FORM 10-K

[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended       December 31, 2002      

or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                                 to                                   

Commission file number:                              

Umpqua Holdings Corporation
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: 503-546-2490

Securities registered pursuant to Section 12(g) of the Act:

Common Stock
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No ___

Indicate by check mark if disclosure of delinquent filing pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of common stock held by non-affiliates was $342,051,266 at June 28, 2002 (the last business day of our most recently completed second quarter), based on the sale price of such stock on such date as reported by the NASDAQ National Market System.

As of March 24, 2003, there were 28,257,167 shares of common stock outstanding.

Documents Incorporated by Reference:

Portions of the 2002 Annual Report to Shareholders are incorporated by reference in Part II hereof. Portions of Umpqua's definitive proxy statement for the 2003 annual meeting of shareholders are incorporated by reference in Part III hereof.

      Umpqua Holdings Corporation, an Oregon corporation, is a financial holding company formed in March 1999. At that time, we acquired 100% of the outstanding shares of South Umpqua Bank, an Oregon state-chartered bank formed in 1953. We became a financial holding company in March 2000 under the Gramm-Leach-Bliley Act. On December 1, 2000, Umpqua completed a "merger of equals" with VRB Bancorp, a bank holding company that conducted its business solely through Valley of the Rogue Bank. At the same time, Valley of the Rogue Bank merged with and into South Umpqua Bank and the continuing bank changed its name to Umpqua Bank.

       On December 28, 2001, we completed the acquisition of Linn-Benton Bank, an Oregon state-chartered bank, based in Albany with branches in Corvallis, Lebanon, Sweet Home and Tangent. On December 31, 2001, we completed the acquisition of Independent Financial Network, Inc., its data processing and loan production operations, and its banking subsidiaries with branches in Coos Bay, Coquille, Bandon, Myrtle Point, North Bend, Reedsport, Lakeside, Newport, Waldport, Brookings-Harbor, Springfield, Corvallis, Roseburg, and Winston.

       On November 15, 2002, we completed a merger with Centennial Bancorp, holding company of Centennial Bank. Centennial Bank operated 22 branches in Eugene, Springfield, Cottage Grove, and Salem, Oregon, and in the Portland, Oregon metropolitan area including Vancouver, Washington.

       We are headquartered in Portland, Oregon, and engage primarily in the business of commercial and retail banking and the delivery of retail brokerage services. We provide a wide range of banking, asset management, mortgage banking, and other financial services to corporate, institutional and individual customers through our wholly owned banking subsidiary Umpqua Bank. We engage in the retail brokerage business through our wholly owned subsidiary Strand, Atkinson, Williams & York, Inc. ("Strand Atkinson"). Along with our subsidiaries, we are subject to the regulations of federal agencies and undergo periodic examinations by these regulatory agencies. See "Regulatory Considerations."

       We are one of the most innovative community banks in the United States, combining a retail product delivery approach with an emphasis on quality-assured personal service. We are the largest community bank in the state of Oregon, currently operating stores in Benton, Clackamas, Coos, Curry, Douglas, Jackson, Josephine, Lane, Lincoln, Linn, Marion, Multnomah and Washington Counties in Oregon and in Clark County, Washington. At December 31, 2002, we had assets of approximately $2.6 billion and deposits of approximately $2.1 billion.

       Since 1995, we transformed Umpqua Bank from a traditional community bank into a community-oriented financial services retailer by implementing a variety of retail marketing strategies to increase revenue and differentiate ourselves from our competition.

       Strand Atkinson is a registered broker-dealer and investment advisor with offices in Portland, Salem, Eugene, Roseburg, and Medford, Oregon, and Kalama, Washington, and offers a full range of investment products and services including:

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• Stocks
• Fixed Income Securities (municipal, corporate, and government bonds, CDs, money market instruments)
• Mutual Funds
• Annuities
• Options
• Retirement Planning
• Money Management Services
• Life Insurance, Disability Insurance and Medical Supplement Policies

       Business Strategy

       Our objective is to become the leading community-oriented financial services retailer throughout the Pacific Northwest. We intend to continue to grow our assets and increase profitability and shareholder value by differentiating ourselves from competitors through the following strategy:

       Capitalize On Innovative Product Delivery System. Our philosophy has been to develop an environment for the customer that makes the banking experience an enjoyable one. With this approach in mind, Umpqua Bank developed a unique store concept that offers "one-stop" shopping and that includes distinct physical areas or boutiques, such as a "serious about service center," an "investment opportunity center" and a "computer café," which make Umpqua Bank's products and services more tangible and accessible. We opened Umpqua Bank's initial prototype store in 1996 in Roseburg, Oregon, a community with historically low deposit growth. This new store, nevertheless, captured $12 million in deposits from competitors by the end of its first year of operation. On the basis of this initial success, we opened four additional stores featuring the new format during 1997, two in 1999, one in 2000, and one in 2001 and remodeled a majority of our other stores. Our plan is to remodel former Centennial Bank branches over the next year. In April 2003, our next evolution prototype store opens in Portland's Pearl District, taking the Umpqua banking experience to new levels.

       Deliver Superior Quality Service. We insist on quality service as an integral part of our culture, from the board of directors to our new sales associates. We believe we were among the first banks to introduce a measurable quality service program. Under our "return on quality" program introduced in 1995, each sales associate's and store's performance is evaluated monthly based on specific measurable factors such as the "sales effectiveness ratio" that totals the average number of banking products purchased by each new customer. The evaluations also encompass factors such as the number of referrals generated for the sale of investment products, the number of new loans and deposits generated in each store, reports by incognito "mystery shoppers" and customer surveys. Based on scores achieved, the "return on quality" program rewards both individual sales associates and store teams with financial incentives. Through such programs, we believ e we can measure the quality of service provided to our customers and maintain employee focus on quality customer service.

       Establish Strong Brand Awareness. As a financial services retailer, we devote considerable resources to developing the "Umpqua Bank" brand. This campaign has included the redesign of the corporate logo to emphasize our geographical origin, and promotion of the brand in advertising and merchandise bearing the Umpqua Bank logo, such as coffee beans, mugs, tee-shirts, hats and umbrellas. The store's unique "look and feel" and innovative product displays help position us as an innovative, customer friendly retailer of financial products and services. We build consumer preference for our products and services through strong brand awareness.

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       Use Technology to Expand Customer Base. Although our strategy will continue to emphasize superior personal service, we continue to expand user-friendly, technology-based systems to attract customers that may prefer to interact with their financial institution electronically. We offer technology-based services including voice response banking, debit cards, automatic payroll deposit programs, "ibank@Umpqua" online banking, bill pay and cash management, automated loan machines, advanced function ATMs and an internet web site. We believe the availability of both traditional bank services and electronic banking services enhances our ability to attract a broad range of customers.

       Increase Market Share in Existing Markets and Expand Into New Markets. As a result of our innovative retail product orientation, measurable quality service program and strong brand awareness, we believe that there is significant potential to increase business with current customers, to attract new customers in our existing markets and to enter new markets.

       Upon completion of the IFN merger and the acquisition of Linn-Benton Bank, Umpqua Bank became the largest community bank in Oregon. With the recent completion of the Centennial merger, we rank among the largest community banks headquartered in the Pacific Northwest. From time to time, we have discussions with other institutions about the possibility of acquiring other banks. We plan on pursuing further acquisition discussions and opening new stores to expand into other markets.

       Marketing and Sales

       Our goal of increasing our share of financial services in our market areas is driven by a marketing plan comprising the following key components.

      Media Advertising. Over the years, we have introduced several comprehensive media advertising campaigns. These campaigns augment our goal of strengthening the "Umpqua Bank" brand image and heightening public awareness of our innovative product delivery system. Campaign slogans such as "The Banking Revolution," "Expect the Unexpected," and "Different for a Reason" were designed to showcase our innovative style of banking, as well as our commitment to providing quality service to our customers. Our campaigns utilized various forms of media, including television, radio, print, billboards and direct mail flyers and letters.

       Retail Store Concept. As a financial services provider, we believe that the store environment is critical to successfully market and sell products and services. Retailers traditionally have displayed merchandise within their stores to encourage customers to purchase their products. Purchases are made on the spur of the moment due to the products' availability and attractiveness. Umpqua Bank believes this same concept can be applied to financial institutions and accordingly displays financial services and products through tactile merchandising within our stores. Unlike many financial institutions whose strategy is to discourage customers from visiting their facilities in favor of ATMs or other forms of electronic banking, we encourage customers to visit our stores, where they are greeted by well-trained sales associates, and encouraged to browse and to make "impulse buys." The new prototype store opening in April 2003 includes features like wireless laptop computers customers can check out, opening rooms with fresh fruit and refrigerated beverages, and innovative products like the Green Account that pays interest to non-profit organizations. We plan on hosting a variety of after-hours events, from poetry readings to seminars on how to build an art collection.

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       Neighborhood Stores. To bring financial services to the customer in a cost-effective way, we have created "neighborhood stores." These facilities are constructed near high volume traffic areas, close to neighborhood shopping centers. These stand-alone stores are, on average, approximately 1,100 to 3,000 square feet in size and include all the features of the prototype store described above. To strengthen brand recognition, all neighborhood stores are identical in appearance.

       Sales Culture. Although a successful marketing program will attract customers to visit our stores, a sales environment and a well-trained sales team are critical to selling our products and services. We believe that our sales culture has become well established throughout the organization due to the unique facility design and our ongoing training of sales associates on all aspects of sales and service. We train our sales associates in our own banking college and pay commissions for the sale of Umpqua Bank's products and services. A new training center facility is under construction in Roseburg and is scheduled for completion in December 2003. This sales culture has helped transform us from a traditional community bank to a nationally recognized marketing company focused on selling financial products and services.

       Products and Services

       We offer a full array of financial products to meet the banking needs of our market area and targeted customers. To ensure the ongoing viability of its product offerings, we regularly examine the desirability and profitability of existing and potential new products. To make it easy for new prospective customers to bank with Umpqua Bank and access its products, we introduced a "Switch Kit," which allows a customer to open a primary checking account with Umpqua Bank in less than four minutes. Other avenues through which customers can access our products include our web site, internet banking through the "ibank@Umpqua" program, and our 24-hour telephone voice response system.

