**UNITED STATES**

### **SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

| ý                                                                                                                  |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                                                                    |   |                                                                                          |
| **For the  Quarterly Period Ended March 31, 2004**                                                                 |
|                                                                                                                    |   |                                                                                          |
| **OR**                                                                                                                  |
|                                                                                                                    |   |                                                                                          |
| **o**                                                                                                                   |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                    |   |                                                                                          |
| **For the  transition period from                 to** |
|                                                                                                                    |   |                                                                                          |
| **Commission file number 0-25979**                                                                                      |

 

 

**WESTERN SIERRA BANCORP**

(Exact name of Registrant asspecified in its charter)

 

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

 

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

 

Securities registeredpursuant to Section 12(b) of the Act: **None**

 

Securities registeredpursuant to Section 12(g) of the Act:

**CommonStock, no par value per share**

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes  ý  No  o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes  ý  No  o

 

As of May 7, 2004 there were approximately 7,547,000 shares outstandingof the Registrant’s common stock.

 

 

----

 

**WESTERNSIERRA BANCORP & SUBSIDIARIES**

 

**Index toForm 10-Q**

 
| PART I. Financial  Information |
|--------------------------------|
|                           | Item 1. Consolidated Financial Statements (unaudited) |
|                           |   | Consolidated  Balance Sheet  March 31, 2004 and  December 31, 2003 |
|                           |   | Consolidated  Statement of Income  Three months ended March 31, 2004  and 2003 |
|                           |   | Consolidated  Statement of Cash Flows  Three months ended March 31, 2004  and 2003 |
|                           |   | Notes  to Consolidated Financial Statements |
|                           | Item  2. Management’s Discussion and Analysis of Financial Condition and Results of  Operations |
|                           | Item 3. Quantitative and Qualitative Disclosure about Market Risk  Item 4. Controls and Procedures |
|                           | Item 4. Controls and Procedures |
| PART II. Other Information     |
|                           | Item 1. Legal proceedings |
|                           | Item  2. Changes in Securities and Use of Proceeds |
|                           | Item 3.  Defaults Upon Senior Securities |
|                           | Item  4. Submission of Matters to a Vote of Security Holders |
|                           | Item 5. Other Information |
|                           | Item  6. Exhibits and Report on Form 8-K |
| SIGNATURES                     |

 

2

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**PART I. FINANCIAL INFORMATION**

 

**WesternSierra Bancorp and Subsidiaries**

**Unaudited Consolidated Balance Sheet**

(dollars in thousands, exceptnumber of shares)

 
|                                                                                                                              |   | **March 31,  2004** |      | **December 31,  2003** |   |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|-----------|------------------------|--------|
| **ASSETS:**                                                                                                                       |   |                |      |                   |   |
| Cash and due from banks                                                                                                           |   | $                   | 36,453    |                   | $      | 38,584 |   |
| Federal funds sold                                                                                                                |   | 43,295              |      | 17,380                 |   |
| Cash and cash equivalents                                                                                                         |   | 79,748              |      | 55,964                 |   |
|                                                                                                                              |   |                |      |                   |   |
| Interest-bearing deposits                                                                                                         |   | 4,000               |      | 4,198                  |   |
| Loans held for sale                                                                                                               |   | 1,729               |      | 940                    |   |
| Investment securities:                                                                                                            |   |                |      |                   |   |
| Trading, at estimated market value                                                                                                |   | 31                  |      | 28                     |   |
| Available for sale (amortized cost $75,650  in 2004 and $78,156 in 2003)                                                          |   | 77,695              |      | 79,502                 |   |
| Held to maturity (market value of $3,989 in  2004 and $4,219 in 2003)                                                             |   | 3,811               |      | 4,058                  |   |
| Total investments                                                                                                                 |   | 81,537              |      | 83,588                 |   |
| Portfolio loans and leases:                                                                                                       |   |                |      |                   |   |
| Real estate mortgage                                                                                                              |   | 544,422             |      | 495,948                |   |
| Real estate construction                                                                                                          |   | 180,633             |      | 195,889                |   |
| Commercial                                                                                                                        |   | 114,813             |      | 109,685                |   |
| Agricultural                                                                                                                      |   | 11,509              |      | 12,185                 |   |
| Installment                                                                                                                       |   | 5,178               |      | 5,795                  |   |
| Lease financing                                                                                                                   |   | 1,983               |      | 2,016                  |   |
| Total gross loans and leases                                                                                                      |   | 858,538             |      | 821,518                |   |
| Deferred loan and lease fees, net                                                                                                 |   | (2,490              | )         | (2,729                 | )      |
| Allowance for loan and lease losses                                                                                               |   | (12,165             | )         | (11,529                | )      |
| Net portfolio loans and leases                                                                                                    |   | 843,883             |      | 807,260                |   |
|                                                                                                                              |   |                |      |                   |   |
| Premises and equipment, net                                                                                                       |   | 19,543              |      | 19,591                 |   |
| Goodwill and other intangible assets                                                                                              |   | 34,551              |      | 34,731                 |   |
| Other assets                                                                                                                      |   | 29,971              |      | 29,439                 |   |
| Total assets                                                                                                                      |   | $                   | 1,094,962 |                   | $      | 1,035,711 |   |
|                                                                                                                              |   |                |      |                   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY:**                                                                                    |   |                |      |                   |   |
| Non-interest bearing deposits                                                                                                     |   | $                   | 238,523   |                   | $      | 221,898 |   |
| Interest bearing deposits:                                                                                                        |   |                |      |                   |   |
| NOW, money market and savings                                                                                                     |   | 336,424             |      | 340,922                |   |
| Time, over $100,000                                                                                                               |   | 174,583             |      | 145,608                |   |
| Other time                                                                                                                        |   | 168,769             |      | 164,710                |   |
| Total deposits                                                                                                                    |   | 918,299             |      | 873,138                |   |
|                                                                                                                              |   |                |      |                   |   |
| Borrowed funds                                                                                                                    |   | 32,750              |      | 20,650                 |   |
| Subordinated debentures                                                                                                           |   | 36,496              |      | 36,496                 |   |
| Other liabilities                                                                                                                 |   | 9,867               |      | 11,990                 |   |
| Total liabilities                                                                                                                 |   | 997,412             |      | 942,274                |   |
|                                                                                                                              |   |                |      |                   |   |
| Commitments and contingencies (Note 6)                                                                                            |   |                |      |                   |   |
| Shareholders’ equity:                                                                                                        |   |                |      |                   |   |
| Preferred stock— no par value; 15,000,000  shares authorized; none issued (1)                                                |   | —              |      | —                 |   |
| Common stock— no par value; 15,000,000  shares authorized; 7,463,299 shares issued in 2004 and 7,439,029 shares in  2003 (1) |   | 66,649              |      | 66,459                 |   |
| Retained earnings                                                                                                                 |   | 29,562              |      | 26,097                 |   |
| Accumulated other comprehensive income                                                                                            |   | 1,339               |      | 881                    |   |
| Total shareholders’ equity                                                                                                   |   | 97,550              |      | 93,438                 |   |
| Total liabilities and shareholders’ equity                                                                                   |   | $                   | 1,094,962 |                   | $      | 1,035,711 |   |

 

----

(1) As adjusted for the May7, 2004 three for two stock split.

 

See notes to the unauditedconsolidated financial statements.

 

3

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**WesternSierra Bancorp and Subsidiaries**

**UnauditedConsolidated Statement of Income**

(dollars in thousands, exceptper share data)

 
|                                                                                               |   | **Three Months Ended** |   |
|----------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                               |   | **March 31,  2004**    |   | **March 31,  2003** |   |
| Interest income:                                                                                   |   |                   |   |   |   |
| Interest and fees on loans                                                                         |   | $                      | 14,036 |   | $ | 9,752 |   |
| Interest on investment securities:                                                                 |   |                   |   |   |   |
| Taxable                                                                                            |   | 369                    |   | 401 |   |
| Exempt from Federal income taxes                                                                   |   | 387                    |   | 359 |   |
| Interest on Federal funds sold                                                                     |   | 53                     |   | 42 |   |
| Total interest income                                                                              |   | 14,844                 |   | 10,555 |   |
|                                                                                               |   |                   |   |   |   |
| Interest expense:                                                                                  |   |                   |   |   |   |
| Interest on deposits                                                                               |   | 2,004                  |   | 1,999 |   |
| Interest on borrowed funds and subordinated  debentures                                            |   | 557                    |   | 272 |   |
| Total interest expense                                                                             |   | 2,562                  |   | 2,271 |   |
|                                                                                               |   |                   |   |   |   |
| Net interest income                                                                                |   | 12,282                 |   | 8,284 |   |
|                                                                                               |   |                   |   |   |   |
| Provision for loan and lease losses                                                                |   | 710                    |   | 525 |   |
|                                                                                               |   |                   |   |   |   |
| Net interest income after provision for  loan and lease losses                                     |   | 11,572                 |   | 7,759 |   |
|                                                                                               |   |                   |   |   |   |
| Non-interest income:                                                                               |   |                   |   |   |   |
| Service charges and fees                                                                           |   | 1,195                  |   | 819 |   |
| Investment service fee income                                                                      |   | 291                    |   | 16 |   |
| Net gain on sale and packaging of  residential mortgage and government-guaranteed commercial loans |   | 855                    |   | 1,104 |   |
| Other income                                                                                       |   | 227                    |   | 117 |   |
| Total non-interest income                                                                          |   | 2,568                  |   | 2,055 |   |
|                                                                                               |   |                   |   |   |   |
| Other expenses:                                                                                    |   |                   |   |   |   |
| Salaries and benefits                                                                              |   | 4,887                  |   | 3,416 |   |
| Occupancy and equipment                                                                            |   | 1,352                  |   | 1,052 |   |
| Other expenses                                                                                     |   | 2,309                  |   | 1,645 |   |
| Amortization of core deposits and other  intangibles                                               |   | 180                    |   | 62 |   |
| Total other expenses                                                                               |   | 8,728                  |   | 6,175 |   |
|                                                                                               |   |                   |   |   |   |
| Income before income taxes                                                                         |   | 5,412                  |   | 3,639 |   |
|                                                                                               |   |                   |   |   |   |
| Income taxes                                                                                       |   | 1,947                  |   | 1,352 |   |
| Net income                                                                                         |   | $                      | 3,465  |   | $ | 2,287 |   |
|                                                                                               |   |                   |   |   |   |
| Basic earnings per share (1)                                                                       |   | $                      | 0.46   |   | $ | 0.36 |   |
| Fully diluted earnings per share (1)                                                               |   | $                      | 0.44   |   | $ | 0.35 |   |

 

----

(1) As adjusted for the May7, 2004 three for two stock split.

 

See notes to the unauditedconsolidated financial statements.

