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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2001

or

Commission file number: 0-19231

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

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

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

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

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed under 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 the filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers 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 o

        The aggregate market value of the Registrant's common stock held by non-affiliates on March 26, 2001 (based on the closing sale price of the Common Stock) was $66,220,595.

        As of March 26, 2002 there were 3,528,739 shares outstanding of the Registrant's common stock.

TABLE OF CONTENTS

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Forward-Looking Information

        This Annual Report on Form 10-K includes forward-looking information which is subject to the "safe harbor" created by the Securities Act of 1933 and Securities Exchange Act of 1934. These forward-looking statements (which involve the Western Sierra Bancorp's (Western Sierra) plans, beliefs and goals, refer to estimates or use similar terms) involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors:

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Competitive pressure in the banking industry and changes in the regulatory environment



•

Changes in the interest rate environment and volatility of rate sensitive deposits



•

Declines in the health of the economy nationally or regionally which could reduce the demand for loans or reduce the value of real estate collateral securing most of the Company's loans



•

Credit quality deterioration which could cause an increase in the provision for loan losses



•

Changes in the securities markets



•

Asset/Liability matching risks and liquidity risks

        Western Sierra undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. For additional information concerning risks and uncertainties related to Western Sierra and its operations please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and other information in this Report.

Documents Incorporated by Reference

        Portions of Western Sierra's Definitive Proxy Statement for the 2002 Annual Shareholders' Meeting to be filed with the Securities and Exchange Commission pursuant to Regulation 14 A are incorporated by reference in Part III, Items 10-13.

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PART I

Item 1. Description of Business

        General.    Western Sierra Bancorp was incorporated under the laws of the State of California on July 11, 1996. Western Sierra was organized pursuant to a plan of reorganization for the purpose of becoming the parent corporation of Western Sierra National Bank, and on December 31, 1996, the reorganization was effected and shares of Western Sierra common stock were issued to the shareholders of Western Sierra National Bank for the common shares held by Western Sierra National Bank's shareholders. In April 1999, Western Sierra acquired Roseville 1st National Bank and Lake Community Bank in a stock for stock exchange. In May of 2000, Western Sierra acquired Sentinel Community Bank in a stock for stock exchange. In addition, these mergers were accounted for as a pooling of interest and accordingly, all prior period financial statements have been restated to reflect the combined operations of Western Sierra, Roseville 1st National Bank, Lake Community Bank and Sentinel Community Bank. Sentinel Community Bank was merged into Western Sierra National Bank. Also in May of 2000, Roseville 1^st National Bank was merged into Western Sierra National Bank. In October of 2000, Western Sierra National Bank purchased the deposits and certain other assets and liabilities of the Columbia branch of Pacific State Bank. Western Sierra formed two nonbank subsidiaries for the sole purpose of issuing trust preferred securities, one in July 2001 and the other in December 2001. These two subsidiaries are discussed in the section titled "Trust Preferred Securities." Western Sierra is a registered bank holding company under the Bank Holding Company Act. Western Sierra conducts its operations at 4080 Plaza Goldorado Circle, Cameron Park, Ca. 95682.

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

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

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

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

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

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

        On November 15, 2001 Western Sierra entered into a merger agreement with Central California Bank, (Central), of Sonora, Ca. Under the merger agreement's terms each share of Central common stock issued and outstanding will be converted into the right to receive Western Sierra common stock, cash, or a combination of both. The transaction is expected to close on April 1, 2002.

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

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

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

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

        Employees.    At December 31, 2001, Western Sierra and its subsidiaries employed 188 persons on a full-time equivalent basis. Western Sierra believes its employee relations are excellent.

        Supervision and Regulation.    Western Sierra is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (BHCA), and is registered as such with and is subject to the supervision of the Board of Governors of the Federal Reserve System (the FRB). Generally, a bank holding company is required to obtain the approval of the FRB before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, the bank holding company would own or

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control more than 5% of the voting shares of such bank. The FRB's approval is also required for the merger or consolidation of bank holding companies.

        Western Sierra is required to file reports with the FRB and provide such additional information as the FRB may require. The FRB also has the authority to examine Western Sierra and each of its subsidiaries, as well as any arrangements between Western Sierra and any of its subsidiaries, with the cost of any such examination to be borne by Western Sierra.

        Banking subsidiaries of bank holding companies are also subject to certain restrictions imposed by federal law in dealings with their holding companies and other affiliates. Subject to certain restrictions set forth in the Federal Reserve Act, a bank can loan or extend credit to an affiliate, purchase or invest in the securities of an affiliate, purchase assets from an affiliate, or issue a guarantee, acceptance, or letter of credit on behalf of an affiliate, provided that the aggregate amount of the above transactions of the bank and its subsidiaries does not exceed 10 percent of the capital stock and surplus of the bank on a per affiliate basis or 20 percent of the capital stock and surplus of the bank on an aggregate affiliate basis. In addition, such transactions must be on terms and conditions that are consistent with safe and sound banking practices and, in particular, a bank and its subsidiaries generally may not purchase from an affiliate a low-quality asset, as that term is defined in the Federal Reserve Act. Such restrictions also prevent a bank holding company and its other affiliates from borrowing from a banking subsidiary of the bank holding company unless the loans are secured by marketable collateral of designated amounts. Further, Western Sierra and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services.

        A bank holding company is prohibited from itself engaging in or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company engaged in nonbanking activities. One of the principal exceptions to the prohibition is for activities found by the FRB by order or regulation to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making these determinations, the FRB considers whether the performance of such activities by a bank holding company would offer advantages to the public which outweigh possible adverse effects.

        Federal Reserve Regulation Y sets out those activities which are regarded as closely related to banking or managing or controlling banks, and thus, are permissible activities that may be engaged in by bank holding companies subject to approval in individual cases by the FRB. Most of these activities are now permitted for national banks. There has been litigation challenging the validity of certain activities authorized by the FRB for bank holding companies, and the FRB has various regulations in this regard still under consideration. The future scope of permitted activities is uncertain.

        Western Sierra National Bank is subject to primary supervision, examination and regulation by the Office of the Comptroller of the Currency (the Comptroller) and also subject to applicable regulations of the FDIC and the FRB, and in addition the provisions of California law, insofar as they are not preempted by federal banking law. Lake Community Bank is subject to primary supervision, examination and regulation by the California Department of Financial Institutions (DFI) and the FDIC and is subject to applicable regulations of the FRB. The deposits of both financial institutions are insured by the FDIC to applicable limits. As a consequence of the extensive regulation of commercial banking activities in California and the United States, the subsidiary banks' businesses are particularly susceptible to changes in California and federal legislation and regulations, which may have the effect of increasing the cost of doing business, limiting permissible activities or increasing competition.

        Various other requirements and restrictions under the laws of the United States and the State of California affect the operations of the subsidiary banks. Federal and California statutes and regulations relate to many aspects of the banks' operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, branching,

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capital requirements and disclosure obligations to depositors and borrowers. The Comptroller regulates the number and locations of the branch offices of a national bank, but may only permit a national bank to maintain branches in locations and under the conditions imposed by state laws upon state banks. California law presently permits a bank to locate a branch office in any locality in the state. Additionally, California law exempts banks, including national banks, from California usury laws.

        Impact of Monetary Policies.    The earnings and growth of Western Sierra are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment. The earnings of Western Sierra are affected not only by general economic conditions but also by the monetary and fiscal policies of the United States and federal agencies, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy, such as seeking to curb inflation and combat recession, by its open market operations in United State Government securities and by its control of the discount rates applicable to borrowings by banks from the Federal Reserve System. The actions of the Federal Reserve in these areas influence the growth of bank loans, investments and deposits and affect the interest rates charged on loans and paid on deposits. As demonstrated over the past several years by the Federal Reserve's actions regarding interest rates, its policies have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. The nature and timing of any future changes in monetary policies are not predictable.

        Recent and Proposed Legislation.    The operations of Western Sierra are subject to extensive regulation by federal, state and local governmental authorities and are subject to the various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. Western Sierra believes that it is in substantial compliance in all material respects with applicable federal, state and local laws, rules and regulations. Because the business of Western Sierra and its subsidiaries are highly regulated, the laws, rules and regulations applicable to each of them are subject to regular modification and change.

        From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory agencies. Most recently, the Gramm-Leach-Bliley Act was signed into law. This legislation eliminates many of the barriers that have separated the insurance, securities and bank industries since the Great Depression. The federal banking agencies (the Federal Reserve, FDIC, Office of the Comptroller of the Currency) among others, are currently drafting regulations to implement the Gramm-Leach-Bliley Act. The likelihood of any major change from these regulations, and the impact such change may have on Western Sierra is impossible to predict.

        The Gramm-Leach-Bliley Act, signed into law on November 12, 1999, is the result of a decade of debate in the Congress regarding a fundamental reformation of the nations' financial system. The law is subdivided into seven titles, by functional area. Title I acts to facilitate affiliations among banks, insurance companies and securities firms. Title II narrows the exemptions from the securities laws previously enjoyed by banks, requires the Federal Reserve and the SEC to work together to draft rules governing certain securities activities of banks and creates a new, voluntary investment bank holding company. Title III restates the proposition that the states are the functional regulators for all insurance activities, including the insurance activities of federally-chartered banks. The law bars the states from prohibiting insurance activities by depository institutions. The law encourages the states to develop uniform or reciprocal rules for the licensing of insurance agents. Title IV prohibits the creation of additional unitary thrift holding companies. Title V imposes significant requirements on financial institutions related to the transfer of nonpublic personal information. These provisions require each institution to develop and distribute to accountholders an information disclosure policy, and requires that the policy allow customers to, and for the institution to, honor a customer's request to "opt-out"

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of the proposed transfer of specified nonpublic information to third parties. Title VI reforms the Federal Home Loan Bank system to allow broader access among depository institutions to the systems advance programs, and to improve the corporate governance and capital maintenance requirements for the system. Title VII addresses a multitude of issues including disclosure of ATM surcharging practices, disclosure of agreements among non-governmental entities and insured depository institutions which donate to non-governmental entities regarding donations made in connection with the Community Reinvestment Act, and disclosure by the recipient non-governmental entities of how such funds are used. Additionally, the law extends the period of time between CRA examinations of community banks.

        Western Sierra intends to comply with all provisions of the Gramm-Leach-Bliley Act and all implementing regulations as they become effective, and intends to develop appropriate policies and procedures to meet its responsibilities in connection with the privacy provisions of Title V of that Act.

        Consumer Protection Laws and Regulations.    The bank regulatory agencies are focusing greater attention on compliance with consumer protection laws and they are implementing regulations. Examination and enforcement have become more intense in nature and insured institutions have been advised to monitor carefully compliance with such laws and regulations. Western Sierra is subject to many federal consumer protection statutes and regulations, some of which are discussed below.

        The Community Reinvestment Act (CRA) is intended to encourage insured depository institutions, while operating safely and soundly, to help meet the credit needs of their communities. The CRA specifically directs the federal regulatory agencies, in examining insured depository institutions, to assess a bank's record of helping meet the credit needs of its entire community, including low and moderate-income neighborhoods, consistent with safe and sound banking practices. The CRA further requires the agencies to take a financial institution's record of meeting its community credit needs into account when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or holding company formations. The agencies use the CRA assessment factors in order to provide a rating to the financial institution. The four point rating scale ranges from a high of "outstanding" to a low of "substantial noncompliance."

        The Equal Credit Opportunity Act (ECOA) generally prohibits discrimination in any credit transaction, whether for consumer or business purposes, on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act. The Truth in Lending Act (TILA) is designed to ensure that credit terms are disclosed in a meaningful way so that consumers may compare credit terms more readily and knowledgeably. As a result of the TILA, all creditors must use the same credit terminology to express rates and payments, including the annual percentage rate, the finance charge, the amount financed, the total of payments and the payment schedule, among other things.

        The Fair Housing Act ("FH Act") regulates many practices, including making it unlawful for any lender to discriminate in its housing-related lending activities against any person because of race color, religion, national origin, sex, handicap or familial status. A number of lending practices have been found by the courts to be, or may be considered, illegal under the FH Act, including some that are not specifically mentioned in the FH Act itself. The Home Mortgage Disclosure Act (HMDA) grew out of public concern over credit shortages in certain urban neighborhoods and provides public information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. The HMDA also includes a "fair lending" aspect that requires the collection and disclosure of data about applicant and borrower characteristics as a way of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.

        The Right To Financial Privacy Act (RFPA) imposes a new requirement for financial institutions to provide new privacy protections to consumers. Financial institutions must provide disclosures to

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consumers of its privacy policy, and state the rights of consumers to direct their financial institution not to share their nonpublic personal information with third parties (opt out).

        The Real Estate Settlement Procedures Act (RESPA) requires lenders to provide borrowers with disclosures regarding the nature and cost of real estate settlements. Also, RESPA prohibits certain abusive practices, such as kickbacks, and places limitations on the amount of escrow accounts.

        Penalties under the above laws may include fines, reimbursement and other penalties. Due to heightened regulatory concern related to compliance with CRA, TILA, FH Act, ECOA, HMDA, RFPA and RESPA generally, Western Sierra may incur additional compliance costs or be required to expend additional funds for investments in its local community.

        Other.    The International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 (USA Patriot Act) was signed into law on October 26, 2001. The USA Patriot Act places particular focus on account relationships between banks and accounts maintained for foreign persons and financial institutions and gives the Secretary of the Treasury significant new authority to detect and combat financial crime. Western Sierra may incur additional compliance costs or be required to expend additional funds; the extent of these expenditures is unknown at this time. It is the intent of Western Sierra to be in total compliance with this new law.

        Other legislation which has been or may be proposed to the United States Congress and the California Legislature and regulations which may be proposed by the FDIC and the DFI may affect the business of the Western Sierra. It cannot be predicted whether any pending or proposed legislation or regulations will be adopted or the effect such legislation or regulations may have upon the business or Western Sierra.

        Recent Accounting Pronouncements.    In September 2000, the FASB issued SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to replace SFAS 125 which was issued in June 1996. The original statement addresses issues related to transfers of financial assets in which the transferor has some continuing involvement with the transferred assets or with the transferee. SFAS 140 resolves implementation issues which arose as a result of SFAS 125, but carries forward most of the provisions of the original statement. SFAS 140 is effective for transfers occurring after March 31, 2001 and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. Management does not believe the adoption of this statement has had a significant impact on its financial statements.

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

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

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        Western Sierra accounted for the acquisitions of Roseville First National Bank, Lake Community Bank and Sentinel Community as pooling of interests. The proposed acquisition of Central California Bank will be treated in accordance with the abovementioned SFAS 142 and 143.

        In October 2001, the FASB issued Statement 144, Accounting for the Impairment or Disposal of Long Lived Assets, that replaces FASB Statement No. 121, Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of. The accounting model for long lived assets to be disposed of by sale applies to all long lived assets including discontinued operations, and replaces the provisions of APB Opinion No. 30, Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of a business. Statement 144 requires that those long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred.

        Statement 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of Statement 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and generally are to be applied prospectively. In management's opinion, the adoption of this statement will not have a material impact on the Company's current financial position or results of operations.

