|                                                   |  |                        |       |   |                  |   |       |  
|Total non-performing loans (NPLs)                  |  |                        | 3,046 |   |                  |   | 2,899 |  
|OREO                                               |  |                        | 657   |   |                  |   | 657   |  
|                                                   |  |                        |       |   |                  |   |       |  
|Total non-performing assets (NPAs)                 |  | $                      | 3,703 |   |                  | $ | 3,556 |  
|                                                   |  |                        |       |   |                  |   |       |  
|Selected ratios:                                   |  |                        |       |   |                  |   |       |  
|NPLs to total loans and leases held for investment |  |                        | 0.24  | % |                  |   | 0.22  | %
|NPAs to total assets                               |  |                        | 0.20  | % |                  |   | 0.20  | %



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 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.



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##### Table of Contents

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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##### Table of Contents

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



|                                                                                                      |  |                             |           |    |      |   |         |  
|----------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | -- | ---- | - | ------- | -
|                                                                                                      |  | Three Months EndedMarch 31, |          
|                                                                                                      |  | 2005                        |           |    | 2004 |  
|                                                                                                      |  | (Dollars in thousands)      |          
|Allowance for loan and lease losses:                                                                  |  |                             |           |    |      |   |         |  
|Balance at beginning of period                                                                        |  | $                           | 16,200    |    |      | $ | 13,343  |  
|Charge-offs:                                                                                          |  |                             |           |    |      |   |         |  
|Real estate - mortgage                                                                                |  |                             | 40        |    |      |   |        |  
|Real estate  construction                                                                            |  |                             |          |    |      |   |        |  
|Commercial                                                                                            |  |                             | 89        |    |      |   | 1,392   |  
|Agricultural                                                                                          |  |                             |          |    |      |   |        |  
|Consumer                                                                                              |  |                             | 55        |    |      |   | 9       |  
|Leases receivable and other                                                                           |  |                             |          |    |      |   |        |  
|                                                                                                      |  |                             |           |    |      |   |         |  
|Total                                                                                                 |  |                             | 184       |    |      |   | 1,401   |  
|                                                                                                      |  |                             |           |    |      |   |         |  
|Recoveries:                                                                                           |  |                             |           |    |      |   |         |  
|Real estate - mortgage                                                                                |  |                             | 74        |    |      |   | 38      |  
|Real estate  construction                                                                            |  |                             |          |    |      |   |        |  
|Commercial                                                                                            |  |                             | 635       |    |      |   | 290     |  
|Agricultural                                                                                          |  |                             |          |    |      |   |        |  
|Consumer                                                                                              |  |                             | 3         |    |      |   | 4       |  
|Leases receivable and other                                                                           |  |                             | 10        |    |      |   | 11      |  
|                                                                                                      |  |                             |           |    |      |   |         |  
|Total                                                                                                 |  |                             | 722       |    |      |   | 343     |  
|                                                                                                      |  |                             |           |    |      |   |         |  
|Net loan and lease (recoveries) charge-offs                                                           |  |                             | (538      | )  |      |   | 1,058   |  
|                                                                                                      |  |                            
|Provision for the allowance for loan and lease losses                                                 |  |                             |          |    |      |   | 520     |  
|                                                                                                      |  |                             |           |    |      |   |         |  
|Balance at end of period                                                                              |  | $                           | 16,738    |    |      | $ | 12,805  |  
|                                                                                                      |  |                             |           |    |      |   |         |  
|Loans and leases held for investment                                                                  |  | $                           | 1,294,319 |    |      | $ | 968,581 |  
|                                                                                                      |  |                            
|Average loans and leases held for investment                                                          |  | $                           | 1,292,276 |    |      | $ | 963,176 |  
|                                                                                                      |  |                            
|Non-performing loans and leases                                                                       |  | $                           | 3,046     |    |      | $ | 1,625   |  
|                                                                                                      |  |                            
|Selected ratios:                                                                                      |  |                             |           |    |      |   |         |  
|Net (recoveries) charge-offs to average loans and leases held for investment                          |  |                             | (0.17     | )% |      |   | 0.44    | %
|Provision for the allowance for loan and lease losses to average loans and leases held for investment |  |                             | 0.00      | %  |      |   | 0.22    | %
|Allowance for loan and lease losses to loans and leases held for investment at end of period          |  |                             | 1.29      | %  |      |   | 1.32    | %
|Allowance for loan and lease losses to non-performing loans and leases at end of period               |  |                             | 549.51    | %  |      |   | 788.00  | %



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Investment Securities Available for Sale



The carrying value of our investment securities available for sale at March
31, 2005 totaled $220.5 million, a decline of $29.4 million, or 11.8%, from year-end 2004. The decline resulted from the maturity of $27.0 million of U.S. Treasury securities. 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 March 31, 2005 and December 31, 2004 was as follows:



|                                                 |  |                        |         |                  |   |        
|------------------------------------------------ |  | ---------------------- | ------- | ---------------- | - | -------
|                                                 |  | Estimated Market Value
|                                                 |  | March 31,2005          |         | December 31,2004
|                                                 |  | (Dollars in thousands)
|U.S. Treasury securities                         |  | $                      | 1,981   |                  | $ | 26,986 
|U.S. Government agencies                         |  |                        | 195,107 |                  |   | 198,732
|Obligations of states and political subdivisions |  |                        | 18,190  |                  |   | 18,783 
|Other securities                                 |  |                        | 5,256   |                  |   | 5,415  
|                                                 |  |                        |         |                  |   |        
|Total available-for-sale investment securities   |  | $                      | 220,534 |                  | $ | 249,916
|                                                 |  |                        |         |                  |   |        



Deposits



The following
table presents the balance of each major category of deposits at the dates indicated:



|                                |  |                        |           |              |                      |   |        |   |              |  |       |  
|------------------------------- |  | ---------------------- | --------- | ------------ | -------------------- | - | ------ | - | ------------ |  | ----- | -
|                                |  | At March 31, 2005      |           |              | At December 31, 2004 |  
|                                |  | Amount                 |           | % ofDeposits |                      |   | Amount |   | % ofDeposits | 
|                                |  | (Dollars in thousands) |          
|Non-interest bearing deposits   |  | $                      | 491,667   |              | 31.6                 | % |        | $ | 485,193      |  | 32.3  | %
|Interest-bearing deposits:      |  |                        |           |              |                      |   |        |   |              |  |       |  
|Interest-bearing demand         |  |                        | 246,475   |              | 15.9                 |   |        |   | 256,650      |  | 17.1  |  
|Money market                    |  |                        | 281,347   |              | 18.1                 |   |        |   | 262,957      |  | 17.5  |  
|Savings                         |  |                        | 178,953   |              | 11.5                 |   |        |   | 179,578      |  | 12.0  |  
|Time, under $100                |  |                        | 193,325   |              | 12.4                 |   |        |   | 176,026      |  | 11.8  |  
|Time, $100 or more              |  |                        | 163,043   |              | 10.5                 |   |        |   | 139,655      |  | 9.3   |  
|                                |  |                        |           |              |                      |   |        |   |              |  |       |  
|Total-interest bearing deposits |  |                        | 1,063,143 |              | 68.4                 |   |        |   | 1,014,866    |  | 67.7  |  
|                                |  |                        |           |              |                      |   |        |   |              |  |       |  
|Total deposits                  |  | $                      | 1,554,810 |              | 100.0                | % |        | $ | 1,500,059    |  | 100.0 | %
|                                |  |                        |           |              |                      |   |        |   |              |  |       |  



Non-interest bearing
deposits increased 1.3%, or $6.5 million, to $491.7 million and total deposits increased 3.6%, or $54.8 million, to $1.555 billion as of March 31, 2005 from December 31, 2004. On an annualized basis, deposits grew by 14.8% during the first quarter
of 2005. The growth primarily occurred in money market deposits and time certificates of deposits, which reflects the companys focus on attracting longer-duration deposits. The increase in time deposits is attributable to a successful deposit
initiative in the first quarter of 2005 that offered customers both a favorable interest rate and interest rate flexibility. Depending on the maturity period selected, the new Advantage Certificate of Deposit gives customers the option
to re-set their interest rate one or two times prior to maturity.



