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

FORM 10-Q

Commission file number 0-25979

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

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

        As of November 10, 2002 there were 3,985,405 shares outstanding of the Registrant's common stock.

WESTERN SIERRA BANCORP & SUBSIDIARIES
Index to Form 10-Q

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Western Sierra Bancorp and Subsidiaries
Consolidated Balance Sheet (Unaudited)

See notes to consolidated financial statements.

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

See notes to consolidated financial statements.

4

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

See notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Basis of Presentation

        The accompanying unaudited condensed consolidated financial statements of Western Sierra Bancorp and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of Management, all adjustments (which consist solely of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods presented have been included. These interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes contained in the Company's 2001 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), Western Sierra Statutory Trust I and Western Sierra Statutory Trust II. All significant inter-company balances and transactions have been eliminated. Operating results for the three and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. Certain amounts in the consolidated financial statements for the year ended December 31, 2001 may have been reclassified to conform to the presentation of the consolidated financial statements in 2002.

2.    Earnings per Share

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

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3.    Stock Repurchase 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 5,000 shares at an average price of approximately $21.00 under the plan through September 30, 2002.

        On June 21, 2001, the Company announced that its Board of Directors approved a plan to repurchase up to 5% (or 160,000 shares) of the Company's common stock. During the year 2001, the Company completed its repurchased the entire allotment of 160,000 (111,500 in the quarter ending and 163,000 in the nine months September 30, 2001) at an average price of $14.84 per share.

4.    Acquisition of Central California Bank

        On April 1, 2002, pursuant to the Agreement and Plan of Reorganization dated November 15, 2001, Central California Bank ("Central") was acquired by the Company through a merger and tax-free reorganization whereby Central became a wholly-owned subsidiary of the Company. The Company believes that its shareholders will benefit from the merger because the business potential for the combined companies exceeds what each company could accomplish individually. Both the Company and Central provide similar and complementary financial products and services in the Northern California market. As of March 31, 2002, Central had $68.1 million in total assets, $46.5 million in net loans, and $61.5 million in deposits.

        The total consideration paid to Central's shareholders was approximately $8.6 million, which was comprised of $3.6 million in cash and 252,271 shares of the common stock valued at approximately $5.0 million based on the market value of the Company's stock. The funds required to pay the cash portion of the consideration were obtained by the Company through the issuance of $10 million of trust preferred securities in December 2001 (Western Sierra Statutory Trust II). The accompanying unaudited consolidated financial statements include the accounts of Central since April 1, 2002.

        The purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the estimated fair value of the net assets acquired was $2.4 million, which was recorded as goodwill. Assets acquired included a core deposit intangible of $1.9 million that will be amortized using the straight-line method over a period of ten years. Prospectively, goodwill will be evaluated for possible impairment under the provisions of SFAS No. 142. Based upon an initial evaluation as of September 30, 2002, no impairment exists. In Management's opinion, the goodwill in this transaction arose from the synergies associated with the merger.

        The following supplemental pro forma information discloses selected financial information for the periods indicated as though the merger had been completed as of the beginning of each of the periods being reported. Pro forma net income for the nine months ended September 30, 2002 includes a nonrecurring charge of approximately $425,000, on an after-tax basis, representing Central's merger-related expenses and the cost of retiring the outstanding stock options of Central at March 31, 2002. Dollars are in thousands except per share data.

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5.    Recent Accounting Pronouncements

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This Statement is effective for fiscal years beginning after May 15, 2002. Adoption of this statement is not expected to have a material effect on the Company's consolidated financial statements.

        In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This Statement is effective for exit or disposal activities are initiated after December 31, 2002. Adoption of this statement is not expected to have a material effect on the Company's consolidated financial statements.

        On October 1, 2002, the FASB issued FASB Statement No. 147, Acquisitions of Certain Financial Institutions. This statement, which provides guidance on the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises (the Board has a separate project on its agenda that will provide guidance on the accounting for transactions between mutual enterprises).

        The provisions of Statement 147 reflect the following conclusions:

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The excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired in a business combination represents goodwill that should be accounted for under FASB Statement No. 142, Goodwill and Other Intangible Assets. Thus, the specialized accounting guidance in paragraph 5 of FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, will not apply after September 30, 2002. If certain criteria in Statement 147 are met, the amount of the unidentifiable intangible asset will be reclassified to goodwill upon adoption of that Statement.



•

Financial institutions meeting conditions outlined in Statement 147 will be required to restate previously issued financial statements. The objective of that restatement requirement is to present the balance sheet and income statement as if the amount accounted for under Statement 72 as an unidentifiable intangible asset had been reclassified to goodwill as of the date Statement 142 was initially applied. (For example, a financial institution that adopted Statement 142 on January 1, 2002, would retroactively reclassify the unidentifiable intangible asset to goodwill as of that date and restate previously issued income statements to remove the amortization expense recognized in 2002). Those transition provisions are effective on October 1, 2002; however, early application is permitted.



•

The scope of FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, is amended to include long-term customer-relationship intangible assets such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets.

        The adoption of Statement No. 147 is not expected to have a material effect on the Company's consolidated financial statements.

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5.    COMPREHENSIVE INCOME

        Comprehensive income includes net income and other comprehensive income. The Company's only sources of other comprehensive income are 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 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:

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



2.

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



3.

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.



4.

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



5.

Asset/Liability matching risks and liquidity risks.



6.

Volatility and devaluation in the securities markets.

        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, 2001 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, 2001 to September 30, 2002. Also discussed are significant trends and changes in the Company's results of operations for the three months and nine months ended September 30, 2002, compared to the same periods in 2001. 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 statements have been restated to reflect the combined operations of the Company, Roseville 1st National Bank, Lake Community Bank and Sentinel Community Bank. Sentinel Community Bank was 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 $3.6 million in cash and 252,271 shares of the Company's stock. This transaction was accounted for under purchase accounting, which

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resulted in a preliminary purchase price allocation of $1.8 million in goodwill and $1.9 million in core deposit premium intangible assets. As required under purchase accounting, no prior period financial statements have been restated to reflect the combined operations of Central California 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, 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 and 9050 Fairway Drive, Roseville, 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.

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

        Sentinel Community was incorporated under the laws of the State of California on December 24, 1980, and commenced operations on April 2, 1982. The corporation was formed as a State Chartered Savings and Loan Association. Sentinel Community converted its charter to a Federal Savings and Loan Association on June 9, 1989. In October of 1996, Sentinel Community changed its name to Sentinel Community Bank, while remaining chartered as a Federal Savings and Loan Association. Sentinel Community Bank was merged into Western Sierra National Bank in May 2000, and transferred to Central California Bank on July 15, 2002.

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

        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 is not a member of the Federal Reserve System. 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 14685 Mono Way, Sonora, California, and its branches located at 181 S. Washington St., Sonora, CA, 400 E. Olive Ave, Turlock, CA 3700 Lone Tree Way, Antioch, CA, 229 South Washington Street, Sonora, 13753-A Mono Way, Sonora, 18711 Tiffeni Drive, Twain Harte, Granite Bay, 22712 Main Street, Columbia and a loan production office located at 3400 Tully Rd., #B, Modesto, CA. Central California does not have any affiliates or subsidiaries.

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        In July 2001 and December 2001 respectively two trusts, Western Sierra Statutory Trust I and Western Sierra Statutory Trust II, were established as wholly owned subsidiaries of the Company for the purpose of issuing and holding Trust Preferred Securities.

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

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

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

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

        Employees.    At September 30, 2002, the Company and its subsidiaries employed 240 persons on a full-time equivalent basis. The Company believes its employee relations are excellent.

Financial Condition

        The Company increased total assets from $510.6 million at December 31, 2001 to $659.5 million at September 30, 2002, an increase of $148.9 million or 29%. The two primary components of asset growth were Loans, which grew $121.1 million, and Cash and Equivalents, which increased $16.1 million. Asset growth was primarily funded by growth in deposits of $125.9 million and growth in other borrowings of $9.6 million.

        A portion of the growth the Company has experienced since December 31, 2001 was a result of the acquisition of Central California Bank in April 2002. Pursuant to purchase accounting, this acquisition contributed approximately $48 million in loans, $68 million in total assets and $62 million in deposits. These balances are not reflected in the Company's December 31, 2001 balance sheet—had they been included, the Company's internal asset growth would have been approximately $80.9 million or an increase of 15.8% during the nine months ended September 30, 2002.

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Results of Operations

        The Central California Bank ("CCB") acquisition effective April 1, 2002 was accounted for under purchase accounting. Pursuant to purchase accounting rules, the operating results below include the effect of this acquisition for the nine months ended September 30, 2002, but prior periods have not been restated to reflect CCB's operating results during those periods. Please refer to the proforma operating table in footnote 4 of the unaudited consolidated financial statements included in Item 1 of this report.

        The Company reported net income of $2.07 million for the three months ended September 30, 2002 (or $0.50 per share, diluted) compared to $1.42 million (or $0.37 per share, diluted) for the same period in 2001. The quarterly earnings represent an increase of $648,000 or a 45.7% increase in net income and a 35% increase in diluted earnings per share.

        The Company reported net income of $5.84 million for the nine months ended September 30, 2002 (or $1.45 per share, diluted) compared to $3.867 million (or $1.00 per share, diluted) for the same period in 2001. The nine-month earnings represent an increase of $1.97 million or a 51% increase in net income and a 45% increase in diluted earnings per share. The primary factors contributing to the increase in operating results during the third quarter of 2002 and nine months ended September 30, 2002 as compared to the third quarter of 2001 and nine months ended September 30, 2001 include:

1.

An increase in net interest income of $2.09 million or 37% over the same quarter in the previous year and by $5.13 million or 32% nine month year-to-date over the same period in the previous year. The net increase in both periods is due to an overall increase in average earning assets, including approximately $63 million in earning assets acquired in the CCB transaction, and a shift to higher yielding assets (primarily average loans) from lower yielding assets (primarily average Federal funds). Additionally, there was a transition from higher paying liabilities (primarily average certificates of deposit) to lower paying or non-interest paying liabilities (primarily average savings and demand deposit accounts).



2.

An increase in other income, primarily service fees on deposit accounts and gains on the sale and packaging of residential mortgage loans. Other income increased $687,000 or 48% and $1.3 million or 33% over the third quarter and nine month year-to-date totals in the previous year. These increases are primarily due to a program initiated in late 2001 which raised the banks' service fees to market level, more successful collection of these fees and a decreasing interest rate environment which has resulted in borrowers refinancing home mortgage loans. These long-term (greater than five years) first deeds of trust are generally not held on the subsidiary banks' books, but are sold, generally at a gain, in the secondary mortgage market.



3.

The Company has decreased its effective tax rate by deploying a series of tax strategies including the purchase of tax-exempt municipal bonds, lending within enterprise zones and the establishment of a real estate investment trust ("REIT") in the first quarter of 2002. These strategies have lowered the Company's effective tax rate to 30.2% and 29.0% in the three and nine-month periods ended September 30, 2002 as compared to 36.1% and 36.7% in the same periods in 2001. This has resulted in tax savings of $127,000 and $503,000 in the three and nine-month periods ended September 30, 2002 as compared to the same periods in 2001 (after an after-tax deduction for certain related legal and accounting fees of $68,000 and $182,000 in the third quarter and nine month period in 2002).

        The factors above were offset in part by:

1.

An increase in loss provisions of $251,000 and $841,000 in the quarter ended September 30, 2002 and the nine months ended September 30, 2002, respectively, as compared to the same periods in 2001. Additional provisions were recorded as a result of growth in loans

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outstanding. The percentage of loan loss reserves to gross loans increased just .03% to 1.34% at September 30, 2002 as compared to 1.31% at September 30, 2001.

2.

Total operating expenses increased $1.79 million or 39% and $3.49 million or 26% in the quarter and nine months ended September 30, 2002, respectively. The increase in operating expenses was a result of the absorption of Central California Bank costs as the entity was consolidated and costs associated with growth and general expansion in the Company's market place. Included in operating expenses was amortization of core deposit and other intangibles of $62,000 and $138,000 in the quarter and nine months ended September 30, 2002 as compared to $14,000 and $43,000 in the same periods in 2001.

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 September 30, 2002, interest income on a tax equivalent basis increased by $1.46 million to $10.5 million or 16.2% over the same period in 2001. Interest expense on deposit accounts and borrowings decreased $704,000 or 21.5% over the same three-month period ended September 30, 2001. Average earning assets yielded (on a fully tax equivalent basis) 6.94% versus 7.78% a year ago, partly offset by a decrease in cost of funds where the average cost of funds decreased to 2.21% from 3.57% a year ago. Net interest income (on a tax equivalent basis) increased $2.2 million or 37.8% to $7.89 million. Net interest margin increased 28 basis points to 5.23% from 4.95% for the same three-month period a year ago. Net interest margin was bolstered by both rate and volume during the period. Specifically, the improvement in net interest margin was 95% attributable to volume and just 5% as a result of rate changes.

        For the nine months ended September 30, 2002, interest income on a tax equivalent basis increased by $1.65 million to $28.9 million or 6% over the same period in 2001. Interest expense on deposit accounts and borrowings decreased $3.68 million or 33% over the same nine-month period ended September 30, 2001. Average earning assets yielded 7.15% versus 8.20% a year ago, partly offset by a decrease in cost of funds where the average cost of funds decreased to 2.33% from 4.15% a year ago. Net interest income (on a tax equivalent basis) increased $5.3 million or 32.7% to $21.6 million. Net interest margin increased 45 basis points to 5.33% from 4.88% for the nine-month same period a year ago. Net interest margin was bolstered by both rate and volume during the period. Specifically, the improvement in net interest margin was 87% attributable to volume and just 13% as a result of rate changes.

        Improvement in net interest margin was also driven by growth in non-interest demand deposits ("DDA's"). Non-interest DDA's averaged $132.3 million in the quarter ended September 30, 2002 and $115.8 million for the nine months ended September 30, 2002 as compared to $93.4 million and $86.7 million for the same three and nine month period in 2001. Central California Bank's contributed $34 million in average balances non-interst DDA balances during the third quarter of 2002.

        The following tables set forth the Company's daily average balance sheet, related interest income or expense and yield or rate paid for the periods indicated.

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

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

Analysis of Changes in Net Interest Income