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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


(Mark One)


[X]    ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934


For the fiscal year ended December
                                                31, 2002


OR




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

For the transition period from        to


REDDING BANCORP LOGO

Commission file number 0-25135

REDDING BANCORP

(Exact name of Registrant as specified in its charter)


|                                                                                                                                                                                            |  |                                                               
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------
|California
                                                       (State or other jurisdiction of
                                                           incorporation or organization) |  | 94-2823865
               (I.R.S. Employer Identification No.)

|                                                                                                                                                                                                                                       |  |                                                     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------
|1951 Churn Creek Road
                     Redding, California
                                                              (Address of principal executive
                                                                 offices) |  | 96002
                                    (Zip Code)

Registrants telephone number, including area code: (530) 224-3333

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 [X] No [   ]
|
| | Indicate by check mark if disclosure of delinquent filers
                                                                        pursuant to Item 405 of Regulation S-K is not contained herein,
                                                                        and will not be contained, to the best of the Registrants
                              knowledge, in definitive proxy or information statements
                                     incorporated by reference to Part III of this Form 10-K or any
                                                           amendment to this Form 10-K. [X]           



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The aggregate market value of voting stock held by non-affiliates
                                                                         of the Registrant was approximately $30,414,888 as of February
                              28, 2003 which was calculated based on the last reported sale of
                                                                       the Companys Common Stock. This calculation does not reflect a
                                 determination that certain persons are affiliates of the
                                                       Registrant for any other purpose.
|
| | As of February 28, 2003, there were 2,641,536 shares of the
                                                                            Registrants common stock outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                    





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TABLE OF CONTENTS



|              |                                                                                               |                                                                              |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I       
|              | ITEM 1. BUSINESS                                                                             
|              |                                                                                               | General                                                                     
|              |                                                                                               | Supervision and Regulation                                                  
|              |                                                                                               | Bank Regulation and Supervision                                             
|              |                                                                                               | Capital Standards                                                           
|              |                                                                                               | Dividends and Other Distributions                                           
|              |                                                                                               | Prompt Corrective Action and Other Enforcement Mechanisms                   
|              |                                                                                               | Safety and Soundness Standards                                              
|              |                                                                                               | Premiums for Deposit Insurance and Assessments for Examinations             
|              |                                                                                               | Community Reinvestment Act and Fair Lending Developments                    
|              |                                                                                               | Recently Enacted Legislation                                                
|              |                                                                                               | Pending Legislation and Regulations                                         
|              |                                                                                               | Competition                                                                 
|              |                                                                                               | Employees                                                                   
|              | Risk Factors That May Affect Results                                                         
|              |                                                                                               | Lending Risks Associated with Commercial Banking and Construction Activities
|              |                                                                                               | Dependence on Real Estate                                                   
|              |                                                                                               | Risks Specific to Operations in California                                  
|              |                                                                                               | Interest Rate Risk                                                          
|              |                                                                                               | Merchant Credit Card Processing Services                                    
|              |                                                                                               | Potential Volatility of Deposits                                            
|              |                                                                                               | Dividends                                                                   
|              |                                                                                               | Competition in Primary Market                                               
|              |                                                                                               | Government Regulation and Legislation                                       
|              |                                                                                               | Economic Conditions and Geographic Concentration                            
|              |                                                                                               | Reliance on Key Employees and Others                                        
|              |                                                                                               | Adequacy of Allowance for Loan and Other Real Estate Losses                 
|              |                                                                                               | Certain Ownership Restrictions under California and Federal Law             
|              |                                                                                               | Shares Eligible for Future Sale                                             
|              |                                                                                               | Technology and Computer Systems                                             
|              |                                                                                               | Environmental Risks                                                         
|              |                                                                                               | Dilution                                                                    
|              | ITEM 2. PROPERTIES.                                                                          
|              | ITEM 3. LEGAL PROCEEDINGS.                                                                   
|              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                 
|PART II      
|              | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.               
|              | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                 
|              | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|              |                                                                                               | Critical Accounting Policies                                                
|              |                                                                                               | Results of Operations                                                       
|              | ITEM 7-A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         
|              | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                         
|              | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|PART III     
|              | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                                 
|              | ITEM 11. EXECUTIVE COMPENSATION.                                                             
|              | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.                     
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                     
|PART IV      
|              | ITEM 14. CONTROLS AND PROCEDURES                                                             
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.                    
|SIGNATURES   
|EXHIBIT INDEX
|Exhibit 23.1 
|Exhibit 99.1 



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|                                                                                              |                                                  |  |    |    |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------ |  | -- | -- |  | 
|Table of Contents                                                                             |                                                  |  |    |   
|                                                                                              |                                                  |  |    |   
|Part I.                                                                                      
|Item 1 . Business                                                                             |                                                  |  | 2  |   
|                                                                                              | General                                          |  |    | 2  | 
|                                                                                              | Supervision and regulation                       |  |    | 4  | 
|                                                                                              | Bank regulation and supervision                  |  |    | 6  | 
|                                                                                              | Capital standards                                |  |    | 7  | 
|                                                                                              | Dividends and other distributions                |  |    | 8  | 
|                                                                                              | Prompt corrective action and other enforcement   |  |    | 8  | 
|                                                                                              | Safety and soundness standards                   |  |    | 9  | 
|                                                                                              | Premiums and assessments                         |  |    | 10 | 
|                                                                                              | Community reinvestment                           |  |    | 10 | 
|                                                                                              | Recently enacted legislation                     |  |    | 10 | 
|                                                                                              | Pending legislation                              |  |    | 11 | 
|                                                                                              | Competition                                      |  |    | 11 | 
|                                                                                              | Employees                                        |  |    | 12 | 
|Risk factors that may affect results                                                          |                                                  |  | 13 |   
|                                                                                              | Lending risks associated with commercial banking |  |    | 13 | 
|                                                                                              | Dependence on real estate                        |  |    | 13 | 
|                                                                                              | Risks specific to California                     |  |    | 14 | 
|                                                                                              | Interest rate risk                               |  |    | 14 | 
|                                                                                              | Merchant credit card risk                        |  |    | 14 | 
|                                                                                              | Potential volatility of deposits                 |  |    | 15 | 
|                                                                                              | Dividends                                        |  |    | 15 | 
|                                                                                              | Competition in primary market                    |  |    | 16 | 
|                                                                                              | Government regulation                            |  |    | 16 | 
|                                                                                              | Economic conditions and geographic concentration |  |    | 16 | 
|                                                                                              | Reliance on key employees                        |  |    | 17 | 
|                                                                                              | Adequacy of allowance for loan losses            |  |    | 17 | 
|                                                                                              | Ownership restrictions under law                 |  |    | 17 | 
|                                                                                              | Shares eligible for future sale                  |  |    | 18 | 
|                                                                                              | Technology and computer systems                  |  |    | 18 | 
|                                                                                              | Environmental risks                              |  |    | 18 | 
|                                                                                              | Dilution                                         |  |    | 18 | 
|Item 2. Properties                                                                            |                                                  |  | 19 |   
|Item 3. Legal proceedings                                                                     |                                                  |  | 19 |   
|Item 4. Submission of matters to a vote of security holders                                   |                                                  |  | 19 |   
|Part II.                                                                                     
|Item 5. Market for Registrants common equity                                                  |                                                  |  | 20 |   
|Item 6. Selected consolidated financial data                                                  |                                                  |  | 22 |   
|Item 7. Managements discussion and analysis of financial condition
and results of operations |                                                  |  | 23 |   
|                                                                                              | Critical accounting policies                     |  |    | 23 | 
|                                                                                              | Results of operations                            |  |    | 25 | 
|Item 7a. Quantitative and qualitative disclosures to market risk                              |                                                  |  | 41 |   
|Item 8. Financial Statements and supplementary data                                           |                                                  |  | 43 |   
|Item 9. Changes and disagreements with accountants                                            |                                                  |  | 76 |   
|Part III.                                                                                    
|Item 10. Directors and executive officers of the registrant                                   |                                                  |  | 76 |   
|Item 11. Executive compensation                                                               |                                                  |  | 77 |   
|Item 12. Security ownership of beneficial owners and management                               |                                                  |  | 77 |   
|Item 13. Certain relationships and related transactions                                       |                                                  |  | 77 |   
|Item 14. Controls and procedures                                                              |                                                  |  | 78 |   
|Item 15. Exhibits, financial statements, certifications                                       |                                                  |  | 78 |   

1



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Documents Incorporated By Reference

Items numbered 10 (as to directors), 11 and 12 of Part III
incorporate by reference information from the Registrants Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the solicitation
of proxies for the Registrants 2003 Annual Meeting of Shareholders.
The 2003 Annual Meeting of Shareholders will be held on Tuesday, May
20, 2003.




PART I




ITEM 1. BUSINESS.

This report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the Exchange Act). These statements are
based on managements beliefs and assumptions, and on information available to
management as of the date of this document. Forward-looking statements include
the information concerning possible or assumed future results of operations of
the Company set forth under the heading Managements Discussion and Analysis
of Financial Condition and Results of Operations. Forward-looking statements
also include statements in which words such as expect, anticipate,
intend, plan, believe, estimate, consider or similar expressions are
used. Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions, including the risks
discussed under the heading Risk Factors That May Affect Results and
elsewhere in this report. The Companys actual future results and shareholder
values may differ materially from those anticipated and expressed in these
forward-looking statements. Many of the factors that will determine these
results and values, including those discussed under the heading Risk Factors
That May Affect Results, are beyond the Companys ability to control or
predict. Investors are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any
intention or and assumes no obligation to update forward-looking statements
after the date of the filing of this report, even if new information, future
events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all referenced to the Company
refer to Redding Bancorp, a California corporation, and its consolidated
subsidiaries.




General

Redding Bancorp (the Company) is a financial services holding company
(FHC) registered under the Bank Holding Company Act of 1956, as amended, and
was incorporated in California on January 21, 1982, for the purpose of
organizing, as a wholly owned subsidiary, Redding Bank of Commerce (the
Bank). The Company elected to change to a FHC in 2000. As a financial
services holding company, the Company is subject to the Financial Holding
Company Act and to supervision by the Board of Governors of the Federal Reserve
System (FRB). The Companys principal business is to serve as a holding
company for the Bank and Redding Service Corporation, a California corporation
formed in 1993 for the purpose of processing trust deeds, and for other banking
or banking-related subsidiaries which the Company may establish or acquire. On
January 2, 2003, Redding Service Corporation has changed its name to RBC
Mortgage Services. The principal business of the subsidiary will be mortgage
brokerage services. The Companys principal source of income is dividends from
its subsidiaries. The Company conducts its corporate business operations at
the office of the Bank located at 1951 Churn Creek Road, Redding, California
96002. The Company conducts its business operations in two geographic market
areas, Redding and Roseville, California and within two industry segments,
general banking and credit card processing. The Company considers Upstate
California to be the major market area of the Bank.

The Internet address of the Company is reddingbankofcommerce.com. The
Company will provide free of charge upon request, or through links to publicly
available filings accessed through its Internet website, the Companys annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports as soon as reasonably practical after such
reports have been filed with the Securities and Exchange Commission.
Additionally, reports may be obtained through the Securities and Exchange
Commissions website at sec.gov.

The Bank was incorporated as a California banking corporation on November
25, 1981, and received its certificate of authority to begin banking operations
on October 22, 1982. The Bank operates three full service branches and one
focused-service deposit facility. The Company established its first full
service branch at 1177 Placer Street, Redding, California, and opened for
business on October 22, 1982. On November 1, 1988, the Bank received a
certificate of authority to establish and maintain a loan production office in
Citrus Heights, California. On September 1, 1998, the Company relocated the
loan production office to 2400 Professional Drive in Roseville, California.

2



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On March 1, 1994, the Bank received a certificate of authority to open a
second full-service branch at 1951 Churn Creek Road in Redding, California. On
June 30, 2000, the Bank received a certificate of authority to convert the loan
production office in Roseville to a full service banking facility under the
name Roseville Bank of Commerce, a division of Redding Banking of Commerce. On
June 15, 2001 the Bank acquired the deposit liabilities of FirstPlus Bank at
Citrus Heights, California and has renamed the facility Roseville Bank of
Commerce at Sunrise, a division of Redding Bank of Commerce. On February 22,
2002, the Roseville Bank of Commerce at Eureka Road, a division of Redding Bank
of Commerce office relocated to its permanent location at 1504 Eureka Road,
Suite 100, Roseville, California.

The Bank is principally supervised and regulated by the California
Department of Financial Institutions (DFI) and the Federal Deposit Insurance
Corporation (FDIC), and conducts a general commercial banking business in the
counties of El Dorado, Placer, Shasta, and Sacramento, California.

The services offered by the Bank include those traditionally offered by
commercial banks of similar size and character in California, such as checking,
interest-bearing checking (NOW) and savings accounts, money market deposit
accounts, commercial, real estate, construction, and term loans; travelers
checks, safe deposit boxes, collection services and electronic banking
activities. The primary focus of the Bank is to provide services to the
business and professional community of its major market area, including Small
Business Administration loans, payroll and accounting packages, benefit
administration and billing services. The Bank does not offer trust services or
international banking services and does not plan to do so in the near future.

Most of the Banks customers are small to medium sized businesses,
professionals and other individuals with medium to high net worth, and most of
the Banks deposits are obtained from such customers. The Bank emphasizes
servicing the needs of local businesses and professionals and individuals
requiring specialized services. The primary business strategy of the Bank is
to focus on its lending activities. The Banks principal lines of lending are
(i) commercial, (ii) real estate construction and (iii) commercial and
residential real estate. The majority of the loans of the Bank are direct
loans made to individuals and small businesses in the major market area of the
Bank and are secured by real estate. See -Risk Factors That May Affect
Results-Dependence on Real Estate. A relatively small portion of the loan
portfolio of the Bank consists of loans to individuals for personal, family or
household purposes. The Bank accepts real estate, listed and unlisted
securities, savings and time deposits, automobiles, machinery and equipment and
other general business assets such as accounts receivable and inventory as
collateral for loans.The commercial loan portfolio of the Bank consists of a mix of revolving
credit facilities and intermediate term loans. The loans are generally made
for working capital, asset acquisition and business expansion purposes and are
generally secured by a lien on the borrowers assets. The Bank also makes
unsecured loans to borrowers who meet the Banks underwriting criteria for such
loans. The Bank manages its commercial loan portfolio by monitoring its
borrowers payment performance and their respective financial condition and
makes periodic and appropriate adjustments, if necessary, to the risk grade
assigned to each loan in the portfolio. The primary sources of repayment of
the commercial loans of the Bank are the borrowers conversion of short-term
assets to cash and operating cash flow. The net assets of the borrower or
guarantor and/or the liquidation of collateral are usually identified as a
secondary source of repayment.The principal factors affecting the Banks risk of loss from commercial
lending include each borrowers ability to manage its business affairs and cash
flows, local and general economic conditions and real estate values in the

Banks service area. The Bank manages risk through its underwriting criteria,
which includes strategies to match the borrowers cash flow to loan repayment
terms, and periodic evaluations of the borrowers operations. The Banks
evaluations of its borrowers are facilitated by managements knowledge of local
market conditions and periodic reviews by a consultant of the credit
administration policies of the Bank.The real estate construction loan portfolio of the Bank consists of a mix
of commercial and residential construction loans, which are principally secured
by the underlying project. The real estate construction loans of the Bank are
predominately made for projects, which are intended to be owner occupied. The
Bank also makes real estate construction loans for speculative projects. The
principal sources of repayment of the Banks construction loans are sale of the
underlying collateral or permanent financing provided by the Bank or another
lending source. The principal risks associated with real estate construction
lending include project cost overruns that absorb the borrowers equity in the
project and deterioration of real estate values as a result of various factors,
including competitive pressures and economic downturns.3Table of ContentsSee -Risk Factors That May Affect Results-Lending Risks Associated with
Commercial Banking and Construction Activities. The Bank manages its credit
risk associated with real estate construction lending by establishing maximum
loan-to-value ratios on projects on an as-completed basis, inspecting project
status in advance of controlled disbursements and matching maturities with
expected completion dates. Generally, the Bank requires a loan-to-value ratio
of no more than 80% on single-family residential construction loans.The commercial and residential real estate mortgage loan portfolio of the
Bank consists of loans secured by a variety of commercial and residential real
property. The Bank makes real estate mortgage loans for both owner-occupied
properties and investor properties. The Banks underwriting criteria for loans
to investors is generally more conservative and such loans constitute a smaller
percentage of the Banks commercial and residential real estate loan portfolio.
The principal source of repayment of the real estate loans of the Bank is the
Borrowers operating cash flow.Similar to commercial loans, the principal factors affecting the Banks
risk of loss in real estate mortgage lending include the borrowers ability to
manage its business affairs and cash flows, local and general economic
conditions and real estate values in the Banks service area. The Bank manages
its credit risk associated with real estate mortgage lending primarily by
establishing maximum loan-to-value ratios and using strategies to match the
borrowers cash flow to loan repayment terms. Approximately 90% of the
residential real estate mortgage loans originated at the Bank are sold in the
secondary market.The specific underwriting standards of the Bank and methods for each of
its principal lines of lending include industry-accepted analysis and modeling
and certain proprietary techniques. The Banks underwriting criteria is
designed to comply with applicable regulatory guidelines, including required
loan-to-value ratios. The credit administration policies of the Bank contain
mandatory lien position and debt service coverage requirements, and the Bank
generally requires a guarantee from 20% or more owners of its corporate
borrowers.In April 1993, the Bank entered into an agreement (the Merchant Services
Agreement) with Cardservice International, Inc. (CSI), an independent sales
organization (ISO) and nonbank merchant credit card processor, pursuant to
which the Bank has agreed to provide credit and debit card processing services
for merchants solicited by CSI who accept credit and debit cards as payment for
goods and services. Pursuant to the Merchant Services Agreement, the Bank acts
as a clearing bank for CSI and processes credit or debit card transactions into
the Visa® or MasterCard® system for presentment to the card issuer. As a
result of the Merchant Services Agreement, the Bank has acquired electronic
credit and debit card processing relationships with merchants in various
industries on a nationwide basis. The Merchant Services Agreement with CSI was
renewed in April 2001 for a period of four years. Effective April 1, 2001,
pricing of the contract renewal is .002 percent of transaction processing and
one-half of the earnings on the deposit relationship. The contract renewal
represents a significant decline in revenues from merchant credit card
processing. The Company has been successful in pursuing various strategies to
offset the decline in revenues, including expansion of the Roseville Bank of
Commerce at Eureka, acquisition of the Sunrise location and projecting
aggressive growth in the loan markets.Merchant bankcard processing services are highly regulated by credit card
associations such as Visa. In order to participate in the credit card program,
Redding Bank of Commerce must comply with the credit card associations rules
and regulations that may change from time to time. During November 1999, Visa
adopted several rule changes to reduce the risk profile in high-risk acquiring
programs and these rule changes affect the Banks Merchant Services business
segment. These changes include a requirement that an acquiring processors
reported fraud ratios be no greater than three times the national average.Redding Bank of Commerces overall fraud ratio met and complied with the
Visa requirement. Other Visa changes announced included the requirement that
total processing volume in certain high-risk categories (as defined by Visa) is
less than 20% of total processing volume.
Supervision and RegulationRegulation and Supervision of
Bank Holding Companies

The Company is a financial services holding company subject to the
Financial Holding Company Act (FHCA). The Company reports to, registers
with, and may be examined by, the FRB. The FRB also has the authority to
examine the Companys subsidiaries. The costs of any examination by the FRB
are payable by the Company.4Table of ContentsThe Company is a bank holding company within the meaning of Section 3700
of the California Financial Code. As such, the Company and the Bank are
subject to examination by, and may be required to file reports with, the
California Commissioner of Financial Institutions (the Commissioner). The FRB
has significant supervisory and regulatory authority over the Company and its
affiliates. The FRB requires the Company to maintain certain levels of
capital. See Capital Standards. The FRB also has the authority to take
enforcement action against any bank holding company that commits any unsafe or
unsound practice, or violates certain laws, regulations or conditions imposed
in writing by the FRB. See Prompt Corrective Action and Other Enforcement
Mechanisms.Under the FHCA, a company generally must obtain the prior approval of the
FRB before it exercises a controlling influence over a bank, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, the Company is
required to obtain the prior approval of the FRB before it acquires, merges or
consolidates with any bank or financial services holding company. Any company
seeking to acquire, merge or consolidate with the Company also would be
required to obtain the prior approval of the FRB.A financial services holding company may acquire banks in states other
than its home state without regard to the permissibility of such acquisitions
under state law, but subject to any state requirement that the bank has been
organized and operating for a minimum period of time, not to exceed five years,
and the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of deposits
of insured depository institutions in the United States and no more than 30% of
such deposits in that state (or such lesser or greater amount set by state
law). Banks may also merge across state lines, therefore creating interstate
branches. Furthermore, a bank is now able to open new branches in a state in
which it does not already have banking operations if the laws of such state
permit such de novobranching.Under California law, (a) out-of-state banks that wish to establish a
California branch office to conduct core banking business must first acquire an
existing five year old California bank or industrial loan company by merger or
purchase; (b) California state-chartered banks are empowered to conduct various
authorized branch-like activities on an agency basis through affiliated and
unaffiliated insured depository institutions in California and other states and
(c) the Commissioner is authorized to approve an interstate acquisition or
merger which would result in a deposit concentration exceeding 30% if the
Commissioner finds that the transaction is consistent with public convenience
and advantage. However, a state bank chartered in a state other than
California may not enter California by purchasing a California branch office of
a California bank or industrial loan company without purchasing the entire
entity or by establishing a de novo California bank.The FRB generally prohibits a financial services holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowing or other
arrangements that might adversely affect a bank holding companys financial
position.The FRBs policy is that a bank holding company should not continue its
existing rate of cash dividends on its common stock unless its net income is
sufficient to fully fund each dividend and its prospective rate of earnings
retention appears consistent with its capital needs, asset quality and overall
financial condition. See -Restrictions on Dividends and Other Distributions
for additional restrictions on the ability on the Company and the Bank to pay
dividends.Transactions between the Company and the Bank are subject to a number of
other restrictions. FRB policies forbid the payment by bank subsidiaries of
management fees, which are unreasonable in amount or exceed the fair market
value of the services rendered (or, if no market exists, actual costs plus a
reasonable profit).Subject to certain limitations, depository institution subsidiaries of
financial services holding companies may extend credit to, invest in the
securities of, purchase assets from, or issue a guarantee, acceptance, or
letter of credit on behalf of, an affiliate, provided that the aggregate of
such transactions with affiliates may not exceed 10% of the capital stock and
surplus of the institution, and the aggregate of such transactions with all
affiliates may not exceed 20% of the capital stock and surplus of such
institution. The Company may only borrow from depository institution
subsidiaries if the loan is secured by marketable obligations with a value of a
designated amount more than the loan. Further, the Company may not sell a
low-quality asset to a depository institution subsidiary.5Table of ContentsComprehensive amendments to Regulation Y became effective in 1997, and are
intended to improve the competitiveness of financial services holding companies
by, among other things: (i) expanding the list of permissible nonbanking
activities in which well-run bank holding companies may engage without prior
FRB
approval, (ii) streamlining the procedures for well-run bank holding companies
to obtain approval to engage in other nonbanking activities and (iii)
eliminating most of the anti-tying restrictions imposed upon bank holding
companies and their nonbank subsidiaries.Amended Regulation Y also provides for a streamlined and expedited review
process for bank acquisition proposals submitted by well-run bank holding
companies and eliminates certain duplicative reporting requirements when there
has been a further change in bank control or in bank directors or officers
after an earlier approved change. These changes to Regulation Y are subject to
numerous qualifications, limitations and restrictions. In order for a
financial services holding company to qualify as well-run, both it and the
insured depository institutions that it controls must meet the
well-capitalized and well-managed criteria set forth in Regulation Y.To qualify as well-capitalized, the bank must, on a consolidated basis:
(i) maintain a total risk-based capital ratio of 10% or greater, (ii) maintain
a Tier 1 risk-based capital ratio of 6% or greater and (iii) not be subject to
any order by the FRB to meet a specified capital level. Its lead insured
depository institution must be well-capitalized (as that term is defined in the
capital adequacy regulations of the applicable bank regulator), 80% of the
total risk-weighted assets held by its insured depository institutions must be
held by institutions that are well-capitalized, and none of its insured
depository institutions may be undercapitalized.To qualify as well-managed: (i) each of its lead depository
institutions and its depository institutions holding 80% of the total
risk-weighted assets of all its depository institutions at their most recent
examination or review must have received a composite rating, rating for
management and rating for compliance which were at least satisfactory, (ii)
none of the bank holding companys depository institutions may have received
one of the two lowest composite ratings and (iii) neither the bank holding
company nor any of its depository institutions during the previous 12 months
may have been subject to a formal enforcement order or action.
Bank Regulation and SupervisionThe Bank is a California chartered bank insured by the Federal Deposit
Insurance Corporation (the FDIC), and as such is subject to regulation,
supervision and regular examination by the California Department of Financial
Institutions (DFI) and the FDIC. As a non-member of the Federal Reserve
System, the primary federal regulator of the Bank is the FRB. The regulations
of these agencies affect most aspects of the Banks business and prescribe
permissible types of loans and investments, the amount of required reserves,
requirements for branch offices, the permissible scope of the Banks activities
and various other requirements.The Bank is also subject to applicable provisions of California law,
insofar as such provisions are not in conflict with or preempted by federal
banking law. In addition, the Bank is subject to certain regulations of the
FRB dealing primarily with check-clearing activities, establishment of banking
reserves, Truth-in-Lending (Regulation Z), Truth-in-Savings (Regulation DD),
and Equal Credit Opportunity (Regulation B).Under California law, a state chartered bank is subject to various
restrictions on, and requirements regarding, its operations and administration
including the maintenance of branch offices and automated teller machines,
capital and reserve requirements, deposits and borrowings, shareholder rights
and duties, and investment and lending activities. Whenever it appears that
the contributed capital of a California bank is impaired, the Commissioner is
required to order the bank to correct such impairment. If a bank is unable to
correct the impairment, the bank is required to levy and collect an assessment
upon its common shares. If such assessment becomes delinquent, the common
shares are to be sold by the bank.California law permits a state chartered bank to invest in the stock and
securities of other corporations, subject to a state chartered bank receiving
either general authorization or, depending on the amount of the proposed
investment, specific authorization from the Commissioner. The Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), however, imposes
limitations on the activities and equity investments of state chartered,
federally insured banks. FDICIA also prohibits a state bank from engaging as a
principal in any activity that is not permissible for a national bank, unless
the bank is adequately capitalized and the FDIC approves the activity after
determining that such activity does not pose a significant risk to the bank
deposit insurance fund.6Table of ContentsThe FDIC rules on activities generally permit subsidiaries of banks,
without prior specific FDIC authorization, to engage in those that have been
approved by the FRB for bank holding companies because such activities are so
closely related to banking to be a proper incident thereto. Other activities
generally require specific FDIC prior approval and the FDIC may impose
additional restrictions on such activities on a case-by-case basis in
approving applications to engage in otherwise impermissible activities.

Capital StandardsThe federal banking agencies have risk-based capital adequacy guidelines
intended to provide a measure of capital adequacy that reflects the degree of
risk associated with a banking organizations operations for both transactions
reported on the balance sheet as assets and transactions, such as letters of
credit and recourse arrangements, which are recorded as off balance sheet
items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. government securities, to 100% for assets with
relatively higher credit risk, such as certain loans.In determining the capital level a bank is required to maintain, the
federal banking agencies do not, in all respects, follow accounting principles
generally accepted in the United States of America (GAAP) and have special
rules which have the effect of reducing the amount of capital that will be
recognized for purposes of determining the capital adequacy of a bank.A banking organizations risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk-adjusted assets and off
balance sheet items. The regulators measure risk-adjusted assets and off
balance sheet items against both total qualifying capital (the sum of Tier 1
capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1
capital consists of common stock, retained earnings, non-cumulative perpetual
preferred stock, other types of qualifying preferred stock including trust
prefererred securities and minority interests in certain subsidiaries, less
most other intangible assets and other adjustments. Net unrealized losses on
available-for-sale equity securities with readily determinable fair value must
be deducted in determining Tier 1 capital. For Tier 1 capital purposes,
deferred tax assets that can only be realized if an institution earns
sufficient taxable income in the future are limited to the amount that the
institution is expected to realize within one year, or ten percent of Tier 1
capital, whichever is less. Tier 2 capital may consist of a limited amount of
the allowance for possible loan and lease losses, term preferred stock and
other types of preferred stock not qualifying as Tier 1 capital, term
subordinated debt and certain other instruments with some characteristics of
equity. The inclusion of elements of Tier 2 capital are subject to certain
other requirements and limitations of the federal banking agencies. The
federal banking agencies require a minimum ratio of qualifying total capital to
risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of
Tier 1 capital to adjusted average risk-adjusted assets and off balance sheet
items of 4%. The Company exceeds the minimum requirements.On October 1, 1998, the FDIC adopted two rules governing minimum capital
levels that FDIC-supervised banks must maintain against the risks to which they
are exposed. The first rule makes risk-based capital standards consistent for
two types of credit enhancements (i.e., recourse arrangements and direct credit
substitutes) and requires different amounts of capital for different risk
positions in asset securitization transactions. The second rule permits
limited amounts of unrealized gains on debt and equity securities to be
recognized for risk-based capital purposes as of September 1, 1998.The FDIC rules also provide that a qualifying institution that sells small
business loans and leases with recourse must hold capital only against the
amount of recourse retained.In general, a qualifying institution is one that is well capitalized under
the FDICs prompt corrective action rules. The amount of recourse that can
receive the preferential capital treatment cannot exceed 15% of the
institutions total risk-based capital.7Table of ContentsIn addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
adjusted average total assets, referred to as the leverage capital ratio. For
a banking organization rated in the highest of the five categories used by
regulators to rate banking organizations, the minimum leverage ratio of Tier 1
capital to total assets must be 3%. It is improbable; however, that an
institution with a 3% leverage ratio would receive the highest rating by the
regulators since a strong capital position is a significant part of the
regulators rating. For all banking organizations not rated in the highest
category, the minimum leverage ratio must be at least 100 to 200 basis points
above the 3% minimum. Thus, the effective minimum leverage ratio, for all
practical purposes, must be at least 4% or 5%. In addition to the uniform
risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.As of December 31, 2002, the Companys and the Banks capital ratios
exceeded applicable regulatory requirements. The tables on page 38 present the
capital ratios for the Company and the Bank, compared to the standards for
well-capitalized depository institutions, as of December 31, 2002.Banking agencies must take into consideration concentrations of credit
risk and risks from non-traditional activities, as well as an institutions
ability to manage those risks, when determining the adequacy of an
institutions capital. This evaluation is a part of the institutions regular
safety and soundness examination. Banking agencies must also consider interest
rate risk (when the interest rate sensitivity of an institutions assets does
not match the sensitivity of its liabilities or its off-balance-sheet position)
in evaluation of a banks capital adequacy.
Dividends and Other DistributionsThe power of the board of directors of an insured depository institution
to declare a cash dividend or other distribution with respect to capital is
subject to statutory and regulatory restrictions which limit the amount
available for such distribution depending upon the earnings, financial
condition and cash needs of the institution, as well as general business
conditions. FDICIA prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions, including dividends, if, after such transaction,
the institution would be undercapitalized.In addition to the restrictions imposed under federal law, banks chartered
under California law generally may only pay cash dividends to the extent such
payments do not exceed the lesser of retained earnings of the bank or the
banks net income for its last three fiscal years (less any distributions to
shareholders during such period).In the event a bank desires to pay cash dividends in excess of such
amount, the bank may pay a cash dividend with the prior approval of the
Commissioner in an amount not exceeding the greatest of the banks retained
earnings, the banks net income for its last fiscal year, or the banks net
income for its current fiscal year.Regulators also have authority to prohibit a depository institution from
engaging in business practices which are considered to be unsafe or unsound,
possibly including payment of dividends or other payments under certain
circumstances even if such payments are not expressly prohibited by statute.

Prompt Corrective Action and Other Enforcement MechanismsFDICIA requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including
but not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.Under the prompt corrective action provisions of FDICIA, an insured
depository institution generally will be classified in the following categories
based on the capital measures indicated below:8Table of Contents

|                                                                                                               |  |                                                                                                               
|-------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------
|Well capitalized  Bank only                                                                                 |  | Adequately capitalized                                                                                      
|Total risk-based capital of
10%;
Tier 1 risk-based capital of 6%; and
Leverage ratio of 5%.                    |  | Total risk-based capital of 8%;
Tier 1 risk-based capital of 4%; and
Leverage ratio of 4%.                    
|                                                                                                               |  |                                                                                                               
|Undercapitalized                                                                                             |  | Significantly undercapitalized                                                                              
|Total risk-based capital less
than 8%;
Tier 1 risk-based capital less than 4%; or
Leverage ratio less than 4%. |  | Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 3%.
|                                                                                                               |  |                                                                                                               
|Critically undercapitalized
Tangible equity to total assets less than 2%.                                    |  |                                                                                                               

An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as critically undercapitalized unless
its capital ratio actually warrants such treatment.

If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a
guarantee of performance issued by the holding company. Further restrictions
and sanctions are required to be imposed on insured depository institutions
that are critically undercapitalized. The most important additional measure is
that the appropriate federal banking agency is required to either appoint a
receiver for the institution within 90 days, or obtain the concurrence of the
FDIC in another form of action.

In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices
in conducting their businesses or for violations of any law, rule, regulation
or any condition imposed in writing by the agency or any written agreement with
the agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.

Additionally, a holding companys inability to serve as a source of
strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company.




Safety and Soundness Standards

FDICIA also implemented certain specific restrictions on transactions and
required federal banking regulators to adopt overall safety and soundness
standards for depository institutions related to internal control, loan
underwriting, documentation, and asset growth. Among other things, FDICIA
limits the interest rates paid on deposits by undercapitalized institutions,
restricts the use of brokered deposits, limits the aggregate extensions of
credit by a depository institution to an executive officer, director, principal
shareholder or related interest, and reduces deposit insurance coverage for
deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.

The federal banking agencies may require an institution to submit to an
acceptable compliance plan as well as have the flexibility to pursue other more
appropriate or effective courses of action given the specific circumstances and
severity of an institutions noncompliance with one or more standards.

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Premiums for Deposit Insurance and Assessments for Examinations

The Bank has its deposits insured by the Bank Insurance Fund (BIF)
administered by the FDIC. The FDIC is authorized to borrow up to $30 billion
from the United States Treasury; up to 90% of the fair market value of assets
of institutions acquired by the FDIC as receiver from the Federal Financing
Bank; and from depository institutions that are members of the BIF. Any
borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits. FDICIA also provides authority for
special assessments against insured deposits. No assurance can be given at
this time as to what the future level of premiums will be.




Community Reinvestment Act and Fair Lending Developments

The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act (CRA) activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate-income
neighborhoods. In addition to substantive penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.




Recently Enacted Legislation

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the Act). This is the most comprehensive reform since the securities
acts of the 1930s. The Act reaffirms the authority of the Securities and
Exchange Commission (SEC) with the goal of restoring investor confidence. The
SEC has been assigned the task of implementing corporate governance through
rulemaking under a short timeframe. The rules to date require:



| |  | both the Chief Executive Officer and Chief Financial Officer to certify
that disclosure of all material information is included in both quarterly
and annual reports;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | that the Company adopt a code of ethics and that every senior officer of the company abide by the code;                                                              
| 
| |  | requires that the Audit Committee have substantial financial expertise;                                                                                              
| 
| |  | that MD&A disclosures of off-balance sheet arrangements and aggregate
contractual obligations are fully disclosed in the filings;                                    
| 
| |  | that Insider trading is suspended during blackout periods;                                                                                                           
| 
| |  | establishing standards for attorneys practicing before the SEC;                                                                                                     
| 
| |  | and fixes retention periods of records relevant to audits and reviews.                                                                                               

Final rules have been issued relative to auditor independence and
accelerated filing dates for the 10-Q and 10-K reports. Rules that are still
open for comments include Audit committee responsibilities and Attorney conduct
rules and all rules are expected to be in place during 2003.

Key points addressed to the Audit Committee include:



| |  | Auditor relationship shifts from Company management to the Audit committee in relation to hiring, firing and compensation
practices                                                                                                                                                                                                                                        
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Establishing effective communications among auditors, audit committees and management                                                                                                                                                                                                                                                                                      
| 
| |  | Ensuring that the Companys audit committee consist of financial experts with such attributes as education and experience
as a principal financial officer, principal accounting officer, controller, public accountant or auditor; with experience
actively supervising such accounting experts; or other relevant experience qualifying the members as financial experts.
| 
| |  | Establishing procedures to allow
whistle-blower access to the audit committee.
For information concerning the role, independence and responsibilities of
the Audit Committee please refer to the companys Audit Committee Charter
which is included in the annual proxy statement as appendix A.                                                                        

10



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##### Table of Contents



The breadth and volume of the new requirements affect all significant
participants in the financial reporting process and the Board of Directors and
Senior Management acknowledge that continued improvement and changes will come
as experience is gained with the new rules and reporting requirements, while
all efforts are geared towards full compliance to the intent of the Act.

On October 26, 2001, President Bush signed into law the Uniting and
Strengthening America by Providing Appropriate Tools Required to Obstruct
Terrorism Act (the USA Patriot Act), thereby amending the anti-money
laundering provisions of the Bank Secrecy Act. The amendments are intended to
make it easier to prevent, detect, and prosecute international money laundering
and the financing of terrorism.

The final rule implementing information sharing was issued on September
26, 2002 and added sections
103.100 and 103.110 to the Bank Secrecy Act regulations. The new section
103.100 establishes a mechanism for law enforcement to communicate the names of
suspected terrorists and money launders to financial institutions in return for
securing the ability to promptly locate accounts and transactions involving
suspects. Financial Institutions receiving names of suspects must search their
account and transaction records for potential matches and report positive
results to the Treasurys Financial Crimes Enforcement Network (FinCen) in
the manner and time frame specified in the request. The new section 103.110
outlines how financial institutions can share information concerning suspected
terrorist and money laundering activity with other financial institutions under
the protection of the statutory safe harbor from liability.

The law also:



| |  | Provides for financial institutions to take reasonable steps to ensure they are not providing banking services directly or
indirectly to foreign shell banks;                                                                                    
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Provides an enhanced framework for identification of customers;                                                                                                                                                                                  
| 
| |  | Proposes similar anti-money laundering programs for Insurance companies, unregistered investment companies, savings
associations and credit unions, futures commission merchants, mutual funds, money service businesses and credit card
systems;
| 
| |  | Modifies the laws governing the Bank Secrecy Act; and                                                                                                                                                                                            
| 
| |  | Addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of
financial institutions in relation to money laundering and terrorism.                                                  

The Company does not expect the USA Patriot Act to have a material effect on operations.

The Company filed for and was approved as a Financial Services Holding
Company in April 2000. Financial Services Holding Companies may affiliate with
securities firms and insurance companies and engage in other activities that
are financial in nature or are complementary to activities that are financial
in nature. Financial in nature activities include: securities underwriting;
dealing and market making; sponsoring mutual funds and investment companies;
insurance underwriting and agencies; merchant banking; and activities that the
Federal Reserve, in consultation with the Secretary of the Treasury, determines
from time to time to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.




Pending Legislation and Regulations

Certain pending legislative proposals include bills to let banks pay
interest on business checking accounts, to cap consumer liability for stolen
debit cards, and to give judges the authority to force high-income borrowers to
repay their debts rather than cancel them through bankruptcy.




Competition

In the past, an independent banks principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies.

11



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##### Table of Contents



Other institutions, such as brokerage houses, mutual fund companies,
credit card companies, and even retail establishments have offered new
investment vehicles, which also compete with banks for deposit business. The
direction of federal legislation in recent years seems to favor competition
between different types of financial institutions and to foster new entrants
into the financial services market, and it is anticipated that this trend will
continue.

Among the competitive advantages, that major banks have is their ability
to finance wide ranging advertising campaigns and to allocate their investment
assets into investments of higher yield and demand. Such institutions offer
certain services such as trust services and international banking services that
are not offered directly by the Bank (but are offered indirectly through
correspondent relationships). Because of their greater total capitalization,
major banks have substantially higher legal lending limits than the Bank.

In order to compete with major banks and other competitors in its primary
service areas, the Bank relies upon the experience of its executive and senior
officers in serving business clients, and upon its specialized services, local
promotional activities and the personal contacts made by its officers,
directors and employees. For customers whose loan demand exceeds the Banks
legal lending limit, the Bank may arrange for such loans on a
participation basis with correspondent banks. Competitive pressures in the
banking industry significantly increase changes in the interest rate
environment, reducing net interest margins, and less than favorable economic
conditions can result in a deterioration of credit quality and an increase in
the provisions for loan losses.

With respect to its credit card processing services, the Bank competes
with other banks, independent sales organizations (ISOs) and other nonbank
processors. Many of these competitors are substantially larger than the Bank.
The bank competes on the basis of price, the availability of products and
services, the quality of customer service, support, and transaction processing
speed. The majority of the Banks contracts with merchants are cancelable at
will or on short notice or provide for renewal at frequent periodic intervals
and, accordingly, the Bank regularly rebids such contracts. This competition
may influence the prices that can be charged by the Bank and require aggressive
cost control or increase transaction volume in order to maintain acceptable
profit margins. Further, because of tightening margins, there has been a trend
toward consolidation in the merchant processing industry.

Consolidation will enable certain of the Companys competitors to have
access to significant capital, management, marketing and technological
resources that are equal to or greater than those of the Company.




Employees

As of December 31, 2002, the Company employed 112 persons. None of the
Companys employees are represented by a labor union and the Company considers
its employee relations to be excellent.

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##### Table of Contents






Risk Factors That May Affect Results

This report includes forward-looking statements within the meaning of the
Securities Exchange Act of 1934 (the Exchange Act). These statements are
based on managements beliefs and assumptions, and on information available to
management as of the date of this document. Forward-looking statements include
the information concerning possible or assumed future results of operations of
the Company set forth under the heading Managements Discussion and Analysis
of Financial Condition and Results of Operations. Forward-looking statements
also include statements in which words such as expect, anticipate,
intend, plan, believe, estimate, consider or similar expressions are
used. Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions, including the risks
discussed under the heading Risk Factors That May Affect Results and
elsewhere in this report. The Companys actual future results and shareholder
values may differ materially from those anticipated and expressed in these
forward-looking statements. Many of the factors that will determine these
results and values, including those discussed under the heading Risk Factors
That May Affect Results, are beyond the Companys ability to control or
predict. Investors are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any
intention or and assumes no obligation to update forward-looking statements
after the date of the filing of this report, even if new information, future
events or other circumstances have made such statements incorrect or
misleading. Except as specifically noted herein all referenced to the Company
refer to Redding Bancorp, a California corporation, and its consolidated
subsidiaries.




Lending Risks Associated with Commercial Banking and Construction
Activities

The business strategy of the Bank is to focus on commercial, single family
and multi-family real estate loans, construction loans and commercial business
loans. Loans secured by commercial real estate are generally larger and
involve a greater degree of credit and transaction risk than residential
mortgage (one-to-four family) loans. Because payments on loans secured by
commercial and multi-family real estate properties are often dependent on
successful operation or management of the underlying properties, repayment of
such loans may be subject to a greater extent to the then prevailing conditions
in the real estate market or the economy. Moreover, real estate construction
financing is generally considered to involve a higher degree of credit risk
than long-term financing on improved, owner-occupied real estate. Risk of loss
on a construction loan is dependent largely upon the accuracy of the initial
estimate of the propertys value at completion of construction or development
compared to the estimated cost (including interest) of construction. If the
estimate of value proves to be inaccurate, the Bank may be confronted with a
project which, when completed, has a value which is insufficient to assure full
repayment of the construction loan.

Although the Bank manages lending risks through its underwriting and
credit administration policies, no assurance can be given that such risks would
not materialize, in which event the Companys financial condition, results of
operations, cash flows and business prospects could be materially adversely
affected.




Dependence on Real Estate

At December 31, 2002, approximately 65.7% of the loans of the Bank were
secured by real estate. The value of the Banks real estate collateral has
been, and could in the future be adversely affected by any economic recession
and any resulting adverse impact on the real estate market in Upstate
California such as that experienced during the early years of the 1990s. See
-Economic Conditions and Geographic Concentration - page 16.

The Banks primary lending focus has historically been commercial real
estate, construction and, to a lesser extent, commercial lending. At December
31, 2002, commercial real estate and construction loans comprised approximately
51% and 14%, respectively, of the total loans in the portfolio of the Bank. At
December 31, 2002, all of the Banks real estate mortgage and real estate
construction loans, commercial real estate loans, were secured fully or in part
by deeds of trust on underlying real estate. The Banks dependence on real
estate increases the risk of loss in the loan portfolio of the Bank and its
holdings of other real estate owned if economic conditions in Upstate
California deteriorate in the future. Deterioration of the real estate market
in Upstate California could have a material adverse effect on the Companys
business, financial condition and results of operations. See -Economic
Conditions and Geographic Concentration  - page 16.

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##### Table of Contents






Risks Specific to Operations in California

The Companys operations are located entirely in California, which has in
recent years experienced economic disruptions that are unique to the state. At
the time this report was being prepared, the state legislature was still
debating how to respond to the forecast 2003 record multi-billion dollar state
deficit. In the recent past the state also experienced an energy crisis that
resulted in higher energy costs to consumers and businesses, with attendant
negative economic effects. The Company can offer no assurances that such unique
issues within the state will not have a material adverse affect on the
Companys customers or on the Companys business, financial condition and
results of operations.




Interest Rate Risk

The income of the Bank depends to a great extent on interest rate
differentials and the resulting net interest margins (i.e., the difference
between the interest rates earned on the Banks interest-earning assets such as
loans and investment securities, and the interest rates paid on the Banks
interest-bearing liabilities such as deposits and borrowings). These rates are
highly sensitive to many factors, which are beyond the Companys control,
including general economic conditions, inflation, recession and the policies of
various governmental and regulatory agencies, in particular, the FRB. Because
of the Banks predisposition to variable rate pricing, and non-interest bearing
demand deposit accounts the Bank is asset sensitive. As a result, the Company
is generally adversely affected by declining interest rates. In addition,
changes in monetary policy, including changes in interest rates, influence the
origination of loans, the purchase of investments and the generation of
deposits and affect the rates received on loans and investment securities and
paid on deposits, which could have a material adverse effect on the Companys
business, financial condition and results of operations. See Quantitative and
Qualitative Disclosure about Market Risk.




Merchant Credit Card Processing Services

The Banks fee income from merchant processing services represented
approximately 2.1%, 4.1% and 8.2% of the Companys consolidated revenues in
2002, 2001 and 2000, respectively. In addition, contract deposit relationships
with the merchants in the portfolio of the Bank and CSI represented $7.7
million or approximately 2.4% of the Banks total deposits as of December 31,
2002.

In April 1993, the Bank entered into an agreement (the Merchant Services
Agreement) with Cardservice International, Inc. (CSI), an independent sales
organization (ISO) and nonbank merchant credit card processor, pursuant to
which the Bank has agreed to provide credit and debit card processing services
for merchants solicited by CSI who accept credit and debit cards as payment for
goods and services. Pursuant to the Merchant Services Agreement, the Bank acts
as a clearing bank for CSI and processes credit or debit card transactions into
the Visa® or MasterCard® system for presentment to the card issuer. As a
result of the Merchant Services Agreement, the Bank has acquired electronic
credit and debit card processing relationships with merchants in various
industries on a nationwide basis. The Merchant Services Agreement with CSI was
renewed on April 1, 2001. Effective April 1, 2001, pricing of the contract
renewal is .002 percent of transaction processing and one-half of the earnings
on the deposit relationship. The contract renewal represents a significant
decline in revenues from merchant credit card processing.

The Company has been successful in pursuing various strategies to offset
the decline in revenues, including expansion of the Roseville Bank of Commerce,
purchase of the Sunrise branch office, and projecting aggressive growth in the
loan markets.

See Managements Discussion and Analysis of Financial Condition and
Results of Operations-Noninterest Income-Merchant Processing Services Income.

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##### Table of Contents



Chargebacks and Payment Risks Associated with Merchant Processing
Services

The Bank is subject to the Card Association Rules in processing credit and
debit card transactions. In the event of certain types of billing disputes
between a cardholder and a merchant, the processor of the transaction assists
the merchant in investigating and resolving the dispute. If the dispute is not
resolved in favor of the merchant, the transaction is charged back to the
merchant and that amount is credited or otherwise refunded to the cardholder.
If the processor is unable to collect such amounts from the merchants account,
and if the merchant refuses or is unable due to bankruptcy or other reasons to
reimburse the processor for the chargeback, the processor bears the loss for
the amount of the refund paid to the cardholder. Pursuant to the Merchant
Services Agreement, CSI has agreed to indemnify the Bank against losses
incurred in connection with credit card transactions generated by merchants in
CSIs portfolio. In addition, pursuant to the Merchant Services Agreement, CSI
is required to maintain a general account with the Bank and has granted the
Bank a security interest in such account to secure CSIs obligations under the
Merchant Services Agreement.

The balances required to be maintained by CSI in general account
constitute a small percentage of the dollar volume of transactions processed by
the Bank each month. In the event that the funds in accounts maintained by CSI
are not sufficient to cover chargebacks and refund payments to cardholders and
CSI is unable to reimburse the Bank for such deficiencies, the Bank would bear
the loss which could have a material adverse effect on the Companys financial
condition, results of operations and cash flows. See Managements Discussion
and Analysis of Financial Condition and Results of Operations-Noninterest
Income-Merchant Processing Services Income.

Chargeback exposure can also result from fraudulent credit card
transactions initiated by merchant customers. Examples of merchant fraud
include logging fictitious sales transactions and falsification of transaction
amounts on actual sales. The Bank conducts a background review of its merchant
customers at the time the relationship is established with the merchant. The
Bank also can withhold or delay a merchants daily settlement if fraudulent
activity is suspected, thereby mitigating exposure to loss. However, there can
be no assurance that the Bank will not experience significant amounts of
merchant fraud, which could have a material adverse effect on the Companys
business, financial condition and results of operations. The degree of
exposure to chargebacks may also be adversely affected by the development of
new transaction delivery channels, such as the Internet, which have yet to be
fully evaluated.

The Company is not exposed to card issuer credit losses unassociated with
a dispute between the cardholder and the merchant.




Potential Volatility of Deposits

At December 31, 2002, time certificates of deposit in excess of $100,000
represented approximately 26% of the dollar value of the total deposits of the
Bank. As such, these deposits are considered volatile and could be subject to
withdrawal. Withdrawal of a material amount of such deposits could adversely
affect the liquidity of the Bank, profitability, business prospects, results of
operations and cash flows. The bank monitors activity of volatile liability
deposits on a quarterly basis. Approximately $30.0 million of the $81.7 million
in time certificates of deposit over $100,000 act as core deposits with over
five years history of rollover with the bank.




Dividends

Because the Company conducts no other significant activity than the
management of its investment in the Bank, the Company is dependent on the Bank
for income. The ability of the Bank to pay cash dividends in the future
depends on the profitability, growth and capital needs of the Bank. In
addition, the California Financial Code restricts the ability of the Bank to
pay dividends. No assurance can be given that the Company or the Bank will pay
any dividends in the future or, if paid, such dividends will not be
discontinued.

See -Supervision and Regulation-Supervision and Regulation of Bank
Holding Companies and -Supervision and Regulation-Restrictions on Dividends
and Other Distributions.

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Competition in Primary Market

In California generally, and in the Companys primary market area
specifically, major banks and brokerage firms dominate the financial services
industry. By virtue of their larger capital bases, such institutions have
substantially greater lending limits than those of the Bank do. In obtaining
deposits and making loans, the Bank competes with these larger commercial banks
and other financial institutions, such as savings and loan associations and
credit unions, which offer many services, which traditionally, were offered
only by banks. In addition, the Bank competes with other institutions such as
money market funds, brokerage firms, and even retail stores seeking to
penetrate the financial services market. During periods of declining interest
rates, competitors with lower costs of capital may solicit the Banks customers
to refinance their loans. Furthermore, during periods of economic slowdown or
recession, the borrowers of the Bank may face financial difficulties and be
more receptive to offers from the Banks competitors to refinance their loans.
No assurance can be given that the Bank will be able to compete with these
lenders.

Competition in the merchant processing industry is intense. The Bank
competes with other banks, ISOs and other nonbank processors. Many of these
competitors are substantially larger than the Bank. The Bank competes on the
basis of price, the availability of products and services, the quality of
customer service and support and transaction processing speed. The majority of
the Banks contracts with merchants are cancelable at will or on short notice
or provides for renewal at frequent periodic intervals and, therefore, the Bank
regularly rebids such contracts.

This competition may influence the prices that can be charged by the Bank
and require aggressive cost control or increased transaction volume in order to
maintain acceptable profit margins. If the Bank is not able to maintain
acceptable profit margins, it could be forced to discontinue merchant
processing services, which would have a material adverse effect on the
Companys results of operations and cash flows. Further, because of tightening
margins, there has been a trend toward consolidation in the merchant processing
industry. Consolidation will enable certain of the Banks competitors to have
access to significant capital, management, marketing and technological
resources that are equal to or greater than those of the Bank. No assurance
can be given that the Bank or any ISO for which the Bank performs clearing bank
services will be able to compete successfully for merchant processing business
in the future.




Government Regulation and Legislation

The Company and the Bank are subject to extensive state and federal
regulation, supervision and legislation, which govern almost all aspects of the
operations of the Company and the Bank. The business of the Company is
particularly susceptible to being affected by the enactment of federal and
state legislation which may have the effect of increasing or decreasing the
cost of doing business, modifying permissible activities or enhancing the
competitive position of other financial institutions. Such laws are subject to
change from time to time and are primarily intended for the protection of
consumers, depositors and the deposit insurance funds and not for the
protection of shareholders of the Company. The Company cannot predict what
effect any presently contemplated or future changes in the laws or regulations
or their interpretations would have on the business and prospects of the
Company, but it could be material and adverse. See -Supervision and
Regulation.




Economic Conditions and Geographic Concentration

The Companys operations are located and concentrated primarily in Upstate
California, particularly the counties of El Dorado, Placer, Shasta and
Sacramento, and are likely to remain so for the foreseeable future. At
December 31, 2002, approximately 65.7% of the Banks loan portfolio consisted
of real estate related loans, all of which were related to collateral located
in Upstate California. A change in California economic and business conditions
may adversely affect the performance of these loans. Deterioration in economic
conditions could have a material adverse effect on the quality of the loan
portfolio of the Bank and the demand for its products and services. In
addition, during periods of economic slowdown or recession, the Bank may
experience a decline in collateral values and an increase in delinquencies and
defaults. A decline in collateral values and an increase in delinquencies and
defaults increase the possibility and severity of losses. California real
estate is also subject to certain natural disasters, such as earthquakes,
floods and mudslides, which are typically not covered by the standard hazard
insurance policies maintained by borrowers.

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Uninsured disasters may make it difficult or impossible for borrowers to
repay loans made by the Bank.




Reliance on Key Employees and Others

As of December 31, 2002, the Company and its subsidiaries employed in the
aggregate 112 employees. The Company considers employee relations to be
excellent. A collective bargaining group represents none of the employees of
the Company or its subsidiaries. Failure of the Company to attract and retain
qualified personnel could have an adverse effect on the Companys business,
financial condition and results of operations. The Company does maintain life
insurance with respect to two of its officers with regard to a salary
continuation plan.




Adequacy of Allowance for Loan and Other Real Estate Losses

The Banks allowance for estimated losses on loans was approximately $3.8
million, or 1.3% of total loans at December 31, 2002. Material future
additions to the allowance for estimated losses on loans might be necessary if
material adverse changes in economic conditions occur and the performance of
the loan portfolio of the Bank deteriorates.

In addition, future additions to the Banks allowance for losses on other
real estate owned may also be required in order to reflect changes in the
markets for real estate in which the Banks other real estate owned is located
and other factors which may result in adjustments which are necessary to ensure
that the Banks foreclosed assets are carried at the lower of cost or fair
value, less estimated costs to dispose of the properties. Moreover, the FDIC
and the DFI, as an integral part of their examination process, periodically
review the Banks allowance for estimated losses on loans and the carrying
value of its assets. The Bank was most recently examined by the FDIC in this
regard during the first quarter of 2002. Increases in the provisions for
estimated losses on loans and foreclosed assets could adversely affect the
Banks financial condition and results of operations. See Managements
Discussion and Analysis of Financial Condition and Results of Operations-Asset
Quality and Managements Discussion and Analysis of Financial Condition and
Results of Operations-Allowance for Loan Losses (ALL).




Certain Ownership Restrictions under California and Federal Law

Federal law prohibits a person or group of persons acting in concert
from acquiring control of a bank holding company unless the FRB has been
given 60 days prior written notice of such proposed acquisition and within that
time period the FRB has not issued a notice disapproving the proposed
acquisition or extending for up to another 30 days, the period during which
such a disapproval may be issued. An acquisition may be made before the
expiration of the disapproval period if the FRB issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption
established by the FRB, the acquisition of more than 10% of a class of voting
stock of a bank with a class of securities registered under Section 12 of the
Exchange Act (such as the Common Stock), would, under the circumstances set
forth in the presumption, constitute the acquisition of control. In addition,
any company would be required to obtain the approval of the FRB under the
BHCA, before acquiring 25% (5% in the case of an acquiror that is, or is deemed
to be, a bank holding company) or more of the outstanding shares of the
Companys Common Stock, or such lesser number of shares as constitute control.
See -Supervision and Regulation-Regulation and Supervision of Bank Holding
Companies.

Under the California Financial Code, no person shall, directly or
indirectly, acquire control of a California licensed bank or a bank holding
company unless the Commissioner has approved such acquisition of control. A
person would be deemed to have acquired control of the Company and the Bank
under this state law if such person, directly or indirectly, has the power (i)
to vote 25% or more of the voting power of the Company or (ii) to direct or
cause the direction of the management and policies of the Company. For
purposes of this law, a person who directly or indirectly owns or controls 10%
or more of the Common Stock would be presumed to direct or cause the direction
of the management and policies of the Company and thereby control the Company.

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Shares Eligible for Future Sale

As of December 31, 2002, the Company had 2,641,536 shares of Common Stock
outstanding, of which 1,752,885 shares are eligible for sale in the public
market without restriction. 888,651 shares are eligible for sale in the public
market pursuant to Rule 144 under the Securities Act of 1933, as amended (the
Securities Act). Future sales of substantial amounts of the Companys Common
Stock, or the perception that such sales could occur, could have a material
adverse effect on the market price of the Common Stock. In addition, options
to acquire approximately 412,444 shares of the issued and outstanding shares
of Common Stock at exercise prices ranging from $8.25 to $20.00 have been
issued to directors and certain employees of the Company under the Companys
1998 Stock Option Plan. No prediction can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale,
will have on the market price of the Companys Common Stock.




Technology and Computer Systems

Advances and changes in technology can significantly impact the business
and operations of the Company. The Bank faces many challenges including the
increased demand for providing computer access to bank accounts and the systems
to perform banking transactions electronically. The Companys ability to
compete depends on its ability to continue to adapt its technology on a timely
and cost-effective basis to meet these requirements. In addition, the Banks
business and operations are susceptible to negative impacts from computer
system failures, communication and energy disruption and unethical individuals
with the technological ability to cause disruptions or failures of the Banks
data processing systems.

During the first quarter 2003, the Company will be reviewing proposals to
replace and enhance its core data processing systems. A decision is expected to
occur early 2003, for conversion to the new systems in the first quarter of
2004. The Bank anticipates the change to be transparent to customer service.
During the process, the bank will be enhancing workflow processes through out
the Company to improve efficiencies using advanced technologies.




Environmental Risks

The Bank, in its ordinary course of business, acquires real property
securing loans that are in default, and there is a risk that hazardous
substance or waste, contaminants or pollutants could exist on such properties.
The Bank may be required to remove or remediate such substances from the
affected properties at its expense, and the cost of such removal or remediation
may substantially exceed the value of the affected properties or the loans
secured by such properties. Furthermore, the Bank may not have adequate
remedies against the prior owners or other responsible parties to recover its
costs. Finally, the Bank may find it difficult or impossible to sell the
affected properties either before or following any such removal.

In addition, the Bank may be considered liable for environmental
liabilities concerning its borrowers properties, if, among other things, it
participates in the management of its borrowers operations. The occurrence of
such an event could have a material adverse effect on the Companys business,
financial condition, results of operations and cash flows.




Dilution

The Company has issued options to purchase shares of the Companys Common
Stock at prices equal to 85% of the fair market value of the Companys Common
Stock on the date of grant. As of December 31, 2002, the Company had
outstanding options to purchase an aggregate of 412,444 shares of Common Stock
at exercise prices ranging from $8.25 to $20.00 per share, or a weighted
average exercise price per share of $10.58. To the extent such options are
exercised, shareholders of the Company will experience dilution. The Company
established a Stock Repurchase program to mitigate the effects of dilution. The
program authorizes a systematic approach to repurchasing shares over a
seven-year period.

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ITEM 2. PROPERTIES.

The Companys principal offices and the Banks main office are housed in a
two-story building with approximately 21,000 square feet of space located at
1951 Churn Creek Road, Redding, California, 96002. The Bank owns the building
and the 1.25 acres of land on which the building is situated. The Bank also
owns the land and building located at 1177 Placer Street, Redding, California,
96002, in which the Bank uses approximately 11,650 square feet of space for its
banking operations.

The Companys Roseville Bank of Commerce at Eureka office is located on
the first floor of a three-story building with approximately 8,550 square feet
of space located at 1504 Eureka Road, Roseville, California. The Company
leases the space pursuant to a triple net lease expiring in August 1, 2011. The
Companys Roseville Bank of Commerce at Sunrise office is a free standing
building with approximately 4,982 square feet of space located at 6950 Sunrise
Boulevard, Citrus Heights. The Company subleases the space from Wells Fargo
Bank expiring on March 5, 2009.




ITEM 3. LEGAL PROCEEDINGS.

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




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted during the quarter ended December 31, 2002 to a
vote of the Companys security holders.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

Trades in the Companys common stock are made through Hoefer & Arnett
located at 555 Market Street, 18th Floor, San Francisco, California 94105. The
Companys common stock is traded on the OTC Bulletin Board under the symbol,
RDDB. The Company plans to apply to the BBX (Bulletin Board Exchange) during
2003.

The following table, which summarizes trading activity during the
Companys last two fiscal years, is based on information obtained from the OTC
Bulletin Board. The quotations reflect the price that would be received by the
seller without retail mark-up, mark-down or commissions and may not have
represented actual transactions.

|                   |  |                       |       |     |  |        |       |  |  |  |         | 
|------------------ |  | --------------------- | ----- | --- |  | ------ | ----- |  |  |  | ------- | 
|                   |  | Sales Price Per Share
|                   |  |                      
|Quarter Ended:     |  | High                  |       | Low |  | Volume
|                   |  |                       |       |     |  |       
|March 31, 2002     |  | $                     | 22.99 |     |  | $      | 22.55 |  |  |  | 104,550 | 
|June 30, 2002      |  | $                     | 21.50 |     |  | $      | 21.40 |  |  |  | 39,206  | 
|September 30, 2002 |  | $                     | 21.00 |     |  | $      | 20.50 |  |  |  | 140,067 | 
|December 31, 2002  |  | $                     | 20.35 |     |  | $      | 19.51 |  |  |  | 3,500   | 
|March 31, 2001     |  | $                     | 17.00 |     |  | $      | 14.00 |  |  |  | 13,401  | 
|June 30, 2001      |  | $                     | 17.25 |     |  | $      | 15.50 |  |  |  | 161,942 | 
|September 30, 2001 |  | $                     | 21.15 |     |  | $      | 18.00 |  |  |  | 304,585 | 
|December 31, 2001  |  | $                     | 24.50 |     |  | $      | 19.25 |  |  |  | 121,066 | 

As of December 31, 2002 there were approximately 400 shareholders of
record of the Companys Common Stock and the market price on that date was
$19.80 per share.

The Companys ability to pay dividends is subject to certain regulatory
requirements. The Federal Reserve Board (FRB) generally prohibits a
financial services holding company from declaring or paying a cash dividend
which would impose undue pressure on the capital of subsidiary banks or would
be funded only through borrowing or other arrangements that might adversely
affect a financial services holding companys financial position. The FRBs
policy is that a financial services holding company should not continue its
existing rate of cash dividends on its common stock unless its net income is
sufficient to fully fund each dividend and its prospective rate of earnings
retention appears consistent with its capital needs, asset quality and overall
financial condition. The power of the board of directors of an insured
depository institution to declare a cash dividend or other distribution with
respect to capital is subject to statutory and regulatory restrictions which
limit the amount available for such distribution depending upon the earnings,
financial condition and cash needs of the institution, as well as general
business conditions.

On October 22, 2002 and 2001, a cash dividend of $0.65 per share was paid
to shareholders of record as of October 1, 2002 and 2001 respectively.

The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions, including dividends, if, after such transaction, the
institution would be undercapitalized.

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In addition to the restrictions imposed under federal law, banks chartered
under California law generally may only pay cash dividends to the extent such
payments do not exceed the lesser of retained earnings of the bank or the
banks net income for its last three fiscal years (less any distributions to
shareholders during such period). In the event a bank desires to pay cash
dividends in excess of such amount, the bank may pay a cash dividend with the
prior approval of the Commissioner of Financial Institutions in an amount not
exceeding the greatest of the banks retained earnings, the banks net income
for its last fiscal year, or the banks net income for its current fiscal year.

Regulators also have authority to prohibit a depository institution from
engaging in business practices which are considered to be unsafe or unsound,
possibly including payment of dividends or other payments under certain
circumstances even if such payments are not expressly prohibited by statute.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below for the five
years ended December 31, 2002, have been derived from the Companys audited
consolidated financial statements and should be read in conjunction with
Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Companys audited financial statements and notes thereto,
included elsewhere in this report.


|                                                 |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|In Thousands (Except Per Share Data)             |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                 |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                                 |  | 2002 |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                 |  |      |         |      |  |      |         |      |  |     
|Statements of Income                             |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Interest Income                            |  | $    | 18,565  |      |  | $    | 20,216  |      |  | $    | 20,177  |   |  | $ | 17,270  |   |  | $ | 16,322  |  
|Net Interest Income                              |  | $    | 12,517  |      |  | $    | 11,190  |      |  | $    | 11,455  |   |  | $ | 10,835  |   |  | $ | 10,436  |  
|Provision for Loan Losses                        |  | $    | 620     |      |  | $    | 255     |      |  | $    | 142     |   |  | $ | 120     |   |  | $ | 500     |  
|Total Non-interest Income                        |  | $    | 2,091   |      |  | $    | 2,823   |      |  | $    | 2,807   |   |  | $ | 2,790   |   |  | $ | 2,539   |  
|Total Non-interest Expense                       |  | $    | 8,267   |      |  | $    | 7,143   |      |  | $    | 6,458   |   |  | $ | 6,434   |   |  | $ | 5,975   |  
|Total Revenues                                   |  | $    | 20,656  |      |  | $    | 23,039  |      |  | $    | 22,984  |   |  | $ | 20,060  |   |  | $ | 18,861  |  
|Net Income                                       |  | $    | 3,696   |      |  | $    | 4,274   |      |  | $    | 4,812   |   |  | $ | 4,370   |   |  | $ | 4,054   |  
|Balance Sheets                                   |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Assets                                     |  | $    | 367,434 |      |  | $    | 318,686 |      |  | $    | 255,107 |   |  | $ | 232,008 |   |  | $ | 216,085 |  
|Total Loans                                      |  | $    | 280,087 |      |  | $    | 219,876 |      |  | $    | 194,295 |   |  | $ | 172,817 |   |  | $ | 148,202 |  
|Allowance for Loan Losses                        |  | $    | 3,793   |      |  | $    | 3,180   |      |  | $    | 2,974   |   |  | $ | 2,972   |   |  | $ | 3,235   |  
|Total Deposits                                   |  | $    | 314,447 |      |  | $    | 281,436 |      |  | $    | 218,036 |   |  | $ | 198,323 |   |  | $ | 188,621 |  
|Stockholders Equity                              |  | $    | 27,667  |      |  | $    | 27,240  |      |  | $    | 28,754  |   |  | $ | 26,059  |   |  | $ | 24,654  |  
|Performance Ratios1                              |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Return on Average Assets2                        |  |      | 1.09    | %    |  |      | 1.49    | %    |  |      | 1.98    | % |  |   | 1.91    | % |  |   | 1.98    | %
|Return on Average Equity3                        |  |      | 13.92   | %    |  |      | 15.43   | %    |  |      | 17.95   | % |  |   | 17.60   | % |  |   | 18.04   | %
|Dividend Payout                                  |  |      | 46.57   | %    |  |      | 41.94   | %    |  |      | 35.32   | % |  |   | 36.25   | % |  |   | 33.18   | %
|Average Equity to Average Assets                 |  |      | 7.83    | %    |  |      | 9.67    | %    |  |      | 11.02   | % |  |   | 10.86   | % |  |   | 10.97   | %
|Tier 1 Risk-Based Capital-Bank4                  |  |      | 9.14    | %    |  |      | 10.93   | %    |  |      | 12.86   | % |  |   | 13.59   | % |  |   | 14.33   | %
|Total Risk-Based Capital-Bank                    |  |      | 10.19   | %    |  |      | 12.18   | %    |  |      | 14.11   | % |  |   | 14.85   | % |  |   | 15.58   | %
|Net Interest Margin5                             |  |      | 4.06    | %    |  |      | 4.24    | %    |  |      | 5.16    | % |  |   | 5.15    | % |  |   | 5.57    | %
|Average Earning Assets to Total Average
Assets   |  |      | 90.90   | %    |  |      | 92.15   | %    |  |      | 91.30   | % |  |   | 92.10   | % |  |   | 91.48   | %
|Nonperforming Assets to Total Assets6            |  |      | .10     | %    |  |      | .11     | %    |  |      | .31     | % |  |   | .19     | % |  |   | .49     | %
|Net Charge-offs to Average Loans                 |  |      | .01     | %    |  |      | .02     | %    |  |      | .09     | % |  |   | .22     | % |  |   | .06     | %
|Allowance for loan losses to Total Loans         |  |      | 1.35    | %    |  |      | 1.45    | %    |  |      | 1.53    | % |  |   | 1.72    | % |  |   | 2.18    | %
|Nonperforming Loans to Allowance for
loan losses |  |      | 0.18    | %    |  |      | 10.97   | %    |  |      | 26.93   | % |  |   | 13.26   | % |  |   | 30.54   | %
|Efficiency Ratio7                                |  |      | 56.59   | %    |  |      | 50.97   | %    |  |      | 45.28   | % |  |   | 47.22   | % |  |   | 46.05   | %
|Share Data                                       |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Common Shares Outstanding - basic                |  |      | 2,671   |      |  |      | 2,703   |      |  |      | 2,884   |   |  |   | 2,907   |   |  |   | 2,959   |  
|Common Shares Outstanding - diluted              |  |      | 2,868   |      |  |      | 2,856   |      |  |      | 3,035   |   |  |   | 3,144   |   |  |   | 2,858   |  
|Book Value Per Common Share                      |  | $    | 10.36   |      |  | $    | 10.08   |      |  | $    | 9.97    |   |  | $ | 8.97    |   |  | $ | 8.34    |  
|Basic Earnings Per Common Share                  |  | $    | 1.38    |      |  | $    | 1.52    |      |  | $    | 1.67    |   |  | $ | 1.49    |   |  | $ | 1.37    |  
|Diluted Earnings Per Common Share                |  | $    | 1.29    |      |  | $    | 1.44    |      |  | $    | 1.59    |   |  | $ | 1.38    |   |  | $ | 1.30    |  
|Cash Dividends Per Common Share                  |  | $    | 0.65    |      |  | $    | 0.65    |      |  | $    | 0.59    |   |  | $ | 0.55    |   |  | $ | 0.45    |  



---

|1 Regulatory Capital Ratios and Asset Quality Ratios are end of period ratios.
With the exception of end of period ratios, all ratios are based on average
daily balances during the indicated period.                                 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                       
|2 Return on average assets is net income divided by average total assets.                                                                                                                                                              
|                                                                                                                                                                                                                                       
|3 Return on average equity is net income divided by average stockholders
equity.                                                                                                                                                      
|                                                                                                                                                                                                                                       
|4 Regulatory capital ratios are defined in detail in the table on page 38.                                                                                                                                                             
|                                                                                                                                                                                                                                       
|5 Net interest margin equals net interest income as a percent of average
interest-earning assets.                                                                                                                                      
|                                                                                                                                                                                                                                       
|6 Non-performing assets includes all nonperforming loans (nonaccrual loans and
restructured loans) and real estate acquired by foreclosure.                                                                                            
|                                                                                                                                                                                                                                       
|7 The efficiency ratio is calculated by dividing non-interest expense by the
sum of net interest income and non-interest income. The efficiency ratio
measures how the Company invests in order to generate each dollar of net
revenue.

22



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##### Table of Contents






ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes thereto
appearing elsewhere in this report. All statements other than statements of
historical fact included in the following discussion are forward-looking
statements within the meaning of the Exchange Act. These statements are based
on managements beliefs and assumptions, and on information currently available
to management. Forward-looking statements include the information concerning
possible or assumed future results of operations of the Company and also
include statements in which words such as expect, anticipate, intend,
plan, believe, estimate, consider or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They
involve risks, uncertainties and assumptions, including the risks discussed
under the heading Risk Factors That May Affect Results and elsewhere in this
report. The Companys future results and shareholder values may differ
materially from those expressed in these forward-looking statements. Many of
the factors that will determine these results and values, including those
discussed under the heading Risk Factors That May Affect Results, are beyond
the Companys ability to control or predict. Investors are cautioned not to
put undue reliance on any forward-looking statements. In addition, the Company
does not have any intention or obligation to update forward-looking statements
after the filing of this report, even if new information, future events or
other circumstances have made them incorrect or misleading.




Critical Accounting Policies

General

Redding Bancorps financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP). The financial information contained within our statements is, to a
significant extent, financial information that is based on measures of the
financial effects of transactions and events that have already occurred. We
use historical loss factors as a component to determine the inherent loss that
may be present in our loan portfolio. Actual losses could differ significantly
from the historical and other factors that we use. Other estimates that we use
are expected useful lives of our depreciable assets. In addition, GAAP itself
may change from one previously acceptable method to another method. Although
the economics of our transactions would be the same, the timing of events that
would affect our transactions could change.

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses that may be
sustained in our loan portfolio. The allowance is based on two basic
principles of accounting. (1) Statement of Financial Accounting Standards
(SFAS) No. 5 Accounting for Contingencies, which requires that losses be
accrued when they are probable of occurring and estimable and (2) SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, which requires that losses
be accrued based on the differences between that value of collateral, present
value of future cash flows or values that are observable in the secondary
market and the loan balance.

Our allowance for loan losses has three basic components: the formula
allowance, the specific allowance and the allowance tied to economic trends and
other factors. Each of these components is determined based upon estimates
that can and do change when the actual events occur. The formula allowance
uses an historical loss view applied to the pool of unimpaired loans as an
indicator of future losses and, consequently, could differ from the loss
incurred in the future. However, since this history is updated with the most
recent loss information, the errors that might otherwise occur are mitigated.
The specific allowance uses various techniques to arrive at an estimate of loss
on impaired or likely impaired loans. Historical loss information and fair
market value of collateral are used to estimate those losses. The use of these
values is inherently subjective and our actual losses could be greater or less
than the estimates. The unallocated allowance captures losses that are
attributable to various economic events, industry or geographic sectors whose
impact on the portfolio have occurred but have yet to be recognized in either
the formula or specific allowances. For further information regarding our
allowance for loan losses, see page 32.

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##### Table of Contents



Accounting for Stock Options

The Company uses the intrinsic value based method for measuring
compensation cost related to stock options. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market price of
the stock at grant date over the amount an employee must pay to acquire the
stock. This cost is amortized on a straight-line basis over the vesting period
of the options granted.

The Company applies Accounting Principles Board Opinion No. 25 Accounting
for Stock Issues to Employees(APB 25) and related interpretations in
accounting for stock options. The fair value of options granted is determined
on the date of the grant using a binomial option-pricing model with the
following assumptions: a current volatility rate of 27% , a risk-fee interest
rate of 2.71% (based upon the five year treasury coupon rate at December 31,
2002), expected dividends of $0.65 per share per year, an annual dividend rate
of 3.06% and an assumed forfeiture rate of zero and an expected life of seven
years.

The Company

Redding Bancorp (the Company) is a financial services holding company
(FHC) registered under the Bank Holding Company Act of 1956, as amended, and
was incorporated in California on January 21, 1982, for the purpose of
organizing, as a wholly owned subsidiary, Redding Bank of Commerce (the
Bank). The Company elected to change to a FHC in 2000. As a financial
services holding company, the Company is subject to the Financial Holding
Company Act and to supervision by the Board of Governors of the Federal Reserve
System (FRB). The Companys principal business is to serve as a holding
company for the Bank and Redding Service Corporation, a California corporation
formed in 1993 for the purpose of processing trust deeds, and for other banking
or banking-related subsidiaries which the Company may establish or acquire. On
January 2, 2003, Redding Service Corporation has changed its name to RBC
Mortgage Services. The principal business of the subsidiary will be mortgage
brokerage services. The Companys principal source of income is dividends from
its subsidiaries. The Company conducts its corporate business operations at
the offices of the Bank located at 1951 Churn Creek Road, Redding, California
96002. The Company conducts its business operations in two geographic market
areas, Redding and Roseville, California and within two industry segments,
general banking and credit card processing. The Company considers Upstate
California to be the major market area of the Bank.

The Bank was incorporated as a California banking corporation on November
25, 1981, and received its certificate of authority to begin banking operations
on October 22, 1982. The Bank operates three full service branches and one
focused-service deposit facility. The Company established its first full
service branch at 1177 Placer Street, Redding, California, and opened for
business on October 22, 1982. On November 1, 1988, the Bank received a
certificate of authority to establish and maintain a loan production office in
Citrus Heights, California. On September 1, 1998, the Company relocated the
loan production office to 2400 Professional Drive in Roseville, California.

On March 1, 1994, the Bank received a certificate of authority to open a
second full-service branch at 1951 Churn Creek Road in Redding, California. On
June 30, 2000, the Bank received a certificate of authority to convert the loan
production office in Roseville to a full service banking facility under the
name Roseville Bank of Commerce, a division of Redding Banking of Commerce. On
June 15, 2001 the Bank acquired the deposit liabilities of FirstPlus Bank at
Citrus Heights, California and has renamed the facility Roseville Bank of
Commerce at Sunrise, a division of Redding Bank of Commerce. On February 22,
2002, the Roseville Bank of Commerce at Eureka Road, a division of Redding Bank
of Commerce office relocated to its permanent location at 1504 Eureka Road,
Suite 100, Roseville, California.

The Bank is principally supervised and regulated by the California
Department of Financial Institutions (DFI) and the Federal Deposit Insurance
Corporation (FDIC), and conducts a general commercial banking business in the
counties of El Dorado, Placer, Shasta, and Sacramento, California.

The services offered by the Bank include those traditionally offered by
commercial banks of similar size and character in California, such as checking,
interest-bearing checking (NOW) and savings accounts, money market deposit
accounts, commercial, real estate, construction, and term loans; travelers
checks, safe deposit boxes, collection services and electronic banking
activities. The primary focus of the Bank is to provide services to the
business and professional community of its major market area, including Small
Business Administration loans, payroll and accounting packages, benefit
administration and billing services.

24



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##### Table of Contents



The Bank does not offer trust services or international banking services and
does not plan to do so in the near future.

Most of the Banks customers are small to medium sized businesses,
professionals and other individuals with medium to high net worth, and most of
the Banks deposits are obtained from such customers. The Bank emphasizes
servicing the needs of local businesses and professionals and individuals
requiring specialized services. The primary business strategy of the Bank is
to focus on its lending activities. The Banks principal lines of lending are
(i) commercial, (ii) real estate construction and (iii) commercial and
residential real estate. The majority of the loans of the Bank are direct
loans made to individuals and small businesses in the major market area of the
Bank and are secured by real estate. See -Risk Factors That May Affect
Results-Dependence on Real Estate. A relatively small portion of the loan
portfolio of the Bank consists of loans to individuals for personal, family or
household purposes. The Bank accepts real estate, listed and unlisted
securities, savings and time deposits, automobiles, machinery and equipment and
other general business assets such as accounts receivable and inventory as
collateral for loans.

The Company derives its income from two principal sources: (i) Net
interest income, which is the difference between the interest income it
receives on interest-earning assets and the interest expense it pays on
interest-bearing liabilities, and (ii) fee income, which includes fees earned
on deposit services, income from SBA lending, electronic-based cash management
services and merchant credit card processing services.

Management considers the business of the Company to be divided into two
segments: (i) commercial banking and (ii) credit card services. Credit card
services are limited to those revenues, net of related data processing costs,
associated with the Merchant Services Agreement and the Banks agreement to
provide credit and debit card processing services for merchants solicited by
the Bank who accept credit and debit cards as payment for goods and services.




Results of Operations

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

The Company reported net income of $3.7 million for the year ended
December 31, 2002, representing a decrease of approximately $577,000 or 13.5%,
over net income of $4.3 million for the year ended December 31, 2001. Primary
factors contributing to the decrease in net income include a reduction in the
Merchant Credit Card processing service income pursuant to new contract
pricing, increases in salaries and benefits and occupancy expenses related to
the growth of the Company and new facilities in the Roseville market, the
lingering effects of loan portfolio repricing and the drop in investment
security yields . The Companys provision for loan losses increased to $620,000
in 2002 from $255,000 in 2001 resulting primarily from the growth in the loan
portfolio.

Return on average assets (ROA) was 1.09% and return on average common
equity (ROE) was 13.92% in 2002 compared with 1.49% and 15.43% respectively in
2001. Diluted earnings per share for 2002 and 2001 were $1.29 and $1.44,
respectively, a decrease of 10.4% in 2002 over 2001. The Companys average
total assets increased to $339.2 million in 2002 or 18.4% from $286.6 million
in 2001. As a result of the continuing expansion of the Companys Roseville
Bank of Commerce at Eureka additional loan demand in the Redding market area,
net loans, at December 31, 2002 increased to $280.1 million over $216.7 million
in 2001, an increase of $63.4 million or 29.3%.

Yields on portfolio loans dropped 189 basis points over the prior year due
to the lingering effects of the dramatic rate reductions in 2001 and the timing
of repricing opportunities, while federal funds sold dropped 198 basis points
over the prior year. Interest-bearing liabilities recognized a drop of 175
basis points, resulting in a net interest margin (spread) of 4.06% compared
with 4.24% in 2001 and 5.16% in 2000.

25



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##### Table of Contents



Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

The Company reported net income of $4.3 million for the year ended
December 31, 2001, representing a decrease of approximately $500,000, or 10.4%,
over net income of $4.8 million for the year ended December 31, 2000. Factors
contributing to the decrease in net income include a significant decrease in
net interest income resulting from multiple interest rate reductions partially
offset by increased loan volume and repricing of deposit liabilities. The
provision for loan loss was increased by $113,000 during 2001 over 2000
reflecting the Companys increased loan portfolio, ongoing efforts to increase
the effectiveness of its collection efforts, offset by a reduction in
classified assets.

Return on average assets (ROA) was 1.49% and return on average common
equity (ROE) was 15.43% in 2001 compared with 1.98% and 17.95% respectively in
2000. Diluted earnings per share for 2001 and 2000 were $1.44 and $1.59,
respectively, a decrease of 9.4% in 2001 over 2000. The Companys average total
assets increased to $286.6 million in 2001 or 17.8% from $243.3 million in
2000. As a result of the expansion of the Companys Roseville Bank of Commerce
in Roseville, California and continued loan demand in the Redding market area,
net loans, at December 31, 2001 increased to $216.7 million over $191.3 million
in 2000, an increase of $25.4 million or 13.3%.

Net Interest Income

The primary source of income for the Bank is derived from net interest
income. Net interest income represents the excess of interest and fees earned
on assets (loans, securities 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.

Net interest income increased to $12.5 million in 2002 versus $11.2
million in 2001 and $11.5 million in 2000, representing a 11.6% increase in
2002 over 2001, and a 2.6% decrease in 2001 over 2000. The average balance of
total earning assets increased to $308.3 million or 16.7% over 2001. Average
loan balances outstanding increased $48.6 million or 23.7% in 2002, while
average balances of investments and federal funds sold decreased $4.4 million
or 8.0% in 2002. The average yields on loans decreased by 189 basis points and
investment income decreased by 58 basis points. The resulting yield on interest
earning assets decreased to 6.02% in 2002 from 7.65% 2001. The increased volume
of loan activity offset the continued declining interest rate environment,
coupled with aggressive deposit liability repricing resulted in a gain in the
net interest margin of $1.3 million, or 11.9%.

Total interest expense decreased to $6.0 million in 2002, from $9.0
million in 2001 and $8.7 million in 2000, representing a 33.0% decrease for
2002 over 2001, and a 3.5% increase in 2001 over 2000. Average balances of
interest-bearing liabilities increased to $259.1 million over $221.3 million
for the year ended December 31, 2002, or 17.0%. Yields on deposits decreased
175 basis points, to 2.33% from 4.08% in 2001. The reduction in funding costs
reflects the Companys strategy to grow core deposits and use Federal Home Loan
borrowings to support the loan growth while holding higher cost certificate of
deposit accounts to a minimum. Demand checking accounts increased 23.9%,
Interest-bearing demand instruments increased 26.3%, Savings deposits increased
22.1% while certificate of deposit accounts increased a modest 0.2% over the
prior year.

The most significant impact on net interest income between periods is
derived from the interaction of changes in the volume of and rate earned or
paid on interest-earning assets and interest-bearing liabilities.
The volume of interest-earning assets in loans and investments, compared to the
volume of interest-bearing liabilities represented by deposits and borrowings,
combined with the spread, produces the changes in net interest income between
periods. The Companys net interest margin was 4.06% in 2002 and 4.24% in 2001.
The combined effect of increasing the volume of earning assets and repricing
deposit liabilities resulted in an increase of $1.3 million or 11.9% in net
interest income for the year ended December 31, 2002 over 2001.

26



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##### Table of Contents



The following table sets forth the Companys daily average balance sheet,
related interest income or expense and yield or rate paid for the periods
indicated. The yield on tax-exempt securities has not been adjusted to a
tax-equivalent yield basis.

|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|------------------------------------------- |  | ---------------------------------------------------------------------------------------- | ------- | -------- |  | ---- | ------ | ------- |  | -------- | ----- | ---- |  | ------- | ------- | -------- |  | ------- | ------ |  |  |  | ----- | ------ |  | - | ------- |  |  | - | ------ |  |  |  | ---- | -
|                                            |  | Average Balances, Interest Income/Expense and Yields/Rates Paid
Years Ended December 31,
|(Dollars in thousands)                      |  | 2002                                                                                     |         | 2001     |  | 2000
|                                            |  |                                                                                          |         |          |  |     
|                                            |  | Average                                                                                  |         |          |  |      |        | Yield/  |  | Average  |       |      |  |         |         | Yield/   |  | Average |        |  |  |  |       | Yield/
|                                            |  | Balance                                                                                  |         | Interest |  | Rate |        | Balance |  | Interest |       | Rate |  | Balance |         | Interest |  | Rate   
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |        
|Earning Assets                              |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Portfolio loans                             |  | $                                                                                        | 253,454 |          |  | $    | 16,812 |         |  |          | 6.63  | %    |  | $       | 204,861 |          |  | $       | 17,459 |  |  |  | 8.52  | %      |  | $ | 178,486 |  |  | $ | 17,622 |  |  |  | 9.87 | %
|Tax exempt securities                       |  |                                                                                          | 3,276   |          |  |      | 138    |         |  |          | 4.21  | %    |  |         | 4,428   |          |  |         | 200    |  |  |  | 4.52  | %      |  |   | 3,129   |  |  |   | 138    |  |  |  | 4.41 | %
|US government securities                    |  |                                                                                          | 21,184  |          |  |      | 730    |         |  |          | 3.45  | %    |  |         | 23,223  |          |  |         | 1,212  |  |  |  | 5.22  | %      |  |   | 23,052  |  |  |   | 1,305  |  |  |  | 5.66 | %
|Mortgage backed securities                  |  |                                                                                          | 15,755  |          |  |      | 570    |         |  |          | 3.62  | %    |  |         | 7,737   |          |  |         | 433    |  |  |  | 5.60  | %      |  |   | 0       |  |  |   | 0      |  |  |  | 0.00 | %
|Federal funds sold                          |  |                                                                                          | 13,978  |          |  |      | 227    |         |  |          | 1.62  | %    |  |         | 23,170  |          |  |         | 833    |  |  |  | 3.60  | %      |  |   | 16,861  |  |  |   | 1,050  |  |  |  | 6.23 | %
|Other securities                            |  |                                                                                          | 661     |          |  |      | 88     |         |  |          | 13.31 | %    |  |         | 683     |          |  |         | 79     |  |  |  | 11.57 | %      |  |   | 639     |  |  |   | 62     |  |  |  | 9.70 | %
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Average Earning Assets                      |  | $                                                                                        | 308,308 |          |  | $    | 18,565 |         |  |          | 6.02  | %    |  | $       | 264,102 |          |  | $       | 20,216 |  |  |  | 7.65  | %      |  | $ | 222,167 |  |  | $ | 20,177 |  |  |  | 9.08 | %
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Cash & due from banks                       |  |                                                                                          | 19,566  |          |  |      |        |         |  |          |       |      |  |         | 12,346  |          |  |         |        |  |  |  |       |        |  |   | 10,783  |  |  |   |        |  |  |  |      |  
|Bank premises                               |  |                                                                                          | 5,395   |          |  |      |        |         |  |          |       |      |  |         | 5,276   |          |  |         |        |  |  |  |       |        |  |   | 5,397   |  |  |   |        |  |  |  |      |  
|Other assets                                |  |                                                                                          | 5,903   |          |  |      |        |         |  |          |       |      |  |         | 4,887   |          |  |         |        |  |  |  |       |        |  |   | 4,992   |  |  |   |        |  |  |  |      |  
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Average Total Assets                        |  | $                                                                                        | 339,172 |          |  |      |        |         |  |          |       |      |  | $       | 286,611 |          |  |         |        |  |  |  |       |        |  | $ | 243,339 |  |  |   |        |  |  |  |      |  
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Interest Bearing Liabilities                |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Interest bearing demand                     |  | $                                                                                        | 80,371  |          |  | $    | 597    |         |  |          | 0.74  | %    |  | $       | 57,288  |          |  | $       | 909    |  |  |  | 1.59  | %      |  | $ | 43,569  |  |  | $ | 1,122  |  |  |  | 2.58 | %
|Savings                                     |  |                                                                                          | 19,493  |          |  |      | 145    |         |  |          | 0.74  | %    |  |         | 14,925  |          |  |         | 340    |  |  |  | 2.28  | %      |  |   | 13,426  |  |  |   | 428    |  |  |  | 3.19 | %
|Certificates of deposit                     |  |                                                                                          | 145,824 |          |  |      | 5,115  |         |  |          | 3.51  | %    |  |         | 142,651 |          |  |         | 7,584  |  |  |  | 5.32  | %      |  |   | 115,640 |  |  |   | 6,881  |  |  |  | 5.95 | %
|Other borrowings                            |  |                                                                                          | 13,383  |          |  |      | 191    |         |  |          | 1.43  | %    |  |         | 6,461   |          |  |         | 193    |  |  |  | 2.99  | %      |  |   | 4,237   |  |  |   | 291    |  |  |  | 6.87 | %
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|                                            |  |                                                                                          | 259,071 |          |  |      | 6,048  |         |  |          | 2.33  | %    |  |         | 221,325 |          |  |         | 9,026  |  |  |  | 4.08  | %      |  |   | 176,872 |  |  |   | 8,722  |  |  |  | 4.93 | %
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Non-interest Bearing Demand                 |  |                                                                                          | 50,583  |          |  |      |        |         |  |          |       |      |  |         | 34,259  |          |  |         |        |  |  |  |       |        |  |   | 36,579  |  |  |   |        |  |  |  |      |  
|Other liabilities                           |  |                                                                                          | 2,974   |          |  |      |        |         |  |          |       |      |  |         | 3,321   |          |  |         |        |  |  |  |       |        |  |   | 3,084   |  |  |   |        |  |  |  |      |  
|Shareholder equity                          |  |                                                                                          | 26,544  |          |  |      |        |         |  |          |       |      |  |         | 27,706  |          |  |         |        |  |  |  |       |        |  |   | 26,804  |  |  |   |        |  |  |  |      |  
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Average Liabilities and
Shareholders Equity |  | $                                                                                        | 339,172 |          |  |      |        |         |  |          |       |      |  | $       | 286,611 |          |  |         |        |  |  |  |       |        |  | $ | 243,339 |  |  |   |        |  |  |  |      |  
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  
|Net Interest Income and Net
Interest Margin |  |                                                                                          |         |          |  | $    | 12,517 |         |  |          | 4.06  | %    |  |         |         |          |  | $       | 11,190 |  |  |  | 4.24  | %      |  |   |         |  |  | $ | 11,455 |  |  |  | 5.16 | %
|                                            |  |                                                                                          |         |          |  |      |        |         |  |          |       |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |      |  

Interest income on loans includes fee income of $272,000, $285,000 and
$369,000 for the years ended December 31, 2002, 2001, and 2000 respectively.

The Companys average total assets increased to $339.2 million in 2002 to
$286.6 in 2001 and $243.3 in 2000, representing a 18.3% increase 2002 over
2001, and 17.8% increase in 2001 over 2000. Average portfolio loans increased
to $253.4 million in 2002 and $204.8 million in 2001, representing an increase
of 23.7% and 14.7%, respectively.

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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 not solely attributable to rate or volume has been
allocated to volume. The yield on tax-exempt securities has not been adjusted
to a tax-equivalent yield basis.

|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|--------------------------- |  | ------------------------------------------------------------------- | ----- | -------------- |  | ----- | ------ | ------ |  | ---- | ------ | ----- |  | - | ----- |  |  | - | ------ | - |  | - | ---- | -
|                            |  | Analysis of Changes in Net Interest Income
Years ended December 31,
|(Dollars in thousands)      |  | 2002 over 2001                                                      |       | 2001 over 2000 | 
|                            |  |                                                                     |       |                | 
|                            |  | Volume                                                              |       | Rate           |  | Total |        | Volume |  | Rate |        | Total
|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |      
|Increase (Decrease)         |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|In Interest Income:         |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|Portfolio loans             |  | $                                                                   | 2,256 |                |  | $     | (2,903 | )      |  | $    | (647   | )     |  | $ | 1,645 |  |  | $ | (1,808 | ) |  | $ | (163 | )
|Tax-exempt securities       |  |                                                                     | (52   | )              |  |       | (10    | )      |  |      | (62    | )     |  |   | 60    |  |  |   | 2      |   |  |   | 62   |  
|US government securities    |  |                                                                     | (173  | )              |  |       | (309   | )      |  |      | (482   | )     |  |   | 303   |  |  |   | (60    | ) |  |   | 288  |  
|Mortgage backed securities  |  |                                                                     | 244   |                |  |       | (115   | )      |  |      | 137    |       |  |   | 97    |  |  |   | (45    | ) |  |   | 52   |  
|Federal funds sold          |  |                                                                     | (263  | )              |  |       | (343   | )      |  |      | (606   | )     |  |   | 116   |  |  |   | (333   | ) |  |   | (217 | )
|Other investment securities |  |                                                                     | 0     |                |  |       | 9      |        |  |      | 9      |       |  |   | 8     |  |  |   | 9      |   |  |   | 17   |  
|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|Total Increase (Decrease)   |  |                                                                     | 2,012 |                |  |       | (3,671 | )      |  |      | (1,651 | )     |  |   | 2,229 |  |  |   | (2,190 | ) |  |   | 39   |  
|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|(Decrease) Increase         |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|In Interest Expense:        |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|Interest-bearing demand     |  |                                                                     | 51    |                |  |       | (363   | )      |  |      | (312   | )     |  |   | 110   |  |  |   | (323   | ) |  |   | (213 | )
|Savings                     |  |                                                                     | (23   | )              |  |       | (172   | )      |  |      | (195   | )     |  |   | 4     |  |  |   | (92    | ) |  |   | (88  | )
|Certificates of deposit     |  |                                                                     | (534  | )              |  |       | (1,935 | )      |  |      | (2,469 | )     |  |   | 1,253 |  |  |   | (550   | ) |  |   | 703  |  
|Other borrowings            |  |                                                                     | 73    |                |  |       | (75    | )      |  |      | (2     | )     |  |   | 25    |  |  |   | (123   | ) |  |   | (98  | )
|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|Total (Decrease) Increase   |  |                                                                     | (433  | )              |  |       | (2,545 | )      |  |      | (2,978 | )     |  |   | 1,392 |  |  |   | (1,088 | ) |  |   | 304  |  
|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  
|Net (Decrease) Increase     |  | $                                                                   | 2,445 |                |  | $     | (1,118 | )      |  | $    | 1,327  |       |  | $ | 837   |  |  | $ | (1,102 | ) |  | $ | (265 | )
|                            |  |                                                                     |       |                |  |       |        |        |  |      |        |       |  |   |       |  |  |   |        |   |  |   |      |  

Non-interest Income

The Companys non-interest income consists primarily of processing fees
for merchants who accept credit card payments for goods and services, service
charges on deposit accounts, and other service fees. Non-interest income also
includes ATM fees earned at various locations and net gains on sales of loans.
For the year ended December 31, 2002, non-interest income represented 10.1% of
the Companys revenues (interest income plus non-interest income) versus 12.3%
in 2001 and 12.2% in 2000.

Service charges on deposit accounts increased $67,000 or 30.2% over 2001
reflective of the deposit growth in demand accounts.

Effective April 1, 2002, pricing of the Merchant Credit Card processing
contract renewal is .002 percent of transaction processing and one-half of the
earnings on the deposit relationship. Previously, pricing of the contract in
effect was .135 percent of transaction processing and the full earnings on the
deposit relationship. The contract renewal represents a significant decline in
revenues from merchant credit card processing. Merchant credit card processing
fees dropped $515,000 or 54.8% over the prior year relative to the new contract
pricing. Included in non-interest income are gains from sales of investments of
$275,000 compared with $557,000 in 2001. Sales of investment securities are to
support liquidity needs in times of rapid growth.

Total noninterest income in 2002 was $2.1 million or 25.9%, down from $2.8
million in 2001 and $2.8 million in 2000. The decrease of $732,000 or 25.9% in
2002 is related to the decrease in merchant credit card processing fees and
gains on sale of investment securities.

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The following table sets forth a summary of non-interest income for the
periods indicated.

|                                                                  |  |                          |       |      |  |      |       |  |  |   |       |  
|----------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                                  |  | Years Ended December 31,
|                                                                  |  |                         
|(Dollars in thousands)                                            |  | 2002                     |       | 2001 |  | 2000
|                                                                  |  |                          |       |      |  |     
|Non-interest Income:                                              |  |                          |       |      |  |      |       |  |  |   |       |  
|Service charges on deposit accounts                               |  | $                        | 289   |      |  | $    | 222   |  |  | $ | 214   |  
|Other income                                                      |  |                          | 1,102 |      |  |      | 1,104 |  |  |   | 778   |  
|Net realized gain (loss) on sale of
securities available-for-sale |  |                          | 275   |      |  |      | 557   |  |  |   | (59   | )
|Merchant credit card service income, net                          |  |                          | 425   |      |  |      | 940   |  |  |   | 1,875 |  
|                                                                  |  |                          |       |      |  |      |       |  |  |   |       |  
|Total Non-interest Income                                         |  | $                        | 2,091 |      |  | $    | 2,823 |  |  | $ | 2,808 |  
|                                                                  |  |                          |       |      |  |      |       |  |  |   |       |  

Merchant Credit Card Service Income

Pursuant to the Merchant Services Agreement, the Bank acts as a clearing
bank for an Independent Sales Organization (ISO), a nonbank merchant credit
card processor. The Bank processes credit or debit card transactions into the
Visa® or MasterCard® system for presentment to the card issuer.

As a result of the Merchant Services Agreement, the Bank has acquired
electronic credit and debit card processing relationships with merchants in
various industries on a nationwide basis. As of December 31, 2002 and 2001,
the ISO portfolio consisted of approximately 17,000 and 18,000 merchants,
respectively.

The Merchant Services Agreement provides for indemnification of the Bank
by the ISO against losses incurred by the Bank in connection with either the
processing of credit/debit card transactions for covered merchants or any
alleged violations by the ISO of the Card Association Rules. The Bank has been
granted a security interest in the deposit accounts to secure the ISOs
obligations under the agreement.

Merchant bankcard processing services are highly regulated by credit card
associations such as Visa®. In order to participate in the credit card program,
Redding Bank of Commerce must comply with the credit card associations rules
and regulations, which may change from time to time. During November 1999, Visa
adopted several rule changes to reduce the risk profile in high-risk acquiring
programs and these rule changes affect the Banks Merchant Services business
segment. These changes include a requirement that an acquiring processors
reported high-risk volume chargeback ratios be no greater than three times the
national average of 5% of equity capital.

Redding Bank of Commerces high-risk chargeback ratio was met and is in
compliance with the Visa requirement at 3% as of December 31, 2002. Other Visa
changes included the requirement that total processing volume in certain
high-risk categories (as defined by Visa) is less than 20% of total processing
volume. At December 31, 2002 the Banks total Visa transactions within these
certain high-risk categories were 14% of Visa total processing volume.

Although these merchants are categorized high-risk, precautions have been
taken to mitigate these risks, including requiring higher deposit reserves,
daily monitoring and aggressive fraud control, indemnification by the ISO, and
to date the Company has not seen significant losses in these categories. The
Companys ISO has met the industry standards for fraud control and electronic
detection, reporting significantly lower than industry standard losses. By
contract, the ISO indemnifies the Company from losses associated with
fraudulent activities.

Merchant services processing is one of the Banks two reportable segments.
See additional information in Note 18 to the consolidated financial statements
(page 69).

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Non-interest Expense

Non-interest expense consists of salaries and related employee benefits,
occupancy and equipment expenses, data processing fees, professional fees,
directors fees and other operating expenses.

The increase in operating expenses in 2002 over 2001 are primarily due to
salaries and benefits and occupancy expenses reflective of the growth in assets
in both the Upstate California and Sacramento markets and expansion of
facilities in the Roseville market. Non-interest expense for 2002 increased to
$8.3 million compared to $7.1 million for 2001 and $6.4 million in 2000,
representing an increase of $1,124,000 or 15.7% in 2002, and $685,000 or 10.6%
in 2001.

The following table sets forth a summary of non-interest expense for the
periods indicated.

|                                        |  |                          |       |      |  |      |       |  |  |   |       | 
|--------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                        |  | Years Ended December 31,
|                                        |  |                         
|(Dollars in thousands)                  |  | 2002                     |       | 2001 |  | 2000
|                                        |  |                          |       |      |  |     
|Salaries & related benefits             |  | $                        | 4,709 |      |  | $    | 3,948 |  |  | $ | 3,753 | 
|Net occupancy & equipment               |  |                          | 1,463 |      |  |      | 1,117 |  |  |   | 985   | 
|FDIC insurance premium                  |  |                          | 48    |      |  |      | 45    |  |  |   | 41    | 
|Data
processing &
professional services |  |                          | 530   |      |  |      | 528   |  |  |   | 465   | 
|Stationery & supplies                   |  |                          | 235   |      |  |      | 193   |  |  |   | 215   | 
|Postage                                 |  |                          | 106   |      |  |      | 101   |  |  |   | 83    | 
|Directors expenses                     |  |                          | 257   |      |  |      | 271   |  |  |   | 189   | 
|Other expense                           |  |                          | 919   |      |  |      | 940   |  |  |   | 727   | 
|                                        |  |                          |       |      |  |      |       |  |  |   |       | 
|Total Non-Interest Expense              |  | $                        | 8,267 |      |  | $    | 7,143 |  |  | $ | 6,458 | 
|                                        |  |                          |       |      |  |      |       |  |  |   |       | 

Income Taxes

The Companys provision for income taxes includes both federal and state
income taxes and reflects the application of federal and state statutory rates
to the Companys net income before taxes. The principal difference between
statutory tax rates and the Companys effective tax rate is the benefit derived
from investing in tax-exempt securities and preferential state tax treatment
for qualified enterprise zone loans.

Increases and decreases in the provision for taxes reflect changes in the
Companys income before tax.

The following table reflects the Companys tax provision and the related
effective tax rate for the periods indicated.

|                       |  |                          |       |      |  |      |       |   |  |   |       |  
|---------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                       |  | Years Ended December 31,
|                       |  |                         
|(Dollars in thousands) |  | 2002                     |       | 2001 |  | 2000
|                       |  |                          |       |      |  |     
|Income tax provision   |  | $                        | 2,025 |      |  | $    | 2,342 |   |  | $ | 2,851 |  
|Effective tax rate     |  |                          | 35.4  | %    |  |      | 35.4  | % |  |   | 37.2  | %

Asset Quality

The Company concentrates its lending activities primarily within Shasta,
El Dorado, Placer and Sacramento counties. The Company manages its credit risk
through diversification of its loan portfolio and the application of
underwriting policies and procedures and credit monitoring practices. Although
the Company has a diversified loan portfolio, a significant portion of its
borrowers ability to repay the loans is dependent upon the professional
services and residential real estate development industry sectors. Generally,
the loans are secured by real estate or other assets located in Upstate
California and are expected to be repaid from cash flows of the borrower or
proceeds from the sale of collateral.

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

|                             |  |                    |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|---------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|(Dollars in thousands)       |  | As of December 31,
|                             |  |                   
|                             |  | 2002               |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                             |  |                    |         |      |  |      |         |      |  |     
|Commercial & financial       |  | $                  | 99,084  |      |  | $    | 76,913  |      |  | $    | 61,069  |   |  | $ | 53,383  |   |  | $ | 46,890  |  
|Real Estate-construction     |  |                    | 40,662  |      |  |      | 45,331  |      |  |      | 37,531  |   |  |   | 37,859  |   |  |   | 29,470  |  
|Real Estate-commercial       |  |                    | 143,336 |      |  |      | 96,617  |      |  |      | 94,111  |   |  |   | 78,842  |   |  |   | 69,742  |  
|Installment                  |  |                    | 720     |      |  |      | 440     |      |  |      | 430     |   |  |   | 294     |   |  |   | 298     |  
|Other loans                  |  |                    | 662     |      |  |      | 709     |      |  |      | 1,396   |   |  |   | 2,811   |   |  |   | 2,225   |  
|Less:                        |  |                    |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Deferred loan fees and costs |  |                    | (584    | )    |  |      | (134    | )    |  |      | (241    | ) |  |   | (372    | ) |  |   | (423    | )
|Allowance for Loan losses    |  |                    | (3,793  | )    |  |      | (3,180  | )    |  |      | (2,974  | ) |  |   | (2,972  | ) |  |   | (3,235  | )
|                             |  |                    |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Net Loans              |  | $                  | 280,087 |      |  | $    | 216,696 |      |  | $    | 191,322 |   |  | $ | 169,845 |   |  | $ | 144,967 |  
|                             |  |                    |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  

Net portfolio loans increased $63.4 million or 29.3%, to $280.1 million at
December 31, 2002 over $216.7 million at December 31, 2001. During 2002,
commercial and financial loans increased $22.2 million or 28.1% and real estate
projects increased $42.1 million or 29.6%. The portfolio mix remains consistent
with the mix of 2001, with commercial and financial loans of approximately
35.4%, real estate construction of 14.5% and commercial real estate at 51%.

The Companys practice is to place an asset on nonaccrual status when one
of the following events occurs:(i) Any installment of principal or interest is
90 days or more past due (unless in managements opinion the loan is
well-secured and in the process of collection), (ii) management determines the
ultimate collection of principal or interest to be unlikely or (iii) the terms
of the loan have been renegotiated due to a serious weakening of the borrowers
financial condition. Nonperforming loans may be on nonaccrual, are 90 days past
due and still accruing, or have been restructured.

The following table sets forth a summary of the Companys nonperforming
loans and other assets as of the dates indicated:

|                                         |  |                    |     |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |       | 
|---------------------------------------- |  | ------------------ | --- | ---- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- |  |  | - | ----- | 
|(Dollars in Thousands)                   |  | As of December 31,
|                                         |  |                   
|                                         |  | 2002               |     | 2001 |  | 2000 |     | 1999 |  | 1998
|                                         |  |                    |     |      |  |      |     |      |  |     
|Nonaccrual loans                         |  | $                  | 0   |      |  | $    | 59  |      |  | $    | 801 |  |  | $ | 394 |  |  | $ | 942   | 
|90 days past and still accruing interest |  |                    | 7   |      |  |      | 290 |      |  |      | 0   |  |  |   | 0   |  |  |   | 46    | 
|                                         |  |                    |     |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |       | 
|Total nonperforming loans                |  |                    | 7   |      |  |      | 349 |      |  |      | 801 |  |  |   | 394 |  |  |   | 988   | 
|Other real estate owned                  |  |                    | 338 |      |  |      | 0   |      |  |      | 0   |  |  |   | 40  |  |  |   | 66    | 
|                                         |  |                    |     |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |       | 
|Total nonperforming assets               |  |                    | 345 |      |  |      | 349 |      |  |      | 801 |  |  |   | 434 |  |  |   | 1,054 | 

The Companys nonaccrual loans decreased to $0 during 2002 while OREO
increased to $337,977 during 2002, consisting of one property. The property has
a current appraised value in excess of its carrying value and is currently
listed for sale. Interest foregone on nonaccrual loans was $13,796 and $2,000
in 2002 and 2001, respectively. Interest recognized on non-accrual loans was $0
and $18,333 for 2002 and 2001. In addition to the loans disclosed in the
foregoing analysis, as of February 28, 2003 another customer relationship
totaling $5.7 million was judged to have a higher than normal risk of becoming
nonperforming.

The Company assigns all loans a credit risk rating and monitors ratings
for accuracy. The aggregate credit risk ratings are used to determine the
allowance for loan losses. Primary account officers and credit administration
assign the initial credit risk rating, and provide ongoing monitoring for
changes in the risk rating.

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The Company employs a Credit Review Officer that reports directly to the
Audit Committee of the Board of Directors. The Credit Review Officer has the
authority to independently initiate a change in individual credit risk ratings
as deemed appropriate. This enables management to effect corrective actions
when necessary and provided for independent evaluation of the risk of an
individual credit.

The following table sets forth the maturity distribution of the Companys
commercial and real estate construction loans outstanding as of December 31,
2002, which, based on remaining scheduled repayments of principal, were due
within the periods indicated.

|                               |                |                 |        |                    |  |                  |           |        |  |   |        |        |  |   |         |        | 
|------------------------------ | -------------- | --------------- | ------ | ------------------ |  | ---------------- | --------- | ------ |  | - | ------ | ------ |  | - | ------- | ------ | 
|                               |                |                 |        |                    |  |                  | After One |        |  |   |        |        |  |   |        
|(Dollars in thousands)         |                | Within One Year |        | through Five Years |  | After Five Years |           | Total 
|                               |                |                 |        |                    |  |                  |           |       
|Commercial & financial         |                | $               | 59,885 |                    |  | $                | 18,196    |        |  | $ | 21,003 |        |  | $ | 99,084  |       
|Real Estate - construction     |                | $               | 10,646 |                    |  | $                | 29,430    |        |  | $ | 586    |        |  | $ | 40,662  |       
|                               |                |                 |        |                    |  |                  |           |        |  |   |        |        |  |   |         |       
|Total                          |                | $               | 70,531 |                    |  | $                | 47,626    |        |  | $ | 21,589 |        |  | $ | 139,746 |       
|                               |                |                 |        |                    |  |                  |           |        |  |   |        |        |  |   |         |       
|Loans due after one year
with: |                |                 |        |                    |  |                  |           |        |  |   |        |        |  |   |         |       
|                               | Fixed Rates    |                 |        |                    |  |                  | $         | 11,167 |  |   | $      | 5,078  |  |   | $       | 16,245 | 
|                               | Variable Rates |                 |        |                    |  |                  | $         | 36,459 |  |   | $      | 16,511 |  |   | $       | 52,970 | 
|                               |                |                 |        |                    |  |                  |           |        |  |   |        |        |  |   |         |       
|Total                          |                |                 |        |                    |  | $                | 47,626    |        |  | $ | 21,589 |        |  | $ | 69,215  |       
|                               |                |                 |        |                    |  |                  |           |        |  |   |        |        |  |   |         |       

Allowance for Loan Losses (ALL)

In determining the amount of the Companys ALL, management assesses the
diversification of the portfolio. Each credit is assigned a credit risk rating
factor, and this factor, multiplied by the dollars associated with the credit
risk rating, is used to calculate one component of the ALL. In addition,
management estimates the probable loss on individual credits that are receiving
increased management attention due to actual or perceived increases in credit
risk.

The Company makes provisions to the ALL on a regular basis through charges
to operations that are reflected in the Companys consolidated statements of
income as a provision for loan losses. When a loan is deemed uncollectible, it
is charged against the allowance. Any recoveries of previously charged-off
loans are credited back to the allowance. There is no precise method of
predicting specific losses or amounts that ultimately may be charged-off on
particular categories of the loan portfolio. Similarly, the adequacy of the ALL
and the level of the related provision for possible loan losses is determined
on a judgmental basis by management based on consideration of (i) economic
conditions, (ii) borrowers financial condition, (iii) loan impairment, (iv)
evaluation of industry trends, (v) industry and other concentrations, (vi)
loans which are contractually current as to payment terms but demonstrate a
higher degree of risk as identified by management, (vii) continuing evaluation
of the performing loan portfolio, (viii) monthly review and evaluation of
problem loans identified as having a loss potential, (ix) quarterly review by
the Board of Directors, (x) off balance sheet risks, and (xi) assessments by
regulators and other third parties. Management and the Board of Directors
evaluate the allowance and determine its required level considering objective
and subjective measures, such as knowledge of the borrowers business,
valuation of collateral, the determination of impaired loans and exposure to
potential losses.

The ALL is a general reserve available against the total loan portfolio
and loan commitment credit exposure. It is maintained without any
interallocation to the categories of the loan portfolio, and the entire
allowance is available to cover loan losses.

While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions and other qualitative factors. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Banks ALL. Such agencies may require the Bank to provide additions to the
allowance based on their judgement of information available to them at the time
of their examination.

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There is uncertainty concerning future economic trends. Accordingly, it is
not possible to predict the effect future economic trends may have on the level
of the provision for possible loan losses in future periods.

Because the principal factor effecting the adequacy of the ALL is the
credit risk-rating factor, the bank does not allocate the ALL by loan category.
The banks principal lines of lending are (i) commercial and financial, (ii)
real estate construction and (iii) commercial real estate.

The primary sources of repayment of the commercial loans of the Bank are
operating cash flows and the borrowers conversion of short-term assets to
cash. The net assets of the borrower or guarantor are usually identified as a
secondary source of repayment. The principal factors affecting the Banks risk
of loss from commercial lending include each borrowers ability to manage its
business affairs and cash flows, local and general economic conditions and real
estate values in the Banks service area. The Bank manages its commercial loan
portfolio by monitoring its borrowers payment performance and their respective
financial condition and makes periodic adjustments, if necessary, to the risk
grade assigned to each loan in the portfolio. The Banks evaluations of its
borrowers are facilitated by managements knowledge of local market conditions
and periodic reviews by a consultant of the credit administration policies of
the Bank.

The principal source of repayment of the real estate construction loans of
the Bank is the sale of the underlying collateral or the availability of
permanent financing from the Bank or other lending source. The principal risks
associated with real estate construction lending include project cost overruns
that absorb the borrowers ability in the project and deterioration of real
estate values as a result of various factors, including competitive pressures
and economic downturns.

The Bank manages its credit risk associated with real estate construction
lending by establishing loan-to-value ratios on projects on an as-completed
basis, inspecting project status in advance of controlled disbursements and
matching maturities with expected completion dates. Generally, the Bank
requires a loan-to-value ratio of not more than 80% on single family
residential construction loans.

The principal source of repayment of the real estate mortgage loans of the
Bank is the borrowers operating cash flow. Similar to commercial loans, the
principal factors affecting the Banks risk of loss in real estate mortgage
lending include each borrowers ability to manage its business affairs and cash
flows, local and general economic conditions and real estate values in the
Banks service area.

The Bank manages its credit risk associated with real estate mortgage
lending primarily by establishing maximum loan-to-value ratios and using
strategies to match the borrowers cash flow to loan repayment terms.

The specific underwriting standards of the Bank and methods for each of
its principal lines of lending include industry-accepted analysis and modeling
and certain proprietary techniques. The underwriting criteria of the Bank are
designed to comply with applicable regulatory guidelines, including required
loan-to-value ratios. The credit administration policies of the Bank contain
mandatory lien position and debt service coverage requirements, and the Bank
generally requires a guarantee from 20% or more of the owners of the borrowing
entity.

The ALL should not be interpreted as an indication that charge-offs in
future periods will occur in the stated amounts or proportions.

The adequacy of the ALL is calculated upon three components. First is the
credit risk rating of the loan portfolio, including all outstanding loans and
leases and commitments to lend. Every extension of credit has been assigned a
risk rating based upon a comprehensive definition intended to measure the
inherent risk of lending money. Each rating has an assigned risk factor
expressed as a reserve percentage. Central to this assigned risk factor is the
historical loss record of the bank.

Secondly, established specific reserves are available for individual loans
currently on managements watch and classified loan lists. These are the
estimated potential losses associated with specific borrowers based upon the
collateral and event(s) causing the risk ratings. The third component is a
general reserve related to economic uncertainties. This reserve is for
qualitative factors that may effect the portfolio as a whole, such as those
factors described above.

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Management believes the assigned risk grades and our methods for managing
changes are satisfactory for the complexity of the loan portfolio.

The provision for loan losses increased to $620,000 for 2002 versus
$255,000 in 2001. The increase for the provision is a result of the portfolio
growth. Net charge-offs were $7,000 or 0.01% of total loans during 2002. Actual
and future results of the allowance provision and charge-offs may differ
materially from trends expressed in the table and are beyond the Companys
ability to predict.

The following table summarizes the activity in the ALL reserves for the
periods indicated.

|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |      |  
|---------------------------------------- | ---------------------- | ------------------------ | ----- | --- | ---- | - | ----- | ---- | ---- | - | ----- | ---- | - | - | ----- | ---- | - | - | ----- | ---- | -
|(Dollars in thousands)                   |                        | Years Ended December 31,
|                                         |                        |                         
|                                         |                        |                          | 2002  |     | 2001 |   | 2000  |      | 1999 |   | 1998 
|                                         |                        |                          |       |     |      |   |       |      |      |   |      
|Beginning Balance:                       |                        | $                        | 3,180 |     |      | $ | 2,974 |      |      | $ | 2,972 |      |   | $ | 3,235 |      |   | $ | 2,819 |     
|Provision for loan losses                |                        |                          | 620   |     |      |   | 255   |      |      |   | 142   |      |   |   | 120   |      |   |   | 500   |     
|Charge-offs:                             |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|                                         | Commercial & Financial |                          |       | (8  | )    |   |       | (191 | )    |   |       | (200 | ) |   |       | (355 | ) |   |       | (139 | )
|                                         | Real Estate            |                          |       | (18 | )    |   |       | (345 | )    |   |       | (3   | ) |   |       | (103 | ) |   |       | (54  | )
|                                         | Other                  |                          |       | (0  | )    |   |       | (0   | )    |   |       | (1   | ) |   |       | (2   | ) |   |       | (16  | )
|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|Total Charge-offs                        |                        |                          | (26   | )   |      |   | (536  | )    |      |   | (204  | )    |   |   | (460  | )    |   |   | (209  | )   
|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|Recoveries:                              |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|                                         | Commercial & Financial |                          |       | 19  |      |   |       | 35   |      |   |       | 62   |   |   |       | 37   |   |   |       | 114  |  
|                                         | Real Estate            |                          |       | 0   |      |   |       | 452  |      |   |       | 2    |   |   |       | 40   |   |   |       | 11   |  
|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|Total Recoveries                         |                        |                          | 19    |     |      |   | 487   |      |      |   | 64    |      |   |   | 77    |      |   |   | 125   |     
|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|Net Charge-offs                          |                        |                          | (7    | )   |      |   | (49   | )    |      |   | (176  | )    |   |   | (383  | )    |   |   | (84   | )   
|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|Ending Balance                           |                        | $                        | 3,793 |     |      | $ | 3,180 |      |      | $ | 2,974 |      |   | $ | 2,972 |      |   | $ | 3,235 |     
|                                         |                        |                          |       |     |      |   |       |      |      |   |       |      |   |   |       |      |   |   |       |     
|Allowance for loan losses to
total loans |                        |                          | 1.34  | %   |      |   | 1.45  | %    |      |   | 1.53  | %    |   |   | 1.72  | %    |   |   | 2.18  | %   
|Net Charge-offs to average loans         |                        |                          | .01   | %   |      |   | .02   | %    |      |   | .08   | %    |   |   | .24   | %    |   |   | .06   | %   

Securities Portfolio

The Company classifies its securities as held-to-maturity or
available-for-sale at the time of purchase. Generally, all securities are
purchased with the intent and ability to hold the security for long-term
investment, and the Company has both the ability and intent to hold
held-to-maturity investments to maturity. The Company does not engage in
trading activities.

Securities held-to-maturityare carried at cost adjusted for the accretion
of discounts and amortization of premiums. Securities available-for-salemay be
sold to implement the Companys asset/liability management strategies and in
response to changes in interest rates, prepayment rates and similar factors.
Securities available-for-sale are recorded at market value and unrealized gains
or losses, net of income taxes, are reported as a component of accumulated
other comprehensive income, in a separate component of stockholders equity.
Gain or loss on sale of securities is based on the specific identification
method.

Securities held-to-maturityat December 31, 2002, 2001 and 2000 consisted
of mortgage-backed securities with an amortized cost of $2.4, $4.1 and $5.0
million, respectively. At December 31, 2002, all such securities have a
remaining contractual maturity of five through ten years and a weighted-average
yield of 7.43%.

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The following table summarizes the contractual maturities of the Companys
securities held as available-for-saleat their amortized cost basis and their
weighted-average yields at December 31, 2002. The yield on tax-exempt
securities has not been adjusted to a tax-equivalent yield basis.

|                                                |  |            |    |                   |  |                    |      |       |  |        |        |       |  |        |      |       |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  
|----------------------------------------------- |  | ---------- | -- | ----------------- |  | ------------------ | ---- | ----- |  | ------ | ------ | ----- |  | ------ | ---- | ----- |  | - | ------ |  |  |  | ---- | - |  | - | ------ |  |  |  | ---- | -
|                                                |  |            |    | After One through |  | After Five through |      |       |  |        |        |      
|                                                |  | Within One |    | Five              |  | Ten                |      |       |  |        |        |      
|                                                |  | Year       |    | Years             |  | Years              |      | Total
|                                                |  |            |    |                   |  |                    |      |      
|(Dollars in thousands)                          |  | Amount     |    | Yield             |  | Amount             |      | Yield |  | Amount |        | Yield |  | Amount |      | Yield
|                                                |  |            |    |                   |  |                    |      |       |  |        |        |       |  |        |      |      
|U.S. government & agencies                      |  | $          | 0  |                   |  |                    | 0.00 | %     |  | $      | 11,654 |       |  |        | 2.13 | %     |  | $ | 0      |  |  |  | 0.00 | % |  | $ | 11,654 |  |  |  | 2.13 | %
|Obligations of state and
political
subdivisions |  |            | 0  |                   |  |                    | 0.00 | %     |  |        | 209    |       |  |        | 5.17 | %     |  |   | 620    |  |  |  | 4.30 | % |  |   | 829    |  |  |  | 4.74 | %
|Mortgage backed securities                      |  |            | 97 |                   |  |                    | 5.15 | %     |  |        | 0      |       |  |        | 0.00 | %     |  |   | 18,665 |  |  |  | 4.47 | % |  |   | 18,762 |  |  |  | 4.40 | %
|Corporate bonds                                 |  |            | 0  |                   |  |                    | 0.00 | %     |  |        | 868    |       |  |        | 4.30 | %     |  |   | 0      |  |  |  | 0.00 | % |  |   | 868    |  |  |  | 4.30 | %
|                                                |  |            |    |                   |  |                    |      |       |  |        |        |       |  |        |      |       |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  
|Total                                           |  | $          | 97 |                   |  |                    | 5.15 | %     |  | $      | 12,731 |       |  |        | 3.87 | %     |  | $ | 19,285 |  |  |  | 4.30 | % |  | $ | 32,113 |  |  |  | 4.51 | %
|                                                |  |            |    |                   |  |                    |      |       |  |        |        |       |  |        |      |       |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  

The following table summarizes the amortized cost of the Companys
available-for-sale securities held on the dates indicated.

|                                                |  |                          |        |      |  |      |        |  |  |   |        | 
|----------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|(Dollars in thousands)                          |  | Years Ended December 31,
|                                                |  |                         
|                                                |  | 2002                     |        | 2001 |  | 2000
|                                                |  |                          |        |      |  |     
|U.S. government & agencies                      |  | $                        | 11,654 |      |  | $    | 29,742 |  |  | $ | 17,413 | 
|Obligations of state and political
subdivisions |  |                          | 1,191  |      |  |      | 4,338  |  |  |   | 2,317  | 
|Mortgage backed securities                      |  |                          | 19,269 |      |  |      | 6,428  |  |  |   | 0      | 
|Corporate and other bonds                       |  |                          | 0      |      |  |      | 403    |  |  |   | 1,129  | 
|                                                |  |                          |        |      |  |      |        |  |  |   |        | 
|Total                                           |  | $                        | 32,113 |      |  | $    | 40,911 |  |  | $ | 20,859 | 
|                                                |  |                          |        |      |  |      |        |  |  |   |        | 

Deposit Structure

The Company primarily obtains deposits from local businesses and
professionals as well as through certificates of deposits, savings and checking
accounts.

The following table sets forth the distribution of the Companys average
daily deposits for the periods indicated.

|                                    |  |                          |         |      |  |        |      |      |  |        |         |      |  |  |      |   |  |   |         |  |  |  |      |  
|----------------------------------- |  | ------------------------ | ------- | ---- |  | ------ | ---- | ---- |  | ------ | ------- | ---- |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|(Dollars in thousands)              |  | Years Ended December 31,
|                                    |  | 2002                     |         | 2001 |  | 1999  
|                                    |  |                          |         |      |  |       
|                                    |  | Amount                   |         | Rate |  | Amount |      | Rate |  | Amount |         | Rate
|                                    |  |                          |         |      |  |        |      |      |  |        |         |     
|NOW accounts                        |  | $                        | 43,261  |      |  |        | 0.45 | %    |  | $      | 32,684  |      |  |  | 1.59 | % |  | $ | 28,894  |  |  |  | 1.95 | %
|Savings                             |  |                          | 19,493  |      |  |        | 0.76 | %    |  |        | 14,925  |      |  |  | 2.28 | % |  |   | 13,426  |  |  |  | 3.19 | %
|Money market accounts               |  |                          | 37,110  |      |  |        | 1.09 | %    |  |        | 24,604  |      |  |  | 2.45 | % |  |   | 14,675  |  |  |  | 3.80 | %
|Certificates of deposit             |  |                          | 145,824 |      |  |        | 3.23 | %    |  |        | 142,651 |      |  |  | 5.32 | % |  |   | 115,640 |  |  |  | 5.95 | %
|Other borrowings                    |  |                          | 13,383  |      |  |        | 1.43 | %    |  |        | 6,461   |      |  |  | 2.99 | % |  |   | 4,237   |  |  |  | 6.87 | %
|                                    |  |                          |         |      |  |        |      |      |  |        |         |      |  |  |      |   |  |   |         |  |  |  |      |  
|Total interest bearing deposits     |  |                          | 259,071 |      |  |        |      |      |  |        | 221,325 |      |  |  |      |   |  |   | 176,872 |  |  |  |      |  
|Total non-interest bearing deposits |  |                          | 50,583  |      |  |        |      |      |  |        | 34,259  |      |  |  |      |   |  |   | 36,579  |  |  |  |      |  
|                                    |  |                          |         |      |  |        |      |      |  |        |         |      |  |  |      |   |  |   |         |  |  |  |      |  
|Total                               |  | $                        | 309,654 |      |  |        |      |      |  | $      | 255,584 |      |  |  |      |   |  | $ | 213,451 |  |  |  |      |  
|                                    |  |                          |         |      |  |        |      |      |  |        |         |      |  |  |      |   |  |   |         |  |  |  |      |  

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The following table sets forth the remaining maturities of certificates of
deposit in amounts of $100,000 or more as of December 31, 2002:

Deposit Maturity Schedule

|                               |  |      |        | 
|------------------------------ |  | ---- | ------ | 
|(Dollars in thousands)         |  |      |        | 
|                               |  | 2002
|                               |  |     
|Three Months or less           |  | $    | 29,548 | 
|Over three through six months  |  |      | 19,211 | 
|Over six through twelve months |  |      | 24,325 | 
|Over twelve months             |  |      | 8,599  | 
|                               |  |      |        | 
|Total                          |  | $    | 81,683 | 
|                               |  |      |        | 

Short term borrowings

The bank actively uses Federal Home Loan Bank (FHLB) advances as a
source of wholesale funding to support investment strategies as well as to
provide liquidity. At December 31, 2002, all of the banks FHLB advances were
fixed rate, fixed term borrowings without call or put option features. During
the fourth quarter 2002 the bank repaid $10 million in borrowings due. At
December 2002, the bank had $18 million in FHLB advances outstanding compared
to $0 at December 31, 2001.

|                                                                                                                                                               |                                            |   |            |            |      |   |           |            |   |   |           |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ---------- | ---------- | ---- | - | --------- | ---------- | - | - | --------- | --------- | -
|                                                                                                                                                               |                                            |   | 2002       |            | 2001 |   | 2000     
|                                                                                                                                                               |                                            |   |            |            |      |   |          
|Securities sold under agreements to repurchase
with weighted average interest rates of 0.41%,
2.46% and 4.98% at December 31, 2002,2001
and 2000, respectively |                                            | $ | 3,704,385  |            |      | $ | 6,780,232 |            |   | $ | 5,267,472 |          
|Federal Home Loan Bank Borrowings with
weighted average interest rates of 1.78% at
December 31, 2002                                                           |                                            |   | 18,000,000 |            |      |   | 0         |            |   |   | 0         |          
|                                                                                                                                                               |                                            |   |            |            |      |   |           |            |   |   |           |          
|Total Other Borrowings                                                                                                                                         |                                            | $ | 21,704,385 |            |      | $ | 6,780,232 |            |   | $ | 5,267,472 |          
|                                                                                                                                                               |                                            |   |            |            |      |   |           |            |   |   |           |          
|Securities sold under agreements to repurchase:                                                                                                                |                                            |   |            |            |      |   |           |            |   |   |           |          
|                                                                                                                                                               | Maximum outstanding at any month end       |   | $          | 11,867,244 |      |   | $         | 11,271,777 |   |   | $         | 5,267,472 |  
|                                                                                                                                                               | Average balance during the year            |   |            | 6,295,292  |      |   |           | 6,461,000  |   |   |           | 4,237,000 |  
|                                                                                                                                                               | Weighted average interest rate during year |   |            | 2.59       | %    |   |           | 2.99       | % |   |           | 6.87      | %
|Federal Home Loan Bank borrowings:                                                                                                                             |                                            |   |            |            |      |   |           |            |   |   |           |          
|                                                                                                                                                               | Maximum outstanding at any month end       |   |            | 28,000,000 |      |   |           | 0          |   |   |           | 0         |  
|                                                                                                                                                               | Average Balance during the year            |   |            | 11,500,000 |      |   |           | 0          |   |   |           | 0         |  
|                                                                                                                                                               | Weighted average interest rate during year |   |            | 1.78       | %    |   |           |           |   |   |           |          |  

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Liquidity

Liquidity refers to the Banks ability to provide funds at an acceptable
cost to meet loan demand, deposit withdrawals as well as contingency plans to
meet unanticipated funding needs or loss of funding sources. These objectives
can be met from either the asset or liability side of the balance sheet.

Asset liquidity sources consist of the repayments and maturities of loans,
selling of loans, short-term money market investments, maturities and sales of
investments from the available for sale portfolio. Cash used by investments
totaled approximately $55,485,000 in 2002, which means that assets were not
generally used for liquidity purposes. Increased loan balances were responsible
for the major use of liquidity, followed by purchases of available for sale
securities. The weighted average life of the available-for-sale investment
portfolio is 2.23 years.

Liquidity is generated from liabilities through deposit growth and
short-term borrowings. Internal deposit growth provided approximately
$33,044,000 and borrowings provided approximately $14,924,000 of liquidity. The
Bank also had available correspondent banking lines of credit totaling
approximately $10,000,000 and available secured borrowing lines of
approximately $10,198,000 with the Federal Home Loan Bank of San Francisco.
While these sources are expected to continue to provide significant amounts of
liquidity in the future, their mix, as well as the possible use of other
sources, will depend on future economic and market conditions. Liquidity is
also provided or used through the results of the Banks operations. In 2002,
the Banks operations used cash of only $98,000, which means that operating
activities were not used for liquidity purposes.

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have a fixed expiration date or other termination clause
any may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Commitments to extend credit
and standby letters of credit as of December 31, 2002 and 2001 were $83,909,436
and $61,847,400 respectively.

The Banks liquid assets (cash and due from banks, federal funds sold, and
available-for-sale securities) totaled $66.9 million or 18.2% of total assets
at December 31, 2002, $81.8 million or 25.6% of total assets at December 31,
2001 and $46.6 million or 18.2% of total assets at December 30, 2000. In 2002,
the Companys primary source of funding was dividends paid by the Bank totaling
$3,721,279. Of the dividends received $1,721,279 was paid to shareholders and
$2,000,000 was used to fund the Companys stock repurchase program. The Company
expects to continue to receive dividends from the Bank in 2003. (See note 16 to
the Financial Statements for a discussion of the restrictions on the Banks
ability to pay dividends.)

To accommodate future growth and business needs, the Bank develops an
annual capital expenditure budget during strategic planning sessions. Capital
expenditures for 2003 are expected to be about $380,000 for routine replacement
of furniture and equipment. The Company expects that the earnings of the Bank,
acquisition of core deposits and wholesale borrowing arrangements are
sufficient to support liquidity needs in 2003.

Capital Adequacy

Capital adequacy is a measure of the amount of capital needed to sustain
asset growth and enhances the Companys ability to absorb losses. Capital
protects depositors and the deposit insurance fund from potential losses and is
a source of funds for the investments the Company needs to remain competitive.
Historically, capital has been generated principally from the retention of
earnings, net of cash dividends.

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

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This standard characterizes an institutions capital as being Tier 1
capital (defined as principally comprising shareholders equity) and Tier 2
capital (defined as principally comprising the qualifying portion of the ALL).

The minimum ratio of total risk-based capital to risk-adjusted assets,
including certain off-balance sheet items, is 8%. At least one-half (4%) of the
total risk-based capital (Tier 1) is to be comprised of common equity; the
balance may consist of debt securities and a limited portion of the ALL.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets and of Tier 1 capital to average assets.
Management believes as of December 31, 2002 and 2001, that the Company and the
Bank met capital adequacy requirements to which they are subject.

As of December 31, 2002, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, an institution must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the following tables.
There are no conditions or events since the notification that management
believes have changed the Banks category. The Companys and the Banks actual
capital amounts and ratios as of December 31, 2002 and 2001 are also presented
in the table.

|                         |  |         |            |       |  |             |       |             |  |         |       |         |  |  |     |  
|------------------------ |  | ------- | ---------- | ----- |  | ----------- | ----- | ----------- |  | ------- | ----- | ------- |  |  | --- | -
|                         |  |         |            |       |  |             |       |             |  | Well    |       | Minimum
|                         |  | Actual  |            |       |  |             |       | Capitalized |  | Capital
|                         |  | Capital |            | Ratio |  | Requirement |       | Requirement
|                         |  |         |            |       |  |             |       |            
|The Company             
|Leverage                 |  | $       | 27,528,469 |       |  |             | 8.05  | %           |  |         | 5.0   | %       |  |  | 4.0 | %
|Tier 1 Risk-Based        |  |         | 27,528,469 |       |  |             | 9.32  | %           |  |         | 6.0   | %       |  |  | 4.0 | %
|Total Risk-Based         |  |         | 31,221,723 |       |  |             | 10.57 | %           |  |         | 10.00 | %       |  |  | 8.0 | %
|
|Redding Bank of Commerce
|Leverage                 |  | $       | 27,018,565 |       |  |             | 7.97  | %           |  |         | 5.0   | %       |  |  | 4.0 | %
|Tier 1 Risk-Based        |  |         | 27,018,565 |       |  |             | 9.14  | %           |  |         | 6.0   | %       |  |  | 4.0 | %
|Total Risk-Based         |  |         | 30,116,410 |       |  |             | 10.19 | %           |  |         | 10.00 | %       |  |  | 8.0 | %

The Company paid a cash dividend of $0.65 cents per share on the Companys
Common Stock paid to shareholders of record as of October 1, 2002. Under the
risk-based capital standard, assets reported on the Companys balance sheet and
certain off balance sheet items are assigned to risk categories, each of which
is assigned a risk weight.

During 1998, the Board of Directors of Redding Bancorp approved a
repurchase program for Redding Bancorp stock. The program authorizes the
buyback of up to 566,100 shares and establishes a systematic buyback approach
with a goal of providing sufficient shares to fund the stock option plan over a
seven-year period.

For the years ended December 31, 2002 and 2001, the Company has
repurchased 92,981 and 193,839 shares, respectively. Shares repurchased are
retired by a charge to common stock and retained earnings for the cost.

All transactions were structured to comply with the Securities and
Exchange Commission Rule 10(b)-18 and all shares repurchased under the programs
were retired. To date, the Company has repurchased 474,437 shares at an average
price of $20.53.

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Transactions with Related Parties

The Companys conduct of business with Directors, Officers, significant
stockholders and other related parties (collectively, Related Parties) is
restricted and governed by various laws and regulations, including Regulation O
as promulgated and enforced by the Federal Reserve. Furthermore, it is the
Companys policy to conduct business with Related Parties on an arms length
basis at current market prices with terms and conditions no more favorable than
the Company provides in its normal course of business.

Certain directors and officers of the Bank and entities with which they
are associated are customers and have transactions with the Bank in the
ordinary course of business. All loans and commitments included in such
transactions are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with other persons and do not involve more than the normal risk of
collectibility or present other unfavorable features. As of December 31, 2002
and 2001 loans outstanding to related parties were $5,150,404 and 921,075.

An analysis of 2002 activity in related party loans consists of the following:

|                             |  |   |           |  
|---------------------------- |  | - | --------- | -
|Balance at beginning of year |  | $ | 921,075   |  
|New loan additions           |  |   | 2,695,391 |  
|Other additions              |  |   | 2,107,196 |  
|Principal repayments         |  |   | (573,258  | )
|                             |  |   |           |  
|Balance at end of year       |  | $ | 5,150,404 |  

Other additions related to loans made in previous years to a Director who
joined the Board in 2002.

Impact of Inflation

Inflation affects the Companys financial position as well as its
operating results. It is managements opinion that the effects of inflation for
the three years ended December 31, 2002 on the financial statements have not
been material.

Commitments and Contingencies



| |  | Lease Commitments - The Company leases certain facilities at which it conducts its
operations. Future minimum lease commitments under all non-cancelable operationg leases as of December 31,2002 are below:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                |  |   |           | 
|----------------------------------------------- |  | - | --------- | 
|(Dollars in thousands)
Years Ended December 31, |  |   |           | 
|                                               
|2002                                            |  | $ | 297,590   | 
|2003                                            |  | $ | 297,590   | 
|2004                                            |  | $ | 297,590   | 
|2005                                            |  | $ | 297,590   | 
|2006                                            |  | $ | 303,180   | 
|2007                                            |  | $ | 303,180   | 
|Thereafter                                      |  | $ | 1,134,960 | 
|                                                |  |   |           | 
|Total                                           |  | $ | 2,931,680 | 
|                                                |  |   |           | 



| |  | Off-Balance Sheet Financial Instruments- In the ordinary course of
business, the Bank enters various types of transactions, which involve
financial instruments with off-balance sheet risk. These instruments
include commitments to extend credit and stand-by letter of credits,
which are not reflected in the accompanying, consolidated balance sheets.
These transactions may involve; to varying degrees, credit and interest
rate risk more than the amount, if any recognized in the consolidated
balance sheets. Management does not anticipate any loss to result from
these commitments.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | The off-balance sheet credit risk exposure of the Bank is the contractual
amount of commitments to extend credit and stand-by letters of credit.
The Bank applies the same credit standards to these contracts as it uses
for loans recorded on the balance sheet.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |                              |  |              |            |      |  |   |            | 
|------------------------------ | ---------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                               |                              |  | December 31,
|                               |                              |  |             
|                               |                              |  | 2002         |            | 2001
|Off-balance sheet commitments: |                              |  |              |            |      |  |   |           
|                               | Commitments to extend credit |  | $            | 83,909,436 |      |  | $ | 61,847,400 | 
|                               | Standby letters of credit    |  |              | 3,858,203  |      |  |   | 1,917,339  | 



| |  | Commitments to extend credit are agreements to lend to customers. These
commitments have specified interest rates and generally have fixed
expiration dates but may be terminated by the Bank if certain conditions
of the contract are violated.                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Although currently subject to draw down, many of the commitments do not
necessarily represent future cash requirements. Collateral held relating
to these commitments varies, but generally includes real estate,
securities and cash.                                                                       
|
| |  | Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.                                                                                                                                                                        
|
| |  | Credit risk arises in these transactions from the possibility that a
customer may not be able to repay the Bank upon default of performance.
Collateral held for standby letters of credit is based on an individual
evaluation of each customers creditworthiness, but may include cash and
securities.    
|
| |  | Commitments to extend credit and standby letters of credit bear similar
credit risk characteristics as outstanding loans.                                                                                                                                                                                    
|
| |  | The Company and its subsidiaries are involved in various legal actions arising in the ordinary
course of business. The Company believes that the ultimate disposition of all currently pending
matters will not have a material adverse affect on the Companys financial condition or results of operations.

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ITEM 7-A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The goal for managing the assets and liabilities of the Bank is to
maximize shareholder value and earnings while maintaining a high quality
balance sheet without exposing the Bank to undue interest rate risk. The
absolute level and volatility of interest rates can have a significant impact
on the Banks profitability. Market risk arises from exposure to changes in
interest rates, exchange rates, commodity prices, and other relevant market
rate or price risk. The Company does not operating a trading account, does not
hold any financial derivatives and does not hold a position with exposure to
foreign currency exchange. The Company faces market risk through interest rate
volatility.

The Board of Directors has overall responsibility for the Companys
interest rate risk management policies. The Bank has an Asset/Liability
Management Committee (ALCO) which establishes and monitors guidelines to
control the sensitivity of earnings to changes in interest rates. Based on
economic conditions, asset quality and other considerations, the ALCO
establishes tolerance ranges for interest rate sensitivity. Simulation of net
interest margin, net income and market value of equity under various interest
rate scenarios is the primary tool used to measure interest rate risk.

The simulation model used includes measures of the expected repricing
characteristics of administered rate (NOW, savings and money market accounts)
and non-related products (demand deposit accounts, other assets and other
liabilities). These measures recognize the relative sensitivity of these
accounts to changes in market interest rates, as demonstrated through current
and historical experiences, recognizing the timing differences of rate changes.
In simulation of net interest margin and net income the forecast balance sheet
is processed against five rate scenarios. These five rate scenarios include a
flat rate environment, which assumes interest rates are unchanged in the future
and six additional rate ramp scenarios ranging for + 200 to - 200 basis points
in 100 basis point increments, unless the rate environment cannot move in these
basis point increments.

The formal policies and practices adopted by the Bank to monitor and
manage interest rate risk exposure measure risk in two ways: (i) repricing
opportunities for earning assets and interest-bearing liabilities and (ii)
changes in net interest income for declining interest rate shocks of 100 to 300
basis points. Because of the Banks predisposition to variable rate, pricing
and non-interest bearing demand deposit accounts the Bank is asset sensitive.

As a result, management anticipates that, in a declining interest rate
environment, the Companys net interest income and margin would be expected to
decline, and, in an increasing interest rate environment, the Companys net
interest income and margin would be expected to increase. However, no
assurance can be given that under such circumstances the Company would
experience the described relationships to declining or increasing interest
rates. Because the Bank is asset sensitive, the Company is adversely affected
by declining rates rather than rising rates.

To estimate the effect of interest rate shocks on the Companys net
interest income, management uses a model to prepare an analysis of interest
rate risk exposure. Such analysis calculates the change in net interest income
given a change in the federal funds rate of 100 to 200 basis points up or down.
All changes are measured in dollars and are compared to projected net interest
income. At December 31, 2002, the estimated annualized reduction in net
interest income attributable to a 100 to 200 basis point decline in the federal
funds rate was $769,000 and $1,538,000, respectively, with a similar and
opposite result attributable to a 100 or 200 basis point increase in the
federal fund rate.

The following table sets forth, as of December 31, 2002, the distribution
of repricing opportunities for the Companys earning assets and
interest-bearing liabilities. It also reports the GAP (different volumes of
rate sensitive assets and liabilities) repricing earning assets and
interest-bearing liabilities at different time intervals, the cumulative GAP,
the ratio of rate sensitive assets to rate sensitive liabilities for each
repricing interval, and the cumulative GAP to total assets.

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|                                   |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|---------------------------------- |  | -------------------- | ------- | -------------------- |  | ---------------------- | ------- | --------------- |  | ----- | ------- | - |  | - | ------ |  |  | - | ------- | 
|(Dollars in thousands)             |  | At December 31, 2002
|                                   |  |                     
|                                   |  | Within
3 Months      |         | 3 Months
to One Year |  | One Year
to Five Years |         | Over
Five Years |  | Total
|                                   |  |                      |         |                      |  |                        |         |                 |  |      
|Interest Earning Assets            |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Securities                         |  | $                    | 0       |                      |  | $                      | 97      |                 |  | $     | 12,835  |   |  | $ | 21,246 |  |  | $ | 34,178  | 
|Federal funds sold                 |  | $                    | 10,760  |                      |  |                        |        |                 |  |       |        |   |  |   |       |  |  | $ | 10,760  | 
|Loans, net                         |  | $                    | 167,979 |                      |  | $                      | 19,453  |                 |  | $     | 27,467  |   |  | $ | 65,188 |  |  | $ | 280,087 | 
|                                   |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Total Interest-earning Assets      |  | $                    | 178,739 |                      |  | $                      | 19,550  |                 |  | $     | 40,302  |   |  | $ | 86,434 |  |  | $ | 325,025 | 
|                                   |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Interest Bearing Liabilities       |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Demand                             |  | $                    | 88,251  |                      |  | $                      |        |                 |  | $     |        |   |  | $ |       |  |  | $ | 88,251  | 
|Savings                            |  | $                    | 20,797  |                      |  | $                      |        |                 |  | $     |        |   |  | $ |       |  |  | $ | 20,797  | 
|Time deposits                      |  | $                    | 43,640  |                      |  | $                      | 84,770  |                 |  | $     | 21,819  |   |  | $ |       |  |  | $ | 150,229 | 
|Other borrowings                   |  | $                    | 18,704  |                      |  | $                      | 3,000   |                 |  | $     |        |   |  | $ |       |  |  | $ | 21,704  | 
|                                   |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Total Interest-bearing Liabilities |  | $                    | 171,392 |                      |  | $                      | 87,770  |                 |  | $     | 21,819  |   |  | $ |       |  |  | $ | 280,981 | 
|                                   |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Interest Sensitivity GAP           |  |                      | 7,347   |                      |  |                        | (68,220 | )               |  |       | 18,483  |   |  |   | 86,434 |  |  |   | 44,044  | 
|Cumulative Sensitivity GAP         |  |                      |         |                      |  |                        | (60,873 | )               |  |       | (42,390 | ) |  |   | 44,044 |  |  |   |         | 
|As a percentage of earning assets: |  |                      |         |                      |  |                        |         |                 |  |       |         |   |  |   |        |  |  |   |         | 
|Interest Sensitivity GAP           |  |                      | 1.05    |                      |  |                        | .22     |                 |  |       | 1.85    |   |  |   | 100.0  |  |  |   | 1.16    | 
|Cumulative Sensitivity GAP         |  |                      | 0.04    |                      |  |                        | (3.11   | )               |  |       | 1.05    |   |  |   | 1.96   |  |  |   |         | 

The model utilized by management to create the analysis described in the
preceding paragraph uses balance sheet simulation to estimate the impact of
changing rates on the annual net interest income of the Bank. The model
considers a number of factors, including (i) change in customer and management
behavior in response to the assumed rate shock, (ii) the ratio of the amount of
rate change for each interest-bearing asset or liability to assumed changes in
the federal funds rate based on local market conditions for loans and core
deposits and national market conditions for other assets and liabilities and
(iii) timing factors related to the lag between the rate shock and its effect
on other interest-bearing assets and liabilities. Actual results will differ
from simulated results due to timing, magnitude, and frequency of interest rate
changes as well as changes in market conditions and management strategies.
Management believes that the short duration of its rate-sensitive assets and
liabilities contributes to its ability to reprice a significant amount of its
rate-sensitive assets and liabilities and mitigate the impact of rate changes
in excess of 100 or 200 basis points. The models primary benefit to management
is its assistance in evaluating the impact that future strategies with respect
to the banks mix and level of rate-sensitive assets and liabilities will have
on the Companys net interest income.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Index to Consolidated Financial Statements

|                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Independent Auditors Report                                                                         |  |      | 44 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                                         |  |      | 45 | 
|Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000               |  |      | 46 | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2002, 2001 and 2000 |  |      | 47 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000           |  |      | 49 | 
|Notes to Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000      |  |      | 51 | 

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INDEPENDENT AUDITORS REPORT

To the Board of Directors
Redding Bancorp

We have audited the accompanying consolidated balance sheets of Redding Bancorp
and subsidiaries as of December 31, 2002, and 2001 and the related consolidated
statements of income, stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2002. These financial statements
are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Redding Bancorp and subsidiaries
as of December 31, 2002 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2002,
in conformity with accounting principles generally accepted in the United
States of America.

/s/ Deloitte & Touche LLP
Sacramento, California
January 17, 2003

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REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 and 2001

|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |             |            |             | 
|-------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------------- | ----------- | ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | 
|                                                                                                         |                                                                                                                                                               |                            |                |             | 2002       |             | 2001       
|ASSETS                                                                                                   |                                                                                                                                                               |                            |                |             |            |             |             |            
|Cash and due from banks                                                                                  |                                                                                                                                                               | $                          | 23,831,729     |             |            | $           | 15,527,910  |            
|Federal funds sold and securities purchased under agreements to resell                                   |                                                                                                                                                               |                            | 10,760,000     |             |            |             | 25,430,000  |            
|Securities available-for-sale                                                                            |                                                                                                                                                               |                            | 32,327,843     |             |            |             | 40,898,239  |            
|Securities held-to-maturity, at cost (estimated fair value of $2,561,297
in 2002 and $4,192,596 in 2001) |                                                                                                                                                               |                            | 2,405,112      |             |            |             | 4,116,935   |            
|Loans, net of the allowance for loan losses of $3,792,844 in 2002 and
$3,179,782 in 2001)                |                                                                                                                                                               |                            | 280,087,003    |             |            |             | 216,696,198 |            
|Bank premises and equipment, net                                                                         |                                                                                                                                                               |                            | 5,365,956      |             |            |             | 5,339,112   |            
|Other assets                                                                                             |                                                                                                                                                               |                            | 12,656,243     |             |            |             | 10,677,957  |            
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|TOTAL ASSETS                                                                                             |                                                                                                                                                               | $                          | 367,433,886    |             |            | $           | 318,686,351 |            
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                     |                                                                                                                                                               |                            |                |             |            |             |             |            
|Deposits:                                                                                                |                                                                                                                                                               |                            |                |             |            |             |             |            
|                                                                                                         | Demand - noninterest bearing                                                                                                                                  |                            | $              | 55,169,920  |            |             | $           | 44,525,539  |           
|                                                                                                         | Demand - interest bearing                                                                                                                                     |                            |                | 88,250,730  |            |             |             | 69,891,956  |           
|                                                                                                         | Savings                                                                                                                                                       |                            |                | 20,796,543  |            |             |             | 17,034,475  |           
|                                                                                                         | Certificates of deposits                                                                                                                                      |                            |                | 150,229,457 |            |             |             | 149,983,574 |           
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|                                                                                                         |                                                                                                                                                               |                            | Total Deposits |             |            | 314,446,650 |             |             |            | 281,435,544 | 
|                                                                                                         | Securities sold under agreements to repurchase                                                                                                                |                            |                | 3,704,385   |            |             |             | 6,780,232   |           
|                                                                                                         | Federal Home Loan Bank borrowings                                                                                                                             |                            |                | 18,000,000  |            |             |             | 0           |           
|                                                                                                         | Other liabilities                                                                                                                                             |                            |                | 3,615,721   |            |             |             | 3,230,726   |           
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|Total liabilities                                                                                        |                                                                                                                                                               |                            | 339,766,756    |             |            |             | 291,446,502 |            
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|Stockholders equity:                                                                                    |                                                                                                                                                               |                            |                |             |            |             |             |            
|                                                                                                         | Preferred stock, no par value; 2,000,000 authorized;
no shares issued and outstanding in 2002 and 2001                                                        |                            |                |             |            |             |             |             |           
|                                                                                                         | Common stock, no par value; 10,000,000 shares
authorized; 2,641,536 shares issued and outstanding in 2002
and 2,703,457 shares issued and outstanding in 2001 |                            |                | 8,714,767   |            |             |             | 8,850,826   |           
|                                                                                                         | Retained earnings                                                                                                                                             |                            |                | 18,813,703  |            |             |             | 18,397,061  |           
|                                                                                                         | Accumulated other comprehensive income(loss), net of tax                                                                                                      |                            |                | 138,660     |            |             |             | (8,038      | )         
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|                                                                                                         |                                                                                                                                                               | Total stockholders equity |                |             | 27,667,130 |             |             |             | 27,239,849 |            
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                               |                                                                                                                                                               | $                          | 367,433,886    |             |            | $           | 318,686,351 |            
|                                                                                                         |                                                                                                                                                               |                            |                |             |            |             |             |            

See notes to consolidated financial statements.

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REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |            | 
|-------------------------- | --------------------------------------------------------------------------------- | -------------------------- | --------- | ---------- | ---------- | ---- | --------- | ---------- | ---------- | - | --------- | ---------- | ---------- | 
|                           |                                                                                   |                            |           | 2002       |            | 2001 |           | 2000      
|                           |                                                                                   |                            |           |            |            |      |           |           
|Interest income:           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |           
|                           | Interest and fees on loans                                                        |                            | $         | 16,812,119 |            |      | $         | 17,459,219 |            |   | $         | 17,622,229 |           
|                           | Interest on tax exempt securities                                                 |                            |           | 138,573    |            |      |           | 199,520    |            |   |           | 137,858    |           
|                           | Interest on U.S. government securities                                            |                            |           | 1,299,956  |            |      |           | 1,644,870  |            |   |           | 1,305,315  |           
|                           | Interest on federal funds sold and securities purchased
under agreement to resell |                            |           | 226,854    |            |      |           | 832,960    |            |   |           | 1,049,994  |           
|                           | Interest on other securities                                                      |                            |           | 87,691     |            |      |           | 79,293     |            |   |           | 61,498     |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           |                                                                                   | Total interest income      |           |            | 18,565,193 |      |           |            | 20,215,862 |   |           |            | 20,176,894 | 
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|Interest expense:          |                                                                                   |                            |           |            |            |      |           |            |            |   |           |           
|                           | Interest on demand deposits                                                       |                            |           | 596,646    |            |      |           | 909,488    |            |   |           | 1,121,827  |           
|                           | Interest on savings deposits                                                      |                            |           | 144,845    |            |      |           | 340,245    |            |   |           | 427,807    |           
|                           | Interest on time deposits                                                         |                            |           | 5,115,243  |            |      |           | 7,583,718  |            |   |           | 6,880,739  |           
|                           | Securities sold under agreement to repurchase                                     |                            |           | 191,194    |            |      |           | 192,702    |            |   |           | 291,248    |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           |                                                                                   | Total interest expense     |           |            | 6,047,928  |      |           |            | 9,026,153  |   |           |            | 8,721,621  | 
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           | Net interest income                                                               |                            |           | 12,517,265 |            |      |           | 11,189,709 |            |   |           | 11,455,273 |           
|Provision for loan losses  |                                                                                   |                            | 620,000   |            |            |      | 255,000   |            |            |   | 142,000   |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           | Net interest income after provision for loan losses                               |                            |           | 11,897,265 |            |      |           | 10,934,709 |            |   |           | 11,313,273 |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|Non-interest income:       |                                                                                   |                            |           |            |            |      |           |            |            |   |           |           
|                           | Service charges on deposit accounts                                               |                            |           | 289,042    |            |      |           | 221,959    |            |   |           | 213,683    |           
|                           | Other income                                                                      |                            |           | 1,101,930  |            |      |           | 1,104,302  |            |   |           | 777,652    |           
|                           | Net gain (loss) on sale of
securities available-for-sale                          |                            |           | 275,425    |            |      |           | 556,993    |            |   |           | (59,313    | )         
|                           | Merchant credit card service income, net                                          |                            |           | 424,557    |            |      |           | 940,234    |            |   |           | 1,875,433  |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           |                                                                                   | Total non-interest income  |           |            | 2,090,954  |      |           |            | 2,823,488  |   |           |            | 2,807,455  | 
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|Non-interest expense:      |                                                                                   |                            |           |            |            |      |           |            |            |   |           |           
|                           | Salaries and related benefits                                                     |                            |           | 4,709,133  |            |      |           | 3,948,301  |            |   |           | 3,752,610  |           
|                           | Net occupancy and equipment expense                                               |                            |           | 1,463,252  |            |      |           | 1,116,634  |            |   |           | 985,277    |           
|                           | FDIC insurance premium                                                            |                            |           | 47,852     |            |      |           | 44,791     |            |   |           | 40,695     |           
|                           | Data processing and professional services                                         |                            |           | 529,574    |            |      |           | 483,043    |            |   |           | 464,815    |           
|                           | Directors expenses                                                               |                            |           | 256,672    |            |      |           | 270,756    |            |   |           | 189,465    |           
|                           | Other expenses                                                                    |                            |           | 1,260,132  |            |      |           | 1,279,285  |            |   |           | 1,024,806  |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           |                                                                                   | Total non-interest expense |           |            | 8,266,615  |      |           |            | 7,142,810  |   |           |            | 6,457,668  | 
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|Income before income taxes |                                                                                   |                            | 5,721,604 |            |            |      | 6,615,387 |            |            |   | 7,663,060 |           
|Provision for income taxes |                                                                                   |                            | 2,025,144 |            |            |      | 2,341,725 |            |            |   | 2,851,291 |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|                           | Net Income                                                                        |                            | $         | 3,696,460  |            |      | $         | 4,273,662  |            |   | $         | 4,811,769  |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|Basic earnings per share   |                                                                                   | $                          | 1.38      |            |            | $    | 1.52      |            |            | $ | 1.67      |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           
|Diluted earnings per share |                                                                                   | $                          | 1.29      |            |            | $    | 1.44      |            |            | $ | 1.59      |           
|                           |                                                                                   |                            |           |            |            |      |           |            |            |   |           |            |           

See notes to consolidated financial statements.

46



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |   |  | 
|-------------------------------------------------- | --------------------------- | ------------------------------------------------------------------------------ | --------- | ------------- | -------- | ------ | --------- | ------ |  | - | --------- | - |  | 
|                                                   |                             |                                                                                |           | Comprehensive |          | Common |           | Stock 
|                                                   |                             |                                                                                |           | Income        |          | Shares |           | Amount
|Balance at January 1, 2000                         |                             |                                                                                |           |               |          |        | 2,906,743 |        |  | $ | 4,808,938 |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Comprehensive Income:                              |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|                                                   | Net Income                  |                                                                                |           | 4,811,769     |          |        |           |        |  |   |           |   | 
|                                                   | Other Comprehensive Income: |                                                                                |           |               |          |        |           |        |  |   |           |   | 
|                                                   |                             | Unrealized holding gains arising
during period, net of tax                     |           |               | 291,062  |        |           |        |  |   |           |   |  | 
|                                                   |                             | Add: reclassification adjustment
for losses included in net
income, net of tax |           |               | 36,080   |        |           |        |  |   |           |   |  | 
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Other Comprehensive Income                         |                             |                                                                                | 327,142   |               |          |        |           |        |  |   |           |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Total Comprehensive Income                         |                             | $                                                                              | 5,138,911 |               |          |        |           |        |  |   |           |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Cash dividends ($0.59 per share)                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Compensation expense associated with stock options |                             |                                                                                |           |               |          |        |           |        |  |   | 67,200    |  
|Stock options exercised                            |                             |                                                                                |           |               |          |        | 43,505    |        |  |   | 358,775   |  
|Purchase and retirement of common stock            |                             |                                                                                |           |               |          |        | (66,067   | )      |  |   | (105,430  | )
|Tax benefit on exercise of options                 |                             |                                                                                |           |               |          |        |           |        |  |   | 136,731   |  
|10% Stock dividend                                 |                             |                                                                                |           |               |          |        |           |        |  |   | 4,104,765 |  
|Balance at December 31, 2000                       |                             |                                                                                |           |               |          |        | 2,884,181 |        |  | $ | 9,370,979 |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Comprehensive Income:                              |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|                                                   | Net Income                  |                                                                                |           | 4,273,662     |          |        |           |        |  |   |           |   | 
|                                                   | Other Comprehensive Income: |                                                                                |           |               |          |        |           |        |  |   |           |   | 
|                                                   |                             | Unrealized holding gains arising
during period, net of tax                     |           |               | 264,832  |        |           |        |  |   |           |   |  | 
|                                                   |                             | Less: reclassification adjustment
for gains included in net
income, net of tax |           |               | (359,650 | )      |           |        |  |   |           |   |  | 
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Other Comprehensive Income                         |                             |                                                                                | (94,818   | )             |          |        |           |        |  |   |           |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Total Comprehensive Income                         |                             | $                                                                              | 4,178,844 |               |          |        |           |        |  |   |           |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Cash dividends ($0.65 per share)                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  
|Compensation expense associated with stock options |                             |                                                                                |           |               |          |        |           |        |  |   | 67,200    |  
|Stock options exercised                            |                             |                                                                                |           |               |          |        | 13,115    |        |  |   | 42,625    |  
|Purchase and retirement of common stock            |                             |                                                                                |           |               |          |        | (193,839  | )      |  |   | (629,978  | )
|Balance at December 31, 2001                       |                             |                                                                                |           |               |          |        | 2,703,457 |        |  | $ | 8,850,826 |  
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |   |           |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                   |                             |                                                                                |            |           |  |                    |          |             |  |   |            |           |  | 
|-------------------------------------------------- | --------------------------- | ------------------------------------------------------------------------------ | ---------- | --------- |  | ------------------ | -------- | ----------- |  | - | ---------- | --------- |  | 
|                                                   |                             |                                                                                |            |           |  |                    |          | Accumulated |  |   |            |          
|                                                   |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|                                                   |                             |                                                                                |            |           |  |                    |          | Other       |  |   |            |          
|                                                   |                             |                                                                                |            | Retained  |  | Comprehensive      |          |             |  |  
|                                                   |                             |                                                                                |            | Earnings  |  | Income, net of tax |          | Total      
|Balance at January 1, 2000                         |                             | $                                                                              | 21,490,819 |           |  | $                  | (240,362 | )           |  | $ | 26,059,395 |          
|                                                   |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|Comprehensive Income:                              |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|                                                   | Net Income                  |                                                                                |            | 4,811,769 |  |                    |          |             |  |   |            | 4,811,769 | 
|                                                   | Other Comprehensive Income: |                                                                                |            |           |  |                    |          |             |  |   |            |           | 
|                                                   |                             | Unrealized holding gains arising
during period, net of tax                     |            |           |  |                    |          |             |  |   |            |           |  | 
|                                                   |                             | Add: reclassification adjustment
for losses included in net
income, net of tax |            |           |  |                    |          |             |  |   |            |           |  | 
|Other Comprehensive Income                         |                             |                                                                                |            |           |  |                    | 327,142  |             |  |   | 327,142    |          
|Total Comprehensive Income                         |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|Cash dividends ($0.59 per share)                   |                             |                                                                                | (1,699,627 | )         |  |                    |          |             |  |   | (1,699,627 | )        
|Compensation expense associated with stock options |                             |                                                                                |            |           |  |                    |          |             |  |   | 67,200     |          
|Stock options exercised                            |                             |                                                                                |            |           |  |                    |          |             |  |   | 358,775    |          
|Purchase and retirement of common stock            |                             |                                                                                | (1,201,686 | )         |  |                    |          |             |  |   | (1,307,116 | )        
|Tax benefit on exercise of options                 |                             |                                                                                |            |           |  |                    |          |             |  |   | 136,731    |          
|10% Stock dividend                                 |                             |                                                                                | (4,104,765 | )         |  |                    |          |             |  |   | 0          |          
|Balance at December 31, 2000                       |                             | $                                                                              | 19,296,510 |           |  |                    | 86,780   |             |  | $ | 28,754,269 |          
|                                                   |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|Comprehensive Income:                              |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|                                                   | Net Income                  |                                                                                |            | 4,273,662 |  |                    |          |             |  |   |            | 4,273,662 | 
|                                                   | Other Comprehensive Income: |                                                                                |            |           |  |                    |          |             |  |   |            |           | 
|                                                   |                             | Unrealized holding gains arising
during period, net of tax                     |            |           |  |                    |          |             |  |   |            |           |  | 
|                                                   |                             | Less: reclassification adjustment
for gains included in net
income, net of tax |            |           |  |                    |          |             |  |   |            |           |  | 
|Other Comprehensive Income                         |                             |                                                                                |            |           |  |                    | (94,818  | )           |  |   | (94,818    | )        
|Total Comprehensive Income                         |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          
|Cash dividends ($0.65 per share)                   |                             |                                                                                | (1,792,391 | )         |  |                    |          |             |  |   | (1,792,391 | )        
|Compensation expense associated with stock options |                             |                                                                                |            |           |  |                    |          |             |  |   | 67,200     |          
|Stock options exercised                            |                             |                                                                                | 81,126     |           |  |                    |          |             |  |   | 123,751    |          
|Purchase and retirement of common stock            |                             |                                                                                | (3,461,846 | )         |  |                    |          |             |  |   | (4,091,824 | )        
|Balance at December 31, 2001                       |                             |                                                                                | 18,397,061 |           |  |                    | (8,038   | )           |  |   | 27,239,849 |          
|                                                   |                             |                                                                                |            |           |  |                    |          |             |  |   |            |          

(Continues)

47



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)

|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |           |  |  | 
|-------------------------------------------------- | --------------------------- | ------------------------------------------------------------------------------ | --------- | --------- | ------------- | - | --------- | - | ------ | - | --------- | - | -------------- | - | ---------- | --------- |  | - | ------- | - | ------------- | - | ---------- | --------- |  |  | 
|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   | Other         |   |            |           | 
|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   | Comprehensive |   |            |           | 
|                                                   |                             |                                                                                |           |           | Comprehensive |   | Common    |   | Stock  |   | Retained  |   | Income, net of |   |            |           | 
|                                                   |                             |                                                                                |           |           | Income        |   | Shares    |   | Amount |   | Earnings  |   | tax            |   | Total     
|Balance at December 31, 2001                       |                             |                                                                                |           |           |               |   | 2,703,457 |   |        | $ | 8,805,826 |   |                | $ | 18,397,061 |           |  | $ | (8,038  | ) |               | $ | 27,239,849 |          
|Comprehensive Income:                              |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |          
|                                                   | Net Income                  |                                                                                |           | 3,696,460 |               |   |           |   |        |   |           |   |                |   |            | 3,696,460 |  |   |         |   |               |   |            | 3,696,460 | 
|                                                   | Other Comprehensive Income: |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |           | 
|                                                   |                             | Unrealized holding gains arising during period, net
of tax                     |           |           | 324,623       |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |           |  | 
|                                                   |                             | Less: reclassification adjustment
for gains included in net
income, net of tax |           |           | (177,925      | ) |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |           |  | 
|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |          
|Other Comprehensive Income                         |                             |                                                                                | 146,698   |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   | 146,698 |   |               |   | 146,698    |          
|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |          
|Total Comprehensive Income                         |                             | $                                                                              | 3,843,158 |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |          
|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |          
|Cash dividends ($0.65 per share)                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   | (1,721,279 | )         |  |   |         |   |               |   | (1,721,279 | )        
|Compensation expense associated
with stock options |                             |                                                                                |           |           |               |   |           |   |        |   | 67,200    |   |                |   |            |           |  |   |         |   |               |   | 67,200     |          
|Stock options exercised                            |                             |                                                                                |           |           |               |   | 31,060    |   |        |   | 102,141   |   |                |   | 197,566    |           |  |   |         |   |               |   | 299,707    |          
|Purchase and retirement of common
stock            |                             |                                                                                |           |           |               |   | (92,981   | ) |        |   | (305,400  | ) |                |   | (1,782,102 | )         |  |   |         |   |               |   | (2,087,502 | )        
|Tax benefit on exercise of options                 |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   | 25,997     |           |  |   |         |   |               |   | 25,997     |          
|Balance at December 31, 2002                       |                             |                                                                                |           |           |               |   | 2,641,536 |   |        | $ | 8,714,767 |   |                | $ | 18,813,703 |           |  | $ | 138,660 |   |               | $ | 27,667,130 |          
|                                                   |                             |                                                                                |           |           |               |   |           |   |        |   |           |   |                |   |            |           |  |   |         |   |               |   |            |          

See notes to the consolidated financial statements.

48



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |            |            |   | 
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------ | ----------- | ----------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | ----------- | ---------- | ---------- | - | 
|                                                     |                                                                                   |                                                               |                    |             |             | 2002       |             | 2001        |            | 2000      
|Cash flows from operating activities:                |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |            
|                                                     | Net income                                                                        |                                                               | $                  | 3,696,460   |             |            | $           | 4,273,662   |            |            | $           | 4,811,769   |           
|                                                     | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|                                                     | Provision for loan losses                                                         |                                                               |                    | 620,000     |             |            |             | 255,165     |            |            |             | 142,000     |           
|                                                     | Provision for depreciation and amortization                                       |                                                               |                    | 737,020     |             |            |             | 604,945     |            |            |             | 507,458     |           
|                                                     | Compensation expense associated with stock options                                |                                                               |                    | 67,200      |             |            |             | 67,200      |            |            |             | 67,200      |           
|                                                     | (Gain) loss on sale of securities available-for-sale                              |                                                               |                    | (275,425    | )           |            |             | (556,993    | )          |            |             | 59,313      |           
|                                                     | Amortization of investment premiums and accretion
of discounts, net               |                                                               |                    | 534,180     |             |            |             | (230,797    | )          |            |             | 340,516     |           
|                                                     | Gain on sale of loans                                                             |                                                               |                    | (59,604     | )           |            |             | (118,018    | )          |            |             | (129,859    | )         
|                                                     | Gain on sale of fixed assets                                                      |                                                               |                    | (18,806     | )           |            |             | (0          | )          |            |             | (0          | )         
|                                                     | Proceeds from sale of loans                                                       |                                                               |                    | 1,326,629   |             |            |             | 6,221,668   |            |            |             | 5,680,593   |           
|                                                     | Loans originated for sale                                                         |                                                               |                    | (1,386,233  | )           |            |             | (6,339,686  | )          |            |             | (5,810,452  | )         
|                                                     | Deferred income taxes, net                                                        |                                                               |                    | (319,820    | )           |            |             | (361,654    | )          |            |             | 120,065     |           
|                                                     | Effect of changes in:                                                             |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|                                                     |                                                                                   |                                                               | Other assets       |             |             | (2,115,248 | )           |             |            | (3,490,237 | )           |             |            | (1,464,688 | )
|                                                     |                                                                                   |                                                               | Deferred loan fees |             |             | 448,944    |             |             |            | (105,915   | )           |             |            | (130,717   | )
|                                                     |                                                                                   |                                                               | Other liabilities  |             |             | 317,047    |             |             |            | 181,842    |             |             |            | 373,407    |  
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |            
|Net cash provided by operating activities            |                                                                                   |                                                               | 3,572,344          |             |             |            | 401,182     |             |            |            | 4,566,605   |            
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |            
|Cash flows from investing activities:                |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |            
|                                                     | Proceeds from maturities of available-for-sale securities                         |                                                               |                    | 18,539,071  |             |            |             | 25,085,086  |            |            |             | 7,951,547   |           
|                                                     | Proceeds from sale of available-for-sale securities                               |                                                               |                    | 42,062,130  |             |            |             | 25,509,556  |            |            |             | 4,419,671   |           
|                                                     | Purchases of available-for-sale securities                                        |                                                               |                    | (52,074,912 | )           |            |             | (68,912,632 | )          |            |             | (6,611,227  | )         
|                                                     | Maturities of held-to-maturity securities                                         |                                                               |                    | 1,711,823   |             |            |             | 0           |            |            |             | 0           |           
|                                                     | Loan origination, net of principal repayments                                     |                                                               |                    | (64,002,564 | )           |            |             | (25,287,506 | )          |            |             | (21,227,829 | )         
|                                                     | Purchase of premises and equipment, net                                           |                                                               |                    | (626,255    | )           |            |             | (601,968    | )          |            |             | (320,715    | )         
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|Net cash used by investing activities                |                                                                                   |                                                               | (54,390,707        | )           |             |            | (44,207,464 | )           |            |            | (15,788,553 | )          
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|Cash flows from financing activities:                |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |            
|                                                     |                                                                                   | Net increase in demand deposits and savings accounts          |                    |             | 32,765,223  |            |             |             | 34,169,894 |            |             |             | 2,147,274  |           
|                                                     |                                                                                   | Net increase in certificates of deposit                       |                    |             | 245,883     |            |             |             | 29,229,493 |            |             |             | 17,565,581 |           
|                                                     |                                                                                   | Net increase in securities sold under agreement to repurchase |                    |             | (3,075,847  | )          |             |             | 1,512,760  |            |             |             | 467,472    |           
|                                                     |                                                                                   | Proceeds from Federal Home Loan Bank advances                 |                    |             | 28,000,000  |            |             |             | 0          |            |             |             | 0          |           
|                                                     |                                                                                   | Repayments of Federal Home Loan Bank advances                 |                    |             | (10,000,000 | )          |             |             | 0          |            |             |             | 0          |           
|                                                     |                                                                                   | Cash dividends                                                |                    |             | (1,721,279  | )          |             |             | (1,792,392 | )          |             |             | (1,699,627 | )         
|                                                     |                                                                                   | Common stock transactions, net                                |                    |             | (1,761,798  | )          |             |             | (3,968,073 | )          |             |             | (811,610   | )         
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|Net cash provided by financing activities            |                                                                                   |                                                               | 44,452,182         |             |             |            | 59,151,682  |             |            |            | 7,669,090   |            
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                               | (6,366,181         | )           |             |            | 15,345,400  |             |            |            | 6,447,142   |            
|Cash and cash equivalents at beginning of year       |                                                                                   |                                                               | 40,957,910         |             |             |            | 25,612,510  |             |            |            | 19,165,368  |            
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |           
|Cash and cash equivalents at end of year             |                                                                                   | $                                                             | 34,591,729         |             |             | $          | 40,957,910  |             |            | $          | 25,612,510  |            
|                                                     |                                                                                   |                                                               |                    |             |             |            |             |             |            |            |             |             |           

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REDDING BANKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000 (Continued)

RECONCILIATION TO AMOUNTS REPORTED IN
CONSOLIDATED BALANCE SHEETS:

|                                                                       |  |                                                |            |      |           |      |            |      |           |   |            |   |           | 
|---------------------------------------------------------------------- |  | ---------------------------------------------- | ---------- | ---- | --------- | ---- | ---------- | ---- | --------- | - | ---------- | - | --------- | 
|                                                                       |  |                                                |            | 2002 |           | 2001 |            | 2000
|                                                                       |  |                                                |            |      |           |      |            |     
|Cash and due from banks                                                |  | $                                              | 23,831,729 |      |           | $    | 15,527,910 |      |           | $ | 12,602,510 |  
|Federal funds sold and securities purchased under
agreements to resell |  |                                                | 10,760,000 |      |           |      | 25,430,000 |      |           |   | 13,010,000 |  
|                                                                       |  |                                                |            |      |           |      |            |      |           |   |            |  
|CASH AND EQUIVALENTS, End of year                                      |  | $                                              | 34,591,729 |      |           | $    | 40,957,910 |      |           | $ | 25,612,510 |  
|                                                                       |  |                                                |            |      |           |      |            |      |           |   |            |  
|Supplemental disclosures:                                              |  |                                                |            |      |           |      |            |      |           |   |            |  
|                                                                       |  | Cash paid during the period for:               |            |      |           |      |            |      |           |   |            |   |           | 
|                                                                       |  | Income taxes                                   |            | $    | 1,915,800 |      |            | $    | 2,704,145 |   |            | $ | 2,590,200 | 
|                                                                       |  | Interest                                       |            | $    | 6,161,458 |      |            | $    | 9,103,849 |   |            | $ | 8,553,444 | 
|Supplemental Schedule of Non Cash Investing and Financing Activities   |  |                                                |            |      |           |      |            |      |           |   |            |  
|                                                                       |  | Transfer from loans to other real estate owned |            | $    | 337,977   |      |            | $    | 0         |   |            | $ | 0         | 
|                                                                       |  | Stock Dividend                                 |            | $    | 0         |      |            | $    | 0         |   |            | $ | 4,104,765 | 

See notes to consolidated financial statements.

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



|1. |  | THE BUSINESS OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Redding Bancorp (Bancorp, and with its subsidiaries, the
Company), is a financial services holding company (FHC) with its
principal offices in Redding, California. A financial service holding
company may engage in commercial banking, insurance, securities business
and offer other financial products to customers. The Company received
notification from the Federal Reserve Board approving the election to
change to a financial service holding company on April 22, 2000. The
election to change to a financial service holding company has had no
impact to date on the operations of the Company. As a financial service
holding company, the Company is subject to the Financial Holding Company
Act and to supervision by the Board of Governors of the Federal Reserve
System (the FRB). Bancorps wholly-owned subsidiaries are Redding Bank
of Commerce (the Bank) and Redding Service Corporation. On January 2,
2003, Redding Service Corporation will change names to RBC Mortgage
Services. The subsidiary will offer mortgage brokerage services through
an affiliate agreement with the Bank. The Bank is principally supervised
and regulated by the California Department of Financial Institutions
(DFI) and the Federal Deposit Insurance Corporation (FDIC).
Substantially all of the Companys activities are carried out through the
Bank. The Bank was incorporated as a California banking corporation on
November 25, 1981. The Bank operates four full service branches in
Redding and Roseville, California, a suburb of the greater Sacramento
metro area.
|  
|   |  | The Bank conducts a general commercial banking business in the
counties of El Dorado, Placer, Shasta, and Sacramento, California. The
Company considers Upstate California to be the major market area of the
Bank. The services offered by the Bank include those traditionally
offered by commercial banks of similar size and character in California,
including checking, interest-bearing (NOW) and savings accounts, money
market deposit accounts; commercial, real estate, and construction loans;
travelers checks, safe deposit boxes, collection services and electronic
banking activities. The primary focus of the Bank is to provide services
to the business and professional community of its major market area,
including Small Business Administration loans, payroll and accounting
packages, benefit administration and billing programs. The Bank does not
offer trust services or international banking services and does not plan
to do so in the near future. Most of the customers of the Bank are small
to medium sized businesses and individuals with medium to high net worth.
The Bank has also entered into an agreement to provide credit and debit
card processing services for merchants, solicited by an independent sales
organization (ISO), who accept credit and debit cards as payment for
goods and services. The Bank acts as a clearing bank for the ISO and
processes debit and credit card transactions into the VISA® or
MasterCard® system for presentment to the card issuer.                                                                            
|  
|2. |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | The accounting and reporting policies of the Company conform with
accounting principles generally accepted in the United States of America
and general practices within the banking industry. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenue and expenses
for the period. Actual results could differ from those estimates. The
more significant accounting and reporting policies
and estimates applied in the preparation of the accompanying consolidated
financial statements are discussed below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | All share and per share amounts have been restated to reflect the 2000
10% stock dividend.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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| |  | Principles of Consolidation- The consolidated financial statements
include the accounts of the Company, the Bank and Redding Service
Corporation. All significant intercompany balances and transactions have
been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cash and Cash Equivalents- Cash equivalents include amounts due from
banks, federal funds sold and securities purchased under agreements to
resell. Generally, federal funds sold are for a one-day period and
securities purchased under agreements to resell are for no more than a
90-day period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Securities purchased under
agreements to resell- The Bank enters into
purchases of securities under agreements to resell substantially
identical securities. Securities purchased under agreements to resell at
December 31, 2002 consist of U.S. Treasury and Agency securities. The
amounts advanced under these agreements are reflected as assets in the
consolidated balance sheet. It is the Banks policy to take possession
of securities purchased under agreements to resell. Agreements with
third parties specify the Banks rights to request additional collateral,
based on its monitoring of the fair value of the underlying securities on
a daily basis. The securities are delivered by appropriate entry into
the Banks account maintained at the Federal Reserve Bank or into a
third-party custodians account designated by the Bank under a written
custodial agreement that explicitly recognizes the Banks interest in the
securities. At December 31, 2002, these agreements matured within 90
days and no material amount of agreements to resell securities purchased
was outstanding with any individual dealer.                                                                                                                             
|
| |  | Securities- At the time of purchase, the Bank designates the security as
held-to-maturity or available-for-sale, based on its investment
objectives, operational needs and intent to hold. The Bank does not
engage in trading activity. Securities designated as held-to-maturity are
carried at cost adjusted for the accretion of discounts and amortization
of premiums. The Company has the ability and intent to hold these
securities to maturity. Securities designated as available-for-sale may
be sold to implement the Companys asset/liability management strategies
and in response to changes in interest rates, prepayment rates and
similar factors. Securities designated as available-for-sale are recorded
at market value and unrealized gains or losses, net of income taxes, are
reported as part of accumulated other comprehensive income, a separate
component of stockholders equity. Gains or losses on sale of securities
are based on the specific identification method.                                                                                                                                                                                                                                                                    
|
| |  | Loans- Loans are stated at the principal amounts outstanding less
deferred loan fees and costs and the allowance for loan losses. Interest
on commercial, installment and real estate loans is accrued daily based
on the principal outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Loan origination and commitment fees and certain origination costs are
deferred and, if material, the net amount is amortized over the
contractual life of the loans as an adjustment of their yield.
A loan is impaired when, based on current information and events,
management believes it is probable that the Bank will not be able to
collect all amounts due according to the contractual terms of the loan
agreement. Impairment is measured based upon the present value of future
cash flows discounted at the loans effective rate, the loans observable
market price, or the fair value of collateral if the loan is collateral
dependent. Interest on impaired loans is recognized on a cash basis, and
only when the principal is not considered
impaired. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or
principal or when a loan becomes contractually past-due by ninety days or
more with respect to principal or interest. Loans on which the accrual of
interest has been discontinued are designated as nonaccrual loans. When a
loan is placed on nonaccrual status, all interest previously accrued but
not collected is reversed against current period income.

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| |  | Accruals are resumed on loans only when they are brought fully current
with respect to interest and principal and when, in the judgment of
management, the loan is estimated to be fully collectible. Restructured
loans are those loans on which concessions in terms have been granted
because of the borrowers financial or legal difficulties. Interest is
generally accrued on such loans in accordance with the new terms.                                                                                                                                                                                                                                                                              
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Allowance for Loan Losses- The allowance for loan losses are established
through a provision charged to expense. Loans are charged off against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The allowance is an amount that management believes will be adequate to
absorb losses inherent in existing loans, standby letters of credit,
overdrafts and commitments to extend credit based on evaluations of
collectibility and prior loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific
problem loans, commitments, and current economic conditions that may
affect the borrowers ability to pay.                                                                                                                                                                      
|
| |  | Material estimates relating to the determination of the allowance for
loan losses are particularly susceptible to significant change in the
near term. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based
on changes in economic conditions. In addition, the FDIC and DFI, as an
integral part of their examination process, periodically review the
Banks allowance for loan losses. The FDIC may require the Bank to
recognize additions to the allowance based on their judgment about
information available to them at the time of their examination.
|
| |  | Bank Premises and Equipment- Bank premises and equipment are stated at
cost less accumulated depreciation. Provisions for depreciation included
in operating expenses is computed on the straight-line method over the
estimated useful lives of the related assets. Expenditures for major
renewals and improvements are capitalized and those for maintenance and
repairs are charged to expense as incurred.                                                                                                                                                                                                                                                                                                
|
| |  | Securities sold under agreements to repurchase- At December 31, 2002,
securities sold under agreements to repurchase consist of commercial
repurchase agreements, where the bank has an agreement with the depositor
to sell and repurchase, on a daily basis, a proportionate interest in US
Government and Agency securities. These securities are held as collateral
for non-FDIC insured deposits.                                                                                                                                                                                                                                                                                                         
|
| |  | Federal Home Loan Bank Borrowings- As part of its Asset/Liability
management strategy the Company has obtained advances from the Federal
Home Loan Bank . The Company has pledged collateral of Commercial Real
Estate Loans and specific Securities to support the borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Core Deposit Intangibles- In June 2001, the Company purchased a branch.
Because of this acquisition, the Company recorded core deposit
intangibles, which are being amortized over seven years by the
straight-line method. Amortization expense charged to operations for the
year ended December 31, 2002, and 2001 was $118,803 and $54,936,
respectively.                                                                                                                                                                                                                                                                                                                                                  

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| |  | Earnings Per Share- Basic earnings per share excludes dilution and is
computed by dividing net income by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share is
computed by dividing net income by the sum of the weighted-average number
of common shares outstanding for the period plus the dilutive effect that
could occur if the Companys outstanding stock options were exercised and
converted into common stock, net of estimated shares that could be
reacquired with proceeds from the exercise of such options. The following
table reconciles the numerator and denominator used in computing both
basic earnings per share and diluted earnings per share for the years
ended December 31.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |           |           | 
|----------------------- | -------------------------------------------------------- | ------------------------------------------ | --------- | --------- | --------- | ---- | --------- | --------- | --------- |  | --------- | --------- | --------- | 
|                        |                                                          |                                            |           | 2002      |           | 2001 |           | 2000     
|Basic EPS Calculation   |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        | Numerator (net income)                                   |                                            | $         | 3,696,460 |           |      | $         | 4,273,662 |           |  | $         | 4,811,769 |          
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        | Denominator (weighted average common shares
outstanding) |                                            |           | 2,670,889 |           |      |           | 2,813,629 |           |  |           | 2,882,339 |          
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        | Basic EPS                                                |                                            | $         | 1.38      |           |      | $         | 1.52      |           |  | $         | 1.67      |          
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|Diluted EPS Calculation |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        | Numerator (net income)                                   |                                            | $         | 3,696,460 |           |      | $         | 4,273,662 |           |  | $         | 4,811,769 |          
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        | Denominator:                                             |                                            |           |           |           |      |           |           |           |  |           |           |          
|                        |                                                          | Weighted average common shares outstanding |           |           | 2,670,889 |      |           |           | 2,813,629 |  |           |           | 2,882,339 | 
|                        |                                                          | Options                                    |           |           | 197,184   |      |           |           | 152,922   |  |           |           | 151,221   | 
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        |                                                          |                                            | 2,868,073 |           |           |      | 2,966,551 |           |           |  | 3,033,560 |          
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          
|                        | Diluted EPS                                              |                                            | $         | 1.29      |           |      | $         | 1.44      |           |  | $         | 1.59      |          
|                        |                                                          |                                            |           |           |           |      |           |           |           |  |           |          



| |  | Other Real Estate Owned -Real estate acquired by foreclosure, is carried
at the lower of the recorded investment in the property or its fair value
less estimated selling costs. Prior to foreclosure, the value of the
underlying loan is written down to the fair value of the real estate to
be acquired, less costs to sell, by a charge to the allowance for loan
losses, if necessary. Fair value of other real estate is generally
determined based on an appraisal of the property. Any subsequent
write-downs are charged against operating expenses. Operating expenses
of such properties, net of related income, and gains and losses on their
disposition are included in other expenses.                                                                                                                                                                                                                                                                    
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Gain recognition on the disposition of real estate is dependent upon the
transaction meeting certain criteria relating to the nature of the
property sold and the terms of the sale. This includes the buyers
initial and continuing investment, the degree of continuing involvement
by the Bank with the property after the sale, and other matters. Under
certain circumstances, revenue recognition may be deferred until these
criteria are met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Deferred Compensation -In April 2001, the Board of Directors approved
the implementation of the Executive Salary Continuation Plan (SCP), which
is a non-qualified executive benefit plan in which the bank agrees to pay
the executive additional benefits in the future in return for continued
satisfactory performance by the executive. Benefits under the salary
continuation plan include income generally payable commending upon a
retirement date, disability or termination of employment, and a death
benefit for the participants designated beneficiaries. Key-man life
policies were purchased as an investment to the offset the banks
contractual obligation to pay pre-retirement death benefits and to
recover the banks costs of providing benefits. The executive is the
insured under the policy, while the bank is the owner and the
beneficiary. The insured executive has no claim on the
insurance policy, its cash value or proceeds thereof.

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| |  | The retirement benefit is derived from accruals to a benefit account
during the participants employment. At the end of the executives period
of service, the aggregate amount accrued should equal the then present
value of the benefits expected to be paid to the executive. The benefit
payout is expected over twenty years. Upon termination of employment for
cause, the participant forfeits all benefits. The participant is entitled
to all vested benefits in the case of termination without cause; however,
if a participant voluntarily resigns prior to reaching normal retirement
age, his or her benefits are reduced by accrual amounts not yet funded.
Upon a change of control, the participant is entitled to the full
retirement benefit.                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Income Taxes -The Company accounts for income taxes under the asset and
liability method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using currently
enacted tax rates applied to such taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.                                                                                                                                                                                                                                                                                               
|
| |  | Stock Option Plan- The Company accounts for its stock option plan under
the intrinsic value method in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price
of the underlying stock exceeds the exercise price. As required by the
Statement of Financial Accounting Standards, (SFAS) No. 123, Accounting
for Stock-Based Compensationas amended by SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosurethe Company
provides pro forma net income and pro forma earnings per share
disclosures for employee stock option grants. The following table
illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation,to
stock-based employee compensation.

|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 
|----------------------------------------------------------------------------------------------------------------------------------- | --------------------- |  | ---------------------- | --------- | ---- |  | -------- | --------- |  |  | -------- | --------- | 
|                                                                                                                                    |                       |  | Year Ended December 31
|                                                                                                                                    |                       |  |                       
|                                                                                                                                    |                       |  | 2002                   |           | 2001 |  | 2000    
|                                                                                                                                    |                       |  |                        |           |      |  |         
|Net income                                                                                                                          |                       |  |                        |           |      |  |          |           |  |  |          |          
|                                                                                                                                    | As reported           |  | $                      | 3,696,460 |      |  | $        | 4,273,662 |  |  | $        | 4,811,769 | 
|Deduct:                                                                                                                             |                       |  |                        |           |      |  |          |           |  |  |          |          
|Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects |                       |  | (168,352               | )         |      |  | (149,340 | )         |  |  | (101,676 | )        
|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 
|                                                                                                                                    | Pro forma net income  |  | $                      | 3,528,108 |      |  | $        | 4,124,322 |  |  | $        | 4,710,093 | 
|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 
|Earnings per share:                                                                                                                 |                       |  |                        |           |      |  |          |           |  |  |          |          
|                                                                                                                                    | Basic - as reported   |  | $                      | 1.38      |      |  | $        | 1.52      |  |  | $        | 1.67      | 
|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 
|                                                                                                                                    | Basic - pro forma     |  | $                      | 1.32      |      |  | $        | 1.47      |  |  | $        | 1.63      | 
|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 
|                                                                                                                                    | Diluted - as reported |  | $                      | 1.29      |      |  | $        | 1.44      |  |  | $        | 1.59      | 
|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 
|                                                                                                                                    | Diluted - pro forma   |  | $                      | 1.24      |      |  | $        | 1.39      |  |  | $        | 1.55      | 
|                                                                                                                                    |                       |  |                        |           |      |  |          |           |  |  |          |           | 

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| |  | Comprehensive Income- Comprehensive income includes net income and other
comprehensive income. The Companys only source of other comprehensive
income is unrealized gains and losses on securities held-for-sale.
Reclassification adjustments result from gains or losses on 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. They are
excluded from comprehensive income of the current period to avoid double
counting.                                                                                                                                                                                                                                                                                                                 
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Segment Reporting-The Company has two reportable segments: commercial
banking and credit card services. Commercial banking includes all
services to the Companys customers except credit card services. Credit
card services are limited to those revenues, net of related data
processing costs, associated with the Banks agreement to provide credit
and debit card processing services for merchants solicited by an ISO or
the Bank who accept credit and debit cards as payments for goods and
services.                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Derivative Instruments and
Hedging Activities - The Company did not enter
into any freestanding derivative contracts or identify any embedded
derivatives requiring bifurcation and separate valuation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Goodwill and Other Intangible
Assets - Effective January 1, 2002, the
Company adopted Statement of Financial Accounting Standards
(SFAS ) No.
142, Goodwill and Other Intangible Assetswhich addresses financial
accounting and reporting for acquired goodwill and other intangible
assets at acquisition in transactions other than business combinations.
The adoption of this statement did not have a material effect on the
Companys financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Impairment or Disposal of
Long-Lived Assets- Effective January 1, 2002,
the Company adopted SFAS No. 144, Accounting For The Impairment Or
Disposal Of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121,
Accounting For The Impairment Of Long-Lived Assets And For Long-Lived
Assets To Be Disposed Ofand the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, Reporting The Results
Of Operations  Reporting The Effects Of Disposal Of A Segment Of A
Business, And Extraordinary, Unusual and Infrequently Occurring Events
And Transactions.SFAS No. 144 unifies the accounting treatment for
various types of long-lived assets to be disposed of, and resolves
implementation issues related to SFAS No. 121. The adoption of SFAS No.
144 did not have a material effect on the Companys financial position,
results of operations, or cash flows.

56



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|   |  | Acquisitions of Certain
Financial Institutions- Effective October 1,
2002, the Company adopted SFAS No. 147, Acquisitions of Certain Financial
Institutions  an amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No.9, which removes acquisitions of financial institutions
from the scope of both Statement 72 and Interpretation 9 and requires
those transactions be accounted for in accordance with FASB Statements
No. 141, Business Combinationsand SFAS No. 142, Goodwill and Other
Intangible Assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Costs associated with Exit or
Disposal Activities- In June 2002, the
FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, which addresses accounting for restructuring and
similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force Issue No. 94-3. The Company will
adopt the provisions of SFAS No. 146 for restructuring activities
initiated after December 31, 2002. SFAS No. 146 requires that the
liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred. Under Issue 94-3, a liability
for an exit cost was recognized at the date of the Companys commitment
to an exit plan. SFAS No. 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs, if
any, as well as the amounts recognized.                                                                                                                                                                                                    
|  
|   |  | Stock Based Compensation -
Transition and Disclosure- Effective December
31, 2002 the Company adopted SFAS No. 148 Accounting for Stock Based
Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123, which provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation and amends the disclosure requirements
of No.123 to require prominent disclosures in both annual and interim
financial statements within the Significant Accounting Policies footnote
about the method of accounting for stock-based employee compensation and
the effect of the method used (intrinsic value or fair value) on reported
results. The Company continues to account for stock-based compensation
using the intrinsic value method in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees,and
presents the required disclosures in accordance with SFAS No. 123 as
amended by SFAS No.148. The adoption of SFAS No. 148 did not have a
material effect on the Companys financial position, results of
operations, or cash flows.
|  
|3. |  | RESTRICTIONS ON CASH AND DUE FROM BANKS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | The Bank is required to maintain average reserve balances with the
Federal Reserve Bank. The average amount of these reserve balances for
the years ended December 31, 2002 and 2001 was approximately $5,855,000
and $1,441,000, respectively. In addition, the Bank maintains
compensating balances with the Federal Reserve Bank, which totaled
$2,500,000 at December 31, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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|4. |  | SECURITIES                                                                                             
|-- |  | -------------------------------------------------------------------------------------------------------
|  
|   |  | The amortized cost and estimated fair value of securities available-for-sale are summarized as
follows:

|                                                          |  |                                                 |            |                   |           |            |         |            |        |       |         |   |     |   |            |           |           | 
|--------------------------------------------------------- |  | ----------------------------------------------- | ---------- | ----------------- | --------- | ---------- | ------- | ---------- | ------ | ----- | ------- | - | --- | - | ---------- | --------- | --------- | 
|                                                          |  |                                                 |            | December 31, 2002
|                                                          |  |                                                 |            |                  
|                                                          |  |                                                 |            |                   |           |            |         |            |        |       |         |   |     |   |            | Estimated
|                                                          |  |                                                 |            | Amortized         |           | Unrealized |         | Unrealized |        | Fair 
|                                                          |  |                                                 |            | Cost              |           | Gains      |         | Losses     |        | Value
|U.S. Treasury securities and
obligations of U.S. agencies |  | $                                               | 11,653,552 |                   |           | $          | 56,759  |            |        | $     | (0      | ) |     | $ | 11,717,311 |          
|                                                          |  | Obligations of state and political
subdivisions |            |                   | 1,191,049 |            |         |            | 50,729 |       |         |   | ( 0 | ) |            |           | 1,241,778 | 
|Mortgage-backed securities                                |  |                                                 | 19,268,596 |                   |           |            | 110,714 |            |        |       | (3,556  | ) |     |   | 19,368,754 |          
|                                                          |  |                                                 |            |                   |           |            |         |            |        |       |         |   |     |   |            |           |          
|                                                          |  | $                                               | 32,113,197 |                   |           | $          | 218,202 |            |        | $     | ( 3,556 | ) |     | $ | 32,327,843 |          
|                                                          |  |                                                 |            |                   |           |            |         |            |        |       |         |   |     |   |            |           |          

|                                                          |                         |   |                   |         |            |   |            |        |       |   |            |   |  |   |            |         | 
|--------------------------------------------------------- | ----------------------- | - | ----------------- | ------- | ---------- | - | ---------- | ------ | ----- | - | ---------- | - |  | - | ---------- | ------- | 
|                                                          |                         |   | December 31, 2001
|                                                          |                         |   |                  
|                                                          |                         |   |                   |         |            |   |            |        |       |   |            |   |  |   | Estimated 
|                                                          |                         |   | Amortized         |         | Unrealized |   | Unrealized |        | Fair 
|                                                          |                         |   | Cost              |         | Gains      |   | Losses     |        | Value
|U.S. Treasury securities and obligations
of U.S. agencies |                         | $ | 29,741,241        |         |            | $ | 113,798    |        |       | $ | (129,299   | ) |  | $ | 29,725,740 |        
|Obligations of state and political
subdivisions           |                         |   | 4,337,920         |         |            |   | 42,575     |        |       |   | (70,018    | ) |  |   | 4,310,477  |        
|Mortgage backed securities                                |                         |   | 6,428,978         |         |            |   | 10,031     |        |       |   | (2,035     | ) |  |   | 6,436,974  |        
|Corporate bonds, Commercial Paper                         |                         |   |                   |         |            |   |            |        |       |   |            |   |  |   |            |        
|                                                          | and Bankers Acceptances |   |                   | 402,546 |            |   |            | 22,502 |       |   |            | 0 |  |   |            | 425,048 | 
|                                                          |                         |   |                   |         |            |   |            |        |       |   |            |   |  |   |            |        
|                                                          |                         | $ | 40,910,685        |         |            | $ | 188,906    |        |       | $ | (  201,352 | ) |  | $ | 40,898,239 |        
|                                                          |                         |   |                   |         |            |   |            |        |       |   |            |   |  |   |            |        



| |  | The amortized cost and estimated fair value of securities
held-to-maturity at December 31, 2002 and 2001, which have
contractual maturities of five through ten years consist of the
following:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                           |  |                   |           |            |  |            |         |       |  |   |   |  |  |           |           | 
|-------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------- | ----- |  | - | - |  |  | --------- | --------- | 
|                           |  | December 31, 2002
|                           |  |                  
|                           |  |                   |           |            |  |            |         |       |  |   |   |  |  | Estimated
|                           |  | Amortized         |           | Unrealized |  | Unrealized |         | Fair 
|                           |  | Cost              |           | Gains      |  | Losses     |         | Value
|Mortgage backed securities |  | $                 | 2,405,112 |            |  | $          | 156,185 |       |  | $ | 0 |  |  | $         | 2,561,297 | 
|                           |  |                   |           |            |  |            |         |       |  |   |   |  |  |           |           | 

|                           |  |                   |           |            |  |            |        |       |  |   |        |   |  |           |           | 
|-------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------ | ----- |  | - | ------ | - |  | --------- | --------- | 
|                           |  | December 31, 2001
|                           |  |                  
|                           |  |                   |           |            |  |            |        |       |  |   |        |   |  | Estimated
|                           |  | Amortized         |           | Unrealized |  | Unrealized |        | Fair 
|                           |  | Cost              |           | Gains      |  | Losses     |        | Value
|Mortgage backed securities |  | $                 | 4,116,935 |            |  | $          | 84,704 |       |  | $ | (9,043 | ) |  | $         | 4,192,596 | 
|                           |  |                   |           |            |  |            |        |       |  |   |        |   |  |           |           | 

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| |  | The amortized cost and estimated fair value of securities at December 31,
2002 by contractual maturity are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right
to call or repay obligations with or without call or prepayment
penalties.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       |  |                    |            |                  |  |           |            |       |  |   |           |           |  |   |           | 
|-------------------------------------- |  | ------------------ | ---------- | ---------------- |  | --------- | ---------- | ----- |  | - | --------- | --------- |  | - | --------- | 
|                                       |  | Available-for-Sale |            | Held-to-Maturity
|                                       |  |                    |            |                 
|                                       |  |                    |            |                  |  | Estimated |            |       |  |   |           | Estimated
|                                       |  | Amortized          |            | Fair             |  | Amortized |            | Fair 
|                                       |  | Cost               |            | Value            |  | Cost      |            | Value
|Due in one year or less                |  | $                  | 97,236     |                  |  | $         | 9   7,930  |       |  | $ | 0         |           |  | $ | 0         | 
|Due after one year through five years  |  |                    | 12,716,074 |                  |  |           | 12,834,771 |       |  |   | 0         |           |  |   | 0         | 
|Due after five years through ten years |  |                    | 19,299,887 |                  |  |           | 19,395,143 |       |  |   | 2,405,112 |           |  |   | 2,561,297 | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |           |           |  |   |           | 
|                                       |  | $                  | 32,113,197 |                  |  | $         | 32,327,843 |       |  | $ | 2,405,112 |           |  | $ | 2,561,297 | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |           |           |  |   |           | 



|   |  | At December 31, 2002, the Bank has pledged $1,000,000 of securities for
treasury, tax and loan accounts, $7,833,000 for deposits of public funds
and $5,000,000 for Federal Home Loan Bank borrowings.                                                                                                                                                                                                       
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Gross realized gains and gross realized losses, respectively on the sale
of available-for-sale securities were $321,722 and $46,297 in 2002. Gross
realized gains and gross realized losses, respectively, on
available-for-sale, securities were $558,243 and $1,250 in 2001 and were
$0 and $59,313 in 2000.There were no gains or losses recognized in
securities held-to-maturity in 2002, 2001 and 2000.
|  
|5. |  | LOANS AND ALLOWANCE FOR LOAN LOSSES                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Outstanding loan balances consist of the following:                                                                                                                                                                                                                                                                                                                                                          

|                                 |                              |   |              |           |      |   |             |           | 
|-------------------------------- | ---------------------------- | - | ------------ | --------- | ---- | - | ----------- | --------- | 
|                                 |                              |   | December 31,
|                                 |                              |   |             
|                                 |                              |   | 2002         |           | 2001
|Commercial and financial loans   |                              | $ | 99,083,692   |           |      | $ | 76,913,260  |          
|Real estate - construction loans |                              |   | 40,661,859   |           |      |   | 45,331,492  |          
|Real estate - commercial         |                              |   | 143,335,801  |           |      |   | 96,617,350  |          
|Installment loans                |                              |   | 720,484      |           |      |   | 439,610     |          
|Other                            |                              |   | 661,917      |           |      |   | 709,230     |          
|                                 |                              |   |              |           |      |   |             |          
|                                 |                              |   | 284,463,753  |           |      |   | 220,010,942 |          
|Less:                            |                              |   |              |           |      |   |             |          
|                                 | Deferred loan fees and costs |   |              | 583,906   |      |   |             | 134,962   | 
|                                 | Allowance for loan losses    |   |              | 3,792,844 |      |   |             | 3,179,782 | 
|                                 |                              |   |              |           |      |   |             |          
|                                 |                              | $ | 280,087,003  |           |      | $ | 216,696,198 |          
|                                 |                              |   |              |           |      |   |             |          



| |  | Included in total loans are nonaccrual loans of $0 and $59,489 at
December 31, 2002 and 2001, respectively. If interest on nonaccrual
loans had been accrued, such interest income
would have approximated $2,389, $199,528 during the years ended December
31, 2001 and 2000, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | A loan is impaired when, based on current information and events,
management believes it is probable that the Bank will not be able to
collect all amounts due according to the contractual terms of the loan
agreement. The Bank had outstanding balances of $6,818 and $349,139 in
impaired loans that had impairment allowances of $1,023 and $13,603 as of
December 31, 2002 and 2001, respectively. The average outstanding
balance of impaired loans were $14,227, $187,277 and $622,152, for the
years ended December 31, 2002, 2001 and 2000 respectively. There was
interest of $0, $18,333 and $0 recognized on impaired loans during the
year ended December 31, 2002, 2001 and 2000, respectively.                                                 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Bank services, for others, loans and participation of loans that are
sold of $5,892,988 and $3,183,871 as of December 31, 2002 and 2001,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Bank concentrates its lending activities primarily within Shasta, El
Dorado, Placer and Sacramento counties, in Upstate California, and the
location of the four full service offices of the Bank. Although the Bank
has a diversified loan portfolio, a significant portion of its customers
ability to repay the loans is dependent upon the professional services
and residential real estate development industry sectors. Generally, the
loans are secured by real estate or other assets and are expected to be
repaid from cash flows of the borrower or proceeds from the sale of the
collateral. The Banks exposure to credit loss, if any, is the
difference between the fair value of the collateral, and the outstanding
balance of the loan.
|
| |  | At December 31, 2002, the Bank had pledged $28,768,517 in loans as
available collateral for Federal Home Loan Bank borrowings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Changes in the allowance for loan losses consist of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                           |                        |   |                          |           |      |   |           |           |  |   |           |           | 
|------------------------------------------ | ---------------------- | - | ------------------------ | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                           |                        |   | Years Ended December 31,
|                                           |                        |   |                         
|                                           |                        |   | 2002                     |           | 2001 |   | 2000     
|Balance at beginning of year               |                        | $ | 3,179,782                |           |      | $ | 2,973,593 |           |  | $ | 2,971,747 |          
|Provision for loan losses                  |                        |   | 620,000                  |           |      |   | 255,000   |           |  |   | 142,000   |          
|Loans charged off                          |                        |   | (25,839                  | )         |      |   | (535,179  | )         |  |   | (204,402  | )        
|Recoveries of loans previously charged off |                        |   | 18,901                   |           |      |   | 486,368   |           |  |   | 64,248    |          
|                                           |                        |   |                          |           |      |   |           |           |  |   |           |          
|                                           | Balance at end of year |   | $                        | 3,792,844 |      |   | $         | 3,179,782 |  |   | $         | 2,973,593 | 
|                                           |                        |   |                          |           |      |   |           |           |  |   |           |          

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|6. |  | BANK PREMISES AND EQUIPMENT                          
|-- |  | -----------------------------------------------------
|  
|   |  | Bank premises and equipment consist of the following:

|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|--------------------------------- |  | ----------- |  | ---- | --------- | ------------ | ---------- | - | --------- | - | ---------- | -
|                                  |  |             |  |      |           | December 31,
|                                  |  | Estimated   |  |     
|                                  |  | Lives       |  | 2002 |           | 2001        
|Land                              |  |             |  |      |           | $            | 1,507,628  |   |           | $ | 1,507,628  |  
|Bank buildings                    |  | 31.5 years  |  |      | 4,002,958 |              |            |   | 3,680,047 |  
|Furniture, fixtures and equipment |  | 3 - 7 years |  |      | 3,899,319 |              |            |   | 3,572,577 |  
|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|                                  |  |             |  |      |           |              | 9,409,905  |   |           |   | 8,760,252  |  
|Less accumulated depreciation     |  |             |  |      |           |              | (4,071,309 | ) |           |   | (3,559,166 | )
|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|                                  |  |             |  |      |           |              | 5,338,596  |   |           |   | 5,201,086  |  
|Construction in progress          |  |             |  |      |           |              | 27,360     |   |           |   | 138,026    |  
|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|                                  |  |             |  |      |           | $            | 5,365,956  |   |           | $ | 5,339,112  |  
|                                  |  |             |  |      |           |              |            |   |           |   |            |  



|   |  | Depreciation expense, included in net occupancy and equipment expense, is
$737,020, $604,945, and $507,458 for the years ended December 31, 2002,
2001 and 2000, respectively.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|7. |  | OTHER ASSETS                                                                                                                                                                  
|  
|   |  | Other assets consist of the following:                                                                                                                                        

|                                                                                 |  |              |            |  |  |   |            | 
|-------------------------------------------------------------------------------- |  | ------------ | ---------- |  |  | - | ---------- | 
|                                                                                 |  | December 31,
|                                                                                 |  |             
|                                                                                 |  | 2002         | 2001      
|Cash surrender value of key-man life insurance
policies                          |  | $            | 4,398,275  |  |  | $ | 4,187,382  | 
|Deferred tax asset, net                                                          |  |              | 1,855,011  |  |  |   | 1,535,191  | 
|Accrued interest on loans                                                        |  |              | 1,240,255  |  |  |   | 1,045,893  | 
|Accrued interest on investment securities                                        |  |              | 282,821    |  |  |   | 527,090    | 
|Sweep account receivable                                                         |  |              | 1,451,938  |  |  |   | 2,001,522  | 
|Federal Home Loan Bank Stock                                                     |  |              | 1,409,900  |  |  |   | 326,100    | 
|Core Deposit Intangible, net of accumulated
amortization of $173,736 and $54,936 |  |              | 595,409    |  |  |   | 714,209    | 
|Other Real Estate Owned                                                          |  |              | 337,977    |  |  |   | 0          | 
|Other                                                                            |  |              | 1,084,657  |  |  |   | 340,570    | 
|                                                                                 |  |              |            |  |  |   |            | 
|                                                                                 |  | $            | 12,656,243 |  |  | $ | 10,677,957 | 
|                                                                                 |  |              |            |  |  |   |            | 

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|8. |  | DEPOSITS                                                                                                                                                                                                                                               
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Time certificates of deposit of $100,000 or more totaled $81,682,952 and
$70,386,783 at December 31, 2002 and 2001, respectively. Interest
expense on such deposits was $2,260,692, $3,114,739 and $3,849,404 during
2002, 2001 and 2000, respectively.
|  
|   |  | At December 31, 2002, the scheduled maturities for time deposits are as
follows:                                                                                                                                                                       

|             |  |   |             | 
|------------ |  | - | ----------- | 
|Year Ending  |  |   |             | 
|December 31, |  |   |             | 
|             |  |   |             | 
|2003         |  | $ | 130,717,329 | 
|2004         |  |   | 13,619,798  | 
|2005         |  |   | 5,892,330   | 
|             |  |   |             | 
|Total        |  | $ | 150,229,457 | 
|             |  |   |             | 



|9. |  | OTHER LIABILITIES                          
|-- |  | -------------------------------------------
|  
|   |  | Other liabilities consist of the following:

|                           |  |              |           |      |  |   |           | 
|-------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                           |  | December 31,
|                           |  |             
|                           |  | 2002         |           | 2001
|Deferred compensation      |  | $            | 2,546,657 |      |  | $ | 2,328,182 | 
|Employee incentive payable |  |              | 275,182   |      |  |   | 274,495   | 
|Accrued interest payable   |  |              | 272,956   |      |  |   | 386,486   | 
|Other                      |  |              | 520,926   |      |  |   | 241,563   | 
|                           |  |              |           |      |  |   |           | 
|                           |  | $            | 3,615,721 |      |  | $ | 3,230,726 | 
|                           |  |              |           |      |  |   |           | 



|10. |  | FEDERAL HOME LOAN BANK BORROWINGS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Bank is a member of the Federal Home Loan Bank (FHLB) of San Francisco
and borrows from the FHLB through various types of collateralized
advances. During 2002, the Company obtained advances from the Federal Home
Loan Bank for $5,000,000 maturing January 27, 2003 at 1.78%, $10,000,000
maturing on February 24, 2003 at 1.76% and $3,000,000 maturing August 26,
2003 at 1.86%. The Company has pledged collateral of $5,000,000 in
securities and $28,768,517 of Commercial Real Estate loans available to
support the borrowings.
|   
|11. |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Provision for income taxes consists of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|         |  |                          |           |      |  |      |           |  |  |   |           | 
|-------- |  | ------------------------ | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|         |  | Years Ended December 31,
|         |  |                         
|         |  | 2002                     |           | 2001 |  | 2000
|Current: |  |                          |           |      |  |      |           |  |  |   |           | 
|Federal  |  | $                        | 1,966,162 |      |  | $    | 2,197,404 |  |  | $ | 2,305,780 | 
|State    |  |                          | 459,196   |      |  |      | 397,186   |  |  |   | 425,446   | 
|         |  |                          |           |      |  |      |           |  |  |   |           | 
|         |  |                          | 2,425,358 |      |  |      | 2,594,590 |  |  |   | 2,731,226 | 
|         |  |                          |           |      |  |      |           |  |  |   |           | 

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|          |  |                          |           |      |  |      |           |   |  |   |           | 
|--------- |  | ------------------------ | --------- | ---- |  | ---- | --------- | - |  | - | --------- | 
|          |  | Years Ended December 31,
|          |  |                         
|          |  | 2002                     |           | 2001 |  | 2000
|Deferred: |  |                          |           |      |  |      |           |   |  |   |           | 
|Federal   |  |                          | (305,390  | )    |  |      | (220,322  | ) |  |   | 99,082    | 
|State     |  |                          | (94,824   | )    |  |      | (32,543   | ) |  |   | 20,983    | 
|          |  |                          |           |      |  |      |           |   |  |   |           | 
|          |  |                          | (400,214  | )    |  |      | (252,865  | ) |  |   | 120,065   | 
|          |  |                          |           |      |  |      |           |   |  |   |           | 
|          |  | $                        | 2,025,144 |      |  | $    | 2,341,725 |   |  | $ | 2,851,291 | 
|          |  |                          |           |      |  |      |           |   |  |   |           | 



| |  | Income tax expense attributable to income before income taxes differed from the amounts computed by applying the U.S. federal income
tax rate of 34 percent to income before income taxes because of the following:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                |  |                    |       |      |  |      |       |   |  |  |       |  
|----------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                |  | % of Pretax Income
|                                                |  |                   
|                                                |  | 2002               |       | 2001 |  | 2000
|Income tax at the Federal statutory rate        |  |                    | 34.00 | %    |  |      | 34.00 | % |  |  | 34.00 | %
|State franchise tax, net of Federal tax benefit |  |                    | 7.15  |      |  |      | 7.15  |   |  |  | 7.15  |  
|Tax-exempt interest                             |  |                    | (4.28 | )    |  |      | (4.11 | ) |  |  | (3.10 | )
|Other                                           |  |                    | (1.48 | )    |  |      | (1.64 | ) |  |  | (.84  | )
|                                                |  |                    |       |      |  |      |       |   |  |  |       |  
|                                                |  |                    | 35.39 | %    |  |      | 35.40 | % |  |  | 37.21 | %
|                                                |  |                    |       |      |  |      |       |   |  |  |       |  



| |  | The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2002 and 2001 consist of the following:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |                                 |       |           |           |    |      |           |           |    |  
|------------------------------ | ------------------------------- | ----- | --------- | --------- | -- | ---- | --------- | --------- | -- | -
|                               |                                 |       |           | 2002      |    | 2001
|Deferred tax assets:           |                                 |       |           |           |    |      |           |          
|                               | State franchise taxes           |       | $         | 135,405   |    |      | $         | 136,130   |   
|                               | Deferred compensation           |       |           | 1,148,064 |    |      |           | 1,043,957 |   
|                               | Loan loss reserves              |       |           | 1,183,081 |    |      |           | 936,467   |   
|                               | Unrealized securities losses    |       |           | 0         |    |      |           | 4,408     |   
|                               | Other                           |       |           | 110,409   |    |      |           | 31,918    |   
|                               |                                 |       |           |           |    |      |           |          
|Total deferred tax assets      |                                 |       | 2,576,959 |           |    |      | 2,152,880 |          
|                               |                                 |       |           |           |    |      |           |          
|Deferred tax liabilities:      |                                 |       |           |           |    |      |           |          
|                               | Depreciation                    |       |           | (165,694  | )  |      |           | (222,560  | ) 
|                               | Unrealized securities gains     |       |           | (75,986   | )  |      |           | (0        | ) 
|                               | Deferred loan origination costs |       |           | (350,282  | )  |      |           | (297,382  | ) 
|                               | Deferred State taxes            |       |           | (129,986  | )  |      |           | (97,747   | ) 
|                               |                                 | Other |           |           | (0 | )    |           |           | (0 | )
|                               |                                 |       |           |           |    |      |           |          
|Total deferred tax liabilities |                                 |       | (721,948  | )         |    |      | (617,689  | )        
|                               |                                 |       |           |           |    |      |           |          
|Net deferred tax asset         |                                 | $     | 1,855,011 |           |    | $    | 1,535,191 |          
|                               |                                 |       |           |           |    |      |           |          

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|12. |  | STOCK OPTION PLAN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On February 17, 1998, the Board of Directors adopted the 1998 Stock
Option Plan (the Plan) which was approved by the Companys stockholders
on April 21, 1998. The Plan provides for awards in the form of options
(which may constitute incentive stock options (Incentive Options) under
Section 422(a) of the Internal Revenue Code of 1986, as amended (the
Code), or non-statutory stock options (NSOs) to key personnel of the
Company, including directors. The Plan provides that Incentive Options
under the Plan may not be granted at less than 100% of fair market value
of the Companys common stock on the date of the grant. NSOs may not be
granted at less than 85% of the fair market value of the common stock on
the date of the grant.
|   
|    |  | The purpose of the plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging key
personnel to focus on critical long range objectives, (b) increasing the
ability of the Company to attract and retain key personnel and (c)
linking key personnel directly to stockholder interests through increased
stock ownership. 594,000 shares of the Companys common stock are
reserved for grant under the Plan.                                                                                                                                                                                                                                                                                                  
|   
|    |  | The Plan provides that all options under the Plan shall vest at a rate of
at least 20% per year from the date of the grant. Vesting may be
accelerated in case of an optionees death, disability, and retirement or
in case of a change of control.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The following table presents the changes in outstanding stock options for the periods indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                       |  |        |         |          |  |          |       | 
|-------------------------------------- |  | ------ | ------- | -------- |  | -------- | ----- | 
|                                       |  |        |         |          |  | Weighted
|                                       |  | Number |         | Average 
|                                       |  | of     |         | Exercise
|                                       |  | Shares |         | Price   
|Options outstanding, December 31, 1999 |  |        | 445,720 |          |  | $        | 9.50  | 
|Expired                                |  |        | (3,300  | )        |  | $        | 9.70  | 
|Exercised                              |  |        | (43,505 | )        |  | $        | 8.97  | 
|                                       |  |        |         |          |  |          |       | 
|Options outstanding, December 31, 2000 |  |        | 398,915 |          |  | $        | 8.91  | 
|Granted                                |  |        | 42,050  |          |  | $        | 18.73 | 
|Exercised                              |  |        | (13,115 | )        |  | $        | 9.09  | 
|                                       |  |        |         |          |  |          |       | 
|Options outstanding, December 31, 2001 |  |        | 427,850 |          |  | $        | 9.87  | 
|                                       |  |        |         |          |  |          |       | 
|Granted                                |  |        | 22,300  |          |  | $        | 20.00 | 
|Exercised                              |  |        | (31,060 | )        |  | $        | 9.65  | 
|Forfeited                              |  |        | (6,646  | )        |  | $        | 15.36 | 
|Options outstanding, December 31, 2002 |  |        | 412,444 |          |  | $        | 10.58 | 
|                                       |  |        |         |          |  |          |       | 



| |  | At December 31, 2002, 83,930 shares were available for future grants
under the plan. As of December 31, 2002, 2001 and 2000, respectively,
286,367, 225,827 and 188,800 shares were available to be exercised.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Additional information regarding options outstanding as of December 31,
2002 is as follows:
| |  | -------------------------------------------------------------------------------------------

|         |  |                     |         |              |  |                       |   |  |  |  |         | 
|-------- |  | ------------------- | ------- | ------------ |  | --------------------- | - |  |  |  | ------- | 
|         |  |                     |         |              |  |                       |   |  |  | 
|         |  |                     |         |              |  | Weighted Avg.         |   |  |  | 
|Exercise |  |                     |         |              |  | Remaining Contractual |   |  |  | 
|Prices   |  | Options Outstanding |         | Life (Years) |  | Options Exercisable  
|         |  |                     |         |              |  |                      
|$8.25    |  |                     | 234,495 |              |  |                       | 5 |  |  |  | 187,596 | 
|$9.70    |  |                     | 112,299 |              |  |                       | 5 |  |  |  | 89,839  | 
|$17.27   |  |                     | 4,950   |              |  |                       | 7 |  |  |  | 2,970   | 
|$16.25   |  |                     | 14,250  |              |  |                       | 8 |  |  |  | 4,275   | 
|$20.00   |  |                     | 46,450  |              |  |                       | 8 |  |  |  | 1,687   | 
|         |  |                     |         |              |  |                       |   |  |  |  |         | 
|         |  |                     | 412,444 |              |  |                       |   |  |  |  |         | 
|         |  |                     |         |              |  |                       |   |  |  |  |         | 



| |  | The Company uses the intrinsic value based method for measuring
compensation cost related to the Plan. Under the intrinsic value based
method, compensation cost is the excess, if any, of the quoted market
price of the stock at grant date over the amount an employee or director
must pay to acquire the stock. This cost is amortized on a straight-line
basis over the vesting period of the options granted. Compensation cost
related to the discount on non-qualified options was $67,200 in each of
the three years ended December 31, 2002.                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company applies Accounting Principles Board Opinions No. 25,
Accounting for Stock Issues to Employees(APB 25) and related
interpretations in accounting for its plan. Accordingly, no compensation
cost has been recognized for the plan. Had compensation cost for the
plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method prescribed by SFAS 123
Accounting for Stock Based Compensation, the Companys net income and
earnings per share would have been reduced to the pro forma amounts
indicated below:

|                          |             |  |                        |           |      |  |      |           |  |  |   |           | 
|------------------------- | ----------- |  | ---------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                          |             |  | Year Ended December 31
|                          |             |  |                       
|                          |             |  | 2002                   |           | 2001 |  | 2000
|                          |             |  |                        |           |      |  |     
|Net income                |             |  |                        |           |      |  |      |           |  |  |   |          
|                          | As reported |  | $                      | 3,696,460 |      |  | $    | 4,273,662 |  |  | $ | 4,811,769 | 
|                          | Pro forma   |  |                        | 3,528,108 |      |  |      | 4,124,322 |  |  |   | 4,710,093 | 
|Basic earnings per share  |             |  |                        |           |      |  |      |           |  |  |   |          
|                          | As reported |  | $                      | 1.38      |      |  | $    | 1.52      |  |  | $ | 1.67      | 
|                          | Pro forma   |  |                        | 1.32      |      |  |      | 1.47      |  |  |   | 1.63      | 
|Diluted earning per share |             |  |                        |           |      |  |      |           |  |  |   |          
|                          | As reported |  | $                      | 1.29      |      |  | $    | 1.44      |  |  | $ | 1.59      | 
|                          | Pro forma   |  |                        | 1.24      |      |  |      | 1.39      |  |  |   | 1.55      | 



| |  | The fair value of the options granted during 2002 and 2001, is estimated
as $95,061 and $238,318 on the date of grant using a binomial
option-pricing model with the following assumptions: volatility of 27%
and 29.55%, risk-free interest rate of 2.71% and 4.92%, expected
dividends of $0.65 per share per year, annual dividend rate of 3.06% and
3.51%, assumed forfeiture rate of zero and an expected life of seven
years. There were 22,300 options granted in 2002. The fair value per
share of the 2002 and 2001 awards was $4.26 and $5.67.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|13. |  | CAPITAL STOCK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On August 24, 2001, the Board of Directors authorized a common stock
repurchase of up to 5% or approximately 114,000 shares of the Companys
Common Stock on an annual basis for the next seven years. The number of
shares is adjusted on an annual basis to coincide with new issues and
forfeitures. During 2002, 2001 and 2000, 92,981, 193,839 and 66,067
shares were purchased. Shares purchased are retired by a charge to common
stock and retained earnings for the cost. To date, the Company has
repurchased 474,437 shares at an average price of $20.53.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | On October 22, 2002 and 2001, a cash dividend of $0.65 per share was paid
to shareholders of record as of October 1, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On April 20, 1999, the Board of Directors authorized 2,000,000 shares of
preferred stock. As Of December 31, 2002, no preferred shares had been
issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|14. |  | RETIREMENT BENEFITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Profit Sharing Plan -In 1985, the Bank adopted a profit sharing 401(k)
plan for eligible employees to be funded out of the earnings of the Bank.
The employees contributions are limited to the maximum amount allowable
under IRS Section 402(G). The Banks contributions include a matching
contribution of 100% of the first 3% of salary deferred and 50% of the
next 2% of salary deferred. Discretionary contributions are also
permitted. The Bank made matching contributions aggregating $122,716,
$100,000, and $42,610 for the years ended December 31, 2002, 2001 and
2000, respectively. No discretionary contributions were made in 2002,
2001 or 2000.                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Salary Continuation Plan -In April 2001, the Board of Directors approved
the implementation of the Executive Salary Continuation Plan (SCP), which
is a non-qualified executive benefit plan in which the Bank agrees to pay
the executives covered by the SCP plan additional benefits in the future
in return for continued satisfactory performance by the executives.
Benefits under the salary continuation plan include a benefit generally
payable commencing upon a designated retirement date for a fixed period
of twenty years; disability or termination of employment, and a death
benefit for the participants designated beneficiaries. Key-man life
insurance policies were purchased as an investment to provide for the
Banks contractual obligation to pay pre-retirement death benefits and to
recover the Banks cost of providing benefits. The executive is the
insured under the policy, while the Bank is the owner and beneficiary.
The insured executive has no claim on the insurance policy, its cash
value or the proceeds thereof.
|   
|    |  | The retirement benefit is derived from accruals to a benefit account
during the participants employment. At the end of the executives period
of service, the aggregate amount accrued should equal the then present
value of the benefits expected to be paid to the executive. Accrued
compensation payable and compensation expense under the salary
continuation plan totaled $53,048 and $79,578 for 2002 and 2001,
respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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|    |  | Directors deferred fee
compensation -Effective January 1, 1993, the
Board of Directors approved the implementation of the Directors Deferred
Compensation Plan, which is a non-qualified plan in which a Directors may
elect to defer the payment of all or any part of the fee compensation to
which such director would otherwise be entitled to as directors fees or
committee fees to be payable upon retirement of the director in a lump
sum distribution or over a period not to exceed ten (10) years.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|15. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Certain directors and officers of the Bank and entities with which they
are associated are customers and have transactions with the Bank in the
ordinary course of business. All loans and commitments included in such
transactions are made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and do not involve more than normal risk
of collectibility or present other unfavorable features.       



| |                                                                              
| | -----------------------------------------------------------------------------
| | An analysis of the activity in related party loans consists of the
following:

|                             |  |              |           |      |  |   |            |  
|---------------------------- |  | ------------ | --------- | ---- |  | - | ---------- | -
|                             |  | December 31,
|                             |  |             
|                             |  | 2002         |           | 2001
|Balance at beginning of year |  | $            | 921,075   |      |  | $ | 1,554,264  |  
|New loan additions           |  |              | 2,695,391 |      |  |   | 584,946    |  
|Other additions              |  |              | 2,107,196 |      |  |   | 0          |  
|Principal repayments         |  |              | ( 573,258 | )    |  |   | (1,218,135 | )
|                             |  |              |           |      |  |   |            |  
|Balance at end of year       |  | $            | 5,150,404 |      |  | $ | 921,075    |  
|                             |  |              |           |      |  |   |            |  



| |  | Other additions are related to loans made in previous years to a Director
who joined the Board in 2002. As of December 31, 2002 and 2001 there were
no related party loans, which were past due or classified.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|16. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Lease Commitments -The Company leases certain facilities at which it
conducts its operations. Future minimum lease commitments under all
non-cancelable operating leases as of December 31, 2002 are below:

|                         |  |   |           |  | 
|------------------------ |  | - | --------- |  | 
|(Dollars in thousands)  
|Years Ended December 31,
|                        
|2002                     |  | $ | 297,590   | 
|2003                     |  | $ | 297,590   | 
|2004                     |  | $ | 297,590   | 
|2005                     |  | $ | 297,590   | 
|2006                     |  | $ | 303,180   | 
|2007                     |  | $ | 303,180   | 
|Thereafter               |  | $ | 1,134,960 | 
|                         |  |   |           | 
|Total                    |  | $ | 2,931,680 | 
|                         |  |   |           | 

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| |  | Off-Balance Sheet Financial Instruments -In the ordinary course of
business, the Bank enters various types of transactions, which involve
financial instruments with off-balance sheet risk. These instruments
include commitments to extend credit and stand-by letter of credits,
which are not reflected in the accompanying, consolidated balance sheets.
These transactions may involve; to varying degrees, credit and interest
rate risk more than the amount, if any recognized in the consolidated
balance sheets. Management does not anticipate any loss to result from
these commitments.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The off-balance sheet credit risk exposure of the Bank is the contractual
amount of commitments to extend credit and stand-by letters of credit.
The Bank applies the same credit standards to these contracts as it uses
for loans recorded on the balance sheet.                                                                                                                                                                                                                                                                                                                                   

|                               |                              |  |              |            |      |  |   |            | 
|------------------------------ | ---------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                               |                              |  | December 31,
|                               |                              |  |             
|                               |                              |  | 2002         |            | 2001
|Off-balance sheet commitments: |                              |  |              |            |      |  |   |           
|                               | Commitments to extend credit |  | $            | 83,909,436 |      |  | $ | 61,847,400 | 
|                               | Standby letters of credit    |  |              | 3,858,203  |      |  |   | 1,917,339  | 



|    |  | Commitments to extend credit are agreements to lend to customers. These
commitments have specified interest rates and generally have fixed
expiration dates but may be terminated by the Bank if certain conditions
of the contract are violated.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Although currently subject to draw down, many of the commitments do not
necessarily represent future cash requirements. Collateral held relating
to these commitments varies, but generally includes real estate,
securities and cash.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Credit risk arises in these transactions from the possibility that a
customer may not be able to repay the Bank upon default of performance.
Collateral held for standby letters of credit is based on an individual
evaluation of each customers creditworthiness, but may include cash and
securities.                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Commitments to extend credit and standby letters of credit bear similar
credit risk characteristics as outstanding loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The Company and its subsidiaries are involved in various legal actions
arising in the ordinary course of business. The Company believes that the
ultimate disposition of all currently pending matters will not have a
material adverse affect on the Companys financial condition or results
of operations.                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|17. |  | REGULATORY MATTERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Company and the Bank are subject to various regulatory
capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements and initiate
certain mandatory and possibly additional discretionary actions by
regulators, that if undertaken, could have a direct material effect
on the Companys and Banks financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific
capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices.

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| |  | The capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors. Prompt corrective provisions are not applicable to
bank holding companies.                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets and of Tier 1 capital
to average assets. Management believes as of December 31, 2002 and 2001,
that the Company and the Bank met all capital adequacy requirements to
which they are subject.                                                                                                                                                     
|
| |  | As of December 31, 2002, and 2001, the most recent notification from the
FDIC categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, an institution must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the Banks category. The Companys and
the Banks actual capital amounts and ratios as of December 31, 2002 and
2001 are also presented in the table.

|                                         |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|---------------------------------------- |  | ------ | ---------- | ----------------- |  | ----------------- | ----- | ----- |  | ----------- | ---------- | ------------ |  |  | ---- | - |  | ---------------- | ---------- |  |  |  | ----- | -
|                                         |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  | To Be           
|                                         |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  | Categorized as  
|                                         |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  | Well Capitalized
|                                         |  |        |            |                   |  |                   |       |       |  | For Capital |            | Under Prompt
|                                         |  | Actual |            | Adequacy Purposes |  | Corrective Action
|                                         |  |        |            |                   |  |                  
|                                         |  | Amount |            | Ratio             |  | Amount            |       | Ratio |  | Amount      |            | Ratio       
|At December 31, 2002:                    |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Company                                  |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Leverage capital (to average assets)     |  | $      | 27,528,469 |                   |  |                   | 8.05  | %     |  | $           | 13,680,000 |              |  |  | 4.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Tier 1 Capital (to risk-weighted assets) |  |        | 27,528,469 |                   |  |                   | 9.32  | %     |  |             | 11,818,412 |              |  |  | 4.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Total capital (to risk-weighted assets)  |  |        | 31,221,723 |                   |  |                   | 10.57 | %     |  |             | 23,636,824 |              |  |  | 8.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Bank                                     |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Leverage capital (to average assets)     |  | $      | 27,018,565 |                   |  |                   | 7.97  | %     |  | $           | 13,566,880 |              |  |  | 4.00 | % |  | $                | 14,530,500 |  |  |  | 5.00  | %
|Tier 1 Capital (to risk-weighted assets) |  |        | 27,018,565 |                   |  |                   | 9.14  | %     |  |             | 11,818,412 |              |  |  | 4.00 | % |  |                  | 14,760,615 |  |  |  | 6.00  | %
|Total capital (to risk-weighted assets)  |  |        | 30,116,410 |                   |  |                   | 10.19 | %     |  |             | 23,636,824 |              |  |  | 8.00 | % |  |                  | 20,880,675 |  |  |  | 10.00 | %
|At December 31, 2001:                    |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Company                                  |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Leverage capital (to average assets)     |  | $      | 27,247,887 |                   |  |                   | 9.38  | %     |  | $           | 11,624,400 |              |  |  | 4.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Tier 1 Capital (to risk-weighted assets) |  |        | 27,247,887 |                   |  |                   | 11.08 | %     |  |             | 9,840,410  |              |  |  | 4.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Total capital (to risk-weighted assets)  |  |        | 30,323,015 |                   |  |                   | 12.33 | %     |  |             | 19,680,820 |              |  |  | 8.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Bank                                     |  |        |            |                   |  |                   |       |       |  |             |            |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Leverage capital (to average assets)     |  | $      | 26,804,948 |                   |  |                   | 11.02 | %     |  | $           | 9,733,543  |              |  |  | 4.00 | % |  | $                | 11,905,107 |  |  |  | 5.00  | %
|Tier 1 Capital (to risk-weighted assets) |  |        | 26,804,948 |                   |  |                   | 12.86 | %     |  |             | 8,352,270  |              |  |  | 4.00 | % |  |                  | 11,015,280 |  |  |  | 6.00  | %
|Total capital (to risk-weighted assets)  |  |        | 29,115,033 |                   |  |                   | 14.11 | %     |  |             | 16,704,540 |              |  |  | 8.00 | % |  |                  | 18,358,800 |  |  |  | 10.00 | %



| |  | The principal sources of cash for the Company are dividends from the Bank.
Dividends from the Bank to the Company are restricted under California law to
the lesser of the Banks retained earnings or the Banks net income for the
latest three fiscal years, less dividends previously declared during that
period, or, with the approval of California Superintendent of Banks, to the
greater of the retained earnings of the Bank, the net income of the Bank for
its last fiscal year, or the net income of the Bank for its current fiscal
year. As Of December 31, 2002, the maximum amount available for dividend
distribution under this restriction was approximately $7,568,594.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|    |  | The Bank is subject to certain restrictions under the Federal Reserve
Act, including restrictions on the extension of credit to affiliates. In
particular, it is prohibited from lending to an affiliated company unless
the loans are secured by specific types of collateral. Such secured loans
and other advances from the subsidiaries are limited to 10 percent of the
subsidiarys equity. No such loans or advances were outstanding during
2002 or 2001.                                                                                                                                                                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|18. |  | SEGMENT REPORTING                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | The Company has two reportable segments: commercial banking and
credit card services. The Company conducts a general commercial banking
business in the counties of El Dorado, Placer, Shasta, and Sacramento,
California. The principal commercial banking activities include a
full-array of deposit accounts and related services and commercial
lending for businesses and their interests. Credit card
services are limited to those revenues and data processing costs
associated with its agreement with an independent sales organization
(ISO). Pursuant to the agreement, the Bank provides credit and debit
card processing services for merchants solicited by the ISO or the Bank
who accept credit and debit cards as payments for goods and services.
|   
|    |  | The accounting policies of the segments are the same as those described
in the summary of significant accounting policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The Company evaluates performance of its commercial banking business
based on the overall profitability of the Company, including merchant
card processing activities. An allocation of the Companys total
assets is not performed by reportable segment. There are no
inter-segment transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The following table presents financial information about the Companys
reportable segments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                            |                      |   |           |           |      |   |           |           |  |   |           |           | 
|--------------------------- | -------------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                            |                      |   | 2002      |           | 2001 |   | 2000     
|Income before income taxes: |                      |   |           |           |      |   |           |           |  |   |           |          
|                            | Commercial banking   |   | $         | 5,297,047 |      |   | $         | 5,675,153 |  |   | $         | 5,787,627 | 
|                            | Credit card services |   |           | 424,557   |      |   |           | 940,234   |  |   |           | 1,875,433 | 
|                            |                      |   |           |           |      |   |           |           |  |   |           |          
|                            |                      | $ | 5,721,604 |           |      | $ | 6,615,387 |           |  | $ | 7,663,060 |          
|                            |                      |   |           |           |      |   |           |           |  |   |           |          



|19. |  | FAIR VALUES OF FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Cash and cash equivalents - The carrying amounts reported in the balance
sheets for cash and short-term instruments are a reasonable estimate of
fair value.                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | Securities - Fair values for securities are based on quoted market
prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Loans receivable - For variable-rate loans that reprice frequently and
with no significant change in credit risk, fair values are based on
carrying values. The fair values for other loans (e.g., commercial real
estate and rental property mortgage loans, commercial and industrial
loans) are estimated using discounted cash flow analysis, using interest
rates currently being offered for loans with similar terms to borrowers
of similar credit quality. The carrying amount of accrued interest
receivable approximates its fair value.

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| |  | Commitments to extend credit and standby letters of credit - The fair
value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.                                                                                                                                                                                                                                             
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The fair value of letters of credit is based on fees currently charged
for similar agreements or on the estimated cost to cancel them or
otherwise settle the obligation with the counterparties at the reporting
date.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Deposit liabilities - The fair values disclosed for demand deposits
(e.g., interest and noninterest checking, passbook savings, and money
market accounts) are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits. The carrying amount of accrued
interest payable approximates its fair value.                                                                  
|
| |  | Securities purchased under
agreements to resell -The fair value of
securities purchased under agreements to resell is estimated by
discounting the contractual cash flows under outstanding borrowings at
rates prevailing in the marketplace today for similar borrowings, rates
and collateral.                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Limitations - Fair value estimates are made at a specific point in time,
based on relevant market information and other information about the
financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the Banks
entire holdings of a particular financial instrument. Because no market
exists for a significant portion of the Banks financial instruments,
fair value estimates are based on judgments regarding future expected
loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors.                                               
|
| |  | These estimates are subjective in nature, involve uncertainties and
matters of significant judgment, and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Fair value estimates are based on current on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financial assets or liabilities
include the mortgage banking operation, deferred tax assets and
liabilities, and property, plant and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in any of the estimates.

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| |  | The estimated fair values of the Companys financial instruments are
approximately as follows:
| |  | ----------------------------------------------------------------------------------------------

|                                               |                                 |  |                   |            |          |  |           |             |  |  |           |             | 
|---------------------------------------------- | ------------------------------- |  | ----------------- | ---------- | -------- |  | --------- | ----------- |  |  | --------- | ----------- | 
|                                               |                                 |  | December 31, 2002
|                                               |                                 |  |                  
|                                               |                                 |  | Contract          |            | Carrying |  | Fair     
|                                               |                                 |  | Amount            |            | Amount   |  | Value    
|Financial assets:                              |                                 |  |                   |            |          |  |           |             |  |  |           |            
|                                               | Cash and short-term investments |  |                   |            |          |  | $         | 34,591,729  |  |  | $         | 34,591,729  | 
|                                               | Securities                      |  |                   |            |          |  |           | 34,732,955  |  |  |           | 34,889,140  | 
|                                               | Loans receivable, net           |  |                   |            |          |  |           | 280,087,003 |  |  |           | 284,410,705 | 
|Financial liabilities:                         |                                 |  |                   |            |          |  |           |             |  |  |           |            
|                                               | Demand and savings              |  |                   |            |          |  | $         | 164,217,193 |  |  | $         | 164,217,193 | 
|                                               | Fixed rate certificates         |  |                   |            |          |  |           | 144,473,811 |  |  |           | 145,521,705 | 
|                                               | Variable certificates           |  |                   |            |          |  |           | 5,755,646   |  |  |           | 5,755,646   | 
|Securities sold under agreements to repurchase |                                 |  |                   |            |          |  | 3,704,385 |             |  |  | 3,704,385 |            
|Off balance sheet financial instruments:       |                                 |  |                   |            |          |  |           |             |  |  |           |            
|                                               | Commitments to extend credit    |  | $                 | 83,909,436 |          |  |           |             |  |  | $         | 1,678,189   | 
|                                               | Standby letters of credit       |  |                   | 3,858,203  |          |  |           |             |  |  |           | 77,164      | 

|                                         |  |                                                |  |                   |            |          |  |       |             |  |  |   |             | 
|---------------------------------------- |  | ---------------------------------------------- |  | ----------------- | ---------- | -------- |  | ----- | ----------- |  |  | - | ----------- | 
|                                         |  |                                                |  | December 31, 2001
|                                         |  |                                                |  |                  
|                                         |  |                                                |  | Contract          |            | Carrying |  | Fair 
|                                         |  |                                                |  | Amount            |            | Amount   |  | Value
|Financial assets:                        |  |                                                |  |                   |            |          |  |       |             |  |  |  
|                                         |  | Cash and short-term investments                |  |                   |            |          |  | $     | 40,957,910  |  |  | $ | 40,957,910  | 
|                                         |  | Securities                                     |  |                   |            |          |  |       | 45,015,174  |  |  |   | 45,090,835  | 
|                                         |  | Loans receivable, net                          |  |                   |            |          |  |       | 216,696,198 |  |  |   | 217,497,282 | 
|Financial liabilities:                   |  |                                                |  |                   |            |          |  |       |             |  |  |  
|                                         |  | Demand and savings                             |  |                   |            |          |  | $     | 131,451,970 |  |  | $ | 131,451,970 | 
|                                         |  | Fixed rate certificates                        |  |                   |            |          |  |       | 143,543,830 |  |  |   | 142,049,046 | 
|                                         |  | Variable certificates                          |  |                   |            |          |  |       | 6,439,744   |  |  |   | 6,439,744   | 
|                                         |  | Securities sold under agreements to repurchase |  |                   |            |          |  |       | 6,780,232   |  |  |   | 6,780,232   | 
|Off balance sheet financial instruments: |  |                                                |  |                   |            |          |  |       |             |  |  |  
|                                         |  | Commitments to extend credit                   |  | $                 | 61,847,400 |          |  |       |             |  |  | $ | 1,241,348   | 
|                                         |  | Standby letters of credit                      |  |                   | 1,917,339  |          |  |       |             |  |  |   | 38,347      | 

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|20. |  | REDDING BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
|--- |  | -----------------------------------------------------------

|               |                                            |                              |   |              |            |      |   |            |            | 
|-------------- | ------------------------------------------ | ---------------------------- | - | ------------ | ---------- | ---- | - | ---------- | ---------- | 
|               |                                            |                              |   | December 31,
|               |                                            |                              |   |             
|               |                                            |                              |   | 2002         |            | 2001
|               |                                            |                              |   |              |            |     
|Balance Sheets |                                            |                              |   |              |            |      |   |           
|               | Assets:                                    |                              |   |              |            |      |   |            |           
|               |                                            | Cash                         |   | $            | 153,195    |      |   | $          | 26,229     | 
|               |                                            | Time deposit with subsidiary |   |              | 140,000    |      |   |            | 140,000    | 
|               |                                            | Investment in subsidiaries   |   |              | 27,373,935 |      |   |            | 27,073,620 | 
|               |                                            |                              |   |              |            |      |   |           
|               | Total assets                               |                              | $ | 27,667,130   |            |      | $ | 27,239,849 |           
|               |                                            |                              |   |              |            |      |   |           
|               | Stockholders Equity                       |                              |   | 27,667,130   |            |      |   | 27,239,849 |           
|               |                                            |                              |   |              |            |      |   |           
|               | Total liabilities and stockholders equity |                              | $ | 27,667,130   |            |      | $ | 27,239,849 |           
|               |                                            |                              |   |              |            |      |   |           

|                     |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |           |           | 
|-------------------- | --------------------------------------------------------------------------------- | ------------------------ | --------- | ------------------------ | --------- | ---- | --------- | --------- | --------- |  | --------- | --------- | --------- | 
|                     |                                                                                   |                          |           | Years Ended December 31,
|                     |                                                                                   |                          |           |                         
|                     |                                                                                   |                          |           | 2002                     |           | 2001 |           | 2000     
|                     |                                                                                   |                          |           |                          |           |      |           |          
|Statements of Income |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                     | Income:                                                                           |                          |           |                          |           |      |           |           |           |  |           |           |          
|                     |                                                                                   | Interest on time deposit |           | $                        | 2,261     |      |           | $         | 45,582    |  |           | $         | 33,655    | 
|                     |                                                                                   | Dividend from subsidiary |           |                          | 3,721,279 |      |           |           | 4,303,000 |  |           |           | 3,247,731 | 
|                     |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                     |                                                                                   |                          | 3,723,540 |                          |           |      | 4,348,582 |           |           |  | 3,281,386 |          
|                     | Expenses                                                                          |                          |           | 153,901                  |           |      |           | 161,579   |           |  |           | 203,616   |          
|                     |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                     | Income before income taxes and
equity in undistributed net income
of subsidiaries |                          |           | 3,569,639                |           |      |           | 4,187,003 |           |  |           | 3,077,770 |          
|                     | Provision
for income taxes8                                                       |                          |           | 800                      |           |      |           | 800       |           |  |           | 800       |          
|                     |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                     | Income before equity in undistributed
net income of subsidiaries                  |                          |           | 3,568,839                |           |      |           | 4,186,203 |           |  |           | 3,076,970 |          
|                     | Equity in undistributed net income of
subsidiaries                                |                          |           | 127,621                  |           |      |           | 87,459    |           |  |           | 1,734,799 |          
|                     |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                     | Net income                                                                        |                          | $         | 3,696,460                |           |      | $         | 4,273,662 |           |  | $         | 4,811,769 |          
|                     |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          



---

|8 Under the Companys intercompany tax allocation policy, all tax benefits
resulting from net losses before dividends from subsidiaries are allocated to
the Bank.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                  

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|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |            |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | - | ------------------------ | ----------- | ---- | - | ---------- | ----------- | - | - | ---------- | ---------- | -
|                                                 |                                                                                   |   | Years Ended December 31,
|                                                 |                                                                                   |   |                         
|                                                 |                                                                                   |   | 2002                     |             | 2001 |   | 2000      
|                                                 |                                                                                   |   |                          |             |      |  
|                                                 | Statements of Cash Flows                                                          |   |                          |             |      |   |           
|Cash flows from operating activities:            |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|                                                 | Net income                                                                        |   | $                        | 3,696,460   |      |   | $          | 4,273,662   |   |   |            | 4,811,769  |  
|                                                 | Adjustments to reconcile net income to
net cash provided by operating activities: |   |                          |             |      |   |            |             |   |   |            |            |  
|                                                 | Compensation associated with stock options                                        |   |                          | 67,200      |      |   |            | 67,200      |   |   |            | 67,200     |  
|                                                 | Equity in undistributed net income of
subsidiaries                                |   |                          | (127,620    | )    |   |            | (88,450     | ) |   |            | (1,871,530 | )
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|Net cash provided by operating activities        |                                                                                   |   | 3,636,040                |             |      |   | 4,252,412  |             |   |   | 3,007,439  |           
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|Cash flows from financing activities:            |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|                                                 | Purchase of common stock                                                          |   |                          | (2,087,502  | )    |   |            | (4,091,824  | ) |   |            | (1,307,116 | )
|                                                 | Proceeds from issuance of common stock                                            |   |                          | 299,707     |      |   |            | 123,751     |   |   |            | 495,506    |  
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|                                                 | Common stock transactions, net                                                    |   |                          | ( 1,787,795 | )    |   |            | ( 3,968,073 | ) |   |            | ( 811,610  | )
|                                                 | Cash dividends                                                                    |   |                          | (1,721,279  | )    |   |            | (1,792,392  | ) |   |            | (1,699,627 | )
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|Net cash used by financing activities            |                                                                                   |   | (3,509,074               | )           |      |   | (5,760,465 | )           |   |   | (2,511,237 | )         
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|Increase (decrease) in cash and cash equivalents |                                                                                   |   | 126,966                  |             |      |   | (1,508,053 | )           |   |   | 496,202    |           
|Cash and cash equivalents at beginning of year   |                                                                                   |   | 166,229                  |             |      |   | 1,674,282  |             |   |   | 1,178,080  |           
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           
|Cash and cash equivalents at end of year         |                                                                                   | $ | 293,195                  |             |      | $ | 166,229    |             |   | $ | 1,674,282  |           
|                                                 |                                                                                   |   |                          |             |      |   |            |             |   |   |            |           

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|22. |  | UNAUDITED QUARTERLY RESULTS
|--- |  | ---------------------------

UNAUDITED QUARTERLY STATEMENTS OF INCOME DATA

|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |      | 
|------------------------- | -------------------------- | --------------------- | --------- | ---- | -------- | - | ------------- | ---- | ------------ | - | ------ | ---- |  | - | ------ | ---- | 
|(Dollars in thousands)    |                            | For the Quarter Ended
|                          |                            |                      
|                          |                            |                       | March 31, |      | June 30, |   | September 30, |      | December 31,
|                          |                            |                       | 2002      |      | 2002     |   | 2002          |      | 2002        
|                          |                            |                       |           |      |          |   |               |      |             
|Net interest income       |                            | $                     | 2,616     |      |          | $ | 3,044         |      |              | $ | 3,364  |      |  | $ | 3,493  |     
|Provision for loan losses |                            |                       | (65       | )    |          |   | (125          | )    |              |   | (105   | )    |  |   | (325   | )   
|Non-interest income       |                            |                       | 443       |      |          |   | 458           |      |              |   | 565    |      |  |   | 625    |     
|Non-interest expense      |                            |                       | (1,885    | )    |          |   | (2,007        | )    |              |   | (2,228 | )    |  |   | (2,147 | )   
|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|Income before taxes       |                            |                       | 1,109     |      |          |   | 1,370         |      |              |   | 1,596  |      |  |   | 1,646  |     
|Provision for income tax  |                            |                       | (368      | )    |          |   | (523          | )    |              |   | (483   | )    |  |   | (651   | )   
|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|Net Income                |                            | $                     | 741       |      |          | $ | 847           |      |              | $ | 1,113  |      |  | $ | 995    |     
|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|Per common share:         |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|                          | Basic earnings per share   |                       | $         | 0.27 |          |   | $             | 0.32 |              |   | $      | 0.42 |  |   | $      | 0.38 | 
|                          | Diluted earnings per share |                       | $         | 0.26 |          |   | $             | 0.29 |              |   | $      | 0.39 |  |   | $      | 0.35 | 
|                          | Dividends per share        |                       | $         | 0.00 |          |   | $             | 0.00 |              |   | $      | 0.00 |  |   | $      | 0.65 | 

|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |      | 
|------------------------- | -------------------------- | --------------------- | --------- | ---- | -------- | - | ------------- | ---- | ------------ | - | ------ | ---- |  | - | ------ | ---- | 
|(Dollars in thousands)    |                            | For the Quarter Ended
|                          |                            |                      
|                          |                            |                       | March 31, |      | June 30, |   | September 30, |      | December 31,
|                          |                            |                       | 2001      |      | 2001     |   | 2001          |      | 2001        
|                          |                            |                       |           |      |          |   |               |      |             
|Net interest income       |                            | $                     | 2,856     |      |          | $ | 2,738         |      |              | $ | 2,828  |      |  | $ | 2,768  |     
|Provision for loan losses |                            |                       | (158      | )    |          |   | (149          | )    |              |   | 52     |      |  |   | (0     | )   
|Non-interest income       |                            |                       | 732       |      |          |   | 684           |      |              |   | 512    |      |  |   | 895    |     
|Non-interest expense      |                            |                       | (1,660    | )    |          |   | (1,719        | )    |              |   | (1,864 | )    |  |   | (1,900 | )   
|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|Income before taxes       |                            |                       | 1,770     |      |          |   | 1,554         |      |              |   | 1,528  |      |  |   | 1,763  |     
|Provision for income tax  |                            |                       | (639      | )    |          |   | (582          | )    |              |   | (532   | )    |  |   | (588   | )   
|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|Net Income                |                            | $                     | 1,131     |      |          | $ | 972           |      |              | $ | 996    |      |  | $ | 1,175  |     
|                          |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|Per common share:         |                            |                       |           |      |          |   |               |      |              |   |        |      |  |   |        |     
|                          | Basic earnings per share   |                       | $         | 0.39 |          |   | $             | 0.34 |              |   | $      | 0.36 |  |   | $      | 0.43 | 
|                          | Diluted earnings per share |                       | $         | 0.38 |          |   | $             | 0.33 |              |   | $      | 0.33 |  |   | $      | 0.41 | 
|                          | Dividends per share        |                       | $         | 0.00 |          |   | $             | 0.00 |              |   | $      | 0.00 |  |   | $      | 0.65 | 

75



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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.




PART III

Certain information required by Part III is incorporated by reference to
the Companys definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Companys 2003 Annual Meeting of Shareholders (the Proxy Statement).




ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Executive Officers of the Registrant

The executive officers of the Company and their ages as of February 19,
2003, are as follows:

|                 |  |     |    |             |  |                                                                            
|---------------- |  | --- | -- | ----------- |  | ---------------------------------------------------------------------------
|Name             |  | Age |    | Position(s)
|                 |  |     |    |            
|Michael C. Mayer |  |     | 46 |             |  | President and Chief Executive Officer Redding
Bank of Commerce and Director
|                
|Linda J. Miles   |  |     | 49 |             |  | Executive Vice President, Chief Financial
Officer and Assistant Secretary  

Michael C. Mayerjoined the Company in April 1997 and has served as
Executive Vice President and Chief Credit Officer of the Company from May 1997
to May 2000. From May 2000 until January 2001, Mr. Mayer has served as
Executive Vice President and Chief Operating Officer. As of January 1, 2001,
Mr. Mayer was promoted to President and Chief Executive Officer of Redding Bank
of Commerce and serves on the loan, executive, long range planning and
asset/liability committees of the Board of Directors.

Linda J. Mileshas served as Executive Vice President, Chief Financial
Officer and Assistant Secretary of the Company since October 1989. With over
25 years of professional banking experience, before joining the Company, Ms.
Miles served as Senior Vice President and Chief Financial Officer for another
Northern California independent bank. Ms. Miles serves on the ALCO committee
and attends all committee meetings of the Board of Directors.

The remainder of the information required by this section is incorporated
by reference to the information in the section entitled Election of Directors
 and Executive Compensation in the Proxy Statement.

76



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##### Table of Contents






ITEM 11.  EXECUTIVE COMPENSATION.

The information required by this section is incorporated by reference to
the information in the sections entitled Election of DirectorsDirectors
Compensation and Executive Compensation in the Proxy Statement.




ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this section is incorporated by reference to
the information in the section entitled Security Ownership of Certain
Beneficial Owners and Management in the Proxy Statement.




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Some of the directors, officers and principal shareholders of the Company
and their associates were customers of and had banking transactions with the
Bank in the ordinary course of the Banks business during 2002 and the Bank
expects to have such transactions in the future. All loans and commitments to
loans included in such transactions were made in compliance with the applicable
laws on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons
of similar creditworthiness, and in the opinion of the Company, did not involve
more than a normal risk of collectibility or present other unfavorable
features.

77



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##### Table of Contents






PART IV




ITEM 14.  CONTROLS AND PROCEDURES

Within the 90- day period prior to the filing of this Annual Report on
Form 10-K, an evaluation was carried out under the supervision and with the
participation of the Companys management, including the Chief Executive
Officer (CEO), and Chief Financial Officer (CFO), of the effectiveness of
the design and operation of our disclosure controls and procedures. Based on
that evaluation, the CEO and CFO have concluded that the Companys disclosure
controls and procedures are designed to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Securities and Exchange Act of 1934 is recorded, processed, summarized, and
reported within the time periods specified in SEC rules and forms and are
operating in an effective manner.

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




ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.



|(a) |  | The following documents are filed as a part of this Form 10-K:
|--- |  | --------------------------------------------------------------



| | (1) |  | Financial Statements:
| | --- |  | ---------------------



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Reference is made to the Index to Consolidated Financial Statements
under Item 8 in Part II of this Form 10-K.



| | (2) |  | Financial Statement Schedules:
| | --- |  | ------------------------------



| |                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.



| | (3) |  | Exhibits:
| | --- |  | ---------

| |  |         |       |                         |  |                                                                                                                                           
| |  | ------- | ----- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |      
| |  | Number  |       | Description of Document
| |  |         |       |                        
| |  |         | 3.1   |                         |  | Articles of Incorporation, as amended.*                                                                                                   
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 3.2   |                         |  | Bylaws, as amended.*                                                                                                                      
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 4.1   |                         |  | Specimen Common Stock Certificate.*                                                                                                       
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.1  |                         |  | Office Building Lease by and between David and
Maria Wong and Redding Bank of Commerce dated June 10, 1998.*                              
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.2  |                         |  | Office Building Lease between Garian
Partnership/First Avenue Square and Redding Bank of Commerce
dated July 16, 1998.*                   
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.3  |                         |  | 1998 Stock Option Plan.*                                                                                                                  
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.4  |                         |  | Form of Incentive Stock Option Agreement used in
connection with 1998 Stock Option Plan.*                                                 
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.5  |                         |  | Form of Nonstatutory Stock Option Agreement used
in connection with 1998 Stock Option Plan.*                                              
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.7  |                         |  | Directors Deferred Compensation Plan.*                                                                                                    
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.8  |                         |  | Form of Deferred Compensation Agreement Used In
Connection With Directors Deferred Compensation Plan.*                                    
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.9  |                         |  | Merchant Services Agreement dated as of April 1,
1993, between Cardservice International, Inc. and Redding Bank
of Commerce, as amended. *
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.10 |                         |  | Employment contracts dated April 2001*                                                                                                    
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.11 |                         |  | Affiliated Business Arrangement Agreement *                                                                                               
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 10.12 |                         |  | RBC Code of Ethics*                                                                                                                       
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 11.1  |                         |  | Statement re: Computation of Earnings Per Share (see page  54).                                                                           
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 16.1  |                         |  | Letter on Change in Certifying Accountants. *                                                                                             
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 21.1  |                         |  | Subsidiaries of the Company. *                                                                                                            
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 23.1  |                         |  | Consent of Deloitte & Touche LLP.                                                                                                         
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 24.1  |                         |  | Power of Attorney (see page 79)                                                                                                           
| |  |         |       |                         |  |                                                                                                                                           
| |  |         | 99.1  |                         |  | Certification pursuant to Section 906 of the Sarbannes Oxley Act of 2002                                                                  



|  | 
|- | 
|* | 



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

On October 7, 2002 the Company filed a Form 8-K announcing the cash
dividend. On October 22, 2002, the Company filed Form 8-K reporting third
quarter financial results. On January 29, 2003, the Company filed a Form 8-K
reporting 2002 year-end financial results. On February 21, 2003 the Company
filed a Form 8-K reporting Exhibit 10.11 Affiliated Business Arrangement
Agreement.

78



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on February 18, 2003.

| |                 |                                                                                                              
| | --------------- | -------------------------------------------------------------------------------------------------------------
| | REDDING BANCORP
|
| | By              | /s/ Michael C. Mayer
        Michael C. Mayer
        President, Chief Executive
        Officer and Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael C. Mayer and Linda J. Miles, and
each of them, his or her true and lawful attorneys-in-fact, each with full
power of substitution, for him or her in any and all capacities, to sign any
amendments to this report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact or their substitute or substitutes may do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:

|                    |  |                                    |  |                  
|------------------- |  | ---------------------------------- |  | -----------------
|Name                |  | Title                              |  | Date             
|                    |  |                                    |  |                  
|                    |  |                                    |  |                  
|/s/Michael C. Mayer |  |                                    |  |                  
|                    |  | President, Chief Executive Officer |  | February 27, 2003
|Michael C. Mayer    |  | Redding Bank of Commerce
and       |  |                  
|                    |  | Director                           |  |                  

79



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##### Table of Contents



|                           |  |                                        |  |                  
|-------------------------- |  | -------------------------------------- |  | -----------------
|/s/Linda J. Miles          |  |                                        |  |                  
|                           |  | Executive Vice President and Chief     |  | February 27, 2003
|Linda J. Miles             |  | Financial Officer and Assistant        |  |                  
|                           |  | Secretary (Principal Financial Officer |  |                  
|                           |  | and Accounting Officer)                |  |                  
|                           |  |                                        |  |                  
|/s/Robert C. Anderson      |  |                                        |  |                  
|Robert C. Anderson         |  | Chairman of the Board                  |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/Welton L. Carrel        |  |                                        |  |                  
|Welton L. Carrel           |  | Director                               |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/Russell L. Duclos       |  |                                        |  |                  
|Russell L. Duclos          |  | Director                               |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/John C. Fitzpatrick     |  |                                        |  |                  
|John C. Fitzpatrick        |  | Director                               |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/Kenneth R. Gifford, Jr. |  |                                        |  |                  
|Kenneth R. Gifford, Jr.    |  | Director                               |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/Harry L. Grashoff, Jr.  |  |                                        |  |                  
|Harry L. Grashoff, Jr.     |  | Director                               |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/Eugene L. Nichols       |  |                                        |  |                  
|Eugene L. Nichols          |  | Director                               |  | February 27, 2003
|                           |  |                                        |  |                  
|/s/David H. Scott          |  |                                        |  |                  
|David H. Scott             |  | Director                               |  | February 27, 2003

80



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CERTIFICATIONS



|   |  | I, Michael C. Mayer, certify that:                                                                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|1) |  | I have reviewed this annual report on Form 10-K of Redding Bancorp;                                                                                                                                                                                                                                                     
|  
|2) |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report:
|  
|3) |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report:                   
|  
|4) |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13-a-14 and 15d-14) for the registrant and
have:                                                                                                 



| | (a) |  | Designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared:
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date): and                                                                                                  
|
| | (c) |  | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date.                                                                                                                        



|5) |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls: and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls: and                                                                                                                                        



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

/s/MICHAEL C. MAYER

Michael C. Mayer
President & Chief Executive Officer
(Principal Executive Officer)

Dated February 27, 2003

81



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##### Table of Contents



CERTIFICATIONS

| |  |                                 
| |  | --------------------------------
| |  | I, Linda J. Miles, certify that:
| |  |                                 

|1) |  | I have reviewed this annual report on Form 10-K of Redding Bancorp;                                                                                                                                                                                                                                                     
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report:
|  
|3) |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report:                   
|  
|4) |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13-a-14 and 15d-14) for the registrant and
have:                                                                                                 



| | (a) |  | Designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared:
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date): and                                                                                                  
|
| | (c) |  | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date.                                                                                                                        



|5) |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors:
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls: and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls: and                                                                                                                                        



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

/s/LINDA J. MILES

Linda J. Miles
Executive Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)

Dated February 27, 2003

82



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##### Table of Contents






EXHIBIT INDEX

| |  |         |       |                         |  |                                                                                                                                          
| |  | ------- | ----- | ----------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |       |                        
| |  | Number  |       | Description of Document
| |  |         |       |                        
| |  |         | 3.1   |                         |  | Articles of Incorporation, as amended.*                                                                                                  
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 3.2   |                         |  | Bylaws, as amended.*                                                                                                                     
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 4.1   |                         |  | Specimen Common Stock Certificate.*                                                                                                      
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.1  |                         |  | Office Building Lease by and between David and
Maria Wong and Redding Bank of Commerce dated June 10, 1998.*                             
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.2  |                         |  | Office Building Lease between Garian
Partnership/First Avenue Square and Redding Bank of Commerce
dated July 16, 1998.*                  
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.3  |                         |  | 1998 Stock Option Plan.*                                                                                                                 
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.4  |                         |  | Form of Incentive Stock Option Agreement used in
connection with 1998 Stock Option Plan.*                                                
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.5  |                         |  | Form of Nonstatutory Stock Option Agreement used
in connection with 1998 Stock Option Plan.*                                             
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.6  |                         |  | Employment Agreement between the Company and
Russell L. Duclos dated June 17, 1997.*                                                     
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.7  |                         |  | Directors Deferred Compensation Plan.*                                                                                                   
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.8  |                         |  | Form of Deferred Compensation Agreement Used In
Connection With Directors Deferred Compensation Plan.*                                   
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.9  |                         |  | Merchant Services Agreement dated as of April 1,
1993, between Cardservice International, Inc. and Redding Bank
of Commerce, as amended.*
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.10 |                         |  | Employment contracts dated April 2001.*                                                                                                  
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.11 |                         |  | Affiliated Business Arrangement Agreement.*                                                                                              
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 10.12 |                         |  | RBC Code of Ethics*                                                                                                                      
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 11.1  |                         |  | Statement re: Computation of Earnings Per Share (see page  54).                                                                          
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 16.1  |                         |  | Letter on Change in Certifying Accountants.*                                                                                             
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 21.1  |                         |  | Subsidiaries of the Company.*                                                                                                            
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 23.1  |                         |  | Consent of Deloitte & Touche LLP.                                                                                                        
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 24.1  |                         |  | Power of Attorney (see page  79).                                                                                                        
| |  |         |       |                         |  |                                                                                                                                          
| |  |         | 99.1  |                         |  | Section 906 Certificate by Chief Executive
Officer and Chief Financial Officer.                                                          



---

|* |  | Previously filed with the Companys Registration Statement on Form 10 ,
SEC Form 10-K and SEC Form 8-K.
|- |  | -------------------------------------------------------------------------------------------------------