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##### Table of Contents

Short-Term Borrowings



We enter into sales of securities under agreements to repurchase which are
short term in nature. Short-term borrowings decreased 10.6%, or $1.7 million, to $14.5 million as of March 31, 2005 from December 31, 2004.



Junior Subordinated Deferrable Interest Debentures



We own the common stock of four business trusts that have issued an aggregate of $52.0 million in trust preferred securities
fully and unconditionally guaranteed by us. The entire proceeds of each respective issuance of trust preferred securities were invested by the separate business trusts into junior subordinated deferrable interest debentures issued by us, with
identical maturity, repricing and payment terms as the respective issuance of trust preferred securities. The aggregate amount of junior subordinated debentures issued by us is $53.6 million, with the maturity dates for the respective debentures
ranging from 2031 through 2034. We may redeem the respective junior subordinated deferrable interest debentures earlier than the maturity date, with certain of the debentures being redeemable beginning in 2006 and others being redeemable beginning
in 2007 and 2009. For more information about the trust preferred securities and the debentures see Note 11 to our Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2004.



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 us as of March 31, 2005 are as follows:



|                                                       |  |      |  
|------------------------------------------------------ |  | ---- | -
|Leverage Ratio                                         |  |      |  
|Placer Sierra Bancshares and Subsidiaries              |  | 8.1  | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Placer Sierra Bank                                     |  | 7.6  | %
|Minimum requirement for Well-Capitalized institution |  | 5.0  | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Tier 1 Risk-Based Capital Ratio                        |  |      |  
|Placer Sierra Bancshares and Subsidiaries              |  | 9.8  | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Placer Sierra Bank                                     |  | 9.2  | %
|Minimum requirement for Well-Capitalized institution |  | 6.0  | %
|Minimum regulatory requirement                         |  | 4.0  | %
|                                                       | 
|Total Risk-Based Capital Ratio                         |  |      |  
|Placer Sierra Bancshares and Subsidiaries              |  | 11.0 | %
|Minimum regulatory requirement                         |  | 8.0  | %
|                                                       | 
|Placer Sierra Bank                                     |  | 10.4 | %
|Minimum requirement for Well-Capitalized institution |  | 10.0 | %
|Minimum regulatory requirement                         |  | 8.0  | %



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##### Table of Contents

As of March 31, 2005, we exceeded each of the minimum capital requirements and the bank exceeded the
amounts to be deemed well capitalized. We own the common stock of four trusts that have issued $52 million of trust preferred securities. These securities are currently included in our Tier 1 capital for purposes of determining our Tier
1 and total risk-based capital ratios. Effective March 31, 2009, we will be required to use a more restrictive formula to determine the amount of trust preferred securities that may be included in regulatory Tier 1 capital. At that time, we will be
allowed to include in Tier 1 capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally is defined as shareholders equity, less goodwill and any related deferred income
tax liability. The regulations currently in effect only limit the amount of trust preferred securities that may be included in Tier 1 capital to 25% of the sum of core capital elements without a deduction for goodwill. We have determined that our
Tier 1 capital ratios would remain above the regulatory minimum had the modification of the capital regulations been in effect at March 31, 2005. We expect that our Tier 1 capital ratios will be at or above the existing well capitalized levels on
March 31, 2009, the first date on which the modified capital regulations must be applied. For more information about the proposed regulations see our Annual Report on Form 10-K for the year ended December 31, 2004 Item 1. BUSINESS. Supervision
and Regulation.



Liquidity



Management believes that the level of liquid assets is sufficient to meet
our current and presently anticipated funding needs on a consolidated basis.



Placer Sierra Bancshares



On a stand-alone basis, we rely on dividends from the bank as our main source of liquidity.



Placer Sierra Bank



The bank relies on deposits as the principal source of funds and, therefore, must be in a position to service depositors needs as they arise.
Management attempts to maintain a loan-to-deposit ratio (total loans held for sale plus total loans and leases held for investment to total deposits) below 90% and a liquidity ratio (liquid assets, including cash and due from banks, Federal funds
sold, investment securities not pledged as collateral less funds purchased from the Federal Home Loan Bank of San Francisco expressed as a percentage of total deposits) above 15%. The loan-to-deposit ratio was 83.1% at March 31, 2005 and 86.1% at
December 31, 2004. The liquidity ratio was 18.1% as of March 31, 2005 and 15.6% at December 31, 2004.



