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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

or

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

Commission file number: ______

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

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

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

Common Stock
(Title of Class)

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes     X         No ___

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

Yes     X         No ___

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

The aggregate market value of common stock held by non-affiliates was $499,646,170 on June 30, 2003 (the last business day of our most recently completed second quarter), based on the sale price of such stock on such date as reported by the NASDAQ National Market System.

As of March 1, 2004, there were 28,460,278 shares of common stock outstanding.

Documents Incorporated by Reference:

Portions of the 2003 Annual Report to Shareholders are incorporated by reference in Part II hereof. Portions of Umpqua's definitive proxy statement for the 2004 annual meeting of shareholders (to be filed hereafter) are incorporated by reference in Part III hereof.

PART I

Item 1. Business

Introduction

     Umpqua Holdings Corporation, an Oregon corporation, is a financial holding company formed in March 1999. At that time, we acquired 100% of the outstanding shares of South Umpqua Bank, an Oregon state-chartered bank formed in 1953. We became a financial holding company in March 2000 under the Gramm-Leach-Bliley Act.

     Through a succession of mergers with VRB Bancorp ($348 million), Linn-Benton Bank ($119 million) and Independent Financial Network, Inc. ($440 million) in 2000 and 2001, we expanded the company's footprint in southern Oregon, the Oregon coast and north along the I-5 corridor in the Willamette Valley.

     On November 15, 2002, we completed a merger with Centennial Bancorp ("Centennial"), the holding company of Centennial Bank. Centennial Bank operated 22 branches in Eugene, Springfield, Cottage Grove, and Salem, Oregon, and in the Portland, Oregon metropolitan area including Vancouver, Washington. The Centennial merger increased assets by about $840 million and Centennial was successfully integrated into our operations during 2003.

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

     We are one of the most innovative community banks in the United States, combining a retail product delivery approach with an emphasis on quality-assured personal service. We are the largest community bank in the state of Oregon, currently operating stores in Benton, Clackamas, Coos, Curry, Douglas, Jackson, Josephine, Lane, Lincoln, Linn, Marion, Multnomah and Washington Counties in Oregon and in Clark County, Washington. At December 31, 2003, we had assets of over $2.9 billion and deposits of approximately $2.4 billion.

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

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

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

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Business Strategy

     Our objective is to become the leading community-oriented financial services retailer throughout the Pacific Northwest. We plan to expand our market from Seattle to Sacramento, primarily along the I-5 corridor. We intend to continue to grow our assets and increase profitability and shareholder value by differentiating ourselves from competitors through the following strategy:

      Capitalize On Innovative Product Delivery System. Our philosophy has been to develop an environment for the customer that makes the banking experience an enjoyable one. With this approach in mind, Umpqua Bank developed a unique store concept that offers "one-stop" shopping and that includes distinct physical areas or boutiques, such as a "serious about service center," an "investment opportunity center" and a "computer café," which make Umpqua Bank's products and services more tangible and accessible. We opened Umpqua Bank's next generation prototype store in April 2003 in Portland, Oregon's Pearl District. This new store was an immediate success, building to over $28 million in deposits at the end of December 2003. Also in 2003, in Eugene, we remodeled the Eugene Main store and we relocated and rebuilt the Valley River store, c ompleting a project started by Centennial, to fit this new prototype and we plan to continue remodeling existing stores in urban locations to further our retail vision.

     During 2004, we plan to build or begin construction on five new stores: two in the Medford area, one in the Bend area and two in the Portland area, each of which will incorporate features of our next generation prototype store.

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

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

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

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

     Umpqua Bank is now the largest community bank in Oregon and we rank among the largest community banks headquartered in the Pacific Northwest. From time to time, we have discussions with other institutions about the possibility of acquiring other banks. We plan on pursuing further acquisition discussions and opening new stores to expand into other markets.

Marketing and Sales

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

     Media Advertising. Over the years, we have introduced several comprehensive media advertising campaigns. These campaigns augment our goal of strengthening the "Umpqua Bank" brand image and heightening public awareness of

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our innovative product delivery system. Campaign slogans such as "The Banking Revolution," "Expect the Unexpected," and "Different for a Reason" were designed to showcase our innovative style of banking, as well as our commitment to providing quality service to our customers. Our campaigns utilize various forms of media, including television, radio, print, billboards and direct mail flyers and letters.

      Retail Store Concept. As a financial services provider, we believe that the store environment is critical to successfully market and sell products and services. Retailers traditionally have displayed merchandise within their stores to encourage customers to purchase their products. Purchases are made on the spur of the moment due to the products' availability and attractiveness.Umpqua Bank believes this same concept can be applied to financial institutions and accordingly displays financial services and products through tactile merchandising within our stores. Unlike many financial institutions whose strategy is to discourage customers from visiting their facilities in favor of ATMs or other forms of electronic banking, we encourage customers to visit our stores, where they are greeted by well-trained sales associates, and encouraged t o browse and to make "impulse buys." The new prototype store includes features like wireless laptop computers customers can check out, opening rooms with fresh fruit and refrigerated beverages, and innovative products like the Community Interest Account that pays interest to non-profit organizations. We host a variety of after-hours events, from poetry readings to seminars on how to build an art collection.

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

      Sales Culture. Although a successful marketing program will attract customers to visit our stores, a sales environment and a well-trained sales team are critical to selling our products and services. We believe that our sales culture has become well established throughout the organization due to the unique facility design and our ongoing training of sales associates on all aspects of sales and service. We train our sales associates in our own "World's Greatest Bank University" and pay commissions for the sale of Umpqua Bank's products and services. Construction is complete on our new training center facility in Roseburg and it will be the site of our 2004 annual shareholder meeting. This sales culture has helped transform us from a traditional community bank to a nationally recognized marketing company focused on selling financial prod ucts and services.

Products and Services

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

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

      Retail Investment Services. Strand Atkinson, our retail brokerage firm, provides a full range of brokerage services including equity and fixed income products, mutual funds, annuities, options, retirement planning, and money management services. Additionally, Strand Atkinson offers life insurance, disability insurance and medical supplement policies. At the end of 2003, Strand Atkinson had five stand-alone retail brokerage offices with 54 series 7 licensees as sales professionals. As of December 31, 2003, Strand Atkinson offices staffed by licensed Strand professionals were located in eight Umpqua Bank stores. Most Umpqua Bank stores have "Investment Opportunity Centers" that promote Strand Atkinson's products and services. Licensed Strand Atkinson professionals will make special arrangements to meet customers in any of our Umpqua Bank stores.

      Private Client Services. Our Private Client Services division provides integrated banking and investment products and services by coordinating the offerings of Umpqua Bank and Strand Atkinson in serving high value customers. The

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"Prosperity" suite of products includes 24-hour access to a private client executive, courier service, premium rates on deposit and loan products, brokerage accounts and portfolio management.

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

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

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

Competition

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

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

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

Market Area

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

     Many of our stores are located in markets that have experienced growth below statewide averages and the economy of Oregon is particularly sensitive to changes in the demand for forest and high technology products. Currently, Oregon

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suffers from one of the highest unemployment rates in the nation as a lingering result of the recent slowdown in those business segments.

Employees

     As of December 31, 2003, we had a total of 903 full-time equivalent employees at Umpqua Bank plus 75 full-time equivalent employees at Strand Atkinson. None of the employees are subject to a collective bargaining agreement. We believe we have a good relationship with our employees.

Government Policies

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

Supervision and Regulation

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

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

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

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

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

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

     The Federal Reserve Act and related Regulation W limit the amount of certain loan and investment transactions between Umpqua Bank and its affiliates, require certain levels of collateral for such loans, and limit the amount of advances to third parties that may be collateralized by the securities of Umpqua or its subsidiaries. The GLB Act

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requires that certain transactions between Umpqua Bank and its affiliates may be on terms substantially the same, or at least as favorable to Umpqua Bank, as those prevailing at the time for comparable transactions with or involving nonaffiliated companies or, in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies. Umpqua and its subsidiaries have adopted an Affiliate Transactions Policy and have entered into an Affiliate Tax Sharing Agreement.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     The SEC has adopted regulations to implement various provisions of the Sarbanes-Oxley Act, including disclosures in periodic filings pursuant to the Exchange Act. Also, in response to the Sarbanes-Oxley Act, the NASD adopted new standards for listed companies. While we believe the Sarbanes-Oxley Act will increase our reporting and compliance expenses, we do not believe that the Act will have a material adverse effect on our business and operations.

Item 2. Properties

     Our main office and Strand Atkinson's main office are located in Portland, Oregon. Umpqua Bank's main office is in Roseburg, Oregon. We conduct our business through Umpqua Bank's financial stores and Strand Atkinson's five stand-alone offices throughout our market area. As of December 31, 2003, Umpqua Bank operated 57 full-service financial stores and seven limited service retirement community stores. Our primary facilities are listed below:

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     Six of our Portland stores and our Lake Oswego store are located in retirement community centers that serve only residents of the center. Our retirement community stores are located within managed care facilities and operate with limited hours to meet the needs of those residents. All of the stores except our retirement community stores have automated teller machines and most have drive-up windows. Lease terms range from 1 to 50 years with varying renewal options. Our stores range in size from approximately 1,100 square feet to slightly more than 6,000 square feet. Some of our stores are located in larger buildings that house administrative back-room operations. We conduct data processing and other administrative operations in other leased and owned facilities.

     We completed construction of our Roseburg training facility in early 2004. We are constructing a new data center in Gresham. We currently operate two data centers, one in Medford at the Poplar store and one near the Portland airport. Additionally, we still retain some network data center services in Roseburg. All of these facilities will be relocated into the new data center in Gresham.

     As of December 31, 2003, Strand Atkinson leased stand-alone offices in Portland, Salem, Eugene and Medford, Oregon, and Kalama, Washington. As of that date, Strand Atkinson operated offices in Umpqua Bank stores in the following cities: Roseburg, Central Point, Coos Bay, Eugene, Grants Pass and Salem, Oregon, and Vancouver, Washington. We lease Umpqua's corporate headquarters in Portland, Oregon.

Item 3. Legal Proceedings

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

Item 4. Submissions of Matters to a Vote of Securities Holders

10

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

STOCK PRICE AND DIVIDEND HISTORY

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

As of March 4, 2004, our common stock was held of record by approximately 2,298 shareholders, a number that does not include beneficial owners who hold shares in "street name", or shareholders from previously acquired companies that have not exchanged their stock.

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

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

Item 6. Selected Financial Data

The response to this item is incorporated by reference to Umpqua's 2003 Annual Report to Shareholders, see

Financial Highlights, pages 3 through 19.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation

     The response to this item is incorporated by reference to Umpqua's 2003 Annual Report to Shareholders, pages 2 through 19.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The information called for by this item is incorporated by reference to Umpqua's 2003 Annual Report to Shareholders, see Market Risk, pages 17 through 19.

Item 8. Financial Statements and Supplementary Data

     The financial statements called for by this item are incorporated by reference to Umpqua's 2003 Annual Report to Shareholders, pages 20 through 50.

Item 9. Changes in and Disagreements with Accountants

Not applicable.

Item 9A. Controls and Procedures

11

     On a quarterly basis, we carry out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15b of the Securities Exchange Act of 1934. Our Disclosure Control Committee operates under a charter that was approved by our Audit and Compliance Committee. Most recently, in February 2004, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings.

     Although we change and improve our internal controls over financial reporting on an ongoing basis, we do not believe that any such changes occurred in the fourth quarter 2003 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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

12

PART III

Item 10. Directors and Executive Officers of the Registrant

     The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2004 annual meeting of shareholders scheduled for April 29, 2004, under the captions "Election of Directors" and "Executive Officers."

Item 11. Executive Compensation

     The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2004 annual meeting of shareholders scheduled for April 29, 2004, under the caption "Executive Compensation."

Item 12. Security Ownership of Certain Beneficial Owners and Management

     The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2004 annual meeting of shareholders scheduled for April 29, 2004, under the caption "Security Ownership of Management and Others."

Item 13. Certain Relationships and Related Transactions

     The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2004 annual meeting of shareholders scheduled for April 29, 2004, under the caption "Transactions with Directors and Officers."

Item 14. Principal Accounting Fees and Services

     The response to this item is incorporated by reference to Umpqua's Proxy Statement for the 2004 annual meeting of shareholders scheduled for April 29, 2004, under the caption "Independent Auditors".

13

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

14

Signatures

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Umpqua Holdings Corporation has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on March 12,  2004.

15

16

EXHIBIT 10.9

UMPQUA HOLDINGS CORPORATION

Addendum to
Supplemental Executive Retirement Plan
for
Ray Davis

     The undersigned are parties to a Supplemental Executive Retirement Plan dated effective July 1, 2003 (the "SERP"). After the execution of the SERP, a question arose regarding the method by which the amount of the Account was to be determined. The following clarifies the intent of the parties and is consistent with the pro forma schedules provided at the time the SERP was approved and executed.

    The parties agree to replace the definition of "Account" set forth in Section 2.1 of the SERP with the following:

"Account" means the separate bookkeeping account established for Participant on the books of Umpqua for the purpose of recording the amounts of supplemental retirement benefits accrued for Participant pursuant to the provisions of this Plan as if the Plan were accounted for in accordance with Statement of Financial Accounting Standards No. 87.

Dated effective July 1, 2003.

Umpqua Holdings Corporation

By: /s/ William Lansing
Its: Chairman, Compensation Committee

/s/Raymond P. Davis
Raymond P. Davis, Participant

Annual Report Page 1

Management's Discussion & Analysis Of Financial Condition & Results Of Operations

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that expressly or implicitly predict future results, performance or events are forward-looking statements. The words "anticipate," "believe," "expect", "estimate," and "intend" and words or phrases of similar meaning, are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause or contribute to those differences include, but are not limited to, the following: general economic conditions, either nationally or regionally that could result in increased loan losses, interest rate fluctuations, pricing pressure and other competitive factors, potential delays or problems with integrating prior acquisitions, the ability to a ttract new deposits and loans, changes in legal or regulatory requirements, competition in the retail brokerage industry and general stock market conditions, changes in technology and other factors described in Exhibit 99.1 to our Form 10-K and other Company reports and statements. Readers are encouraged to review the notes that accompany this report and are cautioned not to place undue reliance on forward-looking statements. The Company does not intend to update these forward-looking statements. All written and oral forward-looking statements attributable to the Company and/or persons acting on its behalf are expressly qualified by this disclosure.

OVERVIEW

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

The Company enjoyed another successful year in 2003 highlighted by the following:

• Completed the integration of Centennial Bancorp ("Centennial" or "CEBC") into the operations and culture of the Company. All integration steps were completed on time and without customer disruption. Signage, data processing conversion and personnel integration to the Company's culture were completed.
  
• Achieved a 38% reduction in non-performing assets through active credit management of problem loans. The allowance for credit losses was $25.4 million at December 31, 2003, or 1.27% of total loans and leases and 229% of non-performing loans.
  
• Achieved 13% growth in loans and leases, 13% growth in deposits and 16% growth in total assets. This growth was 100% internally generated as there were no acquisitions in 2003. Total assets, loans and leases, and deposits were $2.96 billion, $2.00 billion and $2.38 billion at December 31, 2003, respectively.
  

· Opened our new concept store to rave reviews in Portland in March 2003. Deposits totaled $28.7 million in this new store at December 31, 2003, nine months later.

· Issued $20 million in trust preferred securities to strengthen regulatory capital.

The Company also faced significant challenges in 2003, the most critical of which was the compression of the net interest margin. Market interest rates remained at historically low levels throughout 2003 which continued to put pressure on the yield on interest-earning assets as higher yielding assets matured and were replaced with lower-yielding assets and existing customers refinanced their borrowings. In response to this challenge, management aggressively managed down the cost of its interest-bearing liabilities.

ACQUISITIONS

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

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

BROKERAGE SUBSIDIARY

Strand, Atkinson, Williams & York, Inc. ("Strand"), the Company's full-service retail brokeragesubsidiary, operates through offices in Portland, Eugene, Medford and Salem, Oregon and Kalama, Washington. Additionally, Strand maintains a full-time presence in eight of the Bank's stores. The firm managed over $2 billion in client assets at December 31, 2003 and produced over $9.78 million in gross revenue during 2003.

Annual Report Page 2

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

The allowance for credit losses is established to absorb known and inherent losses attributable to loans and leases outstanding. The adequacy of the allowance is monitored on an ongoing basis and is based on management's evaluation of numerous factors.These factors include the credit quality of the current loan portfolio, the trend in the loan portfolio's risk ratings, current economic conditions, loan concentrations, loan growth rates, past due and non-performing trends, evaluation of specific loss estimates for all significant problem loans, historical charge-off and recovery experience and other pertinent information. Approximately 69% of the Company's loan portfoliois secured by real estate and a significant depreciation in real estate values in Oregon would cause management to increase the allowance for credit losses.

Estimates are used in the presentation of the investment securities portfolio and these estimates impact the presentation of the Company's financial condition and results of operations. Many of the securities included in the securities portfolio are purchased at a premium or discount. The premiums or discounts are amortized or accreted over the life of the security. For mortgage-related securities, including Collateralized Mortgage Obligations, ("CMOs"), the amortization or accretion is based on estimated lives of the securities. The lives of the securities can fluctuate based on the amount of prepayments received on the underlying collateral of the securities. The Company uses estimates for the lives of these mortgage-related securities based on information provided by third parties. The Company adjusts the rate of amortization or accretion regularly to reflect changes in the estimated lives of these securities.

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

At December 31, 2003 the Company had approximately $160 million in goodwill and other intangible assets as a result of business combinations. The Company adopted Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, on January 1, 2002. In accordance with the standard, goodwill and other intangibles with indefinite lives are no longer being amortized but instead will be tested for impairment on an annual basis or more frequently if impairment indicators arise. Management has completed impairment testing for the Company's intangibles with indefinite lives and determined that there was no impairment.

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

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

FINANCIAL HIGHLIGHTS

The Company earned $34.1 million for the year ended December 31, 2003, a 155% increase over the same period in 2002. A significant portion of this increase was due to the Centennial acquisition that occurred in November 2002. Results for 2002 were impacted by only 1 ½ months of Centennial operations compared with a full year for 2003. Diluted earnings per share rose to $1.19 for the year ended December 31, 2003 compared with $1.03 for the year ended December 31, 2002. Return on average shareholders' equity was 11.24% in 2003 compared with 13.58% in 2002. Return on tangible equity (Net income/(average equity less average intangible assets)) was 23.87% for 2003 compared with 18.33% in 2002.

Note: We calculate return on tangible equity, which may be a non-GAAP financial measure. Generally a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (GAAP). We believe our disclosure of return on tangible equity provides a useful means of comparing our performance with other institutions without regard to differences in the respective amount of tangible assets.

Annual Report Page 3

Total loans and leases reached a record $2.00 billion at December 31, 2003 compared with $1.78 billion at December 31, 2002.  At the same time, total deposits reached a record $2.38 billion compared with $2.10 billion at December 31, 2002.

RESULTS OF OPERATIONS

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

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth the Company'sunaudited consolidated financial data regarding operations for each quarter of 2003 and 2002. This information, in the opinion of management, includes all adjustments necessary, consisting only of normal and recurring adjustments, to state fairly the information set forth therein. Certain amounts previously reported have been reclassified to conform with current presentation. These reclassifications had no net impact on the results of operations.

Annual Report Page 4

Annual Report Page 5

AVERAGE BALANCES AND AVERAGE RATES EARNED AND PAID

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

Annual Report Page 6

ANALYSIS OF CHANGES IN INTEREST DIFFERENTIAL

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

NET INTEREST INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

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

Net interest income on a tax-equivalent basis for the year ended December 31, 2003 was $114.5 million, a $36.5 million increase over the same period in 2002. Interest income on a tax-equivalent basis increased to $143.4 million in 2003 compared with $101.8 million in 2002. The increase was primarily the result of a $910 million increase in the volume of earning assets, offset by a 0.94% decline in the yield on earning assets. The increase in average earning assets was primarily related to loans and leases which were up $757.7 million and taxable investment securities which were up $169.1 million. The growth in loans was due to internally generated growth and the acquisition of Centennial in November 2002.

Centennial had total loans and leases of $643 million at the time of the acquisition. The growth in taxable investment securities was due to purchases of investment securities and the acquisition of Centennial. Centennial had $97.0 million of investment securities at the date of the acquisition. The decline in the yield on earning assets was primarily the result of the decline in the yield on loans and leases and taxable securities. The yield on loans and leases declined 0.88% from 2002 to 6.63% for 2003. This decline was due to lower market yields in 2003 compared with 2002, resulting in lower yields on new loan originations and refinancings. The Company uses prepayment penalties and rate floors to mitigate the risk of refinancings. At December 31, 2003 the Company had approximately $636 million in loans with floors. Of this amount, approximately $276 million have reference rates below their floor rates and therefore would not immediately reprice at the first rate increase. The yield on taxable securities declined 1.78% compared with 2002 to 3.55%. This decline was primarily the result of accelerated premium amortization on mortgage related securities and the lower rate environment that resulted in new investments yielding less than maturing investments. Prepayments on mortgage related securities accelerated in 2003 due to historically low mortgage rates and as a result premiums paid on those securities were amortized on an accelerated basis. Accelerated premium amortization totaled $1.2 million in 2003. Interest expense for 2003 increased $5.1 million over 2002 to $28.9 million. The increase was due to the increase in the average volume of interest-bearing liabilities, offset by a decrease in the rates paid. The volume increase was due primarily to increases in interest-bearing checking and savings accounts as well as increases in time deposits, federal funds purchased, term debt and notes payable for trust preferred securities. The increase in cus tomer deposits was due to growth and the acquisition of Centennial. At the time of the acquisition, Centennial had interest-bearing deposits of approximately $567 million. Average notes payable on junior subordinated debentures

Annual Report Page 7

and trust preferred securities increased due to $75 million of issuances in the third and fourth quarters of 2002 that were outstanding for all of 2003. Additionally, the Company issued another $20.6 million in notes payable in December 2003. The rates paid on interest-bearing liabilities in 2003 decreased 0.54% compared with 2002 due primarily to decreases in rates paid on time deposits and interest-bearing checking and savings accounts. These declines were due to aggressive downward repricing of deposits in response to the decline in market rates and decreases in the margin. As a result of the changes discussed there was a decline of 0.53% in the net interest margin.

Comparing 2002 to 2001, there was a $12.4 million increase in taxable equivalent interest income. This increase was driven primarily by increases in the volume of earning assets, offset by a decrease in the average yield. The average volume of earning assets increased $337.3 million during 2002. The earning asset increase was driven primarily by growth in average loans and leases, which were up $319.1 million compared with 2001. The overall yield on earning assets decreased by 1.02% during 2002 compared to 2001 due primarily to a decrease in the average yield on the Company's loan portfolio. The average yield on loans decreased from 8.73% in 2001 to 7.51% during 2002. This decrease was attributable to variable rate loan repricings and lower yields on new loan originations and refinancings. Variable rate loan repricings are based on market rates, primarily the Prime and U.S. Treasury rates. The Prime rate declined 4.75% during 2001 and another 0.50 % in 2002. The five and ten year constant maturity U.S.

Treasury rates declined 1.36% and 1.06%, respectively from December 31, 2001 to December 31, 2002. Interest expense for 2002 decreased to $23.8 million from $32.4 million in 2001 due to decreases in the average rates paid on interest-bearing liabilities offset by increases in the average volume of interest-bearing liabilities. The cost of interest-bearing liabilities decreased from 3.74% in 2001 to 2.12% in 2002 as management aggressively reduced deposit rates in response to the decrease in market rates. In the late third quarter and fourth quarter of 2002 the Company issued $75 million in Trust Preferred Securities in connection with the acquisition of Centennial. Rates on these securities reset quarterly based on LIBOR plus a spread. Also contributing to the improvement in net interest income was an increase in average non-interest-bearing sources of funds, which increased $132 million compared with 2001. The impact of the changes discussed abov e was an improvement in the net interest margin from 5.13% in 2001 to 5.38% in 2002.

PROVISION FOR CREDIT LOSSES FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

The provision for credit losses is management's estimate of the amount necessary to maintain an allowance for credit losses at a level that is considered adequate based on the risk of losses inherent in the loan and lease portfolio (see additional discussion under Credit Risk and Allowance for Credit Losses). Management believes the allowance has been maintained at an adequate level with the provision for credit losses expense of $4.55 million in 2003, $3.89 million in 2002 and $3.19 million in 2001. Charge-offs, net of recoveries, were $3.93 million, $2.23 million and $1.67 million for the years ended December 31, 2003, 2002 and 2001, respectively.

NON-INTEREST INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

Non-interest income was $39.04 million for 2003 compared with $28.34 million in 2002. Service fees, the largest component of non-interest income increased $3.916 million over 2002 due primarily to the inclusion of the Centennial deposit accounts and related service fees for all of 2003 and only 1 ½ months in 2002. Revenue generated from the Centennial accounts in 2003 was approximately $2.60 million. The remainder of the increase was due to growth in the number of deposit accounts, repricing of selected fees and fees on new products introduced in 2003. Mortgage banking income, the second largest component of non-interest income increased $2.40 million to $11.47 million. Mortgage banking income consists of origination fees, gains on sales of mortgage loans and servicing fees, net of mortgage servicing rights amortization and impairment charges. Mortgage originations totaled $863 million in 2003 compared with $778 million in 2002. Mortgage ba nking income was reduced by a $90,000 impairment charge for mortgage servicing rights in 2003. In 2002 there was a $1.22 million impairment charge. Brokerage commissions and fees increased $486,000 over 2002 due in part to the recovery in the equity markets. In 2003, the Company reported gains on the sales of investment securities of $2.16 million compared with a loss of $497,000 in 2002. In 2003 the Company sold its entire corporate bond portfolio of $3.7 million and $25 million of its municipal bond portfolio. The corporate sales were the result of the Company's desire to reduce its credit exposure in theinvestments portfolio and the municipal bond sales were the result of the Company's desire to capture gains on a portion of this portfolio. Loss on the sale of investment securities in 2002 was the result of corporate bond sales. Other income increased $1.25 million to $3.36 million in 2003. The increase was due to the $417,000 gain on the sale of the Company's credit card portfolio, increased cash surrend er value of Company owned life insurance and approximately $200,000 from the sale of excess property.

Comparing 2002 with 2001, total non-interest income increased $4.95 million primarily due to higher mortgage banking income offset by a loss on the sale of securities. Mortgage banking income increased due to increased mortgage activity as a result of a decline in mortgage interest rates. The loss on the sale of securities was a result of the sale of the majority of the Company's corporate bond portfolio.

NON-INTEREST EXPENSE FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

Non-interest expense consists principally of employees' salaries and benefits, occupancy costs, service fees, brokerage settlement fees, intangible amortization, supplies, marketing and communications expenses. Also included in non-interest expense are merger related expenses. One measure of a bank's ability to contain non-interest expense is the efficiency ratio. It is calculated by dividing total non-interest expense by the sum of taxable equivalent net interest income and non-interest income. The Bank's efficiency ratio was 57.66% in 2003 compared with 58.26% in 2002 and 68.36% in 2001. The efficiency ratio was high in 2001 due primarily to merger related costs.

Annual Report Page 8

Non-interest expense increased to $95.27 million in 2003 compared with $66.71 million in 2002. Non-interest expense was up in almost all categories due to the Centennial acquisition. The acquisition occurred in November 2002 and therefore only one and a half months of expense are included in 2002 compared with a full year in 2003. The largest component of this increase was salaries and benefits, which increased $15.97 million primarily as a result of the acquisition and personnel costs associated with increased mortgage originations. Additional increases were due to increased staffing levels at the Bank as a result of new store openings, additional lending staff and annual raises. Occupancy and equipment expense increased to $14.83 million in 2003 compared with $9.60 million in 2002. The primary reason for the increase was occupancy and equipment expenses associated with the Centennial acquisition. Marketing expense increased to $3.57 million in 2 003 compared with $1.84 million in 2002 as the Company sought to establish its brand in new markets that were a result of the Centennial acquisition. Services, which include expenses of attorneys, accountants, ATM network fees, armored car and messenger services, correspondent bank fees, internet banking and other professional fees increased to $7.37 million in 2003 compared with $5.04 million in 2002. The increase was associated with the Company's expanded store network due to the Centennial acquisition.

Merger related expenses consist of non-capitalizable costs that management determines are a result of the Company's merger activities. Merger related expenses were $2.08 million in 2003 compared with $2.75 million in 2002 and $6.61.million in 2001. Merger related expenses by year were as follows:

Comparing 2002 with 2001, non-interest expense increased to $66.71 million from $60.88 million. Excluding merger expenses, the largest component of this increase was salaries and benefits, which increased $6.86 million. Of this increase, approximately $2.14 million was due to increased personnel costs associated with mortgage loan originations. The remainder of the increase was due to increased staffing levels at the Bank as a result of new store openings, additional lending staff and annual raises. Occupancy and equipment expense increased due to occupancy and equipment expenses associated with expansion of the Company's store network, including the acquisition of LBB in December 2001. Services increase was associated with the Company's expanded store network,internet banking fees and higher correspondent bank fees. Intangible asset amortization declined to $405,000 in 2002 due to the adoption of Statement of Financial Accounting Standards ("SFAS ") No. 142, Accounting for Goodwill and Other Intangible Assets. The statement required that goodwill and other intangibles with indefinite lives no longer be amortized and instead be tested for impairment at least annually.

INCOME TAX EXPENSE FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

The provision for income taxes was $18.38 million, $12.30 million and $6.41 million for the years 2003, 2002 and 2001, respectively. The provision resulted in effective combined federal and state tax rates of 35.0%, 35.9% and 42.8%. The higher effective tax rate in 2001 was due to the tax treatment of certain merger related expenses.

Annual Report Page 9

INVESTMENT PORTFOLIO

Investment securities are classified as either available-for-sale or held-to-maturity according to management's intention. The objectives of the investment portfolio are to provide liquidity, balance interest rate risk positions and provide a profitable interest yield to the Company. The following table provides the carrying values of the Company's portfolio of investment securities as of December 31, 2003, 2002 and 2001:

The Company's available-for-sale investment portfolio increased from $331.2 million at December 31, 2002 to $501.9 million at December 31, 2003. During 2003 the Company purchased $399.2 million in securities and had maturities, payments and sales of $220.2 million. The Company had net unrealized losses of $1.42 million at December 31, 2003 compared with net unrealized gains of $5.45 million at December 31, 2002. The decline was partly due to $2.20 million of gains realized from the sale of a portion of its available-for-sale securities.

The Company's held-to-maturity investment portfolio decreased from $18.5 million to $14.6 million due tomaturities of a portion of these securities.

There were no securities that have had continuous unrealized losses for more than 12 months in 2003 or 2002.

Annual Report Page 10

The maturity distribution and yields of securities at December 31, 2003 were as follows:

LENDING ACTIVITIES

The Company provides a wide variety of credit services to its customers including commercial real estate construction and term loans, commercial lines of credit, secured and unsecured commercial loans, secured and unsecured loans and lines to individuals, and residential construction and term real estate loans.

The Company maintains sound loan underwriting standards with written loan policies, individual lending limits and depending on the size of the credit request, reviews by the Board of Director's Loan and Investment Committee. Underwriting standards are designed to achieve a high-quality loan portfolio, compliance with lending regulations and the desired mix of loan maturities, repricing characteristics and industry concentrations. The Company further seeks to minimize credit risk by monitoring the financial condition of its borrowers and the value of collateral.

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

Annual Report Page 11

The following table sets forth the Company's loan portfolio maturities on fixed rate loans and the repricing dates on variable rate loans, at December 31, 2003:

REAL ESTATE LOANS

Real estate secured loans comprise the largest segment of the Company's loan portfolio. Of the $1.34 billion outstanding at December 31, 2003, approximately $1.07 billion consisted of commercial real estate term loans, $232.79 million were construction loans and $35.28 million were residential term loans. Income property loans and commercial loans secured by real estate typically involve large balances to single borrowers or groups of related borrowers. At December 31, 2003, $1.094 billion of real estate loans had adjustable or floating rates and $245.33 million had fixed rates. Income property and commercial loans secured by real estate generally have maturities of 10 years or less. Construction loans generally have maturities of one year.

COMMERCIAL LOANS

Commercial loans are the second largest category of loans. The Company provides a wide range of commercial loans including working capital lines of credit and term loans for the acquisition of equipment and other purposes. Collateral generally includes equipment, accounts receivable and inventory. Where warranted by the financial condition of the borrower, loans may be made on an unsecured basis. At December 31, 2003 $440.90 million of commercial loans had adjustable or floating rates and $125.19 million had fixed rates. Operating lines of credit are payable on demand and subject to annual renewal. Term loans maturities generally range from one to five years.

LOANS TO INDIVIDUALS

Loans to individuals consist of personal lines of credit, installment loans, home equity lines of credit and home equity term loans. At December 31, 2003, $74.53 million of loans to individuals had variable rates and $11.50 million were at fixed rates. Personal lines of credit are subject to periodic review, home equity loans have maturities up to twenty years and installment loans have maturities up to fifteen years.

COMMITMENTS AND CONTINGENT LIABILITIES

In the ordinary course of business, the Company enters into various types of transactions that include commitments to extend credit and standby letters of credit. Credit standards applied to commitments are the same as those used in all lending processes, and these commitments are included in lending risk evaluations. Collateral for these commitments may include cash, accounts receivable, inventory, equipment securities and/or real estate.

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CREDIT AUTHORITY AND LOAN LIMITS

All loans and other credit facilities are subject to credit and collateral approval procedures and loan amount limitations. Loan officers and commercial banking center managers have individual authority to approve loans in amounts up to established limits, ranging from $25,000 to $750,000. Credit requests in excess of those limits, or not in conformance with lending policies, are reviewed by successive levels of approval authority according to the total amounts involved. The Board of Directors must approve all loans to executive officers and Directors of the Company.

Under Oregon law, permissible loans from a financial institution to one borrower are generally limited to 15% of the institution's Tier 2 Capital and may be made to the borrower if the obligations are secured by a first lien on real estate, and the obligation does not exceed 80% of the fair market value of the real estate as determined by an independent appraisal. At December 31, 2003 the Bank's legal lending limit was $39.63 million (or $66.05 million if secured by a first lien on real estate). However, internal guidelines provide for a lending limit of $20 million and maximum exposure to one borrower is held to that level in most instances.

NON-PERFORMING ASSETS

Non-performing loans include loans that are on non-accrual status and loans that are 90 days past due with respect to the payment of principal or interest. Non-performing assets decreased substantially from $20.60 million at December 31, 2002 to $13.95 million at December 31, 2003. The decrease was primarily due to decreases in nonaccrual loans and in loans past due 90 days but still accruing interest.

The accrual of interest on a loan is discontinued when the future collection of principal or interest is in doubt. Loans placed on nonaccrual status may or may not be contractually past due at the time of such determination, and may or may not be secured. When a loan is placed on non-accrual status, interest previously accrued but uncollected is reversed and charged against current income.

OREO consists of real estate acquired through foreclosure or by a deed in lieu of foreclosure. Properties in OREO are carried at the lower of net realizable value or the principal balance of the related loan. Any excess of the loan balance over fair value of the property at the time of acquisition is charged to the allowance for credit losses.

CREDIT RISK AND ALLOWANCE FOR CREDIT LOSSES

The Bank's Credit Administration and Credit Review Departments are responsible for the establishment and oversight of the Bank's credit risk policies. The credit policies address underwriting standards, internal lending limits, portfolio concentration levels, a credit risk grading system and processes for monitoring credit risk in the portfolios. Loans are primarily monitored by closely following changes and trends in assigned risk ratings and changes and trends in past due and collection activity. Commercial loans are assigned individual risk ratings. These ratings are assigned at origination by the lender based upon individual credit analysis; management reviews these ratings. The Credit Review Department ("Credit Review") independently conducts reviews of the Bank's lending units to ensure risk ratings are appropriate. Credit Review also reviews loans with repeated past due payments to determine if the risk grade is still appropriate. The revie w findings are reported to senior management and the Loan and Investment Committee of the Board of Directors.

Loans placed on non-accrual status are further evaluated for potential impairment and possible loss based upon review and discussion among lending officers, collection officers, credit review, credit administration and senior management. Factors considered include the market value of collateral, cash flows generated by the borrower, third-party guarantees, the general economic climate and any specific industry trends that may affect an individual loan.

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Between 1997 and 2003, the Bank's loan portfolio grew from $409.7 million to $2.0 billion as a result of acquisitions, increased market share and expansion into new locations. The Bank maintains sound underwriting practices for loans and management has funded the allowance to keep pace with loan growth. The make-up of the loan portfolio changed with the loan growth. The portfolio has gradually evolved from an 80%/20% mix between commercial and consumer borrowers in 1997 to a 95%/5% mix in 2003 (see "lending activities"). This migration resulted in an increase in the average loan size and an increase in exposure to the higher level risk associated with commercial and commercial real estate loans.

The Bank also monitors industry concentration levels in its loan and lease portfolio and maintains an allowance level to cover risks identified by industry.

ALLOWANCE AND PROVISION FOR CREDIT LOSSES

Credit loss allowance allocations are calculated based on risk grades of commercial loans and ratings of consumer loans. Loans receive risk grades based on the evaluation of the quality of the individual credit. The evaluation is based on the financial strength of the borrower and/or the valuation of the underlying collateral. Credit loss reserve allocations for risk grades are based on regulatory standards, historical loss rates and management's assessment of the economic climate and current conditions. Potential problem loans are reviewed for impairment and assigned a specific allowance, if appropriate. While allowance amounts are allocated to various portfolio categories or classifications, the total allowance is available to absorb losses from any loan category.

The following table sets forth the allocation of the allowance for credit losses:

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The following table illustrates historical activity in the allowance for credit losses: