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

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the Quarterly Period Ended June 30, 2001

OR

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

For the transition period from  to

Commission file number 0-25979

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

California(State or other jurisdiction of incorporation or organization)

68-0390121(I.R.S. Employer Identification No.)3350 Country Club Drive, Suite 202
Cameron Park, California(Address of principal executive offices)

95682(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 per share

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

As
of July 30, 2001 there were 3,423,559 shares outstanding of the Registrant's common stock.

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WESTERN SIERRA BANCORP & SUBSIDIARIES    Index to Form 10-Q

|                              |                                                                                               |                                                                                                                    |       | Page:
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ----- | -----
|PART I. Financial Information |                                                                                               |                                                                                                                   
|                              | Item 1. Financial Statements                                                                  |                                                                                                                    |      
|                              |                                                                                               | Consolidated Balance Sheet
June 30, 2001 and December 31, 2000                                                     |       | 3    
|                              |                                                                                               | Consolidated Statement of Income
Three months ended June 30, 2001 and 2000
Six months ended June 30, 2001 and 2000 |       | 4    
|                              |                                                                                               | Consolidated Statement of Cash Flows
Six months ended June 30, 2001 and 2000                                       |       | 5    
|                              |                                                                                               | Notes to Consolidated Financial Statements                                                                         |       | 6-7  
|                              | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |                                                                                                                    | 7-18 
|                              | Item 3. Quantitative and Qualitative Disclosure about Market Risk                             |                                                                                                                    | 18-19
|PART II. Other Information    |                                                                                               |                                                                                                                   
|                              | Item 1. Legal proceedings                                                                     |                                                                                                                    | 20   
|                              | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                    | 20   
|                              | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                    | 20   
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                    | 20   
|                              | Item 5. Other Information                                                                     |                                                                                                                    | 20   
|                              | Item 6. Exhibits and Report on Form 8-K                                                       |                                                                                                                    | 20-21
|SIGNATURES                    |                                                                                               | 22                                                                                                                

2

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Western Sierra Bancorp and Subsidiaries Consolidated Balance Sheet(Unaudited)

|                                    |                                                                                                                | June 30,
2001                |                                            | December 31,
2000 |        
|----------------------------------- | -------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------ | ----------------- | -------
|
|Assets:                             |                                                                                                                |                              |                                            |                   |        
|Cash and due from banks             |                                                                                                                | $                            | 33,751                                     |                   | $      
|Federal funds sold                  |                                                                                                                |                              | 10,495                                     |                   |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Cash and cash equivalents    |                                            |                   | 44,246 
|                                    |                                                                                                                |                              |                                            |                   |        
|Interest-bearing deposits in banks  |                                                                                                                |                              | 396                                        |                   |        
|Loans held for sale                 |                                                                                                                |                              | 4,102                                      |                   |        
|Investment securities:              |                                                                                                                |                              |                                            |                   |        
|                                    | Trading                                                                                                        |                              |                                            | 11                |        
|                                    | Available-for-sale (amortized cost $51,456 in 2001and $59,712 in 2000)                                         |                              |                                            | 51,246            |        
|                                    | Held-to-maturity (market value of $9,022 in 2001 and $11,600 in 2000)                                          |                              |                                            | 9,032             |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Total investment securities  |                                            |                   | 60,289 
|                                    |                                                                                                                |                              |                                            |                   |        
|Portfolio loans and leases:         |                                                                                                                |                              |                                            |                   |        
|                                    | Real estatemortgage                                                                                           |                              |                                            | 211,661           |        
|                                    | Real estateconstruction                                                                                       |                              |                                            | 67,460            |        
|                                    | Commercial                                                                                                     |                              |                                            | 53,043            |        
|                                    | Agricultural                                                                                                   |                              |                                            | 12,528            |        
|                                    | Installment                                                                                                    |                              |                                            | 5,471             |        
|                                    | Lease financing                                                                                                |                              |                                            | 3,169             |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Total gross loans and leases |                                            |                   | 353,332
|                                    |                                                                                                                |                              |                                            |                   |        
|Deferred loan and lease fees, net   |                                                                                                                |                              | (816                                       | )                 |        
|Allowance for loan and lease losses |                                                                                                                |                              | (4,695                                     | )                 |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Net loans and leases         |                                            |                   | 347,821
|                                    |                                                                                                                |                              |                                            |                   |        
|Premises and equipment              |                                                                                                                |                              | 11,726                                     |                   |        
|Other assets                        |                                                                                                                |                              | 11,349                                     |                   |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Total assets                 |                                            | $                 | 479,929
|                                    |                                                                                                                |                              |                                            |                   |        
|Liabilities:                        |                                                                                                                |                              |                                            |                   |        
|Non-interest bearing                |                                                                                                                | $                            | 90,406                                     |                   | $      
|Interest bearing:                   |                                                                                                                |                              |                                            |                   |        
|                                    | NOW, money market and savings                                                                                  |                              |                                            | 129,720           |        
|                                    | Time, $100 thousand or more                                                                                    |                              |                                            | 83,002            |        
|                                    | Other time                                                                                                     |                              |                                            | 131,896           |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Total deposits               |                                            |                   | 435,024
|Borrowed funds                      |                                                                                                                |                              | 2,250                                      |                   |        
|Other liabilities                   |                                                                                                                |                              | 4,001                                      |                   |        
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Total liabilities            |                                            |                   | 441,275
|                                    |                                                                                                                |                              |                                            |                   |        
|Shareholders' equity:               |                                                                                                                |                              |                                            |                   |        
|                                    | Preferred stockno par value; 10,000,000 shares authorized; none issued                                        |                              |                                            |                  |        
|                                    | Common stockno par value; 10,000,000 shares authorized; issued 3,461,465 shares in 2001 and 3,448,782 in 2000 |                              |                                            | 20,400            |        
|                                    | Retained earnings                                                                                              |                              |                                            | 18,890            |        
|                                    | Unearned ESOP shares                                                                                           |                              |                                            | (500              | )      
|                                    | Accumulated other comprehensive loss                                                                           |                              |                                            | (136              | )      
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                | Total shareholders' equity   |                                            |                   | 38,654 
|                                    |                                                                                                                |                              |                                            |                   |        
|                                    |                                                                                                                |                              | Total liabilities and shareholders' equity |                   | $      
|                                    |                                                                                                                |                              |                                            |                   |        

See notes to consolidated financial statements.

