10-Q

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 March 31, 2007

OR

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

For the transition period from              to             

Commission File Number 000-50652

PLACER SIERRA BANCSHARES

(Exact name of registrant as specified in its charter)

CALIFORNIA	94-3411134
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

525 J Street, Sacramento, California	95814
(Address of principal executive offices)	(Zip Code)

(916) 554-4750

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer   x    Non –accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of April 27, 2007 there were 22,626,633 shares of the registrant’s common stock outstanding.

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION		1
ITEM 1.	Unaudited Condensed Consolidated Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheet	1
	Unaudited Condensed Consolidated Statement of Income	2
	Unaudited Condensed Consolidated Statement of Changes in Shareholders’ Equity and Comprehensive Income	3
	Unaudited Condensed Consolidated Statement of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	31
ITEM 4.	Controls and Procedures	31
PART II—OTHER INFORMATION		31
ITEM 1.	Legal Proceedings	31
ITEM 1A.	Risk Factors	32
ITEM 2.	Unregistered Sales of Equity 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	33
ITEM 6.	Exhibits	33
SIGNATURES		35

ii

PART I—FINANCIAL INFORMATION

ITEM 1. Unaudited Condensed Consolidated Financial Statements

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

	March 31,			December 31,
	2007			2006
ASSETS
Cash and due from banks	$	85,315		$	183,709
Federal funds sold		4,816			111,434
Cash and cash equivalents		90,131			295,143
Time deposits with other banks		100			100
Investment securities available-for-sale, at fair value		151,228			151,167
Federal Reserve Bank and Federal Home Loan Bank stock		21,640			21,497
Loans held for sale, at lower of cost or market value		3,534			3,115
Loans and leases held for investment, net of allowance for loan and lease losses of $22,133 at March 31, 2007 and $22,328 at December 31, 2006		1,794,917			1,824,401
Premises and equipment, net		21,290			21,705
Cash surrender value of life insurance		56,081			55,581
Goodwill		216,180			215,957
Other intangible assets, net		21,657			22,375
Accrued interest receivable and other assets		35,920			37,927
Total assets	$	2,412,678		$	2,648,968
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	682,616		$	904,530
Interest bearing		1,199,818			1,254,541
Total deposits		1,882,434			2,159,071
Short-term borrowings		48,715			11,518
Accrued interest payable and other liabilities		20,991			23,125
Junior subordinated deferrable interest debentures		51,137			51,167
Total liabilities		2,003,277			2,244,881
Commitments and contingencies
Shareholders’ equity:
Preferred stock, 25,000,000 shares authorized; none issued or outstanding at March 31, 2007 or December 31, 2006		—			—
Common stock, no par value, 100,000,000 shares authorized, 22,601,533 and 22,492,188 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		343,608			341,510
Retained earnings		66,265			63,175
Accumulated other comprehensive loss, net of taxes		(472	)		(598	)
Total shareholders’ equity		409,401			404,087
Total liabilities and shareholders’ equity	$	2,412,678		$	2,648,968

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

1

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME

(Dollars in thousands, except per share data)

	Three Months Ended
	March 31,
	2007		2006
Interest income:
Interest and fees on loans and leases held for investment	$	34,415	$	24,622
Interest on loans held for sale		101		—
Interest and dividends on investment securities:
Taxable		1,676		2,527
Tax-exempt		398		183
Interest on federal funds sold		418		301
Total interest income		37,008		27,633
Interest expense:
Interest on deposits		8,178		5,662
Interest on short-term borrowings		255		102
Interest on junior subordinated deferrable interest debentures		870		1,036
Total interest expense		9,303		6,800
Net interest income		27,705		20,833
Provision for the allowance for loan and lease losses		—		—
Net interest income after provision for the allowance for loan and lease losses		27,705		20,833
Non-interest income:
Service charges and fees on deposit accounts		2,277		1,830
Referral and other loan-related fees		1,092		732
Increase in cash surrender value of life insurance		500		406
Debit card and merchant discount fees		391		300
Revenues from sales of non-deposit investment products		299		196
Gain on sale of loans held for sale, net		246		—
Loan servicing income		175		100
Other		140		126
Total non-interest income		5,120		3,690
Non-interest expense:
Salaries and employee benefits		11,752		8,301
Occupancy and equipment		2,786		2,063
Merger		760		—
Other		6,359		5,082
Total non-interest expense		21,657		15,446
Income before provision for income taxes		11,168		9,077
Provision for income taxes		4,696		3,550
Net income	$	6,472	$	5,527
Earnings per share:
Basic	$	0.29	$	0.37
Diluted	$	0.28	$	0.36

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

2

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN

SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in thousands)

	Three Months Ended March 31, 2007
									Accumulated Other Comprehensive Loss			Total Shareholders' Equity
	Common Stock					Retained
	Shares		Amount			Earnings
Balance, December 31, 2006	22,492,188		$	341,510		$	63,175		$	(598	)	$	404,087
Comprehensive income:
Net income							6,472						6,472
Net change in unrealized loss on investment securities available-for-sale, net of tax										126			126
Total comprehensive income													6,598
Stock options exercised, including tax benefit	35,183			620						620
Stock option compensation expense				289									289
Restricted common stock award compensation expense				101									101
Shares withheld on vesting of restricted common stock	(2,508	)		(67	)								(67	)
Additional tax expense on vesting of restricted common stock awarded				(6	)								(6	)
Warrants exercised, including tax benefit	76,670			1,134									1,134
Tax benefit on disqualifying disposition of incentive stock option exercises				27									27
Cash dividends declared ($0.15 per share)							(3,382	)					(3,382	)
Balance, March 31, 2007	22,601,533		$	343,608		$	66,265		$	(472	)	$	409,401
	Three Months Ended March 31, 2006
	Common Stock					Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
	Shares		Amount
Balance, December 31, 2005	15,042,981		$	160,596		$	50,948		$	(2,263	)	$	209,281
Comprehensive income:
Net income							5,527						5,527
Net change in unrealized loss on investment securities available-for-sale, net of tax										(367	)		(367	)
Total comprehensive income													5,160
Stock options exercised, including tax benefit	9,538			151						151
Stock option compensation expense				140									140
Restricted common stock awarded	29,135			—									—
Restricted common stock award compensation expense				34									34
Cash dividends declared ($0.12 per share)							(1,805	)					(1,805	)
Balance, March 31, 2006	15,081,654		$	160,921		$	54,670		$	(2,630	)	$	212,961

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

3

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands)

	Three Months Ended March 31,
	2007			2006
Cash flows from operating activities:
Net income	$	6,472		$	5,527
Adjustments to reconcile net income to net cash provided by operations:
Amortization (accretion) of investment security discounts/premiums, net		19			(35	)
Accretion of fair value adjustment of loans acquired		(230	)		—
Amortization of other intangible assets		718			470
Amortization of fair value adjustment of trust preferred securities acquired		(30	)		—
Decrease in deferred loan fees, net		(10	)		(354	)
Depreciation and amortization		1,020			796
Dividends received on FHLB and FRB stock		(143	)		(91	)
Gain on sale of loans held for sale, net		(246	)		—
Originations of loans held for sale		(9,099	)		—
Proceeds from sale of loans held for sale, net		6,962			—
Stock-based compensation		390			174
Deferred tax benefit on stock based compensation		(159	)		(73	)
Provision for deferred income taxes		(459	)		(271	)
Increase in cash surrender value of life insurance		(500	)		(406	)
Net decrease (increase) in accrued interest receivable and other assets		2,504			(613	)
Net (decrease) increase in accrued interest payable and other liabilities		(2,169	)		196
Net cash provided by operating activities		5,040			5,320
Cash flows from investing activities:
Purchases of investment securities available-for-sale		(489	)		(493	)
Proceeds from calls and maturities of investment securities available-for-sale		625			2,000
Net decrease (increase) in loans and leases held for investment		31,200			(41,358	)
Proceeds from recoveries of charged-off loans		587			856
Purchases of premises and equipment		(674	)		(117	)
Investment in real estate investment companies		(136	)		(83	)
Net cash paid relating to Southwest Community Bancorp acquisition		(380	)		—
Net cash provided by (used in) investing activities		30,733			(39,195	)
Cash flows from financing activities:
Net (decrease) increase in demand, interest bearing and savings deposits		(230,603	)		46,760
Net (decrease) increase in time deposits		(46,034	)		7,152
Net increase in short-term borrowings		37,197			3,799
Dividends paid		(3,382	)		(1,805	)
Exercise of stock options, including tax benefit		620			151
Deferred tax benefit on stock based compensation		159			73
Tax benefit on disqualifying disposition of incentive stock option exercises		27			—
Exercise of warrants, including tax benefit		1,134			—
Tax benefit on vesting of restricted common stock		164			—
Withholding of shares on vesting of restricted common stock		(67	)		—
Net cash (used in) provided by financing activities		(240,785	)		56,130
Net (decrease) increase in cash and cash equivalents		(205,012	)		22,255
Cash and cash equivalents, beginning of period		295,143			57,268
Cash and cash equivalents, end of period	$	90,131		$	79,523

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

4

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2007 and 2006

NOTE 1—BASIS OF PRESENTATION

Consolidation and Basis of Presentation

The interim condensed consolidated financial statements include the accounts of Placer Sierra Bancshares (the Company) and the consolidated accounts of its wholly-owned subsidiary, Placer Sierra Bank (PSB). All significant intercompany balances and transactions have been eliminated. The unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting. Certain information and note disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The financial statements reflect all adjustments, consisting of only normal recurring adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods indicated. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results of operations to be expected for the remainder of the year. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

For financial reporting purposes, the Company’s investments in First Financial Bancorp Statutory Trust I, Southwest Community Statutory Trust I, Placer Statutory Trust III and Placer Statutory Trust IV are accounted for under the equity method and are included in other assets in the unaudited condensed consolidated balance sheet. The junior subordinated deferrable interest debentures issued and guaranteed by the Company and held by the trusts are reflected on the Company’s unaudited condensed consolidated balance sheet.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Management has determined that since all of the banking products and services offered by the Company are available in each banking center of the bank, all banking centers are located within the state of California, the out-of-state loan production offices do not account for a significant amount of the Company’s revenues or expenses and management does not allocate resources based on the performance of different transaction activities, it is appropriate to aggregate the banking centers and loan production offices and report them as a single operating segment. No single customer accounts for more than 10% of the revenues of the Company or PSB.

Material estimates that are particularly susceptible to significant changes in the near-term, among other things, include the determination of the allowance for loan and lease losses, the determination of the carrying values of goodwill and other intangible assets, the valuation of stock-based compensation, the impairment of long-lived assets and the realization of deferred tax assets. In connection with the determination of the allowance for loan and lease losses, management obtains independent appraisals for significant properties, evaluates overall loan portfolio characteristics and delinquencies and monitors economic conditions.

Pending Merger

On January 9, 2007, the Company and Wells Fargo & Company (Wells Fargo) entered into a definitive agreement for Wells Fargo to acquire the Company in a stock-for-stock merger. The transaction is expected to be completed by mid-year 2007.

Under the terms of the agreement, the Company’s shareholders will receive shares of Wells Fargo common stock for their shares of the Company’s common stock. The exchange ratio (number of Wells Fargo shares to be exchanged for each Placer Sierra Bancshares share) will be based on a Wells Fargo measurement price defined as the volume-weighted average of the daily volume-weighted average price of a share of Wells Fargo common stock for each of the 20 consecutive trading days ending on the fifth trading day immediately before the closing date of the transaction.

If the Wells Fargo measurement price is between $32.5783 and $39.8179, the exchange ratio will be determined by dividing $28 by the measurement price. If the Wells Fargo measurement price is equal to or less than $32.5783, then the exchange ratio will be 0.8595. If the Wells Fargo measurement price is equal to or more than $39.8179, then the exchange ratio will be 0.7032.

5

The completion of the merger is subject to various customary conditions, including the approval of our shareholders. All regulatory approvals have been received.

NOTE 2 – EARNINGS PER SHARE

Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, restricted stock and warrants, result in the issuance of common stock which share in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options, restricted stock and warrants in computing diluted EPS.

A reconciliation of the numerators and denominators of the basic and diluted earnings per share computation is as follows (dollars in thousands, except per share data):

	For the Three Months Ended March 31,
	2007		2006
Basic
Net income	$	6,472	$	5,527
Weighted average shares outstanding		22,521,155		15,047,255
Earnings per share – basic	$	0.29	$	0.37
Diluted
Net income	$	6,472	$	5,527
Weighted average shares of common stock and common stock equivalents outstanding		22,805,604		15,292,683
Earnings per share—diluted	$	0.28	$	0.36

Nonvested restricted stock is not included in the computation of basic earnings per share. For the three months ended March 31, 2007 and 2006, 14,568 and 29,135 shares of nonvested restricted stock, respectively, are not included in the computation of basic earnings per share.

For the three months ended March 31, 2007 and 2006, 363,440 and 166,250 shares of common stock issuable under stock option agreements, respectively, were not included in the computation of diluted earnings per share because their effect would be anti-dilutive. In addition, 29,135 shares of common stock issuable under restricted stock agreements were not included in the computation of diluted earnings per share for the three months ended March 31, 2006 because their effect would be anti-dilutive.

NOTE 3 – STOCK-BASED COMPENSATION

Stock Option Plans

The Company has two stock option plans, the Placer Sierra Bancshares 2002 Amended and Restated Stock Option Plan and the Southland Capital Co. 2002 Stock Option Plan. Options in the Southland Capital Co. plan have been converted into options to purchase shares of the Company and no additional options will be granted under this plan. The Placer Sierra Bancshares 2002 Amended and Restated Stock Option Plan permits the grant of nonstatutory stock options, incentive stock options, stock appreciation rights and restricted stock awards. The Company has granted both nonstatutory stock options and restricted stock awards. At March 31, 2007, grants outstanding combined with shares available for future grants totaled 1,914,030 shares under these plans. The shares available for grant may be granted to anyone eligible to participate in the plan. The plan requires that the price may not be less than the fair market value of the Company’s common stock at the date of grant. The options under the plans expire on dates determined by the Board of Directors or a committee of the Board of Directors, but not later than ten years from the date of grant. The vesting period is generally four or five years; however, the vesting period can be modified at the discretion of the Board of Directors or a committee of the Board of Directors. Outstanding options under the plans are exercisable until their expiration. In the event of a change in control, under certain conditions, all options, stock appreciation rights and restricted stock awards become immediately vested. In addition, participants holding restricted stock awards may be granted the right to exercise full voting rights with respect to those shares and may be credited with dividends paid with respect to the underlying shares, if the Board of Directors or a committee of the Board of Directors so determines. The Company issues new shares of common stock upon exercise of stock options, issuance of stock appreciation rights paid in stock and issuance of restricted stock.

6

Stock Option Compensation Expense

The compensation cost that has been charged against income for stock options was $289,000 and $140,000 for the three months ended March 31, 2007 and 2006, respectively. The total income tax benefit recognized in the income statement for stock options was $116,000 and $59,000 for the three months ended March 31, 2007 and 2006, respectively.

Management estimated that forfeitures would not be significant and is recognizing compensation costs for all equity awards.

At March 31, 2007, the total compensation cost related to nonvested stock option awards granted to employees under the Company’s stock option plans but not yet recognized was $2.5 million. Stock option compensation expense is recognized on a straight-line basis over the vesting period of the option. This cost is expected to be recognized over a weighted average remaining period of 1.6 years and will be adjusted for subsequent changes in estimated forfeitures.

Stock Option Activity

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

	At or For the Three Months Ended March 31, 2007
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Yrs)	Aggregate Intrinsic Value
Options outstanding, beginning of period	1,189,412		$	20.16	6.0	$	5,191,000
Options granted	—		$	—
Options exercised	(25,324	)	$	12.05		$	386,000
Options forfeited/expired	(13,160	)	$	23.61
Options outstanding, end of period	1,150,928		$	20.29	5.7	$	16,438,000
Options exercisable, end of period	658,209		$	17.81	5.4	$	6,128,000

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock for options that were in-the-money at March 31, 2007.

A summary of the activity in the Southland Capital Co. 2002 Stock Option Plan is as follows:

	At or For the Three Months Ended March 31, 2007
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Yrs)	Aggregate Intrinsic Value
Options outstanding, beginning of period	145,325		$	7.82	5.5	$	2,318,000
Options granted	—		$	—
Options exercised	(9,859	)	$	7.82		$	192,000
Options forfeited/expired	(143	)	$	7.82
Options outstanding, end of period	135,323		$	7.82	5.3	$	2,604,000
Options exercisable, end of period	134,535		$	7.82	5.3	$	2,588,000

7

Restricted Common Stock Awards

On March 14, 2006, the Company granted 29,135 shares of restricted common stock to selected executive officers, which had a fair market value of $27.78 per share on the date of grant. On March 14, 2007, 14,567 of these restricted common stock awards vested. Certain of these executives chose to have a total of 2,508 shares withheld by us to pay for taxes. These shares were retired to common stock and are considered authorized but unissued. The remaining 14,568 shares vest on March 14, 2008 or earlier upon a change in control of the Company.

On May 15, 2006, the Company granted 7,000 shares of restricted common stock to the non-employee directors, which had a fair market value of $24.43 per share on the date of grant. These restricted common stock awards vested on December 31, 2006.

The participants granted these restricted common stock awards were granted the right to dividend payments with respect to the underlying shares but were not granted voting rights on nonvested shares. The Company retains voting rights on the nonvested restricted stock. As of March 31, 2007, 14,568 shares of restricted stock are outstanding, nonvested and expected to vest.

The compensation cost that has been charged against income for restricted stock awards was $101,000 and $34,000 for the three months ended March 31, 2007 and 2006, respectively. The total income tax benefit recognized in the income statement for restricted stock awards was $43,000 and $14,000 for the three months ended March 31, 2007 and 2006, respectively.

At March 31, 2007, the total compensation cost related to nonvested restricted common stock but not yet recognized was $371,000. Restricted common stock compensation expense is recognized on a straight-line basis over the vesting period. This cost is expected to be recognized over a weighted average remaining period of approximately 0.5 years and will be adjusted for subsequent changes to estimated forfeitures. The intrinsic value of restricted common stock outstanding was $394,000 as of March 31, 2007.

Warrants

In connection with the acquisition of Southwest, the Company assumed all outstanding warrants which were convertible into a total of 153,346 shares of common stock at an exercise price of approximately $5.75 per share and were valued at $2.7 million, net of issuance costs, on the date of acquisition. Upon exercise, each warrant is convertible into 4.977 shares of common stock and can be exercised at any time through April 30, 2007. During the three months ended March 31, 2007, the exercise of warrants resulted in the issuance of 76,670 shares of common stock, net of fractional shares paid. At March 31, 2007, there were warrants outstanding to purchase 40,901 shares of common stock at the exercise price of approximately $5.75 per share.

NOTE 4—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In the ordinary course of business, the Company is party to various legal actions, which the Company believes are incidental to the operation of its business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions to which the Company is currently a party cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to management, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Actual results could differ materially from management’s opinion based on a variety of factors, including the uncertainties involved in the proof of legal and factual matters in legal proceedings.

Cerritos Valley Dissenters

On February 21, 2007 the California Court of Appeal, Fourth Appellate District, Division Three reversed and remanded for further consideration by the trial court, the judgment and satisfaction of judgment entered by the Superior Court of the State of California for the County of Orange in a litigation matter, Bank of Orange County v. Azar. et al. The litigation matter involves Bank of Orange County, a division of PSB. Bank of Orange County v. Azar et al, was originally filed on November 18, 2003. On June 23, 2005, Bank of Orange County received a notice of entry of judgment and satisfaction of judgment with respect to this matter. The litigation relates to a number of Cerritos Valley Bank shareholders who exercised their statutory right pursuant to Chapter 13 of the California Corporations Code to dissent from the 2002 merger of Cerritos Valley Bank with and into Bank of Orange County. Rather than accept the merger consideration of $9.79 per share of common stock paid to Cerritos Valley Bank shareholders who did not dissent from the merger, the dissenting shareholders claimed that the fair market value of their shares of common stock was $25.76 per share. Prior to consummation of the merger, Bank of Orange County deposited the sum of approximately $3.8 million with the exchange agent for the merger, representing $9.79 per share multiplied by the number of shares held by dissenting shareholders.

8

In January 2004, Bank of Orange County and the dissenting shareholders entered into a settlement agreement, which provided that the fair market value of the shares would be determined by an appraisal process. Under the terms of the agreement, each party’s appraiser valued the shares. After conducting the appraisal, each appraiser reached a different dollar amount. Because the difference between the two amounts exceeded a specified range, the settlement agreement provided that a third appraiser be selected by the two other appraisers, to determine the fair market value of the Cerritos Valley Bank common stock. The third appraiser determined that the fair market value of the shares held by the dissenting shareholders was $5.95. Based on the $5.95 valuation, the bank paid the dissenting shareholders approximately $2.2 million. On June 20, 2005, the Superior Court of the State of California in Orange County entered judgment stating that the amount the Bank paid to the dissenting shareholders represented full satisfaction of both the settlement agreement and all amounts owed by Bank of Orange County pursuant to Chapter 13 of the California Corporations Code. This is the judgment that has been reversed by the California Court of Appeal as of February 21, 2007. The judgment was originally appealed in February 2006 by certain dissenting shareholders that hold a majority of the Cerritos Valley Bank common stock involved in the litigation. Shareholders holding the remaining Cerritos Valley Bank common stock involved in the litigation did not participate in the appeal.

In the appeal decision, the Court of Appeal decided that the settlement agreement, in fact, set up an arbitration procedure and decided that the case should be remanded to the trial court to confirm, vacate or modify the arbitration award of the third appraiser pursuant to the procedures set forth in the California Arbitration Act. The trial court will have the discretion to confirm, vacate or modify the arbitration award by the third appraiser. Bank of Orange County intends to continue to vigorously prosecute this action.

ALC Bankruptcy Case

On October 27, 2005, the bankruptcy trustee of ALC Building Corporation filed an adversary action in the United States Bankruptcy Court, Central District of California against Bank of Orange County, a division of PSB, in a matter entitled Peter C. Anderson, Trustee of ALC v. Bank of Orange County. ALC was a former vendor of Bank of Orange County that was retained to provide construction funding services. Creditors of ALC filed an involuntary Chapter 7 bankruptcy petition against ALC on March 5, 2004. The bankruptcy trustee sought damages in the amount of $578,000 from Bank of Orange County for all funds Bank of Orange County received from ALC in the 90-day period prior to the date the involuntary bankruptcy petition was filed against ALC, plus interest and costs. Bank of Orange County vigorously defended the action. However, the bankruptcy trustee filed a motion for summary judgment, which was granted on June 12, 2006 and judgment was entered against Bank of Orange County in the amount of $578,000, plus interest and costs. Bank of Orange County tendered a check in the amount of $613,000 at the beginning of August 2006 to satisfy the judgment. Bank of Orange County filed a proof of claim as an unsecured creditor in the Chapter 7 bankruptcy on September 19, 2006 for the amount tendered in the judgment and estimates that it will recover $75,000 and its net loss will be approximately $538,000.

Financial Instruments with Off-Balance-Sheet Risk

PSB is party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the condensed consolidated balance sheet.

PSB’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. PSB uses the same credit policies in making commitments and letters of credit as it does for loans and leases included in the condensed consolidated balance sheet.

The following financial instruments represent off-balance-sheet credit risk (dollars in thousands):

	March 31, 2007		December 31, 2006
Commitments to extend credit	$	569,866	$	598,253
Standby letters of credit	$	8,358	$	6,570

Commitments to extend credit consist primarily of unfunded home equity lines of credit, single-family residential and commercial real estate construction loans, and commercial revolving lines of credit. Home equity lines of credit are secured by deeds of trust, are generally limited by our loan policy to no more than $500,000 and are generally limited to a combined loan to value of 80%, although borrowers with the highest credit scores can borrow up to 85%. Construction loans are established under standard underwriting guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction. Commercial revolving lines of credit have a high degree of industry diversification. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without ever being fully drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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Standby letters of credit are conditional commitments issued by PSB to guarantee the performance of a customer to a third party. The fair value of the liability related to these standby letters of credit, which represents the fees received for issuing the guarantees, was not considered to be material for recognition as a liability as of March 31, 2007 or December 31, 2006. The Company recognizes these fees as revenue over the term of the commitment, or when the commitment is used. Standby letters of credit are generally issued for one year or less and secured by certificates of deposit or are issued as sub-features under existing revolving credit commitments.

Deposit Concentrations

In the fourth quarter of 2006, the Company was notified by its largest deposit customer that the customer intended to withdraw all of its deposit balances by mid-year 2007. The depositor is consolidating all of its operations into its Midwest headquarters. As of December 31, 2006, this depositor represented 12.3% of total deposits and 29.4% of non-interest bearing deposits. As of March 31, 2007, this depositor represented 2.1% of total deposits and 5.8% of non-interest bearing deposits. There were no other single depositors representing more than 5% of deposits at March 31, 2007 or December 31, 2006.

NOTE 5—SHORT TERM BORROWING ARRANGEMENTS

At March 31, 2007 and December 31, 2006, the Company could borrow up to $594.8 million and $584.6 million, respectively, from the Federal Home Loan Bank, secured by qualifying first mortgage loans. At March 31, 2007, there was $31.7 million in borrowings outstanding from the Federal Home Loan Bank on an overnight basis at prevailing interest rates. There were no borrowings from the Federal Home Loan Bank at December 31, 2006.

The Company enters into sales of securities under agreements to repurchase which are short term in nature. At March 31, 2007 and December 31, 2006, the Company had $17.0 million and $11.5 million outstanding in repurchase agreements using a tiered interest rate structure.

NOTE 6—COMPREHENSIVE INCOME

Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income (loss) that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income (loss). Total comprehensive income and the components of accumulated other comprehensive income (loss) for the three months ended March 31, 2007 are presented net of taxes in the unaudited condensed consolidated statement of changes in shareholders’ equity and comprehensive income. Total comprehensive income for the three months ended March 31, 2007 and 2006 was $6.6 million and $5.2 million, respectively.

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

	Before Tax			Tax (Expense) Benefit			After Tax
For the Three Months Ended March 31, 2007
Other comprehensive income:
Unrealized holding gains	$	216		$	(90	)	$	126
Less: reclassification adjustment for net gains included in net income		—			—			—
Total other comprehensive income	$	216		$	(90	)	$	126
For the Three Months Ended March 31, 2006
Other comprehensive loss:
Unrealized holding losses	$	(694	)	$	327		$	(367	)
Less: reclassification adjustment for net losses included in net income		—			—			—
Total other comprehensive loss	$	(694	)	$	327		$	(367	)

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NOTE 7—INCOME TAXES

In July 2006, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes—an Interpretation of FASB statement No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company has adopted FIN 48 as of January 1, 2007.

The Company previously recognized income tax positions based on management’s estimate of whether it is reasonably possible that a liability has been incurred for unrecognized income tax benefits by applying FASB Statement No. 5, Accounting for Contingencies.

The provisions of FIN 48 have been applied to all tax positions of the Company as of January 1, 2007. There was no cumulative effect of applying the provisions of FIN 48 and there was no material effect on the Company’s provision for income taxes for the three months ended March 31, 2007.

NOTE 8—RECENT ACCOUNTING DEVELOPMENTS

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued Statement No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115. This standard permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. The entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs); and (c) is applied only to entire instruments and not to portions of instruments. The provisions of SFAS 159 are effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Management did not elect to early adopt SFAS 159 and has not yet completed its evaluation of the impact that SFAS 159 will have.

Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements

In March 2007, the Emerging Issues Task Force (EITF) reached a final consensus on Issue No. 06-10 (EITF 06-10), Accounting for Deferred Compensation and Postretirement Benefit Aspects of Collateral Assignment Split-Dollar Life Insurance Arrangements. EITF 06-10 requires employers to recognize a liability for the post-retirement benefit related to collateral assignment split-dollar life insurance arrangements in accordance with SFAS No. 106 or APB Opinion No. 12. EITF 06-10 also requires employers to recognize and measure an asset based on the nature and substance of the collateral assignment split-dollar life insurance arrangement. The provisions of EITF 06-10 are effective for the Company on January 1, 2008, with earlier application permitted, and are to be applied as a change in accounting principle either through a cumulative-effect adjustment to retained earnings or other components of equity or net assets in the statement of financial position as of the beginning of the year of adoption; or as a change in accounting principle through retrospective application to all prior periods. Management did not elect to early adopt EITF 06-10 and has not yet completed it evaluation of the impact that EITF 06-10 will have.

NOTE 9—SUBSEQUENT EVENT

On April 25, 2007 the Board of Directors declared a common stock cash dividend of $0.15 per share for the second quarter of 2007. The dividend will be payable on or about May 23, 2007 to its shareholders of record on May 10, 2007.

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

Discussions of certain matters contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the Exchange Act), and as such, may involve risks and uncertainties including, but not limited to, statements relating to the effect of the proposed merger between Wells Fargo & Company and Placer Sierra Bancshares (Placer or the Company). These forward-looking statements relate to, among other things, expectations of the business environment in which Placer Sierra Bancshares and its subsidiaries operates, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. The Company cautions readers that a number of important factors could cause actual results, performance and achievements to differ materially from the results, performance and achievements expressed or implied in such forward-looking statements. For a discussion of some of the factors that might cause such a difference, see Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2006, and under Part II, Item IA in this quarterly report on Form 10-Q. Factors that might cause such a difference include, but are not limited to: our shareholders may fail to provide the required approvals to consummate the acquisition of the Company by Wells Fargo & Company; factors may occur which result in a condition to the acquisition of the Company by Wells Fargo & Company not being satisfied; growth may be inhibited if we cannot attract deposits; revenues are lower than expected; or expenses are higher than expected; competitive pressure among depository institutions increases significantly; the cost of additional capital is more than expected; changes in the interest rate environment reduces interest margins; general economic conditions, either nationally or in the market areas in which we conduct business, are less favorable than expected; changes may occur in the securities markets; we may suffer an interruption of services from third-party service providers that could adversely affect our business; we may not be able to maintain an effective system of internal and disclosure controls; revenues following the merger with Southwest are lower than expected; potential or actual litigation occurs; legislation or change in the regulatory requirements adversely affect the businesses in which the Company is engaged; and other factors discussed under Item 1A to our Annual Report on Form 10-K for the year ended December 31, 2006, and under Part II, Item 1A in this quarterly report on Form 10-Q and our other current and periodic filings with the Securities and Exchange Commission and the registration statement, which contains a proxy statement-prospectus with respect to the merger as filed by Wells Fargo & Company with the SEC. We do not undertake and specifically disclaim any obligation to update such forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements except as required by law.

Overview

Who We Are

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

We own 100% of Placer Sierra Bank and 100% of the common stock of First Financial Bancorp Statutory Trust I, Southwest Community Statutory Trust I, Placer Statutory Trust III and Placer Statutory Trust IV. The trusts were formed for the exclusive purpose of issuing and selling trust preferred securities. For financial reporting purposes our investments in the trusts are accounted for under the equity method and are included in other assets on the consolidated balance sheet.

Pending Merger

On January 9, 2007, the Company and Wells Fargo & Company (Wells Fargo) entered into a definitive agreement for Wells Fargo to acquire us in a stock-for-stock merger. The transaction is expected to be completed by mid-year 2007.

Under the terms of the agreement, our shareholders will receive shares of Wells Fargo common stock for their shares of the our common stock. The exchange ratio (number of Wells Fargo shares to be exchanged for each Placer Sierra Bancshares share) will be based on a Wells Fargo measurement price defined as the volume-weighted average of the daily volume-weighted average price of a share of Wells Fargo common stock for each of the 20 consecutive trading days ending on the fifth trading day immediately before the closing date of the transaction.

If the Wells Fargo measurement price is between $32.5783 and $39.8179, the exchange ratio will be determined by dividing $28 by the measurement price. If the Wells Fargo measurement price is equal to or less than $32.5783, then the exchange ratio will be 0.8595. If the Wells Fargo measurement price is equal to or more than $39.8179, then the exchange ratio will be 0.7032.

The completion of the merger is subject to various customary conditions, including the approval of our shareholders. All regulatory approvals have been received.

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Southwest Community Bancorp and Southwest Community Bank Acquisition

On June 9, 2006, the Company completed the acquisition of Southwest Community Bancorp (Southwest) and its subsidiary Southwest Community Bank, a community bank with nine branches located in Southern California. With the completion of this acquisition, Southwest Community Bank merged into Placer Sierra Bank. The fair value of assets acquired, including goodwill, totaled $756.5 million. The fair value of the liabilities assumed totaled $581.4 million. Southwest Community Bancorp shareholders received 7,228,910 shares of Placer Sierra Bancshares common stock valued at $172.4 million, net of issuance costs. We assumed all outstanding warrants which are convertible into a total of 153,346 shares of common stock valued at $2.7 million, net of issuance costs, on the date of acquisition.

How We Generate Revenues

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

Information About Regulation

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

Our Principal Products and Services and Locations of Operations

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

How Economic Factors Impact Us

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

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

Our Opportunities, Challenges and Risks

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

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

Critical Accounting Policies

Our accounting policies are integral to understanding the financial results reported. Our most complex accounting policies require management’s judgment to ascertain the valuation of assets, liabilities, commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are appropriate and consistently applied from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. We have identified our estimate of the fair value of financial instruments, our policy for loans held for sale and related servicing, our policy for the allowance for loan and lease losses, our valuation of the impairment of long-lived assets, our valuation of goodwill and other intangible assets, our policy for deferred income taxes and our valuation of stock-based compensation as critical accounting policies. Our critical accounting policies have not changed significantly from those discussed in “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Critical Accounting Policies.” of our Annual Report on Form 10-K for the year ended December 31, 2006 (Annual Report). Our significant accounting policies and practices are described in further detail in Note 2 to our Consolidated Financial Statements filed with our Annual Report on Form 10-K for the year ended December 31, 2006. Please see the section below entitled “Allowance for Loan and Lease Losses” for a discussion related to this policy.

Results of Operations

Key Performance Indicators

The following sections contain tables and data setting forth certain statistical information about us for the three months ended March 31, 2007 and 2006. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2007 and 2006 included herein, and our audited consolidated financial statements and notes thereto for the year ended December 31, 2006 and the related discussion therein, included in our Annual Report on Form 10-K.

As of March 31, 2007, we had total assets of $2.413 billion, total loans and leases held for investment, net of deferred fees and costs, of $1.817 billion, total deposits of $1.882 billion and shareholders’ equity of $409.4 million. For the three months ended March 31, 2007, average earning assets were $2.033 billion, average loans and leases held for investment, net of deferred fees and costs, were $1.824 billion, and average deposits were $1.969 billion. As of March 31, 2007, 22,601,533 shares of our common stock were outstanding (including 14,568 shares of nonvested restricted stock), having a book value per share of $18.11.

Net income for the three months ended March 31, 2007 was $6.5 million, or $0.28 per diluted share, compared with net income of $5.5 million, or $0.36 per diluted share, for the same period of 2006.

The change in financial position, operating results and earnings per share for the three months ended March 31, 2007 as compared to the same period of 2006 reflect the increase in net assets and earnings attributable to the acquisition of Southwest Community Bancorp (Southwest) on June 9, 2006. Earnings per share for the three months ended March 31, 2007 was also impacted by the increase in the number of shares outstanding resulting from the issuance of new shares of common stock in connection with this all-stock acquisition.

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The following table presents our key performance indicators for the three months ended March 31, 2007 and 2006:

	For the Three Months Ended March 31,
	2007			2006
	(Dollars in thousands, except per share data)
Net interest income	$	27,705		$	20,833
Non-interest income		5,120			3,690
		32,825			24,523
Provision for the allowance for loan and lease losses		—			—
Non-interest expense		21,657			15,446
Provision for income taxes		4,696			3,550
Net income	$	6,472		$	5,527
Average assets	$	2,475,793		$	1,896,540
Average shareholders’ equity	$	406,627		$	211,261
Share Information:
Weighted average shares outstanding – basic		22,521,155			15,047,255
Weighted average shares outstanding – diluted		22,805,604			15,292,683
Profitability Measures:
Earnings per share – basic	$	0.29		$	0.37
Earnings per share – diluted	$	0.28		$	0.36
Return on average assets		1.06	%		1.18	%
Return on average shareholders’ equity		6.45	%		10.61	%
Efficiency ratio		65.98	%		62.99	%

Income Statement

Net income for the three months ended March 31, 2007 was $6.5 million, or $0.28 per diluted share. Net income for the three months ended March 31, 2006 was $5.5 million, or $0.36 per diluted share. Return on average assets for the three months ended March 31, 2007 was 1.06%, compared to 1.18% for the same period of 2006. Return on average equity for the three months ended March 31, 2007 was 6.45%, compared to 10.61% for the same period of 2006. For further information on these trends, see net interest income, non-interest income and non-interest expense discussions as follows.

Net interest income for the three months ended March 31, 2007 was $27.7 million, compared to $20.8 million for the same period of 2006. The increase in net interest income is attributable to the benefit of the merger with Southwest and reflects the growth in average interest earning asset balances of 23.1% for the three months ended March 31, 2007 compared to the same period of 2006. The increase in net interest income is also attributable to an increase in the Company’s net interest margin.

Net interest margin for the three months ended March 31, 2007 was 5.53%, an increase of 42 basis points from the same period of 2006. The increase in net interest margin is primarily attributable to the benefit of the addition of Southwest’s low-cost deposit base, an increase in the yield earned on average earning assets and a decrease in the cost of the junior subordinated deferrable interest debentures, partially offset by increased funding costs throughout the remainder of the Bank’s operations.

Total non-interest income for the three months ended March 31, 2007 was $5.1 million, compared with $3.7 million for the same period of 2006. Non-interest income increased primarily due to an increase in service charges and fees on deposit accounts as a result of the increase in the number of deposit accounts associated with the acquisition of Southwest, an increase in referral and other loan related fees as a result of the increase in the number of real estate loans referred to third parties and the gains recorded on the sale of loans held for sale during the three months ended March 31, 2007. There were no loans sold in 2006.

Total non-interest expense for the three months ended March 31, 2007 was $21.7 million, compared with $15.4 million for the same period of 2006. The increase was primarily centered in salaries and benefits costs, occupancy and equipment, administration and third party payments which increased principally due to the acquisition of Southwest. In addition, we recorded $760,000 of merger expenses related to the pending merger with Wells Fargo during the three months ended March 31, 2007.

The Company’s efficiency ratio for the three months ended March 31, 2007 was 65.98%, compared to 62.99% for the same period of 2006. The increase in the efficiency ratio during 2007 is primarily due to a 33.9% growth in total net interest income plus non-interest income when compared to a 40.2% rate of growth in total non-interest expense for the three months ended March 31, 2007 compared to the same period of 2006.

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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 on an annualized basis. Our balance sheet is asset sensitive in an environment where the yield curve moves in a parallel fashion to changes in short term interest rates, and as a result, our net interest margin tends to expand in a rising interest rate environment and decline in a falling interest rate environment. The majority of our earning assets are tied to market rates, such as the prime rate, and therefore rates on our earning assets generally reprice along with a movement in market rates while interest bearing liabilities, mainly deposits, typically reprice more slowly and usually incorporate only a portion of the movement in market rates.

The following tables present, for the periods indicated, the distribution of average assets, liabilities and shareholders’ equity, as well as the net interest income from average interest earning assets and the resultant yields expressed in percentages. Average balances are based on daily averages. Non-accrual loans are included in the calculation of average loans and leases while non-accrued interest thereon is excluded from the computation of yields earned.

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	For the Three Months Ended March 31, 2007						For the Three Months Ended March 31, 2006
	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 held for sale	$	4,066	$	101	10.07	%	$	—	$	—	0.00	%
Loans and leases held for investment (1) (2) (3)		1,823,830		34,415	7.65	%		1,383,375		24,622	7.22	%
Investment securities:
Taxable		111,915		1,350	4.89	%		208,919		2,338	4.54	%
Tax-exempt (1)		38,914		398	4.15	%		17,729		183	4.19	%
Federal funds sold		32,416		418	5.23	%		27,414		301	4.45	%
Time deposits with other banks		100		—	0.00	%		—		—	0.00	%
Other earning assets (4)		21,567		326	6.13	%		14,400		189	5.32	%
Total interest earning assets		2,032,808		37,008	7.38	%		1,651,837		27,633	6.78	%
Non-interest earning assets:
Cash and due from banks		116,379						60,432
Other assets		326,606						184,271
Total assets	$	2,475,793					$	1,896,540
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing liabilities:
Deposits:
Interest bearing demand	$	233,516		311	0.54	%	$	228,702		298	0.53	%
Money market		477,263		3,802	3.23	%		328,075		2,036	2.52	%
Savings		127,490		140	0.45	%		157,460		172	0.44	%
Time certificates of deposit		395,331		3,925	4.03	%		389,023		3,156	3.29	%
Total interest bearing deposits		1,233,600		8,178	2.69	%		1,103,260		5,662	2.08	%
FHLB borrowings		10,696		142	5.38	%		—		—	0.00	%
Repurchase agreements		14,362		113	3.19	%		21,011		102	1.97	%
Long-term debt		51,151		870	6.90	%		53,611		1,036	7.84	%
Total interest bearing liabilities		1,309,809		9,303	2.88	%		1,177,882		6,800	2.34	%
Non-interest bearing liabilities:
Demand deposits		735,371						490,687
Other liabilities		23,986						16,710
Total liabilities		2,069,166						1,685,279
Shareholders’ equity		406,627						211,261
Total liabilities and shareholders' equity	$	2,475,793					$	1,896,540
Net interest income			$	27,705					$	20,833
Net interest margin (5)					5.53	%					5.11	%

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

(2) Average non-accrual loans and leases of $12.1 million and $2.5 million for the three months March 31, 2007 and 2006, respectively, are included in the yield computations.

(3) Interest income includes net deferred loan and lease fees and costs of $310,000 and $356,000 for the three months ended March 31, 2007 and 2006, respectively.

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

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

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The following tables show the change in interest income and interest expense and the amount of change attributable to variances in volume, rates and the combination of volume and rates based on the relative changes of volume and rates:

	Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
	Net Change			Rate			Volume			Mix
	(Dollars in thousands)
Interest income:
Loans held for sale	$	101		$	—		$	101		$	—
Loans and leases held for investment		9,793			1,482			7,839			472
Investment securities available-for-sale:
Taxable		(988	)		182			(1,086	)		(84	)
Tax-exempt		215			(2	)		219			(2	)
Federal funds sold		117			52			55			10
Time deposits with other banks		—			—			—			—
Other earning assets		137			29			94			14
Total interest income		9,375			1,743			7,222			410
Interest expense:
Interest bearing demand		13			7			6			—
Money market		1,766			578			926			262
Savings		(32	)		1			(33	)		—
Time certificates of deposit		769			706			51			12
FHLB borrowings		63			17			38			8
Repurchase agreements		90			86			1			3
Long-term debt		(166	)		(124	)		(48	)		6
Total interest expense		2,503			1,271			941			291
Net interest income	$	6,872		$	472		$	6,281		$	119

Net interest income increased 33.0%, or $6.9 million, to $27.7 million for the three months ended March 31, 2007, from $20.8 million for the same period of 2006. Average earning assets increased 23.1%, or $381.0 million, to $2.033 billion for the three months ended March 31, 2007, from $1.652 billion for the same period of 2006. Average loans and leases held for investment, net of deferred fees and costs, increased by 31.8%, or $440.5 million, to $1.824 billion for the three months ended March 31, 2007, from $1.383 billion for the same period of 2006. Average loans and leases held for investment, net of deferred fees and costs, increased as a result of the acquisition of Southwest along with our organic loan growth. Average core deposits (all deposit categories other than time certificates of deposit) increased 30.6%, or $368.7 million, to $1.574 billion for the three months ended March 31, 2007, from $1.205 billion for the same period of 2006. Average core deposits increased primarily as a result of the acquisition of Southwest.

The net interest margin for the three months ended March 31, 2007 increased to 5.53% from 5.11% for the same period in 2006. The increase is primarily attributable to the addition of Southwest’s low-cost deposit base, an increase in the yield earned on average earning assets and a decrease in the cost of the junior subordinated deferrable interest debentures, partially offset by increased funding costs throughout the remainder of the Bank’s operations.

Interest income increased 33.9%, or $9.4 million, to $37.0 million for the three months ended March 31, 2007, from $27.6 million for the same period of 2006. Average loans and leases held for investment, net of deferred fees and costs, increased by 31.8% or $440.5 million, to $1.824 billion and yielded 7.65% for the three months ended March 31, 2007, compared to 7.22% for the same period of 2006. The increase in the yields on average loans and leases primarily reflects the benefit of loans that re-priced during a period of rising short-term interest rates. The yield on investment securities increased to 4.70% for the three months ended March 31, 2007, from 4.51% for the same period of 2006.

Interest expense on all interest bearing liabilities increased 36.8%, or $2.5 million, to $9.3 million for the three months ended March 31, 2007, from $6.8 million in the same period of 2006. Total average interest bearing liabilities increased 11.2%, or $131.9 million, to $1.310 billion for the three months ended March 31, 2007, from $1.178 billion for the same period of 2006. The cost of interest bearing liabilities increased to 2.88% for the three months ended March 31, 2007, from 2.34% for the same period of 2006. This increase was the result of an increase in deposit rates paid on all deposit types in response to market conditions and to provide funding for loan growth, as well as higher rates paid on short-term borrowings, offset by a decrease in rates paid on junior

18

subordinated deferrable interest debentures. The cost of junior subordinated debentures decreased due to the redemption of $38.1 million in debentures and the issuance of $25.8 million in new debentures in the fourth quarter of 2006 at rates 198 basis points lower than the debentures redeemed.

Interest expense on interest bearing deposits increased 44.4%, or $2.5 million, to $8.2 million for the three months ended March 31, 2007, from $5.7 million for the same period of 2006. The increase is primarily attributable to an increase in deposit rates paid on all deposit types and a migration of deposits into higher rate accounts such as time deposit accounts and optimum money market accounts. The overall cost of deposits, including non-interest bearing demand deposits, increased to 1.68% for the three months ended March 31, 2007, from 1.44% for the same period of 2006.

A substantial percentage of our funding sources are non-interest bearing demand deposits, which represented approximately 37.3% of average total deposits for the three months ended March 31, 2007, an increase from 30.8% for the same period of 2006. This increase is primarily the result of the acquisition of Southwest. The Company’s largest depositor, as of December 31, 2006, has consolidated its operations into its Midwest headquarters. As of December 31, 2006, this depositor represented 12.3% of total deposits and 29.4% of non-interest bearing deposits, while as of March 31, 2007, this customer represented only 2.1% of total deposits and 5.8% of non-interest bearing deposits. As this customer continues to withdraw its deposits, we expect the percentage of average non-interest bearing demand deposit to average total deposits to decline.

Provision for Loan and Lease Losses

The provision for loan and lease losses is a charge against earnings of the period. The provision is that amount required to maintain the allowance for loan and lease losses at a level which, in management’s judgment, is appropriate based on loan and lease losses inherent in the loan and lease portfolio.

The Company’s overall credit quality remained strong during the three months ended March 31, 2007. Non-performing loans to total loans and leases held for investment, net of deferred fees and costs, decreased to 0.62% at March 31, 2007 from 0.75% at December 31, 2006. During the three months ended March 31, 2007, we experienced loan and lease charge-offs of $782,000 and recoveries of $587,000 compared to loan and lease charge-offs of $1.0 million and recoveries of $856,000 for the same period of 2006. Based on the above, management determined that no provision for loan and lease losses was required for the three months ended March 31, 2007.

The allowance for loan and lease losses decreased to $22.1 million as of March 31, 2007 compared to $22.3 million at December 31, 2006. This decrease relates to the net charge-offs discussed above.

There were no other changes in loan and lease concentrations or terms during the periods indicated which significantly affected the provision or allowance for loan and lease losses.

Non-Interest Income

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

	For the Three Months Ended March 31,
	2007			2006
	(Dollars in thousands)
Service charges and fees on deposit accounts	$	2,277		$	1,830
Referral and other loan-related fees		1,092			732
Increase in cash surrender value of life insurance		500			406
Debit card and merchant discount fees		391			300
Revenues from sales of non-deposit investment products		299			196
Gain on sale of loans held for sale, net		246			—
Loan servicing income		175			100
Other		140			126
Total non-interest income	$	5,120		$	3,690
Total non-interest income to average total assets, annualized		0.84	%		0.79	%

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Non-interest income increased 38.8%, or $1.4 million, to $5.1 million for the three months ended March 31, 2007, from $3.7 million for the same period of 2006.

Service charges and fees on deposit accounts increased 24.4%, or $447,000, to $2.3 million for the three months ended March 31, 2007, from $1.8 million for the same period of 2006. This increase is primarily due to the increase in the number of deposit accounts associated with the acquisition of Southwest.

Referral and other loan-related fees increased 49.2%, or $360,000, to $1.1 million for the three months ended March 31, 2007, from $732,000 for the same period of 2006 primarily due to an increase in real estate loans referred to third parties. Referral fees are highly dependent on a small number of transactions and are subject to significant fluctuation from period to period.

The revenue generated from the increase in the cash surrender value of life insurance increased 23.2%, or $94,000, to $500,000 for the three months ended March 31, 2007, from $406,000 for the same period of 2006 primarily due to the addition of bank owned life insurance as a result of the acquisition of Southwest.

Debit card and merchant discount fees increased 30.3 %, or $91,000, to $391,000 for the three months ended March 31, 2007, from $300,000 for the same period of 2006 primarily due to the increase in the number of debit card users as a result of the acquisition of Southwest.

Revenues from sales of non-deposit investment products increased 52.6%, or $103,000, to $299,000 for the three months ended March 31, 2007, from $196,000 for the same period of 2006. Sales of non-deposit investment products are highly dependent on a small sales force and are subject to significant fluctuation from period to period based on the number of sales representatives at the Company.

In the three months ended March 31, 2007, the Company recorded a $246,000 gain on sale of loans held for sale due to the addition of Southwest’s SBA group. There were no loans sold during the same period of 2006.

Non-Interest Expense

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

	For the Three Months Ended March 31,
	2007			2006
	(Dollars in thousands)
Salaries and employee benefits	$	11,752		$	8,301
Occupancy and equipment		2,786			2,063
Data and item processing		1,503			1,330
Administration		861			491
Third party payments		851			233
Merger		760			—
Amortization of core deposit intangible		718			470
Communication and postage		681			567
Professional fees		607			663
Advertising and business development		313			343
Stationery and supplies		203			198
Loan-related costs		68			246
Other		554			541
Total non-interest expense	$	21,657		$	15,446
Total non-interest expense to average total assets, annualized		3.47	%		3.30	%

Non-interest expense increased 40.2%, or $6.2 million, to $21.7 million for the three months ended March 31, 2007, from $15.4 million for the same period of 2006.

Salaries and employee benefits expense increased 41.6%, or $3.5 million, to $11.8 million for the three months ended March 31, 2007, from $8.3 million for the same period in 2003. Salaries and employee benefits expense increased as a result of:

• an increase in the number of employees as a result of the acquisition of Southwest,

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• $431,000 in costs associated with the liquidation of the First Financial Bancorp 401k and ESOP plans,

• a $149,000 increase in stock option compensation expense as a result of options granted throughout 2006,

• a $67,000 increase in restricted common stock compensation expense related to the amortization of restricted common stock granted in March of 2006,

• $88,000 in retention incentives to Southwest employees, and

• a $360,000 decrease in deferred loan origination costs primarily due to a decrease in the number of loans boarded during 2007 compared to 2006. Deferred loan origination costs reduce salaries expense in the period which a loan is boarded.

Occupancy and equipment expense increased 35.1%, or $723,000, to $2.8 million for the three months ended March 31, 2007 from $2.1 million for the same period in 2006 principally due to the acquisition of Southwest.

Data and item processing expense increased 13.0%, or $173,000, to $1.5 million for the three months ended March 31, 2007 from $1.3 million for the same period of 2006 principally due to the acquisition of Southwest.

Administration expense increased 75.4%, or $370,000, to $861,000 for the three months ended March 31, 2007 from $491,000 for the same period of 2006 principally due to an increase in the volume of cash letter activity and cash ordering of commercial customers resulting in an increase in correspondent banking charges attributable to the acquisition of Southwest along with $174,000 in penalties assessed by the U.S. Department of Labor relating to the 2004 First Financial Bancorp 401k and ESOP plans. First Financial Bancorp was acquired by the Company in December 2004.

Third party payments for banking related services paid on behalf of business customers increased 265.2%, or $618,000, to $851,000 for the three months ended March 31, 2007, from $233,000 for 2006 principally due to the acquisition of Southwest.

During the three months ended March 31, 2007, the Company recorded $760,000 in merger expenses related to the pending merger with Wells Fargo. There were no such costs in 2006.

Amortization of core deposit intangible increased 52.8%, or $248,000, to $718,000 for the three months ended March 31, 2007, from $470,000 for the same period of 2006 due to the amortization of the core deposit intangible related to Southwest.

Communication and postage expense increased 20.1%, or $114,000, to $681,000 for the three months ended March 31, 2007 from $567,000 for the same period of 2006 primarily due to an increase in armored car and internal courier services related to the acquisition of Southwest.

Loan related expenses decreased 72.4%, or $178,000, to $68,000 for the three months ended March 31, 2007, from $246,000 for the same period of 2006, primarily due to the collection of appraisal fees from borrowers in excess of historical amounts.

Stock-Based Compensation

At March 31, 2007, the total compensation cost related to nonvested stock option awards granted to employees under the Company’s stock option plans but not yet recognized was $2.5 million. This cost will be amortized on a straight-line basis over a weighted average period of approximately 1.6 years and will be adjusted for subsequent changes in estimated forfeitures.

Provision for Income Taxes

Our statutory income tax rate is approximately 42.1%, representing a blend of the statutory Federal income tax rate of 35.0% and the California income tax rate of 10.8%. Due to the nontaxable nature of income from municipal securities, interest on loans in designated enterprise zones, bank owned life insurance, the benefit of deductions for the exercise of stock options and warrants and vesting of restricted common stock, the benefit of housing tax credits and the nondeductible nature of certain merger related costs and penalties assessed by the U.S. Department of Labor relating to the 2004 First Financial Bancorp 401k and ESOP plans, our actual effective income tax rate was 42.0% and 39.1% for the three months ended March 31, 2007 and 2006, respectively.

Financial Condition

Our total assets at March 31, 2007 were $2.413 billion, a decrease of 8.9%, compared to $2.649 billion at December 31, 2006. Our earning assets at March 31, 2007 totaled $1.998 billion, a decrease of 11.3%, compared to $2.134 billion at December 31, 2006. Total deposits at March 31, 2007 were $1.882 billion, a decrease of 12.8%, compared to $2.159 billion at December 31, 2006. The decrease in total assets and earning assets is centered primarily in federal funds sold as a consequence of the decrease in deposits.

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Total deposits decreased as a result of the withdrawal of balances of the Company’s largest depositor, a seasonal decline in other customer deposit balances and challenges in maintaining existing relationships and acquiring new relationships as a result of the pending merger with Wells Fargo. The Company’s largest depositor as of December 31, 2006, a nationwide mortgage servicing company, consolidated its operations into its Midwest headquarters. As of December 31, 2006, this depositor represented 12.3% of total deposits and 29.4% of non-interest bearing deposits. As of March 31, 2007, this depositor only represented 2.1% of total deposits and 5.8% of non-interest bearing deposits.

Loans and Leases Held for Investment

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

	As of March 31, 2007					As of December 31, 2006
	Amount			% of Loans		Amount			% of Loans
	(Dollars in thousands)
Loans and leases held for investment
Real estate – mortgage	$	1,317,097		72.4	%	$	1,323,114		71.5	%
Real estate – construction		312,798		17.2			328,135		17.7
Commercial		165,172		9.1			169,409		9.2
Agricultural		3,024		0.2			4,862		0.3
Consumer		15,457		0.8			16,053		0.9
Leases receivable and other		6,037		0.3			7,701		0.4
Total gross loans and leases held for investment		1,819,585		100.0	%		1,849,274		100.0	%
Less: allowance for loan and lease losses		(22,133	)				(22,328	)
Deferred loan and lease fees, net		(2,535	)				(2,545	)
Total net loans and leases held for investment	$	1,794,917				$	1,824,401

Gross loans and leases held for investment decreased 1.6%, or $29.7 million, to $1.820 billion at March 31, 2007, from $1.849 billion at December 31, 2006, due to slower production in the quarter primarily as a result of the pending merger with Wells Fargo.

We experienced decreases of $6.0 million in real estate mortgages, $15.3 million in real estate construction, $4.2 million in commercial, $1.8 million in agricultural, $596,000 in consumer and $1.7 million in leases receivable and other loans. While we recorded $164.4 million of new loan commitments during the three months ended March 31, 2007, we also experienced early loan payoffs of $115.9 million.

Our loan portfolio has a high concentration of loans that are collateralized by real estate. Management believes that this concentration does not create undue risk as our credit policies and underwriting standards have been adopted with the recognition that we rely heavily on real estate related loans. However, a substantial decline in the performance of the economy in general or a significant decline in real estate values in the bank’s primary market areas could have an adverse impact on collectibility, increase the level of real estate-related non-performing loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of operations and cash flows. The Company does not participate in subprime lending.

Real Estate – Mortgage

The category of real estate – mortgage at March 31, 2007 totaled $1.317 billion and was comprised 66.9% of loans collateralized by commercial real estate and 33.1% of loans collateralized by 1-4 family real estate.

We set limitations on our exposure in commercial real estate lending activities and employ monitoring tools and reporting consistent with sound industry practices. We segment our commercial real estate mortgage and construction loan portfolio into low-to-moderate risk and higher risk loan categories and limit the aggregate of higher risk commercial real estate mortgage and construction loans outstanding to no more than 350% of the sum of the bank’s Tier 1 capital plus the allowance for loan and lease losses; at March 31, 2007, this ratio was 286%. We further limit our total commercial real estate loans to no more than 600% of the sum of the bank’s Tier 1 capital plus the allowance for loan and lease losses; at March 31, 2007, this ratio was 530%. Commercial real estate mortgages generally require debt service coverage ratios of 125% or greater and loan to value ratios of not more than 75%.

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During the first quarter of 2007, we stress tested all non-owner occupied commercial real estate mortgage term loans with outstanding balances of $750,000 or greater. Prior to stress testing, the tested loans had a current weighted average debt service coverage ratio of 194%. After shocking the portfolio for a 200 basis point rate increase, the debt service coverage ratio of the tested loans decreased to 189%. Alternatively, an assumed 15% decrease in net operating income (falling rents and/or rising vacancies) caused the debt service coverage ratio of the tested loans to decrease to 166%. Combining both events caused the ratio to decrease to 162%. The tested loans had a weighted average loan to value of 58.53%. Based on this stress testing, management has concluded that the bank’s commercial real estate mortgage loan portfolio could withstand such shocks reasonably well.

The portfolio of loans collateralized by 1-4 family residential real estate is comprised 64.0% of loans supported by first liens and 36.0% of loans supported by junior liens (primarily home equity lines of credit, or “HELOCs”). First lien loans are generally underwritten in accordance with FNMA/FHLMC guidelines for loans eligible for sale in the secondary mortgage market. The majority of HELOCs are limited to a combined loan to value of 80%, although borrowers with the highest credit scores can borrow up to 85%. Individual HELOCs are generally limited by our loan policy to no more than $500,000.

Real Estate – Construction

The category of real estate—construction at March 31, 2007 totaled $312.8 million, approximately 20% of which was comprised of loans to owner-occupants constructing their own residences. These loans are generally 30 year loans which include an interest only period during construction. Underwriting of these loans is generally done in accordance with FNMA/FHLMC guidelines for loans eligible for sale in the secondary mortgage market. The remaining 80% of real estate – construction was comprised of residential and commercial loans for a variety of property types to owner occupants, investors and developers. Our underwriting guidelines for these construction loans set minimum borrower equity and pre-leasing requirements for commercial projects and generally limit the number of units ahead of sales for residential projects.

Non-Performing Assets

Generally, loans and leases are placed on non-accrual status when they become 90 days or more past due or at such earlier time as management determines timely recognition of interest to be in doubt. Accrual of interest is discontinued on a loan or lease when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of interest is doubtful. The following table summarizes the loans and leases for which the accrual of interest has been discontinued and loans and leases more than 90 days past due and still accruing interest, including those loans and leases that have been restructured and other real estate owned, which we refer to as OREO:

	As of March 31, 2007			As of December 31, 2006
	(Dollars in thousands)
Non-accrual loans and leases, not restructured	$	11,286		$	13,837
Accruing loans and leases past due 90 days or more		—			—
Restructured loans and leases		—			—
Total non-performing loans and leases (NPLs)		11,286			13,837
OREO		—			—
Total non-performing assets (NPAs)	$	11,286		$	13,837
Selected ratios:
NPLs to total loans and leases held for investment		0.62	%		0.75	%
NPAs to total assets		0.47	%		0.52	%

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is maintained at a level which, in management’s judgment, is based on loan and lease losses inherent in the loan and lease portfolio. The amount of the allowance is based on management’s evaluation of the collectibility of the loan and lease portfolio, historical loss experience and other significant factors affecting loan and lease portfolio collectibility. These other significant factors include the level and trends in delinquent, non-accrual and adversely classified loans and leases, trends in volume and terms of loans and leases, levels and trends in credit concentrations, effects of changes in underwriting standards, policies, procedures and practices, national and local economic trends and conditions, changes in capabilities and experience of lending management and staff and other external factors including industry conditions, competition and regulatory requirements.

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Our methodology for evaluating the adequacy of the allowance for loan and lease losses has two basic elements: first the identification of impaired loans and leases and the measurement of impairment for each individual loan identified; and second, a method for estimating an allowance for all other loans and leases.

A loan or lease is considered impaired when it is probable that we will be unable to collect all contractual principal and interest payments due in accordance with terms of the loan or lease agreement. Losses on individually identified impaired loans or leases that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan or lease. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs.

In estimating the general allowance for loan and lease losses, we group the balance of the loan and lease portfolio into segments that have common characteristics, such as loan or lease type, collateral type or risk rating. Loans typically segregated by risk rating are those that have been assigned risk ratings using regulatory definitions of “special mention,” “substandard,” and “doubtful.” Loans graded “loss” are generally charged off immediately.

For each general allowance portfolio segment, we apply loss factors to calculate the required allowance. These loss factors are based upon three years of historical loss rates, adjusted for qualitative factors affecting loan and lease portfolio collectibility as described above. Qualitative adjustment factors are expressed in basis points and adjust historical loss factors downward up to 40 basis points and upward up to 75 basis points.

The specific allowance for impaired loans and leases and the general allowance are combined to determine the required allowance for loan and lease losses. The amount calculated is compared to the actual allowance for loan and lease losses at each quarter end and any shortfall is covered by an additional provision for loan and lease losses. As a practical matter, our allowance methodology may show that an unallocated allowance exists at quarter end. Any such amounts exceeding a certain percentage of the allowance will be removed from the allowance for loan and lease losses by a reduction of the allowance for loan and lease losses as of quarter end.

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

	As of or For the Three Months Ended March 31,
	2007			2006
	(Dollars in thousands)
Balance at beginning of period	$	22,328		$	16,714
Charge-offs:
Real estate – mortgage		—			—
Real estate – construction		448			—
Commercial		159			7
Agricultural		—			—
Consumer		175			29
Leases receivable and other		—			969
Total		782			1,005
Recoveries:
Real estate – mortgage		479			2
Real estate – construction		38			—
Commercial		55			78
Agricultural		—			—
Consumer		15			7
Leases receivable and other		—			769
Total		587			856
Net loan and lease (charge-offs) recoveries		(195	)		(149	)
Provision for the allowance for loan and lease losses		—			—
Balance at end of period	$	22,133		$	16,565
Loans and leases held for investment, net of deferred fees and costs	$	1,817,050		$	1,416,193
Average loans and leases held for investment	$	1,823,830		$	1,383,375
Non-performing loans and leases	$	11,286		$	1,280
Selected ratios:
Net charge-offs to average loans and leases held for investment		(0.04	)%		(0.04	)%
Provision for the allowance for loan and lease losses to average loans and leases held for investment		0.00	%		0.00	%
Allowance for loan and lease losses to loans and leases held for investment at end of period		1.22	%		1.17	%
Allowance for loan and lease losses to non-performing loans and leases at end of period		196.11	%		1294.14	%

Investment Securities Available-for-Sale

The carrying value of our investment securities available-for-sale remained consistent at $151.2 million at March 31, 2007 and December 31, 2006. Our portfolio of investment securities consists primarily of U.S. Government agency securities and obligations of states and political subdivisions.

We manage our investment portfolio principally to provide liquidity and balance our overall interest rate risk. To a lesser extent, we manage our investment portfolio to provide earnings with a view to minimizing credit risk.

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The carrying value (which represents fair value) of our portfolio of investment securities at March 31, 2007 and December 31, 2006 was as follows:

	As of March 31, 2007		As of December 31, 2006
	(Dollars in thousands)
U.S. Treasury securities	$	492	$	500
U.S. Government agencies		107,931		107,663
Obligations of states and political subdivisions		38,882		39,092
Other securities		3,923		3,912
Total available-for-sale investment securities	$	151,228	$	151,167

Deposits

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

	As of March 31, 2007				As of December 31, 2006
	Amount		% of Deposits		Amount		% of Deposits
			(Dollars in thousands)
Non-interest bearing deposits	$	682,616	36.3	%	$	904,530	41.9	%
Interest bearing deposits:
Interest bearing demand		226,079	12.0			240,290	11.1
Money market		471,875	25.1			462,625	21.5
Savings		125,960	6.7			129,688	6.0
Time, under $100		179,118	9.5			201,163	9.3
Time, $100 or more		196,786	10.4			220,775	10.2
Total interest bearing deposits		1,199,818	63.7			1,254,541	58.1
Total deposits	$	1,882,434	100.0	%	$	2,159,071	100.0	%

Non-interest bearing deposits decreased 24.5%, or $221.9 million, to $682.6 million and total deposits decreased 12.8%, or $276.6 million, to $1.882 billion as of March 31, 2007 from December 31, 2006. The decline in non-interest bearing and total deposits in the first quarter of 2007 was primarily due to the decrease in balances of our largest depositor discussed below. Deposits tend to be cyclical, with existing customer balances declining at the beginning of each year and recovery of balances of existing customers combined with new customer growth over the balance of the year. Standard cyclical declines in existing customer balances were experienced in the first quarter of 2007, and the acquisition of new deposit relationships slowed during the quarter due to the pending merger with Wells Fargo.

In the fourth quarter of 2006, we were notified by our largest deposit customer that the customer intended to withdraw all of its deposit balances by mid-year 2007. As of December 31, 2006, this depositor represented 12.3% of total deposits and 29.4% of non-interest bearing deposits. As of March 31, 2007, this depositor represented 2.1% of total deposits and 5.8% of non-interest bearing deposits. As of March 31, 2007, the Company does not have any deposit customers that account for more than 5% of total deposits.

Short-Term Borrowings

The Company has unsecured federal funds lines with its correspondent banks which, in the aggregate, amounted to $65.0 million at both March 31, 2007 and December 31, 2006, at interest rates which vary with market conditions. The Company may borrow funds on a short-term or overnight basis under these lines. There were no borrowings outstanding under these lines of credit at March 31, 2007 or December 31, 2006. At March 31, 2007 and December 31, 2006, the Company could borrow up to $594.8 million and $584.6 million, respectively, from the Federal Home Loan Bank, secured by qualifying first mortgage loans. At March 31, 2007, the Company had $31.7 million in borrowings outstanding from the Federal Home Loan Bank on an overnight basis at prevailing interest rates and none at December 31, 2006.

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We enter into sales of securities under agreements to repurchase which are short term in nature. The balances of these short-term borrowings increased 47.7%, or $5.5 million, to $17.0 million as of March 31, 2007, from $11.5 million at December 31, 2006, primarily due to one new repurchase agreement for $3.0 million as of March 31, 2007.

Junior Subordinated Deferrable Interest Debentures

We own the common stock of four business trusts that have issued $48.0 million in trust preferred securities fully and unconditionally guaranteed by us. The entire proceeds of each respective issuance of trust preferred securities were invested by the separate business trusts into junior subordinated deferrable interest debentures, with identical maturity, repricing and payment terms as the respective issuance of trust preferred securities. The aggregate amount of junior subordinated debentures is $49.5 million, with the maturity dates for the respective debentures ranging from 2031 through 2036. We may redeem the respective junior subordinated deferrable interest debentures earlier than the maturity date, with the debentures being redeemable in 2007, 2008, 2009 and 2011. For more information about the trust preferred securities and the debentures see Note 11 to our Notes to Consolidated Financial Statements filed with our Annual Report on Form 10-K for the year ended December 31, 2006.

In connection with the acquisition of Southwest, we recorded a fair value adjustment of the junior subordinated deferrable interest debentures assumed that increased the carrying value by $1.8 million. This amount will be amortized over the term of the debentures reducing interest expense. As of March 31, 2007, the remaining amount to be amortized is $1.6 million.

Capital Resources

Our primary source of capital has been the retention of net income. In order to ensure adequate levels of capital, we conduct an ongoing assessment of projected sources and uses of capital in conjunction with projected increases in assets and the level of risk. Shareholders’ equity at March 31, 2007 increased to $409.4 million from $404.1 million at December 31, 2006. The holding company declared and paid dividends of $0.15 per common share in the first quarter of 2007. Total dividends paid were $3.4 million for the three months ended March 31, 2007. On April 25, 2007 subsequent to the end of the first quarter, the Board of Directors declared a common stock cash dividend of $0.15 per share for the second quarter of 2007. The dividend will be payable on or about May 23, 2007 to its shareholders of record on May 10, 2007.

Current risk-based regulatory capital standards generally require banks and bank holding companies to maintain a ratio of “core” or “Tier 1” capital (consisting principally of common equity and, for bank holding companies, a specified percentage of trust preferred securities) to risk-weighted assets of at least 4%, a ratio of Tier 1 capital to adjusted average assets (leverage ratio) of at least 4% and a ratio of total capital (which includes Tier 1 capital plus certain forms of subordinated debt, a portion of the allowance for loan and lease losses and preferred stock) to risk-weighted assets of at least 8%. Risk-weighted assets are calculated by multiplying the balance in each category of assets by a risk factor, which ranges from zero for cash assets and certain government obligations to 100% for some types of loans, and adding the products together.

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The regulatory capital guidelines as well as the actual capital ratios for Placer Sierra Bank and us as of March 31, 2007 are as follows:

Leverage Ratio
Placer Sierra Bancshares and Subsidiaries	10.2	%
Minimum regulatory requirement	4.0	%
Placer Sierra Bank	9.1	%
Minimum requirement for “Well-Capitalized” institution	5.0	%
Minimum regulatory requirement	4.0	%
Tier 1 Risk-Based Capital Ratio
Placer Sierra Bancshares and Subsidiaries	11.7	%
Minimum regulatory requirement	4.0	%
Placer Sierra Bank	10.5	%
Minimum requirement for “Well-Capitalized” institution	6.0	%
Minimum regulatory requirement	4.0	%
Total Risk-Based Capital Ratio
Placer Sierra Bancshares and Subsidiaries	12.8	%
Minimum regulatory requirement	8.0	%
Placer Sierra Bank	11.7	%
Minimum requirement for “Well-Capitalized” institution	10.0	%
Minimum regulatory requirement	8.0	%

As of March 31, 2007, we exceeded each of the minimum capital requirements and the bank exceeded each of the capital requirements to be considered “well-capitalized.” We own the common stock of four trusts that have issued $48.0 million of trust preferred securities. These securities are currently included in our Tier 1 capital for purposes of determining our Leverage, Tier 1 and Total Risk-Based capital ratios. Beginning March 31, 2009, we will be required to use a more restrictive formula to determine the amount of trust preferred securities that may be included in regulatory Tier 1 capital. At that time, we will be allowed to include in Tier 1 capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which generally is defined as shareholders’ equity, less goodwill and any related deferred income tax liability. The regulations currently in effect only limit the amount of trust preferred securities that may be included in Tier 1 capital to 25% of the sum of core capital elements without a deduction for goodwill. We have determined that our Tier 1 capital ratios would remain above the regulatory minimum had the modification of the capital regulations been in effect at March 31, 2007. For more information about the proposed regulations see our Annual Report on Form 10-K for the year ended December 31, 2006 “Item 1. BUSINESS. Supervision and Regulation.”

Contractual Obligations

Our significant contractual obligations and significant commitments at December 31, 2006 are included in our Annual Report on Form 10-K for the year ended December 31, 2006. For more information on commitments see Note 5 to our Unaudited Condensed Consolidated Financial Statements in this quarterly report.

Liquidity

Management believes that the level of primary and secondary sources of liquidity is sufficient to meet our current and presently anticipated funding needs on a consolidated basis.

Placer Sierra Bancshares

On a stand-alone basis, we rely on dividends from the bank as our main source of liquidity. There are statutory and regulatory provisions that limit the ability of the bank to pay dividends to the holding company. Under such restrictions, the amount available for

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payment of dividends to the holding company totaled $16.2 million at March 31, 2007. However, such amount may be further restricted due to the fact that the bank must keep a certain amount of capital in order to be “well-capitalized.” The amount available for payment of dividends to the holding company by the bank for the bank to remain “well-capitalized” immediately thereafter totaled $32.8 million at March 31, 2007, which is greater than the statutory and regulatory provisions. Accordingly, the maximum amount available for payment to the holding company is $16.2 million without prior regulatory approval. We do not believe these restrictions will adversely impact the holding company’s ability to meet its ongoing cash obligations.

Placer Sierra Bank

The bank has historically relied on deposits as the principal source of funds. Our deposits tend to be cyclical, with slower growth at the beginning of each year and increasing growth over the balance of the year. In addition, while occasional fluctuations in the balances of a few large depositors may cause temporary increases and decreases in liquidity, we have not historically experienced difficulty in dealing with such fluctuations from existing liquidity sources. In the fourth quarter of 2006, we were notified by our largest deposit customer that the customer intended to withdraw all of its deposit balances by mid-year 2007. As of December 31, 2006, this depositor represented 12.3% of total deposits and 29.4% of non-interest bearing deposits. To manage the liquidity requirements from this withdrawal, in December 2006 we sold investment securities available-for-sale with a book value of $105.4 million. The depositor, a nationwide mortgage service company, consolidated most of its operations into its Midwest headquarters during the first quarter of 2007. As of March 31, 2007, this depositor only represented 2.1% of total deposits and 5.8% of non-interest bearing deposits.

As previously noted, non-interest bearing deposits decreased 24.5% from December 31, 2006 to March 31, 2007 and total deposits decreased 12.8% from December 31, 2006 to March 31, 2007, primarily as a result of the withdrawal of deposits by the bank’s largest deposit customer. As these deposits were withdrawn during the first quarter of 2007 we began to regularly borrow funds under a line of credit with the Federal Home Loan Bank of San Francisco (the FHLB). Management has historically attempted to maintain a loan-to-deposit ratio (total loans held for sale plus total loans and leases held for investment to total deposits) below 95% and a liquidity ratio (liquid assets, including cash and due from banks, Federal funds sold, investment securities not pledged as collateral less federal funds purchased expressed as a percentage of total deposits) above 10%. However, the loan-to-deposit ratio increased to 95.77% at March 31, 2007 from 85.21% at December 31, 2006 and the liquidity ratio decreased to 10.19% at March 31, 2007 from 18.90% at December 31, 2006. In view of the pending merger with Wells Fargo, management considers these ratios acceptable.

Management believes that the level of liquid assets and secondary liquidity is sufficient to meet the bank’s current and presently anticipated funding needs. Liquid assets of the bank represented approximately 7.72% of total assets at March 31, 2007 and 14.98% at December 31, 2006. When the level of liquid assets (our primary liquidity) does not meet our liquidity needs, other available sources of liquidity (our secondary liquidity), including the purchase of Federal funds, sales of securities under agreements to repurchase, sales of loans, discount window borrowings from the Federal Reserve Bank and $594.8 million under a line of credit with the FHLB at March 31, 2007, can be employed to meet those funding needs. As of March 31, 2007, the bank had $31.7 million outstanding under the line of credit with the FHLB.

Our liquidity may also be impacted negatively by several other factors, including expenses associated with unforeseen or pending litigation and fluctuations of deposits.

Qualitative and Quantitative Disclosures About Market Risk

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

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

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

Market risk sensitive instruments are generally defined as derivatives and other financial instruments. At March 31, 2007 and December 31, 2006, we had not used any derivatives to alter our interest rate risk profile. Our financial instruments include loans receivable, federal funds sold, Federal Reserve Bank and Federal Home Loan Bank stock, investment securities, bank-owned life insurance, deposits, short term borrowings and junior subordinated deferrable interest debentures. At March 31, 2007, our interest sensitive assets totaled approximately $1.998 billion while interest sensitive liabilities totaled approximately $1.300 billion. At December 31, 2006, we had approximately $2.134 billion in interest sensitive assets and approximately $1.317 billion in interest sensitive liabilities. The decrease in interest sensitive assets is primarily a result of a decrease in federal funds sold due to a decrease in deposits. The decrease in interest sensitive liabilities is primarily due to a decrease in interest bearing deposits offset by an increase in FHLB borrowings.

The yield on interest sensitive assets and the cost of interest sensitive liabilities for the three months ended March 31, 2007 was 7.38% and 2.88%, respectively, compared to 6.78% and 2.34%, respectively, for the three months ended March 31, 2006. The increase in the yield on interest sensitive assets is the result of the rising interest rate environment with yields on loans and leases held for investment, investment securities and federal funds sold increasing. The increase in the cost of our interest sensitive liabilities is primarily the result of higher rates paid on deposit products, FHLB borrowings and short-term borrowings, offset by a decrease in the rates paid on junior subordinated deferrable interest debentures.

Our interest sensitive assets and interest sensitive liabilities had estimated fair values of $1.937 billion and $1.302 billion, respectively, at March 31, 2007. At December 31, 2006, those amounts were $2.093 billion and $1.257 billion, respectively.

We evaluated the results of our net interest income simulation and market value of equity model prepared as of March 31, 2007 for interest rate risk management purposes. Overall, the model results indicate that our interest rate risk sensitivity is within limits set by the Board of Directors and our balance sheet is asset sensitive. An asset sensitive balance sheet in an environment where the yield curve moves in a parallel fashion to changes in short term interest rates suggests that in a rising interest rate environment, our net interest margin would generally increase and during a falling interest rate environment, our net interest margin would generally decrease.

Net Interest Income Simulation

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

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

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As of March 31, 2007, the following table presents forecasted net interest income and net interest margin using a base market rate and the estimated change to the base scenario given immediate and sustained upward and downward movement in interest rates of 100 basis points and 200 basis points:

Interest Rate Scenario	Adjusted Net Interest Income		Percentage Change from Base		Net Interest Margin Percent		Net Interest Margin Change (in basis points)
	(Dollars in thousands)
Up 200 basis points	$	115,043	3.32	%	5.76	%	19
Up 100 basis points	$	113,292	1.74	%	5.67	%	10
BASE CASE	$	111,351	—	%	5.57	%	—
Down 100 basis points	$	108,630	(2.44	)%	5.44	%	(13	)
Down 200 basis points	$	101,799	(8.58	)%	5.09	%	(48	)

Our simulation results as of March 31, 2007 indicate our interest rate risk position was asset sensitive as the simulated impact of an immediate upward movement in interest rates of 200 basis points would result in a 3.32% increase in net interest income over the subsequent 12 month period while an immediate downward movement in interest rates of 200 basis points would result in a 8.58% decrease in net interest income over the next 12 months. The simulation results indicate that a 200 basis point upward shift in interest rates would result in a 19 basis point increase in our net interest margin, assuming all other variables remained unchanged. Conversely, a 200 basis point decline in interest rates would cause a 48 basis point decrease in our net interest margin.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Please see the section above titled “Quantitative and Qualitative Disclosures About Market Risk” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” which provides an update to our quantitative and qualitative disclosure about market risk. This analysis should be read in conjunction with text under the caption “Quantitative and Qualitative Disclosures About Market Risk” filed with our Annual Report on Form 10-K for the year ended December 31, 2006. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 of this report regarding such forward-looking information.

ITEM 4. Controls and Procedures

In accordance with Rule 13a-15(b) of the Exchange Act, as of the quarter ended March 31, 2007, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of the end of the period covered in this report.

During the quarter ended March 31, 2007, there have been no changes in our internal controls over financial reporting that has materially affected, or are reasonably likely to materially affect, these controls.

PART II—OTHER INFORMATION

ITEM 1. Legal Proceedings

In the ordinary course of business, the Company is party to various legal actions, which the Company believes are incidental to the operation of its business. Although the ultimate outcome and amount of liability, if any, with respect to these legal actions to which the Company is currently a party cannot presently be ascertained with certainty, in the opinion of management, based upon information currently available to management, any resulting liability is not likely to have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Actual results could differ materially from management’s opinion based on a variety of factors, including the uncertainties involved in the proof of legal and factual matters in legal proceedings.

Cerritos Valley Dissenters

On February 21, 2007 the California Court of Appeal, Fourth Appellate District, Division Three reversed and remanded for further consideration by the trial court, the judgment and satisfaction of judgment entered by the Superior Court of the State of California for the County of Orange in a litigation matter, Bank of Orange County v. Azar. et al. The litigation matter involves Bank

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of Orange County, a division of the bank. Bank of Orange County v. Azar et al, was originally filed on November 18, 2003. On June 23, 2005, Bank of Orange County received a notice of entry of judgment and satisfaction of judgment with respect to this matter. The litigation relates to a number of Cerritos Valley Bank shareholders who exercised their statutory right pursuant to Chapter 13 of the California Corporations Code to dissent from the 2002 merger of Cerritos Valley Bank with and into Bank of Orange County. Rather than accept the merger consideration of $9.79 per share of common stock paid to Cerritos Valley Bank shareholders who did not dissent from the merger, the dissenting shareholders claimed that the fair market value of their shares of common stock was $25.76 per share. Prior to consummation of the merger, Bank of Orange County deposited the sum of approximately $3.8 million with the exchange agent for the merger, representing $9.79 per share multiplied by the number of shares held by dissenting shareholders.

In January 2004, Bank of Orange County and the dissenting shareholders entered into a settlement agreement, which provided that the fair market value of the shares would be determined by an appraisal process. Under the terms of the agreement, each party’s appraiser valued the shares. After conducting the appraisal, each appraiser reached a different dollar amount. Because the difference between the two amounts exceeded a specified range, the settlement agreement provided that a third appraiser be selected by the two other appraisers, to determine the fair market value of the Cerritos Valley Bank common stock. The third appraiser determined that the fair market value of the shares held by the dissenting shareholders was $5.95. Based on the $5.95 valuation, the bank paid the dissenting shareholders approximately $2.2 million. On June 20, 2005, the Superior Court of the State of California in Orange County entered judgment stating that the amount the Bank paid to the dissenting shareholders represented full satisfaction of both the settlement agreement and all amounts owed by Bank of Orange County pursuant to Chapter 13 of the California Corporations Code. This is the judgment that has been reversed by the California Court of Appeal as of February 21, 2007. The judgment was originally appealed in February 2006 by certain dissenting shareholders that hold a majority of the Cerritos Valley Bank common stock involved in the litigation. Shareholders holding the remaining Cerritos Valley Bank common stock involved in the litigation did not participate in the appeal.

In the appeal decision, the Court of Appeal decided that the settlement agreement, in fact, set up an arbitration procedure and decided that the case should be remanded to the trial court to confirm, vacate or modify the arbitration award of the third appraiser pursuant to the procedures set forth in the California Arbitration Act. The trial court will have the discretion to confirm, vacate or modify the arbitration award by the third appraiser. Bank of Orange County intends to continue to vigorously prosecute this action.

ALC Bankruptcy Case

On October 27, 2005, the bankruptcy trustee of ALC Building Corporation filed an adversary action in the United States Bankruptcy Court, Central District of California against Bank of Orange County, a division of PSB, in a matter entitled Peter C. Anderson, Trustee of ALC v. Bank of Orange County. ALC was a former vendor of Bank of Orange County that was retained to provide construction funding services. Creditors of ALC filed an involuntary Chapter 7 bankruptcy petition against ALC on March 5, 2004. The bankruptcy trustee sought damages in the amount of $578,000 from Bank of Orange County for all funds Bank of Orange County received from ALC in the 90-day period prior to the date the involuntary bankruptcy petition was filed against ALC, plus interest and costs. Bank of Orange County vigorously defended the action. However, the bankruptcy trustee filed a motion for summary judgment, which was granted on June 12, 2006 and judgment was entered against Bank of Orange County in the amount of $578,000, plus interest and costs. Bank of Orange County tendered a check in the amount of $613,000 at the beginning of August 2006 to satisfy the judgment. Bank of Orange County filed a proof of claim as an unsecured creditor in the Chapter 7 bankruptcy on September 19, 2006 for the amount tendered in the judgment and estimates that it will recover $75,000 and its net loss will be approximately $538,000.

ITEM 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition, results of operations and trading price of our common stock. Item 1A of our annual report on Form 10-K for fiscal year 2006 includes a detailed discussion of our risk factors. Other risk factors relating to the pending merger with Wells Fargo are set forth under “Risk Factors” in the Company’s definitive proxy statement filed with the SEC on April 27, 2007. These risk factors are set forth herein on Exhibit 99.1.

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

ISSUER PURCHASE OF EQUITY SECURITIES

Date	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet to be Purchased Under the Plans or Programs
March 14, 2007	2,508	$	26.87	—	—

On March 14, 2007, 14,567 restricted common stock awards granted to certain executives vested. Certain of these executives chose to have a total of 2,508 shares withheld by us to pay for taxes. These shares were retired to common stock and are considered authorized but unissued.

ITEM 3. Defaults Upon Senior Securities

None.

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

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits

(d) Exhibits.

Exhibit Number	Description of Exhibit
3.2	Amended and Restated Bylaws of the Registrant as of March 29, 2007 (Exhibit 2.1 to Current Report on Form 8-K filed with the SEC on April 3, 2007, and incorporated herein by this reference).
10.1	Amendment to Employment Agreement dated as of February 21, 2007 by and between the Registrant and David E. Hooston.†
10.2	Amendment to Employment Agreement dated as of February 21, 2007 by and between the Registrant and Randall E. Reynoso.†
10.3	Amendment to Employment Agreement dated as of February 21, 2007 by and between the Registrant and Angelee J. Harris.†
10.4	Amendment to Employment Agreement dated as of February 21, 2007 by and between the Registrant and Kevin J. Barri.†
10.5	Amendment to Employment Agreement dated as of February 21, 2007 by and among the Registrant, Placer Sierra Bank and Ken E. Johnson.†
10.6	Amendment to Employment Agreement dated as of February 21, 2007 by and between Placer Sierra Bank and Marshall V. Laitsch.†
10.7	Amendment to Employment Agreement dated as of February 21, 2007 by and between Placer Sierra Bank and Thomas D. Nations.†

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Exhibit Number	Description of Exhibit
10.8	Description of reimbursement of certain tax costs for directors William B. Slaton and Dwayne A. Shackelford.†
10.9	Settlement Agreement and Global Amendment to Agreement for Information Technology Services and Related Agreements dated as of March 1, 2007 by and between Aurum Technology Inc. d/b/a Fidelity Integrated Financial Solutions and Placer Sierra Bank.
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Risk Factor Disclosure from Proxy Statement for Annual Meeting of Shareholders to be held on May 31, 2007.

† Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit.

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SIGNATURES

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

	PLACER SIERRA BANCSHARES
Dated: May 8, 2007	/s/ David E. Hooston
	David E. Hooston Chief Financial Officer

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EX-10.1

Exhibit 10.1

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and between PLACER SIERRA BANCSHARES (the “Company”) and DAVID E. HOOSTON (the “Executive”).

WHEREAS, the Executive and the Company (previously known as “First California Bancshares”) entered into an Employment Agreement, dated January 1, 2003, as amended by amendments dated October 28, 2003, January 1, 2004 and October 26, 2004 (collectively, the “Agreement”); and

WHEREAS, Section 4 of the Agreement sets forth the Company’s potential obligations upon the termination of the Executive’s employment with the Company; and

WHEREAS, the Executive and the Company have agreed to amend the Agreement as set forth in this Amendment in order to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004; and

WHEREAS, Section 17(d) of the Agreement provides that the Agreement may be amended only by a writing signed by the parties.

NOW THEREFORE, the Executive and the Company agree as follows:

1. A new Subsection (f) entitled “Timing of Payment” is added to Section 4 of the Agreement, to read as set forth below:

(f) Timing of Payment. Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Executive is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, any such amount due under this Agreement in connection with a termination of Executive’s employment that otherwise would be payable at any time during the six-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, the Company makes no guarantee as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

1

2. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANCSHARES
By: /s/ Frank J. Mercardante	/s/ David E. Hooston
Frank J. Mercardante       Chief Executive Officer	DAVID E. HOOSTON

2

EX-10.2

Exhibit 10.2

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and between PLACER SIERRA BANCSHARES (“Company”) and RANDALL E. REYNOSO (“Employee”).

WHEREAS, Employee and Company entered into an Employment Agreement, dated January 1, 2006 (the “Agreement”); and

WHEREAS, Section 5 of the Agreement sets forth Company’s potential obligations upon the termination of Employee’s employment with Company; and

WHEREAS, Employee and Company have agreed to amend the Agreement as set forth in this Amendment in order to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004; and

WHEREAS, Section 22 of the Agreement provides that the Agreement may be amended only by a writing signed by the parties.

NOW THEREFORE, Employee and Company agree as follows:

1. A new Subsection (h) entitled “Timing of Payment” is added to Section 5 of the Agreement, to read as set forth below:

(h) Timing of Payment. Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Employee is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, any such amounts due under this Agreement in connection with a termination of Employee’s employment that otherwise would be payable at any time during the six-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, Company makes no guarantee as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

1

2. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANCSHARES
By: /s/ Frank J. Mercardante	/s/ Randall E. Reynoso
Frank J. Mercardante       Chief Executive Officer	RANDALL E. REYNOSO

2

EX-10.3

Exhibit 10.3

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and between PLACER SIERRA BANCSHARES (“Company”) and ANGELEE J. HARRIS (“Employee”).

WHEREAS, Employee and Company entered into an Employment Agreement, dated January 24, 2005 (the “Agreement”); and

WHEREAS, Section 5 of the Agreement sets forth Company’s potential obligations upon the termination of Employee’s employment with Company; and

WHEREAS, Employee and Company have agreed to amend the Agreement as set forth in this Amendment in order to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004; and

WHEREAS, Section 22 of the Agreement provides that the Agreement may be amended only by a writing signed by the parties.

NOW THEREFORE, Employee and Company agree as follows:

1. A new Subsection (h) entitled “Timing of Payment” is added to Section 5 of the Agreement, to read as set forth below:

(h) Timing of Payment. Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Employee is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, amounts due under this Agreement in connection with a termination of Employee’s employment that would otherwise have been payable at any time during the six-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, Company makes no guarantee as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

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2. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANCSHARES
By: /s/ Frank J. Mercardante	/s/ Angelee J. Harris
Frank J. Mercardante       Chief Executive Officer	ANGELEE J. HARRIS

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EX-10.4

Exhibit 10.4

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and between PLACER SIERRA BANK (“Bank”) and KEVIN J. BARRI (“Employee”).

WHEREAS, Employee and Bank entered into an Employment Agreement, dated June 21, 2004, (the “Agreement”); and

WHEREAS, the “Employment Term” under the Agreement is scheduled to expire on June 21, 2007; and

WHEREAS, Section 5 of the Agreement sets forth Bank’s potential obligations upon the termination of Employee’s employment with Bank; and

WHEREAS, Employee and Bank have agreed to amend the Agreement as set forth in this Amendment in order to extend the term of the Agreement and to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004; and

WHEREAS, Section 22 of the Agreement provides that the Agreement may be amended only by a writing signed by the parties.

NOW THEREFORE, Employee and Bank agree as follows:

1. Section 3 of the Agreement is amended by the addition of a sentence to the end thereof to read as set forth below:

The Employment Term is hereby extended through and including December 31, 2007, and all references herein to the “Employment Term” shall include such extension.

2. A new Subsection (h) entitled “Timing of Payment” is added to Section 5 of the Agreement, to read as set forth below:

(h) Timing of Payment. Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Employee is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, amounts due under this Agreement in connection with a termination of Employee’s employment that would otherwise have been payable at any time during the six-month period immediately following such termination

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of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, Bank makes no guarantee as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

3. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANK
By: /s/ Frank J. Mercardante	/s/ Kevin J. Barri
Frank J. Mercardante       Chairman and Chief Executive Officer	KEVIN J. BARRI

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EX-10.5

Exhibit 10.5

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and among PLACER SIERRA BANK (“Bank”), PLACER SIERRA BANCSHARES (“PLSB”) and KEN E. JOHNSON (“Employee”).

WHEREAS, Employee and Bank entered into an Employment Agreement, dated May 17, 2004, as previously amended by instruments dated June 1, 2004 and (adding PLSB as a party to the Employment Agreement) October 26, 2004 (collectively, the “Agreement”); and

WHEREAS, the “Employment Term” under the Agreement is scheduled to expire on May 17, 2007; and

WHEREAS, Section 5 of the Agreement sets forth Bank’s and PLSB’s potential obligations upon the termination of Employee’s employment with Bank and PLSB; and

WHEREAS, Employee, Bank and PLSB have agreed to amend the Agreement as set forth in this Amendment in order to extend the term of the Agreement and to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004; and

WHEREAS, Section 22 of the Agreement provides that the Agreement may be amended only by a writing signed by the parties.

NOW THEREFORE, Employee, Bank and PLSB agree as follows:

1. Section 3 of the Agreement is amended by the addition of a sentence to the end thereof to read as set forth below:

The Employment Term is hereby extended through and including December 31, 2007, and all references herein to the “Employment Term” shall include such extension.

2. A new Subsection (h) entitled “Timing of Payment” is added to Section 5 of the Agreement, to read as set forth below:

(h) Timing of Payment. Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Employee is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, amounts due under this Agreement in connection with a termination of Employee’s employment that would otherwise have been payable

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at any time during the six-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, Bank and PLSB make no guarantees as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

3. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANK
By: /s/ Frank J. Mercardante	/s/ Ken E. Johnson
Frank J. Mercardante       Chairman and Chief Executive Officer	KEN E. JOHNSON
PLACER SIERRA BANCSHARES
By: /s/ Frank J. Mercardante
Frank J. Mercardante       Chief Executive Officer

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EX-10.6

Exhibit 10.6

AMENDMENT TO EMPLOYMENT AGREEMENT

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and between PLACER SIERRA BANK (“Bank”) and MARSHALL V. LAITSCH (“Employee”).

WHEREAS, Employee and Bank entered into an Employment Agreement, dated January 24, 2005 (the “Agreement”); and

WHEREAS, Section 5 of the Agreement sets forth Bank’s potential obligations upon the termination of Employee’s employment with Bank; and

WHEREAS, Employee and Bank have agreed to amend the Agreement as set forth in this Amendment in order to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004; and

WHEREAS, Section 22 of the Agreement provides that the Agreement may be amended only by a writing signed by the parties.

NOW THEREFORE, Employee and Bank agree as follows:

1. A new Subsection (i) entitled “Timing of Payment” is added to Section 5 of the Agreement, to read as set forth below:

(i) Timing of Payment. Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Employee is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, amounts due under this Agreement in connection with a termination of Employee’s employment that would otherwise have been payable at any time during the six-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, Bank makes no guarantee as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

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2. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANK
By: /s/ Frank J. Mercardante	/s/ Marshall V. Laitsch
Frank J. Mercardante       Chairman and Chief Executive Officer	MARSHALL V. LAITSCH

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EX-10.7

Exhibit 10.7

AMENDMENT TO

AGREEMENT FOR SEVERANCE BENEFITS

This AMENDMENT TO EMPLOYMENT AGREEMENT (“Amendment”) is entered into this 21^st day of February 2007, by and between PLACER SIERRA BANK (“Bank”) and THOMAS D. NATIONS (“Employee”).

WHEREAS, Employee and Bank entered into an Agreement for Severance Benefits, signed May 23, 2006 and effective June 1, 2006, (the “Agreement”); and

WHEREAS, the Agreement sets forth Bank’s potential obligations upon the termination of Employee’s employment with Bank; and

WHEREAS, Employee and Bank have agreed to amend the Agreement as set forth in this Amendment in order to provide for payments to be made in compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and guidance thereunder, which section was added to the Code by the American Jobs Creation Act of 2004.

NOW THEREFORE, Employee and Bank agree as follows:

1. A new paragraph is added to the end of Section 4 of the Agreement, to read as set forth below:

Notwithstanding anything to the contrary in this Agreement, if any amount payable hereunder is considered to be compensation deferred under a “nonqualified deferred compensation plan” as defined for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and if Employee is deemed to be a “specified employee” as defined for purposes of Section 409A, then, to the extent necessary to comply with Section 409A, amounts due under this Agreement in connection with a termination of Employee’s employment that would otherwise have been payable at any time during the six-month period immediately following such termination of employment shall not be paid prior to, and shall instead be payable in a lump sum as soon as practicable following, the expiration of such six-month period. In light of the uncertainty surrounding the application of Section 409A, the Bank makes no guarantee as to the income tax treatment under Section 409A of any payments made or benefits provided under this Agreement.

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2. All other terms and conditions of the Agreement shall remain in full force and effect.

PLACER SIERRA BANK
By: /s/ Frank J. Mercardante	/s/ Thomas D. Nations
Frank J. Mercardante       Chairman and Chief Executive Officer	THOMAS D. NATIONS

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EX-10.8

Exhibit 10.8

Description of reimbursement of certain tax costs for directors William B. Slaton and Dwayne A. Shackelford

On March 29, 2007, the Board of Directors of Placer Sierra Bancshares (the “Company”) adopted resolutions to reimburse fees and additional taxes imposed for the taxability of health care costs provided to two of its outside directors William B. Slaton and Dwayne A. Shackelford. Mr. Slaton has been receiving benefits since 2003 and Mr. Shackelford began receiving the benefits in 2006. Since 2003, when the benefits were offered, health care costs paid by the Company for its outside directors have not been reported as taxable income to these outside directors. The Company has since determined that the health benefits are taxable to the outside directors. The Board adopted a resolution for the Company to pay these directors a one-time fee to cover the taxes and additional costs that will be incurred to file amended tax returns in the following amounts: (1) William B. Slaton—$10,000, and (2) Dwayne A. Shackelford—$2,000.

EX-10.9

Exhibit 10.9

SETTLEMENT AGREEMENT AND GLOBAL AMENDMENT TO

AGREEMENT FOR INFORMATION TECHNOLOGY SERVICES AND RELATED

AGREEMENTS

This SETTLEMENT AGREEMENT AND GLOBAL AMENDMENT TO AGREEMENT FOR INFORMATION TECHNOLOGY SERVICES AND RELATED AGREEMENTS (this “Agreement”), dated as of March 1, 2007 (the “Effective Date”), is made by and between Aurum Technology Inc. d/b/a Fidelity Integrated Financial Solutions (“Fidelity”) and Placer Sierra Bank (“Customer”).

RECITALS

A. Fidelity and Customer (or its predecessor in interest, California Community Bancshares, Inc.) have previously entered into an Agreement for Information Technology Services, dated as of December 21, 2000 (the “Original Agreement”), and certain other addenda, amendments and agreements, descriptions of which are set forth on Schedule A hereto and incorporated herein by this reference. The Original Agreement and the addenda, amendments and agreements described on Schedule A hereto are collectively referred to in this Amendment as the “Existing Agreements”).

B. Fidelity and Customer dispute the applicability, meaning and legal effect of the Existing Agreements.

C. Customer’s parent company, Placer Sierra Bancshares (“Parent Company”), has entered into that certain Agreement and Plan of Reorganization (the “Merger Agreement”), dated as of January 9, 2007, by and between Parent Company, and Wells Fargo & Company (“Wells Fargo”).

D. The Parent Company and Wells Fargo anticipate entering into an initial merger (the “Initial Merger”) contemplated by the Merger Agreement sometime during the spring or summer of 2007, pursuant to which Parent Company intends to merge with a wholly-owned subsidiary of Wells Fargo.

E. Following the Initial Merger, Wells Fargo and Parent Company plan to operate Customer as a subsidiary of Wells Fargo until such time as Wells Fargo elects to merge Customer into Wells Fargo’s principal banking subsidiary (the “Final Merger”).

F. In light of the proposed Initial Merger and Final Merger, Fidelity and Customer desire to alter the contractual and business relationship between them represented by the Existing Agreements on the terms and conditions set forth in this Agreement.

AGREEMENT

In consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Representations and Warranties.

(a) Representations and Warranties of Fidelity. Fidelity hereby represents and warrants for the exclusive benefit and reliance of Customer that this Agreement has been duly executed and delivered by Fidelity and, assuming the due authorization, execution and delivery hereof and thereof by the Customer, this Agreement constitutes a valid and binding obligation of Fidelity, enforceable against Fidelity in accordance with the terms hereof.

(b) Representations and Warranties of Customer. Customer hereby represents and warrants for the exclusive benefit and reliance of Fidelity that this Agreement has been duly executed and delivered by Customer and, assuming the due authorization, execution and delivery hereof and thereof by Fidelity, this Agreement constitutes a valid and binding obligation of Customer, enforceable against Customer in accordance with the terms hereof.

2. Cash Payment. On the date that is the Effective Date of the Initial Merger, as that date is defined in the Merger Agreement (the “Initial Merger Date”) and contingent upon the occurrence of the Initial Merger during the term of this Agreement, Customer shall pay Fidelity an amount equal to Five Million Six Hundred Thousand Dollars and No One Hundredths ($5,600,000.00) in immediately available funds.

3. Services. During the term of this Agreement Fidelity shall provide Customer (i) services Fidelity provided to Customer under any of the Existing Agreements or otherwise during December, 2006 (the “Existing Services”) and (ii) and the Internet Wire Exchange program offered by Fidelity (the “Additional Services”), in each case subject to termination in accordance with the terms of this Agreement, as specified in Section 5 below.

4. Charges for Services. Fidelity shall provide Existing Services in accordance with terms and conditions of the Existing Agreements at the rates Fidelity charged Customer for the Existing Services in December, 2006, (i) subject to adjustment for changes in volume where applicable and (ii) except as provided otherwise in Section 6 of this Agreement or where provisions of this Agreement conflict with provisions of the Existing Agreements. Fidelity shall provide Additional Services to Customer at a flat rate of $400 per month.

5. Termination of Services. At any time after (i) June 30, 2007 and (ii) the Initial Merger Date, Customer may terminate any of the Existing Services by providing not less than 90 days’ written notice to Fidelity, it being understood that notice of termination of the Existing Services will also be considered termination of the Additional Services. Upon receipt of notice of termination of such services, Fidelity will provide Customer its standard deconversion support at the rates set forth on Schedule B attached hereto and incorporated herein by this reference, including without limitation the provision of three sets of Deconversion Test Data in readily-usable electronic format. The parties shall cooperate to accomplish promptly the deconversion of Customer in accordance with the terms of the Existing Agreements; provided, however, notwithstanding anything to the contrary in any of the Existing Agreements, this Agreement or otherwise, in no event shall the Customer’s responsibility for standard deconversion services specified in Schedule B exceed $300,000 and in no event shall Fidelity’s duty to support Customer’s deconversion exceed the level of services that would equal $300,000.00 under the lower of Fidelity’s current published rates and the rates set forth on Schedule B.

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6. Effect of Initial Merger. Upon the Initial Merger Date, the provisions of any Existing Agreements regarding (i) the term of any Existing Agreements, (ii) any restrictions on Customer or any of its affiliates to engage third parties or contract for Existing Services, Additional Services or other information services; (iii) any provisions regarding liquidated damages (or any other damages based on early termination of an agreement or arrangement), and (iv) any obligation on the part of Customer or any of its affiliates to renew the use of the Existing Services, Additional Services or any other services provided by Fidelity, or provide Fidelity a right of first refusal, right of first offer or other similar option to provide such services, shall terminate and be null and void. The parties further specifically agree that upon the Initial Merger Date, Fidelity, its affiliates and/or subcontractors will not have any right to be Customer’s sole and exclusive provider of the Existing Services, Additional Services or any other information services. Upon the Initial Merger Date, the terms described in items (i) – (iv) of the foregoing sentences and any terms relating to exclusivity of services shall be governed solely by the terms of this Agreement.

7. Release. On the Initial Merger Date, contingent upon the occurrence of the Initial Merger, and in consideration of the promises set forth in this Agreement, Customer and Fidelity each hereby release all claims, demands or actions of any nature, known or unknown, foreseen or unforeseen, against the other party, its parent, affiliate, subsidiaries or successors, including without limitation, those arising out of or relating to the Existing Agreements, the termination thereof or any rights or obligations arising thereunder, other than obligations expressly set forth in this Agreement. Each party hereto acknowledges that this is a full and final release and that each party intends and expressly agrees that it shall be effective as a bar to every claim, demand, and cause of action against the other party, its parent, affiliate, subsidiaries or predecessors as of the Initial Merger Date, except as specifically set forth otherwise in this Agreement. The parties have had an opportunity to confer with counsel concerning the substance of the release contained in this Agreement. It is the parties’ express intent to release not only known claims arising under or relating to the Agreement, but all unknown claims as well. Fidelity expressly acknowledges that it has received valuable consideration for the release of all unknown claims. Each party hereto also expressly waives all rights and benefits conferred upon it now or in the future under California Civil Code section 1542, which provides as follows:

“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which, if known by him or her, must have materially affected his or her settlement with the debtor.”

8. Special Termination. Except if the parties agree otherwise in writing, this Agreement automatically shall terminate on September 30, 2007 if the Initial Merger does not occur on or before that date (“Special Termination”). A Special Termination of this Agreement shall be a non-exclusive remedy. Upon the occurrence of a Special Termination, Customer shall pay for any deconversion services previously authorized by it upon receipt of an invoice from Fidelity, and each party shall retain its rights which it could assert at common law or under any statute, rule, regulation, order or law, whether federal, state, or local, or on any grounds whatsoever, whether in law or in equity, under the Existing Agreements without reference to this Agreement and the rights and obligations of the parties arising under Sections 2-7 of this Agreement shall terminate and be of no further force and effect.

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9. No Admission. By execution of this Agreement, neither party admits, and expressly denies, any and all liability arising from any breach of or default under the Existing Agreements. Each party agrees that this Agreement may not be presented or used as evidence against any other party to this Agreement in any action or proceeding involving a party to this Agreement, including a demand, claim, cause of action, suit or other action arising out of or related to the Existing Agreements, except that this Agreement may be used as evidence in a proceeding involving an alleged breach of this Agreement or the enforcement of its provisions.

10. Miscellaneous.

(a) Confidentiality. Both Fidelity and Customer agree to keep all terms and conditions of this Agreement, the circumstances surrounding entry into this Agreement and any information regarding disputes arising out of the Existing Agreements, confidential and neither party shall disclose any such information to any third party or otherwise, except to that party’s respective attorneys or as otherwise required by law.

(b) Conflict. In the event of any conflict between the original terms of the Existing Agreements and this Agreement, the terms of this Agreement shall prevail.

(c) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns.

(d) Counterparts/Facsimile Signature. This Agreement may be executed simultaneously in two or more counterparts each of which shall be deemed an original, but all of which shall constitute one and the same Agreement. The delivery of an executed copy of this Agreement by facsimile shall be legal and binding and shall have the same full force and effect as if an original executed copy of this Agreement had been delivered.

(e) Days of Week. A “business day,” as used herein, shall mean any day other than a Saturday, Sunday or holiday, as defined in Section 6700 of the California Government Code. If any date for performance herein falls on a day other than a business day, the time for such performance shall be extended to 5:00 p.m. on the next business day.

(f) Governing Law. The parties hereto acknowledge that this Agreement has been negotiated and entered into in the State of California. The parties hereto expressly agree that this Agreement shall be governed by, interpreted under, and construed and enforced in accordance with the laws of the State of California.

(g) Construction/Exhibits. Headings at the beginning of each paragraph and subparagraph are solely for the convenience of the parties and are not a part of the Agreement. Whenever required by the context of this Agreement, the singular shall include the plural and the masculine shall include the feminine and vice versa. This Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to paragraphs, Sections, subparagraphs and subsections are to this Agreement. All exhibits and schedules referred to in this Agreement are attached and incorporated herein by this reference.

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(h) Entire Agreement. This Agreement (including all Recitals, exhibits and schedules attached hereto), is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Agreement may not be modified, changed, supplemented, superseded, canceled or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the party to be charged or by its agent duly authorized in writing or as otherwise expressly permitted herein. The parties do not intend to confer any benefit hereunder on any person, firm or corporation other than the parties hereto.

(i) Notices. All notices, demands, consents, requests or other communications required to or permitted to be given pursuant to this Agreement shall be in writing, shall be given only in accordance with the provisions of this Section, shall be addressed to the parties in the manner set forth below, and shall be conclusively deemed to have been properly delivered: (a) upon receipt when hand delivered during normal business hours (provided that, notices which are hand delivered shall not be effective unless the sending party obtains a signature of a person at such address that the notice has been received); (b) upon receipt when sent by facsimile to the number set forth below (provided that, notices given by facsimile shall not be effective unless the receiving party delivers the notice also by one other method permitted under this Section); (c) upon the day of delivery if the notice has been deposited in a authorized receptacle of the United States Postal Service as first-class, registered or certified mail, postage prepaid, with a return receipt requested (provided that, the sender has in its possession the return receipt to prove actual delivery); or (d) one (1) business day after the notice has been deposited with either Golden State Overnight, FedEx or United Parcel Service to be delivered by overnight delivery (provided that, the sending party receives a confirmation of actual delivery from the courier). The addresses of the parties to receive notices are as follows:

TO FIDELITY:	Fidelity Information Services, Inc. 601 South Lake Destiny Drive Maitland, Florida 32751 Attention: President, Integrated Financial Solutions Facsimile: (407) 475-0394
WITH A COPY TO:	Fidelity Information Services, Inc. 601 Riverside Avenue, 12th Floor Jacksonville, Florida 32204 Attention: General Counsel Facsimile: (904) 357-1077
TO CUSTOMER:	Placer Sierra Bank 525 J Street Sacramento, California 95814 Attention: Angelee J. Harris, Esq. Facsimile: (916) 329-9238

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WITH A COPY TO: Downey Brand LLP 555 Capitol Mall, 10th Floor Sacramento, California 95814 Attention: Stephen J. Meyer, Esquire Facsimile: (916) 444-2100

Each party shall make an ordinary, good faith effort to ensure that it will accept or receive notices that are given in accordance with this Section 10(i), and that any person to be given notice actually receives such notice. Any notice to a party which is required to be given to multiple addresses shall only be deemed to have been delivered when all of the notices to that party have been delivered pursuant to this Section. If any notice is refused, the notice shall be deemed to have been delivered upon such refusal. Any notice delivered after 5:00 p.m. (recipient’s time) or on a non-business day shall be deemed delivered on the next business day. A party may change or supplement the addresses given above, or designate additional addressees, for purposes of this Section by delivering to the other party written notice in the manner set forth above.

(j) Attorneys’ Fees. If there is any dispute between any of the parties in connection with, relating to or arising from this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and other expenses to resolve the dispute and to enforce any final judgment, in addition to any other relief to which such party may be entitled. Any award of damages following judicial remedy or arbitration as a result of the breach of this Agreement or any of its provisions shall include an award of prejudgment interest from the date of the breach at the maximum amount of interest allowed by law.

[Signatures on next page.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

	FIDELITY:
	AURUM TECHNOLOGY INC. d/b/a FIDELITY INTEGRATED FINANCIAL SOLUTIONS
By:	/s/ Gary Norcross
Name:	Gary Norcross
Its:	President
By:
Name:
Its:	Secretary

	CUSTOMER:
	PLACER SIERRA BANK:
By:	/s/ Frank J. Mercardante
Name:	Frank J. Mercardante
Its:	Chairman & Chief Executive Officer
By:	/s/ Angelee J. Harris
Name:	Angelee J. Harris
Its:	Corporate Secretary

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SCHEDULE A

TO

SETTLEMENT AGREEMENT AND GLOBAL AMENDMENT TO

AGREEMENT FOR INFORMATION TECHNOLOGY SERVICES AND RELATED

AGREEMENTS

EXISTING AGREEMENTS

1. Information Technology Services Agreement, dated 9/2/05, between Fidelity Information Services and Placer Sierra Bank

a. Service Bureau Processing Agreement, Schedule of Fees for Contracted Services, Placer Sierra Bank, Attachment 1, revised 7/26/05

b. Fidelity Information Services, Inc., Software License Schedule

c. Fidelity Information Services, Inc., Software Maintenance Schedule

d. Fidelity Information Services, Inc., Item Processing Services Schedule

e. Service Bureau Processing Agreement, Schedule of Fees for Contracted Services, Placer Sierra Bank, Attachment 2, revised 7/26/05

f. Fidelity Information Services, Inc., Internet Banking Services Schedule,

g. Fidelity Information Services, Inc., Bill Payment Services Schedule

h. Fidelity Information Services, Inc. eDelivery Services Schedule

i. Fidelity Information Services, Inc., eDelivery Services Schedule

j. Letter from Fidelity Information Services, dated August 23, 2005 and acknowledged on August 24, 2005, regarding pricing issues becoming part of “New Agreement”

k. Placer Sierra Bank, Auburn, CA, Proposal Summary

2. Agreement for Information Technology Services, dated December 21, 2000, between California Community Bancshares, Inc. and Aurum Technology, Inc.

a. Aurum Privacy Policy Statement Present to California Community Bancshares, Inc., March 12, 2001

b. Article VI – Systems, Data, and Confidentiality

c. Schedule A, Basic Services

d. Schedule B, Optional Services

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e. Schedule C, Service Charges

f. Schedule D, Customer Systems

g. Schedule E, Customer Responsibilities

h. Schedule F, Service Level Standards

3. Addendum One, dated December 21, 2000, between Aurum Technology Inc. and California Community Bancshares, Inc.

4. Addendum Number Two, dated January 29, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

5. Addendum Number Three, dated as of January 29, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc., and its current and future subsidiaries and affiliates Sacramento Commercial Bank, The Bank of Orange County and Placer Sierra Bank

6. Addendum Number Four, Additional Services, dated May 30, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

7. Addendum Number Five, Additional Services, dated May 7, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Loan Interface Service Charges

8. Addendum Number Six, Additional Services, dated June 12, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Service Charges for 800-VRU

9. Addendum Number Seven, Additional Services, dated July 16, 2001, by Aurum and California Community Bancshares

a. Exhibit A, PIM Client Input on ITI-PIM ACH File Testing-ADS900 Program Processing

10. Addendum Number Eight, Additional Services, dated July 16, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Sorting of Branch Mail – Processing of U.S. Mail

11. Addendum Number Nine, Additional Services, dated August 2, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Sorting of Branch Mail – Processing of U.S. Mail

12. Addendum Number Ten, Additional Services, dated August 2, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

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a. Exhibit A, Image Depot Express Software

13. Addendum Number Eleven to the Agreement for Information Technology Services, dated September 25, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Attachment A, UNISYS Equipment

b. Attachment B, Bill of Sale, dated August 6, 2001 by California Community Bancshares

14. Addendum Number Twelve, Additional Services, dated November 6, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Notice Rendering - Printing

15. Addendum Number Thirteen, Additional Services, dated November 6, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Sorting of Branch Mail – Film Retrival (sic)

16. Addendum Number Fourteen, Additional Services, dated December 31, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Schedule A, Premierecorp Cash Management

b. Schedule B, Premierecorp Cash Management Service Charges

17. Addendum Number Fifteen, Additional Services, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Prime Extract Service Charges

b. Exhibit A, Prime Extract

18. Addendum Number Sixteen, Additional Services, dated December 31, 2001, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Automatic Teller Machine Module Service Charges

19. Addendum Seventeen, Additional Services, dated November 11, 2002, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, ATM-Behind the Switch Service Charges

20. Addendum Number Eighteen, Additional Services, dated January 20, 2003, between Aurum Technology Inc. and California Community Bancshares, Inc.

10

a. Exhibit A, Cumlative (sic) Year-to-Date General Ledger History Report Service Charges

21. Aurum Technology, Inc., Compliance Addendum, Addendum Nineteen, dated January 20, 2003

22. Addendum Number Twenty, Additional Services, dated March 17, 2003, between Aurum Technology Inc. and California Community Bancshares, Inc.

23. Addendum Number Twenty-One, Additional Services, dated March 17, 2003, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Premier II Platform Service Charges

b. Exhibit B, Premier II Platform Ancillary Licenses/Maintenance

24. Addendum Number Twenty-Two, Additional Services, dated March 17, 2003, between Aurum Technology Inc. and California Community Bancshares, Inc.

a. Exhibit A, Premier II Commercial Teller Service Charges

25. Partial Assignment and Assumption Agreement and Amendment, dated September 9, 2003, between California Community Bancshares, Inc., Placer Sierra Bank and Aurum Technology, Inc.

a. Exhibit A, Addenda Applicable to Assignee

26. Addendum Aurum Technology, Inc., Addendum to Placer Sierra Bank for Additional Services, dated January 6, 2004

27. Addendum, Additional Services, dated January 20, 2004

a. Exhibit A, SCM2100 Server Service Charges

b. Aurum Technology Inc., Addendum to Agreement for Information Technology Services CACM File, dated January 20, 2004, between Aurum Technology, Inc. and Placer Sierra Bank

c. Exhibit A

28. Addendum Additional Services, dated July 24, 2004

a. Exhibit A, Moneyvest Service Charges

29. Addendum to Agreement for Information Technology Services, dated October 8, 2004, between Aurum Technology Inc. and Placer Sierra Bank

a. Exhibit 1

11

b. Aurum Technology Inc. Compliance Addendum, Copy for Informational Purposes

30. Addendum to Agreement for Information Technology Services, dated November 29, 2004

31. Addendum Additional Services, dated December 1, 2004

a. Exhibit A, Loan Custodial Module Service Charges

32. Addendum – iPay Business Bill Pay Additional Services, dated January 10, 2005

a. Exhibit A, Premier – Business Bill Pay Service Charges

34. Addendum Number Twenty-three to Agreement.

(Dates listed for each item on Schedule A are the date identified in the document, or if none, the last date of execution.)

12

SCHEDULE B

TO

SETTLEMENT AGREEMENT AND GLOBAL AMENDMENT TO

AGREEMENT FOR INFORMATION TECHNOLOGY SERVICES AND RELATED

AGREEMENTS

PREMIER TO NON-ITI DECONVERSION STANDARD SERVICES

(See attachment.)

(Not filed herewith; available to the SEC upon request).

13

EX-31.1

Exhibit 31.1

Rule 13a-14(a)/15d-14(a) Certification

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, Frank J. Mercardante, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2007 of Placer Sierra Bancshares;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involve management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	PLACER SIERRA BANCSHARES
Dated: May 8, 2007	/s/ Frank J. Mercardante
	Frank J. Mercardante Chief Executive Officer

EX-31.2

Exhibit 31.2

Rule 13a-14(a)/15d-14(a) Certification

Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

I, David E. Hooston, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2007 of Placer Sierra Bancshares;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involve management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	PLACER SIERRA BANCSHARES
Date: May 8, 2007	/s/ David E. Hooston
	David E. Hooston Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification

Pursuant to the requirement set forth in Section 906 of the Sarbanes-Oxley Act of 2002, Frank J. Mercardante hereby certifies as follows:

1. He is the duly appointed Chief Executive Officer of Placer Sierra Bancshares, a California corporation (the “Company”).

2. Based on his knowledge, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has set his hand hereto as of this 8th day of May 2007.

	PLACER SIERRA BANCSHARES
Dated: May 8, 2007	/s/ Frank J. Mercardante
	Frank J. Mercardante Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification

Pursuant to the requirement set forth in Section 906 of the Sarbanes-Oxley Act of 2002, David E. Hooston hereby certifies as follows:

1. He is the duly appointed Chief Financial Officer of Placer Sierra Bancshares, a California corporation (the “Company”).

2. Based on his knowledge, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007, and to which this Certification is attached as Exhibit 32.2 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

IN WITNESS WHEREOF, the undersigned has set his hand hereto as of this 8th day of May 2007.

	PLACER SIERRA BANCSHARES
Dated: May 8, 2007	/s/ David E. Hooston
	David E. Hooston Chief Financial Officer

EX-99.1

Exhibit 99.1

RISK FACTORS

Capitalized terms not otherwise defined herein are defined in the Placer Sierra Bancshares’ definitive proxy statement filed with the Securities and Exchange Commission on April 27, 2007 (the “Placer Sierra 2007 Definitive Proxy Statement”). Other risk factors are set forth in the Placer Sierra Annual Report on Form 10-K for the year ended December 31, 2006.

The exchange ratio will not be fixed until after the annual meeting.

The exchange ratio depends on the Wells Fargo Measurement Price, which is defined in the merger agreement as the volume weighted average of the daily volume weighted average price of a share of Wells Fargo common stock on the New York Stock Exchange only as reported by Bloomberg LP for each of the 20 consecutive trading days ending on the fifth trading day immediately before the date the merger is completed, rounded to the nearest ten-thousandth. As a result, the vote on the proposal to approve the merger agreement will be held before the exchange ratio is known.

The Wells Fargo share price may fluctuate after the exchange ratio is fixed.

Any change in the price of Wells Fargo common stock after the exchange ratio is fixed will affect the value of the merger consideration that you will receive upon completion of the merger. Changes in the price of Wells Fargo common stock could result from a variety of factors, including general market and economic conditions, changes in Wells Fargo’s business, operations and prospects, and regulatory considerations.

There is no assurance when or even if the merger will be completed.

Completion of the merger is subject to satisfaction or waiver of a number of conditions. See “The Merger Agreement—Conditions to the Merger” on page 46 of the Placer Sierra 2007 Definitive Proxy Statement. There can be no assurance that Placer Sierra and Wells Fargo will be able to satisfy the closing conditions or that closing conditions beyond their control, such as the absence of pending or threatened litigation or events that could reasonably be expected to have a material adverse effect on their respective businesses, will be satisfied or waived.

Placer Sierra and Wells Fargo can agree at any time to terminate the merger agreement, even if Placer Sierra shareholders have already voted to approve the merger agreement. Placer Sierra and Wells Fargo can also terminate the merger agreement under other specified circumstances.

The merger agreement limits Placer Sierra’s ability to pursue alternative transactions to the merger and may require Placer Sierra to pay a termination fee if it does.

The merger agreement prohibits Placer Sierra and its directors, officers, representatives and agents from soliciting, authorizing the solicitation of or, subject to very narrow exceptions, entering into discussions with any third party regarding alternative acquisition proposals. The prohibition limits Placer Sierra’s ability to pursue offers that may be superior from a financial point of view from other possible acquirers. If Placer Sierra receives an unsolicited proposal from a third party that the Placer Sierra board of directors determines in good faith to be superior from a financial point of view to that made by Wells Fargo and the merger agreement is terminated, Placer Sierra will be required to pay Wells Fargo a $17,500,000 termination fee. This fee makes it less likely that a third party will make an alternative acquisition proposal.

Placer Sierra’s directors and executive officers might have additional interests in the merger.

In deciding how to vote on the proposal to approve the merger agreement, you should be aware that Placer Sierra’s directors and executive officers might have interests in the merger as individuals that are different from, or in addition to, the interests of Placer Sierra shareholders generally. See “The Proposed Merger—Additional Interests of Placer Sierra Management” on page 31 of the Placer Sierra 2007 Definitive Proxy Statement.

The value of Wells Fargo common stock could be adversely affected to the extent Wells Fargo fails to realize the expected benefits of the merger.

The merger will involve the integration of the businesses of Placer Sierra and Wells Fargo. It is possible that the integration process could result in the loss of key Placer Sierra employees, the disruption of Placer Sierra’s ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect Placer Sierra’s ability to maintain relationships with customers and employees. As with any bank merger, there also may be disruptions that cause Placer Sierra to lose customers or cause customers to take deposits out of Placer Sierra’s banks.

The market price of Wells Fargo common stock may be affected by factors different from those affecting Placer Sierra common stock.

Upon completion of the merger, holders of Placer Sierra common stock will become holders of Wells Fargo common stock. Some of Wells Fargo’s current businesses and markets differ from those of Placer Sierra and, accordingly, the financial results and condition of Wells Fargo after the merger may be affected by factors different from those currently affecting the financial results and condition of Placer Sierra. For information about the businesses of Wells Fargo and Placer Sierra and some factors to consider in connection with those businesses, see each company’s annual report on Form 10-K for the year ended December 31, 2006. See “Where You Can Find More Information” on page 63 of the Placer Sierra 2007 Definitive Proxy Statement.