TEHAMA BANCORP
10-Q, 2000-08-10
STATE COMMERCIAL BANKS
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<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)
/X/      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

         for the quarterly period ended June 30, 2000, OR

         Transition Report Pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934

         for the Transition Period from______________ to _______________.

                        Commission File Number: 000-22797

                                 TEHAMA BANCORP
             (Exact name of registrant as specified in its charter)

                  CALIFORNIA                                    91-1775524
       (State or other jurisdiction of                       (I.R.S. Employer
        incorporation or organization)                      Identification No.)

 239 SOUTH MAIN STREET, RED BLUFF, CALIFORNIA                      96080
   (Address of principal executive offices)                     (Zip Code)

    (Registrant's telephone number, including area code):     (530) 528-3000

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

         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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

    Common Stock, No Par Value: 1,886,455 shares outstanding (June 30, 2000)

<PAGE>

                                      INDEX

                                 TEHAMA BANCORP


PART I.           FINANCIAL INFORMATION

Item 1.           Financial Statements (Unaudited)

                  Condensed Consolidated Balance Sheets: June 30, 2000 and
                    December 31, 1999

                  Condensed Consolidated Statements of Income: Three months
                    ended June 30, 2000 and 1999; and six months ended June 30,
                    2000 and 1999

                  Condensed Consolidated Statement of Changes in Shareholder
                    Equity: December 31, 1998 through June 30, 2000

                  Condensed Consolidated Statement of Cash Flows:  Six months
                     ended June 30, 2000 and 1999

                  Notes to Condensed Consolidated Financial Statements: June 30,
                     2000

Item 2.           Management's Discussion and Analysis of Financial Condition
                     and Results of Operations



PART II.          OTHER INFORMATION

Item 1.           Legal Proceedings

Item 2.           Changes in Securities

Item 3.           Defaults Upon Senior Securities

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

Item 5.           Other Information

Item 6.           Exhibits and Reports on Form 8-K


                  SIGNATURES


                  EXHIBIT INDEX


Exhibit 27        Financial Data Schedule Worksheet

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                 TEHAMA BANCORP
                           CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                              ASSETS                                  June 30, 2000            December 31, 1999
                                                                     ---------------           -----------------
                                                                       (Unaudited)
<S>                                                                  <C>                       <C>

Cash and due from banks                                               $  17,653,083             $  17,157,451
Investment securities (market value of $38,287,500 at
   June 30, 2000 and $38,400,500 at December 31, 1999)                   38,405,236                38,513,743
Loans, less allowance for loan losses of $2,413,293 at
   June 30, 2000 ($2,148,074 at December 31, 1999)                      160,331,794               143,025,745
Bank premises and equipment, net                                          2,642,446                 2,716,042
Other real estate                                                           167,693                    35,986
Investment in leasing company                                             4,116,606                 2,793,416
Investment in Class C Lease-Backed Notes                                  2,222,121                         -
Accrued interest receivable and other assets                              7,853,121                 7,551,742
                                                                      -------------             -------------

          TOTAL ASSETS                                                $ 233,392,100             $ 211,794,125
                                                                      =============             =============

               LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:
     Non-interest bearing                                             $  53,616,218             $  50,686,125
     Interest bearing                                                   149,780,369               137,781,272
                                                                      -------------             -------------

          Total deposits                                                203,396,587               188,467,397

Short-term borrowings                                                     5,000,000                 2,100,000
Long-term borrowings                                                      2,749,490                         -
Accrued interest payable and other liabilities                            2,123,186                 2,588,756
                                                                      -------------             -------------

          Total liabilities                                             213,269,263               193,156,153
                                                                      -------------             -------------

Commitments

Shareholders' equity
   Preferred stock - no par value;  2,000,000 shares
      authorized;  none issued                                                    -                         -
   Common stock - no par value;  4,000,000 shares
      authorized;  1,886,455 shares issued and outstanding
      at June 30, 2000 (1,713,694 at December 31, 1999)                  15,432,303                13,189,875
Retained earnings                                                         5,462,206                 6,301,718
Accumulated other comprehensive loss                                       (771,672)                 (853,621)
                                                                      -------------             -------------

          Total shareholders' equity                                     20,122,837                18,637,972
                                                                      -------------             -------------

          TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                    $ 233,392,100             $ 211,794,125
                                                                      =============             =============
</TABLE>

                     See accompanying notes.