Our deposits tend to be cyclical, with slower growth at the beginning of each year and increasing over the balance of the year. In addition, while
occasional fluctuations in the balances of a few large depositors may cause temporary increases and decreases in liquidity, we have not experienced difficulty in dealing with such fluctuations from existing liquidity sources.



Based upon our existing business plan, management believes that the level of
liquid assets is sufficient to meet the banks current and presently anticipated funding needs. Liquid assets of the bank represented approximately 15.3% of total assets at March 31, 2005 and 13.1% at December 31, 2004. If the level of liquid
assets (our primary liquidity) does not meet our liquidity needs, other available sources of liquid assets (our secondary liquidity), including the purchase of Federal funds, sales of securities under agreements to repurchase, sales of loans,
discount window borrowings from the Federal Reserve Bank and $86.4 million under a line of credit with the Federal Home Loan Bank of San Francisco at March 31, 2005, could be employed to meet those current and presently anticipated funding needs.



Our liquidity may be impacted negatively, however, by several
other factors, including expenses associated with unforeseen or pending litigation.



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##### Table of Contents

Qualitative and Quantitative Disclosure About Market Risk



Market risk is the risk of loss in a financial instrument arising from
adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate risk inherent in our lending and deposit taking activities. To that end, management
actively monitors and manages our interest rate risk exposure. We do not have any market risk sensitive instruments entered into for trading purposes. We manage our interest rate sensitivity by matching the re-pricing opportunities on our earning
assets to those on our funding liabilities. Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and liabilities designed to ensure that exposure to interest rate fluctuations is limited within
our guidelines of acceptable levels of risk-taking. Hedging strategies, including the terms and pricing of loans and deposits and managing the deployment of our securities are used to reduce mismatches in interest rate re-pricing opportunities of
portfolio assets and their funding sources.



Interest rate risk
is addressed by our Asset Liability Management Committee, or the ALCO, which is comprised of certain members of our senior management and a board member. The ALCO monitors interest rate risk by analyzing the potential impact on the net portfolio of
equity value and net interest income from potential changes in interest rates, and considers the impact of alternative strategies or changes in balance sheet structure. The ALCO manages our balance sheet in part to maintain the potential impact on
net portfolio of equity value and net interest income within acceptable ranges despite changes in interest rates.



Our exposure to interest rate risk is reviewed on at least a quarterly basis by the ALCO and our board of directors. Interest rate risk exposure is
measured using interest rate sensitivity analysis to determine our change in net portfolio of equity value and net interest income in the event of hypothetical changes in interest rates. If potential changes to net portfolio of equity value and net
interest income resulting from hypothetical interest rate changes are not within board-approved limits, the board may direct management to adjust the asset and liability mix to bring interest rate risk within board-approved limits.



Market risk sensitive instruments are generally defined as derivatives and
other financial instruments. At March 31, 2005 and December 31, 2004, 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 March 31, 2005, our interest-sensitive assets totaled approximately
$1.593 billion while interest-sensitive liabilities totaled approximately $1.131 billion. At December 31, 2004, we had approximately $1.555 billion in interest-sensitive assets and approximately $1.085 billion in interest-sensitive liabilities.



The yield on interest-sensitive assets and the cost of
interest-sensitive liabilities for the three months ended March 31, 2005 was 6.12% and 1.30%, respectively, compared to 5.92% and 1.00%, respectively, for the three months ended March 31, 2004. The increase in the yield on interest-sensitive assets
is the result of the rising interest rate environment with yields on loans and leases held for investment and federal funds sold increasing. The increase in the cost of our interest sensitive liabilities is the result of higher rates paid on money
market deposits and time certificates of deposit, as well as higher interest paid on junior subordinated deferrable interest debentures. The Company believes the focus on longer-duration time deposits will help mitigate the risk of net interest
margin compression over the next 12 to 24 months.



Our interest
sensitive assets and interest sensitive liabilities had estimated fair values of $1.607 billion and $1.061 billion, respectively, at March 31, 2005. At December 31, 2004, those amounts were $1.563 billion and $1.023 billion, respectively.



We evaluated the results of our net interest income simulation
and market value of equity model prepared as of March 31, 2005 for interest rate risk management purposes. Overall, the model results indicate that our interest rate risk sensitivity is within limits set by the our Board of Directors and our 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.



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Net Interest Income Simulation



In order to measure interest rate risk, we use a simulation model to project
changes in net interest income that result from forecasted changes in interest rates. This analysis calculates the difference between net interest income forecasted using a rising and a falling interest rate scenario and a net interest income
forecast using a base market interest rate derived from the current treasury yield curve. The income simulation model includes various assumptions regarding the re-pricing relationships for each of our products. Many of our assets are floating rate
loans, which are assumed to re-price immediately, and to the same extent as the change in market rates according to their contracted index. Some loans and investment vehicles include the opportunity of prepayment (embedded options), and accordingly
the simulation model uses national indexes to estimate these prepayments and reinvest their proceeds at current yields. Our non-term deposit products re-price more slowly, usually changing less than the change in market rates and at our discretion.



This analysis indicates the impact of changes in net interest
income for the given set of rate changes and assumptions. It assumes no growth in the balance sheet and that its structure will remain similar to the structure at year end. It does not account for all factors that impact this analysis, including
changes by management to mitigate the impact of interest rate changes or secondary impacts such as changes to our credit risk profile as interest rates change. Furthermore, loan prepayment rate estimates and spread relationships change regularly.
Interest rate changes create changes in actual loan prepayment rates that will differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on our net interest
income.



As of March 31, 2005, 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:



|                       |  |                            |        |                           |        |    |                           |      |   |                                            |     |  
|---------------------- |  | -------------------------- | ------ | ------------------------- | ------ | -- | ------------------------- | ---- | - | ------------------------------------------ | --- | -
|Interest Rate Scenario |  | Adjusted NetInterestIncome |        | PercentageChange fromBase |        |    | Net InterestMarginPercent |      |   | Net InterestMargin Change(in basis points) |    
|                       |  | (Dollars in thousands)     |       
|Up 200 basis points    |  | $                          | 81,041 |                           | 3.29   | %  |                           | 5.09 | % |                                            | 17  |  
|Up 100 basis points    |  | $                          | 80,074 |                           | 2.05   | %  |                           | 5.03 | % |                                            | 11  |  
|BASE CASE              |  | $                          | 78,462 |                           | 0.00   | %  |                           | 4.92 | % |                                            |    |  
|Down 100 basis points  |  | $                          | 74,413 |                           | (5.16  | )% |                           | 4.67 | % |                                            | (25 | )
|Down 200 basis points  |  | $                          | 70,321 |                           | (10.38 | )% |                           | 4.41 | % |                                            | (51 | )



Our simulation results
as of March 31, 2005 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 3.29% 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 a 10.38% 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 11 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 25 basis point decrease in our net
interest margin.



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.



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|                                               |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|---------------------------------------------- |  | --------------------------------------------------- | -------- | -- | ------------------------- | - | --------- | --------------------- |  | - | ------------ | -- |  | -------------- | --------- | - | ----- | - | -------- | - |  | - | ---------
|                                               |  | At March 31, 2005 Amounts Maturing or Re-pricing in
|                                               |  | 3 months or Less                                    |          |    | Over 3Months to 12 Months |   |           | Over 1 Yearto 5 Years |  |   | Over 5 Years |    |  | Non- Sensitive |           |   | Total
|                                               |  | (Dollars in thousands)                             
|ASSETS                                         |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|Cash and due from banks                        |  | $                                                   |         |    |                           | $ |          |                       |  | $ |             |    |  | $              |          |   |       | $ | 51,899   |   |  | $ | 51,899   
|Federal funds sold                             |  |                                                     | 68,061   |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   |         |   |  |   | 68,061   
|Investment securities                          |  |                                                     | 15,686   |    |                           |   | 2,248     |                       |  |   | 125,037      |    |  |                | 87,993    |   |       |   |         |   |  |   | 230,964  
|Loans, net of deferred fees and costs          |  |                                                     | 544,043  |    |                           |   | 75,534    |                       |  |   | 200,052      |    |  |                | 474,690   |   |       |   |         |   |  |   | 1,294,319
|Other assets                                   |  |                                                     |         |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   | 186,794  |   |  |   | 186,794  
|                                               |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|Total assets                                   |  | $                                                   | 627,790  |    |                           | $ | 77,782    |                       |  | $ | 325,089      |    |  | $              | 562,683   |   |       | $ | 238,693  |   |  | $ | 1,832,037
|                                               |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY           |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|Non-interest bearing deposits                  |  | $                                                   |         |    |                           | $ |          |                       |  | $ |             |    |  | $              |          |   |       | $ | 491,667  |   |  | $ | 491,667  
|Savings, money market, NOW accounts            |  |                                                     | 706,775  |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   |         |   |  |   | 706,775  
|Time deposits                                  |  |                                                     | 100,712  |    |                           |   | 198,878   |                       |  |   | 56,778       |    |  |                |          |   |       |   |         |   |  |   | 356,368  
|Short term debt                                |  |                                                     | 14,547   |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   |         |   |  |   | 14,547   
|Long term debt                                 |  |                                                     | 53,611   |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   |         |   |  |   | 53,611   
|Other liabilities                              |  |                                                     |         |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   | 16,078   |   |  |   | 16,078   
|Shareholders equity                           |  |                                                     |         |    |                           |   |          |                       |  |   |             |    |  |                |          |   |       |   | 192,991  |   |  |   | 192,991  
|                                               |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|Total liabilities and shareholders equity     |  | $                                                   | 875,645  |    |                           | $ | 198,878   |                       |  | $ | 56,778       |    |  | $              |          |   |       | $ | 700,736  |   |  | $ | 1,832,037
|                                               |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|Period gap                                     |  | $                                                   | (247,855 | )  |                           | $ | (121,096  | )                     |  | $ | 268,311      |    |  | $              | 562,683   |   |       | $ | (462,043 | ) |  |   |          
|Cumulative interest rate-sensitive assets      |  | $                                                   | 627,790  |    |                           | $ | 705,572   |                       |  | $ | 1,030,661    |    |  | $              | 1,593,344 |   |       |   |          |   |  |   |          
|Cumulative interest rate-sensitive liabilities |  | $                                                   | 875,645  |    |                           | $ | 1,074,523 |                       |  | $ | 1,131,301    |    |  | $              | 1,131,301 |   |       |   |          |   |  |   |          
|Cumulative gap                                 |  | $                                                   | (247,855 | )  |                           | $ | (368,951  | )                     |  | $ | (100,640     | )  |  | $              | 462,043   |   |       |   |          |   |  |   |          
|Cumulative gap as a percent of:                |  |                                                     |          |    |                           |   |           |                       |  |   |              |    |  |                |           |   |       |   |          |   |  |   |          
|Total assets                                   |  |                                                     | (13.5    | )% |                           |   | (20.1     | )%                    |  |   | (5.5         | )% |  |                | 25.2      | % |       |   |          |   |  |   |          
|Interest earning assets                        |  |                                                     | (15.6    | )% |                           |   | (23.2     | )%                    |  |   | (6.3         | )% |  |                | 29.0      | % |       |   |          |   |  |   |          



The preceding table
indicates that as of March 31, 2005, we had a negative one year cumulative gap of $369.0 million, or 20.1% of total assets. This one year gap of a negative $369.0 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 Quantitative and Qualitative Disclosure About Market Risk 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 annual report on Form 10-K for the year ended December 31, 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



In accordance with Rule 13a-15(b) of the Exchange Act, as of the quarter ended March 31, 2005, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are effective.



During the quarter ended March 31, 2005, there have been no changes in our internal controls over financial reporting that has materially affected, or are reasonably likely to materially affect, these controls.



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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 our
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.



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



None.



ITEM 3. Defaults Upon Senior Securities



None.



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



No matters were submitted to our shareholders, through the solicitation of proxies or otherwise, during the first quarter ended March 31, 2005.



ITEM 5. Other Information



None.



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ITEM 6. Exhibits



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



|              |  |                                                                                              
|------------- |  | ---------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description                                                                                  
|31.1          |  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 
|              | 
|31.2          |  | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.1          |  | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2          |  | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.



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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: May 11, 2005 |  | /s/ David E. Hooston                    
|                   |  | David E. Hooston Chief Financial Officer



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