 

4

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**WesternSierra Bancorp and Subsidiaries**

##### **UnauditedConsolidated Statement of Cash Flows**

(dollars in thousands)

 
|                                                                                                   |   | **Three Months Ended** |   |
|--------------------------------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                                                   |   | **March 31,  2004**    |   | **March 31,  2003** |   |
| Cash flows from operating activities:                                                                  |   |                   |   |   |   |
| Net income                                                                                             |   | $                      | 3,465  |   | $ | 2,287 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities:                     |   |                   |   |   |   |
| Provision for loan and lease losses                                                                    |   | 710                    |   | 525 |   |
| Depreciation and amortization                                                                          |   | 762                    |   | 544 |   |
| Deferred loan and lease origination fees,  net                                                         |   | (239                   | )      | (116 | ) |
| Amortization of investment security  premiums, net of accretion of discount                            |   | 241                    |   | 110 |   |
| Increase in trading securities                                                                         |   | (3                     | )      | — |   |
| Increase in cash surrender value of life  insurance policies                                           |   | (165                   | )      | (50 | ) |
| (Increase) decrease in loans held for sale                                                             |   | (789                   | )      | 581 |   |
| Increase in other assets                                                                               |   | (550                   | )      | (1,667 | ) |
| (Decrease) increase in other liabilities                                                               |   | (2,167                 | )      | 1,950 |   |
| (Increase) decrease in deferred taxes                                                                  |   | (20                    | )      | — |   |
| Net cash provided by operating activities                                                              |   | 1,245                  |   | 4,164 |   |
|                                                                                                   |   |                   |   |   |   |
| Cash flows from investing activities:                                                                  |   |                   |   |   |   |
| Proceeds from sale and call of  available-for-sale investment securities                               |   | 4                      |   | — |   |
| Proceeds from called held-to-maturity  investment securities                                           |   | —                 |   | 1,000 |   |
| Proceeds from matured available-for-sale  investment securities                                        |   | —                 |   | 500 |   |
| Purchases of available-for-sale investment  securities                                                 |   | (385                   | )      | (488 | ) |
| Principal repayments received from  available-for-sale SBA pools and   mortgage-backed securities |   | 2,649                  |   | 2,256 |   |
| Principal repayments received from  held-to-maturity mortgage-backed securities                        |   | 243                    |   | 178 |   |
| Net decrease in interest-bearing deposits  in banks                                                    |   | 198                    |   | 396 |   |
| Net increase in loans and leases                                                                       |   | (37,050                | )      | (29,029 | ) |
| Purchases of premises and equipment                                                                    |   | (534                   | )      | (236 | ) |
| Net cash used in investing activities                                                                  |   | (34,875                | )      | (25,423 | ) |
|                                                                                                   |   |                   |   |   |   |
| Cash flows from financing activities:                                                                  |   |                   |   |   |   |
| Net increase (decrease) in demand,  interest-bearing and savings deposits                              |   | $                      | 12,127 |   | $ | (4,177 | ) |
| Net increase in time deposits                                                                          |   | 33,034                 |   | 51,933 |   |
| Net increase (decrease) in borrowings                                                                  |   | 12,100                 |   | (7,000 | ) |
| Proceeds from the exercise of stock options                                                            |   | 153                    |   | 127 |   |
| Net cash provided by financing activities                                                              |   | 57,414                 |   | 40,883 |   |
| Increase in cash and cash equivalents                                                                  |   | 23,784                 |   | 19,624 |   |
| Cash and cash equivalents at beginning of  year                                                        |   | 55,964                 |   | 36,964 |   |
| Cash and cash equivalents at end of period                                                             |   | $                      | 79,748 |   | $ | 56,588 |   |
|                                                                                                   |   |                   |   |   |   |
| Non-cash investing activities:                                                                         |   |                   |   |   |   |
| Net change in unrealized gain on  available-for-sale investment securities                             |   | $                      | 698    |   | $ | 407 |   |

 

See notes to the unauditedconsolidated financial statements.

 

5

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**NOTES TO THE UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

 

**1. Basis of Presentation**

 

Theaccompanying unaudited condensed consolidated financial statements of WesternSierra Bancorp and subsidiaries (the “Company”) have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. In the opinion ofManagement, all adjustments (which consist solely of normal recurring accruals)considered necessary for a fair presentation of the results for the interimperiods presented have been included. These interim condensed consolidatedfinancial statements should be read in conjunction with the financialstatements and related notes contained in the Company’s 2003 Annual Report toShareholders.

 

Thecondensed consolidated financial statements include the accounts of the Companyand its wholly owned subsidiaries, Western Sierra National Bank (WSNB) and itssubsidiary WSNB Investment Trust (a Real Estate Investment Trust (“REIT”), LakeCommunity Bank (LCB), Central California Bank (CCB), Auburn Community Bank(ACB) and Western Sierra Statutory Trusts I, II, III, and IV.  All significant inter-company balances andtransactions have been eliminated. Western Sierra Statutory Trusts I, II, III, and IV are unconsolidatedsubsidiaries formed solely for the purpose of issuing trust preferredsecurities.  Operating results for thethree months ended March 31, 2004 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2004. Certain amountsin the consolidated financial statements for the year ended December 31,2003 and the three-month period ended March 31, 2003 may have been reclassifiedto conform to the presentation of the consolidated financial statements in2004.

 

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

 

**2. Stock-based Compensation**

 

At March 31, 2004, the Company has four stock-based compensationplans.  The Company accounts for theseplans under the recognition and measurement principles of APB Opinion No. 25, *Accountingfor Stock Issued to Employees*, and related Interpretations.  No stock-based compensation cost isreflected in net income, as all options granted under these plans had anexercise price equal to the market value of the underlying common stock on thedate of grant.  In accordance withFinancial Accounting Standards Board (“FASB”) No. 148, *Accounting for Stock-Based Compensation – Transitionand Disclosure, an Amendment of FASB No. 12,* the following tableillustrates the effect on net income and earnings per share as if the Companyhad applied the fair value recognition provisions of FASB StatementNo. 123, *Accounting for Stock-Based Compensation*, to stock-basedcompensation.

 

Pro formaadjustments to the Company’s consolidated net earnings and earnings per shareare disclosed during the years in which the options become vested (dollars inthousands, except per share data).

 
|                                                                                                                                                |   | **Three Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                                                |   | **2004**                          |   | **2003** |   |
| Net earnings as reported                                                                                                                            |   | $                                 | 3,465  |   | $ | 2,287 |   |
| Deduct:  Total stock-based  compensation expense  determined under the fair value based method  for all awards,net of related tax effects |   | (287                              | )      | (195 | ) |
|                                                                                                                                                |   |                              |   |   |   |
| Pro forma net income                                                                                                                                |   | $                                 | 3,178  |   | $ | 2,092 |   |
|                                                                                                                                                |   |                              |   |   |   |
| Basic earnings per share - as reported                                                                                                              |   | $                                 | 0.46   |   | $ | 0.36 |   |
| Basic earnings per share - pro forma                                                                                                                |   | $                                 | 0.43   |   | $ | 0.33 |   |
|                                                                                                                                                |   |                              |   |   |   |
| Diluted earnings per share - as reported                                                                                                            |   | $                                 | 0.44   |   | $ | 0.35 |   |
| Diluted earnings per share - pro forma                                                                                                              |   | $                                 | 0.41   |   | $ | 0.33 |   |

 

6

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**3. Earningsper Share**

 

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

 
|                                                             |   | **Three Months Ended** |   |
|------------------------------------------------------------------|--------|------------------------|--------|
|                                                             |   | **March 31,  2004**    |   | **March 31,  2003** |   |
| Basic EPS Computation:                                           |   |                   |   |   |   |
| Numerator-net income                                             |   | $                      | 3,465  |   | $ | 2,287 |   |
| Denominator— weighted average number of  shares outstanding |   | 7,457,544              |   | 6,288,334 |   |
| Basic earnings per share                                         |   | $                      | 0.46   |   | $ | 0.36 |   |
|                                                             |   |                   |   |   |   |
| Diluted EPS Computation:                                         |   |                   |   |   |   |
| Numerator-net income                                             |   | $                      | 3,465  |   | $ | 2,287 |   |
| Denominator— weighted average number of  shares outstanding |   | 7,457,544              |   | 6,288,334 |   |
| Effect of dilutive stock options                                 |   | 406,798                |   | 274,884 |   |
|                                                             |   | 7,864,342              |   | 6,563,218 |   |
| Diluted earnings per share                                       |   | $                      | 0.44   |   | $ | 0.35 |   |

 

**4. StockRepurchase Plan**

 

OnJanuary 16, 2004 the Company announced that the Board of Directors approved aplan to utilize up to $2 million (or approximately 1% of the total outstandingshares) to repurchase the Company’s common stock.  As of March 31, 2004, the Company did not repurchase any sharesunder this plan, but did repurchase 2,000 shares in April 2004.

 

OnMay 29, 2002, the Company announced that the Board of Directors approved a planto repurchase up to 5% (or approximately 200,000 shares) of the Company’scommon stock. The Company has purchased 5,000 shares at an average price ofapproximately $21.00 under the plan through March 31, 2004.

 

**5. Acquisitions**

 

During 2003, the Company acquired Auburn Community Bank (ACB) and CentralSierra Bank (CSB).  ACB became awholly-owned subsidiary of the Company and CSB was merged into CCB.  These acquisitions were completed becausemanagement believes that their combined performance exceeds what each entitycould accomplish independently and furthers the Company’s expansion throughoutNorthern California.  Totalconsideration paid to each entity acquired was determined through extensivenegotiation supported by internal modeling, which management believes willresult in earnings per share accretion to the Company’s shareholders withintwelve months of each acquisition date. The funds required to pay the cash portion of the consideration forthese mergers was generally obtained through the issuance of subordinateddebentures (see Note 11 of the Company’s 2003 audited financial statements).

 

7

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The followingtable summarizes the terms of each acquisition (dollars in thousands):

 
|                             |   | **ACB**           |   | **CSB**       |   |
|----------------------------------|--------|-------------------|--------|---------------|--------|
| Date of acquisition              |   | December 13, 2003 |   | July 11, 2003 |   |
| Common stock issued              |   | 349,976           |   | 404,173       |   |
| Value of common stock issued     |   | $                 | 15,900 |          | $      | 12,700 |   |
| Cash paid                        |   | $                 | 6,500  |          | $      | 10,700 |   |
| Total consideration              |   | $                 | 22,400 |          | $      | 23,400 |   |
| Goodwill recorded                |   | $                 | 14,500 |          | $      | 11,600 |   |
| Core deposit intangible recorded |   | $                 | 1,800  |          | $      | 2,900 |   |

 

**6.**              Commitments and Contingencies

** **

#### **Leases**

#### ** **

The Company leases certain of itsbranch offices under non-cancelable operating leases.  These leases expire on various dates through 2019 and havevarious renewal options ranging from five to ten years.  Rental payments include minimum rentals,plus adjustments for changing price indexes. The Company has subleased various office spaces to other companies undernon-cancelable agreements that expire in 2007 and 2008.  Future minimum lease payments and subleaserental income are as follows (dollars in thousands):

 
| **Year Ending****December 31,** |   | **Minimum  Lease****Payments** |   | **Minimum  Sublease  Rental****Income** |   |
|---------------------------------|--------|--------------------------------|--------|-----------------------------------------|--------|
| 2004                            |   | $                              | 1,541  |                                    | $      | 96 |   |
| 2005                            |   | 1,582                          |   | 96                                      |   |
| 2006                            |   | 1,451                          |   | 96                                      |   |
| 2007                            |   | 1,208                          |   | 95                                      |   |
| 2008                            |   | 943                            |   | 64                                      |   |
| Thereafter                      |   | 4,378                          |   | —                                  |   |
|                            |   | $                              | 11,103 |                                    | $      | 447 |   |

 

Rental expense included in occupancyexpense totaled $1,072,000, $675,000 and $519,000 for the years endedDecember 31, 2003, 2002 and 2001, respectively.  Sublease income included in occupancy expense totaled $97,000,$68,000 and $66,000 for the years ended 2003, 2002 and 2001, respectively.

