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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

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  x    No  ¨

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 May 9, 2005 there were 14,906,845 shares of the registrant’s common stock outstanding.

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PART I—FINANCIAL INFORMATION

ITEM 1. Unaudited Consolidated Financial Statements

PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEET

(Dollars in thousands)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF INCOME

(Dollars in thousands, except per share data)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN

SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Dollars in thousands)

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

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PLACER SIERRA BANCSHARES AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollars in thousands)

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 Ended March 31, 2005 and 2004

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 subsidiary, Placer Sierra Bank (PSB). All significant intercompany balances and transactions have been eliminated. The unaudited consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting. 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. 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. The results of operations for the three months ended March 31, 2005 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

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

The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

The preparation of unaudited 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 branch of the bank, all branches are located within the state of California and management does not allocate resources based on the performance of different transaction activities, it is appropriate to aggregate the bank branches and report them as a single operating segment. No single customer accounts for more than 10% of the revenues of the Company or bank.

A material estimate that is particularly susceptible to significant changes in the near-term relates 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.

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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.

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, 2005 and 2004, 140,000 and 18,000 shares, respectively, of common stock issuable under stock option agreements were not included in the computation of diluted earnings per share because the exercise price was equal to or greater than the stock’s average market price and their effect would be antidilutive.

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NOTE 3 – STOCK OPTIONS

The Company currently 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. 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 Company’s 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.

Pro forma adjustments to the Company’s consolidated net income and earnings per share are disclosed during the periods 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 during the three months ended March 31, 2005 and 2004 are noted below and were based on an option-pricing model with the following assumptions and prices:

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

In addition to the above plans, during 2002 stock options for 47,897 shares were granted to past directors and a former executive officer of PSB. No additional options have been granted. During the three months ended March 31, 2005, none of these options were exercised or canceled. During the three months ended March 31, 2004, a total of 6,327 options were exercised and none of these options were canceled. At March 31, 2005, a total of 18,921 options were outstanding related to these grants with a weighted average remaining life of 0.26 years and a weighted average exercise price of $8.54. At March 31, 2005 and 2004, a total of 18,921 and 23,892 options were exercisable, respectively.

NOTE 4—COMMITMENTS AND CONTINGENCIES

Legal Proceedings

In the ordinary course of our business, the Company is party to various other 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.

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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 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 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 home equity lines of credit, 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 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 significant as of March 31, 2005 or December 31, 2004. 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.

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 three months ended March 31, 2005 and 2004 are presented net of taxes in the consolidated statement of changes in shareholders’ equity and comprehensive income. Total comprehensive income for the three months ended March 31, 2005 and 2004 totaled $2.9 million and $4.2 million, respectively.

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

NOTE 6—Recent Accounting Developments

Stock-Based Payments

In December 2004, the FASB issued Statement Number 123 (revised 2004) (FAS 123 (R)), Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees. In April 2005, the Securities and Exchange Commission adopted a rule that defers the compliance date of FAS 123 (R) from the first reporting period beginning after June 15, 2005 to the first fiscal year beginning after June 15, 2005, effectively January 1, 2006 for the Company. Management has not completed its evaluation of the effect that FAS 123 (R) will have, but believes that the effect will be consistent with its previous pro forma disclosures.

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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. 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. Our actual results, performance and achievements may 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 1. BUSINESS. Factors That May Affect Future Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2004 and other factors we discuss in our filings with the Securities and Exchange Commission. 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.

Overview

Who We Are

We are the bank holding company for Placer Sierra 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 and Bank of Orange County. The bank has one active subsidiary, Central Square Company, Inc., which derives its income from a third-party provider of non-deposit investment products.

For the periods presented in this quarterly report on Form 10-Q, we owned 100% of our banking subsidiary, Placer Sierra Bank, and also owned 100% of the common stock of Placer Statutory Trust II and Southland Statutory Trust I. In addition, for the three months ended March 31, 2005, we owned 100% of the common stock of Placer Statutory Trust III and First Financial Bancorp Trust I. The trusts were formed for the exclusive purpose of issuing and selling trust preferred securities.

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., from the sales of 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.

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We have 31 Northern California branches that serve an eight-county area including Placer, Sacramento and El Dorado, commonly known as the greater Sacramento metropolitan region, and the adjacent counties of Amador, Calaveras, Nevada, Sierra, and San Joaquin. We have nine Southern California branches that serve both Los Angeles and Orange counties.

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 government and regulatory authorities that govern financial institutions and market interest rates impact the bank’s financial condition, results of operations and cash flows.

The earnings and growth of the bank are subject to the influence of certain economic conditions, including inflation, recession and unemployment. The earnings of the bank 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 Acquisitions

One of our strategic objectives is to geographically focus our activities in California’s faster growing metropolitan regions. Consistent with this objective, we acquired First Financial Bancorp in December of 2004 and Southland Capital Co. in May of 2004.

In May of 2004, we acquired Southland Capital Co. and its subsidiary Bank of Orange County to participate in the high growth Southern California banking market. Bank of Orange County has always been a community-focused commercial bank with core relationship-based depositors and borrowers. In connection with the Southland Capital Co. acquisition, Southland merged into us, and Bank of Orange County became our subsidiary. We merged Bank of Orange County into the bank in July 2004 and operate it as a division of the bank, under the name Bank of Orange County. The Southland merger was a stock-for-stock transaction whereby the shareholders of Southland received 0.5752 of a share of our common stock for each outstanding share of Southland common stock. Immediately prior to the acquisition of Southland, our principal shareholder, the Fund, owned 99.75% of Southland and 93.18% of us. The acquisition was principally accounted for as a combination of companies under common control similar to a pooling of interests. Thus, our historical consolidated financial statements presented herein include the financial results of Southland and its subsidiary, Bank of Orange County, as if the merger occurred on January 1, 2004. Our simultaneous acquisition of the 0.25% minority interest in Southland 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.

In December of 2004, we acquired First Financial Bancorp, parent company of Bank of Lodi, to begin our northern California expansion southward through the high growth California central valley. The fair value of assets of First Financial Bancorp totaling $345.7 million were incorporated in our balance sheet on December 10, 2004 upon closing of the acquisition. The acquisition was accounted for under the purchase method of accounting. Bank of Lodi operated nine branches located in Sacramento, El Dorado, San Joaquin, Amador, and Calaveras Counties in Northern California. We operate seven of the acquired branches under the brand name Bank of Lodi, a division of the bank, we rebranded one acquired branch under our bank’s name and we closed one location, consolidating its operations into our Sacramento Commercial Bank location.

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Our Opportunities, Challenges and Risks

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

Despite our position of being in two 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.

We believe we have additional opportunities for growth by identifying potential acquisition candidates and acting on those opportunities. The ability to successfully identify potential acquisition candidates and marshal our resources to take advantage of those opportunities is another challenge for us. Even if we are able to marshal our resources to take advantage of acquisition opportunities, there can be no assurance that we will be able to effectively manage our growth or successfully integrate acquired institutions. Further, as we attempt to capitalize on our growth opportunities, another challenge will be to attract and retain talented people. Competition for qualified employees and personnel in the banking industry is high and there are a limited number of qualified persons with knowledge of and experience in the California banking community.

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 with our Annual Report on Form 10-K for the year ended December 31, 2004.

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, 2005 and 2004. This discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto for the three months ended March 31, 2005 and 2004 included herein, and our audited consolidated financial statements and notes thereto for the year ended December 31, 2004, filed with our Annual Report on Form 10-K.

As of March 31, 2005 we had total assets of $1.832 billion, total loans and leases held for investment of $1.294 billion, total deposits of $1.555 billion and shareholders’ equity of $193.0 million. For the three months ended March 31, 2005 total deposits increased $54.8 million (a 14.8% growth rate on an annualized basis) from December 31, 2004, while total loans and leases held for investment remained unchanged at $1.294 billion. As of March 31, 2005, 14,895,084 shares of our common stock were outstanding, having a book value per share of $12.96.

For the three months ended March 31, 2005 we recorded net income of $5.2 million, or $0.34 per share, on a diluted basis.

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Our financial results for the three months ended March 31, 2005, as compared to the three months ended March 31, 2004, reflect strong earnings growth and expense management. Our earnings were impacted by lower than expected revenues from the referral of commercial real estate loans to third parties, but were benefited by our expense management. Our net interest margin was 5.20% for the three months ended March 31, 2005, as compared to 5.22% for the three months ended March 31, 2004. This was a significant improvement over our net interest margin of 4.77% in the fourth quarter of 2004.

The following table presents our key performance indicators for the three months ended March 31, 2005 and 2004 and the basis for calculating these indicators:

Consolidated net income for the three months ended March 31, 2005 was $5.2 million, or $0.34 per diluted share. Net income for the three months ended March 31, 2004 was $4.2 million or $0.30 per diluted share. Return on average assets was 1.16%, compared to 1.21% for the same period of 2004. Return on average equity was 10.93%, compared to 10.02% for the same period of 2004.

Net interest income for the three months ended March 31, 2005 was $19.9 million, an increase of 28.9% over net interest income of $15.4 million in the same period of 2004. The increase in net interest income is primarily the result of the acquisition of First Financial Bancorp on December 10, 2004 and organic loan growth of 11.3% during the twelve months ended March 31, 2005.

Total non-interest income for the three months ended March 31, 2005 totaled $3.5 million, compared with $4.1 million for the same period of 2004. Excluding the gain from life insurance proceeds and recovery of an operational charge-off during the three months ended March 31, 2004, total non-interest income for the three months ended March 31, 2004 was $3.4 million. Total non-interest income increased by 5.8% over fourth quarter of 2004 non-interest income of $3.3 million. The improvement is principally

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the result of the acquisition of First Financial Bancorp. Total non-interest expense for the three months ended March 31, 2005 was $14.9 million, compared with $12.6 million for the same period of 2004. The increase in non-interest expense is also principally attributable to the acquisition of First Financial Bancorp.

The efficiency ratio is a measure of how effective we are at managing our non-interest expense dollars. A lower or declining ratio indicates improving efficiency. The efficiency ratio for the three months ended March 31, 2005 was 63.92%, compared to 64.72% for the same period of 2004.

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. Our balance sheet is slightly asset sensitive, 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, tend to 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. 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.