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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K




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

For the fiscal year ended December 31, 2003 - Commission File Number 0-25135


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)

REDDING BANCORP

(Exact name of Registrant as specified in its charter)


|                                                         |  |                                        
|-------------------------------------------------------- |  | ---------------------------------------
|California                                               |  | 94-2823865                             
|(State or jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                         |  |                                        
|1951 Churn Creek Road                                    |  |                                        
|Redding, California                                      |  | 96002                                  
|(Address of principal executive offices)                 |  | (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]

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act) Yes [   ] No [X]

The aggregate market value of voting stock held by non-affiliates
of the Registrant was approximately $45,278,458 as of February 1,
2004 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 20, 2004, there were 2,710,058 total shares of the
Registrants common stock outstanding.

0



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Redding Bancorp Form 10-K

Table of Contents


TABLE OF CONTENTS



|              |                                                                                                                    |                                                                     |                                                                              |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ---------------------------------------------------------------------------- |  |  |  |  | 
|PART I       
|              | Item 1. BUSINESS                                                                                                  
|              |                                                                                                                    | General                                                            
|              |                                                                                                                    | Primary Market Areas                                               
|              |                                                                                                                    | Products and Services                                              
|              |                                                                                                                    | Government Supervision and Regulation                              
|              |                                                                                                                    |                                                                     | General                                                                     
|              |                                                                                                                    |                                                                     | Dividends                                                                   
|              |                                                                                                                    |                                                                     | Interstate Banking                                                          
|              |                                                                                                                    |                                                                     | Capital Standards                                                           
|              |                                                                                                                    |                                                                     | Overview of the New Accord                                                  
|              |                                                                                                                    |                                                                     | State Regulation and Supervision                                            
|              |                                                                                                                    |                                                                     | Changes in Regulations                                                      
|              |                                                                                                                    |                                                                     | Prompt Corrective Action and Other Enforcement Mechanisms                   
|              |                                                                                                                    |                                                                     | Safety and Soundness Standards                                              
|              |                                                                                                                    |                                                                     | Community Reinvestment Act and Fair Lending Developments                    
|              |                                                                                                                    |                                                                     | Recently Enacted Legislation                                                
|              |                                                                                                                    | Competition                                                        
|              |                                                                                                                    | Employees                                                          
|              |                                                                                                                    | Forward Looking Statements and Risk Factors That May Affect Results
|              |                                                                                                                    |                                                                     | Overview                                                                    
|              |                                                                                                                    |                                                                     | Lending Risks Associated with Commercial Banking and Construction Activities
|              |                                                                                                                    |                                                                     | Dependence on Real Estate                                                   
|              |                                                                                                                    |                                                                     | Risks Specific to Operations in California                                  
|              |                                                                                                                    |                                                                     | Interest Rate Risk                                                          
|              |                                                                                                                    |                                                                     | Potential Volatility of Deposits                                            
|              |                                                                                                                    |                                                                     | Dividends                                                                   
|              |                                                                                                                    |                                                                     | Government Regulation and Legislation                                       
|              |                                                                                                                    |                                                                     | Economic Conditions and Geographic Concentration                            
|              |                                                                                                                    |                                                                     | Reliance on Key Employees and Others                                        
|              |                                                                                                                    |                                                                     | Adequacy of Allowance for Loan Losses (ALL)                                 
|              |                                                                                                                    |                                                                     | 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 STOCKHOLDER MATTERS                                     
|              | Item 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                                      
|              | Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND                      FINANCIAL CONDITION
|              |                                                                                                                    | Executive Overview                                                 
|              |                                                                                                                    | Risk Management                                                    
|              |                                                                                                                    |                                                                     | Liquidity Risk Management                                                   
|              |                                                                                                                    |                                                                     | Credit Risk Management                                                      
|              |                                                                                                                    |                                                                     | Market Risk Management                                                      
|              |                                                                                                                    |                                                                     | Operational Risk Management                                                 
|              |                                                                                                                    | Critical Accounting Policies                                       
|              |                                                                                                                    |                                                                     | General                                                                     
|              |                                                                                                                    |                                                                     | Allowance for Loan Losses (ALL)                                             
|              |                                                                                                                    |                                                                     | Stock-Based Compensation                                                    
|              |                                                                                                                    |                                                                     | Revenue recognition                                                         
|              |                                                                                                                    |                                                                     | Fixed Assets                                                                
|              |                                                                                                                    |                                                                     | Income Taxes                                                                
|              |                                                                                                                    | Financial Highlights - Results of Operations                       
|              |                                                                                                                    |                                                                     | Key Financial Ratios                                                        
|              |                                                                                                                    |                                                                     | Sources of Income                                                           
|              |                                                                                                                    |                                                                     | Year Ended December 31, 2003 Compared to Year Ended December 31, 2002       
|              |                                                                                                                    |                                                                     | Year Ended December 31, 2002 Compared to Year Ended December 31, 2001       
|              |                                                                                                                    |                                                                     | Net Interest Income and Net Interest Margin                                 
|              |                                                                                                                    |                                                                     | Noninterest Income                                                          
|              |                                                                                                                    |                                                                     | Noninterest Expense                                                         
|              |                                                                                                                    |                                                                     | Income Taxes                                                                
|              |                                                                                                                    |                                                                     | Asset Quality                                                               
|              |                                                                                                                    |                                                                     | Nonperforming Assets                                                        
|              |                                                                                                                    |                                                                     | Available-for-sale securities                                               
|              |                                                                                                                    |                                                                     | Deposit Structure                                                           
|              |                                                                                                                    |                                                                     | Capital Management and Adequacy                                             
|              |                                                                                                                    |                                                                     | Transactions with Related Parties                                           
|              |                                                                                                                    |                                                                     | Impact of Inflation                                                         
|              |                                                                                                                    |                                                                     | Commitments                                                                 
|              | 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                      
|              | ITEM 9A. CONTROLS AND PROCEDURES                                                                                  
|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 AND RELATED STOCKHOLDER MATTERS           
|              | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                           
|PART IV      
|              | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                   
|              | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                          
|SIGNATURES   
|EXHIBIT INDEX
|Exhibit 99.1 



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##### Table of Contents



|                                                                                              |                                                                     |                                                                              |    |    |    | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---------------------------------------------------------------------------- | -- | -- | -- | 
|Part I                                                                                        |                                                                     |                                                                              |    |   
|Item 1. Business                                                                              |                                                                     |                                                                              | 3  |   
|                                                                                              | General                                                             |                                                                              |    | 3  |   
|                                                                                              | Primary market areas                                                |                                                                              |    | 4  |   
|                                                                                              | Products and services                                               |                                                                              |    | 4  |   
|                                                                                              | Government supervision and regulation                               |                                                                              |    | 5  |   
|                                                                                              |                                                                     | General                                                                      |    |    | 5  | 
|                                                                                              |                                                                     | Dividends                                                                    |    |    | 5  | 
|                                                                                              |                                                                     | Interstate Banking                                                           |    |    | 6  | 
|                                                                                              |                                                                     | Capital standards                                                            |    |    | 6  | 
|                                                                                              |                                                                     | Overview of The New Accord                                                   |    |    | 7  | 
|                                                                                              |                                                                     | State regulation and supervision                                             |    |    | 7  | 
|                                                                                              |                                                                     | Changes in regulations                                                       |    |    | 8  | 
|                                                                                              |                                                                     | Prompt corrective action and other enforcement
mechanisms                    |    |    | 8  | 
|                                                                                              |                                                                     | Safety and soundness standards                                               |    |    | 9  | 
|                                                                                              |                                                                     | Community reinvestment act and fair lending
developments                     |    |    | 9  | 
|                                                                                              |                                                                     | Recently enacted legislation                                                 |    |    | 9  | 
|                                                                                              | Competition                                                         |                                                                              |    | 10 |   
|                                                                                              | Employees                                                           |                                                                              |    | 10 |   
|                                                                                              | Forward Looking Statements and Risk factors
that may affect results |                                                                              |    | 11 |   
|                                                                                              |                                                                     | Overview                                                                     |    |    | 11 | 
|                                                                                              |                                                                     | Lending risks associated with commercial banking
and construction activities |    |    | 12 | 
|                                                                                              |                                                                     | Dependence on real estate                                                    |    |    | 12 | 
|                                                                                              |                                                                     | Risks specific to operations in California                                   |    |    | 12 | 
|                                                                                              |                                                                     | Interest rate risk                                                           |    |    | 13 | 
|                                                                                              |                                                                     | Potential volatility of deposits                                             |    |    | 13 | 
|                                                                                              |                                                                     | Dividends                                                                    |    |    | 13 | 
|                                                                                              |                                                                     | Government regulation and legislation                                        |    |    | 13 | 
|                                                                                              |                                                                     | Economic conditions and geographical concentration                           |    |    | 13 | 
|                                                                                              |                                                                     | Reliance on key employees and others                                         |    |    | 14 | 
|                                                                                              |                                                                     | Adequacy of allowance for loan losses (ALL)                                  |    |    | 14 | 
|                                                                                              |                                                                     | Certain ownership restrictions under California and
Federal law              |    |    | 14 | 
|                                                                                              |                                                                     | Shares eligible for future sale                                              |    |    | 14 | 
|                                                                                              |                                                                     | Technology and computer systems                                              |    |    | 15 | 
|                                                                                              |                                                                     | Environmental risks                                                          |    |    | 15 | 
|                                                                                              |                                                                     | Dilution                                                                     |    |    | 15 | 
|Item 2. Properties                                                                            |                                                                     |                                                                              | 16 |   
|Item 3. Legal proceedings                                                                     |                                                                     |                                                                              | 16 |   
|Item 4. Submission of matters to a vote of security holders                                   |                                                                     |                                                                              | 16 |   
|Part II                                                                                       |                                                                     |                                                                              |    |   
|Item 5. Market for Registrants common equity and related
Shareholder matters                  |                                                                     |                                                                              | 17 |   
|Item 6. Selected consolidated financial data                                                  |                                                                     |                                                                              | 19 |   
|Item 7. Managements discussion and analysis of financial condition
and results of operations |                                                                     |                                                                              | 20 |   
|                                                                                              | Executive overview                                                  |                                                                              |    | 20 |   
|                                                                                              | Risk Management                                                     |                                                                              |    | 21 |   
|                                                                                              |                                                                     | Liquidity risk management                                                    |    |    | 22 | 
|                                                                                              |                                                                     | Credit risk management                                                       |    |    | 23 | 
|                                                                                              |                                                                     | Market risk management                                                       |    |    | 25 | 
|                                                                                              |                                                                     | Operational risk management                                                  |    |    | 26 | 

1



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##### Table of Contents



|                                                                                                |                                              |                                                                       |    |    |    | 
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------------------------- | -- | -- | -- | 
|                                                                                                | Critical accounting policies                 |                                                                       |    | 26 |   
|                                                                                                |                                              | General                                                               |    |    | 26 | 
|                                                                                                |                                              | Allowance for loan losses (ALL)                                       |    |    | 26 | 
|                                                                                                |                                              | Stock-based compensation                                              |    |    | 27 | 
|                                                                                                |                                              | Revenue recognition                                                   |    |    | 27 | 
|                                                                                                |                                              | Fixed Assets                                                          |    |    | 27 | 
|                                                                                                |                                              | Income taxes                                                          |    |    | 27 | 
|                                                                                                | Financial highlights - Results of operations |                                                                       |    | 28 |   
|                                                                                                |                                              | Key Financial Ratios                                                  |    |    | 28 | 
|                                                                                                |                                              | Sources of Income                                                     |    |    | 28 | 
|                                                                                                |                                              | Year ended December 31, 2003 compared to
Year ended December 31, 2002 |    |    | 28 | 
|                                                                                                |                                              | Year ended December 31, 2002 compared to
Year ended December 31, 2001 |    |    | 29 | 
|                                                                                                |                                              | Net Interest Income and net interest margin                           |    |    | 29 | 
|                                                                                                |                                              | Noninterest Income                                                    |    |    | 32 | 
|                                                                                                |                                              | Noninterest Expense                                                   |    |    | 32 | 
|                                                                                                |                                              | Income taxes                                                          |    |    | 33 | 
|                                                                                                |                                              | Asset Quality                                                         |    |    | 33 | 
|                                                                                                |                                              | Nonperforming assets                                                  |    |    | 34 | 
|                                                                                                |                                              | Available-for-sale securities                                         |    |    | 34 | 
|                                                                                                |                                              | Deposit structure                                                     |    |    | 35 | 
|                                                                                                |                                              | Capital management and adequacy                                       |    |    | 35 | 
|                                                                                                |                                              | Transactions with related parties                                     |    |    | 36 | 
|                                                                                                |                                              | Impact of inflation                                                   |    |    | 37 | 
|                                                                                                |                                              | Commitments                                                           |    |    | 37 | 
|Item 7a. Quantitative and qualitative disclosures to market risk                                |                                              |                                                                       | 38 |   
|Item 8. Financial Statements and supplementary data                                             |                                              |                                                                       | 40 |   
|Item 9. Changes and disagreements with accountants                                              |                                              |                                                                       | 72 |   
|Item 9A. Controls and procedures                                                                |                                              |                                                                       | 72 |   
|Part III                                                                                        |                                              |                                                                       |    |   
|Item 10. Directors and Executive officers of the registrant                                     |                                              |                                                                       | 72 |   
|Item 11. Executive compensation                                                                 |                                              |                                                                       | 73 |   
|Item 12. Security ownership of beneficial owners and management
and related stockholder matters |                                              |                                                                       | 73 |   
|Item 13. Certain relationships and related transactions                                         |                                              |                                                                       | 73 |   
|Part IV                                                                                         |                                              |                                                                       |    |   
|Item 14. Principal Accountant fees and services                                                 |                                              |                                                                       | 74 |   
|Item 15. Exhibits, financial statements, certifications                                         |                                              |                                                                       | 75 |   

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 2004 Annual Meeting
of Shareholders. The 2004 Annual Meeting of Shareholders will be held
on Tuesday, May 18, 2004.

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##### Table of Contents






PART I







Item 1. BUSINESS
General

Redding Bancorp (the Holding Company) is a financial 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 Holding Company elected to change to a FHC in 2000. As a
financial holding company, the Holding Company is subject to the Financial
Holding Company Act and to supervision by the Board of Governors of the Federal
Reserve System (FRB). The Holding Companys principal business is to serve
as a holding company for Redding Bank of Commerce, RBC Mortgage Services, a
California corporation (formerly Redding Service Corporation), and for other
banking or banking-related subsidiaries which the Holding Company may establish
or acquire (collectively the Company). The Holding Company also has an
unconsolidated subsidiary, Redding Bancorp Trust. During the first quarter
2003, Redding Bancorp formed a wholly-owned Delaware statutory business trust,
Redding Bancorp Trust (the grantor trust), which issued $5.0 million of
guaranteed preferred beneficial interests in Redding Bancorps junior
subordinated debentures (the Trust Notes). These debentures qualify as Tier 1
capital under Federal Reserve Board guidelines. The proceeds from the issuance
of the Trust Notes were transferred from the grantor trust to the Holding
Company and from the Holding Company to the Bank as surplus capital. The Trust
Notes accrue and pay distributions on a quarterly basis at 3 month London
Interbank Offered Rate (LIBOR) plus 3.30%. The rate at December 31, 2003 was
4.45%. The rate increase is capped at 2.75% annually and the lifetime cap is
12.5%. The final maturity on the Trust Notes is March 18, 2033, and the debt
allows for prepayment after five years on the quarterly payment date.

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, if any, as soon as reasonably
practical after such reports have been filed with the Securities and Exchange
Commission. The Internet addresses of the Company are
www.reddingbankofcommerce.com, and www.rosevillebankofcommerce.com.
Additionally, reports may be obtained through the Securities and Exchange
Commissions website at www.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 four full service branch facilities.
The Bank 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 Bank 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, relocated to its permanent location at 1504 Eureka Road, Suite
100, Roseville, California.

On January 2, 2003, Redding Service Corporation, a wholly-owned subsidiary
of the Holding Company, changed its name to RBC Mortgage Services (the
Mortgage Company), an affiliate of Redding Bank of Commerce. The principal
business of the subsidiary is mortgage brokerage services. The subsidiary has
an affiliated business arrangement with the Bank of Walnut Creek (BWC Mortgage
Services). Under the terms of the agreement, BWC Mortgage Services underwrites
or brokers mortgage products and manages the independent contractors,
supporting staff and broker relationships with various secondary market
lenders. RBC Mortgage Services in turn provides office space, equipment and
marketing support for the mortgage brokerage services. RBC Mortgage Services,
through this agreement, offers a full array of single-family and multi-family
residential real estate mortgages including equity lines. Earnings from the
mortgage brokerage services, net of operating costs, are split equally between
RBC Mortgage Services and BWC Mortgage Services. Before the formation of the
subsidiary, mortgage banking services were performed as a department of the
Bank.

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##### Table of Contents






Primary Market Areas

The Bank is principally supervised and regulated by the California
Department of Financial Institutions and the Federal Deposit Insurance
Corporation . The Company operates in two distinct markets. Redding Bank of
Commerce has historically been the leading independent commercial bank in
Redding, California, and Shasta County, California though community banks and
national banks make the competition more intense. This market has been
expanding, but is still relatively small when compared to the greater
Sacramento market, the location of Roseville Bank of Commerce, a division of
Redding Bank of Commerce. Management believes that the two markets complement
each other, with the Redding market providing the stability and the greater
Sacramento market providing growth opportunities. At the time of this report
the Bank ranked third in Shasta County for market share, 29th in Sacramento
County and 18th in Placer County.




Products and Services

Through the Bank and mortgage subsidiaries, the Company provides a wide
range of financial services and products. The services offered by the Bank
include those traditionally offered by commercial banks of similar size and
character in California. Products such as checking, interest-bearing checking
(NOW) and savings accounts, money market deposit accounts, commercial,
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
currently does not offer trust services or international banking services. The
services offered by the Mortgage Company include single and multi-family
residential residence new financing, refinancing and equity lines of credit.

