CALIFORNIA COMMUNITY BANCSHARES INC, 424B3, 1999-12-16

CALIFORNIA COMMUNITY BANCSHARES INC
424B3, 1999-12-16
NATIONAL COMMERCIAL BANKS

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PROXY STATEMENT OF NATIONAL BUSINESS BANK
INFORMATION STATEMENT OF SECURITY FIRST BANK
AND PROSPECTUS OF CALIFORNIA COMMUNITY BANCSHARES, INC.

We propose merging California Financial Bancorp into California Community
Bancshares, Inc., and in independent transactions, merging Security First Bank
into Bank of Orange County and National Business Bank into CalWest Bank. Each
bank is presently a subsidiary of California Financial.

The mergers are part of an overall reorganization of the bank holding company
and bank subsidiaries of the California Community Financial Institutions Fund
Limited Partnership. The reorganization will eliminate duplicate costs by
creating larger banks that can better compete with other financial institutions
in their communities.

TO SECURITY FIRST SHAREHOLDERS: The Board of Directors of Security First
notifies you that written consent of shareholders owning in excess of 50% of the
outstanding shares will be voted in favor of the merger between Security First
and Orange. The written consents of all shareholders are NOT being solicited.

- - If the merger is completed, Security First shareholders who do not exercise
dissenters' rights will receive 0.0938 shares of California Community common
stock for each share of Security First common stock, which is the equivalent
of approximately $0.6228 per share for each share of Security First common
stock.

- - As a condition to closing, the merger includes a reduction in Orange's capital
on a combined basis, after the merger, in the amount of up to $6,300,000,
through a cash distribution to California Community.

TO BUSINESS BANK SHAREHOLDERS: The Board of Directors of Business Bank asks you
to vote on the merger between Business Bank and CalWest Bank. As California
Financial owns approximately 65% of the outstanding shares of Business Bank and
as Business Bank directors owning an additional approximately 8.8% have entered
into Shareholder Agreements to vote in favor of the merger, no additional shares
are required for approval of the merger.

- - If the CalWest/Business Bank merger is completed, Business Bank shareholders
who do not exercise dissenters' rights will receive 1.5053 shares of
California Community common stock for each share of Business Bank common
stock, which is the equivalent of $10.00 per share for each share of Business
Bank common stock.

- - As a condition to closing, the merger includes a capital reduction in
CalWest's capital on a combined basis, after the merger, in the amount of up
$1,200,000, through a cash distribution to California Community.

After the mergers, California Community will own 100% of the banks. The
California Fund and the minority shareholders of Security First and Business
Bank will own shares only in California Community. The California Fund will own
approximately 94.8% of California Community. Security First shareholders will
own approximately 3.8% of California Community, and Business Bank shareholders
will own approximately 1.4% of California Community.

There is presently no market for California Community's common stock.

The merger transactions are generally tax free to the shareholders of California
Financial, Security First and Orange. The mergers are subject to the
satisfaction of various conditions, the more important of which are:

- - shareholder and regulatory approval of the mergers and the capital reductions;

- - holders of no more than 10% of the outstanding shares of Security First in the
Orange/Security merger of the outstanding shares of Business Bank in the
CalWest/Business Bank merger shall have exercised dissenters' rights; and

- - completion of the California Community/California Financial merger.

For a discussion of factors important to the decision to approve the mergers,
see "Risk Factors" on page .

The California Community securities offered are not deposits and are not insured
by the Federal Deposit Insurance Corporation.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE MERGERS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS
OR THE CALIFORNIA COMMUNITY COMMON STOCK TO BE ISSUED IN THE MERGERS, NOR HAVE
THEY DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER 9, 1999, AND
IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT DECEMBER 13, 1999.
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TABLE OF CONTENTS

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PAGE
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Questions and Answers About the Orange/Security First Merger 1
and the CalWest/Business Bank Merger......................
Organizational Chart........................................ 2
Summary..................................................... 2
Summary Financial Information............................... 11
California Community Unaudited Pro Forma Combined Summary 18
Financial Data............................................
Risk Factors................................................ 21
Merger-Related Risk Factors............................... 21
Risks Related to Companies' Business and Operations....... 22
Risks Related to Specific Companies....................... 22
Introduction................................................ 24
Description of the Merger Transactions.................... 24
Negotiation of the Merger Terms........................... 24
Effect of the Merger Transactions......................... 25
Description of the California Community/California Financial 27
Merger....................................................
General................................................... 27
California Financial Conversion Rate...................... 27
Regulatory Approval and Completion of the California 27
Community/California Financial Merger...................
Federal and California Income Tax Consequences............ 27
Information Statement for Security First Shareholders....... 29
Outstanding Securities.................................... 29
Approvals of the Boards of Directors...................... 29
Beneficial Ownership of Principal Shareholders and 29
Management..............................................
Management................................................ 30
Description of the Orange/Security First Merger............. 31
General................................................... 31
Background and Reasons for the Orange/Security First 31
Merger..................................................
Security First's Analysis................................. 31
Security First Conversion Rate and Exchange of Shares and 32
Options.................................................
Capital Appreciation Rights............................... 34
Capital Reduction......................................... 34
Directors and Management of Orange After the 35
Orange/Security First Merger............................
Financial Interests of Directors and Officers in the 35
Orange/Security First Merger and Material Contracts with
Security First and Its Affiliates.......................
Regulatory Approval and Completion of the Orange/Security 36
First Merger............................................
Conditions to the Orange/Security First Merger............ 36
Waiver, Amendment and Termination......................... 37
Opinion of Security First's Financial Advisor............. 38
Federal and California Income Tax Consequences............ 43
Rights of Dissenting Security First Shareholders.......... 45
Proxy Statement of Business Bank............................ 47
Matters to be Considered by Business Bank Shareholders 47
Meeting.................................................
Record Date............................................... 47
The Business Bank Meeting Date............................ 47
Outstanding Securities and Voting Rights.................. 47
Approval of the Board of Directors........................ 47
Revocability of Business Bank Proxies..................... 47
Cost of Solicitation of Proxies........................... 48
Other Business............................................ 48
Beneficial Ownership of Principal Shareholders and 48
Management..............................................
Description of the CalWest/Business Bank Merger............. 50
General................................................... 50
Background and Reasons for the CalWest/Business Bank 50
Merger..................................................
Business Banks Analysis................................... 50
Business Bank Conversion Rate and Exchange of Shares and 51
Options.................................................
Directors and Management of CalWest After the 53
CalWest/Business Bank Merger............................
Capital Reduction......................................... 53
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PAGE
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Financial Interests of Directors and Executive Officers in 54
the CalWest/Business Bank Merger and Material Contracts
with Business Bank and Its Affiliates...................
Regulatory Approval and Completion of the CalWest/Business 54
Bank Merger.............................................
Conditions to the CalWest/Business Bank Merger............ 55
Waiver, Amendment and Termination......................... 56
Opinion of Business Bank's Financial Advisor.............. 57
Federal and California Income Tax Consequences............ 62
Rights of Dissenting Business Bank Shareholders........... 63
Description of the Capital Stock of California Community, 65
Placer Capital, Security First and Business Bank..........
California Community...................................... 65
Placer Capital............................................ 65
Security First............................................ 66
Business Bank............................................. 67
Comparison of Some Differences of the Rights of Holders of 68
California Community Common Stock, Security First Common
Stock and Business Bank Common Stock......................
Significant Differences Between the Corporation Laws of 68
California and Delaware...................................
California Community's Certificate of Incorporation....... 69
Security First's Articles of Incorporation................ 70
Removal of Directors...................................... 71
Classified Board of Directors............................. 71
Indemnification and Limitation of Liability............... 71
Inspection of Shareholder List............................ 73
Dividends and Repurchases of Shares....................... 74
Shareholder Voting........................................ 74
Interested Director Transactions.......................... 75
Shareholder Derivative Suits.............................. 76
Appraisal Rights.......................................... 76
Dissolution............................................... 77
Significant Differences Between the Corporation Laws of 77
Delaware and Provisions of The National Bank Act..........
Removal of Directors...................................... 77
Supermajority Approval Requirements....................... 77
Stock Dividends and Stock Splits.......................... 78
Dividends................................................. 78
Approval by Written Consent of Shareholders............... 78
Dissenters' Rights........................................ 78
Amendment to Articles..................................... 79
California Community Following the California 79
Community/California Financial Merger, the Orange/
Security First Merger, and the CalWest/Business Bank
Merger....................................................
Market Prices............................................... 80
California Community...................................... 80
Security First............................................ 80
Business Bank............................................. 80
California Community Following the Orange/Security First 80
Merger and the CalWest/Business Bank Merger.............
Resale of California Community Stock........................ 81
Dividends................................................... 82
California Community...................................... 82
Security First............................................ 82
Business Bank............................................. 82
Unaudited Pro Forma Combined Condensed Financial 83
Statements................................................
Description of California Community......................... 96
Business.................................................. 96
Management................................................ 96
Financial Interests of Belvedere Capital in California 97
Community...............................................
Description of the California Fund and Belvedere Capital.... 99
Business.................................................. 99
Management................................................ 100
Description of Placer Capital............................... 101
Business.................................................. 101
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PAGE
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Employees................................................. 101
Management................................................ 101
Selected Financial Data................................... 103
Placer Capital's Management's Discussion and Analysis of 105
Financial Condition and Results of Operations.............
Placer Sierra's Management's Discussion and Analysis of 132
Financial Condition and Results of Operations.............
Description of California Financial......................... 165
Business.................................................. 165
Lending and Deposit Taking Activities..................... 165
Employees................................................. 165
Management................................................ 165
Selected Financial Data................................... 167
California Financial's Management's Discussion and Analysis 168
of Financial Condition and Results of Operations..........
Orange's Management's Discussion and Analysis of Financial 198
Condition and Results of Operations.......................
CalWest's Management's Discussion and Analysis of Financial 212
Condition and Results of Operations.......................
Description of Security First............................... 227
Business.................................................. 227
Lending and Deposit Taking Activities..................... 227
Premises.................................................. 227
Employees................................................. 227
Management................................................ 227
Selected Financial Data................................... 230
Security First's Management's Discussion and Analysis of 231
Financial Condition and Results of Operations.............
Description of Business Bank................................ 257
General................................................... 257
Lending and Deposit Taking Activities..................... 257
Employees................................................. 257
Premises.................................................. 257
Legal Proceedings......................................... 258
Management................................................ 258
Selected Financial Data................................... 261
Business Bank's Management's Discussion and Analysis of 262
Financial Condition and Results of Operations.............
Information Concerning California Community, California 281
Financial, Placer Sierra, Security First and Business
Bank......................................................
Competition............................................... 281
Effect of Governmental Policies........................... 281
Current Accounting Developments........................... 281
Supervision and Regulation................................ 282
Independent Public Accountants.............................. 282
Experts..................................................... 283
Legal Matters............................................... 284
Index to Financial Statements............................... F-1
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Exhibit I Amended and Restated Plan of Reorganization and Merger
Agreement by and between California Community and California
Financial
Exhibit II Plan of Reorganization and Merger Agreement by and among
California Community, Orange, and Security First
Exhibit III Plan of Reorganization and Merger Agreement by and among
California Community, CalWest, and Business Bank
Exhibit IV August 26, 1999 Opinion of Carpenter & Company, Financial
Advisor to Security First
Exhibit V September 14, 1999 Opinion of The Findley Group, Financial
Advisor to Business Bank
Exhibit VI Sections 1300-1312 of the California General Corporation Law
Exhibit VII Section 214a(b) of the National Bank Act
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QUESTIONS AND ANSWERS ABOUT THE
ORANGE/SECURITY FIRST MERGER
AND THE CALWEST/BUSINESS BANK MERGER

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Q1. Why is California Financial being merged into California
Community, and why are Security First and Business Bank
being merged into subsidiaries of California Community?

A. We believe that combining California Community and
California Financial and consolidating California
Financial's banking subsidiaries from four to two will
contribute to the future performance of the combined
companies by eliminating duplicate costs and by creating
larger banks that can better compete with other financial
institutions in their respective communities. The California
Community Financial Institutions Fund Limited Partnership
owns 100% of California Financial and will own 100% of
California Community prior to the merger.

Q2. What must I vote on?

A. Security First shareholders are being informed that approval
of the merger between Orange and Security First will be
obtained by written consent. You are not being asked to
vote.

Business Bank shareholders are being asked to vote to
approve the merger between CalWest and Business Bank.
However, California Financial, along with proxies received
from some of the Business Bank directors, holds sufficient
shares to approve the CalWest/Business Bank merger.

Q3. What do I need to do now?

A. You need to read this proxy statement/prospectus.

If you are a Security First shareholder, no further action
is presently required.

If you are a Business Bank shareholder, you need to complete
and sign your proxy and mail it to Business Bank in the
enclosed return envelope, as soon as possible.

Q4. Should I send in my stock certificates now?

A. No. California Community will send you written instructions
for exchanging your shares of common stock after the mergers
are completed.

Q5. Will I receive any cash if either or both of the mergers is
completed?

A. Yes. Even though both mergers will occur through a
stock-for-stock exchange, a small amount of cash will be
paid for fractional shares of California Community common
stock that otherwise would be issued in the mergers. In
addition, cash will be paid to Security First shareholders
and to Business Bank shareholders who exercise and perfect
dissenters' rights.

Q6. When will the mergers be completed?

A. Management anticipates that the California
Community/California Financial merger, the Orange/ Security
First merger, and the CalWest/Business Bank merger will be
completed in the last quarter of 1999.
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SUMMARY

This summary highlights selected information from this document and does not
contain all of the information that is important. To understand the mergers
fully and for a more complete description of the legal terms of the mergers, you
should read this entire document and the documents to which we have referred
you. See also, "Who Can Help Answer Your Questions" on page .

ORGANIZATIONAL CHART
SCHEMATIC 1
(EXISTING STRUCTURE)

[CHART]

SCHEMATIC 2
(FORMATION OF CALIFORNIA COMMUNITY)

[CHART]

California Community Bancshares, Inc. issues 13,040,657 shares of common stock
to the California Fund in exchange for all outstanding shares of Placer Capital.

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SCHEMATIC 3
(THE MERGERS)

[CHART]

(1) California Financial merges into California Community.

(2) Business Bank merges into CalWest, and Security First merges into Orange.

SCHEMATIC 4
(AFTER COMPLETION OF THE MERGERS)

[CHART]

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THE COMPANIES (PAGES 96, 165, 227 AND 257)

CALIFORNIA COMMUNITY
One Maritime Plaza, Suite 825
San Francisco, California 94111
(415) 434-1236

California Community is a newly-formed company headquartered in San Francisco,
California. It will be a wholly-owned subsidiary of the California Fund and will
be the bank holding company of Placer Capital Co. and its subsidiary, Placer
Sierra Bank. It will also be the holding company of Bank of Orange County and
CalWest Bank. Located in Auburn, California, Placer Sierra serves Placer,
Sacramento, Nevada, El Dorado, Plumas, and Sierra counties. As of September 30,
1999, California Placer Capital had assets of $640.0 million.

CALIFORNIA FINANCIAL
10101 Slater Avenue
Fountain Valley, California 92728-87907
(714) 964-6607

California Financial is a bank holding company located in Fountain Valley,
California and a wholly-owned subsidiary of the California Fund. It serves as
the present bank holding company of Business Bank, Security First, Bank of
Orange County in Fountain Valley, California and CalWest Bank (formerly Downey
National Bank), in Downey, California. As of September 30, 1999, Orange had
total assets of $88.9 million and CalWest had total assets of $61.1 million.

SECURITY FIRST
141 West Bastanchury Road
Fullerton, California 90241
(714) 870-2100

Security First is a California state-chartered bank headquartered in Fullerton,
California, serving Fullerton, Anaheim and surrounding communities. It is a
majority-owned subsidiary of California Financial. As of September 30, 1999,
Security First had $50.3 million in assets.

BUSINESS BANK
23550 Hawthorne Boulevard
Torrance, California 90505
(310) 791-9944

Business Bank is a national bank headquartered in Torrance, California. It is a
majority-owned subsidiary of California Financial. It opened for business in
November, 1998. As of September 30, 1999, Business Bank had assets of $20.2
million.

GENERAL DESCRIPTION OF REORGANIZATION OF CALIFORNIA COMMUNITY, CALIFORNIA
FINANCIAL, AND CALIFORNIA FINANCIAL'S BANKING SUBSIDIARIES

California Community was formed by the California Fund in order to consolidate
most of the California Fund's financial institutions investments. The California
Fund currently owns 100% of California Financial. California Financial, in turn,
owns 100% of Orange and 100% of CalWest. However California Financial does not
own 100% of Security First or of Business Bank. By merging the banks they will
become wholly-owned subsidiaries of California Community.

The California Fund also owns 100% of Placer Capital which, in turn, owns 100%
of Placer Sierra. The California Fund will exchange its shares of Placer Capital
for shares of California Community. As a result, Placer Capital will become a
direct wholly-owned subsidiary of California Community instead of continuing as
a subsidiary of the California Fund.

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As a result of the mergers, the current minority shareholders of Security First
and the current minority shareholders of Business Bank will become minority
shareholders of California Community. California Community will then be the 100%
shareholder of Orange, CalWest, and Placer Capital.

THE MERGERS INCLUDE REDUCTIONS OF THE BANKS' CAPITAL

As conditions to the each of the bank mergers, the banks must obtain all
shareholder and regulatory approval of reductions in capital through
distributions of cash to California Community. Orange has applied for approval
of a capital reduction of up to $6,300,000, based upon the combined results of
Orange and Security First, to take place after the Orange/Security First merger.
CalWest has applied for approval of a capital reduction of up to $1,200,000,
based upon the combined results of CalWest and Business Bank, to take place
after the CalWest/Business Bank merger. As the capital reductions will occur
after the mergers, approval of the shareholders of Security First and Business
Bank are not required. The Findley Group and Carpenter each considered the
capital reduction in rendering their opinions.

By distributing excess capital from the individual banks to California
Community, the capital reductions allow California Community to allocate excess
capital, as needed, in a manner that will make the most efficient use of
available capital on a company wide basis. As bank shareholders will receive
California Community common stock in the mergers, the capital reductions should
have no effect on these shareholders.

THE CALIFORNIA COMMUNITY/CALIFORNIA FINANCIAL MERGER (PAGE 27)

The California Community/California Financial merger will combine California
Community and California Financial under California Community, with all bank
subsidiaries of California Financial becoming subsidiaries of California
Community. The California Community/California Financial merger is expected to
be completed during the last quarter of 1999.

Upon completion of the California Community/California Financial merger, the
California Fund, as the sole shareholder of California Financial, will receive
from California Community 1.8296 shares of California Community common stock for
each share of California Financial common stock. This exchange ratio was based
upon the forecast earnings for the year 2000 for California Financial and
California Community. The shares of each company were valued at 16 times the
fully diluted earnings per share projected in those forecasts. This resulted in
a valuation for California Community of $6.6436 per share, a valuation for
California Financial of $12.1555 per share, and the resultant exchange ratio of
1.8296 California Community shares to be issued for each California Financial
share.

After the California Community/California Financial merger, if the
Orange/Security First merger and CalWest/Business Bank merger are completed, the
California Fund will own approximately 94.8% of California Community. If the
Orange/Security First merger is completed but the CalWest/Business Bank merger
is not completed, the California Fund will own approximately 96.1% of California
Community. If the CalWest/Business Bank merger is completed but the
Orange/Security First merger is not completed, the California Fund will own
approximately 98.5% of California Community.

THE ORANGE/SECURITY FIRST MERGER (PAGE 31)

The Orange/Security First merger will combine the businesses of Orange and
Security First under Orange. Orange will continue as the resulting bank, serving
Orange, Fullerton, Anaheim, and surrounding communities. After the California
Community/California Financial merger, Orange will be a subsidiary of California
Community.

In order for the Orange/Security First merger to be completed, the holders of a
majority of Security First's common stock must approve that merger. California
Financial already owns a majority of

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Security First's outstanding common stock and intends to vote those shares in
favor of the merger by written consent, so no Security First shareholders'
meeting will be held. Since Security First shareholders, other than California
Financial, are not being asked to vote on the merger, the minority shareholders
have the right to exercise dissenters' rights and receive cash for their
Security First shares instead of receiving California Community shares. However,
to exercise dissenters' rights, shareholders must follow the steps described in
this proxy statement/prospectus under the heading "Description of the
Orange/Security First Merger -- Rights of Dissenting Security First
Shareholders".

After completion of the Orange/Security First merger, Security First
shareholders will receive 0.0938 shares of California Community common stock for
each share of Security First common stock, which is the equivalent of
approximately $0.6229 per share for each share of Security First common stock.

After the California Community/California Financial merger, if the
Orange/Security First merger and the CalWest/Business Bank merger are completed,
Security First shareholders will own approximately 4.0% of California Community,
and if the Orange/Security First merger is completed but the CalWest/ Business
Bank merger is not completed, Security First shareholders will own approximately
4.1% of California Community.

THE CALWEST/BUSINESS BANK MERGER (PAGE 50)

The CalWest/Business Bank merger will combine the businesses of CalWest and
Business Bank under CalWest. After the CalWest/Business Bank merger, CalWest
will be the resulting bank, continuing to serve Downey, Torrance and surrounding
communities. After the California Community/California Financial Merger, CalWest
will be a subsidiary of California Community.

In order for the CalWest/Business Bank merger to be completed, the holders of
two-thirds of Business Bank's common stock must approve that merger. California
Financial already owns 65% of Business Bank's outstanding common stock and
Business Bank directors owning an additional 8.8% have agreed to vote their
shares in favor of the merger. However, national banking law requires Business
Bank to hold a shareholders' meeting to consider the merger, and therefore the
merger cannot be approved by written consent. In addition, Business Bank
shareholders who vote against the merger may exercise dissenters' rights and be
entitled to receive cash for their Business Bank shares instead of receiving
California Community shares. However, to exercise dissenters' rights
shareholders must follow the steps described in this proxy statement/prospectus
under the heading "Description of the CalWest/Business Bank Merger -- Rights of
Dissenting Business Bank Shareholders."

Business Bank shareholders will, after completion of the CalWest/Business Bank
merger, receive from California Community 1.5053 shares of California Community
common stock for each share of Business Bank common stock, which is the
equivalent of approximately $10.00 per share for each share of Business Bank
common stock.

After the California Community/California Financial merger, if the
CalWest/Business Bank merger and the Orange/Security First merger are completed,
Business Bank shareholders will own approximately 1.4% of California Community,
and if the CalWest/Business Bank merger is completed but the Orange/ Security
First merger is not completed, Business Bank shareholders will own approximately
1.5% of California Community.

TAX FREE TREATMENTS OF THE MERGERS (PAGES 27, 43 AND 62)

Lillick & Charles LLP San Francisco, California, tax counsel to California
Community, issued separate opinions as to material federal and California income
tax consequences for the California Community/ California Financial merger, the
Orange/Security First merger, and the CalWest/Business Bank merger. The opinions
state that shareholders will not recognize gain or loss for federal or
California income tax

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purposes as a result of the mergers, except to the extent that they receive cash
for fractional shares or for dissenting shares. The tax opinions are filed as
exhibits to the registration statement.

CONDITIONS TO THE MERGERS (PAGES 36 AND 55)

Several requirements must be met before completion of the mergers. Among these
requirements are the following:

- - shareholders' approvals of the Orange/Security First merger and the
CalWest/Business Bank merger;

- - receipt of all necessary bank regulatory agency approvals, including approval
of the mergers and the capital reductions;

- - receipt of opinions of counsel of the parties to the mergers;

- - no lawsuit or threatened lawsuit regarding the respective mergers will be
pending; and

- - the holders of no more than 10% of the outstanding shares of either Security
First or Business Bank will have exercised dissenters' rights in the
respective mergers.

DISSENTERS' RIGHTS IN THE MERGERS (PAGES 45 AND 63; EXHIBITS VI AND VII)

If you are a shareholder of either Security First or Business Bank, you may
dissent from the respective mergers and demand payment in cash equal to the fair
market value of your shares. Valid dissenting shares of Security First common
stock or Business Bank common stock will not be converted into shares of
California Community common stock.

SECURITY FIRST SHAREHOLDERS

If you are a Security First shareholder, you may dissent by writing a letter to
Security First requesting the purchase of your dissenting shares. The letter
must be received within 30 days of the date of mailing of a notice that will be
sent to you by Security First announcing the approval by Security First
shareholders of the merger.

BUSINESS BANK SHAREHOLDERS

If you are a Business Bank shareholder, you must either:

- - vote against the CalWest/Business Bank merger, or

- - give notice of your dissent in writing to Business Bank at or prior to the
Business Bank meeting.

Once you have taken either of these steps, your dissenter's rights will be
perfected and you will be entitled to receive the cash value of your shares of
Business Bank common stock. Immediately upon the effectiveness of the
CalWest/Business Bank merger, CalWest will forward to each shareholder who has
perfected dissenter's rights a notice stating that the CalWest/Business Bank
merger has been consummated. The notice will include a form with which a
dissenting shareholder may request a cash payment for his or her shares of
Business Bank common stock. Dissenting Business Bank shareholders must return
the cash payment request form to CalWest within 30 days of the consummation of
the CalWest/Business Bank merger in order to receive the cash value of their
shares.

DIFFERENCES IN RIGHTS OF SHAREHOLDERS THAT COULD AFFECT FUTURE ACQUISITIONS
(PAGES 77-79)

The provisions of Delaware law and of California Community's Certificate of
Incorporation contain provisions different than California law and Security
First's Articles of Incorporation, or federal law and Business Bank's Articles
of Association. Examples of the more significant of these differences include:

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- California Community's Certificate of Incorporation provides that some
business combinations such as mergers and asset sales require a vote of
66 2/3% of the outstanding shares of California Community. All business
combinations involving Security First require approval of a majority of
Security First's outstanding shares. All business combinations involving
Business Bank require approval of 66 2/3% of Business Bank's outstanding
shares;

- Unlike Security First and Business Bank, California Community has a
classified board of directors. This means that instead of the entire board
being up for election at one time, only one third of the board of
directors is elected each year; and

- Some provisions of California Community's Certificate of Incorporation
require approval of 75% of the outstanding shares. Any amendment of
Security First's Articles of Incorporation requires only a majority vote.
Most provisions of Business Bank's Articles of Association may be amended
by a vote of the majority of the outstanding shares, but some amendments,
such as increasing the authorized number of shares of stock require the
vote of 66 2/3% of Business Bank's outstanding shares.

These provisions may make California Community a less attractive target for a
takeover bid or merger, potentially depriving shareholders of an opportunity to
sell their shares of common stock at a premium over prevailing market prices as
a result of any such takeover bid or merger.

Additionally, classified boards and voting requirements greater than a majority
could make it more difficult for shareholders to effect changes in management
and to take other shareholder actions.

INFORMATION FOR SECURITY FIRST SHAREHOLDERS (PAGES 29-46)

BOARD UNANIMOUSLY APPROVES MERGER (PAGE 29)

The Security First Board of Directors unanimously approved the Orange/Security
First merger. The merger will also be approved by California Financial, which
owns more than 50% of Security First's outstanding shares. No additional shares
are required to vote on the merger.

NO MEETING WILL BE HELD (PAGE 29)

No Security First shareholder meeting will be held.

FINANCIAL ADVISOR ISSUES OPINION THAT THE ORANGE/SECURITY FIRST MERGER
CONSIDERATION IS FAIR (PAGES 38-46)

Carpenter & Company issued a fairness opinion stating that the terms of the
Orange/Security First merger are fair to the Security First shareholders from a
financial point of view. Security First paid Carpenter $35,000 for its opinion.

We encourage you to read the opinion from Carpenter carefully.

8
<PAGE>
FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE ORANGE/SECURITY
FIRST MERGER (PAGES 35-36)

In considering the approval of the Security First Board of Directors of the
merger, the shareholders of Security First should be aware that some members of
the Board of Directors of Security First may have a substantial interest in the
Orange/Security First merger.

Upon completion of the Orange/Security First merger, Security First directors
Larry Ballard and Clifford R. Ronnenberg will become directors of Orange. Orange
directors receive a monthly fee of $1,100 for attendance at board meetings and
$500 for each committee meeting attended.

Additionally, Robert C. Campbell, Jr., President and Chief Executive Officer of
Security First, will become President and Chief Operating Officer of Orange.
Mr. Campbell's annual base salary will continue to be $135,000, his current
salary at Security First.

Also, all options to purchase Security First common stock, whether vested or
not, became exercisable when the Orange/Security First agreement was executed.
However, all Security First options must be exercised prior to completion of the
Orange/Security First merger. As a group, Security First directors hold options
to purchase up to 663,892 shares of Security First common stock at an exercise
price of $0.40 per share, and executive officers of Security First hold options
to purchase up to to 483,336 shares of Security First common stock also at an
exercise price of $0.40 per share.

INFORMATION FOR BUSINESS BANK SHAREHOLDERS (PAGES 47-64)

- - BOARD UNANIMOUSLY APPROVES MERGER (PAGE 47)

The Business Bank's Board of Directors unanimously approved the CalWest/Business
Bank Merger.

THE BUSINESS BANK MEETING (PAGE 47)

The Business Bank meeting will be held at the offices of Buchalter, Nemer,
Fields and Younger, a professional corporation, 601 South Figueroa Street, Suite
2400, Los Angeles, California 90012, at 10:00 a.m., on December 29, 1999.

RECORD DATE, VOTING POWER AND VOTE REQUIRED (PAGE 47)

The Board of Directors established November 22, 1999, as the record date for the
Business Bank meeting.

Approval of the CalWest/Business Bank merger requires the affirmative vote of
the holders of 66 2/3% of the outstanding shares of Business Bank common stock.

FINANCIAL ADVISOR ISSUES OPINION THAT THE CALWEST/BUSINESS BANK MERGER
CONSIDERATION IS FAIR (PAGES 57-62)

The Findley Group issued a fairness opinion stating that the terms of the
CalWest/Business Bank merger are fair to the Business Bank shareholders from a
financial point of view. Business Bank paid $25,000 to the Findley Group for its
opinion.

We encourage you to read the opinion from Findley Group carefully.

FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE CALWEST/BUSINESS
BANK MERGER (PAGE 54)

In considering the recommendation of the Business Bank Board of Directors for
approval of the CalWest/Business Bank merger, the Business Bank shareholders
should be aware that some members of the Business Bank Board of Directors may
have a substantial interest in the CalWest/Business Bank merger.

9
<PAGE>
As required by the CalWest/Business Bank agreement, all directors of CalWest
other than directors Byrom, Daglas, and Ferguson resigned from the CalWest
board. Among those persons elected to replace the resigned directors were
Business Bank directors Karol Glover, Richard Gomez, Joseph Heitzler, Michael
Herman, and David James Lee. CalWest directors receive a monthly fee of $1,100
for attendance at Board meetings and $500 for each committee meeting attended.

Also, Harvey Ferguson, Vice Chairman and interim Chief Executive Officer of
Business Bank continues to serve as Chairman and Chief Executive Officer of
CalWest and President and Chief Executive Officer of Orange.

Additionally, upon execution of the CalWest/Business Bank agreement, each
Business Bank director in office on the date of execution of the
CalWest/Business Bank agreement received options to purchase 1,000 shares of
California Financial common stock at an exercise price of $12.6889 per share.
The options are fully vested, and are for a term of 3 years.

In addition, Business Bank directors owning approximately 8.8% of Business
Bank's common stock entered into, in their capacity as shareholders, shareholder
agreements with California Community, under which the director agrees to vote in
favor of the merger and not to compete with CalWest for up to two years.

10
<PAGE>
SUMMARY OF FINANCIAL INFORMATION

The tables on pages 12 to 17 summarize the historical financial results of
Placer Sierra (provided because Placer Capital, the sole shareholder of Placer
Sierra, has no historical financial results for the periods presented),
California Financial, Security First and Business Bank. The next tables
summarize the pro forma financial information shown at "Pro Forma Financial
Statements" as if the Orange/ Security First merger, the CalWest/Business Bank
merger, and both the Orange/Security First mergers and the CalWest/Business Bank
mergers had taken place at the beginning of each period presented. The final pro
forma financial information table combines the historical financial information
shown in the first three tables to reflect what the results might have been, had
the institutions merged in each of the earlier periods presented. The pro forma
financial information does not take into consideration operational efficiencies
or additional expenses that might have occurred as a result of combining the
institutions, including merger expenses.

The management of California Community and the management of California
Financial believe their merger expenses in the California Community/California
Financial merger will be approximately $1.3 million. The management of
California Community and the management of Security First believe their merger
expenses in the Orange/Security First merger will be approximately 40% of those
total expenses. The management of California Community and the management of
Business Bank believe their merger expenses in the CalWest/Business Bank merger
will also be approximately 40% of those total expenses. In addition, this pro
forma information is not necessarily indicative of the results that would have
been realized had the mergers been completed at the beginning of the periods
presented.

The financial information presented includes the following sections:

- - Summary of Income: This section shows the significant components of earnings.

- - Summary of Financial Position: This section shows significant assets,
liabilities and shareholders' equity.

- - Per Share Data: This section shows net income and book value on a per-share
basis.

Basic income per share reflects net income divided by the weighted-average
shares of common stock outstanding during the period. Diluted income per share
reflects the potential reduction in income per share that could occur if stock
options currently outstanding were exercised and resulted in the issuance of
stock that also shared in net income.

Book value is determined by dividing total shareholders' equity by the number of
shares outstanding at the end of the period presented.

In the pro forma financial information tables, book value per share equivalent
is determined by multiplying the book value of the combined institutions by the
conversion ratio used in the merger. This represents the equivalent book value
of the shares held by the acquired institution's shareholders.

- - Selected Performance, Asset Quality and Capital Ratios: This section includes
ratios showing the return on average assets and return on average
shareholders' equity, which are commonly used to evaluate the performance of
companies, as well as several asset quality and capital ratios.

The ratios for the 9 months ended September 30, 1999 have been annualized.

This summary should be read with the Financial Statements and notes to the
Financial Statements included at the end of this proxy statement/prospectus.

11
<PAGE>
SUMMARY FINANCIAL DATA

PLACER CAPITAL

(UNAUDITED)

The selected historical financial data as of and for the period ended
September 30, 1999 have not been audited but, in the opinion of Placer Capital's
management, contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position and results of operations of
Placer Capital as of such dates and for such period. The operations of Placer
Capital consist almost exclusively of the activities of Placer Sierra for the
period August 11, 1999 to September 30, 1999. Placer Capital had no material
account balances or operations prior to the acquisition of Placer Sierra. The
results of operations for the period ended September 30, 1999, are not
necessarily indicative of the results of operations that may be expected for the
year ended December 31, 1999, or for any future period.

<TABLE>
<CAPTION>
AS OF AND FOR THE
PERIOD ENDED
SEPTEMBER 30, 1999
-------------------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease
losses.................................................... $ 4,046
Provision for loan and lease losses......................... 50
----------
Net interest income after provision for loan and lease
losses.................................................... 3,996
Noninterest income.......................................... 784
Noninterest expense......................................... 3,755
----------
Income before income tax.................................... 1,025
Income tax provision........................................ 573
----------
Net income.................................................. $ 452
==========

PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 5,300,000
Diluted................................................... 5,300,000
Net income per share
Basic..................................................... $ 0.09
Diluted................................................... $ 0.09

SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ $ 640,599
Loans and leases, net....................................... 379,082
Real estate acquired through foreclosure.................... 423
Deposits.................................................... 555,479
Shareholders' equity........................................ 56,867
Average assets.............................................. 651,163
Average earning assets...................................... 554,282
Average common equity....................................... 53,360

PER SHARE DATA:
Common shares outstanding................................... 5,300,000
</TABLE>

12
<PAGE>
SUMMARY FINANCIAL DATA

PLACER CAPITAL

(UNAUDITED)

<TABLE>
<CAPTION>
AS OF AND FOR THE
PERIOD ENDED
SEPTEMBER 30, 1999
-------------------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Diluted common shares outstanding........................... 5,300,000
Book value per share........................................ $ 10.73
Diluted book value per share................................ $ 10.73

SELECTED PERFORMANCE RATIOS
Return on average assets(1)................................. 0.42%
Return on average common equity(1).......................... 5.07%
Dividend payout ratio....................................... %
Net yield on interest earning assets........................ 4.37%
Efficiency ratio............................................ 77.73%
Net interest income before provision for loan and lease
losses to average assets.................................. 0.62%

SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.09%
Nonperforming assets to total assets........................ 0.12%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.08%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 1,146.69%
Net recoveries (annualized) to average loans and
leases(1)................................................. (0.02)%

SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 5.96%
Tier 1 Risk-Weighted Ratio.................................. 9.99%
Total Risk Weighted Ratio................................... 11.14%
Average common equity to average assets..................... 8.19%
</TABLE>

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

(1) Annualized

13
<PAGE>
SUMMARY FINANCIAL DATA

PLACER SIERRA
(UNAUDITED)

The following summary financial data of Placer Sierra is derived from the
Selected Financial Data appearing elsewhere in this proxy statement/prospectus,
and should be read in conjunction with the audited financial statements of
Placer Sierra and the notes thereto and the information contained in "Placer
Sierra's Management's Discussion and Analysis of Financial Condition and Results
of Operations."

<TABLE>
<CAPTION>
AS OF AND FOR
AS OF AND FOR THE THE YEARS ENDED DECEMBER 31,
SIX MONTHS ENDED ---------------------------------
JUNE 30, 1999 1998 1997 1996
------------------ --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease
losses.................................................... $ 11,655 $ 21,771 $ 19,376 $ 17,769
Provision for loan and lease losses......................... 319 775 1,100 493
--------- --------- --------- ---------
Net interest income after provision for loan and lease
losses.................................................... 11,336 20,996 18,276 17,276
Noninterest income.......................................... 2,189 5,278 3,893 3,083
Noninterest expense......................................... 10,166 19,627 16,760 20,270
--------- --------- --------- ---------
Income before income tax.................................... 3,359 6,647 5,409 89
Income tax provision........................................ 1,333 2,861 2,314 38
--------- --------- --------- ---------
Net income.................................................. $ 2,026 $ 3,786 $ 3,095 $ 51
========= ========= ========= =========
PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 3,560,000 3,560,000 3,560,000 3,560,000
Diluted................................................... 3,560,000 3,560,000 3,560,000 3,560,000
Net income per share
Basic..................................................... $ 0.57 $ 1.06 $ 0.87 $ 0.01
Diluted................................................... $ 0.57 $ 1.06 $ 0.87 $ 0.01
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ $ 573,306 $ 565,278 $ 501,711 $ 475,634
Loans and leases, net....................................... 374,067 356,879 367,966 354,408
Real estate acquired through foreclosure.................... 420 79 308 695
Deposits.................................................... 536,691 527,591 467,871 445,988
Shareholders' equity........................................ 35,163 34,797 31,324 28,400
Average assets.............................................. 575,144 535,239 490,507 466,666
Average earning assets...................................... 540,269 503,002 461,709 439,030
Average common equity....................................... 35,318 33,214 29,835 28,509
PER SHARE DATA:
Common shares outstanding................................... 3,560,000 3,560,000 3,560,000 3,560,000
Diluted common shares outstanding........................... 3,560,000 3,560,000 3,560,000 3,560,000
Book value per share........................................ $ 9.88 $ 9.77 $ 8.80 $ 7.98
Diluted book value per share................................ $ 9.88 $ 9.77 $ 8.80 $ 7.98
SELECTED PERFORMANCE RATIOS
Return on average assets.................................... 0.71% 0.71% 0.63% 0.01%
Return on average common equity............................. 11.57% 11.40% 10.37% 0.18%
Dividend payout ratio....................................... --% --% --% --%
Net yield on interest earning assets........................ 4.35% 4.33% 4.20% 4.05%
Efficiency ratio............................................ 73.43% 72.56% 72.03% 97.21%
Net interest income before provision for loan and lease
losses to
average assets............................................ 4.09% 4.08% 3.94% 3.48%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.22% 0.20% 0.35% 0.31%
Nonperforming assets to total assets........................ 0.15% 0.13% 0.26% 0.23%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.06% 1.01% 0.81% 0.63%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 477.92% 516.95% 227.80% 206.18%
Net charge-offs (recoveries) to average loans and leases.... (0.01)% 0.03% 0.10% 0.11%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 6.09% 5.90% 6.00% 5.50%
Tier 1 Risk-Weighted Ratio.................................. 9.72% 9.80% 9.70% 9.26%
Total Risk Weighted Ratio................................... 10.81% 10.90% 10.60% 10.10%
Average common equity to average assets..................... 6.14% 6.23% 6.08% 5.56%
</TABLE>

14
<PAGE>
SUMMARY FINANCIAL DATA

CALIFORNIA FINANCIAL
(UNAUDITED)

The following summary financial data of California Financial is derived from the
Selected Financial Data appearing elsewhere in this proxy statement/prospectus,
and should be read in conjunction with the audited financial statements of
California Financial and the notes thereto and the information contained in
"California Financial's Management's Discussion and Analysis of Financial
Condition and Results of Operations."

SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ $ 223,053 $ 237,594
Loans and leases, net....................................... 124,003 97,289
Other real estate owned..................................... 42 372
Goodwill and other intangibles.............................. 13,571 17,771
Deposits.................................................... 181,028 192,563
Shareholders' equity........................................ 34,796 34,742
Average assets.............................................. 221,331 54,136
Average earning assets...................................... 188,898 49,138
Average common equity....................................... 32,094 6,436

PER SHARE DATA:
Common shares outstanding................................... 3,858,100 3,758,100
Diluted common shares outstanding........................... 3,858,100 3,758,100
Book value per share........................................ $ 9.02 $ 9.24
Diluted book value per share................................ $ 9.02 $ 9.24
Tangible book value per share............................... $ 5.50 $ 4.52
Diluted tangible book value per share....................... $ 5.50 $ 4.52

SELECTED PERFORMANCE RATIOS
Return on average assets.................................... (0.51)% (4.89)%
Return on average common equity............................. (3.25)% (41.16)%
Net yield on interest earning assets........................ 5.25 % 5.11 %
Efficiency ratio............................................ 98.17% 181.3%
Net interest income before provision for loan and lease
losses to average assets.................................. 4.71% 4.64%

SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.18% 2.23%
Nonperforming assets to total assets........................ 0.10% 0.94%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.75% 2.00%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 1,168.78% 106.95%
Net charge-offs to average loans and leases................. 0.16% 2.04%

SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 11.21% 9.45%
Tier 1 Risk-Weighted Ratio.................................. 15.72% 13.73%
Total Risk Weighted Ratio................................... 16.97% 14.98%
Average common equity to average assets..................... 14.50% 11.89%
</TABLE>

15
<PAGE>
SUMMARY FINANCIAL DATA
BUSINESS BANK
(UNAUDITED)

The following summary financial data of Business Bank is derived from the
Selected Financial Data appearing elsewhere in this proxy statement/prospectus,
and should be read in conjunction with the audited financial statements of
Business Bank and the notes thereto and the information contained in "Business
Bank's Management's Discussion and Analysis of Financial Condition and Results
of Operations."

PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 572,775 572,775
Diluted................................................... 572,775 572,775
Net loss per share
Basic..................................................... $ (1.81) $ (1.65)
Diluted................................................... $ (1.81) $ (1.65)

SUMMARY OF FINANCIAL POSITION
Total assets................................................ $20,181 $ 8,908
Loans and leases, net....................................... 9,422 741
Deposits.................................................... 16,315 4,029
Stockholders' equity........................................ 3,688 4,724
Average assets.............................................. 11,275 978
Average earning assets...................................... 10,106 825
Average common equity....................................... 4,463 624

PER SHARE DATA:
Common shares outstanding................................... 572,775 572,775
Diluted common shares outstanding........................... 572,775 572,775
Book value per share........................................ $ 6.44 $ 8.25
Diluted book value per share................................ $ 6.44 $ 8.25

SELECTED PERFORMANCE RATIOS
Return on average assets.................................... (12.28)% (96.42)%
Return on average common equity............................. (31.04)% (151.12)%
Net yield on interest earning assets........................ 5.23% 5.21%
Efficiency ratio............................................ 320.90% 2251.16%
Net interest income before provision for loan and lease
losses to average assets.................................. 4.68% 4.40%

SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.21% --%
Nonperforming assets to total assets........................ 0.11% --%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.31% 2.24%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 625.00% --%
Net charge-offs to average loans and leases................. 1.55% --%

SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 20.61% 60.40%
Tier 1 Risk-Weighted Ratio.................................. 30.43% 171.00%
Total Risk Weighted Ratio................................... 31.50% 171.62%
Average common equity to average assets..................... 39.58% 63.80%
</TABLE>

16
<PAGE>
SUMMARY FINANCIAL DATA
SECURITY FIRST
(UNAUDITED)

The following summary financial data of Security First is derived from the
Selected Financial Data appearing elsewhere in this proxy statement/prospectus,
and should be read in conjunction with the audited financial statements of
Security First and the notes thereto and the information contained in "Security
First's Management's Discussion and Analysis of Financial Condition and Results
of Operations."

PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 17,258,565 16,865,800
Diluted................................................... 17,258,565 16,865,800
Net income per share
Basic..................................................... $ 0.02 $ 0.03
Diluted................................................... $ 0.02 $ 0.03

SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ $ 50,319 $ 52,648
Loans and leases, net....................................... 31,785 25,470
Other real estate owned, net................................ 42 372
Deposits.................................................... 43,796 47,424
Stockholders' equity........................................ 6,334 5,062
Average assets.............................................. 50,340 46,744
Average earning assets...................................... 46,267 43,040
Average common equity....................................... 5,161 4,709

PER SHARE DATA:
Common shares outstanding................................... 19,826,724 16,865,800
Diluted common shares outstanding........................... 19,826,724 16,865,800
Book value per share........................................ $ 0.32 $ 0.30
Diluted book value per share................................ $ 0.32 $ 0.30

SELECTED PERFORMANCE RATIOS
Return on average assets.................................... 0.91% 1.01%
Return on average common equity............................. 8.89% 10.04%
Net yield on interest earning assets........................ 5.83% 5.26%
Efficiency ratio............................................ 81.93% 78.00%
Net interest income before provision for loan and lease
losses to average assets.................................. 5.36% 4.84%

SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.65% 8.35%
Nonperforming assets to total assets........................ 0.42% 4.23%
Allowance for loan and lease losses to gross loans and
leases.................................................... 2.47% 3.04%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 476.33% 43.13%
Net charge-offs to average loans and leases................. 0.35% 2.25%

SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 12.46% 9.57%
Tier 1 Risk-Weighted Ratio.................................. 16.52% 16.15%
Total Risk Weighted Ratio................................... 17.78% 17.45%
Average common equity to average assets..................... 10.25% 10.07%
</TABLE>

17
<PAGE>
CALIFORNIA COMMUNITY
UNAUDITED PRO FORMA COMBINED SUMMARY FINANCIAL DATA

The following unaudited pro forma combined summary financial data combines the
historical consolidated condensed financial statements of Placer Sierra and
California Financial, giving effect to the acquisition of Placer Sierra by
Placer Capital, the acquisition by California Financial in 1998 of Orange and
CalWest, the merger of California Community with California Financial, and the
share exchanges between California Community and the minority shareholders of
Business Bank and Security First as if the transactions had been effective on
September 30, 1999 with respect to the Unaudited Pro Forma Combined Condensed
Balance Sheet, and as of the beginning of the periods indicated, with respect to
the Unaudited Pro Forma Combined Condensed Statements of Operations. This
information is presented under the purchase method of accounting with respect to
Placer Capital, acquisition of Placer Sierra and the share exchange offers to
the minority interest of Business Bank and Security First. Pro forma information
regarding the merger and share exchange offer between California Community and
California Financial is presented under the "as if" pooling of interest method
of accounting.

The information for the nine months ended September 30, 1999 is derived from the
unaudited financial statements of Placer Sierra and California Financial, which
includes, in the opinion of the management of Placer Sierra and California
Financial, all adjustments (consisting only of normal accruals) necessary to
present fairly the historical consolidated financial statements of Placer Sierra
and California Financial, including the respective notes thereto, which are
included in this proxy statement/prospectus.

The information for the year ended December 31, 1998 is derived from audited
financial statements of Placer Sierra and California Financial including the
respective notes thereto, which are included in this proxy statement/prospectus,
and should be read in conjunction with the combined condensed historical
selected financial data and other pro forma combined financial information,
including the notes thereto, appearing elsewhere in this proxy
statement/prospectus.

The effect of estimated merger and share exchange costs expected to be incurred
in connection with the merger and share exchange has been reflected in the
Unaudited Pro Forma Combined Condensed Balance Sheets; however, since the
estimated costs are nonrecurring, they have not been reflected in the Unaudited
Pro Forma Combined Condensed Statements of Operations. The ratios for the nine
months ended September 30, 1999 have been annualized.

Accordingly, the Unaudited Pro Forma Combined Condensed Statements of Operations
are not necessarily indicative of the results that would have occurred had the
mergers and share exhange been consummated on the dates indicated, or that may
be achieved in the future. Assuming the consummation of the mergers and share
exchange, the actual financial position and results of operations will differ,
perhaps significantly, from the pro forma amounts reflected in this summary
financial data because of a variety of factors, including changes in value and
changes in operating results between the dates of the unaudited pro forma
financial data and the date on which the mergers and share exchange take place.

18
<PAGE>
CALIFORNIA COMMUNITY
UNAUDITED PRO FORMA COMBINED SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease
losses.................................................... $ 25,282 $ 30,383
Provision for loan and lease losses......................... 793 1,235
---------- ----------
Net interest income after provision for loan and lease
losses.................................................... 24,489 29,148
Noninterest income.......................................... 4,698 7,128
Noninterest expense......................................... 28,037 38,104
---------- ----------
Loss before income tax...................................... 1,149 (1,829)
Income tax provision........................................ 2,114 1,666
---------- ----------
Net loss.................................................... $ (964) $ (3,495)
========== ==========
PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 21,585,668 21,585,668
Diluted................................................... 22,000,177 22,000,177
Net loss per share
Basic..................................................... $ (.04) $ (.16)
Diluted................................................... $ (.04) $ (.16)
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ $ 867,362 $ 852,314
Loans and leases, net....................................... 503,085 452,994
Other real estate owned..................................... 5,472 6,253
Goodwill and other intangibles.............................. 65,162 68,126
Deposits.................................................... 736,507 720,154
Shareholders' equity........................................ 99,421 100,000
Average assets.............................................. 818,163 638,817
Average earning assets...................................... 732,028 555,961
Average common equity....................................... 98,893 102,293
PER SHARE DATA:
Common shares outstanding................................... 21,585,668 21,585,668
Diluted common shares outstanding........................... 22,000,177 22,000,177
Book value per share........................................ $ 4.61 $ 4.63
Diluted book value per share................................ $ 4.52 $ 4.55
Tangible book value per share............................... $ 2.73 $ 2.61
Diluted tangible book value per share....................... $ 2.68 $ 2.56
SELECTED PERFORMANCE RATIOS
Return on average assets.................................... (0.12)% (.55)%
Return on average common equity............................. (.97)% (3.43)%
Efficiency ratio............................................ 93.52% 101.58%
Net interest income before provision for loan and lease
losses to average assets.................................. 3.09% 4.76%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... .12% 0.64%
Nonperforming assets to total assets........................ .07% 0.35%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.25% 1.22%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 1,001.42% 187.20%
Net charge-offs to average loans and leases................. .02% 0.14%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 8.04% 7.98%
Tier 1 Risk-Weighted Ratio.................................. 11.33% 11.58%
Total Risk Weighted Ratio................................... 12.56% 12.73%
Average common equity to average assets..................... 12.09% 16.01%
</TABLE>

19
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about either the Orange/Security First merger
or the CalWest/Business Bank merger, you should contact:

IF YOU ARE A SECURITY FIRST SHAREHOLDER:
Security First Bank
141 West Bastanchury Road
Fullerton, California 92835
Attention: Robert C. Campbell, Jr., President & CEO
Telephone No.: (714) 870-2100

IF YOU ARE A BUSINESS BANK SHAREHOLDER:
National Business Bank
23550 Hawthorne Boulevard
Torrance, California 90905
Attention: Joseph Heitzler, Chairman
Telephone No.: (310) 791-9944

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RISK FACTORS

MERGER-RELATED RISK FACTORS

LIMITED TRADING MARKET FOR CALIFORNIA COMMUNITY COMMON STOCK COULD MAKE IT
DIFFICULT TO SELL SHARES AFTER THE MERGERS. Prior to the mergers, the
California Fund will own 100% of California Community and there is no trading
market for California Community's common stock. California Community cannot
assure that any trading market for the stock will develop following the mergers.
California Community's common stock is not listed on any stock exchange and is
not included for quotation by NASDAQ. The lack of a trading market for
California Community's common stock may make the sale of shares of California
Community common stock to be issued to the minority shareholders of Security
First and Business Bank difficult.

DIFFICULTIES OF INTEGRATING THREE COMPANIES COULD HURT CALIFORNIA COMMUNITY'S
FUTURE PERFORMANCE. California Community's earnings, financial condition and
prospects after the mergers will depend in large part on its ability to
successfully integrate the operations and management of California Community and
California Financial, Orange and Security First, and CalWest and Business Bank.
In addition, we cannot guarantee that California Community will be able to
realize any increases in revenues or decreases in costs as a result of the
mergers. Furthermore, losses in revenues or other charges to earnings could
offset any cost savings from the mergers. In addition, the combined company may
not retain existing customers or may incur additional expenses in retaining
them. Failure to successfully integrate the operations of the merged companies
could materially, adversely affect future results of operations of California
Community following the mergers.

ADVERSE PERFORMANCE OF COMBINED LOAN PORTFOLIOS COULD HURT CALIFORNIA
COMMUNITY'S FUTURE PERFORMANCE. California Community's performance and
prospects after the mergers will depend largely on the performance of the
combined loan portfolios of Orange and Security First, of CalWest and Business
Bank, and ultimately, on the financial condition of their respective borrowers
and other customers. The existing loan portfolios of the four banks differ to
some extent in the types of borrowers, industries and credits represented. In
addition, there are differences in the documentation, classifications, credit
ratings and management of the portfolios. If California Community's management
fails to effectively manage the combined loan portfolio, it could have a
material, adverse effect on the business, financial condition and results of
operations of California Community after the mergers. For information about
Security First's loan portfolio, see "Description of Security First--Security
First's Management's Discussion and Analysis of Financial Condition and Results
of Operations--Financial Condition." For information about Business Bank's loan
portfolio, see "Description of Business Bank--Business Bank's Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition."

LOSS OF DEPOSITS AFTER THE MERGERS COULD HURT CALIFORNIA COMMUNITY'S FUTURE
PERFORMANCE. The amount of deposits at any of the four banks could decrease
between the date of this proxy statement/ prospectus and the date the
Orange/Security First merger, and/or the CalWest/Business Bank merger is
completed, or at any time after the mergers occur. California Community's return
on equity may be reduced if the amount of the deposits declines before or after
the bank mergers, because the amount of leverage on California Community's
capital would then be less than California Community's management anticipates.
Achievement of the anticipated benefits of the bank mergers is dependent upon a
substantial portion of the deposits remaining with the surviving banks after
each of the bank mergers. The market for financial services is extremely
competitive, and we cannot guarantee that any of the banks' current deposit
customers will remain depositors of the surviving banks after the bank mergers.
See "Information Concerning California Community, California Financial, Placer
Sierra, Security First and Business Bank--Competition."

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RISKS RELATED TO COMPANIES' BUSINESS AND OPERATIONS

DETERIORATION OF LOCAL ECONOMIC CONDITIONS COULD HURT PROFITABILITY OF
BANKS. The operations of Placer Sierra are primarily located in Placer and
surrounding counties, and the operations of Orange, Security First, CalWest, and
Business Bank are primarily located in Orange County and Los Angeles County. As
a result of their geographic concentrations, each of the banks' results depend
largely upon economic conditions in these regional areas. Adverse local economic
conditions in Orange County and Los Angeles County may have a material adverse
effect on the financial condition and results of operations of California
Community, Orange, Security First, CalWest and/or Business Bank. Adverse local
economic conditions in Placer and surrounding counties may have a material,
adverse effect on the financial condition and results of operations of
California Community and Placer Sierra.

RISKS RELATED TO SPECIFIC COMPANIES
A DEFAULT ON DEBT SECURED BY PLEDGE OF PLACER SIERRA STOCK COULD AFFECT VALUE OF
CALIFORNIA COMMUNITY

Placer Capital pledged all of the outstanding stock of Placer Sierra in
connection with its financing of the Placer Sierra acquisition. Placer Capital
depends on dividends from Placer Sierra to make payments on its acquisition
financing obligations. If Placer Sierra is unable to pay dividends in an amount
sufficent to fund those payments, and if no alternative funding sources are
found, Placer Capital could lose control of Placer Sierra. As a result
California Community would lose its largest bank subsidiary. This could
adversely affect the value of California Community Stock.

CALIFORNIA COMMUNITY'S ABILITY TO PAY DIVIDENDS TO MINORITY SHAREHOLDERS MAY BE
AFFECTED BY PLACER CAPITAL'S DEBT SERVICE OBLIGATIONS.

Placer Capital will use dividends it receives from Placer Sierra first to fund
debt payments. This means that, depending upon Placer Sierra's future
operations, Placer Sierra may not have sufficient earnings to pay dividends to
Placer Capital in amounts greater than the amounts needed to fund those debt
payments. If Placer Capital is unable to pay dividends to California Community,
California Community may not have the ability to pay dividends to its
shareholders.

CAPITAL REDUCTIONS BY BANKS MAY AFFECT CALIFORNIA COMMUNITY'S ABILITY TO PAY
DIVIDENDS

Upon consummation of the mergers Orange and CalWest will make reductions of
capital in amounts approved by the regulatory authorities and will distribute
those amounts to California Community in cash. The capital reductions could
impair the ability of the surviving banks, Orange and CalWest, after the
completion of the mergers, to pay dividends to California Community. This, in
turn, could inhibit California Community's ability to pay dividends to
California Community's shareholders. See "Information Statement for Security
First Shareholders--Description of Orange/Security First Merger--Capital
Reduction" and "Proxy Statement of Business Bank--Description of
CalWest/Business Bank Merger--Capital Reduction."

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FORWARD-LOOKING STATEMENTS

WE HAVE MADE FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT/PROSPECTUS,
INCLUDING STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS,"
"EXPECTS," "CONSIDERS" AND WORDS OF SIMILAR IMPORT. FORWARD- LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE
THE ACTUAL RESULTS OF CALIFORNIA COMMUNITY OR THE MERGERS TO BE MATERIALLY
DIFFERENT FROM THE FUTURE RESULTS EXPRESSED OR IMPLIED BY FORWARD-LOOKING
STATEMENTS. THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS DISCUSSED IN THE
SECTION ENTITLED "RISK FACTORS" AT PAGES 21-22 OF THIS PROXY
STATEMENT/PROSPECTUS.

ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. SHAREHOLDERS SHOULD NOT RELY HEAVILY ON
THE FORWARD-LOOKING STATEMENTS.

The information contained in this proxy statement/prospectus concerning
California Community and California Financial has been furnished by California
Community and California Financial. The information contained in this proxy
statement/prospectus concerning Security First has been furnished by Security
First. The information contained in this proxy statement/prospectus concerning
Business Bank has been furnished by Business Bank.

You should rely only on the information in this proxy statement/prospectus or
other information referred to in this document. None of California Community,
California Financial, Security First, or Business Bank has authorized anyone to
provide you with other or different information. This proxy statement/prospectus
is dated December 9, 1999. You should not assume that the information contained
in this proxy statement/prospectus is accurate as of any date other than that
date, and neither the mailing of this proxy statement/prospectus to shareholders
nor the issuance of shares of California Community common stock in the mergers
will create any implication to the contrary.

The mailing of this proxy statement/prospectus commenced on or about
December 13, 1999.

The completion of the Orange/Security First merger is not dependent upon the
completion of the CalWest/Business Bank merger, and the completion of the
CalWest/Business Bank merger is not dependent upon the completion of the
Orange/Security First merger. Both the Orange/Security First merger and the
CalWest/Business Bank merger are conditioned upon completion of the California
Community/California Financial merger.

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INTRODUCTION

DESCRIPTION OF THE MERGER TRANSACTIONS

Two bank holding companies and four banks are participants in the mergers. The
two bank holding companies are California Community and California Financial.
The four banks are Orange, Security First, CalWest and Business Bank.

The California Fund currently owns 100% of California Financial and prior to the
mergers will own 100% of California Community. California Financial owns 100% of
Orange and CalWest. California Financial also owns 57% of Security First and 65%
of Business Bank. The balance of the ownership of these two banks is held by
other shareholders.

In these merger transactions, the California Fund will exchange its common stock
in California Financial for common stock of California Community. Similarly, the
minority shareholders of Security First and Business Bank will exchange the
common stock they currently hold in those companies for common stock of
California Community. As a result, California Community will then own 100% of
all of the banks involved in the mergers. The California Fund and the other
shareholders will own shares only in California Community.

For operational reasons, at the time of the mergers, Orange and Security First
will be merged, creating a single Orange County based bank and Business Bank
will merge into CalWest, creating a single Los Angeles County based bank.
California Community believes that the combination of these four small banks
into two larger banks will increase their operating efficiency and market
competitiveness going forward.

NEGOTIATION OF THE MERGER TERMS

Discussions leading to the mergers began in June of 1999, and continued through
July and August. Representatives of the California Fund, California Community,
California Financial, Orange, Security First, CalWest and Business Bank
concluded that a combination of all the companies involved in the merger
transactions would provide advantages to shareholders in reducing operating
expenses of the combined companies. They also saw possible future advantages in
marketplace competitiveness and market valuation for the larger combined parent
company. In order to complete such a combination, however, it would be necessary
to value each of the companies relative to the others. The parties therefore
next considered how such values might be determined.

None of the companies has a trading market, so the use of trading market values
to value the companies was not feasible. The use of a multiple of trailing
earnings, frequently used in such valuations, was considered and rejected. The
parties felt that a multiple of trailing earnings would unfairly depress the
value of Business Bank and Security First. Business Bank experienced a loss in
1998 and the first half of 1999 due in part to its start-up costs. Security
First earned only $174,000 in the six months ending June 30, 1999. However, its
management was forecasting a sharp increase in its earnings for the second half
of 1999 and for the year 2000.

Accordingly, the parties agreed that the best basis for relative valuation in
the mergers was a multiple of projected bank earnings for the year 2000. They
also agreed that because of the differing levels of goodwill amortization in the
various banks, the parties would use forward cash earnings for valuation
purposes. Cash earnings differ from GAAP earnings in adding back the amount of
goodwill and core deposit intangible amortization, non-cash deductions from
earnings.

Each party developed a forecast for year 2000 cash earnings for its bank on a
stand-alone basis. The parties then reviewed and accepted each other's forecasts
for valuation purposes. The parties also agreed on the amount of operating
expense reductions likely to result from the mergers in the year 2000. In
negotiation, the parties agreed that for valuation purposes the entire benefit
of the expense

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<PAGE>
reduction likely in the Orange/Security First merger would be added to Security
First's forecast earnings, and the entire benefit of the CalWest/Business Bank
merger savings would be credited to Business Bank.

The parties then analyzed the multiples of future earnings reported for publicly
traded banks and bank holding companies, and selected 16 times forward earnings
as a reasonable basis for valuation. The forecast earnings of each of the
companies was multiplied by 16. The resulting values for each company were used
in allocating the ownership of California Community after the mergers, in
deriving valuations per share for purposes of the mergers, and in calculating
the share exchange ratios provided for in the merger agreements.

By applying this methodology, Security First Bank was valued at $0.6229 per
share for purposes of the Orange/Security First merger, Business Bank was valued
at $10.00 per share for purposes of the CalWest/Business Bank merger, California
Financial was valued at $12.16 per share for purposes of the California
Financial/California Community merger and California Community was valued at
$6.64 per share for purposes of all the mergers.

The per share values derived in this manner are not necessarily indicative of
actual values or actual future values of California Community common stock,
which might be substantially higher or lower. These values are not appraisals,
and are not predictions of prices at which California Community shares might
trade at any time in the future. The forward earnings forecasts used in
developing these values are unpredictable, and are not certain to occur as
projected. THESE VALUATIONS ARE NOT LIKELY TO BE THE CASH VALUE A DISSENTER WILL
RECEIVE FOR HIS OR HER SHARES.

Additional information concerning the analyses by the Boards of Directors of
Security First and Business Bank of the respective mergers and the opinions of
their respective financial advisors can be found at "Description of the
Orange/Security First Merger--Background and Reasons for the Orange/ Security
First Merger," "Description of the Orange/Security First Merger--Opinion of
Security First's Financial Advisor," "Description of the CalWest/Business Bank
Merger--Background and Reasons for the CalWest/Business Bank Merger" and
"Description of the CalWest/Business Bank Merger--Opinion of Business Bank's
Financial Advisor."

EFFECT OF THE MERGER TRANSACTIONS

After the mergers, California Community will have three subsidiary banks: Placer
Sierra in northern California, and Orange and CalWest in southern California.
California Community intends to operate these three banks as separate entities,
each having its own management and staff, except that Harvey Ferguson will act
as President and Chief Executive Officer of Orange and Chairman and Chief
Executive Officer of CalWest. Each bank will compete for banking business in its
own market area.

Headquartered in Auburn, California, Placer Sierra has 25 banking offices. As of
September 30, 1999, Placer Sierra had total assets of $640.0 million, loans
totaling $379.1 million, and total deposits of $555.5 million. Following the
merger transactions, Placer Sierra will continue to focus on growth in its
historic service area, from the city of Sacramento, California to the Nevada
border. Existing management will continue to lead Placer Sierra's efforts.

Orange and Security First will be combined in a merger and the resulting bank
will operate under the Orange name. Management of the combined bank will be
drawn from the existing executives of both Orange and Security First. As of
September 30, 1999, these two banks had combined assets of $139.2 million, loans
of $86.1 million, and deposits of $115.9 million. They operate three branches in
Orange County, California, and as a combined company after the merger will
continue to focus on Orange County as their primary market area.

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The combined CalWest and Business Bank had assets of $81.3 million, loans of
$40.5 million, and deposits of $65.2 million, as of September 30, 1999. The
combined banks, under the new name of CalWest, will compete for business in Los
Angeles County.

California Community believes that maintaining separate subsidiary banks that
focus on discrete market areas can be an effective way to compete in the
marketplace. Its subsidiary banks will benefit from some of the efficiency that
a larger organization can provide, but will seek to maintain the local ties and
affinities from which a community-based bank may benefit.

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<PAGE>
DESCRIPTION OF THE CALIFORNIA COMMUNITY/CALIFORNIA FINANCIAL MERGER

GENERAL

The California Fund owns 100% of California Financial and prior to the merger
will own 100% of California Community. Prior to the bank mergers, California
Community will own 100% of Placer Capital. The California Fund determined that
the California Community/California Financial merger will allow it to more
economically manage its banking subsidiaries. The California Community/
California Financial agreement sets out the terms of the California
Community/California Financial merger. A copy of the Amended and Restated
California Community/California Financial agreement is attached to this proxy
statement/prospectus as Exhibit I, and is incorporated in this proxy statement/
prospectus by this reference.

THE CALIFORNIA FINANCIAL CONVERSION RATE

In the California Community/California Financial merger, each share of
California Financial common stock outstanding immediately prior to the merger
will automatically be canceled and will be converted into the right to receive
1.8296 shares of California Community common stock.

This exchange ratio was based upon the forecast earnings for the year 2000 for
California Financial and California Community. The shares of each company were
valued at 16 times the fully diluted earnings per share projected in those
forecasts. This resulted in a valuation for California Community of $6.6436 per
share, a valuation for California Financial of $12.1555 per share, and the
resultant exchange ratio of 1.8296 California Community shares to be issued for
each California Financial share.

REGULATORY APPROVAL AND COMPLETION OF THE CALIFORNIA COMMUNITY/CALIFORNIA
FINANCIAL MERGER

The California Community/California Financial merger requires the approval of
the California Department of Financial Institutions. We anticipate completion of
the California Community/California Financial merger not later than 30 days
after the receipt of the last required regulatory approval and expiration of all
applicable waiting periods, which we presently anticipate will be completed
during the last quarter of this year.

FEDERAL AND CALIFORNIA INCOME TAX CONSEQUENCES

The following summarizes all material federal and California income tax
consequences of the California Community/California Financial merger.

Lillick & Charles LLP, tax counsel for California Community, delivered a tax
opinion to California Community. The opinion states that for federal and related
California income tax purposes, under current law, the California
Community/California Financial merger will constitute a reorganization under
Section 368 of the Internal Revenue Code. The opinion assumes that the
California Community/ California Financial merger and related transactions will
take place as described in the California Community/California Financial
agreement.

In the opinion of Lillick & Charles LLP, the material federal and related
California income tax consequences of the California Community/California
Financial merger will be substantially as follows:

- - no gain or loss will be recognized by California Community or California
Financial in the California Community/California Financial merger;

- - the basis and holding periods of the assets of California Financial will carry
over to California Community;

- - no gain or loss will be recognized by the holder of California Financial
common stock upon the exchange of such stock solely for California Community
common stock;

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- - the receipt of cash in lieu of fractional share interests of California
Community common stock by the holder of California Financial common stock will
result in gain or loss equal to the difference between the amount of cash
received and the tax basis allocated to its fractional share interests;

- - the tax basis of California Community common stock received by the holder of
California Financial common stock will be the same as the tax basis of the
California Financial common stock converted in the California
Community/California Financial merger; and

- - the holding period of California Community common stock in the hands of the
shareholder of California Financial stock will include the period during which
the California Financial common stock converted in the California
Community/California Financial merger was held, provided that the California
Financial common stock was held as a capital asset on the date of the
California Community/California Financial merger.

This tax discussion assumes that the tax opinion will not be withdrawn or
changed due to changes in laws, or otherwise prior to the date of the California
Community/California Financial merger. If the tax opinion is withdrawn or
materially changes prior to the merger, shareholder approval of the merger will
be resolicited.

In developing its opinion, Lillick & Charles LLP relied upon facts and
representations provided to it by California Community's management and
California Financial's management, and made no independent determination of the
facts and representations. The representations that California Community's
management and California Financial's management made were factual in nature. In
addition, Lillick & Charles LLP's opinion was based upon the analysis of the
current Internal Revenue Code, the California Revenue and Taxation Code, the
regulations adopted under these statutes, current case law, and published
rulings. The applicable statutes and regulations are subject to change, and any
change may be retroactively effective. If so, Lillick & Charles LLP's opinion
may be affected and may not be relied upon. Moreover, the opinions are not
binding on the IRS, the California Franchise Tax Board, or the courts, but
represent the best judgment of Lillick & Charles LLP as to the likely outcome of
the issues involved. Lillick & Charles LLP assumes no responsibility to update
its opinion after the date of the California Community/California Financial
merger because of such change. Further, any variation or differences in the
facts or representations, for any reason, may affect Lillick & Charles LLP's
opinion, perhaps in an adverse manner, and make it inapplicable.

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INFORMATION STATEMENT FOR SECURITY FIRST SHAREHOLDERS

California Financial owns more than 50% of the outstanding shares of Security
First common stock and will execute written consents approving the
Orange/Security First merger. After the Orange/Security First merger, Orange
will be the surviving bank, and will be a subsidiary of California Community.

SECURITY FIRST IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND SECURITY FIRST A PROXY.

OUTSTANDING SECURITIES

There were 19,826,724 shares of Security First common stock outstanding as of
October 20, 1999, the Security First record date, held by approximately 341
record holders.

Approval of the Orange/Security First merger requires the affirmative vote of
the holders of a majority of the outstanding shares of Security First common
stock. As California Financial owns in excess of 50% of Security First's common
stock, no further votes are required for approval of the Orange/ Security First
merger.

APPROVALS OF THE BOARDS OF DIRECTORS

The Boards of Directors of Orange and Security First have each unanimously voted
in favor of the proposals relating to the Orange/Security First merger.

BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table shows the beneficial ownership of shares of Security First
common stock held by the principal shareholders of Security First.

Shares subject to options presently exercisable or exercisable within 60 days of
October 20, 1999 are deemed to be beneficially owned by the holder, but are not
treated as outstanding for computing the beneficial ownership of any other
person.

SECURITY FIRST PRINCIPAL SHAREHOLDERS. Security First's Board of Directors
knows of no person who owns beneficially more than 5% of the outstanding shares
of Security First common stock as of October 20, 1999, except for the persons in
the following table:

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS (1)
- ------------------- -------------------- ------------------------
<S> <C> <C>
California Financial................................... 11,250,000 50.36%
10101 Slater Avenue
Fountain Valley, California 92728

The California Fund.................................... 2,450,000(2) 10.91%
One Maritime Plaza, Suite 825
San Francisco, California 94111
</TABLE>

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

(1) In 1996, Security First's former bank holding company, Pacific Inland
Bancorp, Inc., issued to some Security First directors and others, 5-year,
12% debentures in the principal amount of $1,050,000, which are convertible
as to principal and unpaid interest into shares of common stock at the rate
of $0.40 per share. In 1997 and 1998, the California Fund purchased from
certain holders (including directors) all of their right, title and interest
in and to a total of $980,000 in debentures. The percentage of ownership
shown here includes the effect of the conversion of the principal amount
only ($1,050,000) of the debentures.

(2) Consists of the effect of the conversion of the principal amount only
($980,000) of the debentures.

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THE CALIFORNIA FUND WILL OWN 96.1% OF CALIFORNIA COMMUNITY FOLLOWING THE
CALIFORNIA COMMUNITY/ CALIFORNIA FINANCIAL MERGER AND THE ORANGE/SECURITY FIRST
MERGER. The California Community and Security First Boards of Directors
anticipate that if the California Community/California Financial merger and the
Orange/Security First merger are completed, no one will own beneficially more
than 5% of California Community common stock, except the California Fund, which
will own approximately 96.1%. See "Description of the Orange/Security First
Merger--Security First Conversion Rate and Exchange of Shares and Options."

THE CALIFORNIA FUND WILL OWN 94.8% OF CALIFORNIA COMMUNITY FOLLOWING THE
CALIFORNIA COMMUNITY/ CALIFORNIA FINANCIAL MERGER, THE ORANGE/SECURITY FIRST
MERGER, AND THE CALWEST/BUSINESS BANK MERGER. The California Community, Security
First and Business Bank Boards of Directors anticipate that if the California
Community/California Financial merger, the Orange/Security First merger, and the
CalWest/ Business Bank merger are completed, no one will own beneficially more
than 5% of California Community common stock, except the California Fund, which
will own approximately 94.8%.

MANAGEMENT

For information about the number of shares of Security First common stock
beneficially owned by each director and executive officer and by all directors
and executive officers as a group, see "Description of Security
First--Management" at page 227 of this proxy statement/prospectus.

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DESCRIPTION OF THE ORANGE/SECURITY FIRST MERGER

GENERAL

This section of the Security First information statement contains information
furnished by the California Community and Security First Boards of Directors
with respect to the Orange/Security First merger. The Orange/Security First
agreement sets out the terms of the merger of Security First with Orange.

Under the terms of the Orange/Security First agreement, Security First will be
merged with Orange, and Orange will be the surviving bank. Upon completion of
the merger, each share of Security First common stock, other than shares held by
shareholders who exercise and perfect dissenters' rights, will be converted into
the right to receive 0.0938 shares of California Community common stock. See
"Description of the Orange/Security First Merger--Security First Conversion Rate
and Exchange of Shares and Options." As a result of the California
Community/California Financial merger, Orange will become a wholly-owned
subsidiary of California Community.

A copy of the Orange/Security First agreement is attached to this proxy
statement/prospectus as Exhibit II, and is incorporated in this proxy
statement/prospectus by this reference.

BACKGROUND AND REASONS FOR THE ORANGE/SECURITY FIRST MERGER

The Orange/Security First Bank merger is part of an overall reorganization of
the bank holding company and bank subsidiaries of the California Fund. The
reorganization should contribute to the future performance of the combined
companies by eliminating duplicate costs and by creating larger banks that can
better compete with other financial institutions in their respective
communities. Management of Orange and Security First anticipate duplicate costs
of approximately $300,000 can be eliminated as a result of the Orange/Security
First merger.

The first step of the reorganization will be to merge California Community and
California Financial, both of which are 100% owned by the California Fund. The
second step involves concurrently merging Security First into Orange, and
Business Bank into CalWest. Orange and CalWest are 100% owned by California
Financial. California Financial owns approximately 57% of Security First and
approximately 65% of Business Bank.

To protect its minority shareholders, the Security First Board of Directors
engaged the services of Carpenter to advise it on financial aspects of the
Orange/Security First merger, and to issue an opinion that the transaction was
fair, from a financial point of view, to Security First and its shareholders.
Carpenter issued its fairness opinion on August 26, 1999. The Security First
Board of Directors met on August 26, 1999, and again on September 1, 1999. At
the September 1 Security First Board of Directors meeting, the Board of
Directors unanimously approved the Orange/Security First merger.

SECURITY FIRST'S ANALYSIS. In determining to approve the merger and recommend
that Security First's shareholders approve and authorize the merger, the
Security First Board of Directors consulted with Security First's senior
management, its financial advisor, as well as its legal counsel, and considered
the following material factors:

- - the potential increased liquidity to be provided to Security First's
shareholders by receiving shares of California Community common stock in
exchange for their shares of Security First common stock. The Board of
Directors of Security First believed that because there would be a larger
number of shareholders and outstanding shares of California Community after
the California Community/ California Financial merger, the CalWest/Business
Bank merger, and the Orange/Security First merger, the shareholders of
Security First might receive the benefit of a more active market for their
shares after completion of all three merger transactions;

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- - the economic conditions and prospects for the markets in which Security First
operates, and competitive pressures in the financial services industry in
general, and the banking industry in particular;

- - the enhancement of Security First's competitiveness and its ability to serve
its customers, depositors, creditors, other constituents and the communities
in which it operates as a result of a business combination with another Orange
County bank such as Orange;

- - information concerning the business, results of operations, asset quality and
financial condition of Security First and Orange on a stand-alone and combined
basis, and the future growth prospects of Orange following the Orange/Security
First merger;

- - the cost savings and operational synergies which may be achieved as a result
of the Orange/Security First merger;

- - the terms and conditions of the Orange/Security First agreement and related
agreements;

- - the potential disadvantages of the Orange/Security First merger, consisting
principally of the possible adverse effect on employees of Security First, and
the potential adverse effect on Security First's customers from being merged
into Orange;

- - Carpenter's analysis of the financial condition, results of operations,
business, prospects and stock price of Security First and comparison of
Security First to other banks and bank holding companies operating in its
industry;

- - an analysis of the terms of other acquisitions in the banking industry;

- - the opinion of Carpenter to the effect that, as of the date of the opinion,
the Security First conversion rate is fair, from a financial point of view, to
the holders of Security First common stock; and

- - the expectation that the Orange/Security First merger will constitute a
tax-free reorganization for federal income tax purposes.

This discussion of the factors considered by the Security First Board of
Directors is not intended to be exhaustive. In view of the variety and nature of
the factors considered by the Security First Board of Directors, the Security
First Board of Directors did not find it practicable to assign relative weights
to the specific factors considered in reaching its decision.

The Security First Board of Directors believes the Orange/Security First merger
to be in the best interests of Security First, its shareholders and banking
customers. Following the Orange/Security First merger, Orange will have the
advantage of the consolidation and centralization of certain management
functions and certain resulting economies of scale. Furthermore, Security First
management believes that the Orange/Security First merger will result in a bank
which will be a stronger and more viable financial institution, better able to
compete with the major banks in the areas now served by Orange and Security
First.

THE SECURITY FIRST BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
ORANGE/SECURITY FIRST MERGER.

SECURITY FIRST CONVERSION RATE AND EXCHANGE OF SHARES AND OPTIONS

SECURITY FIRST CONVERSION RATE. Each share of Security First common stock
outstanding immediately prior to the Orange/Security First merger, other than
shares as to which holders have exercised and perfected dissenters' rights, will
automatically be canceled and will be converted into the right to receive 0.0938
shares of California Community common stock.

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<PAGE>
No fractional shares of California Community common stock will be issued in the
Orange/Security First merger. Instead, shareholders of Security First will
receive an amount in cash equal to the product, rounded to the nearest
hundredth, obtained by multiplying (a) $0.6229 per share by (b) the fraction of
a share of California Community common stock to which the holder would otherwise
be entitled.

- - EXCHANGE PROCEDURE. After the merger, California Community will send each
Security First shareholder instructions as to how to exchange shares of
Security First common stock for shares of California Community common stock.
The instructions will include a transmittal letter. The transmittal letter
must be completed by the shareholder and returned to the Security First
exchange agent along with the shareholder's certificate(s) for Security First
common stock, duly endorsed as California Community may require. In exchange
for Security First certificates, each holder will then receive:

- a certificate representing the number of whole shares of California
Community common stock to which the holder is entitled based upon the
Security First conversion rate; and

- a check for any fractional share.

Until surrendered and exchanged, each outstanding Security First certificate
will be deemed for all corporate purposes to represent the number of shares of
California Community common stock into which the number of shares of Security
First common stock shown on the certificate have been converted. No dividends or
other distributions which are declared on California Community common stock will
be paid to persons otherwise entitled to receive the same, until the Security
First certificates have been surrendered in exchange for new certificates.
However, upon surrender of the Security First certificates, the dividends or
other distributions, from and after the completion of the Orange/Security First
merger, will be paid in accordance with the terms of the California Community
common stock. In no event will the persons entitled to receive the dividends or
other distributions be entitled to receive interest on the dividends or other
distributions.

No shareholder will be liable for any transfer taxes unless the shareholder
requests a certificate for California Community common stock to be issued in a
name other than the shareholder's. The person requesting the issuance will
properly endorse the Security First certificates and will pay to California
Community or the Security First exchange agent any transfer taxes owed for that
transfer or for any prior transfer or establish to the satisfaction of
California Community or the Security First exchange agent that the taxes have
been paid or are not payable.

If any holder of Security First common stock cannot surrender any Security First
certificates because the certificates have been lost or destroyed, the holder
may instead deliver an affidavit and indemnity undertaking in form and substance
and, if required, with a surety satisfactory to the Security First exchange
agent and California Community.

TERMINATION OF OUTSTANDING STOCK OPTIONS FOR SHARES OF SECURITY FIRST COMMON
STOCK. Upon execution of the Orange/Security First agreement, all outstanding
rights to acquire Security First common stock under existing stock options
became exercisable, whether or not they were previously vested. As of the
effective date of the Orange/Security First merger, the Security First stock
option plans will terminate and the right to exercise options to purchase
Security First common stock will cease.

DEBENTURES CONVERTIBLE INTO SECURITY FIRST COMMON STOCK. The obligation of
Security First to issue shares of its common stock upon conversion of
outstanding debentures of Pacific Inland Bancorp, Security First's former bank
holding company, will be assumed by California Community at the effective time
of the Orange/Security First merger. Upon completion of the Orange/Security
First merger, Security First common stock issuable under outstanding debentures
will convert into the right to acquire California Community common stock upon
payment of the adjusted conversion price in an amount equal to the number of
shares of California Community common stock the debenture holder

33
<PAGE>
would have received pursuant to the merger, if he or she had exercised all his
or her debentures immediately prior the merger. The adjusted conversion price
for the debentures equals the conversion price per share for shares issuable
under the debentures immediately prior to the merger, divided by the Security
First conversion rate.

CAPITAL APPRECIATION RIGHTS. The obligation, if any, of Security First to issue
shares pursuant to capital appreciation rights will be assumed by California
Community, after the Orange/Security First merger. In connection with a 1996
public offering of common stock, Security First provided to shareholders of
Pacific Inland the benefit of any recoveries Security First might experience as
a result of the collection of prior judgments and other claims, after certain
adjustments, in the form of capital appreciation rights. Prior to the 1996
offering, Pacific Inland owned 100% of Security First's outstanding common
stock.

The capital appreciation rights provide that as of December 31, 1997, 1998, and
1999 Security First's recovery, if any, net of collection and reasonable
management costs and expenses, will be calculated. The capital appreciation
rights provide that if there is a positive net recovery in any of 1997, 1998, or
1999, shares of common stock would be distributed to the holders of the capital
appreciation rights in that year. The amount of Security First stock to be
distributed in any covered year is calculated by dividing the net recovery
amount by $0.40 and allocating the amount to capital appreciation rights holders
on a pro rata basis.

The right, if any, of holders of capital appreciation rights to receive shares
of Security First common stock under the capital appreciation rights will be
converted into the right to receive shares of California Community common stock,
as adjusted by the Security First conversion rate, in an amount equal to the
number of shares of California Community common stock which holders of the
capital appreciation rights would have received if shares of Security First
common stock had been issued under the capital appreciation rights prior to the
effective time of the Orange/Security First merger.

CAPITAL REDUCTION

As a condition to the Orange/Security First merger, Orange and Security First
must obtain all shareholder and regulatory approval of a reduction of the banks'
capital through distributions of cash to California Community. Orange has
applied for approval of a capital reduction of up to $6,300,000, based upon the
combined results of Orange and Security First, to take place after the
Orange/Security First merger. As the capital reduction will occur after the
merger, approval of the shareholders of Security First is not required.
Carpenter considered the reduction in rendering its opinion.

By distributing excess capital from the individual banks to California
Community, the capital reductions allow California Community to allocate excess
capital among its subsidiary banks as needed, in a manner that will make the
most of efficient use of available capital on a company wide basis. As Security
First shareholders will receive California Community common stock in the merger,
the capital reductions should have no effect on these shareholders.

34
<PAGE>
DIRECTORS AND MANAGEMENT OF ORANGE AFTER THE ORANGE/SECURITY FIRST MERGER

At the effective time of the Orange/Security First merger, the directors and
management of Orange will be as follows:

<TABLE>
<CAPTION>
NAME POSITION PRINCIPAL OCCUPATION
- ---- ----------------------- ----------------------------------------------
<S> <C> <C>
Ronald W. Bachli Director Manager, Belvedere Capital Partners LLC
Director, President and Chief Executive
Officer,
California Community

Larry Ballard Director Attorney At Law

Robert Campbell President, Banking Executive
Chief Operating Officer

Richard W. Decker, Jr. Director Manager, Belvedere Capital Partners LLC
Chairman and Director, California Community

Harvey Ferguson Chairman, Chief President & Chief Executive Officer, Orange
Executive Officer and Chief Executive Officer, Director, CalWest
Director Interim Chief Executive Officer, Director,
and Vice Chairman of Business Bank

Frank T. Harrison Director President, General Air Conditioning

Robert J. Kushner Director Certified Public Accountant, Partner, Kushner,
Smith, Joanou & Gregson, LLP
Director, California Community

Robert M. Miller Director Vice President, Computer Power
Solutions, Inc.

Clifford R. Ronnenberg Director Chairman, CR&R Incorporated

Philip C. Harford Chief Financial Officer Banking Executive

Roy Logsdon Chief Credit Officer Banking Executive
</TABLE>

FINANCIAL INTERESTS OF DIRECTORS AND OFFICERS IN THE ORANGE/SECURITY FIRST
MERGER AND MATERIAL CONTRACTS WITH SECURITY FIRST AND ITS AFFILIATES

Shareholders of Security First should be aware that certain members of the Board
of Directors of Security First may have a substantial interest in the
Orange/Security First merger.

Upon completion of the Orange/Security First merger, Security First directors
Larry Ballard and Clifford R. Ronnenberg will become directors of Orange. Orange
directors receive a monthly fee of $1,100 for attendance at Board meetings and
$500 for each committee meeting attended.

35
<PAGE>
Also, all options to purchase Security First common stock, whether vested or
not, became exercisable when the Orange/Security First agreement was executed.
However, all Security First options must be exercised prior to completion of the
Orange/Security First merger. As a group, Security First directors hold options
to purchase up to 663,892 shares of Security First common stock at an exercise
price of $0.40 per share, and executive officers of Security First hold options
to purchase up to 483,336 shares of Security First common stock also at an
exercise price of $0.40 per share. If these options are exercised, at the
effective time of the merger, the shares purchased will convert into shares of
California Community at the Security First conversion ratio.

REGULATORY APPROVAL AND COMPLETION OF THE ORANGE/SECURITY FIRST MERGER

The Orange/Security First merger is subject to approval by the California
Department of Financial Institutions, and the Board of Governors of the Federal
Reserve System. The completion of the Orange/Security First merger is
anticipated to take place not later than 30 days after:

- - the receipt of the last required regulatory approval and expiration of all
applicable waiting periods; and

- - satisfaction of the conditions precedent to the obligations of each of
California Community, Orange and Security First, or the written waiver of the
conditions by California Community or Security First, as applicable.

It is presently anticipated that the Orange/Security First merger will be
completed during the last quarter of this year.

CONDITIONS TO THE ORANGE/SECURITY FIRST MERGER

Various conditions must be satisfied before the completion of the
Orange/Security First merger, including the following:

1. The Orange/Security First merger will have been approved by the vote of the
holders of a majority of the outstanding stock of Security First.

2. All approvals or permits required to be obtained, and all waiting periods
required to expire, for the merger will have been obtained or expired,
without the imposition of any materially burdensome condition on any party
to the merger, as determined by the party affected.

3. There will not be any action taken, or any law, regulation or order enacted,
enforced or deemed applicable to the merger, by any government entity which:

- makes the completion of the merger illegal;

- requires the divestiture by California Community of any material asset or
of a material portion of the business of California Community; or

- imposes any condition upon California Community or its subsidiaries which
in the judgment of California Community would be materially burdensome.

4. California Community's registration statement will have become effective
under the Securities Act and no "stop order" suspending the effectiveness of
the registration statement will have been issued and will remain in effect.
No action or proceeding will have been instituted to restrain or prohibit
the transactions contemplated in the Orange/Security First agreement.

5. The Security First stock option plans will have been terminated.

6. The representations and warranties of each of California Community, Orange
and Security First contained in the Orange/Security First agreement will be
true in all material respects as of the date of completion of the merger.
Each of California Community, Orange and Security First will have

36
<PAGE>
duly performed and complied in all material respects with all agreements
required by the Orange/ Security First agreement, except where the failure
to so perform and comply would not have or would not be reasonably likely to
have a material adverse effect on Security First or Orange as the surviving
bank. None of the events or conditions entitling either party to terminate
the Orange/ Security First agreement will have occurred and be continuing.

7. California Community, Orange and Security First will have received
certificates of officers of the other parties stating that the
representations and warranties contained in the Orange/Security First
agreement are true and correct, and opinions of counsel for the other
parties.

8. No action, suit or proceeding will have been instituted or threatened before
any court or governmental body seeking to challenge or restrain the
transactions contemplated by the Orange/ Security First agreement which
presents a substantial risk that the transactions will be restrained or that
either California Community, Orange or Security First may suffer material
damages.

9. The holders of no more than 10% of the outstanding shares of Security First
common stock will have exercised dissenters' rights.

10. There will not have been any change in the consolidated financial condition,
aggregate consolidated net assets, shareholders' equity, business, or
consolidated operating results of Security First taken as a whole, from
December 31, 1998 to the date of completion of the Orange/Security First
merger, that results in a material adverse effect as to Security First,
taken as a whole.

11. No event or circumstance will have occurred which has had, or could
reasonably be expected to have, a material adverse effect on Security First.

12. Security First will have received a written opinion from Carpenter
confirming the fairness of the terms of the merger to Security First and its
shareholders, from a financial point of view, and this opinion will not have
been withdrawn prior to the date of completion of the merger.

13. Orange and Security First will have obtained shareholder approval and the
approval of all appropriate regulators to make, upon completion of the
Orange/Security First merger, a capital reduction through a distribution of
cash to California Community in amounts approved by regulatory authorities.

On October 27, 1999, the Federal Reserve approved the Orange/Security First
merger, subject to approval of the shareholders of Security First. The
California Department of Financial Institutions approved the capital reductions
and also approved the Orange/Security First merger, subject to approval of the
shareholders of Security First, on November 5, 1999. In addition, on August 26,
1999, Carpenter rendered its written opinion to the Security First Board of
Directors, that the merger consideration to be received in the Orange/Security
First merger is fair, from a financial point of view, to the Security First
shareholders.

WAIVER, AMENDMENT AND TERMINATION

Any term or provision of the Orange/Security First agreement, other than
regulatory approval or any of the provisions required by law, may be waived in
writing at any time, by the party which is, or whose shareholders are, entitled
to the benefits of the term or provision.

The Orange/Security First agreement provides that it may be terminated prior to
the completion of the Orange/Security First merger:

1. By mutual consent of the California Community and Security First Boards of
Directors.

2. By California Community, Orange or Security First upon the failure of
another party to satisfy any conditions specified in the Orange/Security
First agreement, if the failure is not caused by any action or inaction of
the party requesting termination.

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<PAGE>
3. By California Community, if the Security First Board of Directors approves a
transaction in which any person or group of persons, other than California
Community, acquires ownership or control of 5% or more of Security First's
common stock.

4. By California Community, Orange or Security First in the event of a material
breach of any of the representations or warranties of the other party, if
the breach by its nature cannot be cured or is not cured prior to the
closing of the Orange/Security First merger, and if the breach would,
individually or in the aggregate, have, or be reasonably likely to have, a
material adverse effect on the breaching party.

5. By California Community, Orange or Security First after the occurrence of a
default by the other party and the continuance of the default for a period
of 20 business days after written notice of the default, if the default, in
the reasonable opinion of the terminating party, cannot be cured prior to
the closing of the Orange/Security First merger.

6. By California Community, Orange or Security First upon the failure of any of
the conditions specified in the Orange/Security First agreement to have been
satisfied prior to January 31, 2000.

OPINION OF SECURITY FIRST'S FINANCIAL ADVISOR

GENERAL. Pursuant to an engagement letter dated July 8, 1999, Security First
engaged Carpenter to provide financial advisory services and a fairness opinion
with respect to the merger. Carpenter is an investment banking firm specializing
in California financial institutions, and, as part of its investment banking
activities, is regularly engaged in the valuation of businesses and their
securities in connection with merger transactions and other types of
acquisitions, underwritings, private placements and valuations for corporate and
other purposes. Security First selected Carpenter to render the opinion on the
basis of its experience and expertise in transactions similar to the merger, and
its reputation in the banking and investment communities. No limitations were
imposed by Security First on Carpenter with respect to the investigations made
or procedures followed in rendering its opinion.

At a meeting of the Security First Board of Directors on August 26, 1999,
Carpenter delivered its oral opinion that, as of the date of the opinion and
subject to the limitations and assumptions described in the opinion, the merger
consideration pursuant to the Orange/Security First agreement was fair to
Security First shareholders, from a financial point of view. Carpenter's oral
opinion was subsequently confirmed in writing as of August 26, 1999.

The full text of Carpenter's written opinion to the Security First Board of
Directors, which sets forth the assumptions made, matters considered, and
limitations of the review by Carpenter, is attached to this proxy
statement/prospectus and is incorporated by this reference. The following
summary of Carpenter's opinion is qualified in its entirety by reference to the
full text of the opinion, which should be read carefully and in its entirety. In
furnishing such opinion, Carpenter does not admit that it is an expert with
respect to the registration statement of which this proxy statement/prospectus
is a part within the meaning of the term "experts" as used in the Securities Act
and the rules and regulations promulgated under the Securities Act. Nor does
Carpenter admit that its opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act. Carpenter's opinion is directed to
the Security First Board of Directors, covers only the fairness of the
consideration to be received by holders of Security First common stock, from a
financial point of view, as of the date of the opinion, and does not constitute
a recommendation to any holder of Security First common stock as to how such
shareholder should vote.

In connection with its opinion, Carpenter, among other things:

- - reviewed some publicly-available financial and other data with respect to
California Community, California Financial, Placer Sierra, Orange, Security
First, Business Bank, and CalWest including the consolidated financial
statements for recent years and interim periods to June 30, 1999, and some

38
<PAGE>
other relevant financial and operating data relating to these companies made
available to Carpenter from published sources and from the internal records
and projections of Security First;

- - reviewed the Orange/Security First merger agreement;

- - reviewed some information concerning the trading of, and the trading market
for, Security First common stock and California Community common stock;

- - compared Security First and California Community, from a financial point of
view, with some other companies in the banking industry which Carpenter deemed
to be relevant;

- - considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies in the banking industry which
Carpenter deemed to be comparable, in whole or in part, to the Orange/Security
First merger;

- - reviewed and discussed with representatives of the management of Security
First and California Community some information of a business and financial
nature regarding Security First and California Community, furnished to
Carpenter by them;

- - made inquiries regarding and discussed the Orange/Security First merger and
the Orange/Security First agreement and other matters related thereto with
Security First's counsel; and

- - performed such other analyses and examinations as Carpenter deemed
appropriate.

In connection with its review, Carpenter did not assume any obligation
independently to verify the information reviewed, and relied on such information
being accurate and complete in all material respects. Carpenter also assumed
that there were no material changes in Security First's or California
Community's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to it.

Carpenter relied on advice of counsel to Security First as to all legal matters
with respect to Security First, the Orange/Security First merger and the
Orange/Security First agreement. Security First acknowledged that Carpenter did
not discuss with Security First's independent accountants any financial
reporting matters with respect to Security First, the Orange/Security First
merger or the Orange/ Security First agreement. Security First informed
Carpenter, and Carpenter assumed that the Orange/ Security First merger, with
respect to the acquisition of the minority interests, would be accounted for as
a purchase under generally accepted accounting principles or GAAP. Carpenter
assumed that the Orange/Security First merger would be consummated in a manner
that complies in all respects with the applicable provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended, and all other applicable
federal and state statutes, rules and regulations. Carpenter assumed that the
allowance for loan losses for each of Security First, Orange, CalWest, and
Business Bank are in the aggregate adequate to cover such losses. In addition,
Carpenter did not assume responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection of
any of the assets or liabilities (contingent or otherwise) of the companies
involved in the Orange/Security First merger, nor was Carpenter furnished with
any such appraisals. Finally, Carpenter's opinion was based on economic,
monetary and market and other conditions as in effect on, and the information
made available to Carpenter as of, the date of the opinion. Accordingly,
although subsequent developments may affect Carpenter's opinion, it has not
assumed any obligation to update, revise or reaffirm such opinion.

The following discussion summarizes Carpenter's analysis in connection with its
opinion and is complete in all material respects.

REVIEW OF CALIFORNIA COMMUNITY AND SECURITY FIRST. Carpenter analyzed Security
First, California Community, Placer Sierra, Orange, Business Bank, CalWest, and
California Financial, as reported by the companies in their respective annual
reports and regulatory filings, and by combining them on a

39
<PAGE>
pro-forma basis. In reviewing California Community, Carpenter combined the
financial statements of Security First, Placer Capital, Placer Sierra, Business
Bank, CalWest and Orange.

TRADING ACTIVITY AND PRICES. Neither Security First nor California Community is
publicly traded in any significant volume.

IMPUTED MARKET VALUE OF SECURITY FIRST AND CALIFORNIA COMMUNITY. Because of the
absence of a trading market in Security First and California Community common
stock, Carpenter calculated imputed stock values for both companies based on the
trading prices of comparable companies. Because both Security First and
California Community had trailing earnings that were substantially lower than
their forecast forward earnings, Carpenter deemed that a forward earnings
multiple rather than a trailing earnings multiple was appropriate in arriving at
such an imputed valuation. To arrive at an appropriate forward earnings
multiple, Carpenter took the following steps:

- - Carpenter first compiled a list of publicly-traded California community banks
with assets between $1 billion and $10 billion, comprising a total of 17
companies, and a list of publicly-traded small California community banks with
assets less than $100 million comprising a total of 39 companies;

- - Carpenter then derived an average price to trailing earnings ratio for these
two groups of companies. As of August 27, 1999, the publicly traded community
banks price to trailing earnings multiple was 18.0x, and the publicly traded
small banks multiple was 17.7x. Based on its review of historical earnings
growth in the period 1996 through 1998 for the applicable companies, and
consensus forecast earnings growth rates for western banks for the year 2000,
Carpenter then estimated a 12.0% average earnings growth rate for 2000.
Carpenter used this growth rate to arrive at an estimate of future earnings of
the publicly traded community banks and the publicly traded small banks as
referenced above;

- - Carpenter then derived from those projected future earnings a forward earnings
multiple of 16.1x and 15.8x, respectively. Carpenter rounded these multiples
to the nearest whole number, and on that basis selected a forward earnings
multiple of 16x, the earnings multiple, to arrive at an imputed valuation for
Security First and California Community common stock;

- - Because of California Community's relatively high future level of goodwill
amortization relative to the publicly traded community banks referenced above,
Carpenter then determined that it was appropriate to base its imputed stock
value on California Community's future cash earnings. Applying the earnings
multiple to cash earnings projections for 2000 for each of Security First and
California Community as furnished to Carpenter by their respective managements
produced an imputed value for Security First and California Community of
$0.5034 and $6.6436 per share, respectively;

- - Carpenter then applied the imputed value of $6.6436 for California Community
stock to the exchange ratio of 0.0938 shares of California Community for 1
share of Security First common stock provided for in the merger, deriving an
actual imputed value of $0.6229 per share for Security First common stock in
the merger.

ANALYSIS OF SELECTED MERGER TRANSACTIONS. Using publicly available information,
Carpenter reviewed the consideration paid in recently announced transactions
whereby some banks and bank holding companies of various sizes were acquired.
Specifically, Carpenter reviewed 44 transactions involving acquisitions of banks
based in California announced since January 1, 1998, and 12 acquisitions of
banks based in California with total assets less than $200 million since the
same date, consisting of the following (acquirer/target):

- - Washington Mutual/Industrial Bank,

- - First Coastal Bancshares/American Independent Bank,

40
<PAGE>
- - Pacific Community Group/Valley Bank,

- - California Financial Bancorp/The Bank of Orange County,

- - California Financial Bancorp/Downey National Bank,

- - Americorp/Channel Islands Bank,

- - Western Sierra Bancorp/Lake Community Bank,

- - Western Sierra Bancorp/Roseville 1st National,

- - Scripps Bank/Pacific Commerce Bank,

- - Summit Bank Corporation/California Security Bank,

- - Greater Bay Bancorp/Pacific Rim Bancorporation, and

- - BYL Bancorp/DNB Financial.

For each bank acquired or to be acquired in such transactions, Carpenter
analyzed data illustrating, among other things, the ratio of the premium (i.e.,
purchase price in excess of tangible book value) to core deposits, purchase
price to book value and to tangible book value, and purchase price to last 12
months' earnings.

Carpenter used the imputed value derived for California Community stock of
$6.6436 per share to compute these same valuation ratios for the Orange/Security
First merger. The following table compares the relative valuation ratios for
California bank acquisitions and small bank acquisitions to the imputed
valuation ratios for Security First in the Orange/Security First merger:

<TABLE>
<CAPTION>
CALIFORNIA
BANK SMALL BANK SECURITY
VALUATION RATIO ACQUISITIONS ACQUISITIONS FIRST
- --------------- ------------ ------------ --------
<S> <C> <C> <C>
Average percentage of premium to core
deposits.................................... 20.0% 16.8% 23.0%
Average multiple of purchase price to book
value....................................... 2.58x 2.44x 2.42x
Average multiple of purchase price to tangible
book value.................................. 2.80x 2.44x 2.42x
Average multiple of purchase price to last 12
month's earnings............................ 22.6x 24.3x 70.1x
Average purchase price as a percentage of
total assets................................ 23.6% 21.2% 28.9%
</TABLE>

This comparison indicates that the valuation attributed to Security First in the
Orange/Security First merger is generally consistent with or better than the
value that would be suggested by the other bank mergers reviewed.

No other company or transaction used in the above analysis as a comparison is
identical to Security First or to the Orange/Security First merger. Accordingly,
an analysis of the results of the foregoing is not mathematical. Rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value and the announced acquisition prices of
the companies to which Security First, and the Orange/Security First merger are
being compared.

MERGER AND CONTRIBUTION ANALYSIS. Carpenter analyzed the contribution of each
of Security First and California Community to, among other things, total equity,
assets, last 12 months' earnings and future net income and cash net income, and
gross loans of the pro forma combined companies. For purposes of this analysis,
the balance sheets and income statements for the period ending June 30, 1999,
and the projected 2000 year-end income statements were used. Based upon the
exchange rate of 0.0938

41
<PAGE>
California Community share for every 1 Security First share provided for in the
Orange/Security First agreement, holders of Security First common stock would
own approximately 10.2% of the combined companies based on fully diluted shares
outstanding on the date of the opinion.

The following table details the percentage contribution of Security First to the
combined companies:

<TABLE>
<CAPTION>
CONTRIBUTION OF SECURITY FIRST
- --------------- --------------
<S> <C>
Total equity................................................ 7.3%
Total assets................................................ 6.3%
Last 12 month's earnings--GAAP.............................. 6.5%
Last 12 month's earnings--cash basis........................ 5.5%
Projected 2000 earnings--GAAP............................... 11.4%
Projected 2000 earnings--cash basis......................... 10.2%
</TABLE>

This analysis suggests that the ownership interest of Security First
shareholders in California Community after the merger is consistent with or
greater that what would be indicated by Security First's share of assets,
equity, and earnings.

REGRESSION ANALYSIS. Carpenter undertook an analysis to determine the price to
earnings and price to book multiple at which Security First might trade on a
stand-alone basis. A regression analysis of publicly-available data on
comparable banks and bank holding companies indicated a correlation between
return on equity and price to last 12 months' earnings and price to book value.
Based on Security First's last 12 months' earnings return on equity of 4.19% at
June 30, 1999, this analysis yielded a price to last 12 months' earnings ratio
at which Security First might trade of 45.35x and an implied value of $0.4031
per share for Security First, based on closing trading prices on August 13,
1999. Based on Security First's June 30, 1999 fully-diluted book value of
$0.2573, this analysis yielded a price to book ratio at which Security First
might trade of 1.28x and an implied value of $0.3296 per share for Security
First, based on the same closing trading prices as above. Because the imputed
value of $0.6229 per Security First share very substantially exceeds this value,
the regression analysis supports that the consideration being received by
Security First shareholders is fair.

DISCOUNTED VALUE ANALYSIS. Carpenter estimated the present value (current share
price) based on estimated earnings that (a) Security First could produce on a
stand-alone basis through fiscal year 2004 without giving effect to, among other
things, potential cost savings that could be realized in a sale to an in-market
acquiror, and (b) that California Community and Security First combined could
produce. Carpenter utilized Security First management's and California Community
management's projections or the management plans, for the years 2000 through
2004. The range of estimated future prices was calculated by applying market
multiples ranging from 14.0x to 22.0x to the projected 2004 cash earnings of
Security First alone and of the combined companies. The estimated future share
prices were then discounted to present values using discount rates ranging from
12% to 20%. This analysis indicated an implied per share price range today for
Security First on a stand-alone basis of approximately $0.2592 to $0.5751. The
corresponding range for the combined companies, including estimated
consolidation savings provided by Security First and California Community
management, is $0.4083 to $0.9059 in Security First equivalent shares. These
analyses do not purport to be indicative of actual values or expected values of
Security First common stock.

Because the value range for the combined companies is higher than the range for
Security First on a stand-alone basis, the discounted value analysis suggests
that there is greater potential value for Security First shareholders in
completing the merger than in remaining independent.

The summary set forth above does not purport to be a complete description of the
presentation by Carpenter to the Security First Board of Directors, or of the
analyses performed by Carpenter. The preparation of a fairness opinion is not
necessarily susceptible to partial analysis or summary

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description. Carpenter believes that its analyses and the summary set forth
above must be considered as a whole and that selecting a portion of its analyses
and factors, without considering all analyses and factors, would create an
incomplete view of the process underlying the analyses set forth in its
presentation to the Security First Board of Directors. The ranges of valuations
resulting from any particular analysis described above should not be taken to be
Carpenter's view of the actual value of Security First, or the combined
companies.

In performing its analyses, Carpenter made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Security First or California
Community. Material among those assumptions were that of a reasonably stable
economic and interest rate environment, and no significant changes in the
regulatory and statutory regime governing the businesses of both California
Community and Security First sufficient to materially impact their results. The
analyses performed by Carpenter are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as part of
Carpenter's analysis of the fairness of the consideration to be received by the
holders of Security First common stock in the Orange/Security First merger and
were provided to the Security First Board of Directors in connection with the
delivery of Carpenter's opinion. The analyses do not purport to be appraisals or
to reflect the prices at which a company might actually be sold or the prices at
which any securities may trade at the present time or any time in the future.
The forecasts utilized by Carpenter in some of its analyses are based on
numerous variables and assumptions, which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those contemplated in such forecasts.

In the ordinary course of its business, Carpenter represents acquirers and
sellers of financial institutions, and has represented both Security First and
affiliates of California Community in the past.

Under the terms of the engagement letter, Security First will pay Carpenter a
fee of $35,000 for the fairness opinion. Security First has also agreed to
reimburse Carpenter for its reasonable out-of-pocket expenses. Security First
has agreed to indemnify Carpenter, its affiliates, and their respective
partners, directors, officers, agents, consultants, employees and controlling
persons against some liabilities. Carpenter is also providing services to
California Community and California Financial in preparing regulatory and
securities filings required to effect the Orange/Security First merger, and in
providing consulting advice relating to the Orange/Security First merger, and
will be compensated at its customary rates for such services. Carpenter
estimates its compensation for those services will be approximately $150,000 to
$175,000.

FEDERAL AND CALIFORNIA INCOME TAX CONSEQUENCES

The following summarizes all material federal and California income tax
consequences of the Orange/ Security First merger. Each shareholder's individual
circumstances may affect the tax consequences of the Orange/Security First
merger to him or her. In addition, the following description does not address
the tax consequences of the Orange/Security First merger under applicable state
or local laws, other than California law. CONSEQUENTLY, EACH SECURITY FIRST
SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE ORANGE/SECURITY FIRST MERGER TO HIM OR HER.

Lillick & Charles LLP, tax counsel for California Community, delivered its
opinion to Security First. The opinion states that for federal and related
California income tax purposes, under current law, the Orange/Security First
merger will constitute a reorganization under Section 368 of the Internal
Revenue Code. The opinion assumes that the Orange/Security First merger and
related transactions will take place as described in the Orange/Security First
agreement.

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In the opinion of Lillick & Charles LLP, the material federal and related
California income tax consequences of the Orange/Security First merger, will be
substantially as follows:

- - no gain or loss will be recognized by Orange, Security First or California
Community in the Orange/ Security First merger;

- - the basis and holding periods of the assets of Security First will carry over
to Orange;

- - no gain or loss will be recognized by the holders of Security First common
stock upon the exchange of such stock solely for California Community common
stock;

- - the receipt of cash in lieu of fractional share interests of California
Community common stock by holders of Security First common stock will result
in gain or loss equal to the difference between the amount of cash received
and the tax basis allocated to their fractional share interests. Whether the
gain or loss will constitute capital gain or loss for a particular shareholder
will depend upon whether that shareholder's Security First common stock is
held as a capital asset at the date of the Orange/ Security First merger;

- - where shareholders of Security First dissent to the proposed transaction and
receive cash for their Security First common stock, the cash received will be
treated as a distribution in redemption of such shares under the provisions
and limitations of Section 302. Those shareholders who receive solely cash,
and who hold no shares of California Community common stock directly or
through the application of Section 318(a), will be treated as receiving a cash
distribution in full payment for the Security First common stock as provided
in Section 302(a). In that case, gain or loss will be measured by the
difference between the amount of cash received and the adjusted basis of the
Security First shares. Such gain or loss will be capital gain or loss if the
shareholder held his or her Security First shares as a capital asset on the
date of the Orange/Security First merger;

- - the tax basis of California Community common stock received by the holders of
Security First common stock will be the same as the tax basis of the Security
First common stock converted in the Orange/Security First merger; and

- - the holding period of California Community common stock in the hands of the
shareholders of Security First will include the period during which the
Security First common stock converted in the Orange/Security First merger was
held, provided the Security First common stock was held as a capital asset on
the date of the Orange/Security First merger.

In developing its opinion, Lillick & Charles LLP relied upon facts and
representations provided to it by California Community's management and Security
First's management, and made no independent determination of the facts and/or
representations. The representations that California Community's management and
Security First's management made were factual in nature. In addition, Lillick &
Charles LLP based its opinion upon the analysis of the current Internal Revenue
Code, the California Revenue and Taxation Code, the regulations thereunder,
current case law, and published rulings. The foregoing are subject to change,
and any change may be retroactively effective. If so, Lillick & Charles LLP's
opinion may be affected and may not be relied upon..............................
Moreover, the opinions are
not binding on the IRS, the California Franchise Tax Board, or the courts, but
represent the best judgment of Lillick & Charles LLP as to the likely outcome of
the issues involved. Lillick & Charles LLP assumes no responsibility to update
its opinion after the date of the Orange/Security First merger because of such
change. Further, any variation or differences in the facts or representations,
for any reason, may affect Lillick & Charles LLP's opinion, perhaps in an
adverse manner, and make it inapplicable.

This tax discussion assumes that the tax opinion will not be withdrawn or
changed due to the changes in laws, or otherwise, prior to the date of the
Orange/Security First merger. If the tax opinion is withdrawn or materially
changed prior to the merger, shareholder approval will be resolicited.

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<PAGE>
RIGHTS OF DISSENTING SECURITY FIRST SHAREHOLDERS

Security First shareholders, other than California Financial, are not being
asked to vote on the Orange/ Security First merger. However, they are entitled
to dissenters' rights under Chapter 13 of the California General Corporation
Law. Chapter 13 is reprinted in Exhibit VI to this proxy statement/ prospectus.
All references in Chapter 13 and in this section to a "shareholder" are to the
record holder of dissenting shares. A person who has a beneficial interest in
shares of Security First common stock that are held of record in the name of
another person, like a broker or nominee, and who wishes to exercise his or her
dissenter's rights should act promptly to cause the shareholder of record to
follow the steps summarized below properly, and in a timely manner to perfect
his or her dissenter's rights.

The following discussion is not a complete statement of the law relating to
dissenters' rights and is qualified in its entirety by Exhibit VI which is
incorporated into this proxy statement/prospectus. Any shareholders who wish to
exercise dissenters' rights, or who wish to preserve the right to do so, should
review this discussion and Exhibit VI carefully, since failure to comply with
the procedures set forth in Chapter 13 will result in the loss of dissenters'
rights.

When the Orange/Security First merger is completed, those Security First
shareholders who elect to exercise their dissenters' rights and who properly and
timely perfect such rights, will be entitled to receive the "fair market value,"
in cash, of their shares. Section 1300(a) of the California General Corporation
Law provides that "fair market value" would be determined as of the day before
the first announcement of the terms of the Orange/Security First merger,
excluding any appreciation caused by the Orange/Security First merger. That date
was October 29, 1999. See "Market Prices."

Within 10 days of the written approval by California Financial, in its capacity
as Security First's majority shareholder, of the Orange/Security First merger,
Security First will mail a notice to all other record holders of shares of
Security First common stock, stating that the required shareholder approval of
the Orange Security First merger was obtained. The notice of approval will set
forth the price determined by Security First to represent the "fair market
value" of any dissenting shares, and will set forth the procedures to be
followed by dissenting shareholders who wish to pursue further their statutory
rights. The procedures include a timely written demand that must be made upon
Security First in order to perfect the right to dissent. The notice of approval
will include a copy of Sections 1300 through 1304 of the California General
Corporation Law.

Under Section 1301(a) of the California General Corporation Law, Security
First's statement in the notice of approval of its determination of the fair
market value of Security First common stock will constitute an offer by Security
First to purchase from its shareholders any dissenting shares at that price,
assuming the Orange/Security First merger is completed. However, Security
First's determination of fair market value is not binding on its shareholders,
and if a dissenting shareholder chooses not to accept that offer, he or she has
the right during a period of 6 months following the mailing of the Security
First notice of approval to commence a lawsuit to have the fair market value, as
described in Section 1300(a), determined by a court. The fair market value as
determined by the court could be higher or lower than the amount offered by
Security First in its notice of approval and any determination by the court
would be binding on both the dissenting shareholder or shareholders involved in
the lawsuit and Security First, as applicable.

Any record holder of Security First common stock who wishes to exercise
dissenters' rights, or to preserve the right to do so, must make a written
demand upon Security First that Security First pay the shareholder in cash the
fair market value of his or her dissenting shares.

The demand by holders of Security First common stock should be sent to Security
First Bank, 141 West Bastanchury Road, Fullerton, California 92835, Attention:
President. The written demand must state the number of shares held of record by
the shareholder, and the number of shares which the shareholder demands that
Security First purchase for cash, and must also contain a statement of the

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amount which the shareholder claims to be the fair market value of the
dissenting shares, as of the day before the announcement of the proposed
Orange/Security First merger. That statement will constitute an offer by the
shareholder to sell his or her dissenting shares to Security First at that
price. The certificates for shares of Security First common stock must also be
included with the written demand.

The written demand and the dissenting shareholder's share certificate(s) must be
received by Security First within 30 days after the date on which the Security
First notice of approval was mailed to the shareholder. The certificate(s) will
be stamped or endorsed with a statement that the shares are dissenting shares
and returned to the dissenting shareholder.

If Security First does not receive the shareholder's written demand within 30
days after the Security First notice of approval was mailed to the shareholder,
or if the shareholder otherwise fails to comply in a timely manner with the
procedures of Chapter 13 as discussed in this section or contained in Exhibit
VI, that shareholder will be bound by the terms of the Orange/Security First
agreement, and will lose the right to receive the fair market value of his or
her shares in cash.

Dissenting shares may lose their status as dissenting shares if any of the
following occurs:

- - the Orange/Security First merger is abandoned;

- - the shares are transferred before being submitted to Security First for
endorsement;

- - the shareholder withdraws his or her demand with the consent of Security First
in the absence of an agreement between the shareholder and Security First as
to the price of his or her shares; or,

- - the shareholder fails to file suit against Security First or otherwise fails
to become a party to the suit within 6 months following the mailing of the
Security First notice of approval.

Security First will pay the fair market value of dissenting shares at the later
of 30 days following an agreement as to the amount to be paid, or within 30 days
after all statutory and contractual conditions to the Orange/Security First
merger are satisfied. However, if the payment cannot be made due to the
provisions set forth in the California Financial Code or the California General
Corporation Law dealing with restrictions on a corporation's ability to
distribute funds or assets to a shareholder, then those shareholders holding
dissenting shares will become creditors of Security First and their claims will
be payable as soon as permissible under those provisions. See "Description of
the Capital Stock of California Community, Security First and Business Bank,"
and "Market Prices."

This discussion summarizes some provisions of Chapter 13 of the California
General Corporation Law, but shareholders of Security First considering the
exercise of their rights under those sections should read in full Chapter 13,
which is reproduced in Exhibit VI and should consult their own legal advisors.
The receipt of cash payment for dissenting shares will result in recognition of
gain or loss for federal income tax purposes by the dissenting shareholders. See
"Description of the Orange/Security First Merger--Federal and California Income
Tax Consequences."

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PROXY STATEMENT OF BUSINESS BANK

MATTERS TO BE CONSIDERED BY BUSINESS BANK SHAREHOLDERS MEETING

The Business Bank meeting has been called so that the Business Bank shareholders
can vote upon the CalWest/Business Bank merger. The CalWest/Business Bank merger
will be accomplished by the merger of Business Bank into CalWest. After the
California Community/California Financial merger and the CalWest/Business Bank
merger, CalWest will be a subsidiary of California Community.

RECORD DATE

Shareholders of record on November 22, 1999 will be entitled to notice of and
the opportunity vote at the Business Bank meeting.

THE BUSINESS BANK MEETING

The Business Bank Meeting will be held at the offices of Buchalter, Nemer,
Fields and Younger, a professional corporation, 601 South Figueroa Street,
Suite 2400, Los Angeles, California at 10:00 a.m. on December 29, 1999.

OUTSTANDING SECURITIES AND VOTING RIGHTS

There were 572,775 shares of Business Bank common stock outstanding as of the
Business Bank record date, held by approximately 104 record holders. Each holder
of Business Bank common stock can cast one vote for each share of Business Bank
common stock held as of the Business Bank record date, on any matter presented
for a vote of the shareholders at the Business Bank meeting.

Approval of the CalWest/Business Bank merger requires the affirmative vote of
the holders of 66 2/3% of the outstanding shares of Business Bank common stock.
As California Financial owns approximately 65% of the outstanding shares of
Business Bank common stock, and Business Bank directors, in their capacity as
shareholders, owning approximately 8.8% of the outstanding shares of Business
Bank common stock have entered into shareholder agreements to vote in favor of
the CalWest/Business Bank merger, no additional shares are required to vote in
favor of the proposal to approve the CalWest/ Business Bank merger.

The effect of broker nonvotes is that these votes are not counted as being
voted; however, these votes are counted for purposes of determining a quorum.
The effect of a vote of abstention on any matter is that the vote is not counted
as a vote for or against the matter, but is counted as an abstention.

BOARDS OF DIRECTORS UNANIMOUSLY APPROVE MERGER

The California Community, CalWest and Business Bank Boards of Directors have
each unanimously voted in favor of the proposals relating to the
CalWest/Business Bank merger, and individual members of Business Bank's Board of
Directors owning 8.8% of Business Bank's common stock, in their capacity as
shareholders, have entered into agreements with California Community to vote all
shares of Business Bank common stock as to which they have voting power "FOR"
approval of the CalWest/Business Bank merger.

The Business Bank Board of Directors recommends that Business Bank shareholders
also vote "FOR" approval of the CalWest/Business Bank merger. See
"Introduction--Beneficial Ownership of Principal Shareholders and Management."

REVOCABILITY OF BUSINESS BANK PROXIES

A proxy for use at the Business Bank meeting is enclosed. A shareholder
executing and returning a proxy may revoke it at any time before the vote is
taken by filing with the Secretary of Business Bank,

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an instrument revoking the proxy or by a duly executed proxy bearing a later
date. In addition, the powers of the proxy holders will be suspended if the
person executing the proxy is present at the Business Bank meeting, and elects
to vote in person and, in fact, votes in person at the Business Bank meeting. To
vote in person, the shareholder must advise the chairman of the Business Bank
meeting of the shareholder's election to vote in person. Subject to revocation
or suspension, all shares represented by a properly executed proxy received in
time for the Business Bank meeting will be voted by the proxy holders in
accordance with the instructions specified on the proxy. If no directions are
given to the contrary on the proxy, the shares of Business Bank represented by
the proxy will be voted "FOR" approval of the CalWest/Business Bank merger at
the meeting.

COST OF SOLICITATION OF PROXIES

Business Bank will pay its expenses of preparing, assembling, printing and
mailing this proxy statement/ prospectus and the material used in this
solicitation of proxies. Management of Business Bank contemplates that proxies
will be solicited through the mail, but officers, directors and regular
employees of Business Bank may solicit proxies personally. Although there is no
formal agreement to do so, Business Bank may reimburse banks, brokerage houses
and other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to their principals. In addition, Business Bank
may pay for and utilize the services of individuals or companies not regularly
employed by it, in the solicitation of proxies if the Business Bank Board of
Directors determines that these services are advisable.

OTHER BUSINESS

The Business Bank Board of Directors knows of no other matters to be presented
at the Business Bank meeting, except the proposal concerning the
CalWest/Business Bank merger set forth above. If other matters properly come
before the Business Bank meeting, however, it is the intention of the persons
named in the accompanying proxy card to vote the shares covered by valid proxies
in accordance with their best judgment and in their sole discretion.

BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The beneficial owner of a security is a person who has or shares: (a) the power
to vote, or (b) the power to dispose of the security.

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<PAGE>
BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS

Business Bank's Board of Directors knows of no person who owns beneficially more
than 5% of the outstanding shares of Business Bank common stock as of the
Business Bank record date, except for the persons in the following table:

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------------------ -------------------- -------------
<S> <C> <C>
PETER D. HOCSON ............................................ 53,094(1) 9.27%
23550 Hawthorne Blvd.
Torrance, California 90505

MICHAEL HERMAN ............................................. 42,500(2) 7.4%
23550 Hawthorne Blvd.
Torrance, California 90505

CALIFORNIA FINANCIAL ....................................... 370,576 64.7%
10101 Slater Avenue
Fountain Valley, California 92728
</TABLE>

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

(1) Includes 52,594 shares owned by Huna Totem Corporation, of which Mr. Hocson
is Chief Executive Officer.

(2) Includes 20,000 shares held in trust.

BENEFICIAL OWNERSHIP OF MANAGEMENT

For information about the number of shares of Business Bank common stock
beneficially owned by each director and named executive officer, and by all
directors and executive officers as a group see "Description of Business
Bank--Management" at page 258 of the proxy statement/prospectus.

BENEFICIAL OWNERSHIP OF CALIFORNIA FUND AFTER THE MERGER

FOLLOWING THE CALIFORNIA COMMUNITY/CALIFORNIA FINANCIAL MERGER AND THE
CALWEST/BUSINESS BANK MERGER, THE CALIFORNIA FUND WILL OWN OVER 96% OF
CALIFORNIA COMMUNITY.

The California Community and Business Bank Boards of Directors anticipate that
if the California Community/California Financial merger and the CalWest/Business
Bank merger are completed, no one will own beneficially more than 5% of
California Community common stock except the California Fund, which will own
approximately 96.1%. See "Description of the CalWest/Business Bank
Merger--Business Bank Conversion Rate and Exchange of Shares and Options."

FOLLOWING THE CALIFORNIA COMMUNITY/CALIFORNIA FINANCIAL MERGER, THE
ORANGE/SECURITY FIRST MERGER, AND THE CALWEST/BUSINESS BANK MERGER, THE
CALIFORNIA FUND WILL OWN OVER 94% OF CALIFORNIA COMMUNITY.

The California Community, Security First and Business Bank Boards of Directors
anticipate that if the California Community/California Financial merger, the
Orange/Security First merger, and the CalWest/ Business Bank merger are
completed, no one will own beneficially more than 5% of California Community
common stock except the California Fund, which will own approximately 94.8%.

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DESCRIPTION OF THE CALWEST/BUSINESS BANK MERGER

GENERAL

This section of the proxy statement/prospectus contains information furnished by
the Business Bank Board of Directors in its solicitation of proxies for the
Business Bank meeting to approve the CalWest/ Business Bank merger. The
CalWest/Business Bank agreement sets out the terms of the merger of Business
Bank with and into CalWest.

The Business Bank Board of Directors is asking its shareholders to vote upon the
CalWest/Business Bank merger. Business Bank will be merged into CalWest, and
CalWest will be the surviving bank. Upon completion of the merger, each share of
Business Bank common stock, other than shares held by shareholders who exercise
and perfect dissenters' rights, will be converted into the right to receive
1.5053 shares of California Community common stock. See "Description of the
CalWest/Business Bank Merger--Business Bank Conversion Rate and Exchange of
Shares and Options." As a result of the California Community/California
Financial merger and CalWest/Business Bank merger, CalWest will become a
wholly-owned subsidiary of California Community.

A copy of the CalWest/Business Bank agreement is attached to this proxy
statement/prospectus as Exhibit III, and incorporated herein by this reference.

BACKGROUND AND REASONS FOR THE CALWEST/BUSINESS BANK MERGER

The CalWest/Business Bank merger is part of an overall reorganization of the
bank holding company and bank subsidiaries of the California Fund. The
reorganization should contribute to the future performance of the combined
companies by eliminating duplicate costs and by creating larger banks that can
better compete with other financial institutions in their respective
communities. Management of CalWest and Business Bank anticipate duplicate costs
of approximately $300,000 can be elimated as a result of the Cal/West/Business
Bank merger.

To protect its minority shareholders, the Business Bank Board of Directors
engaged the services of Findley Group to advise it on financial aspects of the
merger, and to issue an opinion that the transaction was fair, from a financial
point of view, to Business Bank and its shareholders. The Business Bank Board of
Directors also engaged Buchalter, Nemer, Fields & Younger, a professional
corporation, as independent counsel. Findley Group issued its fairness opinion
on August 31, 1999. The Business Bank Board of Directors met on July 28, 1999,
again on August 25, 1999, and on August 30, 1999. Findley Group gave its verbal
opinion at the August 25 and August 30 meetings. At the August 30 meeting, the
Business Bank Board unanimously approved the CalWest/Business Bank merger.

BUSINESS BANK'S ANALYSIS. In determining to approve the CalWest/Business Bank
merger and recommend that Business Bank's shareholders approve and authorize the
CalWest/Business Bank merger, the Business Bank Board of Directors consulted
with Business Bank's senior management, its financial advisor, as well as its
legal counsel, and considered the following material factors:

- - the potential increased liquidity to be provided to Business Bank's
shareholders by receiving shares of California Community common stock in
exchange for their shares of Business Bank common stock. The Business Bank
Board of Directors believed that because there would be a larger number of
shareholders and outstanding shares of California Community after the mergers,
the shareholders

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of Business Bank might receive the benefit of a more active market for their
shares after completion of all three mergers;

- - the economic conditions and prospects for the markets in which Business Bank
operates, and competitive pressures in the financial services industry in
general and the banking industry, in particular;

- - the enhancement of Business Bank's competitiveness and its ability to serve
its customers, depositors, creditors, other constituents and the communities
in which it operates as a result of a business combination with another Los
Angeles County bank, such as CalWest;

- - information concerning the business, results of operations, asset quality and
financial condition of Business Bank and CalWest on a stand-alone and combined
basis, and the future growth prospects of CalWest and California Community
following the CalWest/Business Bank merger;

- - the cost savings and operational synergies which the management of Business
Bank believes may be achieved as a result of the CalWest/Business Bank merger;

- - the terms and conditions of the CalWest/Business Bank agreement and related
agreements;

- - the potential disadvantages of the CalWest/Business Bank merger. These were
principally the possible adverse effect on employees of Business Bank and the
potential adverse effect on Business Bank's customers of being merged into
CalWest;

- - Findley Group's analysis of the financial condition, results of operations,
business, prospects and stock price of Business Bank, and comparison of
Business Bank to other banks and bank holding companies operating in its
industry;

- - an analysis of the terms of other acquisitions in the banking industry;

- - the opinion of Findley Group to the effect that, as of the date of the
opinion, the Business Bank conversion rate is fair, from a financial point of
view, to the holders of Business Bank common stock; and

- - the expectation that the CalWest/Business Bank merger will constitute a
tax-free reorganization for federal income tax purposes.

This discussion of the factors considered by the Business Bank Board of
Directors is not intended to be exhaustive. In view of the variety and nature of
the factors considered by the Business Bank Board of Directors, the Business
Bank Board of Directors did not find it practicable to assign relative weights
to the specific factors considered in reaching its decision.

The Business Bank Board of Directors believes the CalWest/Business Bank merger
to be in the best interests of Business Bank, its shareholders and banking
customers. Following the merger, CalWest will have the advantage of the
consolidation and centralization of some management functions and some resulting
economies of scale. Furthermore, it is believed that the merger will result in a
bank which will be a strong and viable financial institution, better able to
compete with the major banks in the areas now served by Business Bank and
CalWest.

THE BUSINESS BANK BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
CALWEST/BUSINESS BANK MERGER, AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF
THE CALWEST/BUSINESS BANK MERGER.

BUSINESS BANK CONVERSION RATE AND EXCHANGE OF SHARES AND OPTIONS

BUSINESS BANK CONVERSION RATE. Each share of Business Bank common stock which
is outstanding immediately prior to the CalWest/Business Bank merger (other than
shares as to which its holders have exercised and perfected dissenters' rights)
will automatically be canceled and will be converted into the

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right to receive from California Community 1.5053 shares of California Community
common stock for each share of Business Bank common stock.

No fractional shares of California Community common stock will be issued in the
CalWest/Business Bank merger. Instead, Business Bank shareholders will receive
an amount in cash equal to the product (rounded to the nearest hundredth)
obtained by multiplying (a) $10.00 by (b) the fraction of a share of California
Community common stock to which the holder would otherwise be entitled.

- - EXCHANGE PROCEDURE. After the merger, each Business Bank shareholder will be
sent instructions as to how to exchange shares of Business Bank common stock
for shares of California Community common stock. The instructions will include
a transmittal letter. The transmittal letter must be completed by the
shareholder and returned to the Business Bank exchange agent along with the
shareholder's certificate(s) for Security First common stock, duly endorsed as
California Community may require. In exchange for Business Bank certificates,
each holder will then receive:

- - a certificate representing the number of whole shares of California Community
common stock to which the holder is entitled based upon the Business Bank
conversion rate; and

- - a check for any fractional share.

Until surrendered and exchanged, each outstanding Business Bank certificate will
be deemed for all corporate purposes to represent the number of shares of
California Community common stock into which the number of shares of Business
Bank common stock shown on the certificate have been converted. No dividends or
other distributions which are declared on California Community common stock will
be paid to persons otherwise entitled to receive the same, until the Business
Bank certificates have been surrendered in exchange for new certificates.
However, upon surrender of the Business Bank certificates, the dividends or
other distributions, from and after the completion of the CalWest/Business Bank
merger, will be paid in accordance with the terms of the California Community
common stock. In no event will the persons entitled to receive the dividends or
other distributions be entitled to receive interest on the dividends or other
distributions.

No shareholder will be liable for any transfer taxes unless the shareholder
requests a certificate for California Community common stock to be issued in a
name other than the shareholder's. The person requesting the issuance will
properly endorse the Business Bank certificates and will pay to California
Community or the Business Bank exchange agent any transfer taxes owed for that
transfer or for any prior transfer or establish to the satisfaction of
California Community or the Business Bank exchange agent that the taxes have
been paid or are not payable.

If any holder of Business Bank common stock cannot surrender any Business Bank
certificates because the certificates have been lost or destroyed, the holder
may instead deliver an affidavit and indemnity undertaking in form and substance
and, if required, with surety satisfactory to the Business Bank exchange agent
and California Community.

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<PAGE>
DIRECTORS AND MANAGEMENT OF CALWEST AFTER THE CALWEST/BUSINESS BANK MERGER

At the effective time of the CalWest/Business Bank merger, the directors and
management of CalWest will be as follows:

<TABLE>
<CAPTION>
NAME POSITION PRINCIPAL OCCUPATION
- ---- ----------------------- ----------------------------------------------
<S> <C> <C>
Ronald W. Bachli Director Manager - Belvedere Capital Partners LLC,
Director, President and Chief Executive
Officer -
California Community

J. Thomas Byrom Director Chief Financial Officer & Secretary -
Belvedere Capital Partners LLC
Director and Secretary - California Community

Chris Daglas Director Real estate investor

Harvey Ferguson Director President, Chief Executive Officer & Director
Chairman and -California Financial
Chief Executive Officer President & Chief Executive Officer - Orange

Richard Gomez Director Office Equipment Distributor

Karol Glover Director Real Estate Executive, Director, Business Bank

Joseph Heitzler Director Television Executive, Director Business Bank

Kenneth P. Hurley Director, Banking Executive
President and
Chief Operating Officer

Michael Herman Director Accountant, Director, Business Bank

Donald James Lee Director Insurance Executive

Louis Buitron Chief Credit Officer Banking Executive

Yvonne Cattell Chief Financial Officer Banking Executive
</TABLE>

CAPITAL REDUCTION

As a condition to the CalWest/Business Bank merger, CalWest and Business Bank
will have obtained all shareholder and regulatory approval of a reduction of the
banks' capital through distributions of cash to California Community. CalWest
has applied for approval of a capital reduction of up to $1,200,000, based upon
the combined results of CalWest and Business Bank, to take place after the
CalWest/Business Bank merger. As the capital reduction will occur after the
merger, approval of the shareholders of Business Bank is not required. Findley
Group considered the reduction in rendering its opinion.

By distributing excess capital from the individual banks to California
Community, the capital reductions allow California Community to allocate excess
capital among its subsidiary banks, as needed, in a manner that will make the
most of efficient use of available capital on a company wide basis. As Business
Bank shareholders will receive California Community common stock in the merger,
the capital reductions should have no effect on these shareholders.

53
<PAGE>
FINANCIAL INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS IN THE CALWEST/BUSINESS
BANK MERGER AND MATERIAL CONTRACTS WITH BUSINESS BANK AND ITS AFFILIATES

As required by the CalWest/Business Bank agreement, all directors of CalWest
other than directors Byrom, Daglas, and Ferguson resigned from the CalWest
board. Among those persons elected to replace the resigned directors were
Business Bank directors Karol Glover, Richard Gomez, Joseph Heitzler, Michael
Herman, and David James Lee. CalWest directors receive a monthly fee of $1,100
for attendance at Board meetings and $50'0 for each committee meeting attended.

Also, Harvey Ferguson, Vice Chairman and interim Chief Executive Officer of
Business Bank also continues to serve as Chairman and Chief Executive Officer of
CalWest and President and Chief Executive Officer of Orange.

1. not to take any action that will alter or affect in any way the right to
vote the shares of Business Bank common stock, except:

- with the prior written consent of California Community, or

- to change the form of stock ownership from joint to sole; and

2. to vote all shares of Business Bank common stock for which the director has
voting power in favor of the CalWest/Business Bank merger.

The shareholder agreements also provide that for a period of 2 years after the
completion of the CalWest/Business Bank merger, or until the director is removed
or not reelected, the director will not compete with CalWest.

REGULATORY APPROVAL AND COMPLETION OF THE CALWEST/BUSINESS BANK MERGER

The CalWest/Business Bank merger is subject to approval by the California
Department of Financial Institutions and the Federal Reserve. The completion of
the CalWest/Business Bank merger is anticipated to take place on a day which
will not, however, be later than 30 days after:

- - the receipt of the last required regulatory approval and expiration of all
applicable waiting periods, and

- - satisfaction of the conditions precedent to the obligations of each of
California Community, CalWest and Business Bank or the written waiver of the
conditions by California Community, CalWest or Business Bank, as applicable.