       Deposit Products. We offer a traditional array of deposit products, including non-interest-bearing checking accounts, interest-bearing checking and savings accounts, money market accounts and certificates of deposit. These accounts earn interest at rates established by management based on competitive market factors and management's desire to increase certain types or maturities of deposit liabilities. We also offer a line of "Value Packages" to increase the number of relationships with customers and increase service fee income. These packages comprise several products bundled together to provide added value to the customer and increase the customer's ties to us. We also offer a seniors program, the "Elite Account," which includes an array of banking services and other amenities, such as purchase discounts, vacation trips and seminars, to customers over fifty years old.

       Retail Investment Services. The acquisition of Strand Atkinson, a retail brokerage firm with offices in Portland, Salem, Eugene, Roseburg, and Medford, Oregon, and Kalama, Washington, expanded Umpqua's business into the area of brokerage services including equity and fixed income products, mutual funds, annuities, options, retirement planning, and money management services. Additionally, Strand Atkinson offers life insurance, disability insurance and medical supplement policies. Strand Atkinson has five stand-alone retail brokerage offices with fifty-three licensed broker-dealer professionals. Additionally, fourteen Umpqua Bank stores have "Investment Opportunity Centers" which are periodically staffed by a licensed sales representative. As of December 31, 2002, Strand Atkinson offices were located in six Umpqua Bank stores. Special appointments can be arranged for meetings in any of our stores.

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       Private Client Services. In March 2002, we introduced our Private Client Services division. The mission of Private Client Services is to provide integrated banking and investment products and services by coordinating the offerings of Umpqua Bank and Strand Atkinson in serving high value customers. The "Prosperity" suite of products includes 24-hour access to a private client executive, courier service, premium rates on deposit and loan products, brokerage accounts and portfolio management.

       Commercial Loans. We offer specialized loans for business and commercial customers, including accounts receivable and inventory financing, equipment loans, real estate construction loans and permanent financing and some SBA program financing. Additionally, we offer specially designed loan products for small businesses through our Small Business Lending Center. Commercial lending is the primary focus of our lending activities and a significant portion of our loan portfolio consists of commercial loans. We provide funding for income-producing real estate, though a substantial share of our commercial real estate loans are for owner-occupied projects of commercial loan customers and for borrowers we have financed for many years. For regulatory reporting purposes, some of our commercial loans are designated as real estate loans, because the loans are secured by mortgages and trust deeds on real property, even though the loans may be made for purp oses of financing commercial activities, such as accounts receivable financing and inventory and equipment purchases.

       Real Estate Loans. Real estate loans are available for construction, purchase and refinancing of residential owner-occupied and rental properties. Borrowers can choose from a variety of fixed and adjustable rate options and terms. Generally, we originate residential real estate loans as an accommodation to our customers and we sell most mortgages into the secondary market. Real estate loans reflected in the loan portfolio are in large part loans made to commercial customers that are secured by real property.

       Consumer Loans. We also provide loans to individual borrowers for a variety of purposes, including secured and unsecured personal loans, home equity and personal lines of credit and motor vehicle loans.

       Competition

       The geographic markets we serve are highly competitive for both deposits and loans. We compete with traditional banking and thrift institutions, as well as non-bank financial service providers, such as credit unions, brokerage firms and mortgage companies. The major commercial bank competitors are super-regional institutions headquartered outside the state of Oregon, and their deposits represent a significant majority of total statewide commercial bank deposits. The major banks have competitive advantages over us in that they have higher lending limits and are able to offer statewide facilities and services that we do not offer.

       We also view non-bank financial services providers, such as credit unions, brokerage firms, insurance companies and mortgage companies, as principal competitors. As the industry becomes increasingly dependent on and oriented toward technology-driven delivery systems, permitting transactions to be conducted by telephone, computer and the internet, such non-bank institutions are able to attract funds and provide lending and other financial services even without offices located in our primary service area. Some insurance companies and brokerage firms compete for deposits by offering rates that are higher than may be appropriate for the bank in relation to its asset/liability objectives. However, we offer a wide array of deposit products and believe we can compete effectively through select rate-driven product promotions. We also compete with full service investment firms for non-bank financial products and services offered by Strand Atkinson.

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       Credit unions present a significant competitive challenge for our banking services and products. As credit unions currently enjoy an exemption from income taxes, they are able to offer higher deposit rates and lower loan rates than we can on a comparable basis. Credit unions are also not currently subject to certain regulatory constraints, such as the Community Reinvestment Act, which, among other things, requires us to implement procedures to make and monitor loans throughout the communities we serve. Adhering to such regulatory requirements raises the costs associated with our lending activities, and reduces potential operating profits. Accordingly, we seek to compete by focusing on building customer relations, providing superior service and offering a wide variety of commercial banking products that do not compete directly with products and services offered by the credit unions, such as commercial real estate loans, inventory and accounts receivable financing, and some SBA program loans for qualified businesses.

       Market Area

       We accept deposits and make loans primarily along the I-5 corridor throughout Oregon in Benton, Clackamas, Douglas, Jackson, Josephine, Lane, Linn, Marion, Multnomah and Washington Counties, in Southwest Washington in Clark County, and along the Southern Oregon Coast in Coos, Curry, Douglas, Lane and Lincoln Counties. As a community bank, we have competitive advantages in our local focus.

       Many of our stores are located in markets that have experienced growth below statewide averages and the economy of Oregon is particularly sensitive to changes in the demand for forest and high technology products. Currently, Oregon suffers from one of the highest unemployment rates in the nation at over 7% as a result of the recent recession and slowdown in those business segments.

       Employees

       As of December 31, 2002, we had a total of 987 full-time equivalent employees. None of the employees are subject to a collective bargaining agreement. We consider our relationship with our employees to be good.

       Government Policies

       The operations of our subsidiaries are affected by state and federal legislative changes and by policies of various regulatory authorities, including those of the State of Oregon. These policies include, for example, statutory maximum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System, Unites States fiscal policy, and capital adequacy and liquidity constraints imposed by federal and state regulatory agencies.

      General. We are extensively regulated under federal and state law. These laws and regulations are generally intended to protect depositors and customers, not shareholders. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory or regulatory provisions. Any change in applicable laws or regulations may have a material effect on our business and prospects. Our operations may be affected by legislative changes and by the policies of various regulatory authorities. We cannot accurately predict the nature or the extent of the effects on our business and earnings that fiscal or monetary policies, or new federal or state legislation may have in the future.

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      Holding Company Regulation. We are registered financial holding company under the Gramm-Leach-Bliley Act of 1999 (the "Act"), and are subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (the "Federal Reserve"). As a financial holding company, we are examined by and file reports with the Federal Reserve.

       Financial holding companies are bank holding companies that satisfy certain criteria and are permitted to engage in activities that traditional bank holding companies are not. The qualifications and permitted activities of financial holdings companies are described below under "Regulatory Structure of the Financial Services Industry."

      Federal and State Bank Regulation. Umpqua Bank, as a state chartered bank with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"), is subject to the supervision and regulation of the Oregon Department of Consumer and Business Services, the Washington Department of Financial Institutions and of the FDIC. These agencies may prohibit Umpqua Bank from engaging in what they believe constitute unsafe or unsound banking practices. In practice, our primary state regulator (the State of Oregon) makes regular examinations of Umpqua Bank or participates in joint examinations with the federal regulator. Areas subject to review by federal authorities include the allowance for credit losses, investments, loans, mergers, payments of dividends, establishment of stores and other aspects of operations.

       The Community Reinvestment Act ("CRA") requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or new facility. Umpqua Bank's current CRA rating is "Satisfactory."

       Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons. Extensions of credit must be made on substantially the same terms, including interest rates and collateral as, and follow credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with persons not affiliated with the bank, and must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties on the affected bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of that bank, the imposition of a cease and desist ord er, and other regulatory sanctions.

      The Federal Reserve Act and related Regulation W limit the amount of certain loan and investment transactions between Umpqua Bank and its affiliates, require certain levels of collateral for such loans, and limit the amount of advances to third parties that may be collateralized by the securities of Umpqua or its subsidiaries. The Act also requires that certain transactions between Umpqua Bank and its affiliates may be on terms substantially the same, or at least as favorable to Umpqua Bank, as those prevailing at the time for comparable transactions with or involving nonaffiliated companies or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies. Umpqua and its subsidiaries have adopted an Affiliate Transactions Policy and have entered into an Affiliate Tax Sharing Agreement.

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       The Federal Reserve and the FDIC have adopted non-capital safety and soundness standards for institutions under their authority. These standards cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, and standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that it will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. We believe that Umpqua Bank is in substantial compliance with these standards.

       Deposit Insurance. Umpqua Bank's deposits are currently insured to a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"), administered by the FDIC. Umpqua Bank is required to pay semi-annual deposit insurance premium assessments to the FDIC. Assessments are based on how much risk a bank is deemed to present to the BIF. Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or involving a higher degree of supervisory concern. Umpqua Bank qualifies for the lowest premium level, and currently pays only the statutory minimum rate.

      Dividends. Dividends paid by Umpqua Bank and Strand Atkinson provide substantially all of Umpqua's cash flow. Under the Oregon Bank Act, and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), Umpqua Bank is subject to restrictions on the payment of cash dividends to its parent company. A bank may not pay cash dividends if that payment would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. In addition, the amount of the dividend may not be greater than its net unreserved retained earnings, after first deducting to the extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is unpaid and past due at least six months; all other assets charged off as required by the Oregon Director or state or federal examiner; and all accrued expenses, interest and taxes.

      In addition, the appropriate regulatory authorities are authorized to prohibit banks and bank holding companies from paying dividends that would constitute an unsafe or unsound banking practice. We are not currently subject to any regulatory restrictions on dividends other than those noted above.

      Capital Adequacy. The federal and state bank regulatory agencies use capital adequacy guidelines in their examination and regulation of holding companies and banks. If the capital falls below the minimum levels established by these guidelines, a holding company or a bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities.