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 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. The Mortgage Company
provides residential real estate new financing, refinancing and equity lines of
credit, 100% sold in the secondary market. 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 as collateral for loans 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.

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.

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##### Table of Contents



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.

See -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 construction loan portfolio of the Bank consists of
loans secured by a variety of commercial and residential real property. The
Mortgage Company makes real estate mortgage loans for both owner-occupied
properties and investor properties. The Mortgage Company underwrites and sells
the residential real estate loan directly in the secondary market, servicing
included. The Bank does not provide for warehouse funding.

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.




Government Supervision and Regulation

The following discussion describes the elements of an extensive regulatory
framework applicable to financial holding companies and banks and specific
information about the Holding Company and its subsidiaries. Federal regulation
of banks, bank holding companies and financial holding companies is intended
primarily for the protection of depositors and the Bank Insurance Fund rather
than for the protection of stockholders and creditors.




General

The Holding Company is a financial holding company under the
Gramm-Leach-Bliley Act and subject to the Financial Holding Company Act
(FHCA). The Holding Company reports to, registers with, and may be examined
by the Board of Governors of the Federal Reserve Bank (FRB). The FRB also
has the authority to examine the Holding Companys subsidiaries. The Bank is
subject to regulation, supervision and examination by the Federal Deposit
Insurance Corporation (the FDIC) and the California Department of Financial
Institutions (DFI). In addition to banking laws, regulations and regulatory
agencies, the Holding Company and its subsidiaries and affiliates are subject
to various other laws and regulations and regulation by other regulatory
agencies, all of which directly or indirectly affect the operations and
management of the Holding Company and its ability to make distributions to
stockholders.

A financial holding company, and the companies under its control, are
permitted to engage in activities considered to be financial in nature as
defined by the Gramm-Leach-Bliley Act and the Federal Reserve Board
interpretations (including, without limitation, insurance and securities
activities), and therefore may engage in a broader range of activities than
permitted for bank holding companies and their subsidiaries. A financial
holding company may engage directly or indirectly in activities considered
financial in nature, either de novo or by acquisition, provided the financial
holding company gives the Federal Reserve Board after-the-fact notice of the
new activities.




Dividends

The FRB generally prohibits a financial 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.

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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.

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
stockholders 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.
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.




Interstate Banking

A financial 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.




Capital Standards

In the United States of America, banks, thrifts and bank holding companies
are subject to minimum regulatory capital requirements. Specifically, U.S.
banking organizations must maintain a minimum leverage ratio and two minimum
risk-based ratios. The leverage ratio measures regulatory capital as a
percentage of total on-balance-sheet assets as reported in accordance with
accounting principles generally accepted in the United States of America
(GAAP). The risk-based ratios measure regulatory capital as a percentage of
both on- and off-balance-sheet credit exposures with some gross differentiation
based on perceived credit risk. 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.

The current U.S. risk-based capital requirements are based on an
internationally agreed framework for capital measurement that was developed by
the Basel Committee on Banking Supervision (BSC) in 1988. The international
framework (the 1988 Accord) accomplished several important objectives. It
strengthened capital levels at large, internationally active banks and fostered
international consistency and coordination. The 1988 Accord also reduced
disincentives for banks to hold liquid, low risk assets. By requiring banks to
hold capital against off-balance-sheet exposures, the 1988 Accord represented a
significant step forward for regulatory capital measurement. 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.

Over the past 15 years the worlds financial system has become
increasingly more complex and the BSC has been working for several years to
develop a new regulatory capital framework that recognizes new developments in
financial products, incorporates advances in risk measurement and management
practices, and more precisely assesses capital charges in relation to risk (the
New Accord). The BSC expects the New Accord would have an effective date for
implementation of December 31, 2006.

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Overview of the New Accord

The New Accord encompasses three elements: minimum regulatory capital
requirements, supervisory review and market discipline. Under the first
element, a banking organization must calculate capital requirements to credit
risk, operational risk and market risk.The New Accord does notchange the
definition of what qualifies as regulatory capital, the minimum risk-based
capital ratio, or the methodology for determining capital charges for market
risk. The New Accord doesprovide several methodologies for determining capital
requirements for both credit and operational risk.

For credit risk there are two general approaches; the standardized
approach (based on the 1988 Accord) and the internal ratings-based (IRB)
approach, which uses the institutions internal estimates of key risk drivers
to derive capital requirements.

The New Accord provides three methodologies for determining capital
requirements for operational risk: the basic indicator approach, the
standardized approach, and the advanced measurement approaches (AMA). Under the
first two methodologies, capital requirements for operational risk are fixed
percentages of specified, objective risk measures (for example, gross income.)
The AMA provides the flexibility for an institution to develop its own
individualized approach for measuring operational risk, subject to supervisory
oversight.

The second pillar of the New Accord, supervisory review, highlights the
need for banking organizations to assess their capital adequacy positions
relative to overall risk (rather than to the minimum capital requirement), and
the need for supervisors to review and take appropriate actions in response to
those assessments. The third pillar of the New Accord imposes public disclosure
requirements on institutions that are intended to allow market participants to
assess key information about an institutions risk profile and its associated
level of capital.

In order for a financial 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.




State Regulation and Supervision

The 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).

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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.




Changes in Regulations

Proposals to change laws and regulations governing the banking industry
are frequently introduced in Congress, in the state legislatures and before the
various bank regulatory agencies. The likelihood and timing of any proposals or
legislation and the impact they might have on the Holding Company and its
subsidiaries cannot be determined at this time.




Prompt Corrective Action and Other Enforcement Mechanisms

The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) 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:

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

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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.




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, accelerated
filing dates for the 10-Q and 10-K reports, Audit Committee responsibilities
and attorney conduct rules.

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
included in the Companys annual proxy statement as appendix A.                                                                       

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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.

In August 2003, the SEC issued proposed disclosure guidance related to
director nominations and shareholder communications. The rules are an important
first step in improving the proxy process as it relates to the nomination and
election of directors. The SEC believes that better information about the way
board nominees are identified, evaluated and selected is critical for
shareholder understanding of the proxy process regarding nomination and
election of directors providing transparency of the operations of the Board of
Directors. For information concerning director nominations and stockholder
communications please refer to the Companys Nominating and Corporate
Governance Committee Charter included in the Companys annual proxy statement
as appendix B.




Competition

The commercial banking business in which the Company engages in is highly
competitive. Generally, the lines of activity and markets served involve
competition with other banks, thrifts, credit unions and other nonbank
financial institutions, such as investment banking firms, investment advisory
firms, brokerage firms, investment companies and insurance entities which offer
financial services, located both domestically and through alternative deliver
channels such as the Internet. The methods of competition center around various
factors, such as customer services, interest rates on loans and deposits,
lending limits and customer convenience.

The mortgage brokerage business in which the Company engages in is highly
competitive. The mortgage brokerage business competes with other banks,
thrifts, government agencies, mortgage brokers and other nonbank organizations
offering mortgage banking services.

Among the competitive advantages, major banks have an ability to finance
wide ranging advertising campaigns and to allocate their securities into
securities 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 Company 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 Companys
legal lending limit, the Company 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.




Employees

As of February 1, 2004, the Company employed 107 full-time equivalent
employees. Of these employees, 24 were employed in the Roseville market and 83
were in the Redding market. None of the employees within the Company are
subject to a collective bargaining agreement. Management considers its employee
relations to be excellent.

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Forward Looking Statements and 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.




Overview

As a financial holding company, our earnings are significantly affected by
general business and economic conditions. These conditions include short-term
and long-term interest rates, inflation, monetary supply, fluctuations in both
debt and equity capital markets, and the strength of the United States economy
and local economies in which we operate. For example, an economic downturn,
increase in unemployment, or other events that negatively impact household
and/or corporate incomes could decrease the demand for the Companys loan and
non-loan products and services and increase the number of customers who fail to
pay interest or principal on their loans. Geopolitical conditions can also
affect our earnings. Acts or threats of terrorism, actions taken by the United
States or other governments in response to acts or threats of terrorism and our
military conflicts including the aftermath of the war with Iraq could impact
business conditions in the United States.

The Board of Governors of the Federal Reserve System regulates the supply
of money and credit in the United States. Its policies determine in large part
our cost of funds for lending and investing and the return we earn on those
loans and investments, both of which impact our net interest margin, and can
materially affect the value of financial instruments we hold. Its policies can
also affect our borrowers, potentially increasing the risk of failure to repay
their loans. Changes in Federal Reserve Board policies are beyond our control
and hard to predict or anticipate.

We operate in a highly competitive industry that could become even more
competitive because of legislative, regulatory and technological changes and
continued consolidation. Banks, securities firms and insurance companies can
now merge creating a financial holding company that can offer virtually any
type of financial service, including banking, securities underwriting,
insurance (agency and underwriting) and merchant banking. Technology has
lowered barriers to entry and made it possible for non-banks to offer products
and services traditionally provided by banks, such as automatic transfer and
automatic payment systems. Many of our competitors have fewer regulatory
constraints and some have lower cost structures.

The holding company, subsidiary bank and nonbank subsidiary are heavily
regulated at the federal and state levels. This regulation is to intended
protect depositors, federal deposit insurance funds and the banking system as a
whole, not investors. Congress and state legislatures and federal and state
regulatory agencies continually review banking laws, regulations and policies
for possible changes. Changes to statutes, regulations or regulatory policies
including changes in interpretation and implementation could affect us in
substantial and unpredictable ways including limiting the types of financial
services and products we may offer. Our failure to comply with the laws,
regulations or policies could result in sanctions by regulatory agencies and
damage our reputation.

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Our success depends, in part, on our ability to adapt our products and
services to evolving industry standards. There is increasing pressure on
financial services companies to provide products and services at lower prices.
This can reduce our net interest margin and revenues from fee-based products
and services. In addition, the widespread adoption of new technologies,
including internet-based services, could require us to make substantial
expenditures to modify or adapt our existing products and services. Our success
depends, in large part, on our ability to attract and retain key people.
Competition for the best people can be intense.




Lending Risks Associated with Commercial Banking and Construction
Activities

The business strategy of the Company 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 Company 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 Company 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, 2003, approximately 64% of the loans of the Company were
secured by real estate. The value of the Company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 California. See
-Economic Conditions and Geographic Concentration - page 13.

The Companys primary lending focus has historically been commercial real
estate, construction and, to a lesser extent, commercial lending. At December
31, 2003, commercial real estate and construction loans comprised approximately
37% and 24%, respectively, of the total loans in the portfolio of the Company.
At December 31, 2003, all of the Company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 Companys dependence on real
estate increases the risk of loss in the loan portfolio of the Company and its
holdings of other real estate owned if economic conditions in California
deteriorate in the future. Deterioration of the real estate market in
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 13.




Risks Specific to Operations in California

Our operations are located entirely in California, which in recent years
has experienced economic disruptions that are unique to the state. The fiscal
and political uncertainty surrounding the state governments financial
condition, for example have a material adverse effect on our customers
businesses or on our business, financial condition and results of operations.

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Interest Rate Risk

The income of the Company is highly dependent 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 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 Companys practice of using variable rate pricing and noninterest
bearing demand deposit accounts the Company 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 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.




Potential Volatility of Deposits

At December 31, 2003, time certificates of deposit in excess of $100,000
represented approximately 24% of the dollar value of the total deposits of the
Company. 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 Company, profitability, business
prospects, results of operations and cash flows. The Company monitors activity
of volatile liability deposits on a quarterly basis. Approximately $30.0
million of the $79.9 million in time certificates of deposit over $100,000 act
as core deposits with over five years history of rollover with the Company.




Dividends

Because the Company conducts no other significant activity than the
management of its investment in the Bank and Mortgage Company, the Company is
dependent on these subsidiaries for income. The ability of the Bank and
Mortgage Company to pay cash dividends in the future depends on the
profitability, growth and capital needs of the Bank and Mortgage Company. 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.




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 in California,
particularly the counties of El Dorado, Placer, Shasta and Sacramento, and are
likely to remain so for the foreseeable future. At December 31, 2003,
approximately 64% of the Banks loan portfolio consisted of real estate related
loans, all of which were related to collateral located in 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. Uninsured disasters may make it difficult or impossible for
borrowers to repay loans made by the Company.

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Reliance on Key Employees and Others

As of February 1, 2004, the Company employed in the aggregate 107
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 Losses (ALL)

The Companys allowance for loan losses was approximately $3.7 million, or
1.3% of total loans at December 31, 2003. Material future additions to the
allowance for loan losses might be necessary if material adverse changes in
economic conditions occur and the performance of the loan portfolio of the
Company deteriorates. In addition, future additions to the Companys allowance
for loan losses on other real estate owned may also be required in order to
reflect changes in the markets for real estate in which the Companys other
real estate owned is located and other factors which may result in adjustments
which are necessary to ensure that the Company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 Companys allowance for loan
losses and the carrying value of its assets. The Bank was most recently
examined by the FDIC in this regard during the first quarter of 2003.
Increases in the provisions for loan losses 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 rebuttal 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.




Shares Eligible for Future Sale

As of December 31, 2003, the Company had 2,710,058 shares of Common Stock
outstanding, of which 1,748,203 shares are eligible for sale in the public
market without restriction and 961,855 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 344,932 shares of the issued and outstanding
shares of common stock at exercise prices ranging from $8.25 to $20.25 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.

14



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##### Table of Contents






Technology and Computer Systems

Advances and changes in technology can significantly affect the business
and operations of the Company. The Company 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
Company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 Companys data processing systems.




Environmental Risks

The Company, 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 Company 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 Company may not have adequate
remedies against the prior owners or other responsible parties to recover its
costs. Finally, the Company may find it difficult or impossible to sell the
affected properties either before or following any such removal. In addition,
the Company 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% to 100% of the fair market value of the Companys
Common Stock on the date of grant. As of December 31, 2003, the Company had
outstanding options to purchase an aggregate of 344,932 shares of Common Stock
at exercise prices ranging from $8.25 to $20.25 per share, or a weighted
average exercise price per share of $10.50. To the extent such options are
exercised, stockholders of the Company will experience dilution.

15



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##### Table of Contents






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,
96001, 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 is subject to various pending and threatened legal actions
arising in the ordinary course of business. The Company maintains reserves for
losses from legal actions that are both probable and estimable. In the opinion
of management the disposition of claims currently pending will not have a
material effect on the Companys consolidated financial position 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, 2003 to a
vote of the Companys security holders.

16



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##### Table of Contents






PART II




Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
STOCKHOLDER 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 following table, which summarizes trading activity during the
Companys last two fiscal years, is based on information obtained from the OTC
Bulletin Board (www.otcbb.com). 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, 2003     |  | $                     | 20.35 |     |  | $      | 17.10 |  |  |  | 10,236  | 
|June 30, 2003      |  | $                     | 19.60 |     |  | $      | 17.75 |  |  |  | 27,632  | 
|September 30, 2003 |  | $                     | 23.98 |     |  | $      | 18.05 |  |  |  | 62,502  | 
|December 31, 2003  |  | $                     | 26.50 |     |  | $      | 23.00 |  |  |  | 58,014  | 
|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   | 

We believe there were approximately 500 stockholders of the Companys
common stock as of January 30, 2004, including those held in street name, and
the market price on that date was $25.90 per share. As of January 30, 2004
there were 303 registered stockholders. On October 22, 2003 and 2002, a cash
dividend of $0.65 per share was paid to stockholders of record as of October 1,
2003 and 2002 respectively. The Company currently expects to pay cash dividends
at this rate in the future, but the Companys ability to pay dividends is
subject to certain regulatory requirements. The Federal Reserve Board (FRB)
generally prohibits a financial 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 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.

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
stockholders 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.

One of the provisions of the Jobs and Growth Tax Relief Reconciliation Act
of 2003 signed by President George W. Bush, included changes in how dividends
are taxed. Investors will now pay lower tax rates on dividends received from
domestic corporations and qualified foreign corporations. In the past, dividend
income was another source of ordinary income, taxed at the investors normal
tax rate. Beginning in 2003, the maximumtax rate on qualifying dividends has
dropped to either 5%, 10% or 15% depending on the investors tax bracket. The
lower tax rate is scheduled to expire in 2008.

17



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##### Table of Contents



Equity Compensation Plan Information

The following chart sets forth information for the fiscal year ended December
31, 2003, regarding equity based compensation plans of the Company.

|                                                           |  |                            |         |                           |  |                           |       |   |  |                         |        |  
|---------------------------------------------------------- |  | -------------------------- | ------- | ------------------------- |  | ------------------------- | ----- | - |  | ----------------------- | ------ | -
|                                                           |  |                            |         |                           |  |                           |       |   |  | Number of securities   
|                                                           |  |                            |         |                           |  |                           |       |   |  | remaining available for
|                                                           |  | Number of securities to be |         | Weighted average exercise |  | future issuance under    
|                                                           |  | issued upon exercise of    |         | price of outstanding      |  | equity compensation plans
|                                                           |  | outstanding options,       |         | options, warrants and     |  | (excluding securities    
|Plan category                                              |  | warrants and rights        |         | rights                    |  | reflected in column (a)).
|                                                           |  |                            |         |                           |  |                          
|                                                           |  |                            | (a      | )                         |  |                           | (b    | ) |  |                         | (c     | )
|                                                           |  |                            |         |                           |  |                           |       |   |  |                         |        |  
|Equity compensation
plans approved by
security holders     |  |                            | 344,932 |                           |  | $                         | 10.50 |   |  |                         | 75,430 |  
|                                                           |  |                            |         |                           |  |                           |       |   |  |                         |        |  
|Equity compensation
plans not approved
by security holders |  | None                       |         | None                      |  | None                     
|                                                           |  |                            |         |                           |  |                           |       |   |  |                         |        |  
|Total                                                      |  |                            | 344,932 |                           |  | $                         | 10.50 |   |  |                         | 75,430 |  
|                                                           |  |                            |         |                           |  |                           |       |   |  |                         |        |  

During 2003, the Company did not conduct any unregistered offerings or
sales of its securities, nor did it repurchase any of its outstanding
securities.

18



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##### Table of Contents






Item 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below for the five
years ended December 31, 2003, 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 consolidated financial statements and
notes thereto, included elsewhere in this report.

In Thousands (Except Ratios and Per
Share Data)

|                                                 |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                 |  | 2003 |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                 |  |      |         |      |  |      |         |      |  |     
|Statements of Income                             |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Interest Income                            |  | $    | 19,279  |      |  | $    | 18,565  |      |  | $    | 20,216  |   |  | $ | 20,177  |   |  | $ | 17,270  |  
|Net Interest Income                              |  | $    | 14,694  |      |  | $    | 12,517  |      |  | $    | 11,190  |   |  | $ | 11,455  |   |  | $ | 10,835  |  
|Provision for Loan Losses                        |  | $    | 515     |      |  | $    | 620     |      |  | $    | 255     |   |  | $ | 142     |   |  | $ | 120     |  
|Total Noninterest Income                         |  | $    | 2,150   |      |  | $    | 2,091   |      |  | $    | 2,823   |   |  | $ | 2,807   |   |  | $ | 2,790   |  
|Total Noninterest Expense                        |  | $    | 9,660   |      |  | $    | 8,267   |      |  | $    | 7,143   |   |  | $ | 6,458   |   |  | $ | 6,434   |  
|Total Revenues                                   |  | $    | 21,429  |      |  | $    | 20,656  |      |  | $    | 23,039  |   |  | $ | 22,984  |   |  | $ | 20,060  |  
|Net Income                                       |  | $    | 4,183   |      |  | $    | 3,696   |      |  | $    | 4,274   |   |  | $ | 4,812   |   |  | $ | 4,370   |  
|Balance Sheets                                   |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Total Assets                                     |  | $    | 401,158 |      |  | $    | 367,434 |      |  | $    | 318,686 |   |  | $ | 255,107 |   |  | $ | 232,008 |  
|Total Net Loans                                  |  | $    | 278,204 |      |  | $    | 280,351 |      |  | $    | 216,960 |   |  | $ | 191,586 |   |  | $ | 170,109 |  
|Allowance for Loan Losses                        |  | $    | 3,675   |      |  | $    | 3,529   |      |  | $    | 2,916   |   |  | $ | 2,710   |   |  | $ | 2,708   |  
|Total Deposits                                   |  | $    | 327,539 |      |  | $    | 314,447 |      |  | $    | 281,436 |   |  | $ | 218,036 |   |  | $ | 198,323 |  
|Stockholders Equity                             |  | $    | 30,511  |      |  | $    | 27,667  |      |  | $    | 27,240  |   |  | $ | 28,754  |   |  | $ | 26,059  |  
|Performance Ratios1                              |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Return on Average Assets2                        |  |      | 1.10    | %    |  |      | 1.09    | %    |  |      | 1.49    | % |  |   | 1.98    | % |  |   | 1.91    | %
|Return on Average Stockholders Equity3          |  |      | 15.20   | %    |  |      | 13.92   | %    |  |      | 15.43   | % |  |   | 17.95   | % |  |   | 17.60   | %
|Dividend Payout                                  |  |      | 42.09   | %    |  |      | 46.57   | %    |  |      | 41.94   | % |  |   | 35.32   | % |  |   | 36.25   | %
|Average Equity to Average Assets                 |  |      | 7.21    | %    |  |      | 7.83    | %    |  |      | 9.67    | % |  |   | 11.02   | % |  |   | 10.86   | %
|Tier 1 Risk-Based Capital-Bank4                  |  |      | 10.77   | %    |  |      | 9.14    | %    |  |      | 10.93   | % |  |   | 12.86   | % |  |   | 13.59   | %
|Total Risk-Based Capital-Bank                    |  |      | 12.02   | %    |  |      | 10.19   | %    |  |      | 12.18   | % |  |   | 14.11   | % |  |   | 14.85   | %
|Net Interest Margin5                             |  |      | 4.22    | %    |  |      | 4.06    | %    |  |      | 4.24    | % |  |   | 5.16    | % |  |   | 5.15    | %
|Average Earning Assets to Total Average
Assets   |  |      | 91.26   | %    |  |      | 90.90   | %    |  |      | 92.15   | % |  |   | 91.30   | % |  |   | 92.10   | %
|Nonperforming Assets to Total Assets6            |  |      | 1.16    | %    |  |      | .10     | %    |  |      | .11     | % |  |   | .31     | % |  |   | .19     | %
|Net Charge-offs to Average Loans                 |  |      | .13     | %    |  |      | .01     | %    |  |      | .02     | % |  |   | .09     | % |  |   | .22     | %
|Allowance for Loan Losses to Total Loans         |  |      | 1.30    | %    |  |      | 1.26    | %    |  |      | 1.35    | % |  |   | 1.42    | % |  |   | 1.60    | %
|Nonperforming Loans to Allowance for
Loan Losses |  |      | 126.34  | %    |  |      | 0.20    | %    |  |      | 11.97   | % |  |   | 29.56   | % |  |   | 14.55   | %
|Efficiency Ratio7                                |  |      | 59.15   | %    |  |      | 56.59   | %    |  |      | 50.97   | % |  |   | 45.28   | % |  |   | 47.22   | %
|Share Data                                       |  |      |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Common Shares Outstanding - basic                |  |      | 2,678   |      |  |      | 2,671   |      |  |      | 2,703   |   |  |   | 2,884   |   |  |   | 2,907   |  
|Common Shares Outstanding - diluted              |  |      | 2,776   |      |  |      | 2,868   |      |  |      | 2,856   |   |  |   | 3,035   |   |  |   | 3,144   |  
|Book Value Per Common Share                      |  | $    | 11.40   |      |  | $    | 10.36   |      |  | $    | 10.08   |   |  | $ | 9.97    |   |  | $ | 8.97    |  
|Basic Earnings Per Common Share                  |  | $    | 1.56    |      |  | $    | 1.38    |      |  | $    | 1.52    |   |  | $ | 1.67    |   |  | $ | 1.49    |  
|Diluted Earnings Per Common Share                |  | $    | 1.51    |      |  | $    | 1.29    |      |  | $    | 1.44    |   |  | $ | 1.59    |   |  | $ | 1.38    |  
|Cash Dividends Per Common Share                  |  | $    | 0.65    |      |  | $    | 0.65    |      |  | $    | 0.65    |   |  | $ | 0.59    |   |  | $ | 0.55    |  



---

| |  | 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 36.                                                                                                                                                           
|
| |  | 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,
loans 90 days past due and still accruing 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 noninterest income. The efficiency ratio
measures how the Company spends in order to generate each dollar of net
revenue.

19



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##### Table of Contents






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

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. 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 stockholder 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.




Executive Overview

Our Company was established to make a profitable return while serving the
financial needs of the business and professional communities of our markets. We
are in the financial services business, and no line of financial services is
beyond our charter as long as it serves the needs of businesses and
professionals in our communities. The mission of our Company is to provide its
stockholders with a safe, profitable return on their investment, over the long
term. Management will attempt to minimize risk to our stockholders by making
prudent business decisions, will maintain adequate levels of capital and
reserves, and will maintain effective communications with stockholders.

Our Companys most valuable asset is its customers. We will consider their
needs first when we design our products. High-quality customer service is an
important mission of our Company, and how well we accomplish this mission will
have a direct influence on our profitability.

Our vision is to embrace changes in the industry and develop profitable
business strategies that allow us to maintain our customer relationships and
build new ones. Our competitors are no longer just banks. We must compete with
financial powerhouses that want our core business. The flexibility provided by
the Financial Holding Company Act will become increasingly important. We have
developed strategic plans that evaluate additional financial services and
products that can be delivered to our customers efficiently and profitably.
Producing quality returns is, as always, a top priority.

The Companys long term success rests on the shoulders of the leadership
team to effectively work to enhance the performance of the Company. As a
financial services company, we are in the business of taking risk. Whether we
are successful depends largely upon whether we take the right risks and get
paid appropriately for the risks we take. Our governance structure enables us
to manage all major aspects of the Companys business effectively through an
integrated process that includes financial, strategic, risk and leadership
planning.

We define risks to include not only credit, market and liquidity risk -
the traditional concerns for financial institutions - but also operational
risks, including risks related to systems, processes or external events, as
well as legal, regulatory and reputation risks. Our management processes,
structures and policies help to ensure compliance with laws and regulations and
provide clear lines for decision-making and accountability. Results are
important, but equally important is how we achieve those results. Our core
values and commitment to high ethical standards is material to sustaining
public trust and confidence in our Company.

20



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##### Table of Contents






Risk Management

Overview

Through our corporate governance structure, risk and return is evaluated
to produce sustainable revenues, reduce risks of earning volatility and
increase stockholder value. The financial services industry is exposed to four
major risks; liquidity, credit, market and operational. Liquidity risk is the
inability to meet liability maturities and withdrawals, fund asset growth and
otherwise meet contractual obligations at reasonable market rates. Credit risk
is the inability of a customer to meet its repayment obligations. Market risk
is the fluctuation in asset and liability values caused by changes in market
prices and yields and operational risk is the potential for losses resulting
from events involving people, processes, technology, legal issues, external
events, regulatory or reputation.

Board Committees

Our corporate governance structure begins with our Board of Directors. The
Board of Directors evaluates risk through the Chief Executive Officer (CEO) and
four Board Committees:



| |  | Loan Committee reviews credit risks and the adequacy of the allowance for loan losses.                                                                                                                                                         
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Asset/Liability Management Committee (ALCO) reviews liquidity and market risks.                                                                                                                                                              
| 
| |  | Audit Committee reviews the scope and coverage of internal and external audit activities.                                                                                                                                                      
| 
| |  | Nominating and Corporate Governance Committee evaluates corporate governance structure, charters, committee performance and
acts in best interests of the corporation and its stockholders with regard to the appointment of director nominees.

These committees review reports from management, the Companys auditors,
and other outside sources. On the basis of materials that are available to
them and on which they rely, they review the performance of the Companys
management and personnel, and establish policies, but neither the committees
nor their individual members (in their capacities as members of the Board of
Directors) are responsible for daily operations of the Company. In particular,
risk management activities relating to individual loans are undertaken by
Company personnel in accordance with the policies established by the Board
committees.

Senior Management Committees

To ensure that our risk management goals and objectives are accomplished,
oversight of our risk taking and risk management activities are conducted
through three senior management committees.



| |  | The Senior Leadership Committee establishes short and long-term
strategies and operating plans. The committee establishes performance
measures and reviews performance to plan on a monthly basis.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The Credit Round Table Committee establishes corporate credit
practices and limits, including industry concentration limits,
approval requirements and exceptions.                                
| 
| |  | The Technology Steering Committee establishes technological
strategies, makes technology investment decisions and manages the
implementation process.                                             

Risk Management Controls

We use various controls to manage risk exposure within the Company.
Budgeting and planning processes provide for early indication of unplanned
results or risk levels. Models are used to estimate market risk and net
interest income sensitivity. Segmentation analysis is used to estimate expected
and unexpected credit losses. Compliance to regulatory guidelines plays a
significant role in risk management as well as corporate culture and the
actions of management. Our code of ethics provides the guidelines for all
employees to conduct themselves with the highest integrity in the delivery of
service to our clients.

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Liquidity Risk Management

Liquidity Risk

Liquidity risk is the inability to meet liability maturities and
withdrawals, fund asset growth and otherwise meet contractual obligations at
reasonable market rates. Liquidity management involves maintaining ample and
diverse funding capacity, liquid assets and other sources of cash to
accommodate fluctuations in asset and liability levels due to business shocks
or unanticipated events. ALCO is responsible for establishing our liquidity
policy and the accounting department is responsible for planning and executing
the funding activities and strategies.

Asset liquidity sources consist of the repayments and maturities of loans,
selling of loans, short-term money market investments, maturities and sales of
securities from the available-for-sale security portfolio.

Increased available-for-sale security balances were responsible for the
major use of liquidity, followed by growth in the loan portfolio. The
weighted-average life of the available-for-sale security portfolio is 6.3
years.

Liquidity is generated from liabilities through deposit growth and
short-term borrowings. We emphasize preserving and maximizing customer deposits
and other customer-based funding sources. Deposit marketing strategies are
reviewed for consistency with liquidity policy objectives. Internal deposit
growth provided approximately $13,092,000 and borrowings provided approximately
$17,044,000 of liquidity.

The Company also had available correspondent banking lines of credit
through correspondent relationships totaling approximately $10,000,000 and
available secured borrowing lines of approximately $16,460,000 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
Companys operations.

The Companys liquid assets (cash and due from banks, federal funds sold,
and available-for-sale securities) totaled $102.2 million or 25.5% of total
assets at December 31, 2003, $66.9 million or 18.2% of total assets at December
31, 2002 and $81.8 million or 25.6% of total assets at December 30, 2001. In
2003, the Holding Companys primary source of funding was dividends paid by the
Bank totaling $1,760,239 and was paid to stockholders. The Holding Company
expects to continue to receive dividends from the Bank in 2004. (See note 18 to
the Consolidated Financial Statements for a discussion of the restrictions on
the Banks ability to pay dividends.)

To accommodate future growth and business needs, the Company develops an
annual capital expenditure budget during strategic planning sessions. Capital
expenditures for 2003 were approximately $889,000 for replacement of furniture
and equipment, technological enhancements and in progress purchases. The
Company expects that the earnings of the Company, acquisition of core deposits
and wholesale borrowing arrangements are sufficient to support liquidity needs
in 2004.

Short term borrowings

The Company actively uses Federal Home Loan Bank (FHLB) advances as a
source of wholesale funding to provide liquidity. At December 31, 2003, all of
the Companys FHLB advances were fixed rate, fixed term borrowings without call
or put option features. At December 2003, the Company had $30 million in FHLB
advances outstanding compared to $18 million at December 31, 2002.

|                                                                                                                                                                |  |   |            |  |      |   |            |  |  |   |           |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---------- |  | ---- | - | ---------- |  |  | - | --------- |  | 
|                                                                                                                                                                |  |   | 2003       |  | 2002 |   | 2001      
|                                                                                                                                                                |  |   |            |  |      |   |           
|Securities sold under agreements to repurchase with weighted
average interest rates of 0.20%, 0.41% and 2.46% at December 31,
2003, 2002
and 2001, respectively |  | $ | 3,748,797  |  |      | $ | 3,704,385  |  |  | $ | 6,780,232 | 
|Federal Home Loan Bank borrowings with weighted average interest
rates of 1.16% and 1.78% at December 31, 2003 and 2002,
respectively                           |  |   | 30,000,000 |  |      |   | 18,000,000 |  |  |   | 0         | 
|                                                                                                                                                                |  |   |            |  |      |   |            |  |  |   |           | 
|Total short term borrowings                                                                                                                                     |  | $ | 33,748,797 |  |      | $ | 21,704,385 |  |  | $ | 6,780,232 | 
|                                                                                                                                                                |  |   |            |  |      |   |            |  |  |   |           | 

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|                                                |                                            |  |      |            |      |  |      |            |   |  |   |            |  
|----------------------------------------------- | ------------------------------------------ |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                |                                            |  | 2003 |            | 2002 |  | 2001
|                                                |                                            |  |      |            |      |  |     
|Securities sold under agreements to repurchase: |                                            |  |      |            |      |  |      |            |   |  |   |           
|                                                | Maximum outstanding at any month end       |  | $    | 5,497,582  |      |  | $    | 11,867,244 |   |  | $ | 11,271,777 |  
|                                                | Average balance during the year            |  |      | 3,899,800  |      |  |      | 6,295,292  |   |  |   | 6,461,000  |  
|                                                | Weighted average interest rate during year |  |      | 2.45       | %    |  |      | 2.59       | % |  |   | 2.99       | %
|Federal Home Loan Bank borrowings:              |                                            |  |      |            |      |  |      |            |   |  |   |           
|                                                | Maximum outstanding at any month end       |  | $    | 30,000,000 |      |  | $    | 28,000,000 |   |  | $ | 0          |  
|                                                | Average Balance during the year            |  |      | 14,820,597 |      |  |      | 11,500,000 |   |  |   | 0          |  
|                                                | Weighted average interest rate during year |  |      | 1.49       | %    |  |      | 1.78       | % |  |   | 0          |  




Credit Risk Management

Credit risk arises from the inability of a customer to meet its repayment
obligations. Credit risk exists in our outstanding loans, letters of credit and
unfunded loan commitments. We manage credit risk based on the risk profile of
the borrower, repayment sources and the nature of underlying collateral given
current events and conditions.

Commercial portfolio credit risk management

Commercial credit risk management begins with an assessment of the credit
risk profile of the individual borrower based on an analysis of the borrowers
financial position in light of current industry, economic or geopolitical
trends. As part of the overall credit risk assessment of a borrower, each
commercial credit is assigned a risk grade and is subject to approval based on
existing credit approval standards. Risk grading is a factor in determining the
allowance for loan losses. Credit decisions are determined by Credit
Administration to certain limitations and approvals from the Loan Committee
above certain limitations. Credit risk is continuously monitored by Credit
Administration for possible adjustment if there has been a change in the
borrowers ability to perform under its obligations. Additionally, we manage the
size of our credit exposure through loan sales and loan participation
agreements.

The primary sources of repayment of the commercial loans of the Company
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 Companys service area. The Company 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 Company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 Company.

Real estate portfolio credit risk management

The principal source of repayment of the real estate construction loans of
the Company is the sale of the underlying collateral or the availability of
permanent financing from the Company or other 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.

The Company 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 disbursements and
matching maturities with expected completion dates. Generally, the Company
requires a loan-to-value ratio of not more than 80% on single family
residential construction loans.

The specific underwriting standards of the Company 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 Company 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.

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Concentrations of credit risk

Portfolio credit risk is evaluated with the goal that concentrations of
credit exposure do not result in unacceptable levels of risk. Concentrations of
credit exposure can be measured in various ways including industry, product,
geography and customer relationship. We review non-real estate commercial loans
by industry and real estate loans by geographic location and property type.

Nonperforming assets

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.

Allowance for loan losses (ALL)

The allowance for loan losses represents managements best estimate of
probable losses in the portfolio. Within the allowance, reserves are allocated
to segments of the portfolio based on specific formula components.

We perform periodic and systematic detailed evaluations of our lending
portfolio to identify and estimate the inherent risks and assess the overall
collectibility. These evaluations include general conditions such as the
portfolio composition, size and maturities of various segmented portions of the
portfolio such as secured, unsecured, construction, and Small Business
Administration (SBA). Additional factors include concentrations of borrowers,
industries, geographical sectors, loan product, loan classes and collateral
types, volume and trends of loan delinquencies and non-accrual; criticized and
classified assets and trends in the aggregate in significant credits identified
as watch list items.

The Companys allowance for loan losses is the accumulation of various
components that are calculated based upon independent methodologies. All
components of the allowance for loan losses represent an estimation performed
pursuant to either Statement of Financial Accounting Standards (SFAS)
Statement No. 5, Accounting for Contingenciesor SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. Managements estimate of each SFAS No. 5
component is based on certain observable data that management believes is the
most reflective of the underlying credit losses being estimated. Changes in the
amount of each component of the allowance for loan losses are directionally
consistent with changes in the observable data, taking into account the
interaction of the SFAS No. 5 components over time.

An essential element of the methodology for determining the allowance for
loan losses is the Companys credit risk evaluation process, which includes
credit risk grading individual commercial, construction, commercial real estate
and most consumer loans. Loans are assigned credit risk grades based on the
Companys assessment of conditions that affect the borrowers ability to meet
its contractual obligations under the loan agreement. That process includes
reviewing borrowers current financial information, historical payment
experience, credit documentation, public information, and other information
specific to each individual borrower. Loans are reviewed on an annual or
rotational basis or as management becomes aware of information affecting the
borrowers ability to fulfill its obligations. Credit risk grades carry a
dollar weighted risk percentage.

For individually impaired loans, SFAS No. 114, provides guidance on the
acceptable methods to measure impairment. Specifically, SFAS No. 114 states
that when a loan is impaired, we measure impairment based on the present value
of expected future principal and interest cash flows discounted at the loans
effective interest rate, except that as a practical expedient, a creditor may
measure impairment based on a loans observable market price or the fair value
of collateral, if the loan is collateral dependent. When developing the
estimate of future cash flows for a loan, we consider all available information
reflecting past events and current conditions, including the effect of existing
environmental factors. In addition to the ALL, an allowance for unfunded loan
commitments and letters of credit is determined using estimates of the
probability of funding. This reserve is carried as a liability on the
consolidated balance sheet.

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##### Table of Contents



We make provisions to the ALL on a regular basis through charges to
operations that are reflected in our 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.

Various regulatory agencies, as an integral part of their examination
process, periodically review the Companys ALL. Such agencies may require the
Company to provide additions to the allowance based on their judgement of
information available to them at the time of their examination. 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.

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

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

|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |      |  
|---------------------------------------- | ---------------------- | ------------------------ | ----- | ---- | ---- | - | ----- | --- | ---- | - | ----- | ---- | - | - | ----- | ---- | - | - | ----- | ---- | -
|(Dollars in thousands)                   |                        | Years Ended December 31,
|                                         |                        |                         
|                                         |                        |                          | 2003  |      | 2002 |   | 2001  |     | 2000 |   | 1999 
|                                         |                        |                          |       |      |      |   |       |     |      |   |      
|Beginning Balance:                       |                        | $                        | 3,529 |      |      | $ | 2,916 |     |      | $ | 2,710 |      |   | $ | 2,708 |      |   | $ | 2,971 |     
|Provision for loan losses                |                        |                          | 515   |      |      |   | 620   |     |      |   | 255   |      |   |   | 142   |      |   |   | 120   |     
|Charge-offs:                             |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|                                         | Commercial & Financial |                          |       | (379 | )    |   |       | (8  | )    |   |       | (191 | ) |   |       | (200 | ) |   |       | (355 | )
|                                         | Real Estate            |                          |       | (0   | )    |   |       | (18 | )    |   |       | (345 | ) |   |       | (3   | ) |   |       | (103 | )
|                                         | Other                  |                          |       | (1   | )    |   |       | (0  | )    |   |       | (0   | ) |   |       | (1   | ) |   |       | (2   | )
|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|Total Charge-offs                        |                        |                          | (380  | )    |      |   | (26   | )   |      |   | (536  | )    |   |   | (204  | )    |   |   | (460  | )   
|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|Recoveries:                              |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|                                         | Commercial & Financial |                          |       | 11   |      |   |       | 19  |      |   |       | 35   |   |   |       | 62   |   |   |       | 37   |  
|                                         | Real Estate            |                          |       | 0    |      |   |       | 0   |      |   |       | 452  |   |   |       | 2    |   |   |       | 40   |  
|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|Total Recoveries                         |                        |                          | 11    |      |      |   | 19    |     |      |   | 487   |      |   |   | 64    |      |   |   | 77    |     
|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|Net Charge-offs                          |                        |                          | (369  | )    |      |   | (7    | )   |      |   | (49   | )    |   |   | (176  | )    |   |   | (383  | )   
|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|Ending Balance                           |                        | $                        | 3,675 |      |      | $ | 3,529 |     |      | $ | 2,916 |      |   | $ | 2,710 |      |   | $ | 2,708 |     
|                                         |                        |                          |       |      |      |   |       |     |      |   |       |      |   |   |       |      |   |   |       |     
|Allowance for loan losses to
total loans |                        |                          | 1.30  | %    |      |   | 1.26  | %   |      |   | 1.35  | %    |   |   | 1.42  | %    |   |   | 1.60  | %   
|Net Charge-offs to average loans         |                        |                          | .13   | %    |      |   | .01   | %   |      |   | .02   | %    |   |   | .08   | %    |   |   | .24   | %   

The provision for loan losses decreased to $515,000 for 2003 versus
$620,000 in 2002. Net charge-offs were $368,884 or 0.13% of total loans during
2003. 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.




Market Risk Management

Market risk is the potential loss due to adverse changes in market prices
and yields. Market risk is inherent in the Companys operating positions and
activities including customers loans, deposit accounts, securities and
long-term debt. Loans and deposits generate income and expense, respectively,
and the value of cash flows change based on general economic levels, most
importantly, the level of interest rates.

The goal for managing the assets and liabilities of the Company is to
maximize stockholder value and earnings while maintaining a high quality
balance sheet without exposing the Company to undue interest rate risk. The
absolute level and volatility of interest rates can have a significant impact
on the Company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 operate 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.

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Net interest income risk is measured based on rate shocks over different
time horizons versus a current stable interest rate environment. Assumptions
used in these calculations are similar to those used in the planning and
budgeting model.. The overall interest rate risk position and strategies are
reviewed on an ongoing basis with ALCO.

Securities Portfolio

The securities portfolio is central to our asset liability management
strategies. The decision to purchase or sell securities is based upon the
current assessment of economic and financial conditions, including the interest
rate environment, liquidity and regulatory requirements. The Company classifies
its securities as available-for-sale or held-to-maturity 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(loss), in
a separate component of stockholders equity. Gain or loss on sale of
securities is based on the specific identification method. Securities
held-to-maturityat December 31, 2003, 2002 and 2001 consisted of
mortgage-backed securities with an amortized cost of $1.4, $2.4 and $4.1
million, respectively. At December 31, 2003, $661,000 matures in one through
five years with a weighted-average yield of 4.04%, the remaining balances
having contractual maturity of over ten years and a weighted-average yield of
7.79%.




Operational Risk Management

Operational risk is the potential for loss resulting from events involving
people, processes, technology, legal or regulatory issues, external events, and
reputation. In keeping with the corporate governance structure, the senior
management team is responsible for operational risk controls. Operational risks
are managed through specific policies and procedures, controls and monitoring
tools. Examples of these include reconciliation processes, transaction
monitoring and analysis and system audits. Operational risks fall into two
major categories, business specific and company wide. The senior management
team works to ensure consistency in policies, processes and assessments. With
respect to company wide risks, the senior management team works directly with
Directors to develop policies and procedures for information security, business
resumption plans, compliance and legal.




Critical Accounting Policies




General

The Companys significant accounting principles are described in Note 2 of
the consolidated financial statements and are essential to understanding
Managements Discussion and Analysis of Results of Operations and Financial
Condition. Redding Bancorps consolidated 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.
Some of the Companys accounting principles require significant judgement to
estimate values of assets or liabilities. In addition, certain accounting
principles require significant judgment in applying the complex accounting
principles to transactions to determine the most appropriate treatment. The
following is a summary of the more judgmental and complex accounting estimates
and principles.




Allowance for Loan Losses (ALL)

The allowance for loan losses is managements best estimate of the
probable losses that may be sustained in our loan portfolio. The allowance is
based on two basic principles of accounting. (1) SFAS No.5 which requires that
losses be accrued when they are probable of occurring and estimable and (2)
SFAS No. 114, 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. The Company
performs periodic and systematic detailed evaluations of its lending portfolio
to identify and estimate the inherent risks and assess the overall
collectibility. These evaluations include general conditions such as the
portfolio composition, size and maturities of various segmented portions of the
portfolio such as secured, unsecured, construction, and Small Business
Administration (SBA).

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Additional factors include concentrations of borrowers, industries,
geographical sectors, loan product, loan classes and collateral types; volume
and trends of loan delinquencies and non-accrual; criticized and classified
assets and trends in the aggregate in significant credits identified as watch
list items. There are several components to the determination of the adequacy
of the ALL. Each of these components is determined based upon estimates that
can and do change when the actual events occur. The Company estimates the SFAS
No. 5 portion of the ALL based on the segmentation of its portfolio. For those
segments that require an ALL, the Company estimates loan losses on a monthly
basis based upon its ongoing loan review process and analysis of loan
performance. The Company follows a systematic and consistently applied approach
to select the most appropriate loss measurement methods and support its
conclusions and rationale with written documentation. One method of estimating
loan losses for groups of loans is through the application of loss rates to the
groups aggregate loan balances. Such rates typically reflect historical loss
experience for each group of loans, adjusted for relevant economic factors over
a defined period of time. The Company evaluates and modifies its loss
estimation model as needed to ensure that the resulting loss estimate is
consistent with GAAP.

For individually impaired loans, SFAS No. 114 provides guidance on the
acceptable methods to measure impairment. Specifically, SFAS No. 114 states
that when a loan is impaired, the Company should measure impairment based on
the present value of expected future principal and interest cash flows
discounted at the loans effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loans observable
market price or the fair value of collateral, if the loan is collateral
dependent. When developing the estimate of future cash flows for a loan, the
Company considers all available information reflecting past events and current
conditions, including the effect of existing environmental factors.




Stock-Based Compensation

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
(APB) No. 25 Accounting for Stock Issued to Employeesand 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 22.75% , a
risk-fee interest rate of 3.27% (based upon the five year treasury coupon rate
at December 31, 2003), expected dividends of $0.65 per share per year, an
annual dividend rate of 3.55%, an assumed forfeiture rate of zero and an
expected life of seven years.




Revenue recognition

The Companys primary source of revenue is 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, mortgage brokerage fee
income and merchant credit card processing services. Interest income is
recorded on an accrual basis. Note 2 to the Consolidated Financial Statements
offers an explanation of the process for determining when the accrual of
interest income is discontinued on an impaired loan.




Fixed Assets

Other estimates that the Company uses in its accounting include the
expected useful lives of depreciable assets, such as buildings, building
improvements, equipment, and furniture. The useful lives of various
technological related hardware and software could be subject to change due to
advances in technology and the general adoption of new standards for technology
or interfaces among computer or telecommunication systems.




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. If future
income should prove non-existent or less than the amount of deferred tax assets
within the tax years to which they may be applied, the asset may not be
realized and our net income will be reduced.

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##### Table of Contents






Financial Highlights - Results of Operations

The following discussion and analysis provides a comparison of the results
of operations for 2003 and 2002. This discussion should be read in conjunction
with the consolidated financial statements and related notes.




|                                               |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|---------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | - |  |  | ----- | -
|Key Financial Ratios                           |  | 2003 |       | 2002 |  | 2001 |       | 2000 |  | 1999
|                                               |  |      |       |      |  |      |       |      |  |     
|Profitability                                  |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Return on average assets                       |  |      | 1.10  | %    |  |      | 1.09  | %    |  |      | 1.49  | % |  |  | 1.98  | % |  |  | 1.91  | %
|Return on average equity                       |  |      | 15.20 | %    |  |      | 13.92 | %    |  |      | 15.43 | % |  |  | 17.95 | % |  |  | 17.60 | %
|Average earning assets to total average assets |  |      | 91.26 | %    |  |      | 90.90 | %    |  |      | 92.15 | % |  |  | 91.30 | % |  |  | 92.10 | %
|Interest Margin                                |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Net interest margin                            |  |      | 4.22  | %    |  |      | 4.06  | %    |  |      | 4.24  | % |  |  | 5.16  | % |  |  | 5.15  | %
|Asset Quality                                  |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Allowance for loan losses to total loans       |  |      | 1.30  | %    |  |      | 1.26  | %    |  |      | 1.35  | % |  |  | 1.42  | % |  |  | 1.60  | %
|Nonperforming assets to total assets           |  |      | 1.16  | %    |  |      | 0.10  | %    |  |      | 0.11  | % |  |  | 0.31  | % |  |  | 0.19  | %
|Net charge-offs to average loans               |  |      | 0.13  | %    |  |      | 0.01  | %    |  |      | 0.02  | % |  |  | 0.09  | % |  |  | 0.22  | %
|Liquidity                                      |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Loans to deposits                              |  |      | 84.94 | %    |  |      | 89.16 | %    |  |      | 77.09 | % |  |  | 87.87 | % |  |  | 85.78 | %
|Liquidity ratio                                |  |      | 25.49 | %    |  |      | 18.32 | %    |  |      | 25.69 | % |  |  | 18.27 | % |  |  | 19.20 | %
|Capital                                        |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Tier 1 risk-based capital - Bank               |  |      | 10.77 | %    |  |      | 9.14  | %    |  |      | 10.93 | % |  |  | 12.86 | % |  |  | 13.59 | %
|Total risk-based capital - Bank                |  |      | 12.02 | %    |  |      | 10.19 | %    |  |      | 12.18 | % |  |  | 14.11 | % |  |  | 14.85 | %
|Efficiency                                     |  |      |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Efficiency ratio                               |  |      | 59.15 | %    |  |      | 56.59 | %    |  |      | 50.97 | % |  |  | 45.28 | % |  |  | 47.22 | %

The above table represents key financial performance ratios that the
Senior Management Team of the Company monitor on a monthly basis in comparison
with Uniform Bank Performance Report peer data. Uniform Bank Performance
Reports are available on all Federal Deposit Insurance Corporation insured
financial institutions and are used to measure quality performance to peer
groupings and may be obtained online at www.fdic.gov. Executive Management
monitors the high-performing sector of the peer group and uses this data to
examine strategies of other high-performing financial institutions and to
establish the financial performance goals of the Company on an annual basis.
These goals are then communicated through budgets, strategies, planning and
projections to the Senior Leadership Team for implementation. Results are
monitored both to plan and to peer at the Board of Directors level on a monthly
basis.




Sources of Income

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, mortgage brokerage fee income and merchant credit card processing
services. The income of the Company depends to a great extent on net interest
income. These interest rate factors 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 Federal Reserve Board. Because of the Companys
predisposition to variable rate pricing and non-interest bearing demand deposit
accounts, the Company is considered asset sensitive. Consequently, the Company
is adversely affected by declining interest rates.




Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

The Company reported net income of $4.2 million for the year ended
December 31, 2003, representing an increase of approximately $486,000 or
13.1%, over net income of $3.7 million for the year ended December 31, 2002.
The primary factors contributing to the increase in net income includes an
increase of $2.2 million or 17.4% improvement in the net interest margin, a
gain of 55.3% or $89,000 in mortgage service fee income and a gain of 20.4% or
$59,000 in service charges over the prior period results.

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Increases in the net interest margin are primarily attributed to increases
in the volume of earning assets coupled with reductions in the cost of funds.
Increases in mortgage service fee income are a result of increased volumes and
increases in service charges are related to the core deposit growth of the
Company.

The Companys provision for loan losses decreased to $515,000 in 2003 from
$620,000 in 2002. An increased volume of adversely classified loans, including
impaired loans, attributed to the current level of provisions while growth in
the portfolio was the principal factor for prior period provisions.

Return on average assets (ROA) was 1.10% and return on average common
equity (ROE) was 15.20% in 2003 compared with 1.09% and 13.92% respectively in
2002, directly related to the increase in net income. Diluted earnings per
share for 2003 and 2002 were $1.51 and $1.29, respectively, an increase of
17.1% in 2003 over 2002. The Companys average total assets increased to $381.6
million in 2003 or 12.5% from $339.2 million in 2002. As a result of the
continuing expansion of the Companys Roseville Bank of Commerce, deposits grew
by $13.1 million or 4.2% primarily in the business demand sector, further
enhancing the cost of funds. Liquidity provided by deposit growth was invested
in available-for-sale securities while the loan portfolio decreased $2.0
million to $282.0 million over $284.0 million at December 2002.

Average volume processed through the loan portfolio grew by $31.4 million
or 12.4% over the prior year. Yields on portfolio loans dropped 43 basis points
over the prior year due to the lingering effects of the dramatic rate
reductions in 2002 and the timing of repricing opportunities, while federal
funds sold dropped 54 basis points over the prior year. Interest-bearing
liabilities recognized a drop of 70 basis points, resulting in a net interest
margin (spread) of 4.22% compared with 4.06% in 2002 and 4.24% in 2001.




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.




Net Interest Income and Net Interest Margin

The primary source of income for the Company 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 $14.7 million in 2003 versus $12.5
million in 2002 and $11.2 million in 2001, representing a 17.4% increase in
2003 over 2002, and an 11.9% increase in 2002 over 2001. The average balance of
total earning assets increased to $348.4 million or 13.0% over 2002.

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Average loan balances outstanding increased $31.4 million or 12.4% in
2003 compared with 2002, while average balances of securities and federal funds
sold increased $8.4 million or 15.8% in 2003. The average yields on loans
decreased by 43 basis points and securities income decreased by 63 basis
points. The resulting yield on interest earning assets decreased to 5.53% in
2003 from 6.02% 2002.

Total interest expense decreased to $4.6 million in 2003, from $6.0
million in 2002 and $9.0 million in 2001, representing a 23.3% decrease for
2003 over 2002, and a 33.3% increase in 2002 over 2001. Average balances of
interest-bearing liabilities increased to $282.0 million over $259.1 million
for the year ended December 31, 2003, or 8.9%. Yields on deposits decreased 70
basis points, to 1.63% from 2.33% in 2002. The reduction in funding costs
reflects the Companys strategy to grow core deposits and use Federal Home Loan
borrowings to support growth while holding higher cost certificate of deposit
accounts to a minimum. Demand checking accounts increased 24.5%,
Interest-bearing demand instruments increased 17.8%, Savings deposits increased
15.3% 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 securities, 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 4.22% in 2003 and 4.06% in 2002. The
combined effect of increasing the volume of earning assets and repricing
deposit liabilities resulted in an increase of $2.2 million or 17.4% in net
interest income for the year ended December 31, 2003 over 2002.

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,

|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|-------------------------------------------- |  | ------- | ------- | -------- |  | ---- | ------ | ------- |  | -------- | ---- | ---- |  | ------- | ------- | -------- |  | ------- | ------ |  |  |  | ----- | ------ |  | - | ------- |  |  | - | ------ |  |  |  | ----- | -
|                                             |  | 2003    |         | 2002     |  | 2001
|                                             |  |         |         |          |  |     
|                                             |  | Average |         |          |  |      |        | Yield/  |  | Average  |      |      |  |         |         | Yield/   |  | Average |        |  |  |  |       | Yield/
|(Dollars in thousands)                       |  | Balance |         | Interest |  | Rate |        | Balance |  | Interest |      | Rate |  | Balance |         | Interest |  | Rate   
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |        
|Interest Earning Assets                      |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Portfolio loans                              |  | $       | 284,841 |          |  | $    | 17,655 |         |  |          | 6.20 | %    |  | $       | 253,454 |          |  | $       | 16,812 |  |  |  | 6.63  | %      |  | $ | 204,861 |  |  | $ | 17,459 |  |  |  | 8.52  | %
|Tax-exempt securities                        |  |         | 3,832   |          |  |      | 140    |         |  |          | 3.65 | %    |  |         | 3,276   |          |  |         | 138    |  |  |  | 4.21  | %      |  |   | 4,428   |  |  |   | 200    |  |  |  | 4.52  | %
|US government securities                     |  |         | 21,650  |          |  |      | 567    |         |  |          | 2.62 | %    |  |         | 21,184  |          |  |         | 730    |  |  |  | 3.45  | %      |  |   | 23,223  |  |  |   | 1,212  |  |  |  | 5.22  | %
|Mortgage backed securities                   |  |         | 20,139  |          |  |      | 724    |         |  |          | 3.60 | %    |  |         | 15,755  |          |  |         | 570    |  |  |  | 3.62  | %      |  |   | 7,737   |  |  |   | 433    |  |  |  | 5.60  | %
|Federal funds sold                           |  |         | 17,833  |          |  |      | 193    |         |  |          | 1.08 | %    |  |         | 13,978  |          |  |         | 227    |  |  |  | 1.62  | %      |  |   | 23,170  |  |  |   | 833    |  |  |  | 3.60  | %
|Other securities                             |  |         | 0       |          |  |      | 0      |         |  |          | 0.00 | %    |  |         | 661     |          |  |         | 88     |  |  |  | 13.31 | %      |  |   | 683     |  |  |   | 79     |  |  |  | 11.57 | %
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Average Earning Assets                       |  | $       | 348,295 |          |  | $    | 19,279 |         |  |          | 5.53 | %    |  | $       | 308,308 |          |  | $       | 18,565 |  |  |  | 6.02  | %      |  | $ | 264,102 |  |  | $ | 20,216 |  |  |  | 7.65  | %
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Cash & due from banks                        |  |         | 21,817  |          |  |      |        |         |  |          |      |      |  |         | 19,566  |          |  |         |        |  |  |  |       |        |  |   | 12,346  |  |  |   |        |  |  |  |       |  
|Bank premises and fixed assets               |  |         | 5,538   |          |  |      |        |         |  |          |      |      |  |         | 5,395   |          |  |         |        |  |  |  |       |        |  |   | 5,276   |  |  |   |        |  |  |  |       |  
|Other assets                                 |  |         | 5,998   |          |  |      |        |         |  |          |      |      |  |         | 5,903   |          |  |         |        |  |  |  |       |        |  |   | 4,887   |  |  |   |        |  |  |  |       |  
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Average Total Assets                         |  | $       | 381,648 |          |  |      |        |         |  |          |      |      |  | $       | 339,172 |          |  |         |        |  |  |  |       |        |  | $ | 286,611 |  |  |   |        |  |  |  |       |  
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Interest Bearing Liabilities                 |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Interest bearing demand                      |  | $       | 94,677  |          |  | $    | 464    |         |  |          | 0.49 | %    |  | $       | 80,371  |          |  | $       | 597    |  |  |  | 0.74  | %      |  | $ | 57,288  |  |  | $ | 909    |  |  |  | 1.59  | %
|Savings deposits                             |  |         | 22,483  |          |  |      | 133    |         |  |          | 0.59 | %    |  |         | 19,493  |          |  |         | 145    |  |  |  | 0.74  | %      |  |   | 14,925  |  |  |   | 340    |  |  |  | 2.28  | %
|Certificates of deposit                      |  |         | 146,152 |          |  |      | 3,571  |         |  |          | 2.44 | %    |  |         | 145,824 |          |  |         | 5,115  |  |  |  | 3.51  | %      |  |   | 142,651 |  |  |   | 7,584  |  |  |  | 5.32  | %
|Other borrowings                             |  |         | 18,720  |          |  |      | 417    |         |  |          | 2.23 | %    |  |         | 13,383  |          |  |         | 191    |  |  |  | 1.43  | %      |  |   | 6,461   |  |  |   | 193    |  |  |  | 2.99  | %
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|                                             |  |         | 282,032 |          |  |      | 4,585  |         |  |          | 1.63 | %    |  |         | 259,071 |          |  |         | 6,048  |  |  |  | 2.33  | %      |  |   | 221,325 |  |  |   | 9,026  |  |  |  | 4.08  | %
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Noninterest bearing Demand                   |  |         | 62,957  |          |  |      |        |         |  |          |      |      |  |         | 50,583  |          |  |         |        |  |  |  |       |        |  |   | 34,259  |  |  |   |        |  |  |  |       |  
|Other liabilities                            |  |         | 4,145   |          |  |      |        |         |  |          |      |      |  |         | 2,974   |          |  |         |        |  |  |  |       |        |  |   | 3,321   |  |  |   |        |  |  |  |       |  
|Stockholders equity                         |  |         | 32,514  |          |  |      |        |         |  |          |      |      |  |         | 26,544  |          |  |         |        |  |  |  |       |        |  |   | 27,706  |  |  |   |        |  |  |  |       |  
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Average Liabilities and
Stockholders equity |  | $       | 381,648 |          |  |      |        |         |  |          |      |      |  | $       | 339,172 |          |  |         |        |  |  |  |       |        |  | $ | 286,611 |  |  |   |        |  |  |  |       |  
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  
|Net Interest Income and Net
Interest Margin  |  |         |         |          |  | $    | 14,694 |         |  |          | 4.22 | %    |  |         |         |          |  | $       | 12,517 |  |  |  | 4.06  | %      |  |   |         |  |  | $ | 11,190 |  |  |  | 4.24  | %
|                                             |  |         |         |          |  |      |        |         |  |          |      |      |  |         |         |          |  |         |        |  |  |  |       |        |  |   |         |  |  |   |        |  |  |  |       |  

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Interest income on loans includes fee income of approximately $586,000,
$272,000 and $285,000 for the years ended December 31, 2003, 2002, and 2001
respectively. The Companys average total assets increased to $381.6 million in
2003 to $339.2 in 2002 and $286.6 in 2001, representing a 12.5% increase 2003
over 2002, and 18.3% increase in 2002 over 2001.

The following tables set forth changes in interest income and expense for
each major category of interest 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,

|                           |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|-------------------------- |  | -------------- | ----- | -------------- |  | ----- | ------ | ------ |  | ------- | ------ | ------- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                           |  | 2003 over 2002 |       | 2002 over 2001
|                           |  |                |       |               
|                           |  | Average        |       | Average        |  |       |        |        |  | Average |        | Average |  |   |       |  
|(Dollars in thousands)     |  | Volume         |       | Rate           |  | Total |        | Volume |  | Rate    |        | Total  
|                           |  |                |       |                |  |       |        |        |  |         |        |        
|Increase (Decrease)        |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|In Interest Income:        |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|Portfolio loans            |  | $              | 1,945 |                |  | $     | (1,102 | )      |  | $       | 843    |         |  | $ | 2,256 |   |  | $ | (2,903 | ) |  | $ | (647   | )
|Tax-exempt securities      |  |                | 20    |                |  |       | (18    | )      |  |         | 2      |         |  |   | (52   | ) |  |   | (10    | ) |  |   | (62    | )
|US government securities   |  |                | (12   | )              |  |       | (151   | )      |  |         | (163   | )       |  |   | (173  | ) |  |   | (309   | ) |  |   | (482   | )
|Mortgage backed securities |  |                | 184   |                |  |       | (30    | )      |  |         | 154    |         |  |   | 244   |   |  |   | (115   | ) |  |   | 137    |  
|Federal funds sold         |  |                | 42    |                |  |       | (76    | )      |  |         | (34    | )       |  |   | (263  | ) |  |   | (343   | ) |  |   | (606   | )
|Other securities           |  |                | 0     |                |  |       | (88    | )      |  |         | (88    | )       |  |   | 0     |   |  |   | 9      |   |  |   | 9      |  
|                           |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|Total Increase (Decrease)  |  |                | 2,179 |                |  |       | (1,465 | )      |  |         | 714    |         |  |   | 2,012 |   |  |   | (3,671 | ) |  |   | (1,651 | )
|                           |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|(Decrease) Increase        |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|In Interest Expense:       |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|Interest bearing demand    |  |                | 70    |                |  |       | (203   | )      |  |         | (133   | )       |  |   | 51    |   |  |   | (363   | ) |  |   | (312   | )
|Savings accounts           |  |                | 18    |                |  |       | (30    | )      |  |         | (12    | )       |  |   | (23   | ) |  |   | (172   | ) |  |   | (195   | )
|Certificates of deposit    |  |                | 8     |                |  |       | (1,552 | )      |  |         | (1,544 | )       |  |   | (534  | ) |  |   | (1,935 | ) |  |   | (2,469 | )
|Other borrowings           |  |                | 119   |                |  |       | 107    |        |  |         | 226    |         |  |   | 73    |   |  |   | (75    | ) |  |   | (2     | )
|                           |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|Total (Decrease) Increase  |  |                | 215   |                |  |       | (1,678 | )      |  |         | (1,463 | )       |  |   | (433  | ) |  |   | (2,545 | ) |  |   | (2,978 | )
|                           |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  
|Net (Decrease) Increase    |  | $              | 1,964 |                |  | $     | 213    |        |  | $       | 2,177  |         |  | $ | 2,445 |   |  | $ | (1,118 | ) |  | $ | 1,327  |  
|                           |  |                |       |                |  |       |        |        |  |         |        |         |  |   |       |   |  |   |        |   |  |   |        |  

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Noninterest Income

The following table sets forth a summary of noninterest income for the
periods indicated.

|                                                           |  |                          |       |      |  |      |       |  |  |   |       | 
|---------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                           |  | Years Ended December 31,
|                                                           |  |                         
|(Dollars in thousands)                                     |  | 2003                     |       | 2002 |  | 2001
|                                                           |  |                          |       |      |  |     
|Noninterest income:                                        |  |                          |       |      |  |      |       |  |  |   |       | 
|Service charges on deposit accounts                        |  | $                        | 348   |      |  | $    | 289   |  |  | $ | 222   | 
|Payroll and benefit processing fees                        |  |                          | 331   |      |  |      | 302   |  |  |   | 238   | 
|Earnings on cash surrender-Bank owned life insurance       |  |                          | 233   |      |  |      | 247   |  |  |   | 213   | 
|Net realized gain on sale of
securities available-for-sale |  |                          | 88    |      |  |      | 275   |  |  |   | 557   | 
|Net gain on sale of loans                                  |  |                          | 101   |      |  |      | 60    |  |  |   | 118   | 
|Merchant credit card service income, net                   |  |                          | 408   |      |  |      | 425   |  |  |   | 940   | 
|Mortgage brokerage fee income                              |  |                          | 251   |      |  |      | 161   |  |  |   | 67    | 
|Other income                                               |  |                          | 390   |      |  |      | 332   |  |  |   | 468   | 
|                                                           |  |                          |       |      |  |      |       |  |  |   |       | 
|Total Noninterest income                                   |  | $                        | 2,150 |      |  | $    | 2,091 |  |  | $ | 2,823 | 
|                                                           |  |                          |       |      |  |      |       |  |  |   |       | 

The Companys noninterest income consists of payroll and benefit
processing fees, processing fees for merchants who accept credit card payments
for goods and services, service charge on deposit accounts, mortgage servicing
fees and other service fees. For the year ended December 31, 2003, non-interest
income represented 10.0% of the Companys revenues (interest income plus
noninterest income) versus 10.1% in 2002 and 12.3% in 2001.

Service charges on deposit accounts increased $59,000 or 20.4% over 2002
reflective of the $13.1 million growth in core deposits over the prior period.
Total noninterest income in 2003 was $2.2 million compared to $2.1 million in
2002 an down from $2.8 million in 2001. The decrease of $733,000 or 25.9% in
2002 is related to the decrease in merchant credit card processing fees and
gains on sale of securities.




Noninterest Expense

The following table sets forth a summary of noninterest expense for the
periods indicated.

|                              |  |                          |       |      |  |      |       |  |  |   |       | 
|----------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                              |  | Years Ended December 31,
|                              |  |                         
|(Dollars in thousands)        |  | 2003                     |       | 2002 |  | 2001
|                              |  |                          |       |      |  |     
|Salaries & related benefits   |  | $                        | 5,451 |      |  | $    | 4,709 |  |  | $ | 3,948 | 
|Occupancy & equipment expense |  |                          | 1,471 |      |  |      | 1,463 |  |  |   | 1,117 | 
|FDIC insurance premium        |  |                          | 49    |      |  |      | 48    |  |  |   | 45    | 
|Data processing fees          |  |                          | 217   |      |  |      | 89    |  |  |   | 79    | 
|Professional service fees     |  |                          | 654   |      |  |      | 441   |  |  |   | 449   | 
|Deferred compensation expense |  |                          | 256   |      |  |      | 239   |  |  |   | 219   | 
|Stationery & supplies         |  |                          | 219   |      |  |      | 235   |  |  |   | 193   | 
|Postage                       |  |                          | 103   |      |  |      | 106   |  |  |   | 101   | 
|Directors expenses           |  |                          | 241   |      |  |      | 257   |  |  |   | 271   | 
|Other expenses                |  |                          | 999   |      |  |      | 680   |  |  |   | 721   | 
|                              |  |                          |       |      |  |      |       |  |  |   |       | 
|Total Noninterest expense     |  | $                        | 9,660 |      |  | $    | 8,267 |  |  | $ | 7,143 | 
|                              |  |                          |       |      |  |      |       |  |  |   |       | 

Noninterest 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 2003 over 2002 are primarily due to salaries and benefits and
occupancy expenses reflective of the growth in assets in both the Redding and
Sacramento markets. Noninterest expense for 2003 increased to $9.7 million
compared to $8.3 million for 2002 and $7.1 million in 2001, representing an
increase of $1,394,000 or 16.9% in 2003, and $1,124,000 or 15.7% in 2002.

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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 income before income 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 income taxes.

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) |  | 2003                     |       | 2002 |  | 2001
|                       |  |                          |       |      |  |     
|Income tax provision   |  | $                        | 2,487 |      |  | $    | 2,025 |   |  | $ | 2,342 |  
|Effective tax rate     |  |                          | 37.3  | %    |  |      | 35.4  | % |  |   | 35.4  | %




Asset Quality

The Company concentrates its lending activities primarily within El
Dorado, Placer, Sacramento and Shasta counties, California, and the location of
the Banks four full services branches, specifically identified as Upstate
California. 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 California and are expected to be repaid from cash
flows of the borrower or proceeds from the sale of collateral.

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

|                             |  |                    |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|---------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                             |  | As of December 31,
|                             |  |                   
|(Dollars in thousands)       |  | 2003               |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                             |  |                    |         |      |  |      |         |      |  |     
|Commercial & financial       |  | $                  | 104,509 |      |  | $    | 99,084  |      |  | $    | 76,913  |  |  | $ | 61,069  |  |  | $ | 53,383  | 
|Real Estate-construction     |  |                    | 66,741  |      |  |      | 40,662  |      |  |      | 45,331  |  |  |   | 37,531  |  |  |   | 37,859  | 
|Real Estate-commercial       |  |                    | 102,953 |      |  |      | 124,210 |      |  |      | 82,892  |  |  |   | 79,748  |  |  |   | 69,327  | 
|Real Estate- mortgage        |  |                    | 7,086   |      |  |      | 19,126  |      |  |      | 13,725  |  |  |   | 14,363  |  |  |   | 9,515   | 
|Installment                  |  |                    | 451     |      |  |      | 720     |      |  |      | 440     |  |  |   | 430     |  |  |   | 294     | 
|Other loans                  |  |                    | 632     |      |  |      | 662     |      |  |      | 709     |  |  |   | 1,396   |  |  |   | 2,811   | 
|Less:                        |  |                    |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Deferred loan fees and costs |  |                    | 494     |      |  |      | 584     |      |  |      | 134     |  |  |   | 241     |  |  |   | 372     | 
|Allowance for Loan losses    |  |                    | 3,675   |      |  |      | 3,529   |      |  |      | 2,916   |  |  |   | 2,710   |  |  |   | 2,708   | 
|                             |  |                    |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Net Loans                    |  | $                  | 278,203 |      |  | $    | 280,351 |      |  | $    | 216,960 |  |  | $ | 191,586 |  |  | $ | 170,109 | 
|                             |  |                    |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 

Net portfolio loans decreased $2.2 million or 0.80%, to $278.2 million at
December 31, 2003 over $280.4 million at December 31, 2002 primarily due to
refinance activity in the commercial real estate sector. During 2003,
commercial and financial loans increased $5.4 million or 5.5% while the real
estate related portfolio decreased $7.2 million or 3.9%. The portfolio mix
shifted towards commercial lending in comparison to 2002, with commercial and
financial loans of approximately 37.6%, real estate construction of 24.0% and
commercial real estate at 37.0%.

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.

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Nonperforming Assets

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

|                                             |  |                    |       |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |     | 
|-------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- |  |  | - | --- | 
|                                             |  | As of December 31,
|                                             |  |                   
|(Dollars in thousands)                       |  | 2003               |       | 2002 |  | 2001 |     | 2000 |  | 1999
|                                             |  |                    |       |      |  |      |     |      |  |     
|Nonaccrual loans                             |  | $                  | 3,931 |      |  | $    | 0   |      |  | $    | 59  |  |  | $ | 801 |  |  | $ | 394 | 
|90 days past due and
still accruing interest |  |                    | 712   |      |  |      | 7   |      |  |      | 290 |  |  |   | 0   |  |  |   | 0   | 
|                                             |  |                    |       |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |     | 
|Total nonperforming loans                    |  |                    | 4,643 |      |  |      | 7   |      |  |      | 349 |  |  |   | 801 |  |  |   | 394 | 
|Other real estate owned                      |  |                    | 0     |      |  |      | 338 |      |  |      | 0   |  |  |   | 0   |  |  |   | 40  | 
|                                             |  |                    |       |      |  |      |     |      |  |      |     |  |  |   |     |  |  |   |     | 
|Total nonperforming assets                   |  | $                  | 4,643 |      |  | $    | 345 |      |  | $    | 349 |  |  | $ | 801 |  |  | $ | 434 | 

Management believes that the Companys loan portfolio is sound and
performing well, however there are indications of deterioration during the
year. Impairment reviews were completed on loans with two borrowers that
indicated impairment existed. Management reviewed the credits and determined
that the impaired amounts were fully funded in the allowance for loan losses.
Although the loans are paid current, they were placed into nonaccrual status.
The Companys nonaccrual loans increased to $3.9 million during 2003 while OREO
decreased to $0 during 2003, resulting from a sale of other real estate owned.

The following table sets forth the maturity distribution of the Companys
commercial and real estate construction loans outstanding as of December 31,
2003, 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         |                | $               | 84,343  |                    |  | $                | 3,891     |       |  | $ | 16,275 |        |  | $ | 104,509 |       
|Real
Estate - construction     |                |                 | 60,986  |                    |  |                  | 2,817     |       |  |   | 2,939  |        |  |   | 66,742  |       
|Real
Estate - commercial       |                |                 | 35,115  |                    |  |                  | 3,249     |       |  |   | 64,589 |        |  |   | 102,953 |       
|                               |                |                 |         |                    |  |                  |           |       |  |   |        |        |  |   |         |       
|Total                          |                | $               | 180,444 |                    |  | $                | 9,957     |       |  | $ | 83,803 |        |  | $ | 274,204 |       
|                               |                |                 |         |                    |  |                  |           |       |  |   |        |        |  |   |         |       
|Loans due after one year
with: |                |                 |         |                    |  |                  |           |       |  |   |        |        |  |   |         |       
|                               | Fixed Rates    |                 |         |                    |  |                  | $         | 9,303 |  |   | $      | 83,803 |  |   | $       | 93,106 | 
|                               | Variable Rates |                 |         |                    |  |                  |           | 654   |  |   |        | 0      |  |   |         | 654    | 
|                               |                |                 |         |                    |  |                  |           |       |  |   |        |        |  |   |         |       
|Total                          |                |                 |         |                    |  | $                | 9,957     |       |  | $ | 83,803 |        |  | $ | 93,760  |       
|                               |                |                 |         |                    |  |                  |           |       |  |   |        |        |  |   |         |       




Available-for-sale securities

The following table summarizes the contractual maturities of the Companys
securities held as available-for-sale at their amortized cost basis and their
weighted-average yields at December 31, 2003. The yield on tax-exempt
securities has not been adjusted to a tax-equivalent yield basis.

|                                                |  |            |        |       |  |        |      |       |  |                   |        |                    |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  
|----------------------------------------------- |  | ---------- | ------ | ----- |  | ------ | ---- | ----- |  | ----------------- | ------ | ------------------ |  | ------ | ---- | ----- |  | ------ | ------ | ----- |  |  | ---- | - |  | - | ------ |  |  |  | ---- | - |  | - | ------ |  |  |  | ---- | -
|                                                |  |            |        |       |  |        |      |       |  | After One through |        | After Five through |  | Over   |      |       |  |        |        |       |  | 
|                                                |  | Within One |        | Five  |  | Ten    |      | Ten   |  |                   |        |                    |  |        |      |      
|                                                |  | Year       |        | Years |  | Years  |      | Years |  | Total            
|                                                |  |            |        |       |  |        |      |       |  |                  
|(Dollars in thousands)                          |  | Amount     |        | Yield |  | Amount |      | Yield |  | Amount            |        | Yield              |  | Amount |      | Yield |  | Amount |        | Yield
|                                                |  |            |        |       |  |        |      |       |  |                   |        |                    |  |        |      |       |  |        |        |      
|U.S. government & agencies                      |  | $          | 1,002  |       |  |        | 1.83 | %     |  | $                 | 12,769 |                    |  |        | 2.54 | %     |  | $      | 7,997  |       |  |  | 3.44 | % |  | $ | 0      |  |  |  | 0.00 | % |  | $ | 21,768 |  |  |  | 2.36 | %
|Obligations of state and
political subdivisions |  |            | 60     |       |  |        | 5.05 | %     |  |                   | 835    |                    |  |        | 2.71 | %     |  |        | 2,023  |       |  |  | 3.71 | % |  |   | 3,525  |  |  |  | 3.50 | % |  |   | 6,442  |  |  |  | 3.48 | %
|Mortgage backed securities                      |  |            | 0      |       |  |        | 0.00 | %     |  |                   | 0      |                    |  |        | 0.00 | %     |  |        | 9,655  |       |  |  | 3.98 | % |  |   | 22,626 |  |  |  | 4.02 | % |  |   | 32,281 |  |  |  | 3.97 | %
|Corporate and other bonds                       |  |            | 0      |       |  |        | 0.00 | %     |  |                   | 0      |                    |  |        | 0.00 | %     |  |        | 0      |       |  |  | 0.00 | % |  |   | 0      |  |  |  | 0.00 | % |  |   | 0      |  |  |  | 0.00 | %
|Bankers Acceptances                             |  |            | 9,993  |       |  |        | 1.00 | %     |  |                   | 0      |                    |  |        | 0.00 | %     |  |        | 0      |       |  |  | 0.00 | % |  |   | 0      |  |  |  | 0.00 | % |  |   | 9,993  |  |  |  | 1.00 | %
|                                                |  |            |        |       |  |        |      |       |  |                   |        |                    |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  
|Total                                           |  | $          | 11,055 |       |  |        | 2.01 | %     |  | $                 | 13,604 |                    |  |        | 2.55 | %     |  | $      | 19,675 |       |  |  | 3.73 | % |  | $ | 26,151 |  |  |  | 3.91 | % |  | $ | 70,484 |  |  |  | 3.51 | %
|                                                |  |            |        |       |  |        |      |       |  |                   |        |                    |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  

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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.

|                             |  |  |  |  |  |                          |         |      |  |        |      |      |  |      |         |  |  |        |      |      |  |  |  |  |  |   |         |  |  |  |      |  
|---------------------------- |  |  |  |  |  | ------------------------ | ------- | ---- |  | ------ | ---- | ---- |  | ---- | ------- |  |  | ------ | ---- | ---- |  |  |  |  |  | - | ------- |  |  |  | ---- | -
|                             |  |  |  |  |  | Years Ended December 31,
|                             |  |  |  |  |  | 2003                     |         | 2002 |  |        |      |      |  | 2001
|                             |  |  |  |  |  |                          |         |      |  |        |      |      |  |     
|(Dollars in thousands)       |  |  |  |  |  | Amount                   |         | Rate |  | Amount |      | Rate |  |      |         |  |  | Amount |      | Rate
|                             |  |  |  |  |  |                          |         |      |  |        |      |      |  |      |         |  |  |        |      |     
|NOW accounts                 |  |  |  |  |  | $                        | 52,508  |      |  |        | 0.31 | %    |  | $    | 43,261  |  |  |        | 0.45 | %    |  |  |  |  |  | $ | 32,684  |  |  |  | 1.59 | %
|Savings                      |  |  |  |  |  |                          | 22,483  |      |  |        | 0.59 | %    |  |      | 19,493  |  |  |        | 0.76 | %    |  |  |  |  |  |   | 14,925  |  |  |  | 2.28 | %
|Money market accounts        |  |  |  |  |  |                          | 42,169  |      |  |        | 0.74 | %    |  |      | 37,110  |  |  |        | 1.09 | %    |  |  |  |  |  |   | 24,604  |  |  |  | 2.45 | %
|Certificates of deposit      |  |  |  |  |  |                          | 146,152 |      |  |        | 2.41 | %    |  |      | 145,824 |  |  |        | 3.23 | %    |  |  |  |  |  |   | 142,651 |  |  |  | 5.32 | %
|Other borrowings             |  |  |  |  |  |                          | 18,720  |      |  |        | 1.22 | %    |  |      | 13,383  |  |  |        | 1.43 | %    |  |  |  |  |  |   | 6,461   |  |  |  | 2.99 | %
|                             |  |  |  |  |  |                          |         |      |  |        |      |      |  |      |         |  |  |        |      |      |  |  |  |  |  |   |         |  |  |  |      |  
|Interest bearing deposits    |  |  |  |  |  |                          | 282,032 |      |  |        |      |      |  |      | 259,071 |  |  |        |      |      |  |  |  |  |  |   | 221,325 |  |  |  |      |  
|Noninterest bearing deposits |  |  |  |  |  |                          | 62,957  |      |  |        |      |      |  |      | 50,583  |  |  |        |      |      |  |  |  |  |  |   | 34,259  |  |  |  |      |  
|                             |  |  |  |  |  |                          |         |      |  |        |      |      |  |      |         |  |  |        |      |      |  |  |  |  |  |   |         |  |  |  |      |  
|Total                        |  |  |  |  |  | $                        | 344,989 |      |  |        |      |      |  | $    | 309,654 |  |  |        |      |      |  |  |  |  |  | $ | 255,584 |  |  |  |      |  
|                             |  |  |  |  |  |                          |         |      |  |        |      |      |  |      |         |  |  |        |      |      |  |  |  |  |  |   |         |  |  |  |      |  

The following table sets forth the remaining maturities of certificates of
deposit in amounts of $100,000 or more as of December 31, 2003:

Deposit Maturity Schedule

|                                      |  |      |        | 
|------------------------------------- |  | ---- | ------ | 
|(Dollars in thousands)                |  | 2003
|                                      |  |     
|Three months or less                  |  | $    | 45,762 | 
|Four through twelve months            |  |      | 28,550 | 
|Over twelve through thirty six months |  |      | 5,620  | 
|Over thirty six months                |  |      | 0      | 
|                                      |  |      |        | 
|Total                                 |  | $    | 79,932 | 
|                                      |  |      |        | 




Capital Management and Adequacy

The Company uses capital to fund organic growth, pay dividends and
repurchase its shares. The objective of effective capital management is to
produce above market long-term returns by using capital when returns are
perceived to be high and issuing capital when costs are perceived to be low.
The Companys potential sources of capital include retained earnings, common
and preferred stock issuance, and issuance of subordinated debt and trust
preferred securities.

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.

This standard characterizes an institutions capital as being Tier 1
capital (defined as principally comprising stockholders 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 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,

35



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##### Table of Contents



2003 and 2002, that the Company and the
Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2003, 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 table.
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, 2003 are presented in the table.

|                         |  |         |            |       |  |             |       |             |  |         |       |         |  |  |     |  
|------------------------ |  | ------- | ---------- | ----- |  | ----------- | ----- | ----------- |  | ------- | ----- | ------- |  |  | --- | -
|                         |  |         |            |       |  |             |       |             |  | Well    |       | Minimum
|                         |  |         |            |       |  | Actual      |       | Capitalized |  | Capital
|                         |  | Capital |            | Ratio |  | Requirement |       | Requirement
|                         |  |         |            |       |  |             |       |            
|The Company              |  |         |            |       |  |             |       |             |  |         |       |         |  |  |     |  
|Leverage                 |  | $       | 35,775,892 |       |  |             | 9.10  | %           |  |         | n/a   |         |  |  | 4.0 | %
|Tier 1 Risk-Based        |  |         | 35,775,892 |       |  |             | 11.19 | %           |  |         | n/a   |         |  |  | 4.0 | %
|Total Risk-Based         |  |         | 39,773,421 |       |  |             | 12.44 | %           |  |         | n/a   |         |  |  | 8.0 | %
|Redding Bank of Commerce |  |         |            |       |  |             |       |             |  |         |       |         |  |  |     |  
|Leverage                 |  | $       | 34,430,147 |       |  |             | 8.84  | %           |  |         | 5.0   | %       |  |  | 4.0 | %
|Tier 1 Risk-Based        |  |         | 34,430,147 |       |  |             | 10.77 | %           |  |         | 6.0   | %       |  |  | 4.0 | %
|Total Risk-Based         |  |         | 38,427,676 |       |  |             | 12.02 | %           |  |         | 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, 2003.

During the first quarter 2003, Redding Bancorp formed a wholly-owned
Delaware statutory business trust, Redding Bancorp Trust (the grantor trust),
which issued $5.0 million of guaranteed preferred beneficial interests in
Redding Bancorps junior subordinated debentures (the Trust Notes). These
trust notes qualify as Tier 1 capital under Federal Reserve Board guidelines.
The proceeds from the issuance of the Trust Notes were loaned from the grantor
trust to the Holding Company and from the Holding Company to the Bank as
surplus capital.

The Trust Notes accrue and pay distributions on a quarterly basis at 3
month London Interbank Offered Rate (LIBOR) plus 3.30%. The rate at December
31, 2003 was 4.45%. The rate increase is capped at 2.75% annually and the
lifetime cap is 12.5%. The final maturity on the Trust Notes is March 18, 2033,
and the debt allows for prepayment after five years on the quarterly payment
date




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.

Some of the directors, officers and principal stockholders 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 2003 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.

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

|                             |  |              |            |      |  |   |           |  
|---------------------------- |  | ------------ | ---------- | ---- |  | - | --------- | -
|                             |  | December 31,
|                             |  |             
|                             |  | 2003         |            | 2002
|                             |  |              |            |     
|Balance at beginning of year |  | $            | 5,150,404  |      |  | $ | 921,075   |  
|New loan additions           |  |              | 2,559,874  |      |  |   | 2,695,391 |  
|Other additions              |  |              | 0          |      |  |   | 2,107,196 |  
|Principal repayments         |  |              | (3,586,566 | )    |  |   | (573,258  | )
|                             |  |              |            |      |  |   |           |  
|Balance at end of year       |  | $            | 4,123,712  |      |  | $ | 5,150,404 |  
|                             |  |              |            |      |  |   |           |  

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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, 2003 on the financial statements have not
been material.




Commitments



| |  |  | Off-Balance Sheet Financial Instruments- In the ordinary course of
business, the Company enters various types of transactions, which involve
financial instruments with off-balance sheet risk. These instruments
include commitments to extend credit and stand-by letters of credit,
which are not reflected in the 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.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The off-balance sheet credit risk exposure of the Company is the
contractual amount of commitments to extend credit and stand-by letters
of credit. The Company applies the same credit standards to these
contracts as it uses for loans recorded on the balance sheet.                                                                                                                                                                                                                                        

|                               |                              |  |              |            |      |  |   |            | 
|------------------------------ | ---------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                               |                              |  | December 31,
|                               |                              |  |             
|                               |                              |  | 2003         |            | 2002
|Off-balance sheet commitments: |                              |  |              |            |      |  |   |           
|                               | Commitments to extend credit |  | $            | 90,768,902 |      |  | $ | 83,909,436 | 
|                               | Standby letters of credit    |  |              | 4,594,010  |      |  |   | 3,858,203  | 



| |  |  | 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 Company 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
Company 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 Company 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.                                                                                                                                                                                   
|
| |  |  | Commitments and contingent liabilities                                                                                                                                                                                                                                                                      
|
| |  |  | 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, 2003 are below:                                                                                                 

|                                                                    |  |   |       | 
|------------------------------------------------------------------- |  | - | ----- | 
|(Dollars in thousands)                                              |  |   |       | 
|                                                                    |  |   |       | 
|2004                                                                |  | $ | 406   | 
|2005                                                                |  | $ | 412   | 
|2006                                                                |  | $ | 321   | 
|2007                                                                |  | $ | 327   | 
|2008                                                                |  | $ | 333   | 
|Thereafter                                                          |  | $ | 1,226 | 
|                                                                    |  |   |       | 
|Total                                                               |  | $ | 3,025 | 
|                                                                    |  |   |       | 
|Minimum rental income due in the future under noncancellable leases |  | $ | 259   | 
|                                                                    |  |   |       | 

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

The goal for managing the assets and liabilities of the Company is to
maximize stockholder value and earnings while maintaining a high quality
balance sheet without exposing the Company to undue interest rate risk. The
absolute level and volatility of interest rates can have a significant impact
on the Company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 operate a trading account, does not
hold any financial derivatives and does not hold a position with exposure to
foreign currency exchange or commodities. 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 Company 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 experience, 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 four 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 before reaching zero.

The formal policies and practices adopted by the Company 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 200
basis points. Because of the Companys predisposition to variable rate, pricing
and noninterest bearing demand deposit accounts the Company 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 Company 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 or 200 basis points up or down.
All changes are measured in dollars and are compared to projected net interest
income. At December 31, 2003, the estimated annualized reduction in net
interest income attributable to a 100 or 200 basis point decline in the federal
funds rate was $575,000 and $1,149,000, respectively, with a similar and
opposite result attributable to a 100 or 200 basis point increase in the
federal fund rate. The ALCO has established a policy limitation to interest
rate risk of -14% of net interest margin.

The following table sets forth, as of December 31, 2003, 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 interest 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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|                                   |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|---------------------------------- |  | -------------------- | ------- | ----------- |  | ----------- | ------ | --------------- |  | ----- | ------ | - |  | - | ------- |  |  | - | ------- | 
|                                   |  | At December 31, 2003
|                                   |  |                     
|                                   |  | Within 3             |         | 3 Months to |  | One Year to |        |                 |  |       |        |   |  |  
|(Dollars in thousands)             |  | Months               |         | One Year    |  | Five Years  |        | Over Five Years |  | Total
|                                   |  |                      |         |             |  |             |        |                 |  |      
|Interest-Earning Assets            |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Held-to-maturity securities        |  | $                    |        |             |  | $           |       |                 |  | $     | 661    |   |  | $ | 730     |  |  | $ | 1,391   | 
|Available-for-sale securities      |  |                      | 9,993   |             |  |             | 1,068  |                 |  |       | 13,648 |   |  |   | 45,325  |  |  |   | 70,034  | 
|Federal funds sold                 |  |                      | 8,195   |             |  |             |       |                 |  |       |       |   |  |   |        |  |  |   | 8,195   | 
|Loans, net                         |  |                      | 167,254 |             |  |             | 25,802 |                 |  |       | 8,904  |   |  |   | 76,243  |  |  |   | 278,203 | 
|                                   |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Total Interest-earning Assets      |  | $                    | 185,442 |             |  | $           | 26,870 |                 |  | $     | 23,213 |   |  | $ | 122,298 |  |  | $ | 357,823 | 
|                                   |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Interest-Bearing Liabilities       |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Demand                             |  | $                    | 94,051  |             |  | $           |       |                 |  | $     |       |   |  | $ |        |  |  | $ | 94,051  | 
|Savings Accounts                   |  |                      | 22,197  |             |  |             |       |                 |  |       |       |   |  |   |        |  |  |   | 22,197  | 
|Certificates of deposit            |  |                      | 51,758  |             |  |             | 60,452 |                 |  |       | 27,859 |   |  |   |        |  |  |   | 140,069 | 
|Other borrowings                   |  |                      | 33,749  |             |  |             | 0      |                 |  |       |       |   |  |   |        |  |  |   | 33,749  | 
|                                   |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Total Interest-bearing Liabilities |  | $                    | 201,755 |             |  | $           | 60,452 |                 |  | $     | 27,859 |   |  | $ |        |  |  | $ | 290,066 | 
|                                   |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Interest Sensitivity GAP           |  | ($                   | 16,313  | )           |  | ($          | 33,582 | )               |  | ($    | 4,646  | ) |  | $ | 122,298 |  |  | $ | 67,757  | 
|Cumulative Sensitivity GAP         |  |                      |         |             |  | ($          | 49,895 | )               |  | ($    | 54,541 | ) |  | $ | 67,757  |  |  |   |         | 
|As a percentage of earning assets: |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 
|Interest Sensitivity GAP           |  |                      | 0.92    |             |  |             | 0.44   |                 |  |       | 0.83   |   |  |   | 100.0   |  |  |   | 1.23    | 
|Cumulative Sensitivity GAP         |  |                      | (0.09   | )           |  |             | (1.25  | )               |  |       | (0.20  | ) |  |   | 1.00    |  |  |   |         | 
|                                   |  |                      |         |             |  |             |        |                 |  |       |        |   |  |   |         |  |  |   |         | 

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 Company. 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 Companys mix and level of rate-sensitive assets and liabilities will
have on the Companys net interest income.

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##### Table of Contents






ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

|                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                     |  | Page
|                                                                                                     |  |     
|Independent Auditors Report                                                                         |  |      | 41 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                         |  |      | 42 | 
|Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001               |  |      | 43 | 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  |      | 44 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  |      | 46 | 
|Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001      |  |      | 48 | 

40



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##### Table of Contents



(DELOITTE AND TOUCHE LETTERHEAD) (DELOITTE AND TOUCHE LOGO) INDEPENDENT AUDITORS REPORT To the Stockholders and
Directors of Redding Bancorp: We have audited the accompanying consolidated balance sheets of Redding Bancorp
and subsidiaries (the Company) as of December 31, 2003 and 2002, and the
related consolidated statements of income, stockholders equity, and cash flows
for each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2003,
in conformity with accounting principles generally accepted in the United
States of America. (DELOITTE AND TOUCHE SIGNATURE) San Francisco, California
February 24, 2004 (DELOITTE AND TOUCHE LETTERHEAD) 41




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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 and 2002

|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |             |             | 
|------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------- | ----------- | ----------- | ---- | ----------- | ----------- | ----------- | 
|                                                                                                                                      |                                                                                                                                                               |                            |             | 2003        |             | 2002
|ASSETS                                                                                                                                |                                                                                                                                                               |                            |             |             |             |      |             |            
|Cash and due from banks                                                                                                               |                                                                                                                                                               | $                          | 23,843,864  |             |             | $    | 23,831,729  |            
|Federal funds sold                                                                                                                    |                                                                                                                                                               |                            | 8,195,000   |             |             |      | 10,760,000  |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|                                                                                                                                      | Cash and cash equivalents                                                                                                                                     |                            |             | 32,038,864  |             |      |             | 34,591,729  |            
|Securities available-for-sale (including pledged collateral of
$10,589,000 at December 31, 2003 and $13,833,000 at December 31, 2002) |                                                                                                                                                               |                            | 70,034,442  |             |             |      | 32,327,843  |            
|Securities held-to-maturity, at cost
(estimated fair value of $1,460,052 at December 31 2003
and $2,561,297 at December 31 2002)      |                                                                                                                                                               |                            | 1,390,851   |             |             |      | 2,405,112   |            
|Loans, net of the allowance for loan losses of $3,675,084
at December 31, 2003 and $3,528,968 at December 31, 2002                    |                                                                                                                                                               |                            | 278,203,553 |             |             |      | 280,350,879 |            
|Bank premises and equipment, net                                                                                                      |                                                                                                                                                               |                            | 5,812,789   |             |             |      | 5,365,956   |            
|Other assets                                                                                                                          |                                                                                                                                                               |                            | 13,677,153  |             |             |      | 12,656,243  |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|TOTAL ASSETS                                                                                                                          |                                                                                                                                                               | $                          | 401,157,652 |             |             | $    | 367,697,762 |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                  |                                                                                                                                                               |                            |             |             |             |      |             |            
|Deposits:                                                                                                                             |                                                                                                                                                               |                            |             |             |             |      |             |            
|                                                                                                                                      | Demand - noninterest bearing                                                                                                                                  |                            | $           | 71,221,552  |             |      | $           | 55,169,920  |            
|                                                                                                                                      | Demand - interest bearing                                                                                                                                     |                            |             | 94,051,087  |             |      |             | 88,250,730  |            
|                                                                                                                                      | Savings accounts                                                                                                                                              |                            |             | 22,196,598  |             |      |             | 20,796,543  |            
|                                                                                                                                      | Certificates of deposit                                                                                                                                       |                            |             | 140,069,406 |             |      |             | 150,229,457 |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|                                                                                                                                      |                                                                                                                                                               | Total Deposits             |             |             | 327,538,643 |      |             |             | 314,446,650 | 
|                                                                                                                                      | Securities sold under agreements to repurchase                                                                                                                |                            |             | 3,748,797   |             |      |             | 3,704,385   |            
|                                                                                                                                      | Federal Home Loan Bank borrowings                                                                                                                             |                            |             | 30,000,000  |             |      |             | 18,000,000  |            
|                                                                                                                                      | Other liabilities                                                                                                                                             |                            |             | 4,359,019   |             |      |             | 3,879,597   |            
|                                                                                                                                      | Junior subordinated debt payable to unconsolidated
subsidiary grantor trust                                                                                   |                            |             | 5,000,000   |             |      |             | 0           |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|                                                                                                                                      |                                                                                                                                                               | Total liabilities          |             |             | 370,646,459 |      |             |             | 340,030,632 | 
|Commitments and contingencies (Note 17)                                                                                               |                                                                                                                                                               |                            |             |             |             |      |             |            
|Stockholders equity:                                                                                                                 |                                                                                                                                                               |                            |             |             |             |      |             |            
|                                                                                                                                      | Preferred stock, no par value; 2,000,000 shares authorized;
no shares issued and outstanding in 2003 and 2002                                                 |                            |             |            |             |      |             |            |            
|                                                                                                                                      | Common stock, no par value; 10,000,000 shares
authorized; 2,710,058 shares issued and outstanding in 2003
and 2,641,536 shares issued and outstanding in 2002 |                            |             | 9,539,752   |             |      |             | 8,714,767   |            
|                                                                                                                                      | Retained earnings                                                                                                                                             |                            |             | 21,236,140  |             |      |             | 18,813,703  |            
|                                                                                                                                      | Accumulated other comprehensive (loss) income, net of tax                                                                                                     |                            |             | (264,699    | )           |      |             | 138,660     |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|                                                                                                                                      |                                                                                                                                                               | Total stockholders equity |             |             | 30,511,193  |      |             |             | 27,667,130  | 
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                            |                                                                                                                                                               | $                          | 401,157,652 |             |             | $    | 367,697,762 |            
|                                                                                                                                      |                                                                                                                                                               |                            |             |             |             |      |             |            

See accompanying notes to consolidated financial statements.

42



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 ,2002 AND 2001

|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |            |           | 
|--------------------------------- | --------------------------------------------------------------------------------------- | ------------------------- | ------------------------ | ---------- | ---------- | --------- | --------- | ---------- | ---------- | --------- | --------- | ---------- | ---------- | --------- | 
|                                  |                                                                                         |                           |                          |            | 2003       |           | 2002      |            | 2001      
|                                  |                                                                                         |                           |                          |            |            |           |           |            |           
|Interest income:                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |           
|                                  | Interest and fees on loans                                                              |                           | $                        | 17,655,479 |            |           | $         | 16,812,119 |            |           | $         | 17,459,219 |           
|                                  | Interest on tax-exempt securities                                                       |                           |                          | 139,895    |            |           |           | 138,573    |            |           |           | 199,520    |           
|                                  | Interest on U.S. government securities                                                  |                           |                          | 1,290,481  |            |           |           | 1,299,956  |            |           |           | 1,644,870  |           
|                                  | Interest on federal funds sold and securities purchased
under agreement to resell       |                           |                          | 193,089    |            |           |           | 226,854    |            |           |           | 832,960    |           
|                                  | Interest on other securities                                                            |                           |                          | 0          |            |           |           | 87,691     |            |           |           | 79,293     |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  |                                                                                         | Total interest income     |                          |            | 19,278,944 |           |           |            | 18,565,193 |           |           |            | 20,215,862 |          
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Interest expense:                 |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |           
|                                  | Interest on demand deposits                                                             |                           |                          | 463,708    |            |           |           | 596,646    |            |           |           | 909,488    |           
|                                  | Interest on savings deposits                                                            |                           |                          | 132,758    |            |           |           | 144,845    |            |           |           | 340,245    |           
|                                  | Interest on certificates of deposit                                                     |                           |                          | 3,570,686  |            |           |           | 5,115,243  |            |           |           | 7,583,718  |           
|                                  | Interest on FHLB and other borrowings                                                   |                           |                          | 233,649    |            |           |           | 191,194    |            |           |           | 192,702    |           
|                                  | Interest on junior subordinated debt payable to
unconsolidated subsidiary grantor trust |                           |                          | 183,805    |            |           |           | 0          |            |           |           | 0          |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  | Total interest expense                                                                  |                           |                          | 4,584,606  |            |           |           | 6,047,928  |            |           |           | 9,026,153  |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  | Net interest income                                                                     |                           |                          | 14,694,338 |            |           |           | 12,517,265 |            |           |           | 11,189,709 |           
|Provision for loan losses         |                                                                                         |                           | 515,000                  |            |            |           | 620,000   |            |            |           | 255,000   |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  | Net interest income after provision for loan losses                                     |                           |                          | 14,179,338 |            |           |           | 11,897,265 |            |           |           | 10,934,709 |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Noninterest income:               |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |           
|                                  | Service charges on deposit accounts                                                     |                           |                          | 348,086    |            |           |           | 289,042    |            |           |           | 221,959    |           
|                                  | Payroll and benefit processing fees                                                     |                           |                          | 331,492    |            |           |           | 301,983    |            |           |           | 237,861    |           
|                                  | Earnings on cash surrender value -
Bank owned life insurance                            |                           |                          | 233,094    |            |           |           | 246,796    |            |           |           | 213,228    |           
|                                  | Net gain on sale of securities available-for-sale                                       |                           |                          | 88,395     |            |           |           | 275,425    |            |           |           | 556,993    |           
|                                  | Net gain on sale of loans                                                               |                           |                          | 101,005    |            |           |           | 59,604     |            |           |           | 118,018    |           
|                                  | Merchant credit card service income, net                                                |                           |                          | 407,945    |            |           |           | 424,557    |            |           |           | 940,234    |           
|                                  | Mortgage brokerage fee income                                                           |                           |                          | 250,451    |            |           |           | 161,439    |            |           |           | 67,164     |           
|                                  | Other income                                                                            |                           |                          | 389,698    |            |           |           | 332,108    |            |           |           | 468,031    |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  |                                                                                         |                           | Total noninterest income |            |            | 2,150,166 |           |            |            | 2,090,954 |           |            |            | 2,823,488 | 
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Noninterest expense:              |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |           
|                                  | Salaries and related benefits                                                           |                           |                          | 5,450,874  |            |           |           | 4,709,133  |            |           |           | 3,948,301  |           
|                                  | Occupancy and equipment expense                                                         |                           |                          | 1,470,722  |            |           |           | 1,463,252  |            |           |           | 1,116,634  |           
|                                  | FDIC insurance premium                                                                  |                           |                          | 49,431     |            |           |           | 47,852     |            |           |           | 44,791     |           
|                                  | Data processing fees                                                                    |                           |                          | 217,169    |            |           |           | 88,589     |            |           |           | 78,700     |           
|                                  | Professional service fees                                                               |                           |                          | 653,698    |            |           |           | 440,985    |            |           |           | 449,115    |           
|                                  | Deferred compensation expense                                                           |                           |                          | 255,612    |            |           |           | 239,128    |            |           |           | 219,029    |           
|                                  | Stationery and supplies                                                                 |                           |                          | 219,473    |            |           |           | 234,991    |            |           |           | 193,123    |           
|                                  | Postage                                                                                 |                           |                          | 102,650    |            |           |           | 105,597    |            |           |           | 100,664    |           
|                                  | Directors expenses                                                                     |                           |                          | 241,384    |            |           |           | 256,672    |            |           |           | 270,756    |           
|                                  | Other expenses                                                                          |                           |                          | 999,157    |            |           |           | 680,416    |            |           |           | 721,697    |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  |                                                                                         | Total noninterest expense |                          |            | 9,660,170  |           |           |            | 8,266,615  |           |           |            | 7,142,810  |          
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Income before income taxes        |                                                                                         |                           | 6,669,334                |            |            |           | 5,721,604 |            |            |           | 6,615,387 |           
|Provision for income taxes        |                                                                                         |                           | 2,486,658                |            |            |           | 2,025,144 |            |            |           | 2,341,725 |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|                                  |                                                                                         | Net Income                |                          | $          | 4,182,676  |           |           | $          | 3,696,460  |           |           | $          | 4,273,662  |          
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Basic earnings per share          |                                                                                         | $                         | 1.56                     |            |            | $         | 1.38      |            |            | $         | 1.52      |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Weighted average shares - basic   |                                                                                         |                           | 2,677,828                |            |            |           | 2,670,889 |            |            |           | 2,813,629 |           
|Diluted earnings per share        |                                                                                         | $                         | 1.51                     |            |            | $         | 1.29      |            |            | $         | 1.44      |           
|                                  |                                                                                         |                           |                          |            |            |           |           |            |            |           |           |            |           
|Weighted average shares - diluted |                                                                                         |                           | 2,775,636                |            |            |           | 2,868,073 |            |            |           | 2,966,551 |           

See accompanying notes to consolidated financial statements.

43



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERSEQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 ,2002 AND 2001

|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |           |  | 
|-------------------------------------------------- | --------------------------- | ------------------------------------------------------------------------------ | --------- | ------------- | -------- | ------ | --------- | ------ |  | -------- | --------- | ------------- |  | ----- | ----------- | --------- |  | - | ------- | ------------- |  | - | ---------- | --------- |  | 
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         | Accumulated   |  |   |            |          
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         | Other         |  |   |            |          
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         | Comprehensive |  |   |            |          
|                                                   |                             |                                                                                |           | Comprehensive |          | Common |           | Stock  |  | Retained |           | Income(Loss), |  |       |             |          
|                                                   |                             |                                                                                |           | Income        |          | Shares |           | Amount |  | Earnings |           | net of tax    |  | Total
|Balance at January 1, 2001                         |                             |                                                                                |           |               |          |        | 2,884,181 |        |  | $        | 9,370,979 |               |  | $     | 19,296,510  |           |  |   | 86,780  |               |  | $ | 28,754,269 |          
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          
|Comprehensive Income:                              |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          
|                                                   | Net Income                  |                                                                                | $         | 4,273,662     |          |        |           |        |  |          |           |               |  |       |             | 4,273,662 |  |   |         |               |  |   |            | 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   | )             |          |        |           |        |  |          |           |               |  |       |             |           |  |   | (94,818 | )             |  |   | (94,818    | )        
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          
|Total Comprehensive Income                         |                             | $                                                                              | 4,178,844 |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          
|Cash dividends ($0.65 per share)                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       | ( 1,792,391 | )         |  |   |         |               |  |   | (1,792,391 | )        
|Compensation expense associated with stock options |                             |                                                                                |           |               |          |        |           |        |  |          | 67,200    |               |  |       |             |           |  |   |         |               |  |   | 67,200     |          
|Stock options exercised                            |                             |                                                                                |           |               |          |        | 13,115    |        |  |          | 42,625    |               |  |       | 81,126      |           |  |   |         |               |  |   | 123,751    |          
|Purchase and retirement of common stock            |                             |                                                                                |           |               |          |        | (193,839  | )      |  |          | (629,978  | )             |  |       | (3,461,846  | )         |  |   |         |               |  |   | (4,091,824 | )        
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          
|Balance at December 31, 2001                       |                             |                                                                                |           |               |          |        | 2,703,457 |        |  | $        | 8,850,826 |               |  |       | 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 |          
|                                                   |                             |                                                                                |           |               |          |        |           |        |  |          |           |               |  |       |             |           |  |   |         |               |  |   |            |          

(Continues)

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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)

|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |           |  |  | 
|-------------------------------------------------- | --------------------------- | ------------------------------------------------------------------------------ | --------- | --------- | ------------- | - | --------- |  | ------ | - | --------- |  | -------------- | - | ----------- | --------- |  | -- | -------- | - | ------------- | - | ---------- | --------- |  |  | 
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   | Accumulated   |   |            |           | 
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   | Other         |   |            |           | 
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   | Comprehensive |   |            |           | 
|                                                   |                             |                                                                                |           |           | Comprehensive |   | Common    |  | Stock  |   | Retained  |  | Income (Loss), |   |             |           | 
|                                                   |                             |                                                                                |           |           | Income        |   | Shares    |  | Amount |   | Earnings  |  | net of tax     |   | Total      
|Balance at December 31, 2002                       |                             |                                                                                |           |           |               |   | 2,641,536 |  |        | $ | 8,714,767 |  |                | $ | 18,813,703  |           |  | $  | 138,660  |   |               | $ | 27,667,130 |          
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |          
|Comprehensive Income:                              |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |          
|                                                   | Net Income                  |                                                                                |           | 4,182,676 |               |   |           |  |        |   |           |  |                |   |             | 4,182,676 |  |    |          |   |               |   |            | 4,182,676 | 
|                                                   | Other Comprehensive Income: |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |           | 
|                                                   |                             | Unrealized holding losses arising
during period, net of tax                    |           |           | (347,918      | ) |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |           |  | 
|                                                   |                             | Less: reclassification adjustment
for gains included in net income, net of tax |           |           | (55,441       | ) |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |           |  | 
|Other Comprehensive Income                         |                             |                                                                                | (403,359  | )         |               |   |           |  |        |   |           |  |                |   |             |           |  |    | (403,359 | ) |               |   | (403,359   | )        
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |          
|Total Comprehensive Income                         |                             | $                                                                              | 3,779,317 |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |          
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |          
|Cash dividends ($0.65 per share)                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   | ( 1,760,239 | )         |  |    |          |   |               |   | (1,760,239 | )        
|Compensation expense associated with stock options |                             |                                                                                |           |           |               |   |           |  |        |   | 22,404    |  |                |   |             |           |  |    |          |   |               |   | 22,404     |          
|Stock options exercised                            |                             |                                                                                |           |           |               |   | 68,522    |  |        |   | 621,452   |  |                |   |             |           |  |    |          |   |               |   | 621,452    |          
|Tax benefit on exercise of options                 |                             |                                                                                |           |           |               |   |           |  |        |   | 181,129   |  |                |   |             |           |  |    |          |   |               |   | 181,129    |          
|Balance at December 31, 2003                       |                             |                                                                                |           |           |               |   | 2,710,058 |  |        | $ | 9,539,752 |  |                | $ | 21,236,140  |           |  | ($ | 264,699  | ) |               | $ | 30,511,193 |          
|                                                   |                             |                                                                                |           |           |               |   |           |  |        |   |           |  |                |   |             |           |  |    |          |   |               |   |            |          

See accompanying notes to the consolidated financial statements.

45



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|--------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ---------- | ---- | ----------- | ---- | ---------- | ---- | ----------- | - | ---------- | - | ----------- | -
|                                                                                  |  |                                                                             |            | 2003 |             | 2002 |            | 2001
|Cash flows from operating activities:                                             |  |                                                                             |            |      |             |      |            |      |             |   |            |  
|                                                                                  |  | Net income                                                                  |            | $    | 4,182,676   |      |            | $    | 3,696,460   |   |            | $ | 4,273,662   |  
|Adjustments to reconcile net income to net cash
provided by operating activities: |  |                                                                             |            |      |             |      |            |      |             |   |            |  
|                                                                                  |  | Provision for loan losses                                                   |            |      | 515,000     |      |            |      | 620,000     |   |            |   | 255,165     |  
|                                                                                  |  | Provision for depreciation and amortization                                 |            |      | 691,859     |      |            |      | 737,020     |   |            |   | 604,945     |  
|                                                                                  |  | Compensation expense associated with stock options                          |            |      | 22,404      |      |            |      | 67,200      |   |            |   | 67,200      |  
|                                                                                  |  | Gain on sale of securities available-for-sale                               |            |      | (88,395     | )    |            |      | (275,425    | ) |            |   | (556,993    | )
|                                                                                  |  | Amortization of securities premiums and accretion
of discounts, net         |            |      | 325,112     |      |            |      | 534,180     |   |            |   | (230,797    | )
|                                                                                  |  | Gain on sale of loans                                                       |            |      | (101,005    | )    |            |      | (59,604     | ) |            |   | (118,018    | )
|                                                                                  |  | Gain on sale of fixed assets                                                |            |      | (2,036      | )    |            |      | (18,806     | ) |            |   | (0          | )
|                                                                                  |  | Proceeds from sale of loans                                                 |            |      | 1,193,689   |      |            |      | 1,326,629   |   |            |   | 6,221,668   |  
|                                                                                  |  | Loans originated for sale                                                   |            |      | (1,092,684  | )    |            |      | (1,386,233  | ) |            |   | (6,339,686  | )
|                                                                                  |  | Deferred income taxes                                                       |            |      | (514,197    | )    |            |      | (319,820    | ) |            |   | (361,654    | )
|                                                                                  |  | Effect of changes in:                                                       |            |      |             |      |            |      |             |   |            |   |             |  
|                                                                                  |  | Other assets                                                                |            |      | (364,438    | )    |            |      | (2,115,248  | ) |            |   | (3,490,237  | )
|                                                                                  |  | Deferred loan fees                                                          |            |      | (89,540     | )    |            |      | 448,944     |   |            |   | (105,915    | )
|                                                                                  |  | Other liabilities                                                           |            |      | 479,422     |      |            |      | 317,047     |   |            |   | 181,842     |  
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|                                                                                  |  | Net cash provided by operating activities                                   |            |      | 5,157,867   |      |            |      | 3,572,344   |   |            |   | 401,182     |  
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|Cash flows from investing activities:                                             |  |                                                                             |            |      |             |      |            |      |             |   |            |  
|                                                                                  |  | Proceeds from maturities of available-for-sale securities                   |            |      | 20,115,204  |      |            |      | 18,539,071  |   |            |   | 25,085,086  |  
|                                                                                  |  | Proceeds from sale of available-for-sale securities                         |            |      | 15,244,634  |      |            |      | 42,062,130  |   |            |   | 25,509,556  |  
|                                                                                  |  | Purchases of available-for-sale securities                                  |            |      | (73,979,119 | )    |            |      | (52,074,912 | ) |            |   | (68,912,632 | )
|                                                                                  |  | Maturities of held-to-maturity securities                                   |            |      | 1,025,791   |      |            |      | 1,711,823   |   |            |   | 0           |  
|                                                                                  |  | Loan originations, net of principal repayments                              |            |      | 1,721,867   |      |            |      | (64,002,564 | ) |            |   | (25,287,506 | )
|                                                                                  |  | Purchase of Bank premises and equipment, net                                |            |      | (1,017,857  | )    |            |      | (626,255    | ) |            |   | (601,968    | )
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|                                                                                  |  | Net cash used in investing activities                                       |            |      | (36,889,480 | )    |            |      | (54,390,707 | ) |            |   | (44,207,464 | )
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|Cash flows from financing activities:                                             |  |                                                                             |            |      |             |      |            |      |             |   |            |  
|                                                                                  |  | Net increase in demand deposits and savings accounts                        |            |      | 23,252,044  |      |            |      | 32,765,223  |   |            |   | 34,169,894  |  
|                                                                                  |  | Net (decrease) increase in certificates of deposit                          |            |      | (10,160,051 | )    |            |      | 245,883     |   |            |   | 29,229,493  |  
|                                                                                  |  | Increase (decrease) in securities sold under
agreements to repurchase       |            |      | 44,412      |      |            |      | (3,075,847  | ) |            |   | 1,512,760   |  
|                                                                                  |  | Proceeds from Federal Home Loan Bank advances                               |            |      | 55,000,000  |      |            |      | 28,000,000  |   |            |   | 0           |  
|                                                                                  |  | Repayments of Federal Home Loan Bank advances                               |            |      | (43,000,000 | )    |            |      | (10,000,000 | ) |            |   | 0           |  
|                                                                                  |  | Junior subordinated debt payable to unconsolidated
subsidiary grantor trust |            |      | 5,000,000   |      |            |      | 0           |   |            |   | 0           |  
|                                                                                  |  | Cash dividends                                                              |            |      | (1,760,239  | )    |            |      | (1,721,279  | ) |            |   | (1,792,391  | )
|                                                                                  |  | Equity transactions, net                                                    |            |      | 802,582     |      |            |      | (1,761,798  | ) |            |   | (3,968,074  | )
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|                                                                                  |  | Net cash provided by financing activities                                   |            |      | 29,178,748  |      |            |      | 44,452,182  |   |            |   | 59,151,682  |  
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|Net increase (decrease) in cash and cash equivalents                              |  |                                                                             | (2,552,865 | )    |             |      | (6,366,181 | )    |             |   | 15,345,400 |  
|Cash and cash equivalents at beginning of year                                    |  |                                                                             | 34,591,729 |      |             |      | 40,957,910 |      |             |   | 25,612,510 |  
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  
|Cash and cash equivalents at end of year                                          |  | $                                                                           | 32,038,864 |      |             | $    | 34,591,729 |      |             | $ | 40,957,910 |  
|                                                                                  |  |                                                                             |            |      |             |      |            |      |             |   |            |   |             |  

46



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##### Table of Contents



REDDING BANKCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (Continued)

|                                                                     |                                                |  |      |           |      |  |      |           |  |  |   |           |  | 
|-------------------------------------------------------------------- | ---------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  | 
|                                                                     |                                                |  | 2003 |           | 2002 |  | 2001
|Supplemental disclosures:                                            |                                                |  |      |           |      |  |      |           |  |  |   |          
|                                                                     | Cash paid during the period for:               |  |      |           |      |  |      |           |  |  |   |           | 
|                                                                     | Income taxes                                   |  | $    | 2,258,200 |      |  | $    | 1,915,800 |  |  | $ | 2,704,145 | 
|                                                                     | Interest                                       |  | $    | 4,655,112 |      |  | $    | 6,161,458 |  |  | $ | 9,103,849 | 
|Supplemental Schedule of Non cash Investing
and Financing Activities |                                                |  |      |           |      |  |      |           |  |  |   |          
|                                                                     | Transfer from loans to other real estate owned |  | $    | 0         |      |  | $    | 337,977   |  |  | $ | 0         | 

See accompanying notes to consolidated financial statements.

47



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##### Table of Contents



REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|1. |  | THE BUSINESS OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Redding Bancorp (the Holding Company), is a financial holding
company (FHC) with its principal offices in Redding, California. A
financial 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 holding company on April 22, 2001. The
election to change to a financial holding company has had no impact to date
on the operations of the Company. As a financial holding company, Redding
Bancorp 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 RBC Mortgage Services, (formerly Redding Service Corporation)
(collectively the Company). The Company has an unconsolidated subsidiary
in Redding Bancorp Trust. On January 2, 2003, Redding Service Corporation
changed names to RBC Mortgage Services. The subsidiary offers mortgage
brokerage services through an affiliate agreement with the Bank of Walnut
Creek. 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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|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
and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from
those estimates. Certain amounts for prior periods have been reclassified
to conform to the current financial statement presentation. The more
significant accounting and reporting policies and estimates applied in the
preparation of the accompanying consolidated financial statements are
discussed below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Principles of Consolidation- The consolidated financial statements include
the accounts of the Holding Company, the Bank and RBC Mortgage Services.
All significant intercompany balances and transactions have been eliminated
in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

48



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | Cash and Cash Equivalents- For purposes of reporting cash flows, cash and
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 Company enters into
purchases of securities under agreements to resell substantially identical
securities. Securities purchased under agreements to resell consist
primarily 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 Companys policy to take possession of securities
purchased under agreements to resell. Agreements with third parties
specify the Company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 Companys
account maintained at the Federal Reserve Bank or into a third-party
custodians account designated by the Company under a written custodial
agreement that explicitly recognizes the Companys interest in the
securities. In general, these agreements matured within 90 days and no
material amount of agreements to resell securities purchased is outstanding
with any individual dealer.
|
| |  | Securities- At the time of purchase, the Company designates the security
as held-to-maturity or available-for-sale, based on its investment
objectives, operational needs and intent to hold. The Company 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 fair
value and unrealized gains or losses, net of income taxes, are reported as
part of accumulated other comprehensive income(loss), 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 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 Company 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.                                                                                                                          
|
| |  | 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. 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.                                                                                          

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | 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, 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, 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.
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. Depreciation included in occupancy and
equipment 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, 2003 and
2002, securities sold under agreements to repurchase consist of commercial
repurchase agreements, where the Company 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 bank
branch office. Because of this acquisition, the Company recorded core
deposit intangibles, which are being amortized over seven years by the
straight-line method. Amortization expense for the year ended December 31,
2003, 2002 and 2001 was $118,800, $118,800 and $54,936, respectively.
Estimated amortization expense for 2004, 2005, 2006, 2007 and 2008 is
approximately $106,000 per year.                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Earnings Per Share- Basic earnings per share (EPS) 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. Stock options are considered to
be common stock equivalents. 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.

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

|                        |                                                          |                                                     |   |           |           |      |   |           |           |  |   |           |           | 
|----------------------- | -------------------------------------------------------- | --------------------------------------------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                        |                                                          |                                                     |   | 2003      |           | 2002 |   | 2001     
|Basic EPS Calculation   |                                                          |                                                     |   |           |           |      |   |           |           |  |   |          
|                        | Numerator (net income)                                   |                                                     | $ | 4,182,676 |           |      | $ | 3,696,460 |           |  | $ | 4,273,662 |          
|                        | Denominator (weighted average common shares
outstanding) |                                                     |   | 2,677,828 |           |      |   | 2,670,889 |           |  |   | 2,813,629 |          
|                        | Basic EPS                                                |                                                     | $ | 1.56      |           |      | $ | 1.38      |           |  | $ | 1.52      |          
|Diluted EPS Calculation |                                                          |                                                     |   |           |           |      |   |           |           |  |   |          
|                        | Numerator (net income)                                   |                                                     | $ | 4,182,676 |           |      | $ | 3,696,460 |           |  | $ | 4,273,662 |          
|                        | Denominator:                                             |                                                     |   |           |           |      |   |           |           |  |   |           |          
|                        |                                                          | Weighted average common shares outstanding          |   |           | 2,677,828 |      |   |           | 2,670,889 |  |   |           | 2,813,629 | 
|                        |                                                          | Diluted effect of stock options                     |   |           | 97,808    |      |   |           | 197,184   |  |   |           | 152,922   | 
|                        |                                                          |                                                     |   |           |           |      |   |           |           |  |   |          
|                        |                                                          | Adjusted weighted average common shares
outstanding |   |           | 2