**UNITEDSTATES****SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-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 March 31, 2005** |
| ** **                                             | ** ** | ** **                                                                                         |
| **OR**                                                 |
|                                                   |       |                                                                                               |
| **o**                                                  | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from               to               **

 

##### **Commissionfile number 0-25979**

 

**WESTERNSIERRA BANCORP**

(Exact name of Registrant as specified in its charter)

 
| **California**                                            | ** ** | **68-0390121**                       |
|----------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) | ** ** | (I.R.S. Employer Identification No.) |
| ** **                                                     | ** ** | ** **                           |
| **4080 Plaza Goldorado Circle****Cameron Park,  California**   | ** ** | **95682**                            |
| (Address of principal executive offices)                       | ** ** | (Zip code)                           |

 

Registrant’s telephone number, including area code: **(530) 677-5600**

 

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 pershare**

 

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

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2) Yes ýNo o

 

Asof May 4, 2005 there were approximately 7,702,000 shares outstanding of theRegistrant’s common stock.

 

 

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**WESTERN SIERRA BANCORP & SUBSIDIARIES**

**Index to Form 10-Q**

 
| PART I. Financial  Information |                                                                                                 |
|--------------------------------|------------------------------------------------------------------------------------------------------|
|                           | Item 1. Consolidated  Financial Statements (unaudited)                                               |   |
|                           | Consolidated Balance SheetMarch 31, 2005 and December 31, 2004                             |   |
|                           | Consolidated Statement  of IncomeThree months ended March 31, 2005 and 2004                     |   |
|                           | Consolidated  Statement of Cash FlowsThree months ended March 31, 2005 and 2004                 |   |
|                           | Notes  to Consolidated Financial Statements                                                          |   |
|                           | Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations |   |
|                           | Item 3. Quantitative and Qualitative  Disclosure about Market Risk                                   |   |
|                           | Item 4. Controls and  Procedures                                                                     |   |
| PART II. Other Information     |                                                                                                 |
|                           | Item 1. Legal proceedings                                                                            |   |
|                           | Item  2. Unregistered Sales of Equity Securities and Use of Proceeds                                 |   |
|                           | Item 3.  Defaults Upon Senior Securities                                                             |   |
|                           | Item  4. Submission of Matters to a Vote of Security Holders                                         |   |
|                           | Item 5. Other Information                                                                            |   |
|                           | Item  6. Exhibits                                                                                    |   |
| SIGNATURES                     |                                                                                                 |

 

2

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**PART I. FINANCIAL INFORMATION**

 

**WesternSierra Bancorp and Subsidiaries**

**ConsolidatedBalance Sheet**

(dollars in thousands)

 
| **(Unaudited)**                                                                                                            | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS:**                                                                                                                |       |                     |       |                        |       |
| Cash and due  from banks                                                                                                   |       | $                        | 40,863     |                        | $          | 29,975 |   |
| Federal  funds sold                                                                                                        |       | 47,100                   |       | 74,630                      |       |
| Cash and  cash equivalents                                                                                                 |       | 87,963                   |       | 104,605                     |       |
|                                                                                                                       |       |                     |       |                        |       |
| Interest-bearing  deposits                                                                                                 |       | —                   |       | 1,200                       |       |
| Loans held  for sale                                                                                                       |       | 1,484                    |       | 2,685                       |       |
| Investment  securities:                                                                                                    |       |                     |       |                        |       |
| Trading                                                                                                                    |       | 36                       |       | 42                          |       |
| Available  for sale (amortized cost $79,539 in 2005 and $81,106 in 2004)                                                   |       | 80,065                   |       | 82,521                      |       |
| Held to  maturity (market value of $3,129 in 2005 and $3,202 in 2004)                                                      |       | 3,017                    |       | 3,067                       |       |
| Total  investments                                                                                                         |       | 83,118                   |       | 85,630                      |       |
| Portfolio  loans and leases:                                                                                               |       |                     |       |                        |       |
| Real estate  mortgage                                                                                                      |       | 639,929                  |       | 600,108                     |       |
| Real estate  construction                                                                                                  |       | 193,390                  |       | 199,140                     |       |
| Commercial                                                                                                                 |       | 119,099                  |       | 119,823                     |       |
| Agricultural                                                                                                               |       | 11,162                   |       | 11,514                      |       |
| Installment                                                                                                                |       | 3,904                    |       | 4,160                       |       |
| Lease  financing                                                                                                           |       | 1,904                    |       | 1,768                       |       |
| Total gross  loans and leases                                                                                              |       | 969,388                  |       | 936,513                     |       |
| Deferred  loan and lease fees, net                                                                                         |       | (2,953                   | )          | (3,008                      | )          |
| Allowance  for loan and lease losses                                                                                       |       | (14,288                  | )          | (13,786                     | )          |
| Net  portfolio loans and leases                                                                                            |       | 952,147                  |       | 919,719                     |       |
|                                                                                                                       |       |                     |       |                        |       |
| Premises and  equipment, net                                                                                               |       | 21,153                   |       | 20,808                      |       |
| Goodwill and  other intangible assets                                                                                      |       | 33,722                   |       | 33,913                      |       |
| Other assets                                                                                                               |       | 38,819                   |       | 29,530                      |       |
| Total Assets                                                                                                               |       | $                        | 1,218,406  |                        | $          | 1,198,090 |   |
|                                                                                                                       |       |                     |       |                        |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY:**                                                                            |       |                     |       |                        |       |
| Non-interest  bearing deposits                                                                                             |       | $                        | 280,062    |                        | $          | 272,250 |   |
| Interest  bearing deposits:                                                                                                |       |                     |       |                        |       |
| NOW, money  market and savings                                                                                             |       | 389,389                  |       | 405,967                     |       |
| Time, over  $100,000                                                                                                       |       | 205,810                  |       | 185,935                     |       |
| Other time                                                                                                                 |       | 154,557                  |       | 158,814                     |       |
| Total  deposits                                                                                                            |       | 1,029,818                |       | 1,022,966                   |       |
|                                                                                                                       |       |                     |       |                        |       |
| Borrowed  funds                                                                                                            |       | 30,500                   |       | 21,500                      |       |
| Subordinated  debentures                                                                                                   |       | 36,496                   |       | 36,496                      |       |
| Other  liabilities                                                                                                         |       | 7,085                    |       | 6,977                       |       |
| Total  liabilities                                                                                                         |       | 1,103,899                |       | 1,087,939                   |       |
|                                                                                                                       |       |                     |       |                        |       |
| Shareholders’  equity:                                                                                                |       |                     |       |                        |       |
| Preferred  stock- no par value; 15,000,000 shares authorized; none issued                                                  |       | —                   |       | —                      |       |
| Common  stock- no par value; 15,000,000 shares authorized; issued - 7,679,934 shares  in 2005 and 7,629,762 shares in 2004 |       | 69,037                   |       | 68,125                      |       |
| Retained  earnings                                                                                                         |       | 45,132                   |       | 41,109                      |       |
| Accumulated  other comprehensive income                                                                                    |       | 338                      |       | 917                         |       |
| Total  shareholders’ equity                                                                                           |       | 114,507                  |       | 110,151                     |       |
| Total  Liabilities and Shareholders’ Equity                                                                           |       | $                        | 1,218,406  |                        | $          | 1,198,090 |   |

 

See notes to the unaudited consolidated financialstatements.

 

3

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**WesternSierra Bancorp and Subsidiaries**

**Consolidated Statement of Income**

(dollars in thousands, except per share data)

 
| ** **                                                    | ** ** | **Three Months Ended  March 31, 2005** | ** ** |
|---------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Unaudited)**                                               | ** ** | **2005**                                    | ** ** | **2004** | ** ** |
| Interest  income:                                             |       |                                        |       |   |   |
| Interest and  fees on loans                                   |       | $                                           | 16,113     |   | $ | 14,036 |   |
| Interest on  investment securities:                           |       |                                        |       |   |   |
| Taxable                                                       |       | 398                                         |       | 369 |   |
| Exempt from  federal taxes                                    |       | 409                                         |       | 387 |   |
| Interest on  Federal funds sold                               |       | 312                                         |       | 53 |   |
| Total  interest income                                        |       | 17,232                                      |       | 14,844 |   |
|                                                          |       |                                        |       |   |   |
| Interest  expense:                                            |       |                                        |       |   |   |
| Interest on  deposits                                         |       | 2,671                                       |       | 2,004 |   |
| Interest on  borrowed funds                                   |       | 716                                         |       | 557 |   |
| Total  interest expense                                       |       | 3,387                                       |       | 2,562 |   |
|                                                          |       |                                        |       |   |   |
| Net interest  income                                          |       | 13,845                                      |       | 12,282 |   |
|                                                          |       |                                        |       |   |   |
| Provision  for loan and lease losses (LLP)                    |       | 450                                         |       | 710 |   |
|                                                          |       |                                        |       |   |   |
| Net interest  income after LLP                                |       | 13,395                                      |       | 11,572 |   |
|                                                          |       |                                        |       |   |   |
| Non-interest  income:                                         |       |                                        |       |   |   |
| Service  charges and fees                                     |       | 1,186                                       |       | 1,195 |   |
| Investment  service fee income                                |       | 130                                         |       | 291 |   |
| Net gain on  sale and packaging of residential mortgage loans |       | 933                                         |       | 855 |   |
| Gain on sale  of government-guaranteed loans                  |       | 112                                         |       | — |   |
| Loss on sale  of investment securities                        |       | (3                                          | )          | — |   |
| Other income                                                  |       | 251                                         |       | 227 |   |
| Total non-interest  income                                    |       | 2,609                                       |       | 2,568 |   |
|                                                          |       |                                        |       |   |   |
| Non-interest  expenses:                                       |       |                                        |       |   |   |
| Salaries and  benefits                                        |       | 5,403                                       |       | 4,887 |   |
| Occupancy  and equipment                                      |       | 1,611                                       |       | 1,352 |   |
| Other  expenses                                               |       | 2,621                                       |       | 2,309 |   |
| Amortization  of core deposit intangibles                     |       | 180                                         |       | 180 |   |
| Total other  expenses                                         |       | 9,815                                       |       | 8,728 |   |
|                                                          |       |                                        |       |   |   |
| Income  before income tax                                     |       | 6,189                                       |       | 5,412 |   |
|                                                          |       |                                        |       |   |   |
| Income taxes                                                  |       | 2,166                                       |       | 1,947 |   |
| Net income                                                    |       | $                                           | 4,023      |   | $ | 3,465 |   |
|                                                          |       |                                        |       |   |   |
| Basic  earnings per share                                     |       | $                                           | 0.53       |   | $ | 0.46 |   |
| Fully  diluted earnings per share                             |       | $                                           | 0.51       |   | $ | 0.44 |   |

 

See notes to the unaudited consolidated financialstatements.

 

4

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**WesternSierra Bancorp and Subsidiaries**

**Consolidated Statement of Cash Flows**

(dollars in thousands)

 
| ** **                                                                                       | ** ** | **Three Months Ended**   | ** ** |
|--------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| **(Unaudited)**                                                                                  | ** ** | **March 31,  2005** | ** ** | **March 31,  2004** | ** ** |
| Cash flows  from operating activities:                                                           |       |                     |       |   |   |
| Net income                                                                                       |       | $                        | 4,023      |   | $ | 3,465 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities:               |       |                     |       |   |   |
| Provision  for loan and lease losses                                                             |       | 450                      |       | 710 |   |
| Depreciation  and amortization                                                                   |       | 851                      |       | 762 |   |
| Deferred  loan and lease origination fees, net                                                   |       | (55                      | )          | (239 | ) |
| Amortization  of investment security premiums, net of accretion of discount                      |       | 127                      |       | 241 |   |
| Decrease  (increase) in trading securities                                                       |       | 6                        |       | (3 | ) |
| Loss on sale  of premises and equipment                                                          |       | (3                       | )          | — |   |
| Increase in  cash surrender value of life insurance policies                                     |       | (198                     | )          | (165 | ) |
| Decrease  (increase) in loans held for sale                                                      |       | (1,326                   | )          | (789 | ) |
| Increase in  other assets                                                                        |       | (2,013                   | )          | (550 | ) |
| Decrease  (increase) in other liabilities                                                        |       | 108                      |       | (2,167 | ) |
| Decrease  (increase) in deferred taxes                                                           |       | (20                      | )          | (20 | ) |
| Net cash  provided by operating activities                                                       |       | 5,492                    |       | 1,245 |   |
|                                                                                             |       |                     |       |   |   |
| Cash flows  from investing activities:                                                           |       |                     |       |   |   |
| Proceeds  from sale and call of available-for-sale investment securities                         |       | 3,000                    |       | 4 |   |
| Purchases of  available-for-sale investment securities                                           |       | (5,412                   | )          | (385 | ) |
| Principal  repayments received from available-for-sale SBA pools and mortgage-backed  securities |       | 3,851                    |       | 2,649 |   |
| Principal  repayments received from held-to-maturity mortgage-backed securities                  |       | 50                       |       | 243 |   |
| Net decrease  in interest-bearing deposits in banks                                              |       | 1,200                    |       | 198 |   |
| Net increase  in loans and leases                                                                |       | (32,823                  | )          | (37,050 | ) |
| Proceeds  from the sale of premises and equipment                                                |       | 15                       |       | — |   |
| Purchases of  premises and equipment                                                             |       | (1,028                   | )          | (534 | ) |
| Purchase of  life insurance policies                                                             |       | (7,300                   | )          | — |   |
| Net cash  used in investing activities                                                           |       | (38,447                  | )          | (34,875 | ) |
| ** **                                                                                       | ** ** | ** **               | ** ** | ** ** | ** ** |
| Cash flows  from financing activities:                                                           |       |                     |       |   |   |
| Net  (decrease) increase in demand, interest-bearing and savings deposits                        |       | $                        | (8,766     | ) | $ | 12,127 |   |
| Net increase  in time deposits                                                                   |       | 15,618                   |       | 33,034 |   |
| Net increase  in borrowings                                                                      |       | 9,000                    |       | 12,100 |   |
| Proceeds  from the exercise of stock options                                                     |       | 461                      |       | 153 |   |
| Net cash  provided by financing activities                                                       |       | 16,313                   |       | 57,414 |   |
|                                                                                             |       |                     |       |   |   |
| (Decrease)  increase in cash and cash equivalents                                                |       | (16,642                  | )          | 23,784 |   |
|                                                                                             |       |                     |       |   |   |
| Cash and  cash equivalents at beginning of year                                                  |       | 104,605                  |       | 55,964 |   |
|                                                                                             |       |                     |       |   |   |
| Cash and  cash equivalents at end of period                                                      |       | $                        | 87,963     |   | $ | 79,748 |   |
|                                                                                             |       |                     |       |   |   |
| Non-cash  investing activities:                                                                  |       |                     |       |   |   |
| Net change  in unrealized gain on available-for-sale investment securities                       |       | $                        | (890       | ) | $ | 698 |   |

 

See notes to the unaudited consolidated financialstatements.

 

5

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**NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.  Basis ofPresentation**

 

The accompanying unaudited condensed consolidated financial statementsof Western Sierra Bancorp and subsidiaries (the “Company”) have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America for interim financial information and with the instructionsto Form 10-Q and Article 10 of Regulation S-X. In the opinion ofManagement, all adjustments (which consist solely of normal recurring accruals)considered necessary for a fair presentation of the results for the interimperiods presented have been included. These interim condensed consolidatedfinancial statements should be read in conjunction with the financialstatements and related notes contained in the Company’s 2004 Annual Report toShareholders.

 

The condensed consolidated financial statements include the accounts ofthe 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) and AuburnCommunity Bank (ACB).  All significantinter-company balances and transactions have been eliminated.  Western Sierra Statutory Trusts I, II, III,and IV are unconsolidated subsidiaries formed solely for the purpose of issuingtrust preferred securities.  Operatingresults for the three months ended March 31, 2005 are not necessarilyindicative of the results that may be expected for the year ending December 31,2005. Certain amounts in the consolidated financial statements for the yearended December 31, 2004 and the three-month period ended March 31,2004 may have been reclassified to conform to the presentation of theconsolidated financial statements in 2005.

#### ** **

The preparation of consolidated financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires Management to make estimates andassumptions.  These estimates andassumptions affect the reported amounts of assets and liabilities at the dateof the consolidated financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from these estimates.

 

**2.  Stock-basedCompensation**

 

At March 31, 2004, the Company has fourstock-based compensation plans.  TheCompany accounts for these plans under the recognition and measurementprinciples of APB Opinion No. 25, *Accounting for StockIssued to Employees*, and related Interpretations.  No stock-based compensation cost is reflectedin net income, as all options granted under these plans had an exercise priceequal to the market value of the underlying common stock on the date ofgrant.  In accordance with FinancialAccounting Standards Board (“FASB”) No. 148, *Accountingfor Stock-Based Compensation – Transition and Disclosure, an Amendment of FASBNo. 123,* the following table illustrates the effect on net incomeand earnings per share as if the Company had applied the fair value recognitionprovisions of FASB Statement No. 123, *Accounting for Stock-BasedCompensation*, to stock-based compensation.

 

Pro forma adjustments to the Company’sconsolidated net earnings and earnings per share are disclosed during the yearsin which the options become vested (dollars in thousands, except per sharedata).

 
| ** **                                                                                                                              | ** ** | **Three  Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                                                                              | ** ** | **2005**                                | ** ** | **2004** | ** ** |
| Net earnings as reported                                                                                                                |       | $                                       | 4,023      |   | $ | 3,465 |   |
|                                                                                                                                    |       |                                    |       |   |   |
| Deduct: Total stock-based compensation expense determined under the  fair value based method for all awards, net of related tax effects |       | (220                                    | )          | (375 | ) |
|                                                                                                                                    |       |                                    |       |   |   |
| Pro forma net income                                                                                                                    |       | $                                       | 3,803      |   | $ | 3,090 |   |
|                                                                                                                                    |       |                                    |       |   |   |
| Basic earnings per share - as reported                                                                                                  |       | $                                       | 0.53       |   | $ | 0.46 |   |
| Basic earnings per share - pro forma                                                                                                    |       | $                                       | 0.50       |   | $ | 0.41 |   |
|                                                                                                                                    |       |                                    |       |   |   |
| Diluted earnings per share - as reported                                                                                                |       | $                                       | 0.51       |   | $ | 0.44 |   |
| Diluted earnings per share - pro forma                                                                                                  |       | $                                       | 0.48       |   | $ | 0.40 |   |

 

6

 

**3.  Earnings per Share**

 

Basic earnings per share (EPS),which excludes dilution, is computed by dividing net income by the weighted-averagenumber of common shares outstanding for the period. Diluted EPS reflects thepotential dilution that could occur if securities or other contracts to issuecommon stock, such as stock options, result in the issuance of common stock,which shares in the earnings of the Company. Earnings per share isretroactively adjusted for stock dividends and splits for all periodspresented. A reconciliation of the numerators and denominators of the basic anddiluted EPS computations is as follows (dollars in thousands, except sharedata).

 
| ** **                                                       | ** ** | **Three Months Ended**   | ** ** |
|------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                       | ** ** | **March 31,  2005** | ** ** | **March 31,  2004** | ** ** |
| Basic EPS  Computation:                                          |       |                     |       |   |   |
| Numerator—net  income                                       |       | $                        | 4,023      |   | $ | 3,465 |   |
| Denominator—  weighted average number of shares outstanding |       | 7,645,511                |       | 7,457,544 |   |
| Basic earnings  per share                                        |       | $                        | 0.53       |   | $ | 0.46 |   |
|                                                             |       |                     |       |   |   |
| Diluted EPS  Computation:                                        |       |                     |       |   |   |
| Numerator—net  income                                       |       | $                        | 4,023      |   | $ | 3,465 |   |
| Denominator—  weighted average number of shares outstanding |       | 7,645,511                |       | 7,457,544 |   |
| Effect of  dilutive stock options                                |       | 310,563                  |       | 406,798 |   |
|                                                             |       | 7,956,074                |       | 7,864,342 |   |
| Diluted  earnings per share                                      |       | $                        | 0.51       |   | $ | 0.44 |   |

 

**4.  Stock RepurchasePlan**

 

On January 16, 2004 the Company announced that the Board ofDirectors approved a plan to utilize up to $2 million (or approximately 1% ofthe total outstanding shares) to repurchase the Company’s common stock.  As of March 31, 2005, the Company hadrepurchased 3,000 shares at an average price of approximately $28.27.