      The FDIC and Federal Reserve have adopted risk-based capital guidelines for holding companies and banks. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among holding companies and banks, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The capital adequacy guidelines limit the degree to which a holding company or bank may leverage its equity capital.

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       Federal regulations establish minimum requirements for the capital adequacy of depository institutions, such as Umpqua Bank. Banks with capital ratios below the required minimums are subject to certain administrative actions, including prompt corrective action, the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing.

       FDICIA requires federal banking regulators to take "prompt corrective action" with respect to a capital-deficient institution, including requiring a capital restoration plan and restricting certain growth activities of the institution. Umpqua could be required to guarantee any such capital restoration plan required of Umpqua Bank.

       Pursuant to FDICIA, regulations were adopted defining five capital levels: well capitalized, adequately capitalized, undercapitalized, severely undercapitalized and critically undercapitalized. Under the regulations, Umpqua is considered "well capitalized."

      Effects of Government Monetary Policy. Our earnings and growth are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy for such purposes as curbing inflation and combating recession, by its open market operations in U.S. Government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and establishment of reserve requirements against certain deposits. These activities influence growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary policies and their impact on us cannot be predicted with certainty.

      Broker-Dealer and Related Regulatory Supervision. Strand Atkinson is a member of the National Association of Securities Dealers and is subject to their regulatory supervision. Areas subject to this regulatory review include compliance with trading rules, financial reporting, investment suitability for clients, and compliance with stock exchange rules and regulations.

      Regulatory Structure of the Financial Services Industry. Federal laws and regulations governing banking and financial services underwent significant changes in recent years and are subject to significant changes in the future. From time to time, legislation is introduced in the United States Congress that contain proposals for altering the structure, regulation, and competitive relationships of the nation's financial institutions. If enacted into law, these proposals could increase or decrease the cost of doing business, limit or expand permissible activities, or affect the competitive balance among banks, savings associations, and other financial institutions. Whether or in what form any such legislation may be adopted or the extent to which our business might be affected thereby cannot be predicted.

      Of particular significance Congress enacted the Gramm-Leach-Bliley Act (the "GLB Act") in November 1999. The GLB Act repealed sections of the Banking Act of 1933, commonly referred to as the Glass-Steagall Act, that prohibited banks from engaging in securities activities, and prohibited securities firms from engaging in banking. The GLB Act created a new form of holding company, known as a financial holding company, that is permitted to acquire subsidiaries that are variously engaged in banking, securities underwriting and dealing, and insurance underwriting.

      A bank holding company, if it meets specified criteria, may become a financial holding company by filing a declaration with the Federal Reserve, and may thereafter provide its customers with a far broader spectrum of products and services than a traditional bank holding company is permitted to do. A financial holding company may, through a subsidiary, engage in any activity that is deemed to be financial in nature and activities that are incidental or complementary to activities that are financial in nature. These activities include traditional banking services and activities previously permitted to bank holding companies under Federal Reserve regulations, but also include underwriting and dealing in securities, providing investment advisory services, underwriting and selling insurance, merchant banking (holding a portfolio of commercial businesses, regardless of the nature of the business, for investment), and arranging or facilitating financial trans actions for third parties.

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      To qualify as a financial holding company, the bank holding company must be deemed to be well-capitalized and well-managed, as those terms are used by the Federal Reserve. In addition, each subsidiary bank of a bank holding company must also be well-capitalized and well-managed. Further, each subsidiary bank must be rated at least "satisfactory" under the Community Reinvestment Act.

      A bank holding company that does not qualify, or has not chosen, to become a financial holding company must limit its activities to traditional banking activities and those non-banking activities the Federal Reserve has deemed to be permissible because they are closely related to the business of banking.

      The GLB Act also includes provisions to protect consumer privacy by prohibiting financial services providers, whether or not affiliated with a bank, from disclosing non-public personal, financial information to unaffiliated parties without the consent of the customer, and by requiring annual disclosure of the provider's privacy policy.

      Legislation enacted by Congress in 1995 permits interstate banking and branching, which allows banks to expand nationwide through acquisition, consolidation or merger. Under this law, an adequately capitalized bank holding company may acquire banks in any state or merge banks across state lines if permitted by state law. Further, banks may establish and operate branches in any state subject to the restrictions of applicable state law. Under Oregon law, an out-of-state bank or bank holding company may merge with or acquire an Oregon state chartered bank or bank holding company if the Oregon bank, or in the case of a bank holding company, the subsidiary bank, has been in existence for a minimum of three years, and the law of the state in which the acquiring bank is located permits such merger. Branches may not be acquired or opened separately, but once an out-of-state bank has acquired branches in Oregon, either through a merger with or acquisition of subs tantially all the assets of an Oregon bank, the acquirer may open additional branches. As a result of the 2002 merger with Centennial Bank, Umpqua Bank now has the ability to open additional branches in the state of Washington.

      Anti-Terrorism Legislation. October 26, 2001, President Bush signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism ("USA Patriot Act") of 2001 into law. Among other things, the USA Patriot Act

• prohibits banks from providing correspondent accounts directly to foreign shell banks;
• imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals;
• requires financial institutions to establish an anti-money-laundering compliance program; and
• generally eliminates civil liability for persons who file suspicious activity reports.

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      The USA Patriot Act also increases governmental powers to investigate terrorism, including expanded government access to account records. The Department of the Treasury is empowered to administer and make rules to implement the Act. While the USA Patriot Act may, to some degree, affect our record-keeping and reporting expenses, we do not believe that the Act will have a material adverse effect on our business and operations.

      Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The new law addresses public company corporate governance, auditing, accounting, executive compensation, and enhanced and timely disclosure of corporate information.

      The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees.

      The Sarbanes-Oxley Act provides for, among other matters:

• a prohibition on personal loans by Umpqua to its directors and executive officers except loans made by its subsidiary, Umpqua Bank;
• independence requirements for Board audit committee members and our auditors;
• certification of Exchange Act reports by the chief executive officer and the chief financial officer;
• disclosure of off-balance sheet transactions;
• expedited reporting of stock transactions by insiders; and
• increased criminal penalties for violations of securities laws.

      Provisions of the Sarbanes-Oxley Act become effective at various times during the 18 months beginning July 30, 2002. The SEC has been delegated the task of adopting rules to implement various provisions, including disclosure in periodic filings pursuant to the Exchange Act. Also, in response to the Sarbanes-Oxley Act, the NASD will adopt new standards for listed companies. While we believe the Sarbanes-Oxley Act may, to some degree, affect our reporting expenses, we do not believe that the Act will have a material adverse effect on our business and operations.

      Our main office is located in Portland, Oregon. Umpqua Bank's main office is in Roseburg, Oregon. We conduct our business through Umpqua Bank's financial stores and Strand Atkinson's five stand-alone offices throughout our market area. As of December 31, 2002, Umpqua Bank operated sixty full-service financial stores and seven limited service retirement community stores. As a result of the Centennial merger, we intend to consolidate four stores in Eugene into two sites and two stores in Portland into one site. We closed the Lakeside store on January 31, 2003. We also intend to close the store located at 7700 NE Ambassador Place in Portland. Our new Pearl District store in downtown Portland will open in April 2003.

      As of December 31, 2002, Umpqua Bank's stores were located in Vancouver, Washington (2), and in Oregon in Portland (10), Eugene (7), Roseburg (4), Grants Pass (4), Medford (3), Salem (3), Springfield (3), Albany, Ashland, Bandon, Beaverton, Brookings, Canyonville, Central Point, Clackamas, Coos Bay, Coquille, Corvallis, Cottage Grove, Glendale, Gresham, Lake Oswego, Lakeside, Lebanon, Merlin, Myrtle Creek, Myrtle Point, Newport, North Bend, Phoenix, Reedsport, Rogue River, Sutherlin, Sweet Home, Talent, Tangent, Tigard, and Waldport. Six of our Portland stores and our Lake Oswego store are located in retirement community centers and access is restricted to residents of the center. All of the stores except one in Eugene, one in Portland and our retirement community stores have automated teller machines and most have drive-up windows. We own the land and building for 36 stores; own the building but lease the land for 8 stores; and lease the land and bui lding for 23 stores. Lease terms range from 1 to 50 years with varying renewal options. Our stores range in size from approximately 1,100 square feet to slightly more than 6,000 square feet. Some of our stores are located in larger buildings that house administrative back-room operations. We conduct administrative operations in other leased and owned facilities. Our retirement community stores are located within managed care facilities and operate with limited hours to meet the needs of facility residents. We opened a loan service center in February 1999 in Roseburg, Oregon, which is leased from an unaffiliated party.

11

      As of December 31, 2002, Strand Atkinson leased stand-alone offices in Portland, Salem, Eugene, and Medford, Oregon, and Kalama, Washington. As of that date, Strand Atkinson operated offices in Umpqua Bank stores in the following cities: Roseburg, Central Point, Coos Bay, Eugene, Grants Pass and Salem, Oregon. We lease our corporate headquarters in Portland, Oregon.

      We have started construction of a 20,000 square foot Umpqua Bank training center in Roseburg, Oregon. Construction is expected to be complete in December 2003. In 2003, we will move our data processing center to a larger facility in Portland.

      Because of the nature of our business, we are involved in legal proceedings in the regular course of business. At this time, we do not believe that there is pending litigation the unfavorable outcome of which would result in a material adverse change to our financial condition, results of operations or cash flows.

(a)      Umpqua held a Special Meeting of Shareholders on November 7, 2002.

(b)      Not Applicable.

(c)      Shareholders voted on an Agreement and Plan of Reorganization and accompanying Plan of Merger providing for the merger of Umpqua Holdings Corporation with Centennial Bancorp. Shareholders approved the merger by the votes indicated:

                        Number of Votes

(d)      Not Applicable.

12

      Our Common Stock is traded over-the-counter on the NASDAQ Stock Market National Market System under the symbol "UMPQ." The following lists the high and low sales prices for each period, as adjusted for subsequent stock dividends and stock splits. Prices do not include retail mark-ups, mark-downs or commissions:

As of March 24, 2003, our Common Stock was held of record by approximately 2,351 shareholders, a number that does not include beneficial owners who hold shares in "street name."