<PAGE>

                                 TEHAMA BANCORP
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            Three months ended                   Six months ended,
                                                                 June 30,                             June 30,
                                                     ----------------------------------  ----------------------------------

                                                           2000              1999              2000              1999
                                                           ----              ----              ----              ----
<S>                                                  <C>               <C>               <C>               <C>
Interest income:
   Interest and fees on loans                          $   3,501,565     $   2,653,996     $   6,705,068     $   5,239,459
   Interest on Federal funds sold                                  -            79,197            14,549           281,643
   Interest on investment securities:
      Taxable                                                424,943           506,196           850,946           973,190
      Exempt from Federal income taxes                       143,101           156,487           288,797           316,418
   Other Interest income                                      25,241                 -            25,241                 -
                                                     ----------------  ----------------  ----------------  ----------------

         Total interest income                             4,094,850         3,395,876         7,884,601         6,810,710
                                                     ----------------  ----------------  ----------------  ----------------

Interest expense on deposits                               1,449,750         1,246,665         2,816,364         2,586,652
Interest on short-term and long-term borrowings              196,580             2,415           228,782             4,056
                                                     ----------------  ----------------  ----------------  ----------------

         Total interest expense                            1,646,330         1,249,080         3,045,146         2,590,708
                                                     ----------------  ----------------  ----------------  ----------------

         Net interest income                               2,448,520         2,146,796         4,839,455         4,220,002

Provision for loan losses                                    300,000           300,000           600,000           725,000
                                                     ----------------  ----------------  ----------------  ----------------

         Net interest income after
            provision for loan losses                      2,148,520         1,846,796         4,239,455         3,495,002
                                                     ----------------  ----------------  ----------------  ----------------

Non-interest income:
   Service charges                                           234,416           192,457           458,523           370,627
   Merchant processing fees                                  210,000           269,800           440,000           582,419
   Gain on sale of loans                                      20,157            32,867            31,248            53,261
   Automatic teller machine servicing fees                   227,743            79,748           397,092            83,159
   Loan packaging fees                                        31,986            73,181            70,087           153,041
   Undistributed income from investment                      170,341           107,114           273,440           196,975
   Other income                                              117,780           144,483           228,521           239,187
                                                     ----------------  ----------------  ----------------  ----------------

         Total non-interest income                         1,012,423           899,650         1,898,911         1,678,669

Non-interest expense:
   Salaries and employee benefits                            991,583         1,058,926         2,066,746         2,089,197
   Occupancy                                                 290,878           249,751           581,168           487,089
   Other                                                     784,765           765,011         1,544,162         1,375,435
                                                     ----------------  ----------------  ----------------  ----------------

         Total non-interest expense                        2,067,226         2,073,688         4,192,076         3,951,721
                                                     ----------------  ----------------  ----------------  ----------------

         Income before income taxes                        1,093,717           672,758         1,946,290         1,221,950

Income taxes                                                 317,500           160,500           558,000           333,500
                                                     ----------------  ----------------  ----------------  ----------------

         Net income                                    $     776,217     $     512,258     $   1,388,290     $     888,450
                                                     ================  ================  ================  ================

Basic earnings per share                               $        0.41     $        0.30     $        0.76     $        0.53
                                                     ================  ================  ================  ================

Diluted earnings per share                             $        0.40     $        0.30     $        0.75     $        0.52
                                                     ================  ================  ================  ================

Weighted average number of
   shares outstanding                                      1,886,181         1,702,127         1,814,975         1,688,157
                                                     ================  ================  ================  ================

Weighted average number of shares
   outstanding including common
   stock equivalents                                       1,936,116         1,708,081         1,854,744         1,722,737
                                                     ================  ================  ================  ================
</TABLE>

                             See accompanying notes.