 

#### **Financial Instruments With Off-Balance-Sheet Risk**

#### ** **

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

 

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

 

8

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

 
|                                                                                                 |   | **March 31,  2004** |    | **December 31,  2003** |   |
|------------------------------------------------------------------------------------------------------|--------|---------------------|---------|------------------------|--------|
| Commitments to extend credit:                                                                        |   |                |    |                   |   |
| Revolving lines of credit secured by 1-4  family residences                                          |   | $                   | 24,960  |                   | $      | 21,691 |   |
| Commercial real estate, construction and  land development  commitments secured  by real estate |   | 159,811             |    | 161,107                |   |
| Other commercial commitments not secured by  real estate                                             |   | 566                 |    | 1,023                  |   |
| Agricultural commitments                                                                             |   | 1,688               |    | 4,237                  |   |
|                                                                                                 |   | 51,087              |    | 49,949                 |   |
|                                                                                                 |   | $                   | 238,112 |                   | $      | 238,007 |   |
| Letters of credit                                                                                    |   | $                   | 18,614  |                   | $      | 18,752 |   |

 

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

 

Commitments to extend credit areagreements to lend to a customer as long as there is no violation of anycondition established in the contract. Commitments generally have fixed expiration dates or other terminationclauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawnupon, the total commitment amounts do not necessarily represent future cashrequirements.  Each customer’screditworthiness is evaluated on a case-by-case basis.  The amount of collateral obtained, if deemednecessary upon extension of credit, is based on Management’s credit evaluationof the borrower.  Collateral heldvaries, but may include deposits, accounts receivable, inventory, equipment, income-producingcommercial properties and residential real estate.

 

Letters of credit are conditionalcommitments to guarantee the performance or financial obligation of a customerto a third party.  The credit riskinvolved in issuing letters of credit is essentially the same as that involvedin extending loans to customers.

 

Commitments to sell loans areagreements to sell to another party loans originated by the Company.  The Company only sells loans to thirdparties without recourse.  The Companyis not exposed to credit loss if the borrower fails to perform according to thepromissory note as long as the Company has fulfilled its obligations stated inthe sales commitment.

 

**7.**              Comprehensive Income

** **

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

 
|                                             |   | **Three Months Ended  March 31,** |   |
|--------------------------------------------------|--------|-----------------------------------|--------|
| **(In thousands)**                               |   | **2004**                          |   | **2003** |   |
|                                             |   |                              |   |   |   |
| Net income                                       |   | $                                 | 3,465  |   | $ | 2,287 |   |
| Other comprehensive income:                      |   |                              |   |   |   |
| Holding gains arising during period, net of  tax |   | 458                               |   | 266 |   |
| Re-classification adjustment, net of tax         |   | —                            |   | — |   |
| Total other comprehensive income                 |   | 458                               |   | 266 |   |
| Total comprehensive income                       |   | $                                 | 3,923  |   | $ | 2,553 |   |

 

**8.****              SubsequentEvents**

 

On April 22, 2004, the Companyannounced a three-for-two stock split effective May 7, 2004.  All shares and per share amounts have beenretroactively restated to give effect for the stock split as if it had beendeclared at the beginning of the earliest period presented.

 

9

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

 

**Privatesecurities litigation reform act safe harbor statement**

 

Thisquarterly report on Form 10-Q includes forward-looking information, whichis subject to the “safe harbor” created by the Securities Act of 1933 andSecurities Act of 1934. These forward-looking statements (which involve theCompany’s plans, beliefs and goals) involve certain risks and uncertaintiesthat could cause actual results to differ materially from those in theforward-looking statements. Such risks and uncertainties include, but are notlimited to, the following factors:

 

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

 

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

 

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

 

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

 

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

 

6.               Asset/Liability matching risks and liquidityrisks.

 

7.               Volatility and devaluation in the securitiesmarkets.

 

Foradditional information concerning risks and uncertainties related to theCompany and its operations, please refer to the Company’s Annual Report onForm 10-K for the year ended December 31, 2003 under the heading“Forward-Looking Information”.  Readersare cautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. The Company undertakes no obligation torevise or publicly release the results of any revision to these forward-lookingstatements to reflect events or circumstances after the date hereof or toreflect the occurrence of unanticipated events.

 

Thefollowing sections discuss significant changes and trends in financialcondition, capital resources and liquidity of the Company fromDecember 31, 2003 to March 31, 2004. Also discussed are significant trendsand changes in the Company’s results of operations for the three months endedMarch 31, 2004 compared to the same periods in 2003. The consolidated financialstatements and related notes appearing elsewhere in this report are condensedand unaudited.

 

10

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**General**

 

WesternSierra Bancorp (the “Company”) was incorporated under the laws of the State ofCalifornia on July 11, 1996. The Company was organized pursuant to a planof reorganization for the purpose of becoming the parent corporation of WesternSierra National Bank, and on December 31, 1996, the reorganization was effectedand shares of the Company’s common stock were issued to the shareholders ofWestern Sierra National Bank for the common shares held by Western SierraNational Bank’s shareholders.

 

InApril 1999, the Company acquired Roseville 1st National Bank and LakeCommunity Bank in a stock for stock exchange. In May of 2000, the Companyacquired Sentinel Community Bank in a stock for stock exchange. All of thesemergers were accounted for as poolings of interests and, accordingly, all priorperiod financial information has been restated to reflect the combinedoperations of the Company, Roseville 1st National Bank, Lake Community Bank andSentinel Community Bank. Sentinel Community Bank was immediately merged intoWestern Sierra National Bank. In May of 2000, Roseville 1st National Bank wasalso merged into Western Sierra National Bank.

 

InApril 2002, the Company acquired Central California Bank for $3.7 million incash and 252,181 shares of the Company’s stock.  This transaction was accounted for under purchase accounting,which resulted in a purchase price allocation resulting in intangible assetstotaling $2.3 million in goodwill and $1.9 million in core deposit premium. Asrequired under purchase accounting, no prior period financial statements havebeen restated to reflect the combined operations of Central CaliforniaBank.  In July of 2002, certain assetsand liabilities of the Sentinel Community Bank branches were transferred fromWestern Sierra National Bank to Central California Bank.

 

InJuly 2003, the Company acquired Central Sierra Bank for $10.7 million in cashand 404,173 shares of the Company’s stock. This transaction was accounted for under purchase accounting, whichresulted in a preliminary purchase price allocation  resulting in intangible assets totaling $11.6 million in goodwilland $2.9 million in core deposit premium. As required under purchaseaccounting, no prior period financial statements have been restated to reflectthe combined operations of Central California Bank.

 

InDecember 2003, the Company acquired Auburn Community Bank for $6.5 million incash and 349,976 shares of the Company’s stock.  This transaction was accounted for under purchase accounting,which resulted in a preliminary purchase price allocation resulting inintangible assets totaling $14.5 million in goodwill and $1.8 million in coredeposit premium. As required under purchase accounting, no prior periodfinancial statements have been restated to reflect the combined operations ofAuburn Community Bank.

 

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

 

Western Sierra National Bank was organized under nationalbanking laws and commenced operations as a national bank on January 4,1984. Western Sierra National Bank is a member of the Federal Reserve Systemand the FDIC insures its deposits to the maximum amount permitted by law.Western Sierra National Bank’s head office is located at 4080 Plaza GoldoradoCircle, Cameron Park, and its branch offices are located at 4011 PlazaGoldorado Circle, Cameron Park, 2661 Sanders Drive, Pollock Pines, 3970 JMissouri Flat Road, Placerville, 1450 Broadway, Placerville, 3880 El DoradoHills Blvd., El Dorado Hills, 571 5th Street, Lincoln, 1545 River ParkDr. #101 & #200, Sacramento, 1801 Douglas Blvd., Roseville, 6951Douglas Blvd., Granite Bay, 9050 Fairway Drive, Roseville, and 2779 EastBidwell, Folsom, CA.    In March 2002,Western Sierra National Bank formed WSNB Investment Trust, a Real EstateInvestment Trust (“REIT”), to potentially generate additional capital atWestern Sierra National Bank and reduce the Company’s overall effective taxrate. Western Sierra National Bank does not have any other affiliates otherthan Sentinel Associates, Inc., an inactive entity formed by Sentinel Bankin 1983 to develop single-family residential real estate.

 

Lake Community Bank was incorporated as a banking corporationunder the laws of the State of California on March 9, 1984 and commencedoperations as a California state-chartered bank on November 15, 1984. LakeCommunity Bank is an insured bank under the Federal Deposit Insurance Act andbecame a member of the Federal Reserve System in June 2003. Lake Community Bankengages in the general commercial banking business in Lake County in the Stateof California from its headquarters banking office located at 805 EleventhStreet, Lakeport, California, and its branch located at 4280 Main Street,Kelseyville, California. Lake Community Bank does not have any affiliates orsubsidiaries.

 

Central California Bank was incorporated under the laws of the State ofCalifornia on January 13, 1997, and commenced operations on April 24, 1998.Central California Bank is an insured bank under the Federal Deposit InsuranceAct and became a  member of the FederalReserve System in January 2003. Central California Bank engages in the generalcommercial banking business in Tuolumne and Stanislaus counties in the state ofCalifornia from its headquarters banking office located at 13753-A

 

11

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Mono Way,Sonora, CA, and its branches located at 400 E. Olive Ave, Turlock, CA, 3700Lone Tree Way, Antioch, CA, 229 South Washington Street, Sonora, CA, 18711Tiffeni Drive, Twain Harte, CA, 22712 Main Street, Columbia, CA and loanproduction offices located at 3400 Tully Rd., #B, Modesto, CA, 1111 DunbarRoad, Arnold, CA,  373 West St. CharlesStreet, San Andreas, CA, 1239 South Main Street, Angels Camp, CA, 18281 MainStreet, Jamestown, CA, 89 Lakewood Mall, Lodi, CA, 11 Ridge Road, Sutter Creek,CA, 87 Highway 26, Valley Springs, CA, and 3505 Spangler Lane, Suite 300,Copperopolis, CA.  Central CaliforniaBank does not have any affiliates or subsidiaries.  In July 2003, Central Sierra Bank merged into Central CaliforniaBank and its branches are located at 373 West St. Charles Street, San Andreas,CA, 1239 South Main Street, Angels Camp, CA, 18281 Main Street, Jamestown, CA,89 Lakewood Mall, Lodi, CA, 11 Ridge Road, Sutter Creek, CA, 87 Highway 26,Valley Springs, CA, and 3505 Spangler Lane, Suite 300, Copperopolis, CA.

 

InJuly 2001, December 2001 and September 30, 2003, respectively, four trusts,Western Sierra Statutory Trust I, Western Sierra Statutory Trust II and WesternSierra Statutory Trust III /IV, were established as wholly-owned subsidiariesof the Company for the purpose of issuing and holding Trust PreferredSecurities.

 

Auburn Community Bank, a state non-memberbank, was originally operating under the name of Auburn National Bank which wasincorporated under the laws of the State of California on July 28, 1997, andcommenced operations on February 2, 1998.              On  July 29, 1999, Auburn National Bankconverted from national bank to a state non-member bank and was renamed AuburnCommunity Bank.  Auburn Community Bankis an insured bank under the Federal Deposit Insurance Act and operates itsheadquarters banking office located at 412 Auburn-Folsom Road, Auburn, CA andits branch located at 11795 Atwood Road, Auburn, CA.  Auburn Community Bank does not have any affiliates orsubsidiaries.

 

**Banking Services.** The Company is a locally owned and operated bank holding company,and its primary service area is the Northern California communities of CameronPark, Pollock Pines, Placerville, El Dorado Hills, Folsom, Lincoln, Sacramento,Roseville, Granite Bay, Sonora, Twain Harte, Columbia, Turlock, Lakeport,Antioch, Rocklin, Sand Andreas, Angels Camp, Jamestown, Lodi, Sutter Creek,Valley Springs, Copperopolis, Auburn and the surrounding communities. TheCompany’s primary business is serving the banking needs of these communitiesand its marketing strategy stresses its local ownership and commitment to servethe banking needs of individuals living and working in the Company’s primaryservice areas and local businesses, including retail, professional and realestate-related activities, in those service areas.

