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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

|(Mark One)                                        |                                                                                         
|------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the Quarterly Period Ended September 30, 2002
|or                                               
|o                                                 | 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 0-25979

WESTERN SIERRA BANCORP(Exact name of Registrant as specified in its charter)

|California(State or other jurisdiction of incorporation or organization)                     |  | 68-0390121(IRS Employer Identification No.)
|-------------------------------------------------------------------------------------------- |  | -------------------------------------------
|4080 Plaza Goldorado Circle Cameron Park, California(Address of principal executive offices) |  | 95682(zip code)                            
|(530) 677-5600(Registrant's telephone number, including area code)                          

Securities
registered pursuant to Section 12(b) of the Act:None

Securities
registered pursuant to Section 12(g) of the Act: Common Stock, no par value per share

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

As
of November 10, 2002 there were 3,985,405 shares outstanding of the Registrant's common stock.

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WESTERN SIERRA BANCORP & SUBSIDIARIES  Index to Form 10-Q

|                              |  |                                                                                               |  |                                                                                          |  | Page:
|----------------------------- |  | --------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | -----
|PART I. Financial Information |  |                                                                                              
|                              |  | Item 1. Consolidated Financial Statements (unaudited)                                         |  |                                                                                         
|                              |  |                                                                                               |  | Consolidated Balance Sheet September 30, 2002 and December 31, 2001                      |  | 3    
|                              |  |                                                                                               |  | Consolidated Statement of Income Three and Nine months ended September 30, 2002 and 2001 |  | 4    
|                              |  |                                                                                               |  | Consolidated Statement of Cash Flows Nine months ended September 30, 2002 and 2001       |  | 5    
|                              |  |                                                                                               |  | Notes to Consolidated Financial Statements                                               |  | 6    
|                              |  | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 10                                                                                      
|                              |  | Item 3. Quantitative and Qualitative Disclosure about Market Risk                             |  | 23                                                                                      
|                              |  | Item 4. Controls and Procedures                                                               |  | 25                                                                                      
|PART II. Other Information    |  |                                                                                              
|                              |  | Item 1. Legal proceedings                                                                     |  | 26                                                                                      
|                              |  | Item 2. Changes in Securities and Use of Proceeds                                             |  | 26                                                                                      
|                              |  | Item 3. Defaults Upon Senior Securities                                                       |  | 26                                                                                      
|                              |  | Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 26                                                                                      
|                              |  | Item 5. Other Information                                                                     |  | 26                                                                                      
|                              |  | Item 6. Exhibits and Report on Form 8-K                                                       |  | 26                                                                                      
|SIGNATURES and Certifications |  | 27-29                                                                                        

2

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Western Sierra Bancorp and Subsidiaries  Consolidated Balance Sheet (Unaudited)

|                                                             |                                                                                                                | September 30,
2002                         |         | December 31,
2001 |        
|------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------- | -------
|
|Assets:                                                      |                                                                                                                |                                            |         |                   |        
|Cash and due from banks                                      |                                                                                                                | $                                          | 27,772  |                   | $      
|Federal funds sold                                           |                                                                                                                |                                            | 11,315  |                   |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Cash and cash equivalents                  |         |                   | 39,087 
|Interest-bearing deposits in banks                           |                                                                                                                |                                            | 2,576   |                   |        
|Loans held for sale                                          |                                                                                                                |                                            | 8,141   |                   |        
|Investment securities:                                       |                                                                                                                |                                            |         |                   |        
|                                                             | Trading                                                                                                        |                                            |         | 17                |        
|                                                             | Available-for-sale (amortized cost $62,988 in 2002 and $67,784 in 2001)                                        |                                            |         | 64,507            |        
|                                                             | Held-to-maturity (market value of $8,997 in 2002 and $7,284 in 2001)                                           |                                            |         | 8,706             |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total investment securities                |         |                   | 73,230 
|Portfolio loans and leases:                                  |                                                                                                                |                                            |         |                   |        
|                                                             | Real estatemortgage                                                                                           |                                            |         | 304,166           |        
|                                                             | Real estateconstruction                                                                                       |                                            |         | 106,995           |        
|                                                             | Commercial                                                                                                     |                                            |         | 80,466            |        
|                                                             | Agricultural                                                                                                   |                                            |         | 10,841            |        
|                                                             | Installment                                                                                                    |                                            |         | 4,788             |        
|                                                             | Lease financing                                                                                                |                                            |         | 3,377             |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total gross loans and leases               |         |                   | 510,633
|                                                             | Deferred loan and lease fees, net                                                                              |                                            |         | (1,583            | )      
|                                                             | Allowance for loan and lease losses                                                                            |                                            |         | (6,861            | )      
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Net loans and leases                       |         |                   | 502,189
|Premises and equipment                                       |                                                                                                                |                                            | 14,943  |                   |        
|Other real estate                                            |                                                                                                                |                                            | 489     |                   |        
|Goodwill and other intangible assets                         |                                                                                                                |                                            | 4,426   |                   |        
|Other assets                                                 |                                                                                                                |                                            | 14,393  |                   |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total assets                               |         | $                 | 659,474
|                                                             |                                                                                                                |                                            |         |                   |        
|Liabilities:                                                 |                                                                                                                |                                            |         |                   |        
|Deposits:                                                    |                                                                                                                |                                            |         |                   |        
|Non-interest bearing                                         |                                                                                                                | $                                          | 140,237 |                   | $      
|Interest bearing:                                            |                                                                                                                |                                            |         |                   |        
|                                                             | NOW, money market and savings                                                                                  |                                            |         | 185,092           |        
|                                                             | Time, $100 thousand or more                                                                                    |                                            |         | 121,197           |        
|                                                             | Other time                                                                                                     |                                            |         | 128,021           |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total deposits                             |         |                   | 574,547
|Borrowed funds                                               |                                                                                                                |                                            | 12,000  |                   |        
|Mandatorily redeemable cumulative trust preferred securities |                                                                                                                |                                            | 16,000  |                   |        
|Other liabilities                                            |                                                                                                                |                                            | 4,678   |                   |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total liabilities                          |         |                   | 607,225
|Shareholders' equity:                                        |                                                                                                                |                                            |         |                   |        
|                                                             | Preferred stockno par value; 10,000,000 shares authorized; none issued                                        |                                            |         |                   |        
|                                                             | Common stockno par value; 10,000,000 shares authorized; issued 3,982,567 shares in 2002 and 3,703,335 in 2001 |                                            |         | 30,904            |        
|                                                             | Retained earnings                                                                                              |                                            |         | 20,549            |        
|                                                             | Unearned ESOP shares                                                                                           |                                            |         | (200              | )      
|                                                             | Accumulated other comprehensive income (loss)                                                                  |                                            |         | 996               |        
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total shareholders' equity                 |         |                   | 52,249 
|                                                             |                                                                                                                |                                            |         |                   |        
|                                                             |                                                                                                                | Total liabilities and shareholders' equity |         | $                 | 659,474
|                                                             |                                                                                                                |                                            |         |                   |        

See notes to consolidated financial statements.