<PAGE>

                                 TEHAMA BANCORP
            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                      Accumulated
                                                  Common Stock                           Other           Total
                                         ------------------------------  Retained      Comprehensive   Shareholders'  Comprehensive
                                            Shares        Amount         Earnings    Income (Loss)       Equity           Income
                                         -------------  -------------  ------------- ---------------  -------------   -------------
<S>                                      <C>            <C>            <C>           <C>              <C>             <C>
Balance at December 31, 1998                1,672,129   $ 12,824,202    $ 4,908,485       $ (21,430)  $ 17,711,257

Stock options exercised and related
  tax benefit                                  60,249        602,320                                       602,320

Retirement of common stock                    (18,684)      (236,647)                                     (236,647)

Comprehensive income:
  Net Income                                                              2,247,213                      2,247,213     $ 2,247,213
  Unrealized loss on available-for-sale
    investment securities                                                                  (832,191)      (832,191)       (832,191)
                                                                                                                      -------------

       Total comprehensive income                                                                                      $ 1,415,022
                                                                                                                      =============

Cash dividend - $.50 per share                                             (853,980)                      (853,980)
                                         -------------  -------------  ------------- ---------------  -------------

 Balance at December 31, 1999               1,713,694     13,189,875      6,301,718        (853,621)    18,637,972

Stock options exercised and related
  tax benefit                                   1,705         18,700                                        18,700

Comprehensive income:
  Net Income                                                              1,388,290                      1,388,290     $ 1,388,290
  Unrealized gain on available-for-sale
    investment securities                                                                    81,949         81,949          81,949
                                                                                                                      -------------

       Total comprehensive income                                                                                      $ 1,470,239
                                                                                                                      =============

10% stock dividend                            171,056      2,223,728     (2,227,802)                        (4,074)

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

Balance at June 30, 2000                    1,886,455   $ 15,432,303    $ 5,462,206      $ (771,672)  $ 20,122,837
                                         =============  =============  ============= ===============  =============
</TABLE>

                             See accompanying notes.

<PAGE>

                                 TEHAMA BANCORP
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                        Six months ended
                                                                                            June 30,
                                                                             ---------------------------------------

                                                                                   2000                  1999
                                                                                   ----                  ----
<S>                                                                          <C>                   <C>
Cash flows from operating activities:
   Net income                                                                    $  1,388,290          $    888,450
   Adjustments to reconcile net income to net cash provided by
      (used in) operating activities:
         Provision for loan losses                                                    600,000               725,000
         Depreciation and amortization                                                250,934               200,234
         Deferred loan origination (costs) fees, net                                 (276,308)              776,322
         Increase in interest receivable and other assets                            (487,394)             (806,480)
         (Decrease) increase in interest payable and other liabilities               (465,570)               83,040
         Undistributed earnings of investment in leasing company                     (273,440)             (196,975)
                                                                             -----------------     -----------------

               Net cash provided by operating activities                              736,512             1,669,591
                                                                             -----------------     -----------------

Cash flows from investing activities:
   Net increase in maturities, purchases and sales of
      investment securities                                                           149,948             4,819,823
   Net increase in loans                                                          (17,602,902)           (4,944,519)
   Purchases of other real estate                                                     (16,609)                    -
   Purchases of premises and equipment                                               (142,751)             (219,388)
   Investment in Class C Lease-Backed Notes                                        (2,375,655)                    -
   Proceeds from investment in Class C Lease-Backed Notes                             153,533                     -
   Investment in leasing company                                                     (999,750)                    -
                                                                             -----------------     -----------------

               Net cash used in investing activities                              (20,834,186)             (344,084)
                                                                             -----------------     -----------------

Cash flows from financing activities:
   Net increase in demand deposits, interest-bearing
      and savings accounts                                                          9,270,329             6,164,080
   Net increase (decrease) in time deposits                                         5,658,861            (9,604,886)
   Net increase in short-term borrowings                                            2,900,000                     -
   Borrowings under long-term debt agreement                                        2,907,655                     -
   Payments on long-term borrowings                                                  (158,165)                    -
   Payments of cash dividends                                                               -              (853,979)
   Payments for fractional shares                                                      (4,074)                    -
   Retirement of common stock                                                               -              (236,647)
   Proceeds from exercise of stock options                                             18,700               420,635
                                                                             -----------------     -----------------

               Net cash provided by (used in) financing activities                 20,593,306            (4,110,797)
                                                                             -----------------     -----------------

               Increase (decrease) in cash and cash equivalents                       495,632            (2,785,290)

Cash and cash equivalents at beginning of period                                   17,157,451            22,762,664
                                                                             -----------------     -----------------

Cash and cash equivalents at end of period                                       $ 17,653,083          $ 19,977,374
                                                                             =================     =================
</TABLE>

                             See accompanying notes.