It is presently anticipated that the CalWest/Business Bank merger will be
completed during the last quarter of this year.

54
<PAGE>
CONDITIONS TO THE CALWEST/BUSINESS BANK MERGER

The CalWest/Business Bank agreement provides that the completion of the
CalWest/Business Bank merger is subject to various conditions which must be
satisfied before the completion of the merger, including the following:

1. The merger will have been approved by the vote of the holders of 66 2/3% of
the outstanding stock of Business Bank.

2. All approvals or permits required to be obtained, and all waiting periods
required to expire, for the CalWest/Business Bank merger will have been
obtained or expired. Any permits or approvals will not impose any materially
burdensome condition on any party to the CalWest/Business Bank merger as
determined by the party affected.

3. There will not be any action taken, or any law, regulation or order enacted,
enforced or deemed applicable to the CalWest/Business Bank merger, by any
government entity which:

- makes the completion of the CalWest/Business Bank merger illegal; requires
the divestiture by California Community of any material asset, or of a
material portion of the business of California Community; or

- imposes any condition upon California Community or its subsidiaries which
in the judgment of California Community would be materially burdensome.

4. California Community's registration statement will have become effective
under the Securities Act, and no "stop order" suspending the effectiveness
of the Registration Statement will have been issued and will remain in
effect. No action or proceeding will have been instituted to restrain or
prohibit the transactions contemplated in the CalWest/Business Bank
agreement.

5. The representations and warranties of each of California Community, CalWest
and Business Bank contained in the CalWest/Business Bank agreement will be
true in all material respects as of the date of completion of the merger;
each of California Community, CalWest and Business Bank will have duly
performed and complied in all material respects with all conditions required
by the CalWest/Business Bank agreement, except where the failure to so
perform and comply would not have or would not be reasonably likely to have
a material adverse effect on Business Bank or CalWest as the surviving
corporation of the CalWest/Business Bank merger; and none of the events or
conditions entitling either party to terminate the CalWest/Business Bank
agreement will have occurred and be continuing.

6. California Community, CalWest and Business Bank will have received
certificates of officers of the other parties stating that the
representations and warranties as set forth in the CalWest/Business Bank
agreement are true and correct, as well as opinions of counsel for the other
party.

7. No action, suit or proceeding will have been instituted or threatened before
any court or governmental body seeking to challenge or restrain the
transactions contemplated by the CalWest/ Business Bank agreement which
presents a substantial risk that the transactions will be restrained or that
either California Community or CalWest, or Business Bank may suffer material
damages.

8. The holders of no more than 10% of the outstanding shares of Business Bank
common stock will have exercised dissenters' rights.

9. There will not have been any change in financial condition, aggregate net
assets, shareholders' equity, business, or operating results of Business
Bank from December 31, 1998 to the date of completion of the merger that
results in a material adverse effect as to Business Bank.

10. No event or circumstance will have occurred which has or could reasonably be
expected to have a material adverse effect on Business Bank.

55
<PAGE>
11. Business Bank will have received a written opinion from Findley Group
confirming the fairness of the terms of the merger to Business Bank and its
shareholders, from a financial point of view, and this opinion will not have
been withdrawn prior to the date of completion of the CalWest/Business Bank
merger.

12. All directors of CalWest except J. Thomas Byrom, Chris Daglas, and Harvey
Ferguson will have tendered their resignations as CalWest directors prior to
the effective time of the merger. The resignations occurred on September 8,
1999. See "Financial Interests of Directors and Executive Officers in the
CalWest/Business Bank Merger."

13. CalWest will have obtained shareholder approval and the approval of all
appropriate regulators to make, upon completion of the CalWest/Business Bank
merger, a capital reduction through a distribution of cash to California
Community in amounts approved by regulatory authorities.

On October 27, 1999, the Federal Reserve approved the CalWest/Business Bank
merger subject to approval of the Business Bank shareholders. The California
Department of Financial Institutions approved the capital reductions, and also
approved the CalWest/Business Bank merger, subject to approval of the Business
Bank shareholders, on November 5, 1999. In addition, on September 14, 1999,
Findley Group rendered its written opinion to Business Bank's Board of Directors
that the merger consideration to be received in the CalWest/Business Bank merger
is fair, from a financial point of view, to the Business Bank shareholders.

WAIVER, AMENDMENT AND TERMINATION

Any term or provision of the CalWest/Business Bank agreement, other than
regulatory approval or any of the provisions required by law, may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits of the term or provision.

The CalWest/Business Bank agreement provides that it may be terminated prior to
the completion of the CalWest/Business Bank merger:

1. By mutual consent of the California Community and Business Bank Boards of
Directors.

2. By California Community or Business Bank upon the failure to satisfy any
conditions specified in the CalWest/Business Bank agreement if the failure
is not caused by any action or inaction of the party requesting termination.

3. By California Community if the Business Bank Board of Directors approves a
transaction in which any person or group of persons, other than California
Community, acquires ownership or control of 5% or more of Business Bank
common stock.

4. By either California Community, CalWest or Business Bank if there will have
been a material breach of any of the representations or warranties of the
other party, which breach, in the reasonable opinion of the terminating
party, by its nature cannot be cured or is not cured prior to the closing of
the CalWest/Business Bank merger, and which breach would, in the reasonable
opinion of the terminating party, individually or in the aggregate, have, or
be reasonably likely to have, a material adverse effect on the breaching
party, or upon the completion of the CalWest/ Business Bank merger.

5. By California Community, CalWest or Business Bank after the occurrence of a
default by the other party and the continuance of the default for a period
of 20 business days after written notice of the default, if the default, in
the reasonable opinion of the terminating party, cannot be cured prior to
the closing of the CalWest/Business Bank merger.

6. By California Community, CalWest or Business Bank upon the failure of any of
the conditions specified in the CalWest/Business Bank agreement to have been
satisfied prior to January 31, 2000.

56
<PAGE>
OPINION OF BUSINESS BANK'S FINANCIAL ADVISOR

GENERAL.

Business Bank retained Findley Group to act as its financial advisor in
connection with the merger pursuant to an engagement letter dated August 19,
1999. Findley Group initially rendered to the Business Bank Board of Directors
an oral opinion on August 25, 1999, that the consideration to be received by the
holders of Business Bank common stock pursuant to the merger was fair, from a
financial point of view, to the holders of the Business Bank common stock. On
September 14, 1999, Findley Group delivered its written opinion that under the
terms of the merger agreement and subject to the assumptions and limitations set
forth therein, the consideration to be received by the holders of Business Bank
common stock was fair, from a financial point of view, to the holders of
Business Bank common stock. A copy of the Findley Group opinion dated
September 14, 1999, is attached as Exhibit V to this proxy statement/prospectus,
and should be read in its entirety. The following summary is qualified in its
entirety by reference to the full text of the opinion. This opinion is addressed
to the Business Bank Board of Directors, and does not constitute a
recommendation to any Business Bank shareholder as to how such shareholder
should vote at the special meeting.

In connection with its fairness opinion, Findley Group, among other things:

- - reviewed some publicly available financial and other data with respect to
Business Bank, including the financial statements for 1998, Business Bank's
first period of operation, and interim periods to June 30, 1999, and some
other relevant financial and operating data relating to Business Bank made
available to Findley Group from published sources and from the internal
records of Business Bank;

- - reviewed some publicly available financial, and other data with respect to
California Community and the financial institutions affiliated with California
Community, CalWest, Orange, Security First and Placer Sierra, for recent years
and the interim periods to June 30, 1999, and some other relevant financial
and other operating data relating to California Community and the affiliated
banks referenced above in this paragraph, made available from published
sources and from California Community;

- - reviewed the CalWest/Business Bank merger agreement;

- - reviewed certain historical market prices and trading volumes of Business Bank
common stock;

- - compared Business Bank, California Community and the affiliated banks
referenced above, from a financial point of view, with certain other banks and
bank holding companies that Findley Group deemed to be relevant;

- - considered the financial terms, to the extent publicly available, of selected
recent business combinations of banks and bank holding companies that Findley
Group deemed to be comparable, in whole or in part, to the merger;

- - reviewed and discussed with representatives of the management of Business Bank
certain information of a business and financial nature regarding Business
Bank, California Community and the affiliated banks referenced above furnished
to Findley Group by Business Bank and California Community, including
financial forecasts and related assumptions of Business Bank and California
Community;

- - made inquiries regarding and discussed the merger and the merger agreement, as
amended, and other matters related to the merger and merger agreement with
Business Bank's counsel; and

- - performed such other analyses and examinations as Findley Group deemed
appropriate.

For its evaluation, Findley Group used an exchange ratio under the terms of the
CalWest/Business Bank agreement of 1.5053.

57
<PAGE>
CONTRIBUTION ANALYSIS. Findley Group analyzed the contribution of each of
Business Bank and California Community, including its affiliated banks, to,
among other things, total deposits, demand deposits, total loans, shareholders'
equity, gross income and net income through June 30, 1999, before taking into
consideration the CalWest/Business Bank merger. The following table presents the
results of this analysis with respect to the combined company's total deposits,
demand deposits, total loans, shareholders' equity (before costs savings and
revenue enhancements), gross income and net income as of June 30, 1999:

<TABLE>
<CAPTION>
CALIFORNIA
COMMUNITY* BUSINESS BANK
---------- -------------
<S> <C> <C>
Total Deposits...................................... 98.73% 1.27%
Demand Deposits..................................... 98.88% 1.12%
Total Loans......................................... 98.93% 1.07%
Shareholders' equity................................ 94.24% 5.76%
Gross Income........................................ 98.27% 1.73%
Net Income.......................................... 100.0% NEG
</TABLE>

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

* The totals for California Community are the combination of June 30, 1999
financial information for the affiliated banks.

Based upon the stock consideration to be paid in the CalWest/Business Bank
merger as provided in the CalWest/Business Bank agreement, the Business Bank
shareholders would own approximately 3.92% of the combined company. Findley
Group determined that while Business Bank was providing a larger contribution of
shareholders' equity, Business Bank has not achieved profitable operations and
the affiliated banks referenced above of California Community were contributing
more to the combined company than Business Bank in the area of deposits, loans
and net income.

DISCOUNTED CASH FLOW ANALYSIS. Findley Group examined the results of a
discounted cash flow analysis designed to compare the exchange ratio with the
present value, under certain assumptions, that would be attained if Business
Bank remained independent through 2003 and was at that time then acquired by a
larger financial institution. The cash flows for the combined company assumed an
exchange ratio of 1.5053 of a share of California Community common stock for
each share of Business Bank common stock. The results produced in the analysis
did not purport to be indicative of actual values or expected values of Business
Bank or the combined company at such future date.

The discount rates used ranged from 10% to 14%. For the Business Bank
stand-alone analysis, the terminal price multiples applied to the 2003 estimated
cash earnings per share ranged from 12.0 to 20.0. The lower levels of the price
to earnings values multiples range reflected an estimated future trading range
of Business Bank or the combined company, while the higher levels of the price
to earnings value multiples range were more indicative of a future sale of
Business Bank or the combined companies to a larger financial institution.

For the Business Bank stand-alone analysis, the cash flows were comprised of no
projected stand-alone cash or stock dividends in years 1999 through 2003, plus
the terminal value of Business Bank common stock at the year end 2003
(calculated by applying each one of the assumed terminal price to earnings value
multiples as stated above to the 2003 projected Business Bank earnings per
share).

Findley Group utilized this discounted cash flow analysis to make certain
comparisons regarding future potential values for Business Bank common stock.
Findley Group compared the equivalent per share value for a share of Business
Bank common stock implied by an assumed exchange ratio of 1.5053, with

58
<PAGE>
values for a share of Business Bank common stock derived from the discounted
cash flow analysis described above based on the following sets of assumptions:

- - a conservative scenario, without giving effect to the announcement of the
merger that assumed that projected conservative earnings for Business Bank
would be achieved, a present value discount rate of 12% and a terminal price
to earnings value multiple of 18.0x and that Business Bank remains independent
through 2002 and is then acquired by a larger financial institution at an
earnings value multiple of 18.x (Case I in the table below);

- - an optimistic scenario, without giving effect to the announcement of the
merger that assumed that projected optimistic earnings for Business Bank would
be achieved, a present value discount rate of 12% and a terminal price to
earnings value multiple of 18.0x and that Business Bank remains independent
through 2003 and is then acquired by a larger financial institution at an
earnings multiple of 18.x (Case II in the table below); and

- - a scenario that assumed that the merger is consummated, that the combined
company remains independent through 2003, achieving the cash earnings
projections provided by California Community, a present value discount of 12%
and a terminal price to cash earnings multiple of 18.0x and California
Community is then acquired by a larger financial institution at a multiple of
18.x (Case III in the table below).

The following table presents the results of that comparison:

<TABLE>
<CAPTION>
IMPLIED VALUE BASED ON:
-----------------------------------------------
EXCHANGE RATIO CASE I CASE II CASE III
-------------- -------- -------- --------
<S> <C> <C> <C> <C>
Value per share of Business Bank common stock........... $10.00 $3.35 $6.63 $7.90
</TABLE>

These analyses do not purport to be indicative of actual values or expected
values of the shares of Business Bank common stock. Discounted present value
analysis is a widely used valuation methodology which relies on numerous
assumptions, including asset and earnings growth rates, dividend payout rates,
terminal values and discount rates. The analysis showed that a higher (lower)
level of projected earnings raised (lowered) the resulting present value for a
given level of Business Bank earnings, on a pro-forma combined basis. The
analysis also showed that use of a lower (higher) discount rate or a higher
(lower) terminal price-to-earnings per share multiple raised (lowered) the
calculated present values. With regard to Business Bank determining future
earnings is not precise, due to the fact that Business Bank is a relatively
young company, and Business Bank has yet to achieve profitable operations.

ANALYSIS OF SELECTED BANK MERGER TRANSACTIONS. Findley Group reviewed the
consideration paid in recently completed transactions in which banks and bank
holding companies were acquired. Specifically, Findley Group reviewed 102
transactions involving acquisitions of banks in California completed since
January 1, 1996. Findley Group also analyzed five California bank merger and
acquisition transactions where the total target asset size was less than $50
million, for the period January 1, 1998 to June 30, 1999. The transactions
analyzed were:

- - Pacific Bay Bank, San Pablo, California by First Banks America, St. Louis,
Missouri;

- - California Security Bank, San Jose, California by Summit Bancorp, Atlanta,
Georgia;

- - Industrial Bank, Van Nuys, California by Washington Mutual Corp. Seattle,
Washington;

- - Monument National Bank, Ridgecrest, California by Monument Bankshares, San
Francisco, California; and

- - American Independent Bank, NA, Gardena, California by First Coastal
Bankshares, El Segundo, California.

59
<PAGE>
For each bank acquired in such transactions, Findley Group compiled figures
illustrating, among other things, the ratio of the premium (i.e., purchase price
in excess of book value) to deposits, purchase price to book value and purchase
price to previous year's earnings. Findley Group compared the information with
respect to those transactions to the ratios implied by the merger based on two
sets of assumptions:

- - that the exchange ratio would result in the receipt of a fraction of a share
of California Community common stock with a value of $10.00 using a value for
a share of California Community common stock of 16 times Year 2000 cash
earnings (Case A in the table below); and

- - that the exchange ratio would result in the receipt of a fraction of a share
of California Community common stock with the equivalent book value per share
value of $4.85, after the affect of the 1.5053 exchange ratio and based upon
the combination of the shareholders' equity of the affiliated banks as of
June 30, 1999, (Case B in the table below).

The following table presents the results of that analysis:

<TABLE>
<CAPTION>
5 SELECTED
MEDIAN MEDIAN --------------------------
ALL CALIFORNIA $10.00 VALUE $4.85 VALUE
ACQUISITIONS TRANSACTIONS CASE A CASE B
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Premium to deposits............................. 7.53 2.19 18.05 NEG.
Ratio of purchase price to book value........... 1.67 1.22 1.40 0.68
Ratio of purchase price to previous years
earnings...................................... 19.60 16.95 NEG. NEG.
</TABLE>

Findley Group determined that while the ratio of purchase price to book value
for Case A and Case B was below the median ratios for all California
acquisitions reviewed, and the purchase price to book value for Case B was below
the median ratios for the California selected transactions identified above, the
lack of profitable operation of Business Bank and the size of Business Bank
would reduce Business Bank's overall value as compared to the five selected
California transactions referenced above.

No other company or transaction used in the above analysis as a comparison is
identical to Business Bank, California Community, the affiliated banks
referenced above, or the CalWest/Business Bank merger. Accordingly, an analysis
of the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the value
of the companies to which Business Bank, California Community, the affiliated
banks referenced above and the CalWest/Business Bank merger are being compared.

COMPARABLE COMPANY ANALYSIS. Using public and other available information,
Findley Group compared certain financial ratios of Business Bank, including the
ratio of net income to average total assets (or return on average assets), the
ratio of net income to average total equity (or return on average equity), the
ratio of average equity to average assets and certain credit ratios for the year
ending December 31, 1998 to a peer group consisting of 10 selected banks and
bank holding companies located in California, which had opened for business as a
new banking institution since January 1, 1998. No company used in the analysis
is identical to Business Bank. The analysis necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies. The results of this analysis indicated that
Business Bank performed significantly below the peer group level. Business
Bank's return on average assets and return on average equity for 1998 and for
the interim period through June 30, 1999 were significantly below peer group
levels, inclusive of its interest spread factors (interest earned on assets
minus interest paid on liabilities). Business Bank's noninterest expense,
inclusive of payroll expense, facilities expense and other related noninterest
expenses was higher than the peer group level.

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<PAGE>
PICKUP ANALYSIS. Findley Group applied the exchange ratio of 1.5053 of a share
of California Community common stock for each share of Business Bank common
stock to the combined company's pro forma projected cash earnings per share for
2000 and 2001 and the book value per share. The resulting values were then
compared to Business Bank's figures on a stand alone basis. The pickup analysis
indicated the following:

<TABLE>
<CAPTION>
STAND-ALONE
CONSERVATIVE PROFORMA
VALUE VALUE* PICKUP
------------ -------- --------
<S> <C> <C> <C>
Estimated Calendar Year 2000 Cash Earnings Per Share........ $0.33 $0.63 87.4%
Estimated Calendar Year 2001 Cash Earnings Per Share........ $0.37 $0.79 115.8%
Estimated Calendar Year 2000 Book Value Per Share........... $7.17 $6.56 (8.51%)
</TABLE>

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

(*) Adjusted to reflect the exchange ratio of 1.5053.

Findley Group determined that the pickup in cash earnings for year 2000 and year
2001 for Business Bank offset the dilution in book value due to the fact that
Business Bank has not achieved profitable operation.

The foregoing summarizes the material portions of Findley Group's report, but
does not purport to be a complete description of the presentation by Findley
Group to Business Bank's Board of Directors or the analyses performed by Findley
Group. The preparation of a fairness opinion is not necessarily susceptible to
partial analysis or summary description. Findley Group believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting a portion of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to the Business
Bank Board of Directors.

In performing its analyses, Findley Group made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Business Bank, California
Community or the affiliated banks as referenced above. The analyses performed by
Findley Group are not necessarily indicative of actual values or actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses were prepared solely as part of Findley Group's
analysis of the fairness, from a financial standpoint, of the terms of the
merger to Business Bank's shareholders and were provided to the Business Bank
Board of Directors in connection with the delivery of Findley Group's opinion.
The analyses do not purport to be appraisals or to reflect the prices at which
any securities may trade at the present time or at any time in the future.
Findley Group used in its analyses various projections of future performance
prepared by the management of Business Bank and by California Community. The
projections are based on numerous variables and assumptions which are inherently
unpredictable and must be considered not certain of occurrence as projected.
Accordingly, actual results could vary significantly from those set forth in
such projections.

In rendering its fairness opinion, Findley Group relied upon and assumed without
independent verification the accuracy and completeness of all of the financial
and other information reviewed by Findley Group for purposes of its opinion.
Findley Group did not make an independent evaluation or appraisal of the assets
and liabilities of Business Bank, California Community or the affiliated banks
referenced above or any of their respective subsidiaries, Business Bank did not
impose any limitations or restrictions with respect to the scope of Findley
Group's investigation or the procedures or methods it followed, or with regard
to any other matters relating to Findley Group's rendering of the opinion
regarding the fairness of terms of the CalWest/Business Bank merger. Findley
Group did not participate in negotiations regarding the merger agreement.

61
<PAGE>
Business Bank's Board of Directors selected and instructed Findley Group to
render an opinion with respect to the fairness of the terms of the merger to
Business Bank's shareholders, from a financial point of view, based on its
belief that Findley Group is experienced and qualified in such matters. Findley
Group has extensive experience in the evaluation of banks in connection with
mergers and acquisitions, and valuations for corporate and other purposes. In
over 40 years of bank consulting, Findley Group has been involved in the
creation, development, merger and acquisition of hundreds of financial
institutions.

Pursuant to its engagement letter with Findley Group, Business Bank agreed to
pay Findley Group a fee of $25,000 for Findley Group's services rendered to
Business Bank in connection with the fairness opinion, plus time and expenses
identified with updates to the fairness opinion and commenting on applications
or the registration statement of which this proxy statement/prospectus is a
part. Business Bank has agreed to indemnify Findley Group against certain
liabilities and expenses in connection with its services as financial advisor to
Business Bank.

FEDERAL AND CALIFORNIA INCOME TAX CONSEQUENCES

The following summarizes all material federal and California income tax
consequences of the CalWest/ Business Bank merger. Each shareholder's individual
circumstances may affect the tax consequences of the CalWest/Business Bank
merger as to him or her. In addition, the following description does not address
the tax consequences of the CalWest/Business Bank merger under applicable state
or local laws, other than California law. CONSEQUENTLY, EACH BUSINESS BANK
SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES OF THE CALWEST/BUSINESS BANK MERGER TO THEM.

Lillick & Charles LLP, tax counsel to California Community, delivered its
opinion to California Community and Business Bank. The opinion states that for
federal and related California income tax purposes, under current law, the
CalWest/Business Bank merger will constitute a reorganization under Section 368
of the Internal Revenue Code. The opinion assumes that the CalWest/Business Bank
merger and related transactions will take place as described in the
CalWest/Business Bank agreement.

In the opinion of Lillick & Charles LLP, the material federal and related
California income tax consequences of the CalWest/Business Bank merger will be
substantially as follows:

- - no gain or loss will be recognized by CalWest, Business Bank, or California
Community in the CalWest/Business Bank merger;

- - the basis and holding periods of the assets of Business Bank will carry over
to CalWest;

- - no gain or loss will be recognized by the holders of Business Bank common
stock upon the exchange of such stock solely for California Community common
stock;

- - the receipt of cash in lieu of fractional share interests of California
Community common stock by holders of Business Bank common stock will result in
gain or loss equal to the difference between the payment and the tax basis
allocated to their fractional share interests. Whether the gain or loss will
constitute capital gain or loss for a particular shareholder will depend upon
whether that shareholder's Business Bank common stock is held as a capital
asset at the date of the CalWest/ Business Bank merger;

- - where shareholders of Business Bank dissent to the proposed transaction and
receive cash for their Business Bank common stock, such cash will be treated
as a distribution in redemption of such shares under the provisions and
limitations of Section 302. Those shareholders who receive solely cash, and
who hold no shares of California Community common stock directly or through
the application of Section 318(a), will be treated as receiving a cash
distribution in full payment for the Business Bank common stock as provided in
Section 302(a). In that case, gain or loss will be measured by the difference
between the amount of cash received and the adjusted basis of the

62
<PAGE>
Business Bank shares. Such gain or loss will be capital gain or loss if the
shareholder held his or her Business Bank shares as a capital asset on the
date of the CalWest/Business Bank merger;

- - the tax basis of California Community common stock received by the holders of
Business Bank common stock will be the same as the tax basis of the Business
Bank common stock converted in the CalWest/Business Bank merger; and

- - the holding period of California Community common stock in the hands of the
shareholders of Business Bank will include the period during which the
Business Bank common stock converted in the CalWest/Business Bank merger was
held, provided the Business Bank common stock was held as a capital asset on
the date of the CalWest/Business Bank merger.

In developing its opinion, Lillick & Charles LLP relied upon facts and
representations provided to it by California Community's management and Business
Bank's management, and made no independent determination of the facts and
representations. The representations that California Community's management and
Business Bank's management made were factual in nature. In addition, Lillick &
Charles LLP based its opinion upon the analysis of the current Internal Revenue
Code, the California Revenue and Taxation Code, the regulations thereunder,
current case law, and published rulings. The foregoing are subject to change,
and any change may be retroactively effective. If so, Lillick & Charles LLP's
opinion may be affected and may not be relied upon. Moreover, the opinions are
not binding on the IRS, the California Franchise Tax Board, or the courts, but
represent the best judgment of Lillick & Charles LLP as to the likely outcome of
the issues involved. Lillick & Charles LLP assumes no responsibility to update
its opinion after the date of the CalWest/Business Bank merger because of such
change. Further, any variation or differences in the facts or representations,
for any reason, may affect Lillick & Charles LLP's opinion, perhaps in an
adverse manner, and make it inapplicable.

This tax discussion assumes that the tax opinion will not be withdrawn or
changed due to changes in laws, or otherwise prior to the date of the
CalWest/Business Bank merger. If the tax opinion is withdrawn or materially
changed prior to the merger, shareholder approval will be resolicited.

RIGHTS OF DISSENTING BUSINESS BANK SHAREHOLDERS

Business Bank shareholders who dissent from the CalWest/Business Bank merger may
obtain the rights and remedies of dissenting shareholders by following the
procedures described in Title 12 United States Code Section214a(b), set forth in
full in Exhibit VII to this proxy statement/prospectus and incorporated by this
reference.

THE FOLLOWING DISCUSSION GIVES IMPORTANT DETAILS CONCERNING THESE PROCEDURES.
FAILURE TO TAKE THESE ACTIONS TIMELY AND PROPERLY WILL RESULT IN THE LOSS OF
DISSENTERS' RIGHTS OF APPRAISAL.

To obtain the rights of a dissenting shareholder, a shareholder must either
(a) vote against the CalWest/ Business Bank merger, or (b) give notice of his or
her dissent in writing to Business Bank at or prior to the Business Bank
meeting. Once a shareholder has taken either of these steps, his or her
dissenter's rights will be perfected and such shareholder will be entitled to
receive the cash value of his or her shares of Business Bank common stock by
following these procedures:

Immediately upon the effectiveness of the CalWest/Business Bank merger, CalWest
will forward to each shareholder who has perfected dissenter's rights a notice
stating that the CalWest/Business Bank merger has been consummated. A form
requesting a cash payment for shares of Business Bank common stock will
accompany the notice and must be signed by the dissenting shareholder and
promptly returned to CalWest in order to receive such cash payment.

Dissenting Business Bank shareholders must return the cash payment request form
to CalWest within 30 days of the consummation of the CalWest/Business Bank
merger in order to receive the cash value of their shares.

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The value of the dissenting shareholders' shares of Business Bank common stock
will be determined as of December 29, 1999, the date of the Business Bank
meeting, and the valuation will be made by a committee of three persons elected
by the dissenting shareholders and CalWest. Should a dissenting shareholder
object to this valuation, he or she may appeal to the Office of Comptroller of
the Currency for a reappraisal within five days of notification of the
valuation. Such reappraisal by the OCC will be final and binding upon the
dissenting shareholder. The expenses of any such reappraisal will be paid by
CalWest.

The receipt of a cash payment for dissenting shares will result in recognition
of gain or loss for federal income tax purposes by such dissenting shareholders.
See "Description of CalWest/Business Bank Merger--Federal and California Income
Tax Consequences."

The foregoing purports only to summarize a complex area of law, and shareholders
considering exercising dissenters' rights should read in full Exhibit VII, and
should consult their own legal and tax advisors.

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DESCRIPTION OF THE CAPITAL STOCK OF CALIFORNIA COMMUNITY,
PLACER CAPITAL, SECURITY FIRST AND BUSINESS BANK

CALIFORNIA COMMUNITY

The authorized capital stock of California Community consists of 75,000,000
shares of California Community common stock, $0.01 par value per share and
25,000,000 shares of California Community preferred stock, $0.01 par value per
share, of which 13,040,657 shares of California Community common stock and no
shares of California Community preferred stock will be outstanding prior to the
mergers. In addition, 912,845 shares of California Community common stock will
be reserved for issuance pursuant to stock options. Each share of California
Community common stock has the same rights, privileges and preferences as every
other share, and would share equally in California Community's net assets upon
liquidation or dissolution. The shares of California Community common stock have
no preemptive or other subscription rights, and there are no conversion rights
or redemption or sinking fund provisions. Each share is entitled to one vote.
All of the outstanding shares of California Community common stock are fully
paid and nonassessable and each participates equally in dividends, which are
payable when and as declared by California Community's Board of Directors out of
funds legally available therefor.

PLACER CAPITAL

The authorized capital stock of Placer Capital consists of 10,000,000 shares of
no par value common stock, of which 5,300,000 are issued outstanding, all of
which are held of record by the California Fund, and 10,000,000 shares of no par
value preferred stock, of which one share is issued and outstanding and which is
held of record by Placer Capital Funding LLC.

A portion of the financing for Placer Capital's acquisition of Placer Sierra was
the issuance of $18.5 million in subordinated debentures by Placer Capital to
Placer Trust, which, in turn, issued $18.5 million in trust preferred securities
to Placer Funding, and the issuance of one share of noncumulative preferred
stock by Placer Capital to Placer Funding. The source of financing for Placer
Funding's purchase of the trust preferred securities and the noncumulative
preferred stock was a $22 million term loan from a commercial bank not
affiliated with the California Fund, or any of its affiliated companies. Placer
Funding is a California limited liability company, and Placer Trust is a
Delaware statutory business trust, both of which was organized for the purpose
of facilitating the acquisition of Placer Sierra by Placer Capital.

The commercial bank loan to Placer Funding has a 5-year term and bears interest,
at the option of Placer Funding, based on one or more of the following:

(i) at a fixed rate per annum as agreed upon between Placer Funding and the
lender;

(ii) at LIBOR plus 260 basis points;

(iii) at the lender's reference rate.

The loan will amortize with equal quarterly payments of $900,000 commencing as
of March 31, 2001, and every quarter thereafter on June 30, September 30,
December 31 and March 31, with the balance of the loan due at maturity.

Placer Trust issued $18.5 million in trust preferred securities to Placer
Funding. Placer Trust used the proceeds from the sale of the trust preferred
securities to acquire a like amount of subordinated debentures from Placer
Capital. Placer Capital used the proceeds from the sale of the subordinated
debentures to fund $18.5 million of the cost of its acquisition of Placer
Sierra.

The trust preferred securities represent preferred, undivided beneficial
interests in the assets of Placer Trust, which consist solely of the
subordinated debentures and payments under the debentures. The

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subordinated debentures bear interest at a fixed interest rate of 8%, and will
mature at the expiration of 30 years after the date of issuance. The
distributions on the trust preferred securities are fixed at a rate per annum of
8% of the liquidation value of the trust preferred securities.

The trust preferred securities are subject to mandatory redemption, in whole or
in part, upon repayment of the subordinated debentures at maturity or their
earlier redemption. Subject to the approval of the Federal Reserve, if then
required under applicable capital guidelines or policies of the Federal Reserve,
the subordinated debentures are redeemable prior to maturity at the option of
Placer Capital at the expiration of 5 years after issuance or, under some
circumstances relating to tax treatment or capital treatment of the trust
preferred securities, within 90 days of the occurrence of such circumstances.

Placer Funding used the balance of the $22 million commercial bank loan
financing to purchase $3.5 million of 8% noncumulative preferred stock issued by
Placer Capital to Placer Funding.

Placer Capital also obtained a $3 million revolving line of credit bearing
interest at rate of Libor plus 210 basis points from the same commercial bank to
facilitate the timing of its payments of dividends on the noncumulative
preferred stock and interest on the subordinated debentures. The terms of the
revolving line of credit provide that at no time can the aggregate principal
amount of indebtedness outstanding under the revolving line of credit and the
term loan exceed $22 million.

Placer Capital pledged all of the shares of Placer Sierra stock to the
commercial bank lender to secure payment of amounts drawn on the revolving line
of credit. Placer Funding pledged all of the trust preferred securities and the
noncumulative preferred stock to the commercial bank lender to secure payment of
the term loan. The credit agreements entered into between Placer Capital and
Placer Funding, with the commercial bank lender each contain cross-default
provisions.

SECURITY FIRST

The authorized capital stock of Security First consists of 50,000,000 shares of
Security First common stock, no par value per share, and 5,000,000 shares of
Security First preferred stock, of which 17,326,724 shares of Security First
common stock and no shares of Security First preferred stock were outstanding as
of June 30, 1999. Subsequent to June 30, 1999, California Financial exercised a
put granted to it by Security First in connection with California Financial's
initial investment. By exercising the put, California Financial purchased an
additional 2,500,000 shares of Security First common stock at $0.40 per share,
thus increasing the number of outstanding shares to 19,826,724. In addition,
1,262,340 shares of Security First common stock were reserved for issuance
pursuant to outstanding stock options under the Security First stock option
plans. Holders of shares of Security First common stock are entitled to cast one
vote for each share held of record on all matters to be voted on, except that
holders are entitled to cumulate their votes in the election of directors upon
compliance with some conditions. The holders of Security First common stock are
entitled to receive dividends, if any, as may be declared from time to time by
Security First's Board of Directors, in its discretion from funds legally
available. Upon liquidation or dissolution of Security First, the holders of
Security First common stock are entitled to receive pro rata, all assets
remaining available for distribution to shareholders. Security First common
stock has no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions. All the outstanding
shares of Security First common stock are fully paid and nonassessable.

DEBENTURES. For the sole purpose of assisting Security First to remain
adequately capitalized, its then holding company, Pacific Inland, issued
debentures in the principal amount of $1,050,000 to some Security First
directors and some of their associates.

Under the terms of the debentures, Pacific Inland will make payments of interest
and principal on the debentures when, in the sole and absolute discretion of its
Board of Directors, Pacific Inland has

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sufficient funds to make such a payment of interest and/or principal in
accordance with law and all applicable regulatory requirements. Pacific Inland
has no assets, and accordingly cannot pay interest on the debentures.

At maturity, any unpaid principal and/or interest due on the debentures will
automatically be payable and converted into Security First common stock. The
conversion rate is $0.40 per share.

Additionally, at the sole option and discretion of the debenture holders, unpaid
principal and accrued but unpaid interest may be converted into Security First
common stock at the conversion price, subject to some conditions.

The debentures provide that in the event any conversion, whether automatic or
discretionary, would result in a change in control of Security First as defined
by the Change of Bank Control Act of 1978, and/or Section 700 and following of
the California Financial Code, no such conversion will occur until the debenture
holder has received a letter of intent not to disapprove such change in control
from the Federal Reserve and the prior approval of the California Department of
Financial Institutions with respect to such change in control.

BUSINESS BANK

The authorized capital stock of Business Bank consists of 10,000,000 shares of
Business Bank common stock, $5.00 par value per share, of which 572,775 shares
were outstanding as of the Business Bank record date. The shares of Business
Bank common stock have no preemptive or other subscription rights, and there are
no conversion rights or redemption or sinking fund provisions. Each share is
entitled to one vote, except that in the election of directors, Business Bank
shareholders may vote their shares cumulatively. All of the outstanding shares
of Business Bank common stock are fully paid and, except as provided by
Section 55 of the National Bank Act, nonassessable and each participates equally
in dividends, which are payable when and as declared by the Business Bank Board
of Directors, out of funds legally available therefor.

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COMPARISON OF MATERIAL DIFFERENCES OF THE RIGHTS HOLDERS OF CALIFORNIA COMMUNITY
COMMON STOCK, SECURITY FIRST COMMON STOCK AND BUSINESS BANK COMMON STOCK

California Community is a Delaware corporation, Security First is a California
corporation, and Business Bank is a national banking association. Accordingly,
the rights of Security First and Business Bank shareholders who receive
California Community stock will be governed by Delaware law.

The following summarizes the material differences between the corporation laws
of Delaware and California, and between the corporation laws of Delaware and
provisions of federal law applicable to national banks governing shareholder
rights.

To the extent that the National Bank Act is silent on any issue, the provisions
of California law apply. Thus Business Bank shareholders should read the
comparisons of Delaware law to both California and federal law. This discussion
is only a summary of the material provisions and is not a complete description
of all similarities and differences.

SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE

The corporation laws of California and Delaware differ in many respects.
Although all the differences are not discussed in this proxy
statement/prospectus, those provisions which could materially affect the rights
of Security First shareholders who receive California Community common stock are
discussed.

STOCKHOLDER APPROVAL OF BUSINESS COMBINATIONS. In recent years, a number of
states have adopted special laws designed to make some "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant shareholders, more difficult. Under Section 203 of the Delaware
General Corporation Law, some "business combinations" with "interested
stockholders" of Delaware corporations are subject to a 3-year moratorium,
unless specified conditions are met.

Section 203 prohibits a Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for 3 years following the date
that such person or entity becomes an interested stockholder. With some
exceptions, an interested stockholder is a person or entity who or which owns:

- - individually or with or through some other persons or entities, 15% or more of
the corporation's outstanding voting stock. This includes any rights to
acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and
stock with respect to which the person has voting rights only, or

- - is an affiliate or associate of the corporation and was the owner,
individually or with or through some other persons or entities, of 15% or more
of such voting stock at any time within the previous 3 years.

Section 203, broadly defines the term "business combination" to include:

- - mergers with or caused by the interested stockholder,

- - sales or other dispositions to the interested stockholder, with exceptions, of
assets of the corporation or of a majority-owned subsidiary equal in aggregate
market value to 10% or more of the aggregate market value of either the
corporation's consolidated assets or all of its outstanding stock;

- - the issuance or transfer by the corporation or a majority-owned subsidiary of
stock of the corporation or the subsidiary to the interested stockholder,
except for some transfers in a conversion or exchange or a pro rata
distribution or some other transactions, none of which increase the interested

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stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock or of the corporation's voting
stock); or

- - receipt by the interested stockholder (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other financial
benefits provided by, or through the corporation or a subsidiary.

The 3-year moratorium imposed on business combinations by Section 203 does not
apply if:

- - prior to the date on which such stockholder becomes an interested stockholder,
the board of directors approves either the business combination, or the
transaction that resulted in the person or entity becoming an interested
stockholder;

- - upon consummation of the transaction that made him or her an interested
stockholder, the interested stockholder owns at least 85% of the corporation's
voting stock outstanding at the time the transaction commenced. In calculating
the 85% ownership, shares owned by directors who are also officers of the
target corporation and shares held by employee stock plans that do not give
employee participants the right to decide confidentially whether to accept a
tender or exchange offer will be excluded; or

- - on or after the date such person or entity becomes an interested stockholder,
the board approves the business combination and it is also approved at a
stockholder meeting by 66 2/3% of the outstanding voting stock not owned by
the interested stockholder.

Section 203 only applies to some publicly held corporations that have a class of
voting stock that is:

- - listed on a national securities exchange;

- - quoted on an interdealer quotation system of a registered national securities
association; or

- - held of record by more than 2,000 stockholders.

A Delaware corporation that is not publicly held may nevertheless elect to be
governed by Section 203. California Community has not so elected. Any future
election by California Community to be governed by Section 203 would require the
approval of the stockholders of California Community. Section 203 is not
applicable to the California Community/California Financial merger.

If it were applicable to California Community, Section 203 would encourage any
potential acquiror to negotiate with the California Community Board of
Directors. Section 203 also might have the effect of limiting the ability of a
potential acquiror to make a two-tiered bid for California Community in which
all stockholders would not be treated equally. The application of Section 203 to
California Community would confer upon the California Community Board of
Directors the power to reject a proposed business combination in some
circumstances, even though a potential acquiror may be offering a substantial
premium for California Community's shares over the then-current market price.
Section 203 would also discourage some potential acquirors unwilling to comply
with its provisions.

CALIFORNIA COMMUNITY'S CERTIFICATE OF INCORPORATION

California Community's Certificate of Incorporation incorporates provisions
which may have the effect of delaying, deferring or preventing a change in
control of California Community in some circumstances. These provisions will be
controlling upon completion of the Orange/Security First merger and/or the
CalWest/Business Bank merger. Specifically, California Community's Certificate
of Incorporation provides that the shareholder vote required to approve a
Business Combination will be at least 66 2/3% of California Community's
outstanding shares of voting stock, voting together as a single class.

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A Business Combination means:

- - any merger or consolidation of California Community or a subsidiary of
California Community where the shareholders of California Community
immediately prior to the merger or consolidation will own immediately after
the merger or or consolidation:

- no equity securities of the surviving entity, or

- equity securities, excluding options, warrants and rights, with less than
50% of the voting power of the surviving entity; or

- - any sale, exchange, transfer or other disposition of 50% or more of the assets
of California Community or combined assets of California Community and its
subsidiaries.

The amendment or repeal of this provision of California Community's Certificate
of Incorporation requires the affirmative vote of the holders of 66 2/3% or more
of the outstanding shares.

SECURITY FIRST'S ARTICLES OF INCORPORATION

Some provisions of the Security First Articles of Incorporation and the Bylaws
may also have the effect of delaying, deferring or preventing a change in
control of Security First in some circumstances. The material provisions of
Security First's articles that may have that effect include:

CONSIDERATION OF FACTORS OTHER THAN PRICE

The Security First Articles of Incorporation provide that, when evaluating any
proposed tender or exchange offer for Security First's voting stock or any
proposed transaction with any other person which would constitute a "Business
Combination," the Board of Directors may consider the best interests of Security
First as a whole, including without limitation:

- - giving due consideration to the interests of Security First's shareholders;

- - whether the proposed transaction might violate applicable laws;

- - not only the consideration being offered in the proposed transaction in
relation to the then current market price for Security First's stock, but also
the market price for such stock over a period of years, the estimated price
which might be achieved in a negotiated sale of Security First as a whole or
in part or through liquidation, the premiums over market price for the
securities of other corporations in similar transactions;

- - current political, economic and other factors bearing on securities prices and
Security First's financial condition and future prospects; and

- - the social, economic and legal effects on the employees, customers, suppliers
and other constituents of Security First and on the communities in which
Security First conducts its business.

This provision could, under some circumstances, permit the Security First Board
of Directors to disapprove a tender offer or other business combination
transaction that might otherwise be beneficial to the Security First
shareholders, particularly if such a transaction would have a strong adverse
impact on the employees of Security First, or the communities in which Security
First has operations. California Community's Certificate of Incorporation does
not contain a comparable provision.

ANTI-GREENMAIL PROVISION

The Security First Articles of Incorporation also provide that any direct or
indirect repurchase by Security First of outstanding shares of voting stock of
Security First from any person (or group of affiliated persons) known to
Security First to be a beneficial owner of 5% or more of the voting stock, who
has acquired beneficial ownership of any voting stock within a period of less
than 2 years

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immediately prior to the date of the proposed repurchase (or the date of an
agreement in respect thereof) at a per share price in excess of the fair market
value (as defined) at the time of such repurchase by Security First will require
the approval of a majority of the shares of voting stock, excluding voting stock
beneficially owned by the interested shareholder, except for:

- - a tender or exchange offer by Security First for a class of capital stock (as
defined) made available on the same terms to all holders of such class of
capital stock, or

- - purchases made pursuant to an open market purchase program approved by a
majority of continuing directors (as defined) provided that such purchases are
effected on the open market and are not the result of a privately negotiated
transaction.

Additionally, any amendment or repeal of this provision, or the adoption of
provisions inconsistent with this provision, must be approved by the affirmative
vote of a majority of the shares of voting stock, excluding voting stock
beneficially owned by any interested shareholder, voting together as a single
class. California Community's Certificate of Incorporation does not contain a
comparable provision.

REMOVAL OF DIRECTORS

Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote. However, no individual director may be
removed, unless the entire board is removed, if the number of votes cast against
such removal would be sufficient to elect the director under cumulative voting.

Under Delaware law, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed with or without cause
with the approval of a majority of the outstanding shares entitled to vote at an
election of directors. In the case of a Delaware corporation having cumulative
voting, if less than the entire board is to be removed, a director may not be
removed without cause, if the number of shares voted against such removal would
be sufficient to elect the director under cumulative voting. A director of a
corporation with a classified board of directors may be removed only for cause,
unless the certificate of incorporation otherwise provides. The Certificate of
Incorporation of California Community provides for a classified board of
directors, but does not provide for cumulative voting.

CLASSIFIED BOARD OF DIRECTORS

A classified board is one in which some, but not all, of the directors are
elected on a rotating basis each year. This method of electing directors makes
changes in the composition of the board of directors more difficult, and thus a
potential change in control of a corporation a lengthier and more difficult
process.

Under legislation that became effective on January 1, 1990, California law
permits some qualifying corporations to provide for a classified board of
directors by adopting amendments to their articles of incorporation or bylaws,
which amendments must be approved by the shareholders. Neither Security First
nor Business Bank is qualified to adopt a classified board of directors.

Delaware law permits, but does not require, a classified board of directors,
pursuant to which the directors can be divided into as many as three classes
with staggered terms of office, with only one class of directors standing for
election each year. The California Community Certificate of Incorporation
provides for a classified board of directors.

INDEMNIFICATION AND LIMITATION OF LIABILITY

California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with some exceptions, a

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corporation to adopt a provision in its articles of incorporation or certificate
of incorporation, as the case may be, eliminating the liability of a director to
the corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty. There are, nonetheless, some material differences
between the laws of the two states respecting indemnification and limitation of
liability.

The Articles of Incorporation of Security First eliminated the liability of
directors to the corporation to the fullest extent permissible under California
law. California law does not permit the elimination of monetary liability where
such liability is based on:

- - intentional misconduct or knowing and culpable violation of law;

- - acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence
of good faith on the part of the director;

- - receipt of an improper personal benefit;

- - acts or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders;

- - acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders;

- - interested transactions between the corporation and a director in which a
director has a material financial interest; and

- - liability for improper distributions, loans or guarantees.

The Certificate of Incorporation of California Community also eliminates the
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permissible under Delaware law, as such law exists currently or as it may be
amended in the future. Under Delaware law, such provision may not eliminate or
limit director monetary liability for:

- - breaches of the director's duty of loyalty to the corporation or its
stockholders;

- - acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;

- - the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or

- - transactions in which the director received an improper personal benefit.

Such limitation of liability provisions also may not limit a director's
liability for violation of or otherwise relieve California Community or its
directors from the necessity of complying with federal or state securities laws,
or affect the availability of non-monetary remedies such as injunctive relief or
rescission.

California law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions:

- - no indemnification may be made when a person is adjudged liable to the
corporation in the performance of that person's duty to the corporation and
its shareholders unless a court determines the person is entitled to indemnify
for expenses, and then indemnification may be made only to the extent that
such court shall determine, and

- - no indemnification may be made without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened
or pending action or amounts incurred in defending a pending action that is
settled or otherwise disposed of without court approval.

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California law requires indemnification when the individual has defended the
action on the merits successfully. Delaware law, on the other hand, requires
indemnification regardless of whether there has been a successful defense on the
merits.

Delaware law generally permits indemnification of expenses, including attorney's
fees, actually and reasonably incurred in the defense or settlement of a
derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation.

Without court approval, however, no indemnification may be made in respect of
any derivative action in which such person is adjudged liable for negligence or
misconduct in the performance of his or her duty to the corporation. Delaware
law requires indemnification of expenses when the individual being indemnified
has successfully defended any action, claim, issue, or matter, on the merits or
otherwise.

Expenses incurred by an officer or director in defending an action may be paid
in advance, under Delaware law and California law, if such director or officer
undertakes to repay any amounts advanced if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.

California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided by agreements
or bylaw provisions that make mandatory the permissive indemnification provided
by California law.

Under California law, there are two limitations on providing additional rights
to indemnification:

- - indemnification is not permitted for acts, omissions or transactions from
which a director of a California corporation may not be relieved of personal
liability, and

- - indemnification is not permitted in circumstances where California law
expressly prohibits it.

Security First's Articles of Incorporation permit indemnification beyond that
expressly mandated by the California Corporations Code and limits director
monetary liability to the extent permitted by California law. To accomplish
this, Security First has entered into indemnification agreements with its
officers and directors.

Delaware law also permits a Delaware corporation to provide indemnification in
excess of that provided by statute. By contrast to California law, Delaware law
does not require authorizing provisions in the certificate of incorporation and
does not contain express prohibitions on indemnification in certain
circumstances. Limitations on indemnification may be imposed by a court,
however, based on principles of public policy.

INSPECTION OF SHAREHOLDER LIST

Both California and Delaware law allow any shareholder to inspect the
shareholder list for a purpose reasonably related to such person's interests as
a shareholder. California law provides, in addition, for an absolute right to
inspect and copy the corporation's shareholder list by persons holding an
aggregate of 5% or more of a corporation's voting shares, or shareholders
holding an aggregate of 1% or more of such shares who have filed a Schedule 14A
under the SEC proxy rules. Under California law, the absolute right of
inspection also applies to a corporation formed under the laws of any other
state if its principal executive offices are in California or if it customarily
holds meetings of its board in California.

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Delaware law contains no provisions comparable to the absolute right of
inspection provided by California law to certain shareholders.

DIVIDENDS AND REPURCHASES OF SHARES

California law dispenses with the concepts of par value of shares as well as
statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus are retained under Delaware law.

Under California law, a corporation may not make any distribution, which
includes dividends, whether in cash or other property, and repurchase of its
shares, other than repurchase of its shares issued under employee stock plans,
unless either:

- - the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution, or

- - immediately after giving effect to the distribution, the corporation's assets
(exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1 1/4 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current
liabilities; or 1 1/4 times its current liabilities if the average pre-tax and
pre-interest expense earnings for the preceding two fiscal years were less
than the average interest expense for such years.

These tests are applied to California corporations on a consolidated basis.

Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.

SHAREHOLDER VOTING

Both California and Delaware law generally require that a majority of the
shareholders of both acquiring and target corporations approve statutory
mergers. Unless the corporation provides otherwise in its certificate of
incorporation, Delaware law does not require a stockholder vote of the surviving
corporation in a merger if:

- - the merger agreement does not amend the existing certificate of incorporation;

- - each share of the stock of the surviving corporation outstanding immediately
before the effective date of the merger is an identical outstanding or
treasury share after the merger; and

- - either no shares of common stock of the surviving corporation and no shares,
securities or obligations convertible into common stock are to be issued or
delivered under the plan of merger, or the authorized unissued shares or the
treasury shares of common stock of the surviving corporation to be issued or
delivered under the plan of merger plus those initially issuable upon
conversion of any other shares, securities or obligations to be issued or
delivered under the plan do not exceed 20% of the shares of common stock of
the constituent corporation outstanding immediately prior to the effective
date of the merger.

California law contains a similar exception to its voting requirements for
reorganizations where shareholders of the corporation, the corporation itself,
or both, immediately prior to the reorganization

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will own immediately after the reorganization equity securities constituting
more than 5/6 of the voting power of the surviving or acquiring corporation, or
its parent entity.

Both California law and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the outstanding voting shares of the corporation transferring such assets.

With some exceptions, California law also requires that mergers,
reorganizations, some sales of assets, and similar transactions be approved by a
majority vote of each class of shares outstanding. In contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an amendment to the certificate of incorporation that adversely
affects a specific class of shares. As a result, shareholder approval of these
transactions may be easier to obtain under Delaware law for companies which have
more than one class of shares outstanding.

California law also requires that holders of nonredeemable common stock receive
nonredeemable common stock in a merger of the corporation with the holder of
more than 50% but less than 90% of the common stock of the corporation or its
affiliate unless all of the holders of the common stock consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
Although Delaware law does not parallel California law in this respect, under
some circumstances, Section 203 does provide similar protection against coercive
two-tiered bids for a corporation in which the stockholders are not treated
equally. See "Significant Differences Between the Corporation Laws of California
and Delaware--Stockholder Approval of Certain Business Combinations."

California law provides that, except in certain circumstances when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party, an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation that does not
have shares held of record by at least 100 persons, or to a transaction that has
been qualified under California state securities laws. Furthermore, if a tender
of shares or vote is sought under an interested party's proposal and a later
proposal is made by another party at least 10 days prior to the date of
acceptance of the interested party proposal, the shareholders must be informed
of the later offer and be afforded a reasonable opportunity to withdraw any
vote, consent or proxy, or to withdraw any tendered shares. Delaware law has no
comparable provision.

INTERESTED DIRECTOR TRANSACTIONS

Under both California and Delaware law, some contracts or transactions in which
one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that various conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With some exceptions, the conditions are similar
under California and Delaware law. Under California and Delaware law:

- - either the shareholders or the board of directors must approve the contract or
transaction after full disclosure of the material facts, and, in the case of
board approval, the contract or transaction must also be "just and reasonable"
(in California) or "fair" (in Delaware) to the corporation; or

- - the contract or transaction must have been just and reasonable or fair as to
the corporation at the time it was approved.

In the latter case, California law explicitly places the burden of proof on the
interested director. Under California law, if shareholder approval is sought,
the interested director is not entitled to vote his shares at a shareholder
meeting with respect to any action regarding contract or transaction in which
the director has an interest. If board approval is sought, the contract or
transaction must be approved by a majority vote of a quorum of the directors,
without counting the vote of any interested directors

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(except that interested directors may be counted for purposes of establishing a
quorum). Therefore, certain transactions that the Security First Board of
Directors might not have been able to approve because of the number of
interested directors, could be approved by a majority of the disinterested
directors of California Community, although less than a majority of a quorum.

California Community has not proposed, and is not aware of any plans to propose,
any transaction involving directors of California Community that could not be so
approved under California law but could be so approved under Delaware law.

SHAREHOLDER DERIVATIVE SUITS

California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that various tests are met. Under Delaware
law, a stockholder may bring a derivative action on behalf of the corporation
only if the stockholder was a stockholder of the corporation at the time of the
transaction in question or if his or her stock thereafter devolved upon him or
her by operation of law. California law also provides that the corporation or
the defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond. Delaware does
not have a similar bonding requirement.

APPRAISAL RIGHTS

Under both California and Delaware law, a shareholder of a corporation
participating in some major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction.

Under Delaware law, the fair market value is determined exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, and appraisal rights are not available:

- - with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation;

- - with respect to a merger or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders, if such stockholders receive only shares of the
surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares of such corporations; or

- - to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
under certain provisions of Delaware law.

The limitations on the availability of appraisal rights under California law are
different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Federal Reserve generally
do not have such appraisal rights unless the holders of at least 5% of the class
of outstanding shares claim the right of the corporation or any law restricts
the transfer of such shares. Appraisal rights are also unavailable if the
shareholders of a corporation or the corporation itself, or both, immediately
prior to the reorganization will own immediately after the reorganization equity
securities constituting more than 5/6 of the voting power of the surviving or
acquiring corporation, or its parent entity. California law generally affords
appraisal rights in sale of asset reorganizations.

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DISSOLUTION

Under California law, shareholders holding 50% or more of the total voting power
may authorize a corporation's dissolution, with or without the approval of the
corporation's board of directors, and this right may not be modified by the
articles of incorporation.

Under Delaware law, unless the board of directors approves the proposal to
dissolve, the dissolution must be approved by all the stockholders entitled to
vote on the dissolution. Only if the dissolution is initially approved by the
board of directors may it be approved by a simple majority of the outstanding
shares of the corporation's stock entitled to vote. In the event of such a
board-initiated dissolution, Delaware law allows a Delaware corporation to
include in its certificate of incorporation a supermajority, greater than a
simple majority, voting requirement in connection with dissolutions. California
Community's Certificate of Incorporation contains no such supermajority
requirement, however, and a majority of the outstanding shares entitled to vote,
voting at a meeting at which a quorum is present, would be sufficient to approve
a dissolution of California Community that had previously been approved by its
board.

SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF DELAWARE AND PROVISIONS
OF THE NATIONAL BANK ACT

Certain provisions of the National Bank Act and the Articles of Association of
Business Bank are different from both California and Delaware law.

REMOVAL OF DIRECTORS

The National Bank Act contains no provision with respect to removal of bank
directors.

Under Delaware law, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed with or without cause
with the approval of a majority of the outstanding shares entitled to vote at an
election of directors. In the case of a Delaware corporation having cumulative
voting, if less than the entire board is to be removed, a director may not be
removed without cause if the number of shares voted against such removal would
be sufficient to elect the director under cumulative voting. A director of a
corporation with a classified board of directors may be removed only for cause,
unless the certificate of incorporation otherwise provides. The Certificate of
Incorporation of California Community provides for a classified board of
directors, but does not provide for cumulative voting.

SUPERMAJORITY APPROVAL REQUIREMENTS

The National Bank Act contains several provisions which require a 2/3 vote of
the outstanding shares in order to authorize a particular activity or event. For
example, a national bank may only reduce or increase its capital upon the vote
of 2/3 of the outstanding shares of the bank, assuming that regulatory approval
is obtained. Similarly, a national bank may not merge with or into another
financial institution without the approval of 2/3 of the outstanding shares of
such national bank. A national bank may elect to go into voluntary liquidation
and be closed only upon the vote of shareholders owning 2/3 of the outstanding
shares of the bank.

By contrast, Delaware law allows a corporation to increase its authorized
capital stock upon the vote of a majority of the outstanding shares of the
corporation. Similarly, a Delaware corporation may elect to voluntarily wind up
and dissolve upon the vote of the board of directors and majority of the
outstanding shares of the corporation. Under Delaware law, a Delaware
corporation may merge with another corporation upon the approval of a majority
of the outstanding shares unless the corporation's certificate of incorporation
provides otherwise. Delaware law allows a corporation to fix a higher approval
requirement for any matter in the Certificate of Incorporation.

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STOCK DIVIDENDS AND STOCK SPLITS

Under the National Bank Act, an increase in capital through the payment of a
stock dividend requires the approval of 2/3 of the outstanding shares, assuming
that other requirements are met. A stock split requires the approval of a
majority of the bank's shareholders because of the reduction in par value which
is effected thereby. By contrast, under Delaware General Corporation Law, a
stock split may be approved by the Delaware corporation's board of directors
alone. Similarly, the distribution of a stock dividend under Delaware does not
require the approval of the shareholders.

DIVIDENDS

National banks are restricted from paying dividends until both a capital and
earnings component are met. With respect to capital, no dividend may be paid if
it results in a withdrawal of capital. In addition, a national bank may not pay
a dividend if losses have been sustained which equal or exceed the bank's
undivided profits then on hand. Similarly, cash dividends may not be paid in an
amount greater than the net profits then on hand, after deducting from net
profits the losses and bad debts of the bank. With respect to earnings
requirements, no national bank may pay a quarterly or semi-annual cash dividend
as an initial matter until its surplus account equals its common equity account,
unless the bank carries to the surplus account an amount which is not less than
one-tenth of its profits for the preceding half year. In the case of annual
dividends, the bank may carry to surplus not less than one-tenth of its profits
for the preceding year. OCC approval is required for cash dividends in an amount
which exceeds a national bank's net profits of the current year combined with
its retained net profits for the preceding two years less any required transfers
to surplus.

Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and the redemption or repurchase would not impair
the capital of the corporation.

APPROVAL BY WRITTEN CONSENT OF SHAREHOLDERS

The shareholders of a national bank are not permitted to consent in writing to
actions which may otherwise be taken at a meeting of shareholders. Under
Delaware law, shareholder action can be taken by written consent unless
otherwise provided in the Delaware corporation's certificate of incorporation.
The California Community Certificate of Incorporation currently provides for
shareholder action by written consent.

DISSENTERS' RIGHTS

Unlike both California and Delaware law, under the National Bank Act,
shareholders must actually vote against the merger or provide written notice of
intent to dissent at or prior to the shareholders meeting to be entitled to
dissenters' rights. Under Delaware and California law, shareholders can also
take the initial step in perfecting dissenters' rights by abstaining or not
voting at all.

Under the National Bank Act, the value of dissenters' rights of a national bank
is determined by a committee of three independent appraisers based upon the fair
value of the bank's shares at the time of the shareholders' meeting in the case
of a merger into a state bank, and at the effective time of the merger in the
case of a merger with another national bank. Further, if the stockholder is not
satisfied with the appraisal, he or she may request that the OCC conduct an
independent appraisal which shall be binding on the parties. The cost of the
OCC's appraisal shall be paid by the surviving bank.

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Under Delaware law, the fair market value is determined exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, and appraisal rights are not available:

- - with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation;

- - with respect to a merger or consolidation by a corporation the shares of which
are either listed on a national securities exchange or are held of record by
more than 2,000 holders if the stockholders receive only shares of the
surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares of such corporations; or

- - to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger
under certain provisions of Delaware law.

AMENDMENT TO ARTICLES

Under the National Bank Act, the articles of association of a national bank may
be amended by approval of shareholders owning a majority of the national bank's
common stock. However, certain amendments, such as amendments increasing the
national bank's authorized, but unissued common stock require the approval of
shareholders owning 66 2/3% of the outstanding shares.

Under the Delaware General Corporation Law, any amendment to the certificate of
incorporation of a Delaware corporation may be made with the approval of a
majority of the outstanding voting shares of the corporation, unless the
certificate of incorporation requires a greater vote. The Certificate of
Incorporation of California Community contains a 75% supermajority provision
with respect to amendments to several corporate governance articles.

CALIFORNIA COMMUNITY FOLLOWING THE CALIFORNIA COMMUNITY/CALIFORNIA FINANCIAL
MERGER, THE
ORANGE/SECURITY FIRST MERGER, AND THE CALWEST/BUSINESS BANK MERGER

The Certificate of Incorporation and Bylaws of California Community will
continue as the Certificate of Incorporation and Bylaws of California Community
following the completion of the California Community/California Financial
merger, the Orange/Security First merger, and the CalWest/Business Bank merger.
The authorized capital stock of California Community following the mergers will
consist of 75,000,000 shares of California Community common stock, and
25,000,000 shares of California Community preferred stock. The rights,
preferences and privileges of California Community common stock following the
mergers will remain the same.

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MARKET PRICES

CALIFORNIA COMMUNITY

As the California Fund will own 100% of California Community prior to the
merger, there is no market for California Community common stock.

SECURITY FIRST

There has been no trading in Security First common stock and accordingly there
is no established public trading market for its stock. Security First common
stock is not listed on any exchange, nor is it listed with NASDAQ. Management of
Security First is not aware that any brokers facilitate trades in Security First
common stock.

The only recent transactions in its common stock of which Security First is
aware are as follows: During 1997, 25,000 shares of Security First common stock
were purchased at $0.40 per share. Management of Security First was not aware of
any transactions in its common stock during 1998. During the first quarter of
1999, 25,000 shares were sold at $0.40 per share. In April 1999, an insider
purchased shares for $0.50 per share and there was one transaction for 2,500
shares in May 1999 for $0.40 per share.

The last sales price of Security First common stock on or before October 29,
1999, the day prior to the date of the first public announcement of the proposed
Orange/Security First merger, was $0.40 per share, which reflects a sale that
occurred in May 1999. The last sales price of Security First common stock on or
before December 9, 1999, the last practicable date before printing of this proxy
statement/ prospectus, was $0.40 per share, which reflects a sale that occurred
in May, 1999. As of September 30, 1999, the outstanding shares of Security First
common stock were held by approximately 341 record holders.

BUSINESS BANK

There has been no trading in Business Bank common stock and accordingly there is
no established public trading market for its stock. Business Bank common stock
is not listed on any exchange, nor is it included on NASDAQ. Business Bank
completed its initial offering of common stock in November 1998 at an offering
price of $10.00 per share. There were no public trades in Business Bank common
stock during 1998 and in 1999 of which Business Bank is aware. As of November
22, 1999, the outstanding shares of Business Bank common stock were held by
approximately 104 record holders.

CALIFORNIA COMMUNITY FOLLOWING THE ORANGE/SECURITY FIRST MERGER AND THE
CALWEST/BUSINESS BANK MERGER

We cannot assure that a trading market for California Community common stock
will exist even if either or both of the bank mergers are completed.

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RESALE OF CALIFORNIA COMMUNITY STOCK

All shares of California Community common stock received by the Security First
and Business Bank shareholders in the Orange/Security First and/or the
CalWest/Business Bank mergers will be freely transferable, except that shares of
California Community common stock received by Security First or Business Bank
shareholders who are deemed to be "affiliates" (as defined for purposes of Rule
145 under the Securities Act, or SEC Accounting Series Releases 130 and 135) of:

- Business Bank as of the date of the Business Bank meeting of shareholders,
or,

- Security First as of the date of receipt of written consents for in excess
of 50% of Security First's outstanding shares of common stock,

may be resold by Business Bank or Security First affiliates only if a
registration statement under the Securities Act covering resales of the shares
is declared effective by the SEC or in transactions permitted by the resale
provisions of Rule 145 of the Securities Act, or as otherwise permitted under
the Securities Act. Individuals or entities that control, are controlled by, or
are under common control with Security First or Business Bank may be deemed to
be affiliates of the applicable bank. Officers and directors of Security First
or Business Bank, as well as their respective principal shareholders, also may
be deemed to be affiliates of the applicable bank.

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DIVIDENDS

CALIFORNIA COMMUNITY

The Board of Directors of California Community may declare dividends on
California Community's stock to the extent that funds are available for the
payment of dividends, as provided in the Delaware General Corporation Law.
Delaware law permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or for the preceding fiscal year as long as the amount
of capital of the corporation following the declaration and payment of the
dividend is not less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.

California Community has paid no dividends.

The amount and payment of any future dividends by California Community will be
determined by California Community's Board of Directors after consideration of
numerous factors, including California Community's earnings, financial condition
and the need for capital for expanded growth and general economic conditions.

Since the ability of California Community to pay dividends depends, to a great
extent, on the receipt of dividends from its subsidiaries, the outstanding
Placer Capital subordinated debentures and noncumulative preferred stock and the
financing obligations of Placer Capital, as well as the capital reductions,
might reduce the ability of California Community to pay cash dividends. See
"Risk Factors-California Community's Ability to Pay Dividends to Minority
Shareholders May be Affected by Placer Capital's Debt Service Obligations," and
"-Capital Reductions."

SECURITY FIRST

The shareholders of Security First are entitled to cash dividends when and as
declared by the Security First Board of Directors, to the extent that funds are
legally available for the payment of dividends, subject to the restrictions set
forth in the California Financial Code. The California Financial Code provides
that a bank may not make a cash distribution to its shareholders in an amount
which exceeds the lesser of (1) the retained earnings or (2) the net income of
the bank for its last three fiscal years, less the amount of any distributions
made by the bank to its shareholders during that period; however, a bank may,
with the approval of the California Department of Financial Institutions, make a
distribution to its shareholders in an amount not exceeding the greatest of:

- the retained earnings of the bank,

- the net income of the bank for its last fiscal year, or

- the net income of the bank for its current fiscal year.

If the California Department of Financial Institutions finds that the
shareholders' equity of a bank is not adequate, or that the payment of a
dividend would be unsafe or unsound for the bank, the California Department of
Financial Institutions may order the bank not to pay any dividend to the
shareholders.

Security First has paid no cash dividends on shares of its common stock.

BUSINESS BANK

Business Bank has never paid any cash dividends and does not intend to do so at
any time prior to the effective time of the CalWest/Business Bank merger.

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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

SOME MATTERS DISCUSSED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DESCRIBED BELOW. THEREFORE, THE
INFORMATION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS SHOULD BE CAREFULLY
CONSIDERED WHEN EVALUATING THE BUSINESS PROSPECTS OF CALIFORNIA COMMUNITY,
SECURITY FIRST AND/OR BUSINESS BANK ON AN INDIVIDUAL AND CONSOLIDATED BASIS.

The following unaudited pro forma combined summary financial data combines the
historical consolidated condensed financial statements of Placer Sierra and
California Financial, giving effect to the acquisition of Placer Sierra by
Placer Capital, the acquisition by California Financial in 1998 of Orange and
CalWest, the merger of California Community with California Financial and the
share exchanges between California Community and the minority shareholders of
Business Bank and Security First as if the transactions had been effective on
September 30, 1999 with respect to the Unaudited Pro Forma Combined Condensed
Balance Sheet, and as of the beginning of the periods indicated, with respect to
the Unaudited Pro Forma Combined Condensed Statements of Operations. This
information is presented under the purchase method of accounting with respect to
the Placer Capital acquisition of Placer Sierra and the share exchange offers to
the minority interests of Business Bank and Security First. Pro forma
information regarding the merger and share exchange offer between California
Community and California Financial is presented under the "as if" pooling of
interest method of accounting.

The information for the nine months ended September 30, 1999 is derived from the
unaudited financial statements of Placer Sierra and California Financial, which
includes, in the opinion of the management of California Community and
California Financial, all adjustments (consisting only of normal accruals)
necessary to present fairly the historical consolidated financial statements of
Placer Sierra and California Financial, including the respective notes thereto,
which are included in this proxy statement/ prospectus.

The information for the year ended December 31, 1998 is derived from the audited
financials of California Community and California Financial and the respective
notes thereto included in this proxy statement/prospectus and should be read in
conjunction with the combined condensed historical selected financial data and
other pro forma combined financial information, including the notes thereto,
appearing elsewhere in this proxy statement/prospectus. The effect of estimated
merger and share exchange costs expected to be incurred in connection with the
merger and share exchange has been reflected in the Unaudited Pro Forma Combined
Condensed Balance Sheets; however, since the estimated costs are nonrecurring,
they have not been reflected in the Unaudited Pro Forma Combined Condensed
Statements of Operations. See Notes 4 and 7 to the Unaudited Pro Forma Combined
Condensed Financial Information.

The Unaudited Pro Forma Condensed Statements of Income are being presented as if
the acquisition of Placer Sierra by Placer Capital, the acquisition of Orange
and CalWest by California Financial and the merger of California Community with
California Financial took place at the beginning of each period presented. The
financial impact related to these transactions include amortization of goodwill
and loan deposit intangibles, amortization of premises, interest expenses
associated with the issuance by Placer Capital of the subordinated debentures,
foregone interest income related to post-closing dividends, adjustments to
interest income related to mark to market adjustments associated with some
interest earning assets, and adjustments to the provision for income taxes which
give effect to the aforementioned purchase accounting adjustments. These assumed
net decreases in income, aggregated $3,618,000 for the 12 months of 1998 and
$2,980,000 for the nine months of 1999. However, these adjustments will only be
reflected at the effective time of the mergers and share exchanges.

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Additionally, the unaudited pro forma combined condensed financial data does not
give effect to any anticipated operating efficiencies in conjunction with the
mergers.

Accordingly the Unaudited Pro Forma Combined Condensed Statements of Operations
are not necessarily indicative of the results that would have occurred had the
mergers been consummated on the dates indicated, or that may be achieved in the
future.

Assuming the consummation of the mergers, the actual financial position and
results of operation will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including changes in
value and changes in operating results between the dates of the unaudited pro
forma financial data and the date on which the mergers take place.

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CALIFORNIA COMMUNITY

UNAUDITED PRO FORMA COMPARATIVE PER SHARE DATA

<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- ------------------
<S> <C> <C>
PER SHARE DATA PRO FORMA CALIFORNIA COMMUNITY
Income per share:
Pro forma:
Basic loss per share.................................... $ (0.04) $ (.16)
Diluted loss per share.................................. $ (0.04) $ (.16)
Book Value (as of period end):
Pro forma (basic)......................................... $ 4.61 $ 4.63
Shares used for per share calculations:
Pro forma (basic)......................................... 21,585,668 21,585,668
Pro forma (diluted)....................................... 22,000,177 22,000,177
PER SHARE DATA HISTORICAL CALIFORNIA FINANCIAL
(Loss) income per share:
Historical:
Basic (loss) per share.................................. $ (0.23) $ (3.52)
Diluted (loss) per share................................ $ (0.23) $ (3.52)
Pro forma equivalent:
Basic (loss) per share.................................. $ (0.08) $ (0.34)
Diluted (loss) per share................................ $ (0.08) $ (0.34)
Book Value (as of period end):
Historical................................................ $ 9.02 $ 9.24
Pro forma equivalent...................................... $ 8.43 $ 8.85
Shares used for per share calculations:
Historical (basic)........................................ 3,764,669 751,920
Historical (diluted)...................................... 3,764,669 751,920
Pro forma equivalent (basic).............................. 6,887,838 1,436,092
Pro forma equivalent (diluted)............................ 6,887,838 1,436,092
PER SHARE DATA HISTORICAL BUSINESS BANK
(Loss) income per share:
Historical:
Basic (loss) per share.................................. $ (1.81) $ (1.65)
Diluted (loss) per share................................ $ (1.81) $ (1.65)
Pro forma equivalent:
Basic (loss) per share.................................. $ (0.07) $ (0.27)
Diluted (loss) per share................................ $ (0.07) $ (0.27)
Book Value (as of period end):
Historical................................................ $ 6.44 $ 8.25
Pro forma equivalent...................................... $ 6.93 $ 6.97
Shares used for per share calculations:
Historical (basic)........................................ 572,775 572,775
Historical (diluted)...................................... 572,775 572,775
Pro forma equivalent (basic).............................. 862,198 862,198
Pro forma equivalent (diluted)............................ 862,198 862,198
PER SHARE DATA HISTORICAL SECURITY FIRST
Income per share:
Historical:
Basic net income per share.............................. $ 0.02 $ 0.03
Diluted net income per share............................ $ 0.02 $ 0.03
Pro forma equivalent:
Basic net income (loss) per share....................... $ (0.00) $ (0.02)
Diluted net income (loss) per share..................... $ (0.00) $ (0.02)
Book Value (as of period end):
Historical................................................ $ 0.32 $ 0.30
Pro forma equivalent...................................... $ 0.43 $ 0.43
Shares used for per share calculations:
Historical (basic)........................................ 19,826,724 16,865,800
Historical (diluted)...................................... 19,826,724 16,865,800
Pro forma equivalent (basic).............................. 1,859,747 1,582,012
Pro forma equivalent (diluted)............................ 2,270,527 1,582,012
</TABLE>

85
<PAGE>
CALIFORNIA COMMUNITY
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
CALIFORNIA
PLACER CALIFORNIA FINANCIAL CALIFORNIA
CAPITAL FINANCIAL PRO FORMA PRO COMMUNITY
HISTORICAL HISTORICAL ADJUSTMENTS FORMA PRO FORMA
---------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks..................................... $ 16,634 $ 15,156 $ (566)a $ 14,590 $ 31,224
Federal funds sold and securities purchased under agreement
to resell................................................. 31,611 23,335 23,335 54,946
Interest bearing deposits in other banks.................... 4,162 4,162 4,162
Investment securities....................................... 142,973 33,576 33,576 176,549
Loans, net of allowance for loan losses..................... 379,082 124,003 124,003 503,085
Real estate owned, net...................................... 5,430 42 42 5,472
Premises and equipment, net................................. 14,302 1,398 1,398 15,700
Core deposit intangible..................................... 10,711 3,638 3,638 14,349
Goodwill.................................................... 33,246 13,571 2,995 b 17,567 50,813
(280)b
714 c
566 a
Accrued interest receivable and other assets................ 6,610 4,172 280 b 4,452 11,062
-------- -------- ------- -------- --------
Total assets............................................ $640,599 $223,053 $ 3,710 $226,763 $867,362
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES:
Deposits:
Noninterest-bearing....................................... $ 82,301 $ 68,697 $ 68,697 150,998
Interest-bearing.......................................... 473,178 112,331 112,331 585,509
-------- -------- ------- -------- --------
Total deposits.......................................... 555,479 181,028 181,028 736,507
-------- -------- ------- -------- --------
Subordinated debentures..................................... 18,500 18,500
Accrued interest payable and other liabilities.............. 9,753 3,195 3,195 12,948
-------- -------- ------- -------- --------
Total liabilities....................................... 583,732 184,223 184,223 767,955
-------- -------- ------- -------- --------
MINORITY INTERESTS IN SUBSIDIARIES.......................... 4,034 (2,740)b (14) (14)
(1,308)c
STOCKHOLDERS' EQUITY
Preferred stock............................................. 3,500 3,500
Common stock................................................ 52,999 38,581 5,748 b 46,339 99,338
2,010 c
Accumulated other comprehensive income...................... (45) (81) (81) (126)
Accumulated retained earnings (deficit)..................... 413 (3,704) (3,704) (3,291)
-------- -------- ------- -------- --------
Total stockholders' equity................................ 56,867 34,796 7,758 42,554 99,421
-------- -------- ------- -------- --------
Total liabilities and stockholders' equity................ $640,599 $223,053 $ 3,710 $226,763 $867,362
======== ======== ======= ======== ========
</TABLE>

86
<PAGE>
CALIFORNIA COMMUNITY
UNAUDITED PRO FORMA COMBINED CONDENSED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
PLACER ----------------------------- PLACER CALIFORNIA
CAPITAL PLACER SIERRA ACQUISITION CAPITAL FINANCIAL PRO FORMA
HISTORICAL PRE-ACQUISITION ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS
---------- --------------- ----------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans....... $ 5,302 $17,880 $ 152 f $23,334 $ 8,103 $
Interest and dividends on other
investments.................... 1,599 5,492 (281)e 7,256 1,510
445 f
Interest on federal funds sold
and securities purchased under
agreement to resell............ 199 269 468 1,270
------- ------- ------- ------- ------- -------
Total interest income.......... 7,100 23,641 317 31,058 10,883
------- ------- ------- ------- ------- -------
INTEREST EXPENSES:
Deposits......................... 2,847 9,940 12,787 2,730
Other borrowings................. 207 32 903 d 1,142
------- ------- ------- ------- ------- -------
Total interest expenses........ 3,054 9,972 903 13,929 2,730
------- ------- ------- ------- ------- -------
NET INTEREST INCOME................ 4,046 13,669 (586) 17,129 8,153
Less: provision for credit
losses......................... 50 394 444 349
------- ------- ------- ------- ------- -------
Net interest income after provision
for credit losses................ 3,996 13,275 (586) 16,685 7,804
------- ------- ------- ------- ------- -------
NON-INTEREST INCOME:
Service charges and fees......... 405 1,185 1,590 517
Commissions on investment
products....................... 151 401 552
Gain on sale of loans............ 28 400 428 329
Other............................ 200 554 754 528
------- ------- ------- ------- ------- -------
Total non-interest income.......... 784 2,540 3,324 1,374
------- ------- ------- ------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits... 1,853 7,033 8,886 4,221
Occupancy and equipment.......... 545 1,770 148 f 2,463 1,364
Telephone, courier and postage... 226 804 1,030 497
Professonal fees................. 36 225 261 1,128
Amortization of core deposit
intangibles.................... 105 1,087 f 1,192 504
Amortization of goodwill......... 110 815 f 925 364 166 g
47 h
Other............................ 880 1,966 2,846 2,147
------- ------- ------- ------- ------- -------
Total non-interest expenses.... 3,755 11,798 2,050 17,608 10,221 214
------- ------- ------- ------- ------- -------
(Loss) income before income
taxes and minority
interest..................... 1,025 4,017 (2,636) 2,406 (1,043) (214)
Provision (credit) for income
taxes........................ 573 1,607 2,180 7 (81)i
------- ------- ------- ------- ------- -------
Net income (loss) before
minority interests........... 452 2,410 (2,636) 226 (1,050) (133)
Minority interests in income
(loss) of subsidiaries....... (204) 211 j
------- ------- ------- ------- ------- -------
Net (loss) income.............. $ 452 $ 2,410 $(2,636) $ 226 $ (846) $ (344)
======= ======= ======= ======= ======= =======

CALIFORNIA CALIFORNIA
FINANCIAL COMMUNITY
PRO FORMA PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans....... $ 8,103 $31,437
Interest and dividends on other
investments.................... 1,510 8,766

Interest on federal funds sold
and securities purchased under
agreement to resell............ 1,270 1,738
------- -------
Total interest income.......... 10,883 41,941
------- -------
INTEREST EXPENSES:
Deposits......................... 2,730 15,517
Other borrowings................. 1,142
------- -------
Total interest expenses........ 2,730 16,659
------- -------
NET INTEREST INCOME................ 8,153 25,282
Less: provision for credit
losses......................... 349 793
------- -------
Net interest income after provision
for credit losses................ 7,804 24,489
------- -------
NON-INTEREST INCOME:
Service charges and fees......... 517 2,107
Commissions on investment
products....................... 552
Gain on sale of loans............ 329 757
Other............................ 528 1,282
------- -------
Total non-interest income.......... 1,374 4,698
------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits... 4,213 13,090
Occupancy and equipment.......... 1,364 3,827
Telephone, courier and postage... 497 1,527
Professonal fees................. 1,128 1,389
Amortization of core deposit
intangibles.................... 421 1,613
Amortization of goodwill......... 609 1,534
47 47
Other............................ 2,147 4,993
------- -------
Total non-interest expenses.... 10,435 28,037
------- -------
(Loss) income before income
taxes and minority
interest..................... (1,257) 1,149
Provision (credit) for income
taxes........................ (66) 2,114
------- -------
Net income (loss) before
minority interests........... (1,197) (964)
Minority interests in income
(loss) of subsidiaries.......
------- -------
Net (loss) income.............. $(1,197) $ (964)
======= =======
</TABLE>

87
<PAGE>
CALIFORNIA COMMUNITY-CALIFORNIA FINANCIAL
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CALIFORNIA
PLACER SIERRA PLACER FINANCIAL CALIFORNIA
PREACQUISITION PRO FORMA CAPITAL ORANGE-CALWEST PRO FORMA FINANCIAL
HISTORICAL ADJUSTMENTS PRO FORMA PRO FORMA ADJUSTMENTS PRO FORMA
-------------- ----------- ---------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
INTEREST INCOME:
Interest and fees on loans....... $30,785 $ 249 f $31,034 $ 9,027 $ $ 9,027
Interest and dividends on other
investments.................... 7,447 (460)e 7,717 2,384 2,384
730 f
Interest on federal funds sold
and securities purchased under
agreement to resell............ 777 777 1,663 1,663
------- ------- ------- ------- ------ -------
Total interest income.......... 39,009 519 39,528 13,074 13,074
------- ------- ------- ------- ------ -------
INTEREST EXPENSES:
Deposits......................... 17,238 17,238 3,460 3,460
Other borrowings................. 1,480 d 1,480 41 41
------- ------- ------- ------- ------ -------
Total interest expenses........ 17,238 1,480 18,718 3,501 3,501
------- ------- ------- ------- ------ -------
NET INTEREST INCOME................ 21,771 (961) 20,810 9,573 9,573
Less: provision for credit
losses......................... 775 775 460 460
------- ------- ------- ------- ------ -------
Net interest income after provision
for credit losses................ 20,996 (961) 20,035 9,113 9,113
------- ------- ------- ------- ------ -------
NON-INTEREST INCOME:
Service charges and fees......... 2,085 2,085 676 676
Commissions on investment
products....................... 859 859
Gain on sale of loans............ 676 676 51 51
Other............................ 1,658 1,658 1,123 1,123
------- ------- ------- ------- ------ -------
Total non-interest income...... 5,278 5,278 1,850 1,850
------- ------- ------- ------- ------ -------
NON-INTEREST EXPENSE:
Salaries and employee benefits... 9,819 9,819 6,255 6,255
Occupancy and equipment.......... 3,167 242 f 3,409 1,142 1,142
Telephone, courier and postage... 1,232 1,232 450 450
Professonal fees................. 498 498 2,276 2,276
Amortization of core deposit
intangibles.................... 1,782 f 1,782 591 591
Amortization of goodwill......... 1,336 f 1,336 618 222 g 903
63 h
Other............................ 4,911 4,911 3,500 3,500
------- ------- ------- ------- ------ -------
Total non-interest expenses.... 19,627 3,360 22,987 14,832 285 15,117
(Loss) income before income
taxes and minority
interest..................... 6,647 (4,321) 2,326 (3,870) (285) (4,155)
Provision (credit) for income
taxes........................ 2,861 2,861 (104) (1,091)i (1,195)
------- ------- ------- ------- ------ -------
Net (loss) income before
minority interests........... 3,786 (4,321) (535) (3,766) (806) (2,960)
Minority interests in (loss) of
subsidiaries................. (103) 103 j
------- ------- ------- ------- ------ -------
Net (loss) income.............. $ 3,786 ($4,321) ($ 535) ($3,663) ($ 703) ($2,960)
======= ======= ======= ======= ====== =======

CALIFORNIA COMMUNITY
PRO FORMA
--------------------
<S> <C>
(IN THOUSANDS)
INTEREST INCOME:
Interest and fees on loans....... $40,061
Interest and dividends on other
investments.................... 10,101

Interest on federal funds sold
and securities purchased under
agreement to resell............ 2,440
-------
Total interest income.......... 52,602
-------
INTEREST EXPENSES:
Deposits......................... 20,698
Other borrowings................. 1,521
-------
Total interest expenses........ 22,219
-------
NET INTEREST INCOME................ 30,383
Less: provision for credit
losses......................... 1,235
-------
Net interest income after provision
for credit losses................ 29,148
-------
NON-INTEREST INCOME:
Service charges and fees......... 2,761
Commissions on investment
products....................... 859
Gain on sale of loans............ 727
Other............................ 2,781
-------
Total non-interest income...... 7,128
-------
NON-INTEREST EXPENSE:
Salaries and employee benefits... 16,074
Occupancy and equipment.......... 4,551
Telephone, courier and postage... 1,682
Professonal fees................. 2,774
Amortization of core deposit
intangibles.................... 2,373
Amortization of goodwill......... 2,239

Other............................ 8,411
-------
Total non-interest expenses.... 38,104
(Loss) income before income
taxes and minority
interest..................... (1,829)
Provision (credit) for income
taxes........................ 1,666
-------
Net (loss) income before
minority interests........... (3,495)
Minority interests in (loss) of
subsidiaries.................
-------
Net (loss) income.............. ($3,495)
=======
</TABLE>

88
<PAGE>
CALIFORNIA FINANCIAL-ORANGE-CALWEST
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
ORANGE CALWEST CALIFORNIA FINANCIAL-
CALIFORNIA FINANCIAL PREACQUISITION- PREACQUISITION- PRO FORMA ORANGE-CALWEST
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
-------------------- --------------- --------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
INTEREST INCOME:
Interest and fees on loans..... $ 2,523 $3,888 $2,577 $ 43 k $ 9,027
(4)r
Interest and dividends on other
investments.................. 724 1,317 470 (77)k 2,384
(50)l
Interest on federal funds sold
and securities purchased
under agreement to resell.... 573 717 530 (158)m 1,663
------- ------ ------ ------- -------
Total interest income........ 3,820 5,922 3,577 (246) 13,074
------- ------ ------ ------- -------
INTEREST EXPENSES:
Deposits....................... 1,269 1,118 1,073 3,460
Other borrowings............... 41 41
------- ------ ------ ------- -------
Total interest expenses...... 1,310 1,118 1,073 3,501
------- ------ ------ ------- -------
NET INTEREST INCOME.............. 2,510 4,804 2,504 (246) 9,573
Less: provision for loan
losses....................... 340 120 460
------- ------ ------ ------- -------
Net interest income after
provision for loan losses.... 2,170 4,684 2,504 (246) 9,113

NON-INTEREST INCOME:
Service charges and fees....... 98 409 169 676
Commissions on investment
products.....................
Gain on sale of loans.......... 51 51
Other.......................... 638 353 132 1,123
------- ------ ------ ------- -------
Total non-interest income.... 736 813 301 1,850
------- ------ ------ ------- -------

NON-INTEREST EXPENSE:
Salaries and employee
benefits..................... 2,018 3,045 1,192 6,255
Occupancy and equipment........ 489 339 314 1,142
Telephone, courier and
postage...................... 131 231 88 450
Professonal fees............... 1,184 654 438 2,276
Amortization of core deposit
intangibles.................. 9 427 k 591
155 l
Amortization of goodwill....... 116 234 k 618
268 l
Other.......................... 1,696 1,570 234 3,500
------- ------ ------ ------- -------
Total non-interest
expenses................... 5,643 5,839 2,266 1,084 14,832
(Loss) income before income
taxes and minority
interest................... (2,737) (342) 539 (1,330) (3,870)
(Credit) provision for income
taxes...................... 15 (137) 225 (147)k (104)
------- ------ ------ ------- -------
(60)l
------- ------ ------ ------- -------
Net (loss) income before
minority interests......... (2,752) (205) 314 (1,123) (3,766)
Minority interests in (loss)
of subsidiaries............ (103) (103)
------- ------ ------ ------- -------
Net (loss) income............ $(2,649) $ (205) $ 314 $(1,123) $(3,663)
======= ====== ====== ======= =======
</TABLE>

89
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA

NOTE 1: BASIS OF PRESENTATION

Some historical data of Placer Sierra and California Financial have been
reclassified on a pro forma basis to conform to the pro forma classifications.
The unaudited pro forma number of shares outstanding, common stockholders'
equity per share, number of shares (basic and diluted) and income (loss) per
share (basic and diluted) are based on the share amounts for California
Community plus the share amounts for California Financial, Business Bank and
Security First multiplied by the respective conversion rates of 1.8296, 1.5053
and .0938.

NOTE 2: PLACER CAPITAL--ACQUISITION OF PLACER SIERRA-PURCHASE PRICE

The purchase price of Placer Sierra was $22.05 per share. Total consideration
paid in connection with the acquisition is calculated as follows (in thousands);
except share and per share amounts:

<TABLE>
<S> <C>
Shares of Placer Sierra outstanding at August 10, 1999...... 3,560,048
Price per share............................................. $ 22.05
---------
Amount paid to stockholders................................. $ 78,499
Amount paid to stock option holders......................... 1,242
Acquisition costs........................................... 2,985
---------
Total consideration......................................... 82,726
Less: Placer Sierra dividend paid to Placer Capital......... (8,000)
---------
Net investment in Placer Sierra............................. $ 74,726
=========
</TABLE>

For purposes of this pro forma combined condensed financial data, Placer Capital
was capitalized as follows (in thousands):

<TABLE>
<S> <C>
Issuance of Placer Capital common stock for cash............ $53,000
Issuance of non-cumulative preferred stock for cash......... 3,500
Issuance of subordinated debentures for cash................ 18,500
-------
Total....................................................... $75,000
=======
</TABLE>

Historical interest income on the accompanying Unaudited Pro Forma Combined
Condensed Statement of Operations for the nine months ended September 30, 1999,
and for the year ended December 31, 1998, has been reduced by $280 thousand and
$460 thousand, respectively. This adjustment reflects pro forma lost interest
income at 5.75% on $8 million of investment securities assumed on a pro forma
basis to have been used to fund the dividend paid by Placer Sierra to Placer
Capital.

Historical interest expense on the accompanying Unaudited Pro Forma Combined
Condensed Statement of Operations for the nine months ended September 30, 1999,
and the year ended December 31, 1998, has been increased by $903 thousand and
$1.480 million, respectively. This adjustment represents the additional interest
expense at 8.0% on $18.5 million of subordinated debentures issued by Placer
Capital as a component of its initial capitalization.

NOTE 3: ACQUISITION OF PLACER SIERRA BY PLACER CAPITAL--ALLOCATION OF PURCHASE
PRICE

Placer Capital's acquisition of Placer Sierra was accounted for as a purchase.
Under this method of accounting, assets and liabilities of Placer Sierra were
adjusted to their estimated fair values and

90
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA (CONTINUED)

NOTE 3: ACQUISITION OF PLACER SIERRA BY PLACER CAPITAL--ALLOCATION OF PURCHASE
PRICE (CONTINUED)

combined with the recorded book values of the assets and liabilities of Placer
Capital. These estimates are preliminary and subject to change based upon
further analysis of related assets. The acquisition by Placer Capital of Placer
Sierra was effective on August 11, 1999. California Community's acquisition of
Placer Sierra is presented as if it had been consummated as of the beginning of
the periods indicated, with respect to the Pro Forma Combined Condensed
Statements of Operations.

The purchase price of Placer Sierra was allocated on a pro forma basis as follow
(in thousands):

<TABLE>
<S> <C>
Cash and due from banks..................................... $ 22,209
Federal funds sold and securities purchased under agreements
to resell................................................. 21,250
Securities.................................................. 153,043
Loans, net of allowance for loan losses..................... 376,440
Premises and equipment, net................................. 13,871
Other real estate owned..................................... 6,233
Accrued interest receivable and other assets................ 8,472
Goodwill.................................................... 33,356
Core deposit intangible..................................... 10,816
Deposits.................................................... (562,080)
Accrued interest payable and other liabilities.............. (8,884)
---------
Total purchase price...................................... $ 74,726
=========
</TABLE>

Goodwill created of $33.356 million is amortized on a straight-line basis over
25 years. For purposes of the Unaudited Pro Forma Condensed Statements of
Operations, goodwill amortization of $815 thousand and $1.336 million,
respectively, was recorded for the nine month period ended September 30, 1999
and twelve month period ended December 31, 1998.

Core deposit intangible created of $10.816 million is being amortized over the
expected life of the related deposits using the effective yield method. For
purposes of the Unaudited Pro Forma Condensed Statements of Operations, core
deposit intangible amortization expense of $1.087 million and $1.782 million,
respectively, was recorded for the nine month period ended September 30, 1999
and twelve month period ended December 31, 1998.

Investment securities held to maturity mark to market adjustments totaling
$2.918 million will be amortized using the effective yield method over the
remaining lives of the related securities. For purposes of the Unaudited Pro
Forma Condensed Statements of Operations, interest income on investment
securities was increased by approximately $281 thousand and $460 thousand,
respectively, for the nine month period ended September 30, 1999 and twelve
month period ended December 31, 1998.

Loan portfolio mark to market adjustments of $1.174 million are projected to be
amortized using the effective yield method over the remaining lives of the
related loans. For purposes of the Unaudited Pro Forma Condensed Statements of
Operations, interest and fees on loans was increased by approximately $152
thousand and $249 thousand, respectively, for the nine month period ended
September 30, 1999 and twelve month period ended December 31, 1998.

Premises mark to market adjustments of $6.682 million included an increase of
$3.956 million attributable to depreciable assets which will be amortized on the
straight-line method over remaining

91
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA (CONTINUED)

NOTE 3: ACQUISITION OF PLACER SIERRA BY PLACER CAPITAL--ALLOCATION OF PURCHASE
PRICE (CONTINUED)

lives of the related assets. For purposes of the Unaudited Pro Forma Condensed
Statements of Operations, depreciation expense was increased by $148 thousand
and $242 thousand, respectively, for the nine month period ended September 30,
1999 and twelve month period ended December 31, 1998.

Other real estate owned mark to market adjustments of $4.995 million was related
solely to an increase in market value of non-depreciable assets.

NOTE 4: ACQUISITION OF PLACER SIERRA BY PLACER CAPITAL--ACQUISITION COSTS

The unaudited pro forma combined condensed financial data reflects the aggregate
acquisition costs by Placer Capital of Placer Sierra totaling $2,984,000 which
were incurred in connection with the acquisition. A proportion of these costs
may be required to be recognized over time, and these costs have been recorded
in the pro forma combined balance sheet in order to disclose the aggregate
effect of these activities on Placer Capitals pro forma combined financial
position. The aggregate costs include the following (in thousands):

<TABLE>
<S> <C>
Professional fees........................................... $2,703
Other costs................................................. 281
------
AGGREGATE COSTS............................................. $2,984
======
</TABLE>

These costs represent California Community management's current estimate of the
total acquisition costs that will be incurred. The ultimate level and timing of
recognition of such costs will be based upon information which remains
outstanding.

NOTE 5: ACQUISITION BY CALIFORNIA COMMUNITY OF CALIFORNIA FINANCIAL--PURCHASE
PRICE

California Community will purchase 100% of the outstanding shares of California
Financial for an exchange ratio of 1.8296, California Community shares for each
California Financial share outstanding. California Community and California
Financial's sole shareholder is the California Fund.

California Community's acquisition of California Financial will be accounted for
as an "as if" pooling. California Community and California Financial's sole
shareholder is the California Fund. Accordingly, in the Unaudited Pro Forma
Combined Condensed Balance Sheet the assets and liabilities of California
Financial have been carried over at their historical amounts at September 30,
1999.

NOTE 6: ACQUISITION BY CALIFORNIA COMMUNITY OF MINORITY INTERESTS OF BUSINESS
BANK AND SECURITY FIRST--ACQUISITION COSTS

The unaudited pro forma combined condensed financial data reflects California
Community management's current estimate, for purposes of pro forma presentation,
of the aggregate estimated merger and share exchange costs of $566,000 expected
to be incurred by Business Bank and Security First in connection with the merger
and share exchange. While a proportion of these costs may be required to be
recognized over time, the current estimate of these costs has been recorded in
the pro forma combined balance sheets in order to disclose the aggregate effect
of these activities on California

92
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA (CONTINUED)

NOTE 6: ACQUISITION BY CALIFORNIA COMMUNITY OF MINORITY INTERESTS OF BUSINESS
BANK AND SECURITY FIRST--ACQUISITION COSTS (CONTINUED)

Community's pro forma combined financial position. The estimated aggregate costs
include the following (in thousands):

<TABLE>
<S> <C>
Professional fees........................................... 472
Other....................................................... 94
------
ESTIMATED AGGREGATE COSTS................................... $ 566
======
</TABLE>

California Community's cost estimates are forward-looking. While the costs
represent California Community management's current estimate of merger and share
exchange costs that will be incurred, the ultimate level and timing of
recognition of such costs will be based on the final merger and share exchange
costs that are incurred.

NOTE 7: PRO FORMA ADJUSTMENTS RELATED TO CALIFORNIA COMMUNITY ACQUISITION OF
CALIFORNIA FINANCIAL AND MINORITY INTERESTS OF BUSINESS BANK

California Community's acquisition of the minority interest in Business Bank
will be accounted for as a purchase.

California Community's acquisition of Business Bank reflects receipt by Business
Bank shareholders of 1 share of California Community common stock for each
1.5053 shares of Business Bank common stock held. Goodwill in the amount of $714
thousand is created in the transaction, and will be amortized on a straight-line
basis over a period of 15 years. The impact thereof is reflected as if the
transaction had been consummated as of September 30, 1999 with respect to the
Pro Forma Combined Condensed Balance Sheet, and as of the beginning of the
periods indicated, with respect to the Pro Forma Combined Condensed Statements
of Operations.

NOTE 8: PRO FORMA ADJUSTMENTS RELATED TO CALIFORNIA COMMUNITY ACQUISITION OF
CALIFORNIA FINANCIAL AND MINORITY INTERESTS OF SECURITY FIRST

California Community's acquisition of the minority interest in Security First
will be accounted for as a purchase.

California Community's acquisition of Security First reflects receipt by
Security First shareholders of 0.093 share of California Community common stock
for each share of Security First common stock held. Goodwill in the amount of
$2.715 million ($2.995 million, net of deferred tax assets totaling $280
thousand related to reversal of net tax operating loss valuation allowances) is
created in the transaction, and will be amortized on a straight-line basis over
a period of 15 years. The impact thereof is reflected as if the transaction had
been consummated as of September 30, 1999 with respect to the Pro Forma Combined
Condensed Balance Sheet, and as of the beginning of the periods indicated, with
respect to the Pro Forma Combined Condensed Statements of Operations.

NOTE 9: ACQUISITION OF ORANGE AND CALWEST BY CALIFORNIA FINANCIAL-PRO FORMA
IMPACT OF PURCHASE PRICE

California Financial's acquisitions of Orange and CalWest were accounted for
using the purchase method of accounting. Under this method of accounting, assets
and liabilities of Orange and CalWest were adjusted to their estimated fair
values. The acquisition dates by California Financial of Orange

93
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA (CONTINUED)

NOTE 9: ACQUISITION OF ORANGE AND CALWEST BY CALIFORNIA FINANCIAL-PRO FORMA
IMPACT OF PURCHASE PRICE (CONTINUED)

and CalWest, respectively, were December 31 and November 25, 1998. California
Financial's acquisitions of Orange and CalWest have been presented as if they
had been consummated as of the beginning of the period with respect to the Pro
Forma Combined Condensed Statement of Operations for the year ended
December 31, 1998.

Goodwill created in these transactions totaling $12.504 million is being
amortized on a straight-line basis over 25 years. For purposes of the Unaudited
Pro Forma Condensed Statement of Operations, goodwill amortization of $234
thousand and $266 thousand, respectively, was recorded for Orange and CalWest
for the twelve month period ended December 31, 1998.

Core deposit intangibles created in these transactions totaling $4.089 million
is being amortized over the expected life of the related deposits using the
effective yield method. For purposes of the Unaudited Pro Forma Condensed
Statement of Operations, core deposit intangible amortization expense of $427
thousand and $157 thousand, respectively, was recorded for Orange and CalWest
for the twelve-month period ended December 31, 1998.

Investment securities' mark to market premium adjustments resulting from the
transactions total $666 thousand and are being amortized using the effective
yield method over the remaining lives of the related securities. For purposes of
the Unaudited Pro Forma Condensed Statement of Operations, interest income on
investment securities was decreased by approximately $77 thousand and $50
thousand, respectively, for Orange and CalWest for the twelve month period ended
December 31, 1998.

Loan portfolio mark to market net discount adjustments resulting from the
transactions totaling $159 thousand are being amortized using the effective
yield method over the remaining lives of the related loans. For purposes of the
Unaudited Pro Forma Condensed Statement of Operations, interest and fees on
loans was increased (decreased) by approximately $43 thousand and ($4) thousand,
respectively, for Orange and CalWest for the twelve month period ended December
31, 1998.

The above described mark to market adjustments resulted in a net deferred tax
liability totaling $1.778 million which is being amortized over remaining lives
of the related assets. For purposes of the Unaudited Pro Forma Condensed
Statement of Operations, the effective tax rate reflects adjustments to the
provision for income taxes of $147 thousand and $60 thousand, respectively, for
Orange and CalWest for the twelve month period ended December 31, 1998.

NOTE 10: KEY TO PRO FORMA ADJUSTMENTS

Summarized below are the pro forma adjustments necessary to reflect the merger
and share exchanges based on the purchase method of accounting with respect to
the proposed transactions:

(a) Reflect costs to be incurred by Business Bank and Security First related
to merger and share exchanges

(b) Reflect purchase of Security First minority interest

(d) Reflect interest expense associated with issuance by Placer Capital of
subordinated debentures ($903,000 for 9 months in 1999; 1,486,000 for 12
months in 1998)

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<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA (CONTINUED)

NOTE 10: KEY TO PRO FORMA ADJUSTMENTS (CONTINUED)

(e) Reflect foregone interest income associated with assumed sale of
investment securities to fund capital reduction at Placer Sierra
($281,000 for the period January 1 through August 10, 1999; $460,000 for
12 months in 1998)

(f) Reflect profit and loss impact of Placer Sierra mark to market
adjustments related to:

- Amortization of discount on loans

- Amortization of discount on investment securities

- Depreciation on premises and equipment mark to market

- Amortization of core deposit intangible ($1.087 million for the period
January 1 through August 10, 1999; $1,780,000 for 12 months in 1998)

- Amortization of goodwill ($815,000 for the period January 1 through
August 10, 1999; $1,336,000 for 12 months in 1998)

(g) Reflect amortization of goodwill created in purchase of Security First
minority interest.

(h) Reflect amortization of goodwill created in purchase of Business Bank
minority interest.

(i) Reflect impact on pro forma income tax expense related to operating
losses at California Financial.

(j) Eliminate minority interest in loss of subsidiaries in recognition of
purchase of minority interests

(k) Reflect income statement impact of mark to market adjustments related to
the acquisition of Orange by California Financial:

- Adjust net loans to estimated fair value

- Adjust available for sale securities to estimated fair value

- Adjust deposits to estimated fair value

- Reflect goodwill resulting from the purchase method of accounting

- Reflect deferred tax liabilities related to fair value adjustments of
available for sale securities, loans and deposits

(l) Reflect income statement impact of mark to market adjustments related to
the acquisition of CalWest by California Financial:

- Adjust net loans to estimated fair value

- Adjust investment securities to estimated fair value

- Adjust deposits to estimated fair value

- Reflect goodwill resulting from the purchase method of accounting

- Reflect deferred tax liabilities related to fair value adjustments of
investment securities, loans and deposits

(m) Reflect foregone interest income associated with assumed use of federal
funds sold to fund $3,000,000 post closing dividend from CalWest to
California Financial.

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<PAGE>
DESCRIPTION OF CALIFORNIA COMMUNITY

BUSINESS

California Community is a wholly-owned subsidiary of the California Fund and was
organized for the purpose of becoming the holding company for the California
Fund's investments in commercial banks in California. California Community will
be the sole shareholder and holding company of Placer Capital which, in turn,
owns 100% of Placer Sierra. Assuming completion of the California Community/
California Financial merger, Orange/Security First merger and the
CalWest/Business Bank merger, it will be the sole shareholder and holding
company of Orange and CalWest.

California Community's headquarters are located at One Maritime Plaza,
Suite 825, San Francisco, California. California Community was incorporated on
September 3, 1999, under the laws of the state of Delaware. As of the date of
this proxy statement/prospectus, California Community has not engaged in any
operations except for the steps necessary in order to complete the acquisition
of the shares of Placer Capital, the California Community/California Financial
merger, the Orange/Security First merger and the CalWest/Business Bank merger.

MANAGEMENT

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth
information, as of October 8, 1999, with respect to those persons who are
directors and executive officers of California Community:

<TABLE>
<CAPTION>
POSITIONS HELD WITH DIRECTOR
NAME AGE CALIFORNIA COMMUNITY SINCE
- ---- -------- -------------------------------------- --------
<S> <C> <C> <C>
Ronald W. Bachli...................... 58 President, Chief Executive Officer and 1999
Director

Richard W. Decker, Jr................. 55 Chairman and Director 1999

Joseph P. Heitzler.................... 55 Director 1999

Robert J. Kushner..................... 49 Director 1999

Clifford R. Ronnenberg................ 62 Director 1999

J. Thomas Byrom....................... 52 Secretary and Director 1999

James M. McGann....................... 47 Chief Financial Officer 1999
</TABLE>

RONALD W. BACHLI has been President, Chief Executive Officer and a director of
California Community since its incorporation in September, 1999. He also has
been a managing member of Belvedere Capital and Vice Chairman and director of
its predecessor since December 1998, is the President, Chief Executive Officer
and a director of Placer Capital, Chairman of the Board of Directors of Placer
Sierra and a director of California Financial, CalWest and Business Bank.
Mr. Bachli received his B.S. in Finance from the University of San Francisco in
1962, his Juris Doctor degree from the University of San Francisco School of Law
in 1972. From 1982, until joining Belvedere Capital in late 1998, Mr. Bachli was
a Banking Partner in the firm of Lillick & Charles LLP where he specialized in
regulatory, corporate finance, mergers and acquisitions for financial
institutions.

RICHARD W. DECKER, JR. Mr. Decker has over 29 years of banking experience.
Mr. Decker is a managing member of Belvedere Capital and was the President and a
co-founder of its predecessor. Mr. Decker is the Chairman of the Boards of
Directors of California Community, Placer Capital and California Financial, and
also serves on the Boards of Directors of Orange, Security First and Placer
Sierra. Mr. Decker was co-founder and Vice Chairman of Independent Bancorp of
Arizona. Mr. Decker assisted in the formation of Pan American Savings Bank,
where he served for four years as

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<PAGE>
a director and chairman of the audit committee. Previously, he served as
President, CEO and director of WestAmerica Bank, headquartered in Marin County,
California, and worked for 15 years in senior management positions at First
Interstate Bank of California, leaving in 1988 as Executive Vice President,
Chief Administrative Officer and a member of the bank's "managing committee."

Mr. Decker earned his B.S. degree from Long Beach State University in 1967 and
an MBA in 1969. In 1970, he earned an additional graduate degree from the
American Graduate School of International Management (Thunderbird). In addition,
he completed the Graduate School of Credit and Financial Management at Stanford
Business School and in 1986 completed the Advanced Management Program (AMP) at
Harvard Business School.

ROBERT J. KUSHNER is a director of California Community, Placer Capital,
California Financial and Placer Sierra. Mr. Kushner is also the Audit Chairman
of these institutions. Mr. Kushner is a certified public accountant, and has
been a principal of the accounting firm of Kushner, Smith, Joanou & Gregson LLP
since 1979. Mr. Kushner received a B.S. degree in accounting and finance from
the University of Southern California in 1973. Mr. Kushner's previous experience
related to audit management positions with two different international
accounting firms. He was an appointed member of the State Board of Accountancy's
Administrative Committee and is a member of the American Institute of Certified
Public Accountants and the California Society of Certified Public Accountants.

J. THOMAS BYROM has been Chief Financial Officer of Belvedere Capital and its
predecessor since 1997. He is a director of Business Bank, California Community,
Placer Capital, Placer Sierra, and CalWest. Prior to joining Belvedere Capital,
Mr. Byrom was President and Chief Financial Officer at Tracy Federal Bank,
F.S.B., in Tracy, California. Earlier in his career, Mr. Byrom was Senior Vice
President in the finance division at 1st Nationwide Bank, and Vice President in
charge of profit planning at Wells Fargo Bank.

JAMES MCGANN is Chief Financial Officer of California Community, Placer Capital,
and Placer Sierra. He has been Executive Vice President, Chief Financial Officer
and Treasurer of Placer Sierra since 1992. Prior to joining Placer Sierra
Mr. McGann served as the Chief Financial Officer and Senior Vice President, and
Corporate Secretary of Capital Bank Sacramento from 1982. From 1976 through 1982
Mr. McGann was employed by the California State Banking Department as a Bank
Examiner and training officer. Mr. McGann earned his B.S. degree in Finance from
California State University, Sacramento and an M.B.A. from Golden Gate
University, Sacramento. He is a 1990 graduate of the Pacific Coast Banking
School at the University of Washington.

For biographical information about Joseph P. Heitzler, see "Description of
Business Bank--Management--Information on Directors and Executive Officers."

For biographical information about Clifford R. Ronnenberg, see "Description of
Security First--Management--Information on Directors and Executive officers."

FINANCIAL INTEREST OF BELVEDERE CAPITAL IN CALIFORNIA COMMUNITY

California Community entered into an agreement in October, 1999 with the general
partner of the California Fund, Belvedere Capital, under which California
Community engaged Belvedere Capital as California Community's exclusive
financial advisor in connection with financing and acquisition transactions. As
compensation for these services, California Community has agreed to pay
Belvedere Capital an amount equal to three percent (3%) of the aggregate amount
financed in the transaction.

In the event of any acquisition of any other financial institution by California
Community in connection with which California Community completes an equity
financing with an investor other than the California Fund, California Community
will pay Belvedere Capital for any financial advisory services

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<PAGE>
provided by Belvedere Capital, an amount equal to five percent (5%) of the
aggregate amount financed in the transaction.

The agreement also provides that, regardless of whether a given transaction is
completed, California Community will reimburse Belvedere Capital for all
reasonable out-of-pocket expenses incurred by Belvedere Capital in connection
with the transaction. In connection with the agreement, California Community
also agreed to indemnify Belvedere Capital against certain liabilities.

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<PAGE>
DESCRIPTION OF THE CALIFORNIA FUND AND BELVEDERE CAPITAL

BUSINESS

The California Fund is a limited partnership organized in 1997 under the laws of
the state of California to take advantage of the significant decline in the
number of locally owned and managed banks in California by investing in
community oriented financial institutions allowing them to continue to operate
as community oriented independent entities, and assisting them to move into
markets that are no longer served by independent financial institutions. This
decline resulted from the recent wave of consolidations both at the community
bank level as well as the regional level with institutions such as First
Interstate Bank disappearing into Wells Fargo, which then combined with Norwest.
Belvedere Capital Partners LLC is the general partner of the California Fund.

The California Fund completed its offering of partnership interests on
April 29, 1998, with capital commitments from its partners to contribute an
aggregate of $160 million to the California Fund, including Belvedere Capital's
commitment as general partner of not less that 1% of the aggregate capital
contributions of all partners. Under its limited partnership agreement, limited
partners in the California Fund are required to fund their respective capital
commitments upon call by Belvedere Capital for, among other things, designated
investments in portfolio companies.

Both Belvedere Capital and the California Fund are registered bank holding
companies. The California Fund is the holding company of California Financial,
which is the registered bank holding company of Security First, Orange, CalWest,
and Business Bank, and is also the holding company of Placer Capital which is
the registered bank holding company of Placer Sierra.

In November 1997, the California Fund through an investment in California
Financial purchased approximately 57% of the outstanding shares of Security
First. At September 30, 1999, Security First had assets of $50.3 million and as
of June 30, 1998 (the latest date as of which deposit data for the relevant area
was available), deposits in Security First represented approximately 1.60% of
the total bank and thrift deposits in the Fullerton area (defined by Security
First to include Fullerton, Brea and Yorba Linda, California).

In November 1998, the California Fund through an investment in California
Financial purchased 65% of the outstanding shares of common stock of Business
Bank. Business Bank opened for business on November 3, 1998, and at
September 30, 1999, had assets of $20.2 million.

In November 1998, the California Fund through an investment in California
Financial also acquired all of the outstanding shares of Downey Bancorp. Downey
Bancorp was the sole shareholder and holding company of Downey National Bank
(now CalWest). Immediately following completion of this acquisition, Downey
Bancorp was merged with and into California Financial in a statutory short-form
merger, with California Financial as the surviving corporation. At
September 30, 1999, CalWest had assets of $61.1 million and as of June 30, 1998
(the latest date as of which deposit data for the relevant area was available)
deposits in CalWest (formerly Downey National Bank) represented approximately
2.60% of total bank and thrift deposits in Downey, California.

In December 1998, the California Fund through an investment in California
Financial acquired all of the outstanding shares of Orange. At September 30,
1999, Orange had assets of $88.9 million and as of June 30, 1998 (the latest
date as of which deposit data for the relevant area was available), deposits in
Orange represented approximately 1.63% of total bank and thrift deposits in the
cities in which Orange operates branches (Fountain Valley, Mission Viejo and
Orange, California).

In August 1999, the California Fund through an investment in Placer Capital
acquired all of the outstanding shares of Placer Sierra. At September 30, 1999,
Placer Sierra has assets of $637.9 million and as of June 30, 1998 (the latest
date as of which deposit data for the relevant area was available),

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<PAGE>
deposits in Placer Sierra represented approximately 12.7% of total bank and
thrift deposits in the cities in which Placer Sierra operates branches.

In September 1999, the California Fund acquired directly approximately 54% of
the outstanding shares of Cerritos Valley Bancorp, Norwalk, California. Cerritos
Valley Bancorp owns 100% of Cerritos Valley Bank. As of September 30, 1999,
Cerritos Valley Bank had assets of $141.5 million.

On November 19, 1999, the California Fund agreed to purchase 100% of the
outstanding stock of Sacramento Commercial Bank and to cash out all options to
purchase Sacramento Commercial stock for $41.6 million in cash. This
acquisition, which is expected to close in the first quarter of 2000, will be
through Sacramento Capital Co., a newly formed subsidiary of the California
Fund. The acquisition is subject to a number of conditions, including
shareholder and regulatory approvals. As of September 30, 1999, Sacramento
Commercial had total assets of $214.9 million.

Belvedere Capital is a California limited liability company whose articles of
organization were filed with the California Secretary of State on January 4,
1999. Belvedere Capital was organized for the sole purpose of assuming the
general partnership interest in the California Fund of Belvedere Capital
Partners, Inc., a California corporation. Belvedere Capital succeeded to
Belvedere Capital Partners, Inc.'s role as the sole general partner of the
California Fund, pursuant to an assignment of general partnership interest and
assumption of general partnership liability and an assignment of assets and
assumption of liabilities both entered into, subject to receipt of regulatory
approvals, as of January 4, 1999. Final regulatory approval was received on
May 11, 1999. Belvedere Capital owns 1.12% of the California Fund.

MANAGEMENT

The managing members of Belvedere Capital are Richard W. Decker, Jr. and Ronald
W. Bachli. For biographical information, see "Description of California
Community--Management--Information on Directors and Executive Officers."

100
<PAGE>
DESCRIPTION OF PLACER CAPITAL

BUSINESS

Placer Capital is the sole shareholder of Placer Sierra, and prior to the bank
mergers will be a wholly-owned subsidiary of California Community. Placer
Capital is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended. It was organized for the purpose of acquiring Placer
Sierra, which acquisition was completed on August 11, 1999. Placer Capital
engages in no business operations other than those incidental to its ownership
and serving as the holding company of Placer Sierra.

Placer Capital was incorporated on December 2, 1998, under the laws of the state
of California and its headquarters are located at One Maritime Plaza,
Suite 825, San Francisco, California.

As of September 30, 1999, Placer Sierra had assets of $637.9 million.

EMPLOYEES

As of September 30, 1999, Placer Sierra employed 257 persons on a full-time
basis.

MANAGEMENT

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth
some information, as of October 8, 1999, with respect to those persons who are
directors and executive officers of Placer Sierra:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITIONS HELD WITH PLACER SIERRA SINCE
- ---- -------- -------------------------------------- --------
<S> <C> <C> <C>
Ronald W. Bachli...................... 58 Chairman of the Board and Director 1999

J. Thomas Byrom....................... 52 Director 1999

Richard W. Decker, Jr................. 55 Vice Chairman and Director 1999

Robert C. Haydon...................... 55 President, Chief Executive Officer and 1994
Director

W.E. Jansen, Jr....................... 66 Director 1999

Robert J. Kushner..................... 49 Director 1999

Larry D. Mitchell..................... 57 Director 1999

Dwayne Shackelford.................... 55 Director 1999

Walter D. Skinner..................... 59 Director 1999

Diane Bacon........................... 48 Executive Vice President, Chief N/A
Banking Officer

Mark A. Lund.......................... 50 Chief Credit Officer N/A

James M. McGann....................... 46 Chief Financial Officer N/A
</TABLE>

For biographical information on Ronald W. Bachli, Richard W. Decker, Jr., Robert
J. Kushner, J. Thomas Byrom and James M. McGann, see "Description of California
Community--Management Information on Directors and Executive Officers."

ROBERT C. HAYDON has been President and Chief Executive Officer of Placer Sierra
since 1994. In 1989 Mr. Haydon was elected to the Board of Directors and
appointed Senior Executive Vice President and Chief Banking Officer. Mr. Haydon
held various management positions since his employment with

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<PAGE>
the bank in 1967. Mr. Haydon is a graduate of the University of California and
the Graduate School of Savings and Loan at the University of Texas, Austin.

DIANE BACON has been Chief Banking Officer since May of 1996. From December
1994, Ms. Bacon served as Placer Sierra's Chief Lending Officer. Prior to
joining Placer Sierra in December 1994, Ms. Bacon was the Senior Vice President
and Chief Credit Officer for American Liberty Mortgage from December 1994
through December 1998. From 1985 to January of 1994, Ms. Bacon was the Regional
Vice President--Production/Operations for Western Financial Savings Bank.
Ms. Bacon is a graduate of the Pacific Coast Banking School at the University of
Washington.

W.E. JANSEN, JR. is currently retired. He served as CEBA/Asset review officer
for Placer Sierra from 1993 to 1998. From 1964 to 1993, Mr. Jansen served in
various capacities in Placer Sierra's lending department, most recently as
senior vice president, secondary marketing manager.

MARK A. LUND joined Placer Sierra as the Chief Credit Officer in May 1996, with
overall responsibility for credit activities. From May 1983 through May 1996,
Mr. Lund held the position of Executive Vice President and Chief Credit Officer
of the Bank of Commerce, Auburn, California. Mr. Lund holds a Bachelor of
Science degree in Business Administration from California State University,
Sacramento and is a graduate of the Pacific Coast Banking School at the
University of Washington.

LARRY D. MITCHELL has been retired since October 29, 1997. Prior to his
retirement, Mr. Mitchell was site general manager of Hewlett Packard, Roseville,
California from October 1994 until October 1997. He serves as a director of
numerous non-profit community organizations.

DWAYNE SHACKELFORD is vice president of Chartwell Holdings Management, Inc., a
real estate development firm in Sacramento, California. Mr. Shackelford has held
this position since 1990. Additionally, Mr. Shackelford has served as a
consulting associate with Huntley Financial Group, Ltd. since 1996.
Mr. Schackelford attended the University of Oregon and California State
University Sacramento where he received B.S. and M.B.A. degrees.
Mr. Schackelford is a Certified Public Accountant and a licensed real estate
broker.

WALTER D. SKINNER, D.D.S. is a dentist in Auburn, California, having practiced
in the community for 27 years. Dr. Skinner has served as a Director of Placer
Sierra since 1996 and as chairman of the personnel committee of the board.
Dr. Skinner has served on numerous Dental Society boards within California.

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<PAGE>
SELECTED FINANCIAL DATA

PLACER CAPITAL

(UNAUDITED)

<TABLE>
<CAPTION>
AS OF AND FOR THE
PERIOD ENDED
SEPTEMBER 30, 1999
-------------------
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease
losses.................................................... $ 4,046
Provision for loan and lease losses......................... 50
----------
Net interest income after provision for loan and lease
losses.................................................... 3,996
Noninterest income.......................................... 784
Noninterest expense......................................... 3,755
----------
Income before income tax.................................... 1,025
Income tax provision........................................ 572
----------
Net income.................................................. $ 452
==========

PER SHARE DATA:
Common shares outstanding................................... 5,300,000
</TABLE>

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<PAGE>
SELECTED FINANCIAL DATA

PLACER CAPITAL

(UNAUDITED)

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

(1) Annualized

104
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This information should be read in conjunction with the unaudited consolidated
financial statements and the notes thereto of Placer Capital included with this
proxy statement/prospectus. Placer Capital acquired Placer Sierra on August 11,
1999. The transaction was accounted for under the purchase method of accounting
and there is no comparable prior year accounting period (as defined below) for
Placer Capital. This information should also be read in connection with the
audited and unaudited financial statements of the predecessor company (Placer
Sierra) included with this proxy statement/ prospectus. The following discussion
contains forward-looking statements that involve risks and uncertainties. Placer
Capital's actual results could differ materially from those discussed here.
Factors that could cause or contribute to such differences include, but are not
specifically limited to, changes in regulatory climate, shifts in the interest
rate environment, changes in economic conditions of various markets Placer
Capital serves, as well as the other risks detailed in this section and in "Risk
Factors."

FOR THE PERIOD AUGUST 11, 1999 TO SEPTEMBER 30, 1999 (FOR THE PERIOD ENDED
SEPTEMBER 30, 1999)

OVERVIEW

The operations of Placer Capital consist almost exclusively of the activities of
Placer Sierra for the period August 11, 1999 to September 30, 1999. Placer
Capital had no material account balances or operations prior to the acquisition
of Placer Sierra.

Placer Capital had net income of $0.5 million for the period ended
September 30, 1999. Both basic and fully diluted net income per share for the
period ended September 30, 1999 was $0.09 per share. Placer Capital's return on
average assets was .07% and its return on average common equity was .85% for the
period ended September 30, 1999.

RESULTS OF OPERATIONS

Placer Capital's results of operations depend primarily on Placer Capital's net
interest income, which is the difference between interest and dividend income on
interest-earning assets and interest expense on interest-bearing liabilities.
Placer Capital's interest-earning assets consist primarily of loans,
mortgage-backed securities and investment securities, while its interest-bearing
liabilities are deposits. Placer Capital's results of operations are also
affected by Placer Capital's provisions for loan losses, resulting from
management's assessment of the adequacy of Placer Capital's allowance for loan
losses, the level of its other income, the level of its other expenses, such as
compensation and employee benefits, occupancy costs, expenses associated with
the administration of problem assets, and income taxes.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was approximately $4.0 million for the period ended
September 30, 1999. Net interest income was the result of interest income of
$7.1 million offset by interest expense of $3.1 million for the period ended
September 30, 1999.

Average loans and leases, the largest component of earning assets, was
$376.3 million for the period ended September 30, 1999, with an average yield of
8.43%. Average investments in securities and Federal funds sold were
$178.0 million for the period ended September 30, 1999, with an average yield of
6.05%. The yield on earning assets was 7.66% for the period ended September 30,
1999.

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PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Average interest-bearing liabilities were $488.6 million for the period ended
September 30, 1999, with an average rate paid of 3.74%. Average interest-bearing
deposits were $470.1 million for the period ended September 30, 1999, with an
average rate paid of 3.62%.

No Federal funds were purchased for the period ended September 30, 1999.

As a result of the foregoing factors, the average net yield on earning assets
was 4.37% for the period ending September 30, 1999.

The following table presents, for the period ended September 30, 1999, the
distribution of average assets, liabilities and shareholders' equity, as well as
the total dollar amounts of interest income from average interest-bearing assets
and the resultant yields, and the dollar amounts of interest expense and
resultant cost expressed in both dollars and rates. Nonaccrual loans are
included in the calculation of average loans while nonaccrued interest thereon
is excluded from the computation of rates earned.

<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999
-------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)........................................ $376,310 $5,302 8.43%
Investment securities (2)................................... 154,014 1,599 6.21
Federal funds sold.......................................... 23,958 199 4.97
-------- ------
Total interest-earning assets........................... 554,282 7,100 7.66
Non-earning assets:
Cash and demand deposits with banks......................... 23,700
Other assets................................................ 73,181
--------
Total assets................................................ 651,163
========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand................................... 57,805 120 1.24
Money market.............................................. 57,187 313 3.27
Savings................................................... 99,638 360 2.16
Time...................................................... 255,518 2,054 4.81
-------- ------
Total interest-bearing deposits....................... 470,148 2,847 3.62
Long-term borrowing......................................... 18,500 207 8.01
-------- ------
Total interest-bearing liabilities.................... 488,648 3,054 3.74
Noninterest-bearing liabilities:
Demand deposits........................................... 86,973
Other liabilities......................................... 18,682
--------
Total liabilities..................................... 594,303
Shareholders' equity........................................ 56,860
--------
Total liabilities and shareholders' equity.................. $651,163
======== ------
Net interest income......................................... $4,046
======
Net yield on interest-earning assets........................ 4.37%
</TABLE>

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

(1) Loan fees of $335,000 are included in the computation. [There is no other
period]

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) available for sale securities.

106
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

PROVISION FOR LOAN AND LEASE LOSSES

During the period ended September 30, 1999, a total of $50,000 was charged
against operations and added to the allowance for loan and lease losses. See
"Financial Condition," below.

NONINTEREST INCOME

Noninterest income for the period ended September 30, 1999 was $0.8 million.
Income from service charges on deposit accounts was $0.4 million for the period
ended September 30, 1999. Other noninterest income was $0.4 million for the
period ended September 30, 1999.

The following table presents the major categories of noninterest income for the
period ending September 30, 1999:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service charges............................................. $405
Commissions Invest product.................................. 151
Gain on sale of loans....................................... 28
Gain on sale of investment securities....................... 14
Other....................................................... 186
----
Total................................................. $784
====
</TABLE>

NONINTEREST EXPENSES

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of Placer Capital. Also included are the costs of carrying and administering the
OREO portfolio as well as the costs associated with problem assets, which
include nonperforming and restructured loans. "OREO", or "other real estate
owned", consists of real estate acquired through foreclosure or by acceptance of
a deed-in-lieu of foreclosure.

Noninterest expense for the period ended September 30, 1999, was $3.8 million.
Salaries and employee benefits amounted to $1.9 million for the period ended
September 30, 1999. Occupancy and equipment expense was $0.5 million for the
period ended September 30, 1999. Other noninterest expenses were $1.3 million
for the period ended September 30, 1999. Placer Capital's efficiency ratio was
77.73% for the period ended September 30, 1999.

The following table presents the major categories of noninterest expense for the
period ending September 30, 1999:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Salaries and employee benefits.............................. $1,853
Occupancy and equipment..................................... 545
Telephone, courier and postage.............................. 228
Loan expense................................................ 296
Data processing............................................. 169
Stationery and supplies..................................... 103
Advertising................................................. 83
Professional fees........................................... 50
Regulatory assessments...................................... 72
Other....................................................... 356
------
Total................................................. $3,755
======
</TABLE>

107
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

PROVISION FOR INCOME TAXES

As a result of earnings for the period ended September 30, 1999, a provision for
income taxes of $0.6 million was made in 1999.

FINANCIAL CONDITION

Total assets of Placer Capital at September 30, 1999 were $640.6 million. Total
earning assets of Placer Capital at September 30, 1999, were $557.8 million.

LOANS AND LEASES

Total gross loans and leases at September 30, 1999 were $384.6 million. At
September 30, 1999, the four largest lending categories were: (i) residential
mortgage loans, including land and construction loans, (ii) commercial real
estate loans, (iii) commercial loans, and (iv) loans to individuals. At
September 30, 1999, those categories accounted for $222.6 million,
$117.8 million, $22.2 million and $21.9 million, or approximately 57.9%, 30.6%,
5.8% and 5.7% of total gross loans and leases, respectively.

The following table sets forth the amount of loans and leases outstanding for
Placer Capital as of the September 30, 1999, according to type of loan. Placer
Capital has no foreign loans or energy-related loans.

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Commercial.................................................. $ 22,212
Real estate-commercial...................................... 117,844
Real estate-construction.................................... 39,324
Real-estate-mortgage........................................ 183,249
Installment loans to individuals............................ 21,938
--------
Subtotal.................................................... 384,567
Less: allowance for loan and lease losses................... (4,151)
Unearned fees............................................... (1,334)
--------
Net loans and leases........................................ $379,082
========
</TABLE>

108
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

than one year through five years, and more than five years. Demand or other
loans having no stated maturity and no stated schedule of repayments are
reported as due in one year or less.

<TABLE>
<CAPTION>
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $ 10,832 $ 6,374
After one year but within five years:
Interest rates are floating or adjustable............. 6,678 1,141
Interest rates are fixed or predetermined............. 6,488 8,033
After five years:
Interest rates are floating or adjustable............. 78,840 91,692
Interest rates are fixed or predetermined............. 37,218 115,333
-------- --------
Total................................................. $140,056 $222,573
======== ========
</TABLE>

As of September 30, 1999, in management's judgment, a concentration of loans
existed in commercial loans and commercial real estate loans. At that date,
approximately 36.4% of Placer Capital's loans were commercial loans or
commercial real estate loans, representing 5.8% and 30.6% of total loans,
respectively. Additionally, at September 30, 1999, approximately 57.9% of Placer
Capital's loans were real estate and construction loans, many of which are
secured by residential mortgages. Although management believes such
concentrations to have no more than the normal risk of collectibility, a
substantial decline in real estate values could have an adverse impact on
collectibility of real estate related loans, increase the level of real estate
related nonperforming loans, or have other adverse effects which alone or in the
aggregate could have a material adverse effect on the financial condition of
Placer Capital.

NONPERFORMING ASSETS

Non-performing assets include non-accrual loans, loans 90 or more days past due
and still accruing and other real estate owned. Loans are placed on non-accrual
status upon reaching 90 days or more delinquent, unless the loan is well secured
and in the process of collection. Interest previously accrued on loans placed on
non-accrual status is charged against interest income. When the ability to fully
collect non-accrual loan principal is in doubt, payments received are applied
against the principal balance of the loans until such time as full collection of
the remaining recorded balance is expected. Any additional interest payments
received after that point are recorded as interest income on a cash basis.
Non-accrual loans are reinstated to accrual status when improvements in credit
quality eliminate the doubt as to the full collectibility of both interest and
principal.

109
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The following table summarizes nonperforming assets as of September 30, 1999.

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Non-accrual loans and leases, not restructured.............. $362
Accruing loans and leases past due 90 days or more.......... --
Restructured loans and leases............................... --
----
Total nonperforming loans and leases ("NPLs")......... 362
Other real estate owned ("OREO")............................ 422
----
Total nonperforming assets ("NPAs")................... $784
====

Selected ratios:
NPLs to total loans and leases............................ 0.09%
NPAs to total loans and leases and OREO................... 0.20
NPAs to total assets...................................... 0.12
</TABLE>

Placer Capital would have recorded additional interest income of approximately
$3,000 for the period ended September 30, 1999 on nonperforming loans if such
loans had been current in accordance with their original terms. No interest
income was recorded on nonperforming loans for the period ended September 30,
1999.

Loans aggregating $37,000 at September 30, 1999 have been designated as impaired
in accordance with SFAS 114 as amended by SFAS 118. Placer Capital's impaired
loans are all collateral dependent, and as such the method used to measure the
amount of impairment on these loans is to compare the loan amount to the fair
value of collateral. The total allowance for loan losses related to these loans
was $14,000 at September 30, 1999. The average balance of impaired loans during
the period ended September 30, 1999 was $18,000.

As of the end of the most recent period, management was not aware of any loans
that had not been placed on non-accrual status as to which there were serious
doubts as to the ability of the respective borrowers to comply with present loan
repayment terms.

At September 30, 1999, Placer Capital had OREO properties with an aggregate
carrying value of $423,000. During the period ended September 30, 1999,
properties with a total carrying value of $44,000 were added to OREO, and
properties with a total carrying value of $40,000 were sold. All of the OREO
properties are recorded by Placer Capital at amounts that are equal to or less
than the fair market value based on current independent appraisals reduced by
estimated selling costs.

At September 30, 1999, none of Placer Capital's loans had previously been
restructured.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan and lease losses represents the amounts that have been
set aside for the specific purpose of absorbing losses inherent in Placer
Capital's loan and lease portfolio. The provision for loan and lease losses is
an expense charged against operating income and added to the allowance for loan
and lease losses.

110
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

specific allowance amount is assigned to those loans with identified special
risks, and the remaining loan portfolio is reviewed by category and assigned an
allowance percentage for inherent losses. The allocation process does not
necessarily measure anticipated future credit losses; rather, it reflects
management's assessment at a certain date of perceived credit risk exposure and
the impact of current and anticipated economic conditions, which may or may not
result in future credit losses. While management believes the allowance to be
adequate, it should be noted that it is based on estimates, and ultimate losses
may vary from such estimates if future conditions differ materially from the
assumptions used in making the evaluation. Although management believes the
level of the allowance as of September 30, 1999 is adequate to absorb losses
inherent in the loan portfolio, decline in the local economy may result in
increasing losses that cannot reasonably be predicted at this date. The
possibility of increased costs of collection, non-accrual of interest on those
loans that are or may be placed on non-accrual, and charge-offs could have an
adverse impact on Placer Capital's financial condition in the future.

The Federal Reserve and the Department of Financial Institutions, as an integral
part of their respective supervisory functions, periodically review Placer
Capital's allowance for loan and lease losses. Such regulatory agencies may
require Placer Capital to increase its provision for loan and lease losses or to
recognize further loan charge-offs, based upon judgments different from those of
management.

In December 1993, the federal banking agencies issued an inter-agency policy
statement on the allowance for loan and lease losses that, among other things,
establishes certain benchmark ratios of loan loss reserves to classified assets.
The benchmark set forth by such policy statement is the sum of (i) assets
classified loss; (ii) 50% of assets classified doubtful; (iii) 15% of assets
classified substandard; and (iv) estimated credit losses on other assets over
the upcoming 12 months. At September 30, 1999, Placer Capital's allowance
constituted over 585% of the benchmark amount suggested by the federal banking
agencies' policy statement.

Placer Capital's allowance for loan and lease losses was $4.2 million at
September 30, 1999. During the period ended September 30, 1999, the provision
for loan and lease losses was $50,000, or 0.08% (annualized) to average loans at
September 30, 1999, loan and lease charge-offs were $2,000 and recoveries were
$16,000. Placer Capital's allowance for loan and lease losses represented 1.08%
of loans at September 30, 1999.

The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for possible loan and lease losses arising
from loan and lease losses and additions to the allowance from provisions
charged to operating expense as of and for the period ended September 30, 1999:

<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Average loans and leases outstanding.............. $376,310
Gross loans and leases............................ 384,567
Nonperforming loans and leases.................... 362
Allowance for loan and lease losses:
Balance at beginning of period................ 4,087
Loans charged off during period
Commercial.................................. --
Real estate................................. --
Installment................................. 2
--------
Total..................................... 2
</TABLE>

111
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1999
-------------------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Recoveries during period
Commercial.................................. 1
Real estate................................. --
Installment................................. 15
--------
Total..................................... 16
--------
Net loans charged off during period......... (14)
Provision for loan and lease losses......... 50
--------
Balance at end of period.................. $ 4,151
========
Selected ratios:
Net charge-offs to average loans and leases
(1)........................................... (0.02)%
Provision for loan and lease losses to average
loans (1)..................................... 0.08
Allowance at end of period to gross loans and
leases outstanding at end of period........... 1.08
Allowance as percentage of nonperforming loans and
leases.......................................... 1,146.69
</TABLE>

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

(1) Annualized

The following table indicates management's allocation of the allowance as of
September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
PERCENT OF
LOANS IN EACH
CATEGORY TO
AMOUNT TOTAL LOANS
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial and financial................................ $1,311 36.4%
Real estate and construction............................ 947 57.9
Consumer................................................ 461 5.7
Unallocated............................................. 1,432 --
------ -----
Total................................................... $4,151 100.0%
====== =====
</TABLE>

In allocating Placer Capital's allowance for loan and leases losses, management
has considered the credit risk in the various loan categories in its portfolio.
As such, the allocations of the allowance for loan and lease losses are based
upon the average aggregate historical net loan losses experienced. While every
effort has been made to allocate the allowance to specific categories of loans,
management believes that any allocation of the allowance for loan and lease
losses into loan categories lends an appearance of exactness which does not
exist.

INVESTMENTS AND INVESTMENT SECURITIES

Placer Capital maintains a portion of its assets in investment securities to
balance risk and to ensure liquidity. See "Liquidity."