 

**5.  Commitmentsand Contingencies**

 

#### **Leases**

 

In April 2005, the Company signed a contract for an office leasethat will be the headquarters and a branch of Western Sierra National Banklocated at One Capital Mall Suite 600, Sacramento, CA  95814. The term is for 7 years and the monthly rent expense begins in October 2005at approximately $17,000 per month or $2.50 Per foot.

 

#### **Financial InstrumentsWith Off-Balance-Sheet Risk**

 

The Company is a party to financialinstruments with off-balance-sheet risk in the normal course of business inorder to meet the financing needs of its customers and to reduce its exposureto fluctuations in interest rates.  Thesefinancial instruments include commitments to extend credit, letters of creditand commitments to sell loans.  Theseinstruments involve, to varying degrees, elements of credit and interest raterisk in excess of the amount recognized on the consolidated balance sheet.

 

The Company’s exposure to credit loss in theevent of nonperformance by the other party for commitments to extend credit andletters of credit is represented by the contractual amount of thoseinstruments.  The Company uses the samecredit policies in making commitments and letters of credit as they do forloans and leases included on the consolidated balance sheet.

 

7

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

 
| ** **                                                              | ** ** | **March 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Commitments  to extend credit:                                          |       |                     |       |                        |       |
| Revolving  lines of credit secured by 1-4 family residences             |       | $                        | 33,249     |                        | $          | 33,019 |   |
| Commercial  real estate, construction and land development commitments: |       |                     |       |                        |       |
| Secured by  real estate                                                 |       | 194,711                  |       | 211,737                     |       |
| Not secured  by real estate                                             |       | 674                      |       | 1,105                       |       |
| Other  commercial commitments not secured by real estate                |       | 54,955                   |       | 53,099                      |       |
| Agricultural  commitments                                               |       | 2,496                    |       | 3,261                       |       |
| Other  commitments                                                      |       | 3,843                    |       | 3,872                       |       |
|                                                                    |       | $                        | 289,928    |                        | $          | 306,093 |   |
| Letters of  credit                                                      |       | $                        | 23,431     |                        | $          | 22,866 |   |

 

Real estate commitments are generally securedby property with loan-to-value ratios not to exceed 80%.  In addition, the majority of the Company’scommitments have variable interest rates.

 

Commitments to extend credit are agreementsto lend to a customer as long as there is no violation of any conditionestablished in the contract.  Commitmentsgenerally have fixed expiration dates or other termination clauses and mayrequire payment of a fee.  Since some ofthe commitments are expected to expire without being drawn upon, the totalcommitment amounts do not necessarily represent future cash requirements.  Each customer’s creditworthiness is evaluatedon a case-by-case basis.  The amount ofcollateral obtained, if deemed necessary upon extension of credit, is based onManagement’s credit evaluation of the borrower. Collateral held varies, but may include deposits, accounts receivable,inventory, equipment, income-producing commercial properties and residentialreal estate.

 

Letters of credit are conditional commitmentsto guarantee the performance or financial obligation of a customer to a thirdparty.  The credit risk involved in issuingletters of credit is essentially the same as that involved in extending loansto customers.

 

Commitments to sell loans are agreements tosell to another party loans originated by the Company.  The Company only sells loans to third partieswithout recourse.  The Company is notexposed to credit loss if the borrower fails to perform according to thepromissory note as long as the Company has fulfilled its obligations stated inthe sales commitment.

 

**6.  Comprehensive Income**

 

Comprehensive income includes net income andother comprehensive income.  The Company’sonly source of other comprehensive income is derived from unrealized gains andlosses on investment securities available-for-sale.  Reclassification adjustments resulting fromgains or losses on investment securities that were realized and included in netincome of the current period that also had been included in other comprehensiveincome as unrealized holding gains or losses in the period in which they aroseare excluded from comprehensive income of the current period.  The Company’s total comprehensive income wasas follows:

 
| ** **                                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------|------------|----------------------------------------|------------|
| **(In thousands)**                                        | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                                      |       |                                   |       |   |   |
| Net income                                                |       | $                                      | 4,023      |   | $ | 3,465 |   |
| Other  comprehensive (loss) income:                       |       |                                   |       |   |   |
| Holding  (losses) gains arising during period, net of tax |       | (581                                   | )          | 458 |   |
| Re-classification  adjustment, net of tax                 |       | 2                                      |       | — |   |
| Total other  comprehensive (loss) income                  |       | (579                                   | )          | 458 |   |
| Total  comprehensive income                               |       | $                                      | 3,444      |   | $ | 3,923 |   |

 

8

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**7.  Subsequent Events**

 

In November 2004, theCompany entered into a definitive merger agreement to acquire Gold CountryFinancial Services, the holding company for Gold Country Bank, headquartered inMarysville, California. Under the terms of the agreement, Gold Country Bankwill merge into WSNB in a stock and cash deal valued at approximately $23.1million.  Shareholders of Gold Country onMarch 7, 2005 approved the merger. The transaction, which was originally expected to close by April 2005and has been delayed subject to OCC final approval.  Management expects the transaction will becompleted by June 30, 2005.  Thecombination of Gold Country Bank, with over $140 million in assets and fivebranch locations will result in consolidated assets of over $1.3 billion forthe Company, which will then have 35 branch locations.

 

**8.  New Accounting Pronouncements**

 

In April 2005, the SECannounced that FAS 123R requirements for stock option expensing will bedeferred until January 1, 2006 and will be reflected on the Company’sfirst interim report thereafter.  Asoriginally issued by the FASB, public companies subject to SEC oversight wererequired to implement Statement 123R as of the beginning of the first reportingperiod that begins after June 15, 2005.

 

9

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATION.**

 

**Private securities litigation reform act safe harborstatement**

 

This quarterly report on Form 10-Q includes forward-lookinginformation, which is subject to the “safe harbor” created by the SecuritiesAct of 1933 and Securities Act of 1934. These forward-looking statements (whichinvolve the Company’s plans, beliefs and goals) involve certain risks anduncertainties that could cause actual results to differ materially from thosein the forward-looking statements. Such risks and uncertainties include, butare not limited to, the following factors:

 

1.               Competitive pressure in the banking industryand changes in the regulatory environment.

 

2.               Changes in the interest rate environment andvolatility of rate sensitive deposits.

 

3.               Decline in the health of the economynationally or regionally which could reduce the demand for loans or reduce thevalue of real estate collateral securing most of the Company’s loans.

 

4.               Credit quality deterioration that could causean increase in the provision for loan losses.

 

5.               The Company’s exposure to real estate valuesin the markets that it serves, as over 80% of the Company’s loans are securedby real estate.

 

6.               Asset/Liability matching risks and liquidityrisks.

 

7.               Volatility and devaluation in the securitiesmarkets.

 

8.               With respect to the merger with Gold CountryFinancial Services, these forward-looking statements describe the Company'sexpectations regarding future events, including all conditions to close themerger will be met.

 

 

For additional information concerning risks and uncertainties relatedto the Company and its operations, please refer to the Company’s Annual Reporton Form 10-K for the year ended December 31, 2004 under the heading “Forward-LookingInformation”.  Readers are cautioned notto place undue reliance on these forward-looking statements, which speak onlyas of the date hereof. The Company undertakes no obligation to revise orpublicly release the results of any revision to these forward-lookingstatements to reflect events or circumstances after the date hereof or toreflect the occurrence of unanticipated events.

 

The following sections discuss significant changes and trends infinancial condition, capital resources and liquidity of the Company from December 31,2004 to March 31, 2005. Also discussed are significant trends and changesin the Company’s results of operations for the three months ended March 31,2005 compared to the same period in 2004. The consolidated financial statementsand related notes appearing elsewhere in this report are condensed andunaudited.

 

10

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**General**

 

The Company was incorporated under the laws of the State of Californiaon July 11, 1996. The Company was organized pursuant to a plan ofreorganization for the purpose of becoming the parent corporation of WesternSierra National Bank, and on December 31, 1996, the reorganization waseffected and shares of the Company’s common stock were exchanged for the commonshares held by Western Sierra National Bank’s shareholders.

 

In April 1999, the Company acquired Roseville 1st National Bankand Lake Community Bank in a stock for stock exchange. In May of 2000, theCompany acquired Sentinel Community Bank in a stock for stock exchange. Each ofthese mergers was accounted for as a pooling of interests and, accordingly, allprior period financial statements have been restated to reflect the combined operationsof the Company, Roseville 1st National Bank, Lake Community Bank and SentinelCommunity Bank. Sentinel Community Bank at the time of its acquisition wasimmediately merged into Western Sierra National Bank. In May of 2000, Roseville1st National Bank was also merged into Western Sierra National Bank.

 

In April 2002, the Company acquired Central California Bank for$3.7 million in cash and 252,181 shares of the Company’s stock.  This transaction was accounted for usingpurchase accounting, which resulted in a purchase price allocation of $2.3million to goodwill and $1.9 million to core deposit intangible assets.  In July 2002, the Sentinel CommunityBank branches were transferred from Western Sierra National Bank to CentralCalifornia Bank.

 

In July 2003, the Company acquired Central Sierra Bank for $10.7million in cash and 404,173 shares of the Company’s stock.  This transaction was accounted for usingpurchase accounting, which resulted in a purchase price allocation of $11.6million to goodwill and $2.9 million to core deposit intangible assets.  Central Sierra Bank operates as a division ofCentral California Bank.

 

In December 2003, the Company acquired Auburn Community Bank for$6.5 million in cash and 349,976 shares of the Company’s stock.  This transaction was accounted for usingpurchase accounting, which resulted in a purchase price allocation of $14.5million to goodwill and $1.8 million to core deposit intangible assets.

 

In November 2004, the Company entered into a definitive mergeragreement to acquire Gold Country Financial Services, the holding company forGold Country Bank, headquartered in Marysville, California. Under the terms ofthe agreement, Gold Country Bank will merge into WSNB in a stock and cash dealvalued at approximately $23.1 million. Shareholders of Gold Country on March 7, 2005 approved themerger.  The transaction, which wasoriginally expected to close by April 2005 and has been delayed subject toOCC final approval.  Management expectsthe transaction will be completed by June 30, 2005.  The combination of Gold Country Bank, withover $140 million in assets and five branch locations will result inconsolidated assets of over $1.3 billion for the Company, which will then have35 branch locations.

 

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

 

Western Sierra National Bank was organized under national banking lawsand commenced operations as a national bank on January 4, 1984. WesternSierra National Bank is a member of the Federal Reserve System, and the FDICinsures its deposits to the maximum amount permitted by law. Western SierraNational Bank’s head office is located at 4080 Plaza Goldorado Circle, CameronPark, and its branch offices are located at 4011 Plaza Goldorado, Cameron Park,CA, 2661 Sanders Drive, Pollock Pines, CA, 3970 J Missouri Flat Road,Placerville, CA, 1450 Broadway, Placerville, CA, 3880 El Dorado Hills Blvd., ElDorado Hills, CA, 571 5th Street, Lincoln, CA, 1545 River ParkDr. #101 & #200, Sacramento, CA, 1801 Douglas Blvd., Roseville,CA, 6951 Douglas Blvd., Granite Bay, CA, 9050 Fairway Drive, Roseville, CA,2779 East Bidwell, Folsom, CA, 9610 Bruceville Rd. #100, Elk Grove, CA  and 2761 Del Paso Road, Sacramento, CA.  Western Sierra National Bank does not haveany other subsidiaries other than Sentinel Associates, Inc., an inactiveentity formed by Sentinel Bank in 1983 to develop single-family residential realestate.

 

Lake Community Bank was incorporated as a banking corporation under thelaws of the State of California on March 9, 1984 and commenced operationsas a California state-chartered bank on November 15, 1984. Lake CommunityBank is an insured bank under the Federal Deposit Insurance Act and is a memberof the Federal Reserve System. Lake Community Bank engages in the generalcommercial banking business in Lake County from its headquarters banking officelocated at 805 Eleventh Street, Lakeport, CA, and its branch located at 4280Main Street, Kelseyville, CA. Lake Community Bank does not have any affiliatesor subsidiaries.

 

Central California Bank was incorporated under the laws of the State ofCalifornia on January 13, 1997 and commenced operations on April 24,1998. Central California Bank is an insured bank under the Federal DepositInsurance Act and became a

 

11

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memberof the Federal Reserve System in January 2003. In July 2003, CentralSierra Bank merged into Central California Bank.  Central California Bank engages in thegeneral commercial banking business in Tuolumne and Stanislaus counties fromits headquarters banking office located at 13753-A Mono Way, Sonora, CA, andits branches located at 400 E. Olive Ave, Turlock, CA, 3700 Lone Tree Way,Antioch, CA, 229 South Washington Street, Sonora, CA, 18711 Tiffeni Drive,Twain Harte, CA, 22712 Main Street, Columbia, CA, 373 West St. Charles Street,San Andreas, CA, 1239 South Main Street, Angels Camp, CA, 18281 Main Street,Jamestown, CA, 89 Lakewood Mall, Lodi, CA, 11 Ridge Road, Sutter Creek, CA, 87Highway 26, Valley Springs, CA, 3505 Spangler Lane, Suite 300, Copperopolis, CAand 2525-A McHenry Ave, Modesto, CA and a loan production office located at1111 Dunbar Road, Arnold, CA.  CentralCalifornia Bank does not have any affiliates or subsidiaries.

 

Auburn Community Bank, a state non-member bank, was originallyoperating under the name of Auburn National Bank which was incorporated underthe laws of the State of California on July 28, 1997, and commencedoperations on February 2, 1998.  On July 29,1999, Auburn National Bank converted from national bank to a state non-memberbank and was renamed Auburn Community Bank. Auburn Community Bank is an insured bank under the Federal DepositInsurance Act and operates its headquarters banking office located at 500Auburn-Folsom Road Suite 200, Auburn, CA and its branch located at 11795 AtwoodRoad, Auburn, CA.  Auburn Community Bankdoes not have any affiliates or subsidiaries.

 

**Employees.** At March 31, 2005, the Company and its subsidiaries employed373 persons on a full-time equivalent basis. The Company believes its employeerelations are satisfactory.

 

**Financial Condition**

 

The Company increased total assets from $1.20 billion at December 31,2004 to $1.22 billion at March 31, 2005, an increase of$20 million or 1.7%. The primary components of asset growth was portfolioloans, which grew $110.9 million or 12.9%. Asset growth was funded by growth in deposits of $111.5 million or12.1%.

 

The Company increased total assets from $1.2 billion at December 31,2004 to $1.22 billion at March 31, 2005, an increase of$20 million or 1.7%. The two primary components of asset growth wereportfolio loans, which grew $32 million, and other assets, which increased $9million.  Growth in other assets wasprimarily a result of purchasing approximately $7.3 million in Bank Owned LifeInsurance, or “BOLI”, which was purchased to generate income to offset risingbenefit costs.  The policies yiled aresubject to change annually by the respective insurance companies and areexpected to yield approximately 4.5% on a tax deffered basis over the nexttwelve months. These increases in total assets were offset by a reduction incash and cash equivalents of $17 million. Asset growth was primarily funded by growth in borrowed funds of $9million and growth in deposits of $7 million.

 

During the first three months of 2005, non-interest bearing depositsincreased from $272 million at year-end 2004 to $280 million at March 31,2005.  Included in non-interest depositsare local title company deposits, which have increased $9 million from $36million at December 31, 2004 to $45 million at March 31, 2005.  These funds do not receive interest but doresult in an assessment of service fees by the title company’s service bureauto the Company.  During the first threemonths of 2004, the service fees on title company deposits incurred by theCompany were less than 1% of the average title company deposits outstanding.

 

**Results of Operations**

 

The Company reported net income of $4.02 million for the threemonths ended March 31, 2005 (or $0.51 per share, diluted) compared to$3.47 million (or $0.44 per share, diluted) for the same period in 2004. The quarterlyearnings represent an increase of $558,000 or a 16.1% increase in net incomeand diluted earnings per share.

 

The primary factors contributing to the increase in operating resultsduring the three-month period ended March 31, 2005 as compared to the sameperiod in 2004 include:

 

1.               An increase in net interest income of $1.56million or 12.7% in the first quarter over the same period in 2004.  The net increase is due to an overallincrease in average earning assets and the benefit of recent rate increasesapplied to the Company’s asset sensitive balance sheet.

 

2.               A decrease in loan and lease loss provisionsof $260,000 for the first quarter ended March 31, 2005 as compared to thesame period in 2004.  During the periodnonperforming assets fell to .09% at March 31, 2005 from .17% at March 31,2004.  The percentage of loan and leaseloss reserves to gross loans and leases was 1.47% at March 31, 2005 ascompared to 1.47% at December 31, 2004 and 1.42% at March 31, 2004.

 

3.               An increase in non-interest income of$41,000, which includes a $112,000 gain from the sale of government-guaranteed loans.

 

12

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4.               An effective tax rate of 35.0% as compared to36.0% in the first quarter of the previous year.

 

Theabove factors were offset in part by:

 

1.               Total other expenses increased $1.09 millionor 12% over the first quarter in the previous year.

 

**Return on Average Assets and Average Equity**

 

Return on average assets (“ROA”) was 1.36% for the first quarter of2005 as compared to 1.32% for the first quarter of 2004.  Return on equity (“ROE”) was 14.66% for thefirst of 2005 as compared to 14.74% for the first quarter of 2004.

 

**Net Interest Income (Tax Equivalent Yield Basis)**

 

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

 

For the three months ended March 31, 2005, interest income on atax equivalent basis increased by $2.4 million to $17.5 million or 16% over thesame period in 2004. Interest expense on deposit accounts and borrowingsincreased $825,000 or 32% over the same three-month period ended March 31,2004. Average earning assets yielded (on a fully tax equivalent basis) 6.55%versus 6.41% a year ago, the effect of which was partially offset by anincrease in the cost of funds where the average cost of funds increased to1.69% from 1.41% a year ago. Net interest income (on a tax equivalent basis)increased $1.6 million or 13% to $14.1 million. The net interest margindecreased 4 basis points to 5.28% from 5.32% for the same three-month period ayear ago.

 

Overall, yields trended up from the prior year as a result of marketinterest rates. The Company’s cost of funds increased to 1.69% from 1.41% whichwas substantially offset by an increase in return on average earning assetswhich increased to 6.55% from 6.41%. This increase was primarily driven by yields on loans, which increasedfrom 6.75% to 6.92%.

 

13

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The following table presents, for the periodsindicated, the distribution of consolidated average assets, liabilities andshareholders’ equity, as well as the total dollar amounts of interest incomefrom average earning assets and the resultant yields and the dollar amounts ofinterest expense and average interest-bearing liabilities, expressed both indollars and in rates. Non-accrual loans, which are not considered material, areincluded in the calculation of the average balances of loans.  Savings deposits include NOW and money marketaccounts. To compare the tax-exempt asset yields to taxable yields, amounts areadjusted to pre-tax equivalents based on the marginal corporate federal taxrate of 35 percent (dollars in thousands).

 

**Average Balances, Interest Income/Expense and Yields/RatesPaid**

 
| ** **                                               | ** ** | **Three Months Ended**  | ** ** |
|----------------------------------------------------------|------------|-------------------------|------------|
| ** **                                               | ** ** | **March 31, 2005** | ** ** | **March 31, 2004** | ** ** |
| ** **                                               | ** ** | **Average  Balance**    | ** ** | **Interest** | ** ** | **Yield/  Rate** | ** ** | **Average  Balance** | ** ** | **Interest** | ** ** | **Yield/  Rate** | ** ** |
| Earning  assets:                                         |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Portfolio  loans                                         |       | $                       | 945,555    |   | $ | 16,124 |   | 6.92% |   | $ | 837,635 |   | $ | 14,049 |   | 6.75% |   |
| Tax-exempt  investment securities                        |       | 36,937                  |       | 629 |   | 6.90% |   | 34,063 |   | 595 |   | 7.02% |   |
| Taxable  investment securities                           |       | 46,190                  |       | 387 |   | 3.40% |   | 48,927 |   | 359 |   | 2.95% |   |
| Federal  funds sold                                      |       | 51,731                  |       | 312 |   | 2.44% |   | 21,730 |   | 53 |   | 0.98% |   |
| Interest-bearing  deposits in banks                      |       | 1,187                   |       | 12 |   | 3.96% |   | 2,179 |   | 10 |   | 1.79% |   |
| Average  earning assets                                  |       | 1,081,599               |       | 17,463 |   | 6.55% |   | 944,534 |   | 15,064 |   | 6.41% |   |
| Other assets                                             |       | 131,233                 |       |   |   |   |   | 119,325 |   |   |   |   |   |
| Less ALLL                                                |       | (14,033                 | )          |   |   |   |   | (11,856 | ) |   |   |   |   |
| Average  total assets                                    |       | $                       | 1,198,799  |   |   |   |   |   | $ | 1,052,003 |   |   |   |   |   |
| Interest-bearing  liabilities:                           |       |                    |       |   |   |   |   |   |   |   |   |   |   |
| Savings  deposits                                        |       | $                       | 399,710    |   | $ | 862 |   | 0.87% |   | $ | 335,767 |   | $ | 544 |   | 0.65% |   |
| Time  deposits                                           |       | 349,903                 |       | 1,809 |   | 2.10% |   | 328,601 |   | 1,461 |   | 1.79% |   |
| Other  borrowings (1)                                    |       | 62,182                  |       | 717 |   | 4.67% |   | 66,832 |   | 557 |   | 3.35% |   |
| Average  interest-bearing liabilities                    |       | 811,794                 |       | 3,387 |   | 1.69% |   | 731,200 |   | 2,562 |   | 1.41% |   |
| Non-interest  bearing liabilities                        |       | 267,844                 |       |   |   |   |   | 214,849 |   |   |   |   |   |
| Other  liabilities                                       |       | 7,846                   |       |   |   |   |   | 11,371 |   |   |   |   |   |
| Shareholders’  equity                               |       | 111,315                 |       |   |   |   |   | 94,582 |   |   |   |   |   |
| Average  total liabilities and shareholders’ equity |       | $                       | 1,198,799  |   |   |   |   |   | $ | 1,052,003 |   |   |   |   |   |
| Net interest  income and net interest margin (2)         |       |                    |       | $ | 14,076 |   | 5.28% |   |   |   | $ |  12,503 |   | 5.32% |   |

 

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(1) For the purpose of this schedule theCompany’s subordinated debentures are included in other borrowings.

(2) Net interest margin iscalculated by dividing net interest income by average earning assets.

 

14

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The following tables set forth changes ininterest income and expense for each major category of earning assets andinterest-bearing liabilities, and the amount of change attributable to volumeand rate changes for the periods indicated. Changes not specificallyattributable to rate or volume have been allocated to rate changes (dollars inthousands).

 

###### **Analysis of Changes in Net Interest Income**

 
| ** **                                | ** ** | **Three Months Ended March 31,  2005 over 2004** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                | ** ** | **Volume**                                            | ** ** | **Rate** | ** ** | **Total** | ** ** |
| Increase  (decrease) in interest income:  |       |                                                  |       |   |   |   |   |
| Portfolio  loans                          |       | $                                                     | 1,794      |   | $ | 281 |   | $ | 2,075 |   |
| Tax-exempt  investment securities         |       | 50                                                    |       | (16 | ) | 34 |   |
| Taxable  investment securities            |       | (20                                                   | )          | 48 |   | 28 |   |
| Federal  funds sold                       |       | 72                                                    |       | 187 |   | 259 |   |
| Interest-bearing  deposits                |       | (4                                                    | )          | 6 |   | 2 |   |
| Net increase  (decrease)                  |       | 1,892                                                 |       | 506 |   | 2,398 |   |
| Increase  (decrease) in interest expense: |       |                                                  |       |   |   |   |   |
| Interest-bearing  accounts                |       | 103                                                   |       | 215 |   | 318 |   |
| Time  deposits                            |       | 94                                                    |       | 254 |   | 348 |   |
| Other  borrowings (1)                     |       | (38                                                   | )          | 198 |   | 159 |   |
| Net increase  (decrease)                  |       | 158                                                   |       | 667 |   | 825 |   |
| Total net  increase (decrease)            |       | $                                                     | 1,734      |   | $ | (161 | ) | $ | 1,573 |   |

 

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(1)For the purpose of this schedule the interest on the Company’ssubordinated debentures is included in other borrowings.

 

15

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**Non-interest Income**

 

The Company’s non-interest income consists primarily of service chargeson deposit accounts, investment service fee income, other service fees, andmortgage loan origination and processing fees.

 

For the three months ended March 31,2005, total non-interest income increased $41,000 or 2% over the same period in2004.  This increase is primarily due tothe gain on sale of government-guaranteed loans of $112,000 and an increase inmortgage loan origination and packaging fees of $78,000.  This growth was offset by a decrease of$161,000 in investment service fee income.

 

**Non-interest Expense**

 

Non-interest expenses consist of salaries andrelated employee benefits, occupancy and equipment expenses, data processingfees, professional fees, directors’ fees, and other operating expenses.Non-interest expense increased $1.09 million or 12% over the same three-monthperiod of 2004.  Approximately $363,000or 33% of this increase relates to three new branches that were opened duringthe fourth quarter of 2004.  Salaries andbenefits increased $516,000 million or 11% over the same three-month period oflast year.  Other expenses increased$312,000 or 14% over the same period in 2004, partially due to a $100,000reserve for an operational loss that occurred in March 2005.

 

The following tables set forth a summary ofnon-interest expense for the periods indicated (dollars in thousands,percentages are annualized):

 
| ** **                                          | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                          | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| ** **                                          | ** ** | **Expense**                           | ** ** | **%****of Avg  Assets** | ** ** | **Expense** | ** ** | **%****of Avg  Assets** | ** ** |
| Salaries and  benefits                              |       | $                                     | 5,403      |   | 1.83% |   | $ | 4,887 |   | 2.07% |   |
| Occupancy  and equipment                            |       | 1,611                                 |       | 0.54% |   | 1,352 |   | 0.57% |   |
| Other  expenses                                     |       | 2,621                                 |       | 0.89% |   | 2,309 |   | 0.98% |   |
| Amortization  of core deposit and other intangibles |       | 180                                   |       | 0.06% |   | 180 |   | 0.08% |   |
| Total  non-interest expense                         |       | $                                     | 9,815      |   | 3.32% |   | $ | 8,728 |   | 3.72% |   |

 

16

 

**EfficiencyRatio**

 

The Company uses a widely accepted bankingoperating ratio as a measure of its progress in improving operatingefficiency.  The efficiency ratio isderived by dividing total non-interest expenses by the sum of tax adjusted netinterest income and non-interest income. Simply put, this ratio describes the operating expense necessary togenerate $1 in tax equivalent total revenue. The Company’s efficiency ratio increased modestly in the first quarterof 2005 driven by the expense increases outlined above in the “Non-interestExpense” discussion.

 

The following table sets forth the Company’stax adjusted efficiency ratio for the periods indicated (dollars in thousands):

 
| ** **                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **2005**                               | ** ** | **2004** | ** ** |
|                                                |       |                                   |       |   |   |
| Non-interest  expense                               |       | $                                      | 9,815      |   | $ | 8,728 |   |
| Amortization  of core deposit and other intangibles |       | (180                                   | )          | (180 | ) |
| Investment  in limited partnership                  |       | (108                                   | )          | (56 | ) |
| Net  non-interest expense                           |       | $                                      | 9,527      |   | $ | 8,492 |   |
|                                                |       |                                   |       |   |   |
| Fully tax  equivalent income:                       |       |                                   |       |   |   |
| Net interest  income                                |       | $                                      | 13,845     |   | $ | 12,282 |   |
| Non-interest  income                                |       | 2,609                                  |       | 2,568 |   |
| Tax benefit  adjustment for tax-exempt income       |       | 330                                    |       | 313 |   |
| Total fully  tax equivalent Income                  |       | $                                      | 16,783     |   | $ | 15,163 |   |
|                                                |       |                                   |       |   |   |
| Efficiency  Ratio                                   |       | 56.8%                                  |       | 56.0% |   |

 

17

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**Income Taxes**

 

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

 
| ** **          | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------|------------|----------------------------------------|------------|
| ** **          | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Tax  provision      |       | $                                      | 2,166      |   | $ | 1,947 |   |
| Effective  tax rate |       | 35.0%                                  |       | 36.0% |   |
|                     |            |                                        |            |  |  |  |  |

 

The Company’s effective tax rate varies with changes in the relativeamounts of its non-taxable income and non-deductible expenses. The increase inthe Company’s tax provision is attributable to increases in the Company’s netincome and the relative amount of tax-exempt income.

 

###### **Asset Quality**

 

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

 

The Company manages its credit risk through diversification of its loanportfolio, the application of underwriting policies and procedures and creditmonitoring practices. Although the Company has a diversified loan portfolio, asignificant portion of its borrowers’ ability to repay their loans is dependentupon the professional services and residential real estate development industrysectors. Generally, loans are secured by real estate or other assets and areexpected to be repaid from the cash flows of the borrower or proceeds from thesale of collateral.

 

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

 
| ** **                                           | ** ** | **March 31,  2005** | ** ** | **% of  Total** | ** ** | **December 31,  2004** | ** ** | **% of  Total** | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|-----------------|------------|-----------------------------|------------|-----------------|------------|
| Commercial  and residential real estate mortgage     |       | $                        | 639,929    |            | 66.01%     |                        | $          | 600,108         |       | 64.08% |   |
| Commercial  and residential real estate construction |       | 193,390                  |       | 19.95%          |       | 199,140                     |       | 21.26%          |       |
| Commercial                                           |       | 119,099                  |       | 12.29%          |       | 119,823                     |       | 12.79%          |       |
| Agricultural                                         |       | 11,162                   |       | 1.15%           |       | 11,514                      |       | 1.23%           |       |
| Installment  and other                               |       | 3,904                    |       | 0.60%           |       | 4,160                       |       | 0.71%           |       |
| Lease  financing                                     |       | 1,904                    |       | 0.20%           |       | 1,768                       |       | 0.19%           |       |
| Total                                                |       | 969,388                  |       | 100.00%         |       | 936,513                     |       | 100.00%         |       |
| Deferred  loan fees and costs, net                   |       | (2,953                   | )          | -0.29%          |       | (3,008                      | )          | -0.33%          |       |
| Less  allowance for loan and lease losses            |       | (14,288                  | )          | -1.47%          |       | (13,786                     | )          | -1.47%          |       |
| Total net  loans and leases                          |       | $                        | 952,147    |            |       |                        | $          | 919,719         |       |   |   |

 

18

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The following table sets forth a summary of the Company’snon-performing assets as of the dates indicated (dollars in thousands):

 
| ** **                                                         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                         | ** ** | **2005**           | ** ** | **2004**              | ** ** |
| Non-accrual  loans                                                 |       | $                  | 1,045      |                  | $          | 889 |   |
| Non-performing  assets as a % of total assets                      |       | 0.09%              |       | 0.07%                 |       |
| Non-accrual  loans as a % of gross loans                           |       | 0.11%              |       | 0.10%                 |       |
| Ratio of  allowance for loan and lease losses to non-accrual loans |       | 13.67              |       | 15.51                 |       |
|                                                                    |            |                    |            |                       |            |  |  |

 

The Company’s non-accrual loans increased from $889,000 to $1,045,000in the first three months of 2005. The Company’s “coverage ratio” or the ratioof allowance for loan and lease losses to non-accrual loans decreased from15.51 to 13.67 during the first three months of 2005.  The Company carried no other real estate asof March 31, 2005 or December 31, 2004.

 

**Allowance for Loan and Lease Losses**

 

The allowance for loan and lease losses isestablished through charges to earnings in the form of the provision for loanand lease losses. Loan and lease losses are charged to, and recoveries arecredited to, the allowance for loan and lease losses. The provision for loanand lease losses is determined after considering various factors such as loanand lease loss experience, current economic conditions, maturity of theportfolio, size of the portfolio, industry concentrations, borrower credithistory, the existing allowance for loan and lease losses, independent loanreviews, current charges to and recoveries within the allowance for loan andlease losses and the overall quality of the portfolio as determined bymanagement, regulatory agencies, and independent credit review consultantsretained by the Company.

 

The adequacy of the Company’sallowance for loan and lease losses is based on specific and formulaallocations to the Company’s loan and lease portfolio. Specific allocations aremade for impaired loans and leases. The specific allocations are increased ordecreased through management’s reevaluation of the status of the particularproblem loans and leases. Loans and leases which do not receive a specificallocation receive an allowance allocation based on a formula represented by apercentage factor based on underlying collateral, type of loan and lease,historical charge-offs and general economic conditions which is applied againstthe general portfolio segments.

 

It is the policy of management to makeadditions to the allowance for loan and lease losses so that it remainsadequate to cover anticipated charge-offs and management believes that theallowance at March 31, 2005 is adequate. However, the determination of theamount of the allowance is judgmental and subject to economic conditions whichcannot be predicted with certainty. Accordingly, the Company cannot predictwhether charge-offs of loans and leases in excess of the allowance may berequired in future periods. The provision for loan and lease losses reflects anaccrual sufficient to cover projected potential charge-offs.  The table below sets forth the allocation ofthe allowance for loan and lease losses by loan type as of the dates specified.The allocation of individual categories of loans includes amounts applicable tospecifically identified, as well as unidentified, losses inherent in thatsegment of the loan and lease portfolio and will necessarily change whenevermanagement determines that the risk characteristics of the loan portfolio havechanged.

 

Management believes that any breakdown orallocation of the allowance for loan and lease losses into loan categorieslends an appearance of exactness which does not exist, in that the allowance isutilized as a single unallocated allowance available for all loans andundisbursed commitments.

 

19

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The following table summarizes the activity in the allowance for loanand lease losses for the periods indicated (dollars in thousands):

 
| ** **                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                 | ** ** | **2005**                               | ** ** | **2004** | ** ** |
| Beginning  balance for allowance for loan and lease losses |       | $                                      | 13,786     |   | $ | 11,529 |   |
| Provision  for loan and lease losses                       |       | 450                                    |       | 710 |   |
| Charge offs:                                               |       |                                   |       |   |   |
| Commercial                                                 |       | 45                                     |       | 25 |   |
| Real estate                                                |       | —                                 |       | — |   |
| Agricultural                                               |       | —                                 |       | — |   |
| Other                                                      |       | 8                                      |       | 19 |   |
| Total charge  offs                                         |       | 53                                     |       | 44 |   |
| Recoveries:                                                |       |                                   |       |   |   |
| Commercial                                                 |       | 103                                    |       | 13 |   |
| Real estate                                                |       | —                                 |       | — |   |
| Agricultural                                               |       | —                                 |       | — |   |
| Other                                                      |       | 2                                      |       | 1 |   |
| Total  recoveries                                          |       | 105                                    |       | 14 |   |
| Net  recoveries (charge offs)                              |       | 52                                     |       | (30 | ) |
| Undisbursed  amount transferred out                        |       | —                                 |       | (44 | ) |
| Ending  balance                                            |       | $                                      | 14,288     |   | $ | 12,165 |   |
| Allowance  for loan and lease losses to total loans        |       | 1.47%                                  |       | 1.42% |   |
| Annualized  net recoveries (charge offs) to average loans  |       | 0.02%                                  |       | -0.01% |   |

 

**Liquidity**

 

A Funds Management Policy has been developed by the Company’sManagement and approved by the Company’s Board of Directors that establishesguidelines for the investments and liquidity of the Company. The goals of thispolicy are to provide liquidity to meet the financial requirements of theCompany’s customers, maintain adequate reserves as required by regulatoryagencies and maximize earnings of the Company. The Company’s liquidity ratio atMarch 31, 2005 was 10.7% and was 12.7% at December 31, 2004.  The reduction in the liquidity ratio at March 31,2005 is due to a decrease in cash and cash equivalents of  $17 million which can primarily be attributedto growth in gross loans of $32 million offset by growth in deposits andborrowings of $17 million.  Liquidity iscomputed by dividing liquid assets (consisting of cash and due from banks,available-for-sale investments not pledged, federal funds sold and loans held forsale) by total liabilities. The Company’s Management believes it maintainsadequate liquidity levels.

 

20

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**Capital Adequacy**

 

Overall capital adequacy is monitored on a day-to-day basis by theCompany’s Management and reported to the Company’s Board of Directors on amonthly basis. The Company’s and subsidiary banks’ regulators measure capitaladequacy by using a risk-based capital framework and by monitoring compliancewith minimum risk-based and leverage ratio guidelines. Under the risk-basedcapital standards, assets reported on the Company’s balance sheet and certainoff-balance sheet items are assigned to risk categories, each of which isassigned a risk weight.

 

This standard characterizes an institution’s capital as being “Tier 1”capital (defined as principally comprising shareholders’ equity and qualifyingsubordinated debentures) and “Tier 2” capital (defined as principallycomprising the qualifying portion of the allowance for loan and lease lossesand any remaining subordinated debentures).

 

The minimum ratio of total risk-based capitalto risk-weighted assets, including certain off-balance sheet items, is 8% (10%to be considered well-capitalized).  Theminimum ratio of Tier 1 capital to average assets (leverage ratio) is 4.0%(5.0% to be considered well-capitalized). The minimum ratio of Tier 1 capital to risk-weighted assets is 4.0%(6.0% to be considered well-capitalized). At least one-half (4%) of the total risk-based capital (Tier 1) isto be comprised of common equity; the balance may consist of debt securitiesand a limited portion of the allowance for loan and lease losses.  Subordinated debentures in the amount of $36million are included in the Company’s Tier 1 capital as of March 31, 2005and December 31, 2004, respectively, as allowed by Federal Reserveregulations, in the consolidated totals below.

 

Thefollowing table sets forth the Company’s and its banking subsidiaries’ capitalratios as of the dates indicated.

 
| ** **                                        | ** ** | **March 31, 2005** | ** ** | **December 31, 2004** | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                        | ** ** | **ACB**                 | ** ** | **CCB**                    | ** ** | **LCB** | ** ** | **WSNB** | ** ** | **Company** | ** ** | **ACB** | ** ** | **CCB** | ** ** | **LCB** | ** ** | **WSNB** | ** ** | **Company** | ** ** |
|                                              |       |                    |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total risk-based capital to risk-weighted assets  |       | 11.0%                   |       | 12.3%                      |       | 10.6% |   | 11.5% |   | 12.7% |   | 10.3% |   | 12.3% |   | 11.8% |   | 11.2% |   | 12.6% |   |
| Tier 1 capital to risk-weighted assets            |       | 9.8%                    |       | 11.0%                      |       | 9.3% |   | 10.3% |   | 11.5% |   | 9.0% |   | 11.0% |   | 10.5% |   | 9.9% |   | 11.3% |   |
| Tier 1 capital to average assets (leverage ratio) |       | 8.1%                    |       | 8.6%                       |       | 8.7% |   | 9.0% |   | 9.7% |   | 7.3% |   | 8.5% |   | 9.6% |   | 8.6% |   | 9.5% |   |

 

The Company and its bank subsidiaries continue to meet all regulatorycapital requirements at March 31, 2005.

 

21

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**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK.**

 

As a financial institution, the Company’s primary component of marketrisk is interest rate volatility. Fluctuations in interest rates willultimately impact both the level of interest income and interest expenserecorded on a large portion of the Company’s assets and liabilities, and themarket value of all interest earning assets and interest bearing liabilities,other than those which possess a short term to maturity. Since substantiallyall of the Company’s interest earning assets and interest bearing liabilitiesare located at the banking subsidiary level, most of the Company’s interestrate risk exposure lies at the banking subsidiary level other than $36 millionin subordinated debentures issued by the Company’s subsidiary grantor trusts.As a result, all significant interest rate risk procedures are performed at thebanking subsidiary level. The subsidiary banks’ real estate loan portfolios,concentrated primarily within Northern California, are subject to risksassociated with their local economies.

 

The fundamental objective of the Company’s management of its assets andliabilities is to maximize the Company’s economic value while maintainingadequate liquidity and an exposure to interest rate risk deemed by Managementto be acceptable. Management believes an acceptable degree of exposure tointerest rate risk results from the management of assets and liabilitiesthrough maturities, pricing and mix to attempt to neutralize the potentialimpact of changes in market interest rates. The Company’s profitability isdependent to a large extent upon its net interest income, which is the differencebetween its interest income on interest-earning assets, such as loans andinvestments, and its interest expense on interest-bearing liabilities, such asdeposits and borrowings. The Company is subject to interest rate risk to thedegree that its interest-earning assets reprice differently than itsinterest-bearing liabilities. The Company manages its mix of assets andliabilities 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 mannerthat will allow for adequate levels of earnings and capital over a range ofpossible interest rate environments. The Company has adopted formal policiesand practices to monitor and manage interest rate risk exposure.  Management believes historically it haseffectively managed the effect of changes in interest rates on its operatingresults.  Management believes that it cancontinue to manage the short-term effect of interest rate changes under variousinterest rate scenarios.

 

Management deploys an interestrate sensitivity measurement tool to measure the Company’s exposure to futurechanges in interest rates.  This modelmeasures the expected cash flows and repricing of each financialasset/liability separately in measuring the Company’s and each bank’s interestsensitivity. Based on the results of this model, management believes theCompany balance sheet is “asset sensitive” at this time.  This means the Company expects (all otherthings being equal) to expand its net interest income if market rates rise andexpects it conversely to contract if market rates fall.  The level of potential or expectedcontraction indicated by the tables below is considered acceptable bymanagement and is compliant with the Company’s ALCO policies.  Management will continue to perform thisanalysis each quarter to further validate the expected results against actualdata.

 

22

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The following tables, in management’sopinion, reflect estimates of the Company’s future net interest income underdifferent interest rate scenarios.  Thenet interest income estimates are one-year projections based on the earningassets and interest- bearing liabilities as of March 31, 2005.  The estimates are derived from anasset/liability management model first deployed in April 2003.  There are numerous underlying assumptions,including but not limited to, 1) a static balance sheet and mix of earningassets and interest-bearing liabilities; 2) instruments that mature are assumedto be replaced by similar instruments at prevailing market rates; 3) interestrate changes assume a parallel shift in the yield curve and 4) changes indeposit rates will correlate to prevailing interest rates to the same degreethat the Company has experienced in the past. Management believes these assumptions are appropriate, but if they areinaccurate they could have an impact on the results of operations.  Under the shock scenarios, the changes tointerest rates are assumed to occur immediately (on April 1, 2005).  Under the ramp scenarios the changes tointerest rates gradually ramp up or down over the course of one year (dollarsin thousands).

 
| ** **                   | ** ** | **Shock scenario**                  | ** ** |
|------------------------------|------------|-------------------------------------|------------|
| **Change in Interest Rates** | ** ** | **Estimated  Net Interest  Income** | ** ** | **Dollar Change  from Base** | ** ** | **Percentage  Change  from Base** | ** ** |
|                         |       |                                |       |   |   |   |   |
| 300 basis  point rise        |       | $                                   | 63,710     |   | $ | 6,733 |   | 11.82% |   |
| 200 basis  point rise        |       | 61,599                              |       | 4,621 |   | 8.11% |   |
| 100 basis  point rise        |       | 59,338                              |       | 2,361 |   | 4.14% |   |
| 50 basis point  rise         |       | 58,175                              |       | 1,198 |   | 2.10% |   |
| **Base  scenario**           | ** ** | **56,977**                          | ** ** | **0** | ** ** | **0.00%** | ** ** |
| 50 basis  point decline      |       | 55,176                              |       | (1,801 | ) | -3.16% |   |
| 100 basis  point decline     |       | 53,500                              |       | (3,478 | ) | -6.10% |   |
| 200 basis  point decline     |       | 50,457                              |       | (6,520 | ) | -11.44% |   |
|                              |            |                                     |            |  |  |  |  |  |  |

 
| ** **                   | ** ** | **Ramp scenario**                   | ** ** |
|------------------------------|------------|-------------------------------------|------------|
| **Change in Interest Rates** | ** ** | **Estimated  Net Interest  Income** | ** ** | **Dollar Change  from Base** | ** ** | **Percentage  Change  from Base** | ** ** |
|                         |       |                                |       |   |   |   |   |
| 300 basis  point rise        |       | $                                   | 59,100     |   | $ | 2,123 |   | 3.73% |   |
| 200 basis  point rise        |       | 58,426                              |       | 1,448 |   | 2.54% |   |
| 100 basis  point rise        |       | 57,706                              |       | 729 |   | 1.28% |   |
| 50 basis  point rise         |       | 57,349                              |       | 372 |   | 0.65% |   |
| **Base  scenario**           | ** ** | **56,977**                          | ** ** | **0** | ** ** | **0.00%** | ** ** |
| 50 basis  point decline      |       | 56,287                              |       | (690 | ) | -1.21% |   |
| 100 basis  point decline     |       | 55,593                              |       | (1,384 | ) | -2.43% |   |
| 200 basis  point decline     |       | 54,338                              |       | (2,640 | ) | -4.63% |   |
|                              |            |                                     |            |  |  |  |  |  |  |

 

23

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The following table shows the loan portfoliocomposition by rate type as of March 31, 2005.  It further identifies when and at what rateincrease scenario the variable rate loans at floors will most likely come offtheir floor and reprice. Loans at floors can generally be refinanced by anotherfinancial institution at anytime by the borrower without penalty if theborrower chooses to do so.  The Companymonitors the rate of these loans relative to prevailing rates and will modifyterms of certain loans that are at a significantly higher rate than marketdirectly with the borrower when the relationship dictates it is a prudentbusiness decision (dollars in thousands).

 
| **Loans**            | ** ** | **Balance** | ** ** | **%****of  Total** | ** ** |
|----------------------|------------|-------------|------------|--------------------|------------|
| Variable             |       | $           | 550,976    |               | 57%        |   |
| Variable at  Floor * |       | 192,716     |       | 20%                |       |
| Fixed                |       | 225,696     |       | 23%                |       |
| Total Gross  Loans   |       | $           | 969,388    |               | 100%       |   |

 
| *** Variable Loans at Floor** | ** ** |
|-------------------------------|------------|
| ** **                    | ** ** | **Coming off Floor** | ** ** | **Repricing Schedule** | ** ** |
| **Rate  Increase Scenarios**  | ** ** | **Balance** | ** ** | **%****of  Total** | ** ** | **Within 1 year** | ** ** | **1-2 years** | ** ** | **2-3 years** | ** ** | **3-4 years** | ** ** | **4+ years** | ** ** | **Total** | ** ** |
| 50 bps                        |       | $ | 181,115 |   | 95% |   | $ | 23,874 |   | $ | 53,157 |   | $ | 37,111 |   | $ | 36,958 |   | $ | 30,015 |   | $ | 181,115 |   |
| 100 bps                       |       | 4,608 |   | 1% |   | 2,776 |   | 1,174 |   | 244 |   | 107 |   | 308 |   | 4,608 |   |
| >100 bps                   |       | 6,993 |   | 4% |   | 4,367 |   | 123 |   | 1,405 |   | 445 |   | 653 |   | 6,993 |   |
| Total at Floor                |       | $ | 192,716 |   | 100% |   | $ | 31,018 |   | $ | 54,454 |   | $ | 38,760 |   | $ | 37,509 |   | $ | 30,975 |   | $ | 192,716 |   |

 

Based on the data presented above, management believes that approximately 76% of total loans will ultimately adjust if market interest rates increase 50 basis points, approximately 59% will adjust within one year of the rate change.

 

24

 

**ITEM 4.  Controls and Procedures.**

 

The Company’s Chief Executive Officer and Chief Financial Officer,based on their evaluation as of the date of this report of the Company’sdisclosure controls and procedures (as defined in Exchange ActRule 13a—15(e), have concluded that the Company’s disclosure controls andprocedures are adequate and effective for purposes of Rule 13a—15(e) in timelyalerting them to material information relating to the Company required to beincluded in the Company’s filings with the SEC under the Securities ExchangeAct of 1934.

 

There were no significant changes in theCompany’s internal control over financial reporting or in other factors thatcould significantly affect internal control over financial reporting subsequentto the date of their evaluation.

 

25

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**PART II.Other Information**

 

**Item #1.Legal proceedings**

 

The Company and its subsidiaries are involved in various routine legalactions arising in the ordinary course of business. The Company believes thatthe ultimate disposition of all currently pending matters will not have amaterial adverse effect on the Company’s financial condition or results ofoperations.

 

# **Item#2. Unregistered sales of equity securities and use of proceeds**

 

N/A

 

# **Item#3. Defaults upon Senior Securities**

 

N/A

 

# **Item#4.  Submission of Matters to a Vote ofSecurity Holders**

# ** **

N/A

 

# **Item #5. OtherInformation**

 

N/A

 

26

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**Item #6A.Exhibits**

 
| **Exhibit No.** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                           |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                 |
| 3.1             |       | Articles of Incorporation are contained in  the Registrant’s Registration Statement on Form S-4, file #333-66675, as  Exhibit 3.1 and are incorporated herein by this reference.                                                                                                                |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 3.2             |       | Bylaws are contained in the Registrant’s  Registration Statement on Form S-4, file #333-66675, as Exhibit 3.2 and are  incorporated herein by this reference.                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 3.3             |       | Amendments to  Bylaws are contained in the Registrant’s Registration Statement on Form S-4,  file #333-76678, as Exhibit 3.2 and are incorporated herein by this  reference.                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.1            |       | Severance Benefits Agreement dated January 16,  2004 between Mr. Kirk Dowdell and Western Sierra Bancorp. (3)                                                                                                                                                                                   |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.2            |       | Executive Salary Continuation Agreement  dated August 22, 2002, between Mr. Gary D. Gall and Western Sierra  National Bank. (1)                                                                                                                                                                 |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.3            |       | Western Sierra Bancorp 1999 Stock Option  Plan and form of stock option agreements are contained in the Registrant’s  Registration Statement on Form S-8, file #333-86653, as Exhibit 99.3 and are  incorporated herein by this reference.                                                      |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.4            |       | Western Sierra National Bank 1989 Stock  Option Plan, form of incentive stock option and form of nonqualified stock  option agreements are contained in the Registrant’s Registration Statement on  Form S-4, file #333-66675, as Exhibit 10.10 and are incorporated herein by  this reference. |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.5            |       | Western Sierra Bancorp 1997 Stock Option  Plan, form of incentive stock option and form of nonqualified stock option  agreements are contained in the Registrant’s Registration Statement on Form  S-4, file #333-66675, as Exhibit 10.11 and are incorporated herein by this  reference.       |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.6            |       | Indemnification Agreement between Mr. Gary  D. Gall and Western Sierra National Bank is contained in the Registrant’s  Registration Statement on Form S-4, file #333-66675, as Exhibit 10.13 and is  incorporated herein by this reference.                                                     |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.7            |       | Indemnification Agreement between Mr. Kirk  Dowdell and Western is contained in the Registrant’s Registration Statement  on Form S-4, file #333-86653, as Exhibit 10.14 and is incorporated herein by  this reference.                                                                          |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.8            |       | Form of Indemnification Agreement for the  directors of Western Sierra National Bank is contained in the Registrant’s  Registration Statement on Form S-4 file, #333-66675, as Exhibit 10.15 and is  incorporated herein by this reference.                                                     |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.9            |       | Executive Salary Continuation Agreement  dated February 1, 2002, between Mr. Kirk N. Dowdell. (1)                                                                                                                                                                                               |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.10           |       | Severance Benefits Agreement dated July 25,  2002 between Mr. Gary D. Gall and Western Sierra Bancorp included as an  exhibit to the Registrant’s 10-K for December 31, 2004 and incorporated  herein by this reference.                                                              |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.11           |       | Western Sierra National Bank Incentive  Compensation Plan for Senior Management is contained in the Registrant’s  Registration Statement on Form S-4, file # 333-66675, as Exhibit 10.12 and is  incorporated herein by this reference.                                                         |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.12           |       | Wells Fargo Note Contract dated April 10,  2003. (1)                                                                                                                                                                                                                                            |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.13           |       | Executive Salary Continuation Agreement  dated June 22, 2002, between Mr. Fred Rowden and Central California  Bank. (1)                                                                                                                                                                         |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.14           |       | Executive Salary Continuation Agreement  dated June 1, 2002, between Mr. Phillip Wood and Western Sierra National  Bank. (1)                                                                                                                                                                    |
|            |       |                                                                                                                                                                                                                                                                                                 |
| 10.15           |       | Executive Salary Continuation Agreement  dated June 25, 2002, between Mr. Doug Nordell and Roseville 1st National  Bank. (1)                                                                                                                                                                    |

 

27

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| 10.16  |   | Contract between Woodbury Financial  Services, Inc. and Western Sierra National Bank dated July 22, 2003. (2)                                                                                                                       |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                     |
| 10.17  |   | Summary of financial terms for Western  Sierra Statutory Trusts III and IV. (2)                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                     |
| 10.18  |   | Severance Benefits Agreement dated February 10,  2004 between Mr. Anthony Gould and Western Sierra Bancorp. (3)                                                                                                                     |
|   |   |                                                                                                                                                                                                                                     |
| 10.19  |   | Western Sierra Bancorp 2004 Stock Option  Plan is included as an exhibit in the Registrant’s Definitive Proxy Statement  for 2004 and is incorporated herein by this reference.                                                     |
|   |   |                                                                                                                                                                                                                                     |
| 10.20  |   | Form of the nonqualified and incentive  agreements for the Western Sierra Bancorp 2004 stock option plan is included  as an exhibit in the Registrant’s September 30, 2004 10-Q and is  incorporated herein by this reference. |
|   |   |                                                                                                                                                                                                                                     |
| 10.21  |   | Employment Agreement dated May 3, 2005, between  the Company and Patrick J. Rusnak                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                     |
| 11.1   |   | Statement re: Computation of earnings per  share is included in Note 12 to the consolidated financial statements.                                                                                                                        |
|   |   |                                                                                                                                                                                                                                     |
| 31.1   |   | Section 302 Certification by Anthony  J. Gould                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                     |
| 31.2   |   | Section 302 Certification by Gary D. Gall                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                     |
| 32.1   |   | Section 906 Certification by Anthony  J. Gould                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                     |
| 32.2   |   | Section 906 Certification by Gary D.  Gall                                                                                                                                                                                          |

 

----

(1)  included as an exhibit tothe Registrant’s 10-Q for March 31, 2003, which is incorporated by thisreference herein.

(2)  included as an exhibit tothe Registrant’s 10-Q for September 30, 2003, which is incorporated bythis reference herein.

(3)  included as an exhibit tothe Registrant’s 10-Q for March 31, 2004, which is incorporated by thisreference herein.

 

 

28

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**SIGNATURES**

 

Following the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
| **WESTERN  SIERRA BANCORP**(Registrant) |   |                                                               |                       |
|-----------------------------------------|--------|--------------------------------------------------------------------|----------------------------|
|                                    |   |                                                               |                       |
| Date: May 6, 2005                       |   |                                                               |                       |
|                                    |   |                                                               |                       |
|                                    |   |                                                               |                       |
|                                    |   | * *                                                           | /s/  GARY D. GALL     | * * | * * |
|                                    |   | * *                                                           | Gary D. Gall               | * * | * * |
|                                    |   | *President/Chief Executive Officer*                                |                       |
|                                    |   |                                                               |                       |
|                                    |   |                                                               |                       |
|                                    |   |                                                               | /s/  ANTHONY J. GOULD | * * | * * |
|                                    |   |                                                               | Anthony J. Gould           | * * | * * |
|                                    |   | *Executive Vice President/Chief Financial and  Accounting Officer* | * *                   |

 

29

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