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A            Basis of Presentation

         The financial information included herein is unaudited (although the
12/31/99 data is derived from audited financial statements), but has been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. The information reflects all adjustments (consisting solely of
normal recurring adjustments) that are, in the opinion of management, necessary
to a fair presentation of the financial position, results of operations, changes
in shareholder equity, and cash flows for the interim periods presented.

         Certain information and footnotes required by generally accepted
accounting principles for annual financial statements are not included in these
interim financial statements. Accordingly, the accompanying unaudited interim
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's 1999 Annual
Report on Form 10-K. Operating results for the three months and six months ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000.

         Tehama Bancorp was incorporated on January 15, 1997 and consumated a
merger with Tehama Bank on June 30, 1997. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary Tehama Bank,
and a 50% interest in Bancorp Financial Services, Inc. All material intercompany
accounts and transactions have been eliminated in consolidation.

Note B            Comprehensive Income

         As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). This
statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. For the Company,
comprehensive income includes net income reported on the statement of income and
changes in the fair value of its available-for-sale investments reported as
other comprehensive income.

Note C            Earnings per Share

         Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if options or other
contracts to issue common stock were exercised and converted into common stock.
Diluted earnings per share is computed by dividing net income by the weighted
average of common shares outstanding including common stock equivalents of
options.

Note E            Segment Information

         Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by senior
management. Generally, financial information is reported on the basis that it is
used internally for evaluating segment performance and in deciding how to
allocate resources to segments.

         The Company has four reportable segments: Retail and Commercial
Banking, Merchant Card Processing, ATM Cash Services, and Bancorp. The Retail
and Commercial Banking segment offers a diverse range of traditional loan and
deposit products and services to individuals and businesses. The Merchant Card
Processing segment is responsible for the processing of third-party credit card
transactions. The ATM Cash Services segment is responsible for servicing third
party ATM machines. The Bancorp segment represents the activity at the Bank's
holding company, which primarily consists of the Company's share of net income
from its joint venture in a leasing company Bancorp Financial Services.

The accounting policies of the segments are the same as those described Note A.

<PAGE>

The following table includes selected financial information for the three months
ended June 30, 2000 and 1999 for each business segment:

<TABLE>
<CAPTION>
                                           Retail and        Merchant           ATM
                                           Commercial          Card             Cash                         Consolidated
(In Thousands)                               Banking        Processing        Services         Bancorp           Total
                                          --------------  ---------------  ---------------  --------------  ----------------
<S>                                       <C>             <C>              <C>              <C>             <C>
Three Months Ended June 30, 2000
Interest income                               $   4,069      $         -       $        -      $      25         $    4,094
Interest expense                                  1,628                -                -              18             1,646
Provision for loan and lease losses                 300                -                -               -               300
Non-interest income                                 381              227              228             176             1,012
Depreciation expense                                112                1                4               -               117
Other non-interest expense                        1,528              146              231              45             1,950
Income before income taxes                          882               80               (7)            138             1,093
Segment assets                                $ 215,795      $         6       $   10,975      $    6,616        $  233,392

Three Months Ended June 30, 1999
Interest income                               $   3,396      $         -       $        -      $        -        $    3,396
Interest expense                                  1,249                -                -               -             1,249
Provision for loan and lease losses                 300                -                -               -               300
Non-interest income                                 441              272               80             107               900
Depreciation expense                                 86                1                3               -                90
Other non-interest expense                        1,759               88               79              58             1,984
Income before income taxes                          443              183               (2)             49               673
Segment assets                                $ 203,008      $        14       $    5,857      $    2,915        $  211,794
</TABLE>


The following table includes selected financial information for the six months
ended June 30, 2000 and 1999 for each business segment:

<TABLE>
<CAPTION>
                                           Retail and        Merchant           ATM
                                           Commercial          Card             Cash                         Consolidated
(In Thousands)                               Banking        Processing        Services         Bancorp           Total
                                          --------------  ---------------  ---------------  --------------  ----------------
<S>                                       <C>             <C>              <C>              <C>             <C>
Six Months Ended June 30, 2000
Interest income                               $   7,859      $         -       $        -      $       25        $    7,884
Interest expense                                  3,027                -                -              18             3,045
Provision for loan and lease losses                 600                -                -               -               600
Non-interest income                                 758              465              397             279             1,899
Depreciation expense                                221                1                7               -               229
Other non-interest expense                        3,213              275              404              71             3,963
Income before income taxes                        1,556              189              (14)            215             1,946
Segment assets                                $ 215,795      $         6       $   10,975      $    6,616        $  233,392

Six Months Ended June 30, 1999
Interest income                               $   6,811      $         -       $        -      $        -        $    6,811
Interest expense                                  2,591                -                -               -             2,591
Provision for loan and lease losses                 725                -                -               -               725
Non-interest income                                 811              588               83             197             1,679
Depreciation expense                                171                2                5               -               178
Other non-interest expense                        3,455               96              140              83             3,774
Income before income taxes                          680              490              (62)            114             1,222
Segment assets                                $ 203,008      $        14       $    5,857      $    2,915        $  211,794
</TABLE>

<PAGE>

ITEM 2.    MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS

OVERVIEW

         Tehama Bancorp (the "Company") is the bank holding company for Tehama
Bank (the "Bank"), a state chartered, Federal Reserve member-bank. The following
is management's discussion and analysis of the financial condition and results
of operations of the Company for the quarter and six-month periods ending June
30, 2000, with comparative data from the same periods ending June 30, 1999. Some
discussion may naturally focus solely on the Bank as that entity comprises the
substantial majority of the consolidated company. The focus is on information,
which is not otherwise apparent from the financial statements in this quarterly
report. Reference should be made to those statements for a more thorough
understanding of the analysis presented.

         The Bank's main office is located at 333 Main Street, Red Bluff, Tehama
County, CA 96080, with five other community branch offices located in: Los
Molinos (Tehama County), Chico (Butte County), Orland and Willows (Glenn County)
and Redding (Shasta County). The Bank's administrative offices are located at
239 South Main Street, Red Bluff, Tehama County, CA 96080. The Bank's principal
business consists of attracting deposits from the general public and using the
funds to originate commercial, real estate and installment loans to both
consumers and businesses. The Bank's primary source of revenue is interest
income from its loan and investment portfolios. In addition to the Bank, the
Company maintains a 50% ownership interest in Bancorp Financial Services, Inc.
("BFS"), a leasing company located in Sacramento, CA. BFS concentrates on small
ticket business equipment and automobile leases over a broader service area
encompassing numerous western states. On March 15, 2000, the Company invested an
additional $999,750 in BFS. After such investment, the Company still maintained
a 50% ownership in BFS.

         In addition to the historical information contained herein, this Form
10-Q quarterly report may contain certain forward-looking statements, within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, and regulations issued thereunder. Readers of this quarterly report
should understand that these forward-looking statements involve certain risks
and uncertainties that could cause actual results to differ materially from
those suggested in the forward-looking statements. Forward-looking statements
use phrases such as "expected to" and "on target to." Risks and uncertainties in
forward-looking statements include, but are not limited to, the following
factors: competitive pressure in the banking industry, changes in the regulatory
environment, changes in the interest rate environment and/or volatility in
interest sensitive deposits, general economic conditions in the Bank's major
service areas, a deterioration in credit quality resulting in an increase to the
provision for loan losses, operational risks including data processing or other
technological system failures, asset / liability matching risks and liquidity
risks, and changes in the securities markets.