 

TheCompany offers a broad range of services to individuals and businesses in itsprimary service areas with an emphasis upon efficiency and personalizedattention. The Company provides a full line of consumer services and alsooffers specialized services, such as courier services to small businesses,middle market companies and professional firms. Each of the Company’ssubsidiary 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 withautomatic transfer), IRA accounts, time certificates of deposit and directdeposit of social security, pension and payroll checks, computer cashmanagement and internet banking including bill payment. The Company’ssubsidiary banks also make available commercial, construction, accountsreceivable, inventory, automobile, home improvement, real estate, commercialreal estate, single family mortgage, agricultural, Small BusinessAdministration, office equipment, leasehold improvement, installment and creditcard loans (as well as overdraft protection lines of credit), issue drafts andstandby letters of credit, sell travelers’ checks (issued by an independententity), offer ATMs tied in with major statewide and national networks,extend special considerations to senior citizens and offer other customarycommercial banking services.

 

Mostof the Company’s deposits are obtained from commercial businesses,professionals and individuals. At March 31, 2004 there was a title companycustomer with $6.9 million or 6.6% of total deposits at Lake Community Bank andanother title company customer with $5.5 million or 7.2% of total deposits atAuburn Community Bank.  There were noother customers with 5% or more of any of the subsidiary banks’ deposits.

 

Otherspecial services and products include both personal and business economychecking products, business cash management products, financial servicesthrough Western Sierra Bank’s Financial Services Division and mortgage productsand services.

 

**Employees.** At March 31, 2004, the Company and its subsidiaries employed 344persons on a full-time equivalent basis. The Company believes its employeerelations are satisfactory.

 

**FinancialCondition**

 

TheCompany increased total assets from $1.04 billion at December 31, 2003 to$1.09 billion at March 31, 2004, an increase of $59 million or 5.7%.The two primary components of asset growth were portfolio loans, which grew $37million, and cash and equivalents, which increased $24 million.  Asset growth was primarily funded by growth indeposits of $45 million.

 

12

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During the first threemonths of 2004, non-interest bearing deposits increased from $222 million atyear-end 2003 to $239 million at March 31, 2004.  Included in non-interest deposits are local title companydeposits, which have increased $22 million from $27 million at December 31,2003 to $49 million at March 31, 2004. These funds do not receive interest but do result in an assessment ofservice fees by the title company’s service bureau to the Company.  During the first three months of 2004,the  service fees on title companydeposits incurred by the Company were less than 1% of the average title companydeposits outstanding.

 

**Results ofOperations**

 

**Note:     **All references to shares and per share amounts are have been adjustedfor the three-for-two stock split effective May 7, 2004.  The Company’s earnings press release for thequarter ended March 31, 2004 reported fully diluted earnings per share of$0.66,  but is reported herein as $0.44as adjusted for the subsequent three-for-two stock split.

 

The Central Sierra Bank(“CSB”) acquisition was effective July 11, 2003 and was accounted for underpurchase accounting.  The AuburnCommunity Bank (“ACB”) acquisition was effective December 13, 2003 and was alsoaccounted for under purchase accounting. Pursuant to purchase accounting rules, the operating results of theCompany for the three-month period ended March 31, 2003 does not include theoperational results of CSB and ACB.

 

TheCompany reported net income of $3.47 million for the three months endedMarch 31, 2004 (or $0.44 per share, diluted) compared to $2.29 million (or$0.35 per share, diluted) for the same period in 2003. The quarterly earningsrepresent an increase of $1.18 million or a 52% increase in net income and a26% increase in diluted earnings per share.

 

Theprimary factors contributing to the increase in operating results during thethree-month period ended March 31, 2004 as compared to the same period in 2003include:

 

1.               An increase in net interest income of $4.0million or 48% in the first quarter over the same period in 2003.  The net increase is due to an overallincrease in average earning assets (partially due to the acquisition of $133million in earning assets from the CSB transaction completed in July 2003, and$84 million in earning assets from the ACB transaction completed in December2003)

 

2.               An increase in non-interest income, primarilyservice fees on deposit accounts and investment service fee income.  Non-interest income increased $513,000 or25% over the first quarter in the previous year.

 

3.               An effective tax rate of 36.0% as compared to37.2% in the first quarter of the previous year.

 

The above factors wereoffset in part by:

 

1.               An increase in loan and lease loss provisionsof $185,000 for the first quarter ended March 31, 2004 as compared to the sameperiod in 2003. Additional provisions were recorded as a result of growth inloans outstanding.  The percentage ofloan and lease loss reserves to gross loans and leases increased to 1.42% atMarch 31, 2004 as compared to 1.40% at December 31, 2003 and 1.35% at March 31,2003.

 

2.               Total other expenses increased $2.55 millionor 41% over the first quarter in the previous year.          Total other expenses increased significantly as a result ofthe addition of CSB and ACB’s operating costs, which totaled approximately$1.81 million (71% of the total increase) in the first quarter of 2004, that were not included in the 2003 firstquarter results as the acquisitions, accounted for under purchase accounting,did not close until July and December of 2003.

 

13

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**Return onAverage Assets and Average Equity**

 

Return on average assets(“ROA”) was 1.32% for the first quarter of 2004 as compared to 1.34% for thefirst quarter of 2003.  Return on equity(“ROE”) was 14.74% for the first of 2004 as compared to 16.84% for the firstquarter of 2003.  The compression of ROE was largely due to growth in equity which exceededthe Company’s income growth rate. Equity grew significantly as a result of the acquisition of two banksubsidiaries since June 30, 2003.

 

**NetInterest Income (Tax Equivalent Yield Basis)**

 

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

 

Forthe three months ended March 31, 2004, interest income on a tax equivalentbasis increased by $4.3 million to $15.1 million or 40% over the same period in2003. Interest expense on deposit accounts and borrowings increased $291,000 or13% over the same three-month period ended March 31, 2003. Average earningassets yielded (on a fully tax equivalent basis) 6.41% versus 6.80% a year ago,the effect of which was partially offset by a decrease in the cost of fundswhere the average cost of funds decreased to 1.41% from 1.87% a year ago. Netinterest income (on a tax equivalent basis) increased $4.0 million or 47% to$12.5 million. The net interest margin decreased 4 basis points to 5.32% from5.36% for the same three-month period a year ago.

 

Overall,yields trended down from the prior year as a result of market interestrates.  The most material decrease wasrealized in taxable investment securities, which decreased to 3.06% for thefirst quarter of 2004 as compared to 4.27% in the same period of 2003 as aresult of declining interest rates over the last few years in the bond market,accelerated prepayments on mortgage-backed securities and a lower yield on newinvestments than the effective yield of the existing portfolio.

 

14

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The following tables present, for theperiods indicated, the distribution of consolidated average assets, liabilitiesand shareholders’ equity, as well as the total dollar amounts of interestincome from average earning assets and the resultant yields and the dollaramounts of interest expense and average interest-bearing liabilities, expressedboth in dollars and in rates. Non-accrual loans, which are not consideredmaterial, are included in the calculation of the average balances ofloans.  Savings deposits include NOW andmoney market accounts. To compare the tax-exempt asset yields to taxableyields, amounts are adjusted to pre-tax equivalents based on the marginalcorporate federal tax rate of 35 percent for the three months ending March 31,2004 and 34 percent for the three months ended March 31, 2003 (dollars inthousands).

 

**AverageBalances, Interest Income/Expense and Yields/Rates Paid**

 

** **
|                                                     |   | **Three  Months Ended** |      |
|----------------------------------------------------------|--------|-------------------------|-----------|
|                                                     |   | **March 31,  2004**     |      | **March 31,  2003** |   |
|                                                     |   | **Average  Balance**    |      | **Interest** |   | **Yield/  Rate** |   | **Average  Balance** |   | **Interest** |   | **Yield/  Rate** |   |
| Earning assets:                                          |   |                    |      |   |   |   |   |   |   |   |   |   |   |
| Portfolio loans                                          |   | $                       | 837,635   |   | $ | 14,049 |   | 6.75% |   | $ | 559,085 |   | $ | 9,775 |   | 7.09% |   |
| Tax exempt investment securities                         |   | 34,063                  |      | 595 |   | 7.02% |   | 30,858 |   | 545 |   | 7.16% |   |
| Taxable investment securities                            |   | 47,158                  |      | 359 |   | 3.06% |   | 36,715 |   | 387 |   | 4.27% |   |
| Federal funds sold                                       |   | 21,730                  |      | 53 |   | 0.98% |   | 13,596 |   | 42 |   | 1.27% |   |
| Interest bearing deposits in banks                       |   | 3,948                   |      | 10 |   | 0.99% |   | 1,656 |   | 14 |   | 3.42% |   |
| Average earning assets                                   |   | 944,534                 |      | 15,066 |   | 6.41% |   | 641,911 |   | 10,763 |   | 6.80% |   |
| Other assets                                             |   | 119,325                 |      |   |   |   |   | 59,772 |   |   |   |   |   |
| Less ALLL                                                |   | (11,856                 | )         |   |   |   |   | (7,377 | ) |   |   |   |   |
| Average total assets                                     |   | $                       | 1,052,003 |   |   |   |   |   | $ | 694,306 |   |   |   |   |   |
| Interest bearing liabilities:                            |   |                    |      |   |   |   |   |   |   |   |   |   |   |
| Savings deposits                                         |   | $                       | 335,767   |   | $ | 544 |   | 0.65% |   | $ | 185,174 |   | $ | 376 |   | 0.82% |   |
| Time deposits                                            |   | 328,601                 |      | 1,461 |   | 1.79% |   | 278,104 |   | 1,623 |   | 2.37% |   |
| Other borrowings (1)                                     |   | 66,832                  |      | 557 |   | 3.35% |   | 29,200 |   | 272 |   | 3.78% |   |
| Average interest bearing liabilities                     |   | 731,200                 |      | 2,562 |   | 1.41% |   | 492,478 |   | 2,271 |   | 1.87% |   |
| Non-interest bearing liabilities                         |   | 214,849                 |      |   |   |   |   | 140,825 |   |   |   |   |   |
| Other liabilities                                        |   | 11,371                  |      |   |   |   |   | 5,927 |   |   |   |   |   |
| Shareholders’ equity                                |   | 94,582                  |      |   |   |   |   | 55,076 |   |   |   |   |   |
| Average total liabilities and shareholders’  equity |   | $                       | 1,052,003 |   |   |   |   |   | $ | 694,306 |   |   |   |   |   |
| Net interest income and net interest margin              |   |                    |      | $ | 12,504 |   | 5.32% |   |   |   | $ | 8,492 |   | 5.36% |   |

 

----

(1) For the purpose of thisschedule the Company’s subordinated debentures are included in otherborrowings.

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

 

15

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

 

###### **Analysisof Changes in Net Interest Income**

 
|                                     |   | **Three  Months Ended March 31, 2004 over 2003** |   |
|------------------------------------------|--------|--------------------------------------------------|--------|
|                                     |   | **Volume**                                       |   | **Rate** |   | **Total** |   |
| Increase (decrease) in interest income:  |   |                                             |   |   |   |   |   |
| Portfolio loans                          |   | $                                                | 4,911  |   | $ | (636 | ) | $ | 4,274 |   |
| Investment securities, tax exempt        |   | 57                                               |   | (6 | ) | 51 |   |
| Investment securities                    |   | 111                                              |   | (139 | ) | (28 | ) |
| Federal funds sold                       |   | 26                                               |   | (16 | ) | 10 |   |
| Interest bearing deposits                |   | 20                                               |   | (24 | ) | (4 | ) |
| Net increase (decrease)                  |   | 5,124                                            |   | (821 | ) | 4,302 |   |
| Increase (decrease) in interest expense: |   |                                             |   |   |   |   |   |
| Interest bearing accounts                |   | 308                                              |   | (140 | ) | 168 |   |
| Time deposits                            |   | 297                                              |   | (459 | ) | (162 | ) |
| Other borrowings (1)                     |   | 353                                              |   | (68 | ) | 285 |   |
| Net increase (decrease)                  |   | 959                                              |   | (667 | ) | 292 |   |
| Total net increase (decrease)            |   | $                                                | 4,165  |   | $ | (154 | ) | $ | 4,011 |   |

 

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(1) For the purpose of thisschedule the interest on the Company’s subordinated debentures is included inother borrowings.

 

16

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**Non-interestIncome**

** **

TheCompany’s non-interest income consists primarily of service charges on depositaccounts, investment service fee income, other service fees, and mortgage loanorigination and processing fees.

 

For the threemonths ended March 31, 2004, total non-interest income increased $513,000 or25% over the same period in 2003.

 

Service chargeincome rose $376,000 or 46% over the same three-month period of 2003.Approximately $336,000 or 89% of the increase relates to CSB and ACB’s servicecharges in the first quarter of 2004, which were not included in the firstquarter 2003 results.

 

Inaddition, income from mortgage loan origination and packaging fees decreased$249,000 or 23% over the same three-month period of 2003. The decrease can be primarily attributed toan increase in mortgage interest rates which has had a negative effect onrefinance activity.  The decline inmortgage revenues were completely offset by an increase of $275,000 in investmentservice fee income as Western Sierra Bank’s Investment Services Division wasnot in operation in the first quarter of 2003.

 

**Non-interestExpense**

 

Non-interestexpenses consist of salaries and related employee benefits, occupancy andequipment expenses, data processing fees, professional fees, directors’ fees,and other operating expenses. Non-interest expense increased $2.55 million or41% over the same three-month period of 2003. Approximately $1.81 million or71% of the increase relates to CSB and ACB’s non-interest expenses in the firstquarter of 2004, which were not included in the first quarter 2003 results.

 

Salariesand benefits increased $1.47 million or 43% over the same three-month period oflast year. This increase was due primarily to the integration of the CSB andACB employees after their respective mergers both of which occurred after thesecond quarter of 2003.

 

The followingtables set forth a summary of non-interest expense for the periods indicated(dollars in thousands, percentages are annualized):

 
|                                                |   | **Three  Months Ended March 31,** |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|
|                                                |   | **2004**                          |   | **2003** |   |
|                                                |   | **Expense**                       |   | **%****of Avg  Earning  Assets** |   | **Expense** |   | **%****of Avg  Earning  Assets** |   |
| Salaries and benefits                               |   | $                                 | 4,887  |   | 2.07% |   | $ | 3,416 |   | 2.16% |   |
| Occupancy & equipment                           |   | 1,352                             |   | 0.57% |   | 1,052 |   | 0.66% |   |
| Other expenses                                      |   | 2,309                             |   | 0.98% |   | 1,645 |   | 1.04% |   |
| Amortization of core deposit and other  intangibles |   | 180                               |   | 0.08% |   | 62 |   | 0.04% |   |
| Total non-interest expense                          |   | $                                 | 8,728  |   | 3.72% |   | $ | 6,175 |   | 3.90% |   |

 

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**EfficiencyRatio**

 

The Company uses a widely used banking operating ratio as a measure ofits progress in increasing operating efficiency.  The efficiency ratio is derived by dividing total other (i.e.operating) expenses by the sum of tax adjusted net interest income and non-interestincome.  Simply put, this ratiodescribes the funds necessary to generate $1 in tax equivalent totalrevenue.  The Company’s efficiency ratiohas continued to improve in 2004.

 

The followingtable sets forth the Company’s tax adjusted efficiency ratio for the periodsindicated (dollars in thousands):

 
|                                                |   | **Three  Months Ended  March 31,** |   |
|-----------------------------------------------------|--------|------------------------------------|--------|
|                                                |   | **2004**                           |   | **2003** |   |
|                                                |   |                               |   |   |   |
| Non-interest expense                                |   | $                                  | 8,728  |   | $ | 6,175 |   |
| Amortization of core deposit and other  intangibles |   | (180                               | )      | (62 | ) |
| Investment in limited partnership                   |   | (56                                | )      | — |   |
| Net non-interest expense                            |   | $                                  | 8,492  |   | $ | 6,113 |   |
|                                                |   |                               |   |   |   |
| Fully tax equivalent income:                        |   |                               |   |   |   |
| Net interest income                                 |   | $                                  | 12,282 |   | $ | 8,284 |   |
| Non-interest income                                 |   | 2,568                              |   | 2,055 |   |
| Tax benefit adjustment for tax-exempt  income       |   | 313                                |   | 236 |   |
| Total fully tax equivalent Income                   |   | $                                  | 15,163 |   | $ | 10,575 |   |
|                                                |   |                               |   |   |   |
| Efficiency Ratio                                    |   | 56.0                               | %      | 57.8 | % |

 

18

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**IncomeTaxes**

 

The following table reflects the Company’s taxprovision and the related effective tax rate for the periods indicated (dollarsin thousands):

 
|               |   | **Three  Months Ended  March 31,** |   |
|--------------------|--------|------------------------------------|--------|
|               |   | **2004**                           |   | **2003** |   |
| Tax provision      |   | $                                  | 1,947  |   | $ | 1,352 |   |
| Effective tax rate |   | 36.0                               | %      | 37.2 | % |
|                    |        |                                    |        |  |  |  |  |

 

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

 

Aspreviously disclosed, the Company abandoned its Real Estate Investment Trust(REIT) tax strategy in the fourth quarter of 2003.  While the Company took no book tax benefit for the REIT during2003, a charge of $940,000 was taken in the fourth quarter of 2003 for the 2002tax benefits and related penalties.  TheCompany has retained its right of appeal relative to the REIT transaction andwill continue to evaluate its alternatives in the future.

 

Duringthe first quarter of 2004, the Company filed amended 2002 tax returns with theFranchise Tax Board and reviewed its quarterly tax liability for 2003.  The Company remitted $1.51 million to theFranchise Tax Board during the first quarter of 2004, which the Companybelieves represents full payment of its historical tax liability.  The Company will realize a federal taxbenefit for this payment for 2004.  TheCompany has retained its right of appeal relative to the REIT transaction andwill continue

 

###### **AssetQuality**

###### ** **

TheCompany concentrates its lending activities primarily within areas directlyserviced by its branches as previously discussed.

 

TheCompany manages its credit risk through diversification of its loan portfolio,the application of underwriting policies and procedures and credit monitoringpractices. Although the Company has a diversified loan portfolio, a significantportion of its borrowers’ ability to repay their loans is dependent upon theprofessional services and residential real estate development industry sectors.Generally, loans are secured by real estate or other assets and are expected tobe repaid from the cash flows of the borrower or proceeds from the sale ofcollateral.

 

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

 
|                                                 |   | **March 31,2004** |    | **% ofTotal** |   | **December  31,2003** |   | **% ofTotal** |   |
|------------------------------------------------------|--------|-------------------|---------|---------------|--------|-----------------------|--------|---------------|--------|
| Commercial and residential real estate  mortgage     |   | $                 | 544,422 |          | 63.41% |                  | $      | 495,948       |   | 60.37% |   |
| Commercial and residential real estate  construction |   | 180,633           |    | 21.04%        |   | 195,889               |   | 23.84%        |   |
| Commercial                                           |   | 114,813           |    | 13.37%        |   | 109,685               |   | 13.35%        |   |
| Agricultural                                         |   | 11,509            |    | 1.34%         |   | 12,185                |   | 1.48%         |   |
| Installment and other                                |   | 5,178             |    | 0.60%         |   | 5,795                 |   | 0.71%         |   |
| Lease financing                                      |   | 1,983             |    | 0.23%         |   | 2,016                 |   | 0.25%         |   |
| Total                                                |   | 858,539           |    | 100.00%       |   | 821,518               |   | 100.00%       |   |
| Deferred loan fees and costs, net                    |   | (2,490            | )       | —0.29%   |   | (2,729                | )      | —0.33%   |   |
| Less allowance for loan and lease losses             |   | (12,165           | )       | —1.42%   |   | (11,529               | )      | —1.40%   |   |
| Total net loans and leases                           |   | $                 | 843,883 |          |   |                  | $      | 807,260       |   |   |   |

 

19

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The followingtable sets forth a summary of the Company’s non-performing assets as of thedates indicated (dollars in thousands):

 
|                                                              |   | **March 31,  2004** |   | **December  31,  2003** |   |
|-------------------------------------------------------------------|--------|---------------------|--------|-------------------------|--------|
| Non-accrual loans                                                 |   | $                   | 1,854  |                    | $      | 1,554 |   |
| Non-performing assets as a% of total assets                       |   | 0.17                | %      | 0.15                    | %      |
| Non-accrual loans as a% of gross loans                            |   | 0.22                | %      | 0.19                    | %      |
| Ratio of allowance for loan and lease losses to non-accrual loans |   | 6.56                |   | 7.42                    |   |
|                                                                   |        |                     |        |                         |        |  |  |

 

TheCompany’s non-accrual loans increased from $1,554,000 to $1,854,000 in thefirst three months of 2004. The Company’s “coverage ratio” or the ratio ofallowance for loan and lease losses to non-accrual loans decreased from 7.42 to6.56 during the first three months of 2004. The Company carried no other real estate as of March 31, 2004.

 

**Allowancefor Loan and Lease Losses**

 

The allowance for loan and lease losses is established throughcharges to earnings in the form of the provision for loan and lease losses.Loan and lease losses are charged to, and recoveries are credited to, theallowance for loan and lease losses. The provision for loan and lease losses isdetermined after considering various factors such as loan and lease lossexperience, current economic conditions, maturity of the portfolio, size of theportfolio, industry concentrations, borrower credit history, the existingallowance for loan and lease losses, independent loan reviews, current chargesto and recoveries within the allowance for loan and lease losses and theoverall quality of the portfolio as determined by management, regulatoryagencies, and independent credit review consultants retained by the Company.

 

The adequacy of the Company’s allowancefor loan and lease losses is based on specific and formula allocations to theCompany’s loan and lease portfolio. Specific allocations are made for impairedloans and leases. The specific allocations are increased or decreased throughmanagement’s reevaluation of the status of the particular problem loans andleases. Loans and leases which do not receive a specific allocation receive anallowance allocation based on a formula represented by a percentage factorbased on underlying collateral, type of loan and lease, historical charge-offsand general economic conditions which is applied against the general portfoliosegments.

 

It is the policy of management to make additions to theallowance for loan and lease losses so that it remains adequate to coveranticipated charge-offs and management believes that the allowance atDecember 31, 2003 is adequate. However, the determination of the amount ofthe allowance is judgmental and subject to economic conditions which cannot bepredicted with certainty. Accordingly, the Company cannot predict whethercharge-offs of loans and leases in excess of the allowance may be required infuture periods. The provision for loan and lease losses reflects an accrualsufficient to cover projected potential charge-offs.  The table below sets forth the allocation of the allowance forloan and lease losses by loan type as of the dates specified. The allocation ofindividual categories of loans includes amounts applicable to specificallyidentified, as well as unidentified, losses inherent in that segment of theloan and lease portfolio and will necessarily change whenever managementdetermines that the risk characteristics of the loan portfolio have changed.

 

Management believes that any breakdown or allocation of the allowancefor loan and lease losses into loan categories lends an appearance of exactnesswhich does not exist, in that the allowance is utilized as a single unallocatedallowance available for all loans and undisbursed commitments.

 

The allowance for loan andlease losses percentage to portfolio loans increased in the first quarter of2004 because CSB and ACB had a greater percentage of land and development loansthat required a higher reserve percentage.

 

20

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The followingtable summarizes the activity in the allowance for loan and lease losses forthe periods indicated (dollars in thousands):

 
|                                                      |   | **Three  Months Ended****March 31,** |   |
|-----------------------------------------------------------|--------|--------------------------------------|--------|
|                                                      |   | **2004**                             |   | **2003** |   |
| Beginning balance for allowance for loan and lease losses |   | $                                    | 11,529 |   | $ | 7,113 |   |
| Provision for loan and lease losses                       |   | 710                                  |   | 525 |   |
| Charge offs:                                              |   |                                 |   |   |   |
| Commercial                                                |   | 25                                   |   | — |   |
| Real estate                                               |   | —                               |   | — |   |
| Agricultural                                              |   | —                               |   | — |   |
| Other                                                     |   | 19                                   |   | — |   |
| Total charge offs                                         |   | 44                                   |   | — |   |
| Recoveries:                                               |   |                                 |   |   |   |
| Commercial                                                |   | 13                                   |   | 7 |   |
| Real estate                                               |   | —                               |   | — |   |
| Agricultural                                              |   | —                               |   | 14 |   |
| Other                                                     |   | 1                                    |   | 2 |   |
| Total recoveries                                          |   | 14                                   |   | 23 |   |
| Net (charge offs) recoveries                              |   | (30                                  | )      | 23 |   |
| Undisbursed amount transferred out                        |   | (44                                  | )      | — |   |
| Ending balance                                            |   | $                                    | 12,165 |   | $ | 7,661 |   |
| allowance for loan and lease losses to total loans        |   | 1.42                                 | %      | 1.35 | % |
| Annualized net (charge offs) recoveries to average loans  |   | -0.01                                | %      | 0.02 | % |

 

**Liquidity**

 

AFunds Management Policy has been developed by the Company’s Management andapproved by the Company’s Board of Directors that establishes guidelines forthe investments and liquidity of the Company. The goals of this policy are toprovide liquidity to meet the financial requirements of the Company’scustomers, maintain adequate reserves as required by regulatory agencies andmaximize earnings of the Company. The Company’s liquidity ratio at March 31,2004 was 11.5% and was 9.6% at December 31, 2003.  The increased liquidity ratio at March 31,2004 is due to an increase in Federal Funds Sold of $26 million.  Liquidity is computed by dividing liquidassets (consisting of cash and due from banks, available-for-sale investmentsnot pledged, federal funds sold and loans available-for-sale) by totalliabilities. The Company’s Management believes it maintains adequate liquiditylevels.

 

21

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**CapitalAdequacy**

 

Overallcapital adequacy is monitored on a day-to-day basis by the Company’s Managementand reported to the Company’s Board of Directors on a monthly basis. TheCompany’s and subsidiary banks’ regulators measure capital adequacy by using arisk-based capital framework and by monitoring compliance with minimumrisk-based and leverage ratio guidelines. Under the risk-based capitalstandards, assets reported on the Company’s balance sheet and certain off-balancesheet items are assigned to risk categories, each of which is assigned a riskweight.

 

This standard characterizesan institution’s capital as being “Tier 1” capital (defined as principallycomprising shareholders’ equity and qualifying subordinated debentures) and“Tier 2” capital (defined as principally comprising the qualifying portion ofthe allowance for loan and lease losses and any remaining subordinateddebentures).

 

The minimumratio of total risk-based capital to risk-weighted assets, including certainoff-balance sheet items, is 8% (10% to be considered well-capitalized).  The minimum ratio of Tier 1 capital toaverage assets (leverage ratio) is 4.0% (5.0% to be consideredwell-capitalized).  The minimum ratio ofTier 1 capital to risk-weighted assets is 4.0% (6.0% to be consideredwell-capitalized).  At least one-half(4%) of the total risk-based capital (Tier 1) is to be comprised of commonequity; the balance may consist of debt securities and a limited portion of theallowance for loan and lease losses. Subordinated debentures in the amount of  $32.1 million and $30.9 million are included in the Company’sTier 1 capital as of March 31, 2004 and December 31, 2003, respectively, asallowed by Federal Reserve regulations, in the consolidated totals below.   The remaining $3.9 million and $5.1million, respectively, in subordinated debentures are included in Tier 2.

 

The following table setsforth the Company’s and its banking subsidiaries’ capital ratios as of thedates indicated.

 
|                                               |   | **March 31,  2004** |   | **December  31, 2003** |   |
|----------------------------------------------------|--------|---------------------|--------|------------------------|--------|
|                                               |   | **ACB**             |   | **CCB**                |   | **LCB** |   | **WSNB** |   | **Company** |   | **ACB** |   | **CCB** |   | **LCB** |   | **WSNB** |   | **Company** |   |
|                                               |   |                |   |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total risk-based capital to risk-weighted  assets  |   | 11.9                | %      | 11.3                   | %      | 11.5 | % | 10.5 | % | 12.1 | % | 11.0 | % | 11.0 | % | 11.0 | % | 10.3 | % | 12.1 | % |
| Tier 1 capital to risk-weighted assets             |   | 10.6                | %      | 10.0                   | %      | 10.2 | % | 9.3 | % | 10.4 | % | 9.7 | % | 9.8 | % | 9.7 | % | 9.0 | % | 10.3 | % |
| Tier 1 capital to average assets (leverage  ratio) |   | 7.5                 | %      | 7.8                    | %      | 9.6 | % | 8.4 | % | 8.8 | % | 7.1 | % | 7.8 | % | 9.2 | % | 8.3 | % | 8.8 | % |

 

The Company and its banksubsidiaries continue to meet all regulatory capital requirements at March 31,2004.

 

22

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**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES 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 incomeand expense recorded on a large portion of the Company’s assets andliabilities, and the market value of all interest earning assets and interestbearing liabilities, other than those which possess a short term to maturity.Virtually all of the Company’s interest earning assets and interest bearingliabilities are located at the banking subsidiary level. Thus, virtually all ofthe Company’s interest rate risk exposure lies at the banking subsidiary level.As a result, all significant interest rate risk Management procedures areperformed at the banking subsidiary level. The subsidiary banks’ real estateloan portfolios, concentrated primarily within Northern California, are subjectto risks associated with their local economies.

 

The fundamental objective ofthe Company’s management of its assets and liabilities is to maximize theCompany’s economic value while maintaining adequate liquidity and an exposureto interest rate risk deemed by Management to be acceptable. Managementbelieves an acceptable degree of exposure to interest rate risk results fromthe management of assets and liabilities through maturities, pricing and mix toattempt to neutralize the potential impact of changes in market interest rates.The Company’s profitability is dependent to a large extent upon its netinterest income, which is the difference between its interest income oninterest-earning assets, such as loans and investments, and its interestexpense on interest-bearing liabilities, such as deposits and borrowings. TheCompany is subject to interest rate risk to the degree that itsinterest-earning assets reprice differently than its interest-bearingliabilities. The Company manages its mix of assets and liabilities with thegoals of limiting its exposure to interest rate risk, ensuring adequateliquidity, and coordinating its sources and uses of funds.

 

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

 

23

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The followingtable sets forth, as of March 31, 2004, the distribution of re-pricingopportunities for the Company’s earning assets and interest-bearingliabilities, the interest rate sensitivity gap, the cumulative interest ratesensitivity gap, the interest rate sensitivity gap ratio (i.e. earning assetsdivided by interest-bearing liabilities) and the cumulative interest ratesensitivity gap ratio.

 
| **Earning assets:**                                               |   | **Within 3  Months** |     | **After 3  Months But  Within One  Year** |   | **After One  Year But  Within Five  Years** |   | **After Five  Years** |    | **Total** |   |
|-------------------------------------------------------------------|--------|----------------------|----------|-------------------------------------------|--------|---------------------------------------------|--------|-----------------------|---------|-----------|--------|
| Federal funds sold                                                |   | $                    | 43,295   |                                      | $      | —                                      |   | $                     | —  |      | $      | — |   | $ | 43,295 |   |
| Investment securities and other                                   |   | 9,195                |     | 11,143                                    |   | 36,411                                      |   | 28,473                |    | 85,222    |   |
| Loans                                                             |   | 258,624              |     | 149,948                                   |   | 223,978                                     |   | 223,498               |    | 856,048   |   |
| Total earning assets                                              |   | 311,114              |     | 161,091                                   |   | 260,389                                     |   | 251,971               |    | 984,565   |   |
|                                                              |   |                 |     |                                      |   |                                        |   |                  |    |      |   |
| Interest-bearing liabilities:                                     |   |                 |     |                                      |   |                                        |   |                  |    |      |   |
| Savings                                                           |   | 50,985               |     | 25,492                                    |   | —                                      |   | —                |    | 76,477    |   |
| Interest-bearing transaction accounts                             |   | 218,498              |     | 41,449                                    |   | —                                      |   | —                |    | 259,947   |   |
| Time deposits                                                     |   | 123,595              |     | 152,129                                   |   | 67,628                                      |   | —                |    | 343,352   |   |
| Subordinated debentures                                           |   | 36,496               |     | —                                    |   | —                                      |   | —                |    | 36,496    |   |
| Other borrowings                                                  |   | —               |     | 22,600                                    |   | 10,150                                      |   | —                |    | 32,750    |   |
| Total interest-bearing liabilities                                |   | 429,574              |     | 241,671                                   |   | 77,778                                      |   | —                |    | 749,022   |   |
| Interest rate sensitivity gap                                     |   | (118,460             | )        | (80,579                                   | )      | 182,611                                     |   | 251,971               |    | 235,543   |   |
| Cumulative interest rate sensitivity gap                          |   | $                    | (118,460 | )                                         | $      | (199,039                                    | )      | $                     | (16,428 | )         | $      | 235,543 |   | $ | — |   |
| Interest rate sensitivity gap to total  earning assets            |   | -12.03               | %        | -8.18                                     | %      | 18.55                                       | %      | 25.59                 | %       | 23.92     | %      |
| Cumulative interest rate sensitivity gap to  total earning assets |   | -12.03               | %        | -20.22                                    | %      | -1.67                                       | %      | 23.92                 | %       |      |   |
| Ratio of rate sensitive assets to rate  sensitive liabilities     |   | 0.72                 |     | 0.67                                      |   | 3.35                                        |   | N/A                   |    | 1.31      |   |
| Cumulative ratio                                                  |   | 0.72                 |     | 0.70                                      |   | 0.98                                        |   | 1.31                  |    | 1.31      |   |

 

Theopportunity to reprice assets in the same dollar amounts and at the same timeas liabilities would minimize interest rate risk in any interest rateenvironment. The difference between the amounts of assets and liabilitiesrepriced at the same time, or “gap”, represents the risk, or opportunity, inrepricing. In general, if more assets than liabilities are repriced at a giventime in a rising rate environment, net interest income would improve while in adeclining rate environment, net interest income would decline. If moreliabilities than assets were repriced under the same conditions the oppositewould result. The Company appears liability sensitive in the immediate toone-year period, and turns asset sensitive in the longer term. This can be andis influenced by the fact that the majority of interest-bearing transactionaccounts which consist of money market, NOW and savings deposit accounts areclassified as repricing within three months when in fact these deposits may beimmediately repriced at Management’s option, thus assisting in the furthermanagement of interest rate risk.

 

Because of the inherent limitations of the static GAP model describedabove, management deployed a new interest rate sensitivity measurement tool inApril 2003 that more accurately measures the Company’s exposure to futurechanges in interest rates.  This modelmeasures the expected cash flows and repricing of each financialasset/liability separately in measuring the Company’s and each bank’s interestsensitivity. Management and the Board’s Investment/ALCO Committee havecarefully reviewed the initial reports that indicate that the Company as awhole is “asset sensitive”.  This meansthe Company expects (all other things being equal) to expand its net interestincome if rates rise and expects it conversely to contract if rates fall.  The level of potential or expectedcontraction is considered manageable at this time.  Management will continue to perform this analysis each quarter tofurther validate the expected results against actual data.

 

24

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The following tables, in management’s opinion, reflect estimates of theCompany’s future net interest income under different interest ratescenarios.  The net interest incomeestimates are one-year projections based on the earning assets and interest-bearing liabilities as of March 31, 2004. The estimates are derived from an asset/liability management modeldeployed in 2003.  There are numerousunderlying assumptions that management believes are accurate, but if they areinaccurate could have an impact to the results of operations.  Under the shock scenarios, the changes tointerest rates are assumed to occur immediately (on April 1, 2004).  Under the ramp scenarios the changes tointerest rates gradually ramp up or down over the course of one year (dollarsin thousands).

 
|                           |   | **Shock  Scenario**                 |       |
|--------------------------------|--------|-------------------------------------|------------|
| **Change in   Interest Rates** |   | **Estimated  Net Interest  Income** |       | **Dollar  Change  from Base** |   | **Percentage  Change  from Base** |   |
| 300 basis point rise           |   | $                                   | 55,750     |   | $ | 6,721 |   | 13.71% |   |
| 200 basis point rise           |   | 53,331                              |       | 4,303 |   | 8.78% |   |
| 100 basis point rise           |   | 50,962                              |       | 1,934 |   | 3.94% |   |
| 50 basis point rise            |   | 49,876                              |       | 847 |   | 1.73% |   |
| **Base scenario**              |   | **49,029**                          | ** ** | **0** | ** ** | **0.00%** |   |
| 50 basis point decline         |   | 47,660                              |       | (1,368 | ) | -2.79% |   |
| 100 basis point decline        |   | 46,188                              |       | (2,841 | ) | -5.79% |   |
|                                |        |                                     |            |  |  |  |  |  |  |

 
|                           |   | **Ramp  Scenario**                  |       |
|--------------------------------|--------|-------------------------------------|------------|
| **Change in   Interest Rates** |   | **Estimated  Net Interest  Income** |       | **Dollar  Change  from Base** |   | **Percentage  Change  from Base** |   |
| 300 basis point rise           |   | $                                   | 51,114     |   | $ | 2,085 |   | 4.25% |   |
| 200 basis point rise           |   | 50,341                              |       | 1,312 |   | 2.68% |   |
| 100 basis point rise           |   | 49,618                              |       | 590 |   | 1.20% |   |
| 50 basis point rise            |   | 49,299                              |       | 271 |   | 0.55% |   |
| **Base scenario**              |   | **49,029**                          | ** ** | **0** | ** ** | **0.00%** |   |
| 50 basis point decline         |   | 48,441                              |       | (588 | ) | -1.20% |   |
| 100 basis point decline        |   | 47,804                              |       | (1,225 | ) | -2.50% |   |
|                                |        |                                     |            |  |  |  |  |  |  |

 

25

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**ITEM 4.    Controls and Procedures.**

 

TheCompany’s Chief Executive Officer and Chief Financial Officer, based on theirevaluation as of the date of this report of the Company’s disclosure controlsand procedures (as defined in Exchange Act Rule 13a—15(e), have concludedthat the Company’s disclosure controls and procedures are adequate andeffective for purposes of Rule 13a—15(e) in timely alerting them tomaterial information relating to the Company required to be included in theCompany’s filings with the SEC under the Securities Exchange Act of 1934.

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect internal controls subsequentto the date of their evaluation.

 

26

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**PART II.Other Information**

 

**Item #1. Legal proceedings**

 

The Company and itssubsidiaries are involved in various routine legal actions arising in theordinary course of business. The Company believes that the ultimate dispositionof all currently pending matters will not have a material adverse effect on theCompany’s financial condition or results of operations.

 

# **Item #2. Changesin securities and use of proceeds**

# ** **

N/A

 

# **Item #3. Defaultsupon Senior Securities**

# ** **

N/A

 

# **Item #4.    Submission of Mattersto a Vote of Security Holders**

# ** **

N/A

 

# **Item #5. Other Information**

# ** **

N/A

 

27

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**Item #6A. Exhibits**

 
| **Exhibit  No.** |   | **Description of Exhibit**                                                                                                                                                                                                                                                                           |
|------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                 |
| 3.1              |   | Articles of  Incorporation are contained in the Registrant’s Registration Statement on  Form S-4, file #333-66675, as Exhibit 3.1 and are incorporated herein by this  reference.                                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 3.2              |   | Bylaws are  contained in the Registrant’s Registration Statement on Form S-4, file  #333-66675, as Exhibit 3.2 and are incorporated herein by this reference.                                                                                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 3.3              |   | Amendments to Bylaws  are contained in the Registrant’s Registration Statement on Form S-4, file  #333-76678, as Exhibit 3.2 and are incorporated herein by this reference.                                                                                                                     |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.1             |   | Severance  Compensation Agreement dated December 4, 1997 between Mr. Kirk Dowdell and  Western Sierra National Bank is contained in the Registrant’s Registration  Statement on Form S-4, file #333-33256, as Exhibit 10.1 and is incorporated  herein by this reference.                       |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.2             |   | Stock Option  Agreement dated September 22, 1997 between Mr. Kirk Dowdell and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-33256, as Exhibit 10.2 and is incorporated herein by this reference.                                                    |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.3             |   | Stock Option  Agreement dated May 19, 1999 between Mr. Kirk Dowdell and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-33256, as Exhibit 10.3 and is incorporated herein by this reference.                                                          |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.4             |   | Stock Option  Agreement dated May 19, 1999 between Mr. Gary D. Gall and Western is  contained in the Registrant’s Registration Statement on Form S-4 file, #  333-33256, as Exhibit 10.3 and is incorporated herein by this reference.                                                          |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.5             |   | Executive  Salary Continuation Agreement dated August 22, 2002, between Mr. Gary D. Gall  and Western Sierra National Bank. (1)                                                                                                                                                                      |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.6             |   | Stock Option  Agreement dated April 11, 1995 between Mr. Gary D. Gall and Western Sierra  National Bank is contained in the Registrant’s Registration Statement on Form  S-4, file #333-66675, as Exhibit 10.5 and is incorporated herein by this  reference.                                   |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.7             |   | Stock Option  Agreement dated November 14, 1996 between Mr. Gary D. Gall and Western Sierra  National Bank is contained in the Registrant’s Registration Statement on Form  S-4, file #333-66675, as Exhibit 10.6 and is incorporated herein by this  reference.                                |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.8             |   | Stock Option  Agreement dated May 20, 1997 between Mr. Gary D. Gall and Western is  contained in the Registrant’s Registration Statement on Form S-4, file  #333-66675, as Exhibit 10.7 and is incorporated herein by this reference.                                                           |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.9             |   | Western  Sierra Bancorp 1999 Stock Option Plan and form of stock option agreements are  contained in the Registrant’s Registration Statement on Form S-8, file  #333-86653, as Exhibit 99.3 and are incorporated herein by this reference.                                                      |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.10            |   | Western  Sierra National Bank 1989 Stock Option Plan, form of incentive stock option  and form of nonqualified stock option agreements are contained in the  Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit  10.10 and are incorporated herein by this reference. |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.11            |   | Western  Sierra Bancorp 1997 Stock Option Plan, form of incentive stock option and  form of nonqualified stock option agreements are contained in the  Registrant’s Registration Statement on Form S-4 ,file #333-66675, as Exhibit  10.11 and are incorporated herein by this reference.       |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.12            |   | Indemnification  Agreement between Mr. Gary D. Gall and Western Sierra National Bank is  contained in the Registrant’s Registration Statement on Form S-4, file  #333-66675, as Exhibit 10.13 and is incorporated herein by this reference.                                                     |
|             |   |                                                                                                                                                                                                                                                                                                 |
| 10.13            |   | Indemnification  Agreement between Mr. Kirk Dowdell and Western is contained in the  Registrant’s Registration Statement on Form S-4, file #333-86653, as Exhibit  10.14 and is incorporated herein by this reference.                                                                          |

 

28

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| 10.14  |   | Form of  Indemnification Agreement for the directors of Western Sierra National Bank  is contained in the Registrant’s Registration Statement on Form  S-4 file, #333-66675, as Exhibit 10.15 and  is incorporated herein by this reference.                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.15  |   | Placerville  Branch lease is contained in the Registrant’s Registration Statement on Form  S-4, file #333-66675, as Exhibit 10.1 and is incorporated herein by this  reference.                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.16  |   | Executive  Salary Continuation Agreement dated February 1, 2002, between Mr. Kirk N.  Dowdell. (1)                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.17  |   | Severance  Benefits Agreement dated December 4, 1997 between Mr. Gary D. Gall and  Western Sierra National Bank is contained in the Registrant’s Registration  Statement on Form S-4, file #333-66675, as Exhibit 10.2 and is incorporated  herein by this reference.                    |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.18  |   | Western Sierra  National Bank Incentive Compensation Plan for Senior Management is contained  in the Registrant’s Registration Statement on Form S-4, file # 333-66675, as  Exhibit 10.12 and is incorporated herein by this reference.                                                  |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.19  |   | Stock Option  Agreement dated April 11, 2000 between Mr. Kirk Dowdell and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-76678, as Exhibit 10.19 and is incorporated herein by this reference.                                                |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.20  |   | Stock Option  Agreement dated April 11, 2000 between Mr. Gary D. Gall and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-76678, as Exhibit 10.20 and is incorporated herein by this reference.                                                |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.21  |   | Stock Option  Agreement dated April 10, 2001 between Mr. Kirk Dowdell and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-76678, as Exhibit 10.21 and is incorporated herein by this reference.                                                |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.22  |   | Stock Option  Agreement dated April 10, 2001 between Mr. Gary D. Gall and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-76678, as Exhibit 10.22 and is incorporated herein by this reference.                                                |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.23  |   | Stock Option  Agreement dated December 11, 2001 between Mr. Kirk Dowdell and Western is  contained in the Registrant’s Registration Statement on Form S-4, file #  333-76678, as Exhibit 10.23 and is incorporated herein by this reference.                                             |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.24  |   | Folsom  Western Sierra National Bank branch lease and lease amendment. (1)                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.25  |   | Agreement  and Plan of Reorganization by and between the Western and Central Sierra Bank  dated as of March 12, 2003 is attached as Appendix A to the proxy  statement-prospectus contained in the S-4 Registration Statement file  #333-104817 and is incorporated herein by this reference. |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.26  |   | Wells Fargo  Note Contract dated April 10, 2003. (1)                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.27  |   | Stock Option  Agreement dated December 11, 2001 between Mr. Phillip Wood and Western Sierra  Bancorp. (1)                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.28  |   | Stock Option  Agreement dated December 11, 2001 between Mr. Doug Nordell and Western Sierra  Bancorp. (1)                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.29  |   | Stock Option  Agreement dated April 25, 2002 between Mr. Doug Nordell and Western Sierra  Bancorp. (1)                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.30  |   | Stock Option  Agreement dated April 25, 2002   between Mr. Fred Rowden and Western Sierra Bancorp. (1)                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.31  |   | Stock Option  Agreement dated April 25, 2002 between Mr. Kirk Dowdell and Western Sierra  Bancorp. (1)                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.32  |   | Stock Option  Agreement dated June 27, 2002 between Mr. Gary Gall and Western Sierra  Bancorp. (1)                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.33  |   | Stock Option  Agreement dated June 27, 2002 between Mr. Anthony Gould and Western Sierra  Bancorp. (1)                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.34  |   | Stock Option  Agreement dated March 30, 2003 between Mr. Phillip Wood and Western Sierra  Bancorp. (1)                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.35  |   | Stock Option  Agreement dated March 30, 2003 between Mr. Gary Gall and Western Sierra  Bancorp. (1)                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                          |
| 10.36  |   | Stock Option  Agreement dated March 30, 2003 between Mr. Kirk Dowdell and Western Sierra  Bancorp. (1)                                                                                                                                                                                        |

 

29

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| 10.37  |   | Stock Option  Agreement dated March 30, 2003 between Mr. Anthony Gould and Western Sierra  Bancorp. (1)                      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                         |
| 10.38  |   | Stock Option  Agreement dated March 30, 2003 between Mr. Doug Nordell and Western Sierra  Bancorp. (1)                       |
|   |   |                                                                                                                         |
| 10.39  |   | Stock Option  Agreement dated March 30, 2003 between Mr. Fred Rowden and Western Sierra  Bancorp. (1)                        |
|   |   |                                                                                                                         |
| 10.40  |   | Stock Option  Agreement dated January 1, 2002 between Mr. Charles Bacchi and Western Sierra  Bancorp. (1)                    |
|   |   |                                                                                                                         |
| 10.41  |   | Stock Option  Agreement dated January 1, 2002 between Mrs. Barbara Cook and Western Sierra  Bancorp. (1)                     |
|   |   |                                                                                                                         |
| 10.42  |   | Stock Option  Agreement dated January 1, 2002 between Mr. William Fisher and Western Sierra  Bancorp. (1)                    |
|   |   |                                                                                                                         |
| 10.43  |   | Stock Option  Agreement dated January 1, 2002 between Mr. Howard Jahn and Western Sierra  Bancorp. (1)                       |
|   |   |                                                                                                                         |
| 10.44  |   | Stock Option  Agreement dated January 1, 2002 between Mr. Alan Kleinert and Western Sierra  Bancorp. (1)                     |
|   |   |                                                                                                                         |
| 10.45  |   | Stock Option  Agreement dated January 1, 2002 between Mr. Thomas Manz and Western Sierra  Bancorp. (1)                       |
|   |   |                                                                                                                         |
| 10.46  |   | Stock Option  Agreement dated January 1, 2002 between Mr. Harold Prescott and Western  Sierra Bancorp. (1)                   |
|   |   |                                                                                                                         |
| 10.47  |   | Stock Option  Agreement dated January 1, 2002 between Mr. Lary Davis and Western Sierra  Bancorp. (1)                        |
|   |   |                                                                                                                         |
| 10.48  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Charles Bacchi and Western  Sierra Bancorp. (1)                  |
|   |   |                                                                                                                         |
| 10.49  |   | Stock Option  Agreement dated December 31, 2002 between Ms. Barbara Cook and Western Sierra  Bancorp. (1)                    |
|   |   |                                                                                                                         |
| 10.50  |   | Stock Option  Agreement dated December 31, 2002 between Mr. William Fisher and Western  Sierra Bancorp. (1)                  |
|   |   |                                                                                                                         |
| 10.51  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Howard Jahn and Western Sierra  Bancorp. (1)                     |
|   |   |                                                                                                                         |
| 10.52  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Alan Kleinert and Western  Sierra Bancorp. (1)                   |
|   |   |                                                                                                                         |
| 10.53  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Thomas Manz and Western Sierra  Bancorp. (1)                     |
|   |   |                                                                                                                         |
| 10.54  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Harold Prescott and Western  Sierra Bancorp. (1)                 |
|   |   |                                                                                                                         |
| 10.55  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Matthew Bruno Sr. and Western  Sierra Bancorp. (1)               |
|   |   |                                                                                                                         |
| 10.56  |   | Stock Option  Agreement dated December 31, 2002 between Mr. Lary Davis and Western Sierra  Bancorp. (1)                      |
|   |   |                                                                                                                         |
| 10.57  |   | Stock Option  Agreement dated December 31, 2002 between Mr. William Eames and Western  Sierra Bancorp. (1)                   |
|   |   |                                                                                                                         |
| 10.58  |   | Executive  Salary Continuation Agreement dated June 22, 2002, between Mr. Fred Rowden  and Central California Bank. (1)      |
|   |   |                                                                                                                         |
| 10.59  |   | Executive  Salary Continuation Agreement dated June 1, 2002, between Mr. Phillip Wood  and Western Sierra National Bank. (1) |
|   |   |                                                                                                                         |
| 10.60  |   | Executive  Salary Continuation Agreement dated June 25, 2002, between Mr. Doug Nordell  and Roseville 1st National Bank. (1) |
|   |   |                                                                                                                         |
| 10.61  |   | Stock Option  Agreement dated July 1, 2003 between Mr. Charles Bacchi and Western Sierra  Bancorp. (2)                       |
|   |   |                                                                                                                         |
| 10.62  |   | Stock Option  Agreement dated July 1, 2003 between Mr. Matthew Bruno Sr. and Western Sierra  Bancorp. (2)                    |
|   |   |                                                                                                                         |
| 10.63  |   | Stock Option  Agreement dated July 1, 2003 between Mr. Lary Davis and Western Sierra  Bancorp. (2)                           |
|   |   |                                                                                                                         |
| 10.64  |   | Stock Option  Agreement dated July 1, 2003 between Mr. William Fisher and Western Sierra  Bancorp. (2)                       |
|   |   |                                                                                                                         |
| 10.65  |   | Stock Option  Agreement dated December 31, 2002 between Mr. William Fisher and Western  Sierra Bancorp. (2)                  |

 

30

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| 10.66                                                                                                                             |   | Stock Option  Agreement dated July 1, 2003 between Mr. Howard Jahn and Western Sierra  Bancorp. (2)                                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.67                                                                                                                             |   | Stock Option  Agreement dated July 1, 2003 between Mr. Alan Kleinert and Western Sierra  Bancorp. (2)                                                                                                                                                                                                |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.68                                                                                                                             |   | Stock Option  Agreement dated July 1, 2003 between Mr. Thomas Manz and Western Sierra  Bancorp. (2)                                                                                                                                                                                                  |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.69                                                                                                                             |   | Stock Option  Agreement dated July 1, 2003 between Mr. Harold Prescott and Western Sierra  Bancorp. (2)                                                                                                                                                                                              |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.70                                                                                                                             |   | Stock Option  Agreement dated July 15, 2003 between Mr. Kirk Dowdell and Western Sierra  Bancorp. (2)                                                                                                                                                                                                |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.71                                                                                                                             |   | Agreement  and Plan of Reorganization by and between the Western and Auburn Community  Bank dated as of August 20, 2003 is attached as Appendix A to the proxy  statement-prospectus contained in the S-4 Registration Statement file  #333-109833 and is incorporated herein by this reference. (2) |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.72                                                                                                                             |   | Contract  between Woodbury Financial Services, Inc. and Western Sierra National Bank  dated July 22, 2003. (2)                                                                                                                                                                                       |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.73                                                                                                                             |   | Summary of  financial terms for Western Sierra Statutory Trusts III, and IV. (2)                                                                                                                                                                                                                     |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.74                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Howard Jahn and Western Sierra  Bancorp.                                                                                                                                                                                                   |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.75                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Charles Bacchi and Western Sierra  Bancorp.                                                                                                                                                                                                |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.76                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Ms. Barbara Cook and Western Sierra  Bancorp.                                                                                                                                                                                                  |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.77                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. William Fisher and Western Sierra  Bancorp.                                                                                                                                                                                                |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.78                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Thomas Manz and Western Sierra  Bancorp.                                                                                                                                                                                                   |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.79                                                                                                                             |   | Stock Option  Agreements dated January 1, 2004 between Mr. Matthew Bruno Sr. and Western  Sierra Bancorp (two identical agreements both represented by exhibit 10.79).                                                                                                                               |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.80                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Lary Davis and Western Sierra  Bancorp.                                                                                                                                                                                                    |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.81                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Lary Davis and Western Sierra  Bancorp.                                                                                                                                                                                                    |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.82                                                                                                                             |   | Stock Option  Agreements dated January 1, 2004 between Mr. William Eames and Western Sierra  Bancorp (two identical agreements both represented by exhibit 10.82).                                                                                                                                   |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.83                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Ms. Lori Warden and Western Sierra  Bancorp.                                                                                                                                                                                                   |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.84                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Alan Kleinert and Western Sierra  Bancorp.                                                                                                                                                                                                 |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.85                                                                                                                             |   | Stock Option  Agreement dated January 1, 2004 between Mr. Harold Prescott and Western  Sierra Bancorp.                                                                                                                                                                                               |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.86                                                                                                                             |   | Severance  Benefits Agreement dated January 16, 2004 between Mr. Kirk Dowdell and  Western Sierra Bancorp.                                                                                                                                                                                           |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 10.87                                                                                                                             |   | Severance  Benefits Agreement dated February 10, 2004 between Mr. Anthony Gould and  Western Sierra Bancorp.                                                                                                                                                                                         |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 11.1                                                                                                                              |   | Statement  re: Computation of earnings per share is included in Note 3 to the financial  statements.                                                                                                                                                                                                 |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 31.1                                                                                                                              |   | Section 302  Certification by Anthony J. Gould                                                                                                                                                                                                                                                       |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 31.2                                                                                                                              |   | Section 302 Certification by Gary D. Gall                                                                                                                                                                                                                                                            |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 32.1                                                                                                                              |   | Section 906  Certification by Anthony J. Gould.                                                                                                                                                                                                                                                      |
|                                                                                                                              |   |                                                                                                                                                                                                                                                                                                 |
| 32.2                                                                                                                              |   | Section 906  Certification by Gary D. Gall.                                                                                                                                                                                                                                                          |
|                                                                                                                              |
|                                                                                                                                   |
| (1) included as an exhibit to the Registrant’s 10-Q for March 31,  2003, which is incorporated by this reference herein.     |
| (2) included as an exhibit to the Registrant’s 10-Q for September 30,  2003, which is incorporated by this reference herein. |

 

**Item #6B.Reports on Form 8-K**

 
| January 21,  2004: |   | Press  Release results for the4th quarter of 2003                                      |
|--------------------|--------|----------------------------------------------------------------------------------------|
| March 10,  2004:   |   | Slide  presentation for Sandler O’Neill West Coast Financial Services  conference |

 

31

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**SIGNATURES**

 

Following the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
| **WESTERN SIERRA BANCORP** |   |                                                               |   |
|----------------------------|--------|--------------------------------------------------------------------|--------|
| (Registrant)               |   |                                                               |   |
|                       |   |                                                               |   |
| Date: May 10, 2004         |   |                                                               |   |
|                       |   |                                                               |   |
|                       |   |                                                               |   |
|                       |   | /s/  GARY D. GALL     Gary D. Gall                  |   |
|                       |   | *President/Chief  Executive Officer*                               |   |
|                       |   |                                                               |   |
|                       |   |                                                               |   |
|                       |   | /s/  ANTHONY J. GOULD     Anthony J. Gould          |   |
|                       |   | *Executive  Vice President/Chief Financial and Accounting Officer* |   |

 

32

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