112
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Total investments at September 30, 1999 were $174.6 million. At September 30,
1999, the investments of Placer Capital included overnight Federal funds
investments of $31.6 million and investment securities of $143.0 million. At
September 30, 1999, the investment portfolio primarily consisted of U.S.
treasury and agency securities, mortgage backed securities, and municipal
investments. At September 30, 1999, $26.2 million of Placer Capital's portfolio
of investment securities was classified as available for sale while
$116.7 million was classified as held to maturity. Placer Capital does not hold
any investment securities in a trading account.

The objective of the investment securities held to maturity is to strengthen the
portfolio yield, and to provide collateral to pledge for federal, state and
local government deposits and other borrowing facilities. Investment securities
available for sale are generally used to supplement Placer Capital's liquidity.
Unrealized net gains and losses on securities available for sale are recorded as
an adjustment to equity, net of taxes, and are not reflected in the current
earnings of Placer Capital. If a security is sold, any gain or loss is recorded
as a charge to earnings and the equity adjustment is reversed.

The following table presents the amortized cost of securities and their
approximate fair values at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury....................................... $ 4,043 $ 7 $ (27) $ 4,023
U.S. Government Agencies............................ 17,443 2 (55) 17,390
Mortgage-backed securities.......................... 1,867 1 (2) 1,866
Federal Home Loan & Federal Reserve Bank stock...... 2,945 -- -- 2,945
-------- --- ------- --------
Total available for sale.......................... 26,298 10 (84) 26,224
-------- --- ------- --------
Held to Maturity:
U.S. Treasury....................................... 9,076 13 (12) 9,077
U.S. Government Agencies............................ 36,873 -- (235) 36,638
State and municipal securities...................... 12,092 6 (209) 11,889
Mortgage-backed securities.......................... 58,708 48 (500) 58,256
-------- --- ------- --------
Total held to maturity............................ 116,749 67 (956) 115,860
-------- --- ------- --------
Total............................................. $143,047 $77 $(1,040) $142,084
======== === ======= ========
</TABLE>

113
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The following tables show the maturities of investment securities, excluding
Federal Home Loan and Federal Reserve Bank stock that has no stated maturity, at
September 30, 1999 and the weighted average yields of such securities:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
------------------- ------------------- ------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for
sale:
U.S. Treasuries........... $ 4,024 5.79% $ -- --% $ -- --% $ -- --%
U.S. Government
agencies................ 3,496 5.64 13,893 5.71 -- -- -- --
Mortgage-backed
securities.............. 689 4.93 1,177 6.12 -- -- -- --
------- ------- ------- -------
Total available for
sale.................... 8,209 5.65 15,070 5.74 -- -- -- --
------- ------- ------- -------
Held to Maturity:
U.S. Treasuries........... 5,588 5.30 3,489 5.33 -- -- -- --
U.S. Government
agencies................ 1,008 6.70 35,865 6.13 -- -- -- --
State and municipal
bonds................... 61 4.91 527 4.33 5,993 4.50 5,511 4.88
Mortgage-backed
securities.............. 0 -- 4,197 6.57 17,021 6.69 37,489 6.69
------- ------- ------- -------
Total held to maturity.... 6,657 5.51 44,078 6.09 23,014 6.12 43,000 6.46
------- ------- ------- -------
Total..................... $14,866 5.59% $59,148 6.00% $23,014 6.12% $43,000 6.46%
======= ======= ======= =======
</TABLE>

There are certain inherent risks associated with mortgage-backed securities
("MBS") including volatility, credit risk, interest rate risk and average life
extension risk. Placer Capital's MBS portfolio has limited credit risk as the
entire portfolio consists of U.S. Government agency obligations which carry the
highest ratings by nationally recognized rating bureaus. MBS price volatility is
similar to U.S. Government or corporate bond obligations, in that as interest
rates increase the value of the MBS decreases and, conversely, as interest rates
decrease the value of the MBS increases. In addition, the interest rate risk
associated with MBS can be exacerbated by extension or prepayment risk,
particularly with respect to fixed-rate instruments. With fixed-rate MBS, as
interest rates move upward, the probability of the average life extending
increases as a result of prepayments generally slowing on the underlying
collateral of the MBS. With the extension of average life in a rising rate
environment, Placer Capital would own a security that has a below market yield
for a longer period of time than was previously anticipated which also affects
the market price negatively. If interest rates were to decline, the weighted
average life of the fixed-rate MBS portfolio would shorten, prepayments would
rise and the market value would decrease. At September 30, 1999, the weighted
average life of Placer Capital's fixed-rate MBS portfolio was approximately
4.4 years. With adjustable-rate or floating-rate MBS, the extension risk is
reduced compared with fixed-rate MBS, as interest rates on variable-rate MBS
tend to adjust with those of the current treasury curve and include stated
indices, margins and caps. With the variable rate MBS products, there tends to
be less fluctuation and volatility of market values as yields on variable rate
MBS normally approximate current market yields unless interim or lifetime caps
inhibit full repricing.

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

114
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

DEPOSITS

Total deposits were $555.5 million at September 30, 1999. Total
noninterest-bearing demand deposits were $82.3 million, or approximately 14.8%
of total deposits, at September 30, 1999. Interest-bearing deposits were
$473.2 million, or approximately 85.2% of total deposits, at September 30, 1999.

Placer Capital draws its funding source almost exclusively from the diverse
retail branch network of 25 offices in six counties. Accordingly, Placer Capital
has no singular deposit entity with more than 2% of total deposits.

The following table shows the distribution of deposit liabilities and the
associated cost for each deposit category for the period ended September 30,
1999:

<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1999
------------------------
AVERAGE AVERAGE
BALANCE RATE
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Noninterest-bearing demand............................... $ 86,973 --%
Interest-bearing demand.................................. 57,805 1.24
Money market............................................. 57,187 3.27
Savings.................................................. 99,638 2.16
Time..................................................... 255,518 4.81
--------
Total.................................................. $557,121 3.06%
======== ====
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $25,424
Due in over three months through six months................. 18,377
Due in over six months through twelve months................ 18,120
Due in over twelve months................................... 9,002
-------
Total..................................................... $70,923
=======
</TABLE>

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus certain forms of
subordinated debt, a portion of the allowance for loan losses and some preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor that ranges from zero for cash assets and certain government
obligations to 100% for some types of loans and adding the products together.

115
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Placer Capital was well capitalized as of September 30, 1999, for federal
regulatory purposes. The following table details the regulatory capital ratios
of Placer Capital as of September 30, 1999:

<TABLE>
<CAPTION>
CAPITAL ADEQUACY WELL CAPITALIZED
------------------------ -------------------------
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
------------------- ------------------------ -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- ------------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage Capital Ratio............ $35,802 5.96% $18,031 > or = to 3.0% $30,052 > or = to 5.0%
Tier 1 Risk-Based Capital Ratio.......... 35,802 9.99% 14,341 > or = to 4.0% 21,511 > or = to 6.0%
Total Risk-Based Capital Ratio........... 39,953 11.14% 28,682 > or = to 8.0% 35,852 > or = to 10.0%
</TABLE>

LIQUIDITY

Placer Capital relies on deposits as its principal source of funds and,
therefore, must be in a position to service depositors' needs as they arise.
Management attempts to maintain a loan-to-deposit ratio of not greater than 80%
and a liquidity ratio (liquid assets, including cash and due from banks, Federal
funds sold and investment securities to deposits) of approximately 25%. The
average loan-to-deposit ratio was 67.5% for the period ended September 30, 1999.
The average liquidity ratio was 36.2% for the period ended September 30, 1999.
At September 30, 1999, Placer Capital's loan-to-deposit ratio was 69.0% and the
liquidity ratio was 34.4%.

Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of Placer Capital, other available sources of liquid assets (secondary
liquidity), including the purchase of Federal funds, sale of securities under
agreements to repurchase, sale of loans, and borrowing from the Federal Home
Loan Bank, could be employed. Placer Capital has relied primarily upon the
purchase of Federal funds and the sale of securities under agreements to
repurchase for its secondary source of liquidity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The management of market risk is governed by policies reviewed and approved
annually by Placer Capital's Board of Directors. The Board delegates
responsibility for market risk management to the Asset and Liability Management
Committee (ALCO), which reports to the Board on activities related to the
management of market risk. As part of the management of market risk, the ALCO
may direct changes in the mix of assets and liabilities. The ALCO also reviews
and approves market risk management programs and market risk limits. Placer
Capital's Chief Financial Officer is responsible for the company-wide management
of market risk. The Chief Financial Officer is responsible for implementing
funding and investment strategies designed to manage this risk. On a day-to-day
basis,

116
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

the oversight of market risk management takes place at a centralized level
within the Accounting Department of the Finance Division. Placer Capital's
Controller is responsible for measuring risks to ensure compliance with all
market risk limits and guidelines incorporated within the policies and
procedures established by the ALCO. The Chief Financial Officer reports
quarterly to the Board of Directors on the effectiveness of Placer Capital's
activities, exposures, and on compliance with policy limits. In addition,
periodic reviews by internal auditors and regulators provide further evaluation
of controls over the risk management process.

Placer Capital engages in asset and liability management activities with the
objective of reducing adverse changes in earnings as a result of changes in
interest rates. The management of interest rate risk relates to the timing and
magnitude of the repricing of assets compared to liabilities and has, as its
objective, the control of risks associated with movement in interest rates.

The Asset and Liability Policy approved by the Board requires quarterly analysis
of interest rate risk by the ALCO. As part of the management of interest rate
risk, the ALCO may direct changes in the composition of the balance sheet and,
if it is necessary, to utilize off-balance sheet derivative instruments such as
interest rate swaps, floors, and caps. A Board of Directors approved hedging
policy statement governs use of these instruments. As of September 30, 1999,
Placer Capital had not utilized any interest rate swap or other such financial
derivative to alter its interest rate risk profile.

One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap position indicates that there
would be a net positive impact on the net interest margin of Placer Capital for
the period measured in a declining interest rate environment since Placer
Capital's liabilities would reprice to lower market rates before its assets
would. A net negative impact would result from an increasing interest rate
environment. Conversely, an asset sensitive gap indicates that there would be a
net positive impact on the net interest margin in a rising interest rate
environment since Placer Capital's assets would reprice to higher market
interest rates before its liabilities would.

The following table sets forth the distribution of repricing opportunities of
Placer Capital's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), cumulative interest-earning assets and
interest-bearing liabilities, the cumulative interest rate sensitivity gap, the
ratio of cumulative interest-earning assets to cumulative interest-bearing
liabilities and the cumulative gap as a percentage of total assets and total
interest-earning assets as of September 30, 1999. The table also sets forth the
time periods during which interest-earning assets and interest-bearing
liabilities will mature or may reprice in accordance with their contractual
terms. The interest rate relationships between the repriceable assets and
repriceable liabilities are not necessarily constant and may be affected by many
factors, including the behavior of customers in response to changes in interest
rates. This table should,

117
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net margins of Placer Capital.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
-------------------------------------------------
3 MONTHS OVER 3 MONTHS OVER 1 YEAR OVER NON-
OR LESS TO 12 MONTHS TO 5 YEARS 5 YEARS SENSITIVE(1) TOTAL
-------- ------------- ----------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.... $ $ $ $ $ 16,634 $ 16,634
Federal funds sold......... 31,611 31,611
Investment securities...... 5,985 14,380 59,148 60,515 2,945 142,973
Loans and leases........... 104,813 79,915 30,903 167,602 383,233
Other assets (2)........... 66,149 66,149
-------- -------- -------- -------- ---------- --------
Total assets........... 142,409 94,295 90,051 228,117 85,728 640,600
======== ======== ======== ======== ========== ========

LIABILITIES AND
SHAREHOLDERS' EQUITY
Non-interest bearing demand
deposits................. 82,301 82,301
Interest-bearing demand,
money market and
savings.................. 216,212 216,212
Time certificates of
deposit.................. 87,054 126,184 42,776 952 256,966
Other liabilities.......... 28,254 28,254
Shareholders' equity....... 56,867 56,867
-------- -------- -------- -------- ---------- --------
Total liabilities &
shareholders'
equity............... $ 87,054 $126,184 $ 42,776 $ 952 $ 383,634 $640,600
======== ======== ======== ======== ========== ========
Period Gap................. $ 55,355 $(31,889) $ 47,275 $227,165 $ (297,906)
Cumulative interest earning
assets................... $142,409 $236,704 $326,755 $554,872
Cumulative interest earning
liabilities.............. $ 87,054 $213,238 $256,014 $256,966
Cumulative Gap............. $ 55,355 $ 23,466 $ 70,741 $297,906
Cumulative interest earning
assets to cumulative
interest bearing
liabilities.............. 1.64 1.11 1.28 2.16
Cumulative gap as a percent
of:
Total assets............... 8.68% 3.68% 11.09% 46.70%
Interest earning assets.... 9.98% 4.23% 12.75% 53.69%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

(2) Allowance for possible loan losses of $4.0 million as of September 30, 1999
is included in other assets.

118
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

At September 30, 1999, Placer Capital had $236.7 million in assets and
$213.2 million in liabilities repricing within one year. This means that
$23.5 million more in interest rate sensitive assets than interest rate
sensitive liabilities will change to the then current rate (changes occur due to
the instruments being at a variable rate or because the maturity of the
instrument requires its replacement at the then current rate). The ratio of
interest earning assets to interest bearing liabilities maturing or repricing
within one year at September 30, 1999, is 1.11. Management tries to maintain
this ratio as close to zero as possible while remaining in a range between .80
and 1.20. Interest income is likely to be affected to a greater extent than
interest expense for any changes in interest rates within one year from
September 30, 1999. If rates were to fall during this period, interest income
would decline by a greater amount than interest expense and net income would
decrease. Conversely, if rates were to rise, the reverse would apply.

Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate Placer Capital's interest rate sensitivity position. To
supplement traditional gap analysis, Placer Capital performs simulation modeling
to estimate the potential effects of changing interest rates. The process allows
Placer Capital to explore the complex relationships within the gap over time and
various interest rate environments. This analysis calculates the difference
between a net interest income forecast over a 12-month period using a flat
interest rate scenario and net interest income forecast using a rising (or
falling) rate scenario, where the federal funds rate, serving as a "driver," is
made to rise (or fall) evenly by 200 basis points over the 12-month forecast
interval triggering a response in the other rates. Placer Capital's policy
requires that such simulated changes in net interest income should always be
less than 40 percent or steps must be taken to reduce interest rate risk. The
following table summarizes the simulated change in net interest income, based on
the 12-month period ending September 30, 2000:

<TABLE>
<CAPTION>
ESTIMATED INCREASE (DECREASE) IN NET
------------------------------------
INTEREST INCOME
---------------
ESTIMATED AMOUNT OF PERCENTAGE
CHANGE IN INTEREST RATES (BASIS POINTS) AMOUNT CHANGE CHANGE
- --------------------------------------- ---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
- -200........................................... $21.7 $ 2.0 10.1 %
Flat........................................... $19.7
+ 200.......................................... $18.5 $(1.2) (6.1)%
</TABLE>

The preceding sensitivity analysis does not represent a forecast and should not
be relied upon as being indicative of expected operating results. These
hypothetical estimates are based upon numerous assumptions including: the nature
and timing of interest rate levels including the yield curve shape, prepayments
on loans and securities, changes in deposit levels, pricing decisions on loans
and deposits, reinvestment/replacement of asset and liability cash flows and
others. While assumptions are developed based upon current economic and local
market conditions, Placer Capital cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the varying impact of interest rate change caps or
floors on adjustable rate loans, depositor early withdrawals and product
preference changes, and other internal/external variables. Furthermore, the
sensitivity analysis does not reflect actions that management might take in
responding to or anticipating changes in interest rates.

119
<PAGE>
PLACER CAPITAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Management has taken several steps to reduce the negative gap of Placer Capital
by shortening the maturities in its investment portfolio and originating more
variable rate assets that mature or reprice in balance with its interest bearing
liabilities. Management will continue to maintain a balance between its interest
earning assets and interest bearing liabilities in order to minimize the impact
on net interest income due to changes in market rates.

The following table sets forth the distribution of the expected maturities of
Placer Capital's interest-earning assets, excluding Federal Home Loan Bank stock
that has no stated maturity or rate, and interest-bearing liabilities as well as
the fair value of these instruments as of September 30, 1999. Expected
maturities are based on contractual payments without effect being given for the
estimated effect of prepayments. Savings accounts and interest-bearing
transaction accounts, that have no stated maturity, are included in the one year
or less maturity category.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------------
EXPECTED MATURITY
-----------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities................. $ 4,743 $ 16,884 $17,921 $18,298 $13,752 $ 68,430 $140,028 $139,139
Weighted average rate............... 5.72 5.50 5.89 5.97 6.40 6.34 6.12
Fixed Rate Loans...................... $ 5,827 $ 6,071 $ 5,483 $ 5,158 $ 4,184 $150,556 $177,279 $177,279
Weighted average rate............... 9.54 8.47 8.17 8.09 7.79 7.42 7.58
Variable Rate Loans................... $ 63,577 $ 89,023 $ 2,763 $ 4,642 $10,279 $ 35,667 $205,953 $205,953
Weighted average rate............... 8.99 7.52 8.79 8.80 8.81 8.65 8.28
-------- -------- ------- ------- ------- -------- -------- --------
Total interest earning assets......... $ 74,147 $111,978 $26,167 $28,098 $28,215 $254,653 $523,260 $522,371
======== ======== ======= ======= ======= ======== ======== ========

Interest bearing demand, money market
and savings......................... $200,150 $ $ $ $ $ $200,150 $200,150
Weighted average rate............... 2.19 0.00 0.00 0.00 0.00 0.00 2.19
Time deposits......................... $ 93,183 $134,518 $15,402 $ 8,766 $ 3,674 $ 4,027 $259,570 $259,570
Weighted average rate............... 4.57 4.88 5.14 5.72 5.40 5.04 4.82
-------- -------- ------- ------- ------- -------- -------- --------
Total interest-bearing liabilities.... $293,333 $134,518 $15,402 $ 8,766 $ 3,674 $ 4,027 $459,720 $459,720
======== ======== ======= ======= ======= ======== ======== ========
</TABLE>

120
<PAGE>
YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue is a computer programming concern that may affect many
electronic processing systems. In order to minimize the length of data fields,
most computers programs eliminated the first two digits in the year date field.
This problem could affect date-sensitive calculations that treat "00" as the
year 1900, rather than 2000. Secondly, years ending in "00" are not leap years,
except for the anomaly in the year 2000. This anomaly could result in
miscalculations when processing critical date-sensitive information after
December 31, 1999.

The potential impact of the Year 2000 compliance issue on the financial services
industry could be material, as virtually every aspect of the industry and
processing of transactions will be affected. Due to the size of the task facing
the financial services industry and the interdependent nature of its
transactions, Placer Capital may be adversely affected by this problem,
depending on whether it and the entities with which it does business address
this issue successfully. The impact of Year 2000 issues on Placer Capital will
then depend not only on corrective actions that Placer Capital takes, but also
on the way in which Year 2000 issues are addressed by governmental agencies,
businesses and other third parties that provide services or data to, or receive
services or data from, Placer Capital, or whose financial condition or
operational capability is important to Placer Capital.

The Year 2000 issue may adversely affect Placer Capital's information technology
systems, such as its item and data processing applications. The Year 2000 issue
also may affect so-called embedded technology, such as microprocessors that
control Placer Capital's security systems and telecommunication equipment.
Because Placer Capital's day-to-day operations are heavily dependent on its
ability to communicate information amongst its locations, it would be
particularly susceptible to any possible effects that the Year 2000 issue has on
local and national communications systems, including without limitation,
telephone and data lines. Any interruption or malfunction of such systems could
have a material adverse effect on Placer Capital.

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect Placer Capital's
operations, liquidity, and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, Placer Capital is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on Placer Capital's operations, liquidity, or
financial condition.

Placer Capital had determined that some of its computer software applications
needed to be modified or replaced in order to maintain their functionality as
the year 2000 approaches. In response, a comprehensive plan was developed, with
system conversions and testing substantially completed by September 30, 1999.
The plan included the assessment of all internal systems, programs and data
processing applications as well as those provided to Placer Capital by
third-party vendors. Additionally, all commercial and industrial borrowers were
contacted with assessments made as to the potential impact of Year 2000
readiness by the borrower. Based upon Placer Capital's evaluation of its Year
2000 preparedness, management does not expect that the Year 2000 issue as it
relates to information systems and embedded technology will have a material
adverse effect on Placer Capital's business, financial condition or results of
operations. There can be no assurance, however, that third party vendors'
efforts will be successful and any such failure could have a material adverse
effect on Placer Capital. Placer Capital does not intend to obtain insurance
against any Year 2000 risks.

Placer Capital estimates its total costs over the period from August 11, 1999,
through December 31, 1999, will be approximately $0.4 million. Approximately
$0.1 million of these costs were expended through the period ending
September 30, 1999. In light of the complexity of the Year 2000 problem and its
potential effect on both Placer Capital and third parties that interact with
Placer Capital,

121
<PAGE>
however, there can be no assurance that Placer Capital's costs associated with
the Year 2000 issue will be as estimated.

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures Placer Capital undertakes, but also on the way in which
the year 2000 issue is addressed by governmental agencies, businesses and other
entities who provide data to, or receive data from Placer Capital or whose
financial condition or operational capability is important to Placer Capital
such as suppliers or customers. Communications with significant customers and
vendors have been initiated to determine the extent of risk created by those
third parties' failure to remediate their own year 2000 issues; however, it is
not possible, at present, to determine the financial effect if a significant
customer's and/or vendor's remediation efforts are not resolved in a timely
manner.

Placer Capital is also preparing contingency plans to try to minimize the harm
to Placer Capital in the event that Placer Capital or any or all of the third
parties with which it interacts is unable to attain Year 2000 readiness. The
contingency plans being prepared are system and application specific and are
intended to ensure that in the event that one or more of such systems and/or
applications fail by or at the Year 2000, Placer Capital will be able to engage
in its core business functions in spite of such failure. Among the efforts
undertaken by Placer Capital to prepare for the occurrence of Year 2000 is an
analysis of the most reasonably likely worst case scenarios for the Year 2000.
These scenarios have been analyzed in terms of impact on Placer Capital and
steps that can be taken to mitigate the potential problems. While not an
exhaustive list, the scenarios that have been analyzed by Placer Capital and the
contingency plans that have been developed include the following:

<TABLE>
<CAPTION>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
- -------------------------------------------------- --------------------------------------------------
<S> <C>
Failure of core accounting systems All core accounting systems have been and will
continue to be tested throughout 1999 to ensure
their viability at the century date change. Hard
copies of key reports will be produced prior to
January 1, 2000.

Power failure at the operations Placer Capital has installed generators at key
locations to ensure uninterrupted power in order
to provide critical customer services.

Telecommunications is unavailable Placer Capital has prepared contingency plans to
run the branches without connection to Placer
Capital's systems including ground transportation
to move work and information between locations.

Substantial withdrawal of deposits by customers Placer Capital has funding mechanisms in place
including federal funds lines, shortening the
maturity of securities, FHLB advances and the use
of the Federal Reserve discount window.

Substantial increased cash needs by customers Placer Capital has analyzed customer deposit
histories to estimate additional customer cash
needs, if any.

Miscellaneous occurrences which require additional Placer Capital is ensuring that key personnel are
personnel to remedy. available before and after January 1, 2000.
</TABLE>

Although Placer Capital believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that

122
<PAGE>
the Year 2000 Plan and Placer Capital's other Year 2000 remedial and contingency
plans will fully protect Placer Capital from the risks associated with the Year
2000 problem. The analysis of, and preparation for, the Year 2000 and related
problems necessarily rely on a variety of assumptions about future events, and
there can be no assurance that Placer Capital's management has accurately
predicted such future events or that their remedial and contingency plans will
adequately address such future events. In the event that the businesses of
Placer Capital, vendors of Placer Capital or customers of Placer Capital are
disrupted as a result of the Year 2000 problem, such disruption could have a
material adverse effect on Placer Capital.

In addition, bank regulatory agencies, as part of their supervisory function,
have recently issued guidance under which they are assessing and will assess
Year 2000 readiness. The failure of a financial institution, such as Placer
Sierra, to take appropriate steps to address deficiencies in its Year 2000
project management process may result in one or more regulatory enforcement
actions that could have a material adverse effect on such institution. Such
actions may include the imposition of civil money penalties, or result in the
delay or denial of regulatory applications.

The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Placer Capital expects to substantially complete programming changes,
remediation and testing of systems and the impact of redeployment of existing
staff, are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of certain resources, representations received from third party
service providers and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to identify and convert all relevant
computer systems, results of year 2000 testing, adequate resolution of year 2000
issues by governmental agencies, businesses or other third parties who are
service providers, suppliers, borrowers or customers of Placer Capital,
unanticipated systems costs, the need to replace hardware, the adequacy of and
ability to implement contingency plans and similar uncertainties. The
forward-looking statements made in the foregoing year 2000 discussion speak only
as of the date on which such statements are made, and Placer Capital undertakes
no obligation to update any forward-looking statements to reflect the occurrence
of unanticipated events.

Placer Capital's disclosures and announcements herein concerning its Year 2000
planning and programs are intended to constitute Year 2000 Readiness Disclosures
as defined in the recently enacted Year 2000 Information and Readiness
Disclosure Act. The Year 2000 Information and Readiness Disclosure Act provides
certain protection from liability for certain public and private statements
concerning an entity's Year 2000 readiness and the Year 2000 readiness product
and services.

INFLATION

The majority of Placer Capital's assets and liabilities are monetary items held
by Placer Capital, the dollar value of which is not affected by inflation. Only
a small portion of total assets is in premises and equipment. The lower
inflation rate of recent years did not have the positive impact on Placer
Capital that was felt in many other industries. The small fixed asset investment
of Placer Capital minimizes any material misstatement of asset values and
depreciation expenses that may result from fluctuating market values due to
inflation. A higher inflation rate, however, may increase operating expenses or
have other adverse effects on borrowers of Placer Capital, making collection
more difficult for Placer Capital. Rates of interest paid or charged generally
rise if the marketplace believes inflation rates will increase.

123
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1999
(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
ASSETS
Cash and due from banks....................................................................... $ 16,634,073
Federal funds sold............................................................................ 31,610,912
Investment securities, available for sale, at fair value...................................... 26,224,469
Investment securities, held to maturity, at cost.............................................. 116,748,808
Loans, less allowance for loan losses of $4,150,966........................................... 379,081,962
Real estate owned, net........................................................................ 5,429,523
Bank premises and equipment, net.............................................................. 14,302,246
Goodwill and other intangibles................................................................ 43,957,102
Accrued interest receivable and other assets.................................................. 6,610,306
----------------
Total assets.......................................................................... 640,599,401
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing........................................................................ 82,301,288
Interest bearing............................................................................ 473,177,353
----------------
Total deposits........................................................................ 555,478,641

Subordinated debentures..................................................................... 18,500,000
Accrued interest payable and other liabilities................................................ 9,753,509
----------------
Total liabilities..................................................................... 583,732,150
----------------
Stockholders' equity
Common stock.............................................................................. 52,999,313
Preferred stock........................................................................... 3,500,000
Accumulated other comprehensive loss...................................................... (45,352)
Retained earnings......................................................................... 413,290
----------------
Total stockholders' equity............................................................ 56,867,251
----------------
Total liabilities and stockholders' equity............................................ $ 640,599,401
================
</TABLE>

See accompanying notes to consolidated financial statements.

124
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED
SEPTEMBER 30, 1999
-------------------
<S> <C>
Interest income:
Interest and fees on loans................................................................. $ 5,301,890
Interest on Federal funds sold............................................................. 199,202
Interest and dividends on investment securities............................................ 1,599,348
-------------
Total interest income................................................................ 7,100,440
-------------
Interest expense:
Interest on deposits....................................................................... 2,847,049
Interest on long-term borrowings........................................................... 206,987
-------------
Total interest expense............................................................... 3,054,036
-------------
Net interest income.................................................................. 4,046,404
Provision for loan losses.................................................................... 50,000
-------------
Net interest income after provision for loan losses.................................. 3,996,404
-------------
Non-interest income:
Service charges............................................................................ 404,997
Commissions, Invest products............................................................... 150,906
Gain on sale of loans...................................................................... 28,343
Gain on sale of securities, net............................................................ 13,659
Other...................................................................................... 185,959
-------------
Total non-interest income............................................................ 783,864
-------------
Non-interest expenses:
Salaries and employee benefits............................................................. 1,853,140
Occupancy and equipment.................................................................... 544,815
Other...................................................................................... 1,357,387
-------------
Total non-interest expenses.......................................................... 3,755,342
-------------
Income before income taxes........................................................... 1,024,926
Income taxes................................................................................. 572,480
-------------
Net income........................................................................... $ 452,446
-------------
Other comprehensive income, net of tax:
Unrealized holding losses arising during the period........................................ (37,019)
Reclassification adjustment for gains included in net income............................... (8,333)
-------------
Other comprehensive loss................................................................... (45,352)
-------------
Comprehensive income....................................................................... $ 407,094
=============
Weighted average number of shares outstanding................................................ 5,300,000
Basic and diluted earnings per share......................................................... $ 0.09
</TABLE>

See accompanying notes to consolidated financial statements.

125
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED SEPTEMBER 30, 1999

(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED
SEPTEMBER 30, 1999
-------------------
<S> <C>
Cash flows from operating activities:
Net income................................................................................. $ 452,446
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses................................................................ 50,000
Depreciation and amortization............................................................ 451,866
Increase in net unearned fees and discounts on loans..................................... (94,497)
Gain on sale of loans.................................................................... (28,343)
Gain on sale of investment securities.................................................... (13,660)
Gain on sale of properties............................................................... (30,000)
Decrease in accrued interest receivable and other assets................................. (89,028)
Increase in accrued interest payable and other liabilities............................... 2,730,631
---------------
Net cash provided by operating activities.............................................. 3,429,415
---------------
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities:
Held-to-maturity......................................................................... 3,500,000
Proceeds from sales of investment securities:
Available-for-sale....................................................................... 9,392,593
Proceeds from principal repayments on mortgage backed securities:
Available-for-sale....................................................................... 347,794
Held-to-maturity......................................................................... 2,009,465
Proceeds from sale of loans................................................................ 1,205,343
Net increase in loans...................................................................... (5,957,047)
Purchases of premises and equipment........................................................ (722,413)
Proceeds from sale of other real estate.................................................... 570,000
Acquisition of Placer Sierra Bank, net of cash and cash equivalents received............... (31,364,809)
---------------
Net cash used in investing activities.................................................. (21,019,074)
---------------
Cash flows from financing activities:
Net decrease in demand, interest-bearing and savings deposits.............................. (7,107,050)
Net decrease in time deposits.............................................................. (2,019,150)
Issuance of common stock................................................................... 53,000,000
Issuance of preferred stock................................................................ 3,500,000
Proceeds from other borrowings............................................................. 18,500,000
Cash dividends paid........................................................................ (39,156)
---------------
Net cash provided by financing activities.............................................. 65,834,644
---------------
Increase in cash and cash equivalents.................................................. 48,244,985
Cash and cash equivalents at beginning of period............................................. --
---------------
Cash and cash equivalents at end of period................................................... $ 48,244,985
===============
See accompanying notes to consolidated financial statements.
</TABLE>

126
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

FOR THE PERIOD ENDED SEPTEMBER 30, 1999

(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED
SEPTEMBER 30, 1999
---------------
<S> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest expense......................................................................... $ 3,693,879
Income taxes............................................................................. $ 26,880
Noncash investing activities:
Real estate acquired through foreclosure................................................... $ 27,870
Net change in unrealized loss on available-for-sale investment securities.................. $ (74,348)
The acquisition of Placer Sierra Bank involved the following:
Liabilities assumed........................................................................ $ 553,375,319
Fair value of assets acquired, other than cash and cash equivalents........................ $ 551,383,788
Goodwill................................................................................... $ 33,358,340
Acquisition of Placer Sierra Bank, net of cash and cash equivalents received............... $ 31,364,809
</TABLE>

See accompanying notes to consolidated financial statements

127
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1999

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Placer Capital is a bank holding company organized under the laws of California.
Its principal subsidiary, Placer Sierra Bank (the "Bank") provides a full range
of commercial banking services to individuals and business enterprises. The
banking services include making commercial, consumer, and commercial and
residential real estate loans. Deposits are accepted for checking,
interest-bearing checking ("NOW"), money-market, savings, and time accounts. The
Bank offers safe deposit boxes, travelers checks, money orders, and cashiers
checks.

BASIS OF PRESENTATION

The accounting and reporting policies of Placer Capital and its subsidiaries are
in accordance with generally accepted accounting principles ("GAAP") and conform
to practices within the banking industry. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions are eliminated.

The preparation of consolidated financial statements in accordance with GAAP
requires management to make certain estimates and assumptions which affect the
amounts of reported assets and liabilities as well as contingent assets and
liabilities as of the date of these consolidated financial statements. These
estimates and assumptions also affect the reported amounts of revenues and
expenses during the reporting periods(s). Although Management believes these
estimates and assumptions to be reasonably accurate, actual results may differ.

REPORTING PERIOD

The reporting period for the accompanying financial statements is the period
August 11, 1999 (date of acquisition of Placer Sierra) through September 30,
1999. The operations of Placer Capital consists of almost exclusively of the
activities of Placer Sierra for the period August 11, 1999 to September 30,
1999. Placer Capital had no material account balances or operations prior to the
acquisition of Placer Sierra. Accordingly, comparative financial information is
not included in this presentation. (See footnote 2 for discussion regarding the
Placer Sierra Acquisition).

EARNINGS PER SHARE

Basic EPS, which excludes dilution, is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock, such as stock options,
result in the issuance of common stock which shares in the earnings of the
Company. The treasury stock method has been applied to determine the dilutive
effect of stock options in computing diluted EPS. At September 30, 1999
potential common stock had no dilutive effect on earnings per share
calculations.

(2) PLACER SIERRA ACQUISITION

On August 11, 1999, the California Fund through an investment in Placer Capital
acquired all of the 3,056,048 outstanding shares of Placer Sierra at a cash
price of $22.05 per share. At June 30, 1999, Placer Sierra had assets of
$573.3 million and as of June 30, 1998 (the latest date as of which deposit

128
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1999

(2) PLACER SIERRA ACQUISITION (CONTINUED)

data for the relevant area was available), deposits at Placer Sierra represented
approximately 12.7% of total bank and thrift deposits in the cities in which
Placer Sierra operates branches.

The acquisition was accounted for under the purchase method of accounting, with
assets and liabilities recorded at their estimated fair market value at the time
of the acquisition. The fair market value adjustments were previously related to
premises and prepayment ($11,676,000), core deposit intangible ($10,816,000) and
goodwill ($33,356,000). The core deposit intangible and the goodwill are
amortized over 10 years and 15 years respectively. The core deposit intangible
and goodwill amortized during the period ended September 30, 1999 totaled
approximately $215,000.

The authorized capital stock of Placer Capital consists of 10,000,000 shares of
no par value common stock, of which 5,300,000 are issued and outstanding, all of
which are held of record by the California Fund, and 10,000,000 shares of no par
value preferred stock, of which one share is issued and outstanding and which is
held of record by Placer Capital Funding LLC.

SUBORDINATED DEBENTURES

A portion of the financing for Placer Capital's acquisition of Placer Sierra was
the issuance of $18.5 million in subordinated debentures by Placer Capital to
Placer Trust, which, in turn, issued $18.5 million in trust preferred securities
to Placer Funding. The subordinated debentures bear interest at a fixed interest
rate of 8% and will mature at the expiration of 30 years after the date of
issuance. Additionally, Placer Capital issued one share of 8% noncumulative
preferred stock to Placer Funding for $3.5 million dollars. The source of
financing for Placer Funding's purchase of the trust preferred securities and
the noncumulative preferred stock was a $22 million term loan from a commercial
bank not affiliated with the California Fund, or any of its affiliated
companies. Placer Funding is a California limited liability company, and Placer
Trust is a Delaware statutory business trust, both of which were organized for
the purpose of facilitating the acquisition of Placer Sierra by Placer Capital.

REVOLVING LINE OF CREDIT

Placer Capital also obtained a $3 million revolving line of credit bearing
interest at rate of Libor plus 210 basis points from a commercial bank to
facilitate the timing of its payments of dividends on the noncumulative
preferred stock and interest on the subordinated debentures. The terms of the
revolving line of credit provide that at no time can the aggregate principal
amount of indebtedness outstanding under the revolving line of credit and the
term loan exceed $22 million. There was no balance outstanding as of
September 30, 1999 on the line of credit.

Placer Capital pledged all of the shares of Placer Sierra Bank stock to the
commercial bank lender to secure payment of amounts drawn on the revolving line
of credit. The credit agreements entered into by Placer Capital and Placer
Funding, with the commercial bank lender each contain cross-default provisions.

(3) SEGMENT REPORTING

In June, 1997 the FASB issued Statement of Financial Accounting Standards
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
Under the definition of a "reportable segment" in current GAAP, Placer Capital
has no reportable segments.

129
<PAGE>
PLACER CAPITAL CO. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1999

(4) PROSPECTIVE ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
recognition of all derivatives as either assets or liabilities on the balance
sheet and measurement of those instruments at fair value. If certain conditions
are met, a derivative may be designated specifically as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment (a fair value hedge) or (b) a hedge of the exposure
to variable cash flows of a forecasted transaction (a cash flow hedge). SFAS
No. 133, as amended by SFAS 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT
NO. 133--AN AMENDMENT OF FASB STATEMENT NO. 133, is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. Management does not
expect that adoption of SFAS Nos. 133/137 will have a material impact on the
Company's consolidated financial statements.

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<PAGE>
SELECTED FINANCIAL DATA

PLACER SIERRA
(UNAUDITED)

The selected historical financial data as of and for the five years ended
December 31, 1998 are derived from Placer Sierra's consolidated financial
statements, which have been audited by independent public accountants. The
selected historical financial data as of and for the six months ended June 30,
1999 have not been audited but, in the opinion of Placer Sierra's management,
contain all adjustments (consisting of normal recurring adjustments) necessary
to present fairly the financial position and results of operations of Placer
Sierra as of such dates and for such period. The results of operations for the
six months ended June 30, 1999 are not necessarily indicative of the results of
operations that may be expected for the year ended December 31, 1999, or for any
future period.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED
AS OF AND FOR THE DECEMBER 31,
SIX MONTHS ENDED -------------------------------------
JUNE 30, 1999 1998 1997 1996
------------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease losses.. $ 11,655 $ 21,771 $ 19,376 $ 17,769
Provision for loan and lease losses............................. 319 775 1,100 493
------------ ----------- ----------- -----------
Net interest income after provision for loan and lease losses... 11,336 20,996 18,276 17,276
Noninterest income.............................................. 2,189 5,278 3,893 3,083
Noninterest expense............................................. 10,166 19,627 16,760 20,270
------------ ----------- ----------- -----------
Income before income tax........................................ 3,359 6,647 5,409 89
Income tax provision............................................ 1,333 2,861 2,314 38
------------ ----------- ----------- -----------
Net income...................................................... $ 2,026 $ 3,786 $ 3,095 $ 51
============ =========== =========== ===========
PER SHARE DATA:
Weighted average shares outstanding
Basic......................................................... 3,560,000 3,560,000 3,560,000 3,560,000
Diluted....................................................... 3,560,000 3,560,000 3,560,000 3,560,000
Net income per share
Basic......................................................... $ 0.57 $ 1.06 $ 0.87 $ 0.01
Diluted....................................................... $ 0.57 $ 1.06 $ 0.87 $ 0.01
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets.................................................... $ 573,306 $ 565,278 $ 501,711 $ 475,634
Loans and leases, net........................................... 374,067 356,879 367,966 354,408
Real estate acquired through foreclosure........................ 420 79 308 695
Deposits........................................................ 536,691 527,591 467,871 445,988
Shareholders' equity............................................ 35,163 34,797 31,324 28,400
Average assets.................................................. 575,144 535,239 490,507 466,666
Average earning assets.......................................... 540,269 503,002 461,709 439,030
Average common equity........................................... 35,318 33,214 29,835 28,509
PER SHARE DATA:
Common shares outstanding....................................... 3,560,000 3,560,000 3,560,000 3,560,000
Diluted common shares outstanding............................... 3,560,000 3,560,000 3,560,000 3,560,000
Book value per share............................................ $ 9.88 $ 9.77 $ 8.80 $ 7.98
Diluted book value per share.................................... $ 9.88 $ 9.77 $ 8.80 $ 7.98
SELECTED PERFORMANCE RATIOS
Return on average assets........................................ 0.71 % 0.71% 0.63% 0.01%
Return on average common equity................................. 11.57 % 11.40% 10.37% 0.18%
Dividend payout ratio........................................... -- % --% --% --%
Net yield on interest earning assets............................ 4.35 % 4.33% 4.20% 4.05%
Efficiency ratio................................................ 73.43 % 72.56% 72.03% 97.21%
Net interest income before provision for loan and lease losses
to average assets............................................. 4.09 % 4.08% 3.94% 3.48%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and OREO... 0.22 % 0.20% 0.35% 0.31%
Nonperforming assets to total assets............................ 0.15 % 0.13% 0.26% 0.23%
Allowance for loan and lease losses to gross loans and leases... 1.06 % 1.01% 0.81% 0.63%
Allowance for loan and lease losses to nonperforming loans and
leases........................................................ 477.92 % 516.95% 227.80% 206.18%
Net charge-offs (recoveries)(annualized) to average loans and
leases........................................................ (0.01)% 0.03% 0.10% 0.11%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio........................................... 6.09 % 5.90% 6.00% 5.50%
Tier 1 Risk-Weighted Ratio...................................... 9.72 % 9.80% 9.70% 9.26%
Total Risk Weighted Ratio....................................... 10.81 % 10.90% 10.60% 10.10%
Average common equity to average assets......................... 6.14 % 6.23% 6.08% 5.56%

1995 1994
----------- -----------

<S> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease losses.. $ 15,864 $ 16,679
Provision for loan and lease losses............................. 321 355
----------- -----------
Net interest income after provision for loan and lease losses... 15,543 16,324
Noninterest income.............................................. 3,170 2,772
Noninterest expense............................................. 16,716 17,191
----------- -----------
Income before income tax........................................ 1,997 1,905
Income tax provision............................................ 964 797
----------- -----------
Net income...................................................... $ 1,033 $ 1,108
=========== ===========
PER SHARE DATA:
Weighted average shares outstanding
Basic......................................................... 3,560,000 3,560,000
Diluted....................................................... 3,560,000 3,560,000
Net income per share
Basic......................................................... $ 0.29 $ 0.31
Diluted....................................................... $ 0.29 $ 0.31
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets.................................................... $ 451,771 457,728
Loans and leases, net........................................... 343,577 355,508
Real estate acquired through foreclosure........................ 95 1,157
Deposits........................................................ 421,236 425,298
Shareholders' equity............................................ 28,751 27,491
Average assets.................................................. 449,130 461,667
Average earning assets.......................................... 419,683 436,623
Average common equity........................................... 28,774 27,494
PER SHARE DATA:
Common shares outstanding....................................... 3,560,000 3,560,000
Diluted common shares outstanding............................... 3,560,000 3,560,000
Book value per share............................................ $ 8.08 $ 7.72
Diluted book value per share.................................... $ 8.08 $ 7.72
SELECTED PERFORMANCE RATIOS
Return on average assets........................................ 0.23% 0.24%
Return on average common equity................................. 3.59% 4.03%
Dividend payout ratio........................................... --% --%
Net yield on interest earning assets............................ 3.78% 3.82%
Efficiency ratio................................................ 87.82% 88.38%
Net interest income before provision for loan and lease losses
to average assets............................................. 3.53% 3.61%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and OREO... 0.06% 0.76%
Nonperforming assets to total assets............................ 0.04% 0.60%
Allowance for loan and lease losses to gross loans and leases... 0.62% 0.64%
Allowance for loan and lease losses to nonperforming loans and
leases........................................................ 1058.13% 83.88%
Net charge-offs (recoveries)(annualized) to average loans and
leases........................................................ 0.13% 0.20%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio........................................... 5.83% 5.55%
Tier 1 Risk-Weighted Ratio...................................... 10.13% 9.87%
Total Risk Weighted Ratio....................................... 10.96% 10.74%
Average common equity to average assets......................... 6.41% 5.96%
</TABLE>

131
<PAGE>
PLACER SIERRA'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This information should be read in conjunction with the audited consolidated
financial statements and the notes thereto of Placer Sierra included with this
proxy statement/prospectus. The interim financial statements included for Placer
Sierra are at and for the six months period ended June 30, 1999, which is the
last quarterly period prior to the acquisition by Placer Capital. Except for the
historical information contained herein, the following discussion contains
forward-looking statements that involve risks and uncertainties. Placer Sierra's
actual results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include, but are not specifically
limited to, changes in regulatory climate, shifts in the interest rate
environment, changes in economic conditions of various markets Placer Sierra
serves, as well as the other risks detailed in this section and in "Risk
Factors" above.

FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998

OVERVIEW

Placer Sierra had net income of $2.0 million for the six months ended June 30,
1999 compared to net income of $1.7 million for the six months ended June 30,
1998. Both basic and fully diluted net income per share for the six months ended
June 30, 1999 was $0.57 per share compared to $0.48 for the six months ended
June 30, 1998. Placer Sierra's return on average assets was .70% and its return
on average common equity was 11.48% for the six months ended June 30, 1999, as
compared to .66% and 10.65%, respectively, for the six months ended June 30,
1998.

RESULTS OF OPERATIONS

Placer Sierra's results of operations depend primarily on Placer Sierra's net
interest income, which is the difference between interest and dividend income on
interest-earning assets and interest expense on interest-bearing liabilities.
Placer Sierra's interest-earning assets consist primarily of loans,
mortgage-backed securities and investment securities, while its interest-bearing
liabilities are deposits and borrowings. Placer Sierra's results of operations
are also affected by Placer Sierra's provisions for loan losses, resulting from
management's assessment of the adequacy of Placer Sierra's allowance for loan
losses, the level of its other income, the level of its other expenses, such as
compensation and employee benefits, occupancy costs, expenses associated with
the administration of problem assets, and income taxes.

Compared to the prior year results, the improvement in Placer Sierra's net
income for the six months ended June 30, 1999 stems primarily from a combination
of increased net interest income of approximately $1.0 million, decreased loan
loss provision of $86,000 and a decrease in provision for taxes of $13,000,
partially offset by a decrease in non-interest income of approximately $254,000
and increased non-interest expense of approximately $550,000. The improvement in
1999 net interest income is primarily attributable to significant increases in
Placer Sierra's average investment portfolio balances. Placer Sierra's
investment portfolio balance increased $60.5 million, or 57.3%, to an average
balance of $166.1 million for the six months ended June 30, 1999 from
$105.6 million for the six months ended June 30, 1998.

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<PAGE>
NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was approximately $11.7 million for the six months ended
June 30, 1999, an increase of $1.1 million, or 9.5%, over the $10.6 million for
the same period in 1998. An increase in interest income to $20.2 million for the
six months ended June 30, 1999 from $19.1 million for the same period in 1998,
partially offset by increased interest expense of $8.6 million for the six
months ended June 30, 1999 from $8.4 million for the same period in 1998,
contributed to this earnings improvement. The increased net interest income in
1999 is primarily attributable to increased average interest-earning assets and
lower cost of deposit liabilities, partially offset by a decline in yields on
interest-earning assets.

Loans and leases, the largest component of earning assets, increased slightly to
an average balance of $367.3 million for the six months ended June 30, 1999 from
$366.0 million for the six months ended June 30, 1998, with an average yield of
8.37% and 8.54%, respectively. The increase in the volume of loans and leases
was primarily attributable to an increase in commercial loans. Investments in
securities and Federal funds sold increased to an average of $173.0 million for
the six months ended June 30, 1999 from an average of $118.6 million for the six
months ended June 30, 1998, with an average yield of 5.79% and 6.08%,
respectively. The yield on earning assets was 7.5% for the six months ended
June 30, 1999 compared to 7.9% for the same period in 1998.

Average interest-bearing liabilities increased 9.4% to $456.8 million for the
six months ended June 30, 1999 from $417.7 million for the same period in 1998
primarily as a result of an increase in money market accounts. The cost of these
funds decreased to 3.8% for the six months ended June 30, 1999 compared to 4.1%
for the same period in 1998. Average interest-bearing deposits increased to
$455.6 million for the six months ended June 30, 1999 from $417.7 million for
the same period in 1998. The average rate paid on these deposits was 3.8% during
the six months ended June 30, 1999 and 4.1% for the six months ended June 30,
1998. The decrease in the cost of deposits is attributable to a decrease in
rates paid on certificates of deposit that decreased to 5.0% for the six months
ended June 30, 1999 compared to 5.4% for the same period in 1998. The decrease
in the cost of deposits also reflects a change in the mix of deposit
liabilities, with increases in average interest bearing demand deposits and
money market deposits of 17.9% and 39.7%, respectively, compared to the similar
period of 1998.

Federal funds purchased averaged $1.3 million with an average rate of 5.2% for
the six months ended June 30, 1999 compared to no federal funds purchased for
the same period in 1998.

As a result of the foregoing factors, the average net yield on earning assets
decreased to 4.35% for the six months ended June 30, 1999 compared to 4.43% for
the same period in 1998.

133
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------------------------------------------------------
JUNE 30, 1999 JUNE 30, 1998
-------------------------------------- ------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
---------- ------------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)........................... $ 367,288 $ 15,248 8.37% $ 365,986 $ 15,507 8.54%
Investment securities (2)...................... 166,088 4,736 5.75 105,573 3,129 5.98
Federal funds sold............................. 6,893 227 6.66 13,022 445 6.89
---------- ----------- ---------- ---------
Total interest-earning assets.............. 540,269 20,211 7.54 484,581 19,081 7.94

Non-earning assets:
Cash and demand deposits with banks............ 20,674 16,822
Other assets................................... 14,201 15,169
---------- ----------
Total assets............................... 575,144 516,572
========== ----------- ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand...................... 53,873 328 1.23 45,691 265 1.17
Money market................................. 46,464 737 3.20 33,249 517 3.13
Savings...................................... 93,692 1,027 2.21 87,614 963 2.22
Time......................................... 261,557 6,432 4.96 251,141 6,697 5.38
---------- ----------- ---------- ---------
Total interest-bearing deposits............ 455,586 8,524 3.77 417,695 8,442 4.08
Short-term borrowing........................... 1,250 32 5.19 -- -- --
---------- ----------- ---------- ---------
Total interest-bearing liabilities......... 456,836 8,556 3.78 417,695 8,442 4.08

Noninterest-bearing liabilities:
Demand deposits.............................. 79,736 63,527
Other liabilities............................ 3,254 3,086
---------- ----------
Total liabilities.......................... 539,826 484,308
Shareholders' equity........................... 35,318 32,264
---------- ----------
Total liabilities and shareholders' equity..... $ 575,144 $ 516,572
========== ----------- ========== ---------
Net interest income............................ $ 11,655 $ 10,639
=========== =========
Net yield on interest-earning assets........... 4.35% 4.43%
</TABLE>

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

(1) Loan fees of $223,000 and $251,000 are included in the computations for 1999
and 1998, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) available for sale securities.

The following table sets forth changes in interest income and interest expense
on the basis of allocation to changes in rates and changes in volume of the
various components. Nonaccrual loans are included in

134
<PAGE>
total loans outstanding while nonaccrued interest thereon is excluded from the
computation of rates earned.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999 COMPARED TO 1998
------------------------------------------
NET
CHANGE RATE VOLUME MIX
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases.......................................... $ (259) $ (313) $ 55 $ (1)
Investment securities..................................... 1,607 (118) 1,793 (68)
Federal funds sold........................................ (218) (15) (209) 6
--------- --------- --------- ---------
Total interest income................................. 1,130 (446) 1,639 (63)

Interest Expense:
Interest-bearing demand................................... 63 14 46 3
Money market.............................................. 220 11 205 4
Savings................................................... 64 (2) 67 (1)
Time...................................................... (265) (522) 279 (22)
Short-term borrowing...................................... 32 -- -- 32
--------- --------- --------- ---------
Total interest expense................................ 114 (499) 597 16
--------- --------- --------- ---------
Net interest income....................................... $ 1,016 $ 53 $ 1,042 $ (79)
========= ========= ========= =========
</TABLE>

PROVISION FOR LOAN AND LEASE LOSSES

During the six months ended June 30, 1999, a total of $319,000 was charged
against operations and added to the allowance for loan and lease losses, as
compared to $405,000 for the same period in 1998. The decreased provision is
primarily attributable to Placer Sierra's decreasing charge-off trend combined
with an increasing recovery trend. See "Financial Condition," below.

NONINTEREST INCOME

Noninterest income for the six months ended June 30, 1999 was $2.2 million
compared to $2.4 million for the same period in 1998. The decrease in
noninterest income is primarily attributable to reduced subsidiary income.
Income from service charges on deposit accounts increased to $1.0 million for
the six months ended June 30, 1999 compared to $956,000 for the same period in
1998. Other noninterest income decreased to $1.2 million for the six months
ended June 30, 1999 compared to $1.5 million for the same period in 1998. This
decrease was primarily attributable to reduced subsidiary income. Subsidiary
income was reduced as a result of the discontinuance of two products, insurance
agency activity and retail sales and services of personal computers.

135
<PAGE>
The following table presents for the periods indicated the major categories of
noninterest income:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Service charges............................................................ $ 1,046 $ 956
Commissions investment product............................................. 376 459
Gain on sale of loans...................................................... 384 446
Gain on sale of investment securities...................................... 38 121
Other...................................................................... 345 461
--------- ---------
Total.................................................................. $ 2,189 $ 2,443
========= =========
</TABLE>

NONINTEREST EXPENSES

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of Placer Sierra. Also included are the costs of carrying and administering the
OREO portfolio (as defined below) as well as the costs associated with problem
assets, which include nonperforming and restructured loans. "OREO," or "other
real estate owned," consists of real estate acquired through foreclosure or by
acceptance of a deed in lieu of foreclosure.

Noninterest expense for the six months ended June 30, 1999 was $10.2 million, an
increase of $550,000 from $9.6 million for the same period in 1998. Salaries and
employee benefits increased to $5.2 million for the six months ended June 30,
1999 from $4.8 million for the same period in 1998, which increase is
attributable to increased commercial and SBA lending salaries. Occupancy and
equipment expense decreased to $1.5 million for the six months ended June 30,
1999 from $1.6 million for the six months ended June 30, 1998 and represents
decreases in depreciation expense attributable to bank premises and equipment.
Other noninterest expenses increased to $3.4 million for the six months ended
June 30, 1999 from $3.2 million for the six months ended June 30, 1998,
primarily attributable to increased Year 2000 expenses, postage expense,
stationery and printing, insurance expense, and donations. Placer Sierra's
efficiency ratio was 73.43% for the six months ended June 30, 1999, a decrease
of .07% from 73.50% for the comparable period of 1998.

The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits........................................... $ 5,210 $ 4,802
Occupancy and equipment.................................................. 1,513 1,605
Telephone, courier and postage........................................... 690 590
Loan expense............................................................. 459 542
Data processing.......................................................... 380 375
Stationery and supplies.................................................. 375 318
Advertising.............................................................. 289 288
Professional fees........................................................ 250 267
Regulatory assessments................................................... 206 198
Other.................................................................... 794 631
--------- ---------
Total................................................................ $ 10,166 $ 9,616
========= =========
</TABLE>

136
<PAGE>
PROVISION FOR INCOME TAXES

As a result of earnings for the six months ended June 30, 1999 and 1998, a
provision for income taxes of $1.3 million was made in both 1999 and 1998.

FINANCIAL CONDITION

Total assets of Placer Sierra at June 30, 1999 were $573.3 million compared to
total assets of $565.3 million at December 31, 1998 and $528.2 million at
June 30, 1998. Total earning assets of Placer Sierra at June 30, 1999 were
$545.1 million compared to total earning assets of $535.0 million at
December 31, 1998 and $500.2 million at June 30, 1998. The increase in total
assets and total earning assets since June 30, 1998 is partially attributable to
the increase in construction loans that increased $20.5 million, or 128.8%, to
$36.5 million at June 30, 1999 from $15.9 million at June 30, 1998 and an
increase in investments due to the funds provided by the increase in deposit
liabilities.

LOANS AND LEASES

Total gross loans and leases at June 30, 1999 were $379.4 million, compared to
$361.9 million at December 31, 1998 and $362.8 million at June 30, 1998. At
June 30, 1999, the four largest lending categories were: (i) residential
mortgage loans, including land and construction loans, (ii) commercial real
estate loans, (iii) commercial loans, and (iv) loans to individuals. At
June 30, 1999, those categories accounted for $213.2 million, $111.4 million,
$31.9 million and $22.9 million, or approximately 56.2%, 29.4%, 8.4% and 6.0% of
total gross loans and leases, respectively.

The following table sets forth the amount of loans and leases outstanding for
Placer Sierra as of the dates indicated, according to type of loan. Placer
Sierra has no foreign loans or energy-related loans.

<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commercial............................................................ $ 31,850 $ 16,786
Real estate-commercial................................................ 111,384 115,096
Real estate-construction.............................................. 36,467 15,935
Real-estate-mortgage.................................................. 176,738 191,415
Installment loans to individuals...................................... 22,914 23,595
---------- ----------
Subtotal.............................................................. 379,353 362,827
Less: allowance for loan and lease losses............................. (4,005) (3,401)
Unearned fees......................................................... (1,281) (1,201)
---------- ----------
Net loans and leases.................................................. $ 374,067 $ 358,225
========== ==========
</TABLE>

The following table shows the amounts of some categories of loans outstanding as
of June 30, 1999, which, based on remaining scheduled repayments of principal,
were due in one year or less, more than

137
<PAGE>
one year through five years, and more than five years. Demand or other loans
having no stated maturity and no stated schedule of repayments are reported as
due in one year or less.

<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
COMMERCIAL REAL ESTATE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are due:
Within one year..................................................... $ 14,366 $ 6,665
After one year but within five years:
Interest rates are floating or adjustable........................... 26,291 6,558
Interest rates are fixed or predetermined........................... 8,555 8,206
After five years:
Interest rates are floating or adjustable........................... 56,528 151,850
Interest rates are fixed or predetermined........................... 37,494 39,926
--------- ---------
Total............................................................... $ 143,234 $ 213,205
========= =========
</TABLE>

As of June 30, 1999, in management's judgment, a concentration of loans existed
in commercial loans and commercial real estate loans. At that date,
approximately 37.8% of Placer Sierra's loans were commercial loans or commercial
real estate loans, representing 8.4% and 29.4% of total loans, respectively.
Additionally, at June 30, 1999, approximately 56.2% of Placer Sierra's loans
were real estate and construction loans, many of which are secured by
residential mortgages. Although management believes such concentrations to have
no more than the normal risk of collectibility, a substantial decline in real
estate values could have an adverse impact on collectibility of real estate
related loans, increase the level of real estate-related nonperforming loans, or
have other adverse effects which alone or in the aggregate could have a material
adverse effect on the financial condition of Placer Sierra.

NONPERFORMING ASSETS

Non-performing assets include non-accrual loans, loans 90 or more days past due
and still accruing and other real estate owned. Loans are placed on non-accrual
status upon reaching 90 days or more delinquent, unless the loan is well secured
or in the process of collection. Interest previously accrued on loans placed on
non-accrual status is charged against interest income. When the ability to fully
collect non-accrual loan principal is in doubt, payments received are applied
against the principal balance of the loans until such time as full collection of
the remaining recorded balance is expected. Any additional interest payments
received after that point are recorded as interest income on a cash basis.
Non-accrual loans are reinstated to accrual status when improvements in credit
quality eliminate the doubt as to the full collectibility of both interest and
principal.

138
<PAGE>
The following table summarizes nonperforming assets as of June 30, 1999 and
June 30, 1998.

<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans and leases, not restructured................................ $ 418 $ 1,482
Accruing loans and leases past due 90 days or more........................... -- --
Restructured loans and leases................................................ -- --
--------- ---------
Total nonperforming loans and leases ("NPLs").............................. 418 1,482
Other real estate owned ("OREO")............................................. 420 323
--------- ---------
Total nonperforming assets ("NPAs")........................................ $ 838 $ 1,805
========= =========
Selected ratios:
NPLs to total loans and leases............................................. 0.11% 0.41%
NPAs to total loans and leases and OREO.................................... 0.22 0.50
NPAs to total assets....................................................... 0.15 0.35
</TABLE>

Placer Sierra would have recorded additional interest income of approximately
$4,000 for the six months ended June 30, 1999 on nonperforming loans if such
loans had been current in accordance with their original terms. Interest income
recorded on nonperforming loans for the six months ended June 30, 1999 was
approximately $3,000.

Loans aggregating $51,000 at June 30, 1999 have been designated as impaired in
accordance with SFAS 114 as amended by SFAS 118. Placer Sierra's impaired loans
are all collateral dependent, and as such the method used to measure the amount
of impairment on these loans is to compare the loan amount to the fair value of
collateral. The total allowance for loan losses related to these loans was
$13,000 at June 30, 1999. The average balance of impaired loans during the six
months ended June 30, 1999 was $65,000.

As of the end of the most recent period, management was not aware of any loans
that had not been placed on nonaccrual status as to which there were serious
doubts as to the ability of the respective borrowers to comply with present loan
repayment terms.

At June 30, 1999, Placer Sierra had OREO properties with an aggregate carrying
value of $420,000. During the six months ended June 30, 1999, properties with a
total carrying value of $630,000 were added to OREO, and properties with a total
carrying value of $288,000 were sold. All of the OREO properties are recorded by
Placer Sierra at amounts that are equal to or less than the fair market value
based on current independent appraisals reduced by estimated selling costs.

At June 30, 1999, none of Placer Sierra's loans had previously been
restructured.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan and lease losses represents the amounts that have been
set aside for the specific purpose of absorbing losses inherent in Placer
Sierra's loan and lease portfolio. The provision for loan and lease losses is an
expense charged against operating income and added to the allowance for loan and
lease losses.

139
<PAGE>
allocation process does not necessarily measure anticipated future credit
losses; rather, it reflects management's assessment at a some date of perceived
credit risk exposure and the impact of current and anticipated economic
conditions, which may or may not result in future credit losses. While
management believes the allowance to be adequate, it should be noted that it is
based on estimates, and ultimate losses may vary from such estimates if future
conditions differ materially from the assumptions used in making the evaluation.
Although management believes the level of the allowance as of June 30, 1999 is
adequate to absorb losses inherent in the loan portfolio, declines in the local
economy may result in increasing losses that cannot reasonably be predicted at
this date. The possibility of increased costs of collection, nonaccrual of
interest on those loans that are or may be placed on nonaccrual, and charge-offs
could have an adverse impact on Placer Sierra's financial condition in the
future.

The Federal Reserve and the California Department of Financial Institutions, as
an integral part of their respective supervisory functions, periodically review
Placer Sierra's allowance for loan and lease losses. Such regulatory agencies
may require Placer Sierra to increase its provision for loan lease losses or to
recognize further loan charge-offs, based upon judgments different from those of
management.

In December 1993, the federal banking agencies issued an inter-agency policy
statement on the allowance for loan and lease losses that, among other things,
establishes some benchmark ratios of loan loss reserves to classified assets.
The benchmark set forth by such policy statement is the sum of (i) assets
classified loss; (ii) 50% of assets classified doubtful; (iii) 15% of assets
classified substandard; and (iv) estimated credit losses on other assets over
the upcoming 12 months. At June 30, 1999, Placer Sierra's allowance constituted
over 436% of the benchmark amount suggested by the federal banking agencies'
policy statement.

Placer Sierra's allowance for loan and lease losses was $4.0 million at
June 30, 1999 compared to $3.4 million at June 30, 1998. During the six months
ended June 30, 1999, the provision for loan and lease losses was $319,000, or
0.17% (annualized) of average loans at June 30, 1999, loan and lease charge-offs
were $28,000 and recoveries were $54,000, which compares to a provision for loan
and lease losses of $405,000, or 0.22% (annualized) to average loans at
June 30, 1998, loan and lease charge-offs of $42,000 and recoveries of $31,000
during the same period in 1998. Placer Sierra's allowance for loan and lease
losses represented 1.06% of net loans at June 30, 1999 and 0.94% at June 30,
1998. With the increasing level of commercial lending taking place at Placer
Sierra during the preceding 12-month period ended June 30, 1999, management
increased the allowance for loan and lease losses to adjust to the increased
risk associated with commercial lending.

140
<PAGE>
the allowance from provisions charged to operating expense as of and for the
periods ending June 30, 1999 and June 30, 1998:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding................................. $ 367,288 $ 365,986
Gross loans and leases............................................... 379,353 362,827
Nonperforming loans and leases....................................... 418 1,482
Allowance for loan and lease losses:
Balance at beginning of period................................... 3,660 3,007
Loans charged off during period
Commercial..................................................... 3 --
Real estate.................................................... 24 37
Installment.................................................... 1 5
---------- ----------
Total........................................................ 28 42
Recoveries during period
Commercial..................................................... 8 --
Real estate.................................................... 14 --
Installment.................................................... 32 31
---------- ----------
Total........................................................ 54 31
---------- ----------
Net loans charged off during period............................ (26) 11
Provision for loan and lease losses............................ 319 405
---------- ----------
Balance at end of period..................................... $ 4,005 $ 3,401
========== ==========
Selected ratios:
Net charge-offs to average loans and leases (1).................... (0.01)% 0.01%
Provision for loan and lease losses to average loans (1)........... 0.17 0.22
Allowance at end of period to gross loans and leases outstanding at
end of period.................................................... 1.06 0.94
Allowance as percentage of nonperforming loans and leases............ 958.13 229.49
</TABLE>

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

(1) Annualized

The following table indicates management's allocation of the allowance as of the
dates indicated:

<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------------
1999 1998
-------------------------- --------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
--------- --------------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and financial..................... $ 1,313 8.4% $ 1,054 4.6%
Real estate and construction................. 912 85.6 1,030 88.9
Consumer..................................... 393 6.0 405 6.5
Unallocated.................................. 1,387 -- 912 --
--------- --------- --------- ---------
Total.................................... $ 4,005 100.0% $ 3,401 100.0%
========= ========= ========= =========
</TABLE>

141
<PAGE>
In allocating Placer Sierra's allowance for loan and leases losses, management
has considered the credit risk in the various loan categories in its portfolio.
As such, the allocations of the allowance for loan and lease losses are based
upon the average aggregate historical net loan losses experienced. While every
effort has been made to allocate the allowance to specific categories of loans,
management believes that any allocation of the allowance for loan and lease
losses into loan categories lends an appearance of exactness which does not
exist.

INVESTMENTS AND INVESTMENT SECURITIES

Placer Sierra maintains a portion of its assets in investment securities to
balance risk and to ensure liquidity. See "Liquidity," below.

Total investments at June 30, 1999 were $167.1 million compared to
$174.4 million at December 31, 1998 and $138.5 million at June 30, 1998. At
June 30, 1999, the investments of Placer Sierra included overnight Federal funds
investments of $4.5 million and investment securities of $162.6 million.
Investments increased primarily as a result of significant positive cash flows
from rapid deposit growth with only minimal net increases in loan balances. At
June 30, 1999, the investment portfolio primarily consisted of U.S. treasury and
agency securities, mortgage backed securities, and municipal investments. At
June 30, 1999, $114.0 million of Placer Sierra's portfolio of investment
securities was classified as available for sale while $48.6 million was
classified as held to maturity. On August 10, 1999 Placer Sierra's investment
portfolio that was classified as available for sale with amortized cost of $48.3
million and estimated market value of $47.5 million was reclassified as held to
maturity in conjunction with the acquisition by Placer Capital. Placer Sierra
does not hold any investment securities in a trading account.

The objective of the investment securities held to maturity is to strengthen the
portfolio yield, and to provide collateral to pledge for federal, state and
local government deposits and other borrowing facilities. Investment securities
available for sale are generally used to supplement Placer Sierra's liquidity.
Unrealized net gains and losses on securities available for sale are recorded as
an adjustment to equity, net of taxes, and are not reflected in the current
earnings of Placer Sierra. If a security is sold, any gain or loss is recorded
as a charge to earnings and the equity adjustment is reversed.

The following table presents the amortized cost of securities and their
approximate fair values at June 30, 1999:

<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury...................... $ 5,020 $15 $ -- $ 5,035
U.S. Government Agencies........... 45,662 -- (778) 44,884
Mortgage-backed securities......... 62,528 -- (1,349) 61,179
Federal Home Loan Bank stock....... 2,899 -- -- 2,899
-------- --- ------- --------
Total available for sale......... 116,109 15 (2,127) 113,997
-------- --- ------- --------
Held to Maturity:
U.S. Treasury...................... 12,585 -- (17) 12,568
U.S. Government Agencies........... 10,612 -- (233) 10,379
State and municipal securities..... 12,434 -- (482) 11,952
Mortgage-backed securities......... 12,946 -- (211) 12,735
-------- --- ------- --------
Total held to maturity........... 48,577 -- (943) 47,634
-------- --- ------- --------
Total............................ $164,686 $15 $(3,070) $161,631
======== === ======= ========
</TABLE>

142
<PAGE>
The following tables show the maturities of investment securities, excluding
Federal Home Loan Bank stock that has no stated maturity, at June 30, 1999 and
the weighted average yields of such securities:

<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------------------------------------
AFTER FIVE
AFTER ONE YEAR YEARS
WITHIN ONE BUT WITHIN BUT WITHIN AFTER TEN
YEAR FIVE YEARS TEN YEARS YEARS
-------------- --------------- -------------- -------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- -------- ----- ------- ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasuries.................. $ 5,035 5.82% $ -- % $ -- % $ -- %
U.S. Government agencies......... 4,503 5.22 40,381 5.48 -- --
Mortgage-backed securities....... 1,059 5.79 37,610 6.14 22,510 5.94 --
------- -------- ------- ------
Total available for sale......... 10,597 5.56 77,991 5.80 22,510 5.94 --
------- -------- ------- ------
Held to Maturity:
U.S. Treasuries.................. 5,604 6.10 6,981 5.17 -- --
U.S. Government agencies......... 1,007 6.03 9,605 5.08 -- --
State and municipal bonds........ 168 1.32 393 4.04 5,620 4.29 6,253 4.45
Mortgage-backed securities....... -- 9,860 6.37 3,086 6.40 --
------- -------- ------- ------
Total held to maturity........... 6,779 5.97 26,839 5.56 8,706 5.04 6,253 4.45
------- -------- ------- ------
Total............................ $17,376 5.72% $104,830 5.74% $31,216 5.69% $6,253 4.45%
======= ======== ======= ======
</TABLE>

Prior to August 10, 1999 Placer Sierra was a state chartered savings and loan
association. As such the association was required to maintain at a minimum 65%
of all assets in mortgage backed loans and or securities--Qualified Thrift
Lender Test (QTL). Therefore, in order to satisfy the requirements of the QTL,
Placer Sierra actively purchased mortgage pass-through certificates as a
significant component of the investment portfolio.

There are some inherent risks associated with mortgage-backed securities ("MBS")
including volatility, credit risk, interest rate risk and average life extension
risk. Placer Sierra's MBS portfolio has limited credit risk as the entire
portfolio consists of U.S. Government agency obligations which carry the highest
ratings by nationally recognized rating bureaus. MBS price volatility is similar
to U.S. Government or corporate bond obligations, in that as interest rates
increase the value of the MBS decreases and, conversely, as interest rates
decrease the value of the MBS increases. In addition, the interest rate risk
associated with MBS can be exacerbated by extension or prepayment risk,
particularly with respect to fixed-rate instruments. With fixed-rate MBS, as
interest rates move upward, the probability of the average life extending
increases as a result of prepayments generally slowing on the underlying
collateral of the MBS. With the extension of average life in a rising rate
environment, Placer Sierra would own a security that has a below market yield
for a longer period of time than was previously anticipated which also affects
the market price negatively. If interest rates were to decline, the weighted
average life of the fixed-rate MBS portfolio would shorten, prepayments would
rise and the market value would decrease. At June 30, 1999, the weighted average
life of Placer Sierra's fixed-rate MBS portfolio was approximately 4.2 years.
With adjustable-rate or floating-rate MBS, the extension risk is reduced
compared with fixed-rate MBS, as interest rates on variable-rate MBS tend to
adjust with those of the current treasury curve and include stated indices,
margins and caps. With the variable rate MBS products, there tends to be less
fluctuation and volatility of market values as yields on variable rate MBS
normally approximate current market yields unless interim or lifetime caps
inhibit full repricing.

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

143
<PAGE>
DEPOSITS

Total deposits were $536.7 million at June 30, 1999 compared to $527.6 million
at December 31, 1998 and $492.8 million at June 30, 1998. An increase in
non-interest bearing demand deposits, money market accounts, regular savings
deposits and interest-bearing transaction accounts, offset by a minor decrease
in certificates of deposits, contributed to the increase in total deposits. The
increase in deposits reflects Placer Sierra's ability to attract stable low-cost
funds through its retail branch network. Total noninterest-bearing demand
deposits were $82.0 million, or approximately 15.3% of total deposits, at
June 30, 1999 compared to $70.5 million, or approximately 14.3% of total
deposits, at June 30, 1998. Interest-bearing deposits were $454.7 million, or
approximately 84.7% of total deposits, at June 30, 1999 compared to
$422.3 million, or approximately 85.7% of total deposits, at June 30, 1998.

Placer Sierra draws its funding source almost exclusively from the diverse
retail branch network of 25 offices in six counties. Accordingly Placer Sierra
has no singular depositor with more than 2% of total deposits.

The following table shows the distribution of deposit liabilities and the
associated cost for each deposit category as of the periods indicated:

<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED JUNE 30,
------------------------------------------------
1999 1998
----------------------- -----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
---------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand....................... $ 79,736 --% $ 63,527 --%
Interest-bearing demand.......................... 53,873 1.23 45,691 1.17
Money market..................................... 46,464 3.20 33,249 3.13
Savings.......................................... 93,692 2.21 87,614 2.22
Time............................................. 261,557 4.96 251,141 5.38
---------- ----------
Total.......................................... $ 535,322 3.21% $ 481,222 3.54%
========== ==========
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at June 30, 1999:

<TABLE>
<CAPTION>
JUNE 30, 1999
--------------
(IN THOUSANDS)
<S> <C>
Due in three months or less............. $ 28,180
Due in over three months through six
months................................ 14,766
Due in over six months through twelve
months................................ 15,136
Due in over twelve months............... 9,454
--------
Total................................. $ 67,536
========
</TABLE>

FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

OVERVIEW

Placer Sierra achieved earnings of $3.8 million in 1998, representing a 22.3%
increase from the $3.1 million earned in 1997 and 74 times more than 1996
earnings of $51,000. The following table

144
<PAGE>
summarizes the components of net income and returns on average assets and equity
for the periods indicated:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net interest income.......................... $21,771 $19,376 $17,769
Provision for loan losses.................... 775 1,100 493
Non-interest income.......................... 5,278 3,893 3,083
Non-interest expense......................... 19,627 16,760 20,270
Income taxes................................. 2,861 2,314 38
------- ------- -------
Net income................................... $ 3,786 $ 3,095 $ 51
======= ======= =======
Return on average assets..................... .71% .63% .01%
Return on average equity..................... 11.40% 10.37% .18%
</TABLE>

Placer Sierra's basic and diluted earnings per share in 1998 were $1.06,
compared to $0.87 and $0.01 in 1997 and 1996, respectively. During 1998, Placer
Sierra benefited from higher net interest income resulting from increased
average securities balances and higher yielding loan balances. The higher
yielding loan balances reflect a continued migration in Placer Sierra's loan
portfolio composition from primarily residential lending products to commercial
lending products. During 1998, Placer Sierra also benefited from higher
non-interest income balances primarily as the result of increases in gains on
asset sales, increases in financial service commissions and increases in service
charges on deposit accounts. Placer Sierra also benefited in 1998 from an
overall lower loan loss provision.

Earnings in 1997 were favorably affected compared to 1996 by increased net
interest income, increased non-interest income and a significant reduction in
non-interest expense, as a result of Placer Sierra not incurring the Federal
Deposit Insurance Corporation (FDIC) one-time Savings Association Insurance Fund
(SAIF) assessment incurred during 1996.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

Placer Sierra's primary source of revenue is net interest income, which is the
difference between interest income on earning assets and interest expense on
interest-bearing liabilities. Net interest income in 1998 increased
$2.4 million, or 12.4%, to $21.8 million from $19.4 million in 1997. Comparing
1997 to 1996, net interest income increased $1.6 million. The following table
summarizes interest income and expense and the net yield on earning assets for
the years indicated:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest income.............................................. $ 39,009 $ 35,786 $ 33,626
Interest expense............................................. 17,238 16,410 15,857
--------- --------- ---------
Net interest income.......................................... $ 21,771 $ 19,376 $ 17,769
========= ========= =========

Net yield on earning assets.................................. 4.3% 4.2% 4.1%
</TABLE>

Interest income increased $3.2 million from 1997, primarily due to a 33 basis
point increase in loan yields, resulting from Placer Sierra's continued
migration into commercial lending products and a $37.9 million increase in
average investment securities balances. The increase in interest income in 1998
was partially offset by an $828,000 increase in interest expense. This increase
was primarily due to a $12.9 million increase in average time deposit balances,
partially offset by a 9 basis points decrease in time deposit rates and an
$5.1 million increase in average interest bearing demand deposit account
balances, combined with a 5 basis points increase in demand deposit account
rates.

145
<PAGE>
Interest income increased $2.2 million from 1996 to 1997, primarily due to a
$14.9 million increase in average loan balances, combined with an 11 basis point
increase in loan yields and increases in the average federal funds sold and
investment securities balances of $4.2 million and $3.9 million, respectively.
The increase in interest income in 1997 was partially offset by a $553,000
increase in interest expense. This increase was primarily due to a $5.3 million
increase in average time deposit balances, combined with a 14 basis point
increase in time deposit rates.

The following table presents, for the periods indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-bearing assets and the
resultant yields, and the dollar amounts of interest expense and resultant cost
expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997
-------------------------------- ---------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- ---------- -------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS

Interest-earning assets:
Loans and leases (1)........... $363,311 $30,785 8.47% $362,726 $29,521 8.14%
Investment securities (2)...... 125,877 7,524 5.98 88,025 5,568 6.33
Federal funds sold............. 13,797 699 5.07 10,881 694 6.38
Other earning assets........... 17 1 5.88 77 3 3.90
-------- ------- -------- -------
Total interest-earning
assets................... 503,002 39,009 7.76 461,709 35,786 7.75
Non-earning assets:
Cash and demand deposits with
banks........................ 17,468 13,757
Other assets................... 14,769 15,041
-------- --------
Total assets............... 535,239 490,507
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand...... 48,077 563 1.17 43,003 482 1.12
Money market................. 35,925 1,123 3.13 29,325 835 2.85
Savings...................... 89,331 1,987 2.22 90,033 2,007 2.23
Time......................... 255,392 13,565 5.31 242,471 13,086 5.40
-------- ------- -------- -------
Total interest-bearing
deposits................. 428,725 17,238 4.02 404,832 16,410 4.05
Short-term borrowing........... -- -- -- -- -- --
-------- ------- -------- -------- ------- ----
Total interest-bearing
liabilities.............. 428,725 17,238 4.02 404,832 16,410 4.05
Noninterest-bearing
liabilities:
Demand deposits.............. 69,704 52,949
Other liabilities............ 3,596 2,891
-------- --------
Total liabilities.......... 502,025 460,672
Shareholders' equity........... 33,214 29,835
-------- --------
Total liabilities and
shareholders' equity......... $535,239 $490,507
======== ------- ======== =======
Net interest income............ $21,771 $19,376
======= =======
Net yield on interest-earning
assets....................... 4.33% 4.20%

<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996
--------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST
-------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)........... $347,827 $27,934 8.03%
Investment securities (2)...... 84,123 5,266 6.26
Federal funds sold............. 6,712 413 6.15
Other earning assets........... 368 13 3.53
-------- -------
Total interest-earning
assets................... 439,030 33,626 7.66
Non-earning assets:
Cash and demand deposits with
banks........................ 12,279
Other assets................... 15,357
--------
Total assets............... 466,666
========

LIABILITIES AND SHAREHOLDERS' E
Interest-bearing liabilities:
Deposits
Interest-bearing demand...... 42,380 788 1.86
Money market................. 25,867 316 1.22
Savings...................... 94,507 2,271 2.40
Time......................... 237,204 12,474 5.26
-------- -------
Total interest-bearing
deposits................. 399,958 15,849 3.96
Short-term borrowing........... 559 8 1.43
-------- -------
Total interest-bearing
liabilities.............. 400,517 15,857 3.96
Noninterest-bearing
liabilities:
Demand deposits.............. 35,950
Other liabilities............ 1,690
--------
Total liabilities.......... 438,157
Shareholders' equity........... 28,509
--------
Total liabilities and
shareholders' equity......... $466,666
======== -------
Net interest income............ $17,769
=======
Net yield on interest-earning
assets....................... 4.05%
</TABLE>

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

(1) Loan fees of $469,000, $209,000 and $112,000 are included in the
computations for 1998, 1997 and 1996, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) available for sale securities.

146
<PAGE>
The following table sets forth changes in interest income and interest expense
on the basis of allocation to changes in rates and changes in volume of the
various components. Nonaccrual loans are included in total loans outstanding
while nonaccrued interest thereon is excluded from the computation of rates
earned.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
1998 COMPARED TO 1997 1997 COMPARED TO 1996
----------------------------------------- -----------------------------------------
NET NET
CHANGE RATE VOLUME MIX CHANGE RATE VOLUME MIX
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans and leases................ $1,264 $1,214 $ 48 $ 2 $1,587 $ 374 $1,197 $ 16
Investment securities........... 1,956 (307) 2,394 (131) 302 55 244 3
Federal funds sold.............. 5 (143) 186 (38) 281 15 257 9
Other earning assets............ (2) 2 (2) (2) (10) 1 (10) (1)
------ ------ ------ ----- ------ ----- ------ ----
Total interest income......... 3,223 766 2,626 (169) 2,160 445 1,688 27
Interest Expense:
Interest-bearing demand......... 81 22 57 2 (306) (313) 12 (5)
Money market.................... 288 82 188 18 519 421 42 56
Savings......................... (20) (4) (16) 0 (264) (164) (108) 8
Time............................ 479 (207) 697 (11) 612 328 277 7
Short-term borrowing............ -- -- -- -- (8) (8) (8) 8
------ ------ ------ ----- ------ ----- ------ ----
Total interest expense........ 828 (107) 926 9 553 264 215 74
------ ------ ------ ----- ------ ----- ------ ----
Net interest income............. $2,395 $ 873 $1,700 $(178) $1,607 $ 181 $1,473 $(47)
====== ====== ====== ===== ====== ===== ====== ====
</TABLE>

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan losses was $775,000 for 1998, compared to $1.1 million
for 1997 and $493,000 for 1996. Provisions for loan losses are charged to income
to bring Placer Sierra's allowance for loan losses to a level deemed appropriate
by management based on the factors discussed below.

NONINTEREST INCOME

Noninterest income was $5.3 million in 1998, $1.4 million higher than 1997.
Gains realized on asset sales were $493,000 higher than the prior year.
Financial services commissions were $313,000 higher than 1997, primarily due to
higher sales volume. Service charges on deposit accounts were $224,000 higher
than 1997, primarily due to fees related to a higher volume of account
maintenance activity.

Noninterest income was $3.9 million in 1997, $810,000 higher than 1996. Gains
realized on asset sales were $562,000 higher than 1996. In addition, service
charges on deposit accounts were $141,000 higher than 1996. Partially offsetting
these changes, financial services commissions were $65,000 lower, primarily due
to lower sales volume.

147
<PAGE>
The following table details the components of noninterest income for the years
indicated:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service charges..................................... $2,085 $1,861 $1,720
Commissions investment product...................... 859 546 611
Gain on sale of loans............................... 676 238 51
Gain on sale of investment securities............... 223 34 201
Gain on sale of properties.......................... 409 543 --
Other............................................... 1,026 671 500
------ ------ ------
Total............................................. $5,278 $3,893 $3,083
====== ====== ======
</TABLE>

NONINTEREST EXPENSE

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of Placer Sierra. Also included are the costs of carrying and administering the
OREO portfolio (as defined below) as well as the costs associated with problem
assets, which include nonperforming and restructured loans. OREO, or other real
estate owned, consists of real estate acquired through foreclosure or by
acceptance of a deed in lieu of foreclosure.

Non-interest expense was $19.6 million in 1998, $2.9 million higher than 1997.
Salaries and employee benefits were $1.5 million higher than the prior year.
This increase is primarily due to additional staffing in the commercial lending
products area as part of Placer Sierra's planned migration from a traditional
thrift institution offering primarily lower yielding residential lending
products to a full service community bank balancing residential lending products
with higher yielding commercial lending products. In addition, occupancy and
equipment was $633,000 higher than the prior year. This increase is primarily
due to a new branch opening, relocation of an existing branch, branch remodeling
projects and opening of Placer Sierra's new Small Business Administration (SBA)
office.

Non-interest expense was $16.8 million in 1997, $3.5 million lower than 1996.
This decrease was primarily due to the non-recurrence in 1997 of the Federal
Deposit Insurance Corporation's (FDIC's) one-time special assessment on savings
and loan deposit accounts to re-capitalize the Savings Association Insurance
Fund (SAIF). This one-time SAIF assessment amounted to $2.8 million in 1996.
Also, as a result of the FDIC's re-capitalization of the SAIF, Placer Sierra
realized a $695,000 decrease in FDIC assessed SAIF rates in 1997.

148
<PAGE>
The following table details the components of noninterest expense for the years
indicated:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Salaries and employee benefits................... $ 9,819 $ 8,347 $ 8,136
Occupancy and equipment.......................... 3,167 2,534 2,644
Telephone, courier and postage................... 1,232 1,090 1,123
Loan expense..................................... 981 614 403
Data processing.................................. 929 608 972
Stationery and supplies.......................... 688 678 684
Advertising...................................... 577 397 457
Professional fees................................ 498 366 446
Regulatory assessments........................... 399 337 1,032
SAIF assessment.................................. -- -- 2,797
Other............................................ 1,337 1,789 1,576
------- ------- -------
Total.......................................... $19,627 $16,760 $20,270
======= ======= =======
</TABLE>

PROVISION FOR INCOME TAXES

The provision for income tax increased by $547,000 in 1998 as a direct result of
higher pretax income. The 1998 provision of $2.9 million reflects an effective
tax rate of 43.0% compared to provisions of $2.3 million in 1997 and $38,000 in
1996, representing effective tax rates of 42.8% and 42.5%, respectively.

FINANCIAL CONDITION

Total assets of Placer Sierra at December 31, 1998 were $565.3 million compared
to total assets of $501.7 million at December 31, 1997. Total earning assets of
Placer Sierra at December 31, 1998 were $535.0 million compared to total earning
assets of $476.1 million at December 31, 1997. The increase in total assets and
total earning assets since December 31, 1997 is primarily due to an increase in
Placer Sierra's investments, funded by an increase in deposit liabilities,
partially offset by a decrease in loans.

LOANS AND LEASES

Total gross loans and leases of Placer Sierra at December 31, 1998 were
$361.9 million compared to $372.3 million at December 31, 1997. At December 31,
1998, the four largest lending categories were: (i) residential mortgage loans,
including land and construction loans, (ii) commercial real estate loans, (iii)
commercial loans, and (iv) loans to individuals. At December 31, 1998, those
categories accounted for $203.3 million, $113.0 million, $22.7 million and $22.9
million, or approximately 56.2%, 31.2%, 6.3% and 6.3% of total gross loans and
leases, respectively. The following table sets forth the amount of

149
<PAGE>
loans and leases outstanding for Placer Sierra at the end of each of the years
indicated, according to type of loan. Placer Sierra has no foreign loans or
energy-related loans as of the dates indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial................................ $ 22,696 $ 8,352 $ 2,522 $ -- $ --
Real estate-commercial.................... 112,995 110,078 99,680 91,483 41,494
Real estate-construction.................. 27,082 15,575 17,307 12,612 8,876
Real-estate-mortgage...................... 176,192 214,241 218,219 224,336 294,236
Installment loans to individuals.......... 22,937 24,101 20,487 18,889 15,624
-------- -------- -------- -------- --------
Subtotal.................................. 361,902 372,347 358,215 347,320 360,230
Less: allowance for loan and lease
losses.................................. (3,660) (3,007) (2,268) (2,148) (2,289)
Unearned fees............................. (1,363) (1,373) (1,539) (1,596) (2,434)
-------- -------- -------- -------- --------
Net loans and leases...................... $356,879 $367,967 $354,408 $343,576 $355,507
======== ======== ======== ======== ========
</TABLE>

The following table shows the amounts of some categories of loans outstanding as
of December 31, 1998, which, based on remaining scheduled repayments of
principal, were due in one year or less, more than one year through five years,
and more than five years. Demand or other loans having no stated maturity and no
stated schedule of repayments are reported as due in one year or less.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $ 13,934 $ 6,106
After one year but within five years:
Interest rates are floating or adjustable............. 31,573 6,733
Interest rates are fixed or predetermined............. 4,087 7,913
After five years:
Interest rates are floating or adjustable............. 53,977 98,923
Interest rates are fixed or predetermined............. 32,120 83,599
-------- --------
Total............................................... $135,691 $203,274
======== ========
</TABLE>

As of December 31, 1998, in management's judgment, a concentration of loans
existed in commercial loans and commercial real estate loans. At that date,
approximately 37.5% of Placer Sierra's loans were commercial loans or commercial
real estate loans, representing 6.3% and 31.2% of total loans, respectively.
Additionally, at December 31, 1998, approximately 56.2% of Placer Sierra's loans
were real estate and construction loans, many of which are secured by
residential mortgages. Although management believes such concentrations to have
no more than the normal risk of collectibility, a substantial decline in real
estate values could have an adverse impact on collectibility, increase the level
of real estate-related nonperforming loans, or have other adverse effects which
alone or in the aggregate could have a material adverse effect on the financial
condition of Placer Sierra.

150
<PAGE>
NONPERFORMING ASSETS

The following table summarizes nonperforming assets as of the dates indicated:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans and leases, not restructured.......... $708 $1,320 $1,100 $203 $2,729
Accruing loans and leases past due 90 days or more..... -- -- -- -- --
Restructured loans and leases.......................... -- -- -- -- --
---- ------ ------ ---- ------
Total nonperforming loans and leases ("NPLs")........ 708 1,320 1,100 203 2,729
Other real estate owned ("OREO")....................... 79 308 695 95 1,157
---- ------ ------ ---- ------
Total nonperforming assets ("NPAs").................. $787 $1,628 $1,795 $298 $3,886
==== ====== ====== ==== ======
Selected ratios:
NPLs to total loans and leases....................... 0.20% 0.35% 0.31% 0.06% 0.76%
NPAs to total loans and leases and OREO.............. 0.22 0.44 0.50 0.09 1.08
NPAs to total assets................................. 0.14 0.32 0.38 0.07 0.85
</TABLE>

The following table summarizes Placer Sierra's impaired loans for the periods
indicated:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total impaired loans.................................... $ -- $285 $200
Specific reserves....................................... -- 26 20
Average impaired loans.................................. 176 735 267
</TABLE>

In general, Placer Sierra does not recognize any interest income on loans that
are classified as non-accrual. For other impaired loans, interest income may be
recorded as cash is received, provided that Placer Sierra's recorded investment
in such loans is deemed collectible.

At December 31, 1998, Placer Sierra had OREO properties with an aggregate
carrying value of $79,000. During 1998, properties with a total carrying value
of $548,000 were added to OREO as a result of foreclosures, properties with a
total carrying value of $671,000 were sold and properties were written down by
approximately $106,000. At December 31, 1997, Placer Sierra had OREO properties
with an aggregate carrying value of $308,000. During 1997, properties with a
total carrying value of $1.2 million were added to OREO as a result of
foreclosure, properties with a total carrying value of $1.4 million were sold
and properties were written down by approximately $234,000 during 1997. All of
the OREO properties are recorded by Placer Sierra at amounts that are equal to
or less than the fair market value based on current independent appraisals
reduced by estimated selling costs.

ALLOWANCE FOR LOAN AND LEASE LOSSES

Placer Sierra's allowance for loan losses is maintained at a level estimated to
be adequate to provide for losses that can be reasonably anticipated based upon
specific conditions, credit loss experience, the amount of past due,
non-performing loans and classified loans, recommendations of regulatory
authorities, prevailing economic conditions and other factors. The allowance is
allocated to segments of the loan portfolio based in part on quantitative
analyses of historical credit loss experience, in which criticized and
classified loan balances are analyzed. The results of this analysis are applied
to current criticized and classified loan balances to allocate the allowance to
the respective segments of the loan portfolio. Loans with similar
characteristics not usually criticized using regulatory guidelines due to their
small balances and numerous accounts are analyzed based on the historical rate
of net losses and delinquency trends grouped by the number of days the payments
on those loans are delinquent.

151
<PAGE>
The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for possible loan and lease losses arising
from loan and lease losses and additions to the allowance from provisions
charged to operating expense:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans and leases outstanding...... $363,311 $362,726 $347,827 $351,761 $360,376
Gross loans and leases.................... 361,902 372,347 358,215 347,320 360,230
Nonperforming loans and leases............ 708 1,320 1,100 203 2,729
Allowance for loan and lease losses:
Balance at beginning of period........ 3,007 2,268 2,148 2,289 2,643
Loans charged off during period
Commercial.......................... 50 32 -- -- --
Real estate......................... 106 106 365 546 720
Installment......................... 22 262 35 14 --
-------- -------- -------- -------- --------
Total............................. 178 400 400 560 720
Recoveries during period
Commercial.......................... -- 14 -- 66 --
Real estate......................... -- 4 23 28 11
Installment......................... 56 21 4 4 --
-------- -------- -------- -------- --------
Total............................. 56 39 27 98 11
-------- -------- -------- -------- --------
Net loans charged off during
period............................ 122 361 373 462 709
Provision for loan and lease
losses............................ 775 1,100 493 321 355
-------- -------- -------- -------- --------
Balance at end of period.......... $ 3,660 $ 3,007 $ 2,268 $ 2,148 $ 2,289
======== ======== ======== ======== ========
Selected ratios:
Net charge-offs to average loans and
leases................................ 0.03% 0.10% 0.11% 0.13% 0.20%
Provision for loan and lease losses to
average loans......................... 0.21 0.30 0.14 0.09 0.10
Allowance at end of period to gross
loans and leases outstanding at end of
period................................ 1.01 0.81 0.63 0.62 0.64
Allowance as percentage of nonperforming
loans and leases...................... 516.95 227.80 206.18 1,058.13 83.88
</TABLE>

The following table indicates management's allocation of the allowance for each
of the following years:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial......... $1,204 6.3% $ 876 2.2% $ 773 0.7%
Real estate and construction..... 1,025 87.4 983 91.3 817 93.6
Consumer......................... 417 6.3 395 6.5 435 5.7
Unallocated...................... 1,014 - 753 - 243 -
------ ----- ------ ----- ------ -----
Total............................ $3,660 100.0% $3,007 100.0% $2,268 100.0%
====== ===== ====== ===== ====== =====
</TABLE>

In allocating Placer Sierra's allowance for loan and lease losses, management
has considered the credit risk in the various loan categories in its portfolio.
As such, the allocations of the allowance for loan and

152
<PAGE>
lease losses are based upon the average aggregate historical net loan losses
experienced. While every effort has been made to allocate the allowance to
specific categories of loans, management believes that any allocation of the
allowance for loan and lease losses into loan categories lends an appearance of
exactness which does not exist.

INVESTMENTS AND INVESTMENT SECURITIES

Total investments at December 31, 1998 were $174.4 million compared to
$105.1 million at December 31, 1997, which increased primarily due to the funds
provided by the increase in deposit liabilities during 1998. At December 31,
1998, the investments of Placer Sierra included overnight Federal funds
investments of $32.9 million and investment securities of $141.5 million. Placer
Sierra maintains a securities portfolio consisting of U. S. Treasury, Government
agencies and corporations, state and political subdivisions, asset-backed and
other securities. At December 31, 1998, $98.8 million of Placer Sierra's
portfolio of investment securities was classified as available for sale while
$42.7 million was classified as held to maturity. Placer Sierra does not hold
any investment securities in a trading account.

153
<PAGE>
The amortized cost and estimated market value of investment securities at
December 31, 1998 and 1997 consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury....................................... $ 8,553 $ 79 $ -- $ 8,632
U.S. Government Agencies............................ 27,596 33 (77) 27,552
Mortgage-backed securities.......................... 58,969 530 (47) 59,452
Federal Home Loan Bank stock........................ 3,209 -- -- 3,209
-------- ------ ----- --------
Total available for sale.......................... 98,327 642 (124) 98,845
-------- ------ ----- --------
Held to Maturity:
U.S. Treasury....................................... 11,615 58 -- 11,673
U.S. Government Agencies............................ 6,459 25 (26) 6,458
State and municipal securities...................... 9,906 159 (33) 10,032
Mortgage-backed securities.......................... 14,732 186 (1) 14,917
-------- ------ ----- --------
Total held to maturity............................ 42,712 428 (60) 43,080
-------- ------ ----- --------
Total............................................. $141,039 $1,070 $(184) $141,925
======== ====== ===== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury....................................... $ 21,557 $ 50 $ (11) $ 21,596
U.S. Government Agencies............................ 7,255 8 (1) 7,262
Mortgage-backed securities.......................... 44,046 332 (22) 44,356
Mutual fund......................................... 1,024 - (7) 1,017
Federal Home Loan Bank stock........................ 3,184 - - 3,184
-------- ---- ------- --------
Total available for sale............................ 77,066 390 (41) 77,415
-------- ---- ------- --------
Held to Maturity:
U.S. Treasury....................................... 13,563 40 (40) 13,563
U.S. Government Agencies............................ 2,100 5 - 2,105
State and municipal securities...................... 1,603 24 - 1,627
Mortgage-backed securities.......................... 5,902 121 (8) 6,015
-------- ---- ------- --------
Total held to maturity.............................. 23,168 190 (48) 23,310
-------- ---- ------- --------
Total............................................... $100,234 $580 $ (89) $100,725
======== ==== ======= ========
</TABLE>

154
<PAGE>
The following tables show the maturities of investment securities, excluding
Federal Home Loan Bank stock that has no stated maturity, at December 31, 1998,
and the weighted average yields of such securities:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN FIVE BUT WITHIN TEN
WITHIN ONE YEAR YEARS YEARS AFTER TEN YEARS
------------------- ------------------- ------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasuries................ $ 5,563 6.06% $ 3,069 5.66% $ -- --% $ -- --%
U.S. Government agencies....... 1,011 5.91 26,541 5.69 -- -- -- --
Mortgage-backed securities..... 787 6.44 50,177 6.23 6,199 6.26 2,289 5.78
------- ------- ------- ------
Total available for sale....... 7,361 6.08 79,787 6.03 6,199 6.26 2,289 5.78
------- ------- ------- ------
Held to Maturity:
U.S. Treasuries................ 11,515 5.59 100 4.99 -- -- -- --
U.S. Government agencies....... -- -- 6,459 5.26 -- -- -- --
State and municipal bonds...... 168 1.32 393 4.04 4,899 4.31 4,614 4.50
Mortgage-backed securities..... -- -- 10,135 6.45 4,597 6.33 -- --
------- ------- ------- ------
Total held to maturity......... 11,683 5.53 17,087 5.94 9,496 5.29 4,614 4.50
------- ------- ------- ------
Total.......................... $19,044 5.74% $96,874 6.01% $15,695 5.67% $6,903 4.92%
======= ======= ======= ======
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

DEPOSITS

Total deposits were $527.6 million at December 31, 1998 compared to
$467.9 million at December 31, 1997. The increase in total deposits since
December 31, 1997 is attributed to strong growth in Placer Sierra's core deposit
base, particularly in noninterest bearing deposits. Noninterest-bearing demand
accounts were $77.2 million, or 14.6% of total deposits, at December 31, 1998
compared to $57.5 million, or 12.3% of total deposits, at December 31, 1997.
Interest-bearing deposits were $450.4 million, or 85.4% of total deposits, at
December 31, 1998 compared to $410.4 million, or 87.7% of total deposits, at
December 31, 1997.

The following table shows the distribution of deposit liabilities and the
associated cost for each deposit category as of the periods indicated:

<TABLE>
<CAPTION>
FOR TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand.......... $ 69,704 --% $ 52,949 --% $ 35,950 --%
Interest-bearing demand............. 48,077 1.17 43,003 1.12 42,380 1.86
Money market........................ 35,925 3.13 29,325 2.85 25,867 1.22
Savings............................. 89,331 2.22 90,033 2.23 94,507 2.40
Time................................ 255,392 5.31 242,471 5.40 237,204 5.26
-------- -------- -------- ---------
Total............................. $498,429 3.46% $457,781 3.58% $435,908 3.64%
======== ======== ======== =========
</TABLE>

155
<PAGE>
Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000, or more at December 31, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................................ $ 27,467
Due in over three months through six months................................ 17,922
Due in over six months through twelve months............................... 13,164
Due in over twelve months.................................................. 10,080
---------
Total.................................................................. $ 68,633
=========
</TABLE>

Placer Sierra offers certificates of deposit of $100,000 and over at market
rates of interest. Many of these certificates are issued to customers, both
public and private, who have done business with Placer Sierra for an extended
period. Although no assurances can be given, management expects that as these
deposits come due, the majority will continue to be renewed at market rates of
interest.

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus certain forms of
subordinated debt, a portion of the allowance for loan losses and preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor that ranges from zero for cash assets and certain government
obligations to 100% for some types of loans and adding the products together.

Placer Sierra was well capitalized as of June 30, 1999 and at December 31, 1998
for federal regulatory purposes. The following table details the regulatory
capital ratios of Placer Sierra as of June 30, 1999. See the Notes to
Consolidated Financial Statements contained herein for details of the regulatory
capital ratios of Placer Sierra as of December 31, 1998.

<TABLE>
<CAPTION>
CAPITAL ADEQUACY WELL CAPITALIZED
--------------------------- ---------------------------
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
-------------------- --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------------------------- ---------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage Capital Ratio............ $ 35,504 6.09% $ 17,490 > or = to 3.0 % $ 29,149 > or = to 5.0
Tier 1 Risk-Based Capital Ratio.......... 35,504 9.72% 14,611 > or = to 4.0 % 21,916 > or = to 6.0
Total Risk-Based Capital Ratio........... 39,509 10.81% 29,239 > or = to 8.0 % 36,549 > or = to 10.0
</TABLE>

LIQUIDITY

Placer Sierra relies on deposits as its principal source of funds and,
therefore, must be in a position to service depositors' needs as they arise.
Management attempts to maintain a loan-to-deposit ratio of not greater than 80%
and a liquidity ratio (liquid assets, including cash and due from banks, Federal
funds sold and investment securities to deposits) of approximately 25%. The
average loan-to-deposit ratio was 68.6% for the six months ended June 30, 1999,
72.9% in 1998 and 79.2% in 1997. The average liquidity ratio was 36.2% for the
six months ended June 30, 1999, 31.5% in 1998 and 24.6% in 1997. At June 30,
1999, Placer Sierra's loan-to-deposit ratio was 69.7% and the liquidity ratio
was 34.3%. The average loan-to-deposit ratio was 72.9% for the year ended
December 31, 1998 and the average liquidity ratio was 34.4%

156
<PAGE>
Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of Placer Sierra, other available sources of liquid assets (secondary
liquidity), including the purchase of Federal funds, sale of securities under
agreements to repurchase, sale of loans, and borrowing from the Federal Home
Loan Bank, could be employed. Placer Sierra has relied primarily upon the
purchase of Federal funds and the sale of securities under agreements to
repurchase for its secondary source of liquidity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The management of market risk is governed by policies reviewed and approved
annually by Placer Sierra's Board of Directors. The Board delegates
responsibility for market risk management to the Asset and Liability Management
Committee (ALCO), which reports to the Board on activities related to the
management of market risk. As part of the management of market risk, the ALCO
may direct changes in the mix of assets and liabilities. The ALCO also reviews
and approves market risk-management programs and market risk limits. Placer
Sierra's Chief Financial Officer is responsible for the bank-wide management of
market risk. The Chief Financial Officer is responsible for implementing funding
and investment strategies designed to manage this risk. On a day-to-day basis,
the oversight of market risk management takes place at a centralized level
within the Accounting Department of the Finance Division. Placer Sierra's
Controller is responsible for measuring risks to ensure compliance with all
market risk limits and guidelines incorporated within the policies and
procedures established by the ALCO. The Chief Financial Officer reports
quarterly to the Board of Directors on the effectiveness of Placer Sierra's
activities, exposures, and on compliance with policy limits. In addition,
periodic reviews by internal auditors and regulators provide further evaluation
of controls over the risk management process.

Placer Sierra engages in asset and liability management activities with the
objective of reducing adverse changes in earnings as a result of changes in
interest rates. The management of interest rate risk relates to the timing and
magnitude of the repricing of assets compared to liabilities and has, as its
objective, the control of risks associated with movement in interest rates.

The Asset and Liability Policy approved by the Board requires quarterly analysis
of interest rate risk by the ALCO. As part of the management of interest rate
risk, the ALCO may direct changes in the composition of the balance sheet and,
if it is necessary, to utilize off-balance sheet derivative instruments such as
interest rate swaps, floors, and caps. A Board of Directors approved hedging
policy statement governs use of these instruments. As of June 30, 1999, Placer
Sierra had not utilized any interest rate swap or other such financial
derivative to alter its interest rate risk profile.

157
<PAGE>
before its assets would. A net negative impact would result from an increasing
interest rate environment. Conversely, an asset sensitive gap indicates that
there would be a net positive impact on the net interest margin in a rising
interest rate environment since Placer Sierra's assets would reprice to higher
market interest rates before its liabilities would.

The following table sets forth the distribution of repricing opportunities of
Placer Sierra's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), cumulative interest-earning assets and
interest-bearing liabilities, the cumulative interest rate sensitivity gap, the
ratio of cumulative interest-earning assets to cumulative interest-bearing
liabilities and the cumulative gap as a percentage of total assets and total
interest-earning assets as of June 30, 1999. The table also sets forth the time
periods during which interest-earning assets and interest-bearing liabilities
will mature or may reprice in accordance with their contractual terms. The
interest rate relationships between the repriceable assets and repriceable
liabilities are not necessarily constant and may be affected by many factors,
including the behavior of customers in response to changes in interest rates.
This table should, therefore, be used only as a guide as to the possible effect
changes in interest rates might have on the net margins of

158
<PAGE>
Placer Sierra. There has not been a material change in the interest rate risk
profile of Placer Sierra since December 31, 1998.

<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
--------------------------------------------------------------------------
3 MONTHS OVER 3 MONTHS OVER 1 YEAR OVER NON-
OR LESS TO 12 MONTHS TO 5 YEARS 5 YEARS SENSITIVE(1) TOTAL
-------- ------------- ----------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........................... $ -- $ -- $ -- $ -- $ 17,073 $ 17,073
Federal funds sold................................ 4,477 -- -- -- -- 4,477
Investment securities............................. 5,731 16,196 100,662 39,198 2,899 164,686
Loans and leases.................................. 71,241 79,820 30,916 197,376 -- 379,353
Other assets (2).................................. -- -- -- -- 7,717 7,717
------- -------- -------- -------- --------- --------

Total assets.................................... 81,449 96,016 131,578 236,574 27,689 573,306
======= ======== ======== ======== ========= ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits.............. -- -- -- -- 82,038 82,038
Interest-bearing demand, money market and
savings......................................... -- -- -- -- 197,652 197,652
Time certificates of deposit...................... 89,493 123,633 42,435 1,439 -- 257,000
Other liabilities................................. -- -- -- -- 1,453 1,453
Shareholders' equity.............................. -- -- -- -- 35,163 35,163
------- -------- -------- -------- --------- --------

Total liabilities &
shareholders' equity.......................... $89,493 $123,633 $ 42,435 $ 1,439 $ 316,306 $573,306
======= ======== ======== ======== ========= ========

Period Gap........................................ $(8,044) $(27,617) $ 89,143 $235,135 $(288,617)
Cumulative interest earning assets................ $81,449 $177,465 $309,043 $545,617
Cumulative interest earning liabilities........... $89,493 $213,126 $255,561 $257,000
Cumulative Gap.................................... $(8,044) $(35,661) $ 53,482 $288,617
Cumulative interest earning assets to cumulative
interest bearing liabilities.................... 0.91 0.83 1.21 2.12
Cumulative gap as a percent of:
Total assets.................................... (1.40)% (6.22)% 9.33% 50.34%
Interest earning assets......................... (1.47)% (6.50)% 9.75% 52.62%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

(2) Allowance for possible loan losses of $4.0 million as of June 30, 1999 is
included in other assets.

At June 30, 1999, Placer Sierra had $177.5 million in assets and $213.1 million
in liabilities repricing within one year. This means that $35.6 million more in
interest rate sensitive liabilities than interest rate sensitive assets will
change to the then current rate (changes occur due to the instruments being at a
variable rate or because the maturity of the instrument requires its replacement
at the then current rate). The ratio of interest earning assets to interest
bearing liabilities maturing or repricing within one year at June 30, 1999 is
.83 and management tries to maintain this ratio as close to zero as possible
while remaining in a range between .80 and 1.20. Interest expense is likely to
be affected to a greater extent than interest income for any changes in interest
rates within one year from June 30, 1999. If rates were to fall during this
period, interest expense would decline by a greater amount than interest income
and net income would increase. Conversely, if rates were to rise, the reverse
would apply.

159
<PAGE>
Since interest rate changes do not affect all categories of assets and
liabilities equally or simultaneously, a cumulative gap analysis alone cannot be
used to evaluate Placer Sierra's interest rate sensitivity position. To
supplement traditional gap analysis, Placer Sierra performs simulation modeling
to estimate the potential effects of changing interest rates. The process allows
Placer Sierra to explore the complex relationships within the gap over time and
various interest rate environments. This analysis calculates the difference
between a net interest income forecast over a 12-month period using a flat
interest rate scenario and net interest income forecast using a rising (or
falling) rate scenario, where the federal funds rate, serving as a "driver," is
made to rise (or fall) evenly by 200 basis points over the 12-month forecast
interval triggering a response in the other rates. Placer Sierra's policy
requires that such simulated changes in net interest income should always be
less than 40 percent or steps must be taken to reduce interest rate risk. The
following table summarizes the simulated change in net interest income, based on
the 12-month period ending June 30, 2000:

<TABLE>
<CAPTION>
ESTIMATED INCREASE (DECREASE) IN NET
INTEREST INCOME
---------------------------------------
ESTIMATED AMOUNT OF PERCENTAGE
CHANGE IN INTEREST RATES (BASIS POINTS) AMOUNT CHANGE CHANGE
- ------------------------------------------------------ ----------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
- -200.................................................. $ 21.7 $ 2.0 10.1 %
Flat.................................................. $ 19.7 -- --
+ 200................................................. $ 18.5 $ (1.2) (6.1)%
</TABLE>

The preceding sensitivity analysis does not represent a forecast and should not
be relied upon as being indicative of expected operating results. These
hypothetical estimates are based upon numerous assumptions including: the nature
and timing of interest rate levels including the yield curve shape, prepayments
on loans and securities, changes in deposit levels, pricing decisions on loans
and deposits, reinvestment/replacement of asset and liability cash flows and
others. While assumptions are developed based upon current economic and local
market conditions, Placer Sierra cannot make any assurances as to the predictive
nature of these assumptions including how customer preferences or competitor
influences might change.

Management has taken several steps to reduce the negative gap of Placer Sierra
by shortening the maturities in its investment portfolio and originating more
variable rate assets that mature or reprice in balance with its interest bearing
liabilities. Management will continue to maintain a balance between its interest
earning assets and interest bearing liabilities in order to minimize the impact
on net interest income due to changes in market rates.

The following table sets forth the distribution of the expected maturities of
Placer Sierra's interest-earning assets and interest-bearing liabilities as well
as the fair value of these instruments as of June 30, 1999. Expected maturities
are based on contractual payments without effect being given for the estimated
effect of prepayments. Savings accounts and interest-bearing transaction
accounts, that have no stated maturity, are included in the one year or less
maturity category. There has not been a material change in the expected
maturities of Placer Sierra's interest-earning assets and interest-bearing
liabilities or related fair values since December 31, 1998.

160
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------------------------------------------------
EXPECTED MATURITY
------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER
------------- ------------ ------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Investment Securities............... $ 10,532 $ 17,046 $ 18,292 $ 19,414 $ 16,723 $ 79,780
Weighted average rate............. 6.38 5.53 5.81 5.68 5.94 5.88
Fixed Rate Loans.................... $ 2,973 $ 2,908 $ 2,347 $ 3,887 $ 3,661 $ 151,684
Weighted average rate............. 8.42 7.71 8.17 8.83 8.66 7.97
Variable Rate Loans................. $ 5,416 $ 11,503 $ 2,105 $ 2,499 $ 5,468 $ 184,902
Weighted average rate............. 7.32 7.26 7.27 7.30 7.32 7.89
------------- ------------ ------------ ------------ ------------ -------------
Total interest earning assets....... $ 18,921 $ 31,457 $ 22,744 $ 25,800 $ 25,852 $ 416,366
============= ============ ============ ============ ============ =============
Interest bearing demand, money
market and savings................ $ 197,652 $ - $ - $ - $ - $ -
Weighted average rate............. 2.22 0.00 0.00 0.00 0.00 0.00
Time deposits....................... $ 158,786 $ 72,651 $ 10,688 $ 8,623 $ 3,900 $ 2,352
Weighted average rate............. 4.69 4.92 5.25 5.73 5.38 4.84
------------- ------------ ------------ ------------ ------------ -------------
Total interest-bearing
liabilities....................... $ 356,438 $ 72,651 $ 10,688 $ 8,623 $ 3,900 $ 2,352
============= ============ ============ ============ ============ =============

TOTAL FAIR VALUE
------------- -------------

<S> <C> <C>
Investment Securities............... $ 161,787 $ 158,732
Weighted average rate............. 5.85
Fixed Rate Loans.................... $ 167,460 $ 166,287
Weighted average rate............. 8.01
Variable Rate Loans................. $ 211,893 $ 211,843
Weighted average rate............. 7.81
------------- -------------
Total interest earning assets....... $ 541,140 $ 536,912
============= =============
Interest bearing demand, money
market and savings................ $ 197,652 $ 205,764
Weighted average rate............. 2.22
Time deposits....................... $ 257,000 $ 259,705
Weighted average rate............. 4.83
------------- -------------
Total interest-bearing
liabilities....................... $ 454,652 $ 465,469
============= =============
</TABLE>

161
<PAGE>
YEAR 2000 READINESS DISCLOSURE

The potential impact of the Year 2000 compliance issue on the financial services
industry could be material, as virtually every aspect of the industry and
processing of transactions will be affected. Due to the size of the task facing
the financial services industry and the interdependent nature of its
transactions, Placer Sierra may be adversely affected by this problem, depending
on whether it and the entities with which it does business address this issue
successfully. The impact of Year 2000 issues on Placer Sierra will then depend
not only on corrective actions that Placer Sierra takes, but also on the way in
which Year 2000 issues are addressed by governmental agencies, businesses and
other third parties that provide services or data to, or receive services or
data from, Placer Sierra, or whose financial condition or operational capability
is important to Placer Sierra.

The Year 2000 issue may adversely affect Placer Sierra's information technology
systems, such as its item and data processing applications. The Year 2000 issue
also may affect so-called embedded technology, such as microprocessors that
control Placer Sierra's security systems and telecommunication equipment.
Because Placer Sierra's day-to-day operations are heavily dependent on its
ability to communicate information amongst its locations, it would be
particularly susceptible to any possible effects that the Year 2000 issue has on
local and national communications systems, including without limitation,
telephone and data lines. Any interruption or malfunction of such systems could
have a material adverse effect on Placer Sierra.

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect Placer Sierra's
operations, liquidity, and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, Placer Sierra is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on Placer Sierra's operations, liquidity, or
financial condition.

Placer Sierra had determined that some of its computer software applications
needed to be modified or replaced in order to maintain their functionality as
the year 2000 approaches. In response, a comprehensive plan was developed, with
system conversions and testing substantially completed by June 30, 1999. The
plan included the assessment of all internal systems, programs and data
processing applications as well as those provided to Placer Sierra by
third-party vendors. Additionally, all commercial and industrial borrowers were
contacted with assessments made as to the potential impact of Year 2000
readiness by the borrower. Based upon Placer Sierra's evaluation of its Year
2000 preparedness, management does not expect that the Year 2000 issue as it
relates to information systems and embedded technology will have a material
adverse effect on Placer Sierra's business, financial condition or results of
operations. There can be no assurance, however, that third party vendors'
efforts will be successful and any such failure could have a material adverse
effect on Placer Sierra. Placer Sierra does not intend to obtain insurance
against any Year 2000 risks.

Placer Sierra's noninterest expense for 1997 did not include any costs
associated with the Year 2000 issue and Placer Sierra estimates its total costs
over the period from January 1, 1998 through December 31, 1999 will be
approximately $1.4 million. Approximately $1.1 million of these costs were
expended through the first nine months of 1999. None of those costs, however,
are expected to materially affect Placer Sierra's results of operations in any
one reporting period. In addition, a significant portion of those costs are not
expected to be incremental to Placer Sierra but instead will

162
<PAGE>
constitute a reassignment of existing internal systems technology resources. In
light of the complexity of the Year 2000 problem and its potential effect on
both Placer Sierra and third parties that interact with Placer Sierra, however,
there can be no assurance that Placer Sierra's costs associated with the Year
2000 issue will be as estimated.

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures Placer Sierra undertakes, but also on the way in which
the year 2000 issue is addressed by governmental agencies, businesses and other
entities who provide data to, or receive data from Placer Sierra or whose
financial condition or operational capability is important to Placer Sierra such
as suppliers or customers. Communications with significant customers and vendors
have been initiated to determine the extent of risk created by those third
parties' failure to remediate their own year 2000 issues; however, it is not
possible, at present, to determine the financial effect if a significant
customer's and/or vendor's remediation efforts are not resolved in a timely
manner.

Placer Sierra is also preparing contingency plans to try to minimize the harm to
Placer Sierra in the event that Placer Sierra or any or all of the third parties
with which it interacts is unable to attain Year 2000 readiness. The contingency
plans being prepared are system and application specific and are intended to
ensure that in the event that one or more of such systems and/or applications
fail by or at the Year 2000, Placer Sierra will be able to engage in its core
business functions in spite of such failure. Among the efforts undertaken by
Placer Sierra to prepare for the occurrence of Year 2000 is an analysis of the
most reasonably likely worst case scenarios for the Year 2000. These scenarios
have been analyzed in terms of impact on Placer Sierra and steps that can be
taken to mitigate the potential problems. While not an exhaustive list, the
scenarios that have been analyzed by Placer Sierra and the contingency plans
that have been developed include the following:

<TABLE>
<S> <C>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
Failure of core accounting systems All core accounting systems have been and
will continue to be tested throughout 1999 to
ensure their viability at the century date
change. Hard copies of key reports will be
produced prior to January 1, 2000.
Power failure at the operations Placer Sierra is currently analyzing the
option of the installation of generators at
key locations to ensure uninterrupted power
in order to provide critical customer
services.
Telecommunications is unavailable Placer Sierra is preparing contingency plans
to run the branches without connection to
Placer Sierra's systems including ground
transportation to move work and information
between locations.
Substantial withdrawal of deposits by Placer Sierra is putting various contingency
customers funding mechanisms in place including federal
funds lines, shortening the maturity of
securities, FHLB advances and the use of the
Federal Reserve discount window.
Substantial increased cash needs by customers Placer Sierra is analyzing customer deposit
history to estimate additional customer cash
needs, if any.
Miscellaneous occurrences which require Placer Sierra is ensuring that key personnel
additional personnel to remedy. are available before and after January 1,
2000.
</TABLE>

163
<PAGE>
Although Placer Sierra believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 Plan and Placer
Sierra's other Year 2000 remedial and contingency plans will fully protect
Placer Sierra from the risks associated with the Year 2000 problem. The analysis
of, and preparation for, the Year 2000 and related problems necessarily rely on
a variety of assumptions about future events, and there can be no assurance that
Placer Sierra's management has accurately predicted such future events or that
their remedial and contingency plans will adequately address such future events.
In the event that the businesses of Placer Sierra, vendors of Placer Sierra or
customers of Placer Sierra are disrupted as a result of the Year 2000 problem,
such disruption could have a material adverse effect on Placer Sierra.

The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Placer Sierra expects to substantially complete programming changes, remediation
and testing of systems and the impact of redeployment of existing staff, are
based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to identify and convert all relevant computer systems,
results of year 2000 testing, adequate resolution of year 2000 issues by
governmental agencies, businesses or other third parties who are service
providers, suppliers, borrowers or customers of Placer Sierra, unanticipated
systems costs, the need to replace hardware, the adequacy of and ability to
implement contingency plans and similar uncertainties. The forward-looking
statements made in the foregoing year 2000 discussion speak only as of the date
on which such statements are made, and Placer Sierra undertakes no obligation to
update any forward-looking statements to reflect the occurrence of unanticipated
events.

Placer Sierra's disclosures and announcements herein concerning its Year 2000
planning and programs are intended to constitute Year 2000 Readiness Disclosures
as defined in the recently enacted Year 2000 Information and Readiness
Disclosure Act. The Year 2000 Information and Readiness Disclosure Act provides
certain protection from liability for certain public and private statements
concerning an entity's Year 2000 readiness and the Year 2000 readiness product
and services.

INFLATION

The majority of Placer Sierra's assets and liabilities are monetary items held
by Placer Sierra, the dollar value of which is not affected by inflation. Only a
small portion of total assets is in premises and equipment. The lower inflation
rate of recent years did not have the positive impact on Placer Sierra that was
felt in many other industries. The small fixed asset investment of Placer Sierra
minimizes any material misstatement of asset values and depreciation expenses
that may result from fluctuating market values due to inflation. A higher
inflation rate, however, may increase operating expenses or have other adverse
effects on borrowers of Placer Sierra, making collection more difficult for
Placer Sierra. Rates of interest paid or charged generally rise if the
marketplace believes inflation rates will increase.

164
<PAGE>
DESCRIPTION OF CALIFORNIA FINANCIAL

BUSINESS

California Financial is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended, with headquarters located at 10101 Slater
Avenue, Fountain Valley, California. California Financial was incorporated on
September 11, 1997, under the laws of the state of California. It is the bank
holding company of Security First, Orange, CalWest and Business Bank. As of
September 30, 1999, Security First had assets of $50.3 million; Orange had
assets of $88.9 million; CalWest had assets of $61.1 million; and Business Bank
had assets of $20.2 million.

LENDING AND DEPOSIT TAKING ACTIVITIES

PORTFOLIO COMPOSITION. As of December 31, 1998, California Financial had total
loans of $99.5 million, the total of California Financial's installment and
credit card loans outstanding was $14.0 million, the total of commercial loans
outstanding was $37.9 million and the total of real estate loans outstanding was
$47.5 million, representing 14%, 38% and 48%, respectively, of California
Financial's loan portfolio. As of September 30, 1999, total loans were
$126.6 million, the total of installment and credit card loans outstanding was
$13.4 million, the total of commercial loans outstanding was $41.5 million and
the total of real estate loans outstanding was $71.7 million, representing 11%,
33% and 56%, respectively, of California Financial's loan portfolio. California
Financial accepts real estate, listed and unlisted securities, savings and time
deposits, automobiles, machinery and equipment as collateral for loans.

DEPOSIT ACTIVITIES. California Financial's deposits are attracted from
individual and commercial customers. A material portion of California
Financial's deposits has not been obtained from a single person or a few
persons, the loss of any one or more of which would have a material adverse
effect on the business of California Financial, nor is a material portion of
California Financial's loans concentrated within a single industry or group of
related industries. As of December 31, 1998, California Financial had total
deposits of $192.6 million. As of September 30, 1999 total deposits were
$181.0 million.

EMPLOYEES

As of September 30, 1999, California Financial employed 93 persons on a
full-time basis.

MANAGEMENT

<TABLE>
<CAPTION>
POSITIONS HELD WITH DIRECTOR
NAME AGE CALIFORNIA FINANCIAL SINCE
- ---- -------- -------------------------------------- --------
<S> <C> <C> <C>
Ronald W. Bachli...................... 58 Director 1999
J. Thomas Byrom....................... 52 Secretary and Director 1997
Richard W. Decker, Jr................. 55 Chairman and Director 1997
Harvey Ferguson....................... 62 President, Chief Executive Officer and 1999
Director
Robert J. Kushner..................... 49 Director 1999
Clifford R. Ronnenberg................ 62 Director 1997
David E. Hooston...................... 43 Acting Chief Financial Officer N/A
</TABLE>

165
<PAGE>
DAVID E. HOOSTON is the acting Chief Financial Officer of California Financial.
From 1998 through May of 1999 Mr. Hooston served as President, Chief Operating
Officer and Director of California Financial. Mr. Hooston also served as a
member of the Boards of Directors of Orange, Security First, CalWest and
Business Bank. Prior to that, he was the Chief Operating Officer of Security
First from 1995 to 1998 and from 1991 to 1995 he was a financial consultant.
Mr. Hooston received his B.A. degree in Business Economics from the University
of California, Santa Barbara in 1979 and is a member of the American Institute
of Certified Public Accountants and the California State Society of Certified
Public Accountants.

For other biographical information, see "Description of California
Community--Management--Information on Directors and Executive Officers" and
"Description of Security First--Management--Information on Directors and
Executive Officers."

166
<PAGE>
SELECTED FINANCIAL DATA
CALIFORNIA FINANCIAL
(UNAUDITED)

The selected historical financial data as of and for the year ended
December 31, 1998 are derived from California Financial's consolidated financial
statements, which have been audited by independent public accountants. The
selected historical financial data as of and for the nine months ended
September 30, 1999 have not been audited but, in the opinion of California
Financial's management, contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position and results of
operations of California Financial as of such dates and for such period. The
results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results of operations that may be expected for the
year ended December 31, 1999, or for any future period.

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease
losses.................................................... $ 8,153 $ 2,510
Provision for loan and lease losses......................... 349 340
---------- ----------
Net interest income after provision for loan and lease
losses.................................................... 7,804 2,170
Noninterest income.......................................... 1,374 736
Noninterest expense......................................... 10,221 5,643
---------- ----------
Loss before income tax...................................... (1,043) (2,737)
Income tax provison......................................... 7 15
Minority interests in loss of subsidiaries.................. (204) (103)
---------- ----------
Net (loss).................................................. $ (846) $ (2,649)
========== ==========
PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 3,764,669 751,920
Diluted................................................... 3,764,669 751,920
Net loss per share
Basic..................................................... $ (0.23) $ (3.52)
Diluted................................................... $ (0.23) $ (3.52)
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ 223,053 237,594
Loans and leases, net....................................... 124,003 97,289
Other real estate owned..................................... 42 372
Goodwill and other intangibles.............................. 13,571 17,771
Deposits.................................................... 181,028 192,563
Shareholders' equity........................................ 34,796 34,742
Average assets.............................................. 221,331 54,136
Average earning assets...................................... 188,898 49,138
Average common equity....................................... 32,094 6,436
PER SHARE DATA:
Common shares outstanding................................... 3,858,100 3,758,100
Diluted common shares outstanding........................... 3,858,100 3,758,100
Book value per share........................................ $ 9.02 $ 9.24
Diluted book value per share................................ $ 9.02 $ 9.24
Tangible book value per share............................... $ 5.50 $ 4.52
Diluted tangible book value per share....................... $ 5.50 $ 4.52
SELECTED PERFORMANCE RATIOS
Return on average assets.................................... (0.51)% (4.89)%
Return on average common equity............................. (3.25)% (41.16)%
Net yield on interest earning assets........................ 5.25% 5.11%
Efficiency ratio............................................ 98.17% 181.33%
Net interest income before provision for loan and lease
losses to average assets.................................. 3.68% 4.64%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.18% 2.23%
Nonperforming assets to total assets........................ 0.10% 0.94%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.75% 2.00%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 1,168.78% 106.95%
Net charge-offs to average loans and leases................. 0.16% 2.04%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 11.21% 9.45%
Tier 1 Risk-Weighted Ratio.................................. 15.72% 13.73%
Total Risk Weighted Ratio................................... 16.97% 14.98%
Average common equity to average assets..................... 14.50% 11.89%
</TABLE>

167
<PAGE>
CALIFORNIA FINANCIAL'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This information should be read in conjunction with the audited consolidated
financial statements and the notes thereto of California Financial included with
this proxy statement/prospectus. Except for the historical information contained
herein, the following discussion contains forward-looking statements that
involve risks and uncertainties. California Financial's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not specifically limited to,
changes in regulatory climate, shifts in the interest rate environment, changes
in economic conditions of various markets California Financial serves, as well
as the other risks detailed in this section and in "Risk Factors" above.

The consolidated financial statements of California Financial include the
accounts of California Financial Bancorp and its wholly owned and majority-owned
subsidiaries and the results of their operations since their respective
acquisition dates as follows:

Security First, 52% owned since November 14, 1997
Business Bank, 65% owned since November 3, 1998
CalWest, 100% owned since November 25, 1998
Orange, 100% owned since December 31, 1998

All significant intercompany accounts and transactions have been eliminated in
consolidation.

Contained within this document are various measures of financial performance
that have been calculated excluding the amortization of intangibles. These
measures are identified as "excluding goodwill amortization" and have been
provided to assist the reader in evaluating the core performance of California
Financial. This presentation is not defined by Generally Accepted Accounting
Principles ("GAAP"), but management believes it to be beneficial to gaining an
understanding of California Financial's financial performance.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

OVERVIEW

California Financial had a net loss of $846,000 for the nine months ended
September 30, 1999 compared to a net loss of $818,000 for the nine months ended
September 30, 1998. Basic and diluted net loss per share for the nine months
ended September 30, 1999 was $0.23 per share compared to a net loss of $1.77 per
share for the nine months ended September 30, 1998. California Financial's
annualized return on average assets was (0.5)% and its annualized return on
average common equity was (3.3)% for the nine months ended September 30, 1999,
as compared to (2.4)% and (26.6)%, respectively, for the nine months ended
September 30, 1998. Annualized return on average assets excluding goodwill
amortization was 0.01% and annualized return on average common equity excluding
goodwill amortization was 0.09% for the nine months ended September 30, 1999, as
compared to (2.3)% and (24.7)%, respectively, for the nine months ended
September 30, 1998.

RESULTS OF OPERATIONS

California Financial's results of operations depend primarily on California
Financial's net interest income, which is the difference between interest and
dividend income on interest-earning assets and interest expense on
interest-bearing liabilities. California Financial's interest-earning assets
consist primarily of loans, mortgage-backed securities and investment
securities, while its interest-bearing liabilities are deposits and borrowings.
California Financial's results of operations are also affected by California
Financial's provisions for loan losses, resulting from management's assessment
of the

168
<PAGE>
adequacy of California Financial's allowance for loan losses, the level of its
other income and the level of its other expenses, such as compensation and
employee benefits, occupancy costs, expenses associated with the administration
of problem assets, and income taxes.

Compared to the prior year results, the decrease in California Financial's
pre-tax losses before amortization of intangible assets for the nine months
ended September 30, 1999 stems primarily from a combination of increased net
interest income of approximately $6.5 million and noninterest income of
approximately $688,000, partially offset by an increase in loan loss provision
of $51,000 and increased noninterest expense of approximately $7.6 million. The
improvement in 1999 operating earnings is primarily attributable to the
acquisitions completed in 1998.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was approximately $8.2 million for the nine months ended
September 30, 1999, an increase of $6.5 million, or 389.7%, over the
$1.7 million for the same period in 1998. An increase in interest income to
$10.8 million for the nine months ended September 30, 1999 from $2.6 million for
the same period in 1998, partially offset by increased interest expense of
$2.7 million for the nine months ended September 30, 1999 from $906,000 for the
same period in 1998, contributed to this earnings improvement. The increase in
net interest income in 1999 is primarily attributable to increased earning
assets and interest-bearing liabilities resulting from the acquisitions
completed in 1998.

Loans and leases, the largest component of earning assets, increased 362.1% to
an average balance of $108.6 million for the nine months ended September 30,
1999 from $23.5 million for the nine months ended September 30, 1998, with an
average yield of 10.0% and 9.8%, respectively. The increase in the volume of
loans and leases was primarily attributable to the loans acquired in the
acquisitions completed in 1998. The average balance of investments in securities
and Federal funds sold increased 834.1% to an average of $67.2 million for the
nine months ended September 30, 1999 from an average of $7.2 million for the
nine months ended September 30, 1998, with an average yield of 4.6% and 5.8%,
respectively. The yield on earning assets was 7.7% for the nine months ended
September 30, 1999 compared to 8.2% for the same period in 1998. The decrease in
the yield on earning assets is primarily due to the decline in yield on
investment securities and Federal funds partially offset by a shift in the mix
of earning assets where average loans comprised approximately 57.5% of average
earning assets for the nine months ended September 30, 1999 compared to 55.7%
for the same period in 1998.

Average interest-bearing liabilities increased 268.2% to $105.5 million for the
nine months ended September 30, 1999 from $28.6 million for the same period in
1998 primarily as a result of deposit liabilities acquired in the acquisitions
completed in 1998. The cost of these funds decreased to 3.5% for the nine months
ended September 30, 1999 compared to 4.2% for the same period in 1998. The
decrease in the cost of deposits is attributable to a decrease in rates paid on
certificates of deposit that decreased to 4.8% for the nine months ended
September 30, 1999 compared to 5.2% for the same period in 1998, and a decrease
in rates paid on interest bearing transaction accounts and savings accounts that
in the aggregate was 2.3% for the nine months ended September 30, 1999 compared
to 2.7% for the same period in 1998. The decrease in the cost of deposits also
reflects a change in the mix of deposit liabilities, where average certificates
of deposit comprised approximately 45.7% of average interest-bearing deposits
for the nine months ended September 30, 1999 compared to 58.8% for the same
period in 1998.

As a result of the foregoing factors, the average net yield on earning assets
increased to 5.8% for the nine months ended September 30, 1999 compared to 5.3%
for the same period in 1998.

169
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1).................. $108,604 $ 8,103 9.98% $23,504 $1,720 9.78%
Investment securities (2)............. 32,112 1,192 4.96 3,946 186 6.30
Federal funds sold.................... 35,081 1,100 4.19 3,247 128 5.27
Other earning assets.................. 13,101 488 4.98 11,480 537 6.25
-------- ------- ------- ------
Total interest-earning assets... 188,898 10,883 7.70 42,177 2,571 8.15
Non-earning assets:
Cash and demand deposits with banks... 15,271 2,490
Other assets.......................... 17,162 386
-------- -------
Total assets.................... 221,331 45,053
======== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand............. 14,991 140 1.25 3,168 31 1.31
Money market........................ 33,725 711 2.82 8,005 193 3.22
Savings............................. 8,526 139 2.18 635 12 2.53
Time................................ 48,228 1,740 4.82 16,834 648 5.15
-------- ------- ------- ------
Total interest-bearing
deposits...................... 105,470 2,730 3.46 28,642 884 4.13
Short-term borrowing.................. 95 -- -- 256 22 11.49
-------- ------- ------- ------
Total interest-bearing
liabilities................... 105,565 2,730 3.46 28,898 906 4.19
Noninterest-bearing liabilities:
Demand deposits..................... 79,343 11,689
Other liabilities................... 4,329 350
-------- -------
Total liabilities............... 189,237 40,937
Shareholders' equity.................. 32,094 4,116
-------- -------
Total liabilities and shareholders'
equity.............................. $221,331 $45,053
======== ------- ======= ------
Net interest income................... $ 8,153 $1,665
======= ======
Net yield on interest-earning
assets.............................. 5.77% 5.28%
</TABLE>

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

(1) Loan fees of $411,000 and $162,000 are included in the computations for 1999
and 1998, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

170
<PAGE>
The following table sets forth changes in interest income and interest expense
on the basis of allocation to changes in rates and changes in volume of the
various components. Nonaccrual loans are included in total loans outstanding
while nonaccrued interest thereon is excluded from the computation of rates
earned.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 COMPARED TO 1998
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases............................................ $6,383 $ 34 $6,228 $ 121
Investment securities....................................... 1,006 (40) 1,328 (282)
Federal funds sold.......................................... 972 (26) 1,255 (257)
Other earning assets........................................ (49) (109) 76 (16)
------ ---- ------ -----
Total interest income..................................... 8,312 (141) 8,887 (434)
Interest Expense:
Interest-bearing demand..................................... 109 (1) 116 (6)
Money market................................................ 518 (24) 620 (78)
Savings..................................................... 127 (2) 149 (20)
Time........................................................ 1,092 (41) 1,208 (75)
Short-term borrowings....................................... (22) (22) (14) 14
------ ---- ------ -----
Total interest expense.................................... 1,824 (90) 2,080 (166)
------ ---- ------ -----
Net interest income......................................... $6,488 ($51) $6,807 $(268)
====== ==== ====== =====
</TABLE>

PROVISION FOR LOAN AND LEASE LOSSES

During the nine months ended September 30, 1999, a total of $349,000 was charged
against operations and added to the allowance for loan and lease losses, as
compared to $298,000 for the same period in 1998. The increased provision is
primarily attributable to the increase in the loan portfolio due to the
acquisitions completed in 1998. See "--Financial Condition," below.