       Oregon and federal banking laws and regulations place restrictions on the payment of dividends by a bank to its shareholders. The Board of Directors' dividend policy is to review our financial performance, capital adequacy, regulatory compliance and cash resources on a quarterly basis, and, if such review is favorable, to declare and pay a cash dividend to our shareholders. Although we expect to continue to pay cash dividends, future dividends are subject to these limitations and to the discretion of the Board of Directors, and could be reduced or eliminated.

      We have a dividend reinvestment plan that permits participants to have shares purchased at the then-current market price in lieu of the receipt of cash dividends.

13

14

      The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2003 annual meeting of shareholders scheduled for April 29, 2003, under the captions "Election of Directors" and "Executive Officers."

      The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2003 annual meeting of shareholders scheduled for April 29, 2003, under the caption "Executive Compensation."

      The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2003 annual meeting of shareholders scheduled to be held April 29, 2003, under the caption "Security Ownership of Management and Others."

      The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2003 annual meeting of shareholders scheduled to be held April 29, 2003, under the caption "Transactions with Directors and Officers."

      In February and March 2003, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b of the Securities Exchange Act of 1934. Based on that evaluation, we created a Disclosure Committee and adopted a charter for that committee that was approved by our Audit and Compliance Committee. Our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings.

      There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation.

15

16

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Umpqua Holdings Corporation has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2003.

UMPQUA HOLDINGS CORPORATION (Registrant)

17

CERTIFICATIONS

I, Raymond Davis, certify that:

1. I have reviewed this annual report on Form 10-K of Umpqua Holdings Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

18

I, Daniel Sullivan, certify that:

1. I have reviewed this annual report on Form 10-K of Umpqua Holdings Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

19

(a)  Incorporated by reference to Appendix I of the Proxy Statement/ Prospectus included in the Registration Statement on Form S-4 filed September 9, 2002.
(b)  Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed September 9, 2002.
(c)  Incorporated by reference to the Registration Statement on Form S-8 (No. 333-77259) filed with the SEC on April 28, 1999.
(d)  Incorporated by reference to the annual report on Form 10-K filed on March 30, 2001.
(e)  Incorporated by reference to the Appendices to the Joint Proxy Statement filed with the SEC on Form DEFM14A on October 26, 2000.

20

2

The obligations of directors with respect to the reporting of holdings and transactions in shares and restrictions on the disposition of such shares is subject to interpretation and may, from time-to-time, change. Umpqua does not guarantee the ability, under applicable federal or state securities laws, of a Participating Director to transfer shares of Umpqua Stock received under this Director Compensation Plan.

8

Rule 10b5-1 Trading Plan
(the "Open Market Purchase Plan")

This Rule 10b5-1 Trading Plan is entered into on April 12, 2002 (this "Plan") between Umpqua Holdings Corporation ("Issuer"), a public company incorporated in the State of Oregon, and Ragen MacKenzie, Inc., a division of Wells Fargo Investments, LLC ("WFI").

WHEREAS, Issuer desires to purchase shares of its common stock, no par value (the "Stock"), in the open market, for the purpose of depositing such shares of Stock in the accounts of beneficiaries (the "Beneficiaries") of the Directors' Compensation Plan of Issuer (the "Compensation Plans") in accordance with the provisions of the Compensation Plans;

WHEREAS, Issuer desires to appoint WFI as its independent agent to purchase shares of Stock for such purpose and in accordance with this Plan;

WHEREAS, Issuer has established, or prior to the execution of this Plan will establish, an account with WFI (the "Funding Account") by executing an Account Agreement with WFI (the "Funding Account Agreement") for the purpose of funding purchases of Stock pursuant to this Plan and for the payment of all fees, commissions and expenses which WFI is entitled to collect in connection with the transactions executed pursuant to this Plan; and

NOW, THEREFORE, Issuer and WFI hereby agree as follows:

1.      This Plan is entered into between Issuer and WFI for the purpose of establishing a trading arrangement that complies with the requirements of Rule 10b5-1(c)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and authorizes WFI to act as an agent for Issuer to purchase shares of Stock for the purpose of depositing such shares of Stock in the accounts of participants in and beneficiaries of the Compensation Plans pursuant to the instructions specified in Exhibit A to this Plan.

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2.       Issuer is establishing this Plan in order to permit the orderly purchase of shares of Stock for the above stated purpose.

1.      Issuer intends and represents that when this Plan is implemented in accordance with the instructions specified herein, (a) purchases pursuant to this Plan will not, by virtue of Rule 10b-18(a)(3)(ii) under the Exchange Act, be subject to the requirements of Rule 10b-18 under the Exchange Act; (b) purchases pursuant to this Plan will not, by virtue of Section 102(c) of Regulation M of the Exchange Act, be subject to the limitations on purchases imposed by Section 102(a) of Regulation M of the Exchange Act; (c) the beneficiaries of the Compensation Plans may rely upon the availability of Rule 16b-3 under the Exchange Act; and (d) purchases of Stock and distributions or allocations of such shares of Stock to the beneficiaries of the Compensation Plans pursuant to the instructions specified by Issuer under this Plan will not be subject to the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"). Issue r is permitted under applicable provisions of the Securities Act and the Exchange Act to purchase shares of Stock for the purpose stated herein. 2.      As of the date hereof, Issuer represents and warrants that it is not aware of any material nonpublic information concerning it, its business or its securities. Issuer is entering into this Plan in good faith and not as part of a plan or scheme to evade compliance with the federal or state securities laws.

3.      While this Plan is in effect, Issuer agrees not to enter into or alter any corresponding or hedging transaction or position with respect to any shares of Stock, including any securities exchangeable or convertible into shares of Stock, and agrees not to alter or deviate from the terms of this Plan.

4.       (a)      Issuer will notify WFI via facsimile, certified mail or nationally recognized overnight delivery service at the number or address set forth in paragraph G.4. of this Plan as soon as practicable upon the occurrence of any event that would prohibit any purchase of shares of Stock under this Plan, including but not limited to any legal, regulatory or contractual restriction. Such notice will indicate only the anticipated duration of the restriction and will, in accordance with paragraph B.7. of this Plan, not include any nonpublic or other information about the nature of the restriction.

          (b)      Issuer agrees that this Plan will be suspended or, at WFI's option, terminated if WFI receives any notice pursuant to paragraph B.4.(a) of this Plan.

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5.      The execution and delivery of this Plan by Issuer and the transactions contemplated by this Plan will not contravene any provision of applicable law or regulation, any agreement or other instrument binding on Issuer or any of Issuer's affiliates, or any judgment, order or decree of any governmental body, agency or court having jurisdiction over Issuer or Issuer's affiliates.

6.       The purchase of Stock pursuant to this Plan has been duly authorized by Issuer and is consistent with Issuer's publicly announced open market Stock purchase program.

7.       Issuer will not, directly or indirectly, communicate any material nonpublic information about it or its securities, including the Stock, to any employee or representative of WFI or its affiliates who is involved, directly or indirectly, in executing this Plan at any time while this Plan is in effect.

8.       Except as specified in Exhibit A, Issuer acknowledges that neither it, any of its affiliates, nor any beneficiary of the Compensation Plans has, will have or will attempt to have or exercise any direct or indirect influence or control over:

      (a)      the prices or amounts of the shares of Stock to be purchased pursuant to this Plan;

      (b)      the timing of or date(s) on which any purchases of Stock are effected pursuant to this Plan;

      (c)      the manner in which shares of Stock are purchased pursuant to this Plan; or

      (d)      the selection of any individual broker or dealer (other than WFI itself) through which purchases of Stock may be effected pursuant to this Plan.

9.       Issuer has consulted with Issuer's own advisors as to the legal, business, financial, tax and related aspects of, and has not relied upon WFI or any person affiliated with or retained for WFI in connection with, Issuer's adoption of this Plan.

10.      The Quarter's Purchase Amount, as defined in Exhibit A, will be determined pursuant to the formula set forth in Exhibit A. At the beginning of each fiscal quarter, for so long as this Plan is effective, Issuer will deposit the Quarter's Purchase Amount in the Funding Account. Issuer will not, more than once in any three-month period, change the basis on which the Quarter's Purchase Amount is determined or the frequency of deposits of the Quarter's Purchase Amount in the Funding Account. If Issuer changes the basis on which the Quarter's Purchase Amount is determined or the frequency of deposits of the Quarter's Purchase Amount in the Funding Account, this Plan shall be terminated and Issuer shall execute with WFI a new Rule 10b5-1 trading plan prior to such change becoming effective.

11.      The Compensation Plans are each a "Plan" and WFI, when acting in accordance with this Plan, is an "Agent Independent of the Issuer," as such terms are defined in Rule 100 of Regulation M under the Exchange Act.

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C.       Representations, Warranties and Covenants of WFI

1.      WFI will provide Issuer with written trade confirmations of the purchases made pursuant to this Plan promptly after the execution of such transactions and also will include such information in monthly statements to Issuer.

2.      WFI will have implemented reasonable policies and procedures to ensure that any employee or representative of WFI making any purchases pursuant to this Plan does not purchase shares of Stock on the basis of material nonpublic information.

3.      WFI will invest the amounts in the Funding Account in money market funds or cash equivalent until such time as such amounts are used to purchase shares of Stock pursuant to this Plan. At no time will shares of Stock or any other securities issued by the Issuer or any of its subsidiaries ever be purchased for or held in the Funding Account or any other account of Issuer.

4.      WFI will implement purchases pursuant to this Plan in accordance with the instructions specified in Exhibit A.

1.      Issuer hereby appoints WFI as its independent agent to purchase shares of Stock pursuant to the terms and conditions set forth in Exhibit A of this Plan. Subject to such terms and conditions, WFI hereby accepts such appointment.

2.      WFI is authorized to begin purchasing shares of Stock pursuant to this Plan as soon as practicable after the date of execution of this Plan and as set forth in Exhibit A, and will cease purchasing shares of Stock (and this Plan will terminate) on the earliest to occur of (a) the date specified by Issuer in Exhibit A; (b) the date on which WFI receives notice from Issuer that it has terminated the Compensation Plans; (c) the date on which WFI receives written notice from Issuer, sent in accordance with paragraphs B.4.(a) and G.4. or E.1.(a) of this Plan, of the termination of this Plan; or (d) the date on which WFI receives notice of the commencement of any proceedings in respect of or triggered by Issuer's bankruptcy or insolvency.

3.      WFI will not purchase shares of Stock under this Plan at any time:

        (a)       when WFI, in its sole discretion, has determined that a market disruption, banking moratorium, outbreak or escalation of hostilities or other crisis or calamity has occurred, that could, in WFI's judgment, impact purchases of shares of Stock;

        (b)      when WFI, in its sole discretion, has determined that it is prohibited from doing so by a legal, regulatory or contractual restriction applicable to it or its affiliates or to Issuer or Issuer's affiliates (other than any such restriction relating to the possession or alleged possession by Issuer of material non-public information about Issuer or the Stock); or

A-4

      (c)      after which WFI receives notice from Issuer, sent in accordance with paragraphs B.4.(a) and G.4., of the occurrence of any event that would prohibit the purchase of shares of Stock under this Plan, including but not limited to any legal, regulatory or contractual restriction.

       (d)      If WFI suspends purchases of Stock pursuant to this Plan pursuant to this paragraph D.3, WFI may resume purchases of Stock pursuant to this Plan, in the case of a suspension pursuant to subsection (a) or (b) above, when, in its discretion, it determines that conditions leading to its suspension of purchases pursuant to subsection (a) or (b) above no longer exist and/or will not impact purchases of Stock pursuant to this Plan, or, in the case of a suspension pursuant to subsection (c) above, it receives notice from Issuer, sent in accordance with paragraphs B.7. and G.4., that the occurrence or restriction(s) identified in the Issuer's notice to WFI pursuant to subsection (c) above no longer exist(s) and will not impact purchases of Stock pursuant to this Plan.

4.      Issuer agrees to deliver into the Funding Account $78,475.00 prior to the commencement of purchases of shares of Stock under this Plan.

5.      WFI will in no event effect any purchase under this Plan if the funds for the purchase of shares of Stock pursuant to this Plan are not in the Funding Account that Issuer has designated in writing for use in connection with this Plan.

6.      WFI may purchase shares of Stock on any national securities exchange, in the over-the-counter market, on an automated trading system or otherwise.

7.      Unless otherwise agreed to in Exhibit A to this Plan, Issuer is subject to WFI's usual and customary commissions and fees.

1.      This Plan is designed to be in effect until terminated pursuant to this Plan or by either party, except that:

(a)      Issuer or WFI may terminate this Plan at any time by giving written notice to the other party in accordance with paragraph G.4. below; and

(b)      any termination of this Plan pursuant to subsection (a) above, would require Issuer and WFI to enter into a new Rule 10b5-1 trading arrangement for purchases of Stock.

2.      This Plan, including Exhibit A hereto, may be amended by Issuer at a time when Issuer does not possess material nonpublic information about it or its securities by executing with WFI a new Rule 10b5-1 trading plan, substantially in the same form as this Plan.

A-5

1.      Issuer agrees to indemnify and hold harmless WFI, its affiliates and their directors, officers, employees, agents and affiliates from and against all claims, losses, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim):

      (a)      arising out of or attributable to actions taken or not taken by any of them under this Plan, except in the case of any claims, losses, damages or liabilities resulting from WFI's gross negligence or willful misconduct;

      (b)      arising out of or attributable to any breach by Issuer of this Plan (including Issuer's representations and warranties in this Plan); or

      (c)      arising out of or attributable to any violation by Issuer of applicable laws or regulations.

This indemnification will survive termination of this Plan.

2.      Notwithstanding any other provision of this Plan, neither WFI nor any of its affiliates or their directors, officers, employees, agents or affiliates will be liable to Issuer or any other person or entity:

        (a)      as a result of actions taken or not taken by any of them under this Plan, except in the case of a liability resulting from WFI's gross negligence or willful misconduct;

        (b)      for special, indirect, punitive, exemplary or consequential damages, or incidental losses or damages of any kind, even if advised of the possibility of such losses or damages or if such losses or damages could have been reasonably foreseen; or

        (c)      for any failure to perform, or to cease performance, or any delay in performance that results from a cause or circumstance that is beyond WFI's reasonable control, including but not limited to failure of electronic or mechanical equipment, strikes, failure of common carrier or utility systems, severe weather, market disruptions or other causes commonly known as "acts of God."

1.       Issuer and WFI acknowledge and agree that this Plan is a "securities contract," as such term is defined in Section 741(7) of Title 11 of the United States Code (the "Bankruptcy Code"), entitled to all of the protections given such contracts under the Bankruptcy Code.

2.       This Plan, which incorporates by reference the Funding Account Agreement, constitutes the entire agreement between Issuer and WFI with respect to this Plan and supersedes any prior agreements or understandings with regard to this Plan. In the event that the terms or conditions in this Plan conflict with the terms or conditions in the Funding Account Agreement, the terms or conditions in this Plan will govern with respect to the implementation of this Plan.

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3.       Issuer agrees to give all notices to WFI with respect to this Plan either by facsimile at (503) 274-7379 (provided Issuer receives confirmation that such facsimile was successfully transmitted), by certified mail or nationally recognized overnight delivery service to the following address:

4.       WFI agrees to give all notices to Issuer with respect to this Plan either by facsimile at (503) 546-2498 (provided WFI receives confirmation that such facsimile was successfully transmitted), by certified mail or nationally recognized overnight delivery service to the following address:

6.       This Plan may be signed in any number of counterparts, each of which will be an original, with the same effect as if the signatures on all counterparts were upon the same instrument.

7.       If any provision of this Plan is or becomes inconsistent with any applicable present or future law, rule or regulation, that provision will be deemed modified or, if necessary, rescinded in order to comply with the relevant law, rule or regulation. All other provisions of this Plan will continue and remain in full force and effect.

8.       This Agreement shall be governed by, construed and enforced under the laws of the State of California. The parties agree that any action arising out of this Plan shall be brought in the state or federal courts located in the State of California and submit to the exclusive jurisdiction of any such court.

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IN WITNESS WHEREOF, the undersigned have signed this Plan as of the date first written above.

Signature:_________________________________________

Print Name:________________________________________

Title:_____________________________________________

By:______________________________________________

Print Name:________________________________________

Title:_____________________________________________

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Pursuant to this Plan, Issuer instructs WFI to purchase shares of Stock as follows:

• A quarterly retainer of $1,875.00 ($2,500.00 for the Chairman of the Board); plus
• A monthly fee of $1,250.00 ($1,500.00 for the Chairman of the Board) per month for Board meetings attended; plus
• $300.00 for each committee meeting attended, not to exceed the regularly scheduled monthly or quarterly meetings for the year.

Signature:_________________________________

Print Name:________________________________

Title:_____________________________________

By:______________________________________

Print Name:________________________________

Title:_____________________________________

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Umpqua Holdings Corporation Outside Directors
Nonqualified Deferred Compensation Plan
(the "Deferral Plan")

           1.1  Purpose. The purpose of the Umpqua Holdings Corporation Outside Directors Nonqualified Deferred Compensation Plan (the "Plan") is to allow non-employee directors of Umpqua Holdings Corporation (the "Company") and Umpqua Bank (the "Bank") the opportunity to defer constructive or actual receipt of all or a portion of what otherwise would be current compensation from fees payable for service as a member of the Board of Directors of the Company and the Bank.

                Company is the sole shareholder of Bank and directly benefits from the successful business operations of the Bank. Company has a substantial and continuing interest in ensuring that the members of the Board of Directors of the Bank are highly qualified to serve as directors, have an incentive to remain as Bank directors, are adequately compensated for their directors' services and have an interest in the success of the Company and the Bank. Therefore, the Company has assumed legal responsibility for paying fees to the non-employee directors of the Bank for all directorial services.

         1.2   Effective Date. This plan shall be effective immediately upon its adoption by the Board.

         2.1   "Board" shall mean the present and any succeeding Board of Directors of the Company.

B-1

         2.2   "Compensation" shall mean fees payable to a Participant for service as a member of the Board of Directors of the Company or the Bank, but excluding any such compensation deferred from a prior period, expense, reimbursement and allowances and benefits not normally paid in cash to the Participant.

         2.3   "Deferral Election" shall mean an irrevocable election to defer the receipt of Compensation pursuant to Section 4.2.

         2.4   "Deferred Compensation Account" shall mean an account as defined in Section 4.1.

         2.5   "Eligible Director" means an individual who is not an employee of the Company or the Bank and who serves as a member of the Board of Directors of either the Company or the Bank.

         2.6   "Election Period" means the 60-day period ending on the last day of each Plan Year.

         2.7   "Participant" shall mean an Eligible Director who has made a Deferral Election in accordance with Section 4.2.

         2.8   "Plan Administrator" means Ray Davis and Dan Sullivan, or such other persons or committees as may be appointed from time to time by the Board to administer the Plan.

         2.9   "Plan Year" means the calendar year.

         2.10  "Termination Date" means the date on which the Participant ceases to serve as a director of the Company and the Bank for any reason.

         2.11  "Unforeseeable Emergency" is defined in Section 5.3.

          3.1      Plan Agreement and Deferral Election. The specific terms and conditions of each deferred compensation arrangement with a Participant shall be embodied in a written nonqualified deferred compensation plan agreement (the "Plan Agreement") in a form approved by the Plan Administrator which shall contain terms and conditions not inconsistent with this Plan and which shall incorporate this Plan by reference. A Participant's initial Deferral Election must be evidenced by a Plan Agreement executed by the Company and the Participant, and subsequent Deferral Elections must be made on such forms and in such manner as prescribed by the Plan Administrator. Provided, however, that a Deferral Election made with respect to a Plan Year shall remain in effect with respect to succeeding Plan Years pursuant to Section 4.2 below and a Participant need not execute any additional documents to evidence a Deferral Election for a Plan Year if he has previously made a Deferral Election for a Plan Year by executing a Plan Agreement or other Deferral Election and des ires to keep that Deferral Election in effect for a succeeding Plan Year.

B-2

        3.2      Commencement of Participation. A person may make a Deferral Election with respect to any Plan Year for which he is an Eligible Director as of the first day of such Plan Year. Deferral elections shall be made in accordance with Section 4.2. An Eligible Director who makes a Deferral Election hereunder shall be a Participant.

        3.3      Cessation of Participation. A Participant will cease to be such upon distribution of his entire Deferred Compensation Account.

        4.1      Deferred Compensation Accounts. The Company shall create and maintain on its own books an unfunded bookkeeping account (a "Deferred Compensation Account") in the name of each Participant which shall reflect the value of all amounts payable to such Participant (or to such Participant's beneficiary in the event of the Participant's death) under the Plan. The balance in the Deferred Compensation Account of a Participant shall consist of the total of the amounts deferred by the Participant under this Plan pursuant to Section 4.2, subtractions pursuant to Section 4.4 and any earnings thereon credited pursuant to Section 4.3.

        4.2      Deferral Election. During the Election Period, each Eligible Director shall be permitted to elect to defer the payment of all or any portion of his Compensation which may be earned by such Eligible Director with respect to services performed during the immediately following Plan Year. The amounts so deferred shall be credited to the Participant's Deferred Compensation Account on the last day of each calendar quarter during the Plan Year. Notwithstanding the forgoing, for any Compensation which may be earned by an Eligible Director with respect to the first Plan Year of the Plan, such Eligible Director's election to defer all or any of such Compensation must be made no later than thirty (30) days after the date the Plan is adopted by the Board of Directors of the Company. An election made pursuant to this Section 4.2 shall be referred to as a "Deferral Election" and shall, subject to Section 5.3, be irrevocable with respect to a Plan Year once made. A Participant's most rece nt Deferral Election with respect to a Plan Year shall be deemed to remain in effect with respect to each succeeding Plan Year unless the Participant revokes or changes such Election during the applicable Election Period for such Plan Year. The first Deferral Election must be evidenced by a Plan Agreement executed by the Company and the Participant, and subsequent Deferral Elections must be made on such forms and in such manner as prescribed by the Plan Administrator. Provided, however, that, as provided in this section, a Deferral Election made with respect to a Plan Year shall remain in effect with respect to succeeding Plan Years pursuant to this Section 4.2, unless the Participant revokes or modifies the Deferral Election within the applicable Election Period, and a Participant need not execute any additional documents to evidence a Deferral Election for a Plan Year if he has previously made a Deferral Election for a Plan Year by executing a Plan Agreement or a Plan Agreement and a new Deferral Electio n and desires to keep the most recent Deferral Election in effect for the succeeding Plan Year.

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        4.3      Adjustments on Accounts. Until distributed, each Participant's Deferred Compensation Account shall be credited or debited based on the actual annualized return from any investment of the balance of a Participant's Deferred Compensation Account. As provided in Section 4.5 below, the Company will invest each Participant's entire Deferred Compensation Account in a rabbi trust for the purpose of accumulating the amounts necessary to provide benefits hereunder, with such trust assets being invested exclusively in Company Stock (defined in Section 4.5.2 below). The Participant's Deferred Compensation Account will be credited with all dividends payable with respect to the Company Stock credited to said account, with said dividends being reinvested in Company Stock in accordance with the provisions of this Plan. The rabbi trust shall reflect separate accounts for each Participant reflecting the aggr egate amount of each Participant's Deferred Compensation Account under the Plan at any time.

        4.4      Subtractions for Distributions from Deferred Compensation Account. All distributions from a Participant's Deferred Compensation Account shall be subtracted when such distributions are made.

        4.6      No Withdrawals Permitted. No withdrawals or other distributions shall be permitted from a Participant's Deferred Compensation Account except as provided below in Section 5.

        5.1      Vesting. Each Participant shall at all times have a fully vested interest in his Deferred Compensation Account.

5.2.1      At the time of the Participant's commencement of participation in the Plan and in conjunction with his initial Deferral Election, the Participant shall elect one of the following methods of distribution:

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(i)       a lump sum; or

(ii)       annual installments of three (3), five (5) or ten (10) consecutive years.

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For purposes of the forgoing, "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependant of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an Unforeseeable Emergency will depend on the facts and circumstances of each case, but, in any case, payment may not be made when such hardship may be relieved:

5.4      Payments to Minors and Incompetents. If a Participant or his or her beneficiary entitled to receive any benefits hereunder is a minor or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, or as deemed so by the Plan Administrator, benefits will by paid to such person as the Administrator may designate for the benefit of such Participant or his or her beneficiary. Such payment shall be considered a payment to such Participant or his or her beneficiary and shall, to the extent paid, be deemed a complete discharge of any liability for such payments under the Plan and any Plan Agreement.

5.5      Distribution of Benefit When Distributee Cannot be Located. The Plan Administrator shall make all reasonable attempts to determine the identity and/or whereabouts of a Participant or a Participant's beneficiary entitled to benefits under this Plan and any Plan Agreement, including the mailing by certified mail of a notice to the last known address shown on the Company's or the Administrator's records. If the Administrator is unable to locate such a person entitled to benefits hereunder, or if there has been no claim made for such benefits, the Company shall continue to hold the benefit due such person, subject to any applicable statute of escheats.

6.1      Plan Administrator. The administration of the Plan shall be under the supervision of the Plan Administrator. The Plan Administrator will have full power to administer the Plan in all of its details. For this purpose, the Plan Administrator's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan:

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6.2      Reporting. The Plan Administrator will provide each Participant with an annual statement of the Participant's Deferred Compensation Account. The Administrator will make available to each Participant such of his records under the Plan as pertain to him, for examination at reasonable times during normal business hours.

6.3      Indemnification of Administrator. The Company agrees to indemnify and to defend to the fullest extent permitted by law any person serving as the Administrator or as a member of a committee designated as Plan Administrator (including any employee or former employee of the Company who formerly served as Plan Administrator or as a member of such committee) against all liabilities, damages, costs and expenses (including attorney's fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with this Plan or any Plan Agreement, if such act or omission is in good faith.

7.1      Benefits shall be paid in accordance with the provisions of this Plan and the Participant's Plan Agreement(s). Any designated beneficiary or other person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan or the Plan Agreement(s) (hereinafter referred to as a "Claimant") shall file a written request for such benefit with the Company, setting forth his or her claim. The written request shall be mailed or otherwise delivered to the Named Fiduciary under the Plan Agreement(s), at the Company's then principal place of business. The Named Fiduciary shall thereupon forward such claim to the Plan Administrator.

7.2      Upon proper delivery and receipt of a claim, the Plan Administrator shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Plan Administrator may, however, extend the reply period for an additional ninety (90) days for reasonable cause.

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If the claim is denied in whole or in part, the Plan Administrator shall provide written notice, using language calculated to be understood by the Claimant, setting forth:

7.3      If the claim is denied and a review is desired, the Claimant must, within sixty (60) days after the receipt by the Claimant of the written denial of claim as described above, request in writing that the Plan Administrator reconsider the determination of the Company. Such request must be addressed to the Named Fiduciary of the Company, at its then principal place of business. The Named Fiduciary shall thereupon deliver the request to the Plan Administrator. The Claimant or his or her duly authorized representative may, but need not, review the pertinent documents and submit issues and comments in writing for consideration of the Plan Administrator. If the Claimant does not request a reconsideration of the Plan Administrator's determination within such sixty (60) day period, then he or she shall be barred and stopped from challenging the Plan Administrator's determination.

7.4      Within sixty (60) days after the Plan Administrator's receipt of a timely and properly delivered request for review, it shall review the Company's determination, and after considering all materials presented by the Claimant, shall render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of the Plan Agreement on which the decision is based. If special circumstances require that the sixty (60) day time period be extended, the Named Fiduciary will so notify the Claimant and the Plan Administrator will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review.

7.5      The claims procedure set forth in this Section 7 shall be set forth in each Plan Agreement.

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The Board of Directors of the Company reserves the right to amend this Plan in whole or in part at any time and from time to time and to terminate this Plan at any time, provided that written notice of such amendment or termination shall be given to the Participant and subject to any limitations on the ability to amend or alter the Plan or any Plan Agreement under the terms of any Plan Agreement or the Trust. Unless otherwise determined by Board of Directors of the Company, in the event of the termination of the Plan, all outstanding Deferral Elections shall be revoked and all Deferred Compensation Accounts shall continue to be payable in accordance with Section 5.2. Until distributed, Deferred Compensation Accounts shall continue to be credited with earnings or debited with losses pursuant to Section 4.3.

9.1      Information to Be Furnished. Participants shall provide the Company and the Administrator with such information and evidence, and shall sign such documents, as may reasonably be requested from time to time for the purpose of administration of the Plan.

9.2      Limitation of Rights. Neither the establishment of the Plan, the execution of a Plan Agreement nor any amendment thereof, nor the payment of any benefits, will be construed as giving to any Participant or other person any legal or equitable right against the Company or Plan Administrator, except as provided herein.

9.3      Spendthrift Clause. No Participant or beneficiary shall have the right to transfer, assign, alienate, anticipate, pledge, or encumber any part of the benefits provided by this Plan, by a Plan Agreement or the Trust, nor shall such benefits be subject to seizure by legal process by any creditor of such Participant or beneficiary. Any attempt to effect such a diversion or seizure shall be deemed null and void for all purposes hereunder, under any Plan Agreement and under the Trust.

9.4      Plan Not a Contract. The Plan shall not be deemed to be a contract between the Company and any Participant or the Bank and any Participant or to be consideration or an inducement for the continued service of any Eligible Director as a director of the Company or the Bank.

9.5      Construction. A pronoun or adjective in the masculine gender includes the feminine gender, and the singular includes the plural, unless the context clearly indicates otherwise.