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

|                                                                                              |                                    | Three Months Ended        |                     | Six Months Ended |      
|--------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------- | ------------------- | ---------------- | -----
|
|
|Interest Income:                                                                              |                                    |                           |                     |                  |      
|                                                                                              | Interest and fees on loans         |                           | $                   | 7,555            |      
|                                                                                              | Interest on investment securities: |                           |                     |                  |      
|                                                                                              |                                    | Taxable                   |                     |                  | 759  
|                                                                                              |                                    | Exempt from federal taxes |                     |                  | 246  
|                                                                                              | Interest on Federal funds sold     |                           |                     | 200              |      
|                                                                                              |                                    |                           |                     |                  |      
|                                                                                              |                                    | Total interest income     |                     |                  | 8,760
|                                                                                              |                                    |                           |                     |                  |      
|Interest expense:                                                                             |                                    |                           |                     |                  |      
|                                                                                              | Interest on deposits               |                           |                     | 3,538            |      
|                                                                                              | Interest on borrowed funds         |                           |                     | 28               |      
|                                                                                              |                                    |                           |                     |                  |      
|                                                                                              |                                    | Total interest expense    |                     |                  | 3,566
|                                                                                              |                                    |                           |                     |                  |      
|                                                                                              |                                    |                           | Net interest income |                  |      
|Provision for loan and lease losses                                                           |                                    |                           | 245                 |                  |      
|                                                                                              |                                    |                           |                     |                  |      
|Net interest income after provision for loan and lease losses                                 |                                    |                           | 4,949               |                  |      
|                                                                                              |                                    |                           |                     |                  |      
|Non-interest income:                                                                          |                                    |                           |                     |                  |      
|Service charges and fees                                                                      |                                    |                           | 446                 |                  |      
|Gain on sale and packaging of residential mortgage and government-guaranteed commercial loans |                                    |                           | 654                 |                  |      
|Gain on sale of investment securities                                                         |                                    |                           | 135                 |                  |      
|Other income                                                                                  |                                    |                           | 213                 |                  |      
|                                                                                              |                                    |                           |                     |                  |      
|                                                                                              |                                    | Total non-interest income |                     |                  | 1,448
|                                                                                              |                                    |                           |                     |                  |      
|Other expenses:                                                                               |                                    |                           |                     |                  |      
|                                                                                              | Salaries and benefits              |                           |                     | 2,271            |      
|                                                                                              | Occupancy and equipment            |                           |                     | 656              |      
|                                                                                              | Merger and acquisition expenses    |                           |                     |                  |      
|                                                                                              | Other expenses                     |                           |                     | 1,403            |      
|                                                                                              |                                    |                           |                     |                  |      
|                                                                                              |                                    | Total other expenses      |                     |                  | 4,330
|                                                                                              |                                    |                           |                     |                  |      
|Income before income taxes                                                                    |                                    |                           | 2,067               |                  |      
|Income taxes                                                                                  |                                    |                           | 752                 |                  |      
|                                                                                              |                                    |                           |                     |                  |      
|                                                                                              |                                    | Net income                |                     | $                | 1,315
|                                                                                              |                                    |                           |                     |                  |      
|Basic earnings per share                                                                      |                                    | $                         | .38                 |                  | $    
|                                                                                              |                                    |                           |                     |                  |      
|Diluted earnings per share                                                                    |                                    | $                         | .37                 |                  | $    
|                                                                                              |                                    |                           |                     |                  |      

See
notes to consolidated financial statements.

