<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 1995

                                       OR

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

                         Commission File Number 0-10198
                            THE SAN FRANCISCO COMPANY
             (Exact name of Registrant as specified in its charter)

 Delaware                                    94-3071255
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

 550 Montgomery Street, 10th Floor
 San Francisco, California                                          94111
 (Address of principal executive office)                           (Zip Code)

       Registrant's telephone number, including area code: (415) 781-7810

           Securities registered pursuant to Section 12(b) of the Act:

 Title of Class                                      Name of Each Exchange
Class A Common Stock,                                on Which Registered
 $0.01 Par Value                                                    None

        Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               Yes  X     No
                                   ---       ---

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 17, 1996, was $2,018,092 computed by reference to the
closing sales price of the Class A Common Stock as reported by Van Kasper &
Company.

The Registrant had 5,765,978 shares of Class A Common Stock outstanding on March
12, 1996.

                       Documents Incorporated by Reference

The definitive Proxy Statement for the Registrant's 1996 Annual Meeting of
Shareholders        Part III
<PAGE>   2
                            THE SAN FRANCISCO COMPANY

                         1995 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENT

                                     PART I
<TABLE>
<CAPTION>

                                                                                                              Page
                                                                                                              ----
<S>                                                                                                           <C>
Item 1.      Business.......................................................................................  1

               The Company and the Bank.....................................................................  1
               Private and Business Banking.................................................................  1
               Association Bank Services....................................................................  2
               Stock Option Services........................................................................  2
               Escrow Services..............................................................................  3
               Trust Services...............................................................................  3
               Real Estate Investment and Development Activities............................................  3
               Lending Activities...........................................................................  4
               Problem Asset Portfolio......................................................................  6
               Correspondent Banks..........................................................................  7
               Employees....................................................................................  7
               Competition..................................................................................  7
               Regulatory Agreement and Orders..............................................................  8
               Regulation and Supervision...................................................................  10
               Taxation.....................................................................................  18
Item 2.      Properties.....................................................................................  18
Item 3.      Legal Proceedings..............................................................................  19
Item 4.      Submission of Matters to a Vote of Security Holders............................................  19

                                     PART II

Item 5.      Market for the Registrant's Common Equity and Related Stockholder Matters .....................  20
Item 6.      Selected Financial Data........................................................................  22
Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations .........  23
Item 8.      Financial Statements and Supplementary Data....................................................  41
Item 9.      Changes in and Disagreements on Accounting and Financial Disclosures...........................  73

                                    PART III

Item 10.     Directors and Executive Officers of the Registrant.............................................  73
Item 11.     Executive Compensation.........................................................................  73
Item 12.     Security Ownership of Certain Beneficial Owners and Management.................................  73
Item 13.     Certain Relationships and Related Transactions.................................................  73

                                     PART IV

Item 14.     Exhibits, Financial Statement Schedules and Reports on Form 8-K................................  73

</TABLE>
<PAGE>   3
                                     PART I

ITEM 1 - BUSINESS

THE COMPANY AND THE BANK

         The San Francisco Company (the "Company"), formerly the Bank of San
Francisco Company Holding Company, a Delaware corporation, is a one-bank holding
company, registered under the Bank Holding Company Act of 1956, for Bank of San
Francisco (the "Bank"), a California state chartered bank organized in 1978
whose deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC"), subject to applicable limits. The Company was organized in California
in 1981 and reincorporated in Delaware in 1988. The Bank, which the Company
acquired through a reorganization in 1982, is the only direct subsidiary of the
Company and accounts for over 99% of the consolidated assets of the Company. The
Bank delivers its services from its headquarters building, Bank of San Francisco
Building, at 550 Montgomery Street (at Clay Street), San Francisco, California
94111, and its phone number is (415) 781-7810.

         The Company's Class A Common Stock, par value $0.01 per share (the
"Class A Common Stock"), is sold "over the counter". The closing price for the
Class A Common Stock on March 17, 1996 was $0.35.

         The Bank currently specializes in providing private banking as well as
business banking for individuals, their businesses and other businesses,
primarily in the San Francisco banking market. See "-- Private and Business
Banking." In addition, the Bank provides specialized services related to
homeowners associations (see "-- Association Bank Services"), brokerage services
(see "-- Stock Option Services") and escrow services (see "-- Escrow"). In the
future, the Bank intends to establish specialized banking services for the Asian
private banking market for individuals who require private banking services both
in Asia and the United States.

         In 1995, the Company recorded its first year of profit since 1990.
During the period from 1991 through 1994, the Company suffered an aggregate of
$74.6 million in losses, primarily as a result of defaulted loans secured by
real estate and losses on direct real estate development activities. The Company
and the Bank succeeded in avoiding insolvency during this period only through
the injection of a total of $56.3 million of new capital by the Company's
controlling majority stockholder, Mr. Putra Masagung. These losses nevertheless
caused impairments of capital and the breach of various regulatory requirements
that have led to the issuance of certain orders (the "Orders") by both state and
federal bank regulatory authorities imposing restrictions and requirements on
the Bank's business activities and requiring the timely resolution of problem
assets. In addition, the Company entered into an agreement with the Federal
Reserve Bank (the "FRB") which imposes restrictions and requirements on the
Company's business activities. See "-- Regulatory Agreements and Orders."

         On February 26, 1996, the Company's majority shareholder committed to
investing additional capital totaling $4.5 million in the Company in
installments throughout 1996 in order to meet the minimum requirements of the
Capital Order and the Orders, and to provide opportunity for growth. See "--
Regulatory Agreements and Orders." On March 20, 1996, the Company received $1.0
million of the $4.5 million committed by the Company's majority shareholder
which was due on March 31, 1996.

         Certain reclassifications were made in the prior years' financial
statements to conform to the current year presentation.

PRIVATE AND BUSINESS BANKING

         Private and Business Banking at the Bank combines highly personalized
service with an array of products to meet the complex needs of its primary
clients -- executives, professionals and high net worth or high income
individuals and the private and closely held businesses with which these
individuals are associated. The Bank has specialized in private banking since it
began operations in 1979. In the San Francisco area, the Bank's focus on serving
the needs of its clients has led it to offer a range of services, including
general credit and depository services and specialized corporate escrow
services.

         The Bank seeks to concentrate on establishing relationships with
private and closely held businesses and their owners and operators. In
particular, the Bank seeks relationships with individuals whose financial needs

                                       -1-
<PAGE>   4
require customized banking programs. At December 31, 1995 and 1994, Private and
Business Banking managed approximately $38.0 million and $67.0 million in
deposits, representing approximately 36.0% and 45.5% of the Bank's total
deposits, respectively. At December 31, 1995 and 1994, Private and Business
Banking managed approximately $39.8 million and $72.7 million in loans,
representing approximately 74.8% and 68.3% of the Bank's total loans,
respectively.

         Northern California has a highly diversified economic base, including
high technology electronic manufacturing, scientific research, real estate
construction, retail and wholesale trade and transportation. Much of the
diversity in the economic base is attributable to the service sector, including
finance, accounting, insurance, communications, law, consulting and tourism.
While many of the Bank's loans have been and continue to be collateralized by
real estate, and a significant portion of the Bank's clients' net worth has
historically consisted of real estate holdings, the Bank's deposit and lending
relationships have not been concentrated among borrowers within a specific
trade, service or industrial activity.

ASSOCIATION BANK SERVICES

         Established in 1987, Association Bank Services operates throughout
California and is a major provider of deposit and financial management services
to homeowner and community associations in the State. The Bank offers deposit
accounts for operating funds and reserves, loans, assessment collection services
and investment services to homeowner and community associations. In addition,
the Bank offers lockbox and courier services, expedited deposit processing and
special handling of accounts to simplify banking operations. Deposits from
homeowner and community associations are a key component of the Bank's core
deposit base. A substantial portion of the Association Bank Services deposits
are held in individual accounts that are 100% covered by FDIC insurance. At
December 31, 1995 and 1994, the Association Bank Services Division accounted for
approximately $3.2 million and $3.1 million in loans, representing approximately
6.1% and 2.9% of the Bank's total loans, respectively.

         At December 31, 1995 and 1994, the Association Bank Services accounted
for approximately $22.9 million and $41.6 million in deposits, representing
approximately 21.7% and 28.3% of the Bank's total deposits, respectively. The
Bank also offers a certificate of deposit placement service (CD Placement)
designed to invest a customer's funds in other insured financial institutions up
to a maximum of $100,000 per institution (for which the Bank is paid a fee based
on the average CD Placement investments outstanding).

         Although a substantial portion of the individual Association Bank
Services deposit accounts are fully insured, a small number of "account
managers" control significant numbers of such individual accounts, thus
concentrating control of such deposits in the discretionary authority of a few
individuals. Accordingly, a decision by several such account managers to
withdraw their business from the Bank could have a significant impact on the
Bank's core deposits, and thus on the Bank's liquidity. In August 1995, the
manager and much of the staff of the Association Bank Services function left the
Bank to join a competitor, whose services have been actively marketed to the
Bank's customer base. Since September 30, 1995, there has been a decline of 5%
in Association Bank Service customer deposits, but management does not
anticipate that a significant loss of customer deposits is likely. However,
there can be no assurance that the Bank will be able to continue to stem the
loss of such deposits.

STOCK OPTION SERVICES

         Begun in 1984, Stock Option Services provides a range of brokerage
services combined with a program to facilitate the exercise of stock options by
employees of publicly held companies. The stock option exercise program offers
employees the means to exercise, hold or sell their option shares at a minimum
cost.

         In this program, the Bank makes loans to holders of stock options of
publicly traded companies for the purpose of enabling them to exercise their
options and sell the stock thus acquired. The Bank works with stock transfer and
employee benefits officers to coordinate the payment of the option exercise
price to the company granting such options, the provision for the payment of
taxes related to the exercise of such options, the issuance and subsequent sale
of the underlying stock and the distribution of the net sale proceeds. At
December 31, 1995 and 1994, the total amount of the Bank's stock option loans
outstanding was $1.2 million and $2.1 million, respectively. Such amounts can
vary substantially based upon the timing of the exercise of stock options as
well as market conditions.

                                       -2-
<PAGE>   5
         Historically, approximately 35% of Stock Option Services' clients have
generated over 90% of the fee income of Stock Option Services. These clients are
the focus of Stock Option Services' customer service activities; however, this
concentration of fee income and service activities exposes the Bank to the
possibility of losing certain important clients. This concentration of accounts
leaves the Bank vulnerable to losing a large source of fee income with the
departure of a few clients. Management considers the fee income produced by this
activity to be highly volatile, and there can be no guarantee that income levels
from the activity can be maintained at current levels.

         Stock Option Services is a substantially self-funding activity with
associated deposit balances closely tracking outstanding loan balances. Because
Stock Option Services' deposits are primarily non-interest bearing demand
deposit accounts, the Bank benefits from them by reducing its cost of funds.
Management believes that most of these clients are in industries that continue
to present growth opportunities. Accordingly, stock option programs should
represent a continuing component of such clients' overall compensation programs.
In addition, the Bank is expanding its marketing efforts to increase revenue
resulting from discount brokerage services and to diversify its client base.

ESCROW SERVICES

         Begun in 1989, the Corporate Escrow Services Department ("Escrow")
provides a service for all non-real estate escrows, including the temporary
deposit and investment of funds, deposit of securities, personal property and
other assets by attorneys, business brokers and clients for business
transactions, disputes, life care facilities, and court actions. Escrow has
always made a modest contribution to operating profit and provides a modest
amount of deposits to fund other business activities. At December 31, 1995 and
1994, Escrow managed approximately $8.0 million and $6.6 million in deposits,
representing approximately 7.6% and 4.5% of the Bank's total deposits,
respectively.

TRUST SERVICES

         The Bank was granted trust powers in late 1989, and beginning in 1990,
began to combine the personalized services of private banking with comprehensive
investment management services. The Trust activities have never achieved the
size necessary to generate the revenues required to cover its direct costs. As a
result the Bank has elected to suspend its Trust activities in 1996. The Bank
has so notified its existing Trust clients who are expected to transfer their
trust accounts during the first quarter of 1996. It is expected that the Bank
will resume trust activities in the future when the Bank has achieved a net
income level sufficient to support the investment required to increase trust fee
revenues to a self sustaining level.

REAL ESTATE INVESTMENT AND DEVELOPMENT ACTIVITIES

         Management has withdrawn the Bank from all real estate development
activities. From 1985 through 1992, the Bank was engaged in commercial and
residential real estate development through Bank of San Francisco Real Estate
Investors ("BSFRI"), a wholly-owned subsidiary of the Bank. Then-applicable
regulations and practices of the FDIC and the Federal Reserve Board permitted
state-chartered bank subsidiaries of bank holding companies to engage in real
estate investment activities if such activities were permitted under state law
(as was the case in California). Under FDICIA (see "--Regulation and Supervision
-- Federal Deposit Insurance Corporation Improvement Act of 1991"), the Bank is
no longer permitted to engage in real estate development activities and must
dispose of assets acquired for such purposes. See "-- Regulation and
Supervision." As required by FDICIA, the Bank had filed an plan to continue the
orderly divestiture of its real estate investments by December 19, 1996.

         BSFRI's activities were substantially cut back after 1989. During 1995,
BSFRI did not sell any property. During 1994, BSFRI sold one property. At
December 31, 1995 and 1994, real estate investment totaled $236,000

                                       -3-
<PAGE>   6
and $682,000, or approximately 0.2% and 0.4%, respectively, of the Company's
total assets, excluding real estate accounted for as Bank premises.

LENDING ACTIVITIES

         Historically, the Bank concentrated its lending activities in
commercial and financial loans, in real estate construction and development
loans and real estate mortgage loans made primarily to individuals and
businesses in the San Francisco area and, for a brief period, in the Sacramento
area. The Bank also provides financing for the exercise of employee stock
options. The Bank has offered credit for private or closely held businesses
ranging from $250,000 to $2.5 million and credit to high net worth and high
income individuals ranging from $150,000 to $1.5 million.

         At December 31, 1995 and 1994, the Bank had net loans outstanding of
$47.1 million and $99.5 million, respectively, which represented approximately
44.6% and 67.6% of the Bank's total deposits at those dates and approximately
41.0% and 63.5% of the total assets of the Company. During 1995, the Bank
originated $32.3 million of new loans, compared with $30.5 million of new loans
during 1994. The interest rates charged on the Bank's loans have varied with the
degree of risk, maturity and amount of the loans and have been subject to
competitive pressures, money market rates, funds availability and governmental
regulations. Approximately 83.2% of the Bank's loans have interest rates that
either adjust with the Bank's prime rate or mature within 90 days.

         As of December 31, 1995 and 1994, approximately 70.0% and 70.9%,
respectively, of the Bank's loans were secured by real estate. While the
percentage declined slightly, total loans secured by real estate actually
declined to $37.0 million as of December 31, 1995 from $75.5 million as of
December 31, 1994. A loan may be secured by real estate even though the purpose
of the loan is not to facilitate the purchase or development of real estate and
even though the principal source of repayment is not the sale of the real estate
serving as collateral. However, in accordance with the terms of the Orders the
Bank has agreed to diversify its risk by reducing the Bank's exposure to real
estate lending and investment. See "-- Regulation and Supervision."

     LENDING POLICIES AND PROCEDURES

         The Bank's lending policies are established by the Bank's senior
management and approved by the Board of Directors of the Bank and its Loan and
Investment Committee. The Bank is required by regulation to limit its maximum
outstanding balance to any one borrower to 25% of capital on secured loans and
to 15% of capital on unsecured loans. Secured loans are defined as loans secured
by a first deed of trust or possessory collateral. The Bank has established its
own internal limits on the outstanding balance of any single loan to a maximum
of $1.0 million. Any new or renewed loan for over $100,000 requires the approval
of the Loan and Investment Committee of the Board.

         The Bank assesses the lending risks, economic conditions and other
relevant factors related to the quality of the Bank's loan portfolio in order to
identify possible credit quality risks. The Bank has requested its external
auditors, KPMG Peat Marwick LLP, to perform certain agreed upon procedures
beyond the scope of its external audit procedures in relation to certain loans
selected by the Bank. The credit review consultants review a sample of loans
periodically and report the results of its findings to the Audit Committee of
the Bank's Board of Directors. Results of reviews by the credit review
consultants as well as examination of the loan portfolio by state and federal
regulators are also considered by management in determining the level of the
allowance for loan losses. In addition, the allowance for loan losses is
reviewed and measured against the analysis of individual credits when the
potential for loss exceeds amounts assigned to assets of similar risk
classifications because of collateral values, payment history or economic       
conditions.

         When a borrower fails to make a required payment on a loan, the loan is
classified as delinquent. If the delinquency is not cured, workout procedures
are generally commenced. If workout proceedings are not successful, collection
procedures, which may include collection demands, negotiated restructures,
foreclosures and suits for collection, are initiated. In general, loans are
placed on non-accrual status after being contractually delinquent as to
principal and interest for more than 90 days, or earlier, if management believes
full collection of future principal and interest on a timely basis is unlikely.
When a loan is placed on non-accrual status, all interest accrued but not
received is charged against interest income. During the period in which a loan
is on non-accrual status, any

                                       -4-
<PAGE>   7
payment received may be used to reduce the outstanding loan balance. A
non-accrual loan is restored to an accrual basis when principal and interest
payments are being paid currently and full payment of principal and interest is
expected. Loans that are well secured and in the process of collection remain on
accrual status.

         The Bank may restructure loans as a result of a borrower's inability to
service the obligation under the original terms of the loan agreement.
Restructures are executed only when the Bank expects to realize more from a
restructured loan than from allowing the loan to be foreclosed or seeking other
forms of collection.

     CREDIT QUALITY

         In its lending operations, the Bank continues to take steps to
strengthen its credit management practices and to improve the overall quality of
the loan portfolio. Such steps include instituting more stringent underwriting
standards and emphasizing lending to small businesses, corporations and
individuals for cash flow, inventory funding and other investments. As a result
of the desire to reduce concentrations of real estate loans, the Bank has
substantially eliminated its origination of land acquisition and development
loans other than lending to community redevelopment projects and funding
outstanding commitments. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Valuation Allowances."

     COMPOSITION OF LOAN PORTFOLIO

         The composition of the Bank's loan portfolio at December 31 is
summarized as follows:
<TABLE>
<CAPTION>

                                                                At December 31,
                                     -----------------------------------------------------------------
(Dollars in Thousands)                    1995         1994         1993         1992             1991
                                     -----------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>              <C>
Real estate mortgage                 $  31,388    $  62,149    $  82,403    $  90,099        $ 120,264
Real estate construction                 5,661        9,004       14,023       37,659           61,756
Commercial and financial                16,128       35,268       53,084      107,955           99,343
Net lease financing                         31           31          230          363              490
                                     -----------------------------------------------------------------
                                        53,208      106,452      149,740      236,076          281,853
Deferred fees and discounts, net          (180)        (388)        (550)        (863)          (1,162)
Allowance for possible loan losses      (5,912)      (6,576)      (8,050)      (8,400)
                                     -----------------------------------------------------------------
Total loans, net                     $  47,116    $  99,488    $ 141,140    $ 226,813        $ 272,280
                                     =================================================================
</TABLE>

         The following table presents the loan portfolio at December 31, 1995
based upon various contractually scheduled principal payments allocated to
maturity categories. This table does not reflect anticipated prepayment of
loans.
<TABLE>
<CAPTION>
                                                                 One to         After
                                                   Within          Five          Five
(Dollars in Thousands)                           One Year         Years         Years         Total
                                                 --------------------------------------------------
<S>                                              <C>            <C>           <C>           <C>
Real estate mortgage                              $ 9,103       $12,731       $ 9,554       $31,388
Real estate construction                            5,661            --            --         5,661
Commercial and financial                           11,748         4,069           311        16,128
Net lease financing                                    31            --            --            31
                                                 --------------------------------------------------
     Total loans                                  $26,543       $16,800       $ 9,865       $53,208
                                                 ==================================================
</TABLE>

         Loans due in one year or more include $7.7 million with fixed interest
rates and $18.9 million with floating or adjustable rates based on prime rate.

         Construction Lending and Real Estate Mortgage Lending. Historically,
the Bank has made loans to finance the construction of commercial, industrial
and residential properties and to finance land development. Presently, the
Bank's policy is not to make such loans. From time to time, the Bank sought
participants to share in the funding of real estate construction loans. At
December 31, 1995 and 1994, real estate construction and mortgage loans
constituted approximately 69.6% and 67.5%, respectively, of the Bank's gross
loans outstanding. In 1993, management decided to reduce the Bank's real estate
construction lending activities in order to help further diversify the

                                       -5-
<PAGE>   8
Bank's loan portfolio. Accordingly, gross real estate construction loans
outstanding declined $3.3 million or 37.1%, and $5.0 million or 35.8% at
December 31, 1995 and 1994, respectively.

         The Bank's real estate mortgage loans typically are secured by first or
second deeds of trust on either commercial or residential property, and have
original maturities of three years or more. Such loans have been non- revolving
and generally have had maturities that do not exceed ten years. Repayment terms
generally include principal amortization over a negotiated term, with balloon
principal payments due upon maturity of the loans. The typical purpose of these
loans is the acquisition of real property securing the loan. The primary sources
of repayment have been the properties' cash flow in the case of commercial real
estate loans and the borrowers' cash flow in the case of residential real
estate. The secondary source of repayment is the sale of the real property
securing the loan. Real estate mortgage loans accounted for approximately 59.0%
of the Bank's gross loans outstanding as of December 31, 1995 and 1994.

         At December 31, 1995 and 1994, residential mortgage loans accounted for
$3.5 million and $4.2 million, or 6.6% and 4.0% of gross loans outstanding,
respectively.

         Commercial and Financial Loans. The Bank offers a variety of commercial
and financial lending services, including revolving lines of credit, working
capital loans, letters of credit and loans to facilitate the exercise of stock
options. These loans are typically secured by cash deposits, accounts
receivable, equipment, inventories, investments, real estate and securities. In
underwriting commercial and financial loans, the Bank focuses on the net worth,
income, liquidity and cash flows of the borrower or borrowers and, in the case
of secured loans, the value of the collateral. The Bank's commercial and
financial loans typically bear a floating rate of interest based on the prime
rate. The Bank's commercial and financial loans are primarily in principal
amounts of at least $100,000 and generally have terms of one year or less.

         As of December 31, 1995 and 1994, the Bank had commercial and financial
loans outstanding of $16.1 million and $33.3 million constituting approximately
30.3% and 31.3% of the Bank's gross loans, respectively. As of December 31,
1995, approximately 72.8% of the Bank's gross commercial and financial loans
were scheduled to mature within one year. During 1995, no single commercial
client accounted for more than 2.9% of the Bank's outstanding loan financings.

         At December 31, 1995 and 1994, the total amount of the Bank's stock
option loans outstanding was $1.2 million and $2.1 million, respectively. See
"-- Stock Option Services."

PROBLEM ASSET PORTFOLIO

         The Bank's problem assets portfolio consists of non-performing loans,
real estate held after foreclosure ("other real estate owned" or "OREO"), real
estate with an impaired value that was originally acquired by the Bank for its
own development and loans that are performing but otherwise have undesirable
characteristics (as a result, for instance, of impaired collateral or adverse
developments with respect to the borrower's ability to service the loan out of
the cash flow of the collateral property). As a result of the Bank's real
estate lending and the weak economic condition of the California real estate
markets, a significant number of loans and investments made by the Bank from
1985 through 1992 have subsequently proven difficult or impossible to recover
without incurring losses. As of December 31, 1995, the Bank had $7.5 million in
problem loans and $7.8 million in other problem assets (OREO and real estate
investments).

         In 1995, the Bank reduced its problem asset portfolio by $4.8 million,
from $20.1 million to $15.3 million, in accordance with the requirements of the
Orders (See "-- Regulatory Agreement and Orders"), through resolutions, charge
offs and improvements in loan quality. Of the $15.3 million of problem assets in
the Bank's portfolio at December 31, 1995, properties classified by the Bank as
other real estate owned comprised 49.0% of the total value of the problem asset
portfolio and 49.0% was held on a non-accrual basis. Based upon information
presently available, management believes that the Bank has made sufficient
provision to its allowance for possible loan losses and specific reserves to
absorb expected losses that might result from the Bank's current strategies to
resolve the problem assets.

                                       -6-
<PAGE>   9
         Presently, the Bank's strategies include the reduction of problem
assets through individual sales and workout plans. Management expects that such
efforts would not be likely to entail further write downs of the problem assets
but there can be no assurance of this.

CORRESPONDENT BANKS

         The Bank has correspondent relationships with twelve banks for the
purpose of check clearing, selling federal funds, buying and selling investment
securities, the safekeeping of investment portfolio and related record keeping,
stock registration and stock transfer services, credit card issuance and
servicing, and issuance of letters of credit.

EMPLOYEES

         At December 31, 1995, the Company and the Bank employed 47 persons,
consisting of 44 full-time and 3 part-time employees.

COMPETITION

         The banking business in California, and specifically the market area
served by the Bank, is highly competitive. The Bank competes for loans and
deposits with other commercial banks, including some of the country's and the
world's largest banks, savings and loan associations, finance companies, money
market funds, brokerage houses, credit unions and non-financial institutions. By
virtue of their larger amounts of capital, many of the financial institutions
with which the Bank competes have significantly greater lending limits than the
Bank and perform certain functions, including corporate trust services and
international banking services, which are not presently offered directly by the
Bank although such functions may be offered indirectly by the Bank through
correspondent institutions.

         The Bank's strategy for meeting its competition has been to concentrate
on discrete segments of the market for financial services, particularly small to
medium-sized businesses and their owners, professionals, corporate executives,
affluent individuals, and homeowners and community associations, by offering
specialized and personalized banking services to such clients. In addition, the
Bank offers a range of brokerage services to employees of publicly held
companies and Private and Business Banking clients where it competes with other
brokerage firms, including some of the country's largest brokerage firms.

         From time to time, legislation has been and continues to be proposed or
enacted which has the effect of increasing the cost of doing business for banks,
limiting the permissible activities of banks, or affecting the competitive
balance between banks and other financial institutions or between large banks
and small banks. It is difficult to predict the competitive impact that these
and other changes in legislation may have in the future on commercial banking in
general or on the business of the Bank in particular.

                                       -7-
<PAGE>   10
REGULATORY AGREEMENT AND ORDERS

     CAPITAL ORDERS

         On March 24, 1995, the California State Banking Department (the "SBD")
issued an order for the Bank to increase its capital (the "Capital Order"). The
Capital Order required that the Bank increase its capital by $4.2 million on or
before April 10, 1995 and by a minimum amount necessary to at least equal the
amount of capital necessary to increase shareholder's equity to not less than
7.0% of total tangible assets (the "Leverage Capital") on or before June 30,
1995. During the second quarter 1995, the Company received contributions
totaling $4.3 million in capital from its majority shareholder. The Company
contributed $4.7 million to the Bank during the second quarter of 1995. As of
December 31, 1995, with the second quarter 1995 infusion of capital and the 1995
earnings, the Bank is considered adequately capitalized for the purpose of the
industry standard capital categories and the FDIC has so notified the Bank.

         On February 26, 1996, the Company's majority shareholder committed to
investing additional capital totaling $4.5 million in the Company in
installments throughout 1996 in order to meet the minimum requirements of the
Capital Order and the Orders as described below. On March 20, 1996, the Company
received $1.0 million of the $4.5 million committed by the Company's majority
shareholder which was to be received by March 31, 1996. The Company contributed
the capital to the Bank. As a result of the March 20, 1996 capital contribution,
the Bank expects to meet the minimum Leverage Capital ratio of 7% as of March
31, 1996, but the Bank is not in compliance with the Capital Order. No
assurances have been given that the SBD will refrain from taking action against
the Bank to enforce its Capital Order should the Bank's Leverage Capital ratio
fall below the 7.0% minimum requirement.

     FEDERAL RESERVE BOARD WRITTEN AGREEMENT

         On December 16, 1994, the Company and the FRB entered into a Written
Agreement (the "Agreement") that supersedes the previous FRB directive dated
April 20, 1992. The Agreement prohibits the Company, without prior approval of
the FRB, from: (a) paying any cash dividends to its shareholders; (b) directly
or indirectly, acquiring or selling any interest in any entity, line of
business, problem or other assets; (c) executing any new employment, service, or
severance contracts, or renewing or modifying any existing contracts with any
executive officer; (d) engaging in any transactions with the Bank that exceeds
an aggregate of $20,000 per month; (e) engaging in any cash expenditures with
any individual or entity that exceeds $25,000 per month; (f) increasing fees
paid to any directors for attendance at board or committee meetings, or paying
any bonuses to any executive officers; (g) incurring any new debt or increasing
existing debt; and (h) repurchasing any outstanding stock of the Company. The
Company is required to submit a progress report to the FRB on a quarterly basis.

         The Company was also required to submit to the FRB an acceptable
written plan to improve and maintain an adequate capital position, a
comprehensive business plan concerning current and proposed business activities,
and a comprehensive operating budget for the Bank and the consolidated Company.
In addition, the Board of Directors was required to submit an acceptable written
plan designed to enhance their supervision of the operations and management of
the consolidated organization.

         The Company has filed all of the required submissions with the FRB in
accordance with the Agreement and management believes the Company is in
compliance with the Agreement.

     CEASE AND DESIST ORDERS

         On August 18, 1993, the Bank, without admitting or denying any alleged
charges, stipulated to Cease and Desist Orders (the "Orders") issued by the FDIC
and the SBD that became effective August 29, 1993 (the "Orders Effective Date").
The Orders directed, among other things, that the Bank: (a) achieve and maintain
a 7% leverage capital ratio on and after September 30, 1993; (b) pay no
dividends without the prior written consent of the FDIC and the California
Superintendent of Banks (the "Superintendent"); (c) reduce the $88.6 million in
assets classified "Substandard" or "Doubtful" as of November 30, 1992 (the date
of the then most recent full-scope FDIC and SBD Report of Examination of the
Bank), to no more than $40.0 million by September 30, 1994; (d) have and retain
management whose qualifications and experience are commensurate with their
duties and responsibilities to operate the Bank in a safe and sound manner,
notify the FDIC and the Superintendent at least 30 days prior to adding or

                                       -8-
<PAGE>   11
replacing any new director or senior executive officer, and comply with certain
restrictions in compensation of senior executive officers; (e) maintain an
adequate reserve for loan losses; (f) not extend additional credit to, or for
the benefit of, any borrower who had a previous loan from the Bank that was
charged off or classified "Loss" in whole or in part; (g) develop and implement
a plan to reduce its concentrations of construction and development loans; (h)
not increase the amount of its brokered deposits above the amount outstanding on
the Orders Effective Date ($20.0 million) and submit a written plan for
eliminating reliance on brokered deposits; (i) revise or adopt, and implement,
certain plans and policies to reduce the Bank's concentration of construction
and land development loans, reduce the Bank's dependency on brokered deposits
and out of area deposits, and to improve internal routines and controls; (j)
reduce the Bank's volatile liability dependency ratio to not more than 15% by
March 31, 1994; (k) eliminate or correct all violations of law set out in the
most recent Report of Examination, and take all necessary steps to ensure future
compliance with all applicable laws and regulations; and (l) establish a
committee of three independent directors to monitor compliance with the Orders
and report to the FDIC and the Superintendent on a quarterly basis.

         The findings of the FDIC and SBD at their recent examination which
began January 29, 1996 were the Bank was not in compliance with certain
provisions of the Orders. As of December 31, 1995, the Bank did meet the
industry-wide capital requirements but failed to meet the 7% leverage ratio
imposed by the Orders. With the $1.0 million in capital contributed on March 20,
1996, the Bank expects to meet the minimum capital requirement of the Orders.
The Bank reduced its volatile liability dependency ratio to below the
requirement of the Order of 15% to negative 17% as of December 31, 1995.
Management believes that as of March 29, 1996 it is in substantial compliance
with the requirements of the Orders.

     CAPITAL IMPAIRMENT ORDERS

         The California Financial Code (the "Financial Code") requires the
Superintendent to order any bank whose contributed capital is impaired to
correct such impairment within 60 days of the date of his or her order. Under
Section 134(b) of the Financial Code, the "contributed capital," defined as all
shareholders' equity other than retained earnings, of a bank is deemed to be
impaired whenever such bank has deficit retained earnings in an amount exceeding
40% of such contributed capital. Under Section 662 of the Financial Code, the
Superintendent has the authority, in his or her discretion, to take certain
appropriate regulatory action with respect to a bank having impaired contributed
capital, including possible seizure of such bank's assets. A bank that has
deficit retained earnings may, subject to the approval of its shareholders and
of the Superintendent, readjust its accounts in a quasi- reorganization, which
may include eliminating its deficit retained earnings, under Section 663 of the
Financial Code. However, a bank that is not able to effect such a
quasi-reorganization or otherwise to correct an impairment of its contributed
capital within 60 days of an order to do so from the Superintendent must levy
and collect an assessment on its common shares pursuant to Section 423 of the
California Corporations Code.

         As of December 31, 1995, the Bank had contributed capital of $70.9
million and deficit retained earnings of $64.0 million, or approximately 90.3%
of contributed capital, within the meaning of Section 134(b) of the Financial
Code. Thus, under Section 134(b) of the Financial Code, the Bank's contributed
capital was impaired as of that date in the approximate amount of $35.6 million.
The Superintendent issued orders, most recently on February 5, 1996, to the Bank
to correct the impairment of its contributed capital within 60 days. As the sole
shareholder of the Bank, the Company (not the Company's shareholders) will
receive any notices of assessment issued by the Bank. The Bank is in violation
of this California law requiring it to assess the shares of the Bank (which are
all held by the Company) in order to correct the impairment of the Bank's
capital.

         In response to the February 5, 1996 order requiring the Bank to correct
its impaired capital within 60 days, the Bank notified the SBD in writing that
it did not believe it will be in a position to comply with the order within 60
days, and requested the SBD's cooperation as the Company implements its business
plan, and as the Company continues to consider the requirements for a
quasi-reorganization. It is the policy of the Superintendent not to grant a
quasi-reorganization unless a Bank can establish that (a) it has adequate
capital, (b) the problems that created past losses and the impairment of capital
have been corrected and (c) it is currently operating on a profitable basis and
will continue to do so in the future. As long as the Bank's contributed capital
is impaired, the Superintendent is authorized to take possession of the property
and business of the Bank, or to order the Bank to comply with the legal
requirement and levy an assessment on the shares of the Bank held by the Company
sufficient to correct the impairment. As the Company is the sole shareholder of
the Bank, the assessment would be made on the Company. The Company does not have
the funds to satisfy such an assessment. Management believes, however, that the

                                       -9-
<PAGE>   12
Superintendent has never exercised his bank takeover powers under Section 134
solely on the basis that a bank's capital is impaired under the standards set
forth in Section 134.

REGULATION AND SUPERVISION

         Bank holding companies and banks are subject to extensive supervision
and regulation. The following summaries of certain statutes and regulations
affecting banks and bank holding companies do not purport to be complete. Such
summaries are qualified in their entirety by reference to such statutes and
regulations.

     THE COMPANY

         The Company, as a bank holding company, is subject to regulation under
the U.S. Federal Bank Holding Company Act of 1956, as amended (the "Holding
Company Act"), and is registered with and subject to the supervision of the FRB.
It is the policy of the FRB that each bank holding company serve as a source of
financial and managerial strength to its subsidiary banks and conduct its
operations in an safe or sound manner.

         The Holding Company Act generally restricts the Company from engaging
in any business other than managing or controlling banks or furnishing services
to its subsidiaries. Among the exceptions to such restrictions are certain
activities which, in the opinion of the FRB, are so closely related to banking
or to managing or controlling banks as to be a proper incident to banking. The
Company also is generally prohibited from acquiring direct or indirect ownership
or control of more than 5% of any class of voting shares of any company unless
that company is engaged in activities permissible for bank holding companies and
the Company receives the prior approval of the FRB.

         The Company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit, sale or
lease of property or provision of services. For example, with certain
exceptions, the Bank is not permitted to condition an extension of credit on a
customer obtaining other services provided by it or the Company, or on a promise
by the customer not to obtain other services from a competitor. The FRB is,
however, becoming increasingly receptive to pricing rebates conditioned upon the
Bank customer purchasing bundled groups of services. In addition, applicable
federal law imposes certain restrictions on transactions between the Bank and
its affiliates. As an affiliate of the Bank, the Company is subject, with
certain exceptions, to the provisions of federal law imposing limitations on,
and requiring collateral for, loans by the Bank to any affiliate.

         The Holding Company Act also requires the Company to obtain the prior
approval of the FRB before acquiring all or substantially all of the assets of
any bank or ownership or control of the voting shares of any bank if, after
giving effect to such acquisition, the Company would own or control, directly or
indirectly, more than 5% of any class of voting shares of such bank.

         Finally, the Company is subject to restrictions on its operations
imposed by the Agreement. See "-- Regulatory Agreement and Orders -- Federal
Reserve Board Written Agreement."

     THE BANK

         The Bank is a California state-chartered bank and is subject to
regulation, supervision and periodic examination by the SBD and the FDIC. The
Bank is not a member of the Federal Reserve System, but is nevertheless subject
to certain regulations of the FRB. The Bank's deposits are insured by the FDIC
to the maximum amount permitted by law, which is currently $100,000 per
depositor in most cases.

         The regulations of state and federal bank regulatory agencies govern
most aspects of the Bank's business and operations, including but not limited
to, the scope of its business, its investments, its reserves against deposits,
the timing of the availability of deposited funds, the payment of dividends,
potential expansion, and the maximum rates of interest allowed on certain
deposits.

                                      -10-
<PAGE>   13
         The Bank is subject to regulatory and operating restrictions pursuant
to several orders and a notification issued by the FDIC and SBD. These orders
and restrictions are discussed in full in "Regulatory Agreement and Orders".

     CAPITAL ADEQUACY REQUIREMENTS

         The Company is subject to the FRB's capital guidelines for bank holding
companies while the Bank is subject to the FDIC's regulations governing capital
adequacy for nonmember banks and to similar rules under California banking law.
As noted below, the Federal banking agencies have solicited comments on a
proposed regulation which would impose additional capital requirements on banks
based on the interest rate risk inherent in a bank's portfolio. While press
reports have suggested that this proposal will not be adopted, the banking
agencies have not withdrawn it.

         The FRB has established a minimum leverage ratio of 3% Tier 1 capital1
to total assets for bank holding companies that have received the highest
composite regulatory rating (a regulatory measurement of capital, assets,
management, earnings and liquidity) and that are not anticipating or
experiencing any significant growth. All other institutions will be required to
maintain a leverage ratio of at least 100 to 200 basis points above the 3%
minimum.

         FRB regulations require bank holding companies to maintain a minimum
ratio of qualifying total capital to risk-weighted assets of 8.00%. Risk-based
capital ratios are calculated with reference to risk-weighted assets, including
both on and off-balance sheet exposures, which are multiplied by certain risk
weights assigned by the FRB to those assets. At least one-half of the qualifying
capital must be in the form of Tier 1 capital.

         In certain circumstances, the FRB may determine that the capital ratios
for a bank holding company must be maintained at levels which are higher than
the minimum levels required by the guidelines. A bank holding company which does
not achieve and maintain the required capital levels may be issued a capital
directive by the FRB to ensure the maintenance of required capital levels.

         The FDIC has established risk-based and leverage capital regulations
for state nonmember banks which are similar to the FRB's capital guidelines for
bank holding companies. In addition to these capital requirements, the Orders
require the Bank to meet an individual minimum capital requirement after
September 30, 1993 of 7% for Tier 1 capital to total average assets (leverage
ratio). The Bank's leverage capital ratio was 6.0% as of December 31, 1995. See
"-- Regulatory Agreement and Orders."

     PAYMENT OF DIVIDENDS

         Since April 20, 1992, the FRB has prohibited the Company from paying
any cash dividends to its shareholders without prior FRB approval. The ability
of the Company to pay dividends in the future will depend in large part on the
Company's ability to satisfy the concerns of the FRB as set forth in the
Agreement regarding the financial performance of the Company, and the ability of
the Bank to make dividend payments to the Company. The Bank's ability to make
dividend payments is dependent upon the ability of the Bank to return to
profitability, to satisfy the regulatory concerns expressed in the Orders, and
the ability of the Bank to cure its capital impairment or obtain approval from
the SBD to conduct a quasi-reorganization to reduce or eliminate the Bank's
deficit retained earnings. See "-- Regulatory Agreement and Orders -- Capital
Impairment Order."

         In addition, any future payment of dividends by the Bank is subject to
meeting the state law requirement that amount of funds available for a cash
dividend shall be the lesser of retained earnings of the bank or the bank's net
income for its last three fiscal years (less the amount of any distributions to
shareholders made during such period). If the above test is not met, cash
dividends may be paid with the prior approval of the SBD, in an amount

-------------------------
1/ Tier 1 capital is generally defined as the sum of the core capital elements
less goodwill and certain intangibles. The following items are defined as core
capital elements: (i) common stockholders' equity; (ii) qualifying noncumulative
perpetual preferred stock; and (iii) minority interests in the equity accounts
of consolidated subsidiaries.

                                      -11-
<PAGE>   14
not exceeding greatest of the bank's retained earnings, net income for its last
fiscal year, or the amount of its net income for its current fiscal year.

         Accordingly, any future payment of cash dividends will depend upon the
Bank correcting its capital impairment, meeting applicable capital requirements,
maintaining an adequate allowance for loan and lease losses, satisfying the
terms of the Orders outstanding against it, its ability to conduct profitable
operations and other factors.

     FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991

     General

         FDICIA primarily addresses the safety and soundness of the deposit
insurance fund, supervision of and accounting by insured depository institutions
and prompt corrective action by the federal bank regulatory agencies for
troubled institutions. FDICIA gives the FDIC, in its capacity as federal insurer
of deposits, broad authority to promulgate regulations to assure the viability
of the deposit insurance fund including regulations concerning safety and
soundness standards. FDICIA also places restrictions on the activities of
state-chartered institutions and on institutions failing to meet minimum capital
standards and provides enhanced enforcement authority for the federal banking
agencies. FDICIA has strengthened FRB regulations regarding insider
transactions.

     Prompt Corrective Action

         FDICIA amended the Federal Deposit Insurance Act (the "FDIA") to
establish a format for closer monitoring of insured depository institutions and
to enable prompt corrective action by regulators when an institution begins to
experience difficulty. The general thrust of these provisions is to impose
greater and earlier scrutiny and more restrictions on institutions as their
requirements for additional capitalization increases.

         FDICIA establishes five capital categories for insured depository
institutions: (a) Well Capitalized;2 (b) Adequately Capitalized;3 (c)
Undercapitalized;4 (d) Significantly Undercapitalized;5 and (e) Critically
Undercapitalized.6 All insured institutions (i.e., the Bank) are barred from
making capital distributions or paying management fees to a controlling person
(i.e., the Company) if to do so would cause the institution to fall into any of
the three undercapitalized categories. At December 31, 1995, the Bank was
considered adequately capitalized.

         Undercapitalized institutions are subject to several mandatory
supervisory actions, including increased monitoring and periodic review of the
institution's efforts to restore its capital, submitting an acceptable capital
restoration plan, restricted asset growth, and limits on acquisitions, new
branches or new lines of business. A parent holding company of an
undercapitalized bank is expected to guarantee that the bank will comply with
the bank's capital restoration plan until the bank has been adequately
capitalized, on the average, for four (4)

-------------------------------

2/ Well Capitalized means a financial institution with a total risk-based ratio
of 10% or more, a Tier 1 risk-based ratio of 6% or more and a leverage ratio of
5% or more, so long as the institution is not subject to an order, written
agreement, capital directive or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure.

3/ Adequately Capitalized means a total risk-based ratio of 8% or more, a Tier 1
risk-based ratio of 4% or more and a leverage ratio of 4% or more (3% or more if
the institution has received the highest composite rating in its most recent
report of examination) and does not meet the definition of a Well Capitalized
institution.

4/ Undercapitalized means a financial institution with a total risk-based ratio
of less than 8%, a Tier 1 risk-based ratio of less than 4% or a leverage ratio
of less than 4%.

5/ Significantly Undercapitalized means a financial institution with a total
risk-based ratio of less than 6%, a Tier 1 risk-based ratio of less than 3% or a
leverage ratio of less than 3%.

6/ Critically Undercapitalized means a financial institution with a ratio of
tangible equity to total assets that is equal to or less than 2%.

                                      -12-
<PAGE>   15
consecutive quarters. Such guarantee is limited to the lesser of 5% of the
bank's total assets at the time it became undercapitalized or the amount
necessary to bring the bank into full capital compliance.

         Significantly undercapitalized institutions and undercapitalized
institutions that fail to submit and implement adequate capital restoration
plans are subject to the mandatory provisions applicable to undercapitalized
institutions and, in addition, may be required to: sell additional capital,
including voting shares; restrict transactions with affiliates; restrict
interest rates paid on deposits; restrict asset growth or reduce total assets;
terminate, reduce or alter any risky activities; elect new directors and install
new management; cease accepting deposits from correspondent depository
institutions; or divest or liquidate certain subsidiaries. A bank holding
company may be required to divest itself of any affiliate of the institution
(other than another insured depository institution) under certain conditions.

         In addition, significantly undercapitalized institutions will be
prohibited from paying any bonus or raise to a senior executive officer without
prior agency approval. No such approval will be granted to an institution which
is required to but has failed to submit an acceptable capital restoration plan.

         Critically undercapitalized institutions are required to enter into a
written agreement to increase Tier I leverage capital to such level as the FDIC
deems appropriate or the institution may be subject to termination of insurance
action by the FDIC. The written agreement would require the immediate efforts by
the institution to acquire the required capital.

         FDICIA also provides that if a well or adequately capitalized or
undercapitalized institution is in an unsafe or unsound condition or is engaging
in an unsafe or unsound practice, its capital category may be downgraded to
achieve a higher level of regulatory scrutiny and prompt corrective action.
FDICIA restricts the solicitation and acceptance of and interest rates payable
on brokered deposits by insured depository institutions that are not well
capitalized and has added new bases for which a conservator or receiver may be
appointed for undercapitalized and critically undercapitalized institutions and
under certain other circumstances not relating to capital levels. Finally,
FDICIA establishes a risk-based assessment system for calculating a depository
institution's semiannual deposit insurance premium under which institutions pay
premiums based upon their capital classification and supervisory risk.

     Brokered Deposits

         FDICIA restricts the acceptance of brokered deposits by insured
depository institutions that are not well capitalized. It also places
restrictions on the interest rate payable on brokered deposits and the
solicitation of such deposits. An undercapitalized institution will not be
allowed to solicit brokered deposits by offering rates of interest that are
significantly higher than the prevailing rates of interest on insured deposits
in the particular institution's normal market areas or in the market area in
which such deposits would otherwise be accepted.

         The FDIC has promulgated final regulations with respect to the ability
of insured depository institutions in each of the new capitalization categories
to accept brokered deposits. Under the regulations, undercapitalized
institutions are prohibited from accepting funds obtained directly or indirectly
though a deposit broker. Adequately capitalized institutions may accept brokered
deposits only if a waiver is first obtained from the FDIC. Well capitalized
institutions are permitted by the regulations to accept brokered funds without
restriction. For purposes of the brokered deposit regulation the FDIC has stated
that the term "well capitalized" means an institution whose leverage and
risk-based capital ratios are at least one to two percentage points higher than
those currently required by applicable regulations, and which has not been
notified that it is in a troubled condition.

         In addition to the above restrictions on acceptance of brokered
deposits, FDICIA provides that no pass-through deposit insurance will be
provided to employee benefit plan deposits accepted by an institution which is
ineligible to accept brokered deposits under applicable law and regulations.

         Under the Order, the Bank is required to submit a written plan to the
FDIC for eliminating its reliance on brokered deposits, and to provide the
Regional Director of the FDIC and the SBD with monthly written reports outlining
the Bank's progress under the plan. The FDIC had granted the Bank permission to
renew brokered deposits through September 1995, provided that the Bank continued
to meet the definition of an adequately capitalized institution.

                                      -13-
<PAGE>   16
     Conservatorship and Receivership

         FDICIA adds grounds to the previously existing list of reasons for
appointing a conservator or receiver for an insured depository institution
including: (a) substantial dissipation of assets or earnings due to an unsafe or
unsound practice or any violation of law or regulation; (b) existence of an
unsafe or unsound condition; (c) any willful violation of a cease and desist
order; (d) any concealment of assets, records, books or papers from any federal
or state bank regulatory agency; (e) likely inability of the institution to meet
obligations in the normal course of business; (f) losses threatening capital;
(g) the institution becomes undercapitalized where certain factors are present
suggesting the institution may not become adequately capitalized; or (h) the
institution is critically undercapitalized or otherwise has substantially
insufficient capital. The FDIC's March 28, 1995 Notification of Capital Category
included a determination that the Bank was critically undercapitalized thus
making the Bank eligible for conservatorship or receivership. As of December 31,
1995, the Bank is considered adequately capitalized for the purpose of the 
industry standard capital categories and the FDIC has so notified the Bank.

         FIRREA provides other grounds upon which a receiver or conservator may
be appointed for a state bank. These other grounds include "having substantially
insufficient capital," incurrence or likely incurrence of losses that will
deplete all or substantially all of a bank's capital with no reasonable prospect
for that capital to be replenished without federal assistance, or a violation of
law or regulation which is likely to weaken the condition of the institution.

     Deposit Insurance Premiums

         The FDIC currently charges higher deposit insurance premiums on banks
which pose greater risks to the deposit insurance fund. Under the rule, a bank
is required to pay an annual insurance premium for domestic deposits, depending
upon the bank's risk classification. A bank's risk classification is determined
by the FDIC according to the bank's capital ratios and the FDIC's evaluation of
the bank based upon federal and state supervisory examinations and other
relevant information. Under the classification system, the FDIC has assigned the
Bank its medium risk classification and set the Bank's deposit insurance premium
at 0.24% of average deposits.

     Restrictions on Insured State Bank Activities and Investments

         FDIC regulations generally prohibit an insured state bank from directly
engaging as principal in any activity that is not permissible for a national
bank, and also prohibit majority-owned subsidiaries of an insured state bank
from engaging in any activity that is not permissible for a subsidiary of a
national bank, unless the bank meets and continues to meet applicable minimum
capital standards and the FDIC determines that the conduct of the activity by
the bank and/or its majority-owned subsidiary will not pose a significant risk
to the deposit insurance funds.

         If consent to engage in the activity is denied, the bank is required to
cease the activity not later than one year from the denial. However, the FDIC
may condition or restrict the conduct of any impermissible activity during this
phase-out period. If the activities of a subsidiary are denied consent by the
FDIC, the bank is required to divest its interest in the subsidiary as quickly
as prudently possible, but in no event later than December 19, 1996.
Alternatively, the bank may discontinue the impermissible activity, but this
must be effected within one year of the date of denial.

         These regulations also impose new restrictions on real estate
investments, requiring that undercapitalized banks with subsidiaries holding
impermissible equity investments in real estate have ceased the activity by June
8, 1994, and divest the subsidiary or the real estate investments owned by the
subsidiary as soon as practicable, but in no event later than December 19, 1996.
State banks also must obtain the prior consent of the FDIC before making real
estate loans other than in compliance with guidelines established for national
banks. The Bank has conducted real estate investment activities through its
subsidiary BSFRI. As required by FDICIA, the Bank has filed an application to
continue the orderly divestiture of its real estate investments until December
19, 1996. The Bank was granted until December 31, 1995 to effect an orderly
divestiture of its real estate investments. Although the divestiture has not yet
been completed, the FDIC has not taken enforcement action against the Bank with
respect to such divestiture. The Bank has filed a request to extend the
application to continue the orderly divestiture by December 19, 1996.

                                      -14-
<PAGE>   17
     Proposed Standards on Safety and Soundness

         Pursuant to the requirements of FDICIA, recent FDIC and FRB regulations
promulgated under the Federal Deposit Insurance Act (FDIC Regulation Part 364
and FRB Regulation 12 CFR Sections 263.300-305) provide new safety and soundness
standards for insured non-member banks and bank holding companies.

         The new Interagency Guidelines for Establishing Standards for Safety
and Soundness set out a series of criteria for a financial institution's own
policies, procedures, and systems in the areas of internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, and interest rate exposure. In addition, criteria are provided as
to what may constitute excessive compensation.

     Extensions of Credit to Insiders and Transactions with Affiliates

         The Federal Reserve Act and FRB regulations, which are applicable to
state nonmember banks under regulations of the FDIC, place limitations and
conditions on loans or extensions of credit to: a bank's or bank holding
company's executive officers, directors and principal shareholders (i.e., in
most cases, those persons who own, control or have power to vote more than 10%
of any class of voting securities); any company controlled by any such executive
officer, director or shareholder; or any political or campaign committee
controlled by such executive officer, director or principal shareholder.

         Loans extended to any of the above persons must comply with
loans-to-one-borrower limits, require prior full board approval when aggregate
extensions of credit to such person exceed specified amounts, must be made on
substantially the same terms (including interest rates and collateral) as, and
following credit-underwriting procedures that are not less stringent than, those
prevailing at the time for comparable transactions with non- insiders, and must
not involve more than the normal risk of repayment or present other unfavorable
features. Regulation O also prohibits a bank from paying an overdraft on an
account of an executive officer or director, except pursuant to a written
pre-authorized interest-bearing extension of credit plan that specifies a method
of repayment or a written pre-authorized transfer of funds from another account
of the officer or director at the bank.

         The provisions of Regulation O summarized above reflect substantial
strengthening as a result of the adoption of FDICIA. FDICIA also resulted in an
amendment to Regulation O which provides that the aggregate limit on extensions
of credit to all insiders of a bank as a group cannot exceed the bank's
unimpaired capital and unimpaired surplus.

     Government Monetary Policy

         The earnings of the Bank and, therefore, the earnings of the Company,
are and will be affected by the policies of regulatory authorities, including
the FRB. An important function of the FRB is to regulate the national supply of
bank credit. Among the instruments used to implement these objectives are open
market operations in U.S. Government securities, changes in reserve requirements
against bank deposits, and changes in the discount rate which banks pay on
advances from the Federal Reserve System. These instruments are used in varying
combinations to influence overall growth and distribution of bank loans,
investments and deposits, and their use may also affect interest rates on loans
or interest rates paid for deposits. The monetary policies of the FRB have had a
significant effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. The effect, if any, of such
policies upon the future business earnings of the Company and the Bank cannot be
predicted.

     RECENT FEDERAL AND STATE LEGISLATION

     FEDERAL

         In late September of 1994, two major pieces of financial services
legislation were signed into law.

         The Riegle Community Development and Regulatory Improvement Act of 1994
seeks to facilitate securitization of small business loans, reduce bank's
paperwork and regulatory burden, streamline anti-money laundering rules, and
toughen flood insurance compliance.

                                      -15-
<PAGE>   18
         Small Business Capital Formation Small business access to capital is
encouraged by Title II of the ACT, which seeks to remove impediments in existing
law to the securitization of small business loans and leases. The Small Business
Loan Securitization and Secondary Market Enhancement Act of 1994 creates a
secondary market framework for small business related securities, with the goal
of stimulating the flow of funds to small businesses.

         Paperwork Reduction and Regulatory Improvement Title III of the Act of
1994 provides a number of initiatives to lessen the regulatory burden placed
upon banks and other depository institutions. Title III also affects a number of
the consumer compliance laws by allowing streamlined disclosures for radio
advertising of consumer leases, providing consumers with information necessary
to challenge an "adverse characterization" due to a credit reporting agency
report and by clarifying the disclosure requirements under the Real Estate
Settlement Procedures Act regarding the transfer of serviced mortgaged loans.

         Money Laundering Title IV addressed reform of Currency Transaction
Reports to increase their usefulness to the Federal Government and to various
law enforcement agencies in combating money laundering. The measure also calls
for improvement in the identification of money laundering schemes, better
controls over negotiable instruments drawn on foreign banks by making them
subject to reporting, and uniform licensing and registration of check cashing
and money transmitting businesses, which may be used to facilitate illegal
currency transactions. A new form of reporting suspicious transactions and
activity has recently been promulgated.

         Flood Insurance Title V, the "National Flood Insurance Reform Act of
1994" reforms the financial condition of the National Flood Insurance Program
(NFIP). This legislation requires improved compliance with the mandatory
purchase requirements of the NFIP by bank lenders and secondary market
purchasers.

         Mergers and Acquisitions The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 liberalizes both interstate banking by way of
bank subsidiaries and provides for phased-in direct interstate branch banking.
Specifically, Title I of the Interstate Banking Act allows adequately
capitalized and managed bank holding companies to acquire banks in any state
starting one year after enactment. Another important provision allows interstate
merger transactions beginning June 1, 1997. States are permitted, however, to
pass legislation providing for either earlier approval of mergers with out-of
State banks, or "opting-out" of interstate mergers entirely and as noted below,
California has "opted in" the interstate banking effective October 2, 1995.
Through interstate merger transactions, banks will be able to acquire branches
of out-of-State banks by converting their offices into branches of the resulting
bank. The Act provides that it will be the exclusive means for bank holding
companies to obtain interstate branches.

         Protecting key provisions of State law, the Act provides that required
conditions and commitments made relating to interstate mergers that predate the
Act's affective date will remain in force. After the Act becomes effective,
State taxation, community reinvestment, antitrust, deposit concentration caps
and minimum age provisions will be honored unless preempted. In this regard,
Congress intended that the Act does not alter time-tested preemption rules.
Moreover, the Act expressly states that neither current federal law, nor the
Act's amendments provide authority to preempt State law dealing with homestead
protection.

         Branching and Community Guidelines Banks may establish and operate a
"de novo branch" in any State that "opts-in" to de novo branching. Foreign banks
are allowed to operate branches, either de novo or by merger. These branches can
operate to the same extent that the establishment and operation of such branches
would be permitted if the foreign bank were a national bank or state bank.
Interstate banks proposing to close any branch in low-or moderate income areas
are now required to provide notice to customers of the proposed closing.

         Title I also requires each Federal banking agency to prescribe uniform
regulations including guidelines ensuring that interstate branches operated by
out-of-State banks are reasonably helping to meet the credit need of communities
where they operate. These agencies are required to conduct evaluations of
overall Community Reinvestment Act performance of institutions with interstate
branches. New procedural requirements are also required of the Federal banking
agencies pertaining to agency preemption opinion letters and interpretive rules
in connection with community reinvestment, consumer protection, fair lending and
establishment of interstate branches.

         From the competitive viewpoint, the direct interstate banking and
enhanced interstate banking could be expected in increase the level of
competition faced by the Company and the Bank in California as well as widen the
universe of buyers of attractive banks in California.

                                      -16-
<PAGE>   19
         Revival of Statute of Limitations Title II, among other things, permits
in certain circumstances, the FDIC or Resolution Trust Corporation, acting as
conservator or receiver of a failed depository institution to "revive" tort
claims that had expired under a State statute of limitations within five years
of the appointment of a receiver or conservator.

     State

         As a California state-chartered bank, the Bank is subject to the
California banking laws and to regulation, supervision and periodic examination
by the SBD.

         The California banking laws, among other matters, regulate: (a) the
process of issuance of a banking permit, including the application for, term of
and surrender or revocation of the permit; (b) the conduct of the banking
business, including banking days, banking offices, preservation and disposal of
records, borrowing by the bank and pledges of assets; (c) accounts, including
types of deposit accounts and claims made thereon; (d) reserves, including
forms, computations, limitations and exemptions; (e) loans, including
limitations on obligations to the bank by borrowers in general and by the bank's
officers, directors and employees; (e) mergers, consolidations and conversions
of banks, including changes in control of banks; and (f) liquidation and
dissolution of banks.

         On October 2, 1995, a California interstate banking and branching law
became effective to implement the Federal interstate act described above. This
legislation "opted out" of the de novo branching and single branch acquisitions
and "opted in" as of October 2, 1995 to the interstate acquisition of whole
banks which have been in existence for more than five years. The new legislation
also authorized expanded correspondent bank agency relationships among
affiliated and unaffiliated insured banks. Like the federal act, this new
legislation will both increase competition and increase the number of buyers of
attractive California banking franchises.

         Legislation known as the State Bank Parity Act give the California
Superintendent of Banks regulatory authority to seek to remove competitive
advantages granted to national banks by Congress and the Comptroller of the
Currency.

     Other

         Various other legislation, including proposals to overhaul the bank
regulatory system and to limit the investments that a depository institution may
make with insured funds, is introduced into Congress from time to time. The
Company cannot determine the ultimate effect that any potential legislation, if
enacted, would have upon the financial condition or operations of the Company or
the Bank.

     RECENT REGULATIONS AND GUIDELINES

     Interest Rate Risk

         As required by FDICIA, the federal banking agencies have solicited
comments on a proposed method of incorporating an interest rate risk component
into the current risk-based capital guidelines, with the goal of ensuring that
institutions with high levels of interest rate risk have sufficient capital to
cover their exposure. Interest rate risk is the risk that changes in market
interest rates might adversely affect a bank's financial condition. Under the
proposal, interest rate risk exposures would be quantified by weighing assets,
liabilities and off-balance sheet items by risk factors which approximate
sensitivity to interest rate fluctuations. Institutions identified as having an
interest rate risk exposure greater than a defined threshold would be required
to allocate additional capital to support this higher risk. Higher individual
capital allocations could be required by the bank regulators based on
supervisory concerns. While press reports have suggested that this proposal will
not be adopted, the banking agencies have not withdrawn it.

         As the federal banking agencies have solicited comments on this
proposal but have not yet proposed regulations to implement any interest rate
risk component into the risk-based capital guidelines, the ultimate impact on
the Company and the Bank of final regulation in this area cannot be predicted at
this time.

                                      -17-
<PAGE>   20
     State Bank Sales of Nondeposit Investments

         Securities activities of state non-member banks, as well as their
subsidiaries and affiliates, are governed by FDIC regulations. The FDIC has
taken the position that bank sales of alternative investment products, such as
mutual funds and annuities, raise substantial bank safety and soundness concerns
involving consumer confusion over the nature of the products offered, and the
potential for mismanagement of sales programs for such investments which could
expose a bank to liability under the anti-fraud provisions of federal securities
laws.

         Accordingly, the FDIC has issued guidelines to state non-member banks
which recommend, among other things, establishing a compliance and audit program
to monitor bank's mutual funds sales activities and compliance with applicable
federal securities laws, providing full disclosure to customers about the risks
of such investments (including the possibility of loss of principal investment),
conducting securities activities of bank subsidiaries or affiliates in separate
and distinct locations, and prohibiting bank employees involved in
deposit-taking activities from selling investment products or from giving
investment advice. Banks are also required to establish qualitative standards
for the selection and marketing of the investments offered by the bank and
maintain appropriate documentation regarding suitability of investments
recommended to bank customers.

TAXATION

         The effective tax rates for the years ended December 31, 1995, 1994 and
1993, were 31.3%, 0.4% and 1.7%, respectively. The Company's Delaware Franchise
tax expense is included in income tax expense. For each of the years ended
December 31, 1995, 1994 and 1993, the federal statutory tax rate applicable to
the Company was 34.0%, (34.0)% and (34.0)%, respectively. Because the Company
has utilized all of its ability to carryback net operating losses, much of the
1995, 1994 and 1993 losses, and future losses, if any, must be carried forward
to offset future net operating income. In addition, the actual benefit rate may
be less than the current statutory rate due to tax differentials and the
alternative minimum tax. As of December 31, 1995, the Company has net operating
loss carryforwards for federal tax purposes of approximately $46.0 million which
expire in 2007 and onwards, and for California tax purposes of approximately
$27.0 million, which expire in 1998, 1999, and 2000. The Company has
rehabilitation tax credit carryforwards for federal tax purposes of
approximately $213,000, which expires in 2004 and 2005. In addition, the Company
has tax credits of approximately $275,000 which have no expiration. Utilization
of the net operating loss carryforwards, and rehabilitation and minimum tax 
credit carryforwards may be limited on an annual basis under current tax law 
due to the change in ownership in 1992 and a possible change in ownership in 
future years.

ITEM 2 - PROPERTIES

         The following table sets forth certain information concerning the
Bank's significant real property lease commitments:
<TABLE>
<CAPTION>

                                 Square        Expiration of    Renewal
Banking Offices                  Footage       Current Lease    Period(s)
---------------                  ----------------------------   ---------
<S>                              <C>           <C>              <C>
550 Montgomery Street            89,000           2010          One option for an additional
San Francisco, CA                                               25 years
</TABLE>

         The Bank has a long term lease on 550 Montgomery Street, an 89,000
square foot, historically significant office building on Clay and Montgomery
Streets in San Francisco's Financial District. The building serves as the
administrative and banking headquarters of the Company and the Bank. The Bank
currently subleases 48,682 square feet. An additional 14,100 square foot will be
made available for sublease in 1996.

         The net rental expense and occupancy expenses for all leases of
premises were approximately $1.2 million and $2.1 million for each of the two
years ended December 31, 1995 and 1994.

                                      -18-
<PAGE>   21
BANK OF SAN FRANCISCO BUILDING COMPANY (BSFBC)

         During the third quarter of 1995, the Bank acquired all of the outside
limited partnership interest in BSFBC for a total of $3.3 million. The cost in
excess of book value of $525,000 is being amortized over the life of the
underlying lease through 2010 using the straight line method. As of December 31,
1995, the Bank holds all of the limited partnership interest. BSFBC holds the
lease on the Company's and Bank's headquarters at 550 Montgomery Street, San
Francisco, California.

         The acquisition was accounted for by the purchase method. The
consolidated financial statements include the accounts of BSFBC. The Company's
consolidated operating results include the operations of BSFBC beginning July 1,
1995. On the acquisition date, the assets of BSFBC included leasehold
improvements and leasehold interest totaling $5.5 million and cash equivalent
investment securities totaling $1.3 million. The liabilities include other
borrowings which were used to finance the acquisition of leasehold interest by
BSFBC in 1986. The borrowing was repaid on October 31, 1995.

         As a result of the acquisition, the Company's consolidated premises and
equipment increased to $8.7 million as of December 31, 1995 from $3.0 million as
of December 31, 1994. As of December 31, 1995, the Company's premises and
equipment is comprised of leasehold improvements totaling $5.6 million, lease
interest totaling $2.0 million, premium paid to acquire BSFBC totaling $508,000,
and furniture and equipment totaling $617,000. The acquisition, however, had the
effect of reducing the Bank's occupancy costs.

ITEM 3 - LEGAL PROCEEDINGS

LITIGATION

         Because of the nature of its business, the Company and its
subsidiaries, including the Bank, are from time-to-time a party to legal
actions. The Bank has been dismissed from, or reached settlement or potential
settlement in litigation or potential litigation matters which management deems
material. In some instances the Bank has made or agreed to make certain
payments. As a result of the settlement or potential settlement of certain
lawsuits, the Company established a litigation reserve of $536,500 as of
December 31, 1994. The Company charged $411,000 to the reserve during 1995.
Litigation reserve balance at December 31, 1995 was $126,000. Based upon
information available to the Company and the Bank, and its review of such
outstanding claims to date, management believes the liability relating to these
actions, if any, will not have a material adverse effect on the Company's
liquidity, consolidated financial condition or results of operations.

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

         No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

                                      -19-
<PAGE>   22
                                     PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MARKET

MARKET INFORMATION

         The Company's Class A Common Stock was traded on the American Stock
Exchange (the "AMEX") under the symbol "SFH" until April 14, 1995 and was
delisted in November 1995. The closing sale price for the Class A Common Stock
on the AMEX on April 12, 1995 was $4.50. The following table sets forth the high
and low closing sale prices for the Class A Common Stock on the AMEX from
January 1994 to April 1995, and in the over-the-counter market from November to
December 31, 1995.

<TABLE>
<CAPTION>
                                               1995              1994
                                        ---------------    -----------------
Quarter                                  High       Low      High        Low
                                        ---------------    -----------------
<S>                                     <C>       <C>      <C>        <C>
First                                   $6.75     $4.50    $37.50     $22.50
Second (through April 12, 1995)          4.50      4.50     31.25      15.00
Third                                      --        --     17.00      10.00
Fourth                                   0.25      0.25     10.00       6.50
</TABLE>

         The Series B Preferred Shares had been listed on the American Stock
Exchange since their issuance in October 1988. In March 1990, the Company
received approval from the Securities and Exchange Commission to delist the
Series B Preferred Shares, pursuant to Rule 12d2-2(d), under the Securities
Exchange Act of 1934, as amended. The Series A and Series C Preferred Shares
have never been listed on any exchange or traded in any other public market, and
none were outstanding at December 31, 1995. The Series D Preferred Shares have
never been listed on any exchange or traded in any other public market. At
December 31, 1995, 215,000 shares of Series D Preferred shares were outstanding.

         The closing sales prices for the Class A Common Stock have been
adjusted to reflect the effect of the 1 for 20 reverse stock split that occurred
on May 23, 1994.

HOLDERS

         As of December 31, 1995, the number of holders of record of the
Company's Class A Common Stock and Series B Preferred Shares was 382 and 13,
respectively, which management believes is in each case less than the number of
beneficial owners whose shares are held in nominee names. As of December 31,
1995, the Company's majority shareholder holds all of the outstanding Series D
Preferred Shares. As of December 31, 1995, there were no Series A or C Preferred
Shares outstanding.

DIVIDENDS

         The Company is subject to dividend restrictions under the Delaware
General Corporation Law and regulations and policies of the FRB. The Company's
Series B Preferred Shares participate equally, share for share, in cash
dividends paid on the Class A Shares in addition to receiving the cash dividends
to which they are entitled. The Board of Directors suspended the dividend on the
Class A Shares and the Series B Preferred Shares.

         The payment of cash dividends by the Bank to the Company is subject to
certain regulatory restrictions set forth in the California Financial Code. The
Bank and the Company have amended the Certificate of Determinations of Rights,
Preferences, Privileges and Restrictions of the 8% Series B Convertible
Preferred Stock issued by the Bank to the Company to provide that dividends on
the Bank's 8% Series B Convertible Preferred Stock shall be cumulative from year
to year. The Bank's Board of Directors has decided to suspend future payment of
dividends on the Preferred Stock to the Company, and the FRB Directive prohibits
the Company from paying any dividends without the prior approval of the FRB. See
"-- Regulatory Agreement and Orders" for a discussion of these restrictions.

                                      -20-
<PAGE>   23
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16

         Under Section 16(a) of the Securities Exchange Act of 1934, the
Company's directors, executive officers and any persons holding ten percent
(10%) or more of the Company's Class A Common Stock are required to report their
ownership of any class of stock and any changes in that ownership to the FRB and
to furnish the Company with copies of such reports. Specific due dates for these
reports have been established, and the Company is required to report any failure
to file on a timely basis by such persons. Based solely upon a review of copies
of reports filed with the FRB during the fiscal year ended December 31, 1995,
all reporting persons filed reports on a timely basis, except that Form 4
Statement of Changes in Beneficial Ownership (Form 4) and Form 5 Annual
Statement of Changes in Beneficial Ownership, from Mr. Putra Masagung, majority
shareholder, with respect to the purchases of Series D Preferred Shares and the
sale of 525,000 shares of Class A Common Stock during 1995.







                                      -21-
<PAGE>   24
ITEM 6 - SELECTED FINANCIAL DATA

         The following table sets forth certain selected consolidated financial
data of the Company at and for the years ended December 31:

<TABLE>
<CAPTION>


(Dollars in Thousands)                          1995          1994            1993            1992            1991
                                          ------------------------------------------------------------------------
<S>                                       <C>            <C>           <C>              <C>            <C>
FINANCIAL CONDITION DATA:

Total assets                                $114,862      $156,780        $231,021        $319,155        $402,699
Total loans                                   53,208       106,452         149,740         236,076         281,853
Total mortgage loans held-for-sale                --            --              --              --           6,826
Total securities held-to-maturity                 --         7,859           5,078           3,683           1,608
Total securities available-for-sale            6,536         2,211          14,940              --              --
Total securities held-for-sale                    --            --              --          18,731          20,457
Total deposits                               105,673       147,148         210,111         285,685         373,199
Other borrowings                                  --         4,070           1,303          15,308          10,832
Shareholders' equity                           6,880         2,129          17,455          15,676          16,181

OPERATING DATA:

Total interest income                        $10,691       $12,651         $18,155         $23,885         $36,742
Total interest expense                         4,415         4,863           7,420          11,295          19,226
                                          ------------------------------------------------------------------------
Net interest income                            6,276         7,788          10,735          12,590          17,516
Provision for loan losses                        500         3,799           3,554           9,828          11,437
                                          ------------------------------------------------------------------------
Net interest income after
  provision for loan losses                    5,776         3,989           7,181           2,762           6,079
Total non-interest income                      2,521         2,135           4,497           4,368           6,173
Total non-interest expense                     7,808        39,018          21,764          29,697          24,276
                                          ------------------------------------------------------------------------
Income (loss) before taxes                       489       (32,894)        (10,086)        (22,567)        (12,024)
Provision (benefit) for income taxes             153           142             169            (390)         (2,870)
                                          ------------------------------------------------------------------------
Net income (loss)                              $ 336      $(33,036)       $(10,255)       $(22,177)        $(9,154)
                                          ========================================================================

OTHER DATA:

Return on average assets                        0.3%         (16.8)%         (3.5)%          (6.2)%          (2.2)%
Return on average equity                         6.8        (183.0)          (57.5)         (153.0)          (39.2)
Average equity to average assets                 3.7           9.2             6.1             4.1             5.6
Equity to assets at period end                   6.0           1.4             7.6             4.9             4.0
Interest rate spread for period                  5.0           5.0             4.4             4.6             4.5
Net yield on average earning assets              5.1           5.1             4.6             4.5             4.8
Non-performing assets to total assets           13.1          12.8            18.8            16.8            13.5
Average interest-earning assets to
  average interest-bearing liabilities         121.5         105.1           103.5            96.6           104.7
Non-interest expenses to average assets          6.0          19.8             7.6             8.9             5.9
Net interest income, after provision for
  loan losses, to non-interest expense          72.2         10.24            32.4             9.2            25.0
Net loan charge-offs as a percent of
  average loans                                  1.4           4.4             2.0             3.9             2.7
Allowance for loan losses as a
  percent of loans                              11.1           6.2             5.4             3.6             3.0

PER SHARE DATA:
Common shares outstanding,
end of period                              5,765,978     5,766,008         444,990         445,100         114,134
Preferred shares outstanding,
end of period                                231,291        16,291         916,591         316,591         437,500

Common Shares:
Book value per common share                    $0.43         $0.37          $(1.60)         $21.60         $119.00
Income (loss) per weighted average
 common share                                   0.05        (10.73)         (23.00)         (83.60)         (82.60)

Cash dividend declared per common share           --            --              --              --            0.10
Dividend payout ratio                             --            --              --              --              --

</TABLE>




                                      -22-
<PAGE>   25
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

        The Company recorded net income of $336,000 for the year ended December
31, 1995, following net losses of $33.0 million and $10.3 million for the years
1994 and 1993, respectively. The net income in 1995 resulted primarily from net
income from real estate operations. The net losses in 1994 and 1993 were
principally due to the high level of the provision for loan and real estate
owned losses, and declines in net interest income. In addition, the Company's
non-interest expense reached extremely high levels at 263.9% and 96.1% of total
revenues for the years 1994 and 1993, respectively.

        Although the Company's provision for loan losses declined to $500,000 in
1995 from $3.8 million in 1994, and declined from $3.6 million in 1993, the
allowance for loan losses as a percentage of loans grew from 5.4% in 1993 to
6.2% in 1994, and to 11.1% in 1995. The Company's provision for loan losses and
the increase in the loan loss allowance as a percentage of outstanding loans
reflects management's concern over the decline in the credit quality of the
Bank's loan portfolio, regulatory examinations, and the high level of net loan
charge-offs during the period 1992 through 1994. The Company's net loan
charge-offs, primarily associated with unsecured commercial loans, loans secured
by real estate, and loans to facilitate the development of real estate, amounted
to $1.2 million in 1995 compared to $5.3 million in 1994, and $3.9 million in
1993.

        The Company's net interest income was reduced to $6.3 million in 1995
from $7.8 million in 1994, a 19.4% decline, following a decline of 27.5% from
$10.7 million in 1993. These declines in net interest income were principally
due to a reduction in average earning assets from $234.8 million in 1993 to
$152.9 million in 1994, a 34.9% decline, and a further reduction to $124.1
million in 1995, a decline of 18.9%.

        The Company's non-interest expenses were largely driven by expenses
associated with managing its high level of non-earning assets (average
non-earning assets were 7.3% of total average assets in 1995, 22.3% in 1994 and
19.6% in 1993) in addition to litigation settlements and reserve, legal,
accounting and consulting expenses related to the Company's loan collection and
recapitalization efforts. These costs comprised 29.6% of the Company's
non-interest expense in 1993, increasing to 66.1% in 1994 and declining to 14.4%
during 1995. In 1995, the Bank recognized net gains on sale of real estate
properties totaling $1.5 million compared to an additional provision in 1994
totaling $16.5 million for the decline in the fair value of other real estate 
owned properties to reflect the fair value less selling expenses.

        At December 31, 1995, total assets and deposits of $114.9 million and
$105.7 million, respectively, had declined 26.7% and 28.1%, respectively, from
amounts reported at December 31, 1994. Loans, net of deferred loan fees, were
$53.0 million, a decrease of 50.0% from the amount reported at December 31,
1994. At December 31, 1994, total assets, deposits and net loans were $156.8
million, $147.1 million and $106.1 million, respectively, a decline of 32.1%,
30.0% and 13.2%, respectively, from amounts reported at the close of 1993. The
declines in assets and loans during 1993, 1994 and 1995 reflect the condition of
the Bank and the general economic conditions in Northern California and more
particularly the depressed value of real estate collateral in the San Francisco
Bay Area from which the repayment of a substantial portion of the Company's
loans are based. The declines followed substantial operating losses of the
Company, beginning in 1991 and continuing through 1994. These operating losses
were the major cause of the Company's failure to meet its capital adequacy
requirements causing it to reduce its assets in order to meet regulatory capital
adequacy requirements and the resulting Agreement and Orders which generally
require the Bank to reduce its classified assets, concentration of real estate
related credits, volatile liability dependence, and maintain its liquidity and
increase its capital. See "-- Regulatory Agreement and Orders" for a full
description of the Agreement and the Orders.

        In response to the significant problems experienced by the Company
during the period from 1991 through 1994 the Company restructured its management
team and has analyzed several different business strategies. In 1996, the
Company contemplates four specific measures; 1) the raising an additional $4.5
million in capital, 2) the continued reduction of non-performing assets through
asset sales and loan collections, 3) maintaining profitability through focusing
on the Private and Business Banking concept, and 4) expanding its stock option
lending and discount brokerage business, ABS, and escrow services. Recent 
financial trends experienced by the Company may not be indicative of future 
trends; however,

                                      -23-
<PAGE>   26
due to the numerous factors affecting the successful implementation of the 1996
Business and Profit Plan, many of which are beyond the control of the Company,
no prediction can be made with respect to the nature or extent of future
financial trends.

RESULTS OF OPERATIONS - YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

    NET INTEREST INCOME

    Yields Earned and Rates Paid

        One of the fundamental measures of the Bank's results of operations is
net interest income. Net interest income is the difference between the combined
yield earned on interest earning assets and the combined rate paid on interest
bearing liabilities. Net interest income is also dependent on whether the
balance of interest earning assets equals, exceeds or is less than the balance
of interest bearing liabilities. If an excess in the balance of interest bearing
liabilities over interest earning assets exists, then the positive interest rate
spread between yields earned and rates paid may need to be increased in order to
achieve a positive net interest position.

        The following table presents the consolidated average balance sheets of
the Company, together with the total dollar amounts of interest income and
expense, and weighted average interest rates for each of the years in the three
year period ended December 31, 1995. Where possible, the average balances are
calculated on a daily average basis. When this information is not available,
Average balances are calculated on a monthly basis.
<TABLE>
<CAPTION>

                                                  1995                                1994                         1993
                                           ------------------------------  ---------------------------  ----------------------------
                                           Average    Income/      Yield/  Average     Income/  Yield/  Average    Income/    Yield/
(Dollars in Thousands)                     Balance    Expense       Rate   Balance     Expense   Rate   Balance    Expense     Rate
                                           -----------------------------   ---------------------------  ----------------------------
<S>                                       <C>         <C>           <C>   <C>        <C>        <C>    <C>        <C>         <C>
Assets
Interest-earning assets:
  Federal Funds and deposit               $ 35,184    $  1,790       5.1% $ 17,326   $    740     4.3% $ 20,237   $    594     2.9%
  Investment securities                      7,786         449       5.8    14,539        653     4.5    17,128        902     5.3
  Loans, net (1)                            81,080       8,452      10.4   120,991    11,2589     9.3   197,446     16,659     8.4
                                          ------------------------------  ---------------------------  ---------------------------
     Total earning assets                  124,050      10,691       8.6   152,857     12,651     8.3   234,811     18,155     7.7
                                          ------------------------------  ---------------------------  ---------------------------

Non-interest earning assets                  7,688                          43,761                       57,153                 
                                          --------                        --------                     --------
     Total assets                         $131,738                        $196,618                     $291,964                
                                          ========                        ========                     ========

Liabilities and Equity
Interest-bearing liabilities:
  Interest-bearing deposit                $100,357    $  4,244       4.2  $142,775      4,694     3.3  $220,996      6,966     3.2
  Other borrowings                           1,752         171       9.8     2,710        169     6.5     5,891        454     7.7
                                          ------------------------------  ---------------------------  ---------------------------
     Total interest-bearing liabilities    102,109       4,415       4.3   145,485      4,863     3.3   226,887      7,420     3.3
                                          ------------------------------  ---------------------------  ---------------------------

Non-interest bearing liabilities            24,699                          33,079                       47,271               
Stockholders' equity                         4,930                          18,054                       17,806                
                                          --------                        --------                     --------

     Total liabilities and
       stockholders' equity               $131,738                        $196,618                     $291,964                
                                          ========                        ========                     ========
Net interest income                                   $  6,276                       $  7,788                     $ 10,735      
                                                      ========                       ========                     ========
Primary interest rate spread                                         4.3%                         5.0%                         4.4%
                                                                     ===                          ===                          === 
Margin as a percent of earning assets:
  Interest income                                                    8.6%                         8.3%                         7.7%
  Interest expense                                                   3.6                          3.2                          3.1
                                                                     ===                          ===                          === 
Spread on earning assets                                             5.0%                         5.1%                         4.6%
                                                                     ===                          ===                          === 

</TABLE>

(1) Non-performing loans have been included in the average loan balances.
Interest income is included on non-accrual loans only to the extent to which
cash payments have been received and full principal repayment is probable.

         The dollar amount of interest income and interest expense fluctuates
depending on changes in the respective interest rates and on changes in the
respective amounts (volume) of the Bank's earning assets and interest bearing

                                      -24-
<PAGE>   27
liabilities. For each category of interest earning asset and interest bearing
liability, information is provided in the following table for changes
attributable to (i) changes due to volume (change in average balance multiplied
by prior year's rate), and (ii) changes in rate (changes in rates multiplied by
prior year's average balances). Changes attributable to the combined impact of
volumes and rates have been allocated pro-rata to each category.
<TABLE>
<CAPTION>

                                                1995 versus 1994                          1994 versus 1993
                                          ----------------------------           --------------------------------
(Dollars in Thousands)                      Rate     Volume       Net              Rate       Volume       Net
                                          ----------------------------           --------------------------------
<S>                                       <C>      <C>         <C>                <C>       <C>        <C>
Interest-earning assets:

  Federal funds and time deposits         $  164   $   886     $ 1,050           $   213    $   (67)   $   146
  Investment securities                      154      (358)       (204)             (124)      (125)      (249)
  Loans, net                               1,235    (4,041)      1,953            (5,401)
                                          ----------------------------           -----------------------------
     Total interest-earning assets         1,553    (3,513)      2,042            (5,504)
                                          ----------------------------           -----------------------------
Interest-bearing liabilities:
  Interest-bearing deposits                1,147    (1,598)       (451)              316     (2,587)    (2,271)
  Other borrowings                            76       (73)          3               (76)      (210)      (286)
                                          ----------------------------           -----------------------------
     Total interest bearing liabilities    1,223    (1,671)       (448)              240     (2,797)    (2,557)
                                          ----------------------------           -----------------------------
Change in net interest income             $  330   $(1,842)    $(1,512)          $ 1,802    $(4,749)   $(2,947)
                                          ============================           =============================
</TABLE>

         The Company's interest income decreased during the three year period
ended December 31, 1995 due mainly to a 33.0% decrease in average loans. The
decrease in the loan portfolio primarily resulted from a decision to reduce the
size of the Company's assets to comply with regulatory capital requirements, and
loan repayments. The weighted average yield on loans increased in 1995 after
declines since 1992 primarily due to an increase in the Bank's prime rate from
8.5% at December 31, 1994 to an average 8.8% during 1995. During the two year
period prior to 1995 the Bank's prime rate increased from an average of 6.0% in
1993 and to 7.1% in 1994.

         Interest income and dividends on Federal funds sold and investment
securities was $2.2 million in 1995 compared to $1.4 million in 1994. Although
average portfolio balances were $43.0 million in 1995 compared to $31.9 million
in 1994, average portfolio yields were 5.2% in 1995 compared to 4.4% in 1994.
Interest income on investment securities was $1.5 million in 1993. Average
portfolio balances was $37.4 million in 1993, and average portfolio yield was
4.0% in 1993. The higher average yields in 1995 reflect the overall increase in
market interest rates and higher average yield realized from reinvestment.

         Interest expense for 1995 was $4.4 million, a decrease of $448,000, or
10.2% during 1995, as compared to 1994. This decrease was primarily attributable
to a decrease in average interest bearing liabilities of $43.4 million to $102.1
million, or 29.8%, as compared to 1994, partially offset by a 100 basis point
increase in average interest rates. The average cost of deposits and borrowings
for 1995 was 4.3% as compared to 3.3% for 1994. Interest expense for 1994 was 
$4.9 million, a decrease of $2.5 million, or 34.5% during 1994, as compared to
1993. This decrease was primarily attributable to a decrease in average 
interest bearing liabilities of $81.4 million to $145.5 million, or 35.9%, as 
compared to 1993. The average cost of deposits and borrowings for 1994 was 
3.3% as compared to 3.3% for 1993.

     PROVISION FOR LOAN LOSSES

         During 1995, 1994, and 1993, the Bank provided $500,000, $3.8 million
and $3.6 million, respectively, to its allowance for loan losses. Net charge
offs recorded for 1995, 1994 and 1993 were $1.2 million, $5.3 million, and $3.9
million, respectively. The decrease in the loan loss provision in 1995 as a
percentage of average loans to 0.6% from 3.1% in 1994 was the result of the
lower level of charge-offs required in 1995 compared to 1994, and reflects
management's assessment that the loan loss allowance adequately provides for the
risk in the Bank's loan portfolio. The increase in the loan loss provision in
1994 as a percentage of average loans to 3.1% from 1.8% in 1993 was required as
a result of the increase in charge offs in 1994 compared to 1993 and reflected
management's assessment that higher loan loss allocation on loans with specific
weaknesses was required. The Company's loan loss provisions were largely loan
loss reserves allocated to specific classified and non-performing loans. See "--
Allowance for Loan Losses" herein.

                                      -25-
<PAGE>   28
     Summary of Loan Loss Experience

         Net loan charge-offs for the years ended December 31, 1995, 1994 and
1993 were $1.2 million, $5.3 million, and $3.9 million, respectively. As a
percentage of average total loans, net loan charge-offs were 1.4%, 4.4% and 2.0%
for 1995, 1994, and 1993, respectively.

         In 1995, loan losses from the deterioration in borrowers' financial
condition and the value of collateral securing loans occurred as a result of the
continued insipid economy in the California. A summary of significant charge-off
activity during 1995 is as follows:

-    Unsecured loans charged off totaled $332,000 comprised of seven loans.

-    The charge-offs related to commercial and financial loans totaled $95,000
     and were comprised of four loans.

-    The charge-offs related to real estate construction loans totaled $2.1
     million and were comprised of five loans. The loans were secured by a first
     deed of trust on land under development located in Northern California. The
     largest charge-off was $1.0 million.

-    The charge-offs related to real estate mortgage loans totaled $363,000 and
     were comprised of seven loans. The single largest charge-off was $146,000.

         In 1994, loan losses from the deterioration in borrowers' financial
condition and the value of collateral securing loans occurred as a result of the
inability of certain borrowers to sustain the insipid economy in California.
A summary of significant charge-off activity during 1994 is as follows:

-     Unsecured loans charged off totaled $306,000 comprised of two loans.

-    The charge-offs related to commercial and financial loans totaled $3.0
     million and were comprised of 14 loans. The single largest charge-off was
     $529,000. This loan is secured by a limited partnership interest. The loan
     was classified as non-accrual in the first quarter 1994 and a partial
     charge-off was recorded in the third quarter of 1994 and the remaining
     balance was charged off in the fourth quarter of 1994.

-    The charge-offs related to real estate construction loans totaled $630,300
     and were comprised of two loans. The loans were secured by a first deed of
     trust on land under development located in Northern California. The largest
     charge-off on these loans related to a restructuring which provided for a
     discount for a partial payoff.

-    The charge-offs related to real estate mortgage loans totaled $2.6 million
     and were comprised of 13 loans. The single largest charge-off was $1.0
     million. This loan was secured by a first deed of trust on land zoned for
     single family development property and the purpose of the loan was for the
     purchase of real estate. The loan was a loan to facilitate the sale of real
     estate foreclosure which was placed on non-accrual during the third quarter
     of 1994 and the charge-off recorded during the fourth quarter reflected a
     deterioration in the collateral value based on updated appraisal
     information.

     NON-INTEREST INCOME

         Non-interest income increased $386,000 or 18.1% in 1995 as compared to
1994, primarily as a result of a gain on sale of other assets in 1995 of
$183,000 compared to loss on sale of $257,000 in 1994, and income from BSFBC of
$48,000 in 1995 compared to an operating loss on results of operations from
BSFBC of $264,000 in 1994.

         Non-interest income decreased $2.4 million or 52.5% in 1994 as compared
to 1993, primarily as a result of a decrease in brokerage fee income related to
the exercise of stock options of $1.3 million, a decrease in income from limited
partnership of $527,000 as a result of the decline in the limited partnership's
earnings resulting primarily from deferred maintenance costs, and a decline in
service charge and fee revenue and all other income of $514,000 related to trust
management fees, referral fees on CD Placement, and deposit products and
services because of lower transaction volumes and lower average deposit balance
outstanding, lower levels of assets under management through trust services, and
an increase in the loss on sale of securities.

                                      -26-
<PAGE>   29
         The following table provides a detail of non-interest income for the
years ended December 31:
<TABLE>
<CAPTION>

(Dollars in Thousands)                                 1995         1994         1993
                                                     --------------------------------
<S>                                                  <C>          <C>          <C>
  Service charges and fees                           $  381       $  452       $  684
  Results of operations from limited partnership         48         (264)         263
  Loan brokerage and servicing fees                     248          347          324
  Stock option commissions and fees                   1,486        1,562        2,906
  Other income                                          175          295          383
  Gain/(loss) on sale of assets, net                    183         (257)         (63)
                                                     --------------------------------
     Total non-interest income                       $2,521       $2,135       $4,497
                                                     ================================
</TABLE>

     NON-INTEREST EXPENSE

         For the year ended December 31, 1995, non-interest expenses decreased
$31.2 million, or 80.0%, from the year ended December 31, 1994. The reduction
was attributed primarily to a lower level of costs related to asset and credit
quality, lower compensation related expenses, and lower level of legal and
consulting costs related to the Company's loan collection and recapitalization
efforts.

         For the year ended December 31, 1994, non-interest expense increased
$17.3 million, or 79.3%, from the year ended December 31, 1993. The increase was
attributed primarily to higher a level of costs related to real estate asset, a
higher level of litigation settlement and provision charges, and a higher
professional costs for legal and consulting costs related to the Company's
litigation matters, and the requirement for special services related to
addressing the Company's financial condition.

         The following table provides a detail of non-interest expense for the
years ended December 31:
<TABLE>
<CAPTION>

(Dollars in Thousands)                                 1995         1994         1993
                                                     --------------------------------
<S>                                                  <C>         <C>           <C>
  Salaries and related benefits                      $4,279      $ 7,330       $8,325
  Occupancy expense                                   1,200        2,121        2,054
  Professional fees                                     876        3,071        2,326
  Litigation settlement and reserve                    (158)       3,601           --
  Equipment expense                                     417          564          849
  FDIC insurance premiums                               457          633          849
  Data processing                                       526          439          457
  Loss on sale of Sacramento Regional Office             --           --          420
  Marketing                                              86          369           71
  Insurance premiums                                    374          189           97
  Telephone                                             116          155          314
  Other operating expenses                              559        1,419        1,876
                                                     --------------------------------
     Total operating expenses                         8,732       19,891       17,638
  Net (income)cost of real estate operations           (924)      19,127        4,126
                                                     --------------------------------
     Total non-interest expense                      $7,808      $39,018      $21,764
                                                     ================================
</TABLE>

         The decrease in compensation related expenses of $3.0 million in 1995
to $4.3 million, or 41.6% from the 1994 level, resulted from lower staffing
levels and lower incentive compensation paid. The decrease in compensation
related expenses of $1.0 million in 1994 to $7.3 million, or 12.0% from the 1993
level, resulted from lower staffing levels, partially offset by higher incentive
compensation paid and by severance related costs. The compensation expense
included performance-based incentives of $5,000, $755,000, and $526,000 for
1995, 1994 and 1993, respectively.

         The Company's expenses for professional services were $876,000 in 1995
compared to $3.1 million and $2.3 million in 1994 and 1993, respectively. The
Company includes in professional fees the costs of legal, accounting, and
management consulting services. Professional service expenses declined in 1995
from 1994 primarily as a result lower level of professional services required to
manage problem assets, the reduction in litigation matters, and lower costs
related to the analysis and preliminary activities required to establish various

                                      -27-
<PAGE>   30
international business strategies. Professional service expenses increased in
1994 compared to 1993 as a result of the continuing activities related to
recapitalization, consulting services related to the new lines of business, and
the increase in professional services required to manage the resolution of
classified and non-performing assets during that year.

         The decrease in the net income(cost) of real estate operations in 1995
compared to 1994 of $20.1 million resulted from the decline in the real estate
owned portfolio, lower level of provisions required to write the properties down
to market value, and gain on sale of real estate owned. The increase of $15.0
million in 1994 compared to 1993 in net cost of real estate operations related
to asset and credit quality from $4.1 million in 1993 to $19.1 million in 1994
reflected a continued deterioration in the value of the real estate collateral.

         The decline of $860,000 in 1995 other operating costs to $559,000 from
$1.4 million in 1994 and the $457,000 decrease in 1994 other operating expenses
from $1.9 million in 1993 resulted primarily from cost reduction initiatives in
miscellaneous expenses and customer related service expenses.

         In 1995, the Bank recorded loss provisions totaling $87,000 for other
real estate owned assets compared to $16.5 million in 1994 on 18 properties, a
decrease of 99.4%. In addition to the provisions, the Bank did not recognize a
loss on sale real estate owned properties in 1995 compared to losses of $73,300
on the sale of two real estate properties acquired in settlement of loans in
1994 compared to $712,000 on 11 properties in 1993. The Bank recognized
recoveries and gains on sale of other real estate owned totaling $ 2.1 million
on eight properties in 1995 compared to $253,000 on three properties in 1994,
and compared to $1.7 million in 1993 on four properties.

         The Bank recorded a loss provision of $419,000 for two real estate
investment property compared to $513,500 on three properties in 1994. The Bank
did not recognize a gain or loss on sale in 1995 compared to a gain on sale of
real estate investments totaling $10,000 in 1994 on one property. A loss of
$54,000 on sale and no gains on sale were recognized in 1993.

FINANCIAL CONDITION

     TOTAL ASSETS

         Management of the Company implemented a strategy of reducing the
Company's total assets in order to more easily meet its regulatory capital
ratios and an aggressive loan work-out program to reduce the level of the real
estate related and other problem loans. As a result, the Company's assets
decreased 26.7% in 1995 from $156.8 million at December 31, 1994 to $114.9
million at December 31, 1995.

     CASH AND CASH EQUIVALENTS

         The Bank maintains cash and cash equivalents, such as federal funds
sold, at levels management believes are sufficient to meet the liquidity needs
of its deposit customers. At December 31, 1995, the Company's cash and cash
equivalents were $42.8 million or 40.5% of total deposits and 209.8% of
non-interest bearing deposits. At December 31, 1994, the Company's cash and cash
equivalents were $28.6 million or 19.5% of total deposits and 94.7% of
non-interest bearing deposits. See also "Liquidity" herein for a further
discussion of the Bank's other sources of liquid assets.

     INVESTMENT ACTIVITIES

         The Bank maintains a securities portfolio consisting of United States
Government and Federal agency securities, collateralized mortgage obligations,
investments in certificates of deposits at other financial institutions,
mortgage-backed securities, and mutual funds. The balance of the investment
securities maintained by the Bank in excess of the requirement of applicable
regulations and the Orders reflect management's objective of ensuring compliance
with liquidity requirements. Most securities are held in safekeeping by an
independent custodian.

         In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt & Equity Securities." The Statement addresses the accounting and
reporting for investments in equity securities that have a readily determinable
fair value and for

                                      -28-
<PAGE>   31
all investments in debt securities. The Statement requires that all securities
be classified, at acquisition, into one of three categories: held-to-maturity
securities, trading securities, and available-for-sale securities.
Held-to-maturity securities are those securities the Bank has the intent and
ability to hold to maturity and are carried at amortized cost. Trading
securities are those securities that are bought and held principally for the
purpose of selling in the near term and are reported at fair value, with
unrealized gains or losses included in current earnings. Available-for- sale
securities are those securities that do not fall into the other two categories
and are reported at fair value, with unrealized gains or losses reported as a
separate component of shareholders' equity. This Statement is effective for
fiscal years beginning after December 15, 1993, however, earlier implementation
is permitted. The Bank elected to implement SFAS No. 115 effective as of
December 31, 1993.

         The Bank determines the classification of all securities at the time of
acquisition. In classifying securities as being held-to-maturity, trading, or
available-for-sale, the Bank considers its collateral needs, asset/liability
management strategies, liquidity needs, interest rate sensitivity and other
factors in determining its intent and ability to hold the securities to
maturity.

         Investment securities held-to-maturity include United States Treasury
and Federal agency securities, investments in certificates of deposit, and
mortgage-backed securities. The objectives of these investments are to increase
portfolio yield, and to provide collateral to pledge for federal, state and
local government deposits and other borrowing facilities. The investments
held-to-maturity have an average term to maturity of zero and 20 months at
December 31, 1995 and 1994, respectively. The investments held-to-maturity are
carried at amortized cost. At December 31, 1995 and 1994, the investment
securities held-to-maturity portfolio includes zero and $7.9 million in fixed
rate investments, and zero and $1.8 million in adjustable-rate investments,
respectively. During 1994, the Bank reclassified certain collateralized mortgage
obligations to the available-for-sale category as a result of a change in the
strategy regarding the investment in these types of securities.

         Investment securities available-for-sale may include United States
Treasury and Federal agency securities, mutual funds, mortgage-backed
securities, and collateralized mortgage obligations. These securities are
typically used to supplement the Bank's liquidity portfolio with the objective
of increasing yield. Investment securities available-for-sale are accounted for
at fair value. Unrealized gains and losses are recorded as an adjustment to
equity and are not reflected in the current earnings of the Bank. If the
security is sold any gain or loss is recorded as a charge to earnings and the
equity adjustment is reversed. At December 31, 1995 and 1994, the Bank held $6.5
million and $2.2 million classified as investments available-for-sale,
respectively. At December 31, 1995, $41,000 was shown as an increase in equity,
and at December 31, 1994, $4,000 was charged against equity to reflect the
market value adjustment to the securities available-for-sale.

         The table below sets forth certain information regarding the carrying
values and market values, and the weighted average yields of the Bank's
investment securities portfolio by maturity at December 31, 1995:
<TABLE>
<CAPTION>

                                        Within One Year       One to Five Years     Total Investment Securities
                                       -----------------      -----------------    -----------------------------
                                        Carrying Average      Carrying Average      Carrying      Market Average
(Dollars in Thousands)                    Value   Yield         Value   Yield         Value       Value   Yield
                                       -----------------      ----------------     -----------------------------
<S>                                    <C>         <C>        <C>         <C>      <C>           <C>        <C>
U.S. Treasury and agency securities    $ 3,019       6.1%      $ 3,517    6.1%     $ 6,536       $ 6,536    6.1%
FHLB stock                                  --        --            --     --          632           632    5.2
                                       -----------------       --------------      ----------------------------
     Total                             $ 3,019       6.1%      $ 3,517    6.1%     $ 7,168       $ 7,168    6.0%
                                       =================       ==============      =============================
</TABLE>

         No investment securities had a maturity of more than five years at
December 31, 1995. The Bank holds stock in the Federal Home Loan Bank of San
Francisco (FHLB) as a membership requirement. The FHLB stock has no term to
maturity. During 1995, FHLB stock totaling $750,000 was re-purchased by the
FHLB. No gain or loss resulted from the repurchase.

         In October 1994, Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) no. 119, Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments. The
provisions of SFAS No. 119 are effective for the Company and the Bank as of
December 31, 1995. SFAS No. 119 required disclosure about derivative financial
instruments -- futures, forwards, swap and option contracts, and other financial
instruments with similar characteristics. As of December 31, 1995 and 1994, the
Company and the Bank had no derivative financial instruments that would be
subject to such disclosure.

                                      -29-
<PAGE>   32
     LOANS

         During 1995, the Company reduced its total loans by $53.2 million from
$106.5 million at December 31, 1994. The reduction in total loans resulted
primarily from a strategic decision to reduce concentrations in real estate
and/or real estate related loans and to reduce the total loan portfolio to
improve the liquidity position of the Bank through loan repayments. In addition,
loans were reduced by charge-offs of $2.9 million.

         In addition, the increase in classified loans from $25.0 million at
December 31, 1994 to $25.3 million at December 31, 1995 was the result of
reviewing all loans to re-evaluate loan characteristics to assess
classification. During 1995, there were $13.7 million in newly classified loans.
During 1994, there were $14.7 million in newly classified loans, of which 
$12.2 million were reclassified in the first quarter of 1994 based on FDIC 
examiners' comments. For a description of the composition of the loan 
portfolio and a description based upon various contractually scheduled 
repayments, see "BUSINESS -- The Company and the Bank -- Lending Activities -- 
Composition of Loan Portfolio."

     CLASSIFIED ASSETS AND IMPAIRED LOANS

         Federal regulations require banks to review their assets on a regular
basis and to classify them if any weaknesses are noted. Banks must maintain
adequate allowances for assets classified as "Substandard" or "Doubtful" and to
immediately write off those assets classified as "Loss". The Bank has a
comprehensive process for classifying assets and asset reviews are performed on
a periodic basis. In addition to identifying adversely classified assets, the
Bank identifies certain assets as "Special Mention", which do not currently
expose the Bank to a sufficient degree of risk to warrant a more adverse
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention. Assets that do not possess credit
deficiencies are not classified and are labeled "Pass". The Bank stratifies its
loan portfolio based on collateral type concentrations. The objective of the
review process is to identify any trends and determine the levels of loss
exposure to the Bank.

         Classified assets include non-accrual loans, other real estate owned,
real estate investments and performing loans that exhibit credit quality
weaknesses. The table below outlines the Bank's classified assets as of 
December 31, 1995 and 1994:
<TABLE>
<CAPTION>

(Dollars in Thousands)                   1995         1994
                                      --------------------
<S>                                   <C>          <C>
Loans - performing                    $17,800      $15,580
Non-accrual loans                       7,511        9,377
Other real estate owned                 7,514       10,021
Real estate investments                   236          682
                                      --------------------
     Total classified assets          $33,061      $35,660
                                      ====================
</TABLE>

         The Bank is required by the Orders to reduce its classified assets, as
defined by the Orders, to no more than $40.0 million by September 30, 1994. At
December 31, 1995, the Bank had less than $40.0 million in such assets.

     NON-PERFORMING ASSETS

         When a borrower fails to make a required payment on a loan, the loan is
classified as delinquent. If the delinquency is not cured, workout procedures
are generally commenced and the loan is transferred to the Bank's Special Assets
Department. If workout proceedings are not successful, collection procedures,
which may include collection demands, negotiated restructures, foreclosures,
suits for collection and borrower bankruptcy, are initiated. In general, loans
are placed on non-accrual status after being contractually delinquent for more
than 90 days, or earlier if management believes full collection of future
principal and interest on a timely basis is unlikely. When a loan is placed on
non-accrual status, all interest accrued but not received is charged against
interest income. During the period in which a loan is on non-accrual status, any
payment received may be used to reduce the outstanding loan balance. A
non-accrual loan is restored to an accrual basis when principal and interest
payments are paid current and full payment of principal and interest is
probable. Loans that are well secured and in the process of collection remain on
accrual status.

                                      -30-
<PAGE>   33
         The Bank may restructure loans as a result of a borrower's inability to
service the obligation under the original terms of the loan agreement.
Restructures are executed only when the Bank expects to realize more from a
restructured loan rather than allowing it to go into foreclosure or other form
of collection.

        At December 31, 1995 and 1994, other real estate owned totaled 
$7.5  million and $10.0 million, respectively. At December 31, 1995 and 1994, 
in-substance foreclosed loans were zero and $4.6 million, respectively. As of 
December 31, 1995 and 1994, all other real estate owned and real estate 
investments were classified.

         Non-performing assets include non-accrual loans and real estate 
foreclosures. Non-performing assets were $15.0 million at the end of 1995, down
22.7% from $19.4 million in 1994.

         The following table provides information on all non-performing assets
at December 31:
<TABLE>
<CAPTION>

(Dollars in Thousands)                                   1995          1994         1993         1992         1991
                                                 -----------------------------------------------------------------
<S>                                              <C>                <C>          <C>          <C>          <C> 
Non-accrual loans                                     $ 7,511       $ 9,377      $11,086      $17,811      $11,781
Other real estate owned                                 7,514        10,021       32,372       35,457       39,927
                                                 -----------------------------------------------------------------
     Total non-performing assets                      $15,025       $19,398      $43,458      $53,268      $51,708
                                                 =================================================================

Non-performing assets as a percentage
  of total loans and OREO outstanding                    24.7%         16.7%        23.9%        19.7%        16.1%

Loans past due 90 days or more and accruing           $    --       $   940      $    --       $  182      $ 2,513

Loans restructured and in compliance
  with modified terms                                   4,126         6,317        1,967           --        3,146
</TABLE>

         In addition to the loans disclosed in the foregoing table, the Bank had
approximately $8.3 million in loans on December 31, 1995 that were between 31
and 89 days delinquent. In the opinion of management, these loans may have a
greater than ordinary risk that the borrowers may not be able to perform under
the terms of their contractual arrangements. Approximately $4.1 million of these
loans are secured by first or subordinate deeds of trust on real estate.
Approximately $6.4 million of these loans had matured and were in the process of
renewal.

         The following table provides a stratification of non-performing assets,
which includes non-accrual loans and other real estate owned, by collateral type
as of December 31, 1995 and 1994.
<TABLE>
<CAPTION>

(Dollars in Thousands)                      1995         1994
                                         --------------------
<S>                                      <C>          <C>
Real Estate:
  Residential                            $ 1,046      $ 1,403
  Residential development                  4,151        7,012
  Commercial development                   1,569        1,309
  Land under development                   1,950        3,665
  Raw land                                 2,975        4,494
Other                                      3,334        1,515
                                         --------------------
     Total non-performing assets         $15,025      $19,398
                                         ====================
</TABLE>

         At December 31, 1995, substantially all of the non-performing assets
are real estate or loans secured by real estate located in Northern California.
Raw land consists of land acquired for the purpose of future residential or
commercial development. The Bank had no non-performing assets secured by
subordinate deeds of trust as of December 31, 1995.

                                      -31-
<PAGE>   34
         Restructured loans totaled $5.9 million and $6.3 at December 31, 1995
and 1994, respectively. For the years ended December 31, 1995 and 1994, interest
income foregone on restructured loans was $24,000 and $18,000, respectively.

     VALUATION ALLOWANCES

         The Bank charges current earnings with provisions for estimated losses
on loans receivable, other real estate owned, and real estate investments. The
provisions take into consideration specifically identified problem loans, the
financial condition of the borrowers, the fair value of the collateral, recourse
to guarantors, and other factors.

         Effective January 1, 1995, the Company adopted SFAS No. 114 "Accounting
by Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures". The
Company identified certain classified loans as impaired loans under SFAS No.
114. Of the recorded investment in impaired loans of $7.6 million at December
31, 1995, the Company measured the impairment of $7.3 million using the
collateral value method and $307,000 using discounted cash flow method. Total
interest recognized on impaired loans during 1995 was $430,000 and the related
allowance for loan losses totaled $1.1 million.

     Allowance for Loan Losses

         Prior to 1991, the Bank's method of analyzing the adequacy of its
allowance for loan losses generally relied on the application of historic loan
loss ratios and specific allocations of loss allowances based on specific credit
reviews. In 1991, the Bank revised its methodology because of deterioration in
the credit quality of the loan portfolio, resulting from weakness in the market
for the underlying collateral and/or the borrowers' financial condition, and the
oversupply of properties similar to the properties collateralizing many of the
Bank's loans. The Bank has continued to refine the allowance methodology to
ensure that all known risks, trends, and facts are utilized in determining the
adequacy of the allowance for loan losses.

         Fair value of the underlying collateral is based on current market
conditions, appraisals, and estimated sales values of similar properties, less
an estimated discount for selling and other expenses. In addition, the Bank
establishes a specific loss allowance based on the asset classification and
credit quality grade. This specific loss allowance is utilized to ensure that
allowances are allocated based on the credit quality grading to capture inherent
risks. In addition, the Bank carries an "unallocated" loan loss allowance to
provide for losses that may occur in the future in loans that are not presently
classified, based on present economic conditions, trends, and related
uncertainties.

                                      -32-
<PAGE>   35
         The following table summarizes the loan loss experience of the Bank for
the years ended December 31:

<TABLE>
<CAPTION>

(Dollars in Thousands)                                   1995          1994         1993         1992         1991
                                                 -----------------------------------------------------------------
<S>                                              <C>                <C>          <C>          <C>          <C> 
Balance of allowance for loan
  losses at beginning of period                       $ 6,576       $ 8,050      $ 8,400      $ 8,411      $ 5,052

Loans charged off:
  Commercial, financial and unsecured                    (427)      (3,888)      (2,407)      (6,315)       (5,653)
  Real estate                                          (2,444)      (2,732)      (1,254)      (3,750)       (2,495)
  Sale of Sacramento loans                                 --            --        (402)           --            --
  Net lease financing                                      --            --           --           --          (24)
                                                 -----------------------------------------------------------------
     Subtotal                                          (2,871)      (6,620)      (4,063)     (10,065)       (8,172)
Recoveries of previous losses:
  Commercial and financial                              1,565         1,181          148          221           40
  Real estate construction                                142           166            6            5           16
  Net lease financing                                      --            --            5           --           38
                                                 -----------------------------------------------------------------
     Subtotal                                            1,707        1,347          159       226              94
                                                 -----------------------------------------------------------------
Net loans charged off                                  (1,164)       (5,273)      (3,904)      (9,839)      (8,078)

Provision for loan losses                                 500         3,799        3,554        9,828       11,437
                                                 -----------------------------------------------------------------
Balance of allowance for loan and
  lease losses at end of period                       $ 5,912       $ 6,576      $ 8,050      $ 8,400      $ 8,411
                                                 =================================================================

Ratio of the allowance to total loans                    11.1%         6.2%         5.4%         3.6%        3.0%

Ratio of the allowance to non-performing loans           78.7         70.1         72.6         47.2        71.4

Ratio of net charge-offs to average loans                 1.4          4.4          2.0          3.9         2.7
</TABLE>

         Allocation of the allowance for loan losses by collateral type at
December 31 are as follows:
<TABLE>
<CAPTION>

                                                   1995                     1994                      1993
                                            -------------------      --------------------     ---------------------
(Dollars in Thousands)                      Balance  Percent(1)      Balance   Percent(1)      Balance   Percent(1)
                                            -------------------      --------------------     ---------------------
<S>                                         <C>      <C>             <C>       <C>             <C>       <C>
Commercial and financial                     $3,079       59.0%       $3,881        59.0%       $2,548        53.7%
Real estate construction                        425       10.6         1,208         8.5           635         9.4
Real estate mortgage                          1,188       30.3         1,114        31.3         2,072        36.8
Lease financing                                  --        0.1            --          --            --         0.1
Unallocated                                    ,220         --           373          --         2,795          --
                                             -----------------        ------------------        ------------------
     Total                                    $5,912     100.0%       $6,576       100.0%       $8,050      100.00%
                                             ==================       ==================        ===================

<CAPTION>
                                                                            1992                      1991
                                                                     --------------------      -------------------
                                                                     Balance   Percent(1)      Balance   Percent(1)
                                                                     --------------------      -------------------
<S>                                                                  <C>       <C>             <C>       <C> 
Commercial and financial                                              $1,905        38.2%       $3,135        42.7%
Real estate construction                                               1,958        16.0         2,304        21.9
Real estate mortgage                                                   4,261        45.7         2,057        35.2
Lease financing                                                            2         0.1             3         0.2
Unallocated                                                              274          --           912          --
                                                                      ------------------       -------------------
     Total                                                             $8,400      100.0%       $8,411       100.0%
                                                                      ==================       ===================
</TABLE>

(1) Percent refers to the percent of loans in each category to total loans.

                                      -33-
<PAGE>   36
     Allowance for Losses on Other Real Estate Owned

         Real estate acquired through foreclosure is recorded at fair value at
the time of transfer to OREO. The Bank periodically obtains either an appraisal
or market valuation analysis on all other real estate owned. If the valuation
analysis indicates a decline in the market value of the property, a specific
loss allowance is established. The Bank provides a charge against current
earnings for estimated losses on foreclosed property when the carrying value of
the property exceeds its fair value net of estimated selling expenses. Fair
value is based on current market conditions, appraisals, and estimated sales
values of similar properties, net of an estimated discount for selling and
other expenses.

         The following table summarizes the other real estate owned loss
experience of the Bank for the periods shown:

<TABLE>
<CAPTION>

(Dollars in Thousands)                          1995         1994        1993
                                             ---------------------------------
<S>                                          <C>          <C>          <C>
Balance of allowance for losses - beginning  $19,404      $ 2,986      $ 6,632
  Charge-offs                                 (7,500)         (33)      (6,982)
  Provision                                       87       16,451        3,336
                                             ---------------------------------
Balance of allowance for losses - ending     $11,991      $19,404      $ 2,986
                                             ================================
</TABLE>

         The Bank recognizes a charge-off when the sale of a property with a
specific allowance occurs. A gain on sale is recorded when the net proceeds from
a sale exceed the book value of the property net of the specific allowance. A
loss on sale is recorded when the net proceeds from a sale are less than the
book value of the property net of the specific allowance. The Bank recorded
gains on sale of other real estate owned totaling $2.1 million in 1995 and
$253,000 in 1994. The Bank recorded no losses on sale of other real estate owned
in 1995 compared to $73,000 in 1994. The losses in 1994 were related to two
properties. The OREO properties are shown net of allowance for losses.

     Allowance for Losses on Real Estate Investments

         Real estate investments are recorded at the lower of cost or fair
value. Periodically, the Bank obtains either an appraisal or market valuation
analysis on all real estate investments. If the valuation analysis indicates a
decline in the market value of the property subsequent to the date of
acquisition, a specific loss allowance is established. The Bank provides a
charge against current earnings for estimated losses on real estate investments
when the carrying value of the property exceeds its fair value less estimated
selling expenses. Fair value is based on current market conditions, appraisals,
and estimated sales values of similar properties, less an estimated discount for
selling and other expenses.

         The following table summarizes the real estate investments loss
experience of the Bank for the years ended December 31:
<TABLE>
<CAPTION>

                                                  1995         1994
                                               --------------------
<S>                                            <C>          <C>
Balance of allowance for losses - beginning    $ 1,059      $   712
  Charge-off                                        --         (167)
  Provision                                        419          514
                                               --------------------
Balance of allowance for losses - ending       $ 1,478      $ 1,059
                                               ====================
</TABLE>

     DEPOSITS

         The Bank had total deposits of $105.7 million and $147.1 million at
December 31, 1995 and 1994, respectively. As of December 31, 1995, deposits
consisted of demand deposits totaling $20.4 million, money market accounts
totaling $16.2 million, savings and NOW accounts totaling $25.4 million and time
deposits totaling $43.7 million. As of December 31, 1995, the Bank had a total
of 3,186 deposit accounts consisting of 744 demand deposit accounts with an
average balance of approximately $27,000 each, 542 money market accounts with an
average balance of approximately $30,000 each, approximately 1,231 savings and
NOW accounts with an average balance of approximately $21,000 each and 669 time
accounts with an average balance of approximately $65,000.

                                      -34-
<PAGE>   37
The Bank's deposits and, correspondingly, its liquidity, are largely dependent
upon three sources of funds: deposits acquired through its Association Bank
Services function, Private Banking, and deposits solicited through the Bank's
money desk. These sources of deposits comprised 88.2% of the Bank's total
deposits at December 31, 1995.

         Certificates of deposit having a balance of at least $100,000
represented approximately 6.1% of the Bank's total deposits as of December 31,
1995 compared to 7.0% as of December 31, 1994. As of December 31, 1995, 49.2% of
the Bank's certificates of deposit of at least $100,000 mature in 90 days or
less, 42.8% between 91 days and one year. The aggregate average maturity of all
of the Bank's certificates of deposit of at least $100,000 was five months as of
December 31, 1995, and the aggregate amount of all such certificates of deposit
as of December 31, 1995 was $6.4 million. Concentrations of large certificates
of deposit and certain money market deposits have been classified by bank
regulatory authorities as volatile liabilities associated with certain risks,
including the risks of reduced liquidity if a bank is unable to retain such
deposits and reduced margins if its interest costs are increased by a bank in
order to retain such deposits. See "-- Regulation and Supervision."

         Deposits from homeowner and community associations are a key component
of the Bank's core deposit base. See "Association Bank Services". At December
31, 1995 and 1994, the Association Bank Services function accounted for $22.9
million and $34.5 million in deposits, representing approximately 21.7% and
23.4% of the Bank's total deposits, respectively. During 1995, Association Bank
Service customer deposits declined 33.6% from a year earlier. In August 1995,
the manager and much of the staff of the Association Bank Services function left
the Bank to join a competitor, whose services have been actively marketed to the
Bank's customer base. Since September 30, 1995, there has been a decline of 5%
in Association Bank Service customer deposits, but management does not
anticipate that a significant loss of customer deposits is likely. However,
there can be no assurance that the Bank will be able to continue to stem the
loss of such deposits.

         At December 31, 1995 and 1994, the Bank had brokered deposits totaling
$3.4 million or 3.2% and $19.7 million or 13.5% of total deposits, respectively.
At December 31, 1995 and 1994, the Bank's brokered deposits were approximately
4.0% and 12.5% of the Bank's total assets, respectively. During 1995 and 1994
brokered deposits averaged $8.6 million and $24.9 million, respectively, with
high and low balances for 1995 of $15.6 million and $3.4 million, respectively.
Such brokered certificates of deposit have a remaining weighted average term to
maturity of less than one month. The Bank's brokered deposit waiver, as
described below, was suspended on January 30, 1995 by the FDIC. As a result of
the suspension of the brokered deposit waiver, the Bank did not renew the
maturing brokered deposits.

         In March 1993, the Bank initiated a money desk for the purpose of
attracting additional deposits. These deposits are gathered principally from
other financial institutions and municipalities outside of the Bank's market
area. As of December 31, 1995 and 1994, the Bank had outstanding money desk
deposits of $28.0 million or 26.5% of total Bank's total deposits and $15.1
million or 10.3% of Bank's total deposits. During 1995, the money desk deposits
averaged $24.5 million, with a high balance of $30.3 million. As of December 31,
1995, money desk deposits had a remaining weighted average maturity of
approximately eight months.

         The Bank's ability to accept brokered placements of deposits was
restricted in the first quarter of 1992 under FDICIA and new FDIC regulations
that prohibit undercapitalized banks from accepting or renewing such brokered
deposits and prohibit adequately capitalized institutions from accepting or
renewing such deposits unless such institutions obtain a waiver of such
prohibition from the FDIC. As of December 31, 1995, the Bank was not accepting
brokered deposits. As required by the Orders, the Bank has submitted a plan to
the FDIC and the SBD to eliminate reliance on brokered deposits and to reduce
its dependency on out of area deposits and volatile liabilities. See --
"Regulatory Agreement and Orders" and "Regulation and Supervision".

         The following table sets forth the maturities, as of December 31, 1995,
of the Bank's interest-bearing deposits and other interest-bearing liabilities:

                                      -35-
<PAGE>   38
<TABLE>
<CAPTION>
                                                Over 3         Over    More Than
                                3 Months     Months to     6 Months    1 Year to
(Dollars in Thousands)           or Less      6 Months    to 1 Year      5 Years        Total
                                -------------------------------------------------------------
<S>                             <C>          <C>          <C>          <C>            <C>
Interest-Bearing Liabilities:

  Money market accounts          $16,185            --           --           --      $16,185
  Savings and NOW accounts        25,411            --           --           --       25,411
  Time deposits                   12,765       $13,126      $12,147      $ 5,674       43,712
                                -------------------------------------------------------------
      Total interest-bearing
        liabilities              $54,361       $13,126      $12,147      $ 5,674      $85,308
                                =============================================================
</TABLE>

      OTHER BORROWINGS

         The Bank's other borrowings at December 31, 1995 were zero compared to
$4.1 million at December 31, 1994. The Bank's other borrowing facilities include
advances from the FHLB and reverse repurchase agreements.

         The Bank's short term line of credit with the Federal Reserve Bank of
San Francisco (Federal Reserve Bank) was canceled effective April 3, 1995.
However, the Bank has an overdraft line with the Federal Reserve Bank of
$667,000 secured by loans in the Bank's portfolio. The Bank's short term line of
credit with the FHLB of up to $3.1 million is secured by pledged loans. At
December 31, 1995 and 1994, the Bank had no borrowings outstanding with the FHLB
or Federal Reserve Bank. During 1995 and 1994, the Bank did not borrow at the
discount window at the Federal Reserve Bank. In the first quarter of 1995, the
Bank activated its FHLB borrowing.

The borrowing was repaid in the second quarter of 1995.

         As a result of the acquisition of BSFBC, the Bank assumed an obligation
of BSFBC totaling $2.2 million secured by the leasehold interest in the Bank of
San Francisco Building, 550 Montgomery Street, San Francisco, California. The
Bank repaid this loan during the fourth quarter of 1995.

     ASSET AND LIABILITY MANAGEMENT

         Banking is a business which depends on rate differentials. In general,
the difference between the interest rate paid by the Bank on its deposits and
its other borrowing and the interest rate received by the Bank on loans extended
to its customers and securities held in the Bank's portfolio comprise the major
portion of the Bank's earnings. These rates are highly sensitive to many factors
which are beyond the control of the Bank. Accordingly, the earnings and growth
of the Bank are subject to the influence of domestic economic conditions,
including inflation, recession and unemployment.

         The most important component of the Bank's earnings is the difference
between the rates earned on its assets as compared to the rates paid on its
liabilities. The difference between the amount of assets and the amount of
liabilities which are subject to interest rate risk is referred to as the "gap."
The gap represents the risk and the opportunity inherent in mismatching asset
and liability interest rate changes. If more assets than liabilities are
interest rate sensitive at a given time in a rising interest rate environment,
net interest income increases. In a declining interest rate environment with the
same "gap", net interest income decreases. If more liabilities change rates than
assets, the same scenarios produce the opposite effects.

         The Bank's risk management policies are established by the Asset
Liability Committee (the "ALCO"). The ALCO meets periodically to formulate the
Bank's strategies. The basic responsibilities of the ALCO include the management
of interest rate risk, liquidity, funding, and asset and liability products. The
Bank's approach is to measure interest rate risk, assess and determine if the
risk level is acceptable and to develop strategies to either reduce excessive
risk or recognize the trade-offs between risk and return.

                                      -36-
<PAGE>   39
         The following table shows the repricing opportunities for the Bank's
interest-earning assets and interest-bearing liabilities at December 31, 1995:
<TABLE>
<CAPTION>

                                                         Over 3          Over   More Than
                                          3 Months    Months to      6 Months   1 Year to       Over
(Dollars in Thousands)                     or Less     6 Months     to 1 Year     5 Years    5 Years      Total
                                          ---------------------------------------------------------------------
<S>                                       <C>         <C>           <C>         <C>          <C>       <C>
Interest-Earning Assets:
  Investment securities and
    certain cash equivalents               $40,986     $     --     $     --     $4,503       $   --    $45,489
  Loans (1)                                 36,737            6        1,220      3,024        4,711     45,698
                                           --------------------------------------------------------------------
      Total interest-earning assets         77,723            6        1,220      7,527        4,711     91,187
                                           -------------------------------------------------------------------

Interest-Bearing Liabilities:
  Interest-bearing deposits                 54,361       13,126       12,147      5,674           --     85,308
  Other borrowings                              --           --           --         --           --         --
                                           --------------------------------------------------------------------
      Total interest-bearing liabilities    54,361       13,126       12,147      5,674           --     85,308
                                           --------------------------------------------------------------------

Interest bearing assets over (under)
  interest bearing liabilities             $23,362     $(13,120)    $(10,927)    $1,853      $ 4,711    $ 5,879
                                           ====================================================================
  
Cumulative primary gap                     $23,362     $ 10,242     $   (685)    $1,168      $ 5,879
                                           =========================================================

Gap as a percentage of total assets           20.3%         8.9%        (0.6)%      1.0%         5.1%
</TABLE>


1) Excludes non-accrual loans.

         The maturity/rate sensitivity analysis is a static view of the balance
sheet with assets and liabilities grouped into certain defined time periods, and
thus only partially depicts the dynamics of the Bank's sensitivity to interest
rate changes. Such an analysis does not fully describe the complexity of
relationships between product features and pricing, market rates and future
management of the balance sheet mix. As a result, assets and liabilities
indicated as repricing within the same period may in fact reprice at different
times and different rates. The Company's net interest margins on average
earnings assets for the years ended December 31, 1995, 1994 and 1993, were 5.0%,
5.1% and 4.6%, respectively.

     LIQUIDITY

         In 1995 and 1994, the Company's principal source of liquidity has been
repayment of loans and new capital from the issuance of its capital stock.
Generally, the Bank has various sources of liquidity including core deposits,
money desk deposits, other borrowings, loan participations and sales, loan
repayments, and the sale of problem assets. The Bank's access to all of these
sources of liquidity may be limited as a result of the failure to meet capital
requirements, the contractual maturities of performing loans, and/or the
inability of borrowers to repay loans according to the contractual terms.

         Liquidity is the Bank's ability to meet the present and future needs of
its clients for loans and deposit withdrawals. The Bank's liquidity generally
decreases as a result of increases in the Bank's loans and other assets, and
fluctuations in the maturities of deposits in the Bank can have a significant
effect on the Bank's liquidity. The sources of the Bank's liquidity include
deposits, other liquid assets and short-term borrowings. The most important
source of these assets are core deposits. Core deposits are defined as all
deposits from its customer base except time deposits of $100,000 or greater and
all deposits identified as volatile. At December 31, 1995, the Bank's core
deposits were $73.4 million, representing a 27.5% decrease from core deposits of
$101.2 million at December 31, 1994, which in turn represents a 12.8% decrease
from core deposits of $116.0 million at December 31, 1993. The Bank's liquid
assets, which includes cash and short term investments, at December 31, 1995
totaled $49.4 million, an increase of 23.2% from $40.1 million at December 31,
1994. As of December 31, 1995, the Bank had pledged loans and securities
enabling the Bank to borrow up to $3.1 million from the FHLB, and the Bank 
drew on this line of credit during the first quarter of 1995 and repaid the 
borrowing during the second quarter of 1995.

                                      -37-
<PAGE>   40
         The Bank's ability to generate liquidity through acceptance of brokered
placements of certificates of deposit was restricted in the first quarter of
1992 under FDICIA and new FDIC regulations that prohibit undercapitalized banks
from accepting or renewing such brokered deposits and prohibit adequately
capitalized institutions from accepting or renewing such deposits unless such
institutions obtain a waiver of such prohibition from the FDIC. Under the
Orders, the Bank was required to submit a written plan to the FDIC and the SBD
for eliminating its reliance on brokered deposits, and to provide the Regional
Director of the FDIC and the Superintendent with monthly reports outlining the
Bank's progress under such plan. During the first quarter of 1995, the Bank's
brokered deposit waiver was suspended. See "-- Regulation and Supervision."

         The Bank's present strategy focuses on the stabilization of the
existing core deposit portfolio. The proceeds from loan pay offs will be used to
fund new loans, reinvestment in the investment securities, and repay maturing
volatile liabilities.

         Although management believes that the Bank's ability to eliminate its
reliance on out of area and volatile liabilities can be accomplished through
local deposit marketing efforts, the success of which cannot be assured, and
because out of area deposits presently comprise over 26.6% of the Bank's total
deposits, it is not expected that, in the near future, these deposits can be
replaced with core deposits. Nor can any assurance be given that the Bank will
be able to successfully implement its plans, find alternate sources of deposits.
See "-- Regulatory Directives and Orders."

     CAPITAL

         Shareholders' equity totaled $6.9 million at December 31, 1995, an
increase of $4.8 million from $2.1 million at December 31, 1994. During the
period from 1991 through 1994, the Company suffered an aggregate of $74.6
million in losses, primarily as a result of defaulted loans secured by real
estate and losses on direct real estate development activities. The Company and
the Bank succeeded in avoiding insolvency during this period only through the
injection of a total of $56.3 million in new capital as of December 31, 1995.
The Company's majority shareholder committed to an additional capital
contribution of $4.5 million, expected by December 31, 1996.

         Pursuant to federal law, the Company is subject to the Federal Reserve
Board's capital guidelines of the FRB and the Bank is subject to the FDIC's
regulations governing capital adequacy for banks that are not members
("non-member banks") of the Federal Reserve System. As a result of the Bank's
failure to meet its minimum regulatory and Orders capital requirements at
December 31, 1994, the Bank filed the Capital Restoration Plan in compliance
with "Prompt Corrective Action" imposed by FDICIA. The FDIC has approved the
Plan subject to the infusion of additional capital. The Plan supersedes
previously filed plans under the "Prompt Corrective Action" regulations. In
addition, in 1995 the Company agreed to guarantee that the Bank will comply with
the Plan until the Bank has met its minimum capital requirements on average
during each of four consecutive calendar quarters. This guarantee supersedes
previously issued guarantee as agreed to in 1993. The Company's liability under
the guarantee is limited to the lesser of 5% of the Bank's total assets at the
time it became undercapitalized, $7.8 million or an amount necessary (or that
would have been necessary) to bring the Bank into compliance with all of its
capital requirements as of the time it fails to comply with the Capital
Restoration Plan. The Company currently does not have sufficient funds to
satisfy the guarantee, and would be in default thereunder if called upon to do
so. See "-- Supervision and Regulation" for further information concerning
FDICIA's "Prompt Corrective Action" system.

         Under California law, if a bank's deficit retained earnings exceed 40%
of its contributed capital, its capital is deemed to be impaired, and the bank
is required to levy an assessment on its shares to correct the impairment. The
SBD has issued eight Impairment Orders to the Bank, most recently dated February
5, 1996. At December 31, 1995, the Bank had contributed capital of $70.9 million
and deficit retained earnings of $64.0 million resulting in a $35.6 million
capital impairment. See "-- Regulatory Directives and Orders -- Capital
Impairment Order" for more discussion on the Bank's impairment of capital.

         On May 23, 1994, the holder of the Company's Series C Preferred Stock
converted each share of his Preferred Stock into 40 shares of Class A Common
Stock and 40 warrants, with each warrant granting the right to purchase an
additional share of Class A Common Stock, exercisable at $0.50 per share (before
the reverse split). The warrants expired on December 31, 1995. In addition to
the conversion, the Company effected a 1-for-20 reverse stock split of the
Company's Class A Common Stock and changed the authorized number of shares to

                                      -38-
<PAGE>   41
40,000,000. As a result of the reverse stock split, the Company repurchased the
fractional shares which totaled 119 new shares. No Series C Preferred Shares
were outstanding at December 31, 1995.

         On July 25, 1994, the Company issued 3,521,126 shares of Class A Common
Stock, and warrants to purchase an additional 3,521,126 shares with an exercise
price for each share of $10.00 to its principal stockholder in its first closing
of a private stock offering for $20.0 million in capital. The warrants expired
on December 31, 1995. The price per unit was $5.68. Each unit sold included a
Risk Protection Right which the Company's majority shareholder has relinquished.

         The total cost of this capital raising was $2.4 million for a net
capital contribution of $17.6 million. On July 27, 1994 and December 31, 1994,
the Company contributed net capital of $13.5 million and $3.5 million,
respectively, to the Bank.

         Mr. Kaharudin Latief of Jakarta, Indonesia has acquired 525,000 shares
of the Class A Common Stock from the majority shareholder through the
cancellation of an unsecured, personal loan in the amount of $5.3 million which
Mr. Latief previously extended to the Company's controlling stockholder.
Assuming the conversion of the majority shareholder's 215,000 Series D Preferred
Shares into 12,685,000 shares of Class A Common Stock, Mr. Latief's ownership
percentage would be 2.9% and the Company's controlling stockholder's new common
ownership would be approximately 96.3%.

         On April 21, and June 30, 1995, the Company issued 190,000 and 25,000
shares, respectively, of 9% Series D Perpetual Preferred Stock (the "Series D
Preferred Stock")at a price of $20.00 per share to the its majority shareholder.
The shares of Series D Preferred Stock are not currently convertible but will
become so if the conversion feature is approved by a majority of the holders of
the Class A Common Stock and Series B Preferred Stock (voting as a single
class). If the conversion feature is approved, each share of the Series D
Preferred Stock will become convertible into approximately 59 shares of Class A
Common Stock.

         On March 20, 1996, the Company issued an additional 50,000 shares of
Series D Preferred Stock and warrants to purchase additional shares to the
Company's majority shareholder at a price of $20.00 per share in accordance with
an agreement dated February 26, 1996 between the Company and its majority
shareholder. Pursuant to the agreement, the Company's majority shareholder will
purchase a total of 225,000 additional shares Series D Preferred Stock on or
before specific dates during 1996 and the Company would grant an option to
purchase up to an additional 525,000 Series D Preferred Shares at a price of
$20.00 per share exercisable in whole or part at any time after the purchase of
the 225,000 shares of Series D Preferred Stock in 1996, but before February 26,
2003.

         The Company and the Bank are subject to general regulations issued by
the FRB, FDIC, and SBD which require maintenance of a certain level of capital
and the Bank is under specific capital requirements as a result of the Orders.
As of December 31, 1995, the Company was in compliance with all minimum capital
requirements and the Bank was not in compliance with all minimum capital
requirements including the minimum leverage ratio of 7.0% mandated by the
Orders. With the additional capital received March 20, 1996, management expects
to meet the minimum leverage ratio of 7.0% as of March 31, 1996.

         The following table reflects both the Company's and the Bank's capital
ratios with respect to the minimum capital requirements in effect as of December
31, 1995.

<TABLE>
<CAPTION>
                                                   Minimum
                                                   Capital
                              Company    Bank    Requirement         Orders
                              ---------------------------------------------
<S>                           <C>        <C>     <C>                  <C>
Leverage ratio                    6.0%    6.0%           4.0%           7.0%
Tier 1 risk-based capital         8.5     8.6            4.0            N/A
Total risk-based capital         10.4    10.4            8.0            N/A
</TABLE>


         On March 20, 1996, the Company received $1.0 million of the $4.5
million committed by the Company's majority shareholder. The Company contributed
the capital to the Bank. The following table reflects both the

                                      -39-
<PAGE>   42
Company's and the Bank's capital ratios with respect to the minimum capital
requirements in effect as of December 31, 1995 giving effect to the $1.0 million
received on March 20, 1996.
<TABLE>
<CAPTION>

                                                   Minimum
                                                   Capital
                             Company     Bank    Requirement      Orders
                             --------------------------------------------
<S>                          <C>         <C>      <C>             <C>
Leverage ratio                   6.7%     6.7%           4.0%        7.0%
Tier 1 risk-based capital        9.7      9.7            4.0         N/A
Total risk-based capital        11.7     11.7            8.0         N/A

</TABLE>


                                      -40-
<PAGE>   43
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     Page
                                                                     ----

Report of Independent Accountants...............................      42
                                                                        
Consolidated Statements of Financial Condition,                         
     December 31, 1995 and 1994.................................      43
                                                                        
Consolidated Statements of Operations,..........................      44
     Years ended December 31, 1995, 1994 and 1993                       
                                                                        
Consolidated Statements of Changes in Shareholders' Equity,.....      45
     Years ended December 31, 1995, 1994 and 1993                       
                                                                        
Consolidated Statements of Cash Flows,..........................      46
     Years ended December 31, 1995, 1994 and 1993                       
                                                                        
Notes to Consolidated Financial Statements......................      48
                                                                      
                                




                                      -41-
<PAGE>   44


                        REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders of
The San Francisco Company:

We have audited the accompanying consolidated statements of financial condition
of The San Francisco Company and subsidiaries (the Company) as of December 31,
1995 and 1994 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

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

KPMG Peat Marwick LLP





March 20, 1996
San Francisco, California

                                             




                                      -42-
<PAGE>   45
                            THE SAN FRANCISCO COMPANY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                           DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>

(Dollars in Thousands Except Per Share Data)                                    Notes           1995          1994
                                                                                ----------------------------------
<S>                                                                             <C>         <C>           <C>
ASSETS:
Cash and due from banks                                                                     $  4,814      $ 11,397
Federal funds sold                                                                            38,000        17,250
                                                                                            ----------------------
     Cash and cash equivalents                                                                42,814        28,647

Investment securities held-to-maturity
 (Market value: 1994 - $7,836)                                                      3             --         7,859
Investment securities available-for-sale                                            3          6,536         2,211
Federal Home Loan Bank stock, at par                                                3            632         1,337

Loans                                                                               4         53,208       106,452
Deferred loan fees                                                                  4           (180)         (388)
Allowance for loan losses                                                           5         (5,912)       (6,576)
                                                                                            ----------------------
     Loans, net                                                                               47,116        99,488

Other real estate owned                                                             6          7,514        10,021
Real estate investments                                                             7            236         2,364
Premises and equipment, net                                                         8          8,689         2,996
Interest receivable                                                                              527           820
Other assets                                                                                     798         1,037
                                                                                            ----------------------
          Total assets                                                                      $114,862      $156,780
                                                                                            ======================

LIABILITIES AND SHAREHOLDERS' EQUITY:
Non-interest bearing deposits                                                               $ 20,365      $ 30,259
Interest bearing deposits                                                                     85,308       116,889
                                                                                            ----------------------
     Total deposits                                                                 9        105,673       147,148

Other borrowings                                                                   10             --         4,070
Other liabilities and interest payable                                                         2,309         3,433
                                                                                            ----------------------
     Total liabilities                                                                       107,982       154,651
                                                                                            ----------------------

Commitments and contingencies                                                      15

Shareholders' Equity:                                                              12
Preferred Stock (par value $0.01 per share)
     Series B - Authorized - 437,500 shares
     Issued and outstanding - 1995 - 16,291 and 1994 - 16,591 shares                             114           114
     Series D - Authorized - 750,000 shares
     Issued and outstanding - 1995 - 215,000                                                   4,300            --
Common stock (par value $0.01 per share)
     Class A - Authorized - 40,000,000 shares
     Issued and outstanding - 1995 - 5,765,978 and 1994 - 5,766,008 shares                        58            58
Additional paid in capital                                                                    70,168        70,168
Retained deficit                                                                             (67,801)      (68,137)
Employee purchase and option plans                                                                --           (70)
Unrealized gain (loss) on securities available-for-sale                                           41            (4)
                                                                                            ----------------------
     Total shareholders' equity                                                                6,880         2,129
                                                                                            ----------------------
          Total liabilities and shareholders' equity                                        $114,862      $156,780
                                                                                            ======================

</TABLE>

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



                                      -43-
<PAGE>   46
                            THE SAN FRANCISCO COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>

(Dollars in Thousands Except Per Share Data)                      Notes           1995          1994          1993
                                                                 -------------------------------------------------
<C>                                                              <C>        <C>             <C>
Interest income:
  Loans                                                                     $    8,452      $ 11,258      $ 16,659
  Fed funds sold                                                                 1,771           702           576
  Investments                                                                      423           627           875
  Dividends                                                                         45            64            45
                                                                            --------------------------------------
     Total interest income                                                      10,691        12,651        18,155
                                                                            --------------------------------------

Interest expense:
  Deposits                                                            9          4,244         4,694         6,966
  Other borrowings                                                                 171           169           454
                                                                            --------------------------------------
     Total interest expense                                                      4,415         4,863         7,420
                                                                            --------------------------------------

Net interest income                                                              6,276         7,788        10,735
Provision for loan losses                                             5            500         3,799         3,554
                                                                            --------------------------------------
Net interest income after provision for loan losses                              5,776         3,989         7,181
                                                                            --------------------------------------

Non-interest income:
  Service charges and fees                                                         381           452           684
  Results of operations from limited partnership                   7/16             48          (264)          263
  Loan brokerage and servicing fees                                                248           347           324
  Stock option commissions and fees                                              1,486         1,562         2,906
  Other income                                                                     175           295           383
  Gain (loss) on sale of assets, net                                               183          (257)          (63)
                                                                            ---------------------------------------
     Total non-interest income                                                   2,521         2,135         4,497
                                                                            --------------------------------------

Non-interest expense:
  Salaries and related benefits                                                  4,279         7,330         8,325
  Occupancy expense                                                   8          1,200         2,121         2,054
  Professional fees                                                                876         3,071         2,326
  Litigation settlement and reserve                                               (158)        3,601            --
  Equipment expense                                                                417           564           849
  FDIC insurance premiums                                                          457           633           849
  Data processing                                                                  526           439           457
  Loss on sale of Sacramento Branch                                                 --            --           420
  Marketing                                                                         86           369            71
  Insurance premiums                                                               374           189            97
  Telephone                                                                        116           155           314
  Other operating expenses                                                         559         1,419         1,876
                                                                            --------------------------------------
     Total operating expenses                                                    8,732        19,891        17,638

Net (income from) cost of real estate operations                                  (924)       19,127         4,126
                                                                            --------------------------------------
     Total non-interest expense                                                  7,808        39,018        21,764
                                                                            --------------------------------------
Income (loss) before income taxes                                                  489       (32,894)      (10,086)
Provision for income taxes                                           11            153           142           169
                                                                            --------------------------------------
     Net Income (loss)                                                      $      336      $(33,036)     $(10,255)
                                                                            ======================================

Income (loss) per share:
  Weighted average shares outstanding                                        5,765,985     3,078,303       445,064
  Net Income (loss)                                                              $0.05       $(10.73)      $(23.00)

</TABLE>

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

   


                                   -44-
<PAGE>   47
                            THE SAN FRANCISCO COMPANY
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>

                                                                                                Unrealized
                                                                                    Employee          Gain              
                                                                                    Purchase     (Loss) on        Total 
                                                             Additional                  and     Securities       Share-
                                         Preferred   Common     Paid-in   Retained    Option     Available-      Holders
(Dollars in Thousands)                       Stock    Stock     Capital  (Deficit)     Plans       for-Sale       Equity
                                         -------------------------------------------------------------------------------
<S>                                      <C>         <C>      <C>        <C>         <C>        <C>            <C>
Balances at January 1, 1993                $ 6,116    $   4    $34,668   $(24,846)   $  (266)   $    --        $15,676 
  Net change in employee stock                                                                                         
    ownership plans                             --       --         (6)        --        100         --             94 
  Net proceeds from sale of stock           12,000       --         --         --         --         --         12,000 
  Unrealized loss on securities                                                                                        
   available-for-sale                           --       --         --         --         --        (60)           (60)
  Net loss                                      --       --         --    (10,255)        --         --        (10,255)
                                         ----------------------------------------------------------------------------- 
                                                                                                                       
Balances at December 31, 1993               18,116        4     34,662    (35,101)      (266)       (60)        17,455 
                                                                                                                       
  Net change in employee stock                                                                                         
    ownership plans                             --       --         --         --         96                        96 
  Conversion of preferred stock                                                                                        
    to common stock                        (18,002)      18     17,984         --         --         --             -- 
  Net proceeds from sale of stock               --       36     17,524         --         --                    17,560 
  Redemption of fractional shares               --       --         (2)        --         --         --             (2)
  Appreciation in market value of                                                                                      
   securities available-for-sale                --       --         --         --         --         56             56 
  Net loss                                      --       --         --    (33,036)        --         --        (33,036)
                                         ----------------------------------------------------------------------------- 
                                                                                                                       
Balances at December 31, 1994                 $114       58     70,168    (68,137)       (70)        (4)         2,129 
                                                                                                                       
  Net change in employee stock                                                                                         
                                                                                                                       
    ownership plans                             --       --         --         --         70         --             70 
  Net proceeds from sale of stock            4,300       --         --         --         --         --          4,300 
  Appreciation in market value of                                                                                      
    securities available-for-sale               --       --         --         --         --         45             45 
  Net income                                    --       --         --        336         --         --            336 
                                         ----------------------------------------------------------------------------- 
                                                                                                                       
Balances at December 31, 1995              $ 4,414  $    58    $70,168   $(67,801)     $  --      $  41        $ 6,880 
                                         ============================================================================= 
                                                                                                               
</TABLE>

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



                                      -45-
<PAGE>   48
                              SAN FRANCISCO COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>

(Dollars in Thousands)                                                            1995          1994          1993
                                                                              ------------------------------------
<S>                                                                           <C>           <C>           <C>
Cash Flows from Operating Activities:

Net income (loss)                                                             $    336      $(33,036)     $(10,255)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:

 Provision for loan losses                                                         500         3,799         3,554
 Depreciation and amortization expense                                             581           660           770
 Provision for other real estate owned and real estate investment                  506        17,074         2,629
 Loss on investment securities held-for-sale                                        --            --            67
 Loss on sale of investment securities available for sale                           --           265            --
 Loss on sale of investment securities held-to-maturity prior to maturity           --            14            --
 Decrease in interest receivable                                                   293           126           539
 Decrease in interest payable                                                      (36)         (143)         (213)
 Decrease in deferred loan fees                                                   (208)         (162)         (313)
                                                                              -------------------------------------
Net cash flows provided by (used in) operating activities                        1,972       (11,403)       (3,222)
                                                                              -------------------------------------

Cash Flows from Investing Activities:

  Proceeds from maturities of investment securities held-to-maturity             7,859         7,516        28,200
  Redemption of Federal Home Loan Bank stock, net                                  705         2,344            --
  Purchase of investment securities held-to-maturity                                --       (12,719)      (29,404)
  Proceeds from sales of investment securities available-for sale                   --        19,402        24,472
  Purchase of investment securities available-for-sale                          (8,414)       (8,492)           --
  Purchase of investment securities held-for-sale                                   --            --       (20,808)
  Proceeds from maturities of investment securities available-for-sale           4,134         1,610            --
  Capital expenditures for real estate owned                                      (855)         (575)       (3,790)
  Net decrease in loans                                                         49,132        39,101        51,253
  Loans sold in sale of branch                                                      --            --        27,934
  Recoveries of loans previously charged off                                     1,707         1,347           159
  Acquisition of leasehold interest -- BSFBC                                    (4,471)           --            --
  Purchases of premises and equipment                                             (120)          (64)         (124)
  Premises and equipment sold in sale of branch                                     --            --           350
  Decrease in other assets sold in sale of branch                                   --            --           201
  Proceeds from sales of real estate investments                                 4,543         4,700         7,563
  Net decrease in other assets                                                     239         1,165         1,152
                                                                              ------------------------------------
Net cash provided by investing activities                                       54,459        55,335        87,158
                                                                              ------------------------------------

Cash Flows from Financing Activities:

  Net decrease in deposits                                                     (41,475)      (62,963)      (42,459)
  Net increase (decrease) in other borrowings                                   (4,070)        2,859       (14,005)
  Deposits sold in sale of branch                                                   --            --       (33,115)
  Net increase (decrease) in other liabilities                                  (1,019)        1,426          (121)
  Net proceeds from sale of preferred stock                                      4,300            --        12,000
  Net proceeds from sale of common stock                                            --        17,560            --
                                                                              ------------------------------------
Net cash used in financing activities                                          (42,264)      (41,118)      (77,700)
                                                                              ------------------------------------

Increase (decrease) in cash and cash equivalents                                14,167         2,814         6,236
Cash and cash equivalents at beginning of year                                  28,647        25,833        19,597
                                                                              ------------------------------------
Cash and cash equivalents at end of year                                       $42,814       $28,647       $25,833
                                                                              ====================================

</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                             statements.                           (continued)

                               



                                      -46-
<PAGE>   49
                            THE SAN FRANCISCO COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
                                   (continued)
<TABLE>
<CAPTION>

(Dollars in Thousands)                                                            1995          1994          1993
                                                                               -----------------------------------
<S>                                                                            <C>           <C>           <C>
Supplemental Disclosure of Cash Flow Information:

Cash paid during the year for:
Interest                                                                       $ 4,450       $ 5,006       $ 7,632
Income taxes                                                                       153           142           106


Supplemental Schedule of Noncash Investing and Financing Activities:

Net transfer of loans to other real estate owned                                 1,197           587         2,943

</TABLE>

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

                              



                                      -47-


<PAGE>   50
                            THE SAN FRANCISCO COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1995 AND 1994

Note 1:  Statement of Accounting Policies

         The accounting and reporting policies of The San Francisco Company
(Company) and its subsidiaries are in accordance with generally accepted
accounting principals and practices within the banking industry.

Organization

         The San Francisco Company, formerly the Bank of San Francisco Company
Holding Company is a Delaware corporation and a bank holding company registered
under the Bank Holding Company Act of 1956, as amended. The Company was
organized in 1981 under the laws of the State of California. In July 1988, the
Company changed its state of incorporation from California to Delaware by means
of a merger of the Company into a newly formed wholly owned Delaware subsidiary.
Bank of San Francisco (Bank), a state chartered bank, was organized as a
California banking corporation in 1978 and became a wholly owned subsidiary of
the Company through a reorganization in 1982. The Bank specializes in providing
private banking and business banking for such professional individuals, their
business and other business in the San Francisco banking market.

         Prior to December 31, 1994, the Bank and Bank of San Francisco Realty
Investors (BSFRI) had partnership interests of 34.5% and 2.5%, respectively, in
Bank of San Francisco Building Company (BSFBC), a California limited partnership
which holds the leasehold interest in the Company's headquarters building
located at 550 Montgomery Street, San Francisco, California. During 1995, the
Bank acquired 100% of the outside limited partnership interest.

Principles of Consolidation

         The accompanying financial statements include the accounts of the
Company, the Bank, and the Bank's wholly owned subsidiary, BSFRI. During 1995,
the Bank acquired controlling interest in BSFBC. The Consolidated Statement of
Financial Condition includes the accounts of BSFBC as of December 31, 1995 and
the Consolidated Statements of Operations and Cash Flow include the accounts of
BSFBC beginning July 1, 1995, approximately the date of acquisition. All
material intercompany transactions have been eliminated in consolidation. Prior
to the acquisition, the Company accounted for its investment in BSFBC using the
equity method.

Cash and Cash Equivalents and Statements of Cash Flows

         Cash equivalents are defined as short-term, highly liquid investments
both readily convertible to known amounts of cash and so near maturity that
there is insignificant risk of change in value because of changes in interest
rates. Generally, only investments with maturities of three months or less at
the time of purchase qualify as cash equivalents. Cash and cash equivalents
include cash and due from banks, time deposits with other financial
institutions, and Federal funds sold.

         The Bank is required to maintain non-interest bearing cash reserves
equal to a percentage of certain deposits. In 1995 and 1994, the average reserve
balances outstanding were $1.5 million and $2.8 million, respectively.
Generally, the Bank does not maintain compensating balance arrangements.

Investment Securities

         At December 31, 1993, the Company adopted Statement of Financial
Accounting Standards "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No. 115) which requires the classification of debt and equity
securities into one of three categories; held-to-maturity, trading, or
available-for-sale. The investments classified as held-to-maturity are carried
at amortized cost because management has both the intent and ability to hold
these investments to maturity. Investments classified as available-for-sale are
carried at fair value with any unrealized gains and loss included as a separate
component of shareholders' equity.

                                    




                                      -48-

<PAGE>   51
         Investment securities include both debt and equity securities. At
December 31, 1995 and 1994, the Bank maintained two securities portfolios;
investment securities held-to-maturity, and debt and equity securities
available- for-sale. Investment securities held-to-maturity are carried at
amortized cost and discounts or premiums are accreted or amortized to income
over the expected term of the investment based on prepayment assumptions.
Discounts or premiums are adjusted periodically to reflect actual prepayment
experience. The gain or loss on all investment securities sold is determined
based on the specific identification method. The estimated fair value is based
on quoted market prices.

Loans Receivable

         Loans are stated at the principal amount outstanding, net of the
allowance for loan losses, deferred fees and unearned discount, if any. The Bank
holds loans receivable primarily for investment purposes. A significant portion
of the Bank's loan portfolio is comprised of adjustable rate loans.

         Effective January 1, 1995, the Company adopted SFAS No. 114 "Accounting
by Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures". Interest
on loans as well as impaired loans is calculated using the simple interest
method on the daily balances of the principal amount outstanding. The accrual of
interest is discontinued and any accrued and unpaid interest is charged against
current income when the payment of principal or interest is 90 days past due,
unless the amount is well-secured and in the process of collection. Subsequent
interest payments on loans in non-accruing status are recorded as a reduction of
the loan balance. A non-accrual loan is restored to an accrual basis when
principal and interest payments are being paid currently and full payment of
principal and interest is probable. Interest payments received on loans for
which the future collection of the recorded principal is probable are recognized
as interest income.

         Lease financing receivables, net of unearned income, are included in
loans. Unearned income and residual values related to lease financing
receivables are recognized as income over the life of the lease under a method
that yields an approximately level rate of return on the unrecovered lease
investment.

Loan Fees

         The Bank charges nonrefundable fees for originating loans. Loan
origination fees, net of the direct costs of underwriting and closing the loans,
are deferred and amortized to interest income using the interest method.
Unamortized net fees and costs on loans sold or paid in full are recognized as
income. Other loan fees and charges, which represent income from delinquent
payment charges, and miscellaneous loan services, are recognized as interest
income when collected.

Allowance for Loan Losses

         The Company identifies certain classified loans as impaired loans under
SFAS No. 114. The Company measures the impairment of real estate loans using the
collateral value method, and commercial and financial loans using discounted
cash flow method.

         The Company records a provision for estimated losses on loans
receivable considering both specifically identified problem loans and credit
risks not specifically identified in the loan portfolio. The allowance for loan
losses takes into consideration numerous factors including the financial
condition of the borrowers, the fair value of the collateral prior to the
anticipated date of sale, collateral concentrations and past loss experience.
These allowances are subjective and may be adjusted in the future depending on
economic conditions. In addition, regulatory examiners may require the Company
to provide additional allowances based on their judgements of the information
regarding problem loans and credit risks available to them at the time of their
examinations.

         Losses are recognized as charges to the allowance when the loan or a
portion of the loan is considered uncollectible or at the time of foreclosure.
Recoveries on loans receivable previously charged off are credited to allowance
for loan losses.

                                            




                                      -49-
<PAGE>   52
Premises and Equipment

         Premises and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation on furniture, fixtures and equipment
is computed on the straight-line method over the estimated useful life of each
type of asset. Estimated useful lives are from three to seven years. Leasehold
improvements are amortized over the term of the applicable lease or their
estimated useful life, whichever is shorter.

Real Estate Investments

         The Company, through BSFRI, has acquired property for development and
sale. Real estate acquired for development and sale is recorded at the lower of
cost (adjusted for subsequent development costs) or fair value net of estimated
selling costs. Interest costs are capitalized when properties are in the
development stage.

Other Real Estate Owned

        Other real estate owned (OREO) includes loans receivable that have been
repossessed in settlement of debt (foreclosures). At the date of transfer, OREO
is recorded at fair value net of estimated selling costs.

         The Company provides a charge against current earnings for estimated
losses on foreclosed property when the carrying value of the property exceeds
its fair value net of estimated selling expenses. The Bank obtains an appraisal
or market valuation analysis on all other real estate owned periodically. If the
periodic valuation indicates a decline in the fair value below recorded carrying
value, an allowance for OREO losses is established. Fair value is based on
current market conditions, appraisals, and estimated sales values of similar
properties, net of estimated selling and other expenses.

Income Taxes

         Effective January 1, 1993, the Company changed its method of accounting
for income taxes to adopt Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109). Under the asset and liability
method prescribed by SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences of differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (temporary differences). Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rate is recognized in income in the period of enactment.

         Under SFAS No. 109, deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards, and then
a valuation allowance is established to reduce that deferred tax asset if it is
"more likely than not" that the related tax benefits will not be realized. The
adoption of SFAS No. 109 did not have a material impact on the Company's January
1, 1993 net deferred tax asset. Additionally, the adoption of this accounting
method did not have a material impact on tax expense and net income for 1995 and
1994.

Non-Interest Income

         Fees for other customer services represent fees earned for the
brokerage of certificates of deposit and commissions earned in connection with
the Bank's stock option lending program and other banking services. Fees for
services are recorded as income when the services are performed.

Income (loss) per Share

         Income (loss) per share is calculated using the weighted average number
of common shares outstanding divided into net income (loss). The conversion of
the Series C Preferred Shares and warrants are included in the calculations of
loss per share for 1994 effective from the date of conversion. No common stock
equivalents were used in calculating income (loss) per share.

                                              



                                      -50-
<PAGE>   53
Recent Accounting Pronouncements

         In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 permits a company to choose either a new
fair value based method of accounting for its stock-based compensation (stock
options) or the current Accounting Principles Board (APB) Opinion No. 25
intrinsic value based method of accounting for its stock-based compensation.
SFAS No. 123 requires pro-forma disclosures of net income and earnings per share
computed as if the fair value based method had been applied in financial
statements of companies that continue to follow current practice in accounting
for such arrangement under APB No. 25. The Company has elected to use the
current APB No. 25 intrinsic value based method of accounting for its
stock-based compensation and to disclose its stock-based compensation in
accordance with SFAS No. 123.

        In 1995, FASB issued SFAS  No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes
indicate that the carrying value of an asset may not be recoverable. The
Company elected not to implement SFAS No. 121 for the period ended December 31,
1995. The effect of adopting SFAS No.   121, if any, has not been determined.

Reclassifications

         Certain reclassifications have been made in the prior years'
consolidated financial statements to conform to current year presentation.

Use of Estimates

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

Note 2:  Regulatory Orders

     The Company

         On December 16, 1994, the Company and the Federal Reserve Bank of San
Francisco (FRB) entered into a Written Agreement (the "Agreement") that
supersedes the previous directive dated April 20, 1992. The Agreement prohibits
the Company, without prior approval of the FRB, from: (a) paying any cash
dividends to its shareholders; (b) directly or indirectly, acquiring or selling
any interest in any entity, line of business, problem or other assets; (c)
executing any new employment, service, or severance contracts, or renewing or
modifying any existing contracts with any executive officer; (d) engaging in any
transactions with the Bank that exceeds an aggregate of $20,000 per month; (e)
engaging in any cash expenditures with any individual or entity that exceeds
$25,000 per month; (f) increasing fees paid to any directors for attendance at
board or committee meetings, or paying any bonuses to any executive officers;
(g) incurring any new debt or increasing existing debt; and (h) repurchasing any
outstanding stock of the Company. The Company is required to submit a progress
report to the FRB on a quarterly basis.

         The Company was also required to submit to the FRB an acceptable
written plan to improve and maintain adequate capital position, a comprehensive
business plan concerning current and proposed business activities, a
comprehensive operating budget at the Bank and the consolidated organization. In
addition, the Board of Directors was required to submit an acceptable written
plan designed to enhance their supervision of the operations and management of
the consolidated organization. The Company has filed all of the required
submissions with the FRB in accordance with the Agreement.

                                                   


                                      -51-
<PAGE>   54
     The Bank

     Capital Orders

         On March 24, 1995, the State Banking Department (SBD) issued an order
for the Bank (Capital Order) to increase its level of capital. The capital order
requires that the Bank increase its capital by a minimum of $10.5 million on or
before June 30, 1995. The capital contribution must be at least equal to the
amount of capital necessary to increase the shareholder's equity to not less
than 7.0% of total tangible assets. On or before June 30, 1995, the Company
contributed $4.7 million to the Bank as partial payment on the requirement of
the Capital Order. On March 20, 1996, the Company contributed an additional $1.0
million to the Bank. No assurances were given that the SBD will continue to
refrain from taking action against the Bank to enforce the Capital Order.

         On March 28, 1995, the Federal Deposit Insurance Corporations (FDIC)
issued a Notification of Capital Category ("Notification") in accordance with
Prompt Corrective Action regulations. The FDIC had determined that the Bank was
Critically Undercapitalized. As of December 31, 1995, with the second quarter
infusion of capital and 1995 earnings, the Bank is considered adequately
capitalized for the purpose of the industry standard capital categories and the
FDIC has so notified the Bank. However, the Bank remains below the 7% leverage
capital ratio required by the Orders as described below.

     Orders to Cease and Desist

         On August 18, 1993, the Bank stipulated to Orders to Cease and Desist
(Orders) issued jointly by the FDIC and the SBD, whereby the Bank agreed to
correct alleged unsafe and unsound practices disclosed in the FDIC and SBD
Reports of Examination as of November 30, 1992. The Orders supersede the
Memorandum of Understanding that the Bank had been operating under since
November 15, 1991. As a result of the Orders, the Bank is classified as a
"troubled institution" by the FDIC.

         The Orders, which became effective on August 29, 1993, require that the
Bank: (a) achieve and maintain a 7% leverage capital ratio on and after
September 30, 1993; (b) pay no dividends without the prior written consent of
the FDIC and the California Superintendent of Banks (the "Superintendent"); (c)
reduce the $88.6 million in assets classified "Substandard" or "Doubtful" as of
November 30, 1992 (the date of the most recent full-scope FDIC and SBD Report of
Examination of the Bank), to no more than $40.0 million by August 31, 1994; (d)
have and retain management whose qualifications and experience are commensurate
with their duties and responsibilities to operate the Bank in a safe and sound
manner, notify the FDIC and the Superintendent at least 30 days prior to adding
or replacing any new director or senior executive officer and comply with
certain restrictions in compensation of senior executive officers; (e) maintain
an adequate reserve for loan losses; (f) not extend additional credit to, or for
the benefit of, any borrower who had a previous loan from the Bank that was
charged off or classified "Loss" in whole or in part; (g) develop and implement
a plan to reduce its concentrations of construction and development loans; (h)
not increase the amount of its brokered deposits above the amount outstanding on
the Orders Effective Date ($20.0 million) and submit a written plan for
eliminating reliance on brokered deposits; (i) revise or adopt, and implement,
certain plans and policies to reduce the Bank's concentration of construction
and land development loans, reduce the Bank's dependency on brokered deposits
and out of area deposits, and to improve internal routines and controls; (j)
reduce the Bank's volatile liability dependency ratio to not more than 15% by
March 31, 1994; (k) eliminate or correct all violations of law set out in the
most recent Report of Examination, and take all necessary steps to ensure future
compliance with all applicable laws and regulations; and (l) establish a
committee of three independent directors to monitor compliance with the Orders
and report to the FDIC and the Superintendent on a quarterly basis.

         As of December 31, 1995, the Bank failed to meet the 7% leverage
capital ratio imposed by the Orders. As to the other requirements of the 
Orders, the Bank believes that the findings of the FDIC and SBD at its recent 
examination which began January 29, 1996 will be that the Bank is in compliance
with substantial requirements of the Orders. However, no Report of Examination
has been received from the FDIC and the SBD as a result of their recent 
examination of the Bank.

         In response to the Orders and Prompt Correction Action regulations,
management has submitted a 1995 Business and Profit Plan to the FDIC and the SBD
for approval. The FDIC has approved the Plan subject to the infusion of
additional capital. Subject to the risk associated with the banking business
generally, management believes that the Bank will be able to take the actions
contemplated by such plan without need for further FDIC

                                                     



                                      -52-
<PAGE>   55
approval. A number of the restrictions imposed by the Orders will remain in
effect until the Orders are officially lifted. Although management anticipates
the FDIC and the SBD will lift the Orders if the Bank's problem assets are fully
resolved, no assurance can be given as to when all conditions precedent to the
lifting of the Orders will be fulfilled. The Company also is subject to certain
restrictions imposed by the FRB pursuant to the Agreement that may prevent the
Company from taking steps to establish new businesses (or new subsidiaries) at
the Company level until similar conditions precedent are fulfilled.

     Prompt Corrective Action

         The Bank's failure to meet minimum regulatory requirements as of
December 31, 1994, resulted in the imposition of operating restrictions pursuant
to the prompt corrective action provisions of FDIC Improvement Act (FDICIA). In
accordance with FDICIA, the Bank submitted a capital restoration plan (Plan) for
meeting regulatory capital requirements. The Plan has been approved subject to
the infusion of additional capital. In addition, in 1995 the Company agreed to
revise its guarantee that the Bank will comply with the previously filed capital
restoration plan until the Bank has met its minimum capital requirements on
average during each of four consecutive calendar quarters. The Company agreed to
guarantee the Bank's performance under the Plan for up to five percent (5%) of
the Bank's assets or the amount needed to bring the Bank into compliance. The
Company's guarantee will remain in effect until the Bank maintains compliance
with the minimum capital ratio requirements for four consecutive calendar
quarters.

     Impairment Orders

         Under California law, if a bank's deficit retained earnings exceed 40%
of its contributed capital, its capital is deemed to be impaired, and the bank
is required to levy an assessment on its shares to correct the impairment. The
SBD has issued eight impairment orders to the Bank, with the most recent dated
February 5, 1996 (the "Impairment Orders"). At December 31, 1995, the Bank had
contributed capital of $70.9 million and deficit retained earnings of $64.0
million.

         The Impairment Orders require the Bank to correct the impairment within
60 days by levying an assessment on the Company as the Bank's sole shareholder.
The Bank has not levied an assessment against its shares nor has it otherwise
corrected the impairment, and, therefore, is in violation of this law. In
addition, the SBD has specifically reserved the right to take such other action
as the Superintendent may deem appropriate or necessary, which may include
taking possession of the Bank's property and business, including ultimately
liquidating the business and affairs of the Bank.

         The Company plans to correct the Bank's capital impairment by
requesting the SBD to approve a quasi- reorganization of the Bank. In a
quasi-reorganization, the Bank's retained deficit would be reduced or eliminated
by netting the retained deficit against contributed capital. Management believes
that approval for such a quasi- reorganization would only be granted by the SBD
upon the Bank raising sufficient additional capital for the Bank to sustain
profitable operations and meet all of its regulatory capital requirements in the
future. Should the SBD deny approval for a quasi-reorganization of the Bank, the
Bank would be required to raise additional new capital of $89.1 million, to cure
the capital impairment at December 31, 1995. Any operating losses thereafter
would further impair the Bank's capital and give rise to further capital
assessments.

         No assurance can be given that the Bank's capital condition will not
deteriorate prior to any such quasi- reorganization as a result of operating
losses. In addition, because a quasi-reorganization requires that the Bank
adjust its assets and liabilities to market value at the time of the
reorganization, the Bank's capital could be further reduced from its present
level. Finally, there can be no assurance given that, following a correction of
the Bank's capital impairment, whether through a quasi-reorganization or an
infusion of sufficient capital, the Bank's capital position will not erode
through future operating losses.

                                                   



                                      -53-
<PAGE>   56
Note 3:  Investment Securities

         The carrying and estimated market values of investment securities
held-to-maturity at December 31 are as follows:
<TABLE>
<CAPTION>

                                                Carrying   Unrealized   Unrealized    Market
(Dollars in Thousands)                            Value       Gains       Losses       Value
                                                --------------------------------------------
<S>                                             <C>        <C>           <C>          <C>
1994:
  U.S. Treasury and agency securities             $7,859     $   --       $  (23)     $7,836
                                                --------------------------------------------
     Total                                        $7,859     $   --       $  (23)     $7,836
                                                ============================================
</TABLE>

         During 1994, the Bank reclassified collateralized mortgage obligations
with an amortized cost of $2.3 million to the available-for-sale investment
category as a result of a change in the strategy regarding the investment in
these types of securities. The Bank recorded a loss of $14,000 on the transfer
of securities to the available-for- sale category.

         As of December 31, 1995 and 1994, The Bank's investment in Federal Home
Loan Bank stock totaled $632,000 and $1.3 million and is stated at par. During
1995, the Bank redeemed 7,500 shares at $750,000. The Federal Home Loan Bank
stock has no term to maturity.

         The carrying and estimated market values of investment securities
available-for-sale at December 31 are as follows:
<TABLE>
<CAPTION>

                                                Original   Unrealized   Unrealized   Market
(Dollars in Thousands)                            Cost        Gains       Losses      Value
                                              --------------------------------------------
<S>                                           <C>          <C>          <C>          <C>
1995:
  U.S. Treasury and agency securities            $6,495       $  41       --         $6,536
                                               --------------------------------------------
     Total                                       $6,495       $  41       --         $6,536
                                               ============================================
1994:                                          
  U.S. Treasury and agency securities            $1,943       $   --      $  (2)     $1,941
  Collateralized mortgage obligation (CMO)          272           --         (2)        270
                                               --------------------------------------------
     Total                                       $2,215       $   --      $  (4)     $2,211
                                               ============================================
</TABLE>

         For 1995 and 1994, the Company included an unrealized gain of $41,000
and an unrealized loss of $4,000 as a separate component of stockholders'
equity. The Company sold its mutual fund investments classified as available for
sale totaling $1.1 million during 1995. During 1995, the Company recorded no
gains or losses on sale of investment securities.

         The table below sets forth certain information regarding the carrying
values and market values, and the weighted average yields of the Bank's
investment securities portfolio by maturity at December 31, 1995:

<TABLE>
<CAPTION>

                                        Within One Year       One to Five Years     Total Investment Securities
                                        ----------------      -----------------     ----------------------------
                                        Carrying Average      Carrying Average      Carrying      Market Average
(Dollars in Thousands)                    Value   Yield         Value   Yield         Value       Value   Yield
                                        ----------------      -----------------     ----------------------------
<S>                                     <C>       <C>         <C>         <C>        <C>         <C>        <C>
U.S. Treasury and agency securities     $ 3,019    6.1%       $ 3,517      6.1%      $ 6,536     $ 6,536    6.1%
FHLB stock                                   --     --            --        --           632         632    5.2
                                        --------------        ----------------       --------------------------
     Total                              $ 3,019    6.1%       $ 3,517      6.1%      $ 7,168     $ 7,168    6.0%
                                        ==============        ================       ==========================
</TABLE>

         The average yield on investments securities was 6.1% and 4.6% at
December 31, 1995 and 1994, respectively. U.S. Treasury and agency securities
held by the Company have effective maturities of less than two years.

                                                   

                                      -54-
<PAGE>   57
         At December 31, 1995 and 1994, $1.4 million and $2.5 million,
respectively, of securities were pledged as collateral for treasury, tax, loan
deposits, public agency, bankruptcy and trust deposits. At December 31, 1995 and
1994, the Company had no securities sold under agreements to repurchase.

         As of December 31, 1995 and 1994, the Company and the Bank had no
derivative financial instruments that would be subject to SFAS No. 119,
"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments".

Note 4:  Loans Receivable

         The Bank's loan portfolio at December 31 are summarized as follows:
<TABLE>
<CAPTION>

(Dollars in Thousands)                 1995         1994
                                   ---------------------
<S>                                <C>          <C>
Real estate mortgage               $ 31,388     $ 62,149
Real estate construction              5,661        9,004
Commercial and financial             16,128       35,268
Net lease financing                      31           31
                                   ---------------------
     Total loans                     53,208      106,452
Deferred fees                          (180)        (388)
Allowance for loan losses            (5,912)      (6,576)
                                   ---------------------
     Total loans, net              $ 47,116     $ 99,488
                                   =====================
</TABLE>

         At December 31, 1995 and 1994, non-accrual loans totaled $7.5 million
and $9.4 million, respectively, and loans past due 90 days or more and still
accruing were zero and $940,000, respectively. For the years ended December 31,
1995, 1994 and 1993, interest income foregone on non-accrual loans was $177,000,
$918,000, and $797,000, respectively. Restructured loans totaled $5.9 million
and $6.3 million at December 31, 1995 and 1994, respectively. For the years
ended December 31, 1995, 1994 and 1993, interest income foregone on restructured
loans were $24,000, $18,000 and $166,000, respectively.

         There were $7.8 million of fixed rate loans at December 31, 1995 with a
weighted average yield of 9.0%. Total fixed rate loans, most of which will
mature within six years, comprised approximately 14.7% of the Bank's loan
portfolio at December 31, 1995.

         The Company makes commercial and financial loans secured by real
estate, which are principally located in Northern California. At December 31,
1995 loans secured by deeds of trust on property located in these areas
represented 77.3% of the Bank's loans. The primary source of repayment of real
estate loans is the borrower's or property's debt service capacity while the
secondary source of repayment is the underlying real estate collateral.