EARNINGS SUMMARY

         The Company's net income in the second quarter of 2000 totaled
$776,217, which was a 51.5% increase over the second quarter of 1999. Basic
earnings per share for the second quarter of 2000 was $0.41 ($0.40 diluted)
compared to $0.30 ($0.30 diluted) for the second quarter of 1999. Growth in net
income during the second quarter is the continuation of several business
strategies initiated in 1999. Increasing the resources and focus on business
banking relationships throughout the Bank's service area resulted in significant
growth in commercial and commercial real estate loan bookings. Average real
estate loans increased $16,033,815 from a quarterly average of $57,879,664 in
the second quarter of 1999 to $73,913,479 in the second quarter of 2000.
Additionally, the Bank's dealer lending business continues to provide steady
growth in the consumer loan portfolio, which increased $18,642,204, from a
quarterly average of $31,656,519 in the second quarter of 1999 to $50,298,723 in
the second quarter of 2000. The Bank's ATM Cash Servicing Department,
established in December 1998, also contributed significantly to the growth in
other income. Merchant card fee income reflects a decrease of 26.4% in a
comparison of second quarter 2000 to second quarter 1999. This business unit's
contract with the outside vendor that generates its volume was re-negotiated and
includes planned decreases in income, but extends the time period by five years
for this business unit's continued contribution to earnings for the Bank.

Net income for the six months ended June 30, 2000 was $1,388,290, an increase of
$499,840 (56.3%) over the same period in 1999. Basic earnings per share for the
six months ended June 30, 2000 was $0.76 ($0.75 diluted), compared to $0.53
($0.52 diluted) for the same period in 1999.

BALANCE SHEET ANALYSIS

         Total assets of $233,392,100 at June 30, 2000 represent an increase of
$21,597,975 or 10.2% from the 1999 year-end figure of $211,794,125. During this
same period net loans increased $17,306,049 or 12.1% while total investments
decreased by $108,507 or 0.3%. Total deposits of $203,269,263 at June 30, 2000
represent an increase of $14,929,190 or 7.9% from the 1999 year-end figure of
$188,467,397. Non-interest bearing deposits were 26.4% of total deposits at June
30, 2000, compared with 24.0% at June 30, 1999. The Company also invested in
Class C Lease-Backed Notes issued by B F S Funding Company, L.L.C., a wholly
owned subsidiary of Bancorp Financial Services, Inc. The initial investment of
$2,375,654 was funded by long-term

<PAGE>

BALANCE SHEET ANALYSIS (CONTINUED)

borrowings with another bank, which matures in 2003. The balance of the
investment and borrowings at June 30, 2000, was $2,222,121 and $2,217,490,
respectively.

ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses increased $265,219 from December 31, 1999
to June 30, 2000. The allowance for loan losses reflects management's judgment
as to the level which is considered adequate to absorb potential losses inherent
in the loan portfolio. This allowance is increased by provisions charged to
expense and reduced by loan charge-offs, net of recoveries. Management
determines the provision charged to expense based on an on-going analysis of the
loan portfolio's product mix, delinquency ratios, losses incurred and other
factors.
The following table presents information concerning the allowance:

<TABLE>
<CAPTION>
                                                               June 30, 2000          June 30, 1999    December 31, 1999
                                                               -------------        -----------------  -----------------
<S>                                                            <C>                  <C>                <C>
Allowance at beginning of period                               $   2,148,074        $       2,080,831      $   2,080,831

Provision for loan losses                                            600,000                  725,000          1,325,000
Losses charged to the allowance                                     (379,875)              (1,257,002)        (1,438,474)
Recoveries of amounts charged off                                     45,094                   69,781            180,717
                                                               -------------        -----------------      -------------
Allowance at end of period                                     $   2,413,293        $       1,618,610      $   2,148,074
                                                               =============        =================      =============

Ending loan portfolio (Before allowance for loan losses)       $ 162,745,087        $     124,071,343      $ 145,173,819
                                                               =============        =================      =============

Ending allowance as a percentage of ending loan portfolio              1.48%                    1.30%              1.48%
                                                               =============        =================      =============
</TABLE>

NET INTEREST INCOME

         The primary source of income for the Company is net interest income,
the difference between interest earned on assets (loans and investments) and
interest paid on deposits and other borrowings taken by the Bank to fund these
assets. Changes in net interest income can be attributed to changes in the yield
on interest-earning assets and to changes in the rate paid on interest-bearing
liabilities. It can also be attributed to changes in the volume of
interest-earning assets and interest-bearing liabilities. Net interest income
for the quarter ending June 30, 2000 totaled $2,448,520, an increase of $301,724
(14.1%) increase over the $2,146,796 for the second quarter of 1999. Net
interest income for the six months ended June 30, 2000 totaled $4,839,455, an
increase of $619,453 (14.7%) over the same period in 1999.

NON-INTEREST INCOME

         Non-interest income consists primarily of service charges on deposit
accounts, other fees and charges collected by the Bank for both deposit accounts
and loans, fee income generated by the processing of merchant credit card
transactions, ATM cash servicing fees and earnings on life insurance policies.
Non-interest income for the quarter ending June 30, 2000 totaled $1,012,423, an
increase of 12.5% over the $899,650 for the second quarter of 1999. Non-interest
income for the six months ended June 30, 2000 totaled $1,898,911, an increase of
$220,242 (13.1%) over the $1,678,669 for the same period in 1999.

         Deposit account service charges for the quarter ended June 30, 2000
increased 21.8% (23.7% for the six month period) from the same period in 1999.
Processing fees on brokered loans declined $59,323 or 65.0% ($82,954 or 54.2%
for the six month period), due to a decrease in origination volume as a result
of increased loan rates. Merchant card processing revenue was down $59,800 or
22.2% ($142,419 or 24.5% for the six month period), in line with contractual
decreases in processing volume and fee income. Income from ATM cash servicing
was up $147,996 or 185.6% in the second quarter of 2000 ($313,933 or 377.5% for
the six month period), from $79,747 in the second quarter of 1999 ($83,159 for
the six month period), reflecting the startup of that unit in early 1999.

         The Company's share of net income from its joint venture in a leasing
company, Bancorp Financial Services, increased $63,227 or 59.0%, from the second
quarter of 1999 ($76,465 or 38.8% from the six months ended June 30, 1999).

<PAGE>

NON-INTEREST EXPENSE

         Non-interest expense consists of salaries and related benefits,
occupancy and equipment expense and other expenses. Non-interest expense totaled
$2,067,226 for the three months ended June 30, 2000, a decrease of $6,462 (0.3%)
over the same period in 1999 and was $4,192,076 for the six months ended June
30, 2000, an increase of $240,355 (6.1%) over the same period in 1999.

         Personnel expense was down $67,343 or 6.4% for the second quarter of
2000 ($22,451 or 1.1% for the six month period) compared with the first quarter
of 1999, due primarily to staff reductions through attrition.

         Occupancy expense was up $41,127 or 16.5% in the second quarter of 2000
(94,079 or 19.3% for the six month period), primarily attributable to increases
in depreciation expense on bank premises and equipment associated with new
branch and loan center facilities.

         Other expenses were up $19,754 or 2.6% in the second quarter of 2000
($168,727 or 12.3% for the six month period), over the second quarter of 1999,
due to increases in public relations and advertising expenses, increases in
supplies, telephone and postage expenses, increases in officers salary
continuation expenses and increases in software licensing fees, all associated
with the expansion of Bank services and new facilities. The renegotiated
merchant card processing contract included a provision whereby the Bank is
obligated to reimburse the outside vendor for a portion of the earnings on
transaction float previously retained by the Bank, which also contributed to the
increase in other expenses.


NET INCOME BEFORE TAXES


         Net income before taxes was $1,093,717 for the second quarter of 2000,
an increase of $420,959 (62.6%) over the $672,758 for the first quarter of 1999.
For the six months ended June 30, 2000, net income before taxes was $1,946,290,
an increase of $724,340 (59.3%) over the same period in 1999.


INCOME TAXES

         Income taxes accrued for the three months ended June 30, 2000 totaled
$317,500 or 29.0% of net income before taxes, compared with $160,500 or 23.9% of
net income before taxes for the same period in 1999. Income taxes accrued for
the six months ended June 30, 2000 totaled $558,000 or 28.7% of net income
before taxes, compared with $333,500 or 27.3% of net income before taxes for the
same period in 1999. Variations in volumes of tax-exempt securities, loans and
leases, and their respective income, are primarily responsible for the change in
the tax rate.