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

|                                                                                  |                                                                                               | Six Months Ended                          |       
|--------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------- | ------
|
|
|Cash flows from operating activities:                                             |                                                                                               |                                           |       
|                                                                                  | Net income                                                                                    |                                           | $     
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                               |                                           |       
|                                                                                  | Provision for loan and lease losses                                                           |                                           |       
|                                                                                  | Depreciation and amortization                                                                 |                                           |       
|                                                                                  | Provision for loss on other real estate                                                       |                                           |       
|                                                                                  | Net decrease in trading securities                                                            |                                           |       
|                                                                                  | Gain on sale of other real estate                                                             |                                           |       
|                                                                                  | Amortization of investment security premiums, net of accretion                                |                                           |       
|                                                                                  | (Gain) Loss on sale of securities                                                             |                                           |       
|                                                                                  | Increase in loans held for sale                                                               |                                           |       
|                                                                                  | Deferred loan and lease origination fees, net                                                 |                                           |       
|                                                                                  | Increase in other assets                                                                      |                                           |       
|                                                                                  | Increase in other liabilities                                                                 |                                           |       
|                                                                                  |                                                                                               |                                           |       
|                                                                                  |                                                                                               | Net cash provided by operating activities |       
|                                                                                  |                                                                                               |                                           |       
|Cash flows from investing activities:                                             |                                                                                               |                                           |       
|                                                                                  | Decrease in interest-bearing deposits in banks                                                |                                           |       
|                                                                                  | Proceeds from the sale and call of available-for-sale investment securities                   |                                           |       
|                                                                                  | Proceeds from the maturity of available-for-sale investment securities                        |                                           |       
|                                                                                  | Proceeds from the call of held-to-maturity investment securities                              |                                           |       
|                                                                                  | Proceeds from the maturity of held-to-maturity investment securities                          |                                           |       
|                                                                                  | Proceeds from the principal payments on available-for-sale mortgage-backed and SBA securities |                                           |       
|                                                                                  | Proceeds from principal payments on held-to-maturity mortgage-backed securities               |                                           |       
|                                                                                  | Purchase of available-for-sale investment securities                                          |                                           |       
|                                                                                  | Net increase in loans and leases                                                              |                                           |       
|                                                                                  | Purchases of premises and equipment                                                           |                                           |       
|                                                                                  | Proceeds from sale of other real estate                                                       |                                           |       
|                                                                                  |                                                                                               |                                           |       
|                                                                                  |                                                                                               | Net cash used in investing activities     |       
|                                                                                  |                                                                                               |                                           |       
|Cash flows from financing activities:                                             |                                                                                               |                                           |       
|                                                                                  | Net increase in demand, interest-bearing and savings deposits                                 |                                           |       
|                                                                                  | Net (decrease) increase in time deposits                                                      |                                           |       
|                                                                                  | Net increase (decrease) in short-term borrowings                                              |                                           |       
|                                                                                  | Purchase of unearned ESOP shares                                                              |                                           |       
|                                                                                  | Repurchase of common stock                                                                    |                                           |       
|                                                                                  | Proceeds from exercised stock options                                                         |                                           |       
|                                                                                  | Cash dividends paid                                                                           |                                           |       
|                                                                                  |                                                                                               |                                           |       
|                                                                                  |                                                                                               | Net cash provided by financing activities |       
|                                                                                  |                                                                                               |                                           |       
|Net (decrease) increase in cash and cash equivalents                              |                                                                                               |                                           | (7,706
|Cash and cash equivalents at beginning of year                                    |                                                                                               |                                           | 51,952
|                                                                                  |                                                                                               |                                           |       
|Cash and cash equivalents at end of period                                        |                                                                                               | $                                         | 44,246
|                                                                                  |                                                                                               |                                           |       

See
notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Western Sierra Bancorp and subsidiaries (the "Company") have been prepared in
accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. In the opinion of management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation
of the results for the interim periods presented have been included. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related
notes contained in the Company's 2000 Annual Report to Shareholders.

The
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Western Sierra National Bank (WSNB) and Lake Community Bank
(LCB). All significant inter-company balances and transactions have been eliminated. Operating results for the three and six months ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. Certain amounts in the consolidated financial statements for the year ended December 31, 2000 have been reclassified
to conform to the presentation of the consolidated financial statements in 2001.

2. Earnings per Share

Basic earnings per share (EPS), which excludes dilution, is computed by dividing net income by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares
in the earnings of the Company. Earnings per share is retroactively adjusted for stock dividends for all periods presented. A reconciliation of the numerators and denominators of the basic and diluted
EPS computations is as follows (dollars in thousands, except for per share data).

|                         |                                                           | Three Months Ended                            |           | Six Months Ended
|------------------------ | --------------------------------------------------------- | --------------------------------------------- | --------- | ----------------
|
|Basic EPS Computation:   |                                                           |                                               |           |                 
|                         | Numeratornet income                                      |                                               | $         | 1,315           
|                         | Denominatorweighted average number of shares outstanding |                                               |           | 3,479,150       
|                         |                                                           |                                               |           |                 
|                         |                                                           | Basic earnings per share                      |           | $               
|                         |                                                           |                                               |           |                 
|Diluted EPS Computation: |                                                           |                                               |           |                 
|                         | Numeratornet income                                      |                                               | $         | 1,315           
|                         | Denominator                                              |                                               |           |                 
|                         |                                                           | Weighted average number of shares outstanding |           |                 
|                         |                                                           | Effect of dilutive stock options              |           |                 
|                         |                                                           |                                               |           |                 
|                         |                                                           |                                               | 3,558,242 |                 
|                         |                                                           |                                               |           |                 
|                         |                                                           | Diluted earnings per share                    |           | $               
|                         |                                                           |                                               |           |                 

3. Stock Repurchase Plan

On June 21, 2001, the Company announced that its Board of Directors approved a plan to repurchase up to 5% (or 160,000 shares) of the Company's common
stock. During the second quarter of 2001, the Company repurchased 28,500 shares at an average price of $14.35 per share. The

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repurchase is in contemplation of reissuing such shares as part of the banks normal declaration of annual stock dividends.

4. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS 141,Business
Combinations. This Statement addresses financial accounting and reporting for business combinations, which are to be accounted for using a single methodthe
purchase method. In addition, this Statement requires that intangible assets be recognized as assets apart from goodwill if they meet one of two criteriathe contractual-legal criterion or
the separability criterion. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted
for using the purchase method for which the date of acquisition is July 1, 2001, or later.

In
June 2001, the FASB issued SFAS 142,Goodwill and Other Intangible Assets. This Statement addresses financial
accounting and reporting for acquired goodwill and other intangible assets. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested annually
for impairment. Intangible assets that have finite useful lives continue to be amortized over their useful lives, but without the constraint of an arbitrary ceiling. Because goodwill and other
intangible assets will no longer be amortized, the reported amounts of goodwill and intangible assets will not decrease at the same time and in the same manner as under previous standards. The
provisions of this Statement are required to be applied starting with the years beginning after December 15, 2001. However, goodwill and intangible assets acquired after June 30, 2001,
will be subject immediately to the provisions of this Statement.

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

Private securities litigation reform act safe harbor statement

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



For
additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 under the heading "Forward-Looking Information". Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

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The following sections discuss significant changes and trends in financial condition, capital resources and liquidity of the Company from December 31, 2000 to June 30,
2001. Also discussed are significant trends and changes in the Company's results of operations for the three months and six months ended June 30, 2001, compared to the same periods in 2000. The
consolidated financial statements and related notes appearing elsewhere in this report are condensed and unaudited.

General

Western Sierra Bancorp (the "Company") was incorporated under the laws of the State of California on July 11, 1996. The Company was organized pursuant
to a plan of reorganization for the purpose of becoming the parent corporation of Western Sierra National Bank, and on December 31, 1996, the reorganization was effected and shares of the
Company common stock were issued to the shareholders of Western Sierra National Bank for the common shares held by Western Sierra National Bank's shareholders. In April 1999, the Company
acquired Roseville 1st National Bank and Lake Community Bank in a stock for stock exchange. In May of 2000, the Company acquired Sentinel Community Bank in a stock for stock exchange. In addition,
these mergers were accounted for as a pooling of interests and accordingly, all prior period financial statements have been restated to reflect the combined operations of the Company, Roseville 1st
National Bank, Lake Community Bank and Sentinel Community Bank. Sentinel Community Bank was merged into Western Sierra National Bank. Also in May of 2000, Roseville 1st National Bank was merged into
Western Sierra National Bank. In October of 2000, Western Sierra National Bank purchased the deposits and certain other assets and liabilities of the Columbia branch of Pacific State Bank. The Company
is a registered bank holding company under the Bank Holding Company Act. The Company conducts its operations at 3350 Country Club Drive, Suite 202, Cameron Park, California 95682.

Western
Sierra National Bank was organized under national banking laws and commenced operations as a national bank on January 4, 1984. Western Sierra National Bank is a member
of the Federal Reserve System and its deposits are insured to the maximum amount permitted by law by the FDIC. Western Sierra National Bank's head office is located at 4011 Plaza Goldorado Circle,
Cameron Park, and its branch offices are located at 2661 Sanders Drive, Pollock Pines, 3970 J Missouri Flat Road, Placerville, 1450 Broadway, Placerville, 3880 El Dorado Hills Blvd., El Dorado Hills,
571 5th Street, Lincoln, 1545 River Park Dr. #101 & #200, Sacramento, 229 South Washington Street, Sonora, 13753-A Mono Way, Sonora, 18711 Tiffeni Drive, Twain Harte, 1801
Douglas Blvd., Roseville, 6951 Douglas Blvd., Granite Bay, and 22712 Main Street, Columbia. Western Sierra National Bank does not have any affiliates or subsidiaries, other than Lake Community Bank
and Sentinel Associates, Inc.

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

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

Sentinel
Community was incorporated under the laws of the State of California on December 24, 1980, and commenced operations on April 2, 1982. The corporation was formed
as a State Chartered Savings and Loan Association. Sentinel Community converted its charter to a Federal Savings and Loan Association on June 9, 1989. In October of 1996, Sentinel Community
changed its name to Sentinel Community Bank, while remaining chartered as a Federal Savings and Loan Association.

8

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Sentinel Community Bank was merged into Western Sierra National Bank in May 2000, and operates as a DBA Sentinel Community Banka branch of Western Sierra National Bank.

The
Company has an inactive subsidiary (acquired from Sentinel), Sentinel Associates, Inc., which is administered out of the main office. Sentinel Associates, Inc., was
formed in October 1983, for the purpose of developing single-family residential real estate.

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

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

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

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

Employees.At June 30, 2001, the Company and its subsidiaries employed 176 persons on a full-time
equivalent basis. The Company believes its employee relations are excellent.

Financial Condition

The Company has grown from $474.6 million at December 31, 2000 to $488.0 million at June 30, 2001, an increase of
$5.3 million. Since the first of the year, total gross loans and leases has increased by $23.2 million and cash and due from banks has increased by $9.4 million. This loan growth
and growth in cash and due from banks was funded by a decrease in Federal funds and investments of $27.5 million and a slight increase in deposits of $1.2 million.

Results of Operations

The Company reported net income of $1.3 million for the three months ended June 30, 2001 (or $0.37 per share, diluted) compared to
$544 thousand (or $0.16 per share, diluted) for the same period in 2000. The quarterly earnings represent a $771 thousand (or 142%) increase over the same period in 2000. The Company
reported net income of $2.4 million for the six months ended June 30, 2001 (or

9

---

$0.69 per share, diluted) compared to $1.5 million (or $0.44 per share, diluted) for the same period in 2000, an increase of $930 thousand (or 61%).

Factors
contributing to the increase in operating results during the second quarter of 2001 and six months ended June 30, 2001 as compared to the second quarter of 2000 and six
months ended June 30, 2000 include:



These
increases in income were offset by an increase in salaries and benefits of $189 thousand for the second quarter of 2001 and an increase of $603 thousand
year-to-date. For the second quarter and sixth months ended June 30, 2001, occupancy and equipment expense increased by $63 thousand and $123 thousand,
respectively. These increases are attributable to internal growth. The Company had incurred a one-time accrual of $138 thousand for retirement benefits during the second quarter of
2001. In addition, the Company did not incur merger costs during the second quarter of 2001 as compared to $899 thousand during the second quarter of 2000.

Net Interest Income (Tax Equivalent Yield Basis)

Net interest income is the primary source of income for the Company and represents the excess of interest and fees earned on interest-earning assets (loans,
investments and Federal funds sold) over the interest paid on deposits and borrowed funds. Net interest margin is net interest income expressed as a percentage of average earning assets. For the three
months ended June 30, 2001, interest income on a tax equivalent basis increased by $286 thousand (or 3.16%) over the same period in 2000. Interest expense on deposit accounts and
borrowings decreased $82 thousand (or 2.25%) over the same three-month period in 2000. Average earning assets yielded 8.20% versus 8.57% a year ago, partly offset by a decrease in cost of funds
where the average cost of funds decreased to 4.15% from 4.48% a year ago. Net interest margin decreased 3 basis points to 4.90% from 4.93% for the same period a year ago. The moderate decrease in net
interest margin is attributed to a decreasing interest rate environment as a result of actions taken by the Federal Reserve Board during 2001 and the fact that a significant portion of the Company's
investments are tied to the long-term treasury yield curve which has not decreased at the rate of the short-term yield curve.