9.6      Tax Withholding.  All payments and deferrals under the Plan and any Plan Agreement shall be subject to such income and other tax withholding requirements of applicable law, if any.

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9.7      Unfunded Character. The Plan, each Plan Agreement entered into pursuant to the Plan and the Trust shall be considered unfunded arrangements and shall constitute and represent to each Participant an unsecured promise to pay by the Company. Any liability of the Company to any person with respect to benefits distributable under the Plan or any Plan Agreement shall be based solely upon such contractual obligations, if any, as shall be created by the Plan or any Plan Agreement, and shall give rise only to a claim against the general assets of the Company. No such liability shall be deemed to be secured by any pledge or any other encumbrance on any specific property of the Company or any property or assets held by the Trust. The payments to a Participant, his designated beneficiary or any other beneficiary shall be made from assets which shall continue, for all purposes, to be part of the general, unrestricted assets of the Company, includi ng any and all assets which may be transferred to the Trust, it being specifically acknowledged that all assets held by the Trust will be subject to the general creditors of the Company, that the Participant and his beneficiaries will have no preferred claim on, or any beneficial interest in, any assets of the Trust, and that all Trust assets will be subject to the claims of the Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3.1 of the Trust.

9.8      Governing Law. The provisions of this Plan, any Plan Agreement or the Trust shall be enforced in accordance with the laws of the State of Oregon.

        IN WITNESS WHEREOF, the Company has caused this Plan to be executed in its name and on its behalf by its duly authorized officer this ____ day of _______________, 2002.

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This Annual Report includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that expressly or implicitly predict future results, performance or events are forward-looking statements. The words "anticipate," "believe," "expect", "estimate," and "intend" and words or phrases of similar meaning, are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause or contribute to those differences include, but are not limited to, the following: general economic conditions, either nationally or regionally that could result in increased loan losses, interest rate fluctuations, pricing pressure and other competitive factors, potential delays or problems with integrating prior acquisitions, the ability to attract new deposits and loans, changes in legal or regulatory requirements, competition in the retail brokerage industry and general stock market conditions, changes in technology and other factors described in this and other Company reports and statements. Readers are encouraged to review the notes that accompany this report and are cautioned not to place undue reliance on forward-looking statements. The Company does not intend to update these forward-looking statements. All written and oral forward-looking statements attributable to the Company and/or persons acting on its behalf are expressly qualified by this disclosure.

Umpqua Holdings Corporation (the "Company") is a financial holding company headquartered in Portland, Oregon. It is the parent company of Umpqua Bank, a state-chartered commercial bank (the "Bank") and Strand, Atkinson, Williams and York, Inc. ("Strand") a retail brokerage firm. The Company provides financial solutions for its customers along the Interstate 5 corridor from Ashland through Portland, Oregon, along the Oregon coast and in southwest Washington state. The Company's strategy is to differentiate itself through superior customer service, innovative product delivery and the establishment of strong brand awareness and customer loyalty.

The Company continued its expansion in 2002 through the acquisition of Centennial Bancorp ("Centennial" or "CEBC"). The CEBC acquisition was accounted for using the purchase method of accounting and accordingly, the assets and liabilities were recorded based on their fair values at the acquisition date, which was November 15, 2002. The merger expanded the Company's presence in the Eugene market with the addition of four additional stores, in Portland with the addition of Centennial's six Portland metropolitan area offices including two offices in Vancouver, Wash., and offices in seven Portland-area retirement centers. Total CEBC assets on November 15, 2002 were approximately $843 million and the total value of the transaction, both cash and stock, was approximately $217.3 million.

In 2001, the Company merged with Independent Financial Network ("INFN") and Linn Benton Bank ("LBB"). The INFN merger was accounted for using the pooling-of-interests method of accounting and accordingly the assets, liabilities, and results of operations of the Companies were combined on a historical cost basis. Additionally, all historical financial data has been restated to reflect the merger. The LBB acquisition was accounted for using the purchase method of accounting and accordingly the assets and liabilities of LBB were combined based on their fair values.

At December 31, 2002, the consolidated Company had assets of approximately $2.6 billion and the Bank operated 67 store locations.

Strand, Atkinson, Williams & York, Inc. ("Strand"), the Company's full-service retail brokerage subsidiary, operates through offices in Portland, Eugene, Medford and Salem, Oregon and Kalama, Washington. Additionally, Strand maintains a full-time presence in six of the Bank's stores. The firm managed over $1.3 billion in client assets at December 31, 2002 and produced over $9 million in gross revenue during 2002.

1

The "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures included elsewhere in this Annual Report, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, management evaluates the estimates used, including the adequacy of the allowance for credit losses, impairment of intangible assets, other contingencies and litigation. Estimates are based upon historical experience, current economic conditions and other factors that management considers reasonable under the circumstances. These estimates result in judgments regarding the carrying values of assets and liabilities when these values are not readily available from other sou rces as well as assessing and identifying the accounting treatments of commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. The following critical accounting policies identify the more significant judgments and assumptions used in the preparation of the consolidated financial statements.

The allowance for credit losses is established to absorb known and inherent losses attributable to loans and leases outstanding and related off-balance sheet commitments. The adequacy of the allowance is monitored on an ongoing basis and is based on management's evaluation of numerous factors. These factors include the quality of the current loan portfolio, the trend in the loan portfolio's risk ratings, current economic conditions, loan concentrations, loan growth rates, past-due and non-performing trends, evaluation of specific loss estimates for all significant problem loans, historical charge-off and recovery experience and other pertinent information. Approximately 66 percent of the Company's loan portfolio is secured by real estate and a significant depreciation in real estate values in Oregon would cause management to increase the allowance for credit losses.

Retained mortgage servicing rights are measured by allocating the carrying value of the loans between the assets sold and the interest retained, based on the relative fair value at the date of the sale. The fair market values are determined using a discounted cash flow model. Mortgage servicing assets are amortized over the expected life of the loan and are evaluated periodically for impairment. The expected life of the loan can vary from management's estimates due to prepayments by borrowers. Prepayments in excess of management's estimates would negatively impact the recorded value of the mortgage servicing rights. The value of the mortgage servicing rights is also dependent upon the discount rate used in the model. Management reviews this rate on an ongoing basis based on current market rates. A significant increase in the discount rate would negatively impact the value of mortgage servicing rights.

At December 31, 2002 the Company had approximately $161 million in goodwill and other intangible assets as a result of business combinations. The Company adopted Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. In accordance with the standard, goodwill and other intangibles with indefinite lives are no longer being amortized but instead will be tested for impairment on an annual basis or more frequently if impairment indicators arise. Management completed impairment testing for the Company's intangibles with indefinite lives during 2002 and determined that there was no impairment.

Periodically, and in the ordinary course of business, various claims and lawsuits are brought by and against the Company. As of the date of this Annual Report, the Company was not a party to any legal proceedings management believes are material. There can be no assurance that all unasserted potential claims are known to us at any point in time.

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Management classifies non-capitalizable costs that are a result of the Company's merger activities as merger related expenses. Merger related expenses included severance and employee relocation expenses, costs of closing duplicate facilities, conversion related expenses, contract termination costs and marketing and communication expenses.

The Company earned $22.0 million for the year ended December 31, 2002, a 157% increase over the same period in 2001. Diluted earnings per share rose to $1.03 for the year ended December 31, 2002 compared with $0.45 for the year ended December 31, 2001. Return on average shareholders' equity was 13.58% in 2002 compared with 7.22% in 2001. Return on average assets improved to 1.36% in 2002 from 0.70% in 2001.

Operating earnings are defined as the company's earnings before deduction of merger related expenses (net of tax benefit), which are only reported in periods in which significant merger related activities occur. Net income is operating earnings minus merger related expenses (net of tax benefit).

On an operating earnings basis, the Company earned $23.7 million for the year ended December 31, 2002, a 77% increase over the same period in 2002. Diluted earnings per share, on an operating earnings basis, increased to $1.11 per share, a $0.41 per share increase over the comparable per share amount in 2001. Return on average equity and return on average assets, on an operating earnings basis, were 14.64% and 1.47%, respectively, in 2002.

Total loans reached a record $1.8 billion at December 31, 2002 compared with $1.0 billion at December 31, 2001, a 75% increase. Of this increase, approximately $634 million was due to the Centennial acquisition. At the same time, total deposits reached a record $2.1 billion compared with $1.2 billion at December 31, 2001. Of this increase, approximately $722 million was due to the Centennial acquisition.

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3

Results of Operations

The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition and results of operations of the Company. This discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes appearing elsewhere in this Annual Report.

The following tables set forth the Company's unaudited consolidated financial data regarding operations for each quarter of 2002 and 2001. This information, in the opinion of management, includes all adjustments necessary, consisting only of normal and recurring adjustments, to state fairly the information set forth therein. Certain amounts previously reported have been reclassified to conform with current presentation. These reclassifications had no net impact on the results of operations. The increase in the provision for credit losses in the fourth quarter of 2001 was due to the application of the Umpqua Bank allowance methodology to the INFN loan portfolio.

4

6

The following table shows average balances and interest income or interest expense, with the resulting average yield or rates by category of average earning asset or interest-bearing liability:

6

The following table sets forth, on a tax-equivalent basis, a summary of the changes in net interest income resulting from changes in volumes and rates. Changes not due solely to volume or rate are allocated to rate.

The primary component of earnings for financial institutions is net interest income. Net interest income is the difference between interest income, primarily from loans and investments, and interest expense on deposits and borrowings. Changes in net interest income result from changes in "volume," changes in "spread," and change in "margin." Volume refers to the level of average interest-earning assets or interest-bearing liabilities. Spread refers to the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities. Margin refers to the ratio of net interest income to average earning assets and is influenced by the mix of interest-earning assets and interest-bearing liabilities as well as the relative proportion of interest-bearing liabilities to interest earning assets.

Net interest income on a tax-equivalent basis for the year ended December 31, 2002 was $78.0 million, a $21.0 million increase over the same period in 2001. Interest income on a tax-equivalent basis increased to $101.8 million in 2002 compared with $89.4 million in 2001. This $12.4 million increase was driven primarily by increases in the volume of earning assets, offset by a decrease in the average yield. The average volume of earning assets increased $337 million during 2002. The earning asset increase was driven primarily by growth in average loans, which were up $319 million compared with 2001. The overall yield on earning assets decreased by 1.02% during 2002 compared to 2001 due primarily to a decrease in the average yield on the Company's loan portfolio. The average yield on loans decreased from 8.73% in 2001 to 7.51% during 2002. This decrease was attributable to variable rate loan repricings and lower yields on new loan originations and refinancings. Variable rate loan re pricings are based on market rates, primarily the Prime rate. The Prime rate declined 4.75% during 2001 and another 0.50% in 2002. Approximately 47% of the Company's loans reprice within one year. Interest expense for 2002 decreased to $23.8 million from $32.4 million in 2001 due to decreases in the average rates paid on interest-bearing liabilities offset by increases in the average volume of interest-bearing liabilities. The cost of interest-bearing liabilities decreased from 3.74% in 2001 to 2.12% in 2002 as management aggressively reduced deposit rates in response to the decrease in market rates. Rates paid on interest bearing checking and savings accounts are generally variable at management's discretion while rates on time deposits are generally fixed during the term of the time deposit. Approximately 70% of the Company's time deposits mature within one year. In the late third quarter and fourth quarter of 2002 the Company issued $75 million in Trust Preferred Securities in connection with the acq uisition of Centennial. Rates on these securities reset quarterly based on LIBOR plus a spread. Also contributing to the improvement in net interest income was an increase in average non-interest bearing sources of funds, which increased $132 million compared with 2001. The impact of the changes discussed above was an improvement in the net interest margin from 5.13% in 2001 to 5.38% in 2002.

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Net interest income on a tax-equivalent basis increased from $52.0 million in 2000 to $57.0 million in 2001. Interest income on a taxable equivalent basis increased $6.0 million due primarily to increases in the volume of average earning assets, offset by a decrease in the average rate earned. The average volume of earning assets increased $131 million due primarily to growth in loans, offset by a decrease in average taxable investment securities. Average taxable investment securities declined primarily due to calls by the issuers of the securities. The average yield on earning assets declined to 8.04% during 2001 compared with 8.49% during 2000. The decline was due primarily to a decrease in average yield on loans, which declined 0.64%, and to a lesser extent a decline in the average yield on temporary investments. Both of these yields declined due to reductions to short-term interest rates initiated by the Federal Reserve in response to a weakening economy and the terrorism attacks o f September 11, 2001. As a result of these actions, the Prime rate declined from 9.50% at the beginning of 2001 to 4.75% at December 31, 2001. Interest expense increased $1 million from 2000 to 2001 due to increases in the volume of interest-bearing liabilities offset by decreases in the average rate paid. Average interest bearing liabilities increased $103 million during the year while the average cost declined from 4.11% in 2000 to 3.74% in 2001. The reduction in the average cost was due to the Company's aggressive repricing of deposit rates in response to the Federal Reserve actions. The result of the changes discussed above was compression in the net interest margin from 5.30% in 2000 to 5.13% in 2001.

The provision for credit losses is management's estimate of the amount necessary to maintain an allowance for credit losses at a level that is considered adequate based on the risk of losses inherent in the loan and lease portfolio (see additional discussion under Credit Risk and Allowance for Credit Losses). Management believes the allowance has been maintained at an adequate level with the provision for credit losses expense of $3,888 in 2002, $3,190 in 2001 and $1,936 in 2000. The provision increased in 2002 due to loan growth as well as an increase in non-accrual loans. Charge-offs, net of recoveries, were $2,234, $1,670 and $1,715 for the years ended 2002, 2001 and 2000 respectively.

Non-interest income was $28,343 for 2002 compared with $23,398 in 2001. Brokerage commissions and fees increased to $9,012 in 2002 from $8,309 in 2001. This increase was due to revenues generated by the Company's retail brokerage subsidiary, Strand. Mortgage banking income increased to $9,075 in 2002 from $5,106 in 2001 due to increased residential mortgage activity. Mortgage banking income consists of origination fees, gains on sales of mortgage loans, and servicing fees, net of mortgage servicing rights amortization and impairment. In response to low mortgage interest rates, the Company originated $778 million of mortgages in 2002 compared with $413 million during 2001. The Company does not anticipate that this level of activity will continue in 2003. Service fees, the third largest component of non-interest income in 2002, increased to $8,640 in 2002 from $7,768 in 2001. The increase in service fees was due primarily to growth in deposit accounts. Loss on sale of invest ments was $497 in 2002 which resulted from the disposal of the majority of the Company's corporate bond portfolio. This disposal was the result of the Company's desire to reduce its credit exposure in the investment portfolio.

Comparing 2001 with 2000, total non-interest income increased $5,929 primarily due to increases in revenues generated by Strand, higher mortgage banking income and service charges on deposit accounts. Revenues at Strand increased due to its acquisition of Adams, Hess, Moore, which was acquired in August 2000. Mortgage banking income increased due to increased mortgage activity as a result of a decline in mortgage interest rates. Service fees increased $1,321 due to growth in deposit accounts, selected deposit fee repricing, and increases in ATM revenues.

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Non-interest expense consists principally of employees' salaries and benefits, occupancy costs, service fees, brokerage settlement fees, intangible amortization, supplies, marketing and communications expenses. Also included in non-interest expense are merger related expenses. One measure of a bank's ability to contain non-interest expense is the efficiency ratio. It is calculated by dividing total non-interest expense by the sum of taxable equivalent net interest income and non-interest income. The Bank's efficiency ratio excluding merger related expenses was 55.58% in 2002 compared with 58.23% in 2001 and 59.05% in 2000.

Non-interest expense increased to $66,714 in 2002 compared with $60,881 in 2001. Excluding merger expenses, the largest component of this increase was salaries and benefits which increased $6,857. Of this increase, approximately $2,137 was due to increased staffing levels associated with mortgage loan originations. The remainder of the increase was due to increased staffing levels at the Bank as a result of new store openings, additional lending staff and general compensation increases. Occupancy and equipment expense increased to $9,596 in 2002 compared with $8,263 in 2001. The primary reason for the increase was occupancy and equipment expenses associated with expansion of the Company's store network, including the acquisition of LBB in December 2001. Services, which include expenses of attorneys, accountants, ATM network fees, armored car and messenger services, correspondent bank fees, internet banking and other professional fees increased to $5,043 in 2002 compared with $4,025 in 2001. The increase was associated with the Company's expanded store network, internet banking fees and higher correspondent bank fees. Intangible asset amortization declined to $405 in 2002 from $1,134 in 2001 due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142, Accounting for Goodwill and Other Intangible Assets. The statement required that goodwill and other intangibles with indefinite lives no longer be amortized and instead be tested for impairment at least annually. The Company completed its impairment testing during the 2002 and determined that there was no impairment.

Merger related expenses consist of non-capitalizable costs that management determines are a result of the Company's merger activities. Merger related expenses were $2,752 in 2002 compared with $6,610 in 2001. Merger related expenses by year were as follows:

Comparing 2001 with 2000, non-interest expense increased to $60,881 from $48,192. Salaries and benefits increased to $30,260 in 2001 from $26,463 in 2000. The growth was primarily due to increases at Strand from the acquisition of Adams, Hess, Moore ("Adams, Hess") in August 2000 and increased staffing levels associated with mortgage loan originations. Additional increases were due to staffing increases at the Bank to generate and support loan and deposit growth. Occupancy and equipment expense increased from $7,189 in 2000 to $8,263 in 2001. The increase was primarily due to occupancy and equipment expenses associated with Strand, the relocation of the Holding Company to Portland, and the opening of a new store in Central Point in early 2001. Other expenses increased to $4,107 in 2001 compared with $2,439 in 2000 due to the inclusion of full-year operating expenses associate with the Adams, Hess acquisition and loan workout expenses at the Bank.

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The provision for income taxes was $12,301, $6,406 and $6,938 for the years 2002, 2001 and 2000, respectively. The provision resulted in effective combined federal and state tax rates of 35.9%, 42.8%, and 38.4%. The increase in the effective tax rate in 2001 was due to the tax treatment of certain merger related expenses incurred in 2001. The decrease in 2002 was partially due to a revision in the tax treatment of a portion of these merger related expenses incurred in 2001 and the adoption of SFAS No. 142 which ceased the amortization of Goodwill.

Investment securities are classified as either available-for-sale or held-to-maturity according to management's intention. The objectives of the investment portfolio are to provide liquidity, balance interest rate risk positions and provide a profitable interest yield to the Company. The following table provides the carrying values of the Company's portfolio of investment securities as of December 31, 2002, 2001, and 2000:

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The maturity distribution and yields of securities at December 31, 2002 were as follows:

Loans and leases, excluding mortgage loans held for sale, were $1.8 billion at December 31, 2002 compared with $1.0 billion at December 31, 2001, a $762 million increase. Of this increase, $634 million was a result of the Centennial acquisition, while the Company's lending staff generated the remaining $128 million. The largest increases were in commercial and industrial loans, commercial real estate mortgages, and construction loans. The Company's loan portfolio carries credit risk, which could result in loan charge-offs. The Company manages this risk through the use of credit policies and review procedures. (See additional information under the Credit Risk and Allowance for Credit Losses discussion.)

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The following table presents the composition of the Company's loan and lease portfolio at December 31 of the years indicated:

The following table sets forth the Company's loan portfolio maturities on fixed rate loans and the repricing dates on variable rate loans, at December 31, 2002:

Non-performing loans include loans that are on non-accrual status and loans that are 90 days past due with respect to the payment of principal or interest. Non-performing loans increased to $18.4 million at December 31, 2002 from $3.4 million at December 31, 2001. Of this increase, $12.9 million was due to the Centennial acquisition. Management of these credits has been transferred to the Bank's special credit team. Non-performing loans and leases as a percent of total loans and leases increased to 1.03% of total loans at December 31, 2002 compared with 0.33% in 2001.

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The following tables present information with respect to non-performing assets: