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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

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

COMMISSION FILE NUMBER: 333-87481

CALIFORNIA COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE		94-3339505
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

649 LINCOLN WAY
AUBURN, CALIFORNIA 95603
(Address of principal executive offices)

Registrant's telephone number: (714) 221-5353

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 14, 2001: 26,705,135 shares of common stock, $0.01 par value.

TABLE OF CONTENTS

		Page
FORWARD-LOOKING STATEMENTS
PART I—FINANCIAL INFORMATION
ITEM 1.	Consolidated Financial Statements (unaudited)	4
	Unaudited Condensed Consolidated Balance Sheets	4
	Unaudited Condensed Consolidated Statements of Operations	5
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Unaudited Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32
PART II—OTHER INFORMATION
ITEM 1.	Legal Proceedings	33
ITEM 2.	Changes in Securities and Use of Proceeds	33
ITEM 3.	Defaults Upon Senior Securities	33
ITEM 4.	Submission of Matters to a Vote of Security Holders	33
ITEM 5.	Other Information	34
ITEM 6.	Exhibits and Reports on Form 8-K	34
SIGNATURES		35

FORWARD-LOOKING STATEMENTS

Certain matters discussed in this Quarterly Report on Form 10-Q (the "Quarterly Report") including, but not limited to, those described in Note 4 -Unaudited Summary Pro Forma Data and Part I, Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations, 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. Such risks and uncertainties include, among others, (1) significant increases in competitive pressure in the financial services industry; (2) changes in the interest rate environment resulting in reduced margins; (3) general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality; (4) changes in the regulatory environment; (5) fluctuations in the real estate market; (6) changes in business conditions and inflation; and (7) changes in securities markets. Therefore, the information set forth in such forward-looking statements should be carefully considered when evaluating the business prospects of the Company.

When the Company uses in this Quarterly Report the words "anticipate," "estimate," "expect," "project," "intend," "commit," "believe" and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and stockholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company's ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CALIFORNIA COMMUNITY BANCSHARES, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

			September 30, 2001			December 31, 2000
ASSETS
Cash and due from banks			$	53,673		$	55,778
Federal funds sold and securities purchased under agreements to resell				14,243			60,230

	Total cash and cash equivalents			67,916			116,008
Interest-bearing deposits with other banks				1,098			1,784
Investment securities available-for-sale, at fair value				117,910			111,706
Investment securities held-to-maturity, at amortized cost				—			60,068
Investments in Federal Home Loan Bank and Federal Reserve Bank stock, at cost				8,065			7,870
Loans and leases receivable, net of allowance for loan and lease losses of $11,397 at September 30, 2001 and $10,089 at December 31, 2000				879,920			747,953
Other real estate owned, net				1,748			1,264
Premises and equipment, net				21,655			23,014
Accrued interest receivable				6,605			7,258
Cash surrender value of life insurance				19,315			2,433
Goodwill and other intangible assets				79,382			83,925
Other assets				5,789			7,979

	TOTAL ASSETS		$	1,209,403		$	1,171,262

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Noninterest-bearing deposits		$	261,800		$	248,824
	Interest-bearing deposits			772,944			754,714

		Total deposits		1,034,744			1,003,538
	Deferred income tax liabilities, net			6,156			6,997
	Trust preferred securities			16,700			18,500
	Accrued interest payable and other liabilities			13,949			8,587

		Total liabilities		1,071,549			1,037,622
Minority interest in subsidiaries
	Placer Capital Co. Preferred Stock issued to Placer Capital Funding LLC—$0.01 par value; 25,000,000 authorized; one share issued and outstanding at September 30, 2001 and December 31, 2000			3,500			3,500
Commitments and contingencies
Stockholders' equity:
	Common stock—$0.01 par value; 75,000,000 shares authorized; 26,705,135 shares issued and outstanding at September 30, 2001 and 26,312,576 shares issued and outstanding at December 31, 2000			132,866			132,847
	Accumulated other comprehensive income			1,522			496
	Accumulated deficit			(34	)		(3,203	)

		Total stockholders' equity		134,354			130,140

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY			$	1,209,403		$	1,171,262

See "Notes to Unaudited Condensed Consolidated Financial Statements."

CALIFORNIA COMMUNITY BANCSHARES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a)

(In thousands, except per share data)

			Three Months Ended September 30,				Nine Months Ended September 30,
			2001		2000		2001		2000
INTEREST AND DIVIDEND INCOME:
	Interest and fees on loans and leases		$	17,359	$	17,551	$	50,921	$	47,759
	Interest on deposits with other banks			19		24		73		156
	Interest on Federal funds sold and securities purchased under agreements to resell			324		1,246		2,084		2,556
	Interest on investment securities			1,906		2,579		6,591		7,342
	Dividends on Federal Reserve Bank and Federal Home Loan Bank stocks			85		139		346		326

		Total interest and dividend income		19,693		21,539		60,015		58,139

INTEREST EXPENSE:
	Savings, money market and demand deposits			1,622		2,434		5,830		6,528
	Time certificates of deposit under $100			2,685		3,348		9,042		9,085
	Time certificates of deposit of $100 and over			1,662		2,448		5,827		6,324
	Other borrowings			369		441		1,152		1,359

		Total interest expense		6,338		8,671		21,851		23,296

NET INTEREST INCOME BEFORE PROVISION FOR LOAN AND LEASE LOSSES				13,355		12,868		38,164		34,843
PROVISION FOR LOAN AND LEASE LOSSES				955		305		1,430		750

NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES				12,400		12,563		36,734		34,093
NONINTEREST INCOME:
	Service charges and fees on deposits			1,032		773		2,580		2,166
	Loan servicing fees			119		191		437		491
	Referral and other loan related fees			324		215		1,082		592
	Commissions on investment products			176		235		607		674
	Gain on sale of loans, net			158		35		363		401
	Gain (loss) on sale of securities			1,564		—		1,755		(7	)
	Increase in cash surrender value of life insurance			315		53		452		139
	Other income			274		309		974		715

		Total noninterest income		3,962		1,811		8,250		5,171

NONINTEREST EXPENSE:
	Salaries and employee benefits			5,331		5,543		16,190		16,480
	Occupancy, premises and equipment			1,837		1,785		5,359		5,009
	Data and item processing			1,163		507		2,978		1,789
	Professional fees			670		755		1,819		2,022
	Communications			506		519		1,405		1,457
	Business development			289		477		939		1,256
	Customer services expense			314		375		1,118		1,028
	Amortization of intangible assets			1,515		1,624		4,543		4,535
	Reorganization and merger-related costs			—		—		500		1,563
	Other operating expenses			1,539		977		3,932		3,266

		Total noninterest expense		13,164		12,562		38,783		38,405

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS				3,198		1,812		6,201		859
PROVISION FOR INCOME TAXES				1,382		859		2,830		944

INCOME (LOSS) BEFORE MINORITY INTERESTS				1,816		953		3,371		(85	)
COST OF MINORITY INTEREST				64		82		202		256

NET INCOME (LOSS)			$	1,752	$	871	$	3,169		(341	)

BASIC AND DILUTED NET INCOME (LOSS) PER SHARE (Note 5)			$	0.07	$	0.03	$	0.12	$	(0.01	)

a): Sacramento Commercial Bank was acquired on February 29, 2000, using the purchase method of accounting. Accordingly, the operating results of Sacramento Commercial Bank are only included since the date of acquisition. Due to the timing of this acquisition, any comparison of data for the nine months ended September 30, 2000 to data for the current period may not be meaningful.

See "Notes to Unaudited Condensed Consolidated Financial Statements."

CALIFORNIA COMMUNITY BANCSHARES, INC.

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

			Three Months Ended September 30,					Nine Months Ended September 30,
			2001			2000		2001			2000
NET INCOME (LOSS)			$	1,752		$	871	$	3,169		$	(341	)
	Other comprehensive income (loss), net of related taxes:
		Unrealized holding gains arising during the period		462			273		1,119			223
		Less reclassification of realized gains included in income		(821	)		—		(93	)		(6	)

	Total			(359	)		273		1,026			217

		COMPREHENSIVE INCOME (LOSS)	$	1,393		$	1,144	$	4,195		$	(124	)

See "Notes to Unaudited Condensed Consolidated Financial Statements."

CALIFORNIA COMMUNITY BANCSHARES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

				Nine Months Ended September 30,
				2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	NET INCOME (LOSS)			$	3,169		$	(341	)
	ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
		Provision for loan and lease losses			1,430			750
		Amortization of intangible assets			4,543			4,535
		Depreciation and amortization			2,303			2,303
		Accretion of discount on investment securities, net			(366	)		(605	)
		Amortization of loan fees/unearned discount/deferred gains			(548	)		(195	)
		Proceeds from sale of loans			17,840			35,472
		Gain on sale of loans			(363	)		(401	)
		(Gain) loss on sale of investment securities			(1,755	)		7
		Gain on sale of other real estate owned			(1	)		(6	)
		Gain on disposition of premises and equipment			(6	)		(65	)
		Dividends received on Federal Home Loan Bank and Federal Reserve Bank stock			(166	)		(88	)
		Decrease (increase) in accrued interest receivable and other assets			2,151			(33	)
		Deferred income tax liabilities, net			(802	)		(438	)
		Increase (decrease) in accrued interest payable and other liabilities			4,886			(5,542	)

			Net cash provided by operating activities		32,315			35,353
CASH FLOWS FROM INVESTING ACTIVITIES:
	Net decrease in interest-bearing deposits in other banks				686			5,792
	Purchases of investment securities available-for-sale				(74,068	)		(67,373	)
	Proceeds from calls and maturities of investment securities available-for-sale				51,553			32,582
	Proceeds from calls and maturities of investment securities held-to-maturity				500			1,160
	Proceeds from sales of investment securities available-for-sale				70,688			493
	Principal collected on investment securities available-for-sale				8,371			940
	Principal collected on investment securities held-to-maturity				695			7,137
	Purchase of subsidiaries, net of cash acquired				—			(13,280	)
	Additional cash paid for acquisitions				—			(154	)
	Net disbursement of loans				(150,891	)		(82,039	)
	Purchases of premises and equipment				(991	)		(3,188	)
	Proceeds from sale of other real estate owned				84			482
	(Purchase) proceeds from cash surrender value of life insurance policies				(16,430	)		3,749
	Purchase of Federal Reserve Bank stock, net				(28	)		(3,438	)

			Net cash used in investing activities		(109,831	)		(117,137	)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Net increase in deposits				31,205			131,615
	Proceeds from issuance of common stock and the exercise of options				19			33,400
	Decrease in trust preferred securities				(1,800	)		—
	Purchase of dissenting shares				—			(3	)

			Net cash provided by financing activities		29,424			165,012
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS					(48,092	)		83,228
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					116,008			55,360

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	67,916		$	138,588

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Interest paid			$	22,175		$	17,463
	Income taxes paid				2,255			1,645
	Reclassification of securities from held-to-maturity to available-for-sale portfolio				58,893			—
	Acquisitions of other real estate owned through foreclosure				617			126
SUPPLEMENTAL DISCLOSURE FOR ACQUISITION OF SUBSIDIARIES:
	ASSETS ACQUIRED:
		Cash		$	—		$	16,339
		Federal funds sold			—			8,500
		Investment securities			—			25,317
		Investment in Federal Reserve Bank stock			—			177
		Loans and leases			—			141,181
		Other real estate owned			—			38
		Premises and equipment			—			2,024
		Accrued interest receivable			—			983
		Cash surrender value of life insurance			—			4,519
		Other assets			—			1,962
		Favorable lease rights			—			346
		Goodwill			—			20,825
		Core deposit intangible			—			5,713

					—			227,924
	LIABILITIES ASSUMED:
		Deposits			—			182,265
		Accrued interest and other liabilities			—			7,540

					—			189,805

CASH PAID FOR COMMON STOCK				$	—		$	38,119

See "Notes to Unaudited Condensed Consolidated Financial Statements."

CALIFORNIA COMMUNITY BANCSHARES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2001

NOTE 1—DESCRIPTION OF BUSINESS

California Community Bancshares, Inc. (the "Company"), incorporated on September 3, 1999 as a Delaware corporation, operates two banking subsidiaries, Placer Sierra Bank ("PSB") and Bank of Orange County ("BOC") (collectively, the "Banks"). The Company is the successor-in-interest to California Financial Bancorp ("CFB") which initiated business in September 1997 as a California corporation. The Banks are incorporated under the laws of the State of California and licensed by the California Department of Financial Institutions ("DFI") and are members of the Federal Reserve System.

The Company, through the Banks, derives its income primarily from interest received on real estate-related loans, commercial loans and consumer loans and, to a lesser extent, fees from the sale of loans originated, interest on investment securities and fees received in connection with servicing loan and deposit customers. The Company's major operating expenses are the interest it pays on deposits and on borrowings and general operating expenses. The Banks rely on a foundation of locally generated deposits. The Company's operations, like those of other financial institutions operating in California, are significantly influenced by economic conditions in California, including energy and energy-related issues, the strength of the real estate market, and the fiscal and regulatory policies of the federal government and the regulatory authorities that govern financial institutions.

NOTE 2—BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of the Company included herein reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods indicated. Certain reclassifications have been made to the unaudited condensed consolidated financial statements for 2000 to conform to the 2001 presentation. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "Commission"). The results of operations for the three and nine months ended September 30, 2001 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 those estimates. Material estimates subject to change include the allowance for loan and lease losses, the carrying value of real estate owned, and the carrying value of the gross deferred tax asset.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.

NOTE 3—ACQUISITIONS AND MERGERS

Since the end of 1999, the Company's acquisition and merger activity included the acquisition of Sacramento Commercial Bank ("SCB"), a single branch California state-chartered commercial bank on February 29, 2000 (the "SCB Acquisition"). The SCB Acquisition was accounted for under the purchase method of accounting. Consequently, the results of operations of SCB are only included in the Company's results after the acquisition date. SCB was subsequently merged with and into PSB (the "PSB/SCB Merger") effective March 23, 2001 after obtaining appropriate regulatory approval.

In addition, the Company merged its former subsidiary CalWest Bank with and into BOC effective July 14, 2000 (the "BOC/CalWest Merger") after obtaining necessary regulatory approval.

NOTE 4—UNAUDITED SUMMARY PRO FORMA DATA

The following table shows unaudited summary pro forma statements of operations information for the nine months ended September 30, 2000 as if the SCB Acquisition was consummated as of January 1, 2000. The results for the Company for the nine months ended September 30, 2000, include the operating results of SCB since the date of acquisition. The pro forma results for the nine months ended September 30, 2000 include the January and February results for SCB, excluding nonrecurring acquisition-related costs capitalized as part of goodwill, and the additional amortization of purchase accounting adjustments.

The pro forma statements of operations adjustments included below are based on management's estimates of costs and the fair value adjustments associated with this transaction. The Company's cost and fair value estimates may differ in the future, based on additional facts and information, such that actual cost could differ and hence are forward-looking. Readers are cautioned that the type and amount of actual costs incurred could vary materially from these estimates if future developments differ from the underlying assumptions used by management in determining the current estimate of these costs. The unaudited summary pro forma statements of operations information is not necessarily indicative of the results that would have occurred had the described acquisition been consummated on the date indicated or that may be achieved in the future.

UNAUDITED SUMMARY PRO FORMA STATEMENTS OF OPERATIONS INFORMATION
(In thousands, except per share data)

			Nine Months Ended September 30, 2000
Interest income			$	60,823
Interest expense				24,168

	Net interest income			36,655
Provision for loan and lease losses				810

	Net interest income after provision for loan and lease losses			35,845
Noninterest income				5,208
Noninterest expense, excluding reorganization and merger-related costs amortization of intangibles				33,761
Reorganization and merger-related expenses				1,563
Amortization of intangibles				4,844

	Income before income taxes and minority interest			885
Income tax expense				1,040
Cost of minority interest				256

Net loss			$	(411	)

Per share information:
	Weighted average shares outstanding:
		Basic		26,312.6
		Diluted		26,312.6
	Net loss per share:
		Basic	$	(0.02	)
		Diluted	$	(0.02	)

NOTE 5—NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (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. When an entity has a loss the inclusion of potential common shares in the denominator of a diluted per share computation will always result in an anti-dilutive per share amount. Thus, the diluted loss per share amount is the same as the basic loss

per share amount. The following is a summary of the calculation of basic and diluted net income (loss) per share for the three and nine month periods ended September 30, 2001 and 2000:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30
	2001			2000		2001		2000
	(In thousands, except per share data)
Net income (loss)	$	1,752		$	871	$	3,169	$	(341	)

Weighted average shares outstanding		26,704,968			26,312,576		26,447,676		25,206,987

Basic net income (loss) per share	$	0.07		$	0.03	$	0.12	$	(0.01	)

Weighted average shares outstanding		26,704,968			26,312,576		26,447,676		25,206,987
Effect of dilutive stock options and debentures		—	(a)		586,095		316,326		—	(a)

Diluted shares outstanding		26,704,968			26,898,671		26,764,002		25,206,987

Diluted net income (loss) per share	$	0.07		$	0.03	$	0.12	$	(0.01	)

(a): For the three months ended September 30, 2001, the number of antidilutive options to purchase Company shares are zero and for the nine months ended September 30, 2000, the number of antidilutive options to purchase Company shares totaled 586,095.

NOTE 6—RECLASSIFICATION OF SECURITIES

During the first quarter of 2001 the Company transferred $58.9 million of securities from its held-to-maturity portfolio to its available-for-sale portfolio and recorded a related unrealized gain of $967 thousand. This transfer of securities was completed to forbear any liquidity concerns that may arise during the Company's projected shift in its earning asset mix towards a mix that anticipates a higher percentage of loans. During the third quarter of 2001, approximately $38.2 million of the transferred portfolio was sold for the purpose of further augmenting the Company's liquidity position. The sale resulted in a pretax gain of approximately $1.6 million in the third quarter.

NOTE 7—RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 141, Business Combinations ("SFAS No. 141"), Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142") and Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations ("SFAS No. 143"). In August 2001, FASB issued Statement of Financial Accounting Standards No. 144, Accounting for Impairment or Disposal of Long-Lived Assets ("SFAS No. 144").

SFAS No. 141 effective June 30, 2001, requires that all business combinations initiated after June 30, 2001 shall be accounted for under the purchase method of accounting. SFAS No. 141 also establishes how the purchase method is to be applied for business combinations completed after June 30, 2001, and establishes additional disclosure requirements for business combinations occurring after the effective date.

SFAS No. 142 eliminates goodwill amortization associated with business combinations completed after June 30, 2001. During the period from July 1, 2001 through December 31, 2001 goodwill associated with business combinations completed prior to July 1, 2001 will continue to be amortized through the income statement. Effective January 1, 2002, all goodwill amortization expense will cease and goodwill will be assessed for impairment by applying a fair-value-based test. SFAS No. 142 also provides additional guidance regarding acquired intangibles that should be separately recognized and amortized.

As of January 1, 2002, the Company expects to have unamortized goodwill in the amount of $64.0 million and unamortized identifiable intangible assets in the amount of $13.9 million which will be subject to the transition provisions of SFAS No. 142. Amortization expense related to goodwill was $2.9 million and $2.4 million for the year ended December 31, 2000 and the nine months ended September 30, 2001, respectively. Because of the extensive effort needed to comply with Statements No. 141 and 142, it is not practicable to reasonably estimate whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle, however, the elimination of goodwill amortization is expected to reduce the Company's noninterest expense by approximately $3.2 million in the fiscal year ending December 31, 2002.

SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs would be capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The liability is accrued at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. The provisions of SFAS No. 143 are effective for fiscal years beginning after June 15, 2002. Management has not yet determined the impact, if any, of adoption of SFAS No. 143.

SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within those fiscal years. The Company does not believe that the adoption of SFAS No. 144 will have a material impact its financial position or results of operations.

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

OVERVIEW

The Company is a California state-wide multi-bank holding company operating two banking subsidiaries, Placer Sierra Bank ("PSB") and Bank of Orange County ("BOC"). At September 30, 2001, the Company had total assets of $1.2 billion, loans of $891 million and total deposits of $1.0 billion. BOC and PSB are referred to collectively as the "Banks".

The Company serves Placer, Sacramento, Nevada, El Dorado, Plumas and Sierra Counties, California through PSB with 28 branches, and Sacramento Commercial Bank ("SCB"), a division of PSB, with one branch, and serves Orange County and Los Angeles County through BOC, with five branches and CalWest Bank ("CalWest"), a division of BOC, with one branch.

The Company, through the Banks, provides a wide range of banking services to small and medium-sized businesses, real estate developers, property managers, business executives, professionals and individuals. The Company is committed to running the Banks as relationship-based, community banks serving the needs of the market areas surrounding their branches. The strategy for serving the Company's target markets is the delivery of value-added products and services that satisfy the primary needs of the Company's customers, emphasizing superior service and relationships rather than transaction volume.

Since its inception on September 11, 1997, the Company has participated in six acquisitions. These acquisitions included Security First Bank ("SFB"), CalWest Bank ("CalWest"), formerly Downey National Bank, National Business Bank ("NBB"), BOC, PSB and SCB. By the end of 1999 the Company had merged four of its southern California banks into two; with SFB merged with and into BOC and NBB with and into CalWest. In June of 2000, the Company merged CalWest with and into BOC (the "BOC/CalWest Merger") in order to benefit from additional cost savings and efficiency improvements from a single banking subsidiary located in southern California.

After the SCB Acquisition in the first quarter of 2000 the Company accelerated the transition of PSB from a savings and loan into a commercial bank and began combining certain administrative functions of PSB and SCB in order to develop further operational and cost efficiencies. By year-end, these decisions had resulted in: 1) the elimination of 56 full-time positions; 2) the establishment of a consolidated SBA loan underwriting and servicing office; 3) the establishment of a consolidated northern California note department; 4) the establishment of a centralized northern California commercial and real estate loan underwriting function and 5) beginning the process of standardizing the data processing platforms of its northern California operations with its southern California profile (the "PSB/SCB Reorganization").

On March 21, 2001, the Company received permission from the appropriate regulatory authorities to merge SCB with and into PSB (the "PSB/SCB Merger"). This merger was consummated on March 23, 2001 and management continues to market and operate SCB as a division of PSB. Management expects that the PSB/SCB Merger will cause the Company to realize further the benefits initiated by the PSB/SCB Reorganization.

The Company's focus on acquisitions and subsequent consolidations of the acquired institutions has resulted in the Company incurring acquisition and restructuring costs that are non-operating in nature. As the predominance of the acquisition activity has been accounted for under the purchase method of accounting, noninterest expense includes the amortization of intangible assets that the Company regards as non-operating in nature. In connection with the consolidations of the six institutions with and into two entities, the Company incurred non-operating restructuring charges, including but not limited to, professional fees, costs associated with closure of facilities, elimination of personnel and early termination of service agreements. Other non-operating expenses also include expenses related to analysis, negotiation and performance of due diligence activities on potential targets

that the Company ultimately did not acquire. All of these costs were one-time in nature and are not expected to be part of the Company's ongoing operating results.

Contained within this document are various references to "net operating income." All references to net operating income are to net income before the amortization of intangibles (goodwill, core deposit intangibles and favorable lease rights) arising from acquisitions accounted for under the purchase method of accounting and costs arising from or associated with reorganization and merger-related activities, net of their tax consequences. Net operating income is not defined by accounting principles generally accepted in the United States of America; however, management believes this presentation to be beneficial to gaining an understanding of the Company's financial performance.

The following discussion and analysis is intended to provide greater details of the results of operations and financial condition of the Company. The following discussion should be read in conjunction with the Company's unaudited condensed consolidated financial statements and notes thereto included elsewhere in this document. Certain statements under this caption constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in such forward-looking statements. Factors that might cause such a difference include but are not limited to economic conditions, competition in the geographic and business areas in which the Company conducts its operations, fluctuation in interest rates, credit quality and government regulation and other factors.

RESULTS OF OPERATIONS

The following tables summarize net income (loss), net income (loss) per share, and key financial ratios for the periods indicated using two different measurements:

Net Income (Loss)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2001			2000			2001			2000
		(Dollars in thousands, except per share data)
Net income (loss)		$	1,752		$	871		$	3,169		$	(341	)
Net income (loss) per share:
	Basic	$	0.07		$	0.03		$	0.12		$	(0.01	)
	Diluted	$	0.07		$	0.03		$	0.12		$	(0.01	)
Annualized return on average assets			0.58	%		0.30	%		0.36	%		(0.04	)%
Annualized return on average stockholders' equity			5.20	%		2.70	%		3.20	%		(0.38	)%

Net Operating Income
(Income before intangible amortization, reorganization and
merger-related costs, net of their tax effect)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2001			2000			2001			2000
		(Dollars in thousands, except per share data)
Net operating income		$	2,969		$	2,149		$	7,113		$	4,140
Net operating income per share:
	Basic	$	0.11		$	0.08		$	0.27		$	0.16
	Diluted	$	0.11		$	0.08		$	0.27		$	0.16
Annualized return on average tangible assets			1.05	%		0.79	%		0.86	%		0.55	%
Annualized return on average tangible stockholders' equity			19.75	%		17.01	%		16.65	%		11.65	%

Third quarter analysis. Consolidated net operating income for the three months ended September 30, 2001 and 2000 was $3.0 million and $2.1 million, respectively, or $0.11 and $0.08 per diluted share, respectively. The annualized net operating return on average tangible assets improved to 1.05% from 0.79% while the annualized net operating return on average tangible stockholders' equity increased to 19.75% from 17.01% for the same time periods.

The $820 thousand, or 38.2%, improvement in net operating income was the result of: a $487 thousand, or 3.8%, improvement in net interest income associated with a $20.4 million, or 2.0%, increase in earning assets; and a $2.2 million, or 118.8%, increase in noninterest income associated with gains on the sale of securities; which was offset by a $650 thousand, or 213.1%, increase in the provision for loan and lease losses; a $602 thousand, or 4.8%, increase in noninterest expense, and an increase in the provision for income taxes associated with the increase in taxable income.

Consolidated net income for the quarter ended September 30, 2001, was $1.8 million or $0.07 per diluted share. This compares with consolidated net income of $871 thousand or $0.03 per diluted share for the quarter ended September 30, 2000.

Year-to-date analysis. Consolidated net operating income for the nine months ended September 30, 2001 and 2000 was $7.1 million and $4.1 million, respectively, or $0.27 and $0.16 per diluted share, respectively. The annualized net operating return on average tangible assets improved to 0.86% from 0.55% while net operating return on average tangible stockholders' equity increased to 16.65% from 11.65% for the same time periods.

The $3.0 million, or 71.8%, improvement in net operating income was the result of: a $3.3 million, or 9.5%, improvement in net interest income associated with a $82.3 million, or 8.9%, increase in earning assets; and a $3.1 million, or 59.5%, increase in noninterest income; which was offset by a $680 thousand, or 90.7%, increase in the provision for loan and lease losses; and a $378 thousand, or 1.0%, increase in noninterest expense; and an increase in the provision for income taxes associated with the improvement in taxable income. The growth in average interest-earning assets includes the impact of the SCB Acquisition on February 29, 2000, which was accounted for under the purchase method of accounting. Accordingly, average interest-earning assets for the nine months ended September 30, 2000, include the impact of SCB for the months of March through September 2000, inclusive.

Consolidated net income for the nine month period ended September 30, 2001, was $3.2 million or $0.12 per diluted share. This compares with a consolidated net loss of $341 thousand or $0.01 per diluted share for the nine month period ended September 30, 2000.

Net operating income. The following table presents net operating income and operating noninterest expense used in key financial data and ratios for the three and nine month periods ended September 30, 2001 and 2000. The Company deducts reorganization and merger-related costs related primarily to the PSB/SCB Merger, the PSB/SCB Reorganization and the BOC/CalWest Merger (which represent severance costs, system conversion costs, termination penalties to exit data processing contracts and professional fees to accomplish the merger-related activities) in calculating net operating income. The Company expects further reorganization and merger-related costs as the Company identifies and pursues further operating efficiency opportunities.

				Three Months Ended September 30,						Nine Months Ended September 30,
				2001			2000			2001			2000
				(Dollars in thousands, except per share data)
Net operating income:
	Net income (loss)			$	1,752		$	871		$	3,169		$	(341	)
	Adjustments to net income (loss):
		After-tax core deposit intangible amortization			426			495			1,278			1,392
		Goodwill amortization			791			783			2,372			2,169

		Net operating income before after-tax reorganization and merger-related costs			2,969			2,149			6,819			3,220
	After-tax reorganization and merger-related costs				—			—			294			920

			Net operating income	$	2,969		$	2,149		$	7,113		$	4,140

Operating noninterest expense:
	Noninterest expense			$	13,164		$	12,562		$	38,783		$	38,405
	Adjustments to noninterest expense:
		Core deposit intangible amortization			724			841			2,171			2,366
		Goodwill amortization			791			783			2,372			2,169
		Reorganization and merger-related costs			—			—			500			1,563

			Operating noninterest expense	$	11,649		$	10,938		$	33,740		$	32,307

Efficiency ratio					76.0	%		85.6	%		83.6	%		96.0	%
Efficiency ratio based on operating noninterest expense					67.3	%		74.5	%		72.7	%		80.7	%

Third quarter analysis. The efficiency ratio (noninterest expense divided by revenues) is a measure of the Company's efficiency in generating revenue. A lower or declining ratio indicates improving efficiency.

The Company's efficiency ratio for the three months ended September 30, 2001 improved to 76.0% from 85.6% for the same period of 2000. Exclusive of reorganization and merger-related expenses, and amortization expense of goodwill and core deposit intangibles, the Company's efficiency ratio (operating noninterest expense divided by revenues) improved to 67.3% for the three months ended September 30, 2001 from 74.5% for the same period of 2000. This improvement results from the increase in interest-earning assets combined with the realization of the cost efficiencies associated with the BOC/CalWest Merger, the PSB/SCB Reorganization and the PSB/SCB Merger. Average interest-earning assets increased 2.0% and total revenues increased 18.0% for the three months ended September 30, 2001 when compared to the same period of 2000. The Company expects further improvement in its efficiency ratio as the Company pursues further operating efficiencies while actively seeking additional sources of revenue. For additional analysis see —Noninterest income and —Noninterest expense.

Year-to-date analysis. The Company's efficiency ratio for the nine month period ended September 30, 2001 improved to 83.6% from 96.0% for the nine months ended September 30, 2000. Operating noninterest expense increased by $1.4 million, or 4.4%, for the nine month period ended September 30, 2001 when compared to the same period of 2000. The increase in operating noninterest expense resulted from the inclusion of SCB's results for the full nine months in 2001 when compared to the nine month period ended September 30, 2000. When reorganization and merger-related expenses are excluded, along with the amortization expense of goodwill and core deposit intangibles, the efficiency ratio (operating noninterest expense divided by revenues) improved to 72.7% for the nine month period ended September 30, 2001 from 80.7% for the same period of 2000. This improvement is attributed to the increase in revenues for the nine month period ended September 30, 2001 when compared to the same period of 2000. Average interest-earning assets increased 8.9% for the nine month period ended September 30, 2001 when compared to the same period of 2000 and total revenues increased by 16.0% for the same period.

Net interest income. Net interest income is the difference between interest earned on assets and interest paid on liabilities. Net interest margin is net interest income expressed as a percentage of average interest-earning assets. The following tables provide information regarding average interest-earning assets and interest-bearing liabilities and yields and rates thereon for the three and nine month periods ended September 30, 2001 and September 30, 2000. Average loans and leases include nonaccrual loans and leases.

				Three Months Ended September 30, 2001						Three Months Ended September 30, 2000
				Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
				(Dollars in thousands)
ASSETS
Interest-earning assets:
	Loans and leases			$	850,428	$	17,359	8.10	%	$	753,142	$	17,551	9.27	%
	Investment securities:
		Taxable			113,273		1,765	6.18	%		152,594		2,434	6.35	%
		Nontaxable			12,373		141	4.52	%		12,063		145	4.78	%
	Federal funds sold and securities purchased under agreements to resell				39,515		324	3.25	%		75,600		1,246	6.56	%
	Other earning assets				9,499		104	4.34	%		11,244		163	5.77	%

		Total interest-earning assets			1,025,088		19,693	7.62	%		1,004,643		21,539	8.53	%
	Noninterest-earning assets:
	Cash and due from banks				50,126						55,264
	Other assets				123,058						105,099

		Total assets		$	1,198,272					$	1,165,006

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand		$	153,475		577	1.49	%	$	108,488		551	2.02	%
		Money market			154,672		799	2.05	%		156,102		1,287	3.28	%
		Savings			101,718		246	0.96	%		106,926		596	2.22	%
		Time			357,560		4,347	4.82	%		402,748		5,796	5.73	%

			Total interest-bearing deposits		767,425		5,969	3.09	%		774,264		8,230	4.23	%
Short term borrowing					6,058		55	3.60	%		86		2	9.21	%
Long term debt					17,306		314	7.20	%		18,500		439	9.44	%

			Total interest-bearing liabilities		790,789		6,338	3.18	%		792,850		8,671	4.35	%
Noninterest-bearing liabilities:
	Demand deposits				256,396						231,104
	Other liabilities				17,347						12,487

Total liabilities					1,064,532						1,036,441
Stockholders' equity					133,740						128,565

	Total liabilities and stockholders' equity			$	1,198,272					$	1,165,006

Net interest income						$	13,355					$	12,868

Net interest spread								4.44	%					4.18	%

Net interest margin								5.17	%					5.10	%

Third quarter analysis. The net interest margin increased to 5.17% from 5.10% for the three month period ended September 30, 2001 when compared to the same period in 2000.

The decline in the yield on interest-earning assets and the cost of interest-bearing funds during the three months ended September 30, 2001 compared to the same period of 2000 reflects the impact of the unprecedented decline in market rates precipitated by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") actions both before and after September 11, 2001. Market rates declined 300 basis points through eight separate rate reductions from January 1, 2001 to September 30, 2001.

The yield on interest-earning assets decreased 91 basis points to 7.62% for the three months ended September 30, 2001 from 8.53% for the same period of 2000. The overall yield on earning assets for the three months ended September 30, 2001 was positively impacted by the percentage of average loans to total average earning assets which increased to 83.0% from 75.0% for the same period of 2000. Average loans and leases outstanding increased $97.3 million, or 12.9%, for the three months ended September 30, 2001 compared to the same period of 2000. Total average interest-earning assets increased by $20.4 million, or 2.0%, for the three months ended September 30, 2001 compared to the same period of 2000. In addition, interest-earning assets as a percentage of interest-bearing liabilities increased to 129.6% for the three months ended September 30, 2001 from 126.7% for the same period of 2000.

The Company's cost of funds, excluding noninterest-bearing demand deposits, decreased 117 basis points to 3.18% during the third quarter of 2001 from 4.35% during the third quarter of 2000. In addition to the decline in the cost of funds associated with the change in overall market rates, a portion of the decrease in the cost of funds is the result of the Company replacing higher cost certificates of deposit with lower cost interest-bearing demand accounts. Average certificates of deposit

as a percentage of total average interest-bearing deposits declined to 46.6% for the three months ended September 30, 2001 from 52.0% for the same period of 2000.

				Nine Months Ended September 30, 2001						Nine Months Ended September 30, 2000
				Average Balance		Interest Income or Expense		Average Yield or Cost		Average Balance		Interest Income or Expense		Average Yield or Cost
				(Dollars in thousands)
ASSETS
Interest-earning assets:
	Loans and leases			$	792,746	$	50,921	8.59	%	$	704,710	$	47,759	9.05	%
	Investment securities:
		Taxable			130,541		6,163	6.31	%		145,468		6,907	6.34	%
		Nontaxable			12,369		428	4.63	%		12,071		435	4.81	%
	Federal funds sold and securities purchased under agreements to resell				64,255		2,084	4.34	%		55,210		2,556	6.18	%
	Other earning assets				9,611		419	5.83	%		9,746		482	6.61	%

			Total interest-earning assets		1,009,522		60,015	7.95	%		927,205		58,139	8.38	%
	Noninterest-earning assets:
	Cash and due from banks				58,059						47,938
	Other assets				119,626						109,365

		Total assets		$	1,187,207					$	1,084,508

LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
	Deposits:
		Interest-bearing demand		$	135,471		1,722	1.70	%	$	99,754		1,400	1.87	%
		Money market			157,452		3,074	2.61	%		133,576		3,379	3.38	%
		Savings			101,441		1,034	1.36	%		105,684		1,749	2.21	%
		Time			369,563		14,869	5.38	%		377,600		15,409	5.45	%

			Total interest-bearing deposits		763,927		20,669	3.62	%		716,614		21,937	4.09	%
	Short term borrowing				4,226		124	3.92	%		29		2	9.21	%
	Long term debt				17,989		1,028	7.64	%		18,500		1,357	9.80	%

			Total interest-bearing liabilities		786,142		21,851	3.72	%		735,143		23,296	4.23	%
	Noninterest-bearing liabilities:
		Demand deposits			247,454						209,088
		Other liabilities			21,103						19,079

	Total liabilities				1,054,699						963,310
	Stockholders' equity				132,508						121,198

		Total liabilities and stockholders' equity		$	1,187,207					$	1,084,508

Net interest income						$	38,164					$	34,843

Net interest spread								4.23	%					4.14	%

Net interest margin								5.05	%					5.02	%

Year-to-date analysis. The net interest margin for the nine month period ended September 30, 2001 increased slightly to 5.05% compared to 5.02% for the same period of 2000. The net interest spread also increased to 4.23% for the nine month period ended September 30, 2001 from 4.14% for the same period of 2000.

The yield on interest-earning assets decreased 43 basis points to 7.95% for the nine month period ended September 30, 2001, from 8.38% for the same period of 2000. The decrease in the overall rate environment for the first nine months of 2001 when compared to same period of 2000 contributed to the decrease in the yield on interest-earning assets. Average interest-earning assets increased by $82.3 million, or 8.9%, for the nine month period ended September 30, 2001, when compared to the same period of 2000. Average loan and lease balances increased by $88.0 million, or 12.5%, for the nine month period ended September 2001 when compared to the same period of 2000. The Company's increased loan volumes and the full nine month impact of the assets from the SCB Acquisition

contributed to both the earning assets increase and the average loan and lease balance increase for the nine month period ended September 30, 2001 when compared to the same period of 2000.

The Company's cost of funds, excluding noninterest-bearing demand deposits, decreased 51 basis points to 3.72% for the nine month period ended September 30, 2001 from 4.23% during the same period of 2000. The Company's cost of interest-bearing deposits for the nine month period ended September 30, 2001 decreased to 3.62% compared to 4.09% for the same period of 2000. Rates for all interest-bearings products have declined along with market rates. The percentage of time certificates of deposit to interest-bearing deposits decreased to 48.4% from 52.7% when comparing the nine month period ended September 30, 2001 to the same period of 2000.

Provision for loan and lease losses. The Company maintains an allowance for loan and lease losses ("ALLL") at a level determined appropriate for each Bank. A provision for loan and lease losses is a charge to operations, which represents the current period cost associated with maintaining an adequate ALLL. The provision is dependent on many factors and the provision for loan and lease losses may fluctuate due to management's assessment of the adequacy of the ALLL based on current information available; however, actual loan and lease losses may vary from estimates.

The provision for loan and lease losses totaled $955 thousand for the three months ended September 30, 2001 compared to a provision of $305 thousand for the same period in 2000. For the nine months ended September 30, 2001 and 2000, the Company recognized a charge for the provision for loan and lease losses of $1.4 million and $750 thousand, respectively. The increase in the provision for the three and nine months ended September 30, 2001 compared to the same periods for 2000 relates primarily to a single credit which management downgraded during the third quarter of 2001. See-Balance Sheet Analysis—Credit quality.

Noninterest income. The Company derives noninterest income primarily from service fees and charges on deposit products, loan servicing fees related to the sold portion of SBA and mortgage loans, commissions earned through loan referral programs and selling investment products as well as gains on sale of loans and other miscellaneous income.

The following tables set forth the details of noninterest income for the three and nine months ended September 30, 2001, and September 30, 2000. As SCB was acquired on February 29, 2000, the Company's results for 2000 include noninterest income from SCB since the acquisition date. For purposes of this analysis, the "Pro Forma Company" column for 2000 combines pre-acquisition historical results for the Company from the 2000 period with the historical results of SCB for the two months ended February 29, 2000.

		Three Months Ended September 30, 2001		Three Months Ended September 30, 2000		Change
		(In thousands)
Service charges and fees on deposits		$	1,032	$	773	$	259
Loan servicing fees			119		191		(72	)
Loan referral fees			324		215		109
Commissions on investment products			176		235		(59	)
Gain on sale of loans, net			158		35		123
Gain on sale of securities, net			1,564		—		1,564
Increase in cash surrender value of life insurance			315		53		262
Other income			274		309		(35	)

	Total noninterest income	$	3,962	$	1,811	$	2,151

Third quarter analysis. Total noninterest income increased $2.2 million, or 118.8%, to $4.0 million for the three month period ended September 30, 2001, from $1.8 million for the same period of 2000.

This increase is principally comprised of a $1.6 million increase in gain on sale of securities, a $262 thousand increase in cash surrender value of life insurance and an increase of $259 thousand in service charges and fees on deposits. The increase in gain on sale of securities is due to gains realized from the sale of $38.2 million of mortgage-backed securities, the proceeds of which were reinvested in a 24-month ladder of U.S. Treasury Securities, as well as from the redemption of securities called by the issuers during the period. The increase in cash surrender value of life insurance is a result of the Company's purchase of $16.5 million of Bank Owned Life Insurance ("BOLI") policies during the second quarter of 2001. The increase in service charges and fees on deposits results from both an increase in the Company's deposit base coupled with the Company offering additional deposit related services.

		Nine Months Ended September 30, 2001		Nine Months Ended September 30, 2000			Two Months Ended February 29, 2000			Nine Months Ended September 30, 2001
		Company		Company			SCB			Pro Forma Company			Change
		(In thousands)
Service charges and fees on deposits		$	2,580	$	2,166		$	22		$	2,188		$	392
Loan servicing fees			437		491			103			594			(157	)
Loan referral fees			1,082		592			6			598			484
Commissions on investment products			607		674			—			674			(67	)
Gain on sale of loans, net			363		401			—			401			(38	)
Gain (loss) on sale of securities, net			1,755		(7	)		(97	)		(104	)		1,859
Increase in cash surrender value of life insurance			452		139			—			139			313
Other income			974		715			3			718			256

	Total noninterest income	$	8,250	$	5,171		$	37		$	5,208		$	3,042

Year-to-date analysis. On a pro forma basis with SCB, total noninterest income increased $3.0 million, or 58.4%, to $8.3 million for the nine months ended September 30, 2001, from $5.2 million for the nine months ended September 30, 2000. This increase is principally comprised of a $1.9 million increase in gain on sale of securities, a $484 thousand increase in loan referral fees, an increase of $392 thousand in service charges and fees on deposits, an increase of $313 thousand in cash surrender value of life insurance and an increase of $256 thousand in other income. The comments noted above in the third quarter analysis that pertain to gain on sale of securities, increase in cash surrender value of life insurance and service charges and fees on deposits are applicable when comparing the nine months ended September 30, 2001 to the same period of 2000. The increase in loan referral fees is the result of the Company's success in marketing certain real estate-related SBA loans to an unaffiliated bank. The increase in other income is due mainly to the receipt of a non-recurring litigation settlement of approximately $190 thousand recorded during the first quarter of 2001.

Noninterest expense. The following tables set forth the details of noninterest expense for the three and nine months ended September 30, 2001, and September 30, 2000. As SCB was acquired on February 29, 2000, the Company's results for 2000 include noninterest expense from SCB since the acquisition date. For purposes of this analysis, the "Pro Forma Company" column for the nine months

ended September 30, 2000 combines the historical results of the Company for the 2000 period with SCB's actual results for the two months ended February 29, 2000.

		Three Months Ended September 30, 2001		Three Months Ended September 30, 2000		Change
		(In thousands)
Salaries and employee benefits		$	5,331	$	5,543	$	(212	)
Occupancy, premises and equipment			1,837		1,785		52
Data and item processing			1,163		507		656
Professional fees			670		755		(85	)
Communications			506		519		(13	)
Business development			289		477		(188	)
Customer services			314		375		(61	)
Other			1,539		977		562

	Total operating noninterest expense (before intangibles amortization)		11,649		10,938		711
Amortization of intangibles			1,515		1,624		(109	)

	Total noninterest expense	$	13,164	$	12,562	$	602

Third quarter analysis. Total operating noninterest expense, before intangibles amortization, increased $711 thousand, or 6.5%, to $11.6 million for the three month period ended September 30, 2001, from $10.9 million for the same period in 2000. This increase is due principally to a $656 thousand increase in data and item processing and a $562 thousand increase in other noninterest expense. Offsetting these increases were decreases in salary expense and business development expenses. The increase in data and item processing is the result of the decision to outsource these functions at PSB during the first quarter of 2001 to an external provider. Included in other noninterest expense are loan generation related expenses such as the cost of external appraisals, credit reports and underwriting expenses. During the three month period ended September 30, 2001 loans and leases outstanding, net of fees, increased by $78.3 million compared to an increase of $10.1 million for the same period of 2000. This increase differential contributed to increased loan related expenses for the three month period ended September 30, 2001 when compared to the same period of 2000, resulting in increased other noninterest expense. The decrease in salaries and benefits is attributed to the savings realized from the BOC/CalWest Merger, the PSB/SCB Reorganization, the PSB/SCB Merger, and outsourcing data and item processing. Total noninterest expense increased by $602 thousand, or 4.8%,

to $13.2 million for the three month period ended September 30, 2001 from $12.6 million for the same period of 2000.

								Nine Months Ended September 30, 2000
		Nine Months Ended September 30, 2001		Nine Months Ended September 30, 2000		Two Months Ended February 29, 2000		Nine Months Ended September 30, 2000
		Nine Months Ended September 30, 2001		Nine Months Ended September 30, 2000		Two Months Ended February 29, 2000		Pro Forma Company
		Company		Company		SCB		Pro Forma Company		Change
		(In thousands)
Salaries and employee benefits		$	16,190	$	16,480	$	892	$	17,372	$	(1,182	)
Occupancy, premises and equipment			5,359		5,009		181		5,190		169
Data and item processing			2,978		1,789		26		1,815		1,163
Professional fees			1,819		2,022		49		2,071		(252	)
Communications			1,405		1,457		29		1,486		(81	)
Business development			939		1,256		66		1,322		(383	)
Customer services			1,118		1,028		18		1,046		72
Other			3,932		3,266		194		3,460		472

	Total operating noninterest expense (before intangibles amortization and reorganization and merger-related costs)		33,740		32,307		1,455		33,762		(22	)
Amortization of intangibles			4,543		4,535		—		4,535		8
Reorganization and merger-related costs			500		1,563		790		2,353		(1,853	)

	Total noninterest expense	$	38,783	$	38,405	$	2,245	$	40,650	$	(1,867	)

Year-to-date analysis. On a pro forma basis with SCB, total operating noninterest expense, before intangibles amortization and reorganization and merger-related costs, decreased $22 thousand, or 0.1%, and totaled approximately $33.8 million for the nine month periods ended September 30, 2001 and 2000. Areas of significant decreases included salary and employee benefits, business development expenses, and professional fees. Offsetting these savings were increases in data and item processing, and other noninterest expense. Savings in salaries and benefits are associated with the benefits of the BOC/CalWest Merger, the PSB/SCB Reorganization and the PSB/SCB Merger. The increase in data and item processing are the result of the Company's outsourcing of data processing activities during the first nine months of 2001. The Company previously employed in-house processing whose costs included salaries and benefits and depreciation and amortization of hardware and software, which were previously reported in those categories. The increase in other noninterest expense is as noted above. Occupancy and equipment expense increased for the nine months ended September 30, 2001 when compared to the same period, primarily due to the Company's southern California subsidiary which opened a branch and an operations service center during the end of the third quarter of 2000. On a pro forma basis with SCB, total noninterest expense decreased by $1.9 million, or 4.6%, to $38.8 million for the nine months ended September 30, 2001 from $40.6 million for the same period in 2000.

Income taxes. The Company's statutory effective income tax rate approximates 41.15%, representing a blend of the statutory Federal income tax rate of 34.0% and the effective California franchise tax rate of 7.15%. The Company's effective income tax rates were a charge of 43.2% and 47.4% for the three month periods ended September 30, 2001 and 2000, respectively. For the nine month periods ended September 30, 2001 and 2000, the effective tax rates were a charge of 45.6%, and a charge of over 100%, respectively. The reportable effective tax rates are different than the statutory effective tax rate largely as a result of nondeductible goodwill amortization expense.

BALANCE SHEET ANALYSIS

Credit quality The Company defines nonperforming assets to include (i) loans and leases on which it has ceased to accrue interest ("nonaccrual loans") and (ii) assets acquired through foreclosure, including other real estate owned. "Impaired loans" are commercial, commercial real-estate, other real-estate related and individually significant mortgage and consumer loans for which it is probable that the Company will not be able to collect all amounts due according to the original contractual terms of the loan agreement. The category of "impaired loans" is not synonymous with the category of "nonaccrual loans," although the two categories overlap. "Nonaccrual loans" include impaired loans and those on which the accrual of interest is discontinued when collectibility of principal or interest is uncertain or payments of principal or interest have become contractually past due 90 days. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain collectibility, while not classifying the loan impaired, if (i) it is probable that the Company will collect all amounts due in accordance with the original contractual terms of the loan or (ii) the loan is a consumer loan or other homogeneous type of loan that is reviewed on a collective basis for impairment.

The following table shows the historical trends in nonperforming assets and key credit quality statistics for the Company:

				Quarter Ended September 30, 2001			Quarter Ended June 30, 2001			Quarter Ended March 31, 2001			Year Ended Dec 31, 2000			Quarter Ended September 30, 2000
				(Dollars in thousands)
Average loans and leases outstanding				$	850,428		$	769,243		$	757,546		$	714,675		$	753,142

Gross loans and leases, excluding net deferred fees				$	892,341		$	813,990		$	761,163		$	759,614		$	751,858

Nonaccrual loans				$	2,193		$	1,711		$	2,435		$	2,859		$	4,423
Accruing loans past due 90 days or more					—			—			—			—			—
Restructured loans					—			—			—			—			—

	Total nonperforming loans and leases (NPLs)				2,193			1,711			2,435			2,859			4,423
Other real estate owned (OREO)					1,748			1,131			1,214			1,264			164

		Total nonperforming assets (NPAs)		$	3,941		$	2,842		$	3,649		$	4,123		$	4,587

Allowance for loan and lease losses:
	Balance at beginning of period			$	10,421		$	10,230		$	10,089		$	6,750		$	9,774
		Balance acquired during period			—			—			—			2,547			—
		Loans and leases charged off during period			(58	)		(30	)		(195	)		(466	)		(76	)
		Recoveries during period			79			36			46			193			38

			Net recoveries (charge-offs) during period		21			6			(149	)		(273	)		(38	)
		Provision for loan and lease losses			955			185			290			1,065			305

	Balance at end of period			$	11,397		$	10,421		$	10,230		$	10,089		$	10,041

Selected ratios:
Annualized net recoveries (charge offs) to average loans and leases					0.01	%		0.00	%		(0.08	)%		(0.04	)%		(0.02	)%
Annualized provision for loan and lease losses to average loans and leases					0.45	%		0.10	%		0.16	%		0.15	%		0.16	%
Allowance at end of period to gross loans and leases outstanding at end of period					1.28	%		1.28	%		1.34	%		1.33	%		1.34	%
Allowance as percentage of nonperforming loans and leases					519.70	%		609.06	%		420.12	%		352.89	%		227.02	%
NPLs to gross loans and leases					0.25	%		0.21	%		0.32	%		0.38	%		0.59	%
NPAs to gross loans and leases and OREO					0.44	%		0.35	%		0.48	%		0.54	%		0.61	%
NPAs to total assets					0.33	%		0.24	%		0.31	%		0.35	%		0.38	%

Gross loans and leases were $892.3 million at September 30, 2001, an increase of $132.7 million, or 17.5%, since December 31, 2000 and an increase of $140.5 million, or 18.7%, from September 30, 2000. Nonaccrual loans and leases were $2.2 million at September 30, 2001, representing a $666 thousand, or 23.3%, decrease from December 31, 2000. Nonaccrual loans are, in the opinion of management, adequately secured. The ratio of nonaccrual loans to total gross loans decreased to 0.25% at September 30, 2001 from 0.38% at December 31, 2000. The ratio of nonperforming assets to total assets also decreased to 0.33% at September 30, 2001 from 0.35% as of December 31, 2000. The Company does not have any loans and leases past due 90 days and still accruing interest.

Credit concentrations In management's opinion, the Company has a concentration of real estate-related loans with 71.0% at September 30, 2001 compared to 75.1% at December 31, 2000. However, this concentration is spread across several sectors of the real estate market including single family mortgages, commercial real estate projects (including SBA guaranteed loans) and construction loans in various geographic regions in California. Management will continue to monitor the risk within the real estate-related portfolio by continuing to track key factors including, but not limited to, the percentage of real estate-related loans with government guarantees (i.e. SBA loans), weighted average loan-to-value ratios, as well as geographic and industry concentrations. The following table summarizes the Company's loan portfolio by loan category at the dates presented:

	September 30, 2001				December 31, 2000
	(Dollars in thousands)
Residential real estate loans	$	167,030	19	%	$	202,754	27	%
Commercial real estate loans		364,731	41	%		269,321	35	%
Construction loans		57,848	6	%		68,021	9	%
Equity lines		44,214	5	%		29,394	4	%
Commercial loans		137,528	16	%		103,915	14	%
SBA, portion held for sale, at cost which approximates market		43,703	5	%		31,480	4	%
SBA, unguaranteed portion held for investment		27,885	3	%		33,379	4	%
Consumer loans		21,342	2	%		20,044	3	%
Leases and other loans		28,060	3	%		1,301	—

Gross loans	$	892,341	100	%	$	759,614	100	%

Allowance for loan and lease losses. The Company has established a monitoring system for its loans and leases in order to identify impaired and problem loans and leases. The monitoring system permits periodic evaluation of the adequacy of the ALLL. The monitoring system and ALLL methodology have been developed based upon the Company's experience and loan classifications have been incorporated into the determination of the ALLL. This monitoring system and allowance methodology include a loan-by-loan analysis for all classified loans and leases as well as loss factors for the balance of the portfolio that are based on an analysis relative to the Company's unclassified portfolio. This analysis includes such factors as historical loss experience, current portfolio delinquency and trends, and other inherent risk factors such as economic conditions, concentrations in the portfolio, risk levels of particular loan categories, and internal loan review.

The ALLL increased by $976 thousand during the three months ended September 30, 2001 due primarily to the $955 thousand provision made during the same period. Net recoveries (recoveries net of charge-offs) for the three months ended September 30, 2001, totaled $21 thousand. The Company's annualized ratio of net recoveries to average loans and leases was 0.01% for the three months ended September 30, 2001 and the ALLL as a percentage of loans stood at 1.28% at September 30, 2001. Management is not aware of any additional significant loss potential that has not already been included in the estimation of the ALLL. Management believes that the ALLL of $11.4 million at September 30, 2001, is adequate based on the Company's evaluation of the loan portfolios and adherence to

established credit policies. However, no assurance can be given that the current balance of the ALLL will be adequate in the future.

Capital resources. Stockholders' equity at September 30, 2001 increased to $134.4 million from $130.1 million at December 31, 2000.

A banking organization's total qualifying capital includes two components, core capital (Tier 1 capital) and supplementary capital (Tier 2 capital). Core capital, which must comprise at least half of total capital, includes common stockholders' equity, qualifying perpetual preferred stock, trust preferred securities (subject to certain limitations) and minority interests, less goodwill and other qualifying intangibles. Supplementary capital includes the allowance for loan and lease losses (subject to certain limitations), other perpetual preferred stock, trust preferred securities, certain other capital instruments and term subordinated debt. The Company's major capital components are stockholders' equity, trust preferred securities and preferred stock in core capital, and the allowance for loan and lease losses in supplementary capital.

At September 30, 2001, the minimum risk-based capital requirements to be considered adequately capitalized were 4.0% for core capital and 8.0% for total capital. Federal banking regulators have also adopted leverage capital guidelines to supplement risk-based measures. The leverage ratio is determined by dividing Tier 1 capital as defined under the risk-based guidelines by average total assets (not risk-adjusted), subject to certain deductions, for the preceding quarter.

Pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve, the OCC and the FDIC have adopted regulations setting forth a five-tier system for measuring the capital adequacy of the financial institutions they supervise. The capital levels of the Company, Placer Capital Co ("PCC") and each of the Banks at September 30, 2001 and the two highest levels recognized under these regulations are summarized in the table below. These ratios all exceeded the well-capitalized guidelines as of September 30, 2001.

	Adequately Capitalized		Well Capitalized		BOC		PSB		PCC		Consolidated Company
	(greater than or equal to)
Total risk-based capital	8.00	%	10.00	%	10.43	%	10.40	%	10.43	%	10.49	%
Tier 1 risk-based capital ratio	4.00	%	6.00	%	9.18	%	9.15	%	9.18	%	9.24	%
Tier 1 leverage capital ratio	4.00	%	5.00	%	7.85	%	6.78	%	6.81	%	7.08	%

LIQUIDITY, INTEREST RATE SENSITIVITY AND MARKET RISK.

Liquidity management. The Company relies upon deposits as its principal source of funds and, therefore, must be in a position to service depositors' needs as they arise. Liquidity management is the process of planning to meet the cash flow requirements of customers who may either be depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs.

As an overall guide to ensuring adequate liquidity, management attempts to maintain a loan-to-deposit ratio of approximately 85% and a liquidity ratio (liquid assets, including cash and due from banks, Federal funds sold and investment securities expressed as a percentage to total deposits) of approximately 15%. As so measured, on a consolidated basis the Company's liquidity ratio stood at 23% and 29%, respectively, on September 30, 2001 and December 31, 2000, while its loan to deposit ratio stood at 81% and 76% on those same dates. Loan balances increased significantly from year-end while deposit balances remained relatively unchanged. This resulted in the decrease in the Company's liquidity ratio and the increase in the Company's loan-to-deposit ratio. The loan-to-deposit and liquidity ratios are currently within targeted ranges.

The Company is a corporation separate and apart from the Banks. It must provide for its own liquidity. Substantially all of the Company's revenues are obtained from dividends declared and paid by the Banks. There are statutory and regulatory provisions that could limit the ability of the Banks to pay dividends to the Company. At September 30, 2001, the Banks had approximately $2.4 million in the aggregate available to be paid as dividends to the Company. Management of the Company believes that such restrictions will not have an impact on the ability of the Company to meet its ongoing cash obligations. Additionally, the Company has a revolving line of credit as a secondary source of liquidity. At September 30, 2001 the Company had utilized $600 thousand of the $3.0 million available on this revolving line of credit. As of September 30, 2001, the Company did not have any material commitments for capital expenditures.

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. The Company's market risk arises primarily from credit risk and the interest rate risks inherent in its lending and deposit taking activities. Credit risk is managed through adhering to established credit policies, loan review and an adequate loan and lease loss reserve (See—Balance Sheet Analysis—Allowance for loan and lease losses).

Interest rate risk is the exposure of a bank's financial condition to adverse movements in interest rates. Changes in interest rates may affect earnings of an entity by changing net interest income as well as affect the underlying economic value of assets, liabilities and off-balance sheet instruments due to the present value of future cash flows resulting from different interest rates. The Company's Executive Asset Liability Management Committee (the "Executive ALCO Committee"), which includes senior management representatives, actively monitors and manages the Company's interest rate risk exposure. The Executive ALCO Committee's goal is to manage the various components of the Company's balance sheet in order to maintain the potential impact of immediate and sustained changes in interest rates on the Company's net portfolio value and net interest income within pre-established limits.

The Executive ALCO Committee uses three methods for measuring and managing interest rate risk within Board approved limits: Net Interest Income Simulation Modeling, Market Value of Portfolio Equity Modeling; and Static Gap Analysis. The Company's exposure to interest rate risk is reviewed on at least a quarterly basis by the Board of Directors of the Company. If potential changes to net portfolio value and net interest income resulting from hypothetical interest rate changes are not within the pre-established ALCO guidelines, the Board of Directors may direct management to adjust its asset and liability mix in order to bring the Company's interest rate risk within Board-approved limits.

The Company 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 limit the exposure to interest rate fluctuations within the Company's guidelines of acceptable levels of risk-taking. The Executive ALCO Committee analyzes the potential impact on the net portfolio of equity value and net interest income from potential changes in interest rates and considers the impact of alternative strategies or changes in balance sheet structure. 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 Company does not currently utilize derivatives or a trading portfolio of market risk sensitive instruments to manage its interest rate risk.

Net Interest Income Simulation. The Company uses a simulation model to estimate interest rate risk over the next 12 months based on hypothetical changes in interest rates. The model, which is updated quarterly, incorporates all of the Company's assets and liabilities and off-balance sheet instruments and assumptions regarding the repricing relationships of assets and liabilities as well as the current interest rate environment. Many of the Company's assets are floating rate loans, which are assumed to reprice immediately, and to the same extent as the change in market rates according to

their contracted index. Some loans and investment vehicles include the opportunity of prepayment (imbedded options), and accordingly the simulation model uses national indexes to estimate these prepayments and reinvests the proceeds at current yields. The Company's non-term deposit products reprice more slowly, usually changing less than the change in market rates and at the discretion of the Company. The model simulates the effect of sudden and sustained shifts in the yield curve of 100 and 200 basis points and calculates the adjusted net interest income that would result from the forecasted changes in interest rates.

At September 30, 2001, forecasted net interest income for the next 12 months would increase $148 thousand, or 0.28%, from an immediate 200 basis point increase in rates and would decrease $1.6 million, or 2.98%, from a rate decrease of similar magnitude. The simulated impact on net interest income in a downward rate environment in future periods is principally the result of the Company's projected basis risk associated with the Company's interest-bearing deposits.

Market rates declined 300 basis points in eight rate reduction actions initiated by the Federal Reserve Board from December 31, 2000 to September 30, 2001. The Company's interest rate movement simulation model prepared as of December 31, 2000 suggested that, given an instantaneous and sustained decrease in market interest rates of 200 basis points, the Company's net interest margin would decline 18 basis points from the base case scenario. However, as disclosed in the Company's 2000 annual report, these computations did not contemplate any actions the Company may undertake in response to changes in interest rates. The Company achieved a net interest margin of 5.05% for the nine months ended September 30, 2001, representing a two basis point increase as compared to the 5.03% net interest margin for the year ended December 31, 2000, and a three basis point increase as compared to the 5.02% net interest margin for the quarter ended September 30, 2000. Maintaining the Company's net interest margin during the nine months ended September 30, 2001 is attributed mainly to: the Banks' deposit mix and ability to reprice this funding source in ways that marginalized the Company's projected basis risk; the Company's success in increasing earning assets through loan growth; and the shift in earning assets from securities and overnight Fed Funds to loans. The increase in loans to utilize the Company's liquidity extended the overall average maturity of its earning assets.

The Company's cumulative gap position for under one year decreased to 65.0% as of September 30, 2001 compared to 71.4% as of December 31, 2000 while the Company's cumulative gap position for under five years increased to 93.7% as of September 30, 2001 compared to 88.3% as of December 31, 2001. (See table within the discussion —Gap Analysis.) As a portion of the 2001 loan growth occurred during a period of historically low interest rates and increased the assets repricing during the 1 to 5 year period, this may have the effect of compressing the Company's net interest margin should market interest rates increase, exclusive of any actions management may take to mitigate such an effect. Further, the shift in the Company's gap position is also a reflection of consumer preferences during an uncertain interest rate environment choosing to invest in instruments which reprice immediately such as money market accounts instead of longer term instruments such as certificates of deposit. The Banks continued to see a steady increase in funding sources, exclusive of certificates of deposit, which management attributes to the Banks' relationship banking philosophy.

Market Value of Portfolio Equity. The net interest income simulation model is limited, however, by its dependence on accurate forecasts of future business activities and other factors that would impact this analysis. These factors would include management's actions to mitigate the impact of interest rate changes or secondary impacts such as changes to the Company's credit risk profile during periods of significant interest rate movements. Furthermore, varying interest rate environments create unexpected changes in prepayment levels of assets and liabilities that may differ from the market estimates incorporated in this analysis. Changes that vary significantly from the assumptions may have significant effects on the Company's net interest income.

Therefore, to measure interest rate risk for longer than one year, the Company uses a market value simulation model. This model estimates the effect of an instantaneous and sustained increase or decrease (shock) in market interest rates of 100 and 200 basis points on the net present value of estimated cash flows from its assets, liabilities and off-balance sheet instruments, which calculates the "net portfolio value".

As with any simulation model, the computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, asset prepayments, rate floors, and deposit decay, and should not be relied upon as indicative of actual results. Actual values may differ from those projections presented should market conditions vary from assumptions used in the calculation of the net portfolio value. Again, the computations do not contemplate any actions the Company may undertake in response to changes in interest rates.

As of September 30, 2001, with a 200 basis point increase in market rates, the Company's estimated net portfolio value would decrease $17.7 million, or 9.12%, from the base case scenario, and the estimated net portfolio value would increase $24.2 million, or 12.50%, with a decrease of 200 basis points. However, the model does not attribute additional value to the Company's noninterest-bearing deposit balances, which have a significantly higher market value during periods of increasing interest rates. The Company's market risk position as of September 30, 2001 continues to be lower than approved limits since December 31, 2000.

Gap Analysis. As interest rate management is a function of the repricing characteristics of the Company's portfolio of assets and liabilities a gap table also provides useful information for a particular point in time. A gap table illustrates a static measurement of the relationship between the amounts of interest rate sensitive assets and interest bearing liabilities repricing in a given time period. Nonetheless, the gap table is limited in its ability to demonstrate all components of interest rate risk and therefore should be used only as a guide as to the possible effect changes in interest rates might have on the net interest margins of the Company.

The following table sets forth the distribution of repricing opportunities of the Company'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 both total assets and total interest-earning assets as of September 30, 2001 for different time intervals. 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.

		At September 30, 2001 Amounts Maturing or Repricing In
		3 Months or Less			Over 3 Months to 12 Months			Over 1 Year to 5 Years			Over 5 Years			Non- Sensitive(1)			Total
		(Dollars in thousands)
ASSETS
Cash and due from banks		$	—		$	—		$	—		$	—		$	53,673		$	53,673
Federal funds sold			14,243			—			—			—			—			14,243
Investment securities			17,818			52,738			45,360			11,157			—			127,073
Loans and leases			336,375			67,242			215,626			272,074						891,317
Other assets(2)			—			—			—			—			123,097			123,097

	Total assets	$	368,436		$	119,980		$	260,986		$	283,231		$	176,770		$	1,209,403

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits		$	—		$	—		$	—		$	—		$	261,800		$	261,800
Interest-bearing demand, money market and savings			411,193			—			—			—			—			411,193
Time certificates of deposit			137,231			176,155			48,365						—			311,751
Short term debt			6,882			—			—			—			—			6,882
Long term debt			—			16,700			—			—			—			16,700
Other liabilities			—			—			—			—			13,223			13,223
Minority Interests			—			3,500			—			—			—			3,500
Stockholders' equity			—			—			—			—			134,354			134,354

	Total liabilities & stockholders' equity	$	555,306		$	196,355		$	48,365		$	—		$	409,380		$	1,209,403

Period gap		$	(186,870	)	$	(76,375	)	$	212,621		$	283,231		$	(232,607	)

Cumulative interest-earning assets		$	368,436		$	488,416		$	749,402		$	1,032,633

Cumulative interest-bearing liabilities		$	555,306		$	751,661		$	800,026		$	800,026

Cumulative gap		$	(186,870	)	$	(263,245	)	$	(50,624	)	$	232,607

Cumulative interest-earning assets to cumulative interest-bearing liabilities			66.3	%		65.0	%		93.7	%		129.1	%
Cumulative gap as a percent of:
	Total assets		(15.5	)%		(21.8	)%		(4.2	)%		19.2	%
Interest-earning assets			(18.1	)%		(25.5	)%		(4.9	)%		22.5	%

(1): Assets or liabilities which are not interest rate-sensitive.
(2): Allowance for loan and lease losses of $11.4 million as of September 30, 2001 is included in other assets.

The foregoing table indicates that the Company had a negative one year gap of $263.2 million, or 21.8% of total assets, at September 30, 2001. This indicates that at September 30, 2001, the Company had $263.2 million more in liabilities that would reprice if there was a change in interest rates over the next year than assets that would reprice. Thus, if interest rates were to increase, this gap would tend to result in a lower net interest margin. Conversely, if interest rates were to decrease, this gap would tend to result in a higher net interest margin. However, changes in the mix of earning assets or funding liabilities can either increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest rate spread between an asset and its funding liability can vary significantly while the timing of repricing of both the asset and its funding liability can remain the same, thus impacting net interest income. This characteristic is referred to as basis risk and, generally, relates to the repricing characteristics of short-term funding sources such as certificates of deposit.

In addition, the Company has approximately $100 million of variable rate loans which have reached their interest rate floors and in the preceeding table, they are assumed to be fixed rate. In other words, these loans are included in the category that correlates with the loans' maturity date. In a falling interest rate environment this gap position is true. However, in a rising interest rate environment the gap position would shorten for those loans that have reached their floors; taken in isolation, this has the effect of making the Company less liability sensitive or works to increase the Company's net interest margin in a rising rate environment.

The relationship between product rate repricing and market rate changes (basis risk) is not the same for all products. The majority of interest-earning assets generally reprice along with a movement in market rates, while non-term deposit rates in general move more slowly and usually incorporate only a fraction of the change in market rates. Products categorized as non-rate sensitive, such as noninterest-bearing demand deposits, in the gap analysis behave like long term fixed rate funding sources. Both of these factors tend to make the Company's actual behavior more asset sensitive than is indicated in the gap analysis. In fact the Company has experienced higher net interest income when rates rise, and lower net interest income when rates fall, in contrast to what is indicated by the gap analysis. Therefore, management uses the net interest income and net portfolio value simulation models as its primary interest rate risk management tools.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See the section titled "Liquidity, Interest Rate Sensitivity and Market Risk" in Management's Discussion and Analysis of Financial Condition and Results of Operations.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company and the Banks are party to claims and legal proceedings arising in the ordinary course of business. Management of the Company evaluates the Company's and/or the Banks' exposure to the cases individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable and if the occurrence of the loss is probable. In the opinion of management of the Company, the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial condition of the Company. However, litigation is inherently uncertain and no assurance can be given that any litigation will not result in any loss which might be material to the Company and/or the Banks.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

(a): The Company held its annual meeting of stockholders on July 17, 2001.
(b): The following directors were elected at the annual meeting to serve for a three-year term:

Joseph P. Heitzler
Robert J. Kushner
Jaynie Miller Studenmund

The following directors continued in office after the annual meeting:

Ronald W. Bachli
J. Thomas Byrom
Richard W. Decker, Jr.
Larry D. Mitchell
Clifford R. Ronnenberg
Dwayne A. Shackelford

(c): At the annual meeting, shareholders voted on (1) the election of the Company's Class B directors; and (2) The ratification of the selection of KPMG LLP as the Company's independent public accountants for the fiscal year ending December 31, 2001. The results of the voting were as follows:

Matter	Votes For	Votes Against	Withheld	Abstentions	Broker Non-Votes
Election of Directors
Joseph P. Heitzler	25,850,635	—	21,289	—	—
Robert J. Kushner	25,849,026	—	22,898	—	—
Jaynie Miller Studenmund	25,849,130	—	22,794	—	—
Ratify Independent Public Accountants	25,850,631	10	—	21,283	—

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

	Exhibit Number		Description
	10.22		Second Amendment to Amended and Restated Credit Agreement and Limited Waiver of Default by and between Placer Capital Co., California Community Bancshares, Inc. and U.S. Bank National Association.
	10.23		Amendment 1 to Revised Placer Capital Co. 1999 Stock Option Plan. *
	11		Statement re: computation of per share earnings is included in Note 5 to the unaudited condensed consolidated financial statements of Registrant.

*: Compensatory plan.

REPORTS ON FORM 8-K

On August 16, 2001, the Company filed a Current Report on Form 8-K under Item 5 to report the issuance of a press release announcing its earnings for the period ended June 30, 2001. The press release was included as an exhibit to the Current Report. No financial statements were required or included.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	CALIFORNIA COMMUNITY BANCSHARES, INC.
Date: November 14, 2001
	By:	/s/ RONALD W. BACHLI Ronald W. Bachli President and Chief Executive Officer
	By:	/s/ DAVID E. HOOSTON David E. Hooston Chief Financial Officer

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TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

CALIFORNIA COMMUNITY BANCSHARES, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
CALIFORNIA COMMUNITY BANCSHARES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a) (In thousands, except per share data)
CALIFORNIA COMMUNITY BANCSHARES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands)
CALIFORNIA COMMUNITY BANCSHARES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
CALIFORNIA COMMUNITY BANCSHARES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

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

ITEM 5. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES

CALIFORNIA COMMUNITY BANCSHARES INC 10-Q