For
the six months ended June 30, 2001, interest income increased $2,007 thousand (12.33%) over the same period in 2000. Interest expense on deposit accounts and
borrowings increased $1,008 thousand (14.93%) over the same six-month period in 2000. Net interest margin decreased 23 basis points to 4.76% from 4.99% for the same period a year
ago. The moderate net interest margin decrease is attributed to a decreasing rate environment, average earning assets yielding 8.28% versus 8.52% a year ago, coupled with an increased cost of funding
where the average cost of funding has increased to
4.41% from 4.34% a year ago. This increase in the cost of funds is due primarily to the competitive market for certificates of deposits in the Company's market area.

10

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The following table sets forth the Company's daily average balance sheet, related interest income or expense and yield or rate paid for the periods indicated. Tax-exempt
investment yields have been adjusted to a tax-equivalent yield basis, based on a 40% average tax rate (dollars in thousands).

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

|                                            |                                              | Three Months Ended                                 |       
|------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | ------
|
|
|Earning assets:                             |                                              |                                                    |       
|                                            | Portfolio loans                              |                                                    | $     
|                                            | Tax exempt securities                        |                                                    |       
|                                            | Taxable securities                           |                                                    |       
|                                            | Federal funds sold                           |                                                    |       
|                                            | Interest bearing deposits                    |                                                    |       
|                                            | Other securities                             |                                                    |       
|                                            |                                              |                                                    |       
|                                            |                                              | Total average earning assets                       |       
|                                            |                                              |                                                    |       
|Average non-interest bearing assets         |                                              |                                                    | 45,022
|Allowance for loan and lease losses         |                                              |                                                    | (4,600
|                                            |                                              |                                                    |       
|                                            |                                              | Average total assets                               |       
|                                            |                                              |                                                    |       
|Interest bearing liabilities:               |                                              |                                                    |       
|                                            | Interest bearing demand and savings deposits |                                                    | $     
|                                            | Time deposits                                |                                                    |       
|                                            | Borrowings                                   |                                                    |       
|                                            |                                              |                                                    |       
|                                            |                                              | Total average interest-bearing liabilities         |       
|                                            |                                              |                                                    |       
|Other liabilities                           |                                              |                                                    | 89,815
|Shareholders equity                         |                                              |                                                    | 38,611
|                                            |                                              |                                                    |       
|                                            |                                              | Average total liabilities and shareholders' equity |       
|                                            |                                              |                                                    |       
|Net interest income and net interest margin |                                              |                                                    |       
|                                            |                                              |                                                    |       

11

---

|                                            |                                              | Six Months Ended                                   |       
|------------------------------------------- | -------------------------------------------- | -------------------------------------------------- | ------
|
|
|Earning assets:                             |                                              |                                                    |       
|                                            | Portfolio loans                              |                                                    | $     
|                                            | Tax exempt securities                        |                                                    |       
|                                            | Taxable securities                           |                                                    |       
|                                            | Federal funds sold                           |                                                    |       
|                                            | Interest bearing deposits                    |                                                    |       
|                                            | Other securities                             |                                                    |       
|                                            |                                              |                                                    |       
|                                            |                                              | Total average earning assets                       |       
|                                            |                                              |                                                    |       
|Average non-interest bearing assets         |                                              |                                                    | 40,065
|Allowance for loan and lease losses         |                                              |                                                    | (4,534
|                                            |                                              |                                                    |       
|                                            |                                              | Average total assets                               |       
|                                            |                                              |                                                    |       
|Interest bearing liabilities:               |                                              |                                                    |       
|                                            | Interest bearing demand and savings deposits |                                                    | $     
|                                            | Time deposits                                |                                                    |       
|                                            | Borrowings                                   |                                                    |       
|                                            |                                              |                                                    |       
|                                            |                                              | Total average interest-bearing liabilities         |       
|                                            |                                              |                                                    |       
|Other liabilities                           |                                              |                                                    | 88,005
|Shareholder's equity                        |                                              |                                                    | 37,551
|                                            |                                              |                                                    |       
|                                            |                                              | Average total liabilities and shareholders' equity |       
|                                            |                                              |                                                    |       
|Net interest income and net interest margin |                                              |                                                    |       
|                                            |                                              |                                                    |       

12

---

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

Analysis of Changes in Net Interest Income

|                                         |                                    | Three Months Ended June 30, 2001 over 2000 |                               
|---------------------------------------- | ---------------------------------- | ------------------------------------------ | ------------------------------
|
|Increase (decrease) in interest income:  |                                    |                                            |                               
|                                         | Portfolio loans                    |                                            | $                             
|                                         | Investment securities              |                                            |                               
|                                         | Investment securities, non taxable |                                            |                               
|                                         | Federal funds sold                 |                                            |                               
|                                         |                                    | Interest bearing deposits                  |                               
|                                         |                                    | Equity investments                         |                               
|                                         |                                    |                                            |                               
|                                         |                                    |                                            | Total net increase (decreases)
|                                         |                                    |                                            |                               
|Increase (decrease) in interest expense: |                                    |                                            |                               
|                                         |                                    | Interest bearing accounts                  |                               
|                                         |                                    | Time deposits                              |                               
|                                         |                                    | Borrowings                                 |                               
|                                         |                                    |                                            |                               
|                                         |                                    |                                            | Total net increase (decrease) 
|                                         |                                    |                                            |                               
|Net increase (decrease)                  |                                    | $                                          | 761                           
|                                         |                                    |                                            |                               

|                                         |                                    | Six Months Ended June 30, 2001 over 2000 |      
|---------------------------------------- | ---------------------------------- | ---------------------------------------- | -----
|
|Increase (decrease) in interest income:  |                                    |                                          |      
|                                         | Portfolio loans                    |                                          | $    
|                                         | Investment securities              |                                          |      
|                                         | Investment securities, non taxable |                                          |      
|                                         | Federal funds sold                 |                                          |      
|                                         | Interest bearing deposits          |                                          |      
|                                         | Equity investments                 |                                          |      
|                                         |                                    |                                          |      
|                                         |                                    | Total net increase (decrease)            |      
|                                         |                                    |                                          |      
|Increase (decrease) in Interest expense: |                                    |                                          |      
|                                         | Interest bearing accounts          |                                          |      
|                                         | Time deposits                      |                                          |      
|                                         | Borrowings                         |                                          |      
|                                         |                                    |                                          |      
|                                         |                                    | Total net increase                       |      
|                                         |                                    |                                          |      
|Net increase (decrease)                  |                                    | $                                        | 1,759
|                                         |                                    |                                          |      

Noninterest Income

The Company's noninterest income consists of service charges on deposit accounts, and other service fees, mortgage loan origination and processing fees and
sale of investment securities. For the three months ended June 30, 2001, noninterest income increased $637 thousand (or 79%) over the same period in 2000. A gain of $135 thousand
from the sale of available-for-sale investment securities was realized during the second quarter of 2001. In addition, income from mortgage loan origination

13

---

and packaging fees increased $428 thousand (or 189%) over the same period in the prior year. The reasons for the increases are threefold:

For
the six months ended June 30, 2001, noninterest income increased $932 thousand (or 58%) over the same period in 2000. The increase was due to loan origination and
packaging fees and gains on the sale of securities as discussed previously.

Noninterest Expense

Noninterest expenses consist of salaries and related employee benefits, occupancy and equipment expenses, data processing fees, professional fees, directors'
fees, merger and acquisition costs and other operating expenses. For the three months ended June 30, 2001, noninterest expense decreased $344 Thousand (7.4%) over the same period in 2000. For
the six months ended June 30, 2001, noninterest expense increased $343 thousand (4.1%) over the same period in 2000.

Salary
and benefits increased $189 thousand (9.1%) over the same three-month period last year. This increase was due primarily to the integration of the former Sentinel
employees into the Company's bonus program, the increase in commissions related to the increased income on mortgage loan origination and packaging fees and the implementation of new
company-wide incentive programs. These expenses for the six month period ended June 30, 2001 increased 603 thousand (15.1%) over the same period in the prior year for similar
reasons.

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

|                     |                        | Three Months Ended        |   | Six Months Ended
|-------------------- | ---------------------- | ------------------------- | - | ----------------
|
|Noninterest Expense: |                        |                           |   |                 
|                     | Salaries and Benefits  |                           | $ | 2,271           
|                     | Occupancy & Equipment  |                           |   | 408             
|                     | Data Processing        |                           |   | 248             
|                     | Merger and Acquisition |                           |   | 0               
|                     | Other Expenses         |                           |   | 1,403           
|                     |                        |                           |   |                 
|                     |                        | Total Noninterest expense |   | $               
|                     |                        |                           |   |                 

Income Taxes

The Company's provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to the
Company's net income before taxes. The principal difference between statutory tax rates and the Company's effective tax rate is the benefit derived from investing in tax-exempt securities.
Increases and decreases in the provision for taxes reflect changes in the Company's net income before tax.

14

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

|                   |  | Three Months Ended |      | Six Months Ended |  
|------------------ |  | ------------------ | ---- | ---------------- | -
|
|Tax provision      |  | $                  | 752  |                  | $
|Effective tax rate |  |                    | 36.4 | %                |  

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

Asset Quality

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

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

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

|                                         |  | June 30,
2001 |         | % Of Total |        | December 31,
2000 |   | % Of Total |  
|---------------------------------------- |  | ------------- | ------- | ---------- | ------ | ----------------- | - | ---------- | -
|Commercial                               |  | $             | 53,043  |            | 15.05  | %                 | $ | 38,854     |  
|Real estatemortgage                     |  |               | 211,611 |            | 60.04  | %                 |   | 217,095    |  
|Real estateconstruction                 |  |               | 67,460  |            | 19.14  | %                 |   | 59,106     |  
|Agricultural                             |  |               | 12,528  |            | 3.55   | %                 |   | 5,025      |  
|Lease financing                          |  |               | 3,169   |            | 0.90   | %                 |   | 3,982      |  
|Installment and other                    |  |               | 5,471   |            | 1.55   | %                 |   | 6,051      |  
|Deferred loan fees and costs, net        |  |               | (816    | )          | (0.23  | )%                |   | (862       | )
|                                         |  |               |         |            |        |                   |   |            |  
|Total                                    |  |               | 352,516 |            | 100.00 | %                 |   | 329,251    |  
|                                         |  |               |         |            |        |                   |   |            |  
|Less allowance for loan and lease losses |  |               | (4,695  | )          |        |                   |   | (4,395     | )
|                                         |  |               |         |            |        |                   |   |            |  
|Total net loans and leases               |  | $             | 347,821 |            |        |                   | $ | 324,856    |  
|                                         |  |               |         |            |        |                   |   |            |  

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

June 30,
2001

December 31,
2000Non-performing assets:Nonaccrual loans

$
3,733

$
1,12190 days and still accruingTotal non-performing assets

$
3,733

$
1,121Other Real Estate Owned

$


$



15

---

The
Company's nonaccrual loans decreased from $1,121 thousand to $933 thousand in the first three months of 2001, but increased from $933 thousand to
$3,733 thousand during the second quarter of 2001.

Allowance for Loan and Lease Losses (ALLL)

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

Similarly,
the adequacy of the ALLL and the level of the related provision for possible loan and lease losses is determined on a judgment basis by management based on consideration of
(i) economic conditions, (ii) borrowers' financial condition, (iii) loan impairment, (iv) evaluation of industry trends, (v) industry and other concentrations,
(vi) loans which are contractually current as to payment terms but demonstrate a higher degree of risk as identified by management, (vii) continuing evaluation of the performing loan
portfolio, (viii) monthly review and evaluation of problem loans identified as having
loss potential, (ix) quarterly review by the Board of Directors, (x) off balance sheet risks and (xi) assessments by regulators and other third parties. Management and the Board
of Directors evaluate the ALLL and determine its desired level considering objective and subjective measures, such as knowledge of the borrowers' business, valuation of collateral, the determination
of impaired loans or leases and exposure to potential losses.

The
ALLL is a general reserve available against the total loan and lease portfolio and off balance sheet credit exposure. It is maintained without any interallocation to the
categories of the loan portfolio, and the entire allowance is available to cover loan and lease losses. While management uses available information to recognize losses on loans and leases, future
additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the
Company's ALLL. Such agencies may require the Company to provide additions to the allowance based on their judgment of information available to them at the time of their examination. There is
uncertainty concerning future economic trends. Accordingly, it is not possible to predict the effect future economic trends may have on the level of the provision for possible loan and lease losses in
future periods.

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

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

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

16

---

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

|                                                          |                 | Three Months Ended |       | Six Months Ended |  
|--------------------------------------------------------- | --------------- | ------------------ | ----- | ---------------- | -
|
|Beginning balance for allowance for loan and lease losses |                 | $                  | 4,525 |                  | $
|Provision for loan and lease losses                       |                 |                    | 245   |                  |  
|Charge offs:                                              |                 |                    |       |                  |  
|                                                          | Commercial      |                    |       | (80              | )
|                                                          | Real estate     |                    |       | 0                |  
|                                                          | Other           |                    |       | (6               | )
|                                                          |                 |                    |       |                  |  
|Total charge offs                                         |                 |                    | (86   | )                |  
|                                                          |                 |                    |       |                  |  
|Recoveries:                                               |                 |                    |       |                  |  
|                                                          | Commercial      |                    |       | 8                |  
|                                                          | Real estate     |                    |       | 0                |  
|                                                          | Other           |                    |       | 3                |  
|                                                          |                 |                    |       |                  |  
|Total recoveries                                          |                 |                    | 11    |                  |  
|                                                          |                 |                    |       |                  |  
|                                                          | Net charge offs |                    |       | (75              | )
|                                                          |                 |                    |       |                  |  
|Ending balance                                            |                 | $                  | 4,695 |                  | $
|                                                          |                 |                    |       |                  |  
|ALLL to total loans                                       |                 |                    | 1.33  | %                |  
|Annualized net charge offs to average loans               |                 |                    | 0.09  | %                |  

Investment Portfolio

Total investment securities decreased $10.5 million in the first six months of 2001 or 14.83%. The decrease was primarily due to the call of
mortgage-backed securities as a result of the decrease in rates. The decrease in investments was used to partially fund the $23.2 million increase in the loan and lease portfolio.

Liquidity

A Funds Management Policy has been developed by the Company's management and approved by the Company's Board of Directors which establishes guidelines for the
investments and liquidity of the Company. The goals of this policy are to provide liquidity to meet the financial requirements of the Company's customers, maintain adequate reserves as required by
regulatory agencies and maximize earnings of the Company. Liquidity of the Company at June 30, 2001 was 22.89% and December 31, 2000 was 19.8%, based on liquid assets (consisting of cash
and due from banks, investments not pledged, federal funds sold and loans available-for-sale) divided by total liabilities. The Company's management believes it maintains
adequate liquidity levels.

Capital Adequacy

Overall capital adequacy is monitored on a day-to-day basis by the Company's management and reported to the Company's Board of
Directors on a monthly basis. The Bank's regulators measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines.
Under the risk-based capital standard, assets reported on the Company's balance sheet and certain off-balance sheet items are assigned to risk categories, each of which is
assigned a risk weight.

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

17

---

The minimum ratio of total risk-based capital to risk-weighted assets, including certain off-balance sheet items, is 8% (10% to be considered
well-capitalized). At least one-half (4%) of the total risk-based capital (Tier 1) is to be comprised of common equity; the balance may consist of debt securities and a
limited portion of the ALLL.

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

|                                                  |  | June 30, 2001 |   | December 31, 2000 |  
|------------------------------------------------- |  | ------------- | - | ----------------- | -
|
|Total risk-based capital to risk-weighted assets  |  | 11.21         | % | 10.44             | %
|Tier 1 capital to risk-weighted assets            |  | 9.96          | % | 9.30              | %
|Tier 1 capital to average assets (leverage ratio) |  | 8.97          | % | 7.29              | %

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

The
fundamental objective of the Company's management of its assets and liabilities is to maximize the Company's economic value while maintaining adequate liquidity and an exposure to
interest rate risk deemed by management to be acceptable. Management believes an acceptable degree of exposure to interest rate risk results from the management of assets and liabilities through
maturities, pricing and mix to attempt to neutralize the potential impact of changes in market interest rates. The Company's profitability is dependent to a large extent upon its net interest income
that is the difference between its interest income on interest-earning assets, such as loans and investments, and its interest expense on interest-bearing liabilities, such as deposits and borrowings.
The Company is subject to interest rate risk to the degree that its interest-earning assets reprice differently than its interest-bearing liabilities. The Company manages the mix of assets and
liabilities with the goals of limiting its exposure to interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds.