Note 5. Allowance for Loan Losses

         Changes in the Company's allowance for loan losses for the years ended
December 31 were as follows:

<TABLE>
<CAPTION>

(Dollars in Thousands)                      1995         1994         1993
                                          --------------------------------
<S>                                       <C>          <C>          <C>
Balances at beginning of the year         $6,576       $8,050       $8,400
  Provision loan losses                      500        3,799        3,554
  Loans charged off                       (2,871)      (6,620)      (4,063)
  Recoveries of loans charged off          1,707        1,347          159
                                          --------------------------------
Balances at end of the year               $5,912       $6,576       $8,050
                                          ================================


</TABLE>
                                                

                                      -55-
<PAGE>   58
         Effective January 1, 1995, the Company adopted SFAS No. 114 "Accounting
by Creditors for Impairment of a Loan" as amended by SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures". Impaired
loans as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>

                                                             Allowance        Interest
                               Recorded         Average       for Loan          Income
(Dollars in Thousands)       Investment         Balance         Losses      Recognized          
                             ---------------------------------------------------------
<S>                          <C>                <C>          <C>              <C>
Real estate mortgage            $ 3,891         $ 8,856        $   782         $   367
Real estate construction          3,428           5,449            292              14
Commercial and financial            307           2,323             29              49
                             ---------------------------------------------------------
     Total loans                $ 7,626         $16,628        $ 1,103         $   430
                             =========================================================
</TABLE>

         Of the recorded investment in impaired loans of $7.6 million at
December 31, 1995, the Company measured the impairment of $7.3 million using the
collateral value method and $307,000 using discounted cash flow method. The Bank
had one impaired loan totaling $1.4 million with no allowance for loan loss that
was paid off in January 1996.

Note 6:  Other Real Estate Owned

         Other real estate owned at December 31 consist of the following:
<TABLE>
<CAPTION>

(Dollars in Thousands)                               1995         1994
                                                  --------------------
<S>                                               <C>         <C>
Real Estate:
  Residential                                     $   399     $  2,216
  Residential development                           4,134        7,127
  Commercial development                            1,808        1,045
  Land under development                               --        2,543
  Raw land                                         13,164       16,494
                                                  --------------------
     Subtotal                                      19,505       29,425
Allowance for losses                              (11,991)     (19,404)
                                                  --------------------
     Total                                        $ 7,514     $ 10,021
                                                  ====================
</TABLE>

        As of December 31, 1995 and 1994, other real estate owned was 
comprised of 6 and 18 properties, respectively. As of December 31, 1995, the 
largest single property totaled $3.2 million.

         The following table summarizes the other real estate owned loss
experience of the Bank for the periods shown:
<TABLE>
<CAPTION>

(Dollars in Thousands)                            1995         1994       1993
                                               -------------------------------
<S>                                            <C>          <C>        <C>
Balance of allowance for losses - beginning    $19,404      $ 2,986    $ 6,632
  Charge-offs                                   (7,500)         (33)    (6,982)
  Provision                                         87       16,451      3,336
                                               -------------------------------
Balance of allowance for losses - ending       $11,991      $19,404    $ 2,986
                                               ===============================
</TABLE>



                                                     

                                      -56-
<PAGE>   59
Note 7:  Real Estate Investments

         Real estate investments at December 31 consist of the following:
<TABLE>
<CAPTION>

(Dollars in Thousands)                                                1995         1994
                                                                   --------------------
<S>                                                                <C>          <C>
Residential development                                            $   505      $   507
Commercial development                                               1,209        1,234
General and limited partnership investment in Bank premises             --        1,682
                                                                   -------------------- 
     Subtotal                                                        1,714        3,423
Allowance for losses                                                (1,478)      (1,059)
                                                                   -------------------- 
     Total                                                         $   236       $2,364
                                                                   ====================
</TABLE>

         At December 31, 1995 and 1994, real estate investments included one
residential development property and one property available for commercial
development. In 1995, the Bank acquired 100% of the limited partnership interest
in the investment in the Bank's premises.

Note 8:  Premises and Equipment

         Premises and equipment at December 31 consist of the following:

<TABLE>
<CAPTION>

(Dollars in Thousands)                                                1995        1994
                                                                   -------------------
<S>                                                                <C>         <C>
Leasehold                                                          $ 3,741     $    --
Leasehold improvements                                               8,482       3,129
Furniture and equipment                                              5,187       5,065
                                                                   -------------------
     Subtotal                                                       17,410       8,194
Less:  Accumulated depreciation and amortization                    (8,721)     (5,198)
                                                                   -------------------
     Total                                                         $ 8,689     $ 2,996
                                                                   ===================
</TABLE>

         The amount of depreciation and amortization included in non-interest
expense was $581,000, $660,000, and $770,000 in 1995, 1994 and 1993,
respectively. Total rental expense net of sublease income and other occupancy
expenses for the Company premises were $1.2 million, $2.1 million and $2.1
million in 1995, 1994 and 1993.

         At December 31, 1995, the approximate future minimum rental payment
under a non-cancelable operating lease, with a remaining term of fifteen years,
for the Company's premises are as follows:
<TABLE>
<CAPTION>

(Dollars in Thousands)                                                          Amount
                                                                               -------
<S>                                                                            <C>
1996                                                                           $   134
1997                                                                               134
1998                                                                               134
1999                                                                               134
2000                                                                               134
Thereafter                                                                       1,318
                                                                               -------
     Total                                                                     $ 1,988
                                                                               =======
</TABLE>

         The lease payment is fixed until the expiration of the lease on October
31, 2010. During 1995, 1994 and 1993, the Company received $435,000, $169,000
and $59,000 of sublease income, respectively. The total future minimum rent
payments to be received under noncancellable operating subleases at December 31,
1995 were approximately $1.3 million. These payments are not reflected in the
above table.

                                                  

                                      -57-
<PAGE>   60
Note 9:  Deposits

         Deposit balances by deposit programs offered by the Bank at December 31
are as follows:
<TABLE>
<CAPTION>

                                          1995                   1994
                                  -------------------    --------------------
                                             Average                  Average
(Dollars in Thousands)             Balance      Rate      Balance        Rate
                                  -------------------    --------------------
<S>                               <C>        <C>         <C>          <C>
Demand deposit accounts           $ 20,365       0.0%    $ 30,259         0.0%
Savings and NOW accounts            25,411       2.4       43,415         2.4
Money market accounts               16,185       2.8       25,250         3.2
Time accounts                       43,712       6.1       48,224         5.0
                                  ------------------     --------------------
     Total                        $105,673       3.5%    $147,148         2.9%
                                  ==================     ====================
</TABLE>

         Total deposit balances averaged $122.6 million and $172.9 million
during 1995 and 1994, respectively, with average interest rates of 3.5% and
2.7%, respectively. The weighted average stated rates on deposits as of December
31, 1995 and 1994 was 3.5% and 2.9%, respectively.

         Domestic time deposits in amounts of $100,000 or more by time remaining
to maturity at December 31 are as follows:

<TABLE>
<CAPTION>

(Dollars in Thousands)                            1995        1994
                                               -------------------
<S>                                            <C>         <C>
Three months or less                            $3,157     $ 7,028
Three months to six months                       1,371       1,586
Six months to one year                           1,373       1,216
Over one year                                      515         405
                                                ------------------
     Total                                      $6,416     $10,235
                                                ==================
</TABLE>

         Interest expense on time deposits in amounts of $100,000 or more was
$353,000, $935,000 and $2.0 million in 1995, 1994, and 1993, respectively. Time
deposit accounts in amounts of $100,000 or more averaged $6.9 million and $24.5
million during 1995 and 1994, respectively, with weighted average rates of 5.1%
and 3.8%, respectively. The weighted average stated interest rate on such
deposits at December 31, 1995 and 1994 was 5.4% and 4.4%, respectively.

         Brokered deposits totaled $3.4 million and $19.7 million, and money
desk deposits totaled $28.0 million and $15.1 million at December 31, 1995 and
1994, respectively.

                                                      

                                      -58-
<PAGE>   61
Note 10:  Other Borrowings

         Other borrowings at December 31 are as follows:

<TABLE>
<CAPTION>
                                                                                                             Maximum
                                                      Balance        Stated      Average      Average        Balance
(Dollars in Thousands)                             Outstanding         Rate      Balance         Rate    Outstanding
                                                   ----------------------------------------------------------------- 
<S>                                                <C>               <C>        <C>          <C>         <C>
1995:
  Borrowings for employee stock ownership plan        $    --           --       $   18          8.3%        $   70
  Mortgage indebtedness                                    --           --          432          9.5          2,198
  Other borrowings - FHLB line of credit                   --           --        1,297          9.7          6,000
                                                   ----------------------------------------------------------------
     Total                                                 --           --       $1,747          9.6%        $8,268
                                                   ================================================================

1994:
  Borrowings for employee stock ownership plan        $    70          8.1%      $   83          6.8%        $  163
  Mortgage indebtedness                                    --           --          629         10.0          1,141
  Securities sold under agreements to repurchase        4,000          5.8          639          5.3         11,201
  Other borrowings - FHLB line of credit                   --           --        1,359          5.0          9,800
                                                   -----------------------------------------------------------------
     Total                                            $ 4,070          5.8%     $ 2,710          6.4%      $ 22,305
                                                   =================================================================
</TABLE>

         The securities pledged under the agreement to resell are held in safe
keeping by an unrelated third party.

         The Bank can borrow from the FHLB by application, of which $3.1 million
was available at December 31, 1995, based on the collateral pledged. At December
31, 1995 and 1994, $4.3 million and $11.4 million of loans and securities are
pledged as collateral against other borrowings. The Bank is required to hold
FHLB stock as a condition for maintaining its membership in the FHLB.

         In 1995, the Bank's other borrowings included a loan on the Bank's
premises. The borrowing was repaid in 1995.

Note 11:  Income Taxes

         The provision for Federal and state income taxes consists of:
<TABLE>
<CAPTION>

(Dollars in Thousands)                            1995         1994         1993
                                               ---------------------------------
<S>                                            <C>          <C>           <C>
Current:
  Federal                                      $    --      $    --        $  --
  State                                            153          142          169
                                               ---------------------------------
     Total current                                 153          142          169
                                               ---------------------------------

Deferred:
  Federal                                           --           --           --
  State                                             --           --           --
                                               --------------------------------
     Total deferred                                 --           --           --
                                               ---------------------------------

     Total provision for income taxes          $   153      $   142         $169
                                               =================================
</TABLE>

         The provision for state taxes for 1995, 1994 and 1993 consists of the
minimum amount of franchise taxes due.


                                               




                                      -59-
<PAGE>   62
         The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>


(Dollars in Thousands)                                                    1995          1994
                                                                      ----------------------
<S>                                                                   <C>           <C>
Deferred Tax Assets:
  Book loan loss reserve in excess of tax                              $ 1,967      $ 2,213
  Other provisions                                                          58          256
  Provision for losses for real estate                                   5,569        9,164
  Net operating losses                                                  17,591       15,120
  Tax credits                                                              489          489
  Difference in recognition of income from partnerships                     --           63
  Income recognized on leased property                                      --        1,832
  Capitalized costs                                                         --          391
  Net tax value of premises in excess of book                              294           --
  Other                                                                    344          131
                                                                      ---------------------
     Total deferred tax assets                                          26,312       29,659
Valuation allowance                                                    (25,873)     (27,534)
                                                                      ---------------------
     Total deferred tax assets, net                                        439        2,125
                                                                      ---------------------

Deferred Tax Liabilities:
  Net book value of premises and equipment in excess of tax                 --       (1,608)
  Loan origination costs                                                   (56)        (116)
  Taxable income in excess of book for rehabilitation credit              (383)        (401)
                                                                      ---------------------
     Total deferred tax liabilities                                       (439)      (2,125)
                                                                      ----------------------
Net deferred taxes                                                          --     $     --
                                                                      ======================

</TABLE>


         The Bank provided a valuation allowance for deferred tax assets because
it is more likely than not that the underlying benefits may not be recognized in
the foreseeable future. The utilization of the net operating loss carryforwards
and rehabilitation and minimum tax credit carryforwards may be limited on an
annual basis under current tax law due to the change in ownership in 1992 and
possible changes in ownership in future years.

         The total tax provision (benefit) differs from the statutory Federal
rates for the reasons shown in the following table:
<TABLE>
<CAPTION>

                                                          1995         1994         1993
                                                         -------------------------------
<S>                                                      <C>          <C>          <C>
Tax expense (benefit) at the statutory federal rate       34.0%       (34.0)%      (34.0)%
Utilization of prior taxable (loss) income               (34.6)        34.0         34.1
State income taxes, net of federal tax benefit            31.3          0.4          1.7
Non-deductible expenditures and non-taxable income         0.6           --         (0.1)
                                                         -------------------------------
         Total effective tax provision rate               31.3%         0.4%         1.7%
                                                         ===============================
</TABLE>

         At December 31, 1995 and 1994, there is no deferred income tax
receivable. Because the Company has utilized most of its ability to carryback
net operating losses, much of the 1994 and 1993 losses, and future losses, if
any, must be carried forward to offset future net operating income. In addition,
the actual benefit rate may be less than the current statutory rate due to tax
differentials and the alternative minimum tax. As of December 31, 1995, the
Company has net operating loss carryforwards for federal tax purposes of
approximately $46.0 million which expire in 2007 and onwards, and for California
tax purposes of approximately $27.0 million, which expire in 1997, 1998, 1999,
and 2000. The Company has rehabilitation tax credits carryforwards for federal
tax purposes of approximately $213,000, which expire in 2004 and 2005. In
addition, the Company has minimum tax credits of approximately $275,000 which
have no expiration.

                                                    


                                      -60-
<PAGE>   63
Note 12:  Shareholders' Equity

         The capital infusion by the Company's controlling stockholder in 1995,
1994, and 1993 was $4.3 million, $20.0 million, and $12.0 million, respectively.
The capital in 1995 was raised by the issuance of 215,000 shares of Series D
Preferred Stock at $20.00 per share. The capital for 1994 was raised from the
issuance of 3,521,126 shares of Class A common stock at $5.68 per share. The
capital for 1993 was raised from the issuance of shares of Series C Perpetual
Preferred Shares (Series C Preferred Shares) at twenty dollars ($20.00) per
share. The Series C Preferred Shares were converted in to Class A Common shares
in 1994.

Description of Capital Stock

         The authorized capital stock of the Company consists of 40,000,000
Class A Shares, par value $0.01 per share and 2,500,000 shares of preferred
stock, par value $0.01 per share, of which 437,500 are designated as Series B
Preferred Shares and 750,000 are designated as Series D Preferred Shares. The
remainder are not designated.

         In accordance with the Agreement and the Orders, the Company and the
Bank are prohibited from paying dividends without the prior written consent or
approval of the FDIC, the Superintendent of Banks and the Federal Reserve Bank
of San Francisco.

Description of Class A Common Stock

         As of December 31, 1995 there were 5,765,978 Class A Shares outstanding
out of a total of 40,000,000 shares authorized. During 1994, the Shareholders of
the Company approved a reclassification of all Class B Common Stock into Class A
Common Stock. The Series B Preferred Shares, which were convertible into shares
of the Class B Common Stock at the option of the holders thereof are now
convertible to Class A Common Stock. The reclassification is not deemed by the
Company to alter or change any of the relative powers, preferences or special
rights of the holders of the Class B Preferred Stock.

     Dividends

         Subject to the rights and preferences of any preferred stock
outstanding, each Class A Share Common Stock is entitled to receive dividends
if, as and when declared by the Board of Directors of the Company. Subject to
the rights of the Series B Preferred Shares and the Series C Preferred Shares,
dividends must be paid on the Class A Shares Common Stock, together with the
Series B Preferred Shares and the Series C Preferred Shares, at any time that
dividends are paid on either. Any dividend so declared and payable in cash,
capital stock of the Company or other property will be paid equally, share for
share, on the Class A Common Stock, Series B Preferred Shares, Series C
Preferred Shares and on any other participating series of preferred stock issued
in the future; provided, however, that the Company may issue dividends
consisting solely of its Class A Shares on the Class A Shares of Common Stock.

     Liquidation Rights

         In the event of the liquidation, dissolution or winding up of the
Company, holders of the Class A Common Stock are entitled to share equally,
share for share, in the assets available for distribution, subject to the
liquidation preferences of the Series B Preferred Shares and Series C Preferred
Shares and the rights of any other class or series of preferred stock then
outstanding.

Description of Preferred Stock

         The Board of Directors of the Company is authorized by the Certificate
of Incorporation to provide for the issuance of one or more series of preferred
stock. The Board of Directors has the power to fix various terms with respect to
each such series, including voting powers, designations, preferences, dividend
rates, conversion and exchange provisions, redemption provisions, and the
amounts which holders are entitled to receive upon any liquidation, dissolution,
or winding up of the Company. As of December 31, 1995, the Board of Directors
has authorized only the issuance of the Series B Preferred Shares and the Series
D Preferred Shares. Pursuant to the Amended Stock Purchase Agreement, the
Company's Certificate of Incorporation and Bylaws were amended to provide that
additional securities, including additional shares of any class of preferred
stock, can be issued only if

                                                


                                      -61-
<PAGE>   64
unanimously approved by the Board of Directors or by stockholders holding a
majority of the voting power of the Company.

     Voting Rights

         Holders of Class A Common Stock (when and if issued) are entitled to
one vote per share. Except as described below, holders of Class A vote together
with holders of the Company's Series B Preferred Shares and Series D Preferred
Shares, on all matters including the election of directors. The Board of
Directors is presently authorized to have 14 members. The Board of Directors is
a classified Board with staggered terms providing for a maximum of three classes
of directors, which are as nearly equal in number as possible, and with one
class elected each year for a maximum term of three years. Holders of Class A
Common Stock are not entitled to vote cumulatively for the election of
directors.

         The holders of Class A Common Stock are entitled to vote as separate
classes on any modification to the rights of either class of stock and as
otherwise required by law. As part of the transactions contemplated by the
Amended Stock Purchase Agreement, the stockholders of the Company eliminated
multiple voting rights of the Series B Preferred Shares.

Description of Series B Preferred Stock

         The Company issued the Series B Preferred Shares during 1988. As of
December 31, 1995, there were 16,291 Series B Preferred Shares outstanding.

     Dividends

         Holders of the Series B Preferred Shares are entitled to receive, when
funds of the Company are legally available for payment, an annual cash dividend
of Fifty-Six Cents ($0.56) per share, payable quarterly in January, April, July
and October of each year. Dividends on the Series B Preferred Shares are
cumulative. Cumulative unpaid dividends on the Series B Preferred Stock at
December 31, 1995 total approximately $41,000.

         Payment of dividends on the Series B Preferred Shares shall be junior
to payment of dividends at the stated rate of all other series of preferred
stock that the Company may issue in the future and that are designated senior to
the Series B Preferred Shares. Dividends on the Series B Preferred Shares will
be declared and paid or set apart for payment in full for all previous dividend
periods (i) before the payment or setting apart of any funds or assets for the
payment of any dividends on the Class A Common Stock or any other class of
stock, except preferred stock ranking on a parity with or senior to the Series B
Preferred Shares, and (ii) before any purchase or other acquisition for value of
any Class A Common Stock or any future class of stock except preferred stock
ranking on a parity with or senior to the Series B Preferred Shares; provided,
however, that the Company may issue dividends consisting of its Class A Shares
on the Class A Shares.

         After payment of dividends at the stated rate on all series of
preferred stock that the Company may issue in the future and that are designated
senior to the Series B Preferred Shares and on any other preferred stock of the
Company that is on a parity with the Series B Preferred Shares, and payment of
dividends at the stated rate on the Series B Preferred Shares, holders of the
Series B Preferred Shares will participate pro rata with the holders of Class A
Common Stock and Series C Preferred Shares, on the basis of number of shares
owned, in all other dividends by the Company to its stockholders, except that,
as noted above, the Company may issue dividends consisting solely of its Class A
Shares on the Class A Shares.

     Liquidation Rights

         In the event of any liquidation, dissolution, receivership, bankruptcy,
or winding up of the Company, voluntarily or involuntarily, the holders of the
Series B Preferred Shares are entitled to receive the sum of Seven Dollars
($7.00) per share, plus any accrued and unpaid dividends thereon, before any
distributions will be made to the holders of the Class A Common Stock or any
other class of stock junior in preference upon liquidation, but after or
concurrent with distributions to be made at the stated rate on preferred stock
of any series ranking on a parity with or senior in preference upon liquidation
to the Series B Preferred Shares, and will be entitled to no other distribution.

                                                     

                                      -62-
<PAGE>   65
     Conversion

         The holders of Series B Preferred Shares are entitled at any time to
convert their Series B Preferred Shares into Class A Common Stock of the Company
at the conversion ratio of one Series B Preferred Share convertible into
one-tenth of one share of Class A Common Stock, upon payment of a conversion fee
of Seven Dollars ($7.00) per share, subject to adjustment under certain
conditions.

         Prior to the reclassification of the Class B Common Stock, the Amended
Stock Purchase Agreement required that at least 90% of the Series B Preferred
Shares be converted into Class A Shares on a share-for-share basis. Holders of
408,865 Series B Preferred Shares so converted on July 13, 1992, and a total of
420,909 Series B Preferred Shares had been so converted as of December 31, 1992.
Three hundred shares converted during 1994.

     Voting Rights

         The holders of the Series B Preferred Shares are entitled to one vote
per Series B Preferred Share on all matters on which shareholders are entitled
to vote. Holders of the Series B Preferred Shares have full voting rights and
powers equal to the voting rights and powers of the holders of the Class A
Common Stock. Holders of the Series B Preferred Shares are entitled to vote
generally for the election of directors and vote with the holders of the Class A
Common Stock and Series C Preferred Shares as a single class, except that the
holders of the Series B Preferred Shares are entitled to vote as a class on any
modification to the rights of the Series B Preferred Shares and otherwise as
required by law.

Description of Series D Preferred Shares

         The Board of Directors, pursuant to the Company's Certificate of
Incorporation, has designated seven hundred fifty thousand (750,000) shares of
the Company's preferred stock as "9% Series D Perpetual Preferred Stock" (the
"Series D Preferred Stock"). During the Second Quarter of 1995, the Company sold
two hundred fifteen thousand (215,000) shares of the Series D Preferred Stock,
par value $.01 per share to the Company's principal stockholder who owns
approximately 86.7% of the Company's outstanding Class A Common Stock, for the
purchase price of $20.00 per share (an aggregate purchase price of $4.3
million). The principal features of the Series D Preferred Stock are as follows:

     Dividends

         Holders of shares of Series D Preferred Stock are entitled to receive
out of funds legally available therefore, if, as and when declared by the Board
of Directors of the Company, an annual cash dividend of One Dollar and Eighty
Cents ($1.80) per share, payable semi-annually in April and October of each
year, before any cash dividends can be paid on the common stock of the Company.
Dividends on the Series D Preferred Stock are junior to payment of dividend at
the stated annual rate of fifty-six Cents ($.56) per share on the Company's 8%
Series B Convertible Preferred Stock (the "Series B Preferred Stock") and all
other series of preferred stock that the Company may issue in the future that
are designated senior to the Series D Preferred Stock. No dividends or other
distributions (other than those payable solely in common stock) shall be payable
with respect to the Company's Class A Common Stock or any other stock junior to
the Series D Preferred Stock during any fiscal year of the Company until cash
dividends on each share of the Series D Preferred Stock shall have been paid in
full or declared and set apart for payment in full during that fiscal year.
Dividends on the Series D Preferred Stock are not cumulative and the Board of
Directors has the right at any time to eliminate or defer such dividends during
any fiscal year of the Company.

         After payment of cash dividends at the stated rate on the Series B
Preferred Stock and all other series of preferred shares that the Company may
issue in the future and that are designated senior to the Series D Preferred
stock and payment of cash dividends at the stated rate on the Series D Preferred
Stock, and on any other preferred stock of the Company that is on a parity with
the Series D Preferred Stock, holders of the Series D Preferred Stock will
participate pro rata with the holders of Class A Common Stock and Series B
Preferred Stock on the basis of number of shares owned, in all other cash
dividends by the Company to its shareholders.

                                                  


                                      -63-
<PAGE>   66
     Voting Rights

         Subject to applicable law, the holders of shares of Series D Preferred
Stock are entitled to one vote per each share of Series D Preferred Stock on all
matters on which shareholders are entitled to vote, including the election of
directors. Holders of shares of Series D Preferred Stock generally vote with the
holders of shares of Class A Common Stock and the holders of shares of Series B
Preferred Stock as a single class, except that the holders of shares of the
Series D Preferred Stock are entitled to vote as a separate class on any
modifications to the rights of the holders of shares of Series D Preferred Stock
and otherwise as required by law.

     Liquidation Preference

         In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of shares of Series D
Preferred Stock are entitled to receive out of the assets of the Company
available for distribution to the Company's shareholders an amount equal to
Twenty Dollars ($20.00) per share, plus any declared but unpaid dividends
thereon, before any distributions will be made to the holders of shares of Class
A Common Stock or any other class of stock junior in preference upon
liquidation, but after distribution at the rate of Seven Dollars ($7.00) per
share on the Series B Preferred Stock and after or concurrent with distributions
to be made at the stated rate on any other preferred shares of any series
ranking on a parity with or senior in preference upon liquidation to the Series
D Preferred Stock.

     Conversion

         Shares of the Series D Preferred Stock are not currently convertible
but will become so if the conversion feature is approved by the holders of a
majority of the Class A Common Stock and Series B Preferred Stock (voting as a
single class). If the conversion feature of the Series D Preferred Stock is so
approved, each share of the Series D Preferred Stock will become convertible
into approximately 59 shares of Class A Common Stock as determined by a
committee of the Board of Directors of the Company determined to be independent
and without any personal interest in the determination of such conversion ratio,
in consultation with the holder or holders of the Series D Preferred Stock.
Moreover, if holders of a majority of the Company's Class A Common Stock and
Series B Preferred Stock outstanding on the date that is thirty (30) days
following the date of the adoption of such shareholder resolution approving the
conversion feature, the Series D Preferred Stock will be mandatorily converted
into Class A Common Stock on the terms described above.

Risk Protection Rights

         In 1994, the Company issued 3,521,126 shares of Class A Common Stock to
its majority shareholder in a private stock offering for $20.0 million in
capital. Each unit sold under the private stock offering included a Risk
Protection Right (the "RPR"). Under the RPR, additional Class A Common Stock
would be issued to the holder of each RPR if a net loss were incurred on certain
specified assets or as the result of losses incurred related to certain
litigation actions. Adjustment shares, to a maximum of 9,723,000 shares, would
have been issued to compensate for the losses related to specific assets and
certain lawsuits none of which, as of December 31, 1995, have been issued. The
Company's majority shareholder relinquished his rights under the RPR.

Description of Stock Option Plans

         Prior to 1994, the Company had various stock option plans which
provided for the issuance of up to 20,000 Class A Common Shares. The stock
option plans expired by their terms in January 1992 except that options granted
prior to that date remain in effect and exercisable during the term of the
options. Generally, options were granted at a price not less than the fair
market value of the stock at the date of grant, were exercisable in increments
of 40%

                                                     


                                      -64-
<PAGE>   67
after two years after the date of the grant and 20% each year thereafter, and
expire ten years after the date of the grant.
<TABLE>
<CAPTION>
                                                            Options Outstanding 
                                          Shares       ---------------------------     
                                       Available           Number            Price
                                       for Grant       of Options        Per Share
                                     ---------------------------------------------
<S>                                  <C>               <C>          <C>
Balances at December 31, 1992                 --           17,909   $72.5 - $107.5

  Options canceled                            --          (12,999)   72.5 -  107.5
                                     ---------------------------------------------
Balances at December 31, 1993                 --            4,910    72.5 -  107.5

  Options canceled                            --           (2,837)   72.5 -  107.5
                                     ---------------------------------------------
Balances at December 31, 1994                 --            2,073   $72.5 - $100.0

  Options canceled                            --           (2,073)   72.5 -  100.0
                                     ---------------------------------------------
Balances at December 31, 1995                 --               --               --
                                     =============================================

</TABLE>

         During 1994, the Company's shareholders approved two new stock option
plans; the 1993 Executive Stock Option Plan ("Executive Plan") and the 1993
Non-employee Directors Stock Option Plan ("Director Plan").

     Executive Plan

         Options under the Executive Plan may be granted to key employees and
consultants of the Company and its subsidiaries. The Executive Plan has reserved
a total of 550,000 shares of Class A Common Stock. The number of shares granted
is subject to adjustment as determined by a Committee of the Board of Directors.
The exercise price of options must be at least the fair market value of the
shares of the Company's Class A Common Stock as of the date the option is
granted. As of December 31, 1995 and 1994, shares to be granted under the
Executive Plan total 1,660,558 and 188,022, respectively, with an average
exercise price of $1.82 and $10.00, respectively. The expiration date of the
options is ten years from the effective date that the options were granted. 
None of the options have been exercised.