3

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Western Sierra Bancorp and Subsidaries  Consolidated Statements of Income (Unaudited)

|                                                              |                                                                                                   | Three Months Ended        |                           | Nine Months Ended  
|------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------- | -------------------
|
|
|Interest Income:                                              |                                                                                                   |                           |                           |                    
|                                                              | Interest and fees on loans                                                                        |                           | $                         | 9,244              
|                                                              | Interest on investment securities:                                                                |                           |                           |                    
|                                                              |                                                                                                   | Taxable                   |                           |                    
|                                                              |                                                                                                   | Exempt from federal taxes |                           |                    
|                                                              | Interest on Federal funds sold                                                                    |                           |                           | 122                
|                                                              |                                                                                                   |                           |                           |                    
|                                                              |                                                                                                   |                           | Total interest income     |                    
|                                                              |                                                                                                   |                           |                           |                    
|Interest expense:                                             |                                                                                                   |                           |                           |                    
|                                                              | Interest on deposits                                                                              |                           |                           | 2,256              
|                                                              | Interest on borrowed funds                                                                        |                           |                           | 320                
|                                                              |                                                                                                   |                           |                           |                    
|                                                              |                                                                                                   |                           | Total interest expense    |                    
|                                                              |                                                                                                   |                           |                           |                    
|                                                              |                                                                                                   |                           |                           | Net interest income
|Provision for loan and lease losses                           |                                                                                                   |                           | 541                       |                    
|                                                              |                                                                                                   |                           |                           |                    
|Net interest income after provision for loan and lease losses |                                                                                                   |                           | 7,196                     |                    
|                                                              |                                                                                                   |                           |                           |                    
|Non-interest income:                                          |                                                                                                   |                           |                           |                    
|                                                              | Service charges and fees                                                                          |                           |                           | 638                
|                                                              | Net gain on sale and packaging of residential mortgage and government-guaranteed commercial loans |                           |                           | 1,093              
|                                                              | Gain on sale of assets                                                                            |                           |                           | 209                
|                                                              | Other income                                                                                      |                           |                           | 178                
|                                                              |                                                                                                   |                           |                           |                    
|                                                              |                                                                                                   |                           | Total non-interest income |                    
|                                                              |                                                                                                   |                           |                           |                    
|Other expenses:                                               |                                                                                                   |                           |                           |                    
|                                                              | Salaries and benefits                                                                             |                           |                           | 3,178              
|                                                              | Occupancy and equipment                                                                           |                           |                           | 1,121              
|                                                              | Other expenses                                                                                    |                           |                           | 1,995              
|                                                              | Amortization of core deposits and other intangibles                                               |                           |                           | 62                 
|                                                              |                                                                                                   |                           |                           |                    
|                                                              |                                                                                                   |                           | Total other expenses      |                    
|                                                              |                                                                                                   |                           |                           |                    
|                                                              | Income before income taxes                                                                        |                           |                           | 2,959              
|Income taxes                                                  |                                                                                                   |                           | 893                       |                    
|                                                              |                                                                                                   |                           |                           |                    
|                                                              |                                                                                                   |                           |                           | Net income         
|                                                              |                                                                                                   |                           |                           |                    
|Basic earnings per share                                      |                                                                                                   | $                         | 0.52                      |                    
|                                                              |                                                                                                   |                           |                           |                    
|Diluted earnings per share                                    |                                                                                                   | $                         | 0.50                      |                    
|                                                              |                                                                                                   |                           |                           |                    

See
notes to consolidated financial statements.

4

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Western Sierra Bancorp and Subsidiaries  Consolidated Statement of Cash Flows (Unaudited)

|                                                                                                               |                                                                                               | Nine Months Ended                         |       
|-------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------- | ------
|
|
|Cash flows from operating activities:                                                                          |                                                                                               |                                           |       
|                                                                                                               | Net income                                                                                    |                                           | $     
|Adjustments to reconcile net income to net cash provided by operating activities:                              |                                                                                               |                                           |       
|                                                                                                               | Provision for loan and lease losses                                                           |                                           |       
|                                                                                                               | Depreciation and amortization                                                                 |                                           |       
|                                                                                                               | Amortization of investment security premiums, net of accretion                                |                                           |       
|                                                                                                               | Gain (Loss) from sale of securities                                                           |                                           |       
|                                                                                                               | Increase in loans held for sale                                                               |                                           |       
|                                                                                                               | Deferred loan and lease origination fees, net                                                 |                                           |       
|                                                                                                               | Increase in other assets                                                                      |                                           |       
|                                                                                                               | Increase (decrease) in other liabilities                                                      |                                           |       
|                                                                                                               |                                                                                               |                                           |       
|                                                                                                               |                                                                                               | Net cash provided by operating activities |       
|                                                                                                               |                                                                                               |                                           |       
|Cash flows from investing activities:                                                                          |                                                                                               |                                           |       
|                                                                                                               | Decrease in interest-bearing deposits in banks                                                |                                           |       
|                                                                                                               | Proceeds from the sale and call of available-for-sale investment securities                   |                                           |       
|                                                                                                               | Proceeds from the maturity of available-for-sale investment securities                        |                                           |       
|                                                                                                               | Proceeds from the call of held-to-maturity investment securities                              |                                           |       
|                                                                                                               | Proceeds from the maturity of held-to-maturity investment securities                          |                                           |       
|                                                                                                               | Proceeds from the principal payments on available-for-sale mortgage-backed and SBA securities |                                           |       
|                                                                                                               | Proceeds from principal payments on held-to-maturity mortgage-backed securities               |                                           |       
|                                                                                                               | Purchase of held-to-maturity securities                                                       |                                           |       
|                                                                                                               | Purchase of available-for-sale investment securities                                          |                                           |       
|                                                                                                               | Net increase in loans and leases                                                              |                                           |       
|                                                                                                               | Purchases of premises and equipment                                                           |                                           |       
|                                                                                                               | Proceeds from sale of premises and equipment                                                  |                                           |       
|                                                                                                               | Proceeds from sale of other real estate                                                       |                                           |       
|                                                                                                               |                                                                                               |                                           |       
|                                                                                                               |                                                                                               | Net cash used in investing activities     |       
|                                                                                                               |                                                                                               |                                           |       
|Cash flows from financing activities:                                                                          |                                                                                               |                                           |       
|                                                                                                               | Net increase in demand, interest-bearing and savings deposits                                 |                                           |       
|                                                                                                               | Net increase (decrease) in time deposits                                                      |                                           |       
|                                                                                                               | Net increase in trust preferred securities                                                    |                                           |       
|                                                                                                               | Net increase in short-term borrowings                                                         |                                           |       
|                                                                                                               | Allocation of unearned ESOP shares                                                            |                                           |       
|                                                                                                               | Repurchase of common stock                                                                    |                                           |       
|                                                                                                               | Proceeds from exercised stock options                                                         |                                           |       
|                                                                                                               | Payment for fractional shares                                                                 |                                           |       
|                                                                                                               | Acquisition of Central California Bank, net of cash acquired                                  |                                           |       
|                                                                                                               |                                                                                               |                                           |       
|                                                                                                               |                                                                                               | Net cash provided by financing activities |       
|                                                                                                               |                                                                                               |                                           |       
|Net increase in cash and cash equivalents                                                                      |                                                                                               |                                           | 16,049
|Cash and cash equivalents at beginning of year                                                                 |                                                                                               |                                           | 23,038
|                                                                                                               |                                                                                               |                                           |       
|Cash and cash equivalents at end of period                                                                     |                                                                                               | $                                         | 39,087
|                                                                                                               |                                                                                               |                                           |       
|Supplemental Disclosures:                                                                                      |                                                                                               |                                           |       
|Acquisition of Central California Bank Fair value of assets acquired, net of fair value of liabilities assumed |                                                                                               |                                           |       
|                                                                                                               | Interest bearing deposits in banks                                                            |                                           | $     
|                                                                                                               | Investment securities held-to-maturity                                                        |                                           |       
|                                                                                                               | Loans, net                                                                                    |                                           |       
|                                                                                                               | Premises and equipment                                                                        |                                           |       
|                                                                                                               | Other assets                                                                                  |                                           |       
|                                                                                                               | Deposits                                                                                      |                                           |       
|                                                                                                               | Other Liabilities                                                                             |                                           |       
|                                                                                                               | Intangibles acquired                                                                          |                                           |       
|                                                                                                               | Stock issued                                                                                  |                                           |       
|                                                                                                               |                                                                                               |                                           |       
|                                                                                                               | Net purchase price                                                                            |                                           | $     
|                                                                                                               |                                                                                               |                                           |       

See notes to consolidated financial statements.

5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Western Sierra Bancorp and subsidiaries (the "Company") have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. In the opinion of Management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation of the results for the
interim periods presented have been included. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the
Company's 2001 Annual Report to Shareholders.

The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Western Sierra National Bank (WSNB) and its subsidiary WSNB
Investment Trust (a Real Estate Investment Trust ("REIT")), Lake Community Bank (LCB), Central California Bank (CCB), Western Sierra Statutory Trust I and Western Sierra Statutory Trust II. All
significant inter-company balances and transactions have been eliminated. Operating results for the three and nine
months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. Certain amounts in the consolidated financial
statements for the year ended December 31, 2001 may have been reclassified to conform to the presentation of the consolidated financial statements in 2002.

2.    Earnings per Share

Basic earnings per share (EPS), which excludes dilution, is computed by dividing net income 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. Earnings per share is retroactively adjusted for stock dividends for all periods presented. A reconciliation of the numerators and denominators of the basic and diluted
EPS computations is as follows (dollars in thousands, except for per share data).

|                           |                      | Three Months Ended                            |           | Nine Months Ended
|-------------------------- | -------------------- | --------------------------------------------- | --------- | -----------------
|
|Basic EPS Computation:     |                      |                                               |           |                  
|                           | Numeratornet income |                                               | $         | 2,066            
|                           | Denominator         |                                               |           |                  
|                           |                      | Weighted average number of shares outstanding |           |                  
|                           |                      | Basic earnings per share                      |           | $                
|                           |                      |                                               |           |                  
|Diluted EPS Computation:   |                      |                                               |           |                  
|                           | Numeratornet income |                                               | $         | 2,066            
|                           | Denominator         |                                               |           |                  
|                           |                      | Weighted average number of shares outstanding |           |                  
|                           |                      | Effect of dilutive stock options              |           |                  
|                           |                      |                                               |           |                  
|                           |                      |                                               | 4,117,318 |                  
|                           |                      |                                               |           |                  
|Diluted earnings per share |                      | $                                             | 0.50      |                  
|                           |                      |                                               |           |                  

6

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3.    Stock Repurchase Plan

On May 29, 2002, the Company announced that the Board of Directors approved a plan to repurchase up to 5% (or approximately 200,000 shares) of the
Company's common stock. The Company has purchased 5,000 shares at an average price of approximately $21.00 under the plan through September 30, 2002.

On
June 21, 2001, the Company announced that its Board of Directors approved a plan to repurchase up to 5% (or 160,000 shares) of the Company's common stock. During the year 2001,
the Company completed its repurchased the entire allotment of 160,000 (111,500 in the quarter ending and 163,000 in the nine months September 30, 2001) at an average price of $14.84 per share.

4.    Acquisition of Central California Bank

On April 1, 2002, pursuant to the Agreement and Plan of Reorganization dated November 15, 2001, Central California Bank ("Central") was acquired by
the Company through a merger and tax-free reorganization whereby Central became a wholly-owned subsidiary of the Company. The Company believes that its shareholders will benefit from the
merger because the business potential for the combined companies exceeds what each company could accomplish individually. Both the Company and Central provide similar and complementary financial
products and services in the Northern California market. As of March 31, 2002, Central had $68.1 million in total assets, $46.5 million in net loans, and $61.5 million in
deposits.

The
total consideration paid to Central's shareholders was approximately $8.6 million, which was comprised of $3.6 million in cash and 252,271 shares of the common stock
valued at approximately $5.0 million based on the market value of the Company's stock. The funds required to pay the cash portion of the consideration were obtained by the Company through the
issuance of $10 million of trust preferred securities in December 2001 (Western Sierra Statutory Trust II). The accompanying unaudited consolidated financial statements include the
accounts of Central since April 1, 2002.

The
purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price
over the estimated fair
value of the net assets acquired was $2.4 million, which was recorded as goodwill. Assets acquired included a core deposit intangible of $1.9 million that will be amortized using the
straight-line method over a period of ten years. Prospectively, goodwill will be evaluated for possible impairment under the provisions of SFAS No. 142. Based upon an initial
evaluation as of September 30, 2002, no impairment exists. In Management's opinion, the goodwill in this transaction arose from the synergies associated with the merger.

The
following supplemental pro forma information discloses selected financial information for the periods indicated as though the merger had been completed as of the beginning of each of
the periods being reported. Pro forma net income for the nine months ended September 30, 2002 includes a nonrecurring charge of approximately $425,000, on an after-tax basis,
representing Central's merger-related expenses and the cost of retiring the outstanding stock options of Central at March 31, 2002. Dollars are in thousands except per share data.

|                           |  | Three Months Ended |        | Nine Months Ended
|-------------------------- |  | ------------------ | ------ | -----------------
|
|Revenue                    |  | $                  | 12,431 |                  
|Net income                 |  | $                  | 2,066  |                  
|Diluted earnings per share |  | $                  | 0.50   |                  

7

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5.    Recent Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. This Statement rescinds SFAS No. 4,Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, SFAS No. 64,Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds SFAS No. 44,Accounting for Intangible Assets of Motor Carriers. This
Statement amends SFAS No. 13,Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other
existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This Statement is effective for fiscal years
beginning after May 15, 2002. Adoption of this statement is not expected to have a material effect on the Company's consolidated financial statements.

In
June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities. This Statement
addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This Statement is effective for exit or disposal activities are initiated after December 31, 2002. Adoption of this statement is not expected to have a
material effect on the Company's consolidated financial statements.

On
October 1, 2002, the FASB issued FASB Statement No. 147,Acquisitions of Certain Financial Institutions.This statement,
which provides guidance on the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises (the Board has a separate
project on its agenda that will provide guidance on the accounting for transactions between mutual enterprises).

The
provisions of Statement 147 reflect the following conclusions:



The
adoption of Statement No. 147 is not expected to have a material effect on the Company's consolidated financial statements.

8

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5.    COMPREHENSIVE INCOME

Comprehensive income includes net income and other comprehensive income. The Company's only sources of other comprehensive income are derived from unrealized
gains and losses on investment securities available-for-sale. Reclassification adjustments resulting from gains or losses on investment securities that were realized and
included in net income of the current period that also had been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose are excluded from
comprehensive income of the current period. The Company's total comprehensive income was as follows:

|                                 |                                                                                | Three months ended September 30, |       | Nine months ended September 30,
|-------------------------------- | ------------------------------------------------------------------------------ | -------------------------------- | ----- | -------------------------------
|
|
|Net income                       |                                                                                | $                                | 2,066 |                                
|Other comprehensive income:      |                                                                                |                                  |       |                                
|                                 | Holding gain arising during period, net of tax                                 |                                  |       | 688                            
|                                 | Reclassification adjustment, for net losses included in net income, net of tax |                                  |       | 65                             
|                                 |                                                                                |                                  |       |                                
|Total other comprehensive income |                                                                                |                                  | 753   |                                
|                                 |                                                                                |                                  |       |                                
|Total comprehensive income       |                                                                                | $                                | 2,819 |                                
|                                 |                                                                                |                                  |       |                                

9

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

Private securities litigation reform act safe harbor statement

This quarterly report on Form 10-Q includes forward-looking information, which is subject to the "safe harbor" created by the Securities Act of
1933, and Securities Act of 1934. These forward-looking statements (which involve the Company's plans, beliefs and goals) involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:



For
additional information concerning risks and uncertainties related to the Company and its operations, please refer to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 under the heading "Forward-Looking Information". Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

The
following sections discuss significant changes and trends in financial condition, capital resources and liquidity of the Company from December 31, 2001 to September 30,
2002. Also discussed are significant trends and changes in the Company's results of operations for the three months and nine months ended September 30, 2002, compared to the same periods in
2001. The consolidated financial statements and related notes appearing elsewhere in this report are condensed and unaudited.

General

Western Sierra Bancorp (the "Company") was incorporated under the laws of the State of California on July 11, 1996. The Company was organized pursuant to a
plan of reorganization for the purpose of becoming the parent corporation of Western Sierra National Bank, and on December 31, 1996, the reorganization was effected and shares of the Company's
common stock were issued to the shareholders of Western Sierra National Bank for the common shares held by Western Sierra National Bank's shareholders.

In
April 1999, the Company acquired Roseville 1st National Bank and Lake Community Bank in a stock for stock exchange. In May of 2000, the Company acquired Sentinel Community Bank
in a stock for stock exchange. All of these mergers were accounted for as poolings of interests and, accordingly, all prior period financial statements have been restated to reflect the combined
operations of the Company, Roseville 1st National Bank, Lake Community Bank and Sentinel Community Bank. Sentinel Community Bank was immediately merged into Western Sierra National Bank. In May of
2000, Roseville 1st National Bank was also merged into Western Sierra National Bank.

In
April 2002, the Company acquired Central California Bank for $3.6 million in cash and 252,271 shares of the Company's stock. This transaction was accounted for under
purchase accounting, which

10

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resulted in a preliminary purchase price allocation of $1.8 million in goodwill and $1.9 million in core deposit premium intangible assets. As required under purchase accounting, no
prior period financial statements have been restated to reflect the combined operations of Central California Bank.

The
Company is a registered bank holding company under the Bank Holding Company Act. The Company conducts its operations at 4080 Plaza Goldorado Circle, Cameron Park, California 95682.

Western
Sierra National Bank was organized under national banking laws and commenced operations as a national bank on January 4, 1984. Western Sierra National Bank is a member of
the Federal Reserve System and the FDIC insures its deposits to the maximum amount permitted by law. Western Sierra National Bank's head office is located at 4080 Plaza Goldorado Circle, Cameron Park,
and its branch offices are located at 4011 Plaza Goldorado, Cameron Park, 2661 Sanders Drive, Pollock Pines, 3970 J Missouri Flat Road, Placerville, 1450 Broadway, Placerville, 3880 El Dorado Hills
Blvd., El Dorado Hills, 571 5th Street, Lincoln, 1545 River Park Dr. #101 & #200, Sacramento, 1801 Douglas Blvd., Roseville, 6951 Douglas Blvd., Granite Bay and 9050 Fairway Drive,
Roseville, CA.    In March 2002, Western Sierra National Bank formed WSNB Investment Trust, a Real Estate Investment Trust ("REIT"), to potentially generate additional capital at
Western Sierra National Bank and reduce the Company's overall effective tax rate.

Western
Sierra National Bank does not have any other affiliates other than Sentinel Associates, Inc., an inactive entity formed by Sentinel Bank in 1983 to develop single-family
residential real estate.

Roseville
1st National Bank was founded in 1983 as Countryside Thrift and Loan (Countryside). Countryside operated as an industrial loan company until its conversion to a national bank
on July 1, 1992. Roseville 1st National Bank was merged into Western Sierra National Bank in May of 2000, and operates as a DBA Roseville 1st National Banka branch of Western
Sierra National Bank.

Sentinel
Community was incorporated under the laws of the State of California on December 24, 1980, and commenced operations on April 2, 1982. The corporation was formed as
a State Chartered Savings and Loan Association. Sentinel Community converted its charter to a Federal Savings and Loan Association on June 9, 1989. In October of 1996, Sentinel Community
changed its name to Sentinel Community Bank, while remaining chartered as a Federal Savings and Loan Association. Sentinel Community Bank was merged into Western Sierra National Bank in
May 2000, and transferred to Central California Bank on July 15, 2002.

Lake
Community Bank was incorporated as a banking corporation under the laws of the State of California on March 9, 1984 and commenced operations as a California state-chartered
bank on November 15, 1984. Lake Community Bank is an insured bank under the Federal Deposit Insurance Act and is not a member of the Federal Reserve System. Lake Community Bank engages in the
general commercial banking business in Lake County in the State of California from its headquarters banking office located at 805 Eleventh Street, Lakeport, California, and its branch located at 4280
Main Street, Kelseyville, California. Lake Community Bank does not have any affiliates or subsidiaries.

Central
California Bank was incorporated under the laws of the State of California on January 13, 1997, and commenced operations on April 24, 1998. Central California Bank
is an insured bank under the Federal Deposit Insurance Act and is not a member of the Federal Reserve System. Central California
Bank engages in the general commercial banking business in Tuolumne and Stanislaus Counties in the state of California from its headquarters banking office located at 14685 Mono Way, Sonora,
California, and its branches located at 181 S. Washington St., Sonora, CA, 400 E. Olive Ave, Turlock, CA 3700 Lone Tree Way, Antioch, CA, 229 South Washington Street, Sonora, 13753-A Mono
Way, Sonora, 18711 Tiffeni Drive, Twain Harte, Granite Bay, 22712 Main Street, Columbia and a loan production office located at 3400 Tully Rd., #B, Modesto, CA. Central California does not have any
affiliates or subsidiaries.

11

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In
July 2001 and December 2001 respectively two trusts, Western Sierra Statutory Trust I and Western Sierra Statutory Trust II, were established as wholly owned
subsidiaries of the Company for the purpose of issuing and holding Trust Preferred Securities.

Banking Services.The Company is a locally owned and operated bank holding company, and its primary service area is the
Northern California communities of Cameron Park, Pollock Pines, Placerville, El Dorado Hills, Lincoln, Sacramento, Roseville, Granite Bay, Sonora, Twain Harte, Columbia, Lakeport, Antioch, Rocklin and
the surrounding communities. The Company's primary business is servicing the banking needs of these communities and its marketing strategy stresses its local ownership and commitment to serve the
banking needs of individuals living and working in the Company's primary service areas and local businesses, including retail, professional and real estate-related activities, in those service areas.

The
Company offers a broad range of services to individuals and businesses in its primary service areas with an emphasis upon efficiency and personalized attention. The Company provides
a full line of consumer services and also offers specialized services, such as courier services to small businesses, middle market companies and professional firms. Each of the Company's subsidiary
banks offers personal and business checking and savings accounts (including individual interest-bearing negotiable orders of withdrawal ("NOW"), money market accounts and/or accounts combining
checking and savings accounts with automatic transfer), IRA accounts, time certificates of deposit and direct deposit of social security, pension and payroll checks, computer cash management and
internet banking including bill payment. The Company's subsidiary banks also make available commercial, construction, accounts receivable, inventory, automobile, home improvement, real estate,
commercial real estate, single family mortgage, agricultural, Small Business Administration, office equipment, leasehold improvement, installment and credit card loans (as well as overdraft protection
lines of credit), issue drafts and standby letters of credit, sell travelers' checks (issued by an independent entity), offer ATMs tied in with major statewide and national networks, extend
special considerations to senior citizens and offer other customary commercial banking services.

Most
of the Company's deposits are obtained from commercial businesses, professionals and individuals. There is no concentration of deposits or any customer with 5% or more of any of the
subsidiary banks' deposits.

Other
special services and products include both personal and business economy checking products, business cash management products and mortgage products and services.

Employees.At September 30, 2002, the Company and its subsidiaries employed 240 persons on a full-time
equivalent basis. The Company believes its employee relations are excellent.

Financial Condition

The Company increased total assets from $510.6 million at December 31, 2001 to $659.5 million at September 30, 2002, an increase of
$148.9 million or 29%. The two primary components of asset growth were Loans, which grew $121.1 million, and Cash and Equivalents, which increased $16.1 million. Asset growth was
primarily funded by growth in deposits of $125.9 million and growth in other borrowings of $9.6 million.

A
portion of the growth the Company has experienced since December 31, 2001 was a result of the acquisition of Central California Bank in April 2002. Pursuant to purchase
accounting, this acquisition contributed approximately $48 million in loans, $68 million in total assets and $62 million in deposits. These balances are not reflected in the
Company's December 31, 2001 balance sheethad they been included, the Company's internal asset growth would have been approximately $80.9 million or an increase of 15.8%
during the nine months ended September 30, 2002.

12

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Results of Operations

The Central California Bank ("CCB") acquisition effective April 1, 2002 was accounted for under purchase accounting. Pursuant to purchase accounting rules,
the operating results below include the effect of this acquisition for the nine months ended September 30, 2002, but prior periods have not been restated to reflect CCB's operating results
during those periods. Please refer to the proforma operating table in footnote 4 of the unaudited consolidated financial statements included in Item 1 of this report.

The
Company reported net income of $2.07 million for the three months ended September 30, 2002 (or $0.50 per share, diluted) compared to $1.42 million (or $0.37 per
share, diluted) for the same period in 2001. The quarterly earnings represent an increase of $648,000 or a 45.7% increase in net income and a 35% increase in diluted earnings per share.

The
Company reported net income of $5.84 million for the nine months ended September 30, 2002 (or $1.45 per share, diluted) compared to $3.867 million (or $1.00 per
share, diluted) for the same period in 2001. The nine-month earnings represent an increase of $1.97 million or a 51% increase in net income and a 45% increase in diluted earnings
per share. The primary factors contributing to the increase in operating results during the third quarter of 2002 and nine months ended September 30, 2002 as compared to the third quarter of
2001 and nine months ended September 30, 2001 include:



The
factors above were offset in part by:



13

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Net Interest Income (Tax Equivalent Yield Basis)

Net interest income is the primary source of income for the Company and represents the excess of interest and fees earned on interest-earning assets (loans,
investments and Federal funds sold) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets.

For
the three months ended September 30, 2002, interest income on a tax equivalent basis increased by $1.46 million to $10.5 million or 16.2% over the same period in
2001. Interest expense on deposit accounts and borrowings decreased $704,000 or 21.5% over the same three-month period ended September 30, 2001. Average earning assets yielded (on a fully tax
equivalent basis) 6.94% versus 7.78% a year ago, partly offset by a decrease in cost of funds where the average cost of funds decreased to 2.21% from 3.57% a year ago. Net interest income (on a tax
equivalent basis) increased $2.2 million or 37.8% to $7.89 million. Net interest margin increased 28 basis points to 5.23% from 4.95% for the same three-month period a year ago. Net
interest margin was bolstered by both rate and volume during the period. Specifically, the improvement in net interest margin was 95% attributable to volume and just 5% as a result of rate changes.

For
the nine months ended September 30, 2002, interest income on a tax equivalent basis increased by $1.65 million to $28.9 million or 6% over the same period in
2001. Interest expense on deposit accounts and borrowings decreased $3.68 million or 33% over the same nine-month period ended September 30, 2001. Average earning assets
yielded 7.15% versus 8.20% a year ago, partly offset by a decrease in cost of funds where the average cost of funds decreased to 2.33% from 4.15% a year ago. Net interest income (on a tax equivalent
basis) increased $5.3 million or 32.7% to $21.6 million. Net interest margin increased 45 basis points to 5.33% from 4.88% for the nine-month same period a year ago. Net
interest margin was bolstered by both rate and volume during the period. Specifically, the improvement in net interest margin was 87% attributable to volume and just 13% as a result of rate changes.

Improvement
in net interest margin was also driven by growth in non-interest demand deposits ("DDA's"). Non-interest DDA's averaged $132.3 million in the
quarter ended September 30, 2002 and $115.8 million for the nine months ended September 30, 2002 as compared to $93.4 million and
$86.7 million for the same three and nine month period in 2001. Central California Bank's contributed $34 million in average balances non-interst DDA balances during the
third quarter of 2002.

The
following tables set forth the Company's daily average balance sheet, related interest income or expense and yield or rate paid for the periods indicated.

14

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Average Balances, Interest Income/Expense and Yields/Rates Paid

|                                                                                                  |                                                    | Three Months Ended                         |        
|------------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------------------------ | -------
|
|
|
|Earning assets:                                                                                   |                                                    |                                            |        
|                                                                                                  | Portfolio loans                                    |                                            | $      
|                                                                                                  | Tax exempt securities                              |                                            |        
|                                                                                                  | Taxable securities                                 |                                            |        
|                                                                                                  | Federal funds sold                                 |                                            |        
|                                                                                                  | Interest bearing deposits                          |                                            |        
|                                                                                                  | Other securities                                   |                                            |        
|                                                                                                  |                                                    |                                            |        
|                                                                                                  |                                                    | Total average earning assets               |        
|                                                                                                  |                                                    |                                            |        
|Average non-interest bearing assets                                                               |                                                    |                                            | 60,058 
|Allowance for loan and lease losses                                                               |                                                    |                                            | (6,551 
|                                                                                                  |                                                    |                                            |        
|Average total assets                                                                              |                                                    | $                                          | 652,139
|                                                                                                  |                                                    |                                            |        
|Interest bearing liabilities:                                                                     |                                                    |                                            |        
|                                                                                                  | Interest bearing demand and savings deposits       |                                            | $      
|                                                                                                  | Time deposits                                      |                                            |        
|                                                                                                  | Borrowings                                         |                                            |        
|                                                                                                  |                                                    |                                            |        
|                                                                                                  |                                                    | Total average interest-bearing liabilities |        
|                                                                                                  |                                                    |                                            |        
|Non-interest bearing demand deposits                                                              |                                                    |                                            | 132,309
|Other liabilities                                                                                 |                                                    |                                            | 7,450  
|Shareholders' equity                                                                              |                                                    |                                            | 50,062 
|                                                                                                  |                                                    |                                            |        
|                                                                                                  | Average total liabilities and shareholders' equity |                                            | $      
|                                                                                                  |                                                    |                                            |        
|Net interest income and net interest margin                                                       |                                                    |                                            |        
|                                                                                                  |                                                    |                                            |        
|                                                                                                  | Note:                                              |                                            |        
|Tax rate used to compute tax benefit on tax-exempt securities (effective tax rate for the period) |                                                    |                                            |        

15

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|                                                                                                  |                                              | Nine Months Ended                                  |        
|------------------------------------------------------------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | -------
|
|
|
|Earning assets:                                                                                   |                                              |                                                    |        
|                                                                                                  | Portfolio loans                              |                                                    | $      
|                                                                                                  | Tax exempt securities                        |                                                    |        
|                                                                                                  | Taxable securities                           |                                                    |        
|                                                                                                  | Federal funds sold                           |                                                    |        
|                                                                                                  | Interest bearing deposits                    |                                                    |        
|                                                                                                  | Other securities                             |                                                    |        
|                                                                                                  |                                              |                                                    |        
|                                                                                                  |                                              | Total average earning assets                       |        
|                                                                                                  |                                              |                                                    |        
|Average non-interest bearing assets                                                               |                                              |                                                    | 54,194 
|Allowance for loan and lease losses                                                               |                                              |                                                    | (5,945 
|                                                                                                  |                                              |                                                    |        
|                                                                                                  |                                              | Average total assets                               |        
|                                                                                                  |                                              |                                                    |        
|Interest bearing liabilities:                                                                     |                                              |                                                    |        
|                                                                                                  | Interest bearing demand and savings deposits |                                                    | $      
|                                                                                                  | Time deposits                                |                                                    |        
|                                                                                                  | Borrowings                                   |                                                    |        
|                                                                                                  |                                              |                                                    |        
|                                                                                                  |                                              | Total average interest-bearing liabilities         |        
|                                                                                                  |                                              |                                                    |        
|Non-interest bearing demand deposits                                                              |                                              |                                                    | 115,795
|Other liabilities                                                                                 |                                              |                                                    | 6,596  
|Shareholder's equity                                                                              |                                              |                                                    | 45,437 
|                                                                                                  |                                              |                                                    |        
|                                                                                                  |                                              | Average total liabilities and shareholders' equity |        
|                                                                                                  |                                              |                                                    |        
|Net interest income and net interest margin                                                       |                                              |                                                    |        
|                                                                                                  |                                              |                                                    |        
|                                                                                                  | Note:                                        |                                                    |        
|Tax rate used to compute tax benefit on tax-exempt securities (effective tax rate for the period) |                                              |                                                    |        

16

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The following tables set forth changes in interest income and expense for each major category of earning assets and interest-bearing liabilities, and the amount of change attributable to
volume and rate changes for the periods indicated. Changes attributable to rate/volume have been allocated to volume changes (dollars in thousands).

Analysis of Changes in Net Interest Income

|                                         |                                   | Three Months Ended
September 30, 2002 over 2001 |      
|---------------------------------------- | --------------------------------- | ----------------------------------------------- | -----
|
|Increase (decrease) in interest income:  |                                   |                                                 |      
|                                         | Portfolio loans                   |                                                 | $    
|                                         | Investment securities, tax exempt |                                                 |      
|                                         | Investment securities             |                                                 |      
|                                         | Federal funds sold                |                                                 |      
|                                         | Interest bearing deposits         |                                                 |      
|                                         | Equity investments                |                                                 |      
|                                         |                                   |                                                 |      
|                                         |                                   | Net increase (decrease)                         |      
|Increase (decrease) in interest expense: |                                   |                                                 |      
|                                         | Interest bearing accounts         |                                                 |      
|                                         | Time deposits                     |                                                 |      
|                                         | Borrowings                        |                                                 |      
|                                         |                                   |                                                 |      
|                                         |                                   | Net increase (decrease)                         |      
|                                         |                                   |                                                 |      
|Total net increase                       |                                   | $                                               | 2,068
|                                         |                                   |                                                 |      

|                                         |                                   | Nine Months Ended
September 30, 2002 over 2001 |      
|---------------------------------------- | --------------------------------- | ---------------------------------------------- | -----
|
|Increase (decrease) in interest income:  |                                   |                                                |      
|                                         | Portfolio loans                   |                                                | $    
|                                         | Investment securities, tax exempt |                                                |      
|                                         | Investment securities             |                                                |      
|                                         | Federal funds sold                |                                                |      
|                                         | Interest bearing deposits         |                                                |      
|                                         | Equity investments                |                                                |      
|                                         |                                   |                                                |      
|                                         |                                   | Net increase (decrease)                        |      
|Increase (decrease) in Interest expense: |                                   |                                                |      
|                                         | Interest bearing accounts         |                                                |      
|                                         | Time deposits                     |                                                |      
|                                         | Borrowings                        |                                                |      
|                                         |                                   |                                                |      
|                                         |                                   | Net increase (decrease)                        |      
|                                         |                                   |                                                |      
|Total net increase                       |                                   | $                                              | 4,620
|                                         |                                   |                                                |      

Non-interest Income

The Company's non-interest income consists of service charges on deposit accounts, and other service fees, mortgage loan origination and processing
fees and proceeds from the sale of investment securities.

17

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For
the three months ended September 30, 2002, total non-interest income increased $687,000 or 48% over the same period in 2001. For the nine months ended
September 30, 2002, total non-interest income grew $1.3 million or 34% over the same period in 2001.

Service
fee income rose $119,000 or 23% in the third quarter of 2002 versus the third quarter of 2001 and $375,000 or 27% over the nine months ended September 30, 2002. These
increases are primarily due to a program initiated in late 2001 that raised the subsidiary banks' service fees to market level and the more successful collection of these fees.

In
addition, income from mortgage loan origination and packaging fees increased $384,000 or 54% in the third quarter and $849,000 or 46% in the first nine months of 2002 as compared to
2001. The increase was primarily a result of: 1) an increase in the number of refinances (due to a decrease in interest rates), 2) an increase in first mortgages for home buyers as
interest rates are at historic lows, 3) an increase in market share due to expansion of loan staff and marketing and 4) expansion of mortgage product line.



Non-interest expenses consist of salaries and related employee benefits, occupancy and equipment expenses, data processing fees, professional fees,
directors' fees, merger and acquisition costs and other operating expenses. For the three months ended September 30, 2002, non-interest expense increased $1.79 million or 39%
over the same period in 2001. For the nine months ended September 30, 2002, non-interest expense increased $3.5 million or 26% over the same period in 2001.

Salary
and benefits increased $601,000 or 23% over the same three-month period last year. This increase was due primarily to the integration of the Central California bank employees into
the Company's operation, the increase in commissions related to the increased income on mortgage loan origination and packaging fees and the implementation of new company-wide incentive
programs. These expenses for the nine-month period ended September 30, 2002 increased $1.5 million or 21% over the same period in the prior year as a result of the same
aforementioned factors.

The
following table sets forth a summary of non-interest expense for the periods indicated (dollars in thousands):

|                      |                                                     | Three Months Ended
September 30, |   | Nine Months Ended
September 30,
|--------------------- | --------------------------------------------------- | -------------------------------- | - | -------------------------------
|
|Non-interest Expense: |                                                     |                                  |   |                                
|                      | Salaries and benefits                               |                                  | $ | 3,178                          
|                      | Occupancy & equipment                               |                                  |   | 1,121                          
|                      | Other expenses                                      |                                  |   | 1,995                          
|                      | Amortization of core deposits and other intangibles |                                  |   | 62                             
|                      |                                                     |                                  |   |                                
|                      |                                                     | Total non-interest expense       |   | $                              
|                      |                                                     |                                  |   |                                

18

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Income Taxes

The following table reflects the Company's tax provision and the related effective tax rate for the periods indicated (dollars in thousands):

|                   |  | Three Months Ended |      | Nine Months Ended |  
|------------------ |  | ------------------ | ---- | ----------------- | -
|
|Tax provision      |  | $                  | 893  |                   | $
|Effective tax rate |  |                    | 30.2 | %                 |  

The
Company's effective tax rate varies with changes in the relative amounts of its non-taxable income and non-deductible expenses. The Company's tax provision is
attributable to increases in the Company's net income and the relative amount of tax-exempt income. The Company has decreased its effective tax rate in 2002 by deploying a series of tax
strategies including the purchase of tax-exempt municipal bonds, the funding of enterprise zone loans and the establishment of a real estate investment trust ("REIT") in the first quarter
of 2002. These strategies have lowered the Company's effective tax rate (see above) for the three and nine-month periods ended September 30, 2002 as compared to 36.1% and
36.7% in 2001. This has resulted in tax savings of approximately $127,000 and $504,000 in the three and nine-month periods ended September 30, 2002 as compared to the same periods
in 2001 (after an after-tax deduction for certain related legal and accounting fees of $47,000 and $129,000 in the third quarter and nine months ending September 30, 2002). However,
no assurance can be given that the tax benefits available from the REIT will continue to be available in the future. In addition, there is a possibility that a future modification of existing tax laws
by the California legislature could require the that the tax benefits already realized from the REIT be reversed, though, in the opinion of management it is unlikely.

Asset Quality

The Company concentrates its lending activities primarily within areas directly serviced by branches as previously discussed.

The
Company manages its credit risk through diversification of its loan portfolio and the application of underwriting policies and procedures and credit monitoring practices. Although
the Company has a diversified loan portfolio, a significant portion of its borrowers' ability to repay their loans is dependent upon the professional services and residential real estate development
industry sectors. Generally, the loans are secured by real estate or other assets and are expected to be repaid from the cash flows of the borrower or proceeds from the sale of collateral.

19

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The
following table sets forth the amounts of loans outstanding by category as of the dates indicated (dollars in thousands):

|                                         |  | September 30,
2002 |         | % of
Total |       | December 31,
2001 |   | % of
Total |  
|---------------------------------------- |  | ------------------ | ------- | ---------- | ----- | ----------------- | - | ---------- | -
|Commercial                               |  | $                  | 80,466  |            | 15.81 | %                 | $ | 64,931     |  
|Real estatemortgage                     |  |                    | 304,166 |            | 59.75 | %                 |   | 235,981    |  
|Real estateconstruction                 |  |                    | 106,995 |            | 21.02 | %                 |   | 72,051     |  
|Agricultural                             |  |                    | 10,841  |            | 2.13  | %                 |   | 8,574      |  
|Lease financing                          |  |                    | 3,377   |            | 0.66  | %                 |   | 3,496      |  
|Installment and other                    |  |                    | 4,788   |            | 0.94  | %                 |   | 4,461      |  
|Deferred loan fees and costs, net        |  |                    | (1,583  | )          | -0.31 | %                 |   | (1,060     | )
|                                         |  |                    |         |            |       |                   |   |            |  
|Total                                    |  |                    | 509,050 |            | 100   | %                 |   | 388,434    |  
|Less allowance for loan and lease losses |  |                    | (6,861  | )          | -1.35 | %                 |   | (5,097     | )
|                                         |  |                    |         |            |       |                   |   |            |  
|Total net loans and leases               |  | $                  | 502,189 |            |       |                   | $ | 383,337    |  
|                                         |  |                    |         |            |       |                   |   |            |  

The
following table sets forth a summary of the Company's nonperforming assets as of the dates indicated (dollars in thousands):

|                                                                  |                                     | September 30,
2002 |       | December 31,
2001 |  
|----------------------------------------------------------------- | ----------------------------------- | ------------------ | ----- | ----------------- | -
|Non-performing assets:                                            |                                     |                    |       |                   |  
|                                                                  | Nonaccrual loans                    |                    | $     | 594               |  
|                                                                  | 90 days past due and still accruing |                    |       | 12                |  
|Other real estate                                                 |                                     | $                  | 489   |                   | $
|                                                                  |                                     |                    |       |                   |  
|Total non-performing assets                                       |                                     | $                  | 1,095 |                   | $
|                                                                  |                                     |                    |       |                   |  
|Non-performing assets as a % of total assets                      |                                     |                    | 0.17  | %                 |  
|Non-accrual loans as a % of gross loans                           |                                     |                    | 0.12  | %                 |  
|Ratio of allowance for loan and lease losses to non accrual loans |                                     |                    | 11.55 |                   |  

The
Company's non-accrual loans decreased from $2.7 million to $0.6 million in the first nine months of 2002. The Company's "coverage ratio" or the ratio of
allowance for loan and lease losses to non-accrual loans increased from 1.92 to 11.55 during the first nine months of 2002. The Company carries other real estate (acquired through
foreclosure) at what Management believes to be the current market value at September 30, 2002.

Allowance for Loan and Lease Losses (ALLL)

The Company makes provisions to the ALLL on a regular basis through charges to operations that are reflected in the Company's statements of income as a provision
for loan and lease losses. When a loan or lease is deemed uncollectible, it is charged against the allowance. Any recoveries of previously charged-off loans are credited back to the
allowance. There is no precise method of predicting specific losses or amounts that ultimately may be charged-off on particular categories of the loan portfolio.

Accordingly,
the adequacy of the ALLL and the level of the related provision for possible loan and lease losses is determined on a judgment basis by Management based on consideration of
(i) economic conditions, (ii) borrowers' financial condition, (iii) loan impairment, (iv) evaluation of industry trends, (v) industry and other concentrations,
(vi) loans which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by Management, (vii) continuing evaluation of the performing loan
portfolio, (viii) monthly review and evaluation of problem loans identified as having loss potential, (ix) quarterly review by the Board of Directors, and (x) assessments by
banking

20

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regulators and other third parties. Management and the Board of Directors evaluate the ALLL and determine its desired level considering objective and subjective measures, such as knowledge of the
borrowers' business, valuation of collateral, the determination of impaired loans or leases and exposure to potential losses.

The
ALLL is a general reserve available against the total loan and lease portfolio. It is maintained without any inter-allocation to the categories of the loan portfolio, and the entire
allowance is available to cover loan and lease losses. While Management uses available information to recognize possible losses on loans and leases, future additions to the allowance may be necessary,
based on changes in economic conditions and other matters. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ALLL. Such
agencies may require the Company to provide additions to the allowance based on their judgment of information available to them at the time of their examination.

The
ALLL should not be interpreted as an indication that charge-offs in future periods will occur in the stated amounts or proportions.

The
adequacy of the ALLL calculation is based on three components. First is the dollar weighted risk rating of the loan portfolio, including all outstanding loans and leases. Every
extension of credit has been assigned a risk rating based upon a comprehensive definition intended to measure the inherent risk of lending money. Each rating has an assigned risk factor expressed as a
reserve percentage. Secondly, established specific reserves are assigned to individual loans currently on the Company's Problem Loan Reports. These are estimated potential losses associated with
specific borrowers based upon collateral value and event(s) causing the risk rating. Thirdly, the Company maintains a reserve for
qualitative factors that may affect the portfolio as a whole, such as those factors described above, including an unallocated reserve for model imprecisions.

Management
believes the assigned risk grades and methods for managing changes in assigned risk grades are satisfactory.

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The following table summarizes the activity in the ALLL for the periods indicated (dollars in thousands):

|                                                          |                 | Three Months Ended |       | Nine Months Ended |  
|--------------------------------------------------------- | --------------- | ------------------ | ----- | ----------------- | -
|
|Beginning balance for allowance for loan and lease losses |                 | $                  | 6,312 |                   | $
|Provision for loan and lease losses                       |                 |                    | 541   |                   |  
|Charge offs:                                              |                 |                    |       |                   |  
|                                                          | Commercial      |                    |       | 0                 |  
|                                                          | Real estate     |                    |       | 0                 |  
|                                                          | Other           |                    |       | (25               | )
|                                                          |                 |                    |       |                   |  
|Total charge offs                                         |                 |                    | (25   | )                 |  
|Recoveries:                                               |                 |                    |       |                   |  
|                                                          | Commercial      |                    |       | 25                |  
|                                                          | Real estate     |                    |       | 0                 |  
|                                                          | Other           |                    |       | 8                 |  
|                                                          |                 |                    |       |                   |  
|Total recoveries                                          |                 |                    | 33    |                   |  
|                                                          | Net charge offs |                    |       | 8                 |  
|ALLL of CCB acquired during the period                    |                 |                    | 0     |                   |  
|                                                          |                 |                    |       |                   |  
|Ending balance                                            |                 | $                  | 6,861 |                   | $
|                                                          |                 |                    |       |                   |  
|ALLL to total loans                                       |                 |                    | 1.34  | %                 |  
|Annualized net charge offs to average loans               |                 |                    | -0.01 | %                 |  

Investment Portfolio

Total investment securities decreased $1.42 million million in the first nine months of 2002 or 1.9%. The decrease was primarily due to the prepayment of
mortgage-backed securities as a result of the decrease in rates.

Liquidity

A Funds Management Policy has been developed by the Company's Management and approved by the Company's Board of Directors that establishes guidelines for the
investments and liquidity of the Company. The goals of this policy are to provide liquidity to meet the financial requirements of the Company's customers, maintain adequate reserves as required by
regulatory agencies and maximize earnings of the Company. Liquidity of the Company at September 30, 2002 was 13.5% and was 17.1% at December 31, 2001. Liquidity is computed by dividing
liquid assets (consisting of cash and due from banks, investments not pledged, federal funds sold and loans available-for-sale) by total liabilities. The Company's Management
believes it maintains adequate liquidity levels.

Capital Adequacy

Overall capital adequacy is monitored on a day-to-day basis by the Company's Management and reported to the Company's Board of Directors
on a monthly basis. The Bank's regulators measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum

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leverage ratio guidelines. Under the risk-based capital standard, assets reported on the Company's balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which is assigned a risk weight.

This
standard characterizes an institution's capital as being "Tier 1" capital (defined as principally comprising shareholders' equity) and "Tier 2" capital (defined as principally
comprising the qualifying portion of the ALLL).

The
minimum ratio of total risk-based capital to risk-weighted assets, including certain off-balance sheet items, is 8% (10% to be considered
well-capitalized). At least one-half (4%) of the total risk-based capital (Tier 1) is to be comprised of common equity; the balance may consist of debt
securities and a limited portion of the ALLL. Trust Preferred Securities in the amount of $16.0 million are included in the Company's Tier 1 capital, as allowed by Federal Reserve, in the
consolidated totals below.

The
following table sets forth the Company's and its banking subsidiaries' capital ratios as of the dates indicated.

|                                                  |  | September 30, 2002 |   | December 31, 2001 |  
|------------------------------------------------- |  | ------------------ | - | ----------------- | -
|
|Total risk-based capital to risk-weighted assets  |  | 11.7               | % | 10.2              | %
|Tier 1 capital to risk-weighted assets            |  | 10.5               | % | 8.9               | %
|Tier 1 capital to average assets (leverage ratio) |  | 7.3                | % | 8.1               | %

The Company and its bank subsidiaries continue to meet all regulatory capital requirements at September 30, 2002.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a financial institution, the Company's primary component of market risk is interest rate volatility. Fluctuation in interest rates will ultimately impact both
the level of income and expense recorded on a large portion of the Company's assets and liabilities, and the market value of all interest earning assets and interest bearing liabilities, other than
those which possess a short term to maturity. Virtually all of the Company's interest earning assets and all of the Company's interest bearing liabilities are located at the banking subsidiary level.
Thus, virtually all of the Company's interest rate risk exposure lies at the banking subsidiary level. As a result, all significant interest rate risk Management procedures are performed at the
banking subsidiary level. The Company's real estate loan portfolios, concentrated primarily within Northern California, are subject to risks associated with the local economies.

The
fundamental objective of the Company's Management of its assets and liabilities is to maximize the Company's economic value while maintaining adequate liquidity and an exposure to
interest rate risk deemed by Management to be acceptable. Management believes an acceptable degree of exposure to interest rate risk results from the management of assets and liabilities through

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maturities, pricing and mix to attempt to neutralize the potential impact of changes in market interest rates. The Company's profitability is dependent to a large extent upon its net interest income
which is the difference between its interest income on interest-earning assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits and
borrowings. The Company is subject to interest rate risk to the degree that its interest-earning assets reprice differently than its interest-bearing liabilities. The Company manages its mix of assets
and liabilities with the goals of limiting its exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds.

The
Company seeks to control interest rate risk exposure in a manner that will allow for adequate levels of earnings and capital over a range of possible interest rate environments. The
Company has adopted formal policies and practices to monitor and manage interest rate risk exposure. Management believes it has historically effectively managed the effect of changes in interest rates
on its operating results. Management believes that it can continue to manage the short-term effect of interest rate changes under various interest rate scenarios.

The
following table sets forth, as of September 30, 2002, the distribution of re-pricing opportunities for the Company's earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. earning assets divided by interest-bearing liabilities) and
the cumulative interest rate sensitivity gap ratio.

|(dollars in thousands)                                       |  | Within
Three Months |         | After Three
Months But
Within One
Year |          | After
One Year
But Within
Five Years |         | After Five
Years |   | Total   |  
|------------------------------------------------------------ |  | ------------------- | ------- | -------------------------------------- | -------- | ------------------------------------ | ------- | ---------------- | - | ------- | -
|Earning assets:                                              |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Federal funds sold                                           |  | $                   | 11,315  |                                        |          |                                      |         |                  |   |         |  
|Investment securities and other                              |  |                     | 6,878   |                                        | 12,608   |                                      | 14,478  |                  |   | 40,321  |  
|Loans                                                        |  |                     | 174,321 |                                        | 82,119   |                                      | 120,093 |                  |   | 140,659 |  
|                                                             |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Total earning assets                                         |  |                     | 192,514 |                                        | 94,727   |                                      | 134,570 |                  |   | 180,980 |  
|                                                             |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Interest-bearing liabilities:                                |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Savings                                                      |  |                     | 26,638  |                                        | 13,319   |                                      |         |                  |   |         |  
|Interest-bearing transaction accounts                        |  |                     | 122,409 |                                        | 23,026   |                                      |         |                  |   |         |  
|Time deposits                                                |  |                     | 92,399  |                                        | 132,863  |                                      | 23,652  |                  |   | 2       |  
|Other borrowings                                             |  |                     | 12,000  |                                        |          |                                      |         |                  |   |         |  
|                                                             |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Total interest-bearing liabilities                           |  |                     | 253,447 |                                        | 169,208  |                                      | 23,652  |                  |   | 2       |  
|Trust preferred securities ("TPS")                           |  |                     | 16,000  |                                        |          |                                      |         |                  |   |         |  
|                                                             |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Total interest bearing liabilities and TPS                   |  |                     | 269,447 |                                        | 169,208  |                                      | 23,652  |                  |   | 2       |  
|                                                             |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Interest rate sensitivity gap                                |  |                     | (76,933 | )                                      | (74,481  | )                                    | 110,919 |                  |   | 180,978 |  
|Cumulative interest rate sensitivity gap                     |  | $                   | (76,933 | )                                      | (151,414 | )                                    | (40,495 | )                | $ | 140,483 |  
|                                                             |  |                     |         |                                        |          |                                      |         |                  |   |         |  
|Interest rate sensitivity gap to total assets                |  |                     | -11.67  | %                                      | -11.29   | %                                    | 16.82   | %                |   | 27.44   | %
|Cumulative interest rate sensitivity Gap to total assets     |  |                     | -11.67  | %                                      | -22.96   | %                                    | -6.14   | %                |   | 21.30   | %
|Ratio of rate sensitive assets to rate sensitive liabilities |  |                     | 0.71    |                                        | 0.56     |                                      | 5.69    |                  |   | N/A     |  
|Cumulative ratio                                             |  |                     | 0.71    |                                        | 0.65     |                                      | 0.91    |                  |   | 1.30    |  

The
opportunity to reprice assets in the same dollar amounts and at the same time as liabilities would minimize interest rate risk in any interest rate environment. The difference
between the amounts

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of assets and liabilities repriced at the same time, or "gap", represents the risk, or opportunity, in repricing. In general, if more assets than liabilities are repriced at a given time in a rising
rate environment, net interest income would improve while in a declining rate environment, net interest income would decline. If more liabilities than assets were repriced under the same conditions
the opposite would result. The Company appears liability sensitive in the immediate to one-year area, and turns asset sensitive in the longer term. This can be and is influenced by the
fact that interest-bearing transaction accounts which consist of money market, NOW and savings deposit accounts are classified as repricing within three months when in fact these deposits may be
immediately repriced at Management's option, thus assisting in the further management of interest rate risk. The Company lists these deposits as it has because this is the actual historical trend the
Company has experienced.

ITEM 4. Controls and Procedures.

The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation within 90 days prior to the date of this report of the
Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a14(c)), have concluded that the Company's disclosure controls and procedures are adequate and
effective for purposes of Rule 13a14(c) in timely alerting them to material information relating to the Company required to be included in the Company's filings with the SEC under
the Securities Exchange Act of 1934.

There
were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

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PART II. Other Information

Item 1. Legal proceedings

The Company and its subsidiaries are involved in various routine legal actions arising in the ordinary course of business. The Company believes that the ultimate
disposition of all currently pending matters will not have a material adverse effect on the Company's financial condition or results of operations.

Item #2. Changes in securities and use of proceeds

N/A

Item #3. Defaults upon Senior Securities

N/A

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

N/A

Item #5. Other Information

N/A

Item #6A. Exhibits

904 ExhibitsCertifications

Item #6B. Reports on Form 8-K

September 5, 2002: Termination of plan of reorganization with Mid Valley Bank

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SIGNATURES

Following
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.

|WESTERN SIERRA BANCORP(Registrant) |  |                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date: November 13, 2002            |  |                                                                                                                                                                                                                                                                                                                                                                                     
|                                   |  | I certify that this periodic report containing the issuer's financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that
information contained in this periodic reports fairly presents, in all material respects, the financial condition and results of operations of the issuer.
|                                   |  | /s/ GARY D. GALLGary D. Gall President/Chief Executive Officer                                                                                                                                                                                                                                                                                                                      
|                                   |  | I certify that this periodic report containing the issuer's financial statements fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in this
periodic reports fairly presents, in all material respects, the financial condition and results of operations of the issuer.
|                                   |  | /s/ ANTHONY J. GOULDAnthony J. Gould Executive Vice President Chief Financial and Accounting Officer                                                                                                                                                                                                                                                                                

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CERTIFICATIONS

I,
Anthony J. Gould Executive Vice President, Chief Financial and Chief Accounting Officer, certify that:





|                        |  |                                                           
|----------------------- |  | ----------------------------------------------------------
|Date: November 13, 2002 |  | /s/ Anthony J. GouldChief Financial and Accounting Officer

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I, Gary D. Gall, President, Chief Executive Officer, certify that:





|                        |  |                                                      
|----------------------- |  | -----------------------------------------------------
|Date: November 13, 2002 |  | /s/ Gary D. GallPresident and Chief Executive Officer

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