NONINTEREST INCOME

Noninterest income for the nine months ended September 30, 1999 was
$1.4 million compared to $686,000 for the same period in 1998. The increase in
noninterest income is primarily attributable to an increase in service charges
and other fees associated with the operations acquired in 1998. Income from
service charges on deposit accounts increased $459,000, or 791.4%, to $517,000
for the nine months ended September 30, 1999 compared to $58,000 for the same
period in 1998. Other noninterest income increased $229,000, or 36.5%, to
$857,000 for the nine months ended September 30, 1999 compared to $628,000 for
the same period in 1998. Both of these increases in income are primarily
attributable to the operations acquired in 1998.

171
<PAGE>
The following table presents for the periods indicated the major categories of
noninterest income:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges and fees................................ $ 517 $ 58
Referral fees........................................... 253 10
Gain on sale of SBA loans............................... 329 191
Net other real estate owned income...................... 25 --
Other income............................................ 250 427
------ ----
Total............................................... $1,374 $686
====== ====
</TABLE>

NONINTEREST EXPENSES

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of California Financial. Also included are the costs associated with problem
assets, which include nonperforming and restructured loans.

Noninterest expense for the nine months ended September 30, 1999 was
$10.2 million, an increase of $7.6 million, or 285.3%, from $2.7 million for the
same period in 1998. Salaries and employee benefits increased $3.2 million, or
298.6%, to $4.2 million for the nine months ended September 30, 1999 from
$1.0 million for the same period in 1998, which increase is attributable to the
additional personnel and associated staffing expense resulting from the
acquisitions completed in 1998. Occupancy and equipment expense increased
$1.1 million, or 375.3%, to $1.4 million for the nine months ended
September 30, 1999 from $287,000 for the nine months ended September 30, 1998
and represents the additional cost associated with operating the facilities
acquired in the acquisitions completed in 1998. Other noninterest expenses
increased $3.3 million, or 253.8%, to $4.6 million for the nine months ended
September 30, 1999 from $1.3 million for the nine months ended September 30,
1998, primarily attributable to the acquisitions completed in 1998. Also
included in noninterest expense for the nine months ended September 30, 1999 is
amortization of goodwill and other intangibles of $868,000 compared to $57,000
for the same period last year, the increase primarily attributable to an
increase in the amount of intangible assets being amortized resulting from the
acquisitions completed in 1998. California Financial's efficiency ratio (defined
as noninterest expense, before the amortization of goodwill, to total revenue
before income or losses related to other real estate owned less interest
expense) was 98.17% for the nine months ended September 30, 1999, a decrease of
12.25% from 110.42% for the comparable period of 1998.

172
<PAGE>
The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits............................. $ 4,221 $1,059
Occupancy and equipment.................................... 1,364 287
Professional fees.......................................... 1,128 666
Data and item processing................................... 881 104
Communications............................................. 497 96
Business development and promotions........................ 289 46
Year 2000.................................................. 163 46
Amortization of intangibles................................ 868 57
Other...................................................... 810 292
------- ------
Total.................................................... $10,221 $2,653
======= ======
</TABLE>

PROVISION FOR INCOME TAXES

For the nine months ended September 30, 1999, a provision for income taxes of
$7,000 was made compared to a $2,000 provision made for the same period in 1998,
in each case representing the minimum state franchise taxes for California
Financial and its subsidiaries.

FINANCIAL CONDITION

Total assets of California Financial at September 30, 1999 were $223.1 million
compared to total assets of $237.6 million at December 31, 1998 and
$56.2 million at September 30, 1998. Total earning assets of California
Financial at September 30, 1999 were $185.1 million compared to total earning
assets of $196.1 million at December 31, 1998 and $41.1 million at
September 30, 1998. The increases in total assets and in earning assets since
September 30, 1998 are substantially attributable to the acquisitions completed
in 1998.

LOANS AND LEASES

Total gross loans and leases at September 30, 1999 were $126.6 million compared
to $99.5 million at December 31, 1998 and $24.8 million at September 30, 1998.
At September 30, 1999, the four largest lending categories were: (i) real estate
loans, (ii) commercial loans, (iii) loans to individuals and (iv) SBA loans. At
September 30, 1999, those categories accounted for $71.7 million,
$36.0 million, $13.4 million and $5.4 million, or approximately 56.6%, 28.5%,
10.6% and 4.3% of total gross loans and leases, respectively.

173
<PAGE>
The following table sets forth the amount of loans and leases outstanding for
California Financial as of the dates indicated, according to type of loan.
California Financial has no foreign loans or energy-related loans.

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans........................................ $ 71,657 $11,814
Commercial............................................... 36,025 7,881
Consumer loans........................................... 13,416 4,513
SBA loans................................................ 5,435 565
Other loans.............................................. 34 63
-------- -------
Subtotal................................................. 126,567 24,836
Less: allowance for loan and lease losses................ (2,209) (817)
Deferred loan fees....................................... (355) (45)
-------- -------
Net loans and leases..................................... $124,003 $23,974
======== =======
</TABLE>

The following table shows the amounts of certain categories of loans outstanding
as of September 30, 1999, which, based on remaining scheduled repayments of
principal, were due in one year or less, more than one year through five years,
and more than five years. Demand or other loans having no stated maturity and no
stated schedule of repayments are reported as due in one year or less.
Residential mortgage loans held for sale are reported as due after five years.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $16,410 $13,099
After one year but within five years:
Interest rates are floating or adjustable............. 7,113 9,618
Interest rates are fixed or predetermined............. 8,334 15,388
After five years:
Interest rates are floating or adjustable............. 894 12,344
Interest rates are fixed or predetermined............. 3,274 21,208
------- -------
Total............................................... $36,025 $71,657
======= =======
</TABLE>

As of September 30, 1999, in management's judgment, a concentration of loans
existed in commercial loans and real estate loans. At that date, approximately
85.1% of California Financial's loans were real estate or commercial loans,
primarily in southern California, representing 56.6% and 28.5% of total loans,
respectively. Although management believes such concentrations to have no more
than the normal risk of collectibility of real estate related loans, a
substantial decline in real estate values could have an adverse impact on
collectibility, increase the level of real estate-related nonperforming loans,
or have other adverse effects which alone or in the aggregate could have a
material adverse effect on the financial condition of California Financial.

174
<PAGE>
NONPERFORMING ASSETS

The following table summarizes nonperforming assets as of September 30, 1999 and
September 30, 1998.

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans and leases, not restructured............... $189 $469
Accruing loans and leases past due 90 days or more.......... -- --
Restructured loans and leases............................... -- 147
---- ----
Total nonperforming loans and leases ("NPLs")......... 189 616
Other real estate owned ("OREO")............................ 42 225
---- ----
Total nonperforming assets ("NPAs")................... $231 $841
==== ====
Selected ratios:
NPLs to total loans and leases............................ 0.15% 2.48%
NPAs to total loans and leases and OREO................... 0.18 3.36
NPAs to total assets...................................... 0.10 1.68
</TABLE>

California Financial's current policy is to stop accruing interest on loans
which are past due as to principal or interest 90 days or more, except in
circumstances where the loan is well-secured and in the process of collection.
When a loan is placed on nonaccrual, previously accrued and unpaid interest is
generally reversed out of income.

California Financial would have recorded additional interest income of
approximately $2,000 for the nine months ended September 30, 1999 on
nonperforming loans if such loans had been current in accordance with their
original terms. Interest income recorded on nonperforming loans for the nine
months ended September 30, 1999 was approximately $11,000.

At September 30, 1999, $189,000 of loans were deemed impaired in accordance with
SFAS 114 as amended by SFAS 118. California Financial's impaired loans have
historically been collateral dependent, and as such the method used to measure
the amount of impairment on these loans is to compare the loan amount to the
fair value of collateral. No portion of the allowance for loan losses related to
these loans at September 30, 1999. The average balance of impaired loans during
the nine months ended September 30, 1999 was $123,000.

At September 30, 1999, California Financial had OREO properties with an
aggregate carrying value of $42,000. During the nine months ended September 30,
1999, properties with a total carrying value of $330,000 were sold. All of the
OREO properties are recorded by California Financial at amounts that are equal
to or less than the market value based on current independent appraisals reduced
by estimated selling costs.

California Financial's policy requires that a loan be performing for six
consecutive months in order for a restructured loan to be restored to fully
performing status. Inevitably, not all restructured loans will be viable as
restructured, and it may be necessary for California Financial to make further
concessions or to transfer the loan to nonaccrual status or OREO. Restructured
loans as to which the payment of interest or principal is 90 days or more
overdue are reported as nonaccrual loans. At September 30, 1999, none of
California Financial's nonaccrual loans had previously been restructured.

175
<PAGE>
ALLOWANCE FOR LOAN LOSSES

The allowance for loan and lease losses represents the amounts which have been
set aside for the specific purpose of absorbing losses which may occur in
California Financial's loan and lease portfolio. The provision for loan and
lease losses is an expense charged against operating income and added to the
allowance for loan and lease losses.

In determining the adequacy of the allowance for loan and lease losses,
management considers such factors as historical loan loss experience, known
problem loans, evaluations made by regulatory agencies and California
Financial's outside loan reviewers, assessment of economic conditions and other
appropriate data to identify the risks in the portfolio. In determining the
amount of the allowance, a specific allowance amount is assigned to those loans
with identified special risks, and the remaining loan portfolio is reviewed by
category and assigned an allowance percentage for inherent losses. The
allocation process does not necessarily measure anticipated future credit
losses; rather, it reflects management's assessment at a certain date of
perceived credit risk exposure and the impact of current and anticipated
economic conditions, which may or may not result in future credit losses. While
management believes the allowance to be adequate, it should be noted that it is
based on estimates, and ultimate losses may vary from such estimates if future
conditions differ materially from the assumptions used in making the evaluation.
California Financial's lending is concentrated in Southern California, which has
in the recent past experienced adverse economic conditions, including declining
real estate values. Those factors have in the past adversely affected borrowers'
ability to repay loans. Although management believes the level of the allowance
as of September 30, 1999 is adequate to absorb losses inherent in the loan
portfolio, a decline in the local economy may result in increasing losses that
cannot reasonably be predicted at this date. The possibility of increased costs
of collection, nonaccrual of interest on those loans that are or may be placed
on nonaccrual, and further charge-offs could have an adverse impact on
California Financial's financial condition in the future.

The Federal Reserve, the Department of Financial Institutions and the Office of
the Comptroller of the Currency, as an integral part of their respective
supervisory functions, periodically review California Financial's allowance for
loan and lease losses. Such regulatory agencies may require California Financial
to increase its provision for loan and lease losses or to recognize further loan
charge-offs, based upon judgments different from those of management.

In December 1993, the federal banking agencies issued an inter-agency policy
statement on the allowance for loan and lease losses which, among other things,
establishes certain benchmark ratios of loan loss reserves to classified assets.
The benchmark set forth by such policy statement is the sum of (i) assets
classified loss; (ii) 50% of assets classified doubtful; (iii) 15% of assets
classified substandard; and (iv) estimated credit losses on other assets over
the upcoming 12 months. At September 30, 1999, California Financial's allowance
constituted over 141% of the benchmark amount suggested by the federal banking
agencies' policy statement.

California Financial's allowance for loan and lease losses was $2.2 million at
September 30, 1999 compared to $817,000 at September 30, 1998. During the nine
months ended September 30, 1999, the provision for loan and lease losses was
$349,000, or .43% (annualized) to average loans at September 30, 1999, loan and
lease charge-offs were $183,000 and recoveries were $57,000, which compares to a
provision for loan and lease losses of $298,000, or 1.70% (annualized) to
average loans at September 30, 1998, loan and lease charge-offs of $610,000 and
recoveries of $116,000 during the same period in 1998. California Financial's
allowance for loan and lease losses represented 1.75% of gross loans at
September 30, 1999 and 3.29% at September 30, 1998 while the allowance for loan
and lease losses represented 1,168.78% of nonperforming loans and leases at
September 30, 1999 and 132.63% at September 30, 1998.

176
<PAGE>
The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for loan and lease losses arising from loan
and lease losses and additions to the allowance from provisions charged to
operating expense as of and for the periods ending September 30, 1999 and
September 30, 1998:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding..................... $108,604 $23,504
Gross loans and leases................................... 126,567 24,836
Nonperforming loans and leases........................... 189 616
Allowance for loan and lease losses:
Balance at beginning of period......................... 1,986 1,013
Loans charged off during period
Commercial........................................... 102 2
Real estate.......................................... 15 571
Installment.......................................... 66 37
-------- -------
Total.............................................. 183 610
Recoveries during period
Commercial........................................... 30 13
Real estate.......................................... 20 67
Installment.......................................... 7 36
-------- -------
Total.............................................. 57 116
-------- -------
Net loans charged off during period.................. 126 494
Provision for loan and lease losses.................. 349 298
-------- -------
Balance at end of period........................... $ 2,209 $ 817
======== =======
Selected ratios:
Net charge-offs to average loans and leases (1)........ 0.16% 2.81%
Provision for loan and lease losses to average loans
(1).................................................. 0.43 1.70
Allowance at end of period to gross loans and leases
outstanding at end of period......................... 1.75 3.29
Allowance as percentage of nonperforming loans and
leases............................................... 1,168.78 132.63
</TABLE>

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

(1) Annualized

The following table indicates management's allocation of the allowance as of the
dates indicated:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------------------
1999 1998
------------------------------ ------------------------------
PERCENT OF LOANS IN PERCENT OF LOANS IN
EACH CATEGORY TO EACH CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------------- -------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural............... $ 965 32.8% $233 34.0%
Real estate and
construction............... 795 56.6 343 47.6
Consumer..................... 214 10.6 241 18.4
Unallocated.................. 235 -- -- --
------ ----- ---- -----
Total.................... $2,209 100.0% $817 100.0%
====== ===== ==== =====
</TABLE>

177
<PAGE>
In allocating California Financial's allowance for loan and leases losses,
management has considered the credit risk in the various loan categories in its
portfolio. As such, the allocations of the allowance for loan and lease losses
are based upon the average aggregate historical net loan losses experienced in
each of the subsidiary banks. While every effort has been made to allocate the
allowance to specific categories of loans, management believes that any
allocation of the allowance for loan and lease losses into loan categories lends
an appearance of exactness which does not exist.

INVESTMENTS AND INVESTMENT SECURITIES

California Financial maintains a portion of its assets in investments and
investment securities to balance risk and to ensure liquidity. See
"--Liquidity," below.

Total investments at September 30, 1999 were $61.1 million compared to
$98.8 million at December 31, 1998 and $17.1 million at September 30, 1998,
which increased primarily as a result of the acquisitions completed in 1998. At
September 30, 1999, the investments of California Financial included overnight
Federal funds sold and securities purchased under agreements to resell
investments of $23.3 million, interest-bearing deposits with other banks of
$4.2 million, investment securities of $32.5 million and Federal Reserve Bank
stock of $1.1 million. California Financial's portfolio of investment securities
primarily consisted of U.S. treasury and agency securities, corporate bonds and
municipal securities. At September 30, 1999, $19.8 million of California
Financial's portfolio of investment securities was classified as available for
sale while $12.7 million was classified as held to maturity. California
Financial does not hold any investment securities in a trading account.

The following table presents the amortized cost of securities and their
approximate fair values at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. and state government and its agencies........... $16,610 $ -- $(120) $16,490
Municipal obligations................................ 490 4 -- 494
Corporate bonds...................................... 2,796 -- (48) 2,748
------- --------- ----- -------
Total............................................ 19,896 4 (168) 19,732
------- --------- ----- -------
Held-to-Maturity:
U.S. and state government and its agencies........... 4,845 -- (16) 4,829
Municipal obligations................................ 1,955 -- -- 1,955
Mortgage backed securities........................... 436 -- -- 436
Corporate bonds...................................... 5,480 -- (25) 5,455
------- --------- ----- -------
Total held to maturity........................... 12,716 -- (41) 12,675
------- --------- ----- -------
Total............................................ $32,612 $ 4 $(209) $32,407
======= ========= ===== =======
</TABLE>

178
<PAGE>
The following tables show the maturities of investment securities at
September 30, 1999 and the weighted average yields of such securities:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------------

AFTER ONE YEAR
WITHIN ONE BUT WITHIN FIVE
YEAR YEARS
---------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. and state government and
its agencies............... $8,537 4.68% $ 7,953 4.91%
Municipal obligations........ -- -- 494 6.50
Corporate bonds.............. -- -- 2,748 6.15
------ -------
Total securities available
for sale................... 8,537 4.68 11,195 5.28
------ -------
Held to maturity:
U.S. and state government and
its agencies............... 1,350 5.75 2,795 5.85
Municipal obligations........ -- -- 627 7.00
Mortgage backed securities... -- -- -- --
Corporate bonds.............. -- -- 5,480 6.21
------ -------
Total held to maturity....... 1,350 5.75 8,902 6.15
------ -------
Total...................... $9,887 4.83% $20,097 5.67%
====== =======

<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------------
AFTER FIVE
YEARS BUT
WITHIN TEN AFTER TEN
YEARS YEARS
---------------------- ----------------------
AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. and state government and
its agencies............... $ -- --% $ -- --%
Municipal obligations........ -- -- -- --
Corporate bonds.............. -- -- -- --
------ ----
Total securities available
for sale................... -- -- -- --
------ ----
Held to maturity:
U.S. and state government and
its agencies............... 700 6.76 -- --
Municipal obligations........ 1,328 7.31 -- --
Mortgage backed securities... -- -- 436 7.13
Corporate bonds.............. -- -- -- --
------ ----
Total held to maturity....... 2,028 7.12 436 7.13
------ ----
Total...................... $2,028 7.12% $436 7.13%
====== ====
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

DEPOSITS

Total deposits were $181.0 million at September 30, 1999 compared to
$192.6 million at December 31, 1998 and $44.6 million at September 30, 1998. An
increase in all categories of deposit accounts contributed to the increase in
total deposits, primarily attributable to the deposit liabilities acquired in
the acquisitions completed in 1998. Total noninterest bearing demand deposits
were $68.7 million, or approximately 38.0% of total deposits, at September 30,
1999 compared to $16.1 million, or approximately 36.1% of total deposits, at
September 30, 1998. Interest bearing deposits were $112.3 million, or
approximately 62.0% of total deposits, at September 30, 1999 compared to
$28.5 million, or approximately 63.9% of total deposits, at September 30, 1998.

179
<PAGE>
The following table shows the distribution of deposit liabilities and the
associated cost for each deposit category as of September 30, 1999 and 1998:

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1999 1998
------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand............... $ 79,343 --% $11,689 --%
Interest-bearing demand.................. 14,991 1.25 3,168 1.31
Money market............................. 33,725 2.82 8,005 3.22
Savings.................................. 8,526 2.18 635 2.53
Time..................................... 48,228 4.82 16,834 5.15
-------- -------
Total.................................. $184,813 1.97% $40,331 2.93%
======== =======
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $16,232
Due in over three months through nine months................ 6,612
Due in over nine months through twelve months............... 5,472
Due in over twelve months................................... --
-------
Total..................................................... $28,316
=======
</TABLE>

FOR THE YEAR ENDED DECEMBER 31, 1998 AND PERIOD ENDED DECEMBER 31, 1997

OVERVIEW

The consolidated financial statements of California Financial include the
accounts of California Financial and its wholly owned and majority-owned
subsidiaries and the results of their operations since their respective
acquisition dates as follows:

Security First, 51.88% owned since November 14, 1997

Business Bank, 64.91% owned since November 3, 1998

CalWest, 100% owned since November 25, 1998

Orange, 100% owned since December 31, 1998

All significant intercompany accounts and transactions have been eliminated in
consolidation.

California Financial had a net loss of $2.7 million for the year ended
December 31, 1998 compared to a net loss of $209,000 for the year ended
December 31, 1997. Basic and diluted net loss per share in 1998 and 1997 was
$3.52 per share. Excluding goodwill amortization, basic and diluted loss per
share for the year ended December 31, 1998 was $3.36 as compared to basic and
diluted loss per share of $3.35 for the year ended December 31, 1997. California
Financial's return on average assets was (4.9)% and its return on average common
equity was (41.2)% for the period ended December 31, 1998, as compared to (4.1)%
and (75.7)%, respectively, for the year ended December 31, 1997. Return on
average assets excluding goodwill amortization was (4.7)% and return on average
common equity

180
<PAGE>
excluding goodwill amortization was (39.2)% for the year ended December 31,
1998, as compared to (3.9)% and (72.1)%, respectively, for the period ended
December 31, 1997.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

California Financial's net interest income increased $2.2 million, or 790.1%, in
1998 due to an increase of $3.4 million in interest income partially offset by
increased interest expense of $1.2 million. Interest income and interest expense
increased primarily due to a full year of operations of Security First in 1998
versus only one month in 1997 and the results of operations from acquired
institutions at the end of 1998. Lower yields on earning assets partially offset
increased interest income due to the higher volume of earning assets while the
cost of interest bearing liabilities remained approximately constant. The yield
on interest-earning assets declined to 7.8% in 1998 from 8.6% in 1997 and the
cost of average interest-bearing liabilities decreased to 4.0% in 1998 from 4.1%
in 1997. As a result of those factors, the net yield on earning assets declined
to 5.1% in 1998 from 5.7% in 1997.

181
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
PERIODS ENDED
-----------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1).......................... $26,275 $2,523 9.60% $2,832 $311 10.98%
Investment securities (2)..................... 4,700 291 6.20 501 29 5.79
Federal funds sold............................ 6,002 307 5.11 738 42 5.69
Other earning assets.......................... 12,161 699 5.75 909 47 5.17
------- ------ ------ ----
Total interest-earning assets............. 49,138 3,820 7.77 4,980 429 8.61
Non-earning assets:
Cash and demand deposits with banks........... 3,101 268
Other assets.................................. 1,897 (141)
------- ------
Total assets.............................. 54,136 5,107
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand..................... 3,772 47 1.25 419 7 1.67
Money market................................ 9,512 285 3.00 914 35 3.83
Savings..................................... 977 24 2.46 84 2 2.38
Time........................................ 18,134 913 5.03 2,188 103 4.71
------- ------ ------ ----
Total interest-bearing deposits........... 32,395 1,269 3.92 3,605 147 4.08
Short-term borrowing.......................... 374 41 10.96 2 -- --
------- ------ ------ ----
Total interest-bearing liabilities........ 32,769 1,310 4.00 3,607 147 4.08
Noninterest-bearing liabilities:
Demand deposits............................. 14,333 1,201
Other liabilities........................... 598 23
------- ------
Total liabilities......................... 47,700 4,831
Shareholders' equity.......................... 6,436 276
------- ------
Total liabilities and shareholders' equity.... $54,136 $5,107
======= ------ ====== ----
Net interest income........................... $2,510 $282
====== ====
Net yield on interest-earning assets.......... 5.11% 5.66%
</TABLE>

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

(1) Loan fees of $74,000 and $71,000 are included in the computations for 1998
and 1997, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

182
<PAGE>
total loans outstanding while nonaccrued interest thereon is excluded from the
computation of rates earned.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 COMPARED TO PERIOD ENDED
DECEMBER 31, 1997
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases............................... $2,212 ($39) $2,574 ($323)
Investment securities.......................... 262 2 243 17
Federal funds sold............................. 265 (4) 300 (31)
Other earning assets........................... 652 5 584 63
------ ---- ------ -----
Total interest income........................ 3,391 (36) 3,701 (274)
Interest Expense:
Interest-bearing demand........................ 40 (2) 56 (14)
Money market................................... 250 (8) 329 (71)
Savings........................................ 22 -- 21 1
Time........................................... 810 7 751 52
Short-term borrowing........................... 41 -- 37 4
------ ---- ------ -----
Total interest expense....................... 1,163 (3) 1,194 (28)
------ ---- ------ -----
Net interest income............................ $2,228 ($33) $2,507 ($246)
====== ==== ====== =====
</TABLE>

NONINTEREST INCOME

Noninterest income increased by $680,000, or 1,214.3%, to $736,000 in 1998 from
$56,000 in 1997. The increase was primarily due to income from an entire year of
operations in 1998 for Security First versus two months in 1997 and results of
operations from acquisitions completed at the end of 1998.

The following table presents for the periods indicated the major categories of
noninterest income:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges and fees.................................... $ 98 $ 7
Net other real estate owned income (expense)................ 203 (7)
Other income................................................ 435 56
---- ---
Total..................................................... $736 $56
==== ===
</TABLE>

NONINTEREST EXPENSE

Noninterest expense increased $5.1 million, or 954.8%, to $5.6 million in 1998
from $535,000 in 1997. The increase in expense is largely attributable to the
cost of operations for an entire year versus one month for Security First and
those of operations acquired in the acquisitions completed at the end of 1998.
Also included in this increase is the amortization of goodwill, which for 1998
was $125,000 compared to $10,000 in 1997. California Financial's efficiency
ratio (defined as noninterest expense, before the amortization of goodwill, to
total revenue before income or losses related to other real

183
<PAGE>
estate owned less interest expense) was 181.3% for the year ended December 31,
1998, an increase of 26.0%, from 155.3% for 1997, primarily attributable to the
cost of the 1998 acquisitions recognized in 1998 without the full benefit of
earnings and expected cost savings.

The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
PERIODS ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits.............................. $2,018 $197
Occupancy and equipment..................................... 489 39
Professional fees........................................... 1,184 199
Data and item processing.................................... 246 8
Communications.............................................. 131 14
Business development and promotions......................... 136 7
Year 2000................................................... 227 --
Amortization of intangibles................................. 125 10
Pre-opening costs........................................... 605 --
Other....................................................... 482 61
------ ----
Total..................................................... $5,643 $535
====== ====
</TABLE>

PROVISION FOR INCOME TAXES

California Financial recorded a tax provision of $15,000 in 1998 compared to a
provision of $2,000 recorded in 1997. This increase in taxes resulted from
higher taxable earnings in 1998 compared to 1997.

FINANCIAL CONDITION

Total assets of California Financial at December 31, 1998 were $237.6 million
compared to total assets of $42.4 million at December 31, 1997. Total earning
assets of California Financial at December 31, 1998 were $196.1 million compared
to total earning assets of $32.4 million at December 31, 1997. The increases in
total assets and total earning assets since December 31, 1997 are substantially
attributable to the acquisitions completed in 1998.

LOANS AND LEASES

Total loans and leases of California Financial at December 31, 1998 were
$99.5 million compared to $22.2 million at December 31, 1997. At December 31,
1998, the four largest lending categories were: (i) real estate loans,
(ii) commercial loans, (iii) loans to individuals and (iv) SBA loans. At
December 31, 1998, those categories accounted for $47.5 million, $34.5 million,
$14.0 million and $3.5 million, or approximately 47.7%, 34.7%, 14.1% and 3.5% of
total gross loans and leases, respectively. The following table sets forth the
amount of loans and leases outstanding for California

184
<PAGE>
Financial at the end of each of the years indicated, according to type of loan.
California Financial has no foreign loans or energy-related loans as of the
dates indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans........................................... $47,502 $ 6,131
Commercial.................................................. 34,503 9,243
Consumer loans.............................................. 14,027 5,852
SBA loans................................................... 3,433 930
Other loans................................................. 26 17
------- -------
Subtotal.................................................... 99,491 22,173
Less: allowance for loan and lease losses................... (1,986) (1,013)
Deferred loan fees.......................................... (216) (55)
------- -------
Net loans and leases........................................ $97,289 $21,105
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $18,198 $ 5,813
After one year but within five years:
Interest rates are floating or adjustable............. 6,356 6,870
Interest rates are fixed or predetermined............. 6,074 8,627
After five years:
Interest rates are floating or adjustable............. 956 7,006
Interest rates are fixed or predetermined............. 2,919 19,186
------- -------
Total............................................... $34,503 $47,502
======= =======
</TABLE>

As of December 31, 1998, in management's judgment, a concentration of loans
existed in commercial loans and real estate loans. At that date, approximately
82.4% of California Financial's loans were real estate or commercial loans,
representing 47.7% and 34.7% of total loans, respectively. Although management
believes such concentrations to have no more than the normal risk of
collectibility of real estate related loans, a substantial decline in real
estate values could have an adverse impact on collectibility, increase the level
of real estate-related nonperforming loans, or have other adverse effects which
alone or in the aggregate could have a material adverse effect on the financial
condition of California Financial.

185
<PAGE>
NONPERFORMING ASSETS

The following table summarizes the loans for which the accrual of interest has
been discontinued and loans more than 90 days past due and still accruing
interest, including those loans that have been restructured and other real
estate owned:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans and leases, not restructured............... $1,654 $ 415
Accruing loans and leases past due 90 days or more.......... -- 14
Restructured loans and leases............................... 203 663
------ ------
Total nonperforming loans and leases ("NPLs")............. 1,857 1,092
Other real estate owned ("OREO")............................ 372 564
------ ------
Total nonperforming assets ("NPAs")....................... $2,229 $1,656
====== ======
Selected ratios:
NPLs to total loans and leases............................ 1.87% 4.92%
NPAs to total loans and leases and OREO................... 2.23 7.28
NPAs to total assets...................................... 0.94 4.01
</TABLE>

California Financial's impaired loans pursuant to SFAS 114 as amended by
SFAS 118 are loans that are nonaccrual and those that have been restructured.
For the twelve months ended December 31, 1998 additional gross interest income
of $162,000 would have been recorded on impaired loans, and for calendar year
1997 additional gross interest income of $193,000 would have been recorded on
impaired loans, in each case had the loans been current. No accrued but unpaid
interest income on such loans was in fact included in California Financial's net
income as of December 31, 1998 and 1997.

Loans aggregating $825,000 at December 31, 1998 have been designated as impaired
in accordance with SFAS 114 as amended by SFAS 118. Substantially all of
California Financial's impaired loans are collateral dependent, and as such the
method used to measure the amount of impairment on these loans is to compare the
loan amount to the fair value of collateral. The total allowance for loan losses
related to these loans was $109,000 at December 31, 1998. At December 31, 1997,
loans aggregating $415,000 were designated as impaired and the total allowance
for loan losses related to these loans was $85,000. The average balance of
impaired loans during 1998 and 1997 was $812,000 and $415,000, respectively.

At December 31, 1998, California Financial had OREO properties with an aggregate
carrying value of $372,000. During 1998, properties with a total carrying value
of $306,000 were added to OREO as a result of foreclosures, properties with a
total carrying value of $467,000 were sold and properties were written down by
approximately $31,000. At December 31, 1997, California Financial had OREO
properties with an aggregate carrying value of $564,000. During the period ended
December 31, 1997, properties with a total carrying value of $601,000 were added
to OREO as a result of the acquisition of Security First and properties with a
total carrying value of $37,000 were sold. All of the OREO properties are
recorded by California Financial at amounts which are equal to or less than the
fair market value based on current independent appraisals reduced by estimated
selling costs.

186
<PAGE>
ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $2.0 million, or 2.0% of gross loans
at December 31, 1998, compared to $1.0 million or 4.6% of gross loans, at
December 31, 1997. The provision for loan and lease losses for the year ended
December 31, 1998 was $340,000 and no provision was recorded for the period
ended December 31, 1997.

The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for loan and lease losses arising from loan
and lease losses and additions to the allowance from provisions charged to
operating expense:

<TABLE>
<CAPTION>
PERIODS ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding...................... $26,275 $ 2,832
Gross loans and leases.................................... 99,491 22,173
Nonperforming loans and leases............................ 1,857 1,092
Allowance for loan and lease losses:
Balance at beginning of period........................ 1,013 --
Balance acquired during period........................ 1,168 1,013
Loans charged off during period
Commercial.......................................... 2 --
Real estate......................................... 623 --
Installment......................................... 57 --
------- -------
Total............................................. 682 --
Recoveries during period
Commercial.......................................... 14 --
Real estate......................................... 75 --
Installment......................................... 58 --
------- -------
Total............................................. 147 --
------- -------
Net loans charged off during period................. 535 --
Provision for loan and lease losses................. 340 --
------- -------
Balance at end of period.......................... $ 1,986 $ 1,013
======= =======
Selected ratios:
Net charge-offs to average loans and leases............. 2.04% --%
Provision for loan and lease losses to average loans.... 1.29 --
Allowance at end of period to gross loans and leases
outstanding at end of period............................ 2.00 4.57
Allowance as percentage of nonperforming loans and
leases.................................................. 106.95 92.77
</TABLE>

187
<PAGE>
The following table indicates management's allocation of the allowance for each
of the following periods:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------ ------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural...................... $ 945 38.1% $ 455 45.9%
Real estate and construction........ 720 47.7 279 27.7
Consumer............................ 269 14.2 197 26.4
Unallocated......................... 52 -- 82 --
------ ----- ------ -----
Total............................. $1,986 100.0% $1,013 100.0%
====== ===== ====== =====
</TABLE>

In allocating California Financial's allowance for loan and lease losses,
management has considered the credit risk in the various loan categories in its
portfolio. As such, the allocations of the allowance for loan and lease losses
are based upon the average aggregate historical net loan losses experienced in
each of the subsidiary banks. While every effort has been made to allocate the
allowance to specific categories of loans, management believes that any
allocation of the allowance for loan and lease losses into loan categories lends
an appearance of exactness which does not exist.

INVESTMENT SECURITIES

Total investments at December 31, 1998 were $98.8 million compared to
$11.3 million at December 31, 1997, which increased primarily as a result of the
acquisitions completed in 1998. At December 31, 1998, the investments of
California Financial included overnight Federal funds sold and securities
purchased under agreements to resell investments of $63.7 million,
interest-bearing deposits with other banks of $4.4 million, investment
securities of $30.2 million and Federal Reserve Bank stock of $452,000.
California Financial's portfolio of investment securities primarily consisted of
U.S. treasury and agency securities, corporate bonds and municipal securities.
At December 31, 1998, $21.7 million of California Financial's portfolio of
investment securities was classified as available for sale while $8.5 million
was classified as held to maturity. California Financial does not hold any
investment securities in a trading account.

188
<PAGE>
The amortized cost and estimated market value of California Financial's
portfolio of investment securities at December 31, 1998 and December 31, 1997
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. and state government and its
agencies........................... $20,375 $ 35 $ -- $20,410
Municipal obligations................ 487 -- -- 487
Corporate bonds...................... 780 1 -- 781
------- ---------- ---------- -------
Total available for sale........... 21,642 36 -- 21,678
------- ---------- ---------- -------
Held-to-Maturity:
U.S. and state government and its
agencies........................... 4,241 10 -- 4,251
Municipal obligations................ 1,630 -- -- 1,630
Corporate bonds...................... 2,640 -- -- 2,640
------- ---------- ---------- -------
Total held to maturity............. 8,511 10 -- 8,521
------- ---------- ---------- -------
Total.............................. $30,153 $ 46 $ -- $30,199
======= ========== ========== =======
</TABLE>

189
<PAGE>
The following tables show the maturities of investment securities at
December 31, 1998, and the weighted average yields of such securities:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN ONE BUT WITHIN FIVE BUT WITHIN
YEAR YEARS TEN YEARS AFTER TEN YEARS
------------------- ------------------- -------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. and state government and its
agencies......................... $8,159 4.68% $12,251 4.66% $ -- --% $ -- --%
Municipal obligations.............. -- -- 487 7.67 -- -- -- --
Corporate bonds.................... -- -- 781 5.93 -- -- -- --
------ ------- ---- ----
Total available for sale........... 8,159 4.68% 13,519 4.84% -- --% -- --%
------ ------- ---- ----

Held to maturity:
U.S. and state government and its
agencies......................... 401 -- 3,318 6.21 -- -- 522 7.21
Municipal obligations.............. 294 7.50 961 -- 375 5.77 -- --
Corporate bonds.................... 603 6.13 2,037 6.48 -- -- -- --
------ ------- ---- ----
Total held to maturity............. 1,298 4.55 6,316 5.35 375 5.77 522 7.21
------ ------- ---- ----
Total............................ $9,457 4.66% $19,835 5.00% $375 5.77% $522 7.21%
====== ======= ==== ====
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

DEPOSITS

Total deposits were $192.6 million at December 31, 1998 compared to
$35.7 million at December 31, 1997. The increase in total deposits since
December 31, 1997 is attributed to the acquisitions completed in 1998.
Noninterest bearing demand accounts were $93.1 million, or 48.4% of total
deposits, at December 31, 1998. Interest bearing deposits are comprised of money
market accounts, regular savings accounts, time deposits of under $100,000 and
time deposits of $100,000 or more which were $44.4 million, $8.7 million,
$19.0 million and $27.3 million, respectively, or 23.1%, 4.5%, 9.9%, and 14.1%
of total deposits, respectively, at December 31, 1998. See "Business--Deposits."

The following table shows the average amount and average rate paid on the
categories of deposits for each of years indicated:

<TABLE>
<CAPTION>
PERIODS ENDED DECEMBER 31,
--------------------------------------------
1998 1997
------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand................. $14,333 --% $1,201 --%
Interest-bearing demand.................... 3,772 1.25 419 1.67
Money market............................... 9,512 2.99 914 3.83
Savings.................................... 977 2.47 84 2.38
Time....................................... 18,134 5.04 2,188 4.71
------- ------
Total...................................... $46,728 2.72% $4,806 3.06%
======= ======
</TABLE>

190
<PAGE>
Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at December 31, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $14,379
Due in over three months through six months................. 5,268
Due in over six months through twelve months................ 7,433
Due in over twelve months................................... 202
-------
Total....................................................... $27,282
=======
</TABLE>

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus certain forms of
subordinated debt, a portion of the allowance for loan losses and preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor which ranges from zero for cash assets and certain government
obligations to 100% for some types of loans and adding the products together.

California Financial and each of its subsidiary banks were well capitalized as
of September 30, 1999 and December 31, 1998 for federal regulatory purposes. The
following table details the regulatory capital ratios of California Financial
and each of the subsidiary banks as of September 30, 1999. See the Notes to
Consolidated Financial Statements for California Financial contained herein for
the details of regulatory capital of California Financial as of December 31,
1998.

<TABLE>
<CAPTION>
CAPITAL ADEQUACY WELL CAPITALIZED
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
------------------- ------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- -------------- -------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage Capital Ratio:
California Financial............................ $23,200 11.21% $ 6,209 > or = to 3.0% $10,348 > or = to 5.0%
Security First.................................. 6,368 12.46% 1,533 > or = to 3.0% 2,555 > or = to 5.0%
Business Bank................................... 3,688 20.61% 537 > or = to 3.0% 895 > or = to 5.0%
CalWest......................................... 4,067 7.33% 1,665 > or = to 3.0% 2,774 > or = to 5.0%
Orange.......................................... 7,835 9.49% 2,477 > or = to 3.0% 4,128 > or = to 5.0%
Tier 1 Risk-Based Capital Ratio
California Financial............................ 23,200 15.72% 5,903 > or = to 4.0% 8,855 > or = to 6.0%
Security First.................................. 6,638 16.52% 1,607 > or = to 4.0% 2,411 > or = to 6.0%
Business Bank................................... 3,688 30.43% 485 > or = to 4.0% 727 > or = to 6.0%
CalWest......................................... 4,067 10.55% 1,542 > or = to 4.0% 2,313 > or = to 6.0%
Orange.......................................... 7,835 12.71% 2,466 > or = to 4.0% 3,699 > or = to 6.0%
Total Risk-Based Capital Ratio
California Financial............................ 25,045 16.97% 11,807 > or = to 8.0% 14,758 > or = to 10.0%
Security First.................................. 6,854 17.78% 3,084 > or = to 8.0% 3,855 > or = to 10.0%
Business Bank................................... 3,813 31.50% 968 > or = to 8.0% 1,210 > or = to 10.0%
CalWest......................................... 4,367 11.33% 3,083 > or = to 8.0% 3,854 > or = to 10.0%
Orange.......................................... 8,805 14.29% 4,929 > or = to 8.0% 6,162 > or = to 10.0%
</TABLE>

191
<PAGE>
LIQUIDITY

The banks rely on deposits as their principal source of funds and, therefore,
must be in a position to service depositors' needs as they arise. Management
attempts to maintain a loan-to-deposit ratio of not greater than 80% and a
liquidity ratio (liquid assets, including cash and due from banks, Federal funds
sold and investment securities to deposits) of approximately 25%. The average
loan-to-deposit ratio was 58.8% for the nine months ended September 30, 1999,
56.2% for the period ended in 1998 and 58.9% for the period ended in 1997. The
average liquidity ratio was 44.6% for the nine months ended September 30, 1999,
29.5% for the period ended in 1998 and 31.4% for the period ended in 1997. At
September 30, 1999, California Financial's loan-to-deposit ratio was 68.5% and
the liquidity ratio was 39.2%. At December 31, 1998, California Financial's
loan-to-deposit ratio was 50.5% and the liquidity ratio was 57.7%. While
fluctuations in the balances of a few large depositors may cause temporary
increases and decreases in liquidity from time to time, California Financial has
not experienced difficulty in dealing with such fluctuations from existing
liquidity sources.

Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of California Financial, other available sources of liquid assets
(secondary liquidity), including the purchase of Federal funds, sale of
securities under agreements to repurchase, sale of loans, and the discount
window borrowing from the Federal Reserve Bank, could be employed. California
Financial has relied primarily upon the purchase of Federal funds and the sale
of securities under agreements to repurchase for its secondary source of
liquidity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

When appropriate, management may utilize off balance sheet instruments such as
interest rate floors, caps and swaps to hedge its interest rate position. A
Board of Directors approved hedging policy statement governs use of these
instruments. As of September 30, 1999, California Financial had not utilized any
interest rate swap or other such financial derivative to alter its interest rate
risk profile.

One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap position indicates that there
would be a net positive impact on the net interest margin of California
Financial for the period measured in a declining interest rate environment since
California Financial's liabilities would reprice to lower market rates before
its assets would. A net negative impact would result from an increasing interest
rate environment. Conversely, an asset sensitive gap indicates that there would
be a net positive impact on the net interest margin in a rising interest rate
environment since California Financial's assets would reprice to higher market
interest rates before its liabilities would.

The following table sets forth the distribution of repricing opportunities of
California Financial's interest-earning assets and interest-bearing liabilities,
the interest rate sensitivity gap (i.e., interest rate

192
<PAGE>
sensitive assets less interest rate sensitive liabilities), cumulative
interest-earning assets and interest-bearing liabilities, the cumulative
interest rate sensitivity gap, the ratio of cumulative interest-earning assets
to cumulative interest-bearing liabilities and the cumulative gap as a
percentage of total assets and total interest-earning assets as of
September 30, 1999. The table also sets forth the time periods during which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of customers in response to changes in interest rates. This table should,
therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net interest margins of California Financial. There has
not been a material change in the interest rate risk profile of California
Financial since December 31, 1998.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
-------------------------------------------------------------------
OVER 3
MONTHS OVER 1
3 MONTHS TO 12 YEAR TO OVER NON-
OR LESS MONTHS 5 YEARS 5 YEARS SENSITIVE(1) TOTAL
-------- -------- -------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........... $ 3,384 $ 1,587 $ -- $ -- $ 14,347 $ 19,318
Federal funds sold................ 20,335 -- -- -- -- 20,335
Investment securities............. -- 9,887 20,097 2,464 (147) 32,448
Loans and leases.................. 61,095 9,097 36,730 19,437 -- 126,212
Other assets(2)................... 3,000 -- -- 679 21,061 24,740
------- -------- -------- -------- -------- --------
Total assets.................... 87,814 20,571 56,827 22,580 35,261 223,053
======= ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Non-interest bearing demand
deposits........................ -- -- -- -- 68,697 68,697
Interest-bearing demand, money
market and savings.............. 62,348 -- -- -- (76) 62,272
Time certificates of deposit...... 25,384 23,703 1,071 -- (99) 50,059
Other liabilities................. -- -- -- -- 3,195 3,195
Shareholders' equity.............. -- -- -- -- 38,830 38,830
------- -------- -------- -------- -------- --------
Total liabilities &
shareholders' equity.......... $87,732 $ 23,703 $ 1,071 $ -- $110,547 $223,053
======= ======== ======== ======== ======== ========
Period Gap........................ $ 82 $ (3,132) $ 55,756 $ 22,580 $(75,286)
Cumulative interest earning
assets.......................... $87,814 $108,385 $165,212 $187,792
Cumulative interest earning
liabilities..................... $87,732 $111,435 $112,506 $112,506
Cumulative Gap.................... $ 82 $ (3,050) $ 52,706 $ 75,286
Cumulative interest earning assets
to cumulative interest bearing
liabilities..................... 1.00 0.97 1.47 1.67
Cumulative gap as a percent of:
Total assets.................... 0.04% (1.37)% 23.63% 33.75%
Interest earning assets......... 0.04% (1.62)% 28.07% 40.09%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

193
<PAGE>
(2) Allowance for possible loan losses of $2.2 million as of September 30, 1999
is included in other assets.

At September 30, 1999, California Financial had $109.9 million in assets and
$129.2 million in liabilities repricing within one year. This means that
$19.3 million more in interest rate sensitive liabilities than interest rate
sensitive assets will change to the then current rate (changes occur due to the
instruments being at a variable rate or because the maturity of the instrument
requires its replacement at the then current rate). The ratio of interest
earning assets to interest bearing liabilities maturing or repricing within one
year at September 30, 1999 is .85 and management tries to maintain this ratio as
close to one as possible while remaining in a range between .80 and 1.20.
Interest expense is likely to be affected to a greater extent than interest
income for any changes in interest rates within one year from September 30,
1999. If rates were to fall during this period, interest expense would decline
by a greater amount than interest income and net income would increase.
Conversely, if rates were to rise, the reverse would apply.

Management has taken several steps to reduce the negative gap of California
Financial by shortening the maturities in its investment portfolio and
originating more variable rate assets. Management will continue to maintain a
balance between its interest earning assets and interest bearing liabilities in
order to minimize the impact on net interest income due to changes in market
rates.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue is a computer programming concern that may affect many
electronic processing systems. In order to minimize the length of data fields,
most computers programs eliminated the first two digits in the year date field.
This problem could affect date-sensitive calculations that treat "00" as the
year 1900, rather than 2000. Secondly, years that end in "00" are not leap
years, except for the anomaly in the year 2000. This anomaly could result in
miscalculations when processing critical date-sensitive information after
December 31, 1999.

The Year 2000 issue may adversely affect California Financial's information
technology systems, such as its item and data processing applications. The Year
2000 issue also may affect so-called embedded technology, such as the
microprocessors that control California Financial's security systems and
telecommunication equipment.

California Financial had determined that some of its computer software
applications needed to be modified or replaced in order to maintain their
functionality as the year 2000 approaches. In response, a comprehensive plan was
developed, with system conversions and testing substantially completed by
December 31, 1998 and all remediation completed by March 31, 1999. The plan
included the assessment of all internal systems, programs and data processing
applications as well as those provided to California Financial by third-party
vendors. Based upon California Financial's evaluation of its Year 2000
preparedness, management does not expect that the Year 2000 issue as it relates
to information systems and embedded technology will have a material adverse
effect on California Financial's business, financial condition or results of
operations. There can be no assurance, however, that third party vendors'
efforts will be successful and any such failure could have a material adverse
effect on California Financial. California Financial does not intend to obtain
insurance against any Year 2000 risks.

In addition, because California Financial's day-to-day operations are heavily
dependent on its ability to communicate information amongst its locations, it
would be particularly susceptible to any possible effects that the Year 2000
issue has on local and national communications systems, including without
limitation, telephone and data lines. Any interruption or malfunction of such
systems could have a material adverse effect on California Financial.

194
<PAGE>
California Financial's noninterest expense for 1997 did not include any costs
associated with the Year 2000 issue and California Financial estimates its total
costs over the period from January 1, 1998 through December 31, 1999 will be
less than $500,000. None of those costs, however, are expected to materially
affect California Financial's results of operations in any one reporting period.
In addition, a significant portion of those costs are not expected to be
incremental to California Financial but instead will constitute a reassignment
of existing internal systems technology resources. In light of the complexity of
the Year 2000 problem and its potential effect on both California Financial and
third parties that interact with California Financial, however, there can be no
assurance that California Financial's costs associated with the Year 2000 issue
will be as estimated.

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures California Financial undertakes, but also on the way in
which the year 2000 issue is addressed by governmental agencies, businesses and
other entities who provide data to, or receive data from California Financial or
whose financial condition or operational capability is important to California
Financial such as suppliers or customers. Communications with significant
customers and vendors have been initiated to determine the extent of risk
created by those third parties' failure to remediate their own year 2000 issues;
however, it is not possible, at present, to determine the financial effect if a
significant customer's and/or vendor's remediation efforts are not resolved in a
timely manner.

California Financial is also preparing contingency plans to try to minimize the
harm to California Financial in the event that California Financial or any or
all of the third parties with which it interacts is unable to attain Year 2000
readiness. The contingency plans being prepared are system and application
specific and are intended to ensure that in the event that one or more of such
systems and/or applications fail by or at the Year 2000, California Financial
will be able to engage in its core business functions in spite of such failure.
Among the efforts undertaken by California Financial to prepare for the
occurrence of Year 2000 is an analysis of the most reasonably likely worst case
scenarios for the Year 2000. These scenarios have been analyzed in terms of
impact on California Financial and steps that can be taken to mitigate the
potential problems. While not an exhaustive list,

195
<PAGE>
the scenarios that have been analyzed by California Financial and the
contingency plans that have been developed include the following:

<TABLE>
<S> <C>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
Failure of core accounting systems All core accounting systems have been and
will continue to be tested throughout 1999 to
ensure their viability at the century date
change. Hard copies of key reports will be
produced prior to January 1, 2000.
Power failure at the operations California Financial is currently analyzing
the option of the installation of generators
at key locations to ensure uninterrupted
power in order to provide critical customer
services.
Telecommunications is unavailable California Financial is preparing contingency
plans to run the branches without connection
to California Financial's systems including
ground transportation to move work and
information between locations.
Substantial withdrawal of deposits by California Financial is putting various
customers contingency funding mechanisms in place
including federal funds lines, shortening the
maturity of securities, FHLB advances and the
use of the Federal Reserve discount window.
Substantial increased cash needs by customers California Financial is analyzing customer
deposit history to estimate additional
customer cash needs, if any.
Miscellaneous occurrences which require California Financial is ensuring that key
additional personnel to remedy. personnel are available before and after
January 1, 2000.
</TABLE>

Although California Financial believes that its Year 2000 Plan and other steps
being taken are adequate to ensure that it will not be materially affected by
the Year 2000 problem, there can be no assurance that the Year 2000 Plan and
California Financial's other Year 2000 remedial and contingency plans will fully
protect California Financial from the risks associated with the Year 2000
problem. The analysis of, and preparation for, the Year 2000 and related
problems necessarily rely on a variety of assumptions about future events, and
there can be no assurance that California Financial's management has accurately
predicted such future events or that their remedial and contingency plans will
adequately address such future events. In the event that the businesses of
California Financial, vendors of California Financial or customers of California
Financial are disrupted as a result of the Year 2000 problem, such disruption
could have a material adverse effect on California Financial.

In addition, bank regulatory agencies, as part of their supervisory function,
have recently issued guidance under which they are assessing and will assess
Year 2000 readiness. The failure of a financial institution, such as California
Financial, to take appropriate steps to address deficiencies in its Year 2000
project management process may result in one or more regulatory enforcement
actions which could have a material adverse effect on such institution. Such
actions may include the imposition of civil money penalties, or result in the
delay or denial of regulatory applications.

196
<PAGE>
The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
California Financial expects to substantially complete programming changes,
remediation and testing of systems and the impact of redeployment of existing
staff, are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events including the continued
availability of certain resources, representations received from third party
service providers and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to identify and convert all relevant
computer systems, results of year 2000 testing, adequate resolution of year 2000
issues by governmental agencies, businesses or other third parties who are
service providers, suppliers, borrowers or customers of California Financial,
unanticipated systems costs, the need to replace hardware, the adequacy of and
ability to implement contingency plans and similar uncertainties. The
forward-looking statements made in the foregoing year 2000 discussion speak only
as of the date on which such statements are made, and California Financial
undertakes no obligation to update any forward-looking statements to reflect the
occurrence of unanticipated events.

California Financial's disclosures and announcements herein concerning its Year
2000 planning and programs are intended to constitute Year 2000 Readiness
Disclosures as defined in the recently enacted Year 2000 Information and
Readiness Disclosure Act. The Year 2000 Information and Readiness Disclosure Act
provides certain protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness product and services.

INFLATION

The majority of California Financial's assets and liabilities are monetary items
held by California Financial, the dollar value of which is not affected by
inflation. Only a small portion of total assets is in premises and equipment.
The lower inflation rate of recent years did not have the positive impact on
California Financial that was felt in many other industries. The small fixed
asset investment of California Financial minimizes any material misstatement of
asset values and depreciation expenses that may result from fluctuating market
values due to inflation. A higher inflation rate, however, may increase
operating expenses or have other adverse effects on borrowers of California
Financial's bank subsidiaries, making collection more difficult for California
Financial. Rates of interest paid or charged generally rise if the marketplace
believes inflation rates will increase.

197
<PAGE>
ORANGE'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Orange was acquired by California Financial on December 31, 1998 and was
accounted for using the purchase method of accounting for business combinations.
Hence, the statement of condition of Orange was included in the statement of
condition of California Financial at December 31, 1998 and the results of
operations since the purchase are included in the results of California
Financial. The following management's discussion for Orange is only for the
years ended December 31, 1998 and 1997 since the statement of condition and
results of operations are included in those of California Financial at and for
the nine months ended September 30, 1999.

This information should be read in conjunction with the audited financial
statements and the notes thereto of Orange included with this proxy
statement/prospectus. Except for the historical information contained herein,
the following discussion contains forward-looking statements that involve risks
and uncertainties. Orange's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to, changes in regulatory climate,
shifts in the interest rate environment, changes in economic conditions of
various markets Orange serves, as well as the other risks detailed in this
section and in "Risk Factors" above.

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

OVERVIEW

Orange had a net loss of $205,000 for the year ended December 31, 1998 compared
to net income of $372,000 for the year ended December 31, 1997. The decrease in
net income is due to an increase in noninterest expense of $1.8 million,
partially offset by increased net interest income and noninterest income of
$651,000 and $186,000, respectively, and decreased provisions for loan and lease
losses and income taxes of $15,000 and $360,000, respectively. Basic and diluted
net loss per share in 1998 was $0.59 per share compared to basic income per
share of $1.16 and diluted income per share of $1.05 in 1997. Orange's return on
average assets was (0.2)% and its return on average common equity was (2.4)% for
the year ended December 31, 1998, as compared to 0.6% and 5.5%, respectively,
for the year ended December 31, 1997.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

Orange's net interest income increased $651,000, or 15.7%, in 1998 due to an
increase of $944,000 in interest income, partially offset by increased interest
expense of $293,000. Interest income increased primarily due to the higher
volume of earning assets partially offset by decreased yields. Interest expense
increased due to an increase in the cost of interest-bearing liabilities
combined with an increase in the volume of interest-bearing deposit liabilities.
The yield on interest-earning assets declined to 8.1% in 1998 from 8.7% in 1997
and the cost of average interest-bearing liabilities increased to 3.5% in 1998
from 3.0% in 1997. As a result of those factors, the net yield on earning assets
increased to 6.6% in 1998 from 7.2% in 1997.

198
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)....................... $38,043 $3,888 10.22% $32,135 $3,429 10.67%
Investment securities (2).................. 19,918 1,203 6.04 16,090 1,024 6.36
Federal funds sold......................... 13,239 717 5.42 7,584 431 5.68
Other earning assets....................... 1,954 114 5.83 1,576 94 5.96
------- ------ ------- ------
Total interest-earning assets.......... 73,154 5,922 8.10 57,385 4,978 8.67
Non-earning assets:
Cash and demand deposits with banks........ 7,941 6,085
Other assets............................... 3,845 1,409
------- -------
Total assets........................... 84,940 64,879
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand.................. 3,599 49 1.36 3,559 48 1.35
Money market............................. 14,856 387 2.61 13,125 266 2.03
Savings.................................. 4,368 164 3.75 3,826 151 3.95
Time..................................... 9,486 518 5.46 6,547 342 5.22
------- ------ ------- ------
Total interest-bearing deposits........ 32,309 1,118 3.46 27,057 807 2.98
Other borrowings........................... -- -- -- 241 18 7.47
------- ------ ------- ------
Total interest-bearing liabilities..... 32,309 1,118 3.46 27,298 825 3.02

Noninterest-bearing liabilities:
Demand deposits.......................... 42,735 30,244
Other liabilities........................ 1,190 624
------- -------
Total liabilities...................... 76,234 58,166
Shareholders' equity....................... 8,706 6,713
------- -------
Total liabilities and shareholders'
equity................................... $84,940 $64,879
======= ------ ======= ------
Net interest income........................ $4,804 $4,153
====== ======
Net yield on interest-earning assets....... 6.57% 7.24%
</TABLE>

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

(1) Loan fees of $163,000 and $138,000 are included in the computations for 1998
and 1997, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

199
<PAGE>
total loans outstanding while nonaccrued interest thereon is excluded from the
computation of rates earned.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 COMPARED TO 1997
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases............................... $459 $(145) $ 630 $(26)
Investment securities.......................... 179 (51) 243 (13)
Federal funds sold............................. 286 (20) 321 (15)
Other earning assets........................... 20 (2) 23 (1)
---- ----- ------ ----
Total interest income...................... 944 (218) 1,217 (55)

Interest Expense:
Interest-bearing demand........................ 1 -- 1 --
Money market................................... 121 76 35 10
Savings........................................ 13 (7) 21 (1)
Time........................................... 176 15 154 7
Other borrowing................................ (18) (9) (9) --
---- ----- ------ ----
Total interest expense..................... 293 75 201 15
---- ----- ------ ----
Net interest income............................ $651 $(293) $1,016 $(70)
==== ===== ====== ====
</TABLE>

NONINTEREST INCOME

Noninterest income increased by $186,000, or 30.0%, to $813,000 in 1998 from
$627,000 in 1997. The increase was primarily due to an increase of $114,000 in
loan referral fees Orange received from another bank and a $65,000 increase due
to the increased cash surrender value of life insurance. The following table
presents for the periods indicated the major categories of noninterest income:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
---- ----
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Service charges and fees.................................... $409 $435
Loan referral fees received from an unrelated bank.......... 142 28
Increase in cash surrender value of life insurance.......... 121 56
Other real estate owned income, net......................... -- 15
Gain on sale of SBA loans................................... 51 48
Other operating income...................................... 90 45
---- ----
Total................................................... $813 $627
==== ====
</TABLE>

NONINTEREST EXPENSE

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of Orange. Also included are the costs of carrying and administering problem
assets, which include nonperforming and restructured loans.

Noninterest expense increased $1.8 million, or 44.2%, to $5.8 million in 1998
from $4.0 million in 1997. The increase in expense is largely attributable to
compensation expense and professional fees related to the acquisition by
California Financial. Orange's efficiency ratio (defined as noninterest expense
to total

200
<PAGE>
revenue before income related to other real estate owned less interest expense)
was 104.0% for the year ended December 31, 1998, an increase of 19.0%, from
85.0% for 1997.

The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
------ ------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits............................ $3,045 $1,839
Data and item processing.................................. 862 732
Professional fees......................................... 654 336
Occupancy................................................. 339 261
Equipment................................................. 234 159
Other operating expenses.................................. 705 723
------ ------
Total................................................. $5,839 $4,050
====== ======
</TABLE>

PROVISION FOR INCOME TAXES

Orange recorded a tax benefit of $137,000 in 1998 compared to a provision of
$223,000 recorded in 1997. This decrease in taxes resulted from an operating
loss in 1998 over taxable income in 1997 that was attributable to tax deductible
acquisition related expenses in 1998 not incurred in 1997.

FINANCIAL CONDITION

Total assets of Orange at December 31, 1998 were $103.0 million compared to
total assets of $73.4 million at December 31, 1997. Total earning assets of
Orange at December 31, 1998 were $92.8 million compared to total earning assets
of $65.2 million at December 31, 1997. The increase in total assets and total
earning assets since December 31, 1997 is substantially attributable to the
increase in gross loans that increased $5.1 million, or 13.4%, to $43.1 million
at December 31, 1998 from $38.0 million at December 31, 1997.

LOANS AND LEASES

Total gross loans and leases of Orange at December 31, 1998 were $43.1 million
compared to $38.0 million at December 31, 1997. At December 31, 1998, the four
largest lending categories were: (i) commercial loans, (ii) real estate loans,
(iii) loans to individuals and (iv) SBA loans. At December 31, 1998, those
categories accounted for $18.6 million, $13.4 million, $8.1 million and
$3.0 million, or approximately 43.2%, 31.0%, 18.8% and 7.0% of total gross loans
and leases, respectively. The following table sets forth the amount of loans and
leases outstanding for Orange at

201
<PAGE>
the end of each of the years indicated, according to type of loan. Orange has no
foreign loans or energy-related loans as of the dates indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
<S> <C> <C>
1998 1997
------- -------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Commercial................................................ $18,605 $17,541
Real estate loans......................................... 13,409 9,700
Consumer Loans............................................ 8,057 8,910
SBA Loans................................................. 3,045 1,875
------- -------
Subtotal.................................................. 43,116 38,026
Less: allowance for loan and lease losses................. (903) (737)
Deferred loan fees........................................ (76) (77)
------- -------
Net loans and leases...................................... $42,137 $37,212
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------
<S> <C> <C>
REAL
COMMERCIAL ESTATE
------- -------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year..................................... $ 8,058 $ 1,236
After one year but within five years:
Interest rates are floating or adjustable........... 4,259 1,010
Interest rates are fixed or predetermined........... 3,258 1,513

After five years:
Interest rates are floating or adjustable........... 930 1,293
Interest rates are fixed or predetermined........... 2,100 8,357
------- -------
Total............................................. $18,605 $13,409
======= =======
</TABLE>

As of December 31, 1998, in management's judgment, a concentration of loans
existed in commercial and SBA loans and real estate loans. At that date,
approximately 81.2% of Orange's loans, primarily in southern California, were
commercial and SBA loans or real estate loans, representing 50.2% and 31.0% of
total loans, respectively. Although management believes such concentrations to
have no more than the normal risk of collectibility, a substantial decline in
real estate values could have an adverse impact on collectibility, increase the
level of real estate-related nonperforming loans, or have other adverse effects
which alone or in the aggregate could have a material adverse effect on the
financial condition of Orange.

202
<PAGE>
NONPERFORMING ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1998 1997
---- ----
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans and leases, not restructured............... $ -- $120
Accruing loans and leases past due 90 days or more.......... -- --
Restructured loans and leases............................... -- --
---- ----
Total nonperforming loans and leases ("NPLs")............. -- 120
Other real estate owned ("OREO")............................ -- --
---- ----
Total nonperforming assets ("NPAs")......................... $ -- $120
==== ====
Selected ratios:
NPLs to total loans and leases............................ --% 0.32%
NPAs to total loans and leases and OREO................... -- 0.32
NPAs to total assets...................................... -- 0.16
</TABLE>

Orange's impaired loans pursuant to SFAS 114 as amended by SFAS 118 are
generally loans that are nonaccrual and those that have been restructured. For
the twelve months ended December 31, 1998 no additional gross interest income
would have been recorded on impaired loans, and for calendar year 1997 an
immaterial amount of additional gross interest income would have been recorded
on impaired loans, in each case had the loans been current. No accrued but
unpaid interest income on such loans was in fact included in Orange's net income
as of December 31, 1998 and 1997.

Loans aggregating $22,000 at December 31, 1998 have been designated as impaired
in accordance with SFAS 114 as amended by SFAS 118. Orange's impaired loans are
all collateral dependent, and as such the method used to measure the amount of
impairment on these loans is to compare the loan amount to the fair value of
collateral. The total allowance for loan losses related to these loans was
$5,000 at December 31, 1998. At December 31, 1997, there were no loans
designated as impaired. The average balance of impaired loans during 1998 and
1997 was $26,000 and $0, respectively.

At December 31, 1998 and 1997, Orange had no OREO properties recorded and there
was no foreclosure or sale activity for either year. It is the policy of Orange
to record OREO properties at amounts that are equal to or less than the market
value based on current independent appraisals reduced by estimated selling
costs.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $903,000, or 2.1% of gross loans at
December 31, 1998, compared to $737,000, or 1.9% of gross loans, at
December 31, 1997. The provision for loan losses for the year ended
December 31, 1998 was $120,000 compared to $135,000 for the same period in 1997.

203
<PAGE>
The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for possible loan and lease losses arising
from loan and lease losses and additions to the allowance from provisions
charged to operating expense:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
<S> <C> <C>
1998 1997
------- -------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding.................... $38,043 $32,135
Gross loans and leases.................................. 43,116 38,026
Nonperforming loans and leases.......................... -- 120
Allowance for loan and lease losses:
Balance at beginning of period...................... 737 781
Loans charged off during period
Commercial........................................ 148 223
Real estate....................................... -- --
Installment....................................... 21 --
------- -------
Total........................................... 169 223
Recoveries during period
Commercial........................................ 199 40
Real estate....................................... -- --
Installment....................................... 16 4
------- -------
Total........................................... 215 44
------- -------
Net loans charged off (recovered) during period... (46) 179
Provision for loan and lease losses............... 120 135
------- -------
Balance at end of period........................ $ 903 $ 737
======= =======

Selected ratios:
Net (recoveries) charge-offs to average loans and
leases.............................................. (0.12)% 0.56%
Provision for loan and lease losses to average
loans............................................... 0.32 0.42
Allowance at end of period to gross loans and leases
outstanding at end of period........................ 2.09 1.94
Allowance as percentage of nonperforming loans and
leases.............................................. NM 614.17
</TABLE>

The following table indicates management's allocation of the allowance for each
of the following years:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1998 1997
---------------------- ----------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
EACH EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Commercial, financial and
agricultural...................... $682 50.2% $492 51.1%
Real estate and construction........ 147 31.0 157 25.5
Consumer............................ 74 18.8 88 23.4
Unallocated......................... -- -- -- --
---- ----- ---- -----
Total........................... $903 100.0% $737 100.0%
==== ===== ==== =====
</TABLE>

In allocating Orange's allowance for loan and lease losses, management has
considered the credit risk in the various loan categories in its portfolio. As
such, the allocations of the allowance for loan and

204
<PAGE>
lease losses are based upon the average aggregate historical net loan losses
experienced. While every effort has been made to allocate the allowance to
specific categories of loans, management believes that any allocation of the
allowance for loan and lease losses into loan categories lends an appearance of
exactness which does not exist.

INVESTMENT AND INVESTMENT SECURITIES

Total investments of Orange at December 31, 1998 were $49.8 million compared to
$27.3 million at December 31, 1997. At December 31, 1998, the investments of
Orange included overnight Federal funds sold of $27.5 million, interest-bearing
deposits with other banks of $2.0 million and investment securities of
$20.3 million. At December 31, 1998, the portfolio of investment securities
consisted of U.S. Treasury securities all classified as available for sale.
Orange does not have any investment securities held for trading.

The following table presents the amortized cost of securities and their
approximate fair values at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
------- ---- --------- -------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities........... $20,035 $240 $ -- $20,275
------- ---- --------- -------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
<S> <C> <C> <C> <C>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
------- --- --- -------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities........... $17,022 $66 $(5) $17,083
Mortgage-backed securities......... 204 1 -- 205
------- --- --- -------
Total............................ $17,226 $67 $(5) $17,288
======= === === =======
</TABLE>

The following tables show the maturities of investment securities at
December 31, 1998, and the weighted average yields of such securities:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
------------------- ------------------- --------------------- ---------------------
<CAPTION>
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- -------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities...... $8,059 4.66% $12,216 4.66% $ -- --% $ -- --%
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

DEPOSITS

Total deposits were $93.4 million at December 31, 1998 compared to
$65.1 million at December 31, 1997. The increase in total deposits since
December 31, 1997 is primarily attributed to growth in Orange's core deposit
base of noninterest-bearing accounts. Noninterest-bearing demand accounts were

205
<PAGE>
$61.2 million, or 65.5% of total deposits, at December 31, 1998 compared to
$35.2 million, or 54.1% of total deposits, at December 31, 1997.
Interest-bearing deposits were $32.2 million, or 34.5% of total deposits, at
December 31, 1998 compared to $29.9 million, or 45.9% of total deposits, at
December 31, 1997.

<TABLE>
<CAPTION>
FOR TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------
<S> <C> <C> <C> <C>
1998 1997
------------------- -------------------
<CAPTION>
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand................ $42,735 --% $30,244 --%
Interest-bearing demand................... 3,599 1.36 3,559 1.35
Money market.............................. 14,856 2.61 13,125 2.03
Savings................................... 4,368 3.75 3,826 3.95
Time...................................... 9,486 5.46 6,547 5.22
------- -------
Total................................. $75,044 1.49% $57,301 1.41%
======= =======
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at December 31, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $2,496
Due in over three months through six months................. 580
Due in over six months through twelve months................ 1,535
Due in over twelve months................................... 102
------
Total................................................... $4,713
======
</TABLE>

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus some forms of
subordinated debt, a portion of the allowance for loan losses and preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor that ranges from zero for cash assets and some government
obligations to 100% for some types of loans and adding the products together.
See "The Bank of Orange County Audited Financial Statements--Footnote
13--Regulatory Matters."

Orange was well capitalized at December 31, 1998 for federal regulatory
purposes. The following table details the regulatory capital ratios of Orange as
December 31, 1998.

206
<PAGE>
LIQUIDITY

Orange relies on deposits as its principal source of funds and, therefore, must
be in a position to service depositors' needs as they arise. Management attempts
to maintain a loan-to-deposit ratio of not greater than 80% and a liquidity
ratio (liquid assets, including cash and due from banks, Federal funds sold and
investment securities to deposits) of approximately 25%. The average
loan-to-deposit ratio was 50.7% in 1998 and 56.1% in 1997. The average liquidity
ratio was 54.8% in 1998 and 51.9% in 1997. At December 31,1998, Orange's
loan-to-deposit ratio was 46.1% and the liquidity ratio was 58.9%. While
fluctuations in the balances of a few large depositors cause temporary increases
and decreases in liquidity from time to time, Orange has not experienced
difficulty in dealing with such fluctuations from existing liquidity sources.

Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of Orange, other available sources of liquid assets (secondary liquidity),
including the purchase of Federal funds, sale of securities under agreements to
repurchase, sale of loans, and the discount window borrowing from the Federal
Reserve Bank, could be employed. Orange places reliance primarily upon the
purchase of Federal funds and the sale of securities under agreements to
repurchase for its secondary source of liquidity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

When appropriate, management may utilize off balance sheet instruments such as
interest rate floors, caps and swaps to hedge its interest rate position. A
Board of Directors approved hedging policy statement governs use of these
instruments. As of December 31, 1998, Orange had not utilized any interest rate
swap or other such financial derivative to alter its interest rate risk profile.

One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap position indicates that there
would be a net positive impact on the net interest margin of Orange for the
period measured in a declining interest rate environment since Orange's
liabilities would reprice to lower market rates before its assets would. A net
negative impact would result from an increasing interest rate environment.
Conversely, an asset sensitive gap indicates that there would be a net positive
impact on the net interest margin in a rising interest rate environment since
Orange's assets would reprice to higher market interest rates before its
liabilities would.

The following table sets forth the distribution of repricing opportunities of
Orange's interest-earning assets and interest-bearing liabilities, the interest
rate sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), cumulative interest-earning assets and interest-bearing
liabilities, the cumulative interest rate sensitivity gap, the ratio of
cumulative interest-earning assets to cumulative interest-bearing liabilities
and the cumulative gap as a percentage of total assets and total
interest-earning assets as of December 31, 1998. The table also sets forth the
time periods during which

207
<PAGE>
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of customers in response to changes in interest rates. This table should,
therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net margins of Orange.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
OVER 3 OVER 1
3 MONTHS MONTHS TO YEAR TO OVER NON-
OR LESS 12 MONTHS 5 YEARS 5 YEARS SENSITIVE(1) TOTAL
-------- --------- -------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............... $ 99 $ 1,877 $ -- $ -- $ 7,226 $ 9,202
Federal funds sold.................... 27,500 -- -- -- -- 27,500
Investment securities................. 2,003 6,056 12,216 -- -- 20,275
Loans and leases...................... 19,676 5,181 10,019 8,240 (76) 43,040
Other assets (2)...................... -- -- -- -- 3,005 3,005
------- ------- ------- ------- -------- --------
Total assets........................ 49,278 13,114 22,235 8,240 10,155 103,022
======= ======= ======= ======= ======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing demand
deposits............................ -- -- -- -- 61,182 61,182
Interest-bearing demand, money market
and savings......................... 21,111 -- -- -- -- 21,111
Time certificates of deposit.......... 4,068 6,044 948 -- -- 11,060
Other liabilities..................... -- -- -- -- 1,940 1,940
Shareholders' equity.................. -- -- -- -- 7,729 7,729
------- ------- ------- ------- -------- --------
Total liabilities & shareholders'
equity............................ $25,179 $ 6,044 $ 948 $ -- $ 70,851 $103,022
======= ======= ======= ======= ======== ========

Period Gap............................ $24,099 $ 7,070 $21,287 $ 8,240 $(60,696)
Cumulative interest earning assets.... $49,278 $62,392 $84,627 $92,867
Cumulative interest earning
liabilities......................... $25,179 $31,223 $32,171 $32,171
Cumulative Gap........................ $24,099 $31,169 $52,456 $60,696
Cumulative interest earning assets to
cumulative interest bearing
liabilities......................... 1.96 2.00 2.63 2.89
Cumulative gap as a percent of:
Total assets........................ 23.39% 30.25% 50.92% 58.92%
Interest earning assets............. 25.95% 33.56% 56.49% 65.36%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

(2) Allowance for possible loan losses of $903,000 as of December 31, 1998 is
included in other assets.

208
<PAGE>
At December 31, 1998, Orange had $62.4 million in assets and $31.2 million in
liabilities repricing within one year. This means that $31.2 million more in
interest rate sensitive assets than interest rate sensitive liabilities will
change to the then current rate (changes occur due to the instruments being at a
variable rate or because the maturity of the instrument requires its replacement
at the then current rate). The ratio of interest earning assets to interest
bearing liabilities maturing or repricing within one year at December 31, 1998
of 2.00 is due to the high level of noninterest bearing deposits at that date
and management tries to maintain this ratio as close to one as possible while
remaining in a range between .80 and 1.20. Interest income is likely to be
affected to a greater extent than interest expense for any changes in interest
rates within one year from December 31, 1998. If rates were to fall during this
period, interest income would decline by a greater amount than interest expense
and net income would decrease. Conversely, if rates were to rise, the reverse
would apply.

Management has taken several steps to reduce the positive gap through one year
of Orange by lengthening the maturities in its investment portfolio and
originating more fixed rate assets that mature or reprice in balance with its
interest-bearing liabilities. Management will continue to maintain a balance
between its interest earning assets and interest-bearing liabilities in order to
minimize the impact on net interest income due to changes in market rates.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue may adversely affect Orange's information technology
systems, such as its item and data processing applications. The Year 2000 issue
also may affect so-called embedded technology, such as microprocessors that
control Orange's security systems and telecommunication equipment.

Orange had determined that some of its computer software applications needed to
be modified or replaced in order to maintain their functionality as the year
2000 approaches. In response, a comprehensive plan was developed, with system
conversions and testing substantially completed by December 31, 1998 and all
remediation was completed by March 31, 1999. The plan included the assessment of
all internal systems, programs and data processing applications as well as those
provided to Orange by third-party vendors. Based upon Orange's evaluation of its
Year 2000 preparedness, management does not expect that the Year 2000 issue as
it relates to information systems and embedded technology will have a material
adverse effect on Orange's business, financial condition or results of
operations. There can be no assurance, however, that third party vendors'
efforts will be successful and any such failure could have a material adverse
effect on Orange. Orange does not intend to obtain insurance against any Year
2000 risks.

In addition, because Orange's day-to-day operations are heavily dependent on its
ability to communicate with the Federal Reserve and its customers, it would be
particularly susceptible to any possible effects that the Year 2000 issue has on
local and national communications systems, including without limitation,
telephone and data lines. Any interruption or malfunction of such systems could
have a material adverse effect on Orange.

Orange's noninterest expense for 1997 did not include any costs associated with
the Year 2000 issue and Orange estimates its total costs over the period from
January 1, 1998 through December 31, 1999 will be less than $200,000. None of
those costs, however, are expected to materially affect Orange's results of
operations in any one reporting period. In addition, a significant portion of
those costs are not expected to be incremental to Orange but instead will
constitute a reassignment of existing internal

209
<PAGE>
systems technology resources. In light of the complexity of the Year 2000
problem and its potential effect on both Orange and third parties that interact
with Orange, however, there can be no assurance that Orange's costs associated
with the Year 2000 issue will be as estimated.

Ultimately, the potential impact of the Year 2000 issue will depend not only on
the corrective measures Orange undertakes, but also on the way in which the year
2000 issue is addressed by governmental agencies, businesses and other entities
who provide data to, or receive data from Orange or whose financial condition or
operational capability is important to Orange such as suppliers or customers.
Communications with significant customers and vendors have been initiated to
determine the extent of risk created by those third parties' failure to
remediate their own year 2000 issues; however, it is not possible, at present,
to determine the financial effect if a significant customer's and/or vendors
remediation efforts are not resolved in a timely manner.

Orange is also preparing contingency plans to try to minimize the harm to Orange
in the event that Orange or any or all of the third parties with which it
interacts is unable to attain Year 2000 readiness. The contingency plans being
prepared are system and application specific and are intended to ensure that in
the event that one or more of such systems and/or applications fail by or at the
Year 2000, Orange will be able to engage in its core business functions in spite
of such failure. Among the efforts undertaken by Orange to prepare for the
occurrence of Year 2000 is an analysis of the most reasonably likely worst case
scenarios for the Year 2000. These scenarios have been analyzed in terms of
impact on Orange and steps that can be taken to mitigate the potential problems.
While not an exhaustive list, the scenarios that have been analyzed by Orange
and the contingency plans that have been developed include the following:

<S> <C>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
Failure of core accounting systems All core accounting systems have been and
will continue to be tested throughout 1999 to
ensure their viability at the century date
change. Hard copies of key reports will be
produced prior to January 1, 2000.
Power failure at the operations Orange is currently analyzing the option of
the installation of generators at key
locations to ensure uninterrupted power in
order to provide critical customer services.
Telecommunications is unavailable Orange is preparing contingency plans to run
the branches without connection to Orange's
systems including ground transportation to
move work and information between locations.
Substantial withdrawal of deposits by Orange is putting various contingency funding
customers mechanisms in place including federal funds
lines, shortening the maturity of securities,
FHLB advances and the use of the Federal
Reserve discount window.
Substantial increased cash needs by customers Orange is analyzing customer deposit history
to estimate additional customer cash needs,
if any.
Miscellaneous occurrences which require Orange is ensuring that key personnel are
additional personnel to remedy. available before and after January 1, 2000.
</TABLE>

210
<PAGE>
Although Orange believes that its Year 2000 Plan and other steps being taken are
adequate to ensure that it will not be materially affected by the Year 2000
problem, there can be no assurance that the Year 2000 Plan and Orange's other
Year 2000 remedial and contingency plans will fully protect Orange from the
risks associated with the Year 2000 problem. The analysis of, and preparation
for, the Year 2000 and related problems necessarily rely on a variety of
assumptions about future events, and there can be no assurance that Orange's
management has accurately predicted such future events or that their remedial
and contingency plans will adequately address such future events. In the event
that the businesses of Orange, vendors of Orange or customers of Orange are
disrupted as a result of the Year 2000 problem, such disruption could have a
material adverse effect on Orange.

In addition, bank regulatory agencies, as part of their supervisory function,
have recently issued guidance under which they are assessing and will assess
Year 2000 readiness. The failure of a financial institution, such as Orange, to
take appropriate steps to address deficiencies in its Year 2000 project
management process may result in one or more regulatory enforcement actions that
could have a material adverse effect on such institution. Such actions may
include the imposition of civil money penalties, or result in the delay or
denial of regulatory applications.

The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Orange expects to substantially complete programming changes, remediation and
testing of systems and the impact of redeployment of existing staff, are based
on management's best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued availability of some
resources, representations received from third party service providers and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to identify and convert all relevant computer systems, results of year
2000 testing, adequate resolution of year 2000 issues by governmental agencies,
businesses or other third parties who are service providers, suppliers,
borrowers or customers of Orange, unanticipated systems costs, the need to
replace hardware, the adequacy of and ability to implement contingency plans and
similar uncertainties. The forward-looking statements made in the foregoing year
2000 discussion speak only as of the date on which such statements are made, and
Orange undertakes no obligation to update any forward-looking statements to
reflect the occurrence of unanticipated events.

Orange's disclosures and announcements herein concerning its Year 2000 planning
and programs are intended to constitute Year 2000 Readiness Disclosures as
defined in the recently enacted Year 2000 Information and Readiness Disclosure
Act. The Year 2000 Information and Readiness Disclosure Act provides some
protection from liability for some public and private statements concerning an
entity's Year 2000 readiness and the Year 2000 readiness product and services.

INFLATION

The majority of Orange's assets and liabilities are monetary items held by
Orange, the dollar value of which is not affected by inflation. Only a small
portion of total assets is in premises and equipment. The lower inflation rate
of recent years did not have the positive impact on Orange that was felt in many
other industries. The small fixed asset investment of Orange minimizes any
material misstatement of asset values and depreciation expenses that may result
from fluctuating market values due to inflation. A higher inflation rate,
however, may increase operating expenses or have other adverse effects on
borrowers of Orange, making collection more difficult for Orange. Rates of
interest paid or charged generally rise if the marketplace believes inflation
rates will increase.

211
<PAGE>
CALWEST'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

CalWest was acquired by California Financial on November 25, 1998 and was
accounted for using the purchase method of accounting for business combinations.
Hence, the statement of condition of CalWest is included in the statement of
condition of California Financial at December 31, 1998 and the results of
operations since the purchase are included in the results of California
Financial. The following management's discussion for CalWest is only for the two
years ended December 31, 1998 and 1997 since the statement of condition and
results of operations are included in those of California Financial at and for
the nine months ended September 30,1999. Information for 1998 in this discussion
has been presented at December 31, 1998 and results of operations on a pro forma
basis for the entire year of 1998, with push-down accounting applied, in order
to provide a comparison of the two years. The following unaudited tables present
a comparison of the statement of condition at December 31, 1998 and
November 25, 1998 and pro forma results of operations for the twelve months
ended December 31, 1998 and for the period ended November 25, 1998.

<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 25,
1998 1998
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 2,625 $ 4,929
Federal funds sold.......................................... 15,600 23,300
Interest-bearing deposits with other banks.................. 293 293
Investment securities available for sale.................... 780 795
Investment securities held to maturity...................... 5,514 5,566
Investment in Federal Reserve Bank stock.................... 90 90
Loans receivable, net....................................... 29,107 29,246
Intangible assets........................................... 7,696 --
Other assets................................................ 692 835
------- -------
Total Assets.............................................. $62,397 $65,054
======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Interest-bearing deposits................................... 36,682 37,212
Noninterest-bearing deposits................................ 13,296 20,137
------- -------
Total deposits............................................ 49,978 57,349
Other liabilities........................................... 1,051 349
------- -------
Total liabilities......................................... 51,029 57,698

STOCKHOLDERS' EQUITY:
Common stock................................................ 11,428 6,010
Surplus..................................................... -- 14
Accumulated other comprehensive income...................... 1 6
Retained earnings (deficit)................................. (61) 1,326
------- -------
Total stockholders' equity................................ 11,368 7,356
------- -------
Total Liabilities and Stockholders' Equity.................. $62,397 $65,054
======= =======
</TABLE>

212
<PAGE>

<TABLE>
<CAPTION>
PRO FORMA PERIOD FROM
TWELVE MONTHS ENDED JANUARY 1, 1998 TO
DECEMBER 31, 1998 NOVEMBER 25, 1998
------------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Interest income................................... $3,911 $3,577
Interest expense.................................. 1,189 1,073
------ ------
Net interest income before provision for loan
loss............................................ 2,722 2,504
Provision for loan losses......................... -- --
------ ------
Net interest income after provision for loan
loss............................................ 2,722 2,504
Noninterest income................................ 317 301
Noninterest expense............................... 2,565 2,266
------ ------
Income before provision for income taxes.......... 474 539
Provision for income taxes........................ 221 225
------ ------
Net income........................................ $ 253 $ 314
====== ======

Basic earnings per share.......................... $ 0.44 $ 0.55
Diluted earnings per share........................ $ 0.43 $ 0.54
</TABLE>

This information should be read in conjunction with the audited consolidated
financial statements and the notes thereto of CalWest included with this proxy
statement/prospectus. Except for the historical information contained herein,
the following discussion contains forward-looking statements that involve risks
and uncertainties. CalWest's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not specifically limited to, changes in regulatory climate,
shifts in the interest rate environment, changes in economic conditions of
various markets CalWest serves, as well as the other risks detailed in this
section and in "Risk Factors" above.

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

OVERVIEW

CalWest had net income of $253,000 for the year ended December 31, 1998 compared
to $768,000 for the year ended December 31, 1997. The decrease in net income is
due to a decrease in net interest income of $112,000 and an increased in
noninterest expense of $819,000, partially offset by increased noninterest
income of $108,000 and decreased provisions for loan and lease losses and income
taxes of $8,000 and $300,000, respectively. Basic and diluted net income per
share in 1998 were $0.44 and $0.43 per share, respectively, compared to a $1.41
and $1.40 per share, respectively, in 1997. CalWest's return on average assets
was 0.5% and its return on average common equity was 3.3% for the year ended
December 31, 1998, as compared to 1.6% and 12.2%, respectively, for the year
ended December 31, 1997.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

CalWest's net interest income decreased $112,000, or 4.0%, in 1998 due to a
decrease of $11,000 in interest income and by increased interest expense of
$101,000. Interest income decreased primarily due to a decrease in the yield on
earning assets, partially offset by the higher volume of earning assets.
Interest expense increased due to an increase in the cost of interest-bearing
liabilities and an increase in the volume of interest-bearing deposit
liabilities. The yield on interest-earning assets declined to 8.2% in 1998 from
8.6% in 1997 and the cost of average interest-bearing liabilities increased to
3.6% in 1998 from 3.4% in 1997. As a result of those factors, the net yield on
earning assets decreased to 5.7% in 1998 from 6.2% in 1997.

213
<PAGE>
The following table presents, for the periods indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-bearing assets and the
resultant yields, and the dollar amounts of interest expense and resultant cost
expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
-------- --------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases(1).................... $28,855 $2,808 9.73% $29,946 $2,941 9.82%
Investment securities(2)............... 7,416 486 6.55 9,220 602 6.53
Federal funds sold..................... 10,988 601 5.47 6,225 368 5.91
Other earning assets................... 278 16 5.76 190 11 5.79
------- ------ ------- ------
Total interest-earning assets...... 47,537 3,911 8.23 45,581 3,922 8.60

Non-earning assets:
Cash and demand deposits with banks.... 2,444 2,741
Other assets........................... 1,726 771
------- -------
Total assets....................... 51,707 49,093
======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand.............. 6,006 79 1.32 5,762 73 1.27
Money market......................... 6,053 160 2.64 6,307 161 2.55
Savings.............................. 3,602 78 2.17 4,127 93 2.25
Time................................. 17,451 872 5.00 15,498 761 4.91
------- ------ ------- ------
Total interest-bearing deposits.... 33,112 1,189 3.59 31,694 1,088 3.43

Noninterest-bearing liabilities:
Demand deposits...................... 10,748 10,880
Other liabilities.................... 269 203
------- -------
Total liabilities.................. 44,129 42,777
Shareholders' equity................... 7,578 6,316
------- -------
Total liabilities and shareholders'
equity............................... $51,707 $49,093
======= ------ ======= ------
Net interest income.................... $2,722 $2,834
====== ======
Net yield on interest-earning assets... 5.73% 6.22%
</TABLE>

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

(1) Loan fees of $73,000 and $83,000 are included in the computations for 1998
and 1997, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

214
<PAGE>
The following table sets forth changes in interest income and interest expense
on the basis of allocation to changes in rates and changes in volume of the
various components. Nonaccrual loans are included in total loans outstanding
while nonaccrued interest thereon is excluded from the computation of rates
earned.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 COMPARED TO 1997
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases................................ $(133) $(27) $(107) $ 1
Investment securities........................... (116) 2 (118) --
Federal funds sold.............................. 233 (28) 282 (21)
Other earning assets............................ 5 -- 5 --
----- ---- ----- ----
Total interest income....................... (11) (53) 62 (20)

Interest Expense:
Interest-bearing demand......................... 6 3 3 --
Money market.................................... (1) 6 (6) (1)
Savings......................................... (15) (4) (12) 1
Time............................................ 111 13 96 2
----- ---- ----- ----
Total interest expense...................... 101 18 81 2
----- ---- ----- ----
Net interest income............................. $(112) $(71) $ (19) $(22)
===== ==== ===== ====
</TABLE>

NONINTEREST INCOME

Noninterest income increased by $108,000 to $317,000 in 1998 from $209,000 in
1997. The increase was primarily due to net income realized from other real
estate owned that CalWest had acquired through foreclosure that is nonrecurring.

The following table presents for the periods indicated the major categories of
noninterest income:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges and fees................................... $185 $201
Other real estate owned income, net........................ 118 --
Gain on sale of premises and equipment..................... 13 --
Other income............................................... 1 8
---- ----
Total.................................................. $317 $209
==== ====
</TABLE>

NONINTEREST EXPENSE

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of CalWest. Also included are the costs of carrying and administering problem
assets, which include nonperforming and restructured loans.

Noninterest expense increased $819,000, or 46.9%, to $2.6 million in 1998 from
$1.7 million in 1997. The increase in expense is largely attributable to an
increase in compensation expenses and professional fees attributable to the
acquisition by California Financial. Additionally, the increase in noninterest
expense is due to other expenses attributable to the acquisition by California
Financial that are reflected in other operating expenses. Also included in
noninterest expense is the amortization of intangible assets that resulted from
the acquisition by California Financial. CalWest's efficiency ratio

215
<PAGE>
(defined as noninterest expense before amortiztion of intangibles to total
revenue before income related to other real estate owned less interest expense)
was 86.2% for the year ended December 31, 1998, an increase of 22.7%, from 57.4%
for 1997.

The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits.............................. $1,261 $ 865
Professional fees........................................... 476 205
Occupancy and equipment..................................... 337 314
Data and item processing.................................... 113 101
Business development and promotions......................... 70 77
Office supplies and communications.......................... 92 78
Insurance................................................... 50 45
Amortization of intangibles................................. 47 --
Other operating expenses.................................... 119 61
------ ------
Total................................................... $2,565 $1,746
====== ======
</TABLE>

PROVISION FOR INCOME TAXES

CalWest recorded a tax provision of $221,000 in 1998 compared to a provision of
$521,000 recorded in 1997. This decrease in taxes resulted from lower taxable
earnings in 1998. The effective tax rate in 1998 (46.6%) is higher than the
statutory rate (42%) due to acquisition related expenses and amortization of
intangible assets that are not deductible for Federal income tax purposes.

FINANCIAL CONDITION

Total assets of CalWest at December 31, 1998 were $62.4 million compared to
total assets of $48.0 million at December 31, 1997. Total earning assets of
CalWest at December 31, 1998 were $51.6 million compared to total earning assets
of $44.7 million at December 31, 1997. The increase in total assets and total
earning assets since December 31, 1997 is substantially attributable to the
increase in Federal funds sold that increased $9.1 million, or 140.0%, to
$15.6 million at December 31, 1998 from $6.5 million at December 31, 1997. The
increase in Federal funds sold was a result in increased funds available for
investment provided by an increase in deposit liabilities.

LOANS AND LEASES

Total gross loans and leases of CalWest at December 31, 1998 were $29.5 million
compared to $29.7 million at December 31, 1997. At December 31, 1998, the three
largest lending categories were: (i) real estate loans, (ii) commercial loans
and (iii) loans to individuals. At December 31, 1998, those categories accounted
for $23.2 million, $5.2 million and $1.1 million, or approximately 78.6%, 17.6%
and 3.7% of total gross loans and leases, respectively. The following table sets
forth the amount of

216
<PAGE>
loans and leases outstanding for CalWest at the end of each of the years
indicated, according to type of loan. CalWest has no foreign loans or
energy-related loans as of the dates indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans......................................... $23,157 $24,913
Commercial................................................ 5,198 3,487
Consumer Loans............................................ 1,111 1,299
------- -------
Subtotal.................................................. 29,466 29,699
Less: allowance for loan and lease losses................. (265) (265)
Deferred loan fees........................................ (94) (100)
------- -------
Net loans and leases...................................... $29,107 $29,334
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year..................................... $3,860 $ 4,242
After one year but within five years:
Interest rates are floating or adjustable........... 784 4,753
Interest rates are fixed or predetermined........... 382 3,329
After five years:
Interest rates are floating or adjustable........... -- 3,491
Interest rates are fixed or predetermined........... 172 7,342
------ -------
Total............................................. $5,198 $23,157
====== =======
</TABLE>

As of December 31, 1998, in management's judgment, a concentration of loans
existed in real estate loans. At that date, approximately 78.6% of CalWest's
loans were real estate loans, primarily in southern California. Although
management believes such concentration to have no more than the normal risk of
collectibility, a substantial decline in real estate values could have an
adverse impact on collectibility, increase the level of real estate-related
nonperforming loans, or have other adverse effects which alone or in the
aggregate could have a material adverse effect on the financial condition of
CalWest.

NONPERFORMING ASSETS

At December 31, 1998 and 1997 CalWest did not have any loans for which the
accrual of interest has been discontinued, loans more than 90 days past due and
still accruing interest, restructured loans or other real estate owned.

CalWest's impaired loans pursuant to SFAS 114 as amended by SFAS 118 include
loans that are nonaccrual and those that have been restructured. For the twelve
months ended December 31, 1998 and 1997 no additional gross interest income
would have been recorded on impaired loans. No accrued but unpaid interest
income on such loans was in fact included in CalWest's net income as of
December 31, 1998 and 1997.

217
<PAGE>
Loans aggregating $264,000 at December 31, 1998 have been designated as impaired
in accordance with SFAS 114 as amended by SFAS 118. CalWest's impaired loans are
all collateral dependent, and as such the method used to measure the amount of
impairment on these loans is to compare the loan amount to the fair value of
collateral. The total allowance for loan losses related to these loans was
$23,000 at December 31, 1998. CalWest did not have any impaired loans for the
year ended December 31, 1997. The average balance of impaired loans during 1998
was $265,000 and interest income on impaired loans of $28,000 was recognized for
cash payments received.

At December 31, 1998, CalWest did not have OREO properties. During 1998,
properties with a total carrying value of $91,000 were sold for which CalWest
recognized a net gain of $118,000. At December 31, 1997, CalWest had OREO
properties with an aggregate carrying value of $91,000. During 1997, properties
with a total carrying value of $91,000 were added to OREO as a result of
foreclosure. All of the OREO properties are recorded by CalWest at amounts that
are equal to or less than the market value based on current independent
appraisals reduced by estimated selling costs.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $265,000, or 0.9% of gross loans at
December 31, 1998 and 1997. CalWest did not record a provision for loan losses
for the year ended December 31, 1998 compared to a provision of $8,000 for the
year ended December 31, 1997.

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding........................ $28,855 $29,946
Gross loans and leases...................................... 29,466 29,699
Nonperforming loans and leases.............................. -- --
Allowance for loan and lease losses:
Balance at beginning of period.......................... 265 251
Loans charged off during period
Commercial............................................ -- --
Real estate........................................... -- --
Installment........................................... -- --
------- -------
Total............................................... -- --
Recoveries during period
Commercial............................................ -- 6
Real estate........................................... -- --
Installment........................................... -- --
------- -------
Total............................................... -- 6
------- -------
Net loans recovered during period..................... -- (6)
Provision for loan and lease losses................... -- 8
------- -------
Balance at end of period............................ $ 265 $ 265
======= =======
Selected ratios:
Net (recoveries) to average loans and leases.............. --% (0.02)%
Provision for loan and lease losses to average loans...... -- 0.03
Allowance at end of period to gross loans and leases
outstanding at end of period............................ 0.90 0.89
Allowance as percentage of nonperforming loans and
leases.................................................. NM NM
</TABLE>

218
<PAGE>
The following table indicates management's allocation of the allowance for each
of the following years:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1998 1997
------------------------ ------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate and construction........ $193 78.6% $206 83.9%
Commercial, financial and
agricultural...................... 16 17.6 14 11.7
Consumer............................ 3 3.78 3 4.4
Unallocated......................... 53 -- 42 --
---- ----- ---- -----
Total........................... $265 100.0% $265 100.0%
==== ===== ==== =====
</TABLE>

In allocating CalWest's allowance for loan and lease losses, management has
considered the credit risk in the various loan categories in its portfolio. As
such, the allocations of the allowance for loan and lease losses are based upon
the average aggregate historical net loan losses experienced. While every effort
has been made to allocate the allowance to specific categories of loans,
management believes that any allocation of the allowance for loan and lease
losses into loan categories lends an appearance of exactness which does not
exist.

INVESTMENTS AND INVESTMENT SECURITIES

Total investments of CalWest at December 31, 1998 were $22.3 million compared to
$15.1 million at December 31, 1997. At December 31, 1998, the investments of
CalWest included overnight Federal funds sold and securities purchased under
agreements to resell of $15.6 million, interest-bearing deposits with other
banks of $293,000, investment securities of $6.3 million and Federal Reserve
Bank stock of $90,000. At December 31, 1998, the portfolio of investment
securities primarily consisted of U.S. government agency securities, municipal
obligations and corporate bonds. At December 31, 1998, $780,000 of CalWest's
portfolio of investment securities was classified as available for sale while
$5.5 million was classified as held to maturity. CalWest does not have any
investment securities held for trading.

The following table presents the amortized cost of securities and their
approximate fair values at December 31, 1998 and 1997:

219
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. and state government and its
agencies................................. $ 200 $ 1 $ -- $ 201
Corporate debt securities.................. 400 -- (2) 398
------ ---- ---- ------
Total available for sale................. 600 1 (2) 599
------ ---- ---- ------
Held to Maturity:
U.S. and state government and its
agencies................................. 1,199 -- (2) 1,197
Corporate debt securities.................. 4,001 35 (1) 4,035
Mortgage-backed securities................. 668 11 (8) 671
Municipal obligations...................... 1,845 85 -- 1,930
------ ---- ---- ------
Total held to maturity................... 7,713 131 (11) 7,833
------ ---- ---- ------
Total.................................. $8,313 $132 $(13) $8,432
====== ==== ==== ======
</TABLE>

The following tables show the maturities of investment securities at
December 31, 1998, and the weighted average yields of such securities:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
BUT WITHIN BUT WITHIN
WITHIN ONE YEAR FIVE YEARS TEN YEARS AFTER TEN YEARS
------------------- ------------------- ------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for
sale:
Corporate debt
securities............... -- --% 780 5.94% -- --% -- --%
------ ------ ---- ----
Held to Maturity:
U.S. and state government
and its agencies......... 401 6.38 324 8.00 -- -- 520 7.24
Corporate debt
securities............... 603 6.13 2,037 6.48 -- -- -- --
Municipal obligations...... 294 7.50 960 7.24 375 7.24 -- --
------ ------ ---- ----
Total held to maturity... 1,298 6.52 3,321 6.85 375 7.24 520 7.24
------ ------ ---- ----
Total.................. $1,298 6.52% $4,101 6.68% $375 7.24% $520 7.24%
====== ====== ==== ====
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying consolidated financial statements.

DEPOSITS

Total deposits were $50.0 million at December 31, 1998 compared to
$40.7 million at December 31, 1997. The increase in total deposits since
December 31, 1997 is primarily attributed to growth in CalWest's core deposit
base of interest and noninterest-bearing accounts. Noninterest-bearing demand
accounts were $13.3 million, or 26.6% of total deposits, at December 31, 1998
compared to $11.1 million, or 27.3% of total deposits, at December 31, 1997.
Interest-bearing deposits were

220
<PAGE>
$36.7 million, or 73.4% of total deposits, at December 31, 1998 compared to
$29.6 million, or 72.7% of total deposits, at December 31, 1997.

<TABLE>
<CAPTION>
FOR TWELVE MONTHS ENDED DECEMBER 31,
-----------------------------------------
1998 1997
------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand................ $10,748 --% $10,880 --%
Interest-bearing demand................... 6,006 1.32 5,762 1.27
Money market.............................. 6,053 2.64 6,307 2.55
Savings................................... 3,602 2.17 4,127 2.25
Time...................................... 17,451 5.00 15,498 4.91
------- -------
Total................................... $43,860 2.71% $42,574 2.56%
======= =======
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at December 31, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $ 6,490
Due in over three months through six months................. 3,063
Due in over six months through twelve months................ 2,691
Due in over twelve months................................... --
-------
Total..................................................... $12,244
=======
</TABLE>

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus some forms of
subordinated debt, a portion of the allowance for loan losses and preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor that ranges from zero for cash assets and some government
obligations to 100% for some types of loans and adding the products together.
See "Downey Bancorp and Subsidiary Audited Consolidated Financial
Statements--Footnote 12--Regulatory Matters."

CalWest was well capitalized as of December 31, 1998 for federal regulatory
purposes. The following table details the regulatory capital ratios of CalWest
as of December 31, 1998.

221
<PAGE>
LIQUIDITY

CalWest relies on deposits as its principal source of funds and, therefore, must
be in a position to service depositors' needs as they arise. Management attempts
to maintain a loan-to-deposit ratio of not greater than 80% and a liquidity
ratio (liquid assets, including cash and due from banks, Federal funds sold and
investment securities to deposits) of approximately 25%. The average
loan-to-deposit ratio was 65.8% in 1998 and 70.3% in 1997. The average liquidity
ratio was 47.5% in 1998 and 42.7% in 1997. At December 31, 1998, CalWest's
loan-to-deposit ratio was 58.2% and the liquidity ratio was 49.1%. While
fluctuations in the balances of a few large depositors cause temporary increases
and decreases in liquidity from time to time, CalWest has not experienced
difficulty in dealing with such fluctuations from existing liquidity sources.

Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of CalWest, other available sources of liquid assets (secondary
liquidity), including the purchase of Federal funds, sale of securities under
agreements to repurchase, sale of loans, and the discount window borrowing from
the Federal Reserve Bank, could be employed. CalWest places reliance primarily
upon the purchase of Federal funds and the sale of securities under agreements
to repurchase for its secondary source of liquidity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

When appropriate, management may utilize off balance sheet instruments such as
interest rate floors, caps and swaps to hedge its interest rate position. A
Board of Directors approved hedging policy statement governs use of these
instruments. As of December 31, 1998, CalWest had not utilized any interest rate
swap or other such financial derivative to alter its interest rate risk profile.

One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap position indicates that there
would be a net positive impact on the net interest margin of CalWest for the
period measured in a declining interest rate environment since CalWest's
liabilities would reprice to lower market rates before its assets would. A net
negative impact would result from an increasing interest rate environment.
Conversely, an asset sensitive gap indicates that there would be a net positive
impact on the net interest margin in a rising interest rate environment since
CalWest's assets would reprice to higher market interest rates before its
liabilities would.

The following table sets forth the distribution of repricing opportunities of
CalWest's interest-earning assets and interest-bearing liabilities, the interest
rate sensitivity gap (i.e., interest rate sensitive assets less interest rate
sensitive liabilities), cumulative interest-earning assets and interest-bearing
liabilities, the cumulative interest rate sensitivity gap, the ratio of
cumulative interest-earning assets to cumulative interest-bearing liabilities
and the cumulative gap as a percentage of total assets and total
interest-earning assets as of December 31, 1998. The table also sets forth the
time periods during which

222
<PAGE>
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of customers in response to changes in interest rates. This table should,
therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net margins of CalWest. There has not been a material
change in the interest rate risk profile of CalWest since December 31, 1998.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
---------------------------------------------
OVER 3 OVER
3 MONTHS MONTHS TO 1 YEAR TO OVER NON-
OR LESS 12 MONTHS 5 YEARS 5 YEARS SENSITIVE(1) TOTAL
-------- ---------- ---------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks............ $ -- $ 293 $ -- $ -- $ 2,625 $ 2,918
Federal funds sold................. 15,600 -- -- -- -- 15,600
Investment securities.............. 300 998 4,101 895 90 6,384
Loans and leases................... 14,172 2,142 5,545 7,513 -- 29,372
Other assets(2).................... -- -- -- -- 8,123 8,123
------- ------- ------- ------- -------- -------
Total assets................... 30,072 3,433 9,646 8,408 10,838 62,397
======= ======= ======= ======= ======== =======

LIABILITIES AND SHAREHOLDERS'
EQUITY
Non-interest bearing demand
deposits......................... -- -- -- -- 13,296 13,296
Interest-bearing demand, money
market and savings............... 16,668 -- -- -- -- 16,668
Time certificates of deposit....... 9,389 10,200 425 -- -- 20,014
Other liabilities.................. -- -- -- -- 1,051 1,051
Shareholders' equity............... -- -- -- -- 11,368 11,368
------- ------- ------- ------- -------- -------
Total liabilities &
shareholders' equity......... $26,057 $10,200 $ 425 $ -- $ 25,715 $62,397
======= ======= ======= ======= ======== =======

Period Gap......................... $ 4,015 $(6,767) $ 9,221 $ 8,408 $(14,877)
Cumulative interest earning
assets........................... $30,072 $33,505 $43,151 $51,559
Cumulative interest earning
liabilities...................... $26,057 $36,257 $36,682 $36,682
Cumulative Gap..................... $ 4,015 $(2,752) $ 6,469 $14,877
Cumulative interest earning assets
to cumulative interest bearing
liabilities...................... 1.15 0.92 1.18 1.41
Cumulative gap as a percent of:
Total assets..................... 6.43% (4.41)% 10.37% 23.84%
Interest earning assets.......... 7.77% (5.34)% 12.55% 28.85%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

(2) Allowance for possible loan losses of $265,000 as of December 31, 1998 is
included in other assets.

At December 31, 1998, CalWest had $33.1 million in assets and $36.3 million in
liabilities repricing within one year. This means that $3.2 million more in
interest rate sensitive liabilities than interest rate sensitive assets will
change to the then current rate (changes occur due to the instruments being at a
variable rate or because the maturity of the instrument requires its replacement
at the then current rate). The ratio of interest earning assets to interest
bearing liabilities maturing or repricing within one

223
<PAGE>
year at December 31, 1998 is .91 and management tries to maintain this ratio as
close to one as possible while remaining in a range between .80 and 1.20.
Interest expense is likely to be affected to a greater extent than interest
income for any changes in interest rates within one year from December 31, 1998.
If rates were to fall during this period, interest expense would decline by a
greater amount than interest income and net income would increase. Conversely,
if rates were to rise, the reverse would apply.

Management has taken several steps to reduce the negative gap through one year
of CalWest by shortening the maturities in its investment portfolio and
originating more variable rate assets that mature or reprice in balance with its
interest bearing liabilities. Management will continue to maintain a balance
between its interest earning assets and interest-bearing liabilities in order to
minimize the impact on net interest income due to changes in market rates.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue may adversely affect CalWest's information technology
systems, such as its item and data processing applications. The Year 2000 issue
also may affect so-called embedded technology, such as microprocessors that
control CalWest's security systems and telecommunication equipment.

CalWest had determined that some of its computer software applications needed to
be modified or replaced in order to maintain their functionality as the year
2000 approaches. In response, a comprehensive plan was developed, with system
conversions and testing substantially completed by December 31, 1998 and all
remediation was completed by March 31, 1999. The plan included the assessment of
all internal systems, programs and data processing applications as well as those
provided to CalWest by third-party vendors. Based upon CalWest's evaluation of
its Year 2000 preparedness, management does not expect that the Year 2000 issue
as it relates to information systems and embedded technology will have a
material adverse effect on CalWest's business, financial condition or results of
operations. There can be no assurance, however, that third party vendors'
efforts will be successful and any such failure could have a material adverse
effect on CalWest. CalWest does not intend to obtain insurance against any Year
2000 risks.

In addition, because CalWest's day-to-day operations are heavily dependent on
its ability to communicate with the Federal Reserve and its customers, it would
be particularly susceptible to any possible effects that the Year 2000 issue has
on local and national communications systems, including without limitation,
telephone and data lines. Any interruption or malfunction of such systems could
have a material adverse effect on CalWest.

CalWest's noninterest expense for 1997 did not include any costs associated with
the Year 2000 issue and CalWest estimates its total costs over the period from
January 1, 1998 through December 31, 1999 will be less than $200,000. None of
those costs, however, are expected to materially affect CalWest's results of
operations in any one reporting period. In addition, a significant portion of
those costs are not expected to be incremental to CalWest but instead will
constitute a reassignment of existing internal systems technology resources. In
light of the complexity of the Year 2000 problem and its potential effect on
both CalWest and third parties that interact with CalWest, however, there can be
no assurance that CalWest's costs associated with the Year 2000 issue will be as
estimated.

224
<PAGE>
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the corrective measures CalWest undertakes, but also on the way in which the
year 2000 issue is addressed by governmental agencies, businesses and other
entities who provide data to, or receive data from CalWest or whose financial
condition or operational capability is important to CalWest such as suppliers or
customers. Communications with significant customers and vendors have been
initiated to determine the extent of risk created by those third parties'
failure to remediate their own year 2000 issues; however, it is not possible, at
present, to determine the financial effect if a significant customer's and/or
vendor's remediation efforts are not resolved in a timely manner.

CalWest is also preparing contingency plans to try to minimize the harm to
CalWest in the event that CalWest or any or all of the third parties with which
it interacts is unable to attain Year 2000 readiness. The contingency plans
being prepared are system and application specific and are intended to ensure
that in the event that one or more of such systems and/or applications fail by
or at the Year 2000, CalWest will be able to engage in its core business
functions in spite of such failure. Among the efforts undertaken by CalWest to
prepare for the occurrence of Year 2000 is an analysis of the most reasonably
likely worst case scenarios for the Year 2000. These scenarios have been
analyzed in terms of impact on CalWest and steps that can be taken to mitigate
the potential problems. While not an exhaustive list, the scenarios that have
been analyzed by CalWest and the contingency plans that have been developed
include the following:

<S> <C>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
Failure of core accounting systems All core accounting systems have been and
will continue to be tested throughout 1999 to
ensure their viability at the century date
change. Hard copies of key reports will be
produced prior to January 1, 2000.
Power failure at the operations CalWest is currently analyzing the option of
the installation of generators at key
locations to ensure uninterrupted power in
order to provide critical customer services.
Telecommunications is unavailable CalWest is preparing contingency plans to run
the branches without connection to CalWest's
systems including ground transportation to
move work and information between locations.
Substantial withdrawal of deposits by CalWest is putting various contingency
customers funding mechanisms in place including federal
funds lines, shortening the maturity of
securities, FHLB advances and the use of the
Federal Reserve discount window.
Substantial increased cash needs by customers CalWest is analyzing customer deposit history
to estimate additional customer cash needs,
if any.
Miscellaneous occurrences which require CalWest is ensuring that key personnel are
additional personnel to remedy. available before and after January 1, 2000.
</TABLE>

Although CalWest believes that its Year 2000 Plan and other steps being taken
are adequate to ensure that it will not be materially affected by the Year 2000
problem, there can be no assurance that the Year 2000 Plan and CalWest's other
Year 2000 remedial and contingency plans will fully protect

225
<PAGE>
CalWest from the risks associated with the Year 2000 problem. The analysis of,
and preparation for, the Year 2000 and related problems necessarily rely on a
variety of assumptions about future events, and there can be no assurance that
CalWest's management has accurately predicted such future events or that their
remedial and contingency plans will adequately address such future events. In
the event that the businesses of CalWest, vendors of CalWest or customers of
CalWest are disrupted as a result of the Year 2000 problem, such disruption
could have a material adverse effect on CalWest.

In addition, bank regulatory agencies, as part of their supervisory function,
have recently issued guidance under which they are assessing and will assess
Year 2000 readiness. The failure of a financial institution, such as CalWest, to
take appropriate steps to address deficiencies in its Year 2000 project
management process may result in one or more regulatory enforcement actions that
could have a material adverse effect on such institution. Such actions may
include the imposition of civil money penalties, or result in the delay or
denial of regulatory applications.

The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
CalWest expects to substantially complete programming changes, remediation and
testing of systems and the impact of redeployment of existing staff, are based
on management's best current estimates, which were derived utilizing numerous
assumptions about future events, including the continued availability of some
resources, representations received from third party service providers and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to identify and convert all relevant computer systems, results of year
2000 testing, adequate resolution of year 2000 issues by governmental agencies,
businesses or other third parties who are service providers, suppliers,
borrowers or customers of CalWest, unanticipated systems costs, the need to
replace hardware, the adequacy of and ability to implement contingency plans and
similar uncertainties. The forward-looking statements made in the foregoing year
2000 discussion speak only as of the date on which such statements are made, and
CalWest undertakes no obligation to update any forward-looking statements to
reflect the occurrence of unanticipated events.

CalWest's disclosures and announcements herein concerning its Year 2000 planning
and programs are intended to constitute Year 2000 Readiness Disclosures as
defined in the recently enacted Year 2000 Information and Readiness Disclosure
Act. The Year 2000 Information and Readiness Disclosure Act provides some
protection from liability for some public and private statements concerning an
entity's Year 2000 readiness and the Year 2000 readiness product and services.

INFLATION

The majority of CalWest's assets and liabilities are monetary items held by
CalWest, the dollar value of which is not affected by inflation. Only a small
portion of total assets is in premises and equipment. The lower inflation rate
of recent years did not have the positive impact on CalWest that was felt in
many other industries. The small fixed asset investment of CalWest minimizes any
material misstatement of asset values and depreciation expenses that may result
from fluctuating market values due to inflation. A higher inflation rate,
however, may increase operating expenses or have other adverse effects on
borrowers of CalWest, making collection more difficult for CalWest. Rates of
interest paid or charged generally rise if the marketplace believes inflation
rates will increase.

226
<PAGE>
DESCRIPTION OF SECURITY FIRST

BUSINESS

Security First is a California state-chartered commercial bank headquartered in
Fullerton, California and is a member of the Federal Reserve. The bank commenced
operations in 1984 under the name Pacific Inland Bank, and is engaged in the
general commercial banking business providing a wide range of commercial banking
services, depository services, and loans to individuals and small, medium, and
large businesses. Deposits in Security First are insured by the Federal Deposit
Insurance Corporation to the maximum extent permitted by law.

In 1996, Pacific Inland Bank changed its name to Security First Bank and moved
its banking office from Anaheim, California to Fullerton, California. Security
First focuses its banking activities in the cities of both Fullerton and
Anaheim, California.

Since Security First began operations in 1984, its lending activities have been
centered in commercial real estate loans and loans to small and medium-sized
businesses in the cities of Anaheim and Fullerton, and other cities in Orange,
Riverside, and San Bernardino counties, California.

LENDING AND DEPOSIT TAKING ACTIVITIES

PORTFOLIO COMPOSITION. As of December 31, 1998, Security First had total loans
of $26.3 million, the total of Security First's installment and credit card
loans outstanding was $4.8 million, the total of commercial loans outstanding
was $10.6 million and the total of real estate loans outstanding was $10.9
million, representing 18%, 40% and 42%, respectively, of Security First's gross
loan portfolio. As of September 30, 1999, total loans were $32.6 million, the
total of installment and credit card loans outstanding was $4.8 million, the
total of commercial loans outstanding was $10.3 million and the total of real
estate loans outstanding was $17.6 million, representing 14.7%, 31.5% and 54.0%,
respectively, of Security First's gross loan portfolio. Security First accepts
real estate, listed and unlisted securities, savings and time deposits,
automobiles, machinery and equipment as collateral for loans.

DEPOSIT ACTIVITIES. Security First's deposits are attracted from individual and
commercial customers. A material portion of Security First's deposits has not
been obtained from a single person or a few persons, the loss of any one or more
of which would have a material adverse effect on the business of Security First,
nor is a material portion of Security First's loans concentrated within a single
industry or group of related industries. As of December 31, 1998, Security First
had total deposits of $47.4 million. As of September 30, 1999, total deposits
were $43.8 million.

PREMISES

Security First's banking office is located in Fullerton, California. Security
First has entered into a 10 year lease for approximately 5,800 rentable square
feet. The lease term commenced October 1, 1996. The base annual rent is
approximately $69,000. The base rent is adjusted annually on a scheduled basis
through 2001 and then to the fair rental value of the premises as of January 1,
2002. Security First has three 60-month options to renew at the then fair value
of the premises.

EMPLOYEES

At September 30, 1999, Security First employed 15 persons consisting of all
full-time employees.

MANAGEMENT

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth
some information with respect to the directors of Security First well as with
respect to the executive officers and all directors and

227
<PAGE>
executive officers as a group. All of the shares shown in the following table
are owned both of record and beneficially except as indicated in the notes to
the table.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
AS OF OCTOBER 20, 1999
POSITIONS HELD WITH DIRECTOR -------------------------------------
NAME AGE SECURITY FIRST SINCE NUMBER PERCENTAGE OF CLASS(1)
- -------------------------------------- ----------- -------------------------- ----------- ------------ -----------------------
<S> <C> <C> <C> <C> <C>
Ronald W. Bachli...................... 58 Director 1999 13,700,000(4) 58.48%
Larry Ballard......................... 62 Director 1996 480,556(2) 2.31%

Robert C. Campbell, Jr................ 57 President, Chief Executive
Officer 1997 334,724(3) 1.43%

Richard W. Decker, Jr................. 55 Director 1997 13,700,000(4) 58.48%

Harvey Ferguson....................... 62 Director 1999 -0- --

Frank T. Harrison..................... 56 Director 1999 -0- --

Robert J. Kushner..................... 40 Director 1999 -0- --

Robert M. Miller...................... 63 Director 1999 -0- --

Clifford R. Ronnenberg................ 62 Director and Chairman of
the Board 1984 695,228(5) 2.97%

All Directors and Executive Officers
of Security First as a Group
(10 in number):..................... 15,210,508(6) 74.34%
</TABLE>

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

(1) Includes the effect of the conversion of the principal amount only
($1,050,000) of the debentures.

(2) Includes 80,556 shares subject to presently exercisable options granted
pursuant to Security First's 1996 Directors' Stock Option Plan.

(3) Includes 322,224 shares subject to presently exercisable options granted
pursuant to Security First's 1996 Employee Stock Option Plan.

(4) Consists of 11,250,000 shares owned by California Financial and 2,450,000
shares issuable upon the conversion of the principal amount of the
debentures held by the California Fund. Mr. Decker and Mr. Bachli are
managers of Belvedere Capital, the general partner of the California Fund.
Messrs. Ferguson, Kushner and Ronnenberg are also directors of California
Financial.

(5) Includes 107,408 shares subject to presently exercisable options granted
pursuant to the Security First Directors' Stock Option Plan.

(6) Includes 187,964 shares and 437,276 shares subject to presently exercisable
options under Security First's 1996 Directors' Stock Option Plan and
Security First's 1996 Employee Stock Option Plan, respectively.

The following table sets forth some information with respect to the executive
officers of Security First:

<TABLE>
<CAPTION>
POSITIONS HELD EXECUTIVE
NAME AGE WITH SECURITY FIRST OFFICER* SINCE
- --------------------------------------------- ----------- --------------------------------------------- ---------------
<S> <C> <C> <C>
Robert C. Campbell, Jr....................... 57 President and Chief Executive Officer 1997
Donald Fontaine.............................. 50 Executive Vice President and Chief Financial 1999
Officer
</TABLE>

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

* Each executive officer serves on an annual basis and must be selected
annually by the Security First Board of Directors pursuant to the Security
First Bylaws.

The following information with respect to the principal occupation and
employment of each nominee and executive officer, the principal business of the
corporation or other organization in which such occupation

228
<PAGE>
and employment is carried on, and in regard to other affiliations and business
experience during the past 5 years, has been furnished to Security First by the
respective nominees and executive officers. None of the corporations or
organizations discussed or referred to below is an affiliate of Security First,
except for California Community, California Financial, the California Fund,
Belvedere Capital, Orange, Placer Sierra, Placer Capital, Business Bank and
CalWest.

RONALD W. BACHLI--Director of Security First. See "Description of California
Community--Information on Directors and Executive Officers."

LARRY BALLARD--Director of Security First. Mr. Ballard, a resident of Fullerton
for 35 years, is an attorney in Fullerton, certified by the California Board of
Legal Specialization as a specialist in taxation law and in estate planning,
trust and probate law, and has passed the CPA exam. He has been practicing law
since 1964, primarily in real estate, estate planning and transactional law. He
served on the Fullerton Planning Commission from 1968-1973, including two years
as Chairman, was reappointed to that Commission in 1991, and was its Chairman
during 1994 and 1995. From 1973 until its sale to Wells Fargo Bank N.A. in 1990,
Mr. Ballard was a director of El Camino Bank.

ROBERT C. CAMPBELL, JR.--President, Chief Executive Officer and Director of
Security First since January, 1997. Mr. Campbell has almost 37 years of
experience in the banking industry. Prior to joining Security First,
Mr. Campbell was a Senior Vice President with California State Bank from
September 1994 until January 1997. Before that he was Executive Vice President
with Bank of Anaheim from 1984 to 1994. From 1975 to 1984, Mr. Campbell was
Executive Vice President of Valencia Bank, starting his career with First
Western Bank.

RICHARD W. DECKER, JR.--Director of Security First. See "Description of
California Community--Management--Information on Directors and Executive
Officers."

HARVEY FERGUSON--has been President, Chief Executive Officer, and a Director of
Orange since 1993. He is also President, Chief Executive Officer, and a Director
of California Financial, Vice Chairman, Chief Executive Officer and a Director
of CalWest and of Business Bank, and he is a Director of Security First.

DONALD FONTAINE--is Chief Financial Officer of Security First. He has been
Senior Vice President, Chief Financial Officer and Corporate Secretary of
Security First since June 1999. Prior to joining Security First, Mr. Fontaine
served as the Chief Financial Officer of Gilmore Bank, Los Angeles from 1994 to
1998. Mr. Fontaine served as Executive Vice President and Chief Financial
Officer of Bank of Anaheim from its inception in 1984 to its acquisition by
California State Bank in 1994. Prior to joining Bank of Anaheim, Mr. Fontaine
was Senior Vice President and Chief Financial Officer of Monarch Bank and
Monarch Bancorp in Laguna Niguel from 1981 to 1984. Mr. Fontaine is an honor
graduate of the School of Bank Administration at the University of Wisconsin,
Madison.

FRANK T. HARRISON--Director of Security First. Mr. Harrison is President of
General Air Conditioning. He is also a director of Bank of Orange County.

ROBERT J. KUSHNER--Director of Security First. See "Description of California
Community--Information and Directors and Executive Officers."

ROBERT M. MILLER--Director of Security First Bank. Mr. Miller is Vice President
of Computer Power Solutions, Inc. He is also a director of Bank of Orange
County.

CLIFFORD R. RONNENBERG--Director and Chairman of the Board of Security First.
Mr. Ronnenberg is Chairman, CEO and sole shareholder of CR&R, Incorporated, a
leading environmental management, hauling and recycling company serving Southern
California. Mr. Ronnenberg also owns Haulaway Storage Containers and serves as
Vice President of Ronnenberg Inc., a family owned mobile home park management
company. Mr. Ronnenberg is a director of California Financial.

No director or executive officer of Security First has any family relationship
with any other director or executive officer of Security First.

No director of Security First is a director of any other company with a class of
securities registered pursuant to Section 12 of the Exchange Act of 1934, or
subject to the requirements of Section 15(d) of the Exchange Act of 1934, or of
any company registered as an investment company under the Investment Company Act
of 1940, as amended.

229
<PAGE>
SELECTED FINANCIAL DATA
SECURITY FIRST
(UNAUDITED)

The selected historical financial data as of and for the year ended
December 31, 1998 are derived from Security First's consolidated financial
statements, which have been audited by independent public accountants. The
selected historical financial data as of and for the nine months ended
September 30, 1999 have not been audited but, in the opinion of Security First's
management, contain all adjustments (consisting of normal recurring adjustments)
necessary to present fairly the financial position and results of operations of
Security First as of such dates and for such period. The results of operations
for the nine months ended September 30, 1999 are not necessarily indicative of
the results of operations that may be expected for the year ending December 31,
1999, or for any future period.

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease losses............ $ 2,017 $ 2,262
Provision for loan and lease losses....................................... 76 323
------------ -----------
Net interest income after provision for loan and lease losses............. 1,941 1,939
Noninterest income........................................................ 163 516
Noninterest expense....................................................... 1,761 1,965
------------ -----------
Income before income tax.................................................. 343 490
Income tax provision...................................................... 2 17
------------ -----------
Net income................................................................ $ 341 $ 473
============ ===========
PER SHARE DATA:
Weighted average shares outstanding
Basic................................................................... 17,258,565 16,865,800
Diluted................................................................. 17,258,565 16,865,800
Net income per share
Basic................................................................... $ 0.02 $ 0.03
Diluted................................................................. $ 0.02 $ 0.03
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets.............................................................. $ 50,319 $ 52,648
Loans and leases, net..................................................... 31,785 25,470
Other real estate owned................................................... 42 372
Deposits.................................................................. 43,796 47,424
Stockholders' equity...................................................... 6,334 5,062
Average assets............................................................ 50,340 46,744
Average earning assets.................................................... 46,267 43,040
Average common equity..................................................... 5,161 4,709
PER SHARE DATA:
Common shares outstanding................................................. 19,826,724 16,865,800
Diluted common shares outstanding......................................... 19,826,724 16,865,800
Book value per share...................................................... $ 0.32 $ 0.30
Diluted book value per share.............................................. $ 0.32 $ 0.30
SELECTED PERFORMANCE RATIOS
Return on average assets.................................................. 0.91% 1.01%
Return on average common equity........................................... 8.89% 10.04%
Net yield on interest earning assets...................................... 5.83% 5.26%
Efficiency ratio.......................................................... 81.93% 78.00%
Net interest income before provision for loan and lease losses to average
assets.................................................................. 5.36% 4.84%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and OREO............. 0.65% 8.35%
Nonperforming assets to total assets...................................... 0.42% 4.23%
Allowance for loan and lease losses to gross loans and leases............. 2.47% 3.04%
Allowance for loan and lease losses to nonperforming loans and leases..... 476.33% 43.13%
Net charge-offs to average loans and leases............................... 0.35% 2.25%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio..................................................... 12.46% 9.57%
Tier 1 Risk-Weighted Ratio................................................ 16.52% 16.15%
Total Risk Weighted Ratio................................................. 17.78% 17.45%
Average common equity to average assets................................... 10.25% 10.07%
</TABLE>

230
<PAGE>
SECURITY FIRST'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This information should be read in conjunction with the audited consolidated
financial statements and the notes thereto of Security First included with this
proxy statement/prospectus. Except for the historical information contained
herein, the following discussion contains forward-looking statements that
involve risks and uncertainties. Security First's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not specifically limited to, changes in
regulatory climate, shifts in the interest rate environment, changes in economic
conditions of various markets Security First serves, as well as the other risks
detailed in this section and in "Risk Factors" above.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

OVERVIEW

Security First had net income of $341,000 for the nine months ended
September 30, 1999 compared to net income of $450,000 for the nine months ended
September 30, 1998. Basic and diluted net income per share for the nine months
ended September 30, 1999 was $0.02 per share compared to $0.03 for the nine
months ended September 30, 1998. Security First's annualized return on average
assets was 0.9% and its annualized return on average common equity was 8.9% for
the nine months ended September 30, 1999, as compared to 1.3% and 13.1%,
respectively, for the nine months ended September 30, 1998

RESULTS OF OPERATIONS

Security First's results of operations depend primarily on Security First's net
interest income, which is the difference between interest and dividend income on
interest-earning assets and interest expense on interest-bearing liabilities.
Security First's interest-earning assets consist primarily of loans and
investment securities, while its interest-bearing liabilities are deposits.
Security First's results of operations are also affected by Security First's
provision for loan and lease losses, resulting from management's assessment of
the adequacy of Security First's allowance for loan and lease losses, the level
of its other income and the level of its other expenses, such as compensation
and employee benefits, occupancy costs, expenses associated with the
administration of problem assets, and income taxes.

Compared to the prior year results, the reduction in Security First's net income
for the nine months ended September 30, 1999 stems primarily from a combination
of decreased noninterest income by approximately $332,000, increased noninterest
expense by approximately $350,000 and increased provision for income taxes of
$1,000 partially offset by increased net interest income of approximately
$352,000 and decreased loan loss provision of $222,000. The decrease in
noninterest income is primarily attributable to an one-time settlement with the
California Department of Transportation in 1998 of $369,000 that is
non-recurring.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was approximately $2.0 million for the nine months ended
September 30, 1999, an increase of $352,000, or 21.1%, over the $1.7 million for
the same period in 1998. An increase in interest income to $2.7 million for the
nine months ended September 30, 1999 from $2.6 million for the same period in
1998, combined with decreased interest expense to $648,000 for the nine months
ended September 30, 1999 from $900,000 for the same period in 1998 contributed
to this earnings improvement. The increase in net interest income in 1999 is
primarily attributable to an increase in

231
<PAGE>
average earning assets combined with a decrease in the cost of deposit
liabilities partially offset by a decline in the yield on earning assets.

Loans and leases, the largest component of earning assets, increased to an
average balance of $27.8 million for the nine months ended September 30, 1999
from $23.5 million for the nine months ended September 30, 1998, with an average
yield of 9.5% and 9.8%, respectively. The 18.5% increase in the average balance
of loans and leases was primarily attributable to increased loan demand and the
strengthening business climate in the area served by Security First. Investments
in securities and Federal funds sold also increased to an average of
$9.0 million for the nine months ended September 30, 1999 from an average of
$7.2 million for the nine months ended September 30, 1998, with an average yield
of 5.5% and 5.8%, respectively. The yield on earning assets was 7.7% for the
nine months ended September 30, 1999 compared to 8.3% for the same period in
1998.

Average interest-bearing deposit liabilities decreased 3.5% to $27.6 million for
the nine months ended September 30, 1999 from $28.6 million for the same period
in 1998. The cost of these funds decreased to 3.1% for the nine months ended
September 30, 1999 compared to 4.2% for the same period in 1998. The decrease in
the cost of deposits is attributable to a decrease in rates paid on all
categories of deposits. The rates paid on certificates of deposit decreased to
4.5% for the nine months ended September 30, 1999 compared to 5.3% for the same
period in 1998, and the decrease in rates paid on interest-bearing transaction
accounts and savings accounts declined to 2.0% for the nine months ended
September 30, 1999 compared to 2.7% for the same period in 1998. The decrease in
the cost of deposits also reflects a change in the mix of deposit liabilities,
with average certificates of deposit representing 45% of average
interest-bearing deposits for the nine months ended September 30, 1999 compared
to 59% for the same period in 1998. Furthermore, noninterest-bearing deposit
liabilities represented 39% of average total deposits for the nine months ended
September 30, 1999 compared to 29% for the same period in 1998.

As a result of the foregoing factors, the average net yield on earning assets
increased to 5.8% for the nine months ended September 30, 1999 compared to 5.4%
for the same period in 1998.

232
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
----------------------------------- -----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
--------- ----------- ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)...................................... $ 27,845 $ 1,971 9.46% $ 23,504 $ 1,720 9.78%
Investment securities (2)................................. 5,489 261 6.36 3,946 186 6.30
Federal funds sold........................................ 3,488 109 4.18 3,247 128 5.27
Other earning assets...................................... 9,445 324 4.59 10,848 531 6.54
--------- --------- --------- ---------
Total interest-earning assets....................... 46,267 2,665 7.70 41,545 2,565 8.25
Non-earning assets:
Cash and demand deposits with banks....................... 3,416 2,476
Other assets.............................................. 657 1,079
--------- ---------
Total assets........................................ 50,340 45,100
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand................................. 4,185 36 1.15 3,168 31 1.31
Money market............................................ 10,239 184 2.40 8,005 193 3.22
Savings................................................. 885 13 1.96 635 12 2.53
Time.................................................... 12,338 415 4.50 16,834 664 5.27
--------- --------- --------- ---------
Total interest-bearing deposits..................... 27,647 648 3.13 28,642 900 4.20
Noninterest-bearing liabilities:
Demand deposits......................................... 17,354 11,689
Other liabilities....................................... 178 184
--------- ---------
Total liabilities................................... 45,209 40,515
Shareholders' equity...................................... 5,161 4,585
--------- ---------
Total liabilities and shareholders' equity................ $ 50,340 $ 45,100
========= --------- ========= ---------
Net interest income....................................... $ 2,017 $ 1,665
========= =========
Net yield on interest-earning assets...................... 5.83% 5.36%
</TABLE>

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

(1) Loan fees of $38,000 and $37,000 are included in the computations for 1999
and 1998, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

233
<PAGE>
total loans outstanding while nonaccrued interest thereon is excluded from the
computation of rates earned.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 COMPARED TO 1998
----------------------------------------------
NET
CHANGE RATE VOLUME MIX
----------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases........................................... $ 251 $ (56) $ 318 $ (11)
Investment securities...................................... 75 2 73 --
Federal funds sold......................................... (19) (27) 10 (2)
Other earning assets....................................... (207) (159) (69) 21
--------- --------- --------- ---------
Total interest income.................................... 100 (240) 332 8
Interest Expense:
Interest-bearing demand.................................... 5 (4) 10 (1)
Money market............................................... (9) (49) 54 (14)
Savings.................................................... 1 (3) 5 (1)
Time....................................................... (249) (98) (177) 26
--------- --------- --------- ---------
Total interest expense................................... (252) (154) (108) 10
--------- --------- --------- ---------
Net interest income........................................ $ 352 $ (86) $ 440 $ (2)
========= ========= ========= =========
</TABLE>

PROVISION FOR LOAN AND LEASE LOSSES

During the nine months ended September 30, 1999, a total of $76,000 was charged
against operations and added to the allowance for loan and lease losses, as
compared to $298,000 for the same period in 1998. The decreased provision is
primarily attributable a decrease in net loans charged off during the current
period compared to the same period last year. See "--Financial Condition,"
below.

NONINTEREST INCOME

Noninterest income for the nine months ended September 30, 1999 was $163,000
compared to $495,000 for the same period in 1998. The decrease in noninterest
income is primarily attributable to an one-time settlement with the California
Department of Transportation in 1998 of $369,000 that is non-recurring. Income
from service charges on deposit accounts increased to $78,000 for the nine
months ended September 30, 1999 compared to $58,000 for the same period in 1998
and other noninterest income decreased to $85,000 for the nine months ended
September 30, 1999 compared to $437,000 for the same period in 1998.

The following table presents for the periods indicated the major categories of
noninterest income:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Service charges and fees..................................................... $ 78 $ 58
Other income................................................................. 85 437
--------- ---------
Total...................................................................... $ 163 $ 495
========= =========
</TABLE>

234
<PAGE>
NONINTEREST EXPENSES

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of Security First. Also included are the costs of carrying and administering the
OREO portfolio (as defined below) as well as the costs associated with problem
assets, which include nonperforming and restructured loans. "OREO," or "other
real estate owned," consists of real estate acquired through foreclosure or by
acceptance of a deed in lieu of foreclosure.

Noninterest expense for the nine months ended September 30, 1999 was
$1.8 million, an increase of $350,000, or 24.8%, from $1.4 million for the same
period in 1998. Salaries and employee benefits increased to $786,000 for the
nine months ended September 30, 1999 from $697,000 for the same period in 1998,
which increase is attributable to increased staffing levels. Occupancy and
equipment expense increased to $234,000 for the nine months ended September 30,
1999 from $219,000 for the nine months ended September 30, 1998. Other
noninterest expenses increased to $741,000 for the nine months ended
September 30, 1999 from $495,000 for the nine months ended September 30, 1998
largely attributable to a decrease in net other real estate owned income.
Security First's efficiency ratio (defined as noninterest expense before income
or losses related to other real estate owned to total revenue less interest
expense) was 81.9% for the nine months ended September 30, 1999, a decrease of
8.4% from 73.5% for the comparable period of 1998.

The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits............................................. $ 786 $ 697
Occupancy and equipment.................................................... 234 219
Professional fees.......................................................... 188 188
Data and item processing................................................... 149 100
Communications............................................................. 81 68
Business development and promotions........................................ 63 34
Year 2000.................................................................. 68 46
Net other real estate owned income......................................... (25) (191)
Other loan expense......................................................... 23 20
Insurance.................................................................. 38 51
Other...................................................................... 156 179
--------- ---------
Total.................................................................... $ 1,761 $ 1,411
========= =========
</TABLE>

PROVISION FOR INCOME TAXES

As a result of increased taxable earnings for the nine months ended
September 30, 1999, Security First made a provision for income taxes of $2,000
while a provision of $1,000 was made for the same period in 1998. Security
First's minimal tax provision results from the ability to offset current year
earnings with prior years' losses to the extent allowable by state and federal
tax law.

FINANCIAL CONDITION

Total assets of Security First at September 30, 1999 were $50.3 million compared
to total assets of $52.6 million at December 31, 1998 and $50.4 million at
September 30, 1998. Total earning assets of Security First at September 30, 1999
were $46.5 million compared to total earning assets of $45.1 million at
December 31, 1998 and $41.1 million at September 30, 1998. The decrease in total
assets and increase in total earning assets since September 30, 1998 is
substantially attributable to the

235
<PAGE>
increase in gross loans that increased $7.8 million, or 31.5%, to $32.6 million
at September 30, 1999 from $24.8 million at September 30, 1998, partially offset
by a decrease in cash and cash equivalents related to an increase in loans.

