UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2004

OR

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

For the transition period from to

Commission file number 0-25979

WESTERN SIERRA BANCORP

(Exact name of Registrant as specified in its charter)

California		68-0390121
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4080 Plaza Goldorado Circle Cameron Park, California		95682
(Address of principal executive offices)		(Zip code)

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

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

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

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 ý No o

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

As of July 27, 2004 there were approximately 7,585,531 shares outstanding of the Registrant’s common stock.

WESTERN SIERRA BANCORP & SUBSIDIARIES

Index to Form 10-Q

PART I. Financial Information
	Item 1. Consolidated Financial Statements (unaudited)
	Consolidated Balance Sheet June 30, 2004 and December 31, 2003
	Consolidated Statement of Income Three and six months ended June 30, 2004 and 2003
	Consolidated Statement of Cash Flows Six months ended June 30, 2004 and 2003
	Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure about Market Risk Item 4. Controls and Procedures
	Item 4. Controls and Procedures
PART II. Other Information
	Item 1. Legal proceedings
	Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
	Item 3. Defaults Upon Senior Securities
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Report on Form 8-K
SIGNATURES

PART I. FINANCIAL INFORMATION

Western Sierra Bancorp and Subsidiaries

Unaudited Consolidated Balance Sheet

(dollars in thousands, except number of shares)

	June 30,			December 31,
	2004			2003
ASSETS:

Cash and due from banks	$	38,382		$	38,584
Federal funds sold	98,245			17,380
Cash and cash equivalents	136,627			55,964

Interest-bearing deposits	4,000			4,198
Loans held for sale	1,909			940
Investment securities:
Trading, at estimated market value	31			28
Available for sale (amortized cost $86,076 in 2004 and $78,156 in 2003)	86,213			79,502
Held to maturity (market value of $3,839 in 2004 and $4,219 in 2003)	3,741			4,058
Total investments	89,985			83,588
Portfolio loans and leases:
Real estate mortgage	548,629			495,948
Real estate construction	186,380			195,889
Commercial	119,035			109,685
Agricultural	12,702			12,185
Installment	4,197			5,795
Lease financing	1,923			2,016
Total gross loans and leases	872,866			821,518
Deferred loan and lease fees, net	(2,587		)	(2,729		)
Allowance for loan and lease losses	(12,661		)	(11,529		)
Net portfolio loans and leases	857,618			807,260

Premises and equipment, net	19,637			19,591
Goodwill and other intangible assets	34,371			34,731
Other assets	30,497			29,439
Total assets	$	1,174,644		$	1,035,711

LIABILITIES AND SHAREHOLDERS’ EQUITY:
Non-interest bearing deposits	$	267,453		$	221,898
Interest bearing deposits:
NOW, money market and savings	363,031			340,922
Time, over $100,000	198,633			145,608
Other time	168,504			164,710
Total deposits	997,621			873,138

Borrowed funds	31,150			20,650
Subordinated debentures	36,496			36,496
Other liabilities	8,700			11,990
Total liabilities	1,073,967			942,274

Commitments and contingencies (Note 6)
Shareholders’ equity:
Preferred stock- no par value; 15,000,000 shares authorized; none issued	—			—
Common stock- no par value; 15,000,000 shares authorized; 7,584,638 shares issued in 2004 and 7,439,029 shares in 2003	67,348			66,459
Retained earnings	33,244			26,097
Accumulated other comprehensive income	85			881
Total shareholders’ equity	100,677			93,437
Total liabilities and shareholders’ equity	$	1,174,644		$	1,035,711

See notes to the unaudited consolidated financial statements.

Western Sierra Bancorp and Subsidiaries

Consolidated Statements of Income

(dollars in thousands, except per share data)

	Three Months Ended June 30,					Six Months Ended June 30,
(Unaudited)	2004			2003		2004			2003
Interest income:
Interest and fees on loans	$	14,392		$	10,046	$	28,427		$	19,798
Interest on investment securities:
Taxable	386			378		755			779
Exempt from federal taxes	389			368		776			728
Interest on Fed Funds Sold	141			128		194			170
Total interest income	15,308			10,920		30,152			21,475

Interest expense:
Interest on deposits	2,170			2,047		4,174			4,046
Interest on borrowed funds and subordinated debentures	552			282		1,109			553
Total interest expense	2,722			2,328		5,283			4,599

Net interest income	12,586			8,592		24,869			16,876

Provision for loan and lease losses (LLP)	600			530		1,310			1,055

Net interest income after LLP	11,986			8,062		23,559			15,821

Non-interest income:
Service charges and fees	1,220			875		2,415			1,696
Investment service fee income	86			—		377			16
Net gain on sale and packaging of residential mortgage and government-guaranteed commercial loans	1,192			1,231		2,047			2,335
Loss on sale of investment securities	(11		)	—		(11		)	—
Other income	226			154		453			268
Total non-interest income	2,713			2,259		5,281			4,315

Other expenses:
Salaries and benefits	4,881			3,434		9,768			6,851
Occupancy and equipment	1,435			1,154		2,787			2,206
Other expenses	2,414			1,789		4,723			3,434
Amortization of core deposit intangibles	180			62		360			123
Total non-interest expense	8,910			6,438		17,638			12,614

Income before income tax	5,790			3,883		11,202			7,522

Income taxes	2,109			1,421		4,056			2,772
Net income	$	3,681		$	2,462	$	7,146		$	4,750

Basic earnings per share	$	0.49		$	0.39	$	0.95		$	0.76
Fully diluted earnings per share	$	0.47		$	0.37	$	0.91		$	0.72

See notes to the unaudited consolidated financial statements.

Western Sierra Bancorp and Subsidiaries

Unaudited Consolidated Statement of Cash Flows

(dollars in thousands)

	Six Months Ended
	June 30,			June 30,
	2004			2003
Cash flows from operating activities:
Net income	$	7,146		$	4,750
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	1,310			1,055
Depreciation and amortization	1,531			1,099
Deferred loan and lease origination fees, net	(142		)	206
Amortization of investment security premiums, net of accretion of discount	438			219
Loss on sale and call of available-for-sale investment securities	11			—
Increase in trading securities	(3		)	(3		)
Loss on sale of premises and equipment	3			—
Gain on sale of other real estate	—			3
Increase in cash surrender value of life insurance policies	(322		)	(129		)
Compensation cost associated with the Bank’s ESOP	150			—
(Increase) decrease in loans held for sale	(969		)	(208		)
Increase in accrued interest receivable and other assets	(303		)	(965		)
(Decrease) increase in accrued interest payable and other liabilities	(3,290		)	920
Net cash provided by operating activities	5,560			6,947

Cash flows from investing activities:
Proceeds from sale and call of available-for-sale investment securities	2,000			—
Proceeds from called held-to-maturity investment securities	—			1,500
Proceeds from matured available-for-sale investment securities	—			500
Proceeds from matured held-to-maturity investment securities	—			500
Purchases of available-for-sale investment securities	(16,773		)	(5,247		)
Principal repayments received from available-for-sale SBA Pools and mortgage-backed securities	6,408			5,255
Principal repayments received from held-to-maturity mortgaged-backed securities	313			371
Net decrease in interest-bearing deposits in banks	198			694
Proceeds from sale of OREO	—			137
Net increase in loans and leases	(51,526		)	(47,334		)
Purchases of premises and equipment	(1,220		)	(719		)
Purchase of life insurance policies	—			(7,000		)
Net cash used in investing activities	(60,600		)	(51,342		)

Cash flows from financing activities:
Net increase in demand, interest-bearing and savings deposits	$	67,664		$	16,083
Net increase in time deposits	56,819			48,948
Net increase (decrease) in short-term borrowings	10,500			(500		)
Proceeds from ESOP borrowings	150			325
Repayment of ESOP borrowings	(150		)	—
Purchase of unearned ESOP shares	(150		)	(325		)
Repurchase of common stock	(85		)	—
Proceeds from the exercise of stock options	954			144
Net cash provided by financing activities	135,702			64,675
Increase in cash and cash equivalents	80,663			20,280
Cash and cash equivalents at beginning of year	55,964			36,964
Cash and cash equivalents at end of year	$	136,627		$	57,244

Non-cash investing activities:
Net change in unrealized gain on available-for-sale investment securities	$	(1,208	)	$	782

See notes to the unaudited consolidated financial statements.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Western Sierra Bancorp and subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and notes required by accounting principles generally accepted in the United States of America for annual financial statements are not included herein. In the opinion of Management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods presented have been included. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s 2003 Annual Report to Shareholders.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Western Sierra National Bank (WSNB) and its subsidiary WSNB Investment Trust (a Real Estate Investment Trust (“REIT”), Lake Community Bank (LCB), Central California Bank (CCB) and Auburn Community Bank (ACB). All significant inter-company balances and transactions have been eliminated. Western Sierra Statutory Trusts I, II, III, and IV are unconsolidated subsidiaries formed solely for the purpose of issuing trust preferred securities. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Certain amounts in the consolidated financial statements for the year ended December 31, 2003 and the three and six-month period ended March 31, 2003 may have been reclassified to conform to the presentation of the consolidated financial statements in 2004.

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

2. Stock-based Compensation

At June 30, 2004, the Company has five stock-based compensation plans. The Company accounts for these plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. In accordance with Financial Accounting Standards Board (“FASB”) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB No. 12, the following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.

Pro forma adjustments to the Company’s consolidated net earnings and earnings per share are disclosed during the years in which the options become vested (dollars in thousands, except per share data).

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net earnings as reported	$	3,681		$	2,462		$	7,146		$	4,750
Deduct: Total stock-based compensation expense determined under the fair value based method for all awards,net of related tax effects	(214		)	(195		)	(501		)	(390		)

Pro forma net income	$	3,467		$	2,267		$	6,645		$	4,360

Basic earnings per share - as reported	$	0.49		$	0.39		$	0.95		$	0.76
Basic earnings per share - pro forma	$	0.46		$	0.36		$	0.89		$	0.69

Diluted earnings per share - as reported	$	0.47		$	0.37		$	0.91		$	0.72
Diluted earnings per share - pro forma	$	0.44		$	0.35		$	0.85		$	0.68

The fair value of each option is estimated on the date of grant using an option-pricing model with the following assumptions:

	Six Months Ended
	June 30, 2004
Dividend yield (not applicable)
Expected volatility	19.14 - 20.27		%
Risk-free interest rate	3.90 - 3.96		%
Expected option life	10 years
Weighted average fair value of options granted during the year	$	16.21

3. Earnings per Share

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

	Three Months Ended				Six Months Ended
	June 30,		June 30,		June 30,		June 30,
	2004		2003		2004		2003
Basic EPS Computation:
Numerator—net income	$	3,681	$	2,462	$	7,146	$	4,750
Denominator— weighted average number of shares outstanding	7,556,145		6,291,810		7,506,844		6,288,779
Basic earnings per share	$	0.49	$	0.39	$	0.95	$	0.76

Diluted EPS Computation:
Numerator—net income	$	3,681	$	2,462	$	7,146	$	4,750
Denominator— weighted average number of shares outstanding	7,556,145		6,291,810		7,506,844		6,288,779
Effect of dilutive stock options	317,054		309,777		349,414		298,626
	7,873,199		6,601,587		7,856,258		6,587,405
Diluted earnings per share	$	0.47	$	0.37	$	0.91	$	0.72

4. Shareholders’ Equity

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

On January 16, 2004 the Company announced that the Board of Directors approved a plan to utilize up to $2 million (or approximately 1% of the total outstanding shares) to repurchase the Company’s common stock. As of June 30, 2004, the Company had purchased 3,000 shares at an average price of approximately $28.27 under this plan.

On May 29, 2002, the Company announced that the Board of Directors approved a plan to repurchase up to 5% (or approximately 200,000 shares) of the Company’s common stock. The Company has purchased 7,875 shares at an average price of approximately $13.33 under the plan through June 30, 2004.

5. Acquisitions

During 2003, the Company acquired Auburn Community Bank (ACB) and Central Sierra Bank (CSB). ACB became a wholly-owned subsidiary of the Company and CSB was merged into CCB. These acquisitions were completed because management believes that their combined performance exceeds what each entity could accomplish independently and furthers the Company’s expansion throughout Northern California. Total consideration paid to each entity acquired was determined through extensive negotiation supported by internal modeling. The funds required to pay the cash portion of the consideration for these mergers was generally obtained through the issuance of subordinated debentures (see Note 11 of the Company’s 2003 audited financial statements).

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

	ACB		CSB

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

6. Commitments and Contingencies

Leases

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

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

Financial Instruments With Off-Balance-Sheet Risk

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

The Company’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and letters of credit as they do for loans and leases included on the consolidated balance sheet.

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

	June 30, 2004		December 31, 2003
Commitments to extend credit:

Revolving lines of credit secured by 1-4 family residences	$	30,905	$	21,691
Commercial real estate, construction and land development commitments secured by real estate	193,426		161,107
Other commercial commitments not secured by real estate	739		1,023
Agricultural commitments	1,808		4,237
Other commitments	55,800		49,949
	$	282,678	$	238,007
Letters of credit	$	20,015	$	18,752

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on Management’s credit evaluation of the borrower. Collateral held varies, but may include deposits, accounts receivable, inventory, equipment, income-producing commercial properties and residential real estate.

Letters of credit are conditional commitments to guarantee the performance or financial obligation of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

Commitments to sell loans are agreements to sell to another party loans originated by the Company. The Company only sells loans to third parties without recourse. The Company is not exposed to credit loss if the borrower fails to perform according to the promissory note as long as the Company has fulfilled its obligations stated in the sales commitment. Commitments to sell loans include the Loans Held for Sale on the balance sheet and approximately $2 million in unfounded loans at June 30, 2004.

7. Comprehensive Income

Comprehensive income includes net income and other comprehensive income (loss). The Company’s only source of other comprehensive income (loss) is derived from unrealized gains and losses on investment securities available-for-sale. Reclassification adjustments resulting from gains or losses on investment securities that were realized and included in net income of the current period that also had been included in other comprehensive income (loss) as unrealized holding gains or losses in the period in which they arose are excluded from comprehensive income of the current period. The Company’s total comprehensive income was as follows:

	Three months ended June 30,				Six months ended June 30,
(In thousands)	2004		2003		2004		2003

Net income	3,681		$	2,462	7,146		$	4,750
Other comprehensive income:
Holding gains (losses) arising during period, net of tax	(1,247	)	245		(789	)	511
Re-classification adjustment, net of tax	(7	)	—		(7	)	—
Total other comprehensive income	(1,254	)	245		(796	)	511
Total comprehensive income	2,427		$	2,707	6,350		$	5,261

Given the prevailing rise in interest rates, the unrealized gains on investment securities available-for-sale, on an after tax basis, was reduced from $1,339,000 at March 31, 2004 to $85,000 at June 30, 2004. If rates increase further, management expects further devaluation to the investment portfolio.

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

Private securities litigation reform act safe harbor statement

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

1. Competitive pressures in the banking industry and changes in the regulatory environment.

2. Non-compliance with banking regulations and the potential for regulatory penalties and mandates.

3. Exposure to changes in the interest rate environment and the resulting impact on the Company’s interest rate sensitive assets and liabilities.

4. Decline 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.

5. Credit quality deterioration that could cause an increase in the provision for loan losses.

6. Asset/Liability matching risks and liquidity risks.

7. Volatility and devaluation in the securities markets.

8. Exposure to losses from fraud and processing of customer transactions deposits, loans, checks, wires and deposits.

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

The following sections discuss significant changes and trends in financial condition, capital resources and liquidity of the Company from December 31, 2003 to June 30, 2004. Also discussed are significant trends and changes in the Company’s results of operations for the three and six months ended June 30, 2004 compared to the same periods in 2003. The consolidated financial statements and related notes appearing elsewhere in this report are condensed and unaudited.

General

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

In April 1999, the Company acquired Roseville 1st National Bank and Lake Community Bank in a stock for stock exchange. In May of 2000, the Company acquired Sentinel Community Bank in a stock for stock exchange. All of these mergers were accounted for as poolings of interests and, accordingly, all prior period financial information has been restated to reflect the combined operations of the Company, Roseville 1st National Bank, Lake Community Bank and Sentinel Community Bank. Sentinel Community Bank was immediately merged into Western Sierra National Bank. In May of 2000, Roseville 1st National Bank was also merged into Western Sierra National Bank.

In April 2002, the Company acquired Central California Bank for $3.7 million in cash and 252,181 shares of the Company’s stock. This transaction was accounted for under purchase accounting, which resulted in a purchase price allocation resulting in intangible assets totaling $2.3 million in goodwill and $1.9 million in core deposit premium. As required under purchase accounting, no prior period financial statements have been restated to reflect the combined operations of Central California Bank. In July of 2002, certain assets and liabilities of the Sentinel Community Bank branches were transferred from Western Sierra National Bank to Central California Bank.

In July 2003, the Company acquired Central Sierra Bank for $10.7 million in cash and 404,173 shares of the Company’s stock. This transaction was accounted for under purchase accounting, which resulted in a purchase price allocation resulting in intangible assets totaling $11.6 million in goodwill and $2.9 million in core deposit premium. As required under purchase accounting, no prior period financial statements have been restated to reflect the combined operations of Central California Bank.

In December 2003, the Company acquired Auburn Community Bank for $6.5 million in cash and 349,976 shares of the Company’s stock. This transaction was accounted for under purchase accounting, which resulted in a purchase price allocation resulting in intangible assets totaling $14.5 million in goodwill and $1.8 million in core deposit premium. As required under purchase accounting, no prior period financial statements have been restated to reflect the combined operations of Auburn Community Bank.

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

Western Sierra National Bank was organized under national banking laws and commenced operations as a national bank on January 4, 1984. Western Sierra National Bank is a member of the Federal Reserve System and the FDIC insures its deposits to the maximum amount permitted by law. Western Sierra National Bank’s head office is located at 4080 Plaza Goldorado Circle, Cameron Park, and its branch offices are located at 4011 Plaza Goldorado Circle, Cameron Park, 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, 1801 Douglas Blvd., Roseville, 6951 Douglas Blvd., Granite Bay, 9050 Fairway Drive, Roseville, and 2779 East Bidwell, Folsom, CA. In March 2002, Western Sierra National Bank formed WSNB Investment Trust, a Real Estate Investment Trust (“REIT”), to potentially generate additional capital at Western Sierra National Bank and reduce the Company’s overall effective tax rate. Western Sierra National Bank does not have any other affiliates other than Sentinel Associates, Inc., an inactive entity formed by Sentinel Bank in 1983 to develop single-family residential real estate.

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 became a member of the Federal Reserve System in June 2003. 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.

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

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

The Company will be opening three de novo branches before year-end 2004. Western Sierra Bank will add branches located at 9610 Bruceville Rd., Suite 100, Elk Grove, CA and 2761 Del Paso Rd, Sacramento, CA. The Elk Grove branch is expected to open in August 2004 and the Sacramento (Natomis) branch is expected to open in October 2004. Central California bank will also open a de novo branch located at 2525 McHenry Ave., Modesto, CA that is expected to open in October 2004.

In July 2001, December 2001 and September 30, 2003, respectively, four trusts, Western Sierra Statutory Trust I, Western Sierra Statutory Trust II and Western Sierra Statutory Trust III /IV, were established as wholly-owned unconsolidated subsidiaries of the Company for the purpose of issuing and holding Trust Preferred Securities.

Auburn Community Bank, a state non-member bank, was originally operating under the name of Auburn National Bank which was incorporated under the laws of the State of California on July 28, 1997, and commenced operations on February 2, 1998. On July 29, 1999, Auburn National Bank converted from national bank to a state non-member bank and was renamed Auburn Community Bank. Auburn Community Bank is an insured bank under the Federal Deposit Insurance Act and operates its headquarters banking office located at 412 Auburn-Folsom Road, Auburn, CA and its branch located at 11795 Atwood Road, Auburn, CA. Auburn Community Bank does not have any affiliates or subsidiaries.

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

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

Most of the Company’s deposits are obtained from commercial businesses, professionals and individuals. At June 30, 2004 there was a large title company deposit customer with $6.9 million or 6.5% of total deposits at Lake Community Bank and another large deposit customer with $5.9 million or 7.7% of total deposits at Auburn Community Bank. There were no other customers 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, financial services through Western Sierra Bank’s Financial Services Division and mortgage products and services.

Employees. At June 30, 2004, the Company and its subsidiaries employed 346 persons on a full-time equivalent basis. The Company believes its employee relations are satisfactory.

Impact of New Financial Accounting Standards

In December, 2003, the FASB revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). This interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements, addresses consolidation by business enterprises of a variable interest entity (VIE) that posses certain characteristics. A company that holds variable interests in an entity will need to consolidate that entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and or receive a majority of the VIE’s expected residual returns, if they occur. The Company adopted FIN 46 on December 31, 2003. Adoption of this standard required the Company to deconsolidate its investment in Western Sierra Statutory Trust I, Western Sierra Statutory Trust II, Western Sierra Statutory Trust III and Western Sierra Statutory Trust IV. The deconsolidation of the Trusts, formed in connection with the issuance of trust preferred securities, appears to be an unintended consequence of FIN 46. In management’s opinion, the effect of deconsolidation on the Company’s financial position and results of operations was not material. In addition, management does not believe that the Company has any VIEs that would be consolidated under the provisions of FIN 46.

In July 2003, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include trust preferred securities in their Tier 1 capital for regulatory capital purposes until notice is given to the contrary. The Federal Reserve intends to review the regulatory implications of the accounting changes resulting from FIN 46 and, if necessary or warranted, provide further appropriate guidance. There can be no assurance that the Federal Reserve will continue to allow institutions to include trust preferred securities in Tier 1 capital for regulatory capital purposes.

In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 03-03, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-03). This SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes such loans acquired in purchase business combinations and applies to all nongovernmental entities, including not-for-profit organizations. This SOP does not apply to loans originated by the entity. This SOP limits the yield that may be accreted (accretable yield) to the excess of the investor’s estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be collected) over the investor’s initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss accrual, or valuation allowance. This SOP prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally should be recognized prospectively through adjustment of the loan’s yield over its remaining life. Decreases in cash flows expected to be collected should be recognized as impairment, thereby retaining the accretable yield on the loan as adjusted.

This SOP prohibits “carrying over” or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination.

This SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. Management has not completed its evaluation of the impact this pronouncement may have on the Company’s consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted the provisions of this Statement on July 1, 2003 and, in management’s opinion, adoption of the Statement did not have a material effect on the Company’s consolidated financial position or results of operations.

On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This Statement amends and clarifies the accounting for derivative instruments by providing guidance related to circumstances under which a contract with a net investment meets the characteristics of a derivative as discussed in SFAS No. 133. The Statement also clarifies when a derivative contains a financing component. The Statement is intended to result in more consistent reporting for derivative contracts and must be applied prospectively for contracts entered into or modified after June 30, 2003, except for hedging relationsh ips designated after June 30, 2003. In management’s opinion, adoption of this Statement did not have a material impact on the Company’s consolidated financial position or results of operations.

Financial Condition

The Company increased total assets from $1.04 billion at December 31, 2003 to $1.17 billion at June 30, 2004, an increase of $139 million or 13%. The two primary components of asset growth were portfolio loans, which grew $51 million, and cash and equivalents, which increased $81 million. Current excess cash is expected to be deployed into loans and investments over the coming quarters. Asset growth was primarily funded by growth in deposits of $124 million.

During the first six months of 2004, non-interest bearing deposits increased from $222 million at year-end 2003 to $267 million at June 30, 2004. Included in non-interest deposits are local title company deposits, which have increased $29 million to $56 million at June 30, 2004 from $27 million at December 31, 2003. These funds do not receive interest but do result in an assessment of service fees by the title company’s service bureau to the Company. During the first six months of 2004, the service fees on title company deposits incurred by the Company were less than 1% of the average title company deposits outstanding.

Results of Operations

The Central Sierra Bank (“CSB”) acquisition was effective July 11, 2003 and was accounted for under purchase accounting. The Auburn Community Bank (“ACB”) acquisition was effective December 13, 2003 and was also accounted for under purchase accounting. Pursuant to purchase accounting rules, the operating results of the Company for the three and six-month periods ended June 30, 2003 does not include the operational results of CSB and ACB.

The Company reported net income of $3.68 million for the three months ended June 30, 2004 (or $0.47 per share, diluted) compared to $2.46 million (or $0.37 per share, diluted) for the same period in 2003. The quarterly earnings represent an increase of $1.22 million or a 50% increase in net income and a 26% increase in diluted earnings per share.

The Company reported net income of $7.15 million for the six months ended June 30, 2004 (or $0.91 per share, diluted) compared to $4.75 million (or $0.72 per share, diluted) for the same period in 2003. These earnings represent an increase of $2.40 million or a 50% increase in net income and a 26% increase in diluted earnings per share.

The primary factors contributing to the increase in operating results during the three and six-month period ended June 30, 2004 as compared to the same period in 2003 include:

1. An increase in net interest income of $4.0 million or 47% in the second quarter over the same period in 2003 and $8.0 million or 47% in the first six months of 2004 as compared to 2003. The net increase is the result of an overall increase in average earning assets, which is partially due to the acquisition of $133 million in earning assets from the CSB transaction completed in July 2003, and $84 million in earning assets from the ACB transaction completed in December 2003. This earning asset acquisition total of $217 million represents 57% of the increase in the Company’s earning assets for the twelve-month period ended June 30, 2004.

2. An increase in non-interest income, primarily service fees on deposit accounts. Non-interest income increased $454,000 or 20% and $967,000 or 22% over the second quarter and year-to-date totals in the previous year. Approximately $351,000 or 77% and $695,000 or 72% of the increase relates to CSB’s and ACB’s non-interest income in the three and six months ended June 30, 2004, which were not included in the three and six months ended June 30, 2003 results.

3. An effective tax rate of 36.2% for the first six months of 2004 as compared to 36.9% for the same period of the previous year.

The above factors were offset in part by:

1. An increase in loan and lease loss provisions of $70,000 and $255,000 for the three and six months ended June 30, 2004 as compared to the same period in 2003. Additional provisions were recorded as a result of growth in loans outstanding. The percentage of loan and lease loss reserves to gross loans and leases increased to 1.45% at June 30, 2004 as compared to 1.40% at December 31, 2003 and 1.39% at June 30, 2003.

2. Total other expenses increased $2.47 million or 38% and $5.03 million or 40% over the second quarter and year-to-date totals in the previous year. Total other expenses increased significantly as a result of the addition of CSB and ACB’s operating costs, which totaled approximately $1.87 million (76% of the total increase) and $3.68 million (73% of the total increase) in the second quarter and year-to-date totals of 2004, that were not included in the 2003 results as the acquisitions, accounted for under purchase accounting, did not close until July and December of 2003.

Return on Average Assets and Average Equity

Return on average assets (“ROA”) was 1.32% for the second quarter of 2004 as compared to 1.35% for the second quarter of 2003. Return on equity (“ROE”) was 14.94% for the second quarter of 2004 as compared to 17.10% for the second quarter of 2003. The compression of ROE was largely due to growth in equity which exceeded the Company’s income growth rate. Equity grew significantly since June 30, 2003, primarily due to the issuance of stock to acquire two bank subsidiaries and the retention of the Company’s earnings.

Net Interest Income (Tax Equivalent Yield Basis)

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

For the three months ended June 30, 2004, interest income on a tax equivalent basis increased by $4.4 million to $15.5 million or 40% over the same period in 2003. Interest expense on deposit accounts and borrowings increased $393,000 or 17% over the same three-month period ended June 30, 2003. Average earning assets yielded (on a fully tax equivalent basis) 6.20% versus 6.55% a year ago, the effect of which was partially offset by a decrease in the cost of funds where the average cost of funds decreased to 1.42% from 1.79% a year ago. Net interest income (on a tax equivalent basis) increased $4.0 million or 46% to $12.8 million. The net interest margin decreased 7 basis points to 5.11% from 5.18% for the same three-month period a year ago.

For the six months ended June 30, 2004, interest income on a tax equivalent basis increased by $8.7 million to $21.9 million or 40% over the same period in 2003. Interest expense on deposit accounts and borrowings increased $683,000 or 15% over the same six-month period ended June 30, 2003. Average earning assets yielded (on a fully tax equivalent basis) 6.30% versus 6.67% a year ago, the effect of which was partially offset by a decrease in the cost of funds where the average cost of funds decreased to 1.42% from 1.83% a year ago. Net interest income (on a tax equivalent basis) increased $8.0 million or 46% to $25.3 million. The net interest margin decreased 6 basis points to 5.21% from 5.27% for the same six-month period a year ago.

Net interest margin has remained stable, decreasing just 7 and 6 basis points for the three and six-month periods ended June 30, 2004 as compared to the same periods in 2003. The primary reasons that the Company was able to stabilize its net interest margin during this challenging rate environment are 1) an increase in the average loan to deposit ratio from 90% and 91% for the three and six-month periods ended June 30, 2003 to 92% and 94% for the same periods in 2004. 2) the benefit of approximately 65% of the loan portfolio that are fixed rate loans and loans that have reached contractual interest rate floors and 3) an increase in the percentage of average non-interest deposits to total deposits from 23% for the three and six-month periods ended June 30, 2003 to 26% and 25% for the same periods in 2004.

Overall, yields trended down from the prior year as a result of market interest rates. The most material decrease was realized in taxable investment securities, which decreased to 3.32% for the second quarter of 2004 as compared to 4.52% in the same period of 2003 as a result of declining interest rates over the last few years in the bond market, accelerated prepayments on mortgage-backed securities and a lower yield on new investments than the effective yield of the existing portfolio.

The following tables present, for the periods 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. Non-accrual 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. To compare the tax-exempt asset yields to taxable yields, amounts are adjusted to pre-tax equivalents based on the marginal corporate federal tax rate of 35 percent for the three and six-month periods ending June 30, 2004 and 34 percent for the same periods in 2003 (dollars in thousands).

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

	Three Months Ended
	June 30, 2004						June 30, 2003
	Average Balance			Interest		Yield/ Rate	Average Balance			Interest		Yield/ Rate
Earning assets:
Portfolio loans	$	866,378		$	14,405	6.69%	$	572,440		$	10,061	7.05%
Tax exempt investment securities	34,399			598		7.00%	30,969			558		7.22%
Taxable investment securities	45,541			376		3.32%	32,854			370		4.52%
Federal funds sold	57,604			141		0.98%	43,439			128		1.18%
Interest bearing deposits in banks	4,000			10		1.01%	1,280			8		2.41%
Average earning assets	1,007,923			15,530		6.20%	680,982			11,125		6.55%
Other assets	124,402						60,441
Less ALLL	(12,446		)				(7,905		)
Average total assets	$	1,119,879					$	733,518
Interest bearing liabilities:
Savings deposits	$	349,772		$	599	0.69%	$	192,936		$	399	0.83%
Time deposits	351,437			1,571		1.80%	299,093			1,648		2.21%
Other borrowings (1)	68,279			552		3.25%	29,633			282		3.82%
Average interest bearing liabilities	769,487			2,722		1.42%	521,662			2,329		1.79%
Non-interest bearing liabilities	241,998						147,767
Other liabilities	9,291						6,345
Shareholders’ equity	99,103						57,744
Average total liabilities and shareholders’ equity	$	1,119,879					$	733,518
Net interest income and net interest margin				$	12,808	5.11%				$	8,796	5.18%

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

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

	Six Months Ended
	June 30, 2004						June 30, 2003
	Average Balance			Interest		Yield/ Rate	Average Balance			Interest		Yield/ Rate
Earning assets:
Portfolio loans	$	852,007		$	28,453	6.72%	$	565,799		$	19,835	7.07%
Tax exempt investment securities	34,231			1,194		7.01%	30,914			1,103		7.20%
Taxable investment securities	46,349			735		3.19%	34,358			758		4.45%
Federal funds sold	39,667			194		0.98%	29,016			170		1.18%
Interest bearing deposits in banks	3,974			20		1.01%	1,467			21		2.93%
Average earning assets	976,229			30,596		6.30%	661,555			21,888		6.67%
Other assets	121,863						60,108
Less ALLL	(12,151		)				(7,642		)
Average total assets	$	1,085,941					$	714,020
Interest bearing liabilities:
Savings deposits	$	342,769		$	1,142	0.67%	$	189,077		$	775	0.83%
Time deposits	340,019			3,032		1.79%	288,656			3,271		2.29%
Other borrowings (1)	67,556			1,109		3.30%	29,427			554		3.79%
Average interest bearing liabilities	750,343			5,283		1.42%	507,160			4,600		1.83%
Non-interest bearing liabilities	228,424						144,316
Other liabilities	10,331						6,127
Shareholders’ equity	96,843						56,417
Average total liabilities and shareholders’ equity	$	1,085,941					$	714,020
Net interest income and net interest margin				$	25,313	5.21%				$	17,288	5.27%

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

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

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

Analysis of Changes in Net Interest Income

	Three Months Ended June 30, 2004 over 2003
	Volume		Rate			Total
Increase (decrease) in interest income:
Portfolio loans	$	5,152	$	(809	)	$	4,343
Investment securities, tax exempt	62		(20		)	41
Investment securities	143		(137		)	6
Federal funds sold	42		(29		)	13
Interest bearing deposits	16		(14		)	2
Net increase (decrease)	5,414		(1,009		)	4,405

Increase (decrease) in interest expense:
Interest bearing accounts	323		(123		)	200
Time deposits	288		(365		)	(77		)
Other borrowings (1)	367		(97		)	270
Net increase (decrease)	978		(585		)	393
Total net increase (decrease)	$	4,437	$	(425	)	$	4,012

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

	Six Months Ended June 30, 2004 over 2003
	Volume		Rate			Total
Increase (decrease) in interest income:
Portfolio loans	$	10,062	$	(1,444	)	$	8,617
Investment securities, tax exempt	119		(28		)	91
Investment securities	265		(288		)	(23		)
Federal funds sold	63		(39		)	24
Interest bearing deposits	37		(37		)	(1		)
Net increase (decrease)	10,545		(1,837		)	8,708

Increase (decrease) in interest expense:
Interest bearing accounts	632		(265		)	367
Time deposits	584		(823		)	(239		)
Other borrowings (1)	719		(164		)	555
Net increase (decrease)	1,934		(1,252		)	683
Total net increase (decrease)	$	8,610	$	(585	)	$	8,025

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

Non-interest Income

The Company’s non-interest income consists primarily of service charges on deposit accounts, investment service fee income, other service fees, and the sale and packaging of residential mortgage and government-guaranteed commercial loans.

For the three months ended June 30, 2004, total non-interest income increased $454,000 or 20% over the same period in 2003. For the six months ended June 30, 2004, total non-interest income increased $967,000 or 22% over the same period in 2003.

Service charge income rose $345,000 or 39% and $719,000 or 42% over the same three-month and six-month periods of 2003. Approximately $351,000 or 102% and $695 or 97% of the increase relates to CSB and ACB’s service charges in the three and six months ended June 30, 2004, which were not included in the three and six months ended June 30, 2003 results.

In addition, income from mortgage loan origination and packaging fees decreased $39,000 or 3% and $288,000 or 12% over the same three and six-month periods of 2003. The decrease can be primarily attributed to an increase in mortgage interest rates which has had a negative effect on refinance activity. The decline in mortgage revenues were completely offset by an increase in investment service fee income of $86,000 and $361,000 over the three and six-month periods of 2003 as Western Sierra Bank’s Investment Services Division was not in operation in the first six months of 2003.

Non-interest Expense

Non-interest expenses consist of salaries and related employee benefits, occupancy and equipment expenses, data processing fees, professional fees, directors’ fees, and other operating expenses. Non-interest expense increased $2.47 million or 38% and $5.03 million or 40% over the same three and six-month periods of 2003. Approximately $1.87 million or 76% and $3.68 million or 73% of the increase relates to CSB and ACB’s non-interest expenses in the three and six-month periods of 2004, which were not included in the same periods of 2003.

Salaries and benefits increased $1.45 million or 42% and $2.92 million or 43% over the same three and six-month periods of last year. This increase was due primarily to the integration of the CSB and ACB employees after their respective mergers both of which occurred after the second quarter of 2003.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	Expense		% of Avg Earning Assets	Expenses		% of Avg Earning Asset	Expense		% of Avg Earning Assets	Expense		% of Avg Earning Assets
Salaries and benefits	$	4,881	1.95%	$	3,434	2.02%	$	9,768	2.01%	$	6,851	2.09%
Occupancy & equipment	1,435		0.57%	1,154		0.68%	2,787		0.57%	2,206		0.67%
Other expenses	2,414		0.96%	1,789		1.05%	4,723		0.97%	3,434		1.05%
Amortization of core deposit intangibles	180		0.07%	62		0.04%	360		0.07%	123		0.04%
Total non-interest expense	$	8,910	3.56%	$	6,438	3.79%	$	17,638	3.63%	$	12,613	3.84%

Efficiency Ratio

The Company uses a widely used banking operating ratio as a measure of its progress in increasing operating efficiency. The efficiency ratio is derived by dividing total other (i.e. operating) expenses by the sum of tax adjusted net interest income and non-interest income. Simply put, this ratio describes the funds necessary to generate $1 in tax equivalent total revenue. The Company’s efficiency ratio has continued to improve in 2004 and management has targeted to operate between 52% and 56% going forward. There could be a negative short-term impact on the efficiency ratio in the event the Company engages in future mergers and acquisitions, de novo branches, or new department operations.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003

Non-interest expense	$	8,910		$	6,438		$	17,638		$	12,613
Amortization of core deposit and other intangibles	(180		)	(62		)	(360		)	(123		)
Investment in limited partnership	(56		)	—			(112		)	—
Net non-interest expense	$	8,674		$	6,376		$	17,166		$	12,490

Fully tax equivalent income:
Net interest income	$	12,586		$	8,592		$	24,869		$	16,876
Non-interest income	2,713			2,259			5,281			4,315
Tax benefit adjustment for tax-exempt income	310			248			596			484
Total fully tax equivalent Income	$	15,609		$	11,099		$	30,746		$	21,675

Efficiency Ratio	55.6		%	57.5		%	55.8		%	57.6		%

Income Taxes

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Tax provision	$	2,109		$	1,421		$	4,056		$	2,772
Effective tax rate	36.42		%	36.60		%	36.21		%	36.85		%

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

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

During the second quarter of 2004, the Company filed amended 2002 tax returns with the Franchise Tax Board and reviewed its quarterly tax liability for 2003. The Company remitted $1.51 million to the Franchise Tax Board during the second quarter of 2004, which the Company believes represents full payment of its historical tax liability. The Company will realize a federal tax benefit for this payment for 2004.

Asset Quality

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

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

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

	June 30, 2004			% of Total	December 31, 2003			% of Total
Real estate mortgage	$	548,629		62.85%	$	495,948		60.37%
Real estate construction	186,380			21.35%	195,889			23.84%
Commercial	119,035			13.64%	109,685			13.35%
Agricultural	12,702			1.46%	12,185			1.48%
Installment	4,197			0.60%	5,795			0.71%
Lease financing	1,923			0.22%	2,016			0.25%
Total	872,866			100.00%	821,518			100.00%
Deferred loan fees and costs, net	(2,587		)	-0.29%	(2,729		)	-0.33%
Less allowance for loan and lease losses	(12,661		)	-1.45%	(11,529		)	-1.40%
Total net loans and leases	$	857,618			$	807,260

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

	June 30, 2004			December 31, 2003
Non-accrual loans	$	1,272		$	1,554
Non-performing assets as a% of total assets	0.11		%	0.15		%
Non-accrual loans as a% of gross loans	0.15		%	0.19		%
Ratio of allowance for loan and lease losses to non-accrual loans	9.95			7.42

The Company’s non-accrual loans decreased from $1,554,000 to $1,272,000 in the first six months of 2004. The Company’s “coverage ratio” or the ratio of allowance for loan and lease losses to non-accrual loans increased from 7.42 to 9.95 during the first six months of 2004. The Company carried no other real estate as of June 30, 2004.

Allowance for Loan and Lease Losses

The allowance for loan and lease losses is established through charges to earnings in the form of the provision for loan and lease losses. Loan and lease losses are charged to, and recoveries are credited to, the allowance for loan and lease losses. The provision for loan and lease losses is determined after considering various factors such as loan and lease loss experience, current economic conditions, maturity of the portfolio, size of the portfolio, industry concentrations, borrower credit history, the existing allowance for loan and lease losses, independent loan reviews, current charges to and recoveries within the allowance for loan and lease losses and the overall quality of the portfolio as determined by management, regulatory agencies, and independent credit review consultants retained by the Company.

The adequacy of the Company’s allowance for loan and lease losses is based on specific and formula allocations to the Company’s loan and lease portfolio. Specific allocations are made for impaired loans and leases. The specific allocations are increased or decreased through management’s reevaluation of the status of the particular problem loans and leases. Loans and leases which do not receive a specific allocation receive an allowance allocation based on a formula represented by a percentage factor based on underlying collateral, type of loan and lease, historical charge-offs and general economic conditions which is applied against the general portfolio segments.

It is the policy of management to make additions to the allowance for loan and lease losses so that it remains adequate to cover anticipated charge-offs and management believes that the allowance at June 30, 2004 is adequate. However, the determination of the amount of the allowance is judgmental and subject to economic conditions which cannot be predicted with certainty. Accordingly, the Company cannot predict whether charge-offs of loans and leases in excess of the allowance may be required in future periods. The provision for loan and lease losses reflects an accrual sufficient to cover projected potential charge-offs.

The allowance for loan and lease losses percentage to portfolio loans increased in the second quarter of 2004 because CSB and ACB had a greater percentage of land and development loans that required a higher reserve percentage.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Beginning balance for allowance for loan and lease losses	$	12,165		$	7,661		$	11,529		$	7,113
Provision for loan and lease losses	600			530			1,310			1,055
Charge offs:
Commercial	150			23			175			23
Real estate	—			—			—			—
Agricultural	—			—			—			—
Other	6			26			25			26
Total charge offs	156			49			200			49
Recoveries:
Commercial	7			6			20			14
Real estate	—			15			—			15
Agricultural	—			—			—			14
Other	1			2			2			3
Total recoveries	8			23			22			46
Net charge offs	(148		)	(26		)	(178		)	(3		)
Undisbursed amount transferred in	44			—			—			—
Ending balance	$	12,661		$	8,165		$	12,661		$	8,165
ALLL to total loans	1.45		%	1.39		%	1.45		%	1.39		%
Annualized net charge offs to average loans	-0.07		%	-0.02		%	-0.04		%	0.00		%

Liquidity

A Funds Management Policy has been developed by the Company’s Management and approved by the Company’s Board of Directors that establishes guidelines for the investments and liquidity of the Company. The goals of this policy are to provide liquidity to meet the financial requirements of the Company’s customers, maintain adequate reserves as required by regulatory agencies and maximize earnings of the Company. The Company’s liquidity ratio at June 30, 2004 was 17.3% and was 9.6% at December 31, 2003. The increased liquidity ratio at June 30, 2004 is due to an increase in Federal Funds Sold of $81 million. Liquidity is computed by dividing liquid assets (consisting of cash and due from banks, available-for-sale investments not pledged, federal funds sold and loans available-for-sale) by total liabilities. The Company’s Management believes it maintains adequate liquidity levels.

Capital Adequacy

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

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

The minimum ratio of total risk-based capital to risk-weighted assets, including certain off-balance sheet items, is 8% (10% to be considered well-capitalized). The minimum ratio of Tier 1 capital to average assets (leverage ratio) is 4.0% (5.0% to be considered well-capitalized). The minimum ratio of Tier 1 capital to risk-weighted assets is 4.0% (6.0% to be considered well-capitalized). At least one-half (4%) of the total risk-based capital (Tier 1) is to be comprised of common equity; the balance may consist of debt securities and a limited portion of the allowance for loan and lease losses. Subordinated debentures in the amount of $33.5 million and $30.9 million are included in the Company’s Tier 1 capital as of June 30, 2004 and December 31, 2003, respectively, as allowed by Federal Reserve regulations, in the consolidated totals below. The remaining $2.5 million and $5.1 million, respectively, in subordinated debentures are included in Tier 2.

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

	June 30, 2004										December 31, 2003
	ACB		CCB		LCB		WSNB		Company		ACB		CCB		LCB		WSNB		Company

Total risk-based capital to risk-weighted assets	12.2	%	11.5	%	12.2	%	10.4	%	12.2	%	11.0	%	11.0	%	11.0	%	10.3	%	12.1	%
Tier 1 capital to risk-weighted assets	10.9	%	10.3	%	11.0	%	9.2	%	10.7	%	9.7	%	9.8	%	9.7	%	9.0	%	10.3	%
Tier 1 capital to average assets (leverage ratio)	7.8	%	7.8	%	10.0	%	7.9	%	8.7	%	7.1	%	7.8	%	9.2	%	8.3	%	8.8	%

The Company and its bank subsidiaries continue to meet all regulatory capital requirements at June 30, 2004.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

The following table sets forth, as of June 30, 2004, the distribution of re-pricing opportunities for the Company’s earning assets and interest-bearing liabilities, the interest rate sensitivity gap, the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. earning assets divided by interest-bearing liabilities) and the cumulative interest rate sensitivity gap ratio.

Earning assets:	Within 3 Months			After 3 Months But Within One Year			After One Year But Within Five Years			After Five Years			Total

Federal funds sold	$	98,245		$	—		$	—		$	—		$	98,245
Investment securities and other	8,430			9,019			45,624			30,775			93,848
Loans	249,224			180,408			222,796			219,760			872,188
Total earning assets	355,899			189,427			268,419			250,536			1,064,280

Interest-bearing liabilities:
Savings	52,119			26,060			—			—			78,179
Interest-bearing transaction accounts	244,203			40,649			—			—			284,852
Time deposits	151,441			132,707			82,989			—			367,137
Subordinated debentures	36,496			—			—			—			36,496
Other borrowings	10,000			14,000			7,150			—			31,150
Total interest-bearing liabilities	494,259			213,416			90,139			—			797,814
Interest rate sensitivity gap	(138,360		)	(23,989		)	178,280			250,536			266,466
Cumulative interest rate sensitivity gap	$	(138,360	)	$	(162,349	)	$	15,931		$	266,466		$	—
Interest rate sensitivity gap to total earning assets	-13.00		%	-2.25		%	16.75		%	23.54		%	25.04		%
Cumulative interest rate sensitivity gap to total earning assets	-13.00		%	-15.25		%	1.50		%	25.04		%
Ratio of rate sensitive assets to rate sensitive liabilities	0.72			0.89			2.98			N/A			1.33
Cumulative ratio	0.72			0.77			1.02			1.33			1.33

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

Because of the inherent limitations of the static GAP model described above, management deployed a new interest rate sensitivity measurement tool in April 2003 that more accurately measures the Company’s exposure to future changes in interest rates. This model measures the expected cash flows and repricing of each financial asset/liability separately in measuring the Company’s and each bank’s interest sensitivity. Management and the Board’s Investment/ALCO Committee have carefully reviewed the initial reports that indicate that the Company as a whole is “asset sensitive”. This means the Company expects (all other things being equal) to expand its net interest income if rates rise and expects it conversely to contract if rates fall. The level of potential or expected contraction is considered manageable at this time. Management will continue to perform this analysis each quarter to further validate the expected results against actual data.

The following tables, in management’s opinion, reflect estimates of the Company’s future net interest income under different interest rate scenarios. The net interest income estimates are one-year projections based on the earning assets and interest- bearing liabilities as of June 30, 2004. The estimates are derived from an asset/liability management model deployed in 2003. There are numerous underlying assumptions that management believes are accurate, but if they are inaccurate could have an impact to the results of operations. Under the shock scenarios, the changes to interest rates are assumed to occur immediately (on July 1, 2004). Under the ramp scenarios the changes to interest rates gradually ramp up or down over the course of one year (dollars in thousands).

	Shock Scenario
Change in Interest Rates	Estimated Net Interest Income		Dollar Change from Base			Percentage Change from Base
300 basis point rise	$	60,076	$	8,319		6.07	%
200 basis point rise	57,219		5,462			10.55	%
100 basis point rise	54,364		2,607			5.04	%
50 basis point rise	52,979		1,222			2.36	%
Base scenario	51,757		0			0.00	%
50 basis point decline	50,147		(1,609		)	-3.11	%
100 basis point decline	48,439		(3,317		)	-6.41	%

	Ramp Scenario
Change in Interest Rates	Estimated Net Interest Income		Dollar Change from Base			Percentage Change from Base
300 basis point rise	$	54,654	$	2,897		5.60	%
200 basis point rise	53,646		1,889			3.65	%
100 basis point rise	52,644		887			1.71	%
50 basis point rise	52,167		410			0.79	%
Base scenario	51,757		0			0.00	%
50 basis point decline	51,069		(687		)	-1.33	%
100 basis point decline	50,340		(1,416		)	-2.74	%

ITEM 4. Controls and Procedures.

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

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

PART II. Other Information

Item #1. Legal proceedings

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

Item #2. Changes in securities, use of proceeds and Issuer Purchases of Equity Securities

On January 16, 2004 the Company announced that the Board of Directors approved a plan to utilize up to $2 million (or approximately 1% of the total outstanding shares) to repurchase the Company’s common stock. As of June 30, 2004, the Company purchased 3,000 shares at an average price of approximately $28.27 under this plan, all of which were purchased in the second quarter of 2004.

Item #3. Defaults upon Senior Securities

N/A

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

On May 6, 2004 the annual meeting of the shareholders of the Company was held for the purpose of voting on the following matters:

Proposal 1. Election of Directors:

	Voted For	Withheld
Charles W. Bacchi	3,185,621	11,077
Mathew A. Bruno Sr.	3,185,621	11,077
Lary A. Davis	3,171,456	25,242
William M. Eames	3,185,621	11,077
William Fisher	3,185,621	11,077
Gary D. Gall	3,180,158	16,540
Jan T. Haldeman	3,185,621	11,077
Howard Jahn	3,185,621	11,077
Alan J. Kleinert	3,171,397	25,301
Thomas Manz	3,185,621	11,077
Douglas A. Nordell	3,185,621	11,077
Lori A. Warden	3,185,621	11,077

Proposal 2. Approval of the Western Sierra Bancorp 2004 Stock Option Plan.

Voted for:		1,693,593
Abstained:		59,138
Against:		344,117
Not Voted		1,099,850

Proposal 3. Ratification of Appointment of Accountants. To ratify the appointment of Perry-Smith LLP as the Company’s independent public accountants.

Voted for:		3,120,520
Abstained:		22,356
Against:		53,822

Item #5. Other Information

N/A

Item #6. Exhibits

(a)
Exhibit No.		Description of Exhibit

3.1		Articles of Incorporation are contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 3.1 and are incorporated herein by this reference.

3.2		Bylaws are contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 3.2 and are incorporated herein by this reference.

3.3		Amendments to Bylaws are contained in the Registrant’s Registration Statement on Form S-4, file #333-76678, as Exhibit 3.2 and are incorporated herein by this reference.

3.4		Amendment to Articles of Incorporation dated May 7, 2004.

10.1		Severance Compensation Agreement dated December 4, 1997 between Mr. Kirk Dowdell and Western Sierra National Bank is contained in the Registrant’s Registration Statement on Form S-4, file #333-33256, as Exhibit 10.1 and is incorporated herein by this reference.

10.2		Stock Option Agreement dated September 22, 1997 between Mr. Kirk Dowdell and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-33256, as Exhibit 10.2 and is incorporated herein by this reference.

10.3		Stock Option Agreement dated May 19, 1999 between Mr. Kirk Dowdell and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-33256, as Exhibit 10.3 and is incorporated herein by this reference.

10.4		Stock Option Agreement dated May 19, 1999 between Mr. Gary D. Gall and Western is contained in the Registrant’s Registration Statement on Form S-4 file, # 333-33256, as Exhibit 10.3 and is incorporated herein by this reference.

10.5		Executive Salary Continuation Agreement dated August 22, 2002, between Mr. Gary D. Gall and Western Sierra National Bank. (1)

10.6		Stock Option Agreement dated April 11, 1995 between Mr. Gary D. Gall and Western Sierra National Bank is contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.5 and is incorporated herein by this reference.

10.7		Stock Option Agreement dated November 14, 1996 between Mr. Gary D. Gall and Western Sierra National Bank is contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.6 and is incorporated herein by this reference.

10.8		Stock Option Agreement dated May 20, 1997 between Mr. Gary D. Gall and Western is contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.7 and is incorporated herein by this reference.

10.9		Western Sierra Bancorp 1999 Stock Option Plan and form of stock option agreements are contained in the Registrant’s Registration Statement on Form S-8, file #333-86653, as Exhibit 99.3 and are incorporated herein by this reference.

10.10		Western Sierra National Bank 1989 Stock Option Plan, form of incentive stock option and form of nonqualified stock option agreements are contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.10 and are incorporated herein by this reference.

10.11		Western Sierra Bancorp 1997 Stock Option Plan, form of incentive stock option and form of nonqualified stock option agreements are contained in the Registrant’s Registration Statement on Form S-4 ,file #333-66675, as Exhibit 10.11 and are incorporated herein by this reference.

10.12		Indemnification Agreement between Mr. Gary D. Gall and Western Sierra National Bank is contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.13 and is incorporated herein by this reference.

10.13		Indemnification Agreement between Mr. Kirk Dowdell and Western is contained in the Registrant’s Registration Statement on Form S-4, file #333-86653, as Exhibit 10.14 and is incorporated herein by this reference.

10.14		Form of Indemnification Agreement for the directors of Western Sierra National Bank is contained in the Registrant’s Registration Statement on Form S-4 file, #333-66675, as Exhibit 10.15 and is incorporated herein by this reference.

10.15		Placerville Branch lease is contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.1 and is incorporated herein by this reference.

10.16		Executive Salary Continuation Agreement dated February 1, 2002, between Mr. Kirk N. Dowdell. (1)

10.17		Severance Benefits Agreement dated December 4, 1997 between Mr. Gary D. Gall and Western Sierra National Bank is contained in the Registrant’s Registration Statement on Form S-4, file #333-66675, as Exhibit 10.2 and is incorporated herein by this reference.

10.18		Western Sierra National Bank Incentive Compensation Plan for Senior Management is contained in the Registrant’s Registration Statement on Form S-4, file # 333-66675, as Exhibit 10.12 and is incorporated herein by this reference.

10.19		Stock Option Agreement dated April 11, 2000 between Mr. Kirk Dowdell and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-76678, as Exhibit 10.19 and is incorporated herein by this reference.

10.20		Stock Option Agreement dated April 11, 2000 between Mr. Gary D. Gall and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-76678, as Exhibit 10.20 and is incorporated herein by this reference.

10.21		Stock Option Agreement dated April 10, 2001 between Mr. Kirk Dowdell and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-76678, as Exhibit 10.21 and is incorporated herein by this reference.

10.22		Stock Option Agreement dated April 10, 2001 between Mr. Gary D. Gall and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-76678, as Exhibit 10.22 and is incorporated herein by this reference.

10.23		Stock Option Agreement dated December 11, 2001 between Mr. Kirk Dowdell and Western is contained in the Registrant’s Registration Statement on Form S-4, file # 333-76678, as Exhibit 10.23 and is incorporated herein by this reference.

10.24		Folsom Western Sierra National Bank branch lease and lease amendment. (1)

10.25		Agreement and Plan of Reorganization by and between the Western and Central Sierra Bank dated as of March 12, 2003 is attached as Appendix A to the proxy statement-prospectus contained in the S-4 Registration Statement file #333-104817 and is incorporated herein by this reference.

10.26		Wells Fargo Note Contract dated April 10, 2003. (1)

10.27		Stock Option Agreement dated December 11, 2001 between Mr. Phillip Wood and Western Sierra Bancorp. (1)

10.28		Stock Option Agreement dated December 11, 2001 between Mr. Doug Nordell and Western Sierra Bancorp. (1)

10.29		Stock Option Agreement dated April 25, 2002 between Mr. Doug Nordell and Western Sierra Bancorp. (1)

10.30		Stock Option Agreement dated April 25, 2002 between Mr. Fred Rowden and Western Sierra Bancorp. (1)

10.31		Stock Option Agreement dated April 25, 2002 between Mr. Kirk Dowdell and Western Sierra Bancorp. (1)

10.32		Stock Option Agreement dated June 27, 2002 between Mr. Gary Gall and Western Sierra Bancorp. (1)

10.33		Stock Option Agreement dated June 27, 2002 between Mr. Anthony Gould and Western Sierra Bancorp. (1)

10.34		Stock Option Agreement dated March 30, 2003 between Mr. Phillip Wood and Western Sierra Bancorp. (1)

10.35		Stock Option Agreement dated March 30, 2003 between Mr. Gary Gall and Western Sierra Bancorp. (1)

10.36		Stock Option Agreement dated March 30, 2003 between Mr. Kirk Dowdell and Western Sierra Bancorp. (1)

10.37		Stock Option Agreement dated March 30, 2003 between Mr. Anthony Gould and Western Sierra Bancorp. (1)

10.38		Stock Option Agreement dated March 30, 2003 between Mr. Doug Nordell and Western Sierra Bancorp. (1)

10.39		Stock Option Agreement dated March 30, 2003 between Mr. Fred Rowden and Western Sierra Bancorp. (1)

10.40		Stock Option Agreement dated January 1, 2002 between Mr. Charles Bacchi and Western Sierra Bancorp. (1)

10.41		Stock Option Agreement dated January 1, 2002 between Mrs. Barbara Cook and Western Sierra Bancorp. (1)

10.42		Stock Option Agreement dated January 1, 2002 between Mr. William Fisher and Western Sierra Bancorp. (1)

10.43		Stock Option Agreement dated January 1, 2002 between Mr. Howard Jahn and Western Sierra Bancorp. (1)

10.44		Stock Option Agreement dated January 1, 2002 between Mr. Alan Kleinert and Western Sierra Bancorp. (1)

10.45		Stock Option Agreement dated January 1, 2002 between Mr. Thomas Manz and Western Sierra Bancorp. (1)

10.46		Stock Option Agreement dated January 1, 2002 between Mr. Harold Prescott and Western Sierra Bancorp. (1)

10.47		Stock Option Agreement dated January 1, 2002 between Mr. Lary Davis and Western Sierra Bancorp. (1)

10.48		Stock Option Agreement dated December 31, 2002 between Mr. Charles Bacchi and Western Sierra Bancorp. (1)

10.49		Stock Option Agreement dated December 31, 2002 between Ms. Barbara Cook and Western Sierra Bancorp. (1)

10.50		Stock Option Agreement dated December 31, 2002 between Mr. William Fisher and Western Sierra Bancorp. (1)

10.51		Stock Option Agreement dated December 31, 2002 between Mr. Howard Jahn and Western Sierra Bancorp. (1)

10.52		Stock Option Agreement dated December 31, 2002 between Mr. Alan Kleinert and Western Sierra Bancorp. (1)

10.53		Stock Option Agreement dated December 31, 2002 between Mr. Thomas Manz and Western Sierra Bancorp. (1)

10.54		Stock Option Agreement dated December 31, 2002 between Mr. Harold Prescott and Western Sierra Bancorp. (1)

10.55		Stock Option Agreement dated December 31, 2002 between Mr. Matthew Bruno Sr. and Western Sierra Bancorp. (1)

10.56		Stock Option Agreement dated December 31, 2002 between Mr. Lary Davis and Western Sierra Bancorp. (1)

10.57		Stock Option Agreement dated December 31, 2002 between Mr. William Eames and Western Sierra Bancorp. (1)

10.58		Executive Salary Continuation Agreement dated June 22, 2002, between Mr. Fred Rowden and Central California Bank. (1)

10.59		Executive Salary Continuation Agreement dated June 1, 2002, between Mr. Phillip Wood and Western Sierra National Bank. (1)

10.60		Executive Salary Continuation Agreement dated June 25, 2002, between Mr. Doug Nordell and Roseville 1^st National Bank. (1)

10.61		Stock Option Agreement dated July 1, 2003 between Mr. Charles Bacchi and Western Sierra Bancorp. (2)

10.62		Stock Option Agreement dated July 1, 2003 between Mr. Matthew Bruno Sr. and Western Sierra Bancorp. (2)

10.63		Stock Option Agreement dated July 1, 2003 between Mr. Lary Davis and Western Sierra Bancorp. (2)

10.64		Stock Option Agreement dated July 1, 2003 between Mr. William Fisher and Western Sierra Bancorp. (2)

10.65		Stock Option Agreement dated December 31, 2002 between Mr. William Fisher and Western Sierra Bancorp. (2)

10.66		Stock Option Agreement dated July 1, 2003 between Mr. Howard Jahn and Western Sierra Bancorp. (2)

10.67		Stock Option Agreement dated July 1, 2003 between Mr. Alan Kleinert and Western Sierra Bancorp. (2)

10.68		Stock Option Agreement dated July 1, 2003 between Mr. Thomas Manz and Western Sierra Bancorp. (2)

10.69		Stock Option Agreement dated July 1, 2003 between Mr. Harold Prescott and Western Sierra Bancorp. (2)

10.70		Stock Option Agreement dated July 15, 2003 between Mr. Kirk Dowdell and Western Sierra Bancorp. (2)

10.71		Agreement and Plan of Reorganization by and between the Western and Auburn Community Bank dated as of August 20, 2003 is attached as Appendix A to the proxy statement-prospectus contained in the S-4 Registration Statement file #333-109833 and is incorporated herein by this reference. (2)

10.72		Contract between Woodbury Financial Services, Inc. and Western Sierra National Bank dated July 22, 2003. (2)

10.73		Summary of financial terms for Western Sierra Statutory Trusts III, and IV. (2)

10.74		Stock Option Agreement dated January 1, 2004 between Mr. Howard Jahn and Western Sierra Bancorp. (3)

10.75		Stock Option Agreement dated January 1, 2004 between Mr. Charles Bacchi and Western Sierra Bancorp. (3)

10.76		Stock Option Agreement dated January 1, 2004 between Ms. Barbara Cook and Western Sierra Bancorp. (3)

10.77		Stock Option Agreement dated January 1, 2004 between Mr. William Fisher and Western Sierra Bancorp. (3)

10.78		Stock Option Agreement dated January 1, 2004 between Mr. Thomas Manz and Western Sierra Bancorp. (3)

10.79		Stock Option Agreements dated January 1, 2004 between Mr. Matthew Bruno Sr. and Western Sierra Bancorp (two identical agreements both represented by exhibit 10.79). (3)

10.80		Stock Option Agreement dated January 1, 2004 between Mr. Lary Davis and Western Sierra Bancorp. (3)

10.81		Stock Option Agreement dated January 1, 2004 between Mr. Lary Davis and Western Sierra Bancorp. (3)

10.82		Stock Option Agreements dated January 1, 2004 between Mr. William Eames and Western Sierra Bancorp (two identical agreements both represented by exhibit 10.82). (3)

10.83		Stock Option Agreement dated January 1, 2004 between Ms. Lori Warden and Western Sierra Bancorp. (3)

10.84		Stock Option Agreement dated January 1, 2004 between Mr. Alan Kleinert and Western Sierra Bancorp. (3)

10.85		Stock Option Agreement dated January 1, 2004 between Mr. Harold Prescott and Western Sierra Bancorp. (3)

10.86		Severance Benefits Agreement dated January 16, 2004 between Mr. Kirk Dowdell and Western Sierra Bancorp. (3)

10.87		Severance Benefits Agreement dated February 10, 2004 between Mr. Anthony Gould and Western Sierra Bancorp. (3)

10.88		Stock Option Agreement dated March 25, 2004 between Mr. Kirk Dowdell and Western Sierra Bancorp.

10.89		Stock Option Agreement dated March 25, 2004 between Mr. Jack Briner and Western Sierra Bancorp.

10.90		Stock Option Agreement dated March 25, 2004 between Mr. Doug Nordell and Western Sierra Bancorp.

10.91		Stock Option Agreement dated March 25, 2004 between Mr. Wayne Koonce and Western Sierra Bancorp.

10.92		Western Sierra Bancorp 2004 Stock Option Plan is included as an exhibit in the Registrant’s Definitive Proxy Statement for 2004 and is incorporated herein by this reference.

11.1		Statement re: Computation of earnings per share is included in Note 3 to the financial statements.

31.1		Section 302 Certification by Anthony J. Gould

31.2		Section 302 Certification by Gary D. Gall

32.1		Section 906 Certification by Anthony J. Gould.

32.2		Section 906 Certification by Gary D. Gall.

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

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

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

(b). Reports on Form 8-K

April 21, 2004:		Press Release results for the1st quarter of 2004
May 5, 2004:		Slide presentation for D.A. Davidson & Co. Financial Services Conference and Annual Shareholders meeting.

SIGNATURES

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

WESTERN SIERRA BANCORP (Registrant)

Date: August 6, 2004
		/s/ GARY D. GALL
		Gary D. Gall
		President/Chief Executive Officer


		/s/ ANTHONY J. GOULD
		Anthony J. Gould
		Executive Vice President/Chief Financial and Accounting Officer