LIQUIDITY AND CAPITAL

         The Bank manages its liquidity to ensure that sufficient funds are
available to support asset growth and satisfy cash flow requirements created by
fluctuations in deposits. Primary sources of liquidity include cash and amounts
due from correspondent banks, federal funds sold, and unpledged
available-for-sale investments. The Bank's primary liquidity ratio, the ratio of
liquid assets to total assets, was 21.9% at June 30, 2000 compared to 26.3% at
December 31, 1999 and 25.0% at June 30, 1999. Another indication of a company's
liquidity is its ratio of net loans to total deposits. The lower the ratio the
more liquid the Company's current position. However, since loans are generally
the highest yielding earning asset, the Bank attempts to maximize earnings
through the generation of additional loans, while maintaining sufficient
liquidity to meet its obligations. The loan-to-deposit ratio as of June 30, 2000
was 80.0% compared to a ratio of 75.9% at December 31, 1999 and 69.2% ratio at
June 30, 1999.

         Capital adequacy is generally quantified by measures established by
regulatory agencies and requires the Company and the Bank to maintain minimum
amounts of capital and ratios of capital to assets. Overall capital is monitored
by management on a daily basis and reported to the Company's Board of Directors
on a monthly basis. The following table reflects the Company's capital ratios as
of June 30, 2000 compared to the minimum regulatory requirement and the minimum
requirement for "well-capitalized" institutions.


<TABLE>
<CAPTION>
                                                       Company           Minimum       Well Capitalized
                                                       -------           -------       ----------------
         <S>                                           <C>                <C>           <C>
         Leverage Ratio                                  9.2%              4.0%               5.0%

         Tier 1 Risk-Based Capital Ratio                11.7%              4.0%               6.0%

         Total Risk Based Capital Ratio                 12.9%              8.0%              10.0%
</TABLE>

<PAGE>

                           PART II - OTHER INFORMATION



ITEM 1.           LEGAL PROCEEDINGS

                  There are no material legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their property is
subject.

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS - None

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES - None

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

                  The annual meeting of shareholders of Tehama Bancorp was held
on April 25, 2000. Shareholders voted on candidates for the board of directors.
No candidates were proposed in opposition to the slate of candidates submitted
by management, and the following incumbent directors were elected by the votes
indicated:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                NAME                  VOTES FOR             VOTES WITHHELD
--------------------------------------------------------------------------------
    <S>                               <C>                   <C>
    Henry C. Arnest, III              1,231,841                 75,050
--------------------------------------------------------------------------------
    Louis J. Bosetti                  1,232,224                 74,667
--------------------------------------------------------------------------------
    Harry Dudley                      1,230,688                 76,203
--------------------------------------------------------------------------------
    William P. Ellison                1,232,545                 74,346
--------------------------------------------------------------------------------
    Garry D. Fish                     1,231,916                 74,975
--------------------------------------------------------------------------------
    Max M. Froome                     1,230,552                 76,339
--------------------------------------------------------------------------------
    Orville K. Jacobs                 1,232,545                 74,346
--------------------------------------------------------------------------------
    Gary C. Katz                      1,232,545                 74,346
--------------------------------------------------------------------------------
    John W. Koeberer                  1,230,962                 75,929
--------------------------------------------------------------------------------
    Raymond C. Lieberenz              1,232,538                 74,353
--------------------------------------------------------------------------------
    Leslie L. Melburg                 1,232,545                 74,346
--------------------------------------------------------------------------------
    Gary L. Napier                    1,232,037                 74,854
--------------------------------------------------------------------------------
    John D. Regh                      1,232,303                 74,588
--------------------------------------------------------------------------------
    Terrance A. Rust                  1,232,301                 74,590
--------------------------------------------------------------------------------
</TABLE>


ITEM 5.           OTHER INFORMATION - None

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

                  (a)      Exhibits

                           The exhibits listed in the Exhibit Index to this
                           report are furnished herewith and incorporated by
                           reference.

                  (b)      No reports on Form 8-K were filed during the quarter
                           for which this report is filed.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company duly caused this report to be signed by the undersigned thereunto duly
authorized.





      August 4, 2000                  BY:    /s/  Randall A. Shell            .
--------------------------                 ------------------------------------

Date                                              Randall A. Shell
                                                  Senior Vice President &
                                                     Chief Financial Officer





      August 4, 2000                  BY:    /s/  William P. Ellison          .
---------------------------                ------------------------------------

Date                                              William P. Ellison
                                                  President & Chief Executive
                                                     Officer

<PAGE>


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No.                Description
------------               -------------
<S>                        <C>
27                         Financial Data Schedule Worsheet
</TABLE>



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