LOANS AND LEASES

Total gross loans and leases at September 30, 1999 were $32.6 million compared
to $26.3 million at December 31, 1998 and $24.8 million at September 30, 1998.
At September 30, 1999, the four largest lending categories were: (i) real estate
loans, (ii) commercial loans, (iii) loans to individuals and (iv) SBA loans. At
September 30, 1999, those categories accounted for $17.6 million, $9.8 million,
$4.7 million and $426,000, or approximately 54.0%, 30.2%, 14.5% and 1.3% of
total gross loans and leases, respectively.

The following table sets forth the amount of loans and leases outstanding for
Security First as of the dates indicated, according to type of loan. Security
First has no foreign loans or energy-related loans.

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans....................................................... $ 17,622 $ 11,814
Commercial.............................................................. 9,843 7,881
Consumer loans.......................................................... 4,722 4,513
SBA loans............................................................... 426 565
Other loans............................................................. 34 63
--------- ---------
Subtotal................................................................ 32,647 24,836
Less: allowance for loan and lease losses............................... (805) (817)
Deferred loan fees...................................................... (57) (45)
--------- ---------
Net loans and leases.................................................... $ 31,785 $ 23,974
========= =========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
COMMERCIAL REAL ESTATE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are due:
Within one year..................................................... $ 5,333 $ 483
After one year but within five years:
Interest rates are floating or adjustable........................... 1,546 2,021
Interest rates are fixed or predetermined........................... 2,672 6,079
After five years:
Interest rates are floating or adjustable........................... -- 5,208
Interest rates are fixed or predetermined........................... 292 3,831
--------- ---------
Total............................................................. $ 9,843 $ 17,622
========= =========
</TABLE>

As of September 30, 1999, in management's judgment, a concentration of loans
existed in commercial loans and real estate loans. At that date, approximately
84.2% of Security First's loans were commercial loans or real estate loans,
representing 54.0% and 30.2% of total gross loans, respectively. Although
management believes such concentrations to have no more than the normal risk of
collectibility, a substantial decline in real estate values could have an
adverse impact on collectibility, increase the level of real estate-related
nonperforming loans, or have other adverse effects which alone or in the
aggregate could have a material adverse effect on the financial condition of
Security First.

236
<PAGE>
NONPERFORMING ASSETS

The following table summarizes nonperforming assets as of September 30, 1999 and
September 30, 1998.

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans and leases, not restructured................................ $ 169 $ 469
Accruing loans and leases past due 90 days or more........................... -- --
Restructured loans and leases................................................ -- 147
--------- ---------
Total nonperforming loans and leases ("NPLs").............................. 169 616

Other real estate owned ("OREO")............................................. 42 225
--------- ---------

Total nonperforming assets ("NPAs")........................................ $ 211 $ 841
========= =========

Selected ratios:
NPLs to total gross loans and leases....................................... 0.52% 2.48%
NPAs to total gross loans and leases and OREO.............................. 0.65 3.36
NPAs to total assets....................................................... 0.42 1.67
</TABLE>

Security First's current policy is to stop accruing interest on loans which are
past due as to principal or interest 90 days or more, except in circumstances
where the loan is well-secured and in the process of collection. When a loan is
placed on nonaccrual, previously accrued and unpaid interest is generally
reversed out of income.

Security First would have recorded additional interest income of approximately
$2,000 for the nine months ended September 30, 1999 on nonperforming loans if
such loans had been current in accordance with their original terms. Interest
income recorded on nonperforming loans for the nine months ended September 30,
1999 was approximately $11,000.

At September 30, 1999, $169,000 of loans were designated as impaired in
accordance with SFAS 114 as amended by SFAS 118. Security First's impaired loans
are generally all collateral dependent, and as such the method used to measure
the amount of impairment on these loans is to compare the loan amount to the
fair value of collateral. There were no reserves for impaired loans at
September 30, 1999. The average balance of impaired loans during the nine months
ended September 30, 1999 was $123,000.

At September 30, 1999, Security First had OREO properties with an aggregate
carrying value of $42,000. During the nine months ended September 30, 1999,
properties with a total carrying value of $330,000 were sold. All of the OREO
properties are recorded by Security First at amounts that are equal to or less
than the market value based on current independent appraisals reduced by
estimated selling costs.

Security First's policy requires that a loan be performing for six consecutive
months in order for a restructured loan to be restored to fully performing
status. Inevitably, not all restructured loans will be viable as restructured,
and it may be necessary for Security First to make further concessions or to
transfer the loan to nonaccrual status or OREO. Restructured loans as to which
the payment of interest or principal is 90 days or more overdue are reported as
nonaccrual loans. At September 30, 1999, none of Security First's nonaccrual
loans had previously been restructured.

237
<PAGE>
ALLOWANCE FOR LOAN LOSSES

The allowance for loan and lease losses represents the amounts which have been
set aside for the specific purpose of absorbing losses which may occur in
Security First's loan and lease portfolio. The provision for loan and lease
losses is an expense charged against operating income and added to the allowance
for loan and lease losses.

In determining the adequacy of the allowance for loan and lease losses,
management considers such factors as historical loan loss experience, known
problem loans, evaluations made by regulatory agencies and Security First's
outside loan reviewer, assessment of economic conditions and other appropriate
data to identify the risks in the portfolio. In determining the amount of the
allowance, a specific allowance amount is assigned to those loans with
identified special risks, and the remaining loan portfolio is reviewed by
category and assigned an allowance percentage for inherent losses. The
allocation process does not necessarily measure anticipated future credit
losses; rather, it reflects management's assessment at a particular date of
perceived credit risk exposure and the impact of current and anticipated
economic conditions, which may or may not result in future credit losses. While
management believes the allowance to be adequate, it should be noted that it is
based on estimates, and ultimate losses may vary from such estimates if future
conditions differ materially from the assumptions used in making the evaluation.
Security First's lending is concentrated in Southern California, which has
experienced adverse economic conditions, including declining real estate values.
Those factors have adversely affected borrowers' ability to repay loans.
Although management believes the level of the allowance as of September 30, 1999
is adequate to absorb losses inherent in the loan portfolio, additional declines
in the local economy may result in increasing losses that cannot reasonably be
predicted at this date. The possibility of increased costs of collection,
nonaccrual of interest on those loans that are or may be placed on nonaccrual,
and further charge-offs could have an adverse impact on Security First's
financial condition in the future.

The Department of Financial Institutions and the Federal Reserve, as an integral
part of their respective supervisory functions, periodically review Security
First's allowance for loan and lease losses. Such regulatory agencies may
require Security First to increase its provision for loan and lease losses or to
recognize further loan charge-offs, based upon judgments different from those of
management.

In December 1993, the federal banking agencies issued an inter-agency policy
statement on the allowance for loan and lease losses which, among other things,
establishes some benchmark ratios of loan loss reserves to classified assets.
The benchmark set forth by such policy statement is the sum of (i) assets
classified loss; (ii) 50% of assets classified doubtful; (iii) 15% of assets
classified substandard; and (iv) estimated credit losses on other assets over
the upcoming 12 months. At September 30, 1999, Security First's allowance
constituted over 234% of the benchmark amount suggested by the federal banking
agencies' policy statement.

Security First's allowance for loan and lease losses was $805,000 at
September 30, 1999 compared to $817,000 at September 30, 1998. During the nine
months ended September 30, 1999, the provision for loan and lease losses was
$76,000, or .36% (annualized) to average loans at September 30, 1999, loan and
lease charge-offs were $100,000 and recoveries were $28,000, which compares to a
provision for loan and lease losses of $298,000, or 1.69% (annualized) to
average loans at September 30, 1998, loan and lease charge-offs of $610,000 and
recoveries of $116,000 during the same period in 1998. Security First's
allowance for loan and lease losses represented 2.47% of gross loans at
September 30, 1999 and 3.29% at September 30, 1998 while the allowance for loan
and lease losses represented 476.33% of nonperforming loans and leases at
September 30, 1999 and 132.63% at September 30, 1998.

238
<PAGE>
the allowance from provisions charged to operating expense as of and for the
periods ending September 30, 1999 and September 30, 1998:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding................................... $ 27,845 $ 23,504
Gross loans and leases................................................. 32,647 24,836
Nonperforming loans and leases......................................... 169 616
Allowance for loan and lease losses:
Balance at beginning of period..................................... 801 1,013
Loans charged off during period
Commercial....................................................... 66 2
Real estate...................................................... 15 571
Installment...................................................... 19 37
--------- ---------
Total.......................................................... 100 610
Recoveries during period
Commercial....................................................... 5 13
Real estate...................................................... 20 67
Installment...................................................... 3 36
--------- ---------
Total.......................................................... 28 116
--------- ---------
Net loans charged off during period.............................. 72 494
Provision for loan and lease losses.............................. 76 298
--------- ---------
Balance at end of period....................................... $ 805 $ 817
========= =========
Selected ratios:
Net charge-offs to average loans and leases (1)...................... 0.35% 2.81%
Provision for loan and lease losses to average loans and leases
(1)................................................................ 0.36 1.69
Allowance at end of period to gross loans and leases outstanding at
end of period...................................................... 2.47 3.29
Allowance as percentage of nonperforming loans and leases............ 476.33 132.63
</TABLE>

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

(1) Annualized

The following table indicates management's allocation of the allowance as of the
dates indicated:

<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------------------
1999 1998
---------------------------- ----------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------- --------------- ----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural................. $ 228 31.5% $ 233 34.0%
Real estate and construction........................... 336 54.0 343 47.6
Consumer............................................... 160 14.5 241 18.4
Other.................................................. 81 -- -- --
--------- --------- --------- ---------
Total................................................ $ 805 100.0% $ 817 100.0%
========= ========= ========= =========
</TABLE>

239
<PAGE>
In allocating Security First's allowance for loan and leases losses, management
has considered the credit risk in the various loan categories in its portfolio.
As such, the allocations of the allowance for loan and lease losses are based
upon the average aggregate historical net loan losses experienced. While every
effort has been made to allocate the allowance to specific categories of loans,
management believes that any allocation of the allowance for loan and lease
losses into loan categories lends an appearance of exactness which does not
exist.

INVESTMENT SECURITIES

Security First maintains a portion of its assets in investment securities to
balance risk and to ensure liquidity. See "--Liquidity," below.

Total investments at September 30, 1999 were $14.7 million compared to
$19.7 million at December 31, 1998 and $17.1 million at September 30, 1998. At
September 30, 1999, the investments of Security First included overnight Federal
funds sold and securities purchased under agreement to resell of $5.2 million,
interest-bearing deposits with other banks of $1.4 million, investment
securities of $7.9 million and Federal Reserve Bank stock of $191,000. At
September 30, 1999, the portfolio of investment securities primarily consisted
of U.S. government agency securities, municipal obligations and corporate bonds.
At September 30, 1999, $5.4 million of Security First's portfolio of investment
securities was classified as available for sale while $2.5 million was
classified as held to maturity. Security First does not have any investment
securities classified as held for trading.

The following table presents the amortized cost of securities and their
approximate fair values at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED MARKET
AMORTIZED COST GAIN LOSS VALUE
--------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. and state government and its agencies................... $ 2,995 $ -- $ (39) $ 2,956
Municipal obligations........................................ 490 4 -- 494
Corporate bonds.............................................. 2,017 -- (24) 1,993
--------- --------- --------- ---------
Total available for sale................................... 5,502 4 (63) 5,443
--------- --------- --------- ---------

Held to Maturity:
U.S. and state government and its agencies................... 1,000 -- (13) 987
Corporate bonds.............................................. 1,496 -- (25) 1,471
--------- --------- --------- ---------
Total held to maturity..................................... 2,496 -- (38) 2,458
--------- --------- --------- ---------
Total...................................................... $ 7,998 $ 4 $ (101) $ 7,901
========= ========= ========= =========
</TABLE>

240
<PAGE>
The following tables show the maturities of investment securities at
September 30, 1999 and the weighted average yields of such securities:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------------------------------------
AFTER ONE YEAR BUT AFTER FIVE YEARS BUT
WITHIN ONE YEAR WITHIN WITHIN
FIVE YEARS TEN YEARS
------------------------ ---------------------- ------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ----------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. and state government and its
agencies................................. $ -- -- $ 2,956 5.27% $ -- --
Municipal obligations...................... -- -- 494 6.50 -- --
Corporate bonds............................ -- -- 1,993 6.17 -- --
--------- --------- ---------
Total available for sale................. -- -- 5,443 5.71 -- --
--------- --------- ---------
Held to Maturity:
U.S. and state government and its
agencies................................. -- -- 1,000 5.63 -- --
Corporate bonds............................ -- -- 1,496 5.66 -- --
--------- --------- ---------
Total held to maturity................... -- -- 2,496 5.65 -- --
--------- --------- ---------
Total.................................... $ -- -- $ 7,939 5.69% $ -- --
========= ========= =========

AFTER TEN YEARS
------------------------
AMOUNT YIELD
----------- -----------

<S> <C> <C>
Securities available for sale:
U.S. and state government and its
agencies................................. $ -- --
Municipal obligations...................... -- --
Corporate bonds............................ -- --
---------
Total available for sale................. -- --
---------
Held to Maturity:
U.S. and state government and its
agencies................................. -- --
Corporate bonds............................ -- --
---------
Total held to maturity................... -- --
---------
Total.................................... $ -- --
=========
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying consolidated financial statements.

DEPOSITS

Total deposits were $43.8 million at September 30, 1999 compared to
$47.4 million at December 31, 1998 and $45.1 million at September 30, 1998. The
decrease in total deposits since September 30, 1998 is largely attributable to
an decrease in interest-bearing deposits partially offset by an increase in
noninterest-bearing deposits. Total noninterest-bearing demand deposits were
$17.8 million, or approximately 40.5% of total deposits, at September 30, 1999
compared to $16.1 million, or approximately 35.7% of total deposits, at
September 30, 1998. Interest-earning deposits were $26.0 million, or
approximately 59.5% of total deposits, at September 30, 1999 compared to
$29.0 million, or approximately 64.3% of total deposits, at September 30, 1998.

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1999 1998
---------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand........................... $ 17,354 --% $ 11,689 --%
Interest-bearing demand.............................. 4,185 1.15 3,168 1.31
Money market......................................... 10,239 2.40 8,005 3.22
Savings.............................................. 885 1.96 635 2.53
Time................................................. 12,338 4.50 16,834 5.27
--------- --------- --------- ---------
Total.............................................. $ 45,001 1.93% $ 40,331 2.98%
========= =========
</TABLE>

241
<PAGE>
Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------
(IN THOUSANDS)
<S> <C>
Due in three months or less............................................... $ 2,873
Due in over three months through nine months.............................. 1,377
Due in over nine months through twelve months............................. 1,939
Due in over twelve months................................................. --
---------
Total................................................................... $ 6,189
=========
</TABLE>

FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

OVERVIEW

Security First had net income of $473,000 for the year ended December 31, 1998
compared to a net loss of $1.8 million for the year ended December 31, 1997. The
increase in net income is due to an increase in net interest income and
noninterest income of $843,000 and $383,000, respectively, and decreased
provision for loan and lease losses and noninterest expense of $57,000 and
$1.0 million, respectively, partially offset by an increased provision for
income taxes of $15,000. Basic and diluted net income per share in 1998 was
$0.03 per share compared to a loss per share of $0.19 in 1997. Security First's
return on average assets was 1.0% and its return on average common equity was
10.0% for the year ended December 31, 1998, as compared to (5.6)% and (67.7)%,
respectively, for the year ended December 31, 1997.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

Security First's net interest income increased $843,000, or 59.4%, in 1998 due
to an increase of $837,000 in interest income and by decreased interest expense
of $6,000. Interest income increased primarily due to the higher volume of
earning assets partially offset by decreased yields. Interest expense decreased
due to a decline in the cost of interest bearing liabilities partially offset by
an increase in the volume of interest bearing deposit liabilities. The yield on
interest-earning assets declined to 7.9% in 1998 from 8.9% in 1997 and the cost
of average interest-bearing liabilities decreased to 4.0% in 1998 from 4.9% in
1997. As a result of those factors, the net yield on earning assets increased to
5.3% in 1998 from 4.9% in 1997.

242
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------------
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------- -----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST BALANCE EXPENSE COST
--------- ----------- ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)...................................... $ 23,743 $ 2,280 9.60% $ 20,519 $ 2,019 9.84%
Investment securities (2)................................. 4,131 258 6.25 2,202 165 7.49
Federal funds sold........................................ 3,680 190 5.16 4,839 283 5.85
Other earning assets...................................... 11,486 689 6.00 1,468 113 7.70
--------- --------- --------- ---------
Total interest-earning assets......................... 43,040 3,417 7.94 29,028 2,580 8.89
Non-earning assets:
Cash and demand deposits with banks....................... 2,670 1,112
Other assets.............................................. 1,034 1,736
--------- ---------
Total assets.......................................... 46,744 31,876
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand................................. 3,189 41 1.29 2,086 38 1.82
Money market............................................ 8,905 271 3.04 3,277 160 4.88
Savings................................................. 671 17 2.53 371 11 2.96
Time.................................................... 16,191 826 5.10 17,830 952 5.34
--------- --------- --------- ---------
Total interest-bearing deposits....................... 28,956 1,155 3.99 23,564 1,161 4.93
Short-term borrowing...................................... -- -- -- 13 -- --
--------- --------- --------- ---------
Total interest-bearing liabilities.................... 28,956 1,155 3.99 23,577 1,161 4.92
Noninterest-bearing liabilities:
Demand deposits......................................... 12,893 5,391
Other liabilities....................................... 186 256
--------- ---------
Total liabilities..................................... 42,035 29,224
Shareholders' equity...................................... 4,709 2,652
--------- ---------
Total liabilities and shareholders' equity................ $ 46,744 $ 31,876
========= --------- ========= ---------
Net interest income....................................... $ 2,262 $ 1,419
========= =========
Net yield on interest-earning assets...................... 5.26% 4.89%
</TABLE>

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

(1) Loan fees of $62,000 and $71,000 are included in the computations for 1998
and 1997, respectively.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

243
<PAGE>
The following table sets forth changes in interest income and interest expense
on the basis of allocation to changes in rates and changes in volume of the
various components. Nonaccrual loans are included in total loans outstanding
while nonaccrued interest thereon is excluded from the computation of rates
earned.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 COMPARED TO 1997
-----------------------------------------
NET
CHANGE RATE VOLUME MIX
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest Income:
Loans and leases.............................. $ 261 $ (49) $ 317 $ (7)
Investment securities......................... 93 (27) 145 (25)
Federal funds sold............................ (93) (33) (68) 8
Other earning assets.......................... 576 (25) 771 (170)
----- ----- ------ -----
Total interest income....................... 837 (134) 1,165 (194)
Interest Expense:
Interest-bearing demand....................... 3 (12) 20 (5)
Money market.................................. 111 (60) 274 (103)
Savings....................................... 6 (2) 9 (1)
Time.......................................... (126) (42) (87) 3
----- ----- ------ -----
Total interest expense...................... (6) (116) 216 (106)
----- ----- ------ -----
Net interest income........................... $ 843 $ (18) $ 949 $ (88)
===== ===== ====== =====
</TABLE>

NONINTEREST INCOME

Noninterest income increased by $383,000 to $516,000 in 1998 from $133,000 in
1997. The increase was primarily due to a one-time settlement with the
California Department of Transportation in 1998 of $369,000 that is
non-recurring.

The following table presents for the periods indicated the major categories of
noninterest income:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service charges and fees.................................... $ 82 $ 73
Other income................................................ 434 60
---- -----
Total..................................................... $516 $ 133
==== =====
</TABLE>

NONINTEREST EXPENSE

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of Security First. Also included are the costs of carrying and administering the
OREO portfolio (as defined below) as well as the costs associated with problem
assets, which include nonperforming and restructured loans. "OREO" or "other
real estate owned," consists of real estate acquired through foreclosure or by
acceptance of a deed in lieu of foreclosure.

Noninterest expense decreased $1.0 million, or 33.7%, to $2.0 million in 1998
from $3.0 million in 1997. The decrease in expense is largely attributable to a
decrease in personnel and professional expenses partially offset by an increase
in data processing and other expenses. Security First's efficiency ratio

244
<PAGE>
(defined as noninterest expense before income or losses related to other real
estate owned to total revenue less interest expense) was 78.0% for the year
ended December 31, 1998, a decrease of 86.6%, from 164.6% for 1997.

The following table presents for the periods indicated the major categories of
noninterest expense:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and employee benefits.............................. $ 914 $1,192
Professional fees........................................... 237 385
Occupancy and equipment..................................... 307 247
Data and item processing.................................... 142 131
Communications.............................................. 88 93
Business development and promotions......................... 58 74
Year 2000................................................... 103 --
Other real estate owned (income) expense.................... (203) 411
Other....................................................... 319 433
------ ------
Total..................................................... $1,965 $2,966
====== ======
</TABLE>

PROVISION FOR INCOME TAXES

Security First recorded a tax provision of $17,000 in 1998 compared to a
provision of $2,000 recorded in 1997. This increase in taxes resulted from
higher taxable earnings in 1998 partially offset by the carry forward of prior
year net operating losses.

FINANCIAL CONDITION

Total assets of Security First at December 31, 1998 were $52.6 million compared
to total assets of $41.3 million at December 31, 1997. Total earning assets of
Security First at December 31, 1998 were $45.1 million compared to total earning
assets of $37.4 million at December 31, 1997. The increase in total assets and
total earning assets since December 31, 1997 is substantially attributable to
the increase in gross loans that increased $4.1 million, or 18.7%, to
$26.3 million at December 31, 1998 from $22.2 million at December 31, 1997.

LOANS AND LEASES

Total gross loans and leases of Security First at December 31, 1998 were
$26.3 million compared to $22.2 million at December 31, 1997. At December 31,
1998, the four largest lending categories were: (i) real estate loans,
(ii) commercial loans, (iii) loans to individuals and (iv) SBA loans. At
December 31, 1998, those categories accounted for $10.9 million, $10.1 million,
$4.7 million and $555,000, or approximately 41.6%, 38.2%, 18.1% and 2.1% of
total gross loans and leases, respectively. The following table sets forth the
amount of loans and leases outstanding for Security First at the end

245
<PAGE>
of each of the years indicated, according to type of loan. Security First has no
foreign loans or energy-related loans as of the dates indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans......................................... $10,936 $ 6,131
Commercial................................................ 10,059 9,243
Consumer Loans............................................ 4,742 5,852
SBA Loans................................................. 555 930
Other loans............................................... 25 17
------- -------
Subtotal.................................................. 26,317 22,173
Less: allowance for loan and lease losses................. (801) (1,013)
Deferred loan fees........................................ (46) (55)
------- -------
Net loans and leases...................................... $25,470 $21,105
======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $ 5,892 $ 335
After one year but within five years:
Interest rates are floating or adjustable............. 1,163 1,107
Interest rates are fixed or predetermined............. 2,357 3,785
After five years:
Interest rates are floating or adjustable............. -- 2,222
Interest rates are fixed or predetermined............. 647 3,487
------- -------
Total............................................. $10,059 $10,936
======= =======
</TABLE>

As of December 31, 1998, in management's judgment, a concentration of loans
existed in commercial loans and real estate loans. At that date, approximately
81.9% of Security First's loans were commercial and SBA loans or real estate
loans, representing 40.3% and 41.6% of total loans, respectively. Although
management believes such concentrations to have no more than the normal risk of
collectibility, a substantial decline in real estate values could have an
adverse impact on collectibility, increase the level of real estate-related
nonperforming loans, or have other adverse effects which alone or in the
aggregate could have a material adverse effect on the financial condition of
Security First.

246
<PAGE>
NONPERFORMING ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Nonaccrual loans and leases, not restructured............... $1,654 $ 415
Accruing loans and leases past due 90 days or more.......... -- 14
Restructured loans and leases............................... 203 663
------ ------
Total nonperforming loans and leases ("NPLs")........... 1,857 1,092
Other real estate owned ("OREO")............................ 372 564
------ ------
Total nonperforming assets ("NPAs")..................... $2,229 $1,656
====== ======
Selected ratios:
NPLs to total loans and leases.......................... 7.06% 4.92%
NPAs to total loans and leases and OREO................. 8.35 7.28
NPAs to total assets.................................... 4.23 4.01
</TABLE>

Security First's impaired loans pursuant to SFAS 114 as amended by SFAS 118 are
loans that are nonaccrual and those that have been restructured. For the twelve
months ended December 31, 1998 additional gross interest income of $162,000
would have been recorded on impaired loans, and for calendar year 1997
additional gross interest income of $193,000 would have been recorded on
impaired loans, in each case had the loans been current. No accrued but unpaid
interest income on such loans was in fact included in Security First's net
income as of December 31, 1998 and 1997.

Loans aggregating $540,000 at December 31, 1998 have been designated as impaired
in accordance with SFAS 114 as amended by SFAS 118. Security First's impaired
loans are all collateral dependent, and as such the method used to measure the
amount of impairment on these loans is to compare the loan amount to the fair
value of collateral. The total allowance for loan losses related to these loans
was $81,000 at December 31, 1998. At December 31, 1997, loans aggregating
$415,000 were designated as impaired and the total allowance for loan losses
related to these loans was $85,000. The average balance of impaired loans during
1998 and 1997 was $543,000 and $451,000, respectively.

At December 31, 1998, Security First had OREO properties with an aggregate
carrying value of $372,000. During 1998, properties with a total carrying value
of $306,000 were added to OREO as a result of foreclosures, properties with a
total carrying value of $467,000 were sold and properties were written down by
approximately $31,000. At December 31, 1997, Security First had OREO properties
with an aggregate carrying value of $564,000. During 1997, properties with a
total carrying value of $202,000 were added to OREO as a result of foreclosure,
properties with a total carrying value of $355,000 were sold and properties were
written down by approximately $338,000 during 1997. All of the OREO properties
are recorded by Security First at amounts that are equal to or less than the
market value based on current independent appraisals reduced by estimated
selling costs.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $801,000, or 3.0% of gross loans at
December 31, 1998, compared to $1.0 million or 4.6% of gross loans, at
December 31, 1997. The provision for loan losses for the year ended
December 31, 1998 was $323,000 compared to $380,000 for the same period in 1997.

247
<PAGE>
The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for possible loan and lease losses arising
from loan and lease losses and additions to the allowance from provisions
charged to operating expense:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans and leases outstanding..................... $23,743 $20,519
Gross loans and leases................................... 26,317 22,173
Nonperforming loans and leases........................... 1,857 1,092
Allowance for loan and lease losses:
Balance at beginning of period....................... 1,013 1,272
Loans charged off during period
Commercial......................................... 2 509
Real estate........................................ 624 78
Installment........................................ 56 82
------- -------
Total............................................ 682 669
Recoveries during period
Commercial......................................... 14 30
Real estate........................................ 76 --
Installment........................................ 57 --
------- -------
Total............................................ 147 30
------- -------
Net loans charged off during period................ 535 639
Provision for loan and lease losses................ 323 380
------- -------
Balance at end of period......................... $ 801 $ 1,013
======= =======
Selected ratios:
Net charge-offs to average loans and leases............ 2.25% 3.11%
Provision for loan and lease losses to average loans... 1.36 1.85
Allowance at end of period to gross loans and leases
outstanding at end of period......................... 3.04 4.57
Allowance as percentage of nonperforming loans and
leases............................................... 43.13 92.77
</TABLE>

The following table indicates management's allocation of the allowance for each
of the following years:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1998 1997
------------------------ ------------------------
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
-------- ------------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural...................... $233 40.3% $ 455 45.9%
Real estate and construction........ 380 41.6 279 27.7
Consumer............................ 189 18.1 197 26.4
Unallocated......................... - - 82 -
---- ----- ------ -----
Total............................. $801 100.0% $1,013 100.0%
==== ===== ====== =====
</TABLE>

In allocating Security First's allowance for loan and lease losses, management
has considered the credit risk in the various loan categories in its portfolio.
As such, the allocations of the allowance for loan and lease losses are based
upon the average aggregate historical net loan losses experienced. While every

248
<PAGE>
effort has been made to allocate the allowance to specific categories of loans,
management believes that any allocation of the allowance for loan and lease
losses into loan categories lends an appearance of exactness which does not
exist.

INVESTMENT SECURITIES

Total investments of Security First at December 31, 1998 were $19.7 million
compared to $16.3 million at December 31, 1997. At December 31, 1998, the
investments of Security First included overnight Federal funds sold and
securities purchased under agreements to resell of $13.5 million,
interest-bearing deposits with other banks of $2.3 million, investment
securities of $3.6 million and Federal Reserve Bank stock of $191,000. At
December 31, 1998, the portfolio of investment securities primarily consisted of
U.S. government agency securities, municipal obligations and corporate bonds. At
December 31, 1998, $622,000 of Security First's portfolio of investment
securities was classified as available for sale while $3.0 million was
classified as held to maturity. Security First does not hold any investment
securities in a trading account.

The following table presents the amortized cost of securities and their
approximate fair values at December 31, 1998 and 1997:

Held to Maturity:
U.S. and state government and its
agencies........................... 2,996 10 -- 3,006
------ ---- ---- ------
Total held to maturity............... 2,996 10 -- 3,006
------ ---- ---- ------
Total................................ $3,583 $ 45 $ -- $3,628
====== ==== ==== ======
</TABLE>

249
<PAGE>
The following tables show the maturities of investment securities at
December 31, 1998, and the weighted average yields of such securities:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN ONE YEAR BUT WITHIN FIVE YEARS BUT WITHIN
TEN YEARS
------------------------ ---------------------- ------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ----------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. and state government and its agencies..... $ 135 5.77% $ -- --% $ -- --
Municipal obligations.......................... -- -- 487 7.67 -- --
--------- --------- ---------
Total available for sale..................... 135 5.77 487 7.67 -- --
--------- --------- ---------

Held to Maturity:
U.S. and state government and its agencies..... -- -- 2,996 6.01 -- --
--------- --------- ---------
Total held to maturity....................... -- -- $ 2,996 6.01 -- --
--------- --------- ---------
Total........................................ $ 135 5.77% $ 3,483 6.24% $ -- --
========= ========= =========

AFTER TEN YEARS
------------------------
AMOUNT YIELD
----------- -----------

<S> <C> <C>
Securities available for sale:
U.S. and state government and its agencies..... $ -- --%
Municipal obligations.......................... -- --
--------- ---------
Total available for sale..................... -- --
--------- ---------
Held to Maturity:
U.S. and state government and its agencies..... -- --
---------
Total held to maturity....................... -- --
---------
Total........................................ $ -- --%
=========
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying consolidated financial statements.

DEPOSITS

Total deposits were $47.4 million at December 31, 1998 compared to
$36.7 million at December 31, 1997. The increase in total deposits since
December 31, 1997 is primarily attributed to growth in Security First's core
deposit base of noninterest-bearing accounts. Noninterest-bearing demand
accounts were $19.7 million, or 41.6% of total deposits, at December 31, 1998
compared to $9.6 million, or 26.1% of total deposits, at December 31, 1997.
Interest-bearing deposits were $27.7 million, or 58.4% of total deposits, at
December 31, 1998 compared to $27.1 million, or 73.9% of total deposits, at
December 31, 1997. See "Business--Deposits."

<TABLE>
<CAPTION>
FOR TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------------------
1998 1997
---------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
--------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Noninterest-bearing demand........................... $ 12,893 --% $ 5,391 --%
Interest-bearing demand.............................. 3,189 1.29 2,086 1.82
Money market......................................... 8,905 3.04 3,277 4.88
Savings.............................................. 671 2.53 371 2.96
Time................................................. 16,191 5.10 17,830 5.34
--------- ---------
Total.............................................. $ 41,849 2.76% $ 28,955 4.01%
========= =========
</TABLE>

250
<PAGE>
Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at December 31, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................................ $ 5,293
Due in over three months through six months................................ 1,123
Due in over six months through twelve months............................... 2,007
Due in over twelve months.................................................. 100
---------
Total.................................................................... $ 8,523
=========
</TABLE>

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus certain forms of
subordinated debt, a portion of the allowance for loan losses and preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor that ranges from zero for cash assets and certain government
obligations to 100% for some types of loans and adding the products together.

Security First was well capitalized as of September 30, 1999 and December 31,
1998 for federal regulatory purposes. The following table details the regulatory
capital ratios of Security First as of September 30, 1999. See the Notes to
Consolidated Financial Statements for Security First contained herein for
details of regulatory capital ratios of Security First as of December 31, 1998.

<TABLE>
<CAPTION>
ACTUAL CAPITAL ADEQUACY WELL CAPITALIZED
CAPITAL REQUIREMENT REQUIREMENT
------------- -------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ------------------ ------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage Capital Ratio................... $6,368 12.46% $1,533 > or = to 3.0% $2,555 > or = to 5.0%
Tier 1 Risk-Based Capital Ratio................. 6,638 16.52% 1,607 > or = to 4.0% 2,411 > or = to 6.0%
Total Risk-Based Capital Ratio.................. 6,854 17.78% 3,084 > or = to 8.0% 3,855 > or = to 10.0%
</TABLE>

LIQUIDITY

Security First relies on deposits as its principal source of funds and,
therefore, must be in a position to service depositors' needs as they arise.
Management attempts to maintain a loan-to-deposit ratio of not greater than 80%
and a liquidity ratio (liquid assets, including cash and due from banks, Federal
funds sold and investment securities to deposits) of approximately 25%. The
average loan-to-deposit ratio was 61.9% for the nine months ended September 30,
1999, 56.7% in 1998 and 70.9% in 1997. The average liquidity ratio was 27.5% for
the nine months ended September 30, 1999, 25.0% in 1998 and 28.2% in 1997. At
September 30, 1999, Security First's loan-to-deposit ratio was 72.6% and the
liquidity ratio was 36.1%. At December 31, 1998, Security First's
loan-to-deposit ratio was 53.7% and the liquidity ratio was 48.7%. While
fluctuations in the balances of a few large depositors cause temporary increases
and decreases in liquidity from time to time, Security First has not experienced
difficulty in dealing with such fluctuations from existing liquidity sources.

Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of Security First, other available sources of liquid assets (secondary
liquidity), including the purchase of Federal funds, sale of securities under
agreements to repurchase, sale of loans, and the discount window borrowing from
the Federal Reserve Bank, could be employed. Security First has relied primarily
upon the purchase of

251
<PAGE>
Federal funds and the sale of securities under agreements to repurchase for its
secondary source of liquidity.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

When appropriate, management may utilize off balance sheet instruments such as
interest rate floors, caps and swaps to hedge its interest rate position. A
Board of Directors approved hedging policy statement governs use of these
instruments. As of September 30, 1999, Security First had not utilized any
interest rate swap or other such financial derivative to alter its interest rate
risk profile.

One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap position indicates that there
would be a net positive impact on the net interest margin of Security First for
the period measured in a declining interest rate environment since Security
First's liabilities would reprice to lower market rates before its assets would.
A net negative impact would result from an increasing interest rate environment.
Conversely, an asset sensitive gap indicates that there would be a net positive
impact on the net interest margin in a rising interest rate environment since
Security First's assets would reprice to higher market interest rates before its
liabilities would.

The following table sets forth the distribution of repricing opportunities of
Security First's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), cumulative interest-earning assets and
interest-bearing liabilities, the cumulative interest rate sensitivity gap, the
ratio of cumulative interest-earning assets to cumulative interest-bearing
liabilities and the cumulative gap as a percentage of total assets and total
interest-earning assets as of September 30, 1999. The table also sets forth the
time periods during which interest-earning assets and interest-bearing
liabilities will mature or may reprice in accordance with their contractual
terms. The interest rate relationships between the repriceable assets and
repriceable liabilities are not necessarily constant and may be affected by many
factors, including the behavior of customers in response to changes in interest
rates. This table should, therefore, be used only as a guide as to the possible
effect changes in interest rates might have on the

252
<PAGE>
net margins of Security First. There has not been a material change in the
interest rate risk profile of Security First since December 31, 1998.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
--------------------------------------------------------------------
OVER 3
MONTHS OVER 1
3 MONTHS TO 12 YEAR TO OVER NON-
OR LESS MONTHS 5 YEARS 5 YEARS SENSITIVE(1) TOTAL
----------- --------- --------- --------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks...................... $ 599 $ 799 $ -- $ -- $ 2,710 $ 4,108
Federal funds sold........................... 2,180 -- -- -- -- 2,180
Investment securities........................ -- -- 7,939 $ -- $ -- 7,939
Loans and leases............................. 13,723 1,413 14,608 2,677 169 32,590
Other assets (2)............................. 3,000 -- -- 191 311 3,502
--------- --------- --------- --------- --------- ---------
Total assets............................... 19,502 2,212 22,547 2,868 3,190 50,319
========= ========= ========= ========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Non-interest bearing demand deposits......... -- -- -- -- 17,757 17,757
Interest-bearing demand, money market and
savings.................................... 15,198 -- -- -- -- 15,198
Time certificates of deposit................. 5,476 5,264 101 -- -- 10,841
Other liabilities............................ -- -- -- -- 189 189
Shareholders' equity......................... -- -- -- -- 6,334 6,334
--------- --------- --------- --------- --------- ---------
Total liabilities & shareholders' equity... $ 20,674 $ 5,264 $ 101 $ -- $ 24,280 $ 50,319
========= ========= ========= ========= ========= =========
Period Gap................................... $ (1,172) $ (3,052) $ 22,446 $ 2,868 $ (21,090)
Cumulative interest earning assets........... $ 19,502 $ 21,714 $ 44,261 $ 47,129
Cumulative interest earning liabilities...... $ 20,674 $ 25,938 $ 26,039 $ 26,039
Cumulative Gap............................... $ (1,172) $ (4,224) $ 18,222 $ 21,090
Cumulative interest earning assets to
cumulative interest bearing liabilities.... 0.94 0.84 1.70 1.81
Cumulative gap as a percent of:
Total assets............................... (2.33)% (8.39)% 36.21% 41.91%
Interest earning assets.................... (2.49)% (8.96)% 38.66% 44.75%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

(2) Allowance for possible loan losses of $805,000 as of September 30, 1999 is
included in other assets.

At September 30, 1999, Security First had $21.7 million in assets and
$25.9 million in liabilities repricing within one year. This means that
$4.2 million more in interest rate sensitive liabilities than interest rate
sensitive assets will change to the then current rate (changes occur due to the
instruments being at a variable rate or because the maturity of the instrument
requires its replacement at the then current rate). The ratio of interest
earning assets to interest bearing liabilities maturing or repricing within one
year at September 30, 1999 is .84 and management tries to maintain this ratio as
close to one as possible while remaining in a range between .80 and 1.20.
Interest expense is likely to be affected to a greater extent than interest
income for any changes in interest rates within one year from September 30,
1999. If rates were to fall during this period, interest expense would decline
by a greater amount than interest income and net income would increase.
Conversely, if rates were to rise, the reverse would apply.

Management has taken several steps to reduce the negative gap through one year
of Security First by shortening the maturities in its investment portfolio and
originating more variable rate assets that mature or reprice in balance with its
interest bearing liabilities. Management will continue to maintain

253
<PAGE>
a balance between its interest earning assets and interest-bearing liabilities
in order to minimize the impact on net interest income due to changes in market
rates.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue may adversely affect Security First's information technology
systems, such as its item and data processing applications. The Year 2000 issue
also may affect so-called embedded technology, such as microprocessors that
control Security First's security systems and telecommunication equipment.

Security First had determined that some of its computer software applications
needed to be modified or replaced in order to maintain their functionality as
the year 2000 approaches. In response, a comprehensive plan was developed, with
system conversions and testing substantially completed by December 31, 1998 and
all remediation was completed by March 31, 1999. The plan included the
assessment of all internal systems, programs and data processing applications as
well as those provided to Security First by third-party vendors. Based upon
Security First's evaluation of its Year 2000 preparedness, management does not
expect that the Year 2000 issue as it relates to information systems and
embedded technology will have a material adverse effect on Security First's
business, financial condition or results of operations. There can be no
assurance, however, that third party vendors' efforts will be successful and any
such failure could have a material adverse effect on Security First. Security
First does not intend to obtain insurance against any Year 2000 risks.

In addition, because Security First's day-to-day operations are heavily
dependent on its ability to communicate with the Federal Reserve and its
customers, it would be particularly susceptible to any possible effects that the
Year 2000 issue has on local and national communications systems, including
without limitation, telephone and data lines. Any interruption or malfunction of
such systems could have a material adverse effect on Security First.

Security First's noninterest expense for 1997 did not include any costs
associated with the Year 2000 issue and Security First estimates its total costs
over the period from January 1, 1998 through December 31, 1999 will be less than
$200,000. None of those costs, however, are expected to materially affect
Security First's results of operations in any one reporting period. In addition,
a significant portion of those costs are not expected to be incremental to
Security First but instead will constitute a reassignment of existing internal
systems technology resources. In light of the complexity of the Year 2000
problem and its potential effect on both Security First and third parties that
interact with Security First, however, there can be no assurance that Security
First's costs associated with the Year 2000 issue will be as estimated.

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures Security First undertakes, but also on the way in which
the year 2000 issue is addressed by governmental agencies, businesses and other
entities who provide data to, or receive data from Security First or whose
financial condition or operational capability is important to Security First
such as suppliers or customers. Communications with significant customers and
vendors have been initiated to determine the extent of risk created by those
third parties' failure to remediate their own year 2000 issues; however, it is
not possible, at present, to determine the financial effect if a significant
customer's and/or vendor's remediation efforts are not resolved in a timely
manner.

254
<PAGE>
Security First is also preparing contingency plans to try to minimize the harm
to Security First in the event that Security First or any or all of the third
parties with which it interacts is unable to attain Year 2000 readiness. The
contingency plans being prepared are system and application specific and are
intended to ensure that in the event that one or more of such systems and/or
applications fail by or at the Year 2000, Security First will be able to engage
in its core business functions in spite of such failure. Among the efforts
undertaken by Security First to prepare for the occurrence of Year 2000 is an
analysis of the most reasonably likely worst case scenarios for the Year 2000.
These scenarios have been analyzed in terms of impact on Security First and
steps that can be taken to mitigate the potential problems. While not an
exhaustive list, the scenarios that have been analyzed by Security First and the
contingency plans that have been developed include the following:

<TABLE>
<S> <C>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
Failure of core accounting systems All core accounting systems have been and
will continue to be tested throughout 1999 to
ensure their viability at the century date
change. Hard copies of key reports will be
produced prior to January 1, 2000.
Power failure at the operations Security First is currently analyzing the
option of the installation of generators at
key locations to ensure uninterrupted power
in order to provide critical customer
services.
Telecommunications is unavailable Security First is preparing contingency plans
to run the branches without connection to
Security First's systems including ground
transportation to move work and information
between locations.
Substantial withdrawal of deposits by Security First is putting various contingency
customers funding mechanisms in place including federal
funds lines, shortening the maturity of
securities, FHLB advances and the use of the
Federal Reserve discount window.
Substantial increased cash needs by customers Security First is analyzing customer deposit
history to estimate additional customer cash
needs, if any.
Miscellaneous occurrences which require Security First is ensuring that key personnel
additional personnel to remedy are available before and after January 1,
2000.
</TABLE>

Although Security First believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 Plan and Security
First's other Year 2000 remedial and contingency plans will fully protect
Security First from the risks associated with the Year 2000 problem. The
analysis of, and preparation for, the Year 2000 and related problems necessarily
rely on a variety of assumptions about future events, and there can be no
assurance that Security First's management has accurately predicted such future
events or that their remedial and contingency plans will adequately address such
future events. In the event that the businesses of Security First, vendors of
Security First or customers of Security First are disrupted as a result of the
Year 2000 problem, such disruption could have a material adverse effect on
Security First.

255
<PAGE>
In addition, bank regulatory agencies, as part of their supervisory function,
have recently issued guidance under which they are assessing and will assess
Year 2000 readiness. The failure of a financial institution, such as Security
First, to take appropriate steps to address deficiencies in its Year 2000
project management process may result in one or more regulatory enforcement
actions that could have a material adverse effect on such institution. Such
actions may include the imposition of civil money penalties, or result in the
delay or denial of regulatory applications.

The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Security First expects to substantially complete programming changes,
remediation and testing of systems and the impact of redeployment of existing
staff, are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of certain resources, representations received from third party
service providers and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to identify and convert all relevant
computer systems, results of year 2000 testing, adequate resolution of year 2000
issues by governmental agencies, businesses or other third parties who are
service providers, suppliers, borrowers or customers of Security First,
unanticipated systems costs, the need to replace hardware, the adequacy of and
ability to implement contingency plans and similar uncertainties. The
forward-looking statements made in the foregoing year 2000 discussion speak only
as of the date on which such statements are made, and Security First undertakes
no obligation to update any forward-looking statements to reflect the occurrence
of unanticipated events.

Security First's disclosures and announcements herein concerning its Year 2000
planning and programs are intended to constitute Year 2000 Readiness Disclosures
as defined in the recently enacted Year 2000 Information and Readiness
Disclosure Act. The Year 2000 Information and Readiness Disclosure Act provides
certain protection from liability for certain public and private statements
concerning an entity's Year 2000 readiness and the Year 2000 readiness product
and services.

INFLATION

The majority of Security First's assets and liabilities are monetary items held
by Security First, the dollar value of which is not affected by inflation. Only
a small portion of total assets is in premises and equipment. The lower
inflation rate of recent years did not have the positive impact on Security
First that was felt in many other industries. The small fixed asset investment
of Security First minimizes any material misstatement of asset values and
depreciation expenses that may result from fluctuating market values due to
inflation. A higher inflation rate, however, may increase operating expenses or
have other adverse effects on borrowers of Security First, making collection
more difficult for Security First. Rates of interest paid or charged generally
rise if the marketplace believes inflation rates will increase.

256
<PAGE>
DESCRIPTION OF BUSINESS BANK

GENERAL

Business Bank commenced operations on November 3, 1998 at its headquarters
office located at 23550 Hawthorne Boulevard, Suite 100, Torrance, California. On
February 24, 1998, Business Bank completed its initial capital offering, having
sold 572,775 shares of its $5.00 par value per share common stock. Business Bank
provides banking services to the greater South Bay area of Los Angeles County,
California, which includes all or a portion of Torrance, Redondo Beach, Palos
Verdes, San Pedro and Long Beach. Business Bank offers checking and savings
accounts, money market accounts and time certificates of deposit, as well as
commercial real estate, automobile and other installment and term loans and
other customary banking services for consumers, homeowners and local businesses.

Business Bank faces competition in its market area for all of its banking
products and services from branches of most of the major California banks, as
well as other community banks and savings and loans. Business Bank also faces
competition for deposits from large securities firms. Business Bank appeals to a
diverse group of people as business customers as well as individuals.

Business Bank relies substantially on local promotional activity, personal
contacts by its officers, directors and employees, referrals by its
shareholders, extended hours, personalized service and its reputation in the
communities it serves to compete effectively.

Business Bank is a national banking association regulated by the OCC and is a
member of the Federal Reserve.

LENDING AND DEPOSIT TAKING ACTIVITIES

PORTFOLIO COMPOSITION. As of December 31, 1998, Business Bank had total gross
loans of $758,000. The total of Business Bank's installment and credit card
loans outstanding was $117,000 and the total of commercial loans outstanding was
$641,000, representing 15.4% and 84.6%, respectively, of Business Bank's gross
loan portfolio. As of September 30, 1999, total gross loans were $9.6 million.
The total of Business Bank's installment and credit card loans outstanding was
$1.1 million, the total of commercial loans outstanding was $4.1 million, and
the total of real estate loans outstanding was $4.4 million, representing 11.4%,
42.6% and 46.0%, respectively, of Business Bank's gross loan portfolio. Business
Bank accepts real estate, listed and unlisted securities, savings and time
deposits, automobiles, machinery and equipment as collateral for loans.

DEPOSITS. Business Bank's deposits are attracted from individual and commercial
customers. A material portion of Business Bank's deposits has not been obtained
from a single person or a few persons, the loss of any one or more of which
would have a material adverse effect on the business of Business Bank, nor is a
material portion of Business Bank's loans concentrated within a single industry
or group of related industries. As of December 31, 1998, Business Bank had total
deposits of $4.0 million. As of September 30, 1999, total deposits were
$16.3 million.

EMPLOYEES

At September 30, 1999, Business Bank employed 9 persons on a full-time basis.
Business Bank believes its employee relations are good.

PREMISES

Business Bank has entered into a 5-year lease for approximately 5,707 rentable
square feet on the first floor of a free-standing building located at 23550
Hawthorne Boulevard, Suite 100, Torrance, California. The lease term commenced
September 15, 1997. The base annual rent is approximately $123,271. The base
rental may be adjusted beginning in the 13(th) month of the lease and annually
thereafter to reflect

257
<PAGE>
changes in the Consumer Price Index for the greater Los Angeles area. The cost
of living increase is a minimum of 3% per year, up to a maximum of 6% per year.
Business Bank has one 5-year option to renew the lease at the rental rate and
rental adjustments then being quoted by the landlord for the premises.

LEGAL PROCEEDINGS

In the normal course of business, Business Bank is occasionally made a party to
actions seeking to recover damages from Business Bank. In the opinion of
management, the ultimate disposition of these matters will not have a material
adverse effect on Business Bank's financial condition.

MANAGEMENT

INFORMATION ON DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth
some information, as of the Business Bank record date, with respect to those
persons who are directors and executive officers of Business Bank:

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND POSITION & OFFICES HELD DIRECTOR OWNED AS OF PERCENTAGE OF
BUSINESS ADDRESS AGE WITH BUSINESS BANK SINCE OCTOBER, 1999 CLASS
---------------- -------- ------------------------ -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Ronald W. Bachli............ 58 Director 1999 370,776 64.73%(2)
Jeffrey L. Barker........... 49 Director 1998 8,000 1.40%
J. Thomas Byrom............. 52 Director 1999 200 0.03%
Harvey Ferguson............. 62 Vice Chairman and Chief 1999 370,776 64.73%(2)
Executive Officer
Karol A. Glover............. 54 Director and Secretary 1998 6,000 1.05%
Richard Gomez............... 45 Director 1999 200 0.03%
Joseph P. Heitzler.......... 55 Chairman of the Board 1998 2,000 0.35%
Michael Herman.............. 42 Director 1998 42,500 7.42%
Peter D. Hocson............. 60 Director 1998 53,094 9.27%(1)
Kenneth P. Hurley........... 47 Director, President and 1999 200 0.03%
Chief Operating Officer
Donald James Lee............ 43 Director 1998 1,000 0.17%
James R. Ratcliff........... 44 Director 1998 10,000 1.75%
All directors and officers 494,170 86.28%
of Business Bank as a
group:......................
</TABLE>

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

(1) Includes 52,594 shares owned by Huna Totem Corporation of which Mr. Hocson
is Chief Executive Officer.

(2) Includes 370,576 shares owned by California Financial, of which
Mr. Ferguson is President and Mr. Bachli is a Director.

(3) Includes 20,000 shares held in trust.

The following discussion provides information concerning the background and
business experience of the named individuals, all of whom are serving as
directors of Business Bank, as well as in such additional capacities as may be
described below:

JEFFREY L. BARKER is the owner of Barker & Associates, a real estate investment
and management firm, since 1987. His firm is active in real estate investment
and development in the South Bay area. Prior to

258
<PAGE>
forming Barker & Associates, Mr. Barker worked for 10 years for Commercial
Alliance Company which specialized in asset-based lending.

HARVEY FERGUSON is Vice Chairman and interim Chief Executive Officer of Business
Bank. For other biographical information about Mr. Ferguson, see "Description of
Security First--Management--Information on Directors and Executive Officers."

KAROL A. GLOVER is a real estate broker with the firm of Remax Palos Verdes
Realty. Active in the real estate business for more than 15 years, she has been
affiliated with Remax since 1988. A member of the prestigious Remax Hall of Fame
and the 100% Club, she ranks in the top 10% of realtors nationwide, based upon
commissions earned. Ms. Glover has attended Los Angeles City College and is a
graduate of the University of Southern California's Real Estate Institute.
Ms. Glover also serves as the Secretary of Business Bank, and is a director of
CalWest.

RICHARD GOMEZ has been the sole owner of Contact Office Solutions, an office
equipment distributor located in Torrance, California, since 1998. Previously,
he had been the President of Operations for Danka Industries Western Region from
1995 and had been the sole owner of Digital Business Automation from 1988 until
its sale to Danka Industries in 1995. Mr. Gomez received his B.A. degree in
political science from the California Polytechnic University at Pomona in 1977.

JOSEPH P. HEITZLER is Chairman of the Board of Business Bank and a resident of
Rolling Hills, California. Mr. Heitzler is president of National Mobile
Television, Inc., a worldwide and the nation's largest provider of mobile
broadcasting facilities. Until July of 1997 when he sold the business to
National Mobile Television, Inc., Mr. Heitzler was president of VTE Mobile
Television, Inc. a major provider of mobile broadcasting facilities, primarily
for sporting events. Prior to becoming involved with VTE Mobile
Television, Inc. Mr. Heitzler was senior executive producer for CBS
Sports, Inc. and Emmy winning producer of NFL Football. Subsequently,
Mr. Heitzler was president of Forum Sports Entertainment, Inc. the then parent
company of the Los Angeles Lakers, Los Angeles Kings and the Forum.
Mr. Heitzler is also a director of CalWest and Security First.

MICHAEL HERMAN is a private investor. Mr. Herman served as Executive Vice
President of Fieldcrest Property Corp., Redondo Beach, California, until
December 1996. Mr. Herman is an active member of the community in the Redondo
Beach and greater South Bay area. Mr. Herman has a bachelor's degree in Business
Administration with an emphasis in Management and Marketing from the University
of Nebraska, Lincoln, Nebraska. Mr. Herman is also a director of CalWest.

PETER D. HOCSON is Chief Executive Officer of Huna Totem Corporation, with
assets consisting of stocks, bonds, apartment complexes, and office buildings.
He has held this position since July 1996. He has also managed a trust fund for
economic development, and during 1983 managed the State of Alaska Trade Office
in Tokyo. From January 1965 through January 1983, Mr. Hocson was employed by the
National Bank of Alaska, serving as Senior Vice President from June 1976 until
January 1983.

KENNETH P. HURLEY is President, Chief Operating Officer, and a director of
Business Bank and of CalWest. Mr. Hurley served as Executive Vice President and
Senior Credit Officer and Credit Administrator of South Bay Bank from 1997 until
joining CalWest in 1999. From 1996-1997 he was First Vice President and Small
Business Administrator of California United Bank. From 1990-1996 Mr. Hurley was
associated with Home Bank, where he served as Senior Vice President from 1994 to
1996. Mr. Hurley holds a B.S. degree in Finance from California State, Long
Beach and a M.B.A. degree from California State University, Dominguez Hills.

DONALD J. LEE is a long-time resident of Torrance, California. Since 1977 he has
served as the President/ Agent Broker of Don Lee Insurance Services, Inc., a
Farmers Insurance Company agency. Mr. Lee is currently serving his final term as
a member of the Torrance City Council.

259
<PAGE>
JAMES R. RATCLIFF is the former president and chief operating officer of
RHO-Company, Inc. RHO-Company is headquartered in Seattle with offices in
Irvine, the South Bay area of Los Angeles County, San Jose and several other
cities. RHO is engaged in the contract placement of personnel to large firms,
including Boeing and Microsoft. Mr. Ratcliff joined RHO-Company in 1984 and
became president and chief operating officer in 1987, serving in that capacity
until early 1997. Mr. Ratcliff graduated from Cal-Poly Pomona in 1980 with a
degree in marketing.

For biographical information for Ronald W. Bachli and J. Thomas Byrom see
"Description of California Community--Management--Information on Directors and
Executive Officers." For biographical information for Harvey Ferguson see
"Description of California Financial--Management--Information on Directors and
Executives and Officers."

The following table sets forth some information with respect to the executive
officers of Business Bank:

<TABLE>
<CAPTION>
OFFICER OF BUSINESS
NAME AGE POSITION(S) HELD WITH BUSINESS BANK BANK SINCE
- ---- -------- ----------------------------------- -------------------
<S> <C> <C> <C>
Harvey Ferguson.................... 62 Chief Executive Officer, Vice 1999
Chairman
Kenneth P. Hurley.................. 47 President and Chief Operating 1999
Officer
</TABLE>

Each executive officer serves on an annual basis and must be selected by the
Board of Directors annually pursuant to its Bylaws.

260
<PAGE>
SELECTED FINANCIAL DATA
BUSINESS BANK
(UNAUDITED)

The selected historical financial data as of and for the period ended
December 31, 1998 are derived from Business Bank's financial statements, which
have been audited by independent public accountants. The selected historical
financial data as of and for the nine months ended September 30, 1999 have not
been audited but, in the opinion of Business Bank's management, contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the financial position and results of operations of Business Bank as of
such dates and for such period. The results of operations for the nine months
ended September 30, 1999 are not necessarily indicative of the results of
operations that may be expected for the year ending December 31, 1999, or for
any future period.

<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
NINE MONTHS ENDED PERIOD ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- ------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
SUMMARY OF CONSOLIDATED INCOME
Net interest income before provision for loan and lease
losses.................................................... $ 395 $ 43
Provision for loan and lease losses......................... 148 17
-------- --------
Net interest income after provision for loan and lease
losses.................................................... 247 26
Noninterest income.......................................... 7 --
Noninterest expense......................................... 1,290 968
-------- --------
Loss before income tax...................................... (1,036) (942)
Income tax provision........................................ -- 1
-------- --------
Net loss.................................................... $ (1,036) $ (943)
======== ========
PER SHARE DATA:
Weighted average shares outstanding
Basic..................................................... 572,775 572,775
Diluted................................................... 572,775 572,775
Net loss per share
Basic..................................................... $ (1.81) $ (1.65)
Diluted................................................... $ (1.81) $ (1.65)
SUMMARY OF CONSOLIDATED FINANCIAL POSITION
Total assets................................................ $ 20,181 $ 8,908
Loans and leases, net....................................... 9,422 741
Deposits.................................................... 16,315 4,029
Stockholders' equity........................................ 3,688 4,724
Average assets.............................................. 11,275 978
Average earning assets...................................... 10,106 825
Average common equity....................................... 4,463 624
PER SHARE DATA:
Common shares outstanding................................... 572,775 572,775
Diluted common shares outstanding........................... 572,775 572,775
Book value per share........................................ $ 6.44 $ 8.25
Diluted book value per share................................ $ 6.44 $ 8.25
SELECTED PERFORMANCE RATIOS
Return on average assets.................................... (12.28)% (96.42)%
Return on average common equity............................. (31.04)% (151.12)%
Net yield on interest earning assets........................ 5.23% 5.21%
Efficiency ratio............................................ 320.90% 2251.16%
Net interest income before provision for loan and lease
losses to average assets.................................. 4.68% 4.40%
SELECTED ASSET QUALITY RATIOS
Nonperforming assets to total gross loans and leases and
OREO...................................................... 0.21% --%
Nonperforming assets to total assets........................ 0.11% --%
Allowance for loan and lease losses to gross loans and
leases.................................................... 1.31% 2.24%
Allowance for loan and lease losses to nonperforming loans
and leases................................................ 625.00% --%
Net charge-offs (annualized) to average loans and leases.... 1.55% --%
SELECTED CAPITAL RATIOS
Tier 1 Leverage Ratio....................................... 20.61% 60.40%
Tier 1 Risk-Weighted Ratio.................................. 30.43% 171.00%
Total Risk Weighted Ratio................................... 31.50% 171.62%
Average common equity to average assets..................... 39.58% 63.80%
</TABLE>

261
<PAGE>
BUSINESS BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

Business Bank commenced operation on November 3, 1998. Hence, the following
discussion is limited to the nine months of operations in 1999 and the two
months of operations in 1998. This information should be read in conjunction
with the audited financial statements and the notes thereto of Business Bank
included with this proxy statement/prospectus. Except for the historical
information contained herein, the following discussion contains forward-looking
statements that involve risks and uncertainties. Business Bank's actual results
could differ materially from those discussed here. Factors that could cause or
contribute to such differences include, but are not specifically limited to,
changes in regulatory climate, shifts in the interest rate environment, changes
in economic conditions of various markets Business Bank serves, as well as the
other risks detailed in this section and in "Risk Factors" above.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999

OVERVIEW

Business Bank had a net loss of $1.0 million for the nine months ended
September 30, 1999. Basic and diluted net loss per share for the nine months
ended September 30, 1999 was $1.81 per share. Business Bank's return on average
assets was (16.4)% and its return on average common equity was (41.3)% for the
nine months ended September 30, 1999.

RESULTS OF OPERATIONS

Business Bank's results of operations depend primarily on the Bank's net
interest income, which is the difference between interest and dividend income on
interest-earning assets and interest expense on interest-bearing liabilities.
The Bank's interest-earning assets consist primarily of loans and investment
securities, while its interest-bearing liabilities are principally comprised of
deposits. Business Bank's results of operations are also affected by the Bank's
provision for loan losses, resulting from management's assessment of the
adequacy of the Bank's allowance for loan losses, the level of its other income
and the level of its other expenses, such as compensation and employee benefits,
occupancy costs, expenses associated with the administration of problem assets,
and income taxes.

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income was approximately $395,000 for the nine months ended
September 30, 1999. Interest income was approximately $637,000 for the nine
months ended September 30, 1999 while interest expense was approximately
$242,000 for the same period.

Investments in securities and Federal funds sold, the largest component of
earning assets, had an average balance of $6.7 million for the nine months ended
September 30, 1999 with an average yield of 5.0%. Loans and leases had an
average balance of $3.4 million for the nine months ended September 30, 1999
with an average yield of 15.3%. The yield on earning assets was 8.4% for the
nine months ended September 30, 1999.

Average interest-bearing deposits were $5.3 million for the nine months ended
September 30, 1999 and the average rate paid on these deposits was 6.1%.
Business Bank also had an average balance of noninterest-bearing deposits of
$1.4 million, or 21.3% of total average deposits, for the nine months ended
September 30, 1999.

As a result of the foregoing factors, the average net yield on earning assets
was 5.2% for the nine months ended September 30, 1999.

262
<PAGE>
The following table presents, for the period indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-bearing assets and the
resultant yields, and the dollar amounts of interest expense and resultant cost
expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELD OR
BALANCE EXPENSE COST
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)........................................ $ 3,359 $383 15.28%
Investment securities (2)................................... 834 45 7.05
Federal funds sold.......................................... 5,819 204 4.69
Other earning assets........................................ 94 5 7.11
------- ----
Total interest-earning assets........................... 10,106 637 8.43
Non-earning assets:
Cash and demand deposits with banks......................... 644
Other assets................................................ 525
-------
Total assets............................................ 11,275
=======

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand................................... 248 5 2.70
Money market.............................................. 1,644 87 7.08
Savings................................................... 258 6 3.11
Time...................................................... 3,152 144 6.11
------- ----
Total interest-bearing deposits......................... 5,302 242 6.10
Noninterest-bearing liabilities:
Demand deposits........................................... 1,432
Other liabilities......................................... 78
-------
Total liabilities....................................... 6,812
Shareholders' equity........................................ 4,463
-------
Total liabilities and shareholders' equity.................. $11,275
======= ----
Net interest income......................................... $395
====
Net yield on interest-earning assets........................ 5.23%
</TABLE>

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

(1) Loan fees of $67,000 are included in the computations for 1999.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

PROVISION FOR LOAN AND LEASE LOSSES

During the nine months ended September 30, 1999, a total of $148,000 was charged
against operations and added to the allowance for loan and lease losses. The
need for the provision was primarily attributable to the increase in the loan
portfolio discussed below. See "--Financial Condition," below.

263
<PAGE>
NONINTEREST INCOME

Noninterest income for the nine months ended September 30, 1999 was $7,000 that
consisted of $6,000 in service charges and fees and $1,000 in other income.

NONINTEREST EXPENSES

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of the bank. Noninterest expense for the nine months ended September 30, 1999
was $1.3 million. The following table presents for the nine months ended
September 30, 1999 the major categories of noninterest expense:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-------------------
(IN THOUSANDS)
<S> <C>
Salaries and employee benefits.............................. $ 495
Occupancy and equipment..................................... 203
Professional fees........................................... 177
Data and item processing.................................... 83
Communications.............................................. 50
Business development and promotions......................... 67
Year 2000................................................... 42
Director and shareholders expense........................... 3
Other....................................................... 170
------
Total..................................................... $1,290
======
</TABLE>

PROVISION FOR INCOME TAXES

For the nine months ended September 30, 1999, Business Bank made no provision
for income taxes.

FINANCIAL CONDITION

Total assets of Business Bank at September 30, 1999 were $20.2 million compared
to $8.9 million at December 31, 1998. Total earning assets of Business Bank at
September 30, 1999 were $18.7 million compared to $8.0 million at December 31,
1998.

LOANS AND LEASES

Total gross loans and leases at September 30, 1999 were $9.6 million compared to
$758,000 at December 31, 1998. At September 30, 1999, the three largest lending
categories were: (i) real estate loans, (ii) commercial loans and (iii) loans to
individuals. At September 30, 1999, those categories accounted for
$4.4 million, $4.1 million and $1.1 million, or approximately 46.0%, 42.6% and
11.4% of total gross loans and leases, respectively.

264
<PAGE>
The following table sets forth the amount of loans and leases outstanding for
Business Bank as of September 30, 1999, according to type of loan. Business Bank
has no foreign loans or energy-related loans.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------
(IN THOUSANDS)
<S> <C>
Real estate................................................. $4,407
Commercial.................................................. 4,077
Consumer.................................................... 1,092
------
Subtotal.................................................... 9,576
Less: allowance for loan and lease losses................... (125)
Deferred loan fees.......................................... (29)
------
Net loans and leases........................................ $9,422
======
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $2,346 $1,148
After one year but within five years:
Interest rates are floating or adjustable............. 742 --
Interest rates are fixed or predetermined............. 874 2,813
After five years:
Interest rates are floating or adjustable............. 95 98
Interest rates are fixed or predetermined............. 20 348
------ ------
Total............................................... $4,077 $4,407
====== ======
</TABLE>

As of September 30, 1999, in management's judgment, a concentration of loans
existed in commercial loans and real estate loans. At that date, approximately
88.7% of Business Bank's loans were real estate loans or commercial loans,
representing 46.0% and 42.7% of total loans, respectively. Although management
believes such concentrations to have no more than the normal risk of
collectibility, a substantial decline in real estate values could have an
adverse impact on collectibility, increase the level of real estate-related
nonperforming loans, or have other adverse effects which alone or in the
aggregate could have a material adverse effect on the financial condition of
Business Bank.

NONPERFORMING ASSETS

As of September 30, 1999 Business Bank had one loan for $20,000 for which the
accrual of interest has been stopped. Interest that would have been earned had
interest been accruing would have been less than $1,000. This loan constitutes
the nonperforming assets for Business Bank and deemed to be impaired in
accordance with SFAS 114 as amended by SFAS 118.

265
<PAGE>
of collection. When a loan is placed on nonaccrual, previously accrued and
unpaid interest is generally reversed out of income.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan and lease losses represents the amounts which have been
set aside for the specific purpose of absorbing losses which may occur in the
Bank's loan and lease portfolio. The provision for loan and lease losses is an
expense charged against operating income and added to the allowance for loan and
lease losses.

In determining the adequacy of the allowance for loan and lease losses,
management considers such factors as historical loan loss experience, known
problem loans, evaluations made by regulatory agencies and Business Bank's
outside loan reviewer, assessment of economic conditions and other appropriate
data to identify the risks in the portfolio. In determining the amount of the
allowance, a specific allowance amount is assigned to those loans with
identified special risks, and the remaining loan portfolio is reviewed by
category and assigned an allowance percentage for inherent losses. The
allocation process does not necessarily measure anticipated future credit
losses; rather, it reflects management's assessment at a certain date of
perceived credit risk exposure and the impact of current and anticipated
economic conditions, which may or may not result in future credit losses. While
management believes the allowance to be adequate, it should be noted that it is
based on estimates, and ultimate losses may vary from such estimates if future
conditions differ materially from the assumptions used in making the evaluation.
Business Bank's lending is concentrated in Southern California, which has
experienced adverse economic conditions, including declining real estate values.
Those factors have adversely affected borrowers' ability to repay loans.
Although management believes the level of the allowance as of September 30, 1999
is adequate to absorb losses inherent in the loan portfolio, additional decline
in the local economy may result in increasing losses that cannot reasonably be
predicted at this date. The possibility of increased costs of collection,
nonaccrual of interest on those loans that are or may be placed on nonaccrual,
and further charge-offs could have an adverse impact on Business Bank's
financial condition in the future.

The Office of the Comptroller of the Currency, as an integral part of its
supervisory functions, periodically reviews Business Bank's allowance for loan
and lease losses. The Office of the Comptroller of the Currency may require
Business Bank to increase its provision for loan and lease losses or to
recognize further loan charge-offs, based upon judgments different from those of
management.

In December 1993, the federal banking agencies issued an inter-agency policy
statement on the allowance for loan and lease losses that, among other things,
establishes certain benchmark ratios of loan loss reserves to classified assets.
The benchmark set forth by such policy statement is the sum of (i) assets
classified loss; (ii) 50% of assets classified doubtful; (iii) 15% of assets
classified substandard; and (iv) estimated credit losses on other assets over
the upcoming 12 months. At September 30, 1999, Business Bank's allowance
constituted approximately 65% of the benchmark amount suggested by the federal
banking agencies' policy statement.

Business Bank's allowance for loan and lease losses was $125,000 at
September 30, 1999. During the nine months ended September 30, 1999, the
provision for loan and lease losses was $148,000, or 5.7% (annualized) of
average loans at September 30, 1999, loans charged-off totaled $40,000 and there
were no recoveries of any previous loan charge-offs. Business Bank's allowance
for loan and lease losses represented 1.3% of gross loans at September 30, 1999
and 625.0% of nonperforming loans at that same date.

266
<PAGE>
The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for possible loan and lease losses arising
from loan and lease losses and additions to the allowance from provisions
charged to operating expense as of and for the period ending September 30, 1999.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Average loans and leases outstanding..................... $3,359
Gross loans and leases................................... 9,576
Nonperforming loans and leases........................... 20
Allowance for loan and lease losses:
Balance at beginning of period....................... 17
Loans charged off during period
Commercial......................................... 20
Real estate........................................ --
Installment........................................ 20
------
Total............................................ 40
Recoveries during period
Commercial......................................... --
Real estate........................................ --
Installment........................................ --
------
Total............................................ --
Net loans charged off during period................ 40
Provision for loan and lease losses................ 148
------
Balance at end of period......................... $ 125
======
Selected ratios:
Net charge-offs to average loans and leases (1)........ 1.55%
Provision for loan and lease losses to average loans
(1).................................................. 5.87%
Allowance at end of period to gross loans and leases
outstanding at end of period......................... 1.31
Allowance as percentage of nonperforming loans and
leases............................................... 625.00
</TABLE>

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

(1) Annualized

The following table indicates management's allocation of the allowance as of
September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------
PERCENT OF
LOANS IN EACH
CATEGORY TO
AMOUNT TOTAL LOANS
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural................. $ 54 42.6%
Real estate and construction........................... 57 46.0
Consumer............................................... 14 11.4
---- -----
Total................................................ $125 100.0%
==== =====
</TABLE>

In allocating Business Bank's allowance for loan and lease losses, management
has considered the credit risk in the various loan categories in its portfolio.
While every effort has been made to allocate

267
<PAGE>
the allowance to specific categories of loans, management believes that any
allocation of the allowance for loan and lease losses into loan categories lends
an appearance of exactness which does not exist.

INVESTMENT SECURITIES

The Bank maintains a portion of its assets in investment securities to balance
risk and to ensure liquidity. See "--Liquidity," below.

Total investments at September 30, 1999 were $9.3 million compared to
$7.2 million at December 31, 1998. At September 30, 1999, the investments of
Business Bank included overnight Federal funds sold of $6.1 million,
interest-bearing deposits with other banks of $199,000, investment securities of
$2.8 million and Federal Reserve Bank stock of $142,000. At September 30, 1999,
the Bank's portfolio of investment securities consisted of State and U.S.
government and its agencies securities, all of which were classified as held to
maturity. Business Bank does not hold any investment securities as held for
trading.

The following table presents the amortized cost of securities and their
approximate fair values at September 30, 1999:

The following tables show the maturities of investment securities at
September 30, 1999 and the weighted average yields of such securities:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------------------------------------------------------------
AFTER ONE YEAR AFTER FIVE YEARS
WITHIN ONE BUT WITHIN FIVE BUT WITHIN TEN
YEAR YEARS YEARS AFTER TEN YEARS
------------------- ------------------- ------------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. and state government and its
agencies........................ $1,350 5.75% $1,495 5.69% $ -- --% $ -- --%
------ ------ ---- ----
Total investment portfolio...... $1,350 5.75% $1,495 5.69% $ -- --% $ -- --%
====== ====== ==== ====
</TABLE>

Additional information concerning investment securities is provided in the notes
to the accompanying financial statements.

DEPOSITS

Total deposits were $16.3 million at September 30, 1999, compared to
$4.0 million at December 31, 1998. Total noninterest-bearing demand deposits
were $2.3 million, or approximately 14.1% of total deposits while
interest-bearing deposits were $14.0 million, or approximately 85.9% of total
deposits, at September 30, 1999.

268
<PAGE>
The following table shows the average amount and average rate paid on the
categories of deposits for the nine months ended September 30, 1999:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
-----------------------
AVERAGE AVERAGE
BALANCE RATE
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Noninterest-bearing demand.................................. $1,432 --%
Interest-bearing demand..................................... 248 2.70
Money market................................................ 1,644 7.08
Savings..................................................... 258 3.11
Time........................................................ 3,152 6.11
------
Total....................................................... $6,734 4.71%
======
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposits and other time deposits of $100,000 or more at September 30, 1999:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $1,932
Due in over three months through nine months................ 874
Due in over nine months through twelve months............... 1,371
Due in over twelve months................................... --
------
Total..................................................... $4,177
======
</TABLE>

FOR THE PERIOD ENDED DECEMBER 31, 1998

OVERVIEW

Business Bank commenced operations on November 3, 1998, hence the following
discussion only relates to two months of operations during the year. Further,
much of the costs incurred during 1998 are related to startup and organization
activity and do not represent recurring costs of doing business.

Business Bank had a net loss of $943,000 for the period ended December 31, 1998.
Basic and diluted net loss per share in 1998 was $1.65 per share.

RESULTS OF OPERATIONS

NET INTEREST INCOME AND NET INTEREST MARGIN

Business Bank's net interest income was $43,000 in 1998. Interest income for
1998 was $60,000 with interest expense of $17,000. The yield on interest-earning
assets was 7.3% and the cost of average interest-bearing liabilities was 6.5%.
As a result of those factors, the net yield on earning assets was 5.2% in 1998.

The following table presents, for the period indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-bearing assets and the
resultant yields, and the dollar amounts of interest expense and resultant

269
<PAGE>
cost expressed in both dollars and rates. Nonaccrual loans are included in the
calculation of the average loans while nonaccrued interest thereon is excluded
from the computation of rates earned.

<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
1998
-------------------------------
INTEREST AVERAGE
AVERAGE INCOME OR YIELD
BALANCE EXPENSE OR COST
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans and leases (1)........................................ $ 49 $12 24.49%
Investment securities (2)................................... 21 2 9.52
Federal funds sold.......................................... 755 46 6.09
---- ---
Total interest-earning assets............................. 825 60 7.27
Non-earning assets:
Cash and demand deposits with banks......................... 69
Other assets................................................ 84
----
Total assets.............................................. 978
====
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits
Interest-bearing demand................................... 6 -- --
Money market.............................................. 23 1 4.35
Savings................................................... 11 1 9.09
Time...................................................... 222 15 6.76
---- ---
Total interest-bearing deposits......................... 262 17 6.49
Noninterest-bearing liabilities:
Demand deposits........................................... 85
Other liabilities......................................... 7
----
Total liabilities....................................... 354
Shareholders' equity........................................ 624
----
Total liabilities and shareholders' equity.................. $978
==== ---
Net interest income......................................... $43
===
Net yield on interest-earning assets........................ 5.21%
</TABLE>

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

(1) Loan fees of $6,000 are included in the computations for 1998.

(2) Yields are calculated on historical cost and exclude the impact of the
unrealized gain (loss) on available for sale securities.

NONINTEREST INCOME

Business Bank did not recognize any noninterest income in 1998.

NONINTEREST EXPENSE

Noninterest expenses are the costs, other than interest expense, associated with
providing banking and financial services to customers and conducting the affairs
of the bank. Additionally, Business Bank incurred significant startup and
organization costs during 1998 that do not represent recurring costs of
conducting business. Noninterest expense was $968,000 in 1998.

270
<PAGE>
The following table presents for the period ended December 31, 1998 the major
categories of noninterest expense:

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Salaries and employee benefits.............................. $127
Occupancy and equipment..................................... 49
Pre-opening expenses........................................ 605
Data and item processing.................................... 21
Business development and promotions......................... 32
Year 2000................................................... 65
Other....................................................... 69
----
Total..................................................... $968
====
</TABLE>

PROVISION FOR INCOME TAXES

Business Bank recorded a tax provision of $1,000 in 1998.

FINANCIAL CONDITION

Total assets of Business Bank at December 31, 1998 were $8.9 million while total
earning assets of Business Bank at December 31, 1998 were $8.0 million.

LOANS AND LEASES

Total loans and leases of Business Bank at December 31, 1998 were $758,000. At
December 31, 1998, the two largest lending categories were: (i) commercial loans
and (ii) loans to individuals. At December 31, 1998, those categories accounted
for $641,000 and $117,000, or approximately 84.6% and 15.4% of total gross loans
and leases, respectively. The following table sets forth the amount of loans and
leases outstanding for Business Bank at the end of 1998, according to type of
loan. Business Bank has no foreign loans or energy-related loans as of the dates
indicated.

<TABLE>
<CAPTION>
DECEMBER 31,
1998
--------------
(IN THOUSANDS)
<S> <C>
Real estate................................................. $ --
Commercial.................................................. 641
Consumer.................................................... 117
Other loans................................................. --
----
Subtotal.................................................... 758
Less: allowance for loan and lease losses................... (17)
Deferred loan fees.......................................... --
----
Net loans and leases........................................ $741
====
</TABLE>

The following table shows the amounts of some categories of loans outstanding as
of December 31, 1998, which, based on remaining scheduled repayments of
principal, were due in one year or less, more

271
<PAGE>
than one year through five years, and more than five years. Demand or other
loans having no stated maturity and no stated schedule of repayments are
reported as due in one year or less.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
COMMERCIAL REAL ESTATE
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Aggregate maturities of loans and leases which are
due:
Within one year....................................... $388 $ --
After one year but within five years:
Interest rates are floating or adjustable............. 150 --
Interest rates are fixed or predetermined............. 77 --
After five years:
Interest rates are floating or adjustable............. 26 --
Interest rates are fixed or predetermined............. -- --
---- ----
Total............................................... $641 $ --
==== ====
</TABLE>

As of December 31, 1998, in management's judgment, a concentration of loans
existed in commercial loans. At that date, approximately 84.6% of Business
Bank's loans were commercial loans. Although management believes such
concentrations to have no more than the normal risk of collectibility, a
substantial decline in the economy could have an adverse impact on
collectibility, increase the level of nonperforming loans, or have other adverse
effects which alone or in the aggregate could have a material adverse effect on
the financial condition of Business Bank.

NONPERFORMING ASSETS

As of December 31, 1998 Business Bank did not have any nonperforming assets nor
did it have any loans that were deemed to be impaired in accordance with
SFAS 114 as amended by SFAS 118.

Business Bank's current policy is to stop accruing interest on loans which are
past due as to principal or interest 90 days or more, except in circumstances
where the loan is well-secured and in the process of collection. When a loan is
placed on nonaccrual, previously accrued and unpaid interest is generally
reversed out of income.

ALLOWANCE FOR LOAN AND LEASE LOSSES

The allowance for loan and lease losses was $17,000 at December 31, 1998. A
provision for loan losses for the period ended December 31, 1998 was $17,000
which was made to establish the allowance for loan and lease losses. No loans
were charged off or recovered in 1998.

272
<PAGE>
The table below summarizes average loans outstanding, gross loans, nonperforming
loans and changes in the allowance for loan and lease losses arising from loan
and lease losses and additions to the allowance from provisions charged to
operating expense:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Average loans and leases outstanding..................... $ 49
Gross loans and leases................................... 758
Nonperforming loans and leases........................... --
Allowance for loan and lease losses:
Balance at beginning of period....................... --
Loans charged off during period
Commercial......................................... --
Real estate........................................ --
Installment........................................ --
------
Total............................................ --
Recoveries during period
Commercial......................................... --
Real estate........................................ --
Installment........................................ --
------
Total............................................ --
------
Net loans charged off during period................ --
Provision for loan and lease losses................ 17
------
Balance at end of period......................... $ 17
======
Selected ratios:
Net charge-offs to average loans and leases............ 0.00%
Provision for loan and lease losses to average loans... 34.69
Allowance at end of period to gross loans and leases
outstanding at end of period......................... 2.24
Allowance as percentage of nonperforming loans and
leases............................................... --
</TABLE>

The following table indicates management's allocation of the allowance for 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------
PERCENT OF
LOANS IN EACH
CATEGORY TO
AMOUNT TOTAL LOANS
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Commercial, financial and agricultural.................. $14 84.6%
Real estate and construction............................ -- --
Consumer................................................ 3 15.4
Unallocated............................................. -- --
--- -----
Total............................................... $17 100.0%
=== =====
</TABLE>

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<PAGE>
the allowance to specific categories of loans, management believes that any
allocation of the allowance for loan and lease losses into loan categories lends
an appearance of exactness which does not exist.

INVESTMENT SECURITIES

Total investments of Business Bank at December 31, 1998 were $7.2 million that
consisted of overnight Federal funds sold of $7.0 million and Federal Reserve
Bank stock of $172,000. At December 31, 1998 Business Bank did not have any
investment securities.

DEPOSITS

Total deposits were $4.0 million at December 31, 1998. Noninterest-bearing
demand deposits were $761,000, or 18.9% of total deposits, while
interest-bearing deposits were $3.3 million, or 81.1% of total deposits, at
December 3, 1998.

The following table shows the average amount and average rate paid on the
categories of deposits for the period indicated:

<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998
-------------------
AVERAGE AVERAGE
BALANCE RATE
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Noninterest-bearing demand.................................. $ 85 --%
Interest-bearing demand..................................... 6 --
Money market................................................ 23 4.35
Savings..................................................... 11 9.09
Time........................................................ 222 6.76
----
Total..................................................... $347 4.90%
====
</TABLE>

Additionally, the following table shows the maturities of time certificates of
deposit and other time deposits of $100,000 or more at December 31, 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Due in three months or less................................. $ 100
Due in over three months through six months................. 502
Due in over six months through twelve months................ 1,200
Due in over twelve months................................... --
------
Total..................................................... $1,802
======
</TABLE>

CAPITAL RESOURCES

Current risk-based regulatory capital standards generally require banks and bank
holding companies to maintain a ratio of "core" or "Tier 1" capital (consisting
principally of common equity) to risk-weighted assets of at least 4%, a ratio of
Tier 1 capital to adjusted total assets (leverage ratio) of at least 3% and a
ratio of total capital (which includes Tier 1 capital plus certain forms of
subordinated debt, a portion of the allowance for loan losses and preferred
stock) to risk-weighted assets of at least 8%. Risk-weighted assets are
calculated by multiplying the balance in each category of assets according to a
risk factor which ranges from zero for cash assets and certain government
obligations to 100% for some types of loans and adding the products together.

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<PAGE>
Business Bank was well capitalized as of September 30, 1999 and December 31,
1998 for federal regulatory purposes. The following table details the regulatory
capital ratios of Business Bank as of September 30, 1999. See the Notes to
Consolidated Financial Statements for Business Bank contained herein for details
of regulatory capital of Business Bank as of December 31, 1998.

<TABLE>
<CAPTION>
CAPITAL
ADEQUACY WELL CAPITALIZED
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
------------------- ----------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- ------------ -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Leverage Capital
Ratio........................ $3,688 20.61% $537 > or = to 3.0% $ 895 > or = to 5.0
Tier 1 Risk-Based Capital
Ratio........................ 3,688 30.43% 485 > or = to 4.0% 727 > or = to 6.0
Total Risk-Based Capital
Ratio........................ 3,813 31.50% 968 > or = to 8.0% 1,210 > or = to 10.0
</TABLE>

LIQUIDITY

Business Bank relies on deposits as its principal source of funds and,
therefore, must be in a position to service depositors' needs as they arise.
Management attempts to maintain a loan-to-deposit ratio of not greater than 80%
and a liquidity ratio (liquid assets, including cash and due from banks, Federal
funds sold and investment securities to deposits) of approximately 25%. The
average loan-to-deposit ratio was 49.9% for the nine months ended September 30,
1999 and 14.1% for the period ended December 31 1998. The average liquidity
ratio was 108.4% for the nine months ended September 30, 1999, and 243.5% for
the period ended December 31, 1998. At September 30, 1999, Business Bank's
loan-to-deposit ratio was 57.8% and the liquidity ratio was 60.5%. The average
loan-to-deposit ratio was 14.1% for the period ended December 31, 1998 and the
average liquidity ratio was 243.5% for the same period. At December 31, 1998,
Business Bank's loan-to-deposit ratio was 18.4% and the liquidity ratio was
185.6%. While fluctuations in the balances of a few large depositors may cause
temporary increases and decreases in liquidity from time to time, Business Bank
has not experienced difficulty in dealing with such fluctuations from existing
liquidity sources.

Should the level of liquid assets (primary liquidity) not meet the liquidity
needs of Business Bank, other available sources of liquid assets (secondary
liquidity), including the purchase of Federal funds, sale of securities under
agreements to repurchase, sale of loans, and the discount window borrowing from
the Federal Reserve Bank, could be employed.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

When appropriate, management may utilize off balance sheet instruments such as
interest rate floors, caps and swaps to hedge its interest rate position. A
Board of Directors approved hedging policy statement governs use of these
instruments. As of September 30, 1999, Business Bank had not utilized any
interest rate swap or other such financial derivative to alter its interest rate
risk profile.

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<PAGE>
One way to measure the impact that future changes in interest rates will have on
net interest income is through a cumulative gap measure. The gap represents the
net position of assets and liabilities subject to repricing in specified time
periods. Generally, a liability sensitive gap position indicates that there
would be a net positive impact on the net interest margin of Business Bank for
the period measured in a declining interest rate environment since Business
Bank's liabilities would reprice to lower market rates before its assets would.
A net negative impact would result from an increasing interest rate environment.
Conversely, an asset sensitive gap indicates that there would be a net positive
impact on the net interest margin in a rising interest rate environment since
Business Bank's assets would reprice to higher market interest rates before its
liabilities would.

The following table sets forth the distribution of repricing opportunities of
Business Bank's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), cumulative interest-earning assets and
interest-bearing liabilities, the cumulative interest rate sensitivity gap, the
ratio of cumulative interest-earning assets to cumulative interest-bearing
liabilities and the cumulative gap as a percentage of total assets and total
interest-earning assets as of September 30, 1999. The table also sets forth the
time periods during which interest-earning assets and interest-bearing
liabilities will mature or may reprice in accordance with their contractual
terms. The interest rate relationships between the repriceable assets and
repriceable liabilities are not necessarily constant and may be affected by many
factors, including the behavior of customers in response to changes in interest
rates. This table should, therefore, be used only as a guide as to the possible
effect changes in interest rates might have on the

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<PAGE>
net margins of Business Bank. There has not been a material change in the
interest rate risk profile of Business Bank since December 31, 1998.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------------------------------
AMOUNTS MATURING OR REPRICING IN
---------------------------------------------------------------------
OVER 3
MONTHS OVER 1
3 MONTHS TO 12 YEAR TO 5 OVER 5 NON-
OR LESS MONTHS YEARS YEARS SENSITIVE(1) TOTAL
--------- -------- --------- -------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks........... $ -- $ 199 $ -- $ -- $ 966 $ 1,165
Federal funds sold................ 6,065 -- -- -- -- 6,065
Investment securities............. -- 1,350 1,495 -- -- 2,845
Loans and leases.................. 4,717 350 4,460 20 -- 9,547
Other assets (2).................. -- -- -- 142 417 559
------- ------- ------- ------- ------- -------
Total assets.................... 10,782 1,899 5,955 162 1,383 20,181
======= ======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Non-interest bearing demand
deposits........................ -- -- -- -- 2,279 2,279
Interest-bearing demand, money
market and savings.............. 7,365 -- -- -- -- 7,365
Time certificates of deposit...... 2,585 4,086 -- -- -- 6,671
Other liabilities................. -- -- -- -- 178 178
Shareholders' equity.............. -- -- -- -- 3,688 3,688
------- ------- ------- ------- ------- -------
Total liabilities &
shareholders' equity.......... $ 9,950 $ 4,086 $ -- $ -- $ 6,145 $20,181
======= ======= ======= ======= ======= =======
Period Gap........................ $ 832 $(2,187) $ 5,955 $ 162 $(4,762)
Cumulative interest earning
assets.......................... $10,782 $12,681 $18,636 $18,798
Cumulative interest earning
liabilities..................... $ 9,950 $14,036 $14,036 $14,036
Cumulative Gap.................... $ 832 $(1,355) $ 4,600 $ 4,762
Cumulative interest earning assets
to cumulative interest bearing
liabilities..................... 1.08 0.90 1.33 1.34
Cumulative gap as a percent of:
Total assets.................... 4.12% (6.71)% 22.79% 23.60%
Interest earning assets......... 4.43% (7.21)% 24.47% 25.33%
</TABLE>

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

(1) Assets or liabilities which are not interest rate-sensitive.

(2) Allowance for possible loan losses of $125,000 as of September 30, 1999 is
included in other assets.

At September 30, 1999, Business Bank had $12.7 million in assets and
$14.0 million in liabilities repricing within one year. This means that
$1.3 million more in interest rate sensitive liabilities than interest rate
sensitive assets will change to the then current rate (changes occur due to the
instruments being at a variable rate or because the maturity of the instrument
requires its replacement at the then current rate). The ratio of interest
earning assets to interest bearing liabilities maturing or repricing within one
year at September 30, 1999 is .90 and management tries to maintain this ratio as
close to zero as possible while remaining in a range between .80 and 1.20.
Interest expense is likely to be affected to a greater extent than interest
income for any changes in interest rates within one year from

277
<PAGE>
September 30, 1999. If rates were to fall during this period, interest expense
would decline by a greater amount than interest income and net income would
increase. Conversely, if rates were to rise, the reverse would apply.

Management has taken several steps to reduce the negative gap of Business Bank
by shortening the maturities in its investment portfolio and originating more
variable rate assets. Management will continue to maintain a balance between its
interest earning assets and interest bearing liabilities in order to minimize
the impact on net interest income due to changes in market rates.

YEAR 2000 READINESS DISCLOSURE

The Year 2000 issue is a computer programming concern that may affect many
electronic processing systems. In order to minimize the length of data fields,
most computers programs eliminated the first two digits in the year date field.
This problem could affect date-sensitive calculations that treat "00" as the
year 1900, rather than 2000. Secondly, years that end in "00" are not leap
years, except for the anomaly in the year 2000. This anomaly could result in
miscalculations when processing critical date-sensitive information after
December 31, 1999.

The Year 2000 issue may adversely affect the bank's information technology
systems, such as its item and data processing applications. The Year 2000 issue
also may affect so-called embedded technology, such as that microprocessors that
control the bank's security systems and telecommunication equipment.

Business Bank had determined that some of its computer software applications
needed to be modified or replaced in order to maintain their functionality as
the year 2000 approaches. In response, a comprehensive plan was developed, with
system conversions and testing substantially completed by December 31, 1998 and
remediation completed by March 31, 1999. The plan included the assessment of all
internal systems, programs and data processing applications as well as those
provided to the Bank by third-party vendors. Based upon the Bank's evaluation of
its Year 2000 preparedness, management does not expect that the Year 2000 issue
as it relates to information systems and embedded technology will have a
material adverse effect on the Bank's business, financial condition or results
of operations. There can be no assurance, however, that third party vendors'
efforts will be successful and any such failure could have a material adverse
effect on Business Bank. Business Bank does not intend to obtain insurance
against any Year 2000 risks.

In addition, because the bank's day-to-day operations are heavily dependent on
its ability to communicate with the Federal Reserve and its customers, it would
be particularly susceptible to any possible effects that the Year 2000 issue has
on local and national communications systems, including without limitation,
telephone and data lines. Any interruption or malfunction of such systems could
have a material adverse effect on the Bank.

Business Bank estimates its total costs over the period from November 3, 1998
through December 31, 1999 will be less than $150,000. None of those costs,
however, are expected to materially affect Business Bank's results of operations
in any one reporting period. In light of the complexity of the Year 2000 problem
and its potential effect on both Business Bank and third parties that interact
with Business Bank, however, there can be no assurance that Business Bank's
costs associated with the Year 2000 issue will be as estimated.

Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures Business Bank undertakes, but also on the way in which
the Year 2000 issue is addressed by governmental agencies, businesses and other
entities who provide data to, or receive data from the bank or whose financial
condition or operational capability is important to Business Bank such as
suppliers or customers. Communications with significant customers and vendors
have been initiated to determine the extent of risk created by those third
parties' failure to remediate their own year 2000

278
<PAGE>
issues; however, it is not possible, at present, to determine the financial
effect if a significant customer's and/or vendor's remediation efforts are not
resolved in a timely manner.

Business Bank is also preparing contingency plans to try to minimize the harm to
Business Bank in the event that Business Bank or any or all of the third parties
with which it interacts is unable to attain Year 2000 readiness. The contingency
plans being prepared are system and application specific and are intended to
ensure that in the event that one or more of such systems and/or applications
fail by or at the Year 2000, Business Bank will be able to engage in its core
business functions in spite of such failure. Among the efforts undertaken by
Business Bank to prepare for the occurrence of Year 2000 is an analysis of the
most reasonably likely worst case scenarios for the Year 2000. These scenarios
have been analyzed in terms of impact on Business Bank and steps that can be
taken to mitigate the potential problems. While not an exhaustive list, the
scenarios that have been analyzed by Business Bank and the contingency plans
that have been developed include the following:

<TABLE>
<S> <C>
OCCURRENCE POTENTIAL CONTINGENCY PLAN
Failure of core accounting systems All core accounting systems have been and
will continue to be tested throughout 1999 to
ensure their viability at the century date
change. Hard copies of key reports will be
produced prior to January 1, 2000.
Power failure at the operations Business Bank is currently analyzing the
option of the installation of generators at
key locations to ensure uninterrupted power
in order to provide critical customer
services.
Telecommunications is unavailable Business Bank is preparing contingency plans
to run the branches without connection to
Business Bank's systems including ground
transportation to move work and information
between locations.
Substantial withdrawal of deposits by Business Bank is putting various contingency
customers funding mechanisms in place including federal
funds lines, shortening the maturity of
securities, FHLB advances and the use of the
Federal Reserve discount window.
Substantial increased cash needs by customers Business Bank is analyzing customer deposit
history to estimate additional customer cash
needs, if any.
Miscellaneous occurrences which require Business Bank is ensuring that key personnel
additional personnel to remedy. are available before and after January 1,
2000.
</TABLE>

Although Business Bank believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 Plan and Business
Bank's other Year 2000 remedial and contingency plans will fully protect
Business Bank from the risks associated with the Year 2000 problem. The analysis
of, and preparation for, the Year 2000 and related problems necessarily rely on
a variety of assumptions about future events, and there can be no assurance that
Business Bank's management has accurately predicted such future events or that
their remedial and contingency plans will adequately address such future events.
In the event that the businesses of Business Bank, vendors of Business Bank or

279
<PAGE>
customers of Business Bank are disrupted as a result of the Year 2000problem,
such disruption could have a material adverse effect on Business Bank.

In addition, bank regulatory agencies, as part of their supervisory function,
have recently issued guidance under which they are assessing and will assess
Year 2000 readiness. The failure of a financial institution, such as Business
Bank, to take appropriate steps to address deficiencies in its Year 2000 project
management process may result in one or more regulatory enforcement actions
which could have a material adverse effect on such institution. Such actions may
include the imposition of civil money penalties, or result in the delay or
denial of regulatory applications.

The foregoing Year 2000 discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Business Bank expects to substantially complete programming changes, remediation
and testing of systems and the impact of redeployment of existing staff, are
based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in this area, the ability to identify and convert all relevant computer systems,
results of year 2000 testing, adequate resolution of year 2000 issues by
governmental agencies, businesses or other third parties who are service
providers, suppliers, borrowers or customers of Business Bank, unanticipated
systems costs, the need to replace hardware, the adequacy of and ability to
implement contingency plans and similar uncertainties. The forward-looking
statements made in the foregoing year 2000 discussion speak only as of the date
on which such statements are made, and Business Bank undertakes no obligation to
update any forward-statements to reflect the occurence of unanticipated events.

Business Bank's disclosures and announcements herein concerning its Y2K planning
and programs are intended to constitute Year 2000 Readiness Disclosures as
defined in the recently enacted Year 2000 Information and Readiness Disclosure
Act. The Year 2000 Information and Readiness Disclosure Act provides certain
protection from liability for certain public and private statements concerning
an entity's Year 2000 readiness and the Year 2000 readiness product and
services.

INFLATION

The majority of Business Bank's assets and liabilities are monetary items held
by Business Bank, the dollar value of which is not affected by inflation. Only a
small portion of total assets is in premises and equipment. The small fixed
asset investment of Business Bank minimizes any material misstatement of asset
values and depreciation expenses that may result from fluctuating market values
due to inflation. A higher inflation rate, however, may increase operating
expenses or have other adverse effects on borrowers of the Business Bank, making
collection more difficult for Business Bank. Rates of interest paid or charged
generally rise if the marketplace believes inflation rates will increase.

280
<PAGE>
INFORMATION CONCERNING CALIFORNIA COMMUNITY, CALIFORNIA FINANCIAL, CALWEST,
ORANGE, PLACER SIERRA, SECURITY FIRST AND BUSINESS BANK

COMPETITION

The banking business in California generally, and in the market areas served by
California Community, California Financial, CalWest, Orange, Placer Sierra,
Security First and Business Bank specifically, is highly competitive with
respect to both loans and deposits. These companies all compete for loans and
deposits with other commercial banks, savings and loan associations, finance
companies, money market funds, credit unions and other financial institutions,
including a number that are much larger than they are. There has been increased
competition for deposit and loan business over the last several years as a
result of deregulation. The recent enactment of interstate banking legislation
in California and the more recent elimination of barriers separating the
banking, insurance and securities industries provide further competition for
California Community, California Financial, CalWest, Orange, Placer Sierra,
Security First and Business Bank See "Supervision and Regulation." Many of the
major commercial banks operating in market areas of these companies offer some
services, such as trust and international banking services, which these
companies do not offer directly. Additionally, banks with larger capitalization
have larger lending limits and are thereby able to serve larger customers.

EFFECT OF GOVERNMENTAL POLICIES

Banking is a business which depends on rate differentials. In general, the
difference between the interest rate paid by CalWest, Orange, Placer Sierra,
Security First and Business Bank on their deposits and their other borrowings
and the interest rate received by these banks on loans extended to their
customers and securities held in their portfolios comprise the major portion of
their earnings. These rates are highly sensitive to many factors which are
beyond the control of the banks. Accordingly, the earnings and growth of the
banks are subject to the influence of domestic and foreign economic conditions,
including inflation, recession and unemployment.

The earnings and growth of California Community, California Financial, CalWest,
Orange, Placer Sierra, Security First and Business Bank are also influenced by
the monetary and fiscal policies of the federal government and the policies of
regulatory agencies, particularly the Federal Reserve. The Federal Reserve
implements national monetary policies (with objectives such as to curb inflation
and combat recession) by its open-market operations in United States Government
securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements and by varying the discount
rates applicable to borrowing by depository institutions. The actions of the
Federal Reserve in these areas influence the growth of bank loans, investments
and deposits and also affect interest rates charged on loans and paid on
deposits. The nature and impact of any future change in monetary policies cannot
be predicted.

CURRENT ACCOUNTING DEVELOPMENTS

In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including some derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In July 1999, the FASB
issued Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133." This statement has delayed the effective
date of Statement 133 for one year. For California Community, California
Financial, Placer Sierra, Security First and Business Bank this new standard is
effective for the first quarter in 2001 and is not to be applied retroactively
to financial statements of prior periods. The impact of htis statement, if any,
is yet to be determined.

281
<PAGE>
In October 1998, the FASB issued Statement 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." This statement establishes accounting and
reporting standards for securitization of mortgage loans. For California
Community, California Financial, Placer Sierra, Security First and Business
Bank, this new standard is effective for the first quarter in 1999 and the
impact of this statement on any of them was not material.

SUPERVISION AND REGULATION

The operations of California Community, California Financial, Placer Sierra,
Security First and Business Bank are subject to extensive regulation by federal,
state, and local governmental authorities and are subject to various laws and
judicial and administrative decisions imposing requirements and restrictions on
part or all of their respective operations. California Community, California
Financial, Placer Sierra, Security First and Business Bank each believe that it
is in substantial compliance in all material respects with applicable federal,
state, and local laws, rules and regulations. Because the business of each of
California Community, California Financial, Placer Sierra, Security First and
Business Bank is highly regulated, the laws, rules and regulations applicable to
each of them are subject to regular modification and change.

From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks and other financial institutions are frequently
made in Congress, in the California legislature and before various bank
regulatory agencies. Most recently, President Clinton signed into law Senate
Bill 900. This legislation eliminates many of the barriers that have separated
the insurance, securities and banking industries since the Great Depression. As
a result, these three industries may more freely compete with each other. The
likelihood of any major change and the impact such change may have on California
Community, California Financial, Placer Sierra, Security First and Business Bank
is impossible to predict.

INDEPENDENT PUBLIC ACCOUNTANTS

It is anticipated that KPMG LLP will continue to provide accounting services to
California Community, such services to include audits of year end financial
statements and other services as required.

282
<PAGE>
EXPERTS

The consolidated financial statements of Placer Sierra and Subsidiary as of and
for the year ending December 31, 1998, has been included herein and in this
proxy statement/prospectus in reliance upon the report of KPMG LLP, independent
certified public accountants, which was dated February 9, 1999 except as to note
16 which is as of March 19, 1999, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.

The consolidated financial statements of Placer Savings Bank and Subsidiary as
of December 31, 1997 and for the two year period then ended, included in this
proxy statement/prospectus, have been audited by Perry-Smith & Co., LLP,
independent auditors, as stated in their report appearing herein, and have been
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

The consolidated financial statements of California Financial and subsidiaries
as of and for the year ended December 31, 1998, included in this proxy
statement/prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.

The consolidated financial statements of California Financial and subsidiaries
as of and for the year ended December 31, 1997, included in this proxy
statement/prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

The consolidated financial statements of Security First and subsidiary as of and
for the year ended December 31, 1998, included in this proxy
statement/prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.

The consolidated financial statements of Security First and subsidiary as of
December 31, 1997 and for the years ended December 31, 1997 and 1996, included
in this proxy statement/prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

The balance sheet of Business Bank as of December 31, 1998 and the related
statements of operations, stockholders' equity, and cash flows for the period
from November 3, 1998 (commencement of operations) to December 31, 1998,
included in this proxy statement/prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein,
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

The financial statements of Orange as of and for the year ended December 31,
1998, included in this proxy statement/prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

The balance sheet of Orange as of December 31, 1997, and the related statements
of operations, changes in stockholders' equity, and cash flows for the year then
ended included in this proxy statement/prospectus have been audited by
McGladrey & Pullen, LLP, independent public accountants.

The consolidated balance sheet of Downey Bancorp and Subsidiary as of
November 25, 1998, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the period from January 1, 1998 to
November 25, 1998, included in this proxy statement/prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
appearing

283
<PAGE>
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.

The consolidated balance sheets of Downey Bancorp and Subsidiary as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the year then ended included
in this proxy statement/prospectus have been audited by McGladrey & Pullen, LLP,
independent public accountants.

LEGAL MATTERS

The validity of the securities to be issued by California Community in
connection with each of the California Community/California Financial merger,
the CalWest/Business Bank merger, and the Orange/Security First merger, is being
passed upon by Lillick & Charles LLP, San Francisco, California.

284
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PLACER SIERRA BANK AND SUBSIDIARY AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND UNAUDITED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS

Independent Auditors' Reports............................... F-3

Consolidated Balance Sheet, June 30, 1999 (Unaudited) and
December 31, 1998 and 1997................................ F-5

Consolidated Statement of Income for the Six Months Ended
June 30, 1999 and 1998 (Unaudited) and for the Years Ended
December 31, 1998, 1997 and 1996.......................... F-6

Consolidated Statement of Stockholders' Equity for the Six
Months Ended June 30, 1999 (Unaudited) and for the Years
Ended December 31, 1998, 1997 and 1996.................... F-7

Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 1999 and 1998 (Unaudited) and for the Years
Ended December 31, 1998, 1997 and 1996.................... F-8

Notes to Consolidated Financial Statements.................. F-10

CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES UNAUDITED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS AND AUDITED
CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Reports............................... F-29

Consolidated Balance Sheets, September 30, 1999 (Unaudited)
and December 31, 1998 and 1997............................ F-31

Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998 (Unaudited) and for the
Year Ended December 31, 1998 and Period from Inception
(September 11, 1997 to December 31, 1997)................. F-32

Consolidated Statement of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1999 (Unaudited)
and for the Year Ended December 31, 1998, and Period from
Inception (September 11, 1997 to December 31, 1997)....... F-33

Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (Unaudited) and for the
Year Ended December 31, 1998 and Period from Inception
(September 11, 1997 to December 31, 1997)................. F-34

Notes to Consolidated Financial Statements.................. F-36

NATIONAL BUSINESS BANK UNAUDITED INTERIM FINANCIAL
STATEMENTS AND AUDITED FINANCIAL STATEMENTS

Independent Auditors' Report................................ F-61

Balance Sheet, September 30, 1999 (Unaudited) and
December 31, 1998......................................... F-62

Statement of Operations for the Nine Months Ended
September 30, 1999 (Unaudited) and for the Period from
Inception (November 3, 1998 to December 31, 1998)......... F-63

Statement of Stockholders' Equity for the Nine Months Ended
September 30, 1999 (Unaudited) and for the Period from
Inception (November 3, 1998 to December 31, 1998)......... F-64

Statement of Cash Flows for the Nine Months Ended
September 30, 1999 (Unaudited) and for the Period from
Inception (November 3, 1998 to December 31, 1998)......... F-65

Notes to Financial Statements............................... F-66

SECURITY FIRST BANK UNAUDITED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS AND AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Independent Auditors' Reports............................... F-74
</TABLE>

F-1
<PAGE>

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Consolidated Balance Sheets, September 30, 1999 (Unaudited)
and December 31, 1998 and 1997............................ F-76

Consolidated Statements of Operations for the Nine Months
Ended September 30, 1999 and 1998 (Unaudited) and for the
Years Ended December 31, 1998, 1997 and 1996.............. F-77

Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1999 (Unaudited)
and for the Years Ended December 31, 1998, 1997 and
1996...................................................... F-78

Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (Unaudited) and for the
Years Ended December 31, 1998, 1997 and 1996.............. F-79

Notes to Consolidated Financial Statements.................. F-80

THE BANK OF ORANGE COUNTY AUDITED FINANCIAL STATEMENTS

Independent Auditors' Reports............................... F-98

Balance Sheets, December 31, 1998 and 1997.................. F-100

Statements of Operations for the Years Ended December 31,
1998 and 1997............................................. F-101

Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998 and 1997.......................... F-102

Statements of Cash Flows for the Years Ended December 31,
1998 and 1997............................................. F-103

Notes to Financial Statements............................... F-104

DOWNEY BANCORP AND SUBSIDIARY AUDITED CONSOLIDATED FINANCIAL
STATEMENTS

Independent Auditors' Reports............................... F-121

Consolidated Balance Sheets, November 25, 1998 and December
31, 1997.................................................. F-123

Consolidated Statements of Income, Period from January 1,
1998 to November 25, 1998 and Year Ended December 31,
1997...................................................... F-124

Consolidated Statements of Changes in Stockholders' Equity,
Period from January 1, 1998 to November 25, 1998 and Year
Ended December 31, 1997................................... F-125

Consolidated Statements of Cash Flows, Period from January
1, 1998 to November 25, 1998 and Year Ended December 31,
1997...................................................... F-126

Notes to Consolidated Financial Statements.................. F-127
</TABLE>

F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Placer Savings Bank and Subsidiary:

We have audited the accompanying consolidated statement of financial
condition of Placer Savings Bank and subsidiary as of December 31, 1998 and the
related consolidated statements of income and comprehensive income,
stockholders' equity and cash flows for the year ended December 31, 1998. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated financial statements
of Placer Savings Bank and subsidiary as of December 31, 1997, and for the years
ended December 31, 1997 and 1996, were audited by other auditors whose report
dated February 20, 1998, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audit provides a reasonable basis
for our opinion.

In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Placer
Savings Bank and subsidiary as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ KPMG LLP

Sacramento, California
February 9, 1999
except as to Note (16),
which is as of March 19, 1999

F-3
<PAGE>
INDEPENDENT AUDITOR'S REPORT

The Board of Directors
Placer Savings Bank and Subsidiary

We have audited the accompanying consolidated statement of financial
condition of Placer Savings Bank and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Bank'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 audits 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 consolidated financial position of
Placer Savings Bank and subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

[SIGNATURE]

February 20, 1998

F-4
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998 AND 1997

<TABLE>
<CAPTION>
JUNE 30, 1999 1998 1997
-------------- ------------ ------------
UNAUDITED
<S> <C> <C> <C>
ASSETS

Cash and due from banks............................ $ 17,073,337 $ 19,495,890 $ 14,000,560
Federal funds sold................................. 4,476,625 32,869,273 4,503,960
Investment securities available for sale, at fair
value (Note 2)................................... 113,997,481 98,845,300 77,415,200
Investment securities held to maturity, at cost
(Note 2)......................................... 48,577,623 42,711,379 23,167,682
Loans, less allowance for loan losses of $3,659,996
in 1998 and $3,006,573 in 1997 (Note 3).......... 374,066,948 356,878,504 367,966,909
Real estate owned, net (Note 4).................... 1,220,785 885,860 1,449,025
Bank premises and equipment, net (Note 5).......... 7,296,063 7,414,790 7,309,062
Accrued interest receivable and other assets....... 6,597,332 6,177,358 5,898,461
------------ ------------ ------------
$573,306,194 $565,278,354 $501,710,859
============ ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest bearing............................. $ 82,038,142 $ 77,158,560 $ 57,518,962
Interest bearing (Note 6)........................ 454,652,671 450,432,311 410,352,083
------------ ------------ ------------
Total deposits................................. 536,690,813 527,590,871 467,871,045

Accrued interest payable and other liabilities..... 1,452,817 2,890,546 2,516,279
------------ ------------ ------------
Total liabilities.............................. 538,143,630 530,481,417 470,387,324
------------ ------------ ------------

COMMITMENTS AND CONTINGENCIES (Note 8)

STOCKHOLDERS' EQUITY (Note 10):
Common stock, no par value; 6,000,000 shares
authorized; issued and outstanding--3,560,000
shares in 1998 and 1997........................ 178,000 178,000 178,000
Additional paid-in capital....................... 133,255 133,255 133,255
Accumulated other comprehensive income........... (1,203,724) 243,144 164,103
Retained earnings................................ 36,055,033 34,242,538 30,848,177
------------ ------------ ------------
Total stockholders' equity..................... 35,162,564 34,796,937 31,323,535
------------ ------------ ------------
$573,306,194 $565,278,354 $501,710,859
============ ============ ============
</TABLE>

See accompanying notes to the consolidated financial statements.

F-5
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)

AND YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
6 MONTHS ENDING JUNE 30,
---------------------------
1999 1998 1998 1997 1996
------------ ------------ ----------- ----------- -----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.......... $15,247,896 $15,507,125 $30,784,936 $29,520,717 $27,933,531
Interest on Federal funds sold...... 227,482 445,559 776,855 718,356 413,113
Interest and dividends on investment
securities........................ 4,735,764 3,128,745 7,447,484 5,547,042 5,279,224
----------- ----------- ----------- ----------- -----------
Total interest income............. 20,211,142 19,081,429 39,009,275 35,786,115 33,625,868
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits (Note 6)....... 8,524,317 8,441,846 17,238,323 16,410,130 15,848,911
Interest on short-term borrowings... 32,165 0 -- -- 8,133
----------- ----------- ----------- ----------- -----------
Total interest expense............ 8,556,482 8,441,846 17,238,323 16,410,130 15,857,044
----------- ----------- ----------- ----------- -----------
Net interest income............... 11,654,660 10,639,583 21,770,952 19,375,985 17,768,824
PROVISION FOR LOAN LOSSES (Note 3).... 319,000 405,000 775,000 1,100,000 492,500
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses....... 11,335,660 10,234,583 20,995,952 18,275,985 17,276,324
NON-INTEREST INCOME:
Service charges..................... 1,045,689 956,440 2,084,731 1,860,509 1,719,581
Commissions, Investment products.... 376,247 459,068 858,572 545,624 610,611
Gain on sale of loans............... 383,932 445,718 676,341 237,529 51,456
Gain on sale of securities, net..... 38,349 121,016 222,645 34,372 201,421
Gain on sale of properties
(Note 13)......................... -- -- 409,322 542,838 --
Other............................... 344,030 461,094 1,026,428 671,679 499,905
----------- ----------- ----------- ----------- -----------
2,188,247 2,443,336 5,278,039 3,892,551 3,082,974
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits
(Note 3 and 11)................... 5,210,167 4,801,458 9,818,770 8,347,165 8,136,109
Occupancy and equipment............. 1,512,566 1,605,193 3,167,084 2,534,444 2,643,946
Other (Note 12)..................... 3,443,279 3,209,246 6,640,976 5,878,294 6,692,820
One-time SAIF assessment
(Note 14)......................... -- -- -- -- 2,796,954
----------- ----------- ----------- ----------- -----------
Total other expenses.............. 10,166,012 9,615,897 19,626,830 16,759,903 20,269,829
----------- ----------- ----------- ----------- -----------
Income before income taxes........ 3,357,895 3,062,022 6,647,161 5,408,633 89,469
INCOME TAXES (Note 7)................. 1,331,800 1,344,500 2,861,200 2,314,000 38,000
----------- ----------- ----------- ----------- -----------
Net income........................ 2,026,095 1,717,522 3,785,961 3,094,633 51,469
OTHER COMPREHENSIVE INCOME, NET OF
TAX:
Unrealized holding gains (losses)
arising during the period......... (1,636,710) 41,079 137,783 148,843 (110,672)
Less: Reclassification adjustment
for gains included in net
income............................ 189,842 (83,719) (58,742) (34,774) (78,130)
----------- ----------- ----------- ----------- -----------
Other comprehensive income (loss)... (1,446,868) (42,640) 79,041 114,069 (188,802)
----------- ----------- ----------- ----------- -----------
Comprehensive income (loss)......... $ 579,227 $ 1,674,882 $ 3,865,002 $ 3,208,702 $ (137,333)
=========== =========== =========== =========== ===========
BASIC AND DILUTED EARNINGS PER
SHARE............................... $ 0.57 $ 0.48 $ 1.06 $ 0.87 $ 0.01
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING......................... 3,560,000 3,560,000 3,560,000 3,560,000 3,560,000
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)

AND YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER TOTAL
-------------------- PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY
--------- -------- ---------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........... 1,780,000 $178,000 $133,255 $28,200,475 $ 238,836 $28,750,566
Cash dividend ($.06 per share)..... -- -- -- (106,800) -- (106,800)
Two-for-one stock split............ 1,780,000 -- -- -- -- --
Cash dividend ($.03 per share)..... -- -- -- (106,800) -- (106,800)
Net change in unrealized gain on
available-for-sale investment
securities, net of taxes......... -- -- -- -- (188,802) (188,802)
Net income......................... -- -- -- 51,469 -- 51,469
--------- -------- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996........... 3,560,000 178,000 133,255 28,038,344 50,034 28,399,633
Cash dividends ($.08 per share).... -- -- -- (284,800) -- (284,800)
Net change in unrealized gain on
available-for-sale investment
securities, net of taxes......... -- -- -- -- 114,069 114,069
Net income......................... -- -- -- 3,094,633 -- 3,094,633
--------- -------- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997........... 3,560,000 178,000 133,255 30,848,177 164,103 31,323,535
Cash dividends ($.11 per share).... -- -- -- (391,600) -- (391,600)
Net change in unrealized gain on
available-for-sale investment
securities, net of taxes
(note 2)......................... -- -- -- -- 79,041 79,041
Net income......................... -- -- -- 3,785,961 -- 3,785,961
--------- -------- -------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998........... 3,560,000 $178,000 $133,255 $34,242,538 $ 243,144 $34,796,937
Cash dividends ($0.06 per share)
(unaudited)...................... (213,600) (213,600)
Net change in unrealized
gain/(loss) on available-for-sale
investment securities
(unaudited)...................... (1,446,868) (1,446,868)
Net income (unaudited)............. 2,026,095 2,026,095
--------- -------- -------- ----------- ----------- -----------
Balance June 30, 1999 (unaudited).... 3,560,000 $178,000 $133,255 $36,055,033 $(1,203,724) $35,162,564
========= ======== ======== =========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)

AND YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDING ENDING
JUNE 30, 1999 JUNE 30, 1998 1998 1997 1996
-------------- -------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 2,026,095 $ 1,717,523 $ 3,785,961 $ 3,094,633 $ 51,469
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses..................... 319,000 405,000 775,000 1,100,000 492,500
Provision for losses on other real estate..... -- -- -- 28,262 74,961
Depreciation and amortization................. 663,699 683,687 1,321,765 1,403,277 1,596,988
Decrease (increase) in net unearned fees and
discounts on loans.......................... (35,944) (171,271) 1,320 (165,870) (56,146)
Gain on sale of loans......................... (383,932) (445,718) (676,341) (237,529) (51,456)
Gain on sale of investment securities......... (38,349) (121,016) (222,645) (34,372) (201,421)
Gain on sale of branch........................ -- -- -- (542,838) --
Provision for valuation allowance for premises
and equipment............................... -- -- -- 127,302 --
Gain on sale of properties.................... (20,029) (28,398) (409,322) (318,106) (164,789)
Dividends received on Federal Home Loan Bank
stock....................................... (86,100) (93,700) (185,900) (190,400) (183,400)
Net decrease in real estate held for sale..... 26,903 68,563 173,948 -- --
(Increase) decrease in accrued interest
receivable and other assets................. (611,174) (6,573) 236,358 113,642 410,009
Decrease (increase) in accrued interest
payable and other liabilities............... (433,128) 113,700 73,996 1,259,260 (534,982)
Deferred taxes................................ 191,200 -- 173,000 (401,000) 126,000
------------ ------------ ------------- ------------ ------------
Net cash provided by operating activities... 1,618,241 2,121,797 5,047,140 5,236,261 1,559,733
------------ ------------ ------------- ------------ ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash disbursed in the sale of selected assets
and liabilities of a branch................... -- -- -- (13,591,196) --
Purchases of investment securities:
Available-for-sale............................ (49,172,296) (51,293,955) (101,481,254) (57,243,792) (44,604,113)
Held-to-maturity.............................. (13,718,514) (14,082,853) (28,078,488) (1,049,626) (18,287,390)
Proceeds from calls and maturities of investment
securities:
Available-for-sale............................ 10,000,000 10,997,705 24,745,791 8,500,000 6,498,490
Held-to-maturity.............................. 6,000,000 5,000,000 5,000,000 170,139 20,200,000
Proceeds from sales of investment securities:
Available for sale............................ 12,864,015 15,123,696 42,551,196 15,263,301 26,650,897
Proceeds from principal repayments on
mortgage-backed securities:
Available for sale............................ 8,251,424 4,172,265 13,171,304 4,661,549 2,879,621
Held to maturity.............................. 1,852,270 1,735,234 3,451,537 1,765,512 1,429,945
Proceeds from sale of loans..................... 16,015,223 24,586,050 41,101,000 16,511,650 8,241,590
Net increase in loans........................... (33,650,094) (15,161,043) (30,658,958) (32,984,185) (21,220,485)
Proceeds from redemption of Federal Home Loan
Bank stock.................................... 400,000 160,800 160,800 -- 900,000
Purchases of premises and equipment............. (544,972) (776,682) (1,369,483) (1,512,158) (2,988,953)
Proceeds from sales of premises and equipment... -- -- 91,237 -- 2,061,330
Proceeds from sales of other real estate........ 169,560 312,272 764,995 2,209,863 --
Purchase of life insurance policies............. -- -- -- (1,285,000) --
------------ ------------ ------------- ------------ ------------
Net cash used in investing activities....... (41,533,384) (19,226,511) (30,550,323) (58,583,943) (18,239,068)
------------ ------------ ------------- ------------ ------------
</TABLE>

F-8
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)

AND YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDING ENDING
JUNE 30, 1999 JUNE 30, 1998 1998 1997 1996
-------------- -------------- ------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, interest-bearing and
savings deposits.............................. 15,337,206 18,051,346 43,319,779 20,896,683 9,657,987
Net increase (decrease) in time deposits........ (6,237,264) 6,892,242 16,400,047 15,237,965 15,094,792
Cash dividends paid............................. -- -- (356,000) (320,400) (213,600)
------------ ------------ ------------- ------------ ------------
Net cash provided by financing activities... 9,099,942 24,943,588 59,363,826 35,814,248 24,539,179
------------ ------------ ------------- ------------ ------------
(Decrease) increase in cash and cash
equivalents............................... (30,815,201) 7,838,874 33,860,643 (17,533,434) 7,859,844

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 52,365,163 18,504,520 18,504,520 36,037,954 28,178,110
------------ ------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 21,549,962 $ 26,343,394 $ 52,365,163 $ 18,504,520 $ 36,037,954
============ ============ ============= ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest expense.............................. $ 8,523,858 $ 8,436,109 $ 16,864,056 $ 17,234,270 $ 16,449,920
Income taxes.................................. 1,384,152 866,945 2,655,000 2,250,000 683,907

NONCASH INVESTING ACTIVITIES:
Real estate acquired through foreclosure........ 511,359 357,987 547,704 1,284,600 1,863,657
Real estate transferred to premises and
equipment..................................... -- -- 124,818 -- --
Net change in unrealized gain (loss) on
available-for-sale investment securities...... (2,629,125) (90,723) 169,392 241,441 (319,385)
Loan made to facilitate sale of real estate..... -- -- 432,000 -- --

NONCASH FINANCING ACTIVITIES:
Dividends declared, $.03 per share in 1998, $.02
per share in 1997 and $.03 share in 1996...... 213,600 178,000 106,800 71,200 106,800
On May 30, 1997, the Bank sold certain assets
and liabilities of one of its branches (Note
13):
Deposits sold................................. -- -- -- (14,252,094) --
Premium on deposits........................... -- -- -- 145,665 --
Fair value of assets and liabilities sold..... -- -- -- 515,233 --
------------ ------------ ------------- ------------ ------------
Cash remitted................................. -- -- $ -- $(13,591,196) $ --
============ ============ ============= ============ ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-9
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1998, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GENERAL

Placer Savings Bank (the "Bank") is a State chartered savings bank. The
accounting and reporting policies of the Bank conform with generally accepted
accounting principles and prevailing practices within the banking industry.
Summarized below are certain accounting policies of the Bank and its subsidiary.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Bank and
its wholly owned subsidiary, Central Square Corporation. Central Square
Corporation was formed in 1989 and engages in computer sales and insurance and
securities brokerage activities. The subsidiary also holds title to various real
property assets. All significant intercompany balances and transactions have
been eliminated in consolidation.

RECLASSIFICATIONS

Certain reclassifications have been made to prior years' balances to conform
to classifications used in 1998.

CASH AND CASH EQUIVALENTS

For the purpose of reporting cash flows, cash and due from banks and Federal
funds sold are considered to be cash equivalents. Generally, Federal funds are
sold for one day periods.

INVESTMENT SECURITIES

Investments are classified into one of the following categories:

- Available-for-sale securities, reported at fair value, with unrealized
gains and losses excluded from earnings and reported, net of taxes, as a
separate component of stockholders' equity.

- Held-to-maturity securities, which management has the positive intent and
ability to hold, reported at amortized cost, adjusted for the accretion of
discounts and amortization of premiums.

Management determines the appropriate classification of its investments at
the time of purchase and may only change the classification in certain limited
circumstances. All transfers between categories are accounted for at fair value.
Gains or losses on the sale of securities are computed using the specific
identification method. Interest earned on investment securities is reported in
interest income, net of applicable adjustments for accretion of discounts and
amortization of premiums. In addition, unrealized losses that are other than
temporary are recognized in earnings for all investments.

LOANS

Loans are recorded at cost, net of discounts or premiums, unearned fees and
deferred fees. Discounts and premiums on purchased loans are amortized using the
interest method over the remaining contractual life of the portfolio adjusted
for anticipated prepayments. The Bank measures an

F-10
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

impaired loan based upon the present value of future cash flows discounted at
the loan's effective rate, the loans observable market price, or fair value of
the collateral if the loan is collateral dependent.

Generally, the factors utilized to determine impairment include delinquency,
borrower financial weaknesses and collateral value deterioration. Interest is
normally accrued to income as earned. All loans defined as impaired and all
loans 90 days or more delinquent, record interest income on a cash basis. Since
substantially all of the Bank's loans are collateral-dependent, losses are
charged-off at the point of foreclosure and the asset is written down to fair
market value. The Bank does not apply the above standard of measurement to large
groups of homogeneous loans under $500,000 that are collectively evaluated for
impairment, consisting of primarily residential loans.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained to provide for losses related to
impaired loans and other losses that can be expected to occur in the normal
course of business. The determination of the allowance is based on estimates
made by management, to include consideration of the character of the loan
portfolio, specifically identified problem loans, potential losses inherent in
the portfolio taken as a whole and economic conditions in the Bank's service
area. These estimates are particularly susceptible to changes in the economic
environment and market conditions. The allowance is established through a
provision for loan losses which is charged to expense. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for possible loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on their
judgment of information available to them at the time of their examination.

LOAN SALES AND SERVICING

The Bank, as part of its operations, originates loans that are sold to
Freddie Mac (FHLMC) and Fannie Mae (FNMA). Loans held for sale are carried at
the lower of cost or market value. Market value is determined by the specific
identification method as of the balance sheet date or the date which the
purchasers have committed to purchase the loans. At the time the loan is sold,
the related right to service the loan is either retained, with the Bank earning
future servicing income, or released in exchange for a one-time servicing
released premium. The Bank serviced loans for FHLMC totaling approximately
$46,548,000 and $60,359,000 as of December 31, 1998 and 1997, respectively.
Loans serviced for FNMA totaled approximately $1,993,000 and $2,606,000 as of
December 31,1998 and 1997, respectively.

The Bank applies the provisions of the Financial Accounting Standards Board
Statement No. 125 (SFAS 125), ACCOUNTING FOR TRANSFERS AND SERVICING OF
FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES. Under SFAS 125, sales of
financial assets are recognized when the transferred assets are put beyond the
reach of the transferor and its creditors, even in bankruptcy or receivership.

Under SFAS 125, servicing rights acquired through 1) a purchase or 2) the
origination of loans which are sold or securitized with servicing rights
retained are recognized as separate assets or liabilities. Servicing assets or
liabilities are recorded at the difference between the contractual servicing
fees and adequate compensation for performing the servicing, and are
subsequently amortized in proportion to and over the period of the related net
servicing income or expense. Servicing assets are

F-11
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

periodically evaluated for impairment. Fair values are estimated using
discounted cash flows based on current market interest rates. For purposes of
measuring impairment, servicing assets are stratified based on note rate and
term. The amount of impairment recognized is the amount by which the servicing
assets for a stratum exceed their fair value. Servicing rights acquired during
the year ended December 31, 1998 and 1997, were not considered material for
disclosure purposes.

REAL ESTATE OWNED

Real estate owned is comprised of property acquired through foreclosure
proceedings or acceptance of deeds-in-lieu of foreclosure. Losses recognized at
the time of acquiring property in full or partial satisfaction of debt are
charged against the allowance for loan losses. Other real estate is recorded at
the lower of the related loan balance of fair value, less estimated disposition
costs. Fair value of other real estate is generally based on an independent
appraisal of the property. Any subsequent costs or losses are recognized as
noninterest expense when incurred.

BANK PREMISES AND EQUIPMENT

Bank premises and equipment are carried at cost. Depreciation is determined
using the straight-line method over the estimated useful lives of the related
assets. The useful lives of Bank premises are estimated to be twenty to thirty
years. The useful lives of office furniture and equipment are estimated to be
two to ten years. Leasehold improvements are amortized over the life of the
asset or the life of the related lease, whichever is shorter. When assets are
sold or otherwise disposed of, the cost and related accumulated depreciation or
amortization are removed from the accounts and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and repairs is
charged to expense as incurred.

INCOME TAXES

The bank accounts for income taxes under the asset and liability method.
Deferred assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount of
assets and liabilities and their respective tax bases. 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 rates is recognized in income in the period that includes the
enactment date.

EARNINGS PER SHARE

Basic EPS, which excludes dilution, is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period and replaces the presentation of primary EPS. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock, such as stock options, result in the issuance
of common stock which shares in the earnings of the Bank. Diluted EPS is
computed similarly to, and replaces the presentation of, fully diluted EPS. The
treasury stock method has been applied to determine the diluted effect of stock
options in computing diluted EPS.

F-12
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STOCK BASED COMPENSATION

In 1997, the Bank established a Stock Option Plan for employees and
directors. Stock options are accounted for under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Bank's stock
at the date of grant over the exercise price. However, if the fair value of
stock based compensation computed under a fair value based method, as prescribed
in SFAS No. 123, ACCOUNTING FOR STOCK BASED COMPENSATION, is material to the
financial statements, proforma net income and earnings per share are disclosed
as if the fair value method had been applied. At December 31, 1998, potential
common stock had no dilutive effect on earnings per share calculations.

NEW ACCOUNTING PRONOUNCEMENTS

SFAS 130, REPORTING COMPREHENSIVE INCOME, was issued in June 1997 and is
effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components, which include net income and changes in equity during the period
except those resulting from investments by, or distributions to stockholders. As
of January 1, 1998, the Company adopted the provisions of SFAS 130, which have
been applied retroactively to all periods presented in these consolidated
financial statements.

USE OF ESTIMATES

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

(2) INVESTMENT SECURITIES

The amortized cost and estimated market value of investment securities at
December 31, 1998 and 1997 consisted of the following:

AVAILABLE-FOR-SALE

<TABLE>
<CAPTION>
1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............................. $ 8,552,559 79,441 -- 8,632,000
U.S. Government agencies........................ 27,595,925 33,047 (76,972) 27,552,000
Mortgage-backed securities...................... 58,969,329 529,319 (46,648) 59,452,000
Federal Home Loan Bank Stock.................... 3,209,300 -- -- 3,209,300
----------- ------- -------- ----------
$98,327,113 641,807 (123,620) 98,845,300
=========== ======= ======== ==========
</TABLE>

F-13
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(2) INVESTMENT SECURITIES (CONTINUED)

Net unrealized gains on available-for-sale investment securities totaling
$518,187 were recorded net of $275,043 in tax liabilities as a separate
component of stockholders' equity at December 31, 1998.

<TABLE>
<CAPTION>
1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............................. $21,557,549 49,933 (11,482) 21,596,000
U.S. Government agencies........................ 7,255,385 8,067 (1,452) 7,262,000
Mortgage-backed securities...................... 44,045,510 332,035 (21,545) 44,356,000
Mutual Fund..................................... 1,023,761 -- (6,761) 1,017,000
Federal Home Loan Bank Stock.................... 3,184,200 -- -- 3,184,200
----------- ------- -------- ----------
$77,066,405 390,035 (41,240) 77,415,200
=========== ======= ======== ==========
</TABLE>

Net unrealized gains on available-for-sale investment securities totaling
$348,795 were recorded net of $184,692 in tax liabilities as a separate
component of stockholders' equity at December 31, 1997.

HELD-TO-MATURITY

<TABLE>
<CAPTION>
1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............................. $11,614,885 58,115 -- 11,673,000
U.S. Government agencies........................ 6,458,750 24,820 (25,570) 6,458,000
Mortgage-backed securities...................... 14,731,566 186,653 (1,219) 14,917,000
Obligations of states and political
subdivisions.................................. 9,906,178 159,248 (33,426) 10,032,000
----------- ------- -------- ----------
$42,711,379 428,836 (60,215) 43,080,000
=========== ======= ======== ==========
</TABLE>

<TABLE>
<CAPTION>
1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Notes............................. $13,563,179 39,655 (39,834) 13,563,000
U.S. Government agencies........................ 2,100,372 4,628 -- 2,105,000
Mortgage-backed securities...................... 5,901,577 121,525 (8,102) 6,015,000
Obligations of states and political
subdivisions.................................. 1,602,554 24,534 (88) 1,627,000
----------- ------- -------- ----------
$23,167,682 190,342 (48,024) 23,310,000
=========== ======= ======== ==========
</TABLE>

There were no sales or transfers of held-to-maturity investment securities
during the years ended December 31, 1998, 1997 or 1996.

The amortized cost and estimated market value of investment securities at
December 31, 1998 by contractual maturities are shown below. The contractual
maturities of mortgage-backed securities range

F-14
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(2) INVESTMENT SECURITIES (CONTINUED)

from 1999 through 2028. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ -----------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less...................... $ 6,522,041 6,574,000 11,514,885 11,574,000
Due after one year through five years........ 29,626,442 29,610,000 6,951,856 6,954,000
Due after five years through ten years....... -- -- 4,899,156 4,959,000
Due after ten years.......................... -- -- 4,613,917 4,677,000
----------- ---------- ---------- ----------
36,148,483 36,184,000 27,979,814 28,164,000
Investment securities not due at a single
maturity date:
Mortgage-backed securities................. 58,969,330 59,452,000 14,731,565 14,916,000
Federal Home Loan Bank stock............... 3,209,300 3,209,300 -- --
----------- ---------- ---------- ----------
$98,327,113 98,845,300 42,711,379 43,080,000
=========== ========== ========== ==========
</TABLE>

Investment securities with amortized costs totaling $11,386,000 and
$10,569,000 and market values totaling $11,430,000 and $10,559,000 were pledged
to secure public deposits and Treasury, Tax and Loan accounts at December 31,
1998 and 1997, respectively. In addition, investment securities with amortized
costs of $408,000 and $617,000 and market values of $433,000 and $659,000 were
pledged to secure a readily available borrowing line at the Federal Home Loan
Bank of San Francisco at December 31, 1998 and 1997, respectively (see Note 8).

(3) LOANS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Residential real estate..................................... $173,453,180 211,243,895
Commercial real estate...................................... 112,995,480 110,077,973
Real estate construction.................................... 57,091,886 31,105,874
Land........................................................ 2,738,537 2,996,673
Commercial.................................................. 22,695,534 8,352,247
Equity line................................................. 17,692,856 19,046,745
Consumer.................................................... 5,244,523 5,054,079
------------ -----------
Total loans............................................. 391,911,996 387,877,486
Less:
Undisbursed construction loan proceeds.................... (30,010,300) (15,531,104)
Unearned fees and discounts............................... (1,363,196) (1,372,900)
Allowance for loan losses................................. (3,659,996) (3,006,573)
------------ -----------
$356,878,504 367,966,909
============ ===========
</TABLE>

F-15
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(3) LOANS (CONTINUED)

Changes in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year................................. $3,006,573 2,268,138 2,148,202
Provision charged to operations............................ 775,000 1,100,000 492,500
Losses charged to allowance................................ (177,876) (400,018) (400,028)
Recoveries................................................. 56,299 38,453 27,464
---------- --------- ---------
Balance, end of year....................................... $3,659,996 3,006,573 2,268,138
========== ========= =========
</TABLE>

The recorded investment in loans that were considered to be impaired totaled
$0 and $284,900 at December 31, 1998 and 1997, respectively. The related
allowance for loan losses on these loans at December 31, 1998 and 1997 was $0
and $25,869, respectively. The average recorded investment in impaired loans for
the years ended December 31, 1998, 1997 and 1996 was $176,000, $735,000 and
$267,000, respectively. No interest income was recognized on impaired loans
during the years ended December 31, 1998, 1997 and 1996.

Loans on nonaccrual status totaled $708,000 and $1,320,000 at December 31,
1998 and 1997, respectively. Interest foregone on these loans totaled $37,000,
$59,000 and $50,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Management does not expect to experience any material losses in
the process of collecting these loans.

Salaries and employee benefits expense totaling $1,884,786, $1,374,511 and
$1,161,626 have been deferred as loan origination costs during the years ended
December 31, 1998, 1997 and 1996, respectively.

The Bank grants real estate, commercial and consumer loans to customers
located primarily within Northern California. A significant factor affecting the
repayment of these loans is the overall health of the economy in its lending
region, especially in the residential and commercial real estate sectors.
Generally, real estate and commercial loans are secured by properties with
loan-to-value ratios of 50% to 80%. Residential real estate, equity line and
consumer loans are expected to be repaid from the earnings of the borrower,
while commercial real estate and construction loans are expected to be repaid
from business cash flow, permanent financing or proceeds from the sale of
selected assets of the borrower.

(4) REAL ESTATE OWNED

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- ---------
<S> <C> <C>
Real estate owned consisted of the following:
Acquired in settlement of loan obligations, net of
valuation allowance for losses of $20,468 and $38,421 in
1998 and 1997, respectively............................. $ 78,508 307,511
Acquired for investment and development and former Bank
premises, net of valuation allowance for losses of
$42,206 and $42,206 and accumulated depreciation of
$100,275 and $285,495 in 1998 and 1997, respectively.... 807,352 1,141,514
-------- ---------
$885,860 1,449,025
======== =========
</TABLE>

F-16
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(4) REAL ESTATE OWNED (CONTINUED)

Changes in the valuation allowance for losses on real estate owned were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year.................................. $ 80,627 462,065 575,582
Provision charged to operations............................. -- 28,262 74,961
Losses charged to allowance................................. (17,953) (409,700) (188,478)
-------- -------- --------
Balance, end of year........................................ $ 62,674 80,627 462,065
======== ======== ========
</TABLE>

Proceeds from the sale of real estate acquired in settlement of loans
totaled $629,092, $1,413,982 and $2,056,321 for the years ended December 31,
1998, 1997 and 1996, respectively. Net (loss) gain on these sales totaled
$(16,583), $97,000 and $160,000 in 1998, 1997 and 1996, respectively. Gain from
the sale of real estate acquired for investment and development totaled $401,764
and $220,800 in 1998 and 1997, respectively. There was no gain or loss in 1996.

(5) BANK PREMISES AND EQUIPMENT

Bank premises and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Bank premises............................................... $ 7,582,648 7,594,426
Leasehold improvements...................................... 751,982 646,580
Office furniture and equipment.............................. 9,804,275 8,951,979
Automobiles................................................. 142,313 111,197
------------ -----------
18,281,218 17,304,182
Less accumulated depreciation and amortization.............. (10,866,428) (9,995,120)
------------ -----------
$ 7,414,790 7,309,062
============ ===========
</TABLE>

Depreciation and amortization included in occupancy and equipment expense
totaled $1,321,765, $1,213,496 and $1,273,192 for the years ended December 31,
1998, 1997 and 1996, respectively.

(6) INTEREST BEARING DEPOSITS

Interest bearing deposits consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
Interest-bearing checking................................... $ 95,733,047 76,778,930
Savings..................................................... 91,461,273 86,735,209
Time deposits............................................... 263,237,991 246,837,944
------------ -----------
$450,432,311 410,352,083
============ ===========
</TABLE>

F-17
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(6) INTEREST BEARING DEPOSITS (CONTINUED)

Interest expense recognized on interest bearing deposits consisted of the
following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Interest bearing checking............................... $ 1,686,324 1,316,538 1,103,753
Savings................................................. 1,986,682 2,007,097 2,271,263
Time deposits........................................... 13,565,317 13,086,495 12,473,895
----------- ---------- ----------
$17,238,323 16,410,130 15,848,911
=========== ========== ==========
</TABLE>

Time deposits greater than $100,000 totaled $68,633,872 and $59,104,694 at
December 31, 1998 and 1997, respectively.

Aggregate annual maturities of time deposits are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1999........................................................ $216,938,820
2000........................................................ 27,065,663
2001........................................................ 7,171,805
2002........................................................ 8,173,825
2003........................................................ 3,669,751
Thereafter.................................................. 218,127
------------
$263,237,991
============
</TABLE>

(7) INCOME TAXES

The provision for income taxes for the years ended December 31, 1998, 1997
and 1996 consisted of the following:

<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1998
Current.................................................. $2,000,200 688,000 2,688,200
Deferred................................................. 170,000 3,000 173,000
---------- -------- ----------
Income tax expense..................................... $2,170,200 691,000 2,861,200
========== ======== ==========
1997
Current.................................................. $2,005,000 710,000 2,715,000
Deferred................................................. (356,000) (45,000) (401,000)
---------- -------- ----------
Income tax expense..................................... $1,649,000 665,000 2,314,000
========== ======== ==========
1996
Current.................................................. $ (110,000) 22,000 (88,000)
Deferred................................................. 67,000 59,000 126,000
---------- -------- ----------
Income tax expense..................................... $ (43,000) 81,000 38,000
========== ======== ==========
</TABLE>

F-18
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(7) INCOME TAXES (CONTINUED)

Deferred tax assets (liabilities) at December 31, 1998 and 1997 consisted of
the following:

<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................. $ 1,601,000 1,268,000
Interest on nonaccrual loans.............................. 17,000 25,000
Valuation allowance for losses on real estate owned....... 28,000 36,000
Accrued vacation liability................................ 133,000 59,000
Future benefit of State income tax deduction.............. 289,000 224,000
Salary continuation expense............................... 55,000 --
Other..................................................... 13,000 14,000
----------- ----------
Total deferred tax assets............................... 2,136,000 1,626,000
----------- ----------
Deferred tax liabilities:
Deferred loan fees........................................ (591,000) (116,000)
Federal Home Loan Bank stock dividends.................... (1,208,000) (1,076,000)
Unrealized gain on available-for-sale investment
securities.............................................. (274,000) (185,000)
Bank premises and equipment............................... (26,000) (21,000)
Prepaid expenses.......................................... (186,000) (112,000)
Other..................................................... (13,000) (16,000)
----------- ----------
Total deferred tax liabilities.......................... (2,298,000) (1,526,000)
----------- ----------
Net deferred tax (liabilities) assets................... $ (162,000) 100,000
=========== ==========
</TABLE>

Management believes that the realization of the deferred tax assets is "more
likely than not," based on the expectation that the Bank will generate
sufficient taxable income in future periods.

The provision for income taxes differs from amounts computed by applying the
statutory Federal tax rates to operating income before income taxes. The
significant items comprising these differences for the years ended December 31,
1998, 1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal income tax rate........................... 34.0% 34.0% 34.0%
State franchise tax, net of Federal tax effect.............. 7.1% 7.2% 8.0%
Municipal investment income................................. (1.0)% -- --
Officers life insurance..................................... (0.6)% -- --
Other, net.................................................. 3.6% 1.6% 0.5%
----- ----- -----
43.1% 42.8% 42.5%
===== ===== =====
</TABLE>

(8) COMMITMENTS AND CONTINGENCIES

REVOLVING CREDIT LINE

At December 31, 1998, the Bank had pledged approximately $170,634,700 in
mortgage loans and FHLMC mortgage related securities with a carrying value of
$408,000 and estimated market value of $433,000 to Federal Home Loan Bank of San
Francisco to maintain a readily available borrowing

F-19
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(8) COMMITMENTS AND CONTINGENCIES (CONTINUED)

capacity of $142,492,250. The Bank has the ability to borrow from Federal Home
Loan Bank of San Francisco on an as needed basis. There were no borrowings
outstanding as of December 31, 1998 and 1997.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business in order to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized on the balance sheet.

The Bank's exposure to credit loss in the event of nonperformance by the
other party for commitments to extend credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in making
commitments as it does for loans included on the balance sheet.

The following financial instruments represent off-balance-sheet credit risk:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- ----------
<S> <C> <C>
Commitments to extend credit................................ $62,148,000 40,443,000
</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case by case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral held varies, but may include
accounts receivable, inventory, equipment, income producing commercial
properties and residential real estate.

At December 31, 1998, home equity and other consumer loan commitments
represent 39% of total commitments and are generally secured by junior liens on
residential real estate. Real estate construction loan commitments represent 40%
of total commitments and are generally secured by residential and commercial
real estate with a loan to value ratio not to exceed 80%. Commercial loan
commitments represent the remaining 21% of total commitments and are generally
secured by various assets of the borrower.

F-20
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

LEASES

The Bank leases premises under noncancellable operating leases which expire
at various dates through 2011. These leases include various renewal and
termination options and generally provide that increases in insurance and
maintenance costs are the responsibility of the Bank.

Future minimum lease payments as of December 31, 1998 are as follows:

<TABLE>
<S> <C>
1999........................................................ $ 519,264
2000........................................................ 434,558
2001........................................................ 277,588
2002........................................................ 211,545
2003........................................................ 156,377
Thereafter.................................................. 920,566
----------
$2,519,898
==========
</TABLE>

Rental expense included in occupancy and equipment expense totaled $561,185,
$532,309 and $580,615 for the years ended December 31, 1998, 1997 and 1996,
respectively.

CORRESPONDENT BANKING AGREEMENTS

The Bank maintains funds on deposit with other federally insured financial
institutions under correspondent banking agreements. Uninsured deposits totaled
$14,374,000 at December 31, 1998.

FEDERAL RESERVE REQUIREMENTS

Banks are required to maintain reserves with the Federal Reserve Bank equal
to a percentage of their reservable deposits. The reserve balances held with the
Federal Reserve Bank totaled $4,304,040 as of December 31, 1998.

CONTINGENCIES

The Bank is a defendant in legal actions arising in the ordinary course of
business which, in the opinion of management, are either adequately covered by
insurance or will not materially affect the consolidated financial position or
results of operations of the Bank.

YEAR 2000

In 1996, the Bank initiated a plan (Plan) to identify, assess, and remediate
"Year 2000" issues within each of its significant computer programs and certain
equipment which contain micro-processors. The Plan is addressing the issue of
computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000, if a program or chip uses only two
digits rather than four to define the applicable year. The Bank has divided the
Plan into five major phases--assessment, planning, conversion, implementation
and testing. After completing the assessment and planning phases earlier this
year, the Bank is currently in the conversion, implementation and testing
phases. Systems which have been determined not to be Year 2000 compliant are
being either replaced or reprogrammed, and thereafter tested for Year 2000
compliance. The Plan anticipates that by mid-1999 the conversion, implementation
and testing phases will be completed. The current budget for

F-21
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

the total cost of remediation (including replacement software and hardware) and
testing, as set forth in the Plan, is $1,396,000.

The Bank is in the process of identifying and contacting critical suppliers
and customers whose computerized systems interface with the Bank's systems,
regarding their plans and progress in addressing their Year 2000 issues. The
Bank has received varying information from such third parties on the state of
compliance or expected compliance. Contingency plans are being developed in the
event that any critical supplier or customer is not compliant.

The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Bank's
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year 2000 readiness of third-party suppliers and customers, the Bank is unable
to determine at this time whether the consequences of Year 2000 failures will
have a material impact on the Bank's operations, liquidity of financial
condition.

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS

Estimated fair values are disclosed for financial instruments for which it
is practicable to estimate fair value. These estimates are made at a specific
point in time based on relevant market data and information about the financial
instruments. These estimates do not reflect any premium or discount that could
result from offering the Bank's entire holdings of a particular financial
instrument for sale at one time, nor do they attempt to estimate the value of
anticipated future business related to the instruments. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have
a significant effect on fair value estimates and have not been considered in any
of these estimates.

Because no market exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments and
other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
fair values presented.

The following methods and assumptions were used by the Bank to estimate the
fair value of its financial instruments at December 31, 1998 and 1997:

CASH AND CASH EQUIVALENTS: For cash and cash equivalents, the carrying
amount is estimated to be fair value.

INVESTMENT SECURITIES: For investment securities, fair values are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are estimated using quoted market prices for similar
securities and indications of value provided by brokers.

LOANS: For variable rate loans that reprice frequently with no significant
change in credit risk, fair values are based on carrying values. The fair values
for other loans are estimated using discounted cash flow analyses, using
interest rates being offered at each reporting date for loans with similar terms
to borrowers of comparable creditworthiness. The carrying amount of accrued
interest receivable approximates its fair value.

F-22
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(9) FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

LIFE INSURANCE POLICIES: The fair values of life insurance policies are
based on cash surrender values at each reporting date provided by the insurers.

DEPOSITS: The fair values for demand deposits are, by definition, equal to
the amount payable on demand at the reporting date represented by their carrying
amount. Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow analysis using interest rates offered at each reporting
date by the Bank for certificates with similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.

COMMITMENTS TO EXTEND CREDIT: Fair values of commitments to extend credit
are estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present
counterparties' credit standing. Fair values of standby letters of credit are
based on fees currently charged for similar agreements.

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1998 1997
-------------------------- -------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks................ $ 19,495,890 19,495,890 14,000,560 14,000,560
Federal funds sold..................... 32,869,273 32,869,273 4,503,960 4,503,960
Investment securities.................. 141,556,679 141,925,300 100,582,882 100,725,200
Loans, net............................. 356,878,504 355,097,000 367,966,909 358,472,000
Accrued interest receivable............ 3,531,338 3,531,338 3,319,112 3,319,112
Cash surrender value of life insurance
policies............................. 1,404,644 1,404,644 1,336,500 1,336,500

Liabilities:
Deposits............................... 527,590,871 529,507,500 467,871,045 468,658,000
Accrued interest payable............... 424,069 424,069 461,390 461,390

Commitments to extend credit............. $ -- 6,210 -- 4,040
</TABLE>

(10) STOCKHOLDERS' EQUITY

DIVIDENDS

Upon declaration by the Board of Directors, all stockholders of record will
be entitled to receive dividends. Office of Thrift Supervision (OTS) regulations
permit the Bank to pay dividends on its common stock from net earnings or
retained earnings. The regulations do not permit the Bank to pay dividends if
the effect thereof would be to cause the capital of the Bank to be reduced below
the level required by OTS regulations.

STOCK OPTIONS

During 1997, the Board of Directors and stockholders approved the adoption
of the Placer Savings Bank 1997 Stock Option Plan for which 284,800 shares of no
par value common stock are reserved for

F-23
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(10) STOCKHOLDERS' EQUITY (CONTINUED)

issuance to employees and directors under incentive and nonqualified agreements.
The plan requires that the option price may not be less than the fair market
value of the stock at the date the option is granted, and that the stock must be
paid in full at the time the option is exercised. Options granted generally vest
ratably over a five year period. The options expire on dates determined by the
Board of Directors, but not later than ten years from the date of grant.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997
-------------------------- --------------------------
WEIGHTED- WEIGHTED-
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year....... 99,816 7.50 -- --
Options granted................................ -- -- 99,816 7.50
Options canceled............................... 831 7.50 -- --
Options outstanding at end of year............. 98,985 7.50 99,816 7.50
Options exercisable............................ 19,797 7.50 -- --
</TABLE>

SFAS No. 123 establishes a new fair value based accounting method for
stock-based compensation plans and encourages (but does not require) employers
to adopt the new method in place of the provisions of Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB No. 25).
Entities may continue to apply the accounting provisions of APB No. 25 in
determining net income; however, they must apply the disclosure requirements of
SFAS No. 123 for all grants issued after 1994. The Bank elected to continue to
apply the provisions of APB No. 25 in accounting for the employee stock plans
described above. Accordingly, no compensation cost has been recognized.

Had compensation cost for this employee stock plan been determined based on
the new fair value method under SFAS No. 123, the Bank's net income and net
earnings per share would have been reduced to the pro forma amounts for the year
ended December 31, 1998, as indicated below:

<TABLE>
<S> <C>
Net income:
As reported............................................... $3,790,000
Pro forma................................................. 3,720,000
Net earnings per common share:
As reported............................................... $ 1.06
Pro forma................................................. 1.05
</TABLE>

The fair value of each option grant is estimated on the date of grant. In
determining the fair value, the Bank used a modified Black-Scholes
option-pricing model. For the 1997 fixed stock option plan, the following
weighted-average assumptions are used: expected dividend yield of 1.07%;
expected volatility of 91.05%; risk-free interest rate of 5.78%; and expected
life of 10 years. The weighted-average grant-date fair value of options granted
in 1997 is $3.40. Since no options were vested in 1997, there was no
compensation expense calculated.

F-24
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(10) STOCKHOLDERS' EQUITY (CONTINUED)

REGULATORY CAPITAL

The Bank is subject to certain regulatory capital requirements administered
by the Federal banking agencies. Failure to meet these minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk weighted assets, core capital to adjusted tangible assets and
tangible capital to tangible assets. Each of these components is defined in the
regulations. Management believes that the Bank meets all its capital adequacy
requirements as of December 31, 1998.

<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
TOTAL RISK-BASED CAPITAL RATIO
Placer Savings Bank................................ $37,351,000 10.9% $32,976,000 10.6%
Minimum requirement for "Well-Capitalized"
institution...................................... $34,279,000 10.0% $31,052,000 10.0%
Minimum regulatory requirement..................... $27,424,000 8.0% $24,842,000 8.0%

TIER I RISK-BASED CAPITAL RATIO
Placer Savings Bank................................ $33,691,000 9.8% $29,969,000 9.7%
Minimum requirement for "Well-Capitalized"
institution...................................... $20,568,000 6.0% $18,631,000 6.0%

CORE CAPITAL RATIO
Placer Savings Bank................................ $33,691,000 5.9% $29,969,000 6.0%
Minimum requirement for "Well-Capitalized"
institution...................................... $28,467,000 5.0% $25,047,000 5.0%
Minimum regulatory requirement..................... $17,080,000 3.0% $15,028,000 3.0%

TANGIBLE CAPITAL RATIO
Placer Savings Bank................................ $33,691,000 5.9% $29,969,000 6.0%
Minimum regulatory requirement..................... $ 8,540,220 1.5% $ 7,514,000 1.5%
</TABLE>

(11) EMPLOYEE BENEFIT PLANS

RETIREMENT PLAN

On October 19, 1995, the Board of Directors authorized the termination of
the Bank's noncontributory defined benefit plan (the Plan) which covered all
employees at least 21 years of age who completed two years of service in which
they worked 1,000 hours or more. The termination was effective December 31, 1995
and the participants became fully vested on that date. Effective December 20,
1993, the Bank froze benefits under the Plan.

F-25
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(11) EMPLOYEE BENEFIT PLANS (CONTINUED)

In 1996, the Bank completed the settlement of the Plan's vested accumulated
benefit obligation by lump sum payments to each covered employee. The Bank
recorded a pretax settlement loss of $511,446 and a pretax curtailment gain of
$511,446 for the year ended December 31, 1996.

The Bank's contribution to the Plan totaled $239,330 for the year ended
December 31, 1996.

SAVINGS PLAN

Effective January 1, 1995, the Bank established a qualified savings plan as
authorized under Section 401(k) of the Internal Revenue Code. The Savings Plan
is available to employees 21 years of age that have completed 12 months of
service. The Bank provides discretionary matching contributions to the Savings
Plan. The Bank's matching contributions were approximately $156,000 and $113,000
and $67,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

EMPLOYEE STOCK OWNERSHIP PLAN

The Bank maintains a defined contribution employee stock ownership plan
(ESOP) and trust for all employees who have completed one year of service, as
defined in the ESOP, primarily for the purchase of the Bank's stock. Dividends
are classified as a reduction to retained earnings. Benefits vest ratably over a
five year period after two years of credited service. The Bank's contributions
for the years ended December 31, 1998, 1997, and 1996 were $201,000, $203,000
and $165,000, respectively. Employer contributions are discretionary in amount
and are determined by the Board of Directors.

SELF-INSURANCE PLAN

Effective January 1, 1997, the Bank established the Placer Savings Bank
Health Plan, a self-insured program for hospitalization and medical coverage
covering substantially all Bank employees and their eligible dependents. The
Bank contracted with a commercial insurance carrier to limit its annual losses
to $25,000 per plan participant and $1,000,000 for the plan in total. Based upon
estimates determined by the third-party plan administrator, provisions for
claims are accrued annually to cover the aggregate liability for claims actually
made and potential claims. Accordingly, costs for plan administration, claims
made and potential claims totaling $100,000 were accrued for the year ended
December 31, 1998.

SALARY CONTINUATION PLAN

During 1997, the Board of Directors approved a salary continuation plan for
four key executives. Under this plan, the Bank is obliged to provide the
executives, or designated beneficiaries, with annual benefits for fifteen years
after retirement or death. In addition, the estimated present value of these
future benefits are accrued over the period from the effective date of the plan
until the executives' expected retirement dates. The expense recognized under
this plan for the year ended December 31, 1998 totaled $124,000.

Under this plan, the Bank invested in single premium life insurance policies
with cash surrender values totaling $1,405,000 at December 31, 1998. Income
earned on these policies totaled $126,000 in 1998.

F-26
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

12. OTHER EXPENSES

Other expenses consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Telephone, courier and postage........................... $1,232,001 1,090,099 1,122,655
Data processing.......................................... 928,883 607,632 971,948
Regulatory assessments................................... 398,782 336,801 1,031,662
Stationery and supplies.................................. 687,777 677,648 684,082
Advertising.............................................. 577,169 397,499 456,890
Professional fees........................................ 497,865 366,491 446,126
Loan expenses............................................ 980,594 614,141 402,669
Other.................................................... 1,337,905 1,787,983 1,576,788
---------- ---------- ----------
$6,640,976 5,878,294 6,692,820
========== ========== ==========
</TABLE>

13. SALE OF PROPERTIES

During 1998, the Bank's wholly owned subsidiary sold real estate with net
gains totaling $385,181. Additionally, the Bank sold a branch facility including
furniture, fixtures and equipment for a net gain of $24,430.

On May 30, 1997, the Bank sold one of its branches to another depository
institution. The institution assumed $14.3 million in deposits and purchased a
building and certain related assets. The Bank remitted to the purchaser cash
totaling $13.6 million, equal to the difference between the assets purchased and
deposits assumed, and recognized a net gain of $542,838.

14. ONE TIME SAVINGS ASSOCIATION INSURANCE FUND (SAIF) ASSESSMENT

The Deposit Insurance Funds Act of 1996 (Funds Act) was enacted on
September 30, 1996 and required the Federal Deposit Insurance Corporation (FDIC)
to impose a one-time special assessment on SAIF assessable deposits to
recapitalize the SAIF at its target Designated Reserve Ratio of 1.25% of insured
deposits effective October 1, 1996. The Bank's assessment totaled $2,796,954,
based on a rate of $.657 per $100 of SAIF assessable deposits held by the Bank
as of March 31, 1995.

With the SAIF recapitalized at the targeted ratio by the special assessment,
the Funds Act also required the FDIC to set future assessment rates to maintain
this ratio which resulted in lower SAIF rates effective January 1, 1997.

(15) PROSPECTIVE ACCOUNTING PRONOUNCEMENTS

F-27
<PAGE>
PLACER SAVINGS BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DECEMBER 31, 1998, 1997 AND 1996

(15) PROSPECTIVE ACCOUNTING PRONOUNCEMENTS (CONTINUED)

or liability or an unrecognized firm commitment (a fair value hedge) or (b) a
hedge of the exposure to variable cash flows of a forecasted transaction (a cash
flow hedge). SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Management does not expect that adoption of SFAS
No. 133 will have a material impact on the Bank's consolidated financial
statements.

(16) SUBSEQUENT EVENT

On March 19, 1999, the Board of Directors of the Bank entered into a
definitive agreement to sell the Bank to Belvedere Capital Partners, LLC. Under
the terms of the agreement, Placer Capital Co., a newly formed bank holding
company, will purchase 100% of the Bank's stock for approximately $80,000,000.

F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
California Financial Bancorp and Subsidiaries:

We have audited the accompanying consolidated balance sheet of California
Financial Bancorp (formerly Belvedere Bancorp) and subsidiaries (the "Company")
as of December 31, 1998, and the related consolidated statements of operations,
changes in stockholder's equity, and cash flows for the year then ended. 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 audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Los Angeles, California
February 23, 1999

F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Belvedere Bancorp:

We have audited the accompanying consolidated balance sheet of BELVEDERE
BANCORP AND SUBSIDIARY (the Company) as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from inception (September 11, 1997) to December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test 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 audit provides 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 Belvedere
Bancorp and subsidiary as of December 31, 1997, and the results of their
operations and their cash flows for the period from inception (September 11,
1997) to December 31, 1997 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Orange County, California
February 25, 1998

F-30
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- -------------------
1999 1998 1997
-------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Cash, due from banks, and money market mutual fund (Notes 3
and 5).................................................... $ 15,156 $ 17,191 $ 6,667
Federal funds sold and securities purchased under agreements
to resell................................................. 23,335 63,689 5,425
-------- -------- -------
Total cash and cash equivalents......................... 38,491 80,880 12,092

Interest-bearing deposits with other banks.................. 4,162 4,468 1,999
Investment securities available for sale, at fair value
(Note 4).................................................. 19,732 21,678 803
Investment securities held to maturity, at amortized cost
(Note 4).................................................. 12,716 8,511 3,000
Investment in Federal Reserve Bank stock, at cost........... 1,128 452 93
Loans receivable, net of allowance for credit losses of
$2,209 at September 30, 1999 (unaudited), $1,986 at
December 31, 1998 and $1,013 at December 31, 1997
(Notes 6 and 10).......................................... 124,003 97,289 21,105
Other real estate owned, net (Note 7)....................... 42 372 564
Premises and equipment, net (Note 8)........................ 1,398 1,696 573
Accrued interest receivable................................. 1,180 1,004 242
Income taxes receivable, net................................ -- 121
Cash surrender value of life insurance (Note 13)............ 1,319 2,224
Intangible assets (Note 2):
Core deposit intangible................................... 3,638 4,080
Goodwill.................................................. 13,571 13,691 1,139
Other assets................................................ 1,673 1,128 818
-------- -------- -------
TOTAL....................................................... $223,053 $237,594 $42,428
======== ======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Interest-bearing deposits (Note 9)........................ $112,331 $ 99,433 $26,140
Noninterest-bearing deposits (Note 9)..................... 68,697 93,130 9,519
-------- -------- -------
Total deposits.......................................... 181,028 192,563 35,659

Income taxes payable, net................................. 455
Deferred income tax liabilities, net (Note 12)............ 877 1,142
Accrued interest and other liabilities (Note 13).......... 1,863 5,053 168
-------- -------- -------
Total liabilities....................................... 184,223 198,758 35,827

MINORITY INTEREST IN SUBSIDIARIES........................... 4,034 4,094 2,200

COMMITMENTS AND CONTINGENCIES (Notes 11 and 17)

STOCKHOLDER'S EQUITY:
Common stock--no par value; 10,000,000 shares authorized;
3,858,100, 3,758,100 and 461,000 shares issued and
outstanding at September 30, 1999 (unaudited) and
December 31, 1998 and 1997, respectively (Notes 14, 15
and 18)................................................. 38,581 37,581 4,610
Accumulated other comprehensive (loss) income............. (81) 19
Accumulated deficit....................................... (3,704) (2,858) (209)
-------- -------- -------
Total stockholder's equity.............................. 34,796 34,742 4,401
-------- -------- -------
TOTAL....................................................... $223,053 $237,594 $42,428
======== ======== =======
</TABLE>

See notes to consolidated financial statements.

F-31
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS END PERIOD FROM
SEPTEMBER 30, YEAR ENDED INCEPTION
------------------- DECEMBER 31, (SEPTEMBER 11, 1997)
1999 1998 1998 TO DECEMBER 31, 1997
-------- -------- ------------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans receivable, including fees.......................... $ 8,103 $ 1,720 $ 2,523 $ 311
Interest-bearing deposits with other banks................ 178 111 145 13
Federal funds sold and securities purchased under
agreements to resell.................................... 1,270 322 573 42
Investment securities available for sale.................. 860 38 68 4
Investment securities held to maturity.................... 332 148 209 24
Investment in Federal Reserve Bank stock.................. 40 8 14 1
Other..................................................... 100 224 288 34
-------- ------- ------- ------
10,883 2,571 3,820 429
-------- ------- ------- ------
INTEREST EXPENSE:
Savings and money market.................................. 990 236 356 44
Time certificates of deposit under $100................... 725 367 472 53
Time certificates of deposit of $100 and over............. 1,015 281 441 50
Other borrowings.......................................... 22 41
-------- ------- ------- ------
2,730 906 1,310 147
-------- ------- ------- ------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES...... 8,153 1,665 2,510 282

PROVISION FOR CREDIT LOSSES (Note 6)........................ 349 298 340
-------- ------- ------- ------

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 7,804 1,367 2,170 282
-------- ------- ------- ------
NONINTEREST INCOME:
Service charges and fees.................................. 517 58 98 7
Referral fees............................................. 253 10
Gain on sale of SBA loans................................. 329 191
Net other real estate owned income (expenses)............. 25 203 (7)
Recovery from the Department of Transportation
(Note 17)............................................... 369 369
Other income.............................................. 250 58 66 56
-------- ------- ------- ------
1,374 686 736 56
-------- ------- ------- ------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 13).................. 4,221 1,059 2,018 197
Professional fees......................................... 1,128 666 1,184 199
Preopening costs.......................................... 0 605
Occupancy and premises and equipment (Notes 8 and 11)..... 1,364 287 489 39
Data and item processing.................................. 881 104 246 8
Year 2000................................................. 163 46 227
Business development and promotions....................... 289 46 136 7
Communications............................................ 497 96 131 14
Amortization of intangible assets......................... 868 57 125 10
Other operating expenses.................................. 810 292 482 61
-------- ------- ------- ------
10,221 2,653 5,643 535
-------- ------- ------- ------
LOSS BEFORE PROVISION FOR INCOME TAXES AND MINORITY
INTERESTS................................................. (1,043) (600) (2,737) (197)

PROVISION FOR INCOME TAXES (Note 12)........................ 7 2 15 2
-------- ------- ------- ------
LOSS BEFORE MINORITY INTERESTS.............................. (1,050) (602) (2,752) (199)

MINORITY INTEREST IN (LOSS) INCOME OF SUBSIDIARIES.......... (204) 216 (103) 10
-------- ------- ------- ------
NET LOSS.................................................... $ (846) $ (818) $(2,649) $ (209)
======== ======= ======= ======
BASIC AND DILUTED LOSS PER SHARE (Note 15).................. $ (0.23) $ (1.77) $ (3.52) $(3.52)
======== ======= ======= ======
</TABLE>

See notes to consolidated financial statements.

F-32
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER OTHER
-------------------- ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT DEFICIT INCOME LOSS TOTAL
--------- -------- ------------ -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 11, 1997
Comprehensive loss:
Net loss................................... $ (209) $ (209) $ (209)
-------
Comprehensive loss........................... $ (209)
-------
Initial capitalization..................... 500 $ 5 5
Sale of common stock, net.................. 460,500 4,605 4,605
--------- ------- ------- -------
BALANCE, DECEMBER 31, 1997..................... 461,000 4,610 (209) 4,401
Comprehensive income (loss), net of tax:
Net loss................................... (2,649) $(2,649) (2,649)
Net change in unrealized gain on investment
securities available for sale, net of
minority interest of $17................. $ 19 19 19
-------
Comprehensive loss........................... $(2,630)
-------
Sale of common stock....................... 3,297,100 32,971 32,971
--------- ------- ------- ----- -------
BALANCE, DECEMBER 31, 1998..................... 3,758,100 $37,581 $(2,858) $ 19 $34,742
Comprehensive income, net of tax:
Net loss for the Period (unaudited)........ (846) (846) (846)
Net change in unrealized gain (loss) on
investment securities available for
sale, net of minority interest of $15
(unaudited)............................ (100) (100) (100)
-------
Comprehensive loss (unaudited)............. (946)
=======
Issuance of common stock (unaudited)......... 100,000 1,000 1,000
--------- ------- ------- ----- -------
BALANCE, SEPTEMBER 30, 1999 (unaudited)........ 3,858,100 $38,581 $(3,704) $ (81) $34,796
========= ======= ======= ===== =======
</TABLE>

See notes to consolidated financial statements.

F-33
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM INCEPTION
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, (SEPTEMBER 11, 1997) TO
1999 1998 1998 DECEMBER 31, 1997
------------- ------------- ------------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET LOSS........................................... $ (846) $ (818) $(2,649) $ (209)

CASH FLOWS FROM OPERATING ACTIVITIES:
Provision for loan losses........................ 349 298 340
Minority interest in subsidiaries................ (204) 216 (103) 10
Depreciation and amortization.................... 526 131 218 24
Accretion of discount on investment securities,
net............................................ 201 (4) (3)
Amortization of intangible assets................ 868 57 125 10
Gain on sale of premises and equipment........... (2)
Gain on sale of other real estate owned.......... (28) (199) (203) (4)
Gain on sale of Small Business Administration
Loans.......................................... (329)
Amortization of loan fees/unearned
discounts/deferred gains....................... (102) (11) (307) (17)
Miscellaneous losses............................. 3
Changes in operating assets and liabilities:
Cash surrender value of life insurance......... 905 (4,328)
Accrued interest receivable.................... (176) (46) 74
Income taxes receivable, net................... 16
Deferred income tax liabilities, net........... (22) (2)
Other assets................................... (545) (354) (522) (33)
Accrued interest and other liabilities......... (3,190) 500 2,576 (15)
Income taxes payable, net...................... 576 2
-------- ------- ------- -------
Net cash used in operating activities........ (2,019) (4,556) (511) (160)
-------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest-bearing
deposits with other banks...................... 306 (499) (200) (1,000)
Net (increase) decrease in loans................. (32,333) (2,724) (4,738) 46
Proceeds from sale of Small Business
Administration loans........................... 5,701
Refund from purchaser on deposit withheld on loan
servicing rights sold.......................... 24
Net cash acquired in acquisition................. (306) 32,955 11,691
Proceeds from sale of other real estate owned.... 358 689 697 41
Purchases of investment securities held to
maturity....................................... (10,120) (3,995) (3,996) (9)
Purchases of investment securities available for
sale........................................... (6,015)
Proceeds from sale of investment securities
available for sale............................. 4,000
Proceeds from maturities of investment securities
held to maturity............................... 5,790 3,000 200
Proceeds from maturities of investment securities
available for sale............................. 3,500 100
Principal collected on investment securities held
to maturity.................................... 86 4,001
Principal collected on investment securities
available for sale............................. 100 0 200
Purchases of Federal Reserve Bank stock.......... (706) (98) (269)
Proceeds from sale of Federal Reserve Bank
stock.......................................... 30
Proceeds from sale of premises and equipment..... 83
Purchases of premises and equipment.............. (309) (250) (738) (149)
-------- ------- ------- -------
Net cash (used in) provided by investing
activities................................. (29,835) (3,777) 28,136 10,620
-------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits.............. (11,535) 8,925 6,203 (2,978)
Increase in other borrowings..................... 1,135
Capital contribution from minority
shareholders................................... 1,989
Issuance of common stock......................... 1,000 3,718 32,971 4,610
-------- ------- ------- -------
Net cash (used) provided by financing
activities................................. (10,535) 13,778 41,163 1,632
-------- ------- ------- -------
</TABLE>

See notes to consolidated financial statements.

F-34
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM INCEPTION
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, (SEPTEMBER 11, 1997) TO
1999 1998 1998 DECEMBER 31, 1997
------------- ------------- ------------- ------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (42,389) 5,445 68,788 12,092

BEGINNING CASH AND CASH EQUIVALENTS................ 80,880 12,092 12,092
-------- ------- ------- -------
ENDING CASH AND CASH EQUIVALENTS................... $ 38,491 $17,537 $80,880 $12,092
======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
ACTIVITIES:
Acquisition of other real estate owned through
foreclosure.................................... $ 131 $ 302
======== ======= ======= =======
Loans reacquired through settlement of deposit
withheld on loan servicing rights sold......... $ 558 $ 524
======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.................................... $ 2,717 $ 878 $ 1,228 $ 116
======== ======= ======= =======
Income taxes paid................................ $ 3 $ 1 $ 1
======== ======= ======= =======
</TABLE>

SUPPLEMENTAL DISCLOSURE FOR ACQUISITION OF SUBSIDIARIES:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------
DOWNEY THE BANK SECURITY
NATIONAL OF ORANGE FIRST
BANK COUNTY BANK
-------- --------- --------
<S> <C> <C> <C>
ASSETS ACQUIRED:
Cash...................................................... $25,229 $34,726 $15,191
Interest-bearing deposits in other banks.................. 293 1,976 999
Investment securities..................................... 6,497 20,275 3,887
Investment in Federal Reserve Bank stock.................. 90
Loans..................................................... 29,253 41,970 21,134
Other real estate owned................................... 601
Premises and equipment.................................... 297 306 458
Accrued interest receivable............................... 271 491 235
Cash surrender value of life insurance.................... 2,224
Other assets.............................................. 124 1,053 857
Goodwill.................................................. 6,646 5,858 1,148
Core deposit intangible................................... 1,097 2,992
------- ------- -------
69,797 111,871 44,510
------- ------- -------

LIABILITIES ASSUMED:
Deposits.................................................. 57,348 93,353 38,637
Accrued interest and other liabilities.................... 861 3,270 183
Minority interest......................................... 2,190
------- ------- -------
58,209 96,623 41,010
------- ------- -------
Cash paid for subsidiary.................................... $11,588 $15,248 $ 3,500
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-35
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

California Financial Bancorp, a California corporation (the "Bancorp") was
incorporated on September 11, 1997 and is a registered bank holding company
subject to the Bank Holding Company Act of 1956, as amended. Effective
April 16, 1998, the Bancorp changed its name from Belvedere Bancorp to
California Financial Bancorp.

During 1997, the Bancorp entered into a stock subscription agreement with
California Community Financial Institutions Fund Limited Partnership (the
"Fund"), a California limited partnership, to sell 460,500 shares of its no par
common stock to the Fund for $4,605,000 and for the Bancorp to subsequently
invest $3,500,000 in Security First Bank ("SFB") in exchange for 8,750,000
shares (at 40 cents per share) of SFB's common stock.

During 1998, the Bancorp entered into several stock subscription agreements
with the Fund to sell a total of 3,297,100 shares of its no par common stock to
the Fund for $32,971,000 and for the Bancorp to subsequently invest $3,718,000
in National Business Bank ("NBB") in exchange for 371,776 shares of NBB's common
stock; $11,428,000 in Downey Bancorp ("DB"), which is net of a cash dividend to
be paid to the Bancorp by DB of $160,000, in exchange for 594,259 shares of DB's
common stock; and $14,873,000 in The Bank of Orange County ("BOC"), which is net
of cash dividends to be paid to the Bancorp by BOC of $375,000, in exchange for
346,274 shares of BOC's common stock.

The Bancorp's subsidiaries provide a full range of banking services to
individual and corporate customers throughout Southern California and are
subject to competition from other financial institutions. The operating results
of the banks are significantly affected by changes in market interest rates and
by fluctuations in real estate values in the bank's primary service areas. The
Bancorp's subsidiaries and the Bancorp are also regulated by certain federal and
state agencies and undergo periodic examinations by those regulatory
authorities.

BASIS OF PRESENTATION--The consolidated financial statements are prepared in
accordance with generally accepted accounting principles and general practices
within the banking industry. The following is a summary of significant
principles used in the preparation of the accompanying consolidated financial
statements. In preparing the consolidated financial statements, management of
the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of contingent assets and
liabilities and the disclosure of income and expenses for the periods presented
in conformity with generally accepted accounting principles. Actual results
could differ from those estimates.

In the opinion of management, all adjustments comprised of normal and
recurring accruals necessary for fair presentation of the interim unaudited
consolidated financial statements have been included and all intercompany
transactions and accounts have been eliminated in consolidation. Operating
results for the nine months ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.

PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Bancorp and its wholly owned and majority-owned subsidiaries
(collectively referred herein as the "Company") and the results of their
operations since their respective acquisition dates as follows:

Security First Bank, 51.88% owned since November 14, 1997
National Business Bank, 64.91% owned since November 3, 1998
Downey Bancorp, 100% owned since November 25, 1998
The Bank of Orange County, 100% owned since December 31, 1998

F-36
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Significant majority-owned subsidiaries are consolidated on a line-by-line
basis. All significant intercompany accounts and transactions have been
eliminated in consolidation.

CASH AND CASH EQUIVALENTS--For the purpose of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, federal funds
sold, securities purchased under agreements to resell, and money market mutual
funds.

INVESTMENT SECURITIES--Investment securities available for sale are reported
at estimated fair value, with unrealized gains and losses, net of the related
tax effect, excluded from operations and reported as a separate component of
accumulated other comprehensive income (loss) in stockholder's equity.
Investment securities held to maturity are carried at amortized cost.
Amortization of premiums and accretion of discounts on debt securities are
recorded as yield adjustments on such securities using a method similar to the
effective interest method. The specific identification method is used for
purposes of determining cost in computing realized gains and losses on
investment securities sold.

LOANS RECEIVABLE--Loans receivable, which management has the intent and
ability to hold for the foreseeable future or until maturity, are stated at
their outstanding principal, reduced by an allowance for credit losses, net
deferred loan fees or costs on originated loans, and unamortized premiums or
discounts on dealer loans. Discount or premiums on dealer loans are amortized to
income using a method similar to the interest method over the remaining period
to contractual maturity adjusted for anticipated prepayments. Interest on loans
is calculated using the simple-interest method on daily balances of the
principal amount outstanding. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Generally, loans are placed on nonaccrual
status when they become 90 days or more past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed against income. Interest
income is subsequently recognized only to the extent cash payments are received
or the loan has been placed back on accrual status when the borrower has
demonstrated the ability to make future payments of principal and interest as
scheduled.

Nonrefundable fees and direct costs associated with the origination of loans
are deferred and netted against outstanding loan balances. The deferred net loan
fees and costs are recognized in interest income as an adjustment to yield over
the loan term using a method similar to the effective interest method.

In determining whether a loan is impaired or not, the Company applies its
normal loan review procedures. A loan is impaired when it is probable that the
Company will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Loans for which an
insignificant shortfall in amount of payments is anticipated, but the Company
expects to collect all amounts due, are not considered impaired.

The Company measures impairment on a loan by loan basis using either the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as an expedient, at the fair value of the collateral if the
loan is collateral dependent, less costs to sell. Consumer loans and other
homogeneous smaller balance loans are reviewed on a collective basis for
impairment.

ALLOWANCE FOR CREDIT LOSSES--The allowance for credit losses is established
through a provision for credit losses. Loan balances are charged against the
allowance for credit losses when management believes that the collection of the
carrying amount is unlikely. The allowance is maintained at a level

F-37
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

that management believes will be adequate to absorb inherent losses on existing
loans based on an evaluation of the collectibility of the loans and prior loan
loss experience. The evaluations take into consideration such factors as changes
in the nature and volume of the portfolio, overall portfolio quality, review of
specific problem loans, and current economic conditions that may affect the
borrower's ability to pay.

The allowance is based on estimates, and ultimate losses may vary from the
current estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in earnings in the periods in which they
become known. In addition, the Federal Reserve Bank, the Office of the
Comptroller of Currency, the Federal Deposit Insurance Corporation and
Department of Financial Institutions, as an integral part of their examination
processes, periodically review the individual banks' allowance for credit
losses. The agencies may require the banks to recognize additions to the
allowance based on their judgments on information available at the time of their
examinations.

TROUBLED DEBT RESTRUCTURED--A loan is considered "troubled debt
restructured" when the Company provides the borrower certain concessions that it
would not normally consider. The concessions are provided with the objective of
maximizing the recovery of the Company's investment. Troubled debt restructures
include situations in which the Company accepts a note (secured or unsecured)
from a third party in payment of its receivable from the borrower, other assets
in payment of the loan, an equity interest in the borrower or its assets in lieu
of its receivable, or a modification of the terms of the debt including, but not
limited to: (i) a reduction in the stated interest rate below market rates,
(ii) an extension of maturity at an interest rate or other terms below market,
(iii) a reduction in the face amount of the debt, and/or (iv) a reduction in the
accrued interest.

SALE OF LOANS--From time to time, the Company sells the guaranteed portion
of Small Business Administration loans in the secondary market to provide funds
for additional lending and to generate servicing income. Under such agreements,
the Company continues to service the loans and the buyer receives its pro rata
share of principal collected together with interest. Loans held for sale are
valued at the lower of cost or market value. At December 31, 1998, the Company's
management does not have any intent to sell loans, and therefore, no loans are
held for sale. Gains and losses on sales of loans are calculated on a
predetermined formula in compliance with Statement of Financial Accounting
Standards ("SFAS") No. 125 based on the difference between the selling price and
the book value of the loans sold. Any inherent risk of loss on loans is
transferred to the buyer at the date of sale on the portion of the loan sold.
However, the Company maintains the risk on the portion of the loan retained.

The Company issues various representations and warranties associated with
the sale of loans. These representations and warranties may require the Company
to repurchase loans for a period of 90 days after the date of sale as defined
per the applicable agreement. The Company experienced no losses during the years
ended December 31, 1998 and 1997 regarding these representations and warranties.

OTHER REAL ESTATE OWNED--Other real estate owned represents real estate
acquired through foreclosure and is recorded at fair value at the time of
foreclosure. Loan balances in excess of fair value of the real estate acquired
at the date of foreclosure are charged against the allowance for credit losses.
After foreclosure, valuations are periodically performed by management and real
estate is carried at the lower of carrying value or fair value less costs to
sell. Any subsequent operating expenses or income reduction in estimated values,
and gains or losses on disposition of such properties are

F-38
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

charged to current operations. Revenue recognition upon disposition of the
property is dependent on the sale having met certain criteria relating to the
buyer's initial investment in the property sold.

PREMISES AND EQUIPMENT--Premises and equipment are recorded at cost less
accumulated depreciation and amortization, which are charged to expense on a
straight-line basis over the estimated useful lives of the assets or, in the
case of leasehold improvements, over the term of the leases, whichever is
shorter. Rates of depreciation and amortization are based on the following
estimated useful lives: furniture and equipment, three to six years; leasehold
improvements, the shorter of the useful life or the term of the lease.
Expenditures for maintenance and repairs are expensed as incurred, while major
improvements that extend the estimated useful life of an asset are capitalized.
Upon the sale or retirement of assets, the accounts are relieved of the cost and
related accumulated depreciation and amortization, and any resultant gain or
loss is recognized.

SALES OF LOAN SERVICING RIGHTS--Gains or losses from sales of servicing
rights are recognized when the Company has received an adequate down payment and
title and all risks and rewards have irrevocably been passed to the buyer.

During 1994, a subsidiary of Security First Bank, PIB Mortgage, sold its
remaining mortgage servicing rights to a third party in a bulk sale. Under the
terms of the sale agreement, fifteen percent of the purchase price, or
approximately $1,300,000, was withheld by the purchaser, payment of which was
due on October 1, 1996. The withholding was subject to certain charges by the
purchaser, in the event that a serviced loan is found to have been improperly
underwritten and is subsequently identified as impaired. If such a loan
underwriting defect is discovered, SFB could be required to repurchase the loan
or to reimburse the purchaser for any losses incurred through a charge against
the withholding. During 1998, SFB repurchased four loans totaling approximately
$478,000, net of charge-offs. As a result of the repurchase, SFB is no longer
obligated to repurchase additional loans under the terms of the agreement with
the third party. At December 31, 1998, the remaining withholding amount refunded
to SFB upon repurchase of the loans amounted to $24,000.

INTANGIBLE ASSETS--The excess of purchase price over fair value of net
assets acquired and the fair value of net assets acquired in excess of purchase
price, also known as goodwill, are amortized using the straight-line method over
25 years for DB and BOC and 15 years for SFB. Core deposit intangible represents
the intangible value of depositor relationships resulting from deposit
liabilities assumed in acquisition and is amortized over 7 years using the
straight-line method. The Company periodically evaluates whether events and
circumstances have occurred that may affect the estimated useful lives or the
recoverability of the remaining balance of the intangible assets. At
December 31, 1998, the Company's management believes that no material impairment
of goodwill or core deposit intangible had occurred.

PREOPENING COSTS--It is the Company's policy to expense all preopening costs
incurred except for those costs associated with raising capital, which are
capitalized. For the year ended December 31, 1998, total preopening costs
associated with National Business Bank charged against income amounted to
$605,000.

F-39
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company's evaluation of the
realizability of deferred tax assets includes consideration of the amount and
timing of future reversals of existing temporary differences, as well as
available taxable income in carryback years and projections of future income.

ACCOUNTING FOR STOCK-BASED COMPENSATION--The Company accounts for its stock
option plans under SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. This
statement establishes financial accounting and reporting standards for
stock-based employee compensation plans. These standards include the recognition
of compensation expense over the vesting period of the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
permits entities to continue to apply the provision of Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
provide pro forma net earnings (loss) and pro forma net earning (loss) per share
disclosures as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure requirements of SFAS
No. 123 in the footnotes to its audited consolidated financial statements (see
Note 14 to the Consolidated Financial Statements).

EARNINGS (LOSS) PER SHARE--The Company accounts for earnings (loss) per
share under the provisions of SFAS No. 128, EARNINGS PER SHARE. This statement
simplifies the standards for computing earnings (loss) per share and requires
presentation of two new amounts: basic and diluted earnings (loss) per share.

Basic earnings (loss) per share excludes the effect of all potentially
dilutive securities and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings (loss) per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock, or resulted from issuance of common
stock that then shared in earnings (see Note 15 to the Consolidated Financial
Statements).

In accordance with SFAS No. 128, including potential common shares (in this
case the vested portion of the stock options granted) in the denominator of a
diluted per share computation will always result in an anti-dilutive per share
amount when an entity has a loss from continuing operations. Thus, the diluted
loss per share is the same as the basic loss per share amount of $(3.52) and
$(3.52) for 1998 and 1997, respectively.

COMPREHENSIVE INCOME--Effective January 1, 1998, the Company adopted SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. Under the provisions of SFAS No. 130,
an entity that provides a full set of financial statements is required to report
comprehensive income in the presentation of its financial statements. The term
"comprehensive income" describes the total of all components of comprehensive
income including net income. "Other comprehensive income" refers to revenues,
expenses, and gains and losses that are included in comprehensive income but are
excluded from net income as they have been recorded directly in equity under the
provisions of other FASB statements. The Company presents the comprehensive
income disclosure as a part of the statements of changes in stockholder's
equity, by identifying each element of other comprehensive income, including net
income. All comparative consolidated financial statements presented reflect the
application of the provisions of SFAS No. 130.

RELATED PARTY TRANSACTIONS--The Company has entered into certain related
party transactions with its affiliates in the normal course of business. These
transactions are conducted at market terms.

F-40
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued and is effective for
fiscal years beginning after June 15, 1999. SFAS No. 133 requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value of cash flows. Management of the
Company does not believe the statement will have a material impact on the
Company's results of operations or financial position when adopted.

In October 1998, SFAS No. 134, ACCOUNTING FOR MORTGAGE-BACKED SECURITIES
RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE
BANKING ENTERPRISE, was issued and is effective for the fiscal quarter beginning
after December 15, 1998. SFAS No. 134 requires that after securitization of
mortgage loans held for sale, the resulting mortgage backed securities and other
retained interests should be classified in accordance with SFAS No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, based on the
Company's ability and intent to sell or hold those investments. Management of
the Company does not believe the statement will have a material impact on the
Company's results of operations or financial position when adopted.

RECLASSIFICATIONS--Certain amounts have been reclassified in the prior
period to conform with the consolidated financial statement presentation for the
current year.

2. BUSINESS ACQUISITIONS

On November 14, 1997, the Bancorp completed its acquisition of 51.88% of
Security First Bank's common stock for an aggregate purchase price of
$3,500,000. The transaction was accounted for under the purchase method with the
results of operations of the business acquired included in the accompanying
consolidated financial statements from the date of acquisition. The amount paid
in excess of the fair value of the net tangible assets was recorded as goodwill
and is being amortized over 15 years. At December 31, 1998, goodwill, after
amortization, amounted to $1,062,000 and is included in goodwill on the
accompanying consolidated balance sheet.

Effective November 3, 1998, the Bancorp purchased 64.91% of National
Business Bank's common stock for an aggregate purchase price of $3,718,000. The
transaction was accounted for under the purchase method with the results of
operations of the business acquired included in the accompanying consolidated
financial statements from the effective date of acquisition. The amount paid in
excess of the fair value of the net tangible assets was recorded as goodwill and
is being amortized over 25 years. At December 31, 1998, goodwill amounted to
$164,000, net of amortization, and is included in goodwill on the accompanying
consolidated balance sheet.

Effective November 25, 1998, the Bancorp completed its acquisition of all of
the outstanding shares of Downey Bancorp's common stock for an aggregate
purchase price of $11,428,000, net of a cash dividend of $160,000 to be paid to
the Bancorp. The transaction was accounted for under the purchase method with
the results of operations of the business acquired included in the accompanying
consolidated financial statements from the effective date of acquisition. The
amount paid in excess of the fair value of the net tangible assets was recorded
as goodwill and is being amortized over 25 years. At December 31, 1998, goodwill
amounted to $6,607,000, net of amortization, and is included in goodwill on the
accompanying consolidated financial statements. The value of the long-term
deposit relationships acquired was recorded as a core deposit intangible and is
being amortized over 7 years. At December 31, 1998, the core deposit intangible
amounted to $1,088,000, net of amortization, and is included in the core deposit
intangible on the accompanying consolidated financial statements.

F-41
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. BUSINESS ACQUISITIONS (CONTINUED)

Effective December 31, 1998, the Bancorp completed its acquisition of all of
the outstanding shares of The Bank of Orange County's common stock for an
aggregate purchase price of $14,873,000, net of a cash dividend of $375,000 to
be paid to the Bancorp. The transaction was accounted for under the purchase
method with the results of operations not presented in the consolidated
statements of operations as the acquisition date was as of the close of business
on December 31, 1998. The amount paid in excess of the fair value of the net
tangible assets was recorded as goodwill and is being amortized over 25 years.
At December 31, 1998, goodwill amounted to $5,858,000 and is included in
goodwill in the accompanying consolidated financial statements. The value of the
long-term deposit relationships acquired was recorded as a core deposit
intangible and is being amortized over 7 years. At December 31, 1998, the core
deposit intangible amounted to $2,992,000 and is included in the core deposit
intangible on the accompanying consolidated financial statements.

Unaudited pro forma results of operations of the Company for the twelve
months ended December 31, 1998 and period from inception (September 11, 1997) to
December 31, 1997, presented in thousands except per share data, are presented
below. Such pro forma presentation has been prepared assuming that the
acquisitions had occurred as of January 1, 1998 and date of inception of
September 11, 1997.

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenues................................................... $15,176 $3,516
Net (loss) income.......................................... (2,686) (23)
(Loss) earnings per share.................................. (0.71) (0.01)
</TABLE>

The pro forma results include (1) the historical accounts of the Company and
of the acquired businesses; and (2) pro forma adjustments, as may be required,
including the amortization of the excess purchase price over the fair value of
the net assets acquired, and the applicable income tax effects of these
adjustments. The pro forma results of operations are not necessarily indicative
of actual results that may have occurred had the operations of the acquired
companies been combined at the beginning of the year and in prior years.

3. CASH, DUE FROM BANKS, AND MONEY MARKET MUTUAL FUND

Cash, due from banks, and money market mutual fund at December 31 1998 and
1997 are comprised of the following, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash and due from banks.................................... $11,191 $1,667
Money market mutual fund................................... 6,000 5,000
------- ------
$17,191 $6,667
======= ======
</TABLE>

The Company is required to maintain reserve balances in cash with the
Federal Reserve Bank. The average reserve balance for 1998 was approximately
$1,495,000 and for the period from inception (September 11, 1997) through
December 31, 1997 was approximately $30,000.

F-42
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENT SECURITIES

The following table summarizes the Company's investment securities as of
December 31, 1998, in thousands:

<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. and state government and its agencies......... $20,375 $35 $-- $20,410
Corporate bonds.................................... 780 1 781
Municipal obligations.............................. 487 487
------- --- --- -------
Total available for sale......................... 21,642 36 21,678
------- --- --- -------
Investment securities held to maturity:
U.S. government and its agencies................... 4,241 10 4,251
Corporate bonds.................................... 2,640 2,640
Municipal obligations.............................. 1,630 1,630
------- --- --- -------
Total held to maturity........................... 8,511 10 8,521
------- --- --- -------
Total............................................ $30,153 $46 $-- $30,199
======= === === =======
</TABLE>

The following table summarizes the Company's investment securities as of
December 31, 1997, in thousands:

<TABLE>
<CAPTION>
COST/ GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. and state government and its agencies........... $ 301 $ 2 $ 299
Municipal obligations.............................. 482 $22 504
------ --- --- ------
Total available for sale......................... 783 22 2 803
------ --- --- ------
Investment securities held to maturity--
U.S. government and its agencies................... 3,000 3,000
------ --- --- ------
Total held to maturity........................... 3,000 3,000
------ --- --- ------
Total............................................ $3,783 $22 $ 2 $3,803
====== === === ======
</TABLE>

At December 31, 1998, investment securities available for sale with a total
carrying value of approximately $1,530,000 were pledged by The Bank of Orange
County to secure the Treasury, Tax and Loan Account. Furthermore, investment
securities available for sale with a carrying value of approximately $522,000
were pledged by Security First Bank to secure trust powers associated with the
sale of SFB's trust department to Imperial Trust Company in 1994, with the State
Treasurer's Office.

F-43
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENT SECURITIES (CONTINUED)

The contractual maturities of investment securities as of December 31, 1998,
are shown below, in thousands. Expected maturities may differ from contractual
maturities.

<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Due in one year or less................................. $ 8,159 $ 8,159 $1,298 $1,298
Due after one year through five years................... 13,483 13,519 6,316 6,326
Due after five years through ten years.................. 375 375
Due after ten years..................................... 522 522
------- ------- ------ ------
$21,642 $21,678 $8,511 $8,521
======= ======= ====== ======
</TABLE>

5. SECURITIES PURCHASED UNDER AGREEMENT TO RESELL

Security First Bank enters into purchases of securities under agreements to
resell substantially identical securities. At December 31, 1998, securities
purchased under agreements to resell amounted to $5,000,000. During 1998, the
maximum month-end amount outstanding was $5,000,000 and the average balance
outstanding was $4,567,000. The average interest rate during 1998 and average
rate at December 31, 1998, were 5.83% and 5.82%, respectively.

The amounts advanced under these agreements were collateralized by
short-term whole loans and are reflected as an asset in the consolidated balance
sheet. During the period, the securities were maintained at a third party
custodian's account designated by Security First Bank under a written custodial
agreement that explicitly recognizes the SFB's interest in the securities. At
December 31, 1998, these agreements will mature within 90 days and no material
amount of agreements to resell securities was outstanding with any individual
dealer.

6. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at December 31, 1998 and 1997 are summarized as follows, in
thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Real estate loans......................................... $47,502 $ 6,131
Commercial loans.......................................... 34,503 9,243
Consumer loans............................................ 14,027 5,852
Small Business Administration loans....................... 3,433 930
Other loans............................................... 26 17
------- -------
99,491 22,173
Deferred loan fees........................................ (216) (55)
Allowance for credit losses............................... (1,986) (1,013)
------- -------
Loans, net................................................ $97,289 $21,105
======= =======
</TABLE>

F-44
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

Activities in the allowance for credit losses for the years ended
December 31, 1998 and 1997 are summarized as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $1,013
Balance at acquisition date................................. 1,168 $1,013
Provision for credit losses................................. 340
Charge-offs................................................. (682)
Recoveries.................................................. 147
------ ------
Balance, end of year........................................ $1,986 $1,013
====== ======
</TABLE>

The Company grants commercial, real estate and consumer loans to customers
throughout the Southern California area. Although the Company has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the real estate market in Southern California.
Should the real estate market experience an overall decline in property values
and should other events occur, including, but not limited to, adverse economic
conditions (which may or may not affect real property values), the ability of
borrowers to make timely scheduled principal and interest payments on the
Company's loans may be adversely affected, and in turn may result in increased
delinquencies and foreclosures. In the event of foreclosures under such
conditions, the value of the property acquired may be less than the appraised
value when the loan was originated and may, in some instances, result in
insufficient proceeds upon disposition to recover the Company's investment in
the foreclosed property.

At December 31, 1998 and 1997, the Company was servicing approximately
$3,529,000 and $2,351,000, respectively, of Small Business Administration loans
on behalf of third party investors.

Nonaccrual loans amounted to approximately $1,654,000 and $415,000 at
December 31, 1998 and 1997, respectively. If nonaccrual loans had been current
throughout their terms, interest income would have increased by approximately
$162,000 and $193,000 for the years ended December 31, 1998 and 1997,
respectively. Loans with principal more than 90 days past due and still accruing
amounted to approximately $14,000 at December 31, 1997. At December 31, 1998 and
1997, the Company had restructured loans of approximately $203,000 and $663,000,
respectively, all of which were in compliance with the modified terms, and the
balances were current.

At December 31, 1998 and 1997, loans that were considered impaired totaled
$825,000 and $415,000, respectively, which had a related allowance for credit
losses aggregating $109,000 and $85,000, respectively. Substantially all of the
impaired loans were collateral-dependent and were measured using the fair value
of the collateral. For the years ended December 31, 1998 and 1997, the Company
recognized interest income on these impaired loans of $177,000 and $3,000,
respectively. The average outstanding principal balance of impaired loans for
the years ended December 31, 1998 and 1997 was $812,000 and $415,000,
respectively.

F-45
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. OTHER REAL ESTATE OWNED

Other real estate owned ("OREO") consists of properties located primarily in
Southern California. The balance of OREO is comprised of the following at
December 31, 1998 and 1997, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Other real estate owned, at cost............................ $372 $902
Allowance to reduce to fair value after selling costs....... (338)
---- ----
Other real estate owned, net................................ $372 $564
==== ====
</TABLE>

Included in the balance of OREO is a loan that was made to facilitate the
sale of an OREO. The carrying value of the loan was $205,000 and $268,000 at
December 31, 1998 and 1997, respectively. The loan was classified as an OREO by
regulators due to a contingent liability on performance bonds of $249,000. The
reported balance is reduced by principal and interest payments received on the
loan.

A summary in the activity in the valuation allowance for the years ended
December 31, 1998 and 1997 is as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $388
Balance at acquisition date................................. $338
Charge-offs................................................. (338)
---- ----
Balance, end of year........................................ $ -- $338
==== ====
</TABLE>

8. PREMISES AND EQUIPMENT

The major classes of premises and equipment at December 31, 1998 and 1997
are as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Leasehold improvements...................................... $1,176 $ 189
Furniture and equipment..................................... 2,577 487
------ -----
3,753 676
Accumulated depreciation and amortization................... (2,057) (103)
------ -----
Premises and equipment, net................................. $1,696 $ 573
====== =====
</TABLE>

The depreciation and amortization costs included in occupancy expense were
$218,000 and $24,000 for the years ended December 31, 1998 and 1997,
respectively.

F-46
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. DEPOSITS

At December 31, 1998 and 1997, deposits are summarized with balance by
category as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Demand deposit accounts.................................. $ 93,130 $ 9,519
Money market accounts.................................... 44,412 10,018
Savings accounts......................................... 8,729 657
Time certificates of deposit under $100,000.............. 19,010 9,141
Time certificates of deposit of $100,000 and over........ 27,282 6,324
-------- -------
Total.................................................. $192,563 $35,659
======== =======
</TABLE>

Time certificates of deposit accounts are scheduled to mature as follows, in
thousands:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Within one year........................................... $35,772 $15,454
Within two years.......................................... 9,730 11
Within three years........................................ 201
Within four years......................................... 539
Within five years.........................................
Thereafter................................................ 50
------- -------
Total................................................... $46,292 $15,465
======= =======
</TABLE>

10. RELATED PARTIES

As part of its normal banking activities, the Company has extended credit to
various of its directors and officers. In the opinion of management, all such
transactions are on terms similar to those of transactions with nonaffiliated
parties. Following is a summary of such loans for the years ended December 31,
1998 and 1997, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of year.................................. $ 279
Balance at acquisition date................................. 836 $284
Loans granted or renewed.................................... 406
Repayments.................................................. (491) (5)
------ ----
Balance, end of year........................................ $1,030 $279
====== ====
</TABLE>

F-47
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. LEASE OBLIGATIONS

The Company leases administrative and office space under various
non-cancelable operating leases. Rental expense was $150,000 and $3,000 in 1998
and 1997, respectively, and is included in occupancy expense. As of
December 31, 1998, future minimum rental payments required under operating
leases that have initial or remaining lease terms in excess of one year are as
follows, in thousands:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999...................................................... $ 664
2000...................................................... 705
2001...................................................... 515
2002...................................................... 293
2003...................................................... 174
Thereafter................................................ 349
------
$2,700
======
</TABLE>

12. INCOME TAXES

Income tax expense for the years ended December 31, 1998 and 1997 consists
of the following, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current provision (benefit):
Federal................................................... $15
State..................................................... 2 $2
--- --
17 2
--- --
Deferred provision (benefit):
Federal................................................... (2)
State.....................................................
--- --
(2)
--- --
Total................................................... $15 $2
=== ==
</TABLE>

F-48
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. INCOME TAXES (CONTINUED)

The components of the deferred income tax assets and liabilities at
December 31 are summarized as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Deferred income tax assets:
Provision for loan losses................................. $ 290 $ 274
Depreciation.............................................. (4) (40)
Deferred rent............................................. 46
Accrued legal............................................. 3
Accrued expenses.......................................... 483 10
OREO writedown............................................ 61 135
Accrual to cash........................................... (81)
Tax credits............................................... 113
Investment premium........................................ 69
Other..................................................... (6) 32
Net operating loss carryforward........................... 2,076 2,569
------ ------
3,050 2,980
Valuation allowance......................................... 2,345 2,980
------ ------
Deferred income tax assets.................................. $ 705 $ --
====== ======
Deferred income tax liabilities:
Core deposit intangible................................... $1,683 $ --
Loan premium.............................................. 3
Investment premium........................................ 161
------ ------
Deferred income tax liabilities............................. $1,847 $ --
====== ======
Deferred income tax liabilities, net........................ $1,142 $ --
====== ======
</TABLE>

A reconciliation of the statutory federal income tax provision at the
expected statutory rate compared to the actual income tax provision is as
follows, in thousands:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
<S> <C> <C> <C> <C>
1998 1997
------------------- -------------------
Expected tax benefit........................ $ (931) (34.00)% $(67) (34.00)%
State income taxes, net of federal income
tax benefit............................... 1 0.00% (12) (6.00)%
Other, non-taxable income................... (125) (4.55)%
Goodwill in subsidiaries.................... 16 0.59%
Other, net.................................. 11 0.40% 0.00%
Valuation allowance......................... 1,043 38.11% 81 40.00%
------ ------ ---- ------
$ 15 0.55% $ 2 0.00%
====== ====== ==== ======
</TABLE>

F-49
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. EMPLOYEE BENEFIT PLAN

Security First Bank has a Profit Sharing Plan and a Cafeteria Plan under
Sections 401(k) and 125 of the Internal Revenue Code, respectively. All
full-time employees with greater than six months of service are eligible for
participation. Vesting in the Profit Sharing Plan is based on years of service,
with 100 percent vesting at the end of five full years of service. No matching
contributions were made by Security First Bank during 1998 and 1997.

The Bank of Orange County has a defined contribution retirement plan that
meets the requirements of Section 401(k) of the Internal Revenue Code and covers
substantially all employees. The Bank of Orange County's contributions represent
a discretionary amount determined each year by BOC and a matching contribution
based on participation contributions. Plan assets consist principally of
marketable securities and mutual funds.

The Bank of Orange County entered into salary continuation agreements with
certain of its executive officers. The agreements provide monthly cash payments
to officers or their beneficiaries in the event of death, beginning in the month
after their respective retirement dates or death, and extending for a specified
period of years thereafter. The Bank of Orange County has funded its obligation
related to the officers' salary continuation agreements through the purchase of
single premium life insurance policies. At December 31, 1998, the cash surrender
value of life insurance amounted to $2,224,000. The present value of liability
under the agreements amounted to approximately $1,260,000 at December 31, 1998,
which is included in other liabilities in the accompanying consolidated balance
sheet.

14. STOCK OPTION PLANS

On July 26, 1996, the Board of Directors of Security First Bank adopted the
1996 Director's Stock Option Plan (the "Directors' Plan") and the 1996 Employee
Stock Option Plan (the "Employee Plan") (collectively referred to as the
"Plans"). The Plans provide for the grant of options to non-employee directors
and officers and certain key employees to purchase an aggregate of 1,074,080 and
2,148,160 shares, respectively, of the Security First Bank's common stock with
an exercise price of not less than 100 percent of their fair market value of
Security's common stock at date of grant. Options will generally expire either
five or ten years from date of grant, depending upon what type of option is
granted.

The following is a summary of stock option transactions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1997
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES PRICE SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 1,315,860 $0.40
Granted.............................. 215,000 0.40 1,315,860 $0.40
Canceled............................. (268,580) 0.40
Exercised............................
--------- ---------
Outstanding at end of year........... 1,262,280 0.40 1,315,860 0.40
========= =========
Exercisable at end of year........... 467,141 0.40 263,172 0.40
========= =========
</TABLE>

F-50
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK OPTION PLANS (CONTINUED)

The estimated fair value of options granted during 1998 and 1997 was $0.11
and $0.40, respectively, per share.

The Company applies APB No. 25 and related Interpretations in accounting for
the Plans. Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plans been determined based on the fair value at
the grant dates for awards under the Plans consistent with the method of SFAS
No. 123, the Company's net loss and loss per share for the years ended
December 31, 1998 and 1997 would have been reduced to the pro forma amounts
indicated below, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net loss:
As reported............................................... $2,649 $ 209
Pro forma................................................. $2,675 $ 238
Basic and diluted loss per share:
As reported............................................... $ 3.52 $3.52
Pro forma................................................. $ 3.56 $4.01
</TABLE>

Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
including future stock volatility and expected time to exercise, which greatly
affect the calculated values. The fair value of options granted under the Plans
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used: no dividend yield for 1998
and 1997; a volatility of 15% for 1998 and no volatility for 1997; a risk-free
interest rate of 6.50% for 1998 and 6.64% for 1997; and an average expected life
of five (5) years for 1998 and 1997.

15. BASIC AND DILUTED LOSS PER SHARE

Basic and diluted loss per share was computed by dividing net loss by the
weighted average number of shares of common stock outstanding during the year.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic and dilutive loss per share--
Loss available to common stockholders.................. $(2,649,000) 751,920 $(3.52)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic and dilutive loss per share--
Loss available to common stockholders.................. $ (209,000) 59,449 $(3.52)
</TABLE>

F-51
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
active market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments,
prepayment assumptions, future expected loss experience and other such factors.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

In addition, the fair value estimates are based on existing on- and
off-balance-sheet financial instruments without attempting to estimate the value
of existing and anticipated future customer relationships and the value of
assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial assets or
liabilities include other real estate owned and premises and equipment.

The following methods and assumptions were used to estimate the fair values
of financial instruments:

INVESTMENT SECURITIES--For U.S. government and U.S. government agency
securities, fair values are based on market prices. For other investment
securities, fair values equal quoted market price, if available. If a
quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.

LOANS--The fair value for loans with variable interest rates is the
carrying amount. The fair value of fixed rate loans is derived by
calculating the discounted value of future cash flows expected to be
received by the various homogeneous categories of loans. All loans have
been adjusted to reflect changes in credit risk.

DEPOSITS--The fair value of demand deposits, savings deposits, and money
market deposits is defined as the amounts payable on demand at year-end.
The fair value of fixed maturity certificates of deposit is estimated
based on the discounted value of the future cash flows expected to be
paid on the deposits.

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT--The fair
value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the parties involved.
For fixed rate loan commitments, fair value also considers the difference
between current levels of interest rates and committed rates. The fair
value of these unrecorded financial instruments is not material to the
Company's financial position or fair value disclosures at December 31,
1998.

F-52
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The estimated fair values of the Company's financial instruments at
December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
--------------------- -------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from bank, and money market mutual fund... $ 17,191 $ 17,191 $ 6,667 $ 6,667
Federal funds sold and securities purchased under
agreement to resell............................... 63,689 63,689 5,425 5,425
Interest-bearing deposits with other banks.......... 4,468 4,468 1,999 1,999
Investment securities available for sale............ 21,678 21,678 803 803
Investment securities held to maturity.............. 8,511 8,521 3,000 3,000
Investment in Federal Reserve Bank stock............ 452 452 93 93
Loans receivable, net............................... 97,289 97,952 21,105 22,097
Accrued interest receivable......................... 1,004 1,004 242 242
Cash surrender value of life insurance.............. 2,224 2,224
Financial liabilities:
Deposits............................................ $192,563 $192,580 $35,659 $35,676
Accrued interest payable............................ 221 221 31 31
Off-balance-sheet liabilities:
Commitments to extend credit........................ 20,748 3,776
Standby letters of credit........................... 668 50
</TABLE>

The Company's balance sheet includes the following financial instruments:
cash, due from banks, and money market mutual fund, federal funds sold and
securities purchased under agreement to resell, interest-bearing deposits with
other banks, investment in Federal Reserve Bank stock, cash surrender value of
life insurance, accrued interest receivable, and accrued interest payable. The
Company considers the carrying amounts of these instruments in the consolidated
financial statements to approximate the fair value for these financial
instruments because of the relatively short period of time between origination
of the instruments and their expected realization for current items, and the
yields on long-term notes reflect estimated current market yields.

F-53
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in various litigation arising in the normal
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate outcome of such litigation or any other contingencies
would not have a material effect on the Company's consolidated financial
position or results of operations.

Security First Bank was a defendant in an eminent domain proceeding filed by the
State of California, Department of Transportation (the "State"). The State
sought to acquire real property leased by Security First Bank that was used as
its headquarters office facility. In 1998, SFB received $369,000, net of legal,
accounting, and consulting fees associated with this case, of compensation for
its property interest in the building, which is included in recovery from the
Department of Transportation.

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

The Company's exposure to credit loss in the event of non-performance by other
parties to the financial instrument for these commitments is represented by the
contractual amounts of those instruments.

The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Commitments generally
have fixed expiration dates; however, since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.

The Company's commitment to extend credit and standby letters of credit are as
follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Commitment to extend credit................................ $20,748 $3,776
Standby letters of credit.................................. 668 50
</TABLE>

The Company had $7,500,000 and $1,000,000 unsecured federal funds credit lines
with several banks at December 31, 1998 and 1997, respectively. The lines are
intended to support short-term liquidity. There were no borrowings outstanding
against these lines as of December 31, 1998 and 1997.

18. REGULATORY MATTERS AND CAPITAL/OPERATING PLANS

The Company, as a registered bank holding company, is subject to regulation
by the Board of Governors of the Federal Reserve System (the "FRB") under the
Bank Holding Company Act of 1956, as amended.

The Company's banking subsidiaries, as Federal Reserve Bank members, are also
subject to the regulation of the FRB as well as regulation by the Federal
Deposit Insurance Corporation ("FDIC"), the Department of Financial Institutions
("DFI"), and the Office of the Comptroller of Currency

F-54
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. REGULATORY MATTERS AND CAPITAL/OPERATING PLANS (CONTINUED)

("OCC"). Additionally, the Company is subject to various regulatory capital
requirements administered by these banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt correction
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification of the Company are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and its subsidiaries to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital to
average assets (as defined). Management believes, as of December 31, 1998 and
1997, that the Company and its subsidiaries have met all capital adequacy
requirements to which they are subject.

As of December 31, 1998 and 1997, the most recent notification from the
regulatory agencies categorized the Banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Company and its subsidiaries must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification which
management believes have changed the institution's category.

F-55
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. REGULATORY MATTERS AND CAPITAL/OPERATING PLANS (CONTINUED)

The consolidated and Company's banking subsidiaries actual capital amounts (in
thousands) and ratios are presented, as of December 31, 1998 and 1997, in the
following table:

AS OF DECEMBER 31, 1998:

<TABLE>
<CAPTION>
CAPITAL ADEQUACY WELL CAPITALIZED
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
------------------- ------------------------ -------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- -------- -------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital vs. Risk Weighted Assets:
Consolidated............................. $20,331 14.98% $10,858 > or = to 8.0% $13,572 > or = to 10.0%
Security First Bank...................... 5,433 16.95% 2,564 > or = to 8.0% 3,205 > or = to 10.0%
National Business Bank................... 4,741 172.00% 221 > or = to 8.0% 276 > or = to 10.0%
Downey National Bank..................... 4,384 11.60% 3,023 > or = to 8.0% 3,779 > or = to 10.0%
Bank of Orange County.................... 8,024 13.03% 4,926 > or = to 8.0% 6,158 > or = to 10.0%
Tier I Capital vs. Risk Weighted Assets:
Consolidated............................. 18,631 13.73% 5,428 > or = to 4.0% 8,142 > or = to 6.0%
Security First Bank...................... 5,027 15.69% 1,282 > or = to 4.0% 1,922 > or = to 6.0%
National Business Bank................... 4,724 171.00% 111 > or = to 4.0% 166 > or = to 6.0%
Downey National Bank..................... 4,119 10.90% 1,512 > or = to 4.0% 2,267 > or = to 6.0%
Bank of Orange County.................... 7,254 11.78% 2,463 > or = to 4.0% 3,695 > or = to 6.0%
Tier I Capital vs. Average Assets:
Consolidated............................. 18,631 9.45% 7,886 > or = to 4.0% 9,858 > or = to 5.0%
Security First Bank...................... 5,027 9.57% 2,101 > or = to 4.0% 2,626 > or = to 5.0%
National Business Bank................... 4,724 60.00% 315 > or = to 4.0% 394 > or = to 5.0%
Downey National Bank..................... 4,119 8.10% 2,034 > or = to 4.0% 2,543 > or = to 5.0%
Bank of Orange County.................... 7,254 6.96% 4,169 > or = to 4.0% 5,211 > or = to 5.0%
</TABLE>

AS OF DECEMBER 31, 1997:

Security First Bank received Capital Impairment Orders from the DFI dated
February 17, 1995, April 11, 1995, December 1, 1995 and February 8, 1996. The
Impairments have been cured, with the approval of the DFI, by a readjustment of
Security's accounts in a quasi-reorganization, effected as of

F-56
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. REGULATORY MATTERS AND CAPITAL/OPERATING PLANS (CONTINUED)

January 1, 1997. In the quasi-reorganization, the Bank's accumulated deficit was
eliminated by a corresponding reduction of Security's contributed capital.

19. SUBSEQUENT EVENTS

Effective February 17, 1999, The Bank of Orange County entered into a
Buy-Sell Agreement with Brentwood Bank of California ("Brentwood"), whereby BOC
would acquire a portfolio of construction loans and the rights to the
unamortized deferred loan fees, and certain furniture and fixtures from
Brentwood for a total purchase price of $3,376,000. The construction loans are
sold by Brentwood to BOC without recourse and with servicing released to BOC.
The purchase price for the sale of the construction loans and the rights to the
deferred loan fees was determined based on the outstanding principal balances of
the construction loans at February 16, 1999 of $3,384,000 plus $14,000 of
interest accrued on the related loans less deferred loan fees of $39,000. The
purchase price of the furniture and fixtures was $17,000. The transaction closed
on February 17, 1999.

On February 19, 1999, the Board of Directors of California Financial Bancorp
adopted the 1999 Stock Option Plan. The Stock Option Plan (the "Plan")
authorizes both incentive and non-statutory stock options to be granted in an
aggregate amount up to 751,615 shares of the Bancorp's common stock. Options may
be granted to directors, executive officers or other employees of the Company.
The option price must, at least, equal fair market value on the date the option
is granted. The Plan is administered by the Compensation Committee of the Board
of Directors.

At the effective date of February 19, 1999, the Board of Directors of the
Bancorp granted 212,000 of non-statutory options to certain directors and
officers of the Company, at an exercise price of $10 per share with a term of
ten years.

F-57
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

California Financial Bancorp's condensed balance sheets as of December 31,
1998 and 1997 are as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 3,107 $ 111
Interest-bearing deposits with other banks............... 900
Premises and equipment, net.............................. 236 6
Investment in subsidiaries............................... 33,140 3,501
Other assets............................................. 781 2
------- ------
TOTAL.................................................. $37,264 $4,520
======= ======

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES--
Accrued expenses and other liabilities................... $ 2,541 $ 119
------- ------
Total liabilities...................................... 2,541 119
------- ------
STOCKHOLDERS' EQUITY:
Common stock--no par value; 10,000,000 shares authorized;
3,758,100 and 461,000 shares issued and outstanding in
1998 and 1997, respectively............................ 37,581 4,610
Accumulated deficit...................................... (2,858) (209)
------- ------
Total stockholders' equity............................. 34,723 4,401
------- ------
TOTAL.................................................. $37,264 $4,520
======= ======
</TABLE>

F-58
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)

California Financial Bancorp's condensed statements of operations for the year
ended December 31, 1998 and for the period from inception (September 11, 1997)
through December 31, 1997, are as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Interest income............................................. $ 28 $ 7
------- -----
28 7
------- -----
Expenses:
Interest expense.......................................... 41
Salaries and employee benefits............................ 877 49
Professional fees......................................... 925 148
General and administrative................................ 218 18
Occupancy and premises and equipment...................... 105
Other operating expenses.................................. 82 12
------- -----
2,248 227
------- -----
Loss before provision for income taxes...................... (2,220) (220)
Provision for income taxes.................................. 1
------- -----
Loss before equity in undistributed (loss) income of
subsidiaries.............................................. (2,221) (220)
Equity in undistributed net (loss) income of subsidiaries... (428) 11
------- -----
Net loss.................................................... $(2,649) $(209)
======= =====
</TABLE>

F-59
<PAGE>
CALIFORNIA FINANCIAL BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

20. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (CONTINUED)

California Financial Bancorp's condensed statements of cash flows for the year
ended December 31, 1998 and for the period from inception (September 11, 1997)
through December 31, 1997, are as follows, in thousands:

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net loss.................................................. $(2,649) $ (209)
Cash flows from operating activities:
Equity in net loss (income) of subsidiaries............. 428 (10)
Depreciation and amortization........................... 130 10
Net change in other assets, accrued expenses and other
liabilities........................................... 1,642 116
------- -------
Net cash used in operating activities................. (449) (93)
------- -------
Cash flows from investing activities:
Acquisition of subsidiaries............................. (30,144) (3,500)
Net increase in interest-bearing deposits with other
banks................................................. 900 (900)
Purchases of premises and equipment..................... (282) (6)
------- -------
Net cash used in investing activities................. (29,526) (4,406)
------- -------
Cash flows from financing activities--
Issuance of common stock................................ 32,971 4,610
------- -------
Net cash provided by financing activities............. 32,971 4,610
------- -------
Increase in cash and cash equivalents..................... 2,996 111
Beginning cash and cash equivalents....................... 111
------- -------
Ending cash and cash equivalents.......................... $ 3,107 $ 111
======= =======
</TABLE>

F-60
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
National Business Bank:

We have audited the accompanying balance sheet of National Business Bank
(the "Bank") as of December 31, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the period from November 3, 1998
(commencement of operations) to December 31, 1998. These financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on the financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Business Bank as of
December 31, 1998, and the results of its operations and its cash flows for the
period from November 3, 1998 (commencement of operations) to December 31, 1998
in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

February 23, 1999
Los Angeles, California

F-61
<PAGE>
NATIONAL BUSINESS BANK

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS

Cash and cash equivalents:
Cash and due from banks................................... $ 966 $ 428
Federal funds sold........................................ 6,065 7,050
------- ------
Total cash and cash equivalents......................... 7,031 7,478

Interest bearing deposits with other banks.................. 199
Investment securities held to maturity, at amortized cost... 2,845
Investment in Federal Reserve Bank stock, at cost........... 142 172
Loans receivable, net of allowance for credit losses of $125
and $17 (Note 2).......................................... 9,422 741
Premises and equipment, net (Note 3)........................ 323 399
Accrued interest receivable................................. 103 4
Prepaid expenses and other assets........................... 116 114
------- ------
TOTAL....................................................... $20,181 $8,908
======= ======

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Interest-bearing deposits (Notes 4 and 5)................. $14,036 $3,268
Noninterest-bearing deposits (Note 4)..................... 2,279 761
------- ------
Total deposits.......................................... 16,315 4,029

Payable to majority stockholder and affiliates
(Note 5)................................................ 6 97
Income taxes payable, net................................. --
Accrued interest and other liabilities.................... 172 58
------- ------
Total liabilities....................................... 16,493 4,184
------- ------

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY (Notes 7 and 10):
Common stock, $5 par value; 10,000,000 shares authorized;
572,775 shares issued and outstanding at September 30,
1999 (unaudited) and December 31, 1998.................. 2,864 2,864
Additional paid-in capital................................ 2,803 2,803
Accumulated deficit....................................... (1,979) (943)
------- ------
Total stockholders' equity.............................. 3,688 4,724
------- ------
TOTAL....................................................... $20,181 $8,908
======= ======
</TABLE>

See notes to financial statements.

F-62
<PAGE>
NATIONAL BUSINESS BANK

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 3, 1998
NINE MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans receivable, including fees.......................... $ 383 $ 12
Interest-bearing deposits with other banks................ 5
Investment in Federal Reserve Bank stock.................. 7 2
Federal funds sold........................................ 204 46
Investment securities held to maturity.................... 38
------- ------
Total interest and dividend income...................... 637 60
------- ------
INTEREST EXPENSE:
Savings, NOW and money market accounts.................... 98 2
Time certificates of deposit under $100................... 44 3
Time certificates of deposit of $100 and over............. 100 12
------- ------
Total interest expense.................................. 242 17
------- ------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES...... 395 43
PROVISION FOR CREDIT LOSSES (Note 2)........................ 148 17
------- ------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 247 26
------- ------
NONINTEREST INCOME:
Service charges and fees.................................. 6
Other income.............................................. 1
------- ------
Total noninterest income................................ 7
------- ------
NONINTEREST EXPENSES (Note 5):
Preopening costs.......................................... -- 605
Salaries and employee benefits............................ 495 127
Other professional services............................... 177 2
Year 2000................................................. 42 65
Promotion and advertising................................. 67 32
Occupancy (Note 9)........................................ 96 26
Furniture, fixtures and equipment (Note 3)................ 107 23
Data and item processing.................................. 83 21
Director and shareholders expense......................... 3 2
Communications............................................ 50 8
Insurance and surety bond................................. 36 18
Office supplies........................................... 38 11
Deposit customer services................................. 16 4
Travel and entertainment.................................. 12 4
Audit and accounting...................................... 33 11
Conferences and seminars.................................. 3 4
Dues and subscriptions.................................... 7 3
Other..................................................... 25 2
------- ------
Total noninterest expenses.............................. 1,290 968
------- ------
LOSS BEFORE PROVISION FOR INCOME TAXES...................... (1,036) (942)
PROVISION FOR INCOME TAXES (Note 6)......................... -- 1
------- ------
NET LOSS.................................................... $(1,036) $ (943)
======= ======
BASIC LOSS PER COMMON SHARE (Note 7)........................ $ (1.81) $(1.65)
======= ======
</TABLE>

See notes to financial statements.

F-63
<PAGE>
NATIONAL BUSINESS BANK

STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT LOSS TOTAL
-------- -------- ---------- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 3, 1998
(Commencement of operations)
Issuance of common stock, net................... 572,775 $2,864 $2,803 $5,667
Comprehensive loss, net of tax--
Net loss...................................... -- -- -- $ (943) $ (943) (943)
------- ------ ------ ------- =======
------
BALANCE, DECEMBER 31, 1998........................ 572,775 $2,864 $2,803 $ (943) $4,724
Comprehensive loss, net of tax:
Net loss for the period (unaudited)........... (1,036) $(1,036) (1,036)
------- ------- ------
Comprehensive loss (unaudited).................. $(1,036)
=======

BALANCE, SEPTEMBER 30, 1999 (unaudited)........... 572,775 $2,864 $2,803 $(1,979) $3,688
======= ====== ====== ======= ======
</TABLE>

See notes to the financial statements.

F-64
<PAGE>
NATIONAL BUSINESS BANK

STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 3, 1998
NINE MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (1,036) $ (943)
Depreciation and amortization............................. 92 18
Provision for credit losses............................... 148 17
Increase in accrued interest receivable................... (99) (4)
Increase in prepaid expenses and other assets............. (2) (114)
(Decrease) increase in payable to majority stockholder and
affiliates.............................................. (91) 97
Increase in accrued interest and other liabilities........ 114 58
Increase income taxes payable, net........................
Accretion of discount on investment securities, net....... 5
Amortization of loan fees................................. (5)
-------- -------
Net cash used in operating activities................. (874) (871)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in interest bearing deposits with other
banks................................................... (199)
Net increase in loans..................................... (8,824) (758)
Purchase of investment securities held to maturity........ (4,350)
Proceeds from maturities of investment securities held to
maturity................................................ 1,500
Redemption (Purchase) of Federal Reserve Bank stock....... 30 (172)
Purchases of premises and equipment....................... (16) (417)
-------- -------
Net cash used in investing activities................. (11,859) (1,347)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.................................. 12,286 4,029
Issuance of common stock, net............................. -- 5,667
-------- -------
Net cash provided by financing activities............. 12,286 9,696
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (447) 7,478

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 7,478 --
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 7,031 $ 7,478
======== =======
SUPPLEMENTARY CASH FLOW DISCLOSURES:
Cash paid during the period for interest on deposit
accounts................................................ $ 217 $ 11
======== =======
</TABLE>

See notes to financial statements.

F-65
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The financial statements include the accounts of National Business Bank (the
"Bank"), a de-novo bank, incorporated on December 30, 1996. From the date of
incorporation to the date of commencement of operations on November 3, 1998,
preopening costs consisted of organizational and stock subscription efforts. The
total costs of the organizational activities and stock subscription efforts were
$605,000 and $61,000, respectively. The organizational costs of $605,000 were
recorded as period expenses and the $61,000 of costs associated with the stock
subscription efforts were charged directly to the additional paid-in capital.

On November 3, 1998, the Bank received regulatory approval to commence
banking operations. The escrowed subscriber funds were received and a total of
572,775 shares of common stock were issued, which included 371,776 shares issued
to California Financial Bancorp ("CFB"). As a result of this offering, CFB
became the majority stockholder of the Bank with an ownership interest of
approximately 64.91%.

The Bank provides a full range of banking services to individual and
corporate customers throughout Southern California and is subject to competition
from other financial institutions. The operating results of the Bank are
significantly affected by changes in market interest rates and by fluctuations
in real estate values in the Bank's primary service areas. The Bank is also
regulated by certain federal agencies and is subject to periodic examinations by
those regulatory authorities.

BASIS OF PRESENTATION--The financial statements are prepared in accordance
with generally accepted accounting principles and general practices within the
banking industry. The following is a summary of significant principles used in
the preparation of the accompanying financial statements. In preparing the
financial statements, management of the Bank has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the disclosure
of contingent assets and liabilities and the disclosure of income and expenses
for the periods presented in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.

In the opinion of management, all adjustments comprised of normal and
recurring accruals necessary for fair presentation of the interim unaudited
financial statements have been included. Operating results for the nine months
ended September 30, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999.

CASH AND CASH EQUIVALENTS--For the purposes of reporting cash flows, cash
and cash equivalents include cash on hand, amounts due from banks, and federal
funds sold. Generally, federal funds are sold for one-day periods. Additionally,
the Bank is subject to maintaining reserve balances in cash with the Federal
Reserve Bank. However, during the period from November 3, 1998 (commencement of
operations) through December 31, 1998, the Bank was not required to maintain
such reserve balances.

FEDERAL RESERVE BANK STOCK--The Bank's investment in Federal Reserve Bank
("FRB") stock represents an equity interest in the Federal Reserve Bank of San
Francisco.

F-66
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

90 days or more past due. When interest accrual is discontinued, all unpaid
accrued interest is reversed against income. Interest income is subsequently
recognized only to the extent cash payments are received or the loan has been
placed back on accrual status when the borrower has demonstrated the ability to
make future payments of principal and interest as scheduled.

In determining whether a loan is impaired or not, the Bank applies its
normal loan review procedures. A loan is impaired when it is probable that the
Bank will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. Loans for which an
insignificant shortfall in amount of payments is anticipated, but the Bank
expects to collect all amounts due, are not considered impaired.

The Bank measures impairment on a loan-by-loan basis using either the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as an expedient, at the fair value of the collateral if the
loan is collateral dependent, less costs to sell. Consumer loans and other
homogeneous smaller balance loans are reviewed on a collective basis for
impairment.

ALLOWANCE FOR CREDIT LOSSES--The allowance for credit losses is established
through a provision for credit losses. Loans are charged against the allowance
for credit losses when management believes that the collection of the carrying
amount is unlikely. The allowance is maintained at a level that management
believes will be adequate to absorb inherent losses on existing loans based on
evaluation of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the portfolio, overall portfolio quality, review of specific problem
loans, and current economic conditions that may affect the borrower's ability to
pay.

The allowance is based on estimates, and ultimate losses may vary from the
current estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the periods in
which they become known. In addition, the FRB and the Office of the Comptroller
of the Currency (the "OCC"), as an integral part of their examination processes,
periodically review the Bank's allowance for credit losses. The agencies may
require the Bank to recognize additions to the allowance based on their
judgements on information available at the time of their examinations.

TROUBLED DEBT RESTRUCTURED--A loan is considered "troubled debt
restructured" when the Bank provides the borrower certain concessions that it
would not normally consider. The concessions are provided with the objective of
maximizing the recovery of the Bank's investment. Troubled debt restructures
include situations in which the Bank accepts a note (secured or unsecured) from
a third party in payment of its receivable from the borrower, other assets in
payment of the loan, an equity interest in the borrower in lieu of its
receivable, or a modification of the terms of the debt, including, but not
limited to: (i) a reduction in the stated interest rate below market rates,
(ii) an extension of maturity at an interest rate or other terms below market,
(iii) a reduction in the face amount of the debt, and/or (iv) a reduction in the
accrued interest.

PREMISES AND EQUIPMENT--Premises and equipment are recorded at cost less
accumulated depreciation and amortization, which are charged to expense on a
straight-line basis over the estimated

F-67
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

useful lives of the assets or, in the case of leasehold improvements, over the
term of the leases, whichever is shorter. Rates of depreciation and amortization
are based on the following estimated useful lives: furniture and equipment,
three to six years; leasehold improvements, the shorter of the useful life or
the term of the lease. Expenditures for maintenance and repairs are expensed as
incurred, while major improvements that extend the estimated useful life of an
asset are capitalized. Upon the sale or other retirement of assets, the accounts
are relieved of the cost and related accumulated depreciation and amortization,
and any resultant gain or loss is recognized.

INCOME TAXES--The Bank records income taxes under the asset and liability
method. Income tax expense is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year 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
rates is recognized in income in the period that includes the enactment date.
Recognition of deferred tax assets is based on management's believe that it is
more likely than not that the tax benefit associated with certain temporary
differences, tax operating loss carryforwards, and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items for which it is
more likely than not that realization will not occur.

PREOPENING COSTS--It is the Bank's policy to expense all preopening costs
incurred except for those costs associated with raising capital, which are
charged directly to additional paid-in capital.

LOSS PER SHARE--Basic loss per share excludes the effect of all potentially
dilutive securities and is computed by dividing loss available to common
stockholders by the weighted average number of common shares outstanding for the
period (see Note 7).

RELATED-PARTY TRANSACTIONS--The Bank has entered into certain related-party
transactions with its majority shareholder and affiliates in the normal course
of business. These transactions are conducted at market terms (see Note 5).

RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued and is effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 requires companies
to record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value of cash flows. Management of the Bank
does not believe the statement will have a material impact on the Bank's results
of operations or financial position when adopted. The Bank has not engaged in
any hedging transactions and does not foresee doing so in the near future.

In October 1998, SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," was issued and is effective for the fiscal quarter
beginning after December 15, 1998. SFAS No. 134 requires that after
securitization of mortgage loans held for sale, the resulting mortgage backed
securities and other retained interests should be classified in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," based on the Bank's ability and intent to sell or hold those

F-68
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

investments. Management of the Bank does not believe the statement will have a
material impact on the Bank's results of operations or financial position when
adopted.

2. LOANS RECEIVABLE

At December 31, 1998, loans are summarized as follows, in thousands:

<TABLE>
<S> <C>
Commercial.................................................. $641
Consumer.................................................... 117
----
758
Allowance for credit losses................................. (17)
----
Loans receivable, net....................................... $741
====
</TABLE>

Activity in the allowance for credit losses for the period from November 3,
1998 (commencement of operations) to December 31, 1998, is comprised of a
provision established for potential credit losses of $17,000.

3. PREMISES AND EQUIPMENT

The amount of depreciation and amortization included in noninterest expenses
was $18,000 for the period from November 3, 1998 (commencement of operations) to
December 31, 1998. The major classes of premises and equipment at December 31,
1998, are summarized as follows, in thousands:

<TABLE>
<S> <C>
Leasehold improvements...................................... $122
Furniture and equipment..................................... 295
----
417
Accumulated depreciation and amortization................... (18)
----
Premises and equipment, net................................. $399
====
</TABLE>

4. DEPOSITS

At December 31, 1998, deposits are summarized by category as follows, in
thousands:

<TABLE>
<S> <C>
Demand deposit accounts..................................... $ 761
NOW accounts................................................ 61
Money market accounts....................................... 529
Savings account............................................. 325
Time certificates of deposit under $100 551
Time certificates of deposit of $100 and over............... 1,802
------
Total..................................................... $4,029
======
</TABLE>

Time certificates of deposit accounts outstanding at December 31, 1998, are
scheduled to mature within one year.

F-69
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. RELATED PARTIES

At December 31, 1998, deposits from directors, officers, and stockholders
amounted to $1,593,000.

The Bank engaged in related activities with its majority stockholder and
certain affiliates. The activities included items such as: shared note
department, payroll, insurance, memberships in banking related organizations,
and project and contract management. The costs are allocated in various manners.
The accompanying financial statements may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Bank had
operated without such affiliations. At December 31, 1998, the Bank was obligated
to pay $97,000 to its majority stockholder and its affiliates for the
above-related activities. For the period from November 3, 1998 (commencement of
operations) to December 31, 1998, total costs incurred and included in
noninterest expense amounted to approximately $57,000.

6. INCOME TAXES

The Bank's provision for federal and state income taxes as of December 31,
1998, is summarized as follows, in thousands:

<TABLE>
<S> <C>
Current provision:
Federal................................................... $--
State..................................................... 1
---
$ 1
===
</TABLE>

A reconciliation of the federal income tax at the expected statutory rate
compared to the actual income tax provision as of December 31, 1998, is
summarized as follows, dollars in thousands:

<TABLE>
<S> <C> <C>
Expected tax benefit...................................... $(321) (34.00)%
State income taxes, net of federal income tax benefit..... (86) (9.12)%
Valuation allowance....................................... 404 42.88 %
Other, net................................................ 4 0.35 %
----- ------
$ 1 0.11 %
===== ======
</TABLE>

The following table summarizes the elements of the deferred tax assets for
the period from November 3, 1998 (commencement of operations) to December 31,
1998, in thousands:

<TABLE>
<S> <C>
Provision for credit losses................................. $ 8
Depreciation................................................ 8
Accrued expenses............................................ 288
Net operating loss carryforward............................. 100
-----
404
Valuation allowance......................................... (404)
-----
$ --
=====
</TABLE>

At December 31, 1998, the Bank had federal and state net operating loss
carryforwards of approximately $253,000 and $127,000, respectively, which will
expire in the years 2018 and 2003, respectively.

F-70
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. BASIC LOSS PER COMMON SHARE

Basic loss per share was computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the year.

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
LOSS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ---------------- ---------
<S> <C> <C> <C>
Basic loss per share.................... $ (943,000) 572,775 $(1.65)
</TABLE>

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
active market exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments,
prepayment assumptions, future expected loss experience, and other such factors.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used to estimate the fair value
of financial instruments:

CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD--The carrying amount of
cash and due from banks and federal funds sold is considered to be a
reasonable estimate of fair value due to their short-term nature.

FEDERAL RESERVE BANK STOCK--The carrying value of the Federal Reserve
Bank stock approximates fair value as the stock may be sold back to the
Federal Reserve Bank at carrying value.

DEPOSITS--The fair value of demand and NOW deposits, savings deposits,
and money market deposits is defined as the amounts payable on demand at
period end. The fair value of fixed maturity time certificates of deposit
is estimated based on the discounted value of the future cash flows
expected to be paid on the deposits.

F-71
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT--The fair
value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the parties involved.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and committed rates. The fair
value of these unrecorded financial instruments is not material to the
Bank's financial position or fair value disclosures at December 31, 1998.

ACCRUED INTEREST RECEIVABLE AND PAYABLE--The carrying value of accrued
interest receivable and payable is considered to be a reasonable estimate
of fair value due to their short-term nature.

The estimated fair values of the Bank's financial instruments at
December 31, 1998 are as follows, in thousands:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Assets:
Cash and due from banks................................... $ 428 $ 428
Federal funds sold........................................ 7,050 7,050
Investment in Federal Reserve Bank stock.................. 172 172
Loans receivable, net..................................... 741 741
Accrued interest receivable............................... 4 4
Liabilities:
Deposits.................................................. $4,029 $4,029
Accrued interest payable.................................. 6 6
Off-balance-sheet liabilities--
Commitments to extend credit.............................. $ 225
</TABLE>

9. COMMITMENTS AND CONTINGENCIES

The Bank leases administrative and office space under a noncancelable
operating lease. Rental expense was $21,000 in 1998. Future minimum lease
payments required under the operating lease in excess of one year as of
December 31, 1998, is summarized as follows, in thousands:

<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31,
- --------------------------
<S> <C>
1999........................................................ $123
2000........................................................ 123
2001........................................................ 123
2002........................................................ 92
----
Total..................................................... $461
====
</TABLE>

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

F-72
<PAGE>
NATIONAL BUSINESS BANK

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. COMMITMENTS AND CONTINGENCIES (CONTINUED)

statements. At December 31, 1998, the Bank was committed to fund certain loans
totaling approximately $225,000.

The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Commitments generally
have fixed expiration dates. However, since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.

10. REGULATORY MATTERS

The Bank, as a member of the FRB, is subject to the regulations of the FRB
as well as regulations by the OCC. Additionally, the Bank is subject to various
regulatory capital requirements administered by these banking agencies. Failure
to meet minimum capital requirement can initiate certain mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measure
of the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). The Bank as a start-up operation has not yet received a
prompt corrective action rating from its regulators, however, as of
December 31, 1998, management believes that the Bank met all capital adequacy
requirements to which it is subject.

As of December 31, 1998, the Bank's actual capital amounts and ratios are
presented in the following table, dollars in thousands:

F-73
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Security First Bank and Subsidiary:

We have audited the accompanying consolidated balance sheet of Security
First Bank and subsidiary (the "Bank") as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Security
First Bank and subsidiary as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Los Angeles, California
February 23, 1999

F-74
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and
Stockholders of Security First Bank:

We have audited the accompanying consolidated balance sheets of SECURITY FIRST
BANK (formerly known as Pacific Inland Bank) AND SUBSIDIARY (the Bank) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test 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 Security First Bank
and subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Orange County, California
February 5, 1998

F-75
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1999 1998 1997
-------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Cash, due from banks and money market mutual fund
(Note 2).................................................. $ 2,710 $ 5,928 $ 1,665
Federal funds sold and securities purchased under agreements
to resell (Note 4)........................................ 5,180 13,539 10,425
------- ------- -------
Total cash and cash equivalents......................... 7,890 19,467 12,090

Interest-bearing deposits with other banks.................. 1,398 2,298 1,999
Investment securities available for sale, at fair value
(Note 3).................................................. 5,443 622 803
Investment securities held to maturity, at amortized cost
(Note 3).................................................. 2,496 2,996 3,000
Investment in Federal Reserve Bank stock, at cost........... 191 191 93
Loans receivable, net of allowance for credit losses of $805
(unaudited) at September 30, 1999, $801 at December 31,
1998 and $1,013 at December 31, 1997 (Notes 5 and 9)...... 31,785 25,470 21,105
Deferred income tax assets, net............................. 24
Other real estate owned, net (Note 6)....................... 42 372 564
Premises and equipment, net (Note 7)........................ 364 463 568
Accrued interest receivable................................. 268 229 243
Receivable from majority stockholder and affiliates, net
(Note 9).................................................. 3 4
Other assets................................................ 415 536 872
------- ------- -------
TOTAL....................................................... $50,319 $52,648 $41,337
======= ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Interest-bearing deposits (Note 8)........................ $26,039 $27,680 $27,115
Noninterest-bearing deposits (Note 8)..................... 17,757 19,744 9,553
------- ------- -------
Total deposits.......................................... 43,796 47,424 36,668

Payable to majority stockholder and affiliates............ 1
Income taxes payable...................................... 3 16 2
Accrued interest and other liabilities.................... 185 146 93
------- ------- -------
Total liabilities....................................... 43,985 47,586 36,763
------- ------- -------

COMMITMENTS AND CONTINGENCIES (Notes 10 and 16)

STOCKHOLDERS' EQUITY (Notes 12, 13, 14 and 17):
Common stock--no par value; 50,000,000 authorized;
19,826,724 shares issued and outstanding in 1999
(unaudited), 16,865,800 shares issued and outstanding in
1998 and 1997........................................... 7,350 6,350 6,350
Accumulated deficit, restated as of January 1, 1997....... (34) (1,323) (1,796)
Accumulated other comprehensive (loss) income............. (982) 35 20
------- ------- -------
Total stockholders' equity.............................. 6,334 5,062 4,574
------- ------- -------
TOTAL....................................................... $50,319 $52,648 $41,337
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-76
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans receivable, including fees.......................... $1,971 $1,720 $ 2,280 $ 2,019 $ 1,643
Federal funds sold and securities purchased under
agreements to resell.................................... 278 322 455 283 357
Money market mutual fund.................................. 67 218 279 90
Interest-bearing deposits with other banks................ 79 111 145 23 2
Investment securities available for sale.................. 216 38 49 84 96
Investment securities held to maturity.................... 45 148 198 62
Investment in Federal Reserve Bank stock.................. 9 8 11 19 17
Other.....................................................
------ ------ ------- ------- -------
Total interest and fee income........................... 2,665 2,565 3,417 2,580 2,115
------ ------ ------- ------- -------
INTEREST EXPENSE:
Savings and money market.................................. 233 236 329 209 82
Time certificates of deposit under $100................... 153 367 436 481 934
Time certificates of deposit of $100 and over............. 262 297 390 471 304
------ ------ ------- ------- -------
Total interest expense.................................. 648 900 1,155 1,161 1,320
------ ------ ------- ------- -------
NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES...... 2,017 1,665 2,262 1,419 795

PROVISION FOR CREDIT LOSSES (Note 5)........................ 76 298 323 380 45
------ ------ ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 1,941 1,367 1,939 1,039 750
------ ------ ------- ------- -------
NONINTEREST INCOME:
Service charges and fees.................................. 78 58 82 73 104
Gain on sale of SBA loans................................. 10
Recovery from the Department of Transportation
(Note 16)............................................... 369 369
Other income.............................................. 85 58 65 60 40
------ ------ ------- ------- -------
Total noninterest income................................ 163 495 516 133 144
------ ------ ------- ------- -------
NONINTEREST EXPENSES (Note 9):
Salaries and employee benefits............................ 786 697 914 1,192 1,283
Professional fees......................................... 188 188 237 385 1,051
Occupancy and premises and equipment (Notes 7 and 10)..... 234 219 307 247 397
Data and item processing.................................. 149 100 142 131 116
Year 2000................................................. 68 46 103
Business development and promotions....................... 63 34 58 74 25
Communications............................................ 81 68 88 93 78
Other real estate owned (income) expense, net............. (25) (191) (203) 411 154
Other loan costs.......................................... 23 20 33 46 25
Insurance................................................. 38 51 62 127 134
Stationery and supplies................................... 26 23 74 61 14
Travel.................................................... 25 27 36 44 46
ATM....................................................... 17 20 26 19 15
Stockholders' costs....................................... 8 15 21 10
Bank assessments.......................................... 22 13 20 64 99
Operating losses.......................................... 7 26 23 2 103
Miscellaneous............................................. 51 55 24 60 34
------ ------ ------- ------- -------
Total noninterest expenses.............................. 1,761 1,411 1,965 2,966 3,574
------ ------ ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES............. 343 451 490 (1,794) (2,680)

PROVISION FOR INCOME TAXES (Note 11)........................ 2 1 17 2 2
------ ------ ------- ------- -------
NET INCOME (LOSS)........................................... $ 341 $ 450 $ 473 $(1,796) $(2,682)
====== ====== ======= ======= =======
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (Note 14)....... $ 0.02 $ 0.03 $ 0.03 $ (0.19) $ (2.83)
====== ====== ======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-77
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER OTHER
--------------------- PAID-IN ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME LOSS TOTAL
---------- -------- ---------- ------------ -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996......... 930,000 $ 9,300 $ 1,850 $ (8,957) $ 34 $ 2,227
Comprehensive income (loss),
net of tax:
Net loss..................... (2,682) $(2,682) (2,682)
Net change in unrealized loss
on investment securities
available for sale......... (24) (24) (24)
-------
Comprehensive loss........... $(2,706)
=======
Sale of common stock, net...... 6,918,300 2,443 2,443
Capital contribution, net...... 1,030 1,030
---------- ------- ------- -------- ---- -------
BALANCE, DECEMBER 31, 1996....... 7,848,300 11,743 2,880 (11,639) 10 2,994
Effects of
quasi-reorganization......... (8,749) (2,880) 11,639 (10) --
---------- ------- ------- -------- ---- -------
BALANCE, JANUARY 1, 1997......... 7,848,300 2,994 -- -- -- 2,994
Comprehensive income (loss),
net of tax:
Net loss..................... (1,796) $(1,796) (1,796)
Net change in unrealized gain
on investment securities
available for sale......... 20 20 20
-------
Comprehensive income......... $(1,776)
=======
Sale of common stock, net...... 9,017,500 3,356 3,356
---------- ------- ------- -------- ---- -------
BALANCE, DECEMBER 31, 1997....... 16,865,800 6,350 -- (1,796) 20 4,574
Comprehensive income, net of
tax:
Net income................... 473 $ 473 473
Net change in unrealized gain
on investment securities
available for sale......... 15 15 15
-------
Comprehensive income......... $ 488
=======
---------- ------- ------- -------- ---- -------
BALANCE, DECEMBER 31, 1998....... 16,865,800 $ 6,350 $ -- $ (1,323) $ 35 $ 5,062
Comprehensive income, net of
tax:
Net income for the period
(unaudited)................ 341 $ 341 341
Net change in unrealized
gain (loss) on investment
securities available for
sale (unaudited)......... (69) (69) (69)
-------
Comprehensive income
(unaudited).................. $ 272
=======
Issuance of common stock
(unaudited).................. 2,500,000 1,000 1,000
Capital Appreciation Rights
Issued (unaudited)........... 460,924
---------- ------- -------- ---- -------
BALANCE, SEPTEMBER 30, 1999
(unaudited).................... 19,826,724 $ 7,350 $ (982) $(34) $ 6,334
========== ======= ======== ==== =======
</TABLE>

See notes to consolidated financial statements.

F-78
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

CASH FLOWS FROM OPERATING ACTIVITIES:
Depreciation and amortization............................. 103 101 143 103 151
Provision for credit losses............................... 76 298 323 380 45
Accretion of discount on investment securities, net....... (4) (4) (4)
Provision for losses on other real estate owned........... 338 168
Amortization of loan fees/unearned discounts/deferred
gains................................................... (4) (11) (303) (36) (61)
(Gain) loss on sale other real estate owned, net.......... (28) (199) (203) 26 28
Loss on sale of premises and equipment.................... 32
Miscellaneous losses...................................... 3
Net changes in other assets and liabilities:
Receivable from majority stockholder and affiliates..... 1 (9) (4)
Payable to majority stockholder and affiliates.......... 1 95
Accrued interest receivable............................. (39) (45) 14 (116) 54
Other assets............................................ 121 (170) (222) 714 (792)
Accrued interest and other liabilities.................. 39 50 53 (610) (474)
Income taxes payable.................................... (13) 14
-------- ------- ------- ------- -------
Net cash provided by (used in) operating activities... 594 556 287 (997) (3,531)
-------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans.......................... (6,387) (2,724) (4,156) (4,382) 1,505
Purchase of investment securities held to maturity........ (2,495) (3,995) (3,996) (3,000)
Purchase of investment securities available for sale...... (5,015) (319)
Refund from purchaser on deposit withheld on loan
servicing rights sold................................... 24
Principal collected on investment securities held to
maturity................................................ 4,000 559 7,805
Principal collected on investment securities available for
sale.................................................... 100 200
Proceeds from maturities of investment securities held to
maturity................................................ 3,000 3,000
Proceeds from maturities of investment securities
available for sale...................................... 100
Net decrease (increase) in interest-bearing deposits with
other banks............................................. 900 (499) (299) (1,999) 304
(Purchases of) proceeds from sale of Federal Reserve Bank
stock, net.............................................. (98) (98) 217 (31)
Proceeds from sale of other real estate owned............. 358 689 697 329 4,770
Purchases of premises and equipment....................... (4) (32) (38) (713) (86)
-------- ------- ------- ------- -------
Net cash (used in) provided by investing activities... (9,543) (3,559) (3,666) (8,989) 13,948
-------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits....................... (3,628) 8,450 10,756 13,705 (12,151)
Capital contribution from Pacific Inland Bancorp.......... 1,030
Issuance of common stock.................................. 1,000 3,356 2,443
-------- ------- ------- ------- -------
Net cash provided by (used in) financing activities... (2,628) 8,450 10,756 17,061 (8,678)
-------- ------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (11,577) 5,447 7,377 7,075 1,739

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 19,467 12,090 12,090 5,015 3,276
-------- ------- ------- ------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 7,890 $17,537 $19,467 $12,090 $ 5,015
======== ======= ======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest on deposit accounts and other borrowings....... $ 639 $ 897 $ 1,134 $ 1,128 $ 1,320
======== ======= ======= ======= =======
Income taxes paid....................................... $ 2 $ 1 $ 1 $ $
======== ======= ======= ======= =======
NON-CASH TRANSACTIONS:
Loans reacquired through settlement of deposit withheld on
loan servicing rights sold.............................. $ $ 558 $ 524 $ $
======== ======= ======= ======= =======
Loans originated for sale of other real estate owned...... $ $ $ $ 40 $ 1,641
======== ======= ======= ======= =======
Acquisition of other real estate owned through
foreclosure............................................. $ $ 131 $ 302 $ 202 $ 1,006
======== ======= ======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-79
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include the accounts of Security First
Bank (formerly Pacific Inland Bank) and its wholly owned subsidiary, PIB
Mortgage Company ("PIB Mortgage"), a mortgage-banking company (hereinafter
collectively referred to as the "Bank"). All significant intercompany accounts
and transactions have been eliminated in consolidation.

The Bank provides a full range of banking services to individual and corporate
customers throughout Southern California and is subject to competition from
other financial institutions. The operating results of the Bank are
significantly affected by changes in market interest rates and by fluctuations
in real estate values in the Bank's primary service areas. The Bank is also
regulated by certain federal and state agencies and undergoes periodic
examinations by those regulatory authorities.

PIB Mortgage was incorporated in June 1989 and commenced operations in
September 1989 for the purpose of engaging in mortgage-banking activities in
California. In June 1994, PIB Mortgage ceased mortgage-banking activities and
sold all related mortgage-servicing rights. PIB Mortgage has been inactive since
June 1994.

Prior to December 31, 1996, the Bank was a wholly owned subsidiary of Pacific
Inland Bancorp (the "Bancorp"), a California corporation. As a result of the
Bank's capital offering that closed on December 31, 1996, the Bancorp's interest
in the Bank decreased from 100% to 11.5% as of December 31, 1996. Subsequently,
the Bancorp distributed all of its holdings in the Bank to its stockholders, who
became the direct stockholders of the Bank. On November 14, 1997, the Bank
received a capital infusion from its new holding company, California Financial
Bancorp (formerly known as Belvedere Bancorp), of $3,300,000, net of offering
costs, in exchange for the issuance of 8,750,000 shares of its common stock. As
a result of this offering, California Financial Bancorp ("CFB") became the
majority stockholder and newly registered holding company of the Bank with an
ownership interest of approximately 51.88%.

BASIS OF PRESENTATION--The consolidated financial statements are prepared in
accordance with generally accepted accounting principles and general practices
within the banking industry. The following is a summary of significant
principles used in the preparation of the accompanying consolidated financial
statements. In preparing the consolidated financial statements, management of
the Bank has made a number of estimates and assumptions relating to the
reporting of assets and liabilities, the disclosure of contingent assets and
liabilities and the disclosure of income and expenses for the periods presented
in conformity with generally accepted accounting principles. Actual results
could differ from those estimates.

In the opinion of management, all adjustments comprised of normal and recurring
accruals necessary for fair presentation of the interim unaudited consolidated
financial statements have been included and all intercompany transactions and
accounts have been eliminated in consolidation. Operating results for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.

F-80
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

to maturity are carried at amortized cost. Amortization of premiums and
accretion of discounts on debt securities are recorded as yield adjustments on
such securities using a method similar to the effective interest method. The
specific identification method is used for purposes of determining cost in
computing realized gains and losses on investment securities sold.

LOANS RECEIVABLE--Loans receivable, which management has the intent and ability
to hold for the foreseeable future or until maturity, are stated at their
outstanding principal balance, reduced by an allowance for credit losses, net
deferred loan fees or costs on originated loans, and unamortized premiums or
discounts on dealer loans. Discount or premiums on dealer loans are amortized to
income using a method similar to the interest method over the remaining period
to contractual maturity, adjusted for anticipated prepayments. Interest on loans
is calculated using the simple-interest method on daily balances of the
principal amount outstanding. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Generally, loans are placed on nonaccrual
status when they become 90 days or more past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed against income. Interest
income is subsequently recognized only to the extent cash payments are received
or the loan has been placed back on accrual status when the borrower has
demonstrated the ability to make future payments of principal and interest as
scheduled.

Nonrefundable fees and direct costs associated with the origination of loans are
deferred and netted against outstanding loan balances. The deferred net loan
fees and costs are recognized in interest income as an adjustment to yield over
the loan term using a method similar to the effective interest method.

In determining whether a loan is impaired or not, the Bank applies its normal
loan review procedures. A loan is impaired when it is probable that the Bank
will be unable to collect all amounts due (principal and interest) according to
the contractual terms of the loan agreement. Loans for which an insignificant
shortfall in amount of payments is anticipated, but the Bank expects to collect
all amounts due, are not considered impaired.

The Bank measures impairment on a loan by loan basis using either the present
value of expected future cash flows discounted at the loan's effective interest
rate or, as an expedient, at the fair value of the collateral if the loan is
collateral dependent, less costs to sell. Consumer loans and other homogeneous
smaller balance loans are reviewed on a collective basis for impairment.

ALLOWANCE FOR CREDIT LOSSES--The allowance for credit losses is established
through a provision for credit losses. Loans are charged against the allowance
for credit losses when management believes that the collection of the carrying
amount is unlikely. The allowance is maintained at a level that management
believes will be adequate to absorb inherent losses on existing loans based on
the evaluation of the collectibility of loans and prior loan loss experience.
The evaluations take into consideration such factors as changes in the nature
and volume of the portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay.

The allowance is based on estimates and ultimate losses may vary from the
current estimates. These estimates are reviewed periodically and, as adjustments
become necessary, they are reported in earnings in the periods in which they
become known. In addition, the Federal Reserve Bank and California Department of
Financial Institutions, as an integral part of their examination processes,
periodically review the Bank's allowance for credit losses. The agencies may
require the Bank to recognize

F-81
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

additions to the allowance based on their judgments on information available at
the time of their examinations.

TROUBLED DEBT RESTRUCTURED--A loan is considered "troubled debt restructured"
when the Bank provides the borrower certain concessions that it would not
normally consider. The concessions are provided with the objective of maximizing
the recovery of the Bank's investment. Troubled debt restructures include
situations in which the Bank accepts a note (secured or unsecured) from a third
party in payment of its receivable from the borrower, other assets in payment of
the loan, an equity interest in the borrower in lieu of its receivable, or a
modification of the terms of the debt including, but not limited to: (i) a
reduction in the stated interest rate, (ii) an extension of the maturity date at
a stated interest rate lower than the current market for new debt with similar
risks or other terms below market, (iii) a reduction in the face amount of the
debt, and/or (iv) a reduction in the accrued interest.

SALE OF LOANS--From time to time, the Bank sells the guaranteed portion of Small
Business Administration loans to provide funds for additional lending and to
generate servicing income. Under such agreements, the Bank continues to service
the loans and the buyer receives the principal collected together with interest.
Loans held for sale are valued at the lower of cost or market value. At
December 31, 1998, the Bank's management does not have any intent to sell loans,
and therefore, no loans are held for sale. Any inherent risk of loss on loans is
transferred to the buyer at the date of sale on the portion of the loan sold.
However, the Bank maintains the risk on the portion retained.

The Bank issues various representations and warranties associated with the sale
of loans. These representations and warranties may require the Bank to
repurchase loans for a period of 90 days after the date of sale under certain
agreements. The Bank experienced no losses associated with the loans sold during
the years ended December 31, 1998, 1997 and 1996 regarding these representations
and warranties.

OTHER REAL ESTATE OWNED--Other real estate owned represents real estate acquired
through foreclosure and is recorded at fair value at the time of foreclosure.
Loan balances in excess of fair value of the real estate acquired at the date of
foreclosure are charged against the allowance for credit losses. After
foreclosure, valuations are periodically performed by management and real estate
is carried at the lower of carrying value or fair value less costs to sell. Any
subsequent operating expenses or income, reduction in estimated values, and
gains or losses on disposition of such properties are charged to current
operations. Revenue recognition upon disposition of the property is dependent on
the sale having met certain criteria relating to the buyer's initial investment
in the property sold.

Rates of depreciation and amortization are based on the following estimated
useful lives: furniture and equipment, three to six years; leasehold
improvements, the shorter of the useful life or the term of the lease.
Expenditures for maintenance and repairs are expensed as incurred, while major
improvements that extend the estimated useful life of an asset are capitalized.
Upon the sale or retirement of assets, the accounts are relieved of the cost and
related accumulated depreciation and amortization, and any resultant gain or
loss is recognized.

F-82
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SALES OF LOAN SERVICING RIGHTS--Gains or losses from sales of servicing rights
are recognized when the Bank has received an adequate down payment and title and
all risks and rewards have irrevocably been passed to the buyer.

During 1994, PIB Mortgage sold its remaining mortgage servicing rights to a
third party in a bulk sale. Under the terms of the sale agreement, fifteen
percent of the purchase price, or approximately $1,300,000, was withheld by the
purchaser, payment of which was due on October 1, 1996. The withholding was
subject to certain charges by the purchaser, in the event that a serviced loan
is found to have been improperly underwritten and is subsequently identified as
impaired. If such a loan underwriting defect is discovered, the Bank could be
required to repurchase the loan or to reimburse the purchaser for any losses
incurred through a charge against the withholding. During 1998, the Bank
repurchased four loans totaling approximately $478,000, net of charge-offs. As a
result of the repurchase, the Bank is no longer obligated to repurchase
additional loans under the terms of the agreement with the third party. At
December 31, 1998, the remaining withholding amount refunded to the Bank upon
repurchase of the loans during 1998 amounted to $24,000.

INCOME TAXES--The Bank records income taxes under the asset and liability
method. Income tax expense is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year 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
rates is recognized in income in the period that includes the enactment date.
Recognition of deferred tax assets is based on management's belief that it is
more likely than not that the tax benefit associated with certain temporary
differences, tax operating loss carryforwards, and tax credits will be realized.
A valuation allowance is recorded for those deferred tax items for which it is
more likely than not that realization will not occur.

ACCOUNTING FOR STOCK-BASED COMPENSATION--The Bank accounts for its stock option
plans under Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
These standards include the recognition of compensation expense over the vesting
period of the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also permits entities to continue to apply the
provision of Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and provide pro forma net earnings (loss) and pro
forma net earnings (loss) per share disclosures as if the fair value based
method defined in SFAS No. 123 had been applied. The Bank has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure requirements of SFAS No. 123 in the footnotes to its audited
consolidated financial statements (see Note 12 to the consolidated financial
statements).

EARNINGS (LOSS) PER SHARE--Basic earnings (loss) per share exclude the effect of
all potentially dilutive securities and is computed by dividing income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock, or resulted from issuance of
common stock that then shared in earnings (see Note 14 to the consolidated
financial statements).

F-83
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Potential common shares (in this case the vested portion of the stock options
granted and conversion of outstanding debentures--see Note 13) are not included
in the denominator of the diluted per share computation when the entity has a
loss from continuing operations. Thus, the diluted loss per share is the same as
the basic loss per share amount of $(0.19) and $(2.83) for 1997 and 1996,
respectively.

COMPREHENSIVE INCOME (LOSS)--Effective January 1, 1998, the Bank adopted SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. Under the provisions of SFAS No. 130,
an entity that provides a full set of financial statements is required to report
comprehensive income (loss) in the presentation of its financial statements. The
term "comprehensive income" describes the total of all components of
comprehensive income, including net income (loss). "Other comprehensive income"
refers to revenues, expenses, and gains and losses that are included in
comprehensive income (loss) but are excluded from net income (loss) as they have
been recorded directly in equity under the provisions of other statements issued
by the Financial Accounting Standards Board. The Bank presents the comprehensive
income (loss) disclosure as a part of the consolidated statements of changes in
stockholders' equity by identifying each element of other comprehensive income
(loss), including net income (loss). All comparative consolidated financial
statements presented reflect the application of the provisions of SFAS No. 130.

SEGMENT REPORTING--Effective January 1, 1998, the Bank adopted SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. This
statement establishes standards for reporting information about operating
segments in annual financial statements and disclosures about products and
services, geographic areas and major customers related to the reportable
operating segments. The Bank operates a single line of business (commercial
banking) and manages its operation under an unified management and reporting
structure, and therefore, no separate segment disclosures are provided.

RELATED PARTY TRANSACTIONS--The Bank has entered into certain related party
transactions with its majority stockholder and affiliates in the normal course
of business. These transactions are conducted at market terms.

RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, SFAS No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, was issued and is effective for
fiscal years beginning after June 15, 1999. SFAS No. 133 requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value of cash flows. Management of the Bank
does not believe the statement will have a material impact on the Bank's results
of operations or financial position when adopted. The Bank has not engaged in
any hedging transactions and does not foresee doing so in the near future.

In October 1998, SFAS No. 134, ACCOUNTING FOR MORTGAGE-BACKED SECURITIES
RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE
BANKING ENTERPRISE, was issued and is effective for the first fiscal quarter
beginning after December 15, 1998. SFAS No.134 requires that after
securitization of mortgage loans held for sale, the resulting mortgage-backed
securities and other retained interests should be classified in accordance with
SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,
based on the Bank's ability and intent to sell or hold those

F-84
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

investments. Management of the Bank does not believe the statement will have a
material impact on the Bank's results of operations or financial position when
adopted.

RECLASSIFICATIONS--Certain amounts have been reclassified in the prior periods
to conform with the consolidated financial statement presentation for the
current period.

2. CASH, DUE FROM BANKS AND MONEY MARKET MUTUAL FUND

At December 31, 1998 and 1997, cash, due from banks and money market mutual
fund are composed of the following:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and due from banks..................................... $ 928 $1,665
Money market mutual fund.................................... 5,000
------ ------
$5,928 $1,665
====== ======
</TABLE>

The Bank is required to maintain reserve balances in cash with the Federal
Reserve Bank. The average reserve balance was approximately $254,000 and $30,000
for 1998 and 1997, respectively.

3. INVESTMENT SECURITIES

The following table summarizes the Bank's investment securities as of
December 31, 1998:

<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED GROSS GROSS FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Classified as available for sale:
U.S. and its agencies.............. $ 100 $35 $-- $ 135
Municipal obligations.............. 487 487
------ --- --- ------
Total available for sale........... 587 35 622
------ --- --- ------
Classified as held to maturity--
U.S. and its agencies.............. 2,996 10 3,006
------ --- --- ------
Total held to maturity............. 2,996 10 3,006
------ --- --- ------
Total............................ $3,583 $45 $-- $3,628
====== === === ======
</TABLE>

F-85
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. INVESTMENT SECURITIES (CONTINUED)

The following table summarizes the Bank's investment securities as of
December 31, 1997:

<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED GROSS GROSS FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Classified as available for sale:
U.S. and its agencies.............. $ 301 $ 2 $ 299
Municipal obligations.............. 482 $22 504
------ --- --- ------
Total available for sale......... 783 22 2 803
------ --- --- ------
Classified as held to maturity--
U.S. and its agencies.............. 3,000 3,000
------ --- --- ------
Total held to maturity........... 3,000 3,000
------ --- --- ------
Total............................ $3,783 $22 $ 2 $3,803
====== === === ======
</TABLE>

At December 31, 1998, investment securities available for sale with a carrying
value of approximately $522,000 were pledged with the State Treasurer's Office
to secure trust powers associated with the sale of the Bank's trust department
to Imperial Trust Company in 1994.

The contractual maturities of investment securities as of December 31, 1998, are
shown below. Expected maturities may differ from contractual maturities:

4. SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

The Bank purchases securities under agreements to resell substantially
identical securities. At December 31, 1998, securities purchased under
agreements to resell amounted to $5,000,000. During 1998, the maximum month-end
amount outstanding was $5,000,000 and the average balance outstanding was
$4,567,000. The average interest rate during 1998 and average rate at
December 31, 1998, were 5.83% and 5.82%, respectively.

The amounts advanced under these agreements were collateralized by short-term
whole loans and are reflected as an asset in the consolidated balance sheets.
During 1998, the securities were maintained at a third party custodian's account
designated by the Bank under a written custodial agreement that explicitly
recognizes the Bank's interest in the securities. At December 31, 1998, these
agreements will mature within 90 days and no material amount of agreements to
resell securities was outstanding with any individual dealer.

F-86
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at December 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans......................................... $10,936 $ 6,131
Commercial loans.......................................... 10,059 9,243
Consumer loans............................................ 4,742 5,852
Small Business Administration loans....................... 555 930
Other loans............................................... 25 17
------- -------
26,317 22,173
Deferred loan fees........................................ (46) (55)
Allowance for credit losses............................... (801) (1,013)
------- -------
Loans, net................................................ $25,470 $21,105
======= =======
</TABLE>

Activities in the allowance for credit losses for the years ended December 31,
1998, 1997 and 1996 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year.......................... $1,013 $1,272 $1,758
Provision for credit losses......................... 323 380 45
Charge-offs......................................... (682) (669) (544)
Recoveries.......................................... 147 30 13
------ ------ ------
Balance, end of year................................ $ 801 $1,013 $1,272
====== ====== ======
</TABLE>

The Bank grants commercial, real estate and consumer loans to customers
throughout the Southern California area. Although the Bank has a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the real estate market in Southern California.
Should the real estate market experience an overall decline in property values
and should other events occur, including, but not limited to, adverse economic
conditions (which may or may not affect real property values), the ability of
borrowers to make timely scheduled principal and interest payments on the Bank's
loans may be adversely affected, and in turn may result in increased
delinquencies and foreclosures. In the event of foreclosures under such
conditions, the value of the property acquired may be less than the appraised
value when the loan was originated and may, in some instances, result in
insufficient proceeds upon disposition to recover the Bank's investment in the
foreclosed property.

At December 31, 1998 and 1997, the Bank was servicing approximately $1,623,000
and $2,351,000, respectively, of Small Business Administration loans on behalf
of third party investors.

Nonaccrual loans amounted to approximately $1,654,000 and $415,000 at
December 31, 1998 and 1997, respectively. If nonaccrual loans had been current
throughout their terms, interest income would have increased by approximately
$162,000 and $193,000 for the years ended December 31, 1998 and 1997,
respectively. Loans with principal more than 90 days past due and still accruing
amounted to approximately $14,000 at December 31, 1997. At December 31, 1998 and
1997, the Bank had restructured loans of approximately $203,000 and $663,000,
respectively, all of which were in compliance with the modified terms and the
balances were current.

F-87
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

At December 31, 1998 and 1997, loans that were considered impaired totaled
$540,000 and $415,000, respectively, which had a related allowance for credit
losses aggregating $81,000 and $85,000, respectively. Substantially all of the
impaired loans were collateral dependent and were measured using the fair value
of the collateral. For the years ended December 31, 1998 and 1997, the Bank
recognized interest income on these impaired loans of $123,000 and $11,000,
respectively. The average outstanding principal balance of impaired loans for
the years ended December 31, 1998 and 1997 was $543,000 and $451,000,
respectively.

6. OTHER REAL ESTATE OWNED

Other real estate owned ("OREO") consists of properties located primarily in
Southern California. The balance of OREO is composed of the following at
December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Other real estate owned, at cost............................ $372 $ 902
Allowance to reduce to fair value after selling costs....... (338)
---- -----
Other real estate owned, net................................ $372 $ 564
==== =====
</TABLE>

Included in the balance of OREO is a loan that was made in 1997 to facilitate
the sale of an OREO property. The carrying value of the loan was $205,000 and
$268,000 at December 31, 1998 and 1997, respectively. The loan was classified as
an OREO property due to a contingent liability on performance bonds of $249,000.
The reported balance is reduced by principal and interest payments received on
the loan.

A summary of the activity in the valuation allowance for the years ended
December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.................................. $ 338 $ 1,022
Effects of quasi-reorganization............................. (1,022)
Provision charged to operating expenses..................... 338
Charge-offs................................................. (338)
----- -------
Balance, end of year........................................ $ -- $ 338
===== =======
</TABLE>

7. PREMISES AND EQUIPMENT

The major classes of premises and equipment at December 31, 1998 and 1997
are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $ 191 $ 189
Furniture and equipment..................................... 483 482
----- -----
674 671
Accumulated depreciation and amortization................... (211) (103)
----- -----
Premises and equipment, net................................. $ 463 $ 568
===== =====
</TABLE>

F-88
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. PREMISES AND EQUIPMENT (CONTINUED)

The depreciation and amortization costs included in occupancy expense were
$143,000, $103,000 and $151,000 for the years ended December 31, 1998, 1997 and
1996, respectively.

8. DEPOSITS

At December 31, 1998 and 1997, deposits are summarized with balance by
category as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Demand deposit accounts................................... $19,744 $ 9,553
Savings accounts.......................................... 744 652
Money market accounts..................................... 13,973 10,098
Time certificates of deposit under $100,000............... 4,440 9,141
Time certificates of deposit of $100,000 and over......... 8,523 7,224
------- -------
Total................................................... $47,424 $36,668
======= =======
</TABLE>

Time certificates of deposit accounts are scheduled to mature as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Within one year........................................... $12,938 $16,354
Within two years.......................................... 25 11
------- -------
Total................................................... $12,963 $16,365
======= =======
</TABLE>

9. RELATED PARTIES

As part of its normal banking activities, the Bank has extended credit to
various of its directors and officers. In the opinion of management, all such
transactions are on terms similar to those of transactions with nonaffiliated
parties. The following is a summary of such loans for the years ended
December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.................................. $279 $291
Loans granted or renewed.................................... 406 120
Repayments.................................................. (489) (132)
---- ----
Balance, end of year........................................ $196 $279
==== ====
</TABLE>

The Bank participated in loans with one of its affiliates during 1998, for which
the servicing of these loans was performed by the Bank's affiliate. The Bank's
share of the outstanding principal balance on the participation loans at
December 31, 1998 amounted to $757,000. In 1998, the Bank also engaged in
certain activities with its holding company and majority stockholder, CFB, and
other affiliates. These activities included services provided to its holding
company and affiliates such as shared accounting, payroll and note department
services, which resulted in a reduction of the Bank's salaries and related
expenses of $44,000 for the year ended December 31, 1998 due to reallocation of
those costs to the

F-89
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RELATED PARTIES (CONTINUED)

respective affiliates. At December 31, 1998, a balance of $28,000 is due from
the Bank's holding company and its affiliates for services extended by the Bank.
In addition, the Bank held $1,853,000 in noninterest-bearing deposits and
$368,000 in interest-bearing deposits belonging to the Bank's holding company
and other affiliates at December 31, 1998.

From time to time, the Bank benefits from agreements entered into by its holding
company. The Board of Directors approves all agreements prior to final
acceptance by the holding company. At December 31, 1998, the Bank was obligated
to pay $24,000 to CFB for various operating expenses related to the agreements
mentioned above, which CFB previously paid on the Bank's behalf. For the year
ended December 31, 1998, total related costs incurred and included in
noninterest expense amounted to $61,000. The accompanying consolidated financial
statements may not necessarily be indicative of the conditions that would have
existed or the results of operations that would have been achieved if the Bank
had operated without such affiliates.

10. LEASE OBLIGATIONS

The Bank leases administrative and office space under certain non-cancelable
operating leases. Rental expense was $66,000, $78,000 and $210,000 in 1998, 1997
and 1996, respectively, and is included in occupancy and premises and equipment
expense. As of December 31, 1998, future minimum rental payments required under
operating leases that have initial or remaining lease terms in excess of one
year are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------ (IN THOUSANDS)
<S> <C>
1999........................................................ $ 69
2000........................................................ 76
2001........................................................ 83
----
$228
====
</TABLE>

11. INCOME TAXES

Income tax expense for the years ended December 31, 1998 and 1997 consists
of the following:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current provision:
Federal.................................................. $16
State.................................................... 1 $ 2 $ 2
--- --- ---
Total.................................................. $17 $ 2 $ 2
=== === ===
</TABLE>

F-90
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)

The components of the deferred income tax assets at December 31, 1998 and 1997
are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Provision for credit losses............................. $ 171 $ 274
Depreciation............................................ (40) (40)
Accrued expenses........................................ 40 10
OREO writedown.......................................... 135 135
Other................................................... 56 32
Net operating loss carryforward......................... 1,282 1,285
------- -------
1,644 1,696
Valuation allowance....................................... (1,644) (1,696)
------- -------
Deferred income tax assets................................ $ -- $ --
======= =======
</TABLE>

A reconciliation of the statutory federal income tax provision at the expected
statutory rate compared to the actual income tax provision is as follows
(dollars in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense (benefit)............. $167 34.0 % $(610) (34.0)% $(914) (34.0)%
State income taxes, net of federal income
tax benefit.............................. 35 7.1 % (106) (6.0)% 200 7.0 %
Recovery from the Department of
Transportation........................... (152) (31.0)%
Assessment of federal taxes for prior
years.................................... 16 3.4 %
Other, net................................. 3 0.4 % 12 1.0 % 43 2.0 %
Valuation allowance........................ (52) (10.4)% 706 39.0 % 669 25.0 %
---- ----- ----- ----- ----- -----
$ 17 3.5 % $ 2 0.0 % $ 2 0.0 %
==== ===== ===== ===== ===== =====
</TABLE>

At December 31, 1998, the Bank had federal and state net operating losses
carryforwards of approximately $3,424,000 and $1,090,000, respectively, which
will expire in the years 2012 and 2002, respectively. Due to the ownership
change which occurred on November 14, 1997 (see Note 1), the annual limitation
on these losses that can be utilized to offset future taxable income is
approximately $228,000.

12. EMPLOYEE BENEFIT PLAN

Effective January 1, 1990, the Bank adopted a Profit Sharing Plan and a
Cafeteria Plan under Sections 401(k) and 125 of the Internal Revenue Code,
respectively. All full-time employees with greater than six months of service
are eligible for participation. Vesting in the Profit Sharing Plan is based on
years of service, with 100% vesting at the end of five full years of service. No
matching contributions were made by the Bank during 1998, 1997 and 1996.

F-91
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. EMPLOYEE BENEFIT PLAN (CONTINUED)

On July 26, 1996, the Board of Directors of the Bank adopted the 1996 Directors'
Stock Option Plan (the "Directors' Plan") and the 1996 Employee Stock Option
Plan (the "Employee Plan") (collectively referred to as the "Plans"). The Plans
provide for the grant of options to non-employee directors and officers and
certain key employees to purchase an aggregate of 1,074,080 and 2,148,160
shares, respectively, of the Bank's common stock, with an exercise price of not
less than 100 percent of the fair market value of the Bank's common stock at
date of grant. Options will generally expire either five or ten years from the
date of grant.

The following is a summary of stock option transactions:

The estimated fair value of options granted during 1998 and 1997 was $0.11 and
$0.40, respectively, per share.

The Bank applies APB No. 25 and related Interpretations in accounting for the
Plans. Accordingly, no compensation cost has been recognized for the Plans. Had
compensation cost for the Plans been determined based on the fair value at the
grant dates for awards under the Plans, the Bank's net income (loss) and income
(loss) per share for the years ended December 31, 1998 and 1997 would have been
reduced (increased) to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss):
As reported............................................... $ 473 $(1,796)
Pro forma................................................. $ 447 $(1,825)
Basic and diluted earnings (loss) per share:
As reported............................................... $0.03 $ (0.19)
Pro forma................................................. $0.03 $ (0.20)
</TABLE>

F-92
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. EMPLOYEE BENEFIT PLAN (CONTINUED)

option-pricing model with the following weighted average assumptions used: no
dividend yield; a volatility of 15% for 1998 and no volatility for 1997; a
risk-free interest rate of 6.50% for 1998 and 6.64% for 1997; and an average
expected life of five years.

13. COMMON STOCK AND ACCUMULATED DEFICIT

Under a plan approved by the stockholders and the regulators, the Bank
effected a quasi-reorganization as of January 1, 1997. Under the plan, the
accumulated deficit of $11,639,000 was eliminated against additional paid-in
capital and all valuation allowances were reduced to zero as part of the
quasi-reorganization.

During 1996, Pacific Inland Bancorp raised $1,030,000 of net capital through the
issuance of convertible debentures issued by Pacific Inland Bancorp. These
debentures mature in five years from the issuance date, have an interest rate of
12%, and can be redeemed by cash payment upon regulatory approval or converted
into the Bank's common stock. As of December 31, 1998, no debentures have been
converted to Bank common stock.

14. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per share were computed by dividing net
income (loss) by the weighted average number of shares of common stock
outstanding during the year.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC AND DILUTED EARNINGS PER SHARE--
Income available to common stockholders................. $473,000 16,865,800 $ 0.03
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE--
Loss available to common stockholders.................. $(1,796,000) 9,241,779 $(0.19)
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE--
Loss available to common stockholders.................. $(2,682,000) 948,954 $(2.83)
</TABLE>

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
active market exists for a significant

F-93
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

portion of the Bank's financial instruments, fair value estimates are based on
judgments regarding current economic conditions, risk characteristics of various
financial instruments, prepayment assumptions, future expected loss experience
and other such factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.

The following methods and assumptions were used to estimate the fair values of
financial instruments:

The Bank's balance sheet includes the following financial instruments: cash, due
from banks, money market mutual fund, federal funds sold and securities
purchased under agreements to resell, interest-bearing deposits with other
banks, investment in Federal Reserve Bank stock, accrued interest receivable and
accrued interest payable. The Bank considers the carrying amounts of these
instruments in the consolidated financial statements to approximate the fair
value for these financial instruments because of the relatively short period of
time between origination of the instruments and their expected realization for
current items, and the yields on long-term notes reflect estimated current
market yields.

F-94
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The estimated fair values of the Bank's financial instruments at December 31,
1998 are as follows:

<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash, due from banks and money market mutual fund..... $ 5,928 $ 5,928 $ 1,665 $ 1,665
Federal funds sold and securities purchased under
agreements to resell................................ 13,539 13,539 10,425 10,425
Interest-bearing deposits with other banks............ 2,298 2,298 1,999 1,999
Investment securities available for sale.............. 622 622 803 803
Investment securities held to maturity................ 2,996 3,006 3,000 3,000
Investment in Federal Reserve Bank stock.............. 191 191 93 93
Loans receivable...................................... 26,271 26,133 22,118 22,097
Accrued interest receivable........................... 229 229 243 243

Financial liabilities:..................................
Deposits.............................................. $47,424 $47,441 $36,668 $36,685
Accrued interest payable.............................. 52 52 31 31

Off-balance-sheet liabilities:
Commitments to extend credit.......................... $ 4,114 $ 3,776
Standby letters of credit............................. 50
</TABLE>

16. COMMITMENTS AND CONTINGENCIES

The Bank is a defendant in various litigation matters arising in the normal
course of business. In the opinion of management, after consultation with legal
counsel, the ultimate outcome of such litigation or any other contingencies
would not have a material effect on the Bank's financial position or results of
operations.

The Bank was a defendant in an eminent domain proceeding filed by the State of
California's Department of Transportation (the "State"). The State sought to
acquire real property leased by the Bank that was used as its headquarters
office facility. In 1998, the Bank received $369,000, net of legal, accounting,
and consulting fees associated with this case, as compensation for its property
interest in the building, which is included as a recovery from the Department of
Transportation in the accompanying consolidated statements of operations.

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

The Bank's exposure to credit loss in the event of non-performance by other
parties to the financial instrument for these commitments is represented by the
contractual amounts of those instruments.

F-95
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Commitments generally
have fixed expiration dates; however, since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. The Bank's commitment to extend credit
and standby letters of credit are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commitment to extend credit................................. $4,114 $3,776
Standby letters of credit................................... 50
</TABLE>

The Bank had a $1,000,000 unsecured credit line with another bank at
December 31, 1998 and 1997. The line is intended to support short-term
liquidity. There were no borrowings outstanding against this line as of
December 31, 1998 and 1997.

17. REGULATORY MATTERS

The Bank as a member of the Federal Reserve System is subject to regulation
by the Federal Reserve Bank ("FRB") and the California Department of Financial
Institutions ("DFI") formerly known as the California State Banking Department
("SBD"). Additionally, the Bank is subject to various regulatory capital
requirements administered by these banking agencies. Failure to meet minimum
capital requirements can result in the initiation of certain mandatory and
possible additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt correction action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification of the Bank are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 1998 and 1997, that the Bank
has met all capital adequacy requirements to which it is subject.

As of December 31, 1998 and 1997, the most recent notification from the
regulatory agencies categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification which management believes have changed the Bank's
category.

F-96
<PAGE>
SECURITY FIRST BANK AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

The Bank's actual capital amounts and ratios are presented, as of December 31,
1998 and 1997, in the following table:

AS OF DECEMBER 31, 1998 (DOLLARS IN THOUSANDS):

AS OF DECEMBER 31, 1997 (DOLLARS IN THOUSANDS):

The Bank received Capital Impairment Orders from the DFI dated February 17,
1995, April 11, 1995, December 1, 1995 and February 8, 1996. The impairments
were cured, with the approval of the DFI, by a readjustment of the Bank's
accounts in a quasi-reorganization, effected as of January 1, 1997. In the
quasi-reorganization, the Bank's accumulated deficit was eliminated by a
corresponding reduction of the Bank's contributed capital (see Note 13).

As a result of examinations of the Bank by the FRB and the DFI during 1992 and
1993, Security First Bank consented to enter into Cease and Desist Orders with
the FRB, the last of which was dated April 26,1994 (the "FRB Orders").
Similarly, the Bank consented to Final Orders with the DFI, the last of which
was dated March 9, 1994 (the "State Orders"). Under the terms of the Orders, the
Bank agreed to take various actions and place restrictions on certain aspects of
its activities.

As of December 31, 1996, the Bank had achieved substantial compliance with the
requirements of the Orders. As of August 4 and November 19, 1997, the State and
FRB Orders were removed, respectively, based upon the Bank's undertaking to
raise additional capital. The Bank satisfied its undertaking to raise additional
capital by the infusion of $2,443,000 on December 31, 1996.

F-97
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
The Bank of Orange County:

We have audited the balance sheet of The Bank of Orange County (the "Bank")
as of December 31, 1998, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audit.

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

In our opinion, the 1998 financial statements referred to above present
fairly, in all material respects, the financial position of the Bank as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Los Angeles, California
February 23, 1999

F-98
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
The Bank of Orange County
Fountain Valley, California

We have audited the balance sheet of The Bank of Orange County (the "Bank") as
of December 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the 1997 financial statements referred to above present fairly,
in all material respects, the financial position of the Bank of Orange County as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

McGladrey & Pullen LLP
Pasadena, California
February 6, 1998

F-99
<PAGE>
THE BANK OF ORANGE COUNTY

BALANCE SHEETS

DECEMBER 31, 1998 AND 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS

Cash and due from banks..................................... $ 7,226 $ 6,423
Federal funds sold.......................................... 27,500 8,000
-------- -------
Total cash and cash equivalents......................... 34,726 14,423

Interest-bearing deposits in other financial institutions... 1,976 1,976
Investment securities available for sale (Note 2)........... 20,275 17,288
Loans receivable, net of allowance of $903 and $737 as of
December 31, 1998 and 1997, respectively (Notes 3 and
6)........................................................ 42,137 37,212
Cash surrender value of life insurance (Note 12)............ 2,224 962
Premises and equipment, net (Note 4)........................ 306 386
Income taxes receivable..................................... 137
Deferred income tax assets, net (Note 8).................... 538 364
Accrued interest receivable................................. 490 452
Prepaid expenses and other assets........................... 213 306
-------- -------
TOTAL....................................................... $103,022 $73,369
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Noninterest-bearing deposits (Notes 5, 6 and 16).......... $ 61,182 $35,236
Interest-bearing deposits (Notes 5 and 6)................. 32,171 29,902
-------- -------
Total deposits.......................................... 93,353 65,138

Accrued interest payable.................................. 108 77
Salary continuation plan liability (Note 12).............. 1,260 175
Other liabilities......................................... 572 451
-------- -------
Total liabilities....................................... 95,293 65,841

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' EQUITY:
Common stock - no par value; 1,200,000 shares authorized;
346,372 and 337,663 shares issued and outstanding as of
December 31, 1998 and 1997, respectively (Notes 10, 11,
13 and 16).............................................. 6,758 6,614
Contributed capital....................................... 643 488
Accumulated other comprehensive income.................... 144 37
Retained earnings since December 1, 1996 ($5,592 deficit
eliminated on November 30, 1996)........................ 184 389
-------- -------
Total stockholders' equity.............................. 7,729 7,528
-------- -------
TOTAL....................................................... $103,022 $73,369
======== =======
</TABLE>

See notes to financial statements.

F-100
<PAGE>
THE BANK OF ORANGE COUNTY

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998 AND 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans, including fees..................................... $3,888 $3,429
Investment securities available for sale.................. 1,203 1,024
Federal funds sold........................................ 717 431
Interest-bearing deposits in other financial
institutions............................................ 114 94
------ ------
5,922 4,978
------ ------
INTEREST EXPENSES:
NOW and money market accounts............................. 436 314
Savings accounts.......................................... 164 151
Time certificates of deposit under $100................... 287 176
Time certificates of deposit $100 and over................ 231 166
Other borrowings.......................................... 18
------ ------
1,118 825
------ ------

NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES...... 4,804 4,153

PROVISION FOR CREDIT LOSSES (NOTE 3)........................ 120 135
------ ------

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES....... 4,684 4,018
------ ------

NONINTEREST INCOME:
Service charges and fees.................................. 409 435
Loan referral fees received from an unrelated bank........ 142 28
Increase in cash surrender value of life insurance........ 121 56
Other real estate owned income, net....................... 15
Gain on sale of SBA loans................................. 51 48
Other operating income.................................... 90 45
------ ------
813 627
------ ------
NONINTEREST EXPENSES:
Salaries and employee benefits (Notes 9 and 16)........... 3,045 1,839
Data and item processing.................................. 862 732
Professional fees (Note 16)............................... 654 336
Occupancy (Notes 4 and 7)................................. 339 261
Equipment (Note 7)........................................ 234 159
Other operating expenses (Notes 6 and 15)................. 705 723
------ ------
5,839 4,050
------ ------

(LOSS) INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE........... (342) 595

INCOME TAX (BENEFIT) EXPENSE (NOTE 8)....................... (137) 223
------ ------
NET (LOSS) INCOME........................................... $ (205) $ 372
====== ======
BASIC (LOSS) EARNINGS PER SHARE (NOTE 11)................... $(0.59) $ 1.16
====== ======
DILUTED (LOSS) EARNINGS PER SHARE (NOTE 11)................. $(0.59) $ 1.05
====== ======
</TABLE>

See notes to financial statements.

F-101
<PAGE>
THE BANK OF ORANGE COUNTY

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1998 AND 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
RETAINED
EARNINGS ACCUMULATED
COMMON STOCK SINCE OTHER
------------------- CONTRIBUTED DECEMBER 1, COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL 1996 INCOME INCOME (LOSS) TOTAL
-------- -------- ----------- ----------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1997.................. 313,917 $6,258 $ 17 $ 91 $6,366
Comprehensive income--
Net income..................... 372 $ 372 372
Other comprehensive loss, net of
tax--Unrealized loss on
investment securities available
for sale, net of tax benefit of
$22............................ (54) (54) (54)
-----
Comprehensive income............. $ 318
=====
Stock options exercised.......... 23,800 368 368
Redemption of fractional shares
from former stockholders of
Orange Bancorp................. (54) (4) (4)
Costs associated with
quasi-reorganization........... (8) (8)
Tax benefit from
quasi-reorganization............. 488 488
-------- ------ ---- ----- ----- ------
BALANCE,
DECEMBER 31, 1997................ 337,663 6,614 488 389 37 7,528
Comprehensive loss--
Net loss....................... (205) $(205) (205)
Other comprehensive income, net
of tax--Unrealized gain on
investment securities available
for sale, net of tax expense of
$71............................ 107 107 107
-----
Comprehensive loss............... $ (98)
=====
Stock options exercised.......... 8,720 146 146
Redemption of fractional shares
from former stockholders of
Orange Bancorp................. (11) (2) (2)
Tax benefit from stock options
exercised...................... 155 155
-------- ------ ---- ----- ----- ------
BALANCE,
DECEMBER 31, 1998................ 346,372 $6,758 $643 $ 184 $ 144 $7,729
======== ====== ==== ===== ===== ======
</TABLE>

See notes to financial statements.

F-102
<PAGE>
THE BANK OF ORANGE COUNTY

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1998 AND 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
NET (LOSS) INCOME........................................... $ (205) $ 372
Cash flows from operating activities:
Provision for credit losses............................... 120 135
Gain on sale of SBA loans................................. (51) (48)
Accretion of discounts on investment securities, net...... (13) (40)
Depreciation and amortization............................. 186 130
Loss from sale of premises and equipment.................. 2
Gain on sale of other real estate owned................... (17)
Changes in operating assets and liabilities:
Income taxes receivable................................... (137)
Deferred income taxes, net................................ (245) 133
Accrued interest receivable............................... (38) (79)
Prepaid expenses and other assets......................... 93 (103)
Accrued interest payable.................................. 31 15
Salary continuation plan liability........................ 1,085 91
Other liabilities......................................... 121 (10)
------- -------
Net cash provided by operating activities............. 947 581
------- -------
Cash flows from investing activities:
Proceeds from sale of SBA loans........................... 623 1,441
Loans originated for sale................................. (572) (1,393)
Net increase in loans..................................... (5,045) (8,167)
Purchases of investment securities available for sale..... (10,000) (7,044)
Proceeds from maturity of investment securities available
for sale................................................ 7,000 5,000
Proceeds from principal collected on investment securities
available for sale...................................... 204 99
Net increase in interest-bearing deposits in other
financial institutions.................................. (399)
Increase in cash surrender value of life insurance........ (1,262) (31)
Purchases of premises and equipment....................... (106) (243)
Proceeds from sale of premises and equipment.............. 10
Proceeds from sale of other real estate owned............. 496
------- -------
Net cash used in investing activities................. (9,158) (10,231)
------- -------
Cash flows from financing activities:
Net increase in deposits.................................. 28,215 11,755
Proceeds from exercise of stock options................... 146 368
Tax benefit from exercise of stock options................ 155
Redemption of fractional shares........................... (2) (4)
Payment of debentures to directors of Orange Bancorp...... (424)
------- -------
Net cash provided by financing activities............. 28,514 11,695
------- -------
Increase in cash and cash equivalents..................... $20,303 $ 2,045
Cash and cash equivalents, beginning of year.............. 14,423 12,378
------- -------
Cash and cash equivalents, end of year.................... $34,726 $14,423
======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES -
Tax benefit from quasi-reorganization..................... $ 488
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 1,087 $ 810
Income taxes paid......................................... $ 130 $ 238
</TABLE>

See notes to financial statements.

F-103
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1998 AND 1997

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Bank of Orange County (the "Bank") has three offices located in Fountain
Valley, Mission Viejo, and Orange, California. The Bank provides a full range of
banking services to individual and corporate customers throughout Southern
California and is subject to competition from other financial institutions. The
Bank predominantly serves professional and small- and medium-sized businesses.
The Bank makes loans to borrowers in a number of different industries, the
largest of which are the residential and commercial real estate development and
medical services industries. The loans are expected to be repaid from cash flows
or proceeds from the sale of selected assets of the borrowers.

The operating results of the Bank are significantly affected by changes in
market interest rates and by fluctuations in real estate values. The Bank is
also regulated by certain federal and state agencies and undergo periodic
examinations by those regulatory authorities.

CASH AND CASH EQUIVALENTS--For the purpose of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks, and federal funds
sold.

The Bank is required to maintain reserve balances in cash with the Federal
Reserve Bank. The average reserve balance was approximately $946,000 and
$817,000 during 1998 and 1997, respectively.

INVESTMENT SECURITIES--Investment securities available for sale are reported
at estimated fair value, with unrealized gains and losses, net of the related
tax effect, excluded from operations and reported as a separate component of
accumulated other comprehensive income in stockholders' equity. Amortization of
premiums and accretion of discounts on debt securities are recorded as yield
adjustments on such securities, using a method similar to the effective interest
method. The specific identification method is used for the purpose of
determining cost in computing realized gains and losses on investment securities
sold.

LOANS RECEIVABLE--Loans receivable, which management has the intent and
ability to hold for the foreseeable future or until maturity, are stated at
their outstanding principal balance, reduced by an allowance for credit losses,
net deferred loan fees or costs on originated loans. Interest on loans is
calculated using the simple interest method on daily balances of the principal
amount outstanding. Accrual of interest is discontinued on a loan when
management believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. Generally, loans are placed on nonaccrual
status when they become 90 days or more past due. When interest accrual is
discontinued, all unpaid accrued interest is reversed against income. Interest
income is subsequently recognized only to the extent cash payments are received
or the loan has been placed back on accrual status when the borrower has
demonstrated the ability to make future payments of principal and interest as
scheduled.

F-104
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

an insignificant shortfall in amount of payments is anticipated, and the Bank
expects to collect all amounts due, are not considered impaired.

The allowance is based on estimates, and ultimate losses may vary from the
current estimates. These estimates are reviewed periodically, and as adjustments
become necessary, they are reported in earnings in the periods in which they
become known. In addition, the California Department of Financial Institutions
("DFI") and Federal Deposit Insurance Corporation ("FDIC"), as an integral part
of their examination processes, periodically review the Bank's allowance for
credit losses. The agencies may require the Bank to make additions to the
allowance based on their judgments on information available to them at the time
of their examinations.

TROUBLED DEBT RESTRUCTURED--A loan is considered "troubled debt
restructured" when the Bank provides the borrower certain concessions that it
would not normally consider. The concessions are provided with the objective of
maximizing the recovery of the Bank's investment. Troubled debt restructures
include situations in which the Bank accepts a note (secured or unsecured) from
a third party in payment of its receivable from the borrower, other assets in
payment of the loan, an equity interest in the borrower in lieu of its
receivable, or a modification of the terms of the debt including, but not
limited to: (i) a reduction in the stated interest rate; (ii) an extension of
the maturity date at a stated interest rate lower than the current market for
new debt with the similar risks or other terms below market; (iii) a reduction
in the face amount of the debt; and/or (iv) a reduction in the accrued interest.

SALE OF LOANS--From time to time, the Bank sells the guaranteed portion of
Small Business Administration ("SBA") loans in the secondary market to provide
funds for additional lending and to generate servicing income. Under such
agreements, the Bank continues to service the loans, and the buyer receives its
pro rata share of principal collected together with interest. The cost allocated
to the servicing rights retained has been recognized as a separate asset and is
amortized in proportion to and over the period of estimated net servicing
income. Servicing rights are periodically evaluated for impairment based on the
fair value of those rights. Fair value is estimated using discounted cash flows
based on current market rates of interest. For purposes of measuring impairment,
the rights must be stratified by one or more predominant risk characteristics of
the underlying loans. The Bank stratifies its capitalized servicing rights based
on the interest rate and balances of the underlying loans. The amount of
impairment recognized is the amount, if any, by which the amortized cost of the
rights for each stratum exceeds their fair value.

F-105
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The gains and losses on sales of loans are calculated on a predetermined
formula in accordance with the Statement of Financial Accounting Standards
("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," based on the difference between the selling
price and the book value of the loans sold.

The Bank issues various representations and warranties associated with the
sale of loans. These representations and warranties may require the Bank to
repurchase loans for a period of 90 days after the date of sale, as defined per
the applicable agreements. The Bank experienced no losses during the years ended
December 31, 1998 and 1997, regarding these representations and warranties.

Loans held for sale are valued at the lower of cost or fair value. At
December 31, 1998, the Bank's management does not have any intent to sell loans,
and therefore, no loans are held for sale.

PREMISES AND EQUIPMENT--Premises and equipment are recorded at cost less
accumulated depreciation and amortization, which is charged to expense on a
straight-line basis over the estimated useful lives of the assets, or in the
case of leasehold improvements, over the terms of the leases, whichever is
shorter. Rates of depreciation and amortization are based on the following
estimated useful lives: furniture and equipment, three to six years; and
leasehold improvements, the shorter of the useful life or the term of the lease.
Expenditures for maintenance and repairs are expensed as incurred, while major
improvements, which extend the estimated useful life of an asset, are
capitalized. Upon the sale or retirement of assets, the accounts are relieved of
the cost and related accumulated depreciation and amortization, and any
resultant gain or loss is recognized.

INCOME TAXES--The Bank records income taxes under the asset and liability
method. Income tax expense is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. Recognition of deferred income tax assets is based on management's belief
that it is more likely than not that the tax benefit associated with certain
temporary differences, tax operating loss carryforwards, and tax credits will be
realized. A valuation allowance is recorded for those deferred tax items for
which it is more likely than not that realization will not occur. At
December 31, 1998 and 1997, no valuation allowance was established against the
deferred income tax assets because management believes it is more likely than
not that the deferred income tax assets will be realized.

F-106
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

LIFE INSURANCE POLICIES--The Bank maintains various insurance policies on
the lives of certain key officers and directors. The increase in cash surrender
value of such policies is recognized as earnings on cash surrender value of life
insurance in the accompanying statements of operations when earned.

ACCOUNTING FOR STOCK-BASED COMPENSATION--SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. These standards include
the recognition of compensation expense over the vesting period of the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also permits entities to continue to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and provide pro forma net earnings (loss) and pro forma net earning
(loss) per share disclosures as if the fair value based method defined in SFAS
No. 123 had been applied. The Bank has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
requirements of SFAS No. 123 in the footnotes to its audited financial
statements (see Note 10).

EARNINGS (LOSS) PER SHARE--Basic earnings (loss) per share exclude the
effect of all potentially dilutive securities and is computed by dividing income
(loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per share reflect the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock, or resulted from the
issuance of common stock that then shared in earnings (see Note 11).

Potential common shares (in this case the vested portion of the stock
options granted) are not included in the denominator of the diluted per share
computation when the entity has a loss from continuing operations. Thus, the
diluted loss per share is the same as the basic loss per share amount of $(0.59)
for 1998 (see Note 11).

COMPREHENSIVE INCOME--Effective January 1, 1998, the Bank adopted SFAS No.
130, "Reporting Comprehensive Income." Under the provisions of SFAS No. 130, an
entity that provides a full set of financial statements is required to report
comprehensive income in the presentation of its financial statements. The term
"comprehensive income" describes the total of all components of comprehensive
income, including net income (loss). "Other comprehensive income" refers to
revenues, expenses, and gains and losses that are included in comprehensive
income but are excluded from net income (loss) as they have been recorded
directly in equity under the provisions of other statements issued by the
Financial Accounting Standards Board. The Bank presents the comprehensive income
disclosure as a part of the statements of changes in stockholders' equity, by
identifying each element of other comprehensive income, including net income
(loss). All comparative financial statements presented reflect the application
of the provisions of SFAS No. 130.

RELATED-PARTY TRANSACTIONS--The Bank has entered into certain related-party
transactions with its directors, officers, and stockholders in the normal course
of business. These transactions are conducted at market terms.

F-107
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value of cash flows. Management of the Bank
does not believe the statement will have a material impact on the Bank's results
of operations or financial position when adopted.

In October 1998, SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," was issued and is effective for the first fiscal quarter
beginning after December 15, 1998. SFAS No. 134 requires that after
securitization of mortgage loans held for sale, the resulting mortgage-backed
securities and other retained interests should be classified in accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," based on the Bank's ability and intent to sell or hold those
investments. Management of the Bank does not believe the statement will have a
material impact on the Bank's results of operations or financial position when
adopted.

RECLASSIFICATIONS--Certain amounts have been reclassified in the prior year
to conform to the financial statement presentation for the current year.

2. INVESTMENT SECURITIES AVAILABLE FOR SALE

The following table summarizes the Bank's investment securities available
for sale as of December 31, 1998:

DECEMBER 31, 1997:
U.S. Treasury securities................... $17,022 $ 66 $ 5 $17,083
Mortgage-backed securities................. 204 1 205
------- ---- --- -------
Total.................................... $17,226 $ 67 $ 5 $17,288
======= ==== === =======
</TABLE>

The contractual maturities of investment securities as of December 31, 1998
are shown below. Expected maturities may differ from contractual maturities.

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less..................................... $ 8,010 $ 8,059
Due after one year through five years....................... 12,025 12,216
------- -------
$20,035 $20,275
======= =======
</TABLE>

F-108
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

2. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)

At December 31, 1998 and 1997, investment securities available for sale with
a total carrying value of approximately $1,530,000 and $1,725,000, respectively,
were pledged by the Bank to secure the Treasury, Tax, and Loan Account.

3. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable at December 31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commercial loans............................................ $21,650 $19,416
Real estate loans........................................... 13,251 9,673
Installment loans........................................... 7,478 8,560
Equity lines of credit...................................... 579 350
Real estate construction loans.............................. 158 27
------- -------
43,116 38,026

Deferred loan fees.......................................... (76) (77)
Allowance for credit losses................................. (903) (737)
------- -------
Loans receivable, net....................................... $42,137 $37,212
======= =======
</TABLE>

At December 31, 1998 and 1997, the Bank was servicing approximately
$1,905,000 and $1,609,000 of SBA loans on behalf of third-party investors,
respectively.

Activities in the allowance for credit losses for the years ended
December 31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.................................. $ 737 $ 781
Provision for credit losses................................. 120 135
Charge-offs................................................. (169) (223)
Recoveries.................................................. 215 44
----- -----
Balance, end of year........................................ $ 903 $ 737
===== =====
</TABLE>

The Bank grants commercial, real estate, and consumer loans to customers
throughout Southern California. Although the Bank has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent upon the real estate market in Southern California.
Should the real estate market experience an overall decline in property values
and should other events occur, including, but not limited to, adverse economic
conditions (which may or may not affect real property values), the ability of
borrowers to make timely scheduled principal and interest payments on the Bank's
loans may be adversely affected and, in turn, may result in increased
delinquencies and foreclosures. In the event of foreclosures under such
conditions, the value of the property acquired may be less than the appraised
value when the loan was originated and may, in some instances, result in
insufficient proceeds upon disposition to recover the Bank's investment in the
foreclosed property.

F-109
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

3. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES (CONTINUED)

Nonaccrual loans amounted to approximately $120,000 at December 31, 1997. If
nonaccrual loans had been current throughout their terms, interest income would
have increased by an immaterial amount for the year ended December 31, 1997.
There were no nonaccrual loans outstanding at December 31, 1998.

At December 31, 1998, the Bank had one impaired loan outstanding amounting
to $22,000, which had a related allowance for credit losses of $5,000. The
impaired loan was collateral-dependent and was measured using the fair value of
the collateral. For the year ended December 31, 1998, the Bank recognized
interest income on this impaired loan of $3,000. The average outstanding
principal balance of impaired loans for the year ended December 31, 1998 was
$26,000. There were no impaired loans as of December 31, 1997.

4. PREMISES AND EQUIPMENT

The major classes of premises and equipment at December 31, 1998 and 1997
are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $ 406 $ 406
Furniture and equipment..................................... 1,124 1,081
Automobiles................................................. 17 17
------- -------
1,547 1,504
Accumulated depreciation and amortization................... (1,241) (1,118)
------- -------
Premises and equipment, net................................. $ 306 $ 386
======= =======
</TABLE>

The depreciation and amortization costs included in occupancy expense in the
accompanying statements of operations were $186,000 and $130,000 for the years
ended December 31, 1998 and 1997, respectively.

5. DEPOSITS

At December 31, 1998 and 1997, deposits are summarized with balance by
category as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Demand deposit accounts..................................... $61,182 $35,236
NOW and money market accounts............................... 17,155 17,272
Savings accounts............................................ 3,956 4,244
Time certificates of deposit under $100,000................. 6,347 4,405
Time certificates of deposit of $100,000 and over........... 4,713 3,981
------- -------
Total....................................................... $93,353 $65,138
======= =======
</TABLE>

F-110
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

5. DEPOSITS (CONTINUED)

At December 31, 1998 and 1997, time certificates of deposit accounts are
scheduled to mature as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Within one year............................................. $10,113 $ 7,854
Within two years............................................ 885 532
Within three years..........................................
Within four years........................................... 12
Within five years...........................................
Thereafter.................................................. 50
------- -------
Total....................................................... $11,060 $ 8,386
======= =======
</TABLE>

6. RELATED PARTIES

As part of its normal banking activities, the Bank has extended credit to
various of its directors and officers. In the opinion of management, all such
transactions are on terms similar to those of transactions with nonaffiliated
parties. Following is a summary of such loans for the years ended December 31,
1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.................................. $15 $17
Loans granted or renewed.................................... 2
Repayments.................................................. (6) (4)
--- ---
Balance, end of year........................................ $ 9 $15
=== ===
</TABLE>

Deposits from directors, officers, and principal stockholders of the Bank
and their related business interests totaled approximately $4,160,000 and
$2,750,000 at December 31, 1998 and 1997, respectively.

As a result of the 1996 merger of the Bank and its former holding company,
Orange Bancorp (the "Bancorp"), whereby the Bancorp merged with and into the
Bank with the Bank remaining as the surviving entity, the Bank assumed
debentures with an interest rate of 8% per annum and a call provision of 133% of
face value of the debentures plus any accrued interest unpaid. The debentures,
which were due to former directors of the Bancorp, were redeemed in full by the
Bank at 133% of the face value during 1997, and the resulting premium of
$140,000 was charged to operations in 1997.

7. LEASE OBLIGATIONS

The Bank leases administrative and office spaces and certain office
equipment under noncancelable operating leases. Rental expense was $266,000 and
$256,000 for the years ended December 31, 1998 and 1997. Sublease rental income,
for which the related lease was terminated in 1997, was $82,000 for the year
ended December 31, 1997.

F-111
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

7. LEASE OBLIGATIONS (CONTINUED)

As of December 31, 1998, future minimum rental payments required under the
operating leases that have a remaining lease term in excess of one year are
summarized below:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1999...................................................... $243
2000...................................................... 275
2001...................................................... 125
2002...................................................... 45
----
$688
====
</TABLE>

8. INCOME TAXES

Income tax (benefit) expense for the years ended December 31, 1998 and 1997
consists of the following:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current provision:
Federal................................................... $ 89 $ 34
State..................................................... 19 56
----- -----
108 90
----- -----

Deferred (benefit) provision:
Federal................................................... (205) 127
State..................................................... (40) 6
----- -----
(245) 133
----- -----
Total....................................................... $(137) $ 223
===== =====
</TABLE>

F-112
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

8. INCOME TAXES (CONTINUED)

The components of the deferred income tax assets and liability at
December 31, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Provision for credit losses............................... $148 $ 88
Accrued expenses.......................................... 154 188
Deferred rent............................................. 46 34
Depreciation.............................................. 32 36
Accrued legal expenses.................................... 7 7
Tax credits............................................... 35
Net operation loss carryforwards.......................... 226
Other..................................................... (14) 36
---- ----
Deferred income tax assets.................................. 634 389
Deferred income tax liability -
Unrealized gain on investment securities available for
sale...................................................... (96) (25)
---- ----
Deferred income tax assets, net........................... $538 $364
==== ====
</TABLE>

A reconciliation of the statutory federal income tax (credit) provision at
the expected statutory rate compared to the actual income tax (credit) provision
for the years ended December 31, 1998 and 1997 is presented as follows:

<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Expected tax (benefit) expense at statutory rate............ $(120) (35)% $ 208 35%
State income taxes, net of federal income tax benefit....... (17) (5)% 42 7%
Change in valuation allowance............................... (662) (111)%
Quasi-reorganization........................................ 488 82%
Net operating loss reduction................................ 86 14%
Expiration of tax credits................................... 60 10%
Other....................................................... 1 1%
----- ---- ----- -----
$(137) (40)% $ 223 38%
===== ==== ===== =====
</TABLE>

9. EMPLOYEE BENEFIT PLAN

The Bank has a defined contribution retirement plan (the "401(k) Plan"),
which meets the requirements of Section 401(k) of the Internal Revenue Code and
covers substantially all employees who elect to participate. The Bank's
contributions represent a discretionary amount determined each year by the Bank
and a matching contribution based on participant contributions which generally
is $0.50 to each $1.00 and not to exceed 6% of the participant's contribution.
The 401(k) Plan's assets consist principally of marketable securities and mutual
funds. The Bank contributed $34,000 and $29,000 to the 401(k) Plan during each
of the years ended December 31, 1998 and 1997, respectively.

F-113
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

10. STOCK OPTION PLAN

The Bank adopted the 1994 Stock Option Plan (the "Plan"), which provides for
granting of stock options to key directors, officers, and employees to purchase
shares of the common stock of the Bank with an exercise price not less than the
fair market value of the common stock at the grant date. Options granted under
the Plan may be either incentive stock options or nonqualified stock options.
The Plan is administered by the Board of Directors of the Bank. Options vest at
20% upon grant and 20% per year thereafter, and expire five years from the grant
date. In the event of a business combination whereby the Bank becomes a
subsidiary of another corporation, which shall be deemed to have occurred if the
corporation owns directly or indirectly over 80% of the aggregate voting power
of all outstanding common stock of the Bank, all outstanding options granted
pursuant to the Plan shall completely vest and become immediately exercisable.
At December 31, 1998 and 1997, the Bank has a total of 122,000 common shares
authorized for grants of stock options covered under the Plan.

The following is a summary of stock option transactions for the years ended
December 31, 1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES PRICE SHARES SHARES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year......................... 89,200 $16.74 44,000 $ 13.88
Granted.................................................. 4,000 32.50 69,000 18.13
Exercised................................................ (8,720) 16.80 (23,800) 15.49
------ -------
Outstanding at end of year............................... 84,480 17.48 89,200 16.74
------ -------
Exercisable at end of year............................... 84,480 17.48 16,400 15.12
====== =======
</TABLE>

The Bank applies APB No. 25 and related Interpretations in accounting for
the Plan. Accordingly, no compensation cost has been recognized for the Plan.
Had a compensation cost for the Plan been determined, based on the fair value at
the grant dates for awards under the Plan, consistent with the method of SFAS
No. 123, the Bank's net (loss) income and (loss) earnings per share for the
years ended December 31, 1998 and 1997, would have changed to the pro forma
amounts indicated below (in thousands, except share data):

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net (loss) income:
As reported............................................... $ (205) $ 372
Pro forma................................................. $ (700) $ 239
Basic (loss) earnings per share:
As reported............................................... $(0.59) $ 1.16
Pro forma................................................. $(2.03) $ 0.75

Diluted (loss) earnings per share:
As reported............................................... $(0.59) $ 1.05
Pro forma................................................. $(2.03) $ 0.68
</TABLE>

F-114
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

10. STOCK OPTION PLAN (CONTINUED)

Bank's stock option awards. These models also require subjective assumptions,
including future stock volatility and expected time to exercise, which greatly
affect the calculated values. The fair value of options granted under the Plan
was estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used: no dividend yield; a
volatility of 15% for 1998 and 14% for 1997; a risk-free interest rate of 6.00%
for 1998 and 5.71% for 1997; and an average expected life of five years. The
fair values of options granted in 1998 and 1997 were $9.71 and $4.91,
respectively. The significant increase in the fair value of options granted from
prior year to current year was attributed to the increase in the
weighted-average stock market price in 1998.

The 1998 pro forma compensation cost was calculated based on the fair value
at the grant date of the stock options under the Plan, as discussed above, and
consideration of all stock options being fully vested at year-end, as a result
of the acquisition of the Bank by California Financial Bancorp (see Note 16).

11. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE

Basic and diluted earnings (loss) per share were computed by dividing net
income (loss) by the weighted-average number of shares of common stock
outstanding during the year.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
---------------------------------------
WEIGHTED-
AVERAGE
LOSS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic loss per share -
Loss available to common stockholders................... $(205,000) 345,121 $(0.59)
Effect of dilutive securities -
Incremental shares from assumed exercise of outstanding
options...............................................
Diluted loss per share -
Loss available to common stockholders................... $(205,000) 345,121 $(0.59)
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
---------------------------------------
WEIGHTED-
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share -
Income available to common stockholders................. $ 372,000 319,520 $ 1.16

Effect of dilutive securities -
Incremental shares from assumed exercise of outstanding
options............................................... 33,515 $(0.11)
Diluted earnings per share -
Income available to common stockholders................. $ 372,000 353,035 $ 1.05
</TABLE>

F-115
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

12. COMMITMENTS AND CONTINGENCIES

The Bank is a defendant in various litigations arising in the normal course
of business. In the opinion of management, the ultimate outcome of such
litigation or any other contingencies would not have a material effect on the
Bank's financial position or results of operations.

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

The Bank's exposure to credit loss in the event of non-performance by other
parties to the financial instrument for these commitments is represented by the
contractual amounts of those instruments.

The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Commitments generally
have fixed expiration dates; however, since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counterparty. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties. At December 31, 1998 and 1997, the
Bank's commitment to extend credit, standby letters of credit, and commercial
letters of credit are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commitment to extend credit................................. $11,705 $ 9,489
Standby letters of credit................................... $ 283 $ 330
Commercial letters of credit................................ $ 54
</TABLE>

The Bank had $6,500,000 of unsecured federal fund credit lines with several
banks at December 31, 1998 and 1997. The lines are intended to support
short-term liquidity. There were no borrowings outstanding against these lines
as of December 31, 1998 and 1997.

The Bank has entered into salary continuation agreements with certain of its
executive officers. The agreements provide monthly cash payments to the officers
or their beneficiaries in the event of death, beginning in the month after their
respective retirement dates or death, and extending for a specified period of
years thereafter. In the event the Bank is sold, the executive officer shall be
entitled to be paid in cash in a lump sum on the date of the consummation of the
sale based on the present value of the aggregate amount of the annual benefit
for a period of 15 years in 180 monthly installments. The present value of the
amount shall be determined using the long-term monthly applicable federal rate
at the time of the consummation of the sale.

The Bank's present value of liability under the executive salary
continuation agreements amounted to $1,260,000 and $175,000 at December 31, 1998
and 1997, respectively. The significant increase in the liability from 1997 to
1998 was attributed to the anticipated sale of the Bank to California Financial
Bancorp at the close of business on December 31, 1998 (see Note 16).

F-116
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Bank has funded its obligation related to the executive salary
continuation agreements through the purchase of single premium life insurance
policies. At December 31, 1998 and 1997, the single premium life insurance
policies have a total cash surrender value of $2,224,000 and $962,000,
respectively.

13. REGULATORY MATTERS

The Bank is subject to the regulation by the FDIC and the DFI, formerly
known as the California State Banking Department. Additionally, the Bank is
subject to various regulatory capital requirements administered by these banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possible additional discretionary actions by regulators that, if
undertaken, could have a direct, material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification of the Bank are also subject to qualitative
judgements by the regulators about components, risk weightings, and other
factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 1998 and 1997, that the Bank
has met all capital adequacy requirements to which it is subject.

As of December 31, 1998 and 1997, the most recent notification from the
regulatory agencies categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.

F-117
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

13. REGULATORY MATTERS (CONTINUED)

The actual capital amounts (in thousands) and ratios are presented, as of
December 31, 1998 and 1997, in the following table:

<TABLE>
<CAPTION>
CAPITAL
ADEQUACY WELL CAPITALIZED
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
------------------- ----------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF DECEMBER 31, 1998: -------- -------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets.......... $ 8,282 14.9% $ 4,447 > or = to 8.0% $ 5,558 > or = to 10.0
Tier I Capital to Risk-Weighted Assets......... 7,585 13.6% 2,231 > or = to 4.0% 3,346 > or = to 6.0
Tier I Capital to Average Assets............... 7,585 8.8% 3,448 > or = to 4.0% 4,310 > or = to 5.0
</TABLE>

<TABLE>
<CAPTION>
CAPITAL
ADEQUACY WELL CAPITALIZED
ACTUAL CAPITAL REQUIREMENT REQUIREMENT
------------------- ----------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF DECEMBER 31, 1997: -------- -------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets.......... $ 8,078 17.2% $ 3,752 > or = to 8.0% $ 4,690 > or = to 10.0
Tier I Capital to Risk-Weighted Assets......... 7,492 16.0% 1,876 > or = to 4.0% 2,814 > or = to 6.0
Tier I Capital to Average Assets............... 7,492 10.3% 2,918 > or = to 4.0% 3,647 > or = to 5.0
</TABLE>

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
active market exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding current
economic conditions, risk characteristics of various financial instruments,
prepayment assumptions, future expected loss experience, and other such factors.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used to estimate the fair values
of financial instruments:

INVESTMENT SECURITIES--For U.S. Treasury securities, fair values are
based on market prices. For other investment securities, fair values equal
quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities.

LOANS--The fair value for loans with variable interest rates is the
carrying amount. The fair value of fixed-rate loans is derived by
calculating the discounted value of future cash flows expected to be
received by the various homogeneous categories of loans. All loans have been
adjusted to reflect changes in credit risk.

F-118
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

14. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

DEPOSITS--The fair value of demand deposits, savings deposits, and NOW
and money market deposits is defined as the amounts payable on demand at
year-end. The fair value of fixed-maturity time certificates of deposit is
estimated based on the discounted value of the future cash flows expected to
be paid on these deposits.

COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT, AND COMMERCIAL
LETTERS OF CREDIT--The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
parties involved. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and committed rates.

The estimated fair values of the Bank's financial instruments at
December 31, 1998 are as follows:

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- --------
<S> <C> <C>
Financial assets:
Cash and due from banks................................... $ 7,226 $ 7,226
Federal funds sold........................................ 27,500 27,500
Interest-bearing deposits in other financial
institutions.............................................. 1,976 1,976
Investment securities available for sale.................. 20,275 20,275
Loans receivable, net of deferred loan fees............... 43,040 42,873
Accrued interest receivable............................... 490 490

Financial liabilities:
Deposits.................................................. $93,353 $93,371
Accrued interest payable.................................. 108 108

Off-balance-sheet liabilities:
Commitments to extend credit.............................. $11,705
Standby letters of credit................................. 283
</TABLE>

The Bank's balance sheet includes the following financial instruments: cash
and due from banks; federal funds sold; interest-bearing deposits in other
financial institutions; accrued interest receivable and accrued interest
payable. At December 31, 1998, the Bank considers the carrying amounts of these
instruments in the financial statements to approximate the fair value for these
financial instruments because of the relatively short period of time between
origination of the instruments and their expected realization for current items
and the yields on long-term notes reflect estimated current market yields.

At December 31, 1997, the Bank has determined that carrying value
approximates fair value for all financial instruments, including letters of
credit and loan commitments.

F-119
<PAGE>
THE BANK OF ORANGE COUNTY

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1998 AND 1997

15. OTHER OPERATING EXPENSES

For the years ended December 31, 1998 and 1997, other operating expenses
consist of the following items:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Courier services and postage................................ $179 $143
Business development and promotional expenses............... 149 117
Stationery and supplies..................................... 62 82
Communications.............................................. 52 42
Insurance and surety bond................................... 47 50
Federal and state assessments............................... 23 24
Debenture bond redemption (Note 6).......................... 140
Other....................................................... 193 125
---- ----
Total....................................................... $705 $723
==== ====
</TABLE>

16. SUBSEQUENT EVENTS

Effective on the close of business on December 31, 1998, California
Financial Bancorp ("CFB") acquired all of the outstanding shares of The Bank of
Orange County's common stock for an aggregate purchase price of $14,873,000. The
transaction was accounted for under the purchase method. A deposit account
amounting to $13,002,000 at December 31, 1998 was held at the Bank for CFB,
which represents a portion of the purchase price. Furthermore, as a result of
the acquisition, the Bank incurred additional legal costs and employee
compensation costs associated with the executive salary continuation agreements.
Additionally, the Bank's 1994 Stock Option Plan was terminated upon acquisition
by CFB.

Effective February 17, 1999, the Bank entered into a Buy-Sell Agreement with
Brentwood Bank of California ("Brentwood"), whereby the Bank would acquire a
portfolio of construction loans, and the rights to the unamortized deferred loan
fees, and certain furniture and fixtures from Brentwood for a total purchase
price of $3,376,000. The construction loans are sold by Brentwood to the Bank
without recourse and with servicing released to the Bank. The purchase price for
the sale of the construction loans and the rights to the deferred loan fees was
determined based on the outstanding principal balances of the construction loans
at February 16, 1999 of $3,384,000 plus $14,000 of interest accrued on the
related loans less deferred loan fees of $39,000. The purchase price of the
furniture and fixtures was $17,000. The transaction closed on February 17, 1999.

* * * * * *

F-120
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Downey Bancorp and Subsidiary:

We have audited the accompanying consolidated balance sheet of
Downey Bancorp and Subsidiary (the "Company") as of November 25, 1998, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the period from January 1, 1998 to November 25, 1998. 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 audit.

In our opinion, such 1998 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Downey Bancorp and Subsidiary as of November 25, 1998, and the results of their
operations and their cash flows for the period from January 1, 1998 to
November 25, 1998 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Los Angeles, California
February 23, 1999

F-121
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE
FINANCIAL STATEMENTS

To the Board of Directors
Downey Bancorp
Downey, California

We have audited the accompanying consolidated balance sheets of Downey Bancorp
and subsidiary as of December 31, 1997, and the related consolidated statements
of income, stockholders' equity and cash flows for the year then ended. These
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 audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test 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 audit provides 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 Downey Bancorp and
subsidiary as of December 31, 1997, and the results of their operations and
their cash flows for the year ended in conformity with generally accepted
accounting principles.

McGladrey & Pullen LLP
Pasadena, California
January 30, 1998

F-122
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

NOVEMBER 25, 1998 AND DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 4,929 $ 2,610
Federal funds sold.......................................... 23,300 6,500
------- -------
Total cash and cash equivalents......................... 28,229 9,110
Interest-bearing deposits with other banks.................. 293 190
Investment securities available for sale, at fair value
(Note 2).................................................. 795 599
Investment securities held to maturity, at amortized cost
(Note 2).................................................. 5,566 7,713
Investment in Federal Reserve Bank stock, at cost........... 90 90
Loans receivable, net of allowance for loan losses of $265
in 1998 and 1997 (Notes 3 and 6).......................... 29,246 29,334
Other real estate owned..................................... 91
Premises and equipment, net (Note 4)........................ 297 354
Income taxes receivable, net................................ 143
Deferred income tax asset, net (Note 8)..................... 2
Accrued interest receivable................................. 271 340
Prepaid expenses and other assets........................... 124 132
------- -------
$65,054 $47,955
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Interest-bearing deposits (Notes 5 and 6)................. $37,212 $29,565
Noninterest-bearing deposits (Notes 5, 6 and 13).......... 20,137 11,138
------- -------
Total deposits.......................................... 57,349 40,703

Income taxes payable, net................................. 136
Deferred income tax liability, net (Note 8)............... 7
Accrued interest and other liabilities.................... 342 106
------- -------
Total liabilities....................................... 57,698 40,945
------- -------
COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS' EQUITY:
Common stock--no par value; 5,000,000 shares authorized;
594,259 and 547,969 shares issued and outstanding in
1998 and 1997, respectively (Notes 9, 10, 12 and 13).... 6,010 5,369
Surplus................................................... 14 20
Accumulated other comprehensive income (loss)............. 6 (3)
Retained earnings......................................... 1,326 1,624
------- -------
Total stockholders' equity.............................. 7,356 7,010
------- -------
TOTAL....................................................... $65,054 $47,955
======= =======
</TABLE>

See notes to consolidated financial statements.

F-123
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 25, 1998
AND YEAR ENDED DECEMBER 31, 1997

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Loans receivable, including fees.......................... $2,577 $2,941
Interest-bearing deposits with other banks................ 15 11
Federal funds sold........................................ 530 368
Investment securities available for sale.................. 39 35
Investment securities held to maturity.................... 411 562
Investment in Federal Reserve Bank stock.................. 5 5
------ ------
3,577 3,922
------ ------
INTEREST EXPENSE:
Savings and money market.................................. 287 327
Time certificates of deposit under $100................... 325 376
Time certificates of deposit of $100 and over............. 461 385
------ ------
1,073 1,088
------ ------
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES........ 2,504 2,834

PROVISION FOR LOAN LOSSES (Note 3).......................... 8
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 2,504 2,826

NONINTEREST INCOME:
Service charges and fees.................................. 169 201
Other real estate owned income, net....................... 118
Gain on sale of premises and equipment.................... 13
Other income.............................................. 1 8
------ ------
301 209
------ ------
NONINTEREST EXPENSES:
Salaries and employee benefits............................ 1,192 865
Professional fees......................................... 438 205
Occupancy and premises and equipment (Notes 4 and 7)...... 314 314
Data and item processing.................................. 59 101
Business development and promotions....................... 64 77
Office supplies and communications........................ 88 78
Insurance................................................. 50 45
Other operating expenses.................................. 61 61
------ ------
2,266 1,746
------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 539 1,289

PROVISION FOR INCOME TAXES (Note 8)......................... 225 521
------ ------
NET INCOME.................................................. $ 314 $ 768
====== ======
BASIC EARNINGS PER SHARE (Note 10).......................... $ 0.55 $ 1.41
====== ======
DILUTED EARNINGS PER SHARE (Note 10)........................ $ 0.54 $ 1.40
====== ======
</TABLE>

See notes to consolidated financial statements.

F-124
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 25, 1998
AND YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA AND NET OF TAX AMOUNTS)

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER OTHER
------------------- RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT SURPLUS EARNINGS INCOME (LOSS) INCOME TOTAL
-------- -------- -------- -------- -------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1997 473,046 $4,757 $ 21 $1,268 $ (2) $6,044
Comprehensive income:
Net income.......... 768 $ 768 768
Net change in
unrealized loss on
investment
securities
available for
sale, net of tax
of $400........... (1) (1) (1)
------
Comprehensive
income............ $ 767
======
8% stock dividend... 41,288 412 (412)
Retirement of common
stock............. (10,504) (106) (1) (107)
Stock options
exercised......... 44,139 306 306
------- ------ ---- ------ ---- ------
BALANCE, DECEMBER 31,
1997.................. 547,969 5,369 20 1,624 (3) 7,010
Comprehensive income:
Net income.......... 314 $ 314 314
Net change in
unrealized gain on
investment
securities
available for
sale, net of tax
of $7,000......... 9 9 9
------
Comprehensive
income............ $ 323
======
9% stock dividend... 48,978 612 (612)
Retirement of common
stock............. (2,688) (27) (6) (33)
Tax benefit from
stock options
exercised......... 56 56
------- ------ ---- ------ ---- ------
BALANCE, NOVEMBER 25,
1998.................. 594,259 $6,010 $ 14 $1,326 $ 6 $7,356
======= ====== ==== ====== ==== ======
</TABLE>

See notes to consolidated financial statements.

F-125
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 25, 1998
AND YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net income.................................................. $ 314 $ 768
Cash flows from operating activities:
Provision for loan losses................................. 8
Depreciation and amortization............................. 63 62
Accretion of discounts on investment securities, net...... (8)
Gain on sale of other real estate owned................... (118)
Gain on sale of premises and equipment.................... (13)
Amortization of deferred net loan fees.................... (45) (13)
Changes in operating assets and liabilities:
Accrued interest receivable............................. 69 25
Income taxes receivable, net............................ (143)
Income taxes payable, net............................... (136)
Deferred income taxes................................... 2 4
Prepaid expenses and other assets....................... 8 (34)
Accrued interest and other liabilities.................. 236 136
------- ------
Net cash provided by operating activities........... 229 956
------- ------
Cash flows from investing activities:
Net increase in interest-bearing deposits with other
banks................................................... (103)
Net decrease in loans..................................... 133 450
Purchases of premises and equipment....................... (13) (163)
Proceeds from sale of premises and equipment.............. 20
Proceeds from sale of other real estate owned............. 209
Purchases of investment securities held to maturity....... (894) (1,307)
Purchases of investment securities available for sale..... (780)
Proceeds from maturities of investment securities held to
maturity................................................ 2,909 2,000
Proceeds from maturities of investment securities
available for sale...................................... 600 200
Principal collected on investment securities held to
maturity................................................ 140 82
------- ------
Net cash provided by investing activities........... 2,221 1,262
------- ------
Cash flows from financing activities:
Net increase (decrease) in deposits....................... 16,646 (936)
Stock options exercised................................... 306
Tax benefit from stock options exercised.................. 56
Retirement of common stocks............................... (33) (107)
------- ------
Net cash provided by (used in) financing
activities.......................................... 16,669 (737)
------- ------
Increase in cash and cash equivalents....................... 19,119 1,481
Cash and cash equivalents, beginning of period.............. 9,110 7,629
------- ------
Cash and cash equivalents, end of period.................... $28,229 $9,110
======= ======
Supplemental disclosure of noncash investing activities -
Acquisition of other real estate owned through
foreclosure............................................. $ -- $ 91
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 1,174 $1,069
Income taxes paid......................................... $ 448 $ 376
</TABLE>

See notes to consolidated financial statements.

F-126
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Downey Bancorp is a bank holding company located in Downey, California,
providing bank and bank-related services to its commercial and consumer
customers through its wholly owned subsidiary, Downey National Bank (the
"Bank"), also located in the city of Downey. The Bank grants commercial,
residential and consumer loans to customers, substantially all of whom have
either a primary or secondary residence or conduct business in the areas in and
surrounding Downey, California. The Bank's business is concentrated in Downey
and the surrounding communities, and the loan portfolio includes a significant
credit exposure to the real estate industry (commercial and residential) of this
area. The operating results of the Bank are significantly affected by changes in
market interest rates and by fluctuations in real estate values. The Bank is
also regulated by certain federal agencies and undergoes periodic examinations
by those regulatory authorities.

PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of Downey Bancorp and its wholly owned subsidiary, Downey National
Bank (collectively referred herein as the "Company"), and the results of their
operations. All significant intercompany accounts and transactions have been
eliminated in consolidation.

CASH AND CASH EQUIVALENTS--For the purpose of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal funds
sold.

The Company is required to maintain reserve balances in cash with the
Federal Reserve Bank. The average reserve balance was approximately $291,000 and
$295,000 for the period from January 1, 1998 to November 25, 1998 and for the
year ended December 31, 1997, respectively.

INVESTMENT SECURITIES--Investment securities available for sale are reported
at estimated fair value, with unrealized gains and losses, net of the related
tax effect, excluded from operations and reported as a separate component of
other comprehensive income in stockholders' equity. Investment securities held
to maturity, which are debt securities that the Company has the positive intent
to hold to maturity and the ability to so do, are carried at amortized cost.
Amortization of premiums and accretion of discounts on debt securities are
recorded as yield adjustments on such securities using a method similar to the
effective interest method. The specific identification method is used for
purposes of determining cost in computing realized gains and losses on
investment securities sold.

LOANS RECEIVABLE--Loans receivable are stated at their outstanding principal
balance, reduced by an allowance for credit losses, net deferred loan fees or
costs on originated loans. Interest on loans is calculated using the
simple-interest method on daily balances of the principal amount outstanding.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
Generally, loans are placed on nonaccrual status when they become 90 days or
more past due. When interest accrual is discontinued, all unpaid accrued
interest is reversed

F-127
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

against income. Interest income is subsequently recognized only to the extent
cash payments are received or the loan has been placed back on accrual status
when the borrower has demonstrated the ability to make future payments of
principal and interest as scheduled.

The Company measures impairment on a loan by loan basis using either the
present value of expected future cash flows discounted at the loan's effective
interest rate or at the fair value of the collateral if the loan is collateral
dependent, less costs to sell.

ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is established
through a provision for loan losses. Loans are charged against the allowance for
loan losses when management believes that the collection of the carrying amount
is unlikely. The allowance is maintained at a level that management believes
will be adequate to absorb inherent losses on existing loans based on evaluation
of the collectibility of loans and prior loan loss experience. The evaluations
take into consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay.

The allowance is based on estimates and ultimate losses may vary from the
current estimates. These estimates are reviewed periodically, and as adjustments
become necessary, they are reported in earnings in the periods in which they
become known. In addition, the Federal Reserve Bank, the Office of the
Comptroller of Currency and the Federal Deposit Insurance Corporation, as an
integral part of their examination processes, periodically review the Company's
allowance for loan losses. The agencies may require the Company to recognize
additions to the allowance based on their judgments on information available at
the time of their examinations.

TROUBLED DEBT RESTRUCTURED--A loan is considered "troubled debt
restructured" when the Company provides the borrower certain concessions that it
would not normally consider. The concessions are provided with the objective of
maximizing the recovery of the Company's investment. Troubled debt restructures
include situations in which the Company accepts a note (secured or unsecured)
from a third party in payment of its receivable from the borrower, other assets
in payment of the loan, an equity interest in the borrower in lieu of its
receivable, or a modification of the terms of the debt including, but not
limited to: (i) a reduction in the stated interest rate, (ii) an extension of
the maturity date at a stated interest rate lower than the current market for
new debt with the similar risks or other terms below market, (iii) a reduction
in the face amount of the debt, and/or (iv) a reduction in the accrued interest.

OTHER REAL ESTATE OWNED--Other real estate owned represents real estate
acquired through foreclosure and is recorded at fair value at the time of
foreclosure. Loan balances in excess of fair

F-128
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

value of the real estate acquired at the date of foreclosure are charged against
the allowance for credit losses. After foreclosure, valuations are periodically
performed by management and real estate is carried at the lower of carrying
value or fair value less costs to sell. Any subsequent operating expenses or
income reduction in estimated values, and gains or losses on disposition of such
properties are charged to current operations. Revenue recognition upon
disposition of the property is dependent on the sale having met certain criteria
relating to the buyer's initial investment in the property sold.

PREMISES AND EQUIPMENT--Premises and equipment are recorded at cost less
accumulated depreciation and amortization, which is charged to expense on a
straight-line basis over the estimated useful lives of the assets or, in the
case of leasehold improvements, over the term of the leases, whichever is
shorter. Rates of depreciation and amortization are based on the following
estimated useful lives: furniture and equipment, three to six years and
leasehold improvements, the shorter of the useful life or the term of the lease.
Expenditures for maintenance and repairs are expensed as incurred, while major
improvements that extend the estimated useful life of an asset are capitalized.
Upon the sale or retirement of assets, the accounts are relieved of the cost and
related accumulated depreciation and amortization, and any resultant gain or
loss is recognized.

INCOME TAXES--The Company records income taxes under the asset and liability
method. Income tax expense is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered or
settled. The effect on deferred income tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. Recognition of deferred income tax assets is based on management's belief
that it is more likely than not that the tax benefit associated with certain
temporary differences, tax operating loss carryforwards, and tax credits will be
realized. A valuation allowance is recorded for those deferred tax items for
which it is more likely than not that realization will not occur.

ACCOUNTING FOR STOCK-BASED COMPENSATION--The Statement of Financial
Accounting Standards ("SFAS") No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
establishes financial accounting and reporting standards for stock-based
employee compensation plans. These standards include the recognition of
compensation expense over the vesting period of the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
permits entities to continue to apply the provisions of Accounting Principles
Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and
provide pro forma net earnings (loss) and pro forma net earning (loss) per share
disclosures as if the fair value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure requirements of SFAS No. 123
in the footnotes to its audited consolidated financial statements (see Note 9 to
the consolidated financial statements).

EARNINGS PER SHARE--Basic earnings per share exclude the effect of all
potentially dilutive securities and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock, or resulted from issuance of common
stock that then shared in earnings (see Note 10 to the consolidated financial
statements).

F-129
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

COMPREHENSIVE INCOME--Effective January 1, 1998, the Company adopted SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. Under the provisions of SFAS No. 130,
an entity that provides a full set of financial statements is required to report
comprehensive income in the presentation of its financial statements. The term
"comprehensive income" describes the total of all components of comprehensive
income, including net income. "Other comprehensive income" refers to revenues,
expenses, and gains and losses that are included in comprehensive income but are
excluded from net income as they have been recorded directly in equity under the
provisions of other statements issued by the Financial Accounting Standards
Board. The Company presents the comprehensive income disclosure as a part of the
consolidated statements of changes in stockholders' equity by identifying each
element of other comprehensive income, including net income. All comparative
consolidated financial statements presented reflect the application of the
provisions of SFAS No. 130.

RELATED PARTY TRANSACTIONS--The Company has entered into certain related
party transactions with its directors, officers and stockholders in the normal
course of business. These transactions are conducted at market terms.

RECLASSIFICATIONS--Certain amounts have been reclassified in the prior
period to conform with the consolidated financial statement presentation for the
current period.

2. INVESTMENT SECURITIES

The following table summarizes the Company's investment securities as of
November 25, 1998:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities available for sale -
Corporate debt securities.................. $ 780 $ 15 $ 795
------ ---- ---- ------
Investment securities held to maturity:
U.S. and state government and its
agencies................................... 1,229 32 $ 14 1,247
Corporate debt securities.................. 2,794 48 2 2,840
Municipal obligations...................... 1,543 86 1,629
------ ---- ---- ------
Total investment securities held to
maturity.................................... 5,566 166 16 5,716
------ ---- ---- ------
Total........................................ $6,346 $181 $ 16 $6,511
====== ==== ==== ======
</TABLE>

F-130
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENT SECURITIES (CONTINUED)

The following table summarizes the Company's investment securities as of
December 31, 1997:

<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. and state government and its
agencies................................... $ 200 $ 1 $ 201
Corporate debt securities.................. 400 $ 2 398
------ ---- ---- ------
Total investment securities available for
sale........................................ 600 1 2 599
------ ---- ---- ------
Investment securities held to maturity:
U.S. and state government and its
agencies................................... 1,199 2 1,197
Corporate debt securities.................. 4,001 35 1 4,035
Mortgage-backed securities................. 668 11 8 671
Municipal obligations...................... 1,845 85 1,930
------ ---- ---- ------
Total investment securities held to
maturity................................... 7,713 131 11 7,833
------ ---- ---- ------
Total........................................ $8,313 $132 $ 13 $8,432
====== ==== ==== ======
</TABLE>

The contractual maturities of investment securities as of November 25, 1998,
are shown below. Expected maturities may differ from contractual maturities.

<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
-------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less........................... $1,090 $1,097
Due after one year through five years............. $780 $795 2,694 2,761
Due after five years through ten years............ 1,099 1,167
Due after ten years............................... 683 691
---- ---- ------ ------
$780 $795 $5,566 $5,716
==== ==== ====== ======
</TABLE>

3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

Loans receivable at November 25, 1998 and December 31, 1997, are summarized
as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans........................................... $23,117 $24,913
Commercial loans............................................ 5,183 3,487
Consumer loans.............................................. 1,298 1,299
------- -------
29,598 29,699

Deferred loan fees.......................................... (87) (100)
Allowance for loan losses................................... (265) (265)
------- -------
Loans, net.................................................. $29,246 $29,334
======= =======
</TABLE>

F-131
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)

Activities in the allowance for loan losses for the period from January 1,
1998 to November 25, 1998 and for the year ended December 31, 1997, are
summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of period................................ $265 $251
Provision for loan losses................................... 8
Recoveries.................................................. 6
---- ----
Balance, end of period...................................... $265 $265
==== ====
</TABLE>

The Company grants commercial, real estate and consumer loans to customers
throughout Southern California, primarily in Downey, California. Although the
Company has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon the real estate market in
Southern California. Should the real estate market experience an overall decline
in property values and should other events occur, including, but not limited to,
adverse economic conditions (which may or may not affect real property values),
the ability of borrowers to make timely scheduled principal and interest
payments on the Company's loans may be adversely affected, and in turn may
result in increased delinquencies and foreclosures. In the event of foreclosures
under such conditions, the value of the property acquired may be less than the
appraised value when the loan was originated and may, in some instances, result
in insufficient proceeds upon disposition to recover the Company's investment in
the foreclosed property.

The Company had no nonaccrual loans, no loans with principal more than 90
days past due and still accruing, and no restructured loans at November 25, 1998
and December 31, 1997.

At November 25, 1998, loans that were considered impaired totaled $264,000,
which had a related allowance for loan losses aggregating to $23,000.
Substantially all of the impaired loans were collateral dependent and were
measured using the fair value of the collateral. Interest income on impaired
loans of $25,000 was recognized for cash payments received in the period from
January 1, 1998 to November 25, 1998. The average outstanding principal balance
of impaired loans for the period from January 1, 1998 to November 25, 1998 was
$266,000. The Company had no impaired loans for the year ended December 31,
1997.

4. PREMISES AND EQUIPMENT

The major classes of premises and equipment at November 25, 1998 and
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $456 $456
Furniture and equipment..................................... 370 403
---- ----
826 859
Less accumulated depreciation and amortization.............. 529 505
---- ----
Premises and equipment, net................................. $297 $354
==== ====
</TABLE>

F-132
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. PREMISES AND EQUIPMENT (CONTINUED)

The depreciation and amortization costs included in occupancy expense were
$63,000 for the period from January 1, 1998 to November 25, 1998 and $59,000 for
the year ended December 31, 1997.

5. DEPOSITS

At November 25, 1998 and December 31, 1997, deposits are summarized with
balance by category as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Demand deposit accounts..................................... $20,137 $11,138
Savings accounts............................................ 3,566 3,965
NOW and money market accounts............................... 13,854 11,270
Time certificates of deposit under $100,000................. 7,628 6,765
Time certificates of deposit of $100,000 and over........... 12,164 7,565
------- -------
Total....................................................... $57,349 $40,703
======= =======
</TABLE>

At November 25, 1998 and December 31, 1997, time certificates of deposit
accounts are scheduled to mature as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Within one year............................................. $19,353 $13,989
Within two years............................................
Within three years.......................................... 439 334
Within four years........................................... 7
------- -------
Total....................................................... $19,792 $14,330
======= =======
</TABLE>

6. RELATED PARTIES

As part of its normal banking activities, the Company has extended credit to
various of its directors and officers. In the opinion of management, all such
transactions are on terms similar to those of transactions with nonaffiliated
parties. Following is a summary of such loans for the period from January 1,
1998 to November 25, 1998 and for the year ended December 31, 1997:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of period................................ $ 1,520 $ 2,605
Loans granted or renewed.................................... 180 427
Repayments.................................................. 236 1,512
------- -------
Balance, end of period...................................... $ 1,464 $ 1,520
======= =======
</TABLE>

Deposits held by directors, officers and stockholders amounted to $1,977,000
and $359,000 at November 25, 1998 and December 31, 1997, respectively.

F-133
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LEASE OBLIGATIONS

The Company leases administrative and office space under a noncancelable
operating lease. Rental expense was $158,000 for the period from January 1, 1998
to November 25, 1998 and $170,000 for the year ended December 31, 1997, and is
included in occupancy and premises and equipment in the accompanying
consolidated statements of income. During 1997, the Bank had subleased a portion
of the office space; however, at December 31, 1997, the sublease was no longer
in existence. The total rental income from the sublease was $12,000 for the year
ended December 31, 1997.

As of November 30, 1998, future minimum rental payments required under the
operating lease that has a remaining lease term in excess of one year are
summarized below in twelve-month periods:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
- ------------ ---------------
<S> <C>
1999....................................................... $ 174
2000...................................................... 174
2001...................................................... 174
2002...................................................... 174
2003...................................................... 174
Thereafter................................................ 349
------
$1,219
======
</TABLE>

8. INCOME TAXES

Income tax expense for the period from January 1, 1998 to November 25, 1998
and for the year ended December 31, 1997, consists of the following:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current provision:
Federal................................................... $162 $384
State..................................................... 61 141
---- ----
223 525
---- ----

Deferred provision (benefit):
Federal................................................... 4 (3)
State..................................................... (2) (1)
---- ----
2 (4)
---- ----
Total....................................................... $225 $521
==== ====
</TABLE>

F-134
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES (CONTINUED)

The components of the deferred income tax assets and liabilities at November
25, 1998 and December 31, 1997 are summarized as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Provision for loan losses................................. $ 79 $ 88
Depreciation.............................................. (20)
State taxes............................................... 50 47
Other..................................................... 15
----- -----
Deferred income tax assets................................ 109 150
----- -----
Deferred income tax liabilities:
Accrual to cash adjustment................................ (107) (148)
Unrealized gain on investment securities available for
sale...................................................... (9)
----- -----
Deferred income tax liabilities........................... (116) (148)
----- -----
Deferred income tax (liability) asset, net................ $ (7) $ 2
===== =====
</TABLE>

A reconciliation of the statutory federal income tax provision at the
expected statutory rate compared to the actual income tax provision for the
period from January 1, 1998 to November 25, 1998 and for the year ended
December 31, 1997 is presented as follows:

<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Expected tax benefit............................... $183 34.00% $451 35.00%
State income taxes, net of federal income tax
benefit........................................... 39 7.24% 92 7.12%
Other, net......................................... 3 0.50% (22) (1.70)%
---- ------ ---- ------
$225 41.74% $521 40.42%
==== ====== ==== ======
</TABLE>

9. STOCK OPTION PLANS

At November 25, 1998, the Company had stock options under two plans for
certain officers and directors of the Company to purchase shares of the
Company's common stock. The two plans are the 1996 Stock Option Plan and 1986
Stock Option Plan (collectively referred herein as the "Plans"). The Company's
1986 Stock Option Plan expired during 1996. Under the 1986 Stock Option Plan,
5,953 and 5,462 of options remained unexercised and outstanding at November 25,
1998 and December 31, 1997, respectively. The increase in stock options under
the 1986 Stock Option Plan from 1997 to 1998 was attributed to the 9% stock
dividend declared and paid in 1998. Under the Plans, options are granted at an
exercise price of not less than fair market value of the common stock at the
date of grant. The options become exercisable in equal increments over a
five-year period. In the event of a business combination where the Company is
acquired, all options granted become fully vested.

Options under the Plans can be granted as incentive stock options or
nonqualified stock options. The Plans expire ten years from the date of
adoption. At November 25, 1998 and December 31, 1997, the Company has a total of
155,000 common shares authorized for grants of stock options covered under the
Plans.

F-135
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTION PLANS (CONTINUED)

The following is a summary of stock option transactions for the Plans during
the period from January 1, 1998 to November 25, 1998 and for the year ended
December 31, 1997:

<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period................ 49,094 $10.00 54,597 $10.00
Granted........................................... 35,000 10.00
8% stock dividend................................. 3,636 10.00
9% stock dividend................................. 4,417 12.50
Exercised......................................... (44,139) 6.92
------ -------
Outstanding at period end......................... 53,511 10.21 49,094 10.00
------ -------
Exercisable at period end......................... 53,511 10.21 5,878 8.04
====== =======
</TABLE>

The Company applies APB No. 25 and related interpretations in accounting for
the Plans. Accordingly, no compensation cost has been recognized for the Plans.
Had compensation cost for the Plans been determined based on the fair value at
the grant dates for awards under the Plans consistent with the method of SFAS
No. 123, the Company's net income and earnings per share for the period from
January 1, 1998 to November 25, 1998 and for the year ended December 31, 1997,
would have been reduced to the pro forma amounts indicated below (in thousands,
except share data):

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss):
As reported............................................... $ 314 $ 768
Pro forma................................................. $ 126 $ (720)

Basic earnings (loss) per share:
As reported............................................... $0.55 $ 1.41
Pro forma................................................. $0.22 $ 1.32

Diluted earnings (loss) per share:
As reported............................................... $0.54 $ 1.40
Pro forma................................................. $0.22 $ 1.32
</TABLE>

The 1997 pro forma compensation cost for the Company's stock option plans
was calculated based on the fair value at the grant date of the stock options
under the Plans, consistent with the method of SFAS No. 123. The 1998 pro forma
compensation cost was calculated based on the fair value at the grant date of
the stock options under the Plans and in consideration of all stock options
being fully vested as a result of the acquisition of the Company by California
Financial Bancorp (see Note 13 to the consolidated financial statements).

F-136
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share were computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
year.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM JANUARY 1, 1998 TO
NOVEMBER 25, 1998
----------------------------------------
WEIGHTED
AVERAGE
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
<S> <C> <C> <C>
Basic earnings per share -
Income available to common stockholders......... $314,000 574,847 $0.55
Effect of dilutive securities -
Incremental shares from assumed exercise of
outstanding options........................... 10,703 $0.01
Diluted earnings per share -
Income available to common stockholders......... $314,000 585,550 $0.54
</TABLE>

<TABLE>
<CAPTION>
FOR THE YEAR ENDED TO
DECEMBER 31, 1997
---------------------------------------
WEIGHTED
INCOME AVERAGE SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
Basic earnings per share -
Income available to common stockholders......... $768,000 544,258 $1.41
Effect of dilutive securities -
Incremental shares from assumed exercise of
outstanding options........................... 3,135 $0.01
Diluted earnings per share -
Income available to common stockholders......... $768,000 547,393 $1.40
</TABLE>

11. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in various litigation arising in the normal
course of business. In the opinion of management, the ultimate outcome of such
litigation or any other contingencies would not have a material effect on the
Company's consolidated financial position or results of operations.

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

The Company's exposure to credit loss in the event of nonperformance by
other parties to the financial instrument for these commitments is represented
by the contractual amounts of those instruments.

F-137
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES (CONTINUED)

commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon extension
of credit is based on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties. The Company's
commitment to extend credit and standby letters of credit at November 25, 1998
and December 31, 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Commitment to extend credit................................. $3,821 $1,720
Standby letters of credit................................... 385 366
</TABLE>

12. REGULATORY MATTERS

The Company, as a Federal Reserve Bank ("FRB") member, is subject to the
regulations of the FRB as well as regulations of the Federal Deposit Insurance
Corporation ("FDIC") and the Office of the Comptroller of the Currency ("OCC").
Additionally, the Company is subject to various regulatory capital requirements
administered by these banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt correction
action, the Company must meet specific capital guidelines that involve
quantitative measure of the Company's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
capital amounts and classification of the Company are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of November 25, 1998 and December 31, 1997,
that the Company has met all capital adequacy requirements to which it is
subject.

As of November 25, 1998 and December 31, 1997, the most recent notification
from the regulatory agencies categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification which management believes have changed the Bank's
category.

F-138
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. REGULATORY MATTERS (CONTINUED)

The actual capital amounts (in thousands) and ratios are presented, as of
November 25, 1998 and December 31, 1997, in the following table:

Tier I Capital to Risk
Weighted Assets
Consolidated........................... 7,350 18.41% 1,597 > or = to 4.00% N/A
Downey National Bank................... 7,190 18.01% 1,597 > or = to 4.00% 2,395 > or = to 6.00%

Tier I Capital to Average
Assets
Consolidated........................... 7,350 14.25% 2,063 > or = to 4.00% N/A
Downey National Bank................... 7,190 13.94% 2,063 > or = to 4.00% 2,579 > or = to 5.00%
</TABLE>

Tier I Capital to Risk
Weighted Assets
Consolidated........................... 7,014 20.72% 1,354 > or = to 4.00% N/A
Downey National Bank................... 6,699 19.79% 1,354 > or = to 4.00% 2,031 > or = to 6.00%

Tier I Capital to Average
Assets
Consolidated........................... 7,014 14.22% 1,973 > or = to 4.00% N/A
Downey National Bank................... 6,699 13.58% 1,973 > or = to 4.00% 2,466 > or = to 5.00%
</TABLE>

13. SUBSEQUENT EVENTS

Effective on the close of business on November 25, 1998, California
Financial Bancorp ("CFB") acquired all of the outstanding shares of Downey
Bancorp's common stock for an aggregate purchase price of $11,428,000. The
transaction was accounted for under the purchase method. A deposit account
amounting to $8,709,000 at November 25, 1998 was held at the Company by CFB,
which represents a portion of the purchase price. Furthermore, as a result of
the acquisition, the Company incurred additional legal and employee compensation
costs. Additionally, the Company's stock option plans were terminated upon
acquisition by CFB.

F-139
<PAGE>
DOWNEY BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. FINANCIAL INFORMATION REGARDING DOWNEY BANCORP ONLY

At November 25, 1998, the Bancorp had no significant assets or liabilities
other than its investment in the Bank. As of November 25, 1998 and December 31,
1997, the Downey Bancorp's (the "Bancorp") investment in the Bank was recorded
at $4,196,000 and $6,694,000, respectively. At November 25, 1998, the Bancorp
had a demand deposit account and a time certificate of deposit account at the
Bank of $158,000 and $160,000, respectively. At December 31, 1997, the Bancorp's
demand deposit account and time certificate of deposit account at the Bank were
$11,000 and $300,000, respectively. The Bancorp had total expenses of $207,000
for the period from January 1, 1998 to November 25, 1998, which consist mostly
of professional fees relating to the acquisition of the Company by CFB. For the
year ended December 31, 1997, the Bancorp had total expenses of $13,000.

F-140
<PAGE>
TABLE OF EXHIBITS

<TABLE>
<S> <C>
Exhibit I Amended and Restated Plan of Reorganization and Merger
Agreement by and between California Community and California
Financial

Exhibit II Plan of Reorganization and Merger Agreement by and among
California Community, Orange, and Security First

Exhibit III Plan of Reorganization and Merger Agreement by and among
California Community, CalWest, and Business Bank

Exhibit IV August 26, 1999 Opinion of Carpenter & Company, Financial
Advisor to Security First

Exhibit V September 14, 1999 Opinion of The Findley Group, Financial
Advisor to Business Bank

Exhibit VI Sections 1300-1312 of the California General Corporation Law

Exhibit VII Section 214a(b) of the National Bank Act
</TABLE>

i
<PAGE>
EXHIBIT I
AMENDED AND RESTATED
PLAN OF REORGANIZATION AND MERGER AGREEMENT

This Plan of Reorganization and Merger Agreement (the "Merger Agreement") is
entered into as of November 15, 1999 by and between California Community
Bancshares, Inc. ("CCB") and California Financial Bancorp ("CFB").

RECITALS AND UNDERTAKINGS

<TABLE>
<S> <C>
A. CCB is a Delaware corporation with its principal office in
San Francisco California. As of the date hereof, CCB has
75,000,000 shares of $0.01 par value common stock
authorized, and none of such shares are outstanding. As of
the date hereof CCB has 25,000,000 shares of preferred stock
authorized, none of which are issued and outstanding.

B. CFB is a California corporation with its principal office in
Fountain Valley, California. As of the date hereof, CFB has
10,000,000 shares of no par value common stock authorized,
and 3,758,100 of such shares are outstanding. As of the date
hereof CFB has 10,000,000 shares of no par value preferred
stock authorized none of which are outstanding. As of the
date hereof, options to purchase 1,262,280 shares of CFB
Common Stock are outstanding.

C. In contemplation of a corporate reorganization (the
"Corporate Reorganization") of certain subsidiaries of the
California Community Financial Institutions Fund Limited
Partnership, CCB has entered into this Agreement pursuant to
which CFB will be merged with and into CCB (the "Merger").

D. In consideration of the Merger and the CFB Mergers, CCB has
agreed to issue shares of its authorized, but unissued
common stock, which shares shall be registered under the
Securities Act of 1933, as amended (the "1933 Act") pursuant
to a Registration Statement to be filed with the Securities
and Exchange Commission (the "Registration Statement");

E. The Boards of Directors of CCB and CFB have determined that
it would be in the best interests of their respective
corporations and shareholders, for CFB to be merged with and
into CCB, upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the
California General Corporation Law (the "CGCL"), the
Delaware General Corporation Law (the "DGCL") and other
applicable laws;

F. The Boards of Directors of CCB and CFB has each approved
this Agreement and the transactions contemplated hereby;

G. Upon consummation of the Merger, CCB will be the surviving
corporation.
</TABLE>

EX-I-1
<PAGE>
AGREEMENT

SECTION 1. GENERAL

1.1. THE MERGER. On the Effective Date (as defined hereinbelow), CFB shall
be merged with and into CCB, which shall be the surviving corporation (the
"Surviving Corporation"). The Surviving Corporation's name shall continue to be
California Community Bancshares, Inc.

1.2. EFFECTIVE DATE. The merger described herein shall become effective,
and actions to consummate such merger shall commence, at the close of business
on the day upon which an executed counterpart of this Merger Agreement shall
have been filed with the Secretary of State of the State of Delaware in
accordance with Sections 251 and 252 of the Delaware General Corporation Law and
with the Secretary of State of the State of California in accordance with
Section 1108 of the California General Corporation Law (the "Effective Date").

1.3. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. On the Effective Date, the Certificate of Incorporation of CCB, as
in effect immediately prior to the Effective Date, shall be and remain the
Certificate of Incorporation of the Surviving Corporation until amended; the
Bylaws of CCB, as in effect immediately prior to the Effective Date, shall be
and remain the Bylaws of the Surviving Corporation until amended.

1.4. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. On the Effective
Date, the directors and officers of CCB immediately prior to the Effective Date
shall become the directors and officers of the Surviving Corporation. The
directors of the Surviving Corporation shall serve until the next annual meeting
of shareholders of the Surviving Corporation or until such time as their
successors are elected and qualified.

1.5. EFFECT OF THE MERGER.

(a) ASSETS AND RIGHTS. On the Effective Date and thereafter, all
rights, privileges, franchises and property of CCB and CFB and all debts and
liabilities due or to become due to CCB and CFB including things in action
and every interest or asset of conceivable value or benefit, shall be deemed
fully and finally and without any right of reversion transferred to and
vested in the Surviving Corporation without further act or deed; and the
Surviving Corporation shall have and hold the same in its own right as fully
as the same was possessed and held by CCB or CFB.

(b) LIABILITIES. On the Effective Date and thereafter, all debts,
liabilities and obligations due or to become due from, and all claims and
demands for any cause existing against, CCB and CFB shall be and become the
debts, liabilities or obligations of, or the claims or demands against, the
Surviving Corporation in the same manner as if the Surviving Corporation had
itself incurred or become liable for them.

(c) CREDITORS' RIGHTS AND LIENS. On the Effective Date and thereafter,
all rights of creditors of CCB and CFB and all liens upon the property of
CCB and CFB shall be preserved unimpaired, and shall be limited to the
property affected by such liens immediately prior to the Effective Date.

(d) PENDING ACTIONS. On the Effective Date and thereafter, any action
or proceeding pending by or against CCB or CFB shall not be deemed to have
abated or been discontinued, but may be pursued to judgment with full right
to appeal or review. Any such action or proceeding may be pursued as if the
merger described herein had not occurred, or with the Surviving Corporation
substituted in place of CCB or CFB as the case may be.

1.6. FURTHER ASSURANCES. CCB and CFB each agree that at any time, or from
time to time, as and when requested by the Surviving Corporation, or by its
successors or assigns, it will execute and deliver, or cause to be executed and
delivered, in its name by its last acting officers or by the corresponding
officers of the Surviving Corporation, all such conveyances, assignments,
transfers, deeds and other

EX-I-2
<PAGE>
instruments, and will take or cause to be taken such further or other action as
the Surviving Corporation, or its successors or assigns, may deem necessary or
desirable in order to carry out the vesting, perfecting, confirming, assignment,
devolution or other transfer of the interests, property, privileges, powers,
immunities, franchises and other rights referred to in this Section 1, or
otherwise to carry out the intent and purposes of this Merger Agreement.

SECTION 2. STOCK OF THE SURVIVING CORPORATION

2.1. STOCK OF CFB. (a) On the Effective Date, each share of common stock
of CFB issued and outstanding immediately prior to the Effective Date shall, by
virtue of the merger described herein, be deemed to be exchanged for and
converted into 1.8296 share(s) of fully paid and nonassessable common stock of
CCB (the "Exchange Ratio"). At and after the Effective Date, no transfer of CFB
Common Stock outstanding prior to the Effective Date shall be made on the stock
transfer books of the Surviving Corporation and the certificates which
immediately prior to the Effective Date represented issued and outstanding
shares of CFB Common Stock shall be deemed by the Surviving Corporation to
represent shares of CCB Common Stock.

(b) At the Effective Time, the obligations under the CFB Stock Option Plan
shall be assumed by CCB. At the Effective Time, options to purchase shares of
CFB Common Stock issued pursuant to the CFB Stock Option Plan that are
outstanding shall be converted, without any action on the part of the holders
thereof, into options to acquire, upon payment of the adjusted exercise price
(which shall equal the exercise price per share for the options immediately
prior to the Merger, divided by the Exchange Ratio), the number of shares of CCB
Common Stock the option holder would have received pursuant to the Merger if he
or she had exercised all his or her options immediately prior thereto. Except as
noted above each CFB stock option shall otherwise continue on terms and
conditions that are consistent with those that were applicable on the Effective
Time.

(c) Notwithstanding the above, CCB and CFB agree that options to purchase
CFB common stock granted to directors of Downey National Bank will be
accelerated prior to the Effective time to allow the exercise of 25% of the
options granted to each Downey National Bank Director.

2.2. STOCK OF CCB. On the Effective Date, each share of common stock of
CCB issued and outstanding immediately prior to the Effective Date shall,
continue to remain an outstanding share of common stock of the Surviving
Corporation.

2.3. EXCHANGE OF STOCK BY CFB SHAREHOLDER. (a) On the Effective Date or as
soon as practical thereafter, in order to effectuate the exchange and conversion
specified in Section 2.1, the shareholder of CFB of record immediately prior to
the Effective Date shall be allocated and entitled to receive for each share of
common stock of CFB then held by it a certificate for 1.8296 share(s) of common
stock of CCB.

(b) FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of CCB Common Stock shall be issued to holders of shares of
CFB Common Stock. In lieu thereof, at the Effective Time each such holder
entitled to a fraction of a share of CCB Common Stock shall receive, at the time
of surrender of the CFB Certificates, an amount in cash equal to $12.69 per
share, multiplied by the fraction of a share of CCB Common Stock to which such
holder otherwise would be entitled. No such holder shall be entitled to
dividends, voting rights, interest on the value of, or any other rights in
respect of a fractional share.

SECTION 3. APPROVALS

3.1. SHAREHOLDER APPROVAL. This Merger Agreement shall be submitted to the
sole shareholder of CCB and CFB for ratification and confirmation in accordance
with applicable provisions of law.

EX-I-3
<PAGE>
3.2. REGULATORY APPROVALS. Each of the parties hereto shall proceed
expeditiously and cooperate fully in procuring all other consents and approvals,
and in satisfying all other requirements, prescribed by law or otherwise,
necessary or desirable for the merger described herein to be consummated,
including without limitation the consents and approvals referred to in
Sections 4.1(b), 4.1(c) and 4.1(d).

SECTION 4. CONDITIONS PRECEDENT, TERMINATION AND PAYMENT OF EXPENSES

4.1. CONDITIONS PRECEDENT TO THE MERGER. Consummation of the Merger is
conditioned upon the following:

(a) Ratification and confirmation of this Merger Agreement by the
shareholders of CCB and CFB in accordance with applicable provisions of law;

(b) Procuring all other consents and approvals and satisfying all other
requirements, prescribed by law or otherwise, which are necessary for the
Merger to be consummated, including without limitation: approval from the
Commissioner of Financial Institutions of the State of California pursuant
to Section 700 et seq. of the California Financial Code, approval from the
Board of Governors of the Federal Reserve System under the Bank Holding Act
of 1956, approval, if required, from the California Commissioner of
Corporations under the California Corporate Securities Law of 1968 with
respect to the securities of the CCB issuable upon consummation of the
Merger, and declaration as effective by the Securities and Exchange
Commission of the Registration Statement under the 1933 Act with respect to
the securities of CCB issuable upon consummation of the Merger;

(c) There shall have been received (unless waived by each of the parties
hereto) an opinion in form and substance satisfactory to each of the parties
hereto and their counsel, with respect to the tax consequences to the
parties and their shareholder of the merger described herein;

(d) Procuring all consents or approvals, governmental or otherwise,
which in the opinion of counsel for CCB and CFB are or may be necessary to
permit or to enable the Surviving Corporation to conduct, upon and after the
Merger, all or any part of the businesses and other activities that CCB
engages in immediately prior to the Merger, in the same manner and to the
same extent that CFB engaged in such businesses and other activities
immediately prior to the Merger; and

(e) Performance by each of the parties hereto of all obligations under
this Merger Agreement which are to be performed prior to the consummation of
the Merger.

4.2. TERMINATION OF THE MERGER. Notwithstanding that this may have already
been approved by the sole shareholder of CCB and CFB, this Agreement may be
terminated prior to the Effective Time:

(1) By mutual written consent of the Board of Directors of CFB and CCB;

(2) In the event that any condition specified in Section 4.1 cannot be
fulfilled, or prior to the Effective Date the Board of Directors of either
of the parties hereto reaches any of the following determinations:

(a) Any action, suit, proceeding or claim relating to the Merger,
whether initiated or threatened, makes consummation of the Merger
inadvisable; or

(b) Consummation of the Merger is inadvisable for any other reason;

(3) By either party if the Merger has not been consummated by
January 31, 1999.

4.3 EFFECT OF TERMINATION. Upon termination, this Merger Agreement shall
be void and of no further effect, and there shall be no liability by reason of
this Merger Agreement or the termination

EX-I-4
<PAGE>
thereof on the part of any of the parties hereto or their respective directors,
officers, employees, agents or shareholders.

4.4 EXPENSES OF THE MERGER. All of the expenses of the Merger, including
without limitation filing fees, printing costs, mailing costs, accountant's fees
and legal fees, shall be borne by the Surviving Corporation; provided, however,
that if the Merger is abandoned for any reason, then all of such expenses shall
be paid by CFB.

SECTION 5. MISCELLANEOUS

5.1 The Agreement is and will be maintained on file at the principal place
of business of the Surviving Corporation. The address of the principal place of
business of the Surviving Corporation is One Maritime Plaza, Suite 825, San
Francisco, California 94111.

5.2 The Agreement between the parties to the Merger has been approved,
adopted, certified, executed and acknowledged by each of CCB and CFB pursuant to
Section 252 of the DGCL, and executed by the parties in accordance with the
requirements of Chapter 12 of the CGCL.

5.3 The Surviving Corporation agrees that it may be served with process in
the State of Delaware in any proceeding for enforcement of any obligation of
CFB, as well as for enforcement of any obligation of the Surviving Corporation
arising from the Merger, including any suit or other proceedings to enforce the
right of any stockholders as determined in appraisal proceedings pursuant to the
provisions of Section 262 of the DGCL, and irrevocably appoints the Secretary of
State of the State of Delaware as its agent to accept service of process in any
such suit or other proceedings and directs the Secretary of State of the State
of Delaware to mail copies of such process to the following address: One
Maritime Plaza, Suite 825, San Francisco, California 94111.

IN WITNESS WHEREOF, the parties hereto have caused this Plan of
Reorganization and Merger Agreement to be executed by their duly authorized
officers as of the day and year first above written.

<TABLE>
<S> <C> <C>
CALIFORNIA COMMUNITY BANCSHARES, INC.

By: /s/ RONALD W. BACHLI
-----------------------------------------
Ronald W. Bachli, PRESIDENT

By: /s/ J. THOMAS BYROM
-----------------------------------------
J. Thomas Byrom, SECRETARY

CALIFORNIA FINANCIAL BANCORP

By: /s/ HARVEY FERGUSON
-----------------------------------------
Harvey Ferguson, PRESIDENT

By: /s/ KIMBERLY JARDIN
-----------------------------------------
Kimberly Jardin, SECRETARY
</TABLE>

EX-I-5
<PAGE>
CALIFORNIA FINANCIAL BANCORP

CERTIFICATE OF APPROVAL OF

AGREEMENT OF MERGER

The undersigned hereby certify as follows:

(1) They are the President and Secretary, respectively, of California
Financial Bancorp, a California corporation ("CFB).

(2) The Agreement of Merger in the form attached was duly approved by
the Board of Directors of CFB.

(3) The Agreement of Merger has been duly approved by shareholders
holding 100% of the outstanding shares. The corporation has only one class
of shares and the number outstanding is .

- ------------------------------
Harvey Ferguson, PRESIDENT

- ------------------------------
Kimberly Jardin, SECRETARY

The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.

Executed at Fountain Valley, California, on , 1999.

- ------------------------------
Harvey Ferguson, PRESIDENT

- ------------------------------
Kimberly Jardin, SECRETARY

EX-I-6
<PAGE>
CALIFORNIA COMMUNITY BANCSHARES, INC.

CERTIFICATE OF APPROVAL OF

AGREEMENT OF MERGER

The undersigned hereby certify as follows:

(1) They are the President and Secretary, respectively, of California
Community Bancshares, Inc., a Delaware corporation ("CCB")

(2) The Agreement of Merger in the form attached was duly approved by
the Board of Directors of CCB.

(3) The Agreement of Merger has been duly approved by shareholders
holding 100% of the outstanding shares. The corporation has only one class
of shares and the number outstanding is .

- ------------------------------
Ronald W. Bachli., PRESIDENT

- ------------------------------
J. Thomas Byrom, SECRETARY

The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.

Executed at San Francisco, California, on , 1999.

- ------------------------------
Ronald W. Bachli., PRESIDENT

- ------------------------------
J. Thomas Byrom, SECRETARY

EX-I-7
<PAGE>
EXHIBIT II

PLAN OF REORGANIZATION AND MERGER AGREEMENT

BY AND AMONG

CALIFORNIA COMMUNITY BANCSHARES, INC.

THE BANK OF ORANGE COUNTY

AND

SECURITY FIRST BANK
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TABLE OF CONTENTS

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ARTICLE 1. TRANSACTIONS................................................ II-2
1.1. Stock Conversion............................................ II-2
1.2. Fractional Shares........................................... II-2
1.3. Reductions of Capital....................................... II-2
1.4. The Merger.................................................. II-2
1.5. SFB Stock Options and Other Stock Rights.................... II-2
1.6. Surrender of Shares of SFB Common Stock..................... II-3
1.7. No Further Transfers of Shares of SFB Common Stock.......... II-4
1.8. Certain Effects of the Merger............................... II-4
1.9. Closing Date and Transactions Contemplated by this
Agreement................................................. II-4
1.10. Regulatory Approvals........................................ II-4
1.11. Further Action.............................................. II-5

ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SFB....................... II-5
2.1. Organization, Corporate Power, Etc.......................... II-5
2.2. Authorizations and Approvals; Binding Obligation............ II-5
2.3. Capitalization.............................................. II-6
2.4. Financial Statements........................................ II-6
2.5. Joint Proxy Statement/Prospectus; Regulatory
Applications.............................................. II-7
2.6. Books and Records........................................... II-7
2.7. Title to Assets............................................. II-7
2.8. Legal Proceedings and Agreements with Banking
Authorities............................................... II-7
2.9. Compliance with Laws and Regulations........................ II-7
2.10. Performance of Obligations.................................. II-8
2.11. Employees................................................... II-8
2.12. Absence of Certain Changes.................................. II-8
2.13. Undisclosed Liabilities..................................... II-8
2.14. Accuracy and Current Status of Information Furnished........ II-9
2.15. Facts Affecting Regulatory Approvals or Consents............ II-9
2.16. Vote Requirement............................................ II-9
2.17. Effective Date of Representations, Warranties, Covenants and
Agreements................................................ II-9

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF CCB....................... II-9
3.1. Organization, Corporate Power, Etc.......................... II-9
3.2. Authorizations and Approvals; Binding Obligation............ II-9
3.3. Litigation.................................................. II-10
3.4. Joint Proxy Statement/Prospectus and Applications........... II-10
3.5. Facts Affecting Regulatory Approvals or Consents............ II-10
3.6. Accuracy; Completeness of Information....................... II-10

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BOC....................... II-11
4.1. Organization, Corporate Power, Etc.......................... II-11
4.2. Authorizations and Approvals; Binding Obligation............ II-11
4.3. Litigation.................................................. II-11
4.4. Joint Proxy Statement/Prospectus and Applications........... II-12
4.5. Financial Statements........................................ II-12
4.6. Facts Affecting Regulatory Approvals or Consents............ II-12
4.7. Accuracy; Completeness of Information....................... II-12
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ARTICLE 5. COVENANTS................................................... II-12
5.1. Access...................................................... II-12
5.2. Negative Covenants of SFB Prior to Closing.................. II-13
5.3. Affirmative Covenants of SFB Prior to Closing............... II-13
5.4. Conduct of CCB and BOC Prior to Closing..................... II-14
5.5. Affirmative Covenants of CCB and BOC Prior to Closing....... II-15
5.6. Mutual Covenants of SFB, BOC and CCB........................ II-16

ARTICLE 6. CONDITIONS PRECEDENT TO CONTEMPLATED TRANSACTIONS........... II-16
6.1. General Conditions.......................................... II-16
6.2. Conditions to Obligations of CCB and BOC.................... II-17
6.3. Conditions to Obligations of SFB............................ II-18

ARTICLE 7. TERMINATION................................................. II-18
7.1. Termination of this Agreement............................... II-18

ARTICLE 8. GENERAL PROVISIONS.......................................... II-19
8.1. Indemnification............................................. II-19
8.2. Notices..................................................... II-20
8.3. Complete Agreement; Modifications........................... II-21
8.4. Further Actions............................................. II-21
8.5. Assignment.................................................. II-21
8.6. Successors and Assigns...................................... II-21
8.7. Severability................................................ II-21
8.8. Extension Not a Waiver...................................... II-22
8.9. Time of Essence............................................. II-22
8.10. No Third Party Beneficiaries................................ II-22
8.11...... Attorneys' Fees............................................. II-22
8.12. Headings.................................................... II-22
8.13. References.................................................. II-22
8.14. Counterparts................................................ II-22
8.15. Applicable Law.............................................. II-22
8.16. Effect of Disclosure........................................ II-22
8.17. Publicity................................................... II-22
8.18. Knowledge of the Parties.................................... II-22
8.19. Survival of Representations and Warranties.................. II-22
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APPENDICES

APPENDIX A Agreement of Merger by and between CCB, BOC and SFB

APPENDIX B Form of Opinion of Lillick & Charles LLP

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PLAN OF REORGANIZATION AND MERGER AGREEMENT

BY AND AMONG

CALIFORNIA COMMUNITY BANCSHARES, INC.

THE BANK OF ORANGE COUNTY

AND

SECURITY FIRST BANK

This Plan of Reorganization and Merger Agreement (the "Agreement") is made
and entered into as of September 10, 1999 by and among California Community
Bancshares, Inc. ("CCB"), The Bank of Orange County ("BOC"), and Security First
Bank ("SFB").

RECITALS

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A. In contemplation of a corporate reorganization (the
"Corporate Reorganization") of certain subsidiaries of the
California Community Financial Institutions Fund Limited
Partnership, CCB has entered into a Plan of Reorganization
and Merger Agreement (the "Holding Company Agreement") as of
September 10, 1999 pursuant to which California Financial
Bancorp ("CFB") will be merged with and into CCB, with CCB
as the surviving entity (the "Holding Company Merger");

B. As a condition to the Holding Company Merger, SFB shall be
merged with and into BOC pursuant to this Agreement ("the
Merger"); and National Business Bank ("NBB"), a
majority-owned subsidiary of CFB, shall be merged with and
into Downey National Bank ("DNB"), a wholly-owned subsidiary
of CFB, (the "NBB Merger") pursuant to the Plan of
Reorganization and Merger Agreement made and entered into as
of September , 1999 (the "NBB Agreement") (the Merger and
the NBB Merger are collectively referred to herein as the
"Bank Mergers");

C. In consideration of the Holding Company Merger and the Bank
Mergers, CCB has agreed to issue shares of its authorized,
but unissued common stock pursuant to a Registration
Statement to be filed with the Securities and Exchange
Commission (the "Registration Statement");

D. The Boards of Directors of CCB, BOC, and SFB have determined
that it would be in the best interests of their respective
corporations and shareholders, for SFB to be merged with and
into BOC, upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the
California General Corporation Law (the "Corporation Law"),
the Financial Code of the State of California (the
"Financial Code") and other applicable laws;

E. The Boards of Directors of CCB, BOC, and SFB has each
approved this Agreement and the transactions contemplated
hereby;

F. The Boards of Directors of CCB, BOC, and SFB have resolved
to recommend approval of the merger of SFB and BOC to their
respective shareholders, if required by law;

G. Upon consummation of the Merger, BOC will be the surviving
entity (the "Surviving Entity") and upon consummation of the
Holding Company Merger BOC shall be the wholly-owned
subsidiary of CCB;

H. In consideration of the Merger, CCB shall issue 0.0938 share
of its common stock (the "CCB Common Stock") for each share
of SFB Common Stock held at the Effective Time (the
"Exchange Rate") and options to purchase shares of SFB
Common Stock issued pursuant to SFB's stock option plans
that are outstanding;
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I. In connection with the Merger, each of BOC and SFB shall
immediately prior to the Effective time have obtained the
approval of all appropriate regulators to effectuate, and
upon consummation of the Merger shall effectuate, a
reduction of capital through a distribution of cash to CCB
in amounts approved by such regulatory authorities.
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NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

ARTICLE 1. TRANSACTIONS

1.1. STOCK CONVERSION. In consideration of the Merger, immediately upon
the Effective Time of the Merger (all as defined in Section 1.4 hereof), each
share of SFB Common Stock outstanding at the Effective Time (except for shares
of SFB Common Stock which come within the definition of "dissenting shares" as
defined in Section 1300 of the Corporation Law ("Dissenting Shares")) shall by
virtue of the Merger and upon surrender of the certificates representing such
shares, without any action on the part of the holder thereof, be converted into
the right to receive 0.0938 shares of CCB Common Stock.

1.2. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of CCB Common Stock shall be issued to holders of shares of
SFB Common Stock. In lieu thereof, each such holder entitled to a fraction of a
share of CCB Common Stock shall receive, at the time of surrender of the SFB
Certificates, an amount in cash equal to $0.6229 of CCB Common Stock at the
Effective Time, multiplied by the fraction of a share of CCB Common Stock to
which such holder otherwise would be entitled. No such holder shall be entitled
to dividends, voting rights, interest on the value of, or any other rights in
respect of a fractional share.

1.3. REDUCTIONS OF CAPITAL. Immediately prior to the Effective Time, BOC
and SFB shall have obtained the approval of all appropriate regulators to
effectuate, and upon consummation of the Merger shall effectuate, a reduction of
capital through a distribution of cash to CCB in amounts approved by such
regulatory authorities (the "Capital Reductions");

1.4. THE MERGER. SFB shall be merged with and into BOC, with BOC being the
Surviving Entity, by a statutory merger in accordance with the Corporation Law
and the Financial Code, on the terms and subject to the conditions set forth
herein and pursuant to an Agreement of Merger in the form attached hereto as
Appendix A (the "Agreement of Merger"). The Merger shall be effective at the
time (the "Effective Time") at which the Agreement of Merger (together with any
other documents required by law to effectuate the Merger) certified by
California Department of Financial Institutions (the "DFI") shall have been
filed with the Secretary of State of the State of California (the "Secretary of
State") at which time SFB shall cease to exist and BOC shall be the Surviving
Entity.

1.5. SFB STOCK OPTIONS AND OTHER STOCK RIGHTS.

1.5.1. Schedule 1.5(a) sets forth all outstanding options to purchase
shares of SFB Common Stock ("SFB Stock Option(s)") under the SFB Employee
Stock Option Plan and the SFB Director Stock Option Plan (the "SFB Stock
Option Plans"; Schedule 1.5(b) sets forth all of the Pacific Inland Bancorp
debentures convertible into SFB Common Stock outstanding as of the date of
this Agreement.

1.5.2. SFB STOCK OPTIONS. At the Effective Time, the obligations under
the SFB Stock Option Plans shall terminate.

1.5.3. CONVERTIBLE DEBENTURES. At the Effective Time, SFB's
obligations under the Convertible Debentures shall be assumed by CCB. At the
Effective Time, SFB Common Stock issuable pursuant to Convertible Debentures
that are outstanding shall be converted, without any action on the part of
the holders thereof, into options to acquire, upon payment of the adjusted

EX-II-2
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conversion price (which shall equal the conversion price per share for
shares issuable under the Debentures immediately prior to the Merger,
divided by the Exchange Ratio), the number of shares of CCB Common Stock the
debenture holder would have received pursuant to the Merger if he or she had
exercised all his or her debentures immediately prior thereto.

1.5.4. CAPITAL APPRECIATION RIGHTS. At the Effective Time of the
Merger, all rights pursuant to SFB's outstanding Capital Appreciation Rights
shall remain outstanding through December 31, 1999. At the Effective Time,
SFB Common Stock becomes issuable pursuant to the Capital Appreciation
Rights that are outstanding shall be converted, without any action on the
part of the holders thereof, into options to acquire, upon payment of the
adjusted conversion price (which shall equal the conversion price per share
for shares issuable under the Capital Appreciation Rights immediately prior
to the Merger, divided by the Exchange Ratio), the number of shares of CCB
Common Stock the Capital Appreciation Rights holder would have received
pursuant to the Merger if he or she had exercised all his or her Capital
Appreciation Rights immediately prior thereto.

1.6. SURRENDER OF SHARES OF SFB COMMON STOCK.

1.6.1. Prior to the Effective Time, CCB shall appoint a bank or trust
company (having capital of at least $50 million) mutually acceptable to SFB
and CCB, as exchange agent (the "Exchange Agent") for the purpose of
exchanging certificates representing the CCB Common Stock, and at and after
the Effective Time, CCB shall issue and deliver to the Exchange Agent
certificates representing the shares of CCB Common Stock, as shall be
required to be delivered to holders of shares of SFB Common Stock as shall
be required to be delivered to holders of shares of SFB Common Stock
pursuant to Section 1.1 of this Agreement. As soon as practicable after the
Effective Time, each holder of shares of SFB Common Stock converted pursuant
to Section 1.1. upon surrender to the Exchange Agent of one or more SFB
Certificates for cancellation, will be entitled to receive a certificate
representing the number of shares of CCB Common Stock determined in
accordance with Section 1.1 and a payment in cash with respect to fractional
shares, if any, determined in accordance with Section 1.2.

1.6.2. No dividends or other distributions of any kind which are
declared payable to shareholders of record of the shares of CCB Common Stock
after the Effective Time will be paid to persons entitled to receive such
certificates for shares of CCB Common Stock until such persons surrender
their SFB Certificates. Upon surrender of such SFB Certificate, the holder
thereof shall be paid, without interest, any dividends or other
distributions with respect to the shares of CCB Common Stock as to which the
record date and payment date occurred on or after the Effective Time and on
or before the date of surrender.

1.6.3. If any certificate for shares of CCB Common Stock is to be
issued in a name other than that in which the SFB Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay to the Exchange Agent any
transfer costs, taxes or other expenses required by reason of the issuance
of certificates for such shares of CCB Common Stock in a name other than the
registered holder of the SFB Certificate surrendered, or such persons shall
establish to the satisfaction of CCB and the Exchange Agent that such costs,
taxes or other expenses have been paid or are not applicable.

1.6.4. All dividends or distributions, and any cash to be paid in lieu
of fractional shares pursuant to Section 1.2, if held by the Exchange Agent
for payment or delivery to the holders of unsurrendered SFB Certificates
representing shares of SFB Common Stock and unclaimed at the end of one year
from the Effective Time, shall (together with any interest earned thereon)
at such time be paid or redelivered by the Exchange Agent to CCB, and after
such time any holder of a SFB Certificate who has not surrendered such SFB
Certificate to the Exchange Agent shall,

EX-II-3
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subject to applicable law, look as a general creditor only to CCB for
payment or delivery of such dividends or distributions or cash, as the case
may be.

1.7. NO FURTHER TRANSFERS OF SHARES OF SFB COMMON STOCK. At the Effective
Time the stock transfer books of SFB shall be closed and no transfer of shares
of SFB Common Stock theretofore outstanding shall thereafter be made.

1.8. CERTAIN EFFECTS OF THE MERGER. The Articles of Incorporation and
Bylaws of BOC as in effect immediately prior to the Effective Time shall
continue to be the Articles of Incorporation and Bylaws of the Surviving Entity
following the Merger. The members of the Board of Directors of the Surviving
Entity immediately after the Effective Time shall be the persons listed as such
in the Agreement of Merger. At the Effective Time, the separate existence of SFB
shall cease, and SFB shall be merged into BOC which, as the Surviving Entity,
shall thereupon and thereafter possess all the rights, privileges, powers and
franchises, of a public or of a private nature, of each of SFB and BOC, shall be
subject to all restrictions, disabilities and duties of each of SFB and BOC, and
shall continue its corporate existence as a California corporation.

1.9. CLOSING DATE AND TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. Consummation of the transactions contemplated by this Agreement (the
"Closing") shall, unless another date or place is agreed to in writing by the
parties hereto, take place at the offices of CCB, One Maritime Plaza,
Suite 825, San Francisco, California on the fifteenth Business Day after the
last to occur of (i) the receipt of all Regulatory Approvals and the expiration
of all applicable waiting periods; and (ii) satisfaction of the conditions
precedent set forth in Sections 6.1, 6.2 and 6.3 or written waiver of such
conditions by CCB, BOC, or SFB, as applicable (the "Closing Date").

1.10. REGULATORY APPROVALS. The Closing shall be subject to receipt and
continued effectiveness, without the imposition of (A) any condition or
commitment which would, in the reasonable opinion of CCB and BOC, be unduly
burdensome on the business and operations of CCB or the Surviving Entity as
conducted and as anticipated by CCB and BOC to be conducted subsequent to the
Closing Date or (B) any condition or requirement which, in the reasonable
opinion of CCB so materially and adversely affects the anticipated economic and
business benefits to CCB of the transactions contemplated by this Agreement as
to render consummation of such transactions inadvisable (in which case CCB shall
promptly notify SFB) (each a "Prohibited Condition"), of (i) the approval
required to be received by BOC from the Board of Governors of the Federal
Reserve System (the "FRB") pursuant to Section 18(c) of the Federal Deposit
Insurance Act ("the Bank Merger Act") or to be received by CCB from the FRB
pursuant to Section 3 of the Bank Holding Company Act of 1956, as amended (the
"BHCA"), if required; (ii) the approval required to be received by CCB from the
California Commissioner of Financial Institutions (the "Commissioner") under
Section 700 et seq. of the Financial Code to acquire control of SFB and by BOC
pursuant to Sections 4880 to 4891 of the Financial Code to merge with SFB; and
(iii) any other approval, order or notice of non-objection required to be
obtained by CCB, BOC, or SFB from any Governmental Authority, (referred to
individually as a "Regulatory Approval" and collectively as the "Regulatory
Approvals") in connection with any of the transactions contemplated by this
Agreement. For purposes of this Agreement, no condition, requirement or
disapproval imposed by the FRB, the Commissioner or any other United States
federal or state bank regulatory agency shall be deemed a Prohibited Condition
if such condition does not materially differ from conditions regularly imposed
by the FRB, the Commissioner or such other United States federal or state bank
regulatory agency in orders approving transactions of the type contemplated by
this Agreement and compliance with such condition, requirement or disapproval
would not (X) require the taking of any action inconsistent with the manner in
which SFB and BOC have conducted their respective businesses previously or as
contemplated by this Agreement; (Y) have a material adverse effect on the
financial condition, results of operations or prospects of CCB or BOC; or
(Z) preclude satisfaction of any of the conditions to consummation of the
transactions contemplated by this Agreement.

EX-II-4
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1.11. FURTHER ACTION. In case at any time (whether before or after the
Closing) any further action is necessary or appropriate to carry out the
purposes of and transactions contemplated by this Agreement, the appropriate
party or parties shall take such action as promptly as practicable. If at any
time the Surviving Entity, SFB, or CCB shall consider or be advised that any
further assignments or assurances are necessary or appropriate according to the
terms hereof to vest in the Surviving Entity the title of any property or rights
of SFB, the acting officers and directors of SFB shall execute and make all such
assignments, assurances, agreements and other documents and do all things
necessary or advisable to vest title in such property or rights in the Surviving
Entity, and otherwise to carry out the purposes of this Agreement.

ARTICLE 2. REPRESENTATIONS AND
WARRANTIES OF SFB

SFB represents and warrants to CCB and BOC as follows:

2.1. ORGANIZATION, CORPORATE POWER, ETC. SFB is a California corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently conducted. SFB has all requisite corporate power and authority to
enter into this Agreement and, subject to receipt of the Regulatory Approvals
and approval by the holders of a majority of the issued and outstanding shares
of SFB Common Stock, to perform its obligations hereunder with respect to the
consummation of the transactions contemplated hereby. Neither the scope of the
business of SFB, nor the location of any of its properties requires that SFB be
licensed or qualified to do business in any jurisdiction other than the State of
California.

2.2. AUTHORIZATIONS AND APPROVALS; BINDING OBLIGATION.

2.2.1. The execution and delivery by SFB of this Agreement and the
Agreement of Merger and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action on the part of SFB, subject only to the approval of this Agreement,
the Agreement of Merger and the Merger by the holders of a majority of the
issued and outstanding shares of SFB Common Stock. This Agreement has been
duly executed and delivered by SFB, subject to receipt of the Regulatory
Approvals and constitutes the legal, valid and binding obligation of SFB,
enforceable in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the rights of creditors generally and the availability of
equitable remedies). The Agreement of Merger will, upon receipt of all
necessary Regulatory Approvals and upon due certification, execution,
acknowledgment and filing thereof in accordance with Applicable Law, be the
valid and binding obligation of SFB, enforceable in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally
and the availability of equitable remedies). The term "Applicable Law" as
used herein and throughout this Agreement shall mean any domestic or
foreign, federal, state or local, statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental
Authority applicable, in the case of SFB to SFB or to its respective
properties, assets, officers, directors, employees or agents (in connection
with such officers', directors,' employees' or agents' activities on behalf
of it), and, in the case of the CCB or BOC, or its properties, assets,
officers, directors, employees or agents (in connection with such officers',
directors', employees' or agents' activities on behalf of it). Except for
the approval of the holders of a majority of the issued and outstanding
shares of SFB Common Stock and the Regulatory Approvals, no other approvals
or consents from any person are necessary for SFB to enter into and perform
this Agreement or the Agreement of Merger and to merge with BOC.

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2.2.2. Except as set forth in Schedule 2.2.2, neither the execution and
delivery by SFB of this Agreement or the Agreement of Merger nor the
consummation of the transactions contemplated herein or therein, or
compliance by SFB with the provisions hereof or thereof, will (i) conflict
with or result in a breach of any provision of its Articles of Incorporation
or Bylaws; (ii) constitute a breach of, or result in a default (or give rise
to any rights of termination, cancellation or acceleration, or any right to
acquire any securities or assets) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, franchise, license,
permit, agreement or other instrument or obligation to which SFB is a party,
or by which SFB or any of its respective properties or assets are bound,
except where such breach or default would not have a material adverse effect
on the business, assets, financial condition, results of operations or
prospects of SFB taken as a whole, or on the ability of SFB to perform its
respective obligations under this Agreement or to consummate the
transactions contemplated by this Agreement (a "Material Adverse Effect");
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to SFB.

2.2.3. No consent or approval of, notice to or filing with any
Governmental Authority having jurisdiction over any aspect of the business
or assets of SFB, and except as set forth in Schedule 2.2.3, no consent or
approval of or notice to any other person or entity, is required in
connection with the execution and delivery by SFB of this Agreement or by
SFB of the Agreement of Merger or the consummation by SFB of the
transactions contemplated hereunder or thereunder, except approval of the
Merger by the holders of a majority of the issued and outstanding shares of
SFB Common Stock and the Regulatory Approvals. The term "Governmental
Authority" as used herein and throughout this Agreement shall mean any
foreign, domestic, federal, territorial, state or local governmental
authority, court, or any regulatory, administrative or other agency, or any
political or other subdivision, department or branch of any of the foregoing
having jurisdiction over the business or any of the assets or properties of
any of the parties hereto.

2.3. CAPITALIZATION. The authorized capitalization of SFB consists of
50 million shares of SFB Common Stock, of which 17,326,800 shares are issued and
outstanding and 5 million shares of SFB Preferred Stock, of which no shares are
outstanding. All of the outstanding shares of SFB Common Stock are validly
issued, fully paid and nonassessable. Except 3,685,037 shares issuable pursuant
to the Convertible Debentures, 0 shares issuable pursuant to the Capital
Appreciation Rights, 2,500,000 shares issued pursuant to that certain Stock
Subscription and Purchase Agreement between CCB and SFB; and 172,000 shares of
SFB Common Stock granted pursuant to the SFB Stock Plans, there are no
outstanding options, warrants, commitments, agreements or other rights in or
with respect to the unissued shares of SFB Common Stock, or any other securities
convertible into SFB Common Stock. Schedule 1.5(a) sets forth the name of each
holder of an option granted under the SFB Stock Option Plan, the number of
shares of SFB Common Stock covered by each such holder's option, the exercise
price per share and the expiration date of each such holder's option;
Schedule 1.5(b) sets forth all of the Pacific Inland Bancorp debentures
convertible into SFB common stock outstanding as of the date of the Agreement.

2.4. FINANCIAL STATEMENTS. SFB has furnished to CCB and BOC its unaudited
consolidated balance sheet as of June 30, 1999 and the related statements of
operations, cash flows and changes in shareholders' equity for the period then
ended ("SFB's 1999 Unaudited Financial Statements"). SFB has also furnished to
CCB and BOC its audited consolidated balance sheets as of December 31, 1998,
1997 and the related statements of operations, cash flows and changes in
shareholders' equity for the years then ended and the related notes thereto, and
the accompanying audit reports of Deloitte & Touche LLP (collectively, "SFB's
Audited Financial Statements"). SFB's Audited Financial Statements and SFB's
1999 Unaudited Financial Statements were prepared, and all interim financial
statements to be delivered to CCB and BOC pursuant to this Agreement will be
prepared, in accordance with GAAP and RAP, except as disclosed in the notes
thereto and will present fairly the financial position of SFB

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as of the dates thereof and the results of operations, cash flows and changes in
shareholders'equity for the periods then ended. None of SFB's Audited Financial
Statements and none of the interim financial statements to be delivered to CCB
and BOC pursuant to this Agreement contain or will, when delivered, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading.

2.5. JOINT PROXY STATEMENT/PROSPECTUS; REGULATORY APPLICATIONS. The
prospectus of CCB and the Joint Proxy Statement of CCB, SFB and NBB soliciting
shareholder approval of the Holding Company Merger, the Merger and the NBB
Merger (together the "Joint Proxy Statement/Prospectus") and the Registration
Statement and any other documents to be filed with any Governmental Authority in
connection with the transactions contemplated by this Agreement (including, but
not limited to, all applications for Regulatory Approvals to be filed by SFB)
with respect to all information set forth therein relating to SFB, the Merger
and in respect to this Agreement and the Agreement of Merger, at the respective
times such documents are filed or become effective, and with respect to the
Joint Proxy Statement/Prospectus, at the time of mailing to SFB shareholders and
at the time of the SFB shareholders' meeting, will, assuming receipt of all
information regarding CCB and BOC reasonably requested by SFB (i) comply in all
material respects with the provisions of Applicable Law; and (ii) not contain
any statement which, at the time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or omit
any material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.

2.6. BOOKS AND RECORDS. The minute books and records of SFB provided to
CCB and BOC contain (i) true, accurate and complete records of all meetings and
actions taken by the Boards of Directors, Board committees and shareholders of
SFB and (ii) true and complete copies of their respective Articles of
Incorporation and Bylaws and all amendments thereto. The books and records of
SFB accurately reflect in all material aspects their respective businesses and
affairs.

2.7. TITLE TO ASSETS. SFB has good and marketable title to all material
properties and assets owned or purported to be owned by SFB, free and clear of
all mortgages, liens, encumbrances, pledges or charges of any kind or nature,
except for (i) liens for current taxes not yet due and payable; (ii) liens
incurred in the ordinary course of business and which do not materially impair
the respective businesses of SFB, or materially detract from the usefulness of
the properties subject thereto; or (iii) such liens as are disclosed in SFB's or
SFB's Financial Statements as of December 31, 1998, or in Schedule 2.7.

2.8. LEGAL PROCEEDINGS AND AGREEMENTS WITH BANKING AUTHORITIES. There are
no actions, suits, arbitrations or administrative or other proceedings or
investigations pending, or to SFB's knowledge, threatened against SFB before any
court, governmental body, commission, board or administrative officer, bureau or
agency, whether foreign, federal, state or local, seeking to prevent or
challenging in any other manner the consummation of the transactions
contemplated hereby, the Merger, or the legality of such transactions or the
Merger. SFB is not subject to any order, writ, injunction or decree of any
person which would have the effect set forth above.

2.9. COMPLIANCE WITH LAWS AND REGULATIONS. SFB has conducted its business
in accordance with all applicable federal, foreign, state and local laws,
regulations and orders, including without limitation, disclosure, usury, equal
credit opportunity, equal employment, fair credit reporting, community
reinvestment, antitrust, licensing and other laws, regulations and orders, and
the forms, procedures and practices used by SFB are in compliance with such
laws, regulations and orders, except for such violations or noncompliance as
will not have a Material Adverse Effect.

EX-II-7
<PAGE>
2.10. PERFORMANCE OF OBLIGATIONS. Except as set forth in
Schedule 2.10(a), SFB has performed in all respects all of the obligations
required to be performed by it to date and is not in default under or in breach
of any term or provision of any covenant, contract, lease, indenture or any
other agreement to which SFB is a party or is subject or is otherwise bound, and
no event has occurred which, with the giving of notice or the passage of time or
both, would constitute such default or breach, where such default or breach
would have a Material Adverse Effect. No party with whom SFB has an agreement
which is material to the financial condition, results of operations or prospects
of SFB is in default thereunder, except as set forth in Schedule 2.10(b).

2.11. EMPLOYEES. Except as set forth in Schedule 2.11(a), there are no
written understandings or, to the best knowledge of SFB, any other
understandings, for the employment of any officer, contingent worker or employee
of SFB which are not terminable by SFB, as the case may be, without liability
and without notice for any reason or no reason. Except as set forth in
Schedule 2.11 (b), there are no controversies pending or threatened between SFB
and any of their respective directors, officers, contingent workers or
employees. Except as disclosed in SFB's Audited Financial Statements as of
December 31, 1998 and in Schedule 2.11(c), all material sums due for director,
officer, contingent worker and employee compensation and benefits have been duly
and adequately paid or provided for, and all deferred compensation obligations
for such persons are fully funded. SFB is not a party to any collective
bargaining agreement with respect to any of its employees or any labor
organization to which its employees or any of them belong. Except as set forth
in Schedule 2.11(d), no director, officer, contingent worker or employee of SFB
is entitled to receive any payment of any amount under any existing employment
agreement, severance plan or other benefit plan as a result of the consummation
of any transaction contemplated by this Agreement.

2.12. ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 2.12,
since December 31, 1998, the business of SFB has been conducted diligently and
only in the ordinary course, in the same manner as theretofore conducted, and
there has not been any:

2.12.1. Change in, or development in the business of SFB which is
likely to have a Material Adverse Effect;

2.12.2. Damage, destruction or loss to property (whether or not covered
by insurance), individually or in the aggregate, that could have a Material
Adverse Effect;

2.12.3. Material contract, agreement, license or understanding which
SFB has entered into or to which SFB is a party which has been terminated or
amended other than in the ordinary course of business;

2.12.4. Labor trouble, dispute or problem of any character involving
employees or contingent workers of SFB which could have a Material Adverse
Effect;

2.12.5. Change in accounting policies or practices;

2.12.6. Material revaluation by SFB of any of its assets except as
required by GAAP;

2.12.7. Waiver or release of any right or claim of SFB except in the
usual and ordinary course of business; or

2.12.8. Declaration, setting aside or payment of any dividend or
distribution with respect to SFB Common Stock or the issuance of any shares
of, or options to purchase, SFB Common Stock or any other securities of SFB.

2.13. UNDISCLOSED LIABILITIES. SFB has no liabilities or obligations,
either accrued or contingent, which are material to SFB, and which have not been
either (i) reflected or disclosed in SFB's Audited Financial Statements as of
December 31, 1998 or (ii) disclosed in Schedule 2.13(a). SFB knows of no basis
for the assertion against SFB of any liability, obligation or claim (including,
without limitation,

EX-II-8
<PAGE>
that of any Governmental Authority) that might result in or cause a Material
Adverse Effect which is not fairly reflected in its Audited Financial Statements
or otherwise disclosed in Schedule 2.13(b).

2.14. ACCURACY AND CURRENT STATUS OF INFORMATION FURNISHED. The
representations and warranties made by SFB hereby or in the Schedules attached
hereto contain no statements of fact which are untrue or misleading, or omit any
material fact which is necessary under the circumstances to prevent the
statements contained herein or in such Schedules from being misleading. SFB
hereby covenants that it shall, not later than the 15th day of each calendar
month between the date hereof and the Closing Date, amend or supplement the
Schedules prepared and delivered pursuant to this Article 2 to ensure that the
information set forth in such Schedules accurately reflects the then-current
status of SFB. SFB shall further amend or supplement the Schedules as of the
Closing Date if necessary to reflect any additional changes in the status of
SFB. No amendment or supplement of the Schedules required by the preceding two
sentences shall affect the conditions to the obligations of SFB to consummate
the transactions contemplated by this Agreement, and any and all changes or
additions contained in any such amendment or supplement shall be considered in
determining whether such conditions have been satisfied.

2.15. FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to SFB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

2.16. VOTE REQUIREMENT. The affirmative vote of the holders of a majority
of the]issued and outstanding shares of SFB Common Stock entitled to vote on the
record date for the meeting of shareholders of SFB at which the Merger will be
considered is the only vote of any class or series of SFB capital stock
necessary to approve the Agreement, the Agreement of Merger, and the
transactions contemplated herein and therein.

2.17. EFFECTIVE DATE OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Each representation, warranty, covenant and agreement of SFB set
forth in this Agreement shall be deemed to be made on and as of the date of this
Agreement and as of the Closing Date, except for those representations and
warranties which expressly are made as of a specified date, which
representations and warranties shall be deemed made on and as of such date.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF CCB

CCB represents and warrants to BOC and SFB as follows:

3.1. ORGANIZATION, CORPORATE POWER, ETC. CCB is a Delaware corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently conducted. CCB has all requisite corporate power and authority to
enter into this Agreement and, subject to receipt of the Regulatory Approvals
and approval by the holders of a majority of the issued and outstanding shares
of CCB Common Stock, to perform its obligations hereunder with respect to the
consummation of the transactions contemplated hereby. Neither the scope of the
business of CCB, nor the location of any of its properties requires that CCB be
licensed or qualified to do business in any jurisdiction other than the States
of California or Delaware.

3.2. AUTHORIZATIONS AND APPROVALS; BINDING OBLIGATION.

3.2.1. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, have been duly
authorized and approved by all necessary action on the part of CCB. This
Agreement has been duly executed and delivered by CCB and, subject to
receipt of the Regulatory Approvals, constitutes the legal, valid and
binding obligation of CCB, enforceable in accordance with its terms (except
as may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and the

EX-II-9
<PAGE>
availability of equitable remedies). The Agreement of Merger will, upon
receipt of all necessary Regulatory Approvals and of approval of CCB's
shareholders and upon due certification, execution, acknowledgment and
filing thereof in accordance with Applicable Law, be the valid and binding
obligation of CCB, enforceable in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies). Except for the Regulatory Approvals and approval of the
shareholders of CCB, no other approvals or consents from any person are
necessary for CCB to enter into and perform this Agreement or for CCB to
enter into and perform the Agreement of Merger.

3.2.2. Neither the execution and delivery by CCB of this Agreement or
the execution and delivery by CCB of the Agreement of Merger nor, subject to
the receipt of the Regulatory Approvals, the consummation of the
transactions contemplated herein or therein, or compliance by CCB with the
provisions hereof or thereof, will (i) conflict with or result in a breach
of any provision of the Articles of Incorporation and Bylaws of CCB;
(ii) constitute a breach of, or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire
any securities or assets) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which CCB is a party, or by
which CCB or any of its respective properties or assets are bound, except
where such breach or default would not have a material adverse effect on the
ability of CCB to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement; or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to CCB.

3.3. LITIGATION. There are no actions, suits, arbitrations or
administrative or other proceedings or investigations pending, or to CCB's
knowledge, threatened against CCB before any court, governmental body,
commission, board or administrative officer, bureau or agency, whether foreign,
federal, state or local, seeking to prevent or challenging in any other manner
the consummation of the transactions contemplated hereby, the Merger, or the
legality of such transactions or the Merger. CCB is not subject to any order,
writ, injunction or decree of any person which would have the effect set forth
above.

3.4. JOINT PROXY STATEMENT/PROSPECTUS AND APPLICATIONS.

3.4.1. The information furnished by CCB with respect to the Joint Proxy
Statement/ Prospectus and the Registration Statement, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading.

3.4.2. When the applications for Regulatory Approvals, including all
amendments and supplements thereto, to be filed by CCB are accepted for
filing, they will, assuming receipt of all information regarding BOC and SFB
reasonably requested by CCB from BOC and SFB, comply with all Applicable
Laws.

3.5. FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to CCB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

3.6. ACCURACY; COMPLETENESS OF INFORMATION. The representations,
warranties and other statements of CCB contained in this Agreement are true and
correct in all material respects and CCB has not failed to state any material
fact necessary to make such representations, warranties and other statements not
misleading in light of the circumstances in which they are made.

EX-II-10
<PAGE>
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BOC

BOC represents and warrants to CCB and SFB as follows:

4.1. ORGANIZATION, CORPORATE POWER, ETC. BOC is a California corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently conducted. BOC has all requisite corporate power and authority to
enter into this Agreement and, subject to receipt of the Regulatory Approvals
and approval by the holders of a majority of the issued and outstanding shares
of BOC Common Stock, to perform its obligations hereunder with respect to the
consummation of the transactions contemplated hereby. Neither the scope of the
business of BOC, nor the location of any of its properties requires that BOC be
licensed or qualified to do business in any jurisdiction other than the State of
California.

4.2. AUTHORIZATIONS AND APPROVALS; BINDING OBLIGATION.

4.2.1. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, have been duly
authorized and approved by all necessary action on the part of BOC. This
Agreement has been duly executed and delivered by BOC and, subject to
receipt of the Regulatory Approvals, constitutes the legal, valid and
binding obligation of BOC, enforceable in accordance with its terms (except
as may be limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the rights of creditors generally and the
availability of equitable remedies). The Agreement of Merger will, upon
receipt of all necessary Regulatory Approvals and approval of BOC's
shareholder and upon due certification, execution, acknowledgment and filing
thereof in accordance with Applicable Law, be the valid and binding
obligation of BOC, enforceable in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the rights of creditors generally and the availability of
equitable remedies). Except for the Regulatory Approvals and approval of the
shareholder of BOC, no other approvals or consents from any person are
necessary for BOC to enter into and perform this Agreement or for BOC to
enter into and perform the Agreement of Merger.

4.2.2. Neither the execution and delivery by BOC of this Agreement or
the execution and delivery by BOC of the Agreement of Merger nor, subject to
the receipt of the Regulatory Approvals, the consummation of the
transactions contemplated herein or therein, or compliance by BOC with the
provisions hereof or thereof, will (i) conflict with or result in a breach
of any provision of the Articles of Incorporation and Bylaws of BOC;
(ii) constitute a breach of, or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire
any securities or assets) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which BOC is a party, or by
which BOC or any of its respective properties or assets are bound, except
where such breach or default would not have a material adverse effect on the
ability of BOC to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement; or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to BOC.

4.3. LITIGATION. There are no actions, suits, arbitrations or
administrative or other proceedings or investigations pending, or to BOC's
knowledge, threatened against BOC before any court, governmental body,
commission, board or administrative officer, bureau or agency, whether foreign,
federal, state or local, seeking to prevent or challenging in any other manner
the consummation of the transactions contemplated hereby, the Merger, or the
legality of such transactions or the Merger. BOC is not subject to any order,
writ, injunction or decree of any person which would have the effect set forth
above.

EX-II-11
<PAGE>
4.4. JOINT PROXY STATEMENT/PROSPECTUS AND APPLICATIONS.

4.4.1. The information furnished by BOC with respect to the Joint Proxy
Statement/ Prospectus and the Registration Statement, will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading.

4.4.2. When the applications for Regulatory Approvals, including all
amendments and supplements thereto, to be filed by BOC are accepted for
filing, they will, assuming receipt of all information regarding CCB and SFB
reasonably requested by BOC from CCB and SFB, comply with all Applicable
Laws.

4.5. FINANCIAL STATEMENTS. BOC has furnished to CCB and SFB its unaudited
consolidated balance sheet as of June 30, 1999 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
period and the related notes thereto ("BOC's 1999 Unaudited Financial
Statements"). BOC has also furnished to CCB and SFB its audited consolidated
balance sheets as of December 31, 1998, 1997 and 1996, and the related
statements of operations, cash flows and changes in shareholders' equity for the
years then ended and the related notes thereto, and the accompanying audit
reports of Deloitte & Touche LLP (collectively, "BOC's Audited Financial
Statements"). BOC's Audited Financial Statements and BOC's 1999 Unaudited
Financial Statements were prepared, and all interim financial statements to be
delivered to CCB and SFB pursuant to this Agreement will be prepared, in
accordance with GAAP and RAP, except as disclosed in the notes thereto and
presented therein and will present fairly the financial position of BOC as of
the dates thereof and the results of operations, cash flows and changes in
shareholders' equity for the periods then ended. None of BOC's Audited Financial
Statements and none of the interim financial statements to be delivered to CCB
and SFB pursuant to this Agreement contain or will, when delivered, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading.

4.6. FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to BOC which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

4.7. ACCURACY; COMPLETENESS OF INFORMATION. The representations,
warranties and other statements of BOC contained in this Agreement are true and
correct in all material respects and BOC has not failed to state any material
fact necessary to make such representations, warranties and other statements not
misleading in light of the circumstances in which they are made.

ARTICLE 5. COVENANTS

5.1. ACCESS.

5.1.1. Each party shall have the right, on reasonable notice and during
ordinary business hours, to examine through its agents, auditors and
attorneys all of the books, records and properties of each other party
including but not limited to all loan, investment, accounting, property and
legal records and files. Such examination shall be made in a manner that
will not unreasonably interfere with the conduct of the business of the
party being examined.

5.1.2. Each party shall retain in confidence and shall require its
employees, consultants, professional representatives and agents to retain in
confidence, all information gained thereby, and shall not reveal it to
anyone except as may be necessary for the accomplishment of the purposes of
such examination and the consummation of the transactions provided for
hereby.

EX-II-12
<PAGE>
5.2. NEGATIVE COVENANTS OF SFB PRIOR TO CLOSING. Between the date hereof
and the Effective Time:

5.2.1. SFB agrees not to conduct its business other than in the normal
and customary manner and in accordance with safe and sound banking practices
and not to carry on its business except in substantially the same manner as
heretofore conducted or introduce any new method of management or operation
with respect to its business and properties, except in a manner consistent
with prior practice and in the ordinary course of business.

5.2.2. SFB shall take no action which would or is reasonably likely to
(i) adversely affect the ability of CCB, BOC, or SFB to obtain any necessary
Regulatory Approvals; (ii) adversely affect the ability of SFB to obtain any
consents referred to in Section 2.2; (iii) adversely affect the ability of
SFB, BOC or CCB to perform their respective covenants and agreements under
this Agreement or the Agreement of Merger, or (iv) result in any of the
conditions to the Merger set forth in Article 6 not being satisfied.

5.3. AFFIRMATIVE COVENANTS OF SFB PRIOR TO CLOSING. Between the date
hereof and the Effective Time, SFB, as the case may be, shall do the following:

5.3.1. Use its commercially reasonable best efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Article 6 hereof;

5.3.2. Use and devote its commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact its present business
organization and to maintain and preserve its relationships and goodwill
with account holders, borrowers, employees, contingent workers and others
having business relationships with it;

5.3.3. Advise CCB and BOC promptly in writing of any material adverse
change known to it including, but not limited to, any matter which could
have a Material Adverse Effect, or of any matter which would make the
representations and warranties set forth in Article 2 hereof not true and
correct in any material respect at the Closing or in the event it determines
that the Merger will not be consummated because of its inability to meet any
of the conditions set forth in Article 6 hereof;

5.3.4. Keep in full force and effect all of its existing permits and
licenses;

5.3.5. Perform its material contractual obligations and not become in
material default on any of such obligations;

5.3.6. Duly observe and conform to all legal requirements applicable to
its business;

5.3.7. Duly and timely file all reports and returns required to be
filed with any Governmental Authority, unless any extensions have been duly
granted by such authority;

5.3.8. Maintain its assets and properties in good condition and repair,
normal wear and tear excepted;

5.3.9. SFB agrees that through the Effective Time, as of their
respective dates, (i) all SFB Filings will be true and complete in all
material respects; and (ii) each SFB Filing will comply in all material
respects with all of the Applicable Laws enforced or promulgated by the
Governmental Authority with which it will be filed, and none will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they will be made, not misleading.
Any financial statement contained in any of such SFB Filings that is
intended to present the financial position of SFB will fairly present the
financial position of SFB during the periods involved, and will be prepared
in accordance with GAAP or RAP, except as stated therein;

EX-II-13
<PAGE>
5.3.10. SUBMISSION TO SFB SHAREHOLDERS; PREPARATION OF CCB REGISTRATION
STATEMENT AND/ JOINT PROXY STATEMENT/PROSPECTUS:

(1) If required, not later than 120 days after execution of this
Agreement, unless extended with the consent of CCB and BOC, SFB shall
take all such actions as may be required to convene a meeting of its
shareholders to consider and vote upon the transactions contemplated
hereby and all requisite matters incident thereto for the approval of its
shareholders. SFB shall recommend by the unanimous approval of its
directors that its shareholders vote in favor of approval of the
transactions contemplated hereby and will use its best efforts to obtain
from its shareholders approval of this Agreement and the Agreement of
Merger in accordance with the requirements of the Corporation Law and all
other Applicable Laws. This Section 5.3.10(1) shall not be construed to
require the Board of Directors of SFB to take any action that such Board
determines in good faith and upon written advice of counsel, should not
be taken in order for such Board to comply with its fiduciary duties. In
obtaining such approval of shareholders, SFB and its officers and
directors shall comply with applicable provisions of the Securities
Exchange Act of 1934 (the "Exchange Act"), and the Securities Act of 1933
(the "Securities Act") and all other Applicable Laws. SFB shall take such
measures as CCB and BOC may reasonably request to obtain an adequate
shareholder response for the approval of this Agreement and the Agreement
of Merger.

(2) SFB shall prepare as soon as practicable after the date hereof
information for use in connection with the Joint Proxy
Statement/Prospectus and such meeting and shall as soon as practicable
thereafter cause such proxy materials to be filed with, and if necessary,
approved by the DFI. SFB shall cause such proxy statement to be mailed to
the shareholders of SFB. The Joint Proxy Statement/Prospectus shall be
included in a Registration Statement registering shares of CCB Common
Stock to be issued as consideration for the Merger (the "Registration
Statement"). CCB shall have responsibility for the preparation of the
Joint Proxy Statement/ Prospectus and the Registration Statement. SFB
shall have responsibility for furnishing to CCB for inclusion in the
Joint Proxy Statement/Prospectus and the Registration Statement,
information concerning the SFB which, in the opinion of counsel for SFB,
is necessary or appropriate in order to comply with the requirements of
the Corporation Law, the Exchange Act, the Securities Act, and all other
Applicable Laws and which is not reasonably objectionable to the CCB's
counsel. CCB shall not submit the Joint Proxy Statement/ Prospectus to
the DFI and the Registration Statement to the SEC, or mail the final
Joint Proxy Statement/Prospectus, without giving SFB and BOC and their
counsel at least five (5) Business Days to comment on such proxy
materials and CCB shall incorporate therein all reasonable comments of
BOC and SFB and their counsel.

(3) If the Merger is approved by vote of the holders of a majority of
the issued and outstanding shares of SFB Common Stock, then within ten
(10) days thereafter SFB shall send to each holder of Dissenting Shares
the notice required to be given to record holders of Dissenting Shares
pursuant to Section 1301 of the Corporation Law.

(4) SFB shall obtain (and deliver a copy thereof to CCB and BOC prior
to distribution of the Joint Proxy Statement/Prospectus), a written
opinion from Carpenter & Company dated the date of distribution of the
Joint Proxy Statement/Prospectus (the "Fairness Opinion"), to the effect
that the consideration and other terms of the Merger and this Agreement
are fair, from a financial point of view, to SFB and its shareholders.

5.4. CONDUCT OF CCB AND BOC PRIOR TO CLOSING. Between the date hereof and
the Effective Time, each of CCB and BOC each shall do the following:

5.4.1. Use its commercially reasonable best efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Article 6 hereof;

EX-II-14
<PAGE>
5.4.2. Use and devote its commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact its present business
organization;

5.4.3. Keep in full force and effect all of its existing permits and
licenses;

5.4.4. Duly observe and conform to all legal requirements applicable to
its business;

5.4.5. Duly and timely file all reports and returns required to be
filed with any Governmental Authority, unless any extensions have been duly
granted by such authority;

5.4.6. Not take any action which would or is reasonably likely to
(i) adversely affect the ability of BOC, CCB or SFB to obtain any necessary
Regulatory Approvals, (ii) adversely affect the ability of BOC, CCB or SFB
to obtain any consents referred to in Section 2.2; (iii) adversely affect
the ability of BOC, CCB or SFB to perform their respective covenants and
agreements under this Agreement or the Agreement of Merger, or (iv) result
in any of the conditions to the Merger set forth in Article 6 not being
satisfied; and

5.4.7. Promptly notify SFB in the event it determines that the Merger
will not be consummated because of its inability to meet any of the
conditions set forth in Article 6 hereof.

5.5. AFFIRMATIVE COVENANTS OF CCB AND BOC PRIOR TO CLOSING. Between the
date hereof and the Effective Time, CCB and BOC shall each do the following:

5.5.1. BOC shall prepare and promptly file an Application with the FRB
pursuant to the Bank Merger Act and an Application with the California
Department of Financial Institutions for approval of the Merger and the
establishment of branches of BOC at each location of an office of SFB;

5.5.2. BOC shall file the Agreement of Merger and all supporting
documents to the Secretary of State of the State of California and the DFI;

5.5.3. APPROVAL BY CCB'S SHAREHOLDERS. If required, not later than
120 days after execution of this Agreement, CCB shall take all such actions
as may be required to convene a meeting of its shareholders to consider and
vote upon the transactions contemplated hereby and all requisite matters
incident thereto for the approval of its shareholders. Subject to Section 5
of the Securities Act, section 14 of the Exchange Act and the fiduciary
duties of the Board of Directors under applicable law, the Board of
Directors of CCB shall at all times prior to and during such meeting of
CCB's shareholders recommend that the transactions contemplated hereby be
adopted and approved by CCB's shareholders and shall, subject to such
matters, use its commercially reasonable efforts to cause such adoption and
approval.

5.5.4. RESERVATION, ISSUANCE AND REGISTRATION OF CCB COMMON STOCK. CCB
shall reserve and make available for issuance in connection with the Bank
Mergers and the Holding Company Merger and in accordance with the terms of
this Agreement, and the Holding Company Agreement, the DNB Agreement, and
the NBB Agreement (i) CCB Common Stock to be issued in connection with the
Bank Mergers and the Holding Company Merger, including, but not limited to,
the maximum number of shares of CCB Common Stock to which holders of
convertible debentures or the option holders of the parties to the Bank
Mergers and the Holding Company Merger may be entitled to hereunder at or
after the Effective Time. All CCB Common Stock will, when issued and
delivered pursuant to and in accordance with the terms of this Agreement and
the Holding Company Agreement, and the NBB Agreement, be duly authorized,
legally and validly issued, fully paid and nonassessable. As promptly as
practicable after the date hereof, CCB shall file and cause to be declared
effective pursuant to the Securities Act one or more registration statements
covering all such shares and shall cause all such shares to be issued in
compliance with the Securities Act and in compliance with all applicable
state securities laws and regulations.

EX-II-15
<PAGE>
5.6. MUTUAL COVENANTS OF SFB, BOC AND CCB.

5.6.1. CORPORATE ACTION. Each party promptly shall take or cause to be
taken all necessary action required to carry out the transactions
contemplated in this Agreement and the Agreement of Merger.

5.6.2. REGULATORY APPROVALS. Promptly following execution of this
Agreement, the parties hereto shall prepare, submit and file, or cause to be
prepared, submitted and filed, all applications for approvals and consents
as may be required of any of them, respectively, by Applicable Law with
respect to the transactions contemplated by this Agreement, including,
without limitation, any and all applications required to be filed with the
FRB, the Commissioner and such other Governmental Authorities as the CCB,
BOC or SFB may reasonably believe necessary. Each party shall cooperate with
the other in the preparation of the applications and will furnish promptly
upon request all documents, information, financial statements or other
materials as may be required in order to complete said applications. Each
party shall afford the other a reasonable opportunity to review all such
applications and all amendments and supplements thereto before filing. SFB,
CCB and BOC each covenants and agrees that any and all information furnished
by it to the other for inclusion in such applications will not contain any
untrue statement of a material fact and will not omit to state any material
fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.

5.6.3. NECESSARY CONSENTS. In addition to the Regulatory Approvals,
the parties hereto shall each apply for and diligently seek to obtain all
other third party consents or approvals which may be necessary for the
consummation of the Merger, including without limitation the written consent
of any lessors of real or personal property which property cannot be
assigned without the written consent of such lessors.

5.6.4. FURTHER ASSURANCES. CCB, BOC and SFB each agrees to take such
further action as may reasonably be requested by the other in order to
consummate the transactions contemplated by this Agreement and that are not
inconsistent with the other provisions hereof. This Section 5.6.4 shall
survive the Closing.

ARTICLE 6. CONDITIONS PRECEDENT TO CONTEMPLATED TRANSACTIONS

6.1. GENERAL CONDITIONS. The obligations of each of the parties hereto to
consummate the transactions contemplated herein are further subject to the
satisfaction, on or before the Closing Date, of the following conditions
precedent:

6.1.1. SHAREHOLDER APPROVAL. The transactions contemplated hereby
shall have received all requisite approvals of the shareholders of CCB, BOC
and SFB.

6.1.2. NO PROCEEDINGS. No legal, administrative, arbitration,
investigatory or other proceeding by any Governmental Authority shall have
been instituted and, at what would otherwise have been the Effective Time,
remain pending by or before a court or any Governmental Authority to
restrain or prohibit the transactions contemplated hereby.

6.1.3. REGULATORY APPROVALS. To the extent required by Applicable Law,
all approvals or consents of any Governmental Authority, including without
limitation those of the FRB and the Commissioner, shall have been obtained
or made for the transactions contemplated hereby without imposition of any
Prohibited Condition. All other statutory or regulatory requirements for the
valid completion of the transactions contemplated hereby shall have been
satisfied, including the expiration of applicable waiting periods.

EX-II-16
<PAGE>
6.1.4. JOINT PROXY STATEMENT/PROSPECTUS. Copies of the
Prospectus/Joint Proxy Statement/ Prospectus shall have been mailed to every
shareholder of record of SFB.

6.1.5. REGISTRATION STATEMENT. The Registration Statement (including
any post-effective amendments thereto) shall be effective under the
Securities Act, and no proceeding shall be pending or to the knowledge of
CCB threatened by the SEC to suspend the effectiveness of the Registration
Statement, and CCB shall have received all state securities or "Blue Sky"
permits or other authorizations, or confirmations as to the availability of
an exemption from the registration or qualification requirements as may be
necessary.

6.2. CONDITIONS TO OBLIGATIONS OF CCB AND BOC. The obligations of CCB and
BOC to effect the transactions contemplated hereby shall be subject to the
following conditions, any of which, other than Section 6.2.5, may be waived in
writing.

6.2.1. REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
COVENANTS. Each of the representations and warranties of SFB set forth
herein shall be true and correct as of the Effective Time in all material
respects, as if made on such date; and SFB shall have performed in all
material respects all of the covenants to be performed by it on or prior to
the Effective Time.

6.2.2. OPINION OF COUNSEL FOR SFB. CCB and BOC shall have received
from Lillick & Charles LLP, counsel to SFB, an opinion dated the Effective
Time in substantially the form attached hereto as Appendix B.

6.2.3. AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement by SFB and the
consummation of the transactions contemplated hereby shall have been duly
and validly taken by the Boards of Directors of SFB, and SFB shall have full
power and right to merge pursuant to the Agreement of Merger.

6.2.4. DISSENTING SHARES LIMITED TO 10%. Total Dissenting Shares shall
not be greater than ten percent of total outstanding SFB common stock.

6.2.5. THIRD PARTY CONSENTS. SFB shall have obtained all consents of
other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit
the transactions contemplated herein to be consummated, without default,
acceleration, breach or loss of rights or benefits thereunder.

6.2.6. ABSENCE OF CERTAIN CHANGES. As of the Closing Date, there shall
not exist any of the following: (i) any change in the financial condition,
results of operation or prospects of SFB since December 31, 1998, which
individually is or in the aggregate are materially adverse to SFB, except
changes resulting from a change in law, a change in governmental regulatory
practices, a change in GAAP, or a change in another matter affecting the
banking industry generally; or (ii) any damage, destruction, loss or event
materially and adversely affecting the properties, business or prospects of
SFB.

6.2.7. OFFICERS' CERTIFICATE. There shall have been delivered to CCB
and BOC on the Closing Date a certificate executed by the Chief Executive
Officer and the Chief Financial Officer of SFB certifying, to the best of
their knowledge, compliance with all of the provisions of Sections 6.2.1,
6.2.3, 6.2.4, 6.2.5, 6.2.6, 6.2.9, and 6.2.10 of this Agreement.

6.2.8. FAIRNESS OPINION. A copy of the Fairness Opinion shall have
been delivered to the CCB prior to the distribution of the SFB Proxy
Statement. The Fairness Opinion shall not have been withdrawn prior to the
Effective Time.

6.2.9. CAPITAL REDUCTION. BOC and SFB shall have received approval of
their respective shareholders and of all required Governmental authorities
to effect the Capital Reductions.

EX-II-17
<PAGE>
6.2.10. TERMINATION OF SFB STOCK OPTION PLANS. SFB shall have taken
all necessary corporate action to terminate the SFB Stock Option Plans.

6.3. CONDITIONS TO OBLIGATIONS OF SFB. The obligations of SFB to effect
the transactions contemplated hereby shall be subject to the following
conditions, any of which, other than Section 6.3.2, may be waived in writing by
SFB:

6.3.1. REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
COVENANTS. Each of the representations and warranties of BOC and CCB set
forth herein shall be true and correct as of the Effective Time in all
material respects, as if made on such date; and BOC and CCB shall have
performed in all material respects all of the covenants to be performed by
them on or prior to the Effective Time.

6.3.2. OPINION OF COUNSEL FOR CCB AND BOC. SFB shall have received
from Lillick & Charles LLP, counsel to BOC and CCB, an opinion dated the
Effective Time in substantially the form attached hereto as Appendix B.

6.3.3. AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement by BOC and by CCB and
the consummation of the transactions contemplated hereby shall have been
duly and validly taken by BOC and CCB and BOC and SFB shall have full power
and right to merge pursuant to the Agreement of Merger.

6.3.4. OFFICERS' CERTIFICATE. There shall have been delivered to SFB
on the Closing Date a certificate executed by the Chief Executive Officer
and the Chief Financial Officer of CCB and of BOC certifying, to the best of
their knowledge, compliance with all of the provisions of Sections 6.3.1 and
6.3.3 of this Agreement.

6.3.5. FAIRNESS OPINION. Prior to solicitation of shareholder
approval, SFB shall have received the Fairness Opinion and the Fairness
Opinion shall not have been withdrawn prior to the Effective Time.

ARTICLE 7. TERMINATION

7.1. TERMINATION OF THIS AGREEMENT.

7.1.1. Notwithstanding that this Agreement and the Agreement of
Merger may have already been approved by the holders of a majority of the
issued and outstanding shares of SFB, or if required CCB, Common Stock,
this Agreement may be terminated prior to the Effective Time:

(1) By mutual written consent of the Board of Directors of SFB,
BOC, and CCB;

(2) By (i) CCB immediately upon the expiration of 30 days from
the date that CCB has given notice to SFB of a material breach or
default by SFB in the performance of any covenant, agreement,
representation, warranty, duty or obligation hereunder or (ii) SFB
immediately upon the expiration of 30 days from the date that SFB has
given notice to CCB of a material breach or default by CCB in the
performance of any covenant, agreement, representation, warranty,
duty or obligation hereunder; provided, however, that no such
termination shall be effective if, within such 30-day period, the
breaching or defaulting party shall have corrected and cured the
grounds for the termination as set forth in said notice of
termination;

(3) By CCB, BOC or SFB if any Governmental Authority denies or
refuses to grant the Regulatory Approvals required to be obtained in
order to consummate the transactions covered and contemplated by this
Agreement without the imposition of a Prohibited Condition;

EX-II-18
<PAGE>
7.1.2. Notwithstanding that this Agreement and the Agreement of
Merger may have already been approved by holders of a majority of the
issued and outstanding shares of SFB Common Stock, this Agreement shall
be terminated prior to the Effective Time if any conditions specified in
Article 6 have not been satisfied or waived in writing by the party
authorized to waive such conditions by January 31, 2000, (the "Expiration
Date") unless mutually extended by the parties hereto; provided, however,
that in the event that any conditions set forth in Section 6.1.3 have not
been satisfied or waived on or before the Expiration Date, BOC, CCB or
SFB, acting alone, shall have the right to extend the Expiration Date for
an additional 30-day period by giving written notice to the other party
on or before January 31, 2000.

7.1.3. EFFECT OF TERMINATION AND SURVIVAL. No termination of this
Agreement under this Article 7 for any reason or in any manner shall
release, or be construed as so releasing, any party hereto from its
obligations pursuant to Sections 5.1.2, 8.1; 8.2 or 8.19 hereof or from
any liability or damage to the other party hereto arising out of, in
connection with or otherwise relating to, directly or indirectly, said
party's breach, default or failure in performance of any of its
covenants, agreements, duties or obligations arising hereunder, or any
breaches of any representation or warranty contained herein arising prior
to the date of termination of this Agreement.

ARTICLE 8. GENERAL PROVISIONS

8.1. INDEMNIFICATION.

8.1.1. SFB agrees to defend, indemnify and hold harmless BOC and
CCB, their respective officers and directors, their respective attorneys
and accountants and each person who controls BOC and CCB within the
meaning of the Securities Act from and against any costs, damages,
liabilities and expenses of any nature, insofar as any such costs,
damages, liabilities or expenses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the Joint Proxy Statement/Prospectus, and the Registration
Statement, or any amendments or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that SFB shall not
be liable in any such case to the extent that any such cost, damage,
liability or expense arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in the
Joint Proxy Statement/Prospectus, and if required the Registration
Statement, or amendments or supplements thereto, in reliance upon and in
conformity with information with respect to BOC or CCB furnished to SFB
by or on behalf of BOC or CCB specifically for use therein.
Notwithstanding the foregoing, this Section 8.1.1 shall be of no further
force or effect if the Merger contemplated by this Agreement is
consummated.

8.1.2. CCB and BOC each agrees to defend, indemnify and hold
harmless SFB and its respective officers and directors, its attorneys,
accountants and each person who controls SFB within the meaning of the
Securities Act from and against any costs, damages, liabilities and
expenses of any nature, insofar as any such costs, damages, liabilities
or expenses arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Joint
Proxy Statement/Prospectus, and the Registration Statement, or any
amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading; provided, however, that CCB and BOC shall not be liable in
any such case only to the extent that any such cost, damage, liability or
expense arises out of or is based upon any untrue statement or alleged
untrue statement or omission

EX-II-19
<PAGE>
or alleged omission made in the Joint Proxy Statement/Prospectus, and if
required the Registration Statement, or amendments or supplements
thereto, in reliance upon and in conformity with information with respect
to SFB or furnished to CCB and BOC by or on behalf of SFB specifically
for use therein. Notwithstanding the foregoing, this Section 8.1.2 shall
be of no further force or effect if the Merger contemplated by this
Agreement is consummated.

8.1.3. Promptly after receipt by any party to be indemnified
pursuant to Sections 8.1.1 or 8.1.2 (the "Indemnified Party") of notice
of (i) any claim or (ii) the commencement of any action or proceeding,
the Indemnified Party will give the other party (the "Indemnifying
Party") written notice of such claim or the commencement of such action
or proceeding. The Indemnifying Party shall have the right, at its
option, to compromise or defend, by its own counsel, any such matter
involving the Indemnified Party's asserted liability. In the event that
the Indemnifying Party shall undertake to compromise or defend any such
asserted liability, it shall promptly notify the Indemnified Party of its
intention to do so, and the Indemnified Party agrees to cooperate fully
with the Indemnifying Party and its counsel in the compromise of, or
defense against, any such asserted liability. In any event, the
Indemnifying Party shall have the right to participate in the defense of
such asserted liability.

8.2. NOTICES. Unless otherwise specifically permitted by this
Agreement, all notices or other communications required or permitted under
this Agreement shall be in writing, and shall be personally delivered or
sent by registered or certified mail, postage prepaid, return receipt
requested, or sent by telecopy, provided that the telecopy cover sheet
contains a notation of the date and time of transmission, and shall be
deemed received: (i) if personally delivered, upon the date of delivery to
the address of the person to receive such notice; (ii) if mailed in
accordance with the provisions of this Section, two business days after the
date placed in the United States mail; (iii) if mailed other than in
accordance with the provisions of this Section or mailed from outside the
United States, upon the date of delivery to the address of the person to
receive such notice; or (iv) if given by telecopy, when sent. Notices shall
be given at the following addresses, unless changed by notice pursuant to
this Section 8.2:

If to SFB:

141 West Bastanchury Road
Fullerton, California 92835
Attn: Robert Campbell, President & CEO
FAX: (714) 446-8840

With a copy to:

Lillick & Charles LLP
Two Embarcadero, Suite 2600
San Francisco, California 94111
Attn: R. Brent Faye, Esq.
FAX: (415) 984-8300

If to BOC:

The Bank of Orange County
170 South Main Street, #100
Orange, California 92868

EX-II-20
<PAGE>
Attn: Harvey Ferguson, President & CEO
FAX: (714) 593-9698

With a copy to:

Lillick and Charles LLP
Two Embarcadero, Suite 2600
San Francisco, California 94111
Attn: R. Brent Faye
FAX: (415) 984-8300

If to CCB

California Community Bancshares, Inc.
One Maritime Plaza, Suite 825
Attn: Ronald W. Bachli, President & CEO
FAX: (415) 434-9918

With a copy to:

Lillick & Charles LLP
Two Embarcadero, Suite 2600
San Francisco, California 94111
Attn: R. Brent Faye, Esq.
FAX: (415) 984-8300

8.3 COMPLETE AGREEMENT; MODIFICATIONS. This Agreement and written
agreements, if any, entered into concurrently herewith by and between the
parties hereto (i) constitute the parties' entire agreement, including all
terms, conditions, definitions, warranties, representations and covenants,
with respect to the subject matter hereof, (ii) merge all prior discussions
and negotiations between the parties as to the subject matter hereof, and
(iii) supersede and replace all terms, conditions, definitions, warranties,
representations, covenants, agreements, promises and understandings, whether
oral or written, with respect to the subject matter hereof. This Agreement
may not be amended, altered or modified except by a writing signed by the
party to be bound. With regard to such amendments, alterations or
modifications, telecopied signatures shall be effective as original
signatures. Any amendment, alteration or modification requiring the
signature of more than one party may be signed in counterparts.

8.4 FURTHER ACTIONS. Each party agrees to perform any further acts and
execute and deliver any further documents reasonably necessary to carry out
the provisions of this Agreement.

8.5 ASSIGNMENT. Neither party may assign its rights under this
Agreement without the prior written consent of the other party hereto.

8.6. SUCCESSORS AND ASSIGNS. Except as explicitly provided herein to
the contrary, this Agreement shall be binding upon and inure to the benefit
of the parties, their respective successors and permitted assigns.

8.7. SEVERABILITY. If any portion of this Agreement shall be held by a
court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions shall remain enforceable to the
fullest extent permitted by law if enforcement would not frustrate the
overall intent of the parties (as such intent is manifested by all
provisions of the Agreement, including such invalid, void or otherwise
unenforceable portion).

EX-II-21
<PAGE>
8.8. EXTENSION NOT A WAIVER. No delay or omission in the exercise of
any power, remedy or right herein provided or otherwise available to either
party shall impair or affect the right of such party thereafter to exercise
the same. Any extension of time or other indulgence granted to a party
hereunder shall not otherwise alter or affect any power, remedy or right of
any other party, or the obligations of the party to whom such extension or
indulgence is granted except as specifically waived.

8.9. TIME OF ESSENCE. Time is of the essence of each and every term,
condition, obligation and provision hereof.

8.10. NO THIRD PARTY BENEFICIARIES. This Agreement and each and every
provision hereof is for the exclusive benefit of the parties hereto and not
for the benefit of any third party.

8.11. ATTORNEYS' FEES. If any legal action or any arbitration upon
mutual agreement is brought for the enforcement of this Agreement or because
of an alleged dispute, breach or default in connection with this Agreement,
the prevailing party shall be entitled to recover reasonable attorney's fees
and other costs and expenses incurred in that action or proceeding, in
addition to any other relief to which it may be entitled.

8.12 HEADINGS. The headings in this Agreement are inserted only as a
matter of convenience, and in no way define, limit, extend or interpret the
scope of this Agreement or of any particular provision hereof.

8.13. REFERENCES. A reference to a particular Section of this
Agreement shall be deemed to include references to all subordinate sections,
if any.

8.14. COUNTERPARTS. This Agreement may be signed in multiple
counterparts with the same force and effect as if all original signatures
appeared on one copy; and in the event this Agreement is signed in
counterparts, each counterpart shall be deemed an original and all of the
counterparts shall be deemed to be one agreement.

8.15. APPLICABLE LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California, except to the
extent preempted by the laws of the United States.

8.16. EFFECT OF DISCLOSURE. Any list, statement, document, writing or
other information set forth in, referenced to or attached to any Schedule
delivered pursuant to any provision of this Agreement shall be deemed to
constitute disclosure for purposes of any other Schedule required to be
delivered pursuant to any other provision of this Agreement.

8.17. PUBLICITY. The parties hereto agree that they will coordinate on
any publicity concerning this Agreement and the transactions contemplated
hereby. Except as may be required by law, no party shall issue any press
release, publicity statement or other public notice relating in any way to
this Agreement or any of the transactions contemplated hereby without
obtaining the prior consent of the other, which consent shall not be
unreasonably withheld.

8.18. KNOWLEDGE OF THE PARTIES. Except in Exhibits C and D, or as
otherwise specified in this Agreement, whenever any statement herein or in
any Schedule, Exhibit, certificate or other documents delivered to any party
pursuant to this Agreement is made "to the knowledge" or "to the best
knowledge" of any party, such statement shall be made to the best knowledge
of such party, after reasonable inquiry of the following officers of such
party: Chief Executive Officer, Chief Financial Officer, Chief Operating
Officer, and, with respect to SFB only, Chief Credit Officer.

8.19 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise
expressly stated herein, the representations and warranties made by the
parties to this Agreement, and the respective

EX-II-22
<PAGE>
obligations to be performed under its terms at or before the Closing Date,
shall expire with, and be terminated and extinguished by the Closing, and no
action for breach of such representations and warranties shall thereafter be
brought by any party hereto.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.

<TABLE>
<S> <C>
CCB: CALIFORNIA COMMUNITY SFB: SECURITY FIRST BANK,
BANCSHARES, INC., A California Corporation
A Delaware Corporation

By: /s/ RONALD W. BACHLI By: /s/ ROBERT CAMPBELL
------------------------------------------ ------------------------------------------
Ronald W. Bachli Robert Campbell
CHIEF EXECUTIVE OFFICER AND PRESIDENT CHIEF EXECUTIVE OFFICER AND PRESIDENT

By: /s/ J. THOMAS BYROM By: /s/ DONALD FONTAINE
------------------------------------------ ------------------------------------------
J. Thomas Byrom Donald Fontaine
SECRETARY SECRETARY
</TABLE>

BOC: The Bank of Orange County,

A California Corporation
By: /s/ HARVEY FERGUSON
- -------------------------------------------------------------------
Harvey Ferguson, PRESIDENT

By: /s/ KIMBERLY JARDIN
- -------------------------------------------------------------------
Kimberly Jardin, SECRETARY

EX-II-23
<PAGE>
APPENDIX A
AGREEMENT OF MERGER
OF
CALIFORNIA COMMUNITY BANCSHARES, INC.
(A DELAWARE CORPORATION)
THE BANK OF ORANGE COUNTY
(A CALIFORNIA CORPORATION)
AND
SECURITY FIRST BANK
(A CALIFORNIA CORPORATION)

THIS AGREEMENT OF MERGER is made and entered into as of this day of
December, 1999, by and among, CALIFORNIA COMMUNITY BANCSHARES, INC., a Delaware
corporation ("CCB"), THE BANK OF ORANGE COUNTY, a California corporation
("BANK"), and SECURITY FIRST BANK, a California Corporation ("SFB").

WITNESSETH:

WHEREAS, the respective Boards of Directors and Shareholders of CCB, BANK
and SFB have approved as desirable and in the best interests of each corporation
that SFB be merged with and into BANK by a statutory merger upon the terms and
conditions hereinafter set forth, and that shares of CCB Common Stock will be
issued to shareholders of SFB.

NOW, THEREFORE IT IS AGREED AS FOLLOWS:

FIRST: SFB shall be merged with and into BANK by a statutory merger (the
"Merger") in accordance with the General Corporation Law of California and on
the terms and conditions hereinafter expressed. At the Effective Date of the
Merger (as hereinafter defined), the separate existence of SFB shall cease and
BANK shall be the surviving entity (the "Surviving Entity") and shall be the
wholly-owned subsidiary of CCB.

SECOND: The Merger shall be effective (the "Effective Date of the Merger")
as of the day and time at which this Agreement and appropriate certificates of
its approval and adoption is filed with the Secretary of State of the State of
California in accordance with the General Corporation Law of the State of
California and a copy of this Agreement of Merger certified by the California
Secretary of State is filed with the California Commissioner of Financial
Institutions pursuant to Section 4887 of the California Financial Code.

THIRD: The manner of converting the shares of the capital stock of BANK and
SFB upon the Merger shall, by virtue of the Merger and without any action on the
part of the holder thereof, be as follows:

(a) At the Effective Time, the shares of BANK Common Stock outstanding
immediately prior to the Effective Time shall remain outstanding

(b) At the Effective Time, each of the shares of SFB Common Stock issued and
outstanding immediately prior to the Effective Time (except for shares of
SFB Common Stock which come

A-1
<PAGE>
within the definition of "dissenting shares" as defined in Section 1300
of the California General Corporations Law ("Dissenting Shares")) shall,
by virtue of the Merger and upon surrender of the certificate
representing such shares, without any action on the part of the holder
thereof, be converted into the right to receive shares of CCB
Common Stock.

(c) FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of CCB Common Stock shall be issued to holders of
shares of SFB Common Stock. In lieu thereof, at the Effective Time each
such holder entitled to a fraction of a share of CCB Common Stock shall
receive, at the time of surrender of the SFB Certificates, an amount in
cash equal to $ per share, multiplied by the fraction of a share of
CCB Common Stock to which such holder otherwise would be entitled. No
such holder shall be entitled to dividends, voting rights, interest on
the value of, or any other rights in respect of a fractional share.

FOURTH: The Articles of Incorporation and Bylaws of BANK in effect
immediately prior to the Effective Date of the Merger shall continue to be the
Articles of Incorporation of the Surviving Entity following the Merger.

FIFTH: The directors of the Surviving Entity immediately after the
Effective Date of the Merger shall be the following persons, each of whom shall
serve until his death, resignation, removal, or until his successors shall be
elected in accordance with the law and the Articles of Incorporation and Bylaws
of the Surviving Entity:

SIXTH: The sole shareholder of BANK has approved this Agreement of Merger
in accordance with the General Corporation Law of the State of California. The
shareholders of SFB have approved this Agreement in accordance with the
Financial Code of the State of California and other applicable laws.

SEVENTH: Prior to the filing of this Agreement of Merger with the Secretary
of State of the State of California, this Agreement of Merger may be terminated
by the agreement of the Boards of Directors of BANK and SFB notwithstanding
approval of this Agreement of Merger by the shareholders of BANK and SFB.

A-2
<PAGE>
IN WITNESS WHEREOF, CCB, BANK and SFB, pursuant to the approval and
authority duly given by resolutions adopted by their respective Boards of
Directors, have caused this Agreement of Merger to be executed by the President
and by the Secretary or Assistant Secretary of each party hereto.

<TABLE>
<S> <C> <C> <C>
BANK OF ORANGE COUNTY CALIFORNIA COMMUNITY BANCSHARES, INC.

By: By:
---------------------------------------- ----------------------------------------
Harvey Ferguson, PRESIDENT Ronald W. Bachli, PRESIDENT

By: By:
---------------------------------------- ----------------------------------------
Kimberly Jardin, SECRETARY J. Thomas Byrom, SECRETARY

SECURITY FIRST BANK

By:
----------------------------------------
Robert Campbell, PRESIDENT

By:
----------------------------------------
Donald Fontaine, SECRETARY
</TABLE>

A-3
<PAGE>
BANK OF ORANGE COUNTY
CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER

The undersigned hereby certify as follows:

(1) They are the President and Secretary, respectively, of Bank of Orange
County, a California corporation ("BANK").

(2) The Agreement of Merger in the form attached was duly approved by the Board
of Directors of BANK.

(3) The Agreement of Merger has been duly approved by shareholders holding 100%
of the outstanding shares. The corporation has only one class of shares and
the number outstanding is .

- -------------------------------------------
Harvey Ferguson, PRESIDENT

- -------------------------------------------
Kimberly Jardin, SECRETARY

The undersigned declare under penalty of perjury that the matters set forth in
the foregoing certificate are true of their own knowledge.

Executed at San Francisco, California, on , 1999.

- -------------------------------------------
Harvey Ferguson

- -------------------------------------------
Kimberly Jardin

A-4
<PAGE>
CALIFORNIA COMMUNITY BANCSHARES, INC.
CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER

The undersigned hereby certify as follows:

(1) They are the President and Secretary, respectively, of California Community
Bancshares, Inc., a Delaware corporation ("CCB")

(2) The Agreement of Merger in the form attached was duly approved by the Board
of Directors of CCB.

(3) The Agreement of Merger has been duly approved by shareholders holding 100%
of the outstanding shares. The corporation has only one class of shares and
the number outstanding is .

- -------------------------------------------
Ronald W. Bachli, PRESIDENT

- -------------------------------------------
J. Thomas Byrom, SECRETARY

The undersigned declare under penalty of perjury that the matters set forth in
the foregoing certificate are true of their own knowledge.

Executed at San Francisco, California, on , 1999.

- -------------------------------------------
Ronald W. Bachli, PRESIDENT

- -------------------------------------------
J. Thomas Byrom, SECRETARY

A-5
<PAGE>
SECURITY FIRST BANK
CERTIFICATE OF APPROVAL OF
AGREEMENT OF MERGER

The undersigned hereby certify as follows:

(1) They are the President and Secretary, respectively, of Security First
Bank, a California Corporation ("SFB").

(2) The Agreement of Merger in the form attached was duly approved by the
Board of Directors and shareholders of SFB.

(3) The shareholder approval was by a meeting of the shareholders held on
due notice, by the holders of outstanding shares of SFB having an
aggregate number of votes which exceeded the number of votes required for
approval of the Agreement of Merger.

(4) SFB has outstanding one class of Common Stock, and the number of shares
thereof outstanding is , all of which were entitled to vote
on the Agreement of Merger. The percentage vote of such class required to
approve such Agreement of Merger is 50%.

- -------------------------------------------
Robert Campbell, PRESIDENT

- -------------------------------------------
Donald Fontaine, SECRETARY

We declare under penalty of perjury that the matters set forth in the
foregoing certificate are true of their own knowledge.

Executed at California, on , 1999.

- -------------------------------------------
Robert Campbell

- -------------------------------------------
Donald Fontaine

A-6
<PAGE>
PLAN OF REORGANIZATION AND MERGER AGREEMENT
BY AND AMONG
CALIFORNIA COMMUNITY BANCSHARES, INC.
DOWNEY NATIONAL BANK
AND
NATIONAL BUSINESS BANK

This Plan of Reorganization and Merger Agreement (the "Agreement") is made
and entered into as of September 14, 1999 by and among California Community
Bancshares, Inc. ("CCB"), Downey National Bank ("DNB"), and National Business
Bank ("NBB").

RECITALS

A. In contemplation of a corporate reorganization (the "Corporate
Reorganization") of certain subsidiaries of the California Community
Financial Institutions Fund Limited Partnership, CCB has entered into a
Plan of Reorganization and Merger Agreement (the "Holding Company
Agreement") as of September 10, 1999 pursuant to which California
Financial Bancorp ("CFB"), will be merged with and into CCB, with CCB as
the surviving entity (the "Holding Company Merger");

B. As a condition to the Holding Company Merger, NBB shall be merged with
and into DNB pursuant to this Agreement (the "Merger") and Security First
Bank ("SFB"), a majority-owned subsidiary of CFB, shall be merged with
and into the Bank of Orange County ("BOC"), a wholly-owned subsidiary of
CFB, (the "SFB Merger") pursuant to the Plan of Reorganization and Merger
Agreement made and entered into as of August , 1999 (the "SFB
Agreement") (the Merger and the SFB Merger are collectively referred to
herein as the "Bank Mergers");

C. In consideration of the Holding Company Merger and the Bank Mergers, CCB
has agreed to issue shares of its authorized, but unissued common stock
pursuant to a Registration Statement to be filed with the Securities and
Exchange Commission (the "Registration Statement");

D. The Boards of Directors of CCB, CFB, DNB, and NBB have determined that it
would be in the best interests of their respective corporations and
shareholders, for NBB to be merged with and into DNB, upon the terms and
subject to the conditions set forth in this Agreement and in accordance
with applicable laws;

E. The Boards of Directors of CCB, DNB, and NBB has each approved this
Agreement and the transactions contemplated hereby;

F. The Boards of Directors of CCB, DNB NBB have resolved to recommend
approval of the merger of NBB and DNB to their respective shareholders if
required by law;

G. Upon consummation of the Merger, (1) DNB will be the surviving entity
(the "Surviving Entity"); (2) DNB shall relocate its head office to the
present head office of NBB in Torrance, California.; and (3) upon
consummation of the Holding Company Merger DNB shall be the wholly-owned
subsidiary of CCB;

H. As a condition to the execution of this Agreement, the following
Directors of NBB have entered into Shareholder's Agreements and executed
proxies contemporaneously with the

EX-III-1
<PAGE>
execution of this Agreement: Joseph Heitzler, Michael Herman, Karol
Glover, Jeffery Barker, James Radcliff, Thomas Lieb, Don Lee, Peter
Hocson, Richard Gomez, and Harvey Ferguson (the "NBB Directors");

I. In consideration of the Merger, CCB shall issue 1.5053 shares of its
common stock (the "CCB Common Stock") for each shares of NBB held at the
Effective Time (the "Exchange Rate");

J. In connection with the Merger, each of DNB and NBB shall immediately
prior to the Effective time have obtained the approval of all appropriate
regulators to effectuate, and upon consummation of the Merger shall
effectuate, a reduction of capital through a distribution of cash to CCB
in amounts approved by such regulatory authorities;

K. As a condition to the Merger, prior to the Effective Time DNB shall have
converted from a national banking association to a California State
licensed, member bank.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:

ARTICLE 1. TRANSACTIONS

1.1 STOCK CONVERSION. In consideration of the Merger, immediately upon the
Effective Time of the Merger (as defined in Section 1.5 hereof), each shares of
NBB Common Stock outstanding at the Effective Time (except for shares of NBB
Common Stock which come within the definition of "dissenting shares" as defined
in Section 214a of the National Bank Act ("Dissenting Shares")) shall by virtue
of the Merger and upon surrender of the certificates representing such shares,
without any action on the part of the holder thereof, be converted into the
right to receive 1.5053 shares of CCB Common Stock.

1.2 FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of CCB Common Stock shall be issued to holders of shares of
NBB Common Stock. In lieu thereof, each such holder entitled to a fraction of a
share of CCB Common Stock shall receive, at the time of surrender of the NBB
Certificates, an amount in cash equal to $10.00 per share, multiplied by the
fraction of a share of CCB Common Stock to which such holder otherwise would be
entitled. No such holder shall be entitled to dividends, voting rights, interest
on the value of, or any other rights in respect of a fractional share.

1.3 CAPITAL REDUCTIONS. Immediately prior to the Effective Time, DNB and
NBB shall have obtained the approval of all appropriate regulators to
effectuate, and upon consummation of the Merger shall effectuate, a reduction of
capital through a distribution of cash to CCB in amounts approved by such
regulatory authorities (the "Capital Reductions");

1.4 THE CONVERSION. As a condition to the Merger, prior to the Effective
Time the Board of Directors and shareholder of DNB shall have adopted a Plan of
Conversion, such Plan of Conversion shall have been approved by the California
Department of Financial Institutions (the "DFI") and, if required by the Federal
Reserve Bank of California, and DNB shall have converted from a national banking
association into a California State licensed, member bank (the "Conversion").
For purposes of this Agreement, the term "DNB" shall refer to Downey National
Bank and to the California State, member bank into which Downey National Bank is
converted.

1.5 THE MERGER. NBB shall be merged with and into DNB, with DNB being the
Surviving Entity, by a statutory merger in accordance with the provisions of the
California Corporations Code (the "Corporations Code") and the California
Financial Code (the "Financial Code"), on the terms and subject to the
conditions set forth herein and pursuant to an Agreement of Merger in the form
attached hereto as Appendix A (the "Agreement of Merger"). The Merger shall be
effective at the time (the "Effective Time") at which the Agreement of Merger
(together with any other documents required

EX-III-2
<PAGE>
by law to effectuate the Merger) certified by the Secretary of State of the
State of California (the "Secretary of State") shall have been filed with the
DFI, at which time NBB shall cease to exist and DNB shall be the Surviving
Entity.

1.6 SURRENDER OF SHARES OF NBB COMMON STOCK. Prior to the Effective Time,
CCB shall appoint a bank or trust company mutually acceptable to NBB and CCB, as
exchange agent (the "Exchange Agent") for the purpose of exchanging certificates
representing the CCB Common Stock, and at and after the Effective Time, CCB
shall issue and deliver to the Exchange Agent certificates representing the
shares of CCB Common Stock, as shall be required to be delivered to holders of
shares of NBB Common Stock pursuant to Section 1.1 of this Agreement. As soon as
practicable after the Effective Time, each holder of shares of NBB Common Stock
converted pursuant to Section 1.1. Upon surrender to the Exchange Agent of one
or more NBB Certificates for cancellation, will be entitled to receive a
certificate representing the number of shares of CCB Common Stock determined in
accordance with Section 1.1 and a payment in cash with respect to fractional
shares, if any, determined in accordance with Section 1.2.

1.6.1 No dividends or other distributions of any kind which are
declared payable to shareholders of record of the shares of CCB Common Stock
after the Effective Time will be paid to persons entitled to receive such
certificates for shares of CCB Common Stock until such persons surrender
their NBB Certificates. Upon surrender of such NBB Certificate, the holder
thereof shall be paid, without interest, any dividends or other
distributions with respect to the shares of CCB Common Stock as to which the
record date and payment date occurred on or after the Effective Time and on
or before the date of surrender.

1.6.2 If any certificate for shares of CCB Common Stock is to be issued
in a name other than that in which the NBB Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange
that the person requesting such exchange shall pay to the Exchange Agent any
transfer costs, taxes or other expenses required by reason of the issuance
of certificates for such shares of CCB Common Stock in a name other than the
registered holder of the NBB Certificate surrendered, or such persons shall
establish to the satisfaction of CCB and the Exchange Agent that such costs,
taxes or other expenses have been paid or are not applicable.

1.6.3 All dividends or distributions, and any cash to be paid in lieu
of fractional shares pursuant to Section 1.2, if held by the Exchange Agent
for payment or delivery to the holders of unsurrendered NBB Certificates
representing shares of NBB Common Stock and unclaimed at the end of one year
from the Effective Time, shall (together with any interest earned thereon)
at such time be paid or redelivered by the Exchange Agent to CCB, and after
such time any holder of a NBB Certificate who has not surrendered such NBB
Certificate to the Exchange Agent shall, subject to applicable law, look as
a general creditor only to CCB for payment or delivery of such dividends or
distributions or cash, as the case may be.

1.6.4 The stock transfer books of NBB shall be closed and no transfer
of shares of NBB Common Stock theretofore outstanding shall thereafter be
made.

1.7 CERTAIN EFFECTS OF THE MERGER. The Articles of Incorporation and
Bylaws of DNB as in effect immediately prior to the Effective Time shall
continue to be the Articles of Incorporation and Bylaws of the Surviving Entity
following the Merger. The members of the Board of Directors of the Surviving
Entity immediately after the Effective Time shall be the persons listed as such
in the Agreement of Merger. At the Effective Time, the separate existence of NBB
shall cease, and NBB shall be merged into DNB which, as the Surviving Entity,
shall thereupon and thereafter possess all the rights, privileges, powers and
franchises, of a public or of a private nature, of each of NBB and DNB, shall be
subject to all restrictions, disabilities and duties of each of NBB and DNB, and
shall continue its corporate existence as a California corporation. At the
Effective Time the Torrance office of NBB shall be come the head office of DNB.

EX-III-3
<PAGE>
1.8 CLOSING DATE AND TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. Consummation of the transactions contemplated by this Agreement (the
"Closing") shall, unless another date or place is agreed to in writing by the
parties hereto, take place at the offices of the CCB, One Maritime Plaza, Suite
825, San Francisco California, on the fifteenth Business Day after the last to
occur of (i) the receipt of all Regulatory Approvals and the expiration of all
applicable waiting periods; and (ii) satisfaction of the conditions precedent
set forth in Sections 6.1, 6.2 and 6.3 or written waiver of such conditions by
CCB, DNB, or NBB, as applicable (the "Closing Date").

1.9 REGULATORY APPROVALS. The Closing shall be subject to receipt and
continued effectiveness, without the imposition of (A) any condition or
commitment which would, in the reasonable opinion of CCB and DNB, be unduly
burdensome on the business and operations of CCB or the Surviving Entity as
conducted and as anticipated by CCB and DNB to be conducted subsequent to the
Closing Date or (B) any condition or requirement which, in the reasonable
opinion of CCB so materially and adversely affects the anticipated economic and
business benefits to CCB of the transactions contemplated by this Agreement as
to render consummation of such transactions inadvisable (in which case CCB shall
promptly notify NBB) (each a "Prohibited Condition"), of (i) the approval
required to be received by DNB from the Board of Governors of the Federal
Reserve System (the "FRB") pursuant to Section 18(c) of the Federal Deposit
Insurance Act (the "the Bank Merger Act") or to be received by CCB from the FRB
pursuant to Section 3 of the Bank Holding Company Act of 1956, as amended (the
"BHCA"); (ii) the approval required to be received from the California
Commissioner of Financial Institutions (the "Commissioner") by CCB under
Section 700 et seq. of the Financial Code to acquire control of NBB and by DNB
pursuant to Sections 4940-4952 of the Financial Code to convert to a state
licensed bank and Section 4880 to 4891 of the Financial Code to merge with NBB;
(iii) all approvals from the Comptroller of the Currency (the "OCC)" and/or the
Commissioner, as required, necessary for DNB and NBB to effectuate the Capital
Reductions; (iv) any approval required to be received by NBB from the OCC; and
(v) any other approval, order or notice of non-objection required to be obtained
by CCB, DNB, or NBB from any Governmental Authority, (referred to individually
as a "Regulatory Approval" and collectively as the "Regulatory Approvals") in
connection with any of the transactions contemplated by this Agreement. For
purposes of this Agreement, no condition, requirement or disapproval imposed by
the FRB, the Commissioner, the OCC or any other United States federal or state
bank regulatory agency shall be deemed a Prohibited Condition if such condition
does not materially differ from conditions regularly imposed by the FRB, the
Commissioner, the OCC or such other United States federal or state bank
regulatory agency in orders approving transactions of the type contemplated by
this Agreement and compliance with such condition, requirement or disapproval
would not (X) require the taking of any action inconsistent with the manner in
which NBB has conducted their respective businesses previously or as
contemplated by this Agreement; (Y) have a material adverse effect on the
financial condition, results of operations or prospects of CCB or DNB; or
(Z) preclude satisfaction of any of the conditions to consummation of the
transactions contemplated by this Agreement.

1.10 FURTHER ACTION. In case at any time (whether before or after the
Closing) any further action is necessary or appropriate to carry out the
purposes of and transactions contemplated by this Agreement, the appropriate
party or parties shall take such action as promptly as practicable. If at any
time the Surviving Entity, NBB, or the CCB shall consider or be advised that any
further assignments or assurances are necessary or appropriate according to the
terms hereof to vest in the Surviving Entity the title of any property or rights
of NBB, the acting officers and directors of NBB shall execute and make all such
assignments, assurances, agreements and other documents and do all things
necessary or advisable to vest title in such property or rights in the Surviving
Entity, and otherwise to carry out the purposes of this Agreement.

1.11 SHAREHOLDER'S AGREEMENTS AND PROXIES. Concurrently with the execution
of this Agreement, as a condition precedent to CCB and DNB entering into this
Agreement, the NBB Directors shall each

EX-III-4
<PAGE>
enter into a separate Shareholder's Agreement and Proxy substantially in the
form attached hereto as Appendix B, pursuant to which each of the NBB Directors
shall agree to, among other things, vote or cause to be voted all shares of NBB
Common Stock with respect to which each such NBB Director has voting power on
the date hereof or hereafter to approve the Merger and the transactions
contemplated hereby and all requisite matters related thereto, and shall appoint
Joseph Heitzler, his or her nominee or successor as their proxy for such vote.

1.12 NBB BOARD COMPOSITION AND APPOINTMENT OF CHIEF EXECUTIVE
OFFICER. Contemporaneously with the execution of this Agreement, the Board of
Directors of NBB shall (a) appoint Ronald W. Bachli, J. Thomas Byrom, and
Richard W. Decker, Jr. to the Board of Directors of NBB to fill currently
existing vacancies on the NBB Board of Directors or vacancies which shall be
created to accommodate this condition; and (b) appoint Harvey Ferguson as Vice
Chairman of the Board of Directors and Chief Executive Officer of NBB.

1.13. DNB BOARD--DIRECTORS' RESIGNATIONS. Immediately prior to closing,
and as a condition thereto, all directors of DNB other than J. Thomas Byrom,
Chris Daglas, and Harvey Ferguson shall tender in writing their resignations as
Directors of DNB effective as of the Effective Time.

1.14. GRANT OF CFB OPTIONS TO NBB DIRECTORS. Upon execution of this
Agreement, each NBB director holding such office on the date of execution of
this Agreement, shall be granted options to purchase 1,000 shares of CFB common
stock pursuant to the CFB Stock Option Plan (the "CFB Options"). The CFB options
shall be granted at not less than the fair market value of CFB common stock on
the date of grant, shall be fully vested, and shall be for a term of three
(3) years from the date of grant

ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF NBB

NBB represents and warrants to the CCB and DNB as follows:

2.1 ORGANIZATION, CORPORATE POWER, ETC. NBB is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States and has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently conducted. NBB has all requisite corporate power and authority to
enter into this Agreement and, subject to receipt of the Regulatory Approvals
and approval by the holders of sixty-six and two-thirds per cent (66 2/3%) of
the issued and outstanding shares of NBB Common Stock, to perform its
obligations hereunder with respect to the consummation of the transactions
contemplated hereby. Neither the scope of the business of NBB, nor the location
of any of its properties requires that NBB be licensed or qualified to do
business in any jurisdiction other than the State of California.

2.2 AUTHORIZATIONS AND APPROVALS; BINDING OBLIGATION. The execution and
delivery by NBB of this Agreement and the Agreement of Merger and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of NBB, subject only to
the approval of this Agreement, the Agreement of Merger and the Merger by the
holders of sixty-six and two-thirds per cent (66 2/3%) of the issued and
outstanding shares of NBB Common Stock. This Agreement has been duly executed
and delivered by NBB, subject to receipt of the Regulatory Approvals,
constitutes the legal, valid and binding obligation of NBB, enforceable in
accordance with its terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the rights of
creditors generally and the availability of equitable remedies). The Agreement
of Merger will, upon receipt of all necessary Regulatory Approvals and upon due
certification, execution, acknowledgment and filing thereof in accordance with
Applicable Law, be the valid and binding obligation of NBB, enforceable in
accordance with its terms (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and the availability of equitable remedies). The term "Applicable Law"
as used herein and throughout this Agreement shall mean any domestic or foreign,

EX-III-5
<PAGE>
federal, state or local, statute, law, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, directive, judgment, decree
or other requirement of any Governmental Authority applicable, in the case of
CCB and DNB, to each of CCB and DNB or to their respective properties, assets,
officers, directors, employees or agents (in connection with such officers',
directors', employees' or agents' activities on behalf of it), and, in the case
of NBB, to NBB or its properties, assets, officers, directors, employees or
agents (in connection with such officers', directors', employees' or agents'
activities on behalf of it). Except for the approval of the holders of sixty-six
and two-thirds per cent (66 2/3%) of the issued and outstanding shares of NBB
Common Stock and the Regulatory Approvals, no other approvals or consents from
any person are necessary for NBB to enter into and perform this Agreement or the
Agreement of Merger and to merge with DNB.

2.2.1 Except as set forth in Schedule 2.2.2, neither the execution and
delivery by NBB of this Agreement or the Agreement of Merger nor the
consummation of the transactions contemplated herein or therein, or
compliance by NBB with the provisions hereof or thereof, will (i) conflict
with or result in a breach of any provision of its Articles of Association
or Bylaws; (ii) constitute a breach of, or result in a default (or give rise
to any rights of termination, cancellation or acceleration, or any right to
acquire any securities or assets) under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, franchise, license,
permit, agreement or other instrument or obligation to which NBB is a party,
or by which NBB or any of its respective properties or assets are bound,
except where such breach or default would not have a material adverse effect
on the business, assets, financial condition, results of operations or
prospects of NBB taken as a whole, or on the ability of NBB to perform its
respective obligations under this Agreement or to consummate the
transactions contemplated by this Agreement (a "Material Adverse Effect");
or (iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to NBB.

2.2.2 No consent or approval of, notice to or filing with any
Governmental Authority having jurisdiction over any aspect of the business
or assets of NBB, and except as set forth in Schedule 2.2.3, no consent or
approval of or notice to any other person or entity, is required in
connection with the execution and delivery by NBB of this Agreement or by
NBB of the Agreement of Merger or the consummation by NBB of the
transactions contemplated hereunder or thereunder, except approval of the
Merger by the holders of sixty-six and two thirds per cent (66 2/3%) of the
issued and outstanding shares of NBB Common Stock and the Regulatory
Approvals. The term "Governmental Authority" as used herein and throughout
this Agreement shall mean any foreign, domestic, federal, territorial, state
or local governmental authority, court, or any regulatory, administrative or
other agency, or any political or other subdivision, department or branch of
any of the foregoing having jurisdiction over the business or any of the
assets or properties of any of the parties hereto.

2.3 CAPITALIZATION. The authorized capitalization of NBB consists of
10,000,000 shares of $5.00 par value common stock ("NBB Common Stock,") of which
572,775 shares are issued and outstanding. NBB has no class of authorized
capital stock other than the NBB Common Stock. All of the outstanding shares of
NBB Common Stock are validly issued, fully paid and, except as provided by
Section 55 of the National Bank Act, nonassessable. There are no outstanding
options, warrants, commitments, agreements or other rights in or with respect to
the unissued shares of NBB Common Stock, or any other securities convertible
into NBB Common Stock..

2.4 FINANCIAL STATEMENTS. NBB has furnished to CCB and DNB its unaudited
consolidated balance sheet as of June 30, 1999 and the related statements of
operations, cash flows and changes in shareholders' equity for the period then
ended ("NBB's 1999 Unaudited Financial Statements"). NBB has also furnished to
CCB and DNB its audited consolidated balance sheet as of December 31, 1998 and
the related statements of operations, cash flows and changes in shareholders'
equity for the year then ended and the related notes thereto, and the
accompanying audit reports of Deloitte & Touche

EX-III-6
<PAGE>
LLP (collectively, "NBB's Audited Financial Statements"). NBB's Audited
Financial Statements were prepared and, except for footnotes and year end
adjustments, NBB's 1999 Unaudited Financial Statements were prepared, and all
interim financial statements to be delivered to CCB and DNB pursuant to this
Agreement will be prepared, in accordance with generally accepted accounting
principles ("GAAP") or regulatory accounting principles ("RAP"), except as
disclosed in the notes thereto and presented and will present fairly the
financial position of NBB as of the dates thereof and the results of operations,
cash flows and changes in shareholders' equity for the periods then ended. None
of NBB's Audited Financial Statements and none of the interim financial
statements to be delivered to CCB and DNB pursuant to this Agreement contain or
will, when delivered, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not misleading.

2.5 PROXY STATEMENT/PROSPECTUS; REGULATORY APPLICATIONS. The prospectus of
CCB, the Proxy Statement of NBB, and the Information Statement of SFB soliciting
shareholder approval of the Holding Company Merger, the Merger and the SFB
Merger (together the "Joint Proxy Statement/ Prospectus") and the Registration
Statement and any other documents to be filed with any Governmental Authority in
connection with the transactions contemplated by this Agreement (including, but
not limited to, all applications for Regulatory Approvals to be filed by NBB)
with respect to all information set forth therein relating to NBB, the Merger
and in respect to this Agreement and the Agreement of Merger, at the respective
times such documents are filed or become effective, and with respect to the
Joint Proxy Statement/Prospectus, at the time of mailing to NBB shareholders and
at the time of the NBB shareholders' meeting, will, assuming receipt of all
information regarding CCB and DNB reasonably requested by NBB (i) comply in all
material respects with the provisions of Applicable Law; and (ii) not contain
any statement which, at the time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or omit
any material fact necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of a proxy for the same meeting or subject
matter which has become false or misleading.

2.6 BOOKS AND RECORDS. The minute books and records of NBB provided to CCB
and DNB contain (i) true, accurate and complete records of all meetings and
actions taken by the Boards of Directors, Board committees and shareholders of
NBB and (ii) true and complete copies of its Articles of Association and Bylaws
and all amendments thereto. The books and records of NBB accurately reflect in
all material aspects its businesses and affairs.

2.7 TITLE TO ASSETS. NBB has good and marketable title to all material
properties and assets, other than real property, owned or purported to be owned
by NBB, free and clear of all mortgages, liens, encumbrances, pledges or charges
of any kind or nature, except for (i) liens for current taxes not yet due and
payable; (ii) liens incurred in the ordinary course of business and which do not
materially impair the respective businesses of NBB, or materially detract from
the usefulness of the properties subject thereto; or (iii) such liens as are
disclosed in NBB's Audited Financial Statements as of December 31, 1998 or in
Schedule 2.7

2.8 LEGAL PROCEEDINGS AND AGREEMENTS WITH BANKING AUTHORITIES. There are
no actions, suits, arbitrations or administrative or other proceedings or
investigations pending, or to NBB's knowledge, threatened against NBB before any
court, governmental body, commission, board or administrative officer, bureau or
agency, whether foreign, federal, state or local, seeking to prevent or
challenging in any other manner the consummation of the transactions
contemplated hereby, the Merger, or the legality of such transactions or the
Merger. NBB is not subject to any order, writ, injunction or decree of any
person which would have the effect set forth above.

EX-III-7
<PAGE>
2.9 COMPLIANCE WITH LAWS AND REGULATIONS. NBB has conducted its business
in accordance with all applicable federal, foreign, state and local laws,
regulations and orders, including without limitation, disclosure, usury, equal
credit opportunity, equal employment, fair credit reporting, community
reinvestment, antitrust, licensing and other laws, regulations and orders, and
the forms, procedures and practices used by NBB are in compliance with such
laws, regulations and orders, except for such violations or noncompliance as
will not have a Material Adverse Effect.

2.10 PERFORMANCE OF OBLIGATIONS. Except as set forth in Schedule 2.10(a),
NBB has performed in all respects all of the obligations required to be
performed by it to date and is not in default under or in breach of any term or
provision of any covenant, contract, lease, indenture or any other agreement to
which NBB is a party or is subject or is otherwise bound, and no event has
occurred which, with the giving of notice or the passage of time or both, would
constitute such default or breach, where such default or breach would have a
Material Adverse Effect. No party with whom NBB has an agreement which is
material to the financial condition, results of operations or prospects of NBB
is in default thereunder, except as set forth in Schedule 2.10(b).

2.11 EMPLOYEES. Except as set forth in Schedule 2.11, there are no written
understandings or, to the best knowledge of NBB, any other understandings, for
the employment of any officer, contingent worker or employee of NBB which are
not terminable by NBB, as the case may be, without liability and without notice
for any reason or no reason. Except as set forth in Schedule 2.11 (b), there are
no controversies pending or threatened between NBB and any of their respective
directors, officers, contingent workers or employees. Except as disclosed in
NBB's Audited Financial Statements as of December 31, 1998 and in
Schedule 2.11(c), all material sums due for director, officer, contingent worker
and employee compensation and benefits have been duly and adequately paid or
provided for, and all deferred compensation obligations for such persons are
fully funded. NBB is not a party to any collective bargaining agreement with
respect to any of its employees or any labor organization to which its employees
or any of them belong. Except as set forth in Schedule 2.11(d), no director,
officer, contingent worker or employee of NBB is entitled to receive any payment
of any amount under any existing employment agreement, severance plan or other
benefit plan as a result of the consummation of any transaction contemplated by
this Agreement.

2.12 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 2.12,
since December 31, 1998, the business of NBB has been conducted diligently and
only in the ordinary course, in the same manner as theretofore conducted, and
there has not been any:

2.12.1 Change in, or development in the business of NBB which is likely
to have a Material Adverse Effect;

2.12.2 Damage, destruction or loss to property (whether or not covered
by insurance), individually or in the aggregate, that could have a Material
Adverse Effect;

2.12.3 Material contract, agreement, license or Understanding which NBB
has entered into or to which NBB is a party which has been terminated or
amended other than in the ordinary course of business;

2.12.4 Labor trouble, dispute or problem of any character involving
employees or contingent workers of NBB which could have a Material Adverse
Effect;

2.12.5 Change in accounting policies or practices;

2.12.6 Material revaluation by NBB of any of its assets except as
required by GAAP;

2.12.7 Waiver or release of any right or claim of NBB except in the
usual and ordinary course of business; or

EX-III-8
<PAGE>
2.12.8 Declaration, setting aside or payment of any dividend or
distribution with respect to NBB Common Stock or the issuance of any shares
of, or options to purchase, NBB Common Stock or any other securities of NBB.

2.13 UNDISCLOSED LIABILITIES. NBB has no liabilities or obligations,
either accrued or contingent, which are material to NBB, and which have not been
either reflected or disclosed in (i) NBB's Audited Financial Statements as of
December 31, 1998, (ii) NBB's 1999 Unaudited Financial Statements, or
(iii) Schedule 2.13(a). NBB knows of no basis for the assertion against NBB of
any liability, obligation or claim (including, without limitation, that of any
Governmental Authority) that might result in or cause a Material Adverse Effect
which is not fairly reflected in their respective Audited Financial Statements
or otherwise disclosed in Schedule 2.13(b).

2.14 ACCURACY AND CURRENT STATUS OF INFORMATION FURNISHED. The
representations and warranties made by NBB hereby or in the Schedules attached
hereto contain no statements of fact which are untrue or misleading, or omit any
material fact which is necessary under the circumstances to prevent the
statements contained herein or in such Schedules from being misleading. NBB
hereby covenants that it shall, not later than the 15th day of each calendar
month between the date hereof and the Closing Date, amend or supplement the
Schedules prepared and delivered pursuant to this Article 2 to ensure that the
information set forth in such Schedules accurately reflects the then-current
status of NBB. NBB shall further amend or supplement the Schedules as of the
Closing Date if necessary to reflect any additional changes in the status of
NBB. No amendment or supplement of the Schedules required by the preceding two
sentences shall affect the conditions to the obligations of NBB to consummate
the transactions contemplated by this Agreement, and any and all changes or
additions contained in any such amendment or supplement shall be considered in
determining whether such conditions have been satisfied.

2.15 FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to NBB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

2.16 VOTE REQUIREMENT. The affirmative vote of the holders of sixty-six
and two-thirds per cent (66 2/3%) of the issued and outstanding shares of NBB
Common Stock entitled to vote on the record date for the meeting of shareholders
of NBB at which the Merger will be considered is the only vote of any class or
series of NBB capital stock necessary to approve the Agreement, the Agreement of
Merger, and the transactions contemplated herein and therein.

2.17 EFFECTIVE DATE OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Each representation, warranty, covenant and agreement of NBB set
forth in this Agreement shall be deemed to be made on and as of the date of this
Agreement and as of the Closing Date, except for those representations and
warranties which expressly are made as of a specified date, which
representations and warranties shall be deemed made on and as of such date.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF CCB

CCB represents and warrants to DNB and NBB as follows:

3.1 ORGANIZATION, CORPORATE POWER, ETC. CCB is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to transact business under the laws of the State of
California and has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as presently
conducted. CCB has all requisite corporate power and authority to enter into
this Agreement and, subject to receipt of the Regulatory Approvals and, if
required, approval by the sole shareholder holder of the issued and outstanding
shares of CCB Common Stock, to perform its obligations hereunder with respect to
the consummation of the transactions contemplated hereby. Neither the scope of
the

EX-III-9
<PAGE>
business of CCB, nor the location of any of its properties requires that CCB be
licensed or qualified to do business in any jurisdiction other than the States
of California and Delaware.

3.2 AUTHORIZATIONS AND APPROVALS; BINDING OBLIGATION.

3.2.1 The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, have been duly authorized and
approved by all necessary action on the part of CCB. This Agreement has been
duly executed and delivered by CCB and, subject to receipt of the Regulatory
Approvals, and, if required the approval of CCB's sole shareholder,
constitutes the legal, valid and binding obligation of CCB, enforceable in
accordance with its terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights
of creditors generally and the availability of equitable remedies). The
Agreement of Merger will, upon receipt of all necessary Regulatory Approvals
and of approval of CCB's shareholder, if required, and upon due
certification, execution, acknowledgment and filing thereof in accordance
with Applicable Law, be the valid and binding obligation of CCB, enforceable
in accordance with its terms (except as may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the rights
of creditors generally and the availability of equitable remedies). Except
for the Regulatory Approvals and approval of the shareholder of CCB, no
other approvals or consents from any person are necessary for to enter into
and perform this Agreement or for CCB to enter into and perform the
Agreement of Merger.

3.2.2 Neither the execution and delivery by CCB of this Agreement or
the execution and delivery by CCB of the Agreement of Merger nor, subject to
the receipt of the Regulatory Approvals, the consummation of the
transactions contemplated herein or therein, or compliance by CCB with the
provisions hereof or thereof, will (i) conflict with or result in a breach
of any provision of the Certificate of Incorporation and Bylaws of CCB;
(ii) constitute a breach of, or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire
any securities or assets) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which CCB is a party, or by
which CCB or any of its respective properties or assets are bound, except
where such breach or default would not have a material adverse effect on the
ability of CCB to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement; or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to CCB.

3.3 CAPITALIZATION. The authorized capitalization of CCB consists of
75,000,000 shares of $0.01 par value common stock ("CCB Common Stock,") and
25,000,000 shares of preferred stock. No shares CCB Commons Stock or preferred
stock are issued and outstanding. As of the date of this Agreement there are no
outstanding options, warrants, commitments, agreements or other rights in or
with respect to the unissued shares of CCB Common Stock, or any other securities
convertible into CCB Common Stock.

3.4 JOINT PROXY STATEMENT/PROSPECTUS AND REGULATORY APPLICATIONS. The
Joint Proxy Statement/ Prospectus and the Registration Statement and any other
documents to be filed with any Governmental Authority in connection with the
transactions contemplated by this Agreement (including, but not limited to, all
applications for Regulatory Approvals to be filed by CCB) with respect to all
information set forth therein relating to CCB, the Merger and in respect to this
Agreement and the Agreement of Merger, at the respective times such documents
are filed or become effective, and with respect to the Joint Proxy
Statement/Prospectus, at the time of mailing to NBB shareholders and at the time
of the NBB shareholders' meeting, will, assuming receipt of all information
regarding NBB and DNB reasonably requested by CCB (i) comply in all material
respects with the provisions of Applicable Law; and (ii) not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omit any
material fact necessary in

EX-III-10
<PAGE>
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier communication with respect to the
solicitation of a proxy for the same meeting or subject matter which has become
false or misleading.

3.5 FINANCIAL STATEMENTS. CCB will furnish to NBB and DNB its unaudited
consolidated balance sheet as of August 31, 1999 and the related statements of
operations, cash flows and changes in shareholders' equity for the period then
ended ("CCB's 1999 Unaudited Financial Statements"). CCB will also furnish to
CCB and DNB its pro forma audited consolidated balance sheet as of December 31,
1998 and the related statements of operations, cash flows and changes in
shareholders' equity for the year then ended and the related notes thereto, and
the accompanying audit reports of KPMG LLP (collectively, "CCB's Audited
Financial Statements"). CCB's Audited Financial Statements will be prepared and,
except for footnotes and year end adjustments, CCB's 1999 Unaudited Financial
Statements and all interim financial statements to be delivered to NBB and DNB
pursuant to this Agreement will be prepared, in accordance with GAAP or RAP,
except as disclosed in the notes thereto and presented and will present fairly
the financial position of CCB as of the dates thereof and the results of
operations, cash flows and changes in shareholders' equity for the periods then
ended. None of CCB's Audited Financial Statements and none of the interim
financial statements to be delivered to NBB and DNB pursuant to this will, when
delivered, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not
misleading.

3.6 FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to CCB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

3.7 ACCURACY; COMPLETENESS OF INFORMATION. The representations, warranties
and other statements of CCB contained in this Agreement are true and correct in
all material respects and CCB has not failed to state any material fact
necessary to make such representations, warranties and other statements not
misleading in light of the circumstances in which they are made.

3.8 BOOKS AND RECORDS. The books and records of CCB provided to NBB and
DNB contain (i) true, accurate and complete records of all meetings and actions
taken by the Boards of Directors, Board committees and shareholders of CCB and
(ii) true and complete copies of its Articles of Incorporation and Bylaws and
all amendments thereto. The books and records of CCB accurately reflect in all
material aspects its businesses and affairs.

3.9 LEGAL PROCEEDINGS AND AGREEMENTS WITH BANKING AUTHORITIES. There are
no actions, suits, arbitrations or administrative or other proceedings or
investigations pending, or to CCB's knowledge, threatened against CCB before any
court, governmental body, commission, board or administrative officer, bureau or
agency, whether foreign, federal, state or local, seeking to prevent or
challenging in any other manner the consummation of the transactions
contemplated hereby, the Merger, or the legality of such transactions or the
Merger. CCB is not subject to any order, writ, injunction or decree of any
person which would have the effect set forth above.

3.10 COMPLIANCE WITH LAWS AND REGULATIONS. CCB has conducted its business
in accordance with all applicable federal, foreign, state and local laws,
regulations and orders, including without limitation, disclosure, usury, equal
credit opportunity, equal employment, fair credit reporting, community
reinvestment, antitrust, licensing and other laws, regulations and orders, and
the forms, procedures and practices used by CCB are in compliance with such
laws, regulations and orders, except for such violations or noncompliance as
will not have a Material Adverse Effect.

3.11 PERFORMANCE OF OBLIGATIONS. CCB has performed in all respects all of
the obligations required to be performed by it to date and is not in default
under or in breach of any term or provision of any covenant, contract, lease,
indenture or any other agreement to which CCB is a party

EX-III-11
<PAGE>
or is subject or is otherwise bound, and no event has occurred which, with the
giving of notice or the passage of time or both, would constitute such default
or breach, where such default or breach would have a Material Adverse Effect. No
party with whom CCB has an agreement which is material to the financial
condition, results of operations or prospects of CCB is in default thereunder.

3.12 UNDISCLOSED LIABILITIES. CCB has no liabilities or obligations,
either accrued or contingent, which are material to CCB, and which have not been
either reflected or disclosed in (i) CCB's Audited Financial Statements as of
December 31, 1998, (ii) CCB's 1999 Unaudited Financial Statements, or
(iii) Schedule 3.12. CCB knows of no basis for the assertion against CCB of any
liability, obligation or claim (including, without limitation, that of any
Governmental Authority) that might result in or cause a Material Adverse Effect
which is not fairly reflected in their respective Audited Financial Statements
or otherwise disclosed in Schedule 3.12.

3.13 ACCURACY AND CURRENT STATUS OF INFORMATION FURNISHED. The
representations and warranties made by CCB hereby or in the Schedules attached
hereto contain no statements of fact which are untrue or misleading, or omit any
material fact which is necessary under the circumstances to prevent the
statements contained herein or in such Schedules from being misleading.

3.14 FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to CBB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

3.15 EFFECTIVE DATE OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Each representation, warranty, covenant and agreement of CCB set
forth in this Agreement shall be deemed to be made on and as of the date of this
Agreement and as of the Closing Date, except for those representations and
warranties which expressly are made as of a specified date, which
representations and warranties shall be deemed made on and as of such date.

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF DNB

DNB represents and warrants to CCB and NBB as follows:

4.1 ORGANIZATION, CORPORATE POWER, ETC. DNB is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States and has all requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as
presently conducted. DNB has all requisite corporate power and authority to
enter into this Agreement and, subject to receipt of the Regulatory Approvals
and approval by the sole holder of the issued and outstanding shares of DNB
Common Stock, to perform its obligations hereunder with respect to the
consummation of the transactions contemplated hereby. Neither the scope of the
business of DNB, nor the location of any of its properties requires that DNB be
licensed or qualified to do business in any jurisdiction other than the State of
California.

4.2 AUTHORIZATIONS AND APPROVALS; BINDING OBLIGATION.

4.2.1 The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, have been duly authorized and
approved by all necessary action on the part of DNB. This Agreement has been
duly executed and delivered by DNB and, subject to receipt of the approval
of DNB's shareholder and of the Regulatory Approvals, constitutes the legal,
valid and binding obligation of DNB, enforceable in accordance with its
terms (except as may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the rights of creditors generally
and the availability of equitable remedies). The Agreement of Merger will,
upon receipt of all necessary Regulatory Approvals and of approval of DNB's
shareholder and upon due certification, execution, acknowledgment and filing
thereof in accordance with Applicable Law, be the valid and binding
obligation of DNB, enforceable in accordance with its terms (except as may
be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting

EX-III-12
<PAGE>
the rights of creditors generally and the availability of equitable
remedies). Except for the Regulatory Approvals and approval of the
shareholder of DNB, no other approvals or consents from any person are
necessary for DNB to enter into and perform this Agreement or for DNB to
enter into and perform the Agreement of Merger.

4.2.2 Neither the execution and delivery by DNB of this Agreement or
the execution and delivery by DNB of the Agreement of Merger nor, subject to
the receipt of the Regulatory Approvals, the consummation of the
transactions contemplated herein or therein, or compliance by DNB with the
provisions hereof or thereof, will (i) conflict with or result in a breach
of any provision of the Articles of Association and Bylaws of DNB;
(ii) constitute a breach of, or result in a default (or give rise to any
rights of termination, cancellation or acceleration, or any right to acquire
any securities or assets) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, franchise, license, permit,
agreement or other instrument or obligation to which DNB is a party, or by
which DNB or any of its respective properties or assets are bound, except
where such breach or default would not have a material adverse effect on the
ability of DNB to perform its obligations under this Agreement or to
consummate the transactions contemplated by this Agreement; or
(iii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to DNB.

4.3 JOINT PROXY STATEMENT/PROSPECTUS AND REGULATORY APPLICATIONS. The
Joint Proxy Statement/ Prospectus and the Registration Statement and any other
documents to be filed with any Governmental Authority in connection with the
transactions contemplated by this Agreement (including, but not limited to, all
applications for Regulatory Approvals to be filed by DNB) with respect to all
information set forth therein relating to DNB, the Merger and in respect to this
Agreement and the Agreement of Merger, at the respective times such documents
are filed or become effective, and with respect to the Joint Proxy
Statement/Prospectus, at the time of mailing to NBB shareholders and at the time
of the NBB shareholders' meeting, will, (i) comply in all material respects with
the provisions of Applicable Law; and (ii) not contain any statement which, at
the time and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or omit any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of a proxy for the same meeting or subject matter which has
become false or misleading.

4.4 FINANCIAL STATEMENTS. DNB has furnished to CCB and NBB its unaudited
consolidated balance sheet as of June 30, 1999 and the related statements of
operations, cash flows and changes in shareholders' equity for the period then
ended ("DNB's 1999 Unaudited Financial Statements"). DNB has also furnished to
CCB and NBB its audited consolidated balance sheet as of December 31, 1998 and
the related statements of operations, cash flows and changes in shareholders'
equity for the year then ended and the related notes thereto, and the
accompanying audit reports of Deloitte & Touche LLP (collectively, "DNB's
Audited Financial Statements"). DNB's Audited Financial Statements were prepared
and, except for footnotes and year end adjustments, DNB's 1999 Unaudited
Financial Statements were prepared, and all interim financial statements to be
delivered to CCB and NBB pursuant to this Agreement will be prepared, in
accordance with GAAP or RAP, except as disclosed in the notes thereto and
presented and will present fairly the financial position of DNB as of the dates
thereof and the results of operations, cash flows and changes in shareholders'
equity for the periods then ended. None of DNB's Audited Financial Statements
and none of the interim financial statements to be delivered to CCB and NBB
pursuant to this Agreement contain or will, when delivered, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading.

4.5 FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to DNB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

EX-III-13
<PAGE>
4.6 ACCURACY; COMPLETENESS OF INFORMATION. The representations, warranties
and other statements of DNB contained in this Agreement are true and correct in
all material respects and DNB has not failed to state any material fact
necessary to make such representations, warranties and other statements not
misleading in light of the circumstances in which they are made.

4.7 BOOKS AND RECORDS. The books and records of DNB provided to NBB and
CCB contain (i) true, accurate and complete records of all meetings and actions
taken by the Boards of Directors, Board committees and shareholders of CCB and
(ii) true and complete copies of its Articles of Association and Bylaws and all
amendments thereto. The books and records of DNB accurately reflect in all
material aspects its businesses and affairs.

4.8 LEGAL PROCEEDINGS AND AGREEMENTS WITH BANKING AUTHORITIES. There are
no actions, suits, arbitrations or administrative or other proceedings or
investigations pending, or to DNB's knowledge, threatened against DNB before any
court, governmental body, commission, board or administrative officer, bureau or
agency, whether foreign, federal, state or local, seeking to prevent or
challenging in any other manner the consummation of the transactions
contemplated hereby, the Merger, or the legality of such transactions or the
Merger. DNB is not subject to any order, writ, injunction or decree of any
person which would have the effect set forth above.

4.9 COMPLIANCE WITH LAWS AND REGULATIONS. DNB has conducted its business
in accordance with all applicable federal, foreign, state and local laws,
regulations and orders, including without limitation, disclosure, usury, equal
credit opportunity, equal employment, fair credit reporting, community
reinvestment, antitrust, licensing and other laws, regulations and orders, and
the forms, procedures and practices used by DNB are in compliance with such
laws, regulations and orders, except for such violations or noncompliance as
will not have a Material Adverse Effect.

4.10 PERFORMANCE OF OBLIGATIONS. DNB has performed in all respects all of
the obligations required to be performed by it to date and is not in default
under or in breach of any term or provision of any covenant, contract, lease,
indenture or any other agreement to which DNB is a party or is subject or is
otherwise bound, and no event has occurred which, with the giving of notice or
the passage of time or both, would constitute such default or breach, where such
default or breach would have a Material Adverse Effect. No party with whom DNB
has an agreement which is material to the financial condition, results of
operations or prospects of DNB is in default thereunder.

4.11 UNDISCLOSED LIABILITIES. DNB has no liabilities or obligations,
either accrued or contingent, which are material to DNB, and which have not been
either reflected or disclosed in (i) DNB's Audited Financial Statements as of
December 31, 1998, (ii) DNB's 1999 Unaudited Financial Statements, or
(iii) Schedule 4.11. CCB knows of no basis for the assertion against CCB of any
liability, obligation or claim (including, without limitation, that of any
Governmental Authority) that might result in or cause a Material Adverse Effect
which is not fairly reflected in their respective Audited Financial Statements
or otherwise disclosed in Schedule 4.11.

4.12 ACCURACY AND CURRENT STATUS OF INFORMATION FURNISHED. The
representations and warranties made by DNB hereby or in the Schedules attached
hereto contain no statements of fact which are untrue or misleading, or omit any
material fact which is necessary under the circumstances to prevent the
statements contained herein or in such Schedules from being misleading.

4.13 FACTS AFFECTING REGULATORY APPROVALS OR CONSENTS. There is no fact,
event or condition applicable to DNB which will, or reasonably could be expected
to, adversely affect the likelihood of securing the Regulatory Approvals.

4.14 EFFECTIVE DATE OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Each representation, warranty, covenant and agreement of DNB set
forth in this Agreement shall be deemed to be made on and as of the date of this
Agreement and as of the Closing Date, except for those

EX-III-14
<PAGE>
representations and warranties which expressly are made as of a specified date,
which representations and warranties shall be deemed made on and as of such
date.

ARTICLE 5. COVENANTS

5.1 ACCESS.

5.1.1 Each party shall have the right, on reasonable notice and during
ordinary business hours, to examine through its agents, auditors and
attorneys all of the books, records and properties of each other party
including but not limited to all loan, investment, accounting, property and
legal records and files. Such examination shall be made in a manner that
will not unreasonably interfere with the conduct of the business of the
party being examined.

5.1.2 Each party shall retain in confidence and shall require its
employees, consultants, professional representatives and agents to retain in
confidence, all information gained thereby, and shall not reveal it to
anyone except as may be necessary for the accomplishment of the purposes of
such examination and the consummation of the transactions provided for
hereby.

5.1.3 Until the Closing Date, a representative of CCB shall be invited
to attend, in person, each meeting of the Board of Directors of NBB of and
NBB's Directors Loan Committee; provided, however, that such representatives
shall be excused during (i) any discussion regarding the Merger or the
transactions contemplated by this Agreement, (ii) any discussion regarding
trade secrets or proprietary rights, or (iii) the conduct or discussion of
any business requiring the advice of counsel when the presence of such
representatives would have the effect of waiving the attorney-client
privilege.

5.2 NEGATIVE COVENANTS OF NBB PRIOR TO CLOSING. Between the date hereof
and the Effective Time:

5.2.1 NBB agrees not to conduct its business other than in the normal
and customary manner and in accordance with safe and sound banking practices
and not to carry on its business except in substantially the same manner as
heretofore conducted or introduce any new method of management or operation
with respect to its business and properties, except in a manner consistent
with prior practice and in the ordinary course of business. Notwithstanding
the provisions of this Section 5.2.1, CCB consents to the appointment of
Kenneth Hurley as President and COO of the NBB.

5.2.2 NBB shall take no action which would or is reasonably likely to
(i) adversely affect the ability of CCB, DNB, or NBB to obtain any necessary
Regulatory Approvals (ii) adversely affect the ability of NBB to obtain any
consents referred to in Section 2.2; (iii) adversely affect the ability of
NBB, DNB or CCB to perform their respective covenants and agreements under
this Agreement or the Agreement of Merger, or (iv) result in any of the
conditions to the Merger set forth in Article 6 not being satisfied

5.3 AFFIRMATIVE COVENANTS OF NBB PRIOR TO CLOSING. Between the date hereof
and the Effective Time, NBB, as the case may be, shall do the following:

5.3.1 Use its commercially reasonable best efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Article 6 hereof;

5.3.2 Use and devote its commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact its present business
organization and to maintain and preserve its relationships and goodwill
with account holders, borrowers, employees, contingent workers and others
having business relationships with it;

EX-III-15
<PAGE>
5.3.3 Advise CCB and DNB promptly in writing of any material adverse
change known to it including, but not limited to, any matter which could
have a Material Adverse Effect, or of any matter which would make the
representations and warranties set forth in Article 2 hereof not true and
correct in any material respect at the Closing or in the event it determines
that the Merger will not be consummated because of its inability to meet any
of the conditions set forth in Article 6 hereof;

5.3.4 Keep in full force and effect all of its existing permits and
licenses;

5.3.5 Perform its material contractual obligations and not become in
material default on any of such obligations;

5.3.6 Duly observe and conform to all legal requirements applicable to
its business;

5.3.7 Duly and timely file all reports and Returns required to be filed
with any Governmental Authority, unless any extensions have been duly
granted by such authority;

5.3.8 Maintain its assets and properties in good condition and repair,
normal wear and tear excepted;

5.3.9 NBB agrees that through the Effective Time, as of their
respective dates, (i) all NBB Filings will be true and complete in all
material respects; and (ii) each NBB Filing will comply in all material
respects with all of the Applicable Laws enforced or promulgated by the
Governmental Authority with which it will be filed, and none will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they will be made, not misleading.
Any financial statement contained in any of such NBB Filings that is
intended to present the financial position of NBB will fairly present the
financial position of NBB during the periods involved, and will be prepared
in accordance with GAAP or RAP, except as stated therein;

5.3.10 NBB SHAREHOLDER RECOMMENDATION; SUPERIOR PROPOSALS.

(1) The Board of Directors of NBB has, as of the date of this
Agreement, determined (i) that the Merger is fair to, and in the best
interests of NBB and its shareholders, and (ii) to recommend that the
shareholders of NBB approve the proposed merger of NBB with and into DNB.

(2) Not later than 15 days after the Registration Statement is
declared effective by the SEC, unless extended with the consent of CCB
and DNB, NBB shall take all such actions as may be required to convene a
meeting of its shareholders to consider and vote upon the transactions
contemplated hereby and all requisite matters incident thereto for the
approval of its shareholders. From and after the date of this Agreement
until the earlier of the Effective Time or termination of this Agreement
pursuant to its terms, NBB and its directors, officers, employees,
representatives, and agents shall not, directly or indirectly,
(i) solicit or knowingly encourage submission of, any proposals or offers
by any person, entity or group (other than CCB and/or DNB and their
agents and representatives), or (ii) participate in any discussion or
negotiations with, or disclose any non-public information concerning NBB
to, or afford any access to the properties, books or records of NBB to,
or otherwise assist or facilitate, or enter into any agreement or
understanding with, any person, entity or group (other than CCB
and/or DNB and their agents and representatives), in connection with any
proposed purchase, acquisition or merger offer or proposal (collectively,
"Merger Proposal") with respect to NBB. NBB will (i) notify CCB as
promptly as practicable if any inquiry or proposal is made or any
information or access is requested in connection with a potential Merger
Proposal and (ii) as promptly as practicable notify CCB of the
significant terms and conditions of any such Merger Proposal. In
addition, subject to the other provisions of this Section 5.3.10, from
and after the

EX-III-16
<PAGE>
date of this Agreement until the earlier of the Effective Time or
termination of this Agreement pursuant to its terms, NBB will not, and
will instruct its respective directors, officers, employees,
representatives and agents not to, directly or indirectly, make or
authorize any public statement, recommendation or solicitation in support
of any Merger Proposal made by any person, entity or group (other than
CCB); provided, however, that nothing herein shall prohibit NBB's Board
of Directors from taking and disclosing to NBB's shareholders a position
with respect to a tender offer pursuant to Rules 14d-9 and 14e-2
promulgated under the Exchange Act.

(3) Notwithstanding the provisions of paragraph (2) above, prior to
the Effective Time, NBB may, to the extent the Board of Directors of NBB
determines, in good faith, after consultation with its legal counsel,
that the Board's fiduciary duties under applicable law require it to do
so, participate in discussions or negotiations with, and, subject to the
requirements of paragraph 5.3.10(4), below, furnish information to any
person, entity or group after such person, entity of group has delivered
to NBB in writing, an unsolicited bona fide Merger Proposal which the
Board of Directors of NBB in its good faith reasonable judgment
determines would result in a transaction more favorable than the Proposed
Merger to the stockholders of NBB (a "NBB Superior Proposal"). In
addition, notwithstanding the provisions of paragraph (2) above, in
connection with a possible Merger Proposal, NBB may refer any third party
to this Section 5.3.10 or make a copy of this Section 5.3.10 available to
a third party. In the event NBB receives an NBB Superior Proposal,
nothing contained in this Agreement (but subject to the terms hereof)
will prevent the Board of Directors of NBB from recommending such NBB
Superior Proposal to its stockholders or from entering into an "NBB
Qualifying Agreement" defined below, with such party, if the Board
determines, in good faith, after consultation with its legal counsel,
that such action is required by its fiduciary duties under applicable
law; in such case, the Board of Directors of NBB may withdraw, modify or
refrain from making its recommendation set forth in Section 5.3.10, and,
to the extent it does so. NBB may refrain from soliciting proxies and
taking such other action necessary to secure the vote of its stockholders
as may be required by Section 5.3.11; provided, however, that NBB shall
not recommend to its stockholders an NBB Superior Proposal for a period
of not less than 48 hours after CCB's receipt of a copy of such NBB
Superior Proposal (or a description of the significant terms and
conditions thereof, if not in writing); and provided further, that
nothing contained in this Section shall limit NBB's obligation to hold
and convene the NBB Stockholders Meeting (regardless of whether the
recommendation of the Board of Directors of NBB shall have been
withdrawn, modified or not yet made), although NBB may concurrently
submit an NBB Superior Proposal to NBB stockholders for approval. The
term "NBB Qualifying Agreement" means a merger, purchase, reorganization
or similar agreement for an NBB Superior Proposal that (A) terminates
automatically upon receipt, if any, of NBB stockholder approval of and
adoption of this Agreement and the approval of the Merger (the "NBB
Stockholder Approval"), (B) provides that there shall be no liability or
obligation of NBB upon or following termination thereof as a result of
the receipt by NBB of NBB Stockholder Approval, (C) does not provide for
the payment of any expenses of, or the transfer or issuance of any assets
or securities to, the party making the NBB Superior Proposal (or any
affiliate of such party) except upon consummation of the NBB Superior
Proposal, and (D) does not require NBB not to perform or comply with or
take any act inconsistent with any provision of this Agreement except
(for this clause (D)) to the extent NBB is specifically permitted under
this Agreement to act or omit to act in connection with an NBB Superior
Proposal.

(4) Notwithstanding anything to the contrary herein, NBB will not
provide any non-public information to a third party unless: (x) NBB
provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection for confidential

EX-III-17
<PAGE>
information in a form reasonably satisfactory to CCB; and (y) such
non-public information is the same information previously delivered to
CCB.

5.3.11 SUBMISSION TO NBB SHAREHOLDERS; PREPARATION OF CCB REGISTRATION
STATEMENT AND/ JOINT PROXY STATEMENT/PROSPECTUS.

(1) NBB shall prepare as soon as practicable after the date hereof
information for use in connection with the Joint Proxy
Statement/Prospectus and such meeting and shall as soon as practicable
thereafter cause such proxy materials to be filed with, and if necessary,
approved by, the OCC. NBB shall cause such Joint Proxy
Statement/Prospectus to be mailed by registered or certified mail to the
shareholders of NBB and shall publish the notice required by
Section 214a(a) of the National Bank Act. The Joint Proxy
Statement/Prospectus shall be included in a Registration Statement
registering shares of CCB Common Stock to be issued as consideration for
the Merger (the "Registration Statement"). CCB shall have responsibility
for the preparation of the Joint Proxy Statement/Prospectus and the
Registration Statement. NBB shall have responsibility for furnishing to
CCB for inclusion in the Joint Proxy Statement/ Prospectus and the
Registration Statement, information concerning the NBB which, in the
opinion of counsel for NBB, is necessary or appropriate in order to
comply with the requirements of the Corporation Law, the Exchange Act,
the Securities Act, and all other Applicable Laws and which is not
reasonably objectionable to the CCB's counsel. CCB shall not submit the
Joint Proxy Statement/Prospectus and the Registration Statement to the
SEC, or mail the final Joint Proxy Statement/Prospectus, without giving
NBB and DNB and their counsel at least five (5) Business Days to comment
on such proxy materials and CCB shall incorporate therein all reasonable
comments of DNB and NBB and their counsel.

(2) If the Merger is approved by vote of the holders of sixty-six and
two-thirds per cent (66 2/3%) of the issued and outstanding shares of NBB
Common Stock, then within ten (10) days thereafter NBB shall send to each
holder of Dissenting Shares the notice required to be given to record
holders of Dissenting Shares pursuant to Section 214a(b) of the National
Bank Act.

(3) NBB shall obtain (and deliver a copy thereof to CCB and DNB)
prior to distribution of the Joint Proxy Statement/Prospectus, a written
opinion from the Findley Group dated the date of distribution of the
Joint Proxy Statement/Prospectus (the "Fairness Opinion"), to the effect
that the consideration and other terms of the Merger and this Agreement
are fair, from a financial point of view, to NBB and its shareholders.

5.3.12 NBB shall prepare and promptly file any and all Applications
required of it by this Agreement and applicable law to be filed with the OCC
and any other applicable Government Authority for approval of the Merger and
the Capital Reductions.

5.4 CONDUCT OF CCB AND DNB PRIOR TO CLOSING. Between the date hereof and
the Effective Time, each of CCB and DNB shall do the following:

5.4.1 Use its commercially reasonable best efforts, or cooperate with
others, to expeditiously bring about the satisfaction of the conditions
specified in Article 6 hereof;

5.4.2 Use and devote its commercially reasonable efforts consistent
with this Agreement to maintain and preserve intact its present business
organization and, with respect to DNB, to maintain and preserve its
relationships and goodwill with account holders, borrowers, employees,
contingent workers and others having business relationships with it;

5.4.3 Keep in full force and effect all of its existing permits and
licenses;

5.4.4 Duly observe and conform to all legal requirements applicable to
its business;

EX-III-18
<PAGE>
5.4.5 Perform its material contractual obligations and not become in
material default on any of such obligations;

5.4.6 Maintain its assets and properties in good condition and repair,
normal wear and tear excepted;

5.4.7 Duly and timely file all reports and Returns required to be filed
with any Governmental Authority, unless any extensions have been duly
granted by such authority;

5.4.8 Not take any action which would or is reasonably likely to
(i) adversely affect the ability of DNB, CCB, or NBB to obtain any necessary
Regulatory Approvals, (ii) adversely affect the ability of DNB, CCB or NBB
to obtain any consents referred to in Sections 3.2 or 4.2, (iii) adversely
affect the ability of DNB, CCB or NBB to perform their respective covenants
and agreements under this Agreement or the Agreement of Merger, or
(iv) result in any of the conditions to the Merger set forth in Article 6
not being satisfied; and

5.4.9 Advise NBB promptly in writing of any material adverse change
known to it including, but not limited to, any matter which could have a
Material Adverse Effect, or of any matter which would make the
representations and warranties set forth in Articles 3 or 4, as the case may
be, hereof not true and correct in any material respect at the Closing or in
the event it determines that the Merger will not be consummated because of
its inability to meet any of the conditions set forth in Article 6 hereof;

5.4.10 CCB and DNB each agrees that through the Effective Time, as of
their respective dates, (i) all CCB or DNB Filings, as the case may be, will
be true and complete in all material respects; and (ii) each CCB or DNB
Filings, as the case may be, will comply in all material respects with all
of the Applicable Laws enforced or promulgated by the Governmental Authority
with which it will be filed, and none will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they will be made, not misleading. Any financial statement
contained in any of such CCB or DNB Filings, as the case may be, that is
intended to present the financial position of NBB will fairly present the
financial position of CCB or DNB Filings, as the case may be, during the
periods involved, and will be prepared in accordance with GAAP or RAP,
except as stated therein.

5.5 AFFIRMATIVE COVENANTS OF CCB AND DNB PRIOR TO CLOSING. Between the
date hereof and the Effective Time, CCB and DNB shall each do the following:

5.5.1 CCB and DNB shall prepare and promptly file any and all
Applications required of them by this Agreement and applicable law to be
filed with the FRB, the DFI and any other applicable Government Authority
for approval of the Merger, the Conversion, and the Capital Reductions;

5.5.2 DNB shall promptly file the Agreement of Merger and all
supporting documents with the Secretary of State of the State of California
and the DFI;

5.5.3 APPROVAL BY CCB AND DNB'S SHAREHOLDER. If required, not later
than 120 days after execution of this Agreement, shall take all such actions
as may be required to obtain the written consent of their respective sole
shareholders.

5.5.4 RESERVATION, ISSUANCE AND REGISTRATION OF CCB COMMON STOCK. CCB
shall reserve and make available for issuance in connection with the Bank
Mergers and the Holding Company Merger and in accordance with the terms of
this Agreement, and the Holding Company Agreement, and the SFB Agreement
(i) CCB Common Stock to be issued in connection with the Bank Mergers and
the Holding Company Merger, including, but not limited to, the maximum
number of shares of CCB Common Stock to which holders of convertible
debentures or the option

EX-III-19
<PAGE>
holders of the parties to the Bank Mergers and the Holding Company Merger
may be entitled to hereunder at or after the Effective Time. All CCB Common
Stock will, when issued and delivered pursuant to and in accordance with the
terms of this Agreement, the Holding Company Agreement, and the SFB
Agreement, be duly authorized, legally and validly issued, fully paid and
nonassessable. As promptly as practicable after the date hereof, CCB shall
file and cause to be declared effective pursuant to the Securities Act one
or more registration statements covering all such shares and shall cause all
such shares to be issued in compliance with the Securities Act and in
compliance with all applicable state securities laws and regulations.

5.6 MUTUAL COVENANTS OF NBB, DNB AND CCB

5.6.1. CORPORATE ACTION. Each party promptly shall take or cause to be
taken all necessary action required to carry out the transactions
contemplated in this Agreement and the Agreement of Merger.

5.6.2. REGULATORY APPROVALS. Promptly following execution of this
Agreement, the parties hereto shall prepare, submit and file, or cause to be
prepared, submitted and filed, all applications for approvals, notices, and
consents as may be required of any of them, respectively, by Applicable Law
with respect to the transactions contemplated by this Agreement, including,
without limitation, any and all applications or notices required to be filed
with the FRB, the Commissioner, the OCC and such other Governmental
Authorities as the CCB, DNB or NBB may reasonably believe necessary. Each
party shall cooperate with the other in the preparation of the applications
or notices and will furnish promptly upon request all documents,
information, financial statements or other materials as may be required in
order to complete said applications. Each party shall afford the other a
reasonable opportunity to review all such applications or notices and all
amendments and supplements thereto before filing. NBB, CCB and DNB each
covenants and agrees that any and all information furnished by it to the
other for inclusion in such applications or notices will not contain any
untrue statement of a material fact and will not omit to state any material
fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances under which they were made,
not misleading.

5.6.4. FURTHER ASSURANCES. CCB, DNB and NBB each agrees to take such
further action as may reasonably be requested by the other in order to
consummate the transactions contemplated by this Agreement and that are not
inconsistent with the other provisions hereof. This Section 5.6.4 shall
survive the Closing.

ARTICLE 6. CONDITIONS PRECEDENT TO CONTEMPLATED TRANSACTIONS

6.1 GENERAL CONDITIONS. The obligations of each of the parties hereto to
consummate the transactions contemplated herein are further subject to the
satisfaction, on or before the Closing Date, of the following conditions
precedent, any of which, other than Section 6.1.1 and 6.1.3, may be waived in
writing:

6.1.1. SHAREHOLDER APPROVAL. The transactions contemplated hereby
shall have received all requisite approvals of the shareholders of CCB, DNB
and NBB.

6.1.2. NO PROCEEDINGS. No legal, administrative, arbitration,
investigatory or other proceeding by any Governmental Authority shall have
been instituted and, at what would otherwise

EX-III-20
<PAGE>
have been the Effective Time, remain pending by or before a court or any
Governmental Authority to restrain or prohibit the transactions contemplated
hereby.

6.1.4. JOINT PROXY STATEMENT/PROSPECTUS. Copies of the
Prospectus/Joint Proxy Statement/ Prospectus shall have been mailed to every
shareholder of record of NBB on a record date not less than ten days prior
to the date of NBB's shareholders' meeting called to act upon the Merger.

6.2 CONDITIONS TO OBLIGATIONS OF CCB AND DNB. The obligations of CCB and
DNB to effect the transactions contemplated hereby shall be subject to the
following conditions, any of which, may be waived in writing by CCB and DNB:

6.2.1. REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
COVENANTS. Each of the representations and warranties of NBB set forth
herein shall be true and correct as of the Effective Time in all material
respects, as if made on such date; and NBB shall have performed in all
material respects all of the covenants to be performed by it on or prior to
the Effective Time.

6.2.2. OPINION OF COUNSEL FOR NBB. CCB shall have received from
Buchalter, Nemer, Fields & Younger, a Professional Corporation, counsel to
NBB, an opinion dated the Effective Time in substantially the form attached
hereto as Appendix C.

6.2.3. AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement by NBB and the
consummation of the transactions contemplated hereby shall have been duly
and validly taken by the Board of Directors of NBB, and NBB shall have full
power and right to merge pursuant to the Agreement of Merger.

6.2.4. DISSENTING SHARES LIMITED TO 10%. Total Dissenting Shares shall
not be greater than ten percent of total outstanding NBB common stock.

6.2.5. THIRD PARTY CONSENTS. NBB shall have obtained all consents of
other parties to their respective material mortgages, notes, leases,
franchises, agreements, licenses and permits as may be necessary to permit
the transactions contemplated herein to be consummated, without default,
acceleration, breach or loss of rights or benefits thereunder.

6.2.6. ABSENCE OF CERTAIN CHANGES. As of the Closing Date, there shall
not exist any of the following: (i) any change in the financial condition,
results of operation or prospects of NBB since December 31, 1998, which
individually is or in the aggregate are materially adverse to NBB, except
changes resulting from a change in law, a change in governmental regulatory
practices, a change in GAAP, or a change in another matter affecting the
banking industry generally; or (ii) any damage, destruction, loss or event
materially and adversely affecting the properties, business or prospects of
NBB.

EX-III-21
<PAGE>
6.2.7. SHAREHOLDER'S AGREEMENTS. Each of the NBB Director shall have
entered into a Shareholder's Agreement and Proxy substantially in the form
attached hereto as Appendix B, and each of the persons executing such
agreement shall have performed in all material respects the obligations to
be performed by him or her thereunder.

6.2.8. OFFICERS' CERTIFICATE. There shall have been delivered to CCB
on the Closing Date a certificate executed by the Chief Executive Officer
and the Chief Financial Officer of NBB certifying, to the best of their
knowledge, compliance with all of the provisions of Sections 6.1.1, 6.1.2,
6.1.3, 6.2.1, 6.2.3, 6.2.4, 6.2.5, 6.2.6, 6.2.7, 6.2.9 and 6.2.10 of this
Agreement:

6.2.9. FAIRNESS OPINION. A copy of the Fairness Opinion shall have
been delivered to the NBB prior to the distribution of the NBB Proxy
Statement. The Fairness Opinion shall not have been withdrawn prior to the
Effective Time.

6.2.10. CAPITAL REDUCTION. DNB and NBB shall have received approvals
of all required Governmental Authorities to effect the Capital Reductions.

6.2.11. CONVERSION. The conversion of DNB to a California State
licensed, member bank shall have been completed.

6.2.12. The Board of Directors of NBB shall have (a) appointed
Ronald W. Bachli, J. Thomas Byrom, and Richard W. Decker, Jr. to the Board
of Directors of NBB to fill currently existing vacancies on the NBB Board of
Directors or vacancies which shall be created to accommodate this condition;
and (b) appointed Harvey Ferguson as Vice Chairman of the Board of Directors
and Chief Executive Officer of NBB.

6.2.13. The obligation of CCB to effect the transactions contemplated
hereby shall be subject to the condition that all directors of DNB other
than J. Thomas Byrom, Chris Daglas, and Harvey Ferguson shall tender in
writing their resignations as Directors of DNB effective as of the Effective
Time.

6.3 CONDITIONS TO OBLIGATIONS OF NBB. The obligations of NBB to effect the
transactions contemplated hereby shall be subject to the following conditions,
any of which may be waived in writing by NNB;

6.3.1. REPRESENTATIONS AND WARRANTIES AND PERFORMANCE OF
COVENANTS. Each of the representations and warranties of DNB and CCB set
forth herein shall be true and correct as of the Effective Time in all
material respects, as if made on such date; and DNB and CCB shall have
performed in all material respects all of the covenants to be performed by
them on or prior to the Effective Time.

6.3.2. OPINION OF COUNSEL FOR CCB AND DNB. NBB shall have received
from Lillick & Charles LLP, counsel to DNB and CCB, an opinion dated the
Effective Time in substantially the form attached hereto as Appendix D.

6.3.3. AUTHORIZATION OF MERGER. All actions necessary to authorize the
execution, delivery and performance of this Agreement by DNB and by CCB and
the consummation of the transactions contemplated hereby shall have been
duly and validly taken by DNB and CCB shall have full power and right to
merge pursuant to the Agreement of Merger.

6.3.4. THIRD PARTY CONSENTS. CCB and DNB shall have obtained all
consents of other parties to their respective material mortgages, notes,
leases, franchises, agreements, licenses and permits as may be necessary to
permit the transactions contemplated herein to be consummated, without
default, acceleration, breach or loss of rights or benefits thereunder.

6.3.5. ABSENCE OF CERTAIN CHANGES. As of the Closing Date, there shall
not exist any of the following: (i) any change in the financial condition,
results of operation or prospects of CCB or

EX-III-22
<PAGE>
DNB since December 31, 1998, which individually is or in the aggregate are
materially adverse to CCB or DNB, as the case may be, except changes
resulting from a change in law, a change in governmental regulatory
practices, a change in GAAP, or a change in another matter affecting the
banking industry generally; or (ii) any damage, destruction, loss or event
materially and adversely affecting the properties, business or prospects of
CCB or DNB, as the case may be.

6.3.6. OFFICERS' CERTIFICATE. There shall have been delivered to NBB
on the Closing Date a certificate executed by the Chief Executive Officer
and the Chief Financial Officer of CCB and of DNB certifying, to the best of
their knowledge, compliance with all of the provisions of Sections 6.1.1,
6.1.2, 6.1.3, 6.1.5, 6.3.1, 6.3.3, 6.3.4 and 6.3.5 of this Agreement.

6.3.7. FAIRNESS OPINION. Prior to solicitation of shareholder
approval, NBB shall have received the Fairness Opinion and the Fairness
Opinion shall not have been withdrawn prior to the Effective Time.

6.3.6 CFB OPTIONS. The CFB Options shall have been granted.

ARTICLE 7. TERMINATION

7.1 TERMINATION OF THIS AGREEMENT.

7.1.1 Notwithstanding that this Agreement and the Agreement of Merger
may have already been approved by the holders of a sixty-six and two thirds
per cent (66 2/3%) of the issued and outstanding shares of NBB, this
Agreement may be terminated prior to the Effective Time:

(1) By mutual written consent of the Board of Directors of NBB, DNB,
and CCB;

(2) By (i) CCB or DNB immediately upon the expiration of 30 days from
the date that CCB or DNB, as the case may be, has given notice to NBB of
a material breach or default by NBB in the performance of any covenant,
agreement, representation, warranty, duty or obligation hereunder or
(ii) NBB immediately upon the expiration of 30 days from the date that
NBB has given notice to CCB or DNB of a material breach or default by CCB
or DNB, as the case may be, in the performance of any covenant,
agreement, representation, warranty, duty or obligation hereunder;
provided, however, that no such termination shall be effective if, within
such 30-day period, the breaching or defaulting party shall have
corrected and cured the grounds for the termination as set forth in said
notice of termination;

(3) By CCB, DNB or NBB if any Governmental Authority denies or
refuses to grant the Regulatory Approvals required to be obtained in
order to consummate the transactions covered and contemplated by this
Agreement without the imposition of a Prohibited Condition; and

(4) By CCB, DNB or NBB if the Merger does not receive the requisite
approval of holders of a majority of the issued and outstanding shares of NBB
Common Stock; and

(5) By CCB if the Board of Directors of NBB approves a transaction (or
executes a letter of intent or other document) pursuant to which any person or
entity or related group of persons or entities acquires, directly or indirectly,
record or beneficial ownership (as defined in Rule 13d-3 promulgated by the SEC
pursuant to the Exchange Act) or control of five percent or more of the
outstanding shares of CVB Common Stock, other than as contemplated herein.

7.1.2 Notwithstanding that this Agreement and the Agreement of Merger may
have already been approved by holders of a majority of the issued and
outstanding shares of NBB Common Stock, this Agreement shall be terminated prior
to the Effective Time if any conditions specified in Article 6 have not been
satisfied or waived in writing by the party authorized to waive such conditions
by January 31, 2000(the "Expiration Date") unless mutually extended by the
parties hereto; provided, however, that in

EX-III-23
<PAGE>
the event that any conditions set forth in Sections 6.1.3 have not been
satisfied or waived on or before the Expiration Date, DNB, CCB or NBB, acting
alone, shall have the right to extend the Expiration Date for an additional
30-day period by giving written notice to the other party on or before
January 31, 2000.

7.2 EFFECT OF TERMINATION AND SURVIVAL. No termination of this Agreement
under this Article 7 for any reason or in any manner shall release, or be
construed as so releasing, any party hereto from its obligations pursuant to
Sections 5.1.2, 7.2.1; 8.1; 8.10; 8.11; 8.15; 817; and 8.19 hereof or from any
liability or damage to the other party hereto arising out of, in connection with
or otherwise relating to, directly or indirectly, said party's breach, default
or failure in performance of any of its covenants, agreements, duties or
obligations arising hereunder, or any breaches of any representation or warranty
contained herein arising prior to the date of termination of this Agreement.

7.2.1 REIMBURSEMENT OF NBB'S EXPENSES. In the event the Merger is not
consummated, CCB shall reimburse NBB for all reasonable out-of-pocket expenses
incurred by NBB in connection with the transactions contemplated by this
Agreement, including, but not limited to, the legal and other costs of due
diligence and negotiating this Agreement and the cost of the Fairness opinion.

ARTICLE 8. GENERAL PROVISIONS

8.1 INDEMNIFICATION.

8.1.1 NBB agrees to defend, indemnify and hold harmless DNB and CCB, their
respective officers and directors, their respective attorneys and accountants
and each person who controls DNB and CCB within the meaning of the Securities
Act from and against any costs, damages, liabilities and expenses of any nature,
insofar as any such costs, damages, liabilities or expenses arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Joint Proxy Statement/Prospectus, and the Registration
Statement, or any amendments or supplements thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that NBB shall not be liable in any such case to
the extent that any such cost, damage, liability or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in the Joint Proxy Statement/Prospectus, and if required
the Registration Statement, or amendments or supplements thereto, in reliance
upon and in conformity with information with respect to DNB or CCB furnished to
NBB by or on behalf of DNB or CCB specifically for use therein. Notwithstanding
the foregoing, this Section 8.1.1 shall be of no further force or effect if the
Merger contemplated by this Agreement is consummated.

8.1.2 CCB and DNB each agrees to defend, indemnify and hold harmless NBB
and its respective officers and directors, its attorneys, accountants and each
person who controls NBB within the meaning of the Securities Act from and
against any costs, damages, liabilities and expenses of any nature, insofar as
any such costs, damages, liabilities or expenses arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Joint Proxy Statement/Prospectus, and the Registration Statement, or any
amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that CCB and DNB shall not be liable in any such case only to
the extent that any such cost, damage, liability or expense arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in the Joint Proxy Statement/Prospectus, and if required
the Registration Statement, or amendments or supplements thereto, in reliance
upon and in conformity with information with respect to the NBB or furnished to
CCB and DNB by or on behalf of NBB specifically for use therein. Notwithstanding
the foregoing, this Section 8.1.2 shall be of no further force or effect if the
Merger contemplated by this Agreement is consummated.

EX-III-24
<PAGE>
8.1.3 Promptly after receipt by any party to be indemnified pursuant to
Sections .8.1.1 or 8.1.2 (the "Indemnified Party") of notice of (i) any claim or
(ii) the commencement of any action or proceeding, the Indemnified Party will
give the other party (the "Indemnifying Party") written notice of such claim or
the commencement of such action or proceeding. The Indemnifying Party shall have
the right, at its option, to compromise or defend, by its own counsel, any such
matter involving the Indemnified Party's asserted liability. In the event that
the Indemnifying Party shall undertake to compromise or defend any such asserted
liability, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party agrees to cooperate fully with the Indemnifying
Party and its counsel in the compromise of, or defense against, any such
asserted liability. In any event, the Indemnifying Party shall have the right to
participate in the defense of such asserted liability.

8.2 NOTICES. Unless otherwise specifically permitted by this Agreement, all
notices or other communications required or permitted under this Agreement shall
be in writing, and shall be personally delivered or sent by registered or
certified mail or by Federal Express, postage prepaid, return receipt requested,
or sent by facsimile or telecopy, provided that the facsimile or telecopy cover
sheet contains a notation of the date and time of transmission, and shall be
deemed received: (i) if personally delivered, upon the date of delivery to the
address of the person to receive such notice; (ii) if mailed in accordance with
the provisions of this Section, two business days after the date placed in the
United States mail or delivered to Federal Express; (iii) if mailed other than
in accordance with the provisions of this Section or mailed from outside the
United States, upon the date of delivery to the address of the person to receive
such notice; or (iv) if given by facsimile or telecopy, when sent. Notices shall
be given at the following addresses, unless changed by notice pursuant to this
Section 8.2:

If to NBB:
National Business Bank
23550 Hawthorne Boulevard
P.O. Box 13187
Torrance, California 90505
Attn: Joseph Heitzler, Chairman
(310) 791-9944
Fax: (310) 792-9475

With a copy to:
Buchalter, Nemer, Fields & Younger, a
Professional Corporation
601 Figueroa Street, 24(th) Floor
Los Angeles, CA 90017
Attn: William Jarblum, Esq.
(213) 891-0700
Fax: (213) 896-0400

If to DNB:
Downey National Bank
8345 East Firestone Boulevard
Downey, California 90241
Attn: Richard Holmes, President and CEO
(562) 862-2311
Fax: (562) 861-1162

With a copy to:
Lillick and Charles LLP
Two Embarcadero, Suite 2600

EX-III-25
<PAGE>
San Francisco, California 94111
Attention: R. Brent Faye
(415) 984-8365
Fax: (415) 984-8300

If to CCB
California Community Bancshares, Inc.
One Maritime Plaza, Suite 825
Attention: Ronald W. Bachli.
(415) 434-1236
Fax: (415) 434-9918

With a copy to:
Lillick and Charles LLP
Two Embarcadero, Suite 2600
San Francisco, California 94111
Attention: R. Brent Faye
(415) 984-8365
Fax: (415) 984-8300

8.3 COMPLETE AGREEMENT; MODIFICATIONS. This Agreement, all appendices
hereto, and written agreements, if any, entered into concurrently herewith by
and between the parties hereto (i) constitute the parties' entire agreement,
including all terms, conditions, definitions, warranties, representations and
covenants, with respect to the subject matter hereof, (ii) merge all prior
discussions and negotiations between the parties as to the subject matter
hereof, and (iii) supersede and replace all terms, conditions, definitions,
warranties, representations, covenants, agreements, promises and understandings,
whether oral or written, with respect to the subject matter hereof. This
Agreement may not be amended, altered or modified except by a writing signed by
the party to be bound. With regard to such amendments, alterations or
modifications, telecopied signatures shall be effective as original signatures.
Any amendment, alteration or modification requiring the signature of more than
one party may be signed in counterparts.

8.4 FURTHER ACTIONS. Each party agrees to perform any further acts and
execute and deliver any further documents reasonably necessary to carry out the
provisions of this Agreement.

8.5 ASSIGNMENT. Neither party may assign its rights under this Agreement
without the prior written consent of the other party hereto.

8.6 SUCCESSORS AND ASSIGNS. Except as explicitly provided herein to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties, their respective successors and permitted assigns.

8.7 SEVERABILITY. If any portion of this Agreement shall be held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, the
remaining provisions shall remain enforceable to the fullest extent permitted by
law if enforcement would not frustrate the overall intent of the parties (as
such intent is manifested by all provisions of the Agreement, including such
invalid, void or otherwise unenforceable portion).

8.8 EXTENSION NOT A WAIVER. No delay or omission in the exercise of any
power, remedy or right herein provided or otherwise available to either party
shall impair or affect the right of such party thereafter to exercise the same.
Any extension of time or other indulgence granted to a party hereunder shall not
otherwise alter or affect any power, remedy or right of any other party, or the
obligations of the party to whom such extension or indulgence is granted except
as specifically waived.

EX-III-26
<PAGE>
8.9 TIME OF ESSENCE. Time is of the essence of each and every term,
condition, obligation and provision hereof.

8.10 NO THIRD PARTY BENEFICIARIES. This Agreement and each and every
provision hereof is for the exclusive benefit of the parties hereto and not for
the benefit of any third party.

8.11 ATTORNEYS' FEES. If any legal action or any arbitration upon mutual
agreement is brought for the enforcement of this Agreement or because of an
alleged dispute, breach or default in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees and
other costs and expenses incurred in that action or proceeding, in addition to
any other relief to which it may be entitled.

8.12 HEADINGS. The headings in this Agreement are inserted only as a matter
of convenience, and in no way define, limit, extend or interpret the scope of
this Agreement or of any particular provision hereof.

8.13 REFERENCES. A reference to a particular Section of this Agreement
shall be deemed to include references to all subordinate sections, if any.

8.14 COUNTERPARTS. This Agreement may be signed in multiple counterparts
with the same force and effect as if all original signatures appeared on one
copy; and in the event this Agreement is signed in counterparts, each
counterpart shall be deemed an original and all of the counterparts shall be
deemed to be one agreement.

8.15 APPLICABLE LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of California, except to the extent
preempted by the laws of the United States.

8.16 EFFECT OF DISCLOSURE. Any list, statement, document, writing or other
information set forth in, referenced to or attached to any Schedule delivered
pursuant to any provision of this Agreement shall be deemed to constitute
disclosure for purposes of any other Schedule required to be delivered pursuant
to any other provision of this Agreement.

8.17 PUBLICITY. The parties hereto agree that they will coordinate on any
publicity concerning this Agreement and the transactions contemplated hereby.
Except as may be required by law, no party shall issue any press release,
publicity statement or other public notice relating in any way to this Agreement
or any of the transactions contemplated hereby without obtaining the prior
consent of the other, which consent shall not be unreasonably withheld.

8.18 KNOWLEDGE OF THE PARTIES. Except in Exhibits C and D, or as otherwise
specified in this Agreement, whenever any statement herein or in any Schedule,
Exhibit, certificate or other documents delivered to any party pursuant to this
Agreement is made "to the knowledge" or "to the best knowledge" of any party,
such statement shall be made to the best knowledge of such party, after
reasonable inquiry of the following officers of such party: Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer, and, with respect to
NBB only, Chief Credit Officer.

8.19 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Unless otherwise expressly
stated herein, the representations and warranties made by the parties to this
Agreement, and the respective obligations to be performed under its terms at or
before the Closing Date, shall expire with, and be terminated and extinguished
by the Closing, and no action for breach of such representations and warranties
shall thereafter be brought by any party hereto.

EX-III-27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.

<TABLE>
<S> <C> <C> <C>
CCB: CALIFORNIA COMMUNITY NBB: NATIONAL BUSINESS BANK
BANCSHARES, INC. A National Banking Association
A Delaware Corporation

By: /s/ RONALD W. BACHLI By: /s/ JOSEPH HEITZLER
-------------------------------------- --------------------------------------
Ronald W. Bachli Joseph Heitzler
CHIEF EXECUTIVE OFFICER AND PRESIDENT CHAIRMAN OF THE BOARD OF DIRECTORS

By: /s/ J. THOMAS BYROM By: /s/ KAROL GLOVER
-------------------------------------- --------------------------------------
J. Thomas Byrom Karol Glover
ASSISTANT SECRETARY SECRETARY
</TABLE>

<TABLE>
<S> <C> <C>
DNB: DOWNEY NATIONAL BANK.
A National Banking Association,

By: /s/ RICHARD HOLMES
----------------------------------------
Richard Holmes, PRESIDENT

By: /s/ J. THOMAS BYROM
----------------------------------------
J. Thomas Byrom, ASSISTANT SECRETARY
</TABLE>

EX-III-28
<PAGE>
APPENDIX A
AGREEMENT OF MERGER
OF
CALWEST BANK
(A CALIFORNIA CORPORATION)
AND
NATIONAL BUSINESS BANK
(A NATIONAL BANKING ASSOCIATION)

THIS AGREEMENT OF MERGER is made and entered into as of this day of
, 1999, by and among, CALIFORNIA COMMUNITY BANCSHARES. INC., a
Delaware corporation ("CCB"), CALWEST BANK, a California corporation ("BANK"),
and NATIONAL BUSINES BANK, a National Banking Association ("NBB").

WITNESSETH:

WHEREAS, the respective Boards of Directors and Shareholders of CCB, BANK
and NBB have approved as desirable and in the best interests of each corporation
that NBB be merged with and into BANK by a statutory merger upon the terms and
conditions hereinafter set forth, and that shares of CCB Common Stock will be
issued to shareholders of NBB.

NOW, THEREFORE IT IS AGREED AS FOLLOWS:

FIRST: NBB shall be merged with and into BANK by a statutory merger (the
"Merger") in accordance with the General Corporation Law of California and on
the terms and conditions hereinafter expressed. At the Effective Date of the
Merger (as hereinafter defined), the separate existence of NBB shall cease and
BANK shall be the surviving entity (the "Surviving Entity") and shall be the
wholly-owned subsidiary of CCB.

THIRD: The manner of converting the shares of the capital stock of BANK and
NBB upon the Merger shall, by virtue of the Merger and without any action on the
part of the holder thereof, be as follows:

(a) At the Effective Time, the shares of BANK Common Stock outstanding
immediately prior to the Effective Time shall remain outstanding

(b) At the Effective Time, each of the shares of NBB Common Stock issued and
outstanding immediately prior to the Effective Time (except for shares of
NBB Common Stock which come within the definition of "dissenting shares"
as defined in Section 214a of the National Bank Act ("Dissenting
Shares"))shall, by virtue of the Merger and upon surrender of the
certificate representing such shares, without any action on the part of
the holder thereof, be converted into the right to receive 1.5053 shares
of CCB Common Stock.

A-1
<PAGE>
(c) FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of CCB Common Stock shall be issued to holders of
shares of NBB Common Stock. In lieu thereof, at the Effective Time each
such holder entitled to a fraction of a share of CCB Common Stock shall
receive, at the time of surrender of the NBB Certificates, an amount in
cash equal to $10.00 per share, multiplied by the fraction of a share of
CCB Common Stock to which such holder otherwise would be entitled. No
such holder shall be entitled to dividends, voting rights, interest on
the value of, or any other rights in respect of a fractional share.

SIXTH: The sole shareholder of BANK has approved this Agreement of Merger
in accordance with the General Corporation Law of the State of California. The
shareholders of NBB have approved this Agreement in accordance with the National
Bank Act.

SEVENTH: Prior to the filing of this Agreement of Merger with the Secretary
of State of the State of California, this Agreement of Merger may be terminated
by the agreement of the Boards of Directors of CCB, BANK and NBB notwithstanding
approval of this Agreement of Merger by the shareholders of BANK and NBB.

A-2
<PAGE>
IN WITNESS WHEREOF, CCB, BANK and NBB, pursuant to the approval and
authority duly given by resolutions adopted by their respective Boards of
Directors, have caused this Agreement of Merger to be executed by the President
and by the Secretary or Assistant Secretary of each party hereto.

<TABLE>
<S> <C> <C> <C>
CALWEST BANK CALIFORNIA COMMUNITY BANCSHARES, INC.

By: By:
---------------------------------------- ----------------------------------------
, PRESIDENT Ronald W. Bachli, PRESIDENT

By: By:
---------------------------------------- ----------------------------------------
, SECRETARY J. Thomas Byrom, SECRETARY

NATIONAL BUSINESS BANK

By:
----------------------------------------
Joesph Heitzler, CHAIRMAN OF THE BOARD

By:
----------------------------------------
, SECRETARY
</TABLE>

A-3
<PAGE>
EXHIBIT IV
[CARPENTER & COMPANY LETTERHEAD]

August 26, 1999

Board of Directors
Security First Bank
141 West Bastanchury Road
Fullerton, CA 92835

Members of the Board:

With respect to the Definitive Agreement ("the Agreement") signed and
entered into on August 26, 1999 between Security First Bank (the "Company")
California Community Bancshares ("California Community") and The Bank of Orange
County ("Orange"), pursuant to which the Company will merge with Orange (the
"Merger"), with Orange to be the surviving party, and the current shareholders
of the Company to receive California Community common stock, in a transaction in
which the exchange ratio is 1 California Community share for each 10.6610
Company shares of common stock, you have asked our opinion as to the fairness
from a financial point of view to the shareholders of the Company of the
consideration to be paid in the Merger ("the Merger Consideration").

In connection with our opinion, we have among other activities:
(a) reviewed certain publicly available financial and other data with respect to
the Company, California Community, and Orange, including the consolidated
financial statements for recent years and for interim periods to June 30, 1999,
and certain other relevant financial and operating data relating to the Company
made available to us from published sources and from the internal records of the
Company; (b) reviewed the terms of the Agreement; (c) reviewed certain
historical market prices and trading volume of common stock of California
banking companies; (d) compared the Company, Orange, and California Community
from a financial point of view with certain other companies in the industry
which we deemed to be relevant; (e) considered the financial terms, to the
extent publicly available, of selected recent transactions which we deem to be
comparable, in whole or in part, to the Merger; (f) reviewed and discussed with
representatives of the management of the Company certain information of a
business and financial nature regarding the Company, Orange, and California
Community, including financial forecasts and related assumptions of the Company
and of California Community; (g) made inquiries and held discussions on the
Merger and the Agreement and other matters relating thereto with the Company's
counsel; and (h) performed such other analyses and examinations and considered
such other information, financial analyses, and financial, economic and market
criteria as we have deemed appropriate and relevant.

In connection with our review, we have not independently verified any of the
foregoing information with respect to the Company, Orange or California
Community. We have relied on all such information provided by the Company and
have assumed that all such information is complete and accurate in all material
respects. We have assumed that there have been no material changes in the
Company's, Orange's, or California Community's assets, financial condition,
results of operations, business or prospects since the respective dates of their
last financial statements made available to us. We have relied on advice of
counsel to the Company as to all legal matters with respect to the Company, the
Merger, and the Agreement. In addition, we have not made an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of the Company, Orange, or

EX-IV-1
<PAGE>
California Community, nor have we been furnished with any such appraisals. We
are not expressing any opinion as to the actual value of California Community's
common stock when issued to the Company shareholders pursuant to the Merger, or
the prices at which California Community common stock will trade subsequent to
the Merger. Further, our opinion is necessarily based upon economic, monetary,
and market conditions existing as of the date hereof. We have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
our services. We have also acted as consultant to California Community in
preparing regulatory and securities filings and in general consulting advice in
connection with the Merger, and will be compensated for those services

This opinion is furnished pursuant to our engagement letter dated July 8,
1999, and is solely for the benefit of the Board of Directors and stockholders
of the Company. In furnishing this opinion, we do not admit that we are an
expert with respect to any registration statement or other securities filing
within the meaning of the term "experts" as used in the Securities Act and the
rules and regulations promulgated thereunder. Nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act. Our opinion is directed to the Board of the Company, covers only
the fairness of the Merger Consideration from a financial point of view as of
the date hereof and does not constitute a recommendation to any holder of
Company Common Stock as to how such shareholder should vote concerning the
Merger. Except as provided in the engagement letter, this opinion may not be
used or referred to by the Company or quoted or disclosed to any person in any
manner without our prior written consent. We hereby consent to the inclusion of
this opinion in the Security First Information Statement and the Registration
Statement on Form S-4 of California Community Bancshares, Inc. and to the
reference to such opinion to our firm therein.

Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that, as of today's date, the Merger Consideration is fair to the
shareholders of the Company from a financial point of view.

Very truly yours,

SEAPOWER CARPENTER CAPITAL, INC.,
DBA CARPENTER & COMPANY

EX-IV-2
<PAGE>
EXHIBIT V

September 14, 1999

Members of the Board of Directors
National Business Bank
23550 Hawthorne Boulevard
Torrance, California 90505

Members of the Board:

You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the shareholders of National Business Bank,
Torrance, California ("Company") of the terms of the proposed merger of Company
with Downey National Bank, Downey, California ("Downey") and Company
shareholders receiving shares of common stock of California Community
Bankshares, Inc. ("CCB") a newly formed holding company whose principal
shareholder owns or controls Company and Downey, as defined in the Plan of
Reorganization and Merger Agreement entered into as of August 30, 1999, (the
"Agreement"). Pursuant to the Agreement and subject to the terms and conditions
therein, each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, on and at the Effective Time of
the Merger, pursuant to the Agreement and without any further action on the part
of Company or the holders of Company Common Stock, be exchanged for and
converted into the right to receive 1.5053 shares of CCB Common Stock.

As part of its investment banking business, The Findley Group is continually
engaged in the valuation bank, bank holding company and thrift securities in
connection with mergers and acquisitions nationwide.

In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) the Agreement; (ii) certain publicly available financial and
other data with respect to Company and CCB, including financial statements for
recent years of financial institutions that will become part of CCB, including
Downey, The Bank of Orange County, Fountain Valley, California ("TBOC"),
Security First Bank, Fullerton, California ("SFB"), Placer Sierra Bank, Auburn,
California, ("Placer") (collectively referred to as the "Affiliated Banks");
(iii) certain other publicly available financial and other information
concerning Company, CCB and the Affiliated Banks and the trading markets for
securities of Company; (iv) publicly available information concerning other
banks and bank holding companies, the trading markets for their securities and
the nature and terms of certain other merger transactions we believe relevant to
our inquiry; and (v) evaluations and analyses prepared and presented to the
Board of Directors of Company or a committee thereof in connection with the
Merger. We have held discussions with senior management of Company concerning
their past and current operations, financial condition and prospects.

We have reviewed with the senior management of Company earnings projections for
Company, provided by Company, as a stand-alone entity, assuming the Merger does
not occur. We also reviewed with the senior management of Company the earnings
projections for CCB that was provided for CCB. Certain financial projections for
the combined companies and for Company as a stand-alone entity were derived by
us based partially upon the projections and information described above, as well
as our own assessment of general economic, market and financial conditions.

In conducting our review and in arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the financial and other information
provided to us or publicly available, and we have not assumed any responsibility
for independent verification of the same. We have relied upon the

EX-V-1
<PAGE>
management of Company as to the reasonableness of the financial and operating
forecasts, projections and projected operating cost savings and earnings
enhancement opportunities (and the assumptions and bases therefor) provided to
us, and we have assumed that such forecasts, projections and projected operating
cost savings and earnings enhancement opportunities reflect the best currently
available estimates and judgements of Company management. We have also assumed,
without assuming any responsibility for the independent verification of the
same, that the aggregate allowance for loan losses for Company, CCB and the
Affiliated Banks are adequate to cover such losses. We have not made or obtained
any evaluations or appraisals of the property of Company, CCB or the Affiliated
Banks, nor have we examined any individual loan credit files. For purposes of
this opinion, we have assumed that the Merger will have the tax, accounting and
legal effects described in the Agreement and assumed the accuracy of the
disclosures set forth in the Agreement. Our opinion as expressed herein is
limited to the fairness, from a financial point of view, to the holders of the
shares of Company Common Stock of the terms of the proposed merger of Company
with and into Downey, with Company shareholders receiving 1.5053 shares of CCB
Common Stock and does not address Company's underlying business decision to
proceed with the Merger.

We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Company, CCB and the Affiliated Banks, including interest income, interest
expense, net interest income, net interest margin, provision for loan losses,
non-interest income, non-interest expense, earnings, dividends, internal capital
generation, book value, intangible assets, return on assets, return on
shareholders' equity, capitalization, the amount and type of non-performing
assets, loan losses and the reserve for loan losses, all as set forth in the
financial statements for Company, CCB and the Affiliated Banks; (ii) the assets
and liabilities of Company, CCB and the Affiliated Banks, including the loan and
investment portfolios, deposits, other liabilities, historical and current
liability sources and costs and liquidity; and (iii) the nature and terms of
certain other merger transactions involving banks and bank holding companies. We
have also taken into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and our knowledge of the banking industry
generally. Our opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof.

Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the terms of the Merger of Company with and
into Downey, with Company shareholders receiving CCB Common Stock as set forth
in the Agreement, are fair, from a financial point of view, to the holders of
the shares of Company Common Stock.

This opinion may not be used or referred to by Company or quoted or disclosed to
any person in any manner without our prior written consent, with the exception
of submission to the regulatory agencies as part of the applications and
included in the proxy materials provided to shareholders of Company in relation
to approval of the Merger. This opinion is not intended to be a recommendation
to any shareholder of Company as to how such shareholder should vote with
respect to the Merger.

Respectfully submitted,
THE FINDLEY GROUP
Gary Steven Findley
Director

EX-V-2
<PAGE>
EXHIBIT VI

SECTION 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS.

(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.

(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.

(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.

(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.

SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS.

(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this

EX-VI-1
<PAGE>
section, a statement of the price determined by the corporation to represent the
fair market value of the dissenting shares, and a brief description of the
procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes an
offer by the corporation to purchase at the price stated any dissenting shares
as defined in subdivision (b) of Section 1300, unless they lose their status as
dissenting shares under Section 1309.

(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.

SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES.

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.

SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT.

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.

(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.

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SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION
OF ISSUES; APPOINTMENT OF APPRAISERS.

(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.

(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.

SECTION 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS.

(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.

(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.

(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).

SECTION 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST.

To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all

EX-VI-3
<PAGE>
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.

SECTION 1307. DIVIDENDS ON DISSENTING SHARES.

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.

SECTION 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL
OF DEMAND FOR PAYMENT.

Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.

SECTION 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS.

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:

(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.

(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.

(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.

(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.

SECTION 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL.

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.

SECTION 1311. EXEMPT SHARES.

This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.

SECTION 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION;
CONDITIONS.

(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity

EX-VI-4
<PAGE>
of the reorganization or short-form merger, or to have the reorganization or
short-form merger set aside or rescinded, except in an action to test whether
the number of shares required to authorize or approve the reorganization have
been legally voted in favor thereof; but any holder of shares of a class whose
terms and provisions specifically set forth the amount to be paid in respect to
them in the event of a reorganization or short-form merger is entitled to
payment in accordance with those terms and provisions or, if the principal terms
of the reorganization are approved pursuant to subdivision (b) of Section 1202,
is entitled to payment in accordance with the terms and provisions of the
approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.

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EXHIBIT VII

214A. PROCEDURE FOR CONVERSION, MERGER, OR CONSOLIDATION; VOTE OF STOCKHOLDERS.

A national banking association may, by vote of the holders of at least
two-thirds of each class of its capital stock, convert into, or merge or
consolidate with, a State bank in the same State in which the national banking
association is located, under a State charter, in the following manner:

(a) ....

(b) Rights of dissenting stockholders.

A shareholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to the
bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when the
conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of
consummation of such conversation, merger, or consolidation, accompanied by the
surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the shareholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting shareholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation agreed
upon by any two of three appraisers thus chosen shall govern; but, if the value
so fixed shall not be satisfactory to any dissenting shareholder who has
requested payment as provided herein, such shareholder may within five days
after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the
case may be, shall be paid by the resulting State bank. The plan of conversion,
merger, or consolidation shall provide the manner of disposing of the shares of
the resulting State bank not taken by the dissenting shareholders of the
national banking association.

EX-VII-1