The
Company seeks to control interest rate risk exposure in a manner that will allow for adequate levels of earnings and capital over a range of possible interest rate environments.
The Company has adopted formal policies and practices to monitor and manage interest rate risk exposure. As part of this effort, the Company measures interest rate risk utilizing third-party sources
that are based on the Call Reports of the individual subsidiary banks' data that is downloaded from the mainframe computer system and management's assumptions. This analysis determines the affect that
100 and 200 basis point changes in the prime rate up or down have on net interest income over a projected twelve-month period. At June 30, 2001, the estimated annualized increase in net
interest attributable to a 100 and 200 basis point increase in the prime rate was $215 thousand and $322 thousand, respectively.

18

---

Additionally, the estimated annualized decrease in net interest income attributable to a 100 and 200 basis point decrease in the prime rate was $495 thousand and $1.1 million,
respectively.

The
following table sets forth as of June 30, 2001, the distribution of repricing opportunities for the Company's earning assets and interest-bearing liabilities, the interest
rate sensitivity gap, the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. earning assets divided by interest-bearing liabilities) and the cumulative interest
rate sensitivity gap ratio.

|                                                             |  | Within
Three Months |         | After Three
Months But
Within One
Year |   | After
One Year
But Within
Five Years |    | After Five
Years |         | Total |  
|------------------------------------------------------------ |  | ------------------- | ------- | -------------------------------------- | - | ------------------------------------ | -- | ---------------- | ------- | ----- | -
|Earning assets:                                              |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Federal funds sold                                           |  | $                   | 10,495  |                                        |   |                                      |    |                  |         |       |  
|Investment securities and other                              |  |                     | 13,353  |                                        | $ | 12,654                               |    | $                | 11,693  |       | $
|Loans                                                        |  |                     | 161,813 |                                        |   | 33,062                               |    |                  | 79,389  |       |  
|                                                             |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Total earning assets                                         |  |                     | 185,661 |                                        |   | 45,716                               |    |                  | 91,082  |       |  
|Other assets                                                 |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|                                                             |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Total assets                                                 |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|                                                             |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Interest-bearing liabilities:                                |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Savings                                                      |  |                     | 19,946  |                                        |   | 9,974                                |    |                  |         |       |  
|Interest-bearing transaction accounts                        |  |                     | 81,749  |                                        |   | 18,371                               |    |                  |         |       |  
|Time deposits                                                |  |                     | 88,590  |                                        |   | 113,567                              |    |                  | 11,349  |       |  
|Other borrowings                                             |  |                     | 1,500   |                                        |   |                                      |    |                  | 750     |       |  
|                                                             |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Total interest-bearing liabilities                           |  |                     | 191,785 |                                        |   | 141,912                              |    |                  | 12,099  |       |  
|Other liabilities                                            |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|                                                             |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Total liabilities                                            |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|                                                             |  |                     |         |                                        |   |                                      |    |                  |         |       |  
|Interest rate sensitivity gap                                |  | $                   | (6,124  | )                                      | $ | (96,196                              | )  | $                | 78,983  |       | $
|Cumulative interest rate sensitivity gap                     |  | $                   | (6,124  | )                                      | $ | (102,320                             | )  | $                | (23,337 | )     | $
|Interest rate sensitivity gap to total assets                |  |                     | (1.28   | )%                                     |   | (20.04                               | )% |                  | 16.46   | %     |  
|Cumulative interest rate sensitivity Gap to total assets     |  |                     | (1.28   | )%                                     |   | (21.32                               | )% |                  | (4.86   | )%    |  
|Ratio of rate sensitive assets to rate sensitive liabilities |  |                     | 0.97    |                                        |   | 0.32                                 |    |                  | 7.53    |       |  
|Cumulative ratio                                             |  |                     | 0.97    |                                        |   | 0.69                                 |    |                  | 0.93    |       |  

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

19

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PART II. Other Information

Item 1. Legal proceedings

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

Item #2. Changes in securities and use of proceeds

N/A

Item #3. Defaults upon Senior Securities

N/A.

Item #4. Submission of Matters to a vote of Security Holders

On June 21, 2001 the annual meeting of the shareholders of the Company Bancorp was held for the purpose of voting on the following matters:

Proposal
1. Approval of the amendment of by laws to decrease the range of the board of directors from 11 to 21 to a range of 8 to 15.

Voted for:

2,309,009Abstained:

7,881Against:

18,996


Proposal  2.
Election of directors:

Voted For

WithheldCharles W. Bacchi

2,374,743

14,662Barbara L. Cook

2,378,417

27,197Lary A. Davis

2,364,123

25,282William Fisher

2,378,417

10,988Gary D. Gall

2,361,501

27,904Howard Jahn

2,378,417

10,988Alan J. Kleinert

2,365,903

23,502Thomas Manz

2,352,907

36,498Harold S. Prescott, Jr.

2,362,208

10,988Osvaldo I. Scariot

2,364,698

24,707Richard C. Seeba

2,378,417

10,988


Proposal
3. Approval of amendment to the 1997 and 1999 stock option plans to extend the time to exercise certain stock options to retiring directors from 90 days to
3 years. Total shares covered 9,551.

Voted for:

1,941,084Abstained:

141,912Against:

252,891


Item #5. Other Information

N/A.

Item #6A. Exhibits

N/A

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Item #6B. Reports on Form 8-K

No report on form 8-K were filed during the two quarters of 2001.

21

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SIGNATURES

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

|                      |  | WESTERN SIERRA BANCORP(Registrant)
|--------------------- |  | ----------------------------------
|Date: August 14, 2001 |  |                                   
|                      |  |                                   
|                      |  |                                   
|                      |  |                                   

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