Trust Preferred Securities

        On July 10, 2001, Western Sierra Bancorp (Bancorp) formed a wholly owned Connecticut statutory business trust, Western Sierra Statutory Trust I (Western Trust I) as amended and restated on July 31, 2001. On July 31, 2001 Bancorp issued to Western Trust I Floating Rate Junior Subordinated Deferrable Interest Debentures Due 2031 (Debentures) in the aggregate principal amount of $6,000,000. These debentures qualify as Tier I capital under Federal Reserve Board guidelines. In exchange for these debentures Western Trust I paid Bancorp $6,000,000. Western Trust I funded its purchase of debentures by issuing $6,000,000 in floating rate capital securities (capital securities), which were then pooled and sold. Western Trust I secured capital securities with Debentures issued by Bancorp. The Debentures are the only asset of Western Trust I. The interest rate on both instruments is the same and is computed on actual days divided by 360 times the rate. The rate is the three month LIBOR (London Interbank Offered Rate) plus 3.58% not to exceed 12.5% adjustable quarterly. The proceeds from the Debentures were used to retire short-term debt and the related accrued interest ($3,522,000) repurchase stock ($2,076,000) (see note 3) and to partially fund the construction of new corporate headquarters ($122,000).

        The Debentures and capital securities accrue and pay distributions quarterly based on the floating rate described above on the stated liquidation value of $1,000 per security. Bancorp has entered into contractual agreements which, taken collectively, fully and unconditionally guarantee payment of: (1) accrued and unpaid distributions required to be paid on the capital securities; (2) the redemption price with respect to any capital securities called for redemption by Western Trust I, and (3) payments due upon voluntary or involuntary dissolution, winding up, or liquidation of Western Trust I.

        The capital securities are mandatorily redeemable upon maturity of the Debentures on July 31, 2031, or upon earlier redemption as provided in the indenture.

        On December 18, 2001, Western Sierra Bancorp (Bancorp) formed a wholly owned Connecticut statutory business trust, Western Sierra Statutory Trust II (Western Trust II). On December 18, 2001 Bancorp issued to Western Trust II Floating Rate Junior Subordinated Deferrable Interest Debentures Due 2031 (Debentures) in the aggregate principal amount of $10,000,000. These debentures qualify as Tier I capital, subject to limitations, under Federal Reserve Board guidelines. In exchange for these

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debentures Western Trust II paid Bancorp $10,000,000. Western Trust II funded its purchase of debentures by issuing $10,000,000 in floating rate capital securities (capital securities), which were then pooled and sold. Western Trust II secured capital securities with Debentures issued by Bancorp. The Debentures are the only asset of Western Trust II. The interest rate on both instruments is the same and is computed on actual days divided by 360 times the rate. The rate is the three month LIBOR (London Interbank Offered Rate) plus 3.60% not to exceed 12.5% adjustable quarterly. The proceeds from the Debentures were used to retire short-term debt and the related accrued interest ($2,113,000), to partially fund the construction of new corporate headquarters ($1,379,000) with the balance temporarily invested and available for corporate purposes.

        The Debentures and capital securities accrue and pay distributions quarterly based on the floating rate described above on the stated liquidation value of $1,000 per security. Bancorp has entered into contractual agreements which, taken collectively, fully and unconditionally guarantee payment of: (1) accrued and unpaid distributions required to be paid on the capital securities; (2) the redemption price with respect to any capital securities called for redemption by Western Trust I, and (3) payments due upon voluntary or involuntary dissolution, winding up, or liquidation of Western Trust I.

        The capital securities are mandatorily redeemable upon maturity of the Debentures on December 18, 2031, or upon earlier redemption as provided in the indenture.

        Other Information Concerning Western Sierra.    Western Sierra holds no material patents, trademarks, licenses, franchises or concessions.

        No expenditures were made by Western Sierra since inception on material research activities relating to the development of services or the improvement of existing services. Based upon present business activities, compliance with federal, state and local provisions regulating discharge of materials into the environment will have no material effects upon the capital expenditures, earnings and competitive position of Western Sierra.

Item 2. Properties

        Western Sierra owns six depository branches and leases twelve other locations used in the normal course of business located throughout Western Sierra's service areas. There are no contingent rental payments and Western Sierra has two sublease arrangements. Total rental expenses under all leases, including premises, totaled $453,000, $381,000 and $361,000, in 2001, 2000 and 1999 respectively. The expiration dates of the leases vary, with the first such lease expiring during 2002 and the last such lease expiring during 2007. Western Sierra maintains insurance coverage on its premises, leaseholds and equipment, including business interruption and record reconstruction coverage.

Item 3. Legal Proceedings

        From time to time, Western Sierra and/or its subsidiary banks are a party to claims and legal proceedings arising in the ordinary course of business. Western Sierra's management is not aware of any material pending litigation proceedings to which either it or any of its subsidiary banks is a party or has recently been a party, which will have a material adverse effect on the financial condition or results of operations of Western Sierra taken as a whole.

Item 4. Submission Of Matters To A Vote Of Security Holders

        No matters were submitted to vote of the security holders during the fourth quarter of the period covered by this report.

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PART II

Item 5. Market Price & Dividends

        Western Sierra common stock is publicly traded on the NASDAQ National Market under the symbol "WSBA". As of December 31, 2001, there were 1,506 shareholders of record of Western Sierra's common stock.

        Western Sierra's common stock began trading on the NASDAQ National Market Exchange (NASDAQ) under the symbol "WSBA" July 29, 1999. Prior to that date, the common stock was not listed on any exchange and was quoted on the OTC Bulletin Board under the symbol "WESA". The following table shows the high and low prices for the common stock, for each quarter as reported by NASDAQ. The prices have been adjusted to reflect the stock dividends issued in 2001 and 2000.

Western Sierra Bancorp
Common Stock Prices

        Under applicable Federal laws, the Comptroller restricts the total dividend payment of any national banking association in any calendar year to the net income of the year, as defined, combined with the net income for the two preceding years, less distributions made to shareholders during the same three-year period. In addition, the California Financial Code restricts the total dividend payment of any State banking association in any calendar year to the lesser of (1) the bank's retained earnings or (2) the bank's net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. At December 31, 2001, the subsidiaries had $11,842,000 in retained earnings available for dividend payments to Western Sierra.

        Western Sierra' primary source of revenue to pay dividends to its shareholders is dividends from its subsidiaries. The amount and payment of dividends by Western Sierra is set by Western Sierra's Board of Directors. Any further dividends will be decided based on a number of factors including results of operations, general business conditions, capital requirements, general financial conditions, and other factors deemed relevant by the Board of Directors.

        Prior to the merger with Western Sierra, Sentinel Community Bank paid a $.32 per share cash dividend to shareholders of record as of 12/31/99. The dividend was paid on Jan 6, 2000 and totaled $483,529.

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Item 6. Selected Financial Data

Summary of Consolidated Financial Data and Performance Ratios

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Item 7. Management's Discussion & Analysis

        General.    The Board of Directors and Management of Western Sierra believe that the Company plays an important role in the economic well being of the communities it serves. Its subsidiary banks have a continuing responsibility to provide a wide range of lending and deposit services to both individuals and businesses. These services are tailored to meet the needs of the communities served by Western Sierra and its subsidiary banks.

        Various loan products are offered which promote home ownership and affordable housing, fuel job growth and support community economic development. Types of loans offered range from personal and commercial loans to real estate, construction, agricultural, and mortgage loans. Banking decisions are made locally and the goal is customer satisfaction.

        Various deposit products are offered which are geared to provide both individual and business customers with a wide range of choices. These products include both high and low volume transaction accounts, savings and money market products, certificate of deposit accounts with a wide range of maturities, and IRA accounts including Roth and Educational IRAs as well.

        Western Sierra remains committed to its shareholders and will continue its efforts in 2002 to increase shareholder value. During 1999, the Company became a member of NASDAQ and began trading on the NASDAQ exchange. As a result, there has been increased liquidity in the Company's stock. It is the opinion of Management that the increase in trading volume and market price of the company's stock is a direct reflection of its positive performance in a market that is awash with bad news.

        The following discussion is designed to provide a better understanding of significant trends related to Western Sierra's financial condition, results of operations, liquidity, capital resources and interest rate sensitivity. It pertains to Western Sierra's financial condition, changes in financial condition and results of operations as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001. The consolidated financial statements of Western Sierra include the financial position and results of operations of Roseville 1st Community Bancorp, Lake Community Bank and Sentinel Community Bank both before and after their respective mergers with Western Sierra as a result of applying the pooling-of-interests method of accounting for each transaction. The discussion should be read in conjunction with Western Sierra's audited consolidated financial statements and notes thereto and the other financial information appearing elsewhere herein.

FINANCIAL CONDITION

2001 Compared to 2000

        The Company experienced another year of growth and expansion in 2001. Total assets at December 31, 2001 were $510.6 million, an increase of $36.0 million, or 7.6%, over total assets of $474.6 million at December 31, 2000. Loans were $388.4 million, an increase of $59.2 million or 18.0%, over total loans of $329.3 million at December 31, 2000. Loan growth was the result of continued marketing efforts, strong demand in our market area (in contrast to the relative weak market in the Nation as a whole) and the increased lending opportunities and additional market areas resulting from the mergers of Roseville 1st National Bank, Lake Community Bank and Sentinel Community Bank. In addition Western Sierra occasionally purchased pools of loans in order to further diversify the portfolio and maximize profitability.

        Total deposits at December 31, 2001 were $448.6 million, an increase of $14.8 million, or 3.4%, over total deposits of $433.8 million at December 31, 2000. Most of the deposit growth occurred in non-interest bearing deposits, an increase of 23.0% to $100.0 million at December 31, 2001. NOW accounts increased 10.2% to $58.2 million at December 31, 2001 and time deposits decreased 8.8% to $202.8 million at December 31, 2001. It is the opinion of management that the relatively low current

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market rate has discouraged investment in time deposits. The majority of Western Sierra's deposits remain local core deposits. Lake Community Bank does occasionally fund its loan growth with non-local certificates of deposit.

        Total shareholders' equity at December 31, 2001 was $39.9 million, an increase of $3.8 million over total shareholders' equity of $36.1 million at December 31, 2000. The increase in equity is due to an increase in retained earnings of $3.2 million for the twelve months ended December 31, 2001 and the exercise of stock options by employees and directors, which was partially offset by the repurchase of 163,000 shares of Western Sierra common stock during 2001. Please see the Consolidated Statement of Changes in Shareholders' Equity in the audited financial statements for a detailed analysis of these changes.

2000 Compared to 1999

        The total assets at December 31, 2000 were $474.6 million, an increase of $82.7 million or 21.1% over total assets of $391.9 million at December 31, 1999. Loans were $329.3 million, an increase of $54.9 million or 20.0% over total loans of $274.4 million at December 31, 1999.

        Total deposits at December 31, 2000 were $433.8 million, over total deposits of $343.2 million at December 31, 1999, an increase of 26.4% or $90.6 million. Most of the deposit growth occurred in time deposits of $100,000 or more, an increase of 59.0% to $86.4 million at December 31,2000. NOW accounts increased 26% to $52.8 million at December 31, 2000 and other time deposits increased 28.0% to $139.8 million at December 31, 2000. The majority of Western Sierra's deposits remain local core deposits. Lake Community Bank does occasionally fund its loan growth with non-local certificates of deposit.

        Total shareholders' equity at December 31, 2000 was $36.1 million, an increase of $5.2 million over total shareholders' equity of $30.9 million at December 31, 1999. The increase in equity was due to an increase in retained earnings of $2.0 million for the twelve months ended December 31, 2000 and the exercise of stock options by employees and directors, which was partially offset by the repurchase of 29,165 shares of Western Sierra's stock, and a change in the unrealized loss on available-for-sale securities in 2000.

RESULTS OF OPERATIONS

        Net Income.    Western Sierra recorded net income of $5.4 million, or $1.47 diluted earnings per share, for the year ended December 31, 2001 compared to net income of $3.9 million, or $1.06 diluted earnings per share, in 2000 and net income of $3.3 million, or $0.90 diluted earnings per share, in 1999.

        The increase in net income for each year above is generally attributed to increases net interest income resulting from increases in earning assets partially offset by an increase in provisions for loan losses, and operating efficiencies.

Net Interest Income and Net Interest Margin

        Total interest income increased from $28.5 million in 1999 to $34.0 million in 2000, and to $35.8 million in 2001, representing a 19.4% increase in 2000 over 1999 and a 5.1% increase in 2001 over 2000. The total interest income increases in the periods discussed were primarily the result of growth in Western Sierra's established market areas. Total interest expense increased from $10.9 million in 1999 to $14.6 million in 2000, and decreased to $13.8 million in 2001, representing a 34.4% increase in 2000 from 1999, and a 5.8% decrease in 2001 over 2000. The decrease in interest expense from 2000 to 2001 was due to lower interest rates across all deposit types applied to a larger deposit base and more importantly a change in the deposit mix from higher to lower paying deposit types. The increase

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in interest expense in 2000 from 1999 was due to both increased deposits and an increasing interest rate environment.

        Western Sierra's net interest margin was 5.10% in 1999, 4.98% in 2000 and 4.87% in 2001. The change over these periods was a result of competition keeping earning asset yields from changing at the same pace as rates paid during the same period.

        The following table presents for the years indicated the distribution of consolidated average assets, liabilities and shareholders' equity, as well as the total dollar amounts of interest income from average earning assets and the resultant yields, and the dollar amounts of interest expense and average interest-bearing liabilities, expressed both in dollars and in rates. Nonaccrual loans, which are not considered material, are included in the calculation of the average balances of loans. Savings deposits include NOW and money market accounts.

(1)

Not computed on a tax equivalent basis.

(2)

For the purpose of this schedule the interest in Western Sierra's junior subordinated debentures is included in other borrowings.

        The following table sets forth changes in interest income and interest expense for each major category of earning assets and interest-bearing liabilities, and the amount of change attributable to

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volume and rate changes for the years indicated. Changes not solely attributable to rate or volume have been allocated to rate.

(1)

Not computed on a tax equivalent basis.

(2)

For the purpose of this schedule the interest in Western Sierra's junior subordinated debentures is included in other borrowing.

        Non-interest income.    Non-interest income increased 45.4%, or $1.7 million, to $5.4 million for 2001 as compared to $3.7 million for 2000. Non-interest income for 2000 increased by $165,000 or 4.6% from the $3.6 million earned during 1999.

        The following table describes the components of non-interest income for the years ended December 31, 2001, 2000 and 1999.

NON-INTEREST INCOME
>1% of Gross Revenue

        The increase in 2001 from 2000 and 1999 was primarily the result of an improved market for home mortgages due to decreasing interest rates. Western Sierra will continue to implement strategies to increase its non-interest income to help offset the decreasing net interest margins the industry is experiencing.

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        Non-interest expense.    Non-interest expense amounted to $17.9 million in 2001, $16.6 million in 2000 and $15.4 million in 1999. This represents an increase of $1.3 million, or 7.8%, in 2001 and an increase of $1.2 million, or 7.8%, in 2000 when compared to 1999. Western Sierra continues to believe that to be able to compete in the current environment of decreasing interest margins and increased competition, the controlling of operating expenses is essential. The consolidation of many operational functions in addition to other areas such as supplies, forms, advertising and marketing was completed in 1999. This had a positive impact on the Company's overhead and efficiency ratios. During 2000 and 2001 additional accounting and data processing responsibilities were combined to further enhance the operating efficiencies of the organization. Management continues to closely monitor this area. Salaries and benefits have continued to increase due primarily to commissions and incentives paid. Management believes that the increase in business more then compensates for this increase in incentives. Merger expense in 2000 related to the acquisition of Sentinel accounted for as a pooling of interests. Professional fees increased 91.7% or $733 thousand in 2001 over 2000 primarily due to a major study of the entire organization and all of its profit centers. It is the opinion of management that this expenditure will result in a much more efficient organization and a greater return to the shareholders; however, actual results may differ.

        The following table describes the components of other non-interest expense for the years ended December 31, 2001, 2000 and 1999.

NON-INTEREST EXPENSE
>1% of Gross Revenue

        Provision for Loan and Lease Losses.    The provision for loan and lease losses corresponds directly to the level of the allowance that management deems sufficient to offset potential losses. The balance in the allowance reflects the amount which, in management's judgement, is adequate to provide for these potential losses after weighing the mix of the loan portfolio, current economic conditions, past loan experience and such other factors as deserve recognition in estimating loan and lease losses.

        Management allocated $925,000 as a provision for loan and lease losses in 2001, $380,000 in 2000 and $920,000 in 1999. Loan recoveries net of charge-offs in 2000 were $221,000. In 2001, loan charge-offs net of recoveries were $224,000, and in 1999 were $114,000. The ratio of the allowance for loan and lease losses to total gross loans was 1.31% in 2001, 1.33% in 2000, and 1.38% in 1999.

        In management's opinion, the balance of the allowance for loan losses at December 31, 2001 was sufficient to sustain any foreseeable losses in the loan portfolio at that time. However, no assurances can be given that Western Sierra will not sustain substantially higher loan and lease losses.

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        Income Taxes.    Income taxes were $3.2 million in 2001, $2.3 million in 2000 and $1.6 million in 1999, representing effective tax rates of 37.3%, 37.5% and 32.6%, respectively.

        Liquidity.    A Funds Management Policy has been developed by Western Sierra's management and approved by Western Sierra's Board of Directors, which establishes guidelines for the investments and liquidity of Western Sierra. The goals of this policy are to provide liquidity to meet the financial requirements of Western Sierra's customers, maintain adequate reserves as required by regulatory agencies and maximize earnings of Western Sierra. Liquidity of Western Sierra at December 31, 2001 was 17.1%, at December 31, 2000 was 19.8% and at December 31, 1999 was 15.5% based on liquid assets (consisting of cash and due from banks, investments not pledged, federal funds sold and loans available-for-sale) divided by total liabilities. Western Sierra's management believes it maintains adequate liquidity levels.

        Investment Portfolio.    Western Sierra classifies its investment securities as trading, held to maturity or available for sale. Western Sierra's intent is to hold all securities classified as held to maturity until maturity and management believes that it has the ability to do so. Securities available for sale may be sold to implement Western Sierra's asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors.

        The following table summarizes the maturities of Western Sierra's securities at their carrying value and their weighted average yields at December 31, 2001. Yields on tax-exempt securities have not been computed on a tax-equivalent basis.

        The following tables summarize the values of the Company's investment securities held on the dates indicated:

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        Loan Portfolio.    Western Sierra experienced an 11.6% increase in loan production during 2001 over 2000. Despite this increase, portfolio quality remained uncompromised as evidenced by criticized assets (including OREO) at 13.05% of capital and delinquencies as a percentage of total loans at 0.03%. The "criticized asset to capital ratio" was an improvement over the prior year (year 2000 was 14.59%) and primarily due to the successful workout of Sentinel Community Bank problem loans.

        Western Sierra's largest historical lending categories are real estate loans and commercial loans. These categories accounted for approximately 79.3% and 16.5% respectively of Western Sierra's total loan portfolio at December 31, 2001, and approximately 83.9% and 13.0% respectively of Western Sierra's total loan portfolio at December 31, 2000. Loans are carried at face amount, less payments collected and the allowance for possible loan losses. Interest on all loans is accrued monthly on a simple interest basis. Typically, once a loan is placed on nonaccrual status, Western Sierra reverses interest accrued through the date of the transfer. Loans are placed on nonaccrual status when principal or interest on a loan is past due 90 days or more, unless the loan is both well secured and in the process of collection. Interest actually received for loans on nonaccrual status is recognized as income at the time of receipt for loans for which the ultimate collectibility of principal is not in doubt. Problem loans are maintained on accrual status only when management of Western Sierra is confident of full repayment within a reasonable period of time.

        The rates of interest charged on variable rate loans are set at specific increments in relation to Western Sierra's published lending rate and vary as Western Sierra's lending rate varies. At December 31, 2001, approximately 49.1% of Western Sierra's loan portfolio was compromised of variable rate loans, and at December 31, 2000, approximately 53.1% of Western Sierra's loan portfolio was compromised of variable interest rate loans.

        The following table sets forth the amounts of loans outstanding by category as of the dates indicated.

        While Real Estate and Commercial lending remain the foundation of Western Sierra's historical loan mix, some changes in the mix have occurred due to the changing economic environment and the resulting change in demand for certain loan types. Western Sierra remains committed to the agricultural industry in Lake County; there was an increase in agricultural loan outstanding to

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$8.6 million at December 31, 2001 from $5.0 million at December 31, 2000. This increase brings us closer to our historic levels of agricultural lending. We will continue to pursue high quality agricultural loans as an important part of our overall loan portfolio.

        Commercial Loans.    Commercial loans are made for the purpose of providing working capital, financing the purchase of equipment or inventory and for other business purposes. Such loans include loans with maturities ranging from 30 to 360 days and term loans, which are loans with maturities normally ranging from one to five years. Short-term business loans are generally used to finance current transactions and typically provide for periodic interest payment, with principal being payable at maturity or periodically. Term loans normally provide for monthly payments of both principal and interest.

        Western Sierra extends lines of credit to business customers. On business credit lines, Western Sierra specifies a maximum amount that it stands ready to lend to the customer during a specified period in return for which the customer agrees to maintain its primary banking relationship with Western Sierra. The purpose for which such loans will be used and the security pledged, if any, are determined before Western Sierra's commitment is extended. Normally Western Sierra does not make credit line commitments in material amounts for periods in excess of one year.

        Commercial loans were lower in 2000 due primarily to several large loans closing out prior to year-end. In 2001 the total amount outstanding returned to anticipated levels.

        Real Estate Loans.    Real Estate loans are primarily made for the purpose of purchasing, refinancing, improving or constructing family residences as well as commercial and industrial properties.

        At December 31, 2001, approximately $29.7 million of Western Sierra's single family real estate construction loans consisted of loans secured by first trust deeds on the construction of speculative single family dwellings and the remaining $17.5 million consisted of loans secured by first trust deeds on the construction of owner-occupied single family dwellings. Construction loans are generally written with terms of six to twelve months and usually do not exceed a loan to appraised value ratio of 75 to 80%. The risk associated with speculative construction lending includes the borrower's inability to complete and sell the project, the borrower's incorrect estimate of necessary construction funds and/or time for completion and economic changes, including depressed real estate values and increased interest rates. Management has established underwriting criteria to minimize losses on speculative construction loans by lending only to experienced developers and contractors with proven track records. To date Western Sierra has not suffered any significant losses through its speculative real estate construction loans.

        Loan Commitments.    In the normal course of business, there are various commitments outstanding to extend credit that are not reflected in the financial statements. Annual review of commercial credit lines and ongoing monitoring of outstanding balances reduces the risk of loss associated with these commitments. As of December 31, 2001, the Company had $72.5 million in unfunded commercial real estate loan commitments which are secured by real estate and $31.7 million in unfunded commercial commitments unsecured by real estate. In addition, the company had $16.3 million in other unused commitments. The Company's undisbursed commercial loan commitments represent primarily business lines of credit. The undisbursed construction commitments represent undisbursed funding on construction projects in process. The mortgage loan commitments represent approved but unfunded mortgage loans with the Company's mortgage banking business.

        Based upon prior experience and prevailing economic conditions, it is anticipated that approximately 60% of the commitments at December 31, 2001 will be exercised during 2002.

        Maturity Distribution.    The following table sets forth the maturity of certain loan categories. Excluded categories are residential mortgages of 1-4 family residences, personal installment loans and

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lease financing outstanding as of December 31, 2001. Also provided with respect to such loans are the amounts due after one year, classified according to sensitivity to changes in interest rates:

        Asset Quality.    The Company attempts to minimize credit risk through its underwriting and credit review policies. The Company conducts its own internal credit review processes. The Board of Directors through the loan committee, reviews the asset quality of new and problem loans on a monthly basis and reports the findings to the full Board of Directors In management's opinion, this loan review system facilitates the early identification of potential problem loans.

        The Company's places loans 90 days or more past due on nonaccrual status unless the loan is well secured and in the process of collection. A loan is considered to be in the process of collection if, based on a probable specific event, it is expected that the loan will be repaid or brought current. Generally, this collection period would not exceed 90 days. When a loan is placed on nonaccrual status the Company's general policy is to reverse and charge against current income previously accrued but unpaid interest. Interest income on such loans is subsequently recognized only to the extent that cash is received and future collection of principal is deemed by management to be probable. Where the collectibility of the principal or interest on a loan is considered to be doubtful by management, it is placed on nonaccrual status prior to becoming 90 days delinquent.

        Interest income is recognized on impaired loans in a manner similar to that of all loans. It is the Company's policy to place loans that are delinquent 90 days or more as to principal or interest on nonaccrual status unless secured and in the process of collection and to reverse from current income accrued but uncollected interest. Cash payments subsequently received on nonaccrual loans are recognized as income only where the future collection of principal is considered by management to be probable.

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        The following table sets forth the amount of the Company's nonperforming assets as of the dates indicated.

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        The following table provides certain information for the years indicated with respect to the Company's allowance for loan and lease losses as well as charge-off and recovery activity.