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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2004

OR

For the transition period from                      to                     

Commission File Number:

000-50652

PLACER SIERRA BANCSHARES

(Exact name of registrant as specified in its charter)

(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  ¨    No  x

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

As of September 17, 2004 there were 14,635,995 shares of the registrant’s common stock outstanding.

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PART I—FINANCIAL INFORMATION

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

June 30, 2004 and December 31, 2003

(Dollars in thousands)

(UNAUDITED)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME

For the Three Months and Six Months Ended June 30, 2004 and 2003

(Dollars in thousands, except per share data)

(UNAUDITED)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN

SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

For the Six Months Ended June 30, 2004 and 2003

(Dollars in thousands)

(UNAUDITED)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2004 and 2003

(Dollars in thousands)

(UNAUDITED)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For the Three Months and Six Months Ended June 30, 2004 and 2003

NOTE 1 — BASIS OF PRESENTATION

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Placer Sierra Bancshares (the Company) and the consolidated accounts of its wholly-owned subsidiaries, Placer Sierra Bank (“PSB”) and Bank of Orange County (“BOC”). All significant intercompany balances and transactions have been eliminated. The unaudited consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry. Our 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. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2003.

The preparation of 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.

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for loan and lease losses. In connection with the determination of the allowance for loan and lease losses, management evaluates overall loan portfolio characteristics and delinquencies, obtains independent appraisals for significant properties and monitors economic conditions.

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, result in the issuance of common stock which shares in the earnings of the Company. The treasury stock method has been applied to determine the dilutive effect of stock options in computing diluted EPS.

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

For the three months and six months ended June 30, 2004 and 2003, certain shares of common stock issuable under stock options and stock purchase agreements were not included in the computation of dilutive earnings per share because the exercise and purchase prices were equal to or greater than the stock’s fair value and their effect would be antidilutive.

NOTE 3 — STOCK OPTIONS

The Company currently has two stock option plans, the Placer Sierra Bancshares 2002 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. All options granted to date have been nonstatutory stock options. The shares available for grant may be granted to anyone eligible to participate in the plans. The plans require that the option price may not be less than the fair market value of the stock at the date the option is granted. The options under the plans expire on dates determined by the Board of Directors, but not later than ten years from the date of grant. The vesting period is generally four years; however, the vesting period can be modified at the discretion of the Board of Directors. Outstanding options under the plans are exercisable until their expiration.

The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. In accordance with APB Opinion No. 25, no stock based compensation cost related to stock option plans is reflected in net income as all options granted under these stock option plans had an exercise price of not less than the fair market value of the underlying common stock on the date of grant.

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Pro forma adjustments to the Company’s consolidated net income and earnings per share are disclosed during the years in which the options become vested. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based compensation (dollars in thousands, except per share data):

The fair value of the options granted and stock purchase agreements entered into during the three months and six months ended June 30, 2004 and 2003 are noted below and were based on an option-pricing model with the following assumptions and prices:

Option grants to purchase 54,000 shares granted in the quarter ended June 30, 2004 are not included in the above table as the exercise price is to be based on the initial public offering price.

NOTE 4 — COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We have entered into a settlement agreement concerning a suit involving the Reed Slatkin Investment Club, in which Bank of Orange County was one of four named defendants. The complaint was filed on September 5, 2002 in the United States District Court, Central District of California by the trustee of the bankruptcy estate of Reed Slatkin and a group of individuals and entities, naming Bank of Orange County, Union Bank of California, Comerica Bank-California and Imperial Management Incorporated as defendants and alleging, among other things, aiding and abetting fraud, breach of fiduciary duty, fraud and negligence. The initial complaint sought damages of $250 million plus interest and punitive damages as well as compensatory damages on behalf of the subclass plaintiffs of $25 million plus punitive damages. The banks were named in the suit based on the various banks’ alleged support of and participation in Mr. Slatkin’s fraudulent activities discovered in 2001, and the banks’ alleged role as administrator for investors’ custodial accounts. Bank of Orange County was being sued as the direct successor-in-interest to Pacific Inland Bank, or PIB, which was acquired by Bank of Orange County in 1999. PIB sold its trust assets to another bank that is also a defendant in the case in October 1993. The claims

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against Bank of Orange County were based on alleged acts and omissions of PIB that occurred on or before the sale of the trust assets. Settlement documents have now been signed by all parties to the lawsuit and the Plaintiffs have filed an ex-parte application for preliminary approval of the settlement agreement and have requested the court set November 10, 2004 for a final approval hearing. Upon final approval by the court we will pay $200,000 to the Plaintiffs, which amount has been included in accrued interest payable and other liabilities as of June 30, 2004.

We may, from time to time, be involved in other legal proceedings in the ordinary course of business. We do not believe that any of the other pending legal proceedings in which we are currently involved are reasonably likely, either individually or taken as a whole, to materially harm our business, financial condition, results of operations or cash flows.

Environmental Compliance

In the process of selling a property owned by a subsidiary of PSB, we learned that a small parcel of the property was used as a gasoline station in the early 1970s. We retained an environmental consulting company to conduct both Phase I and Phase II environmental studies, the results of which have been reviewed and accepted by the California Regional Water Quality Control Board (“Control Board”). We believe it is likely that the Control Board will require soil abatement. The cost of soil abatement was originally estimated to be between $450,000 and $570,000, and we recorded a reserve in the first quarter of 2004 of $450,000. In the second quarter of 2004, $205,000 of this reserve was reversed due to revised remediation cost estimates. Although we cannot be certain, we do not expect our expenditures for the monitoring and the cost of soil abatement to have a material adverse effect on our business, financial condition, results of operations and cash flows.

Financial Instruments with Off-Balance-Sheet Risk

The Banks are party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of their 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 consolidated balance sheet.

The Banks’ 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. The Banks use the same credit policies in making commitments and letters of credit as they do for loans and leases included on the consolidated balance sheet.

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

Commitments to extend credit consist primarily of unfunded single-family residential and commercial real estate construction loans and commercial revolving lines of credit. 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 being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party and are accounted for under Financial Accounting Standards Board Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Others (FIN 45). FIN 45 requires that the guarantor recognize a liability for the guarantee equal to its fair value

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represented by the fees received for issuing the guarantee. Such fees were not considered to be material for recognition as a liability at June 30, 2004 or December 31, 2003. Standby letters of credit are generally issued for one year or less and secured by certificates of deposit.

NOTE 5 — COMPREHENSIVE INCOME

Comprehensive (loss) income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive (loss) income 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 (loss) income. Total comprehensive (loss) income and the components of accumulated other comprehensive (loss) income for the six months ended June 30, 2004 and 2003 are presented in the consolidated statement of changes in shareholders’ equity and comprehensive income. Total comprehensive (loss) income for the three months ended June 30, 2004 and 2003 totaled $(578,000) and $4,179,000, respectively.

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

NOTE 6 — SUBSEQUENT EVENTS

Pending Acquisition

On September 7, 2004, Placer Sierra Bancshares signed a definitive agreement to acquire First Financial Bancorp (“FFB”), the parent holding company for Bank of Lodi. As of June 30, 2004, FFB had total assets of $324.1 million, total loans and leases of $204.8 million, total deposits of $274.7 million and total shareholders’ equity of $20.5 million. Bank of Lodi operates nine branches located in Sacramento, El Dorado, San Joaquin, Amador, and Calaveras Counties in Northern California. At June 30, 2004, the combined companies had total assets of $1.761 billion, total loans and leases of $1.209 billion, total deposits of $1.475 billion and total shareholders’ equity of $190.3 million.

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Under the terms of the agreement, the Company will pay $50.0 million in cash to acquire all the outstanding shares of common stock and outstanding stock options of FFB. Subject to receipt of regulatory and shareholder approval, the Company expects this transaction will be completed during the fourth quarter of 2004. Placer expects to fund the acquisition consideration with cash on hand. The transaction will be accounted for under the purchase method of accounting. On a pro forma basis at December 31, 2004, following the close of the transaction, management anticipates all regulatory capital ratios at both the bank and holding company levels will be within those limits defined as “well capitalized”.

Initial Public Offering (IPO)

On August 16, 2004, we completed an initial public offering whereby we sold 500,000 shares of common stock and a selling shareholder sold 5,230,000 shares of common stock at $20 per share. On September 13, 2004, the underwriters of the IPO exercised their option to purchase an additional 68,194 shares of our common stock and to purchase an additional 713,306 shares from a selling shareholder. We received net proceeds of $10.6 million (after underwriting discounts and commissions).

Bank Merger

On July 23, 2004, Bank of Orange County was merged with and into our wholly-owned subsidiary, Placer Sierra Bank.

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Forward Looking Information

This Quarterly Report on Form 10-Q (the “Quarterly Report”) may include forward-looking information, which is subject to the “safe harbor” set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When we make statements that are not based on historical information or are forward-looking, including when we use or incorporate by reference in this Quarterly Report the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “commit,” “believe” and similar expressions, we are making forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. Such risks and uncertainties include, but are not limited to, the following factors:

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. For further discussion of risk factors related to our business, please see Exhibit 99.1 “Risk Factors.”

Description of Business

Placer Sierra Bancshares (formerly First California Bancshares and Placer Capital Co. II) (the “Company”) was incorporated on November 13, 2001 and, as of and for the period ended June 30, 2004, operated two banking subsidiaries, Placer Sierra Bank (“PSB”) and Bank of Orange County (“BOC”) (collectively, the “Banks”). The Company was incorporated for the purpose of acquiring PSB in a one bank holding company reorganization. PSB was previously a wholly-owned subsidiary of Placer Capital Co. (“PCC”), a wholly-owned subsidiary of California Community Bancshares (“CCB”).

Bank of Orange County was previously a wholly-owned subsidiary of Southland Capital Co. (“SCC”). SCC was incorporated on November 9, 2001 for the purpose of acquiring BOC in a one bank holding company reorganization. BOC was also previously a wholly-owned subsidiary of CCB. SCC was merged with and into the Company on May 25, 2004, in a stock-for-stock transaction whereby the shareholders of SCC received 0.5752 of a share of Company common stock for each outstanding share of SCC common stock. The acquisition was principally accounted for as a combination of companies under common control similar to a pooling of interests. Immediately prior to the acquisition of SCC, the Company’s principal shareholder, the California Community Financial Institutions Fund Limited Partnership (the “Fund”), owned 99.75% of SCC and 93.18% of the Company. The acquisition of the 0.25% minority interest in SCC by the Company was accounted for using the purchase method of accounting. The excess of the purchase price over the estimated fair value of the 0.25% minority interest in the net assets acquired was approximately $92,000, which was recorded as goodwill.

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For the periods presented, the Company’s wholly-owned subsidiaries include the Banks, Placer Statutory Trust II and Southland Statutory Trust I. The Banks are California state-chartered commercial banks. Placer Statutory Trust II and Southland Statutory Trust I, both Connecticut statutory business trusts, were formed in October 2001 for the exclusive purpose of issuing and selling trust preferred securities.

Pending Acquisition

On September 7, 2004, Placer Sierra Bancshares signed a definitive agreement to acquire First Financial Bancorp (“FFB”), the parent holding company for Bank of Lodi. Bank of Lodi’s branches will provide a unique fit within Company’s Northern California footprint. The acquisition provides for a strong foothold in San Joaquin County, which the Company believes is currently underserved by existing financial institutions and presents excellent de novo branching opportunities. The market areas service by these branches is in a area of rapid customer growth evidenced by FFB’s growth between 1999 and 2003, whereby they grew total assets and total deposits at compound annual rates of 16.1% and 15.5%, respectively.

Management believes that this merger will result in accretion to earnings per share of approximately $0.30 in the year 2005, principally through improvements in operating efficiencies anticipated from the FFB platform which are targeted at 35% to 45% of pre-acquisition overhead. The Company may fail to achieve some or all of the anticipated cost savings and the time frame to achieve those cost savings may be longer than anticipated. For further discussion of risk factors related to our business, see Exhibit 99.1 “Risk Factors.”

The Company will continue to seek merger and/or acquisition candidates and growth through de novo branching within the markets along the 99 freeway between the greater Sacramento area and Fresno, California. The Company will also seek merger and/or acquisition candidates and de novo branch opportunities in the four counties of Southern California of Los Angeles, Orange, Riverside and San Bernardino to enhance its Bank of Orange County Division. For further discussion of risk factors related to our business, please see Exhibit 99.1 “Risk Factors.”

Nature of Operations

For the periods presented, the Company conducted business through the Banks. The Banks are subject to the laws of the state of California and federal laws and regulations governing the financial services industry. The Company is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to regulation and supervision by the Board of Governors of the Federal Reserve System. The Banks provide a full range of banking services to individual and corporate customers through PSB’s 23 branches located in Placer, Sacramento, Nevada and El Dorado Counties and through BOC’s nine branches located in Orange and Los Angeles Counties. The Banks derive their income primarily from interest received on real estate, commercial and consumer loans and, to a lesser extent, fees from the sale of loans, interest on investment securities and fees received in connection with servicing loans and deposit customers. The Banks’ major operating expenses are the interest they pay on deposits and borrowings and general operating expenses. The Banks rely primarily on locally generated deposits.

Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and the consolidated accounts of its wholly-owned subsidiaries, PSB and BOC. All significant intercompany balances and transactions have been eliminated. The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America and prevailing practices within the banking industry.

For financial reporting purposes, the Company’s investments in Placer Statutory Trust II and Southland Statutory Trust I are accounted for under the equity method and are included in other assets on the consolidated balance sheet. The junior subordinated debentures issued and guaranteed by the Company and held by the trusts are reflected on the Company’s consolidated balance sheet in accordance with provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities.

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Use of Estimates

The preparation of 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.

Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for loan and lease losses. 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.

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 well controlled 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 policy for the allowance for loan and lease losses, our estimate of the fair value of financial instruments and our calculation of goodwill and other intangible assets as critical accounting policies. Please see the section entitled “—Allowance for Loan and Lease Losses” for a discussion related to this policy. Our significant and critical accounting policies and practices are described in further detail in Note 2 to our consolidated financial statements filed on Form S-1 dated August 10, 2004.

Results of Operations

Key Performance Indicators

The following sections contain tables and data setting forth certain statistical information relating to the Company for the three and six months ended June 30, 2004 and 2003. This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto for the three and six months ended June 30, 2004 included herein, and the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2003.

As of June 30, 2004 we had total assets of $1.437 billion, total loans and leases held for investment of $1.004 billion, total deposits of $1.200 billion and shareholders’ equity of $169.8 million. In the quarter ended June 30, 2004 total loans and leases held for investment increased $35.4 million (a 14.7% growth rate on an annualized basis) and total deposits increased $53.0 million (an 18.6% growth rate on an annualized basis). As of June 30, 2004, 13,826,152 shares of our common stock were outstanding, having a book value per share of $12.28.

For the three months and six months ended June 30, 2004 we recorded net income of $471,000 and $4.7 million, or $0.03 per share and $0.33 per share, respectively, on a fully diluted basis. In connection with our acquisition of Southland, we incurred merger-related costs of $2.1 million ($1.4 million after tax) and recorded these expenses in our financial results for the three months ended June 30, 2004. In addition, in preparation for the merger of the banks and in contemplation of aligning their interest rate risk and liquidity profiles, we restructured Bank of Orange County’s investment portfolio and recorded a loss of $3.8 million ($2.2 million after tax). Excluding merger-related costs of $2.1 million and the investment security restructuring loss of $3.8 million, our operating earnings for the three and six months ended June 30, 2004 would have been $4.1 million and $8.3 million, or $0.29 per share and $0.60 per share, respectively, on a fully-diluted basis. These operating earnings for 2004 represent an 18.8% and 23.3% improvement in operating earnings over the same three and six months periods ended June 30, 2003, respectively. We believe that the presentation of our operating earnings excluding the merger-related costs and investment security restructuring loss is important to gaining an understanding of our financial performance.

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The following table presents our net income and key performance indicators for the three and six months ended June 30, 2004 and 2003 and the basis for calculating these indicators (dollars in thousands, except per share information):