         The agreements for certain executive officers and directors provide
that options shall be granted to acquire shares of Class A Common Stock under
the Executive Plan equal to 9% of the fully-diluted shares of the Company's
Class A Common Stock, with additional shares to be issued in the future to
maintain the 9% ratio. The effective dates of the initial grant of options for a
total of 553,530 shares of Class A Common Stock for certain directors are
September 30, 1993 and October 1, 1994. The effective dates of the initial grant
of options for 1,107,058 shares of Class A Common Stock for certain executive
officers are October 1, 1994 and December 1, 1995.

     Directors' Plan

         Options under the Directors' Plan may be granted to non-executive
directors of the Company and its subsidiaries. The Directors' Plan will cover a
total of 25,000 shares of Class A Common Stock. The number of shares granted is
subject to adjustment to prevent dilution. The exercise price of options must be
at least the fair market value of the shares of the Company's Class A Common
Stock as of the date the option is granted. As of December 31, 1995, shares to
be granted under the Directors' Plan total 7,500 with an average exercise price
of $23.00. Each non-employee director serving on each subsequent April 1 shall
automatically be granted additional options to acquire up to 1,250 shares of
Class A Common Stock. The expiration date of the options is ten years from the
effective date that the options were granted. None of the options have been 
exercised.

Note 13:  Regulation

         In accordance with FIRREA, the FRB and the FDIC established capital
regulations requiring the Company and Bank to maintain minimum: (i) tier 1
capital equal to 4% of total assets, as defined; (ii) tier 1 capital equal to 4%
of risk-weighted assets; and (iii) total capital, as defined, equal to 8% of
risk-weighted assets, as defined.

                                                     

                                      -65-
<PAGE>   68
         The following table sets forth the Company's and the Bank's capital
ratios compared to minimum capital requirements as of December 31, 1995 and the
requirements contained in the Orders:
<TABLE>
<CAPTION>

                                                            Minimum
                                                            Capital
                                    Company      Bank    Requirement      Orders
                                    --------------------------------------------  
<S>                                 <C>         <C>      <C>              <C>
Leverage                                6.0%      6.0%          4.0%        7.0%
Tier 1 risk-based capital               8.5       8.6           4.0         N/A
Total risk-based capital               10.4      10.4           8.0         N/A
</TABLE>

         The FDICIA requires each federal banking agency to implement prompt
corrective actions for institutions that it regulates. In response to this
requirement, the FDIC adopted final rules, effective for December 19, 1992,
based upon FDICIA's five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. Under FDICIA, the FDIC is required to take supervisory action
against financial institutions that are not deemed either well capitalized or
adequately capitalized. The rules generally provide that a bank is adequately
capitalized if its total risk-based capital ratio is 8% or greater, its Tier 1
capital to risk based assets is 4% or greater, its leverage ratio is 4% or
greater, and the financial institution is not subject to a capital directive.

Note 14:  Employee Benefit Plans

     Employee Stock Ownership Plan

         Effective December 1, 1995, the Company terminated its Employee Stock
Ownership Plan ("ESOP"). During 1988, the ESOP established a loan for $650,000
from a third party financial institution which was repaid as of March 31, 1995.
Throughout 1988, the Company purchased 1,429 shares of the Company's Series B
Preferred Shares at a price of $140.00 per share, and the Company's Class A
Shares. During 1989, the Company purchased 2,500 shares of the Company's Class A
Shares at a price of $100.00 per share. During 1995 and 1994, the ESOP did not
purchase any shares of the Company's stock.

         At December 1, 1995, the Company had provided a total of approximately
$2.0 million in contributions to the ESOP since its inception in 1985. During
1995, 1994 and 1993, the Company contributed $77,000, $130,000, and $120,000,
respectively, to the ESOP.

     Employee Stock Purchase Plan

         The Company's Board of Directors adopted an Employee Stock Purchase
Plan ("ESPP") for the benefit of substantially all employees in March 1990,
which was approved by the Company's stockholders in July 1990.

         A total of 1,250 shares of the Company's Class A Shares have been made
available for purchase under the Plan, and a total of 1,250 shares of Class A
Shares have been made available for matching awards under the Plan. The purchase
price of the shares available under the Plan is the lesser of (i) 85% of the
fair market value of such shares on the first day of the purchase period, or
(ii) 85% of the fair market value of such shares on the last day of such
purchase period.

         At December 31, 1995, there were no Class A Shares outstanding under
the ESPP. At December 31, 1994, the Company had outstanding 364 Class A Shares
under the ESPP of which 2.0% of which represented matching shares. The Company's
Board of Directors suspended this Plan as of December 31, 1991.

     Employee 401K Plan

         The Company provides a 401k plan for its employees. The Company
provides matching contributions up to 2% of the employees qualifying earnings.
During 1995, 1994, and 1993, the Company included $40,000, $42,000 and $81,000,
respectively in non-interest expense in order to recognize contributions to the
401k Plan.

                                                    


                                      -66-
<PAGE>   69
Note 15:  Commitments and Contingencies

     Lending and Letter of Credit Commitments

         In the normal course of its business, the Bank has entered into various
commitments to extend credit which are not reflected in the consolidated
financial statements. Over 90% of such commitments consist of the undisbursed
balance on personal and commercial lines of credit and of undisbursed funds on
construction and development loans. At December 31, 1995 and 1994, the Bank had
outstanding loan commitments, which had primarily adjustable rates, totaling
approximately $5.9 million and $16.3 million, respectively. In addition, the
Bank had outstanding letters of credit, which represent guarantees of
obligations of Bank customers, totaling $9.8 million and $10.4 million at
December 31, 1995 and 1994, respectively. The actual liquidity needs or the
credit risk that the Company will experience will be lower than the contractual
amount of commitments to extend credit because a significant portion of these
commitments is expected to expire without being drawn upon. The Bank's
outstanding loan commitments are made using the same underwriting standards as
comparable outstanding loans. The credit risk associated with these commitments
is considered in management's determination of the allowance for loan losses.

     Litigation

         Because of the nature of its business, the Company and its
subsidiaries, including the Bank, are from time-to-time a party to legal
actions. The Bank has been dismissed from, or reached settlement or potential
settlement in litigation or potential litigation matters which management deems
material. In some instances the Bank has made or agreed to make certain
payments. Based upon information available to the Company and the Bank, and its
review of such outstanding claims to date, management believes the liability
relating to these actions, if any, will not have a material adverse effect on
the Company's liquidity, consolidated financial condition or results of
operations.

Note 16:  Related Party Transactions

         In the ordinary course of business, the Bank makes loans to directors,
officers, shareholders and their associates on substantially the same terms,
including interest rates and collateral, as in comparable loan transactions with
unaffiliated persons, and such loans do not involve more than the normal risk of
collection. The following table sets forth the activity related to loans to
directors, officers and principal shareholders and their associates for the year
ended December 31, 1995:
<TABLE>
<CAPTION>

(Dollars in Thousands)                                 Amount
                                                      -------
<S>                                                   <C>
Balance at December 31, 1994                          $   238
  New loans or disbursements                               --
  Principal reductions (including cash repayments)       (233)
                                                      -------
Balance at December 31, 1995                          $     5
                                                      =======

</TABLE>

     Bank of San Francisco Building Company (BSFBC)

         During the third quarter of 1995, the Bank acquired all of the outside
limited partnership interest in BSFBC for a total of $3.3 million. The cost in
excess of book value of $525,000 is being amortized over the life of the
underlying lease through 2010 using the straight line method. As of December 31,
1995, the Bank holds all of the limited partnership interest. BSFBC holds the
lease on the Company's and Bank's headquarters at 550 Montgomery Street, San
Francisco, California.

         The acquisition was accounted for by the purchase method. The
consolidated financial statements include the accounts of BSFBC. The Company's
consolidated operating results include the operations of BSFBC beginning July 1,
1995. The assets of BSFBC included leasehold improvements and leasehold interest
totaling $5.5 million and cash equivalents and investment securities totaling
$1.3 million. The liabilities included other borrowings which were used to
finance the acquisition of leasehold interest by BSFBC in 1986. The borrowing
was repaid on October 31, 1995.

                                                     

                                      -67-
<PAGE>   70
         As a result of the acquisition, the Company's consolidated premises and
equipment increased to $8.7 million as of December 31, 1995 from $3.0 million as
of December 31, 1994. As of December 31, 1995, the Company's premises and
equipment is comprised of leasehold improvements totaling $5.6 million,
leasehold interest totaling $2.0 million, premium paid to acquire BSFBC totaling
$508,000, and furniture and equipment totaling $617,000. The acquisition,
however, had the effect of reducing the Bank's occupancy costs.

         Prior to 1995, the Company accounted for its investment in BSFBC using
the equity method. Condensed statements of financial condition and operations of
BSFBC at December 31 are as follows:

     Condensed Statements of Financial Condition (Unaudited)
<TABLE>
<CAPTION>

(Dollars in Thousands)                                                          1994
                                                                              ------
<S>                                                          <C>           <C>          <C>
Assets:
  Cash                                                                        $1,271
  Receivables                                                                     43
  Fixed assets, net                                                            5,707
                                                                              ------
     Total assets                                                             $7,021

Liabilities and Partners' Equity:

  Notes payable                                                               $2,230
  Other liabilities                                                              239
  Partners' equity                                                             4,552
                                                                              ------
     Total liabilities and partners' equity                                   $7,021

     Condensed Statements of Operations (Unaudited)

(Dollars in Thousands)                                           1995(1)      1994        1993
                                                                -------------------------------

Rental income                                                   $  947      $ 1,834     $ 1,845
Other income                                                        49          113         101
                                                                -------------------------------
     Total income                                                  996        1,947       1,946
     Total expense                                                 743        2,555       1,004
                                                                -------------------------------
Net income of partnership                                       $  253      $  (608)    $   942
                                                                ===============================

</TABLE>



1. For the six month period ended June 30, 1995.

         The Bank's and BSFRI's equity in the operating results of BSFBC in
1995, 1994, and 1993 was earnings of $48,000, a loss of $264,000, and earnings
of $263,000, respectively. Such income is included in the Bank's other income in
the Company's Consolidated Financial Statements.

Note 17:  Fair Value of Financial Instruments

         The following disclosures of the estimated fair value of financial
instruments are made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 "Disclosures about Fair Value of
Financial Instruments" (SFAS No. 107). The estimated fair value amounts have
been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgement is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amount the Company could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.

                                                     


                                      -68-
<PAGE>   71
         The carrying amount and estimated fair values of the Company's
financial instruments at December 31 are as follows:
<TABLE>
<CAPTION>

                                              1995                        1994
                                   -----------------------     -----------------------
                                   Carrying           Fair     Carrying          Fair
(Dollars in Thousands)               Amount          Value       Amount          Value
                                   -----------------------     -----------------------
<S>                                <C>            <C>          <C>            <C>
Financial Assets:
  Cash and cash equivalents        $ 42,814       $ 42,814      $28,647       $ 28,647
  Investment securities               7,168          7,168       11,407         11,384
  Loans, net                         47,116         48,642       99,488         99,326

Financial Liabilities:
  Deposits                          105,673        105,299      147,148        147,071
  Other borrowings                       --             --        4,070          4,070


</TABLE>

         The following methods and assumptions were used to estimate the fair
value of each major classification of financial instruments at December 31, 1995
and 1994:

CASH AND CASH EQUIVALENTS:  Current carrying amounts approximate estimated fair
value.

TIME DEPOSITS WITH OTHER FINANCIAL INSTITUTIONS: Due to the short term nature of
time deposits with other financial institutions (original maturities of 90 days
or less), current carrying amounts approximate market.

INVESTMENT SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE: For securities
held-to-maturity and available-for- sale, current market prices were used to
determine fair value.

LOANS RECEIVABLE: The carrying amount of loans is net of unearned fee income and
the reserve for possible losses. To estimate fair value of the Company's loans,
primarily adjustable rate, commercial and real estate secured loans, each loan
collateral type is segmented into categories based on fixed or adjustable
interest rate terms, maturity, estimated credit risk, and accrual status. The
fair value of loans is calculated by discounting cash flows expected to be
received through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The
estimate of maturity is based on the Bank's historical experience with
repayments for each loan classification, modified, as required, by an estimate
of the effect of current economic and lending factors.

DEPOSIT LIABILITIES: The fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, savings and NOW accounts, and money market
and checking accounts, is equal to the amount payable on demand as of December
31, 1995. The fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities.

OFF BALANCE SHEET INSTRUMENTS: The estimated fair value of off balance sheet
instruments, principally letters of credit and loan commitments, is
approximately the face value of commitment fees collected.

                                                    


                                      -69-
<PAGE>   72
Note 18:  The San Francisco Company

         Condensed statements of financial condition and operations of the San
Francisco Company at December 31 are as follows:

CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>

(Dollars in Thousands)                                                       1995         1994
                                                                          ---------------------
<S>                                                        <C>           <C>         <C>
Assets:
  Cash and short term investments                                         $   157     $    656
  Other real estate owned                                                      --           85
  Investment in subsidiary                                                  6,885        1,592
  Other assets                                                                 70          131
                                                                          --------------------
     Total assets                                                         $ 7,112       $2,464
                                                                          ====================

Liabilities:
  Borrowings for Employee Stock Ownership Plan                            $    --      $    70
  Other liabilities                                                           232          265
                                                                          --------------------
     Total liabilities                                                        232          335
                                                                          --------------------

Stockholders' equity                                                        6,880        2,129
                                                                          --------------------
     Total liabilities and shareholders' equity                           $ 7,112       $2,464
                                                                          ====================

<CAPTION>

CONDENSED STATEMENTS OF OPERATIONS

(Dollars in Thousands)                                       1995         1994         1993
                                                           --------------------------------
<S>                                                        <C>         <C>           <C>
Income:
  Interest earned                                           $   9      $    51       $   13
  Other Income                                                  1           33           --
                                                           --------------------------------
     Total income                                              10           84           13
                                                           --------------------------------

Expense:
  Provision for loan losses                                    --           --           53
  Other expense                                               222          251          409
                                                           --------------------------------
     Total expense                                            222          251          462
                                                           --------------------------------

Loss before equity in undistributed
 net income (loss) of subsidiary                             (212)        (167)        (449)
Equity in undistributed net income (loss) of subsidiary       548      (32,869)      (9,806)
                                                           --------------------------------
     Net income (loss)                                     $  336     $(33,036)    $(10,255)
                                                           ================================

</TABLE>

                                      -70-
<PAGE>   73
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

(Dollars in Thousands)                                        1995         1994         1993
                                                           ---------------------------------
<S>                                                        <C>         <C>          <C>
Cash Flows from Operating Activities:
  Net income (loss)                                        $   336     $(33,036)    $(10,255)
Adjustments to reconcile net loss to net cash used in
  operating activities:
  Equity in undistributed net (income) loss of subsidiary     (548)      32,869        9,806
  Provision for loan losses                                     --           --           53
                                                           ---------------------------------
Net cash flows used in operating activities                   (212)        (167)        (396)
                                                           ---------------------------------

Cash Flows used in investing activities:
  Investment in Bank                                        (4,700)     (17,000)     (11,850)
  Proceeds from sale of other real estate owned                 85           --           --
  Net decrease (increase) in other assets                       61          136         (246)
                                                           ---------------------------------
Net cash used in investing activities                       (4,554)     (16,864)     (12,096)
                                                           ---------------------------------

Cash Flows provided by financing activities:
  Proceeds from sale of Preferred Stock                         --           --       12,000
  Proceeds from sale of Common Stock                         4,300       17,560           --
  Net increase (decrease) in other liabilities                 (33)        (122)         390
  Other net                                                     --           --           --
                                                           ---------------------------------
Net cash provided by financing activities                    4,267       17,438       12,390
                                                           ---------------------------------

Increase (decrease) in cash and cash equivalents              (499)         407         (102)
Cash and cash equivalents at beginning of year                 656          249          351
                                                           ---------------------------------
Cash and cash equivalents at end of year                   $   157      $   656      $   249
                                                           =================================

</TABLE>


                                      -71-
<PAGE>   74
Note 19:  Quarterly Information (Unaudited)

         The following table sets forth the condensed operating results of the
Company for each quarter of the two year periods ending December 31, 1995, and
is qualified in its entirety by the more detailed information and financial
statements contained elsewhere in this report:

<TABLE>
<CAPTION>

                                                                     1995 Quarters Ended
(Dollars in Thousands Except Per Share data)            March 31        June 30       Sept. 30        Dec. 31
                                                      -------------------------------------------------------

<S>                                                   <C>             <C>            <C>            <C>
Interest income                                          $2,902          $2,776         $2,722         $2,291
Interest expense                                          1,097           1,152          1,161          1,005
                                                      -------------------------------------------------------
Net interest income                                       1,805           1,624          1,561          1,286
Provision for loan losses                                    --             500             --             --
Non-interest income                                         771             789            562            399
Non-interest expense                                      2,470           1,753          1,962          1,623
                                                      -------------------------------------------------------
Income before income taxes                                  106             160            161             62
Provision for taxes                                          38              40             37             38
                                                      -------------------------------------------------------
     Net income                                          $   68          $  120         $  124         $   24
                                                      =======================================================

Earnings per common share:

Average common shares outstanding                     5,765,993       5,765,978      5,765,978      5,765,978
Net income                                                $0.01           $0.02          $0.02          $0.00

<CAPTION>

                                                                       1994 Quarters Ended
(Dollars in Thousands Except Per Share data)            March 31        June 30       Sept. 30        Dec. 31
                                                      -------------------------------------------------------
<S>                                                   <C>              <C>           <C>            <C>
Interest income                                          $3,263          $3,203         $3,164         $3,021
Interest expense                                          1,295           1,268          1,172          1,128
                                                      -------------------------------------------------------
Net interest income                                       1,968           1,935          1,992          1,893

Provision for loan losses                                   141             141            141          3,376
Non-interest income                                         815             462            235            623
Non-interest expense                                      5,798           8,253          7,666         17,301
                                                      -------------------------------------------------------
Loss before income taxes                                 (3,156)         (5,997)        (5,580)       (18,161)
Provision for taxes                                          28              39             38             37
                                                      -------------------------------------------------------
     Net loss                                           $(3,184)        $(6,036)       $(5,618)      $(18,198)
                                                      =======================================================

Loss per common share:

Average common shares outstanding                       444,990       1,176,718      4,847,501      5,766,008
Net loss                                                 $(7.15)         $(5.13)        $(1.16)        $(3.16)


</TABLE>

                                                    

                                      -72-
<PAGE>   75
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item will be furnished in the
         Company's definitive Proxy Statement for the Registrant's 1996 Annual
         meeting, to be filed pursuant to Regulation 14A with the Securities and
         Exchange Commission not later than 120 days after December 31, 1995,
         and is incorporated herein by reference.

ITEM 11 - EXECUTIVE COMPENSATION

         The information required by this Item will be furnished in the
         Company's definitive Proxy Statement for the Registrant's 1996 Annual
         meeting, to be filed pursuant to Regulation 14A with the Securities and
         Exchange Commission not later than 120 days after December 31, 1995,
         and is incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item will be furnished in the
         Company's definitive Proxy Statement for the Registrant's 1996 Annual
         meeting, to be filed pursuant to Regulation 14A with the Securities and
         Exchange Commission not later than 120 days after December 31, 1995,
         and is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item will be furnished in the
         Company's definitive Proxy Statement for the Registrant's 1996 Annual
         meeting, to be filed pursuant to Regulation 14A with the Securities and
         Exchange Commission not later than 120 days after December 31, 1995,
         and is incorporated herein by reference.

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  1.  List of documents filed as a part of the report.

         The following financial statements are included in Item 8 of this
         report:

         Report of Independent Public Accountants;

         Consolidated Statement of Financial Condition at December 31, 1995 
         and 1994;

         Consolidated Statements of Income for the years ended December 31,
         1995, 1994, and 1993;

         Consolidated Statements of Shareholders' Equity for the years ended
         December 31, 1995, 1994 and 1993;

         Consolidated Statements of Cash Flow for the years ended December 31,
         1995, 1994 and 1993;

                       


                                      -73-
<PAGE>   76
         Notes to Consolidated Financial Statements.

     2.  Financial Statement Schedules

         All financial statement schedules are omitted because they are not
         applicable or not required, or because the required information is
         included in the Consolidated Financial Statements or the notes thereto.

     3.  List of Exhibits (numbered in accordance with Item 601 of Regulation
         S-K):

         Exhibit 3.1      Certificate of Incorporation of Bank of San Francisco
                          (Delaware) Holding Company, dated June 23, 1988 (1)

         Exhibit 3.2      Agreement and Plan of Merger of Bank of San Francisco
                          (Delaware) Holding Company, a Delaware corporation and
                          Bank of San Francisco Company Holding Company, a
                          California Corporation, dated June 24, 1988 (1)

         Exhibit 3.3      Certificate of Amendment of the Certificate of 
                          Incorporation of Bank of San Francisco Company Holding
                          Company, dated May 22, 1989 (1)

         Exhibit 3.4      Certificate of Amendment of the Certificate of 
                          Incorporation of Bank of San Francisco Company Holding
                          Company, dated September 21, 1989 (1)

         Exhibit 3.5      Bylaws of Bank of San Francisco (Delaware) Holding 
                          Company, dated June 23, 1988 (1)

         Exhibit 3.6      First Amendment to Bylaws of Bank of San Francisco
                          Company Holding Company, dated July 19, 1989 (1)

         Exhibit 3.7      Second Amendment to Bylaws of Bank of San Francisco 
                          Company Holding Company, dated June 6, 1990 (1)

         Exhibit 3.8      Certificate of Amendment of the Certificate of
                          Incorporation of Bank of San Francisco Company Holding
                          Company, dated May 23, 1994 (8)

         Exhibit 3.9      Amended and Restated Certificate of Incorporation of 
                          The San Francisco Company, dated May 23, 1994 (8)

         Exhibit 4.1      Certificate of Designations of Rights, Preferences, 
                          Privileges and Restrictions of 8% Series B Convertible
                          Preferred Stock of Bank of San Francisco Company
                          Holding Company, dated July 28, 1988 (1)

         Exhibit 4.2      Amended Certificate of Designations of Rights, 
                          Preferences, Privileges and Restrictions of 7% Series
                          B Convertible Preferred Stock of Bank of San Francisco
                          Company Holding Company, dated October 7, 1988 (1)

         Exhibit 4.3      Certificate of Correction of Certificate of
                          Incorporation, dated June 18, 1990 (1)

         Exhibit 10.1     Sales agreement dated October 23, 1986 between Bank of
                          San Francisco Realty Investors (BSFRI) and Bank of
                          America with respect to the lease on 550 Montgomery
                          Street, San Francisco, California (2)

         Exhibit 10.2     Lease dated November 1, 1960 between The Lurie Company
                          and Bank of America, with respect to premises at 550
                          Montgomery Street (2)

         Exhibit 10.3     Consent to Assignment of Lease, dated October 8, 1986,
                          between The Lurie Company and Bank of San Francisco
                          and Bank of San Francisco Realty Investors, with
                          respect to premises at 550 Montgomery Street (2)


                                      -74-
<PAGE>   77
         Exhibit 10.4     Assignment of Lease, dated October 17, 1986, by Bank
                          of America to Bank of San Francisco and Bank of San
                          Francisco Realty Investors, with respect to premises
                          at 550 Montgomery Street (2)

         Exhibit 10.5     Nominee Agreement between Bank of San Francisco Realty
                          Investors and 550 Partners, with respect to premises
                          at 550 Montgomery Street (2)

         Exhibit 10.6     Employee Stock Purchase Plan (3)

         Exhibit 10.7     Letter Agreement with the Board of Governors of the 
                          Federal Reserve Board, dated April 21, 1989 (1)

         Exhibit 10.8     Escrow Agreement dated December 31, 1990 between Bank
                          of San Francisco Company Holding Company and Bank of
                          San Francisco with respect to the Employee Stock
                          Purchase Plan (4)

         Exhibit 10.9     Bank of San Francisco Company Holding Company 401(k)
                          Profit Sharing Plan (4)

         Exhibit 10.10    Amended and Restated Indemnification Agreements dated 
                          October 29, 1991 between Bank of San Francisco Company
                          Holding Company and each director and executive
                          officer of the Company (6)

         Exhibit 10.11    Stock Purchase Agreement dated as of April 10, 1992
                          between Bank of San Francisco Company Holding and
                          Peninsula Holdings (7)

         Exhibit 10.12    First amendment to Stock Purchase Agreement dated May
                          14, 1992 between Bank of San Francisco Company Holding
                          Company and Putra Masagung (7)

         Exhibit 10.13    Second amendment to Stock Purchase Agreement dated
                          June 18, 1992 between Bank of San Francisco Company
                          Holding Company and Putra Masagung (7)

         Exhibit 10.14    Agreement Respecting Assignment, Assumption, Consent
                          and Amendments dated as of May 8, 1992 among Bank of
                          San Francisco Company Holding Company, Peninsula
                          Holdings and Putra Masagung (8)

         Exhibit 10.15    Subscription Agreement dated as of October 29, 1992
                          between Bank of San Francisco Holding Company and
                          Putra Masagung (8)

         Exhibit 10.16    Employment Agreements dated October 1, 1994 between 
                          Mr. Gilleran and The San Francisco Company and the
                          Bank of San Francisco. (10)

         Exhibit 10.17    The San Francisco Company 1993 Executive Stock Option 
                          Plan(9)

         Exhibit 10.18    The San Francisco Company 1993 Non-Employee Directors
                          Stock Option Plan (9)

         Exhibit 10.19    Employment Agreements dated November 27, 1995 between
                          Mr. John McGrath and the Bank of San Francisco. *

         Exhibit 10.20    Subscription Agreement dated as of February 26, 1996 
                          between The San Francisco Company and Putra Masagung *

         Exhibit 21       Subsidiaries of registrant (5)


                                      -75-
<PAGE>   78
         ---------------------------
         Footnotes to List of Exhibits:

         *    Indicates filed herewith.

         (1)    Incorporated by reference from the exhibits included with the
                Registrant's Form S-2 Registration Statement (Registration No.
                33-34985), previously filed with the Commission.

         (2)    Incorporated by reference from exhibits included in the 
                Company's Annual Report on Form 10-K for the year ended December
                31, 1986, previously filed with the Commission.

         (3)    Incorporated by reference from exhibits included with the 
                Company's Form S-8 Registration Statement (Registration No.
                33-35649), previously filed with the Commission.

         (4)    Incorporated by reference from exhibits included with the
                Company's Annual Report on Form 10- K for the year ended
                December 31, 1990, previously filed with the Commission.

         (5)    Incorporated by reference from exhibits included with the
                Company's Annual report on Form 10- K for the year ended
                December 31, 1990, previously filed with the Commission.

         (6)    Identical agreements have been signed by each executive officer
                and director of the Company.

         (7)    Incorporated by reference from exhibits included with the
                Company's Proxy Statement for the Special Meeting of
                Stockholders' held on June 25, 1992, previously filed with
                the Commission.

         (8)    Incorporated by reference from exhibits included with the
                Company's Annual report on Form 10- K for the year ended
                December 31, 1992, previously filed with the Commission.

         (9)    Incorporated by reference from exhibits included with the
                Company's Proxy Statement for the Special Meeting of
                Stockholders' held on May 23, 1994, previously filed with
                the Commission.

         (10)   Incorporated by reference from exhibits included with the
                Company's Annual report on Form 10- K for the year ended
                December 31, 1994, previously filed with the Commission.

(b)      Reports on Form 8-K filed in the fourth quarter of 1995:

         None

                                         

                                      -76-
<PAGE>   79
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                            THE SAN FRANCISCO COMPANY
<TABLE>

<S>                                       <C>                                  <C>
 /s/ James E. Gilleran                     Chairman of the Board and           March 29, 1996
----------------------------               Chief Executive Officer             
James E. Gilleran                          (Principal Executive Officer)


 /s/ Keary L. Colwell                      Senior Vice President               March 29, 1996
----------------------------               (Principal Accounting Officer)
Keary L. Colwell
</TABLE>

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

         Signature                                   Title                        Date
         ---------                                   -----                        ----
<S>                                        <C>                                 <C>
 /s/ James E. Gilleran                     Chairman of the Board and           March 29, 1996
----------------------------               Chief Executive Officer            
James E. Gilleran                          (Principal Executive Officer)


 /s/ Steven R. Champion                    Director                            March 29, 1996
----------------------------
Steven R. Champion

 /s/ Willard D. Sharpe                     Director                            March 29, 1996
----------------------------
Willard D. Sharpe

 /s/ Gordon B. Swanson                     Director                            March 29, 1996
----------------------------
Gordon B. Swanson

 /s/ Kent D. Price                         Director                            March 29, 1996
----------------------------
Kent D. Price

 /s/ Nicholas C. Unkovic                   Director                            March 29, 1996
----------------------------
Nicholas C. Unkovic

 /s/ Jackson L. Schultz                    Director                            March 29, 1996
----------------------------
Jackson L. Schultz
</TABLE>

                                      -77-
<PAGE>   80
                                 EXHIBIT INDEX


Exhibit 10.19         Employment Agreements dated November 27, 1995 between Mr.
                      John McGrath and the Bank of San Francisco. *

Exhibit 10.20         Subscription Agreement dated as of February 26, 1996
                      between The San Francisco company and Putra Massgung *

Exhibit 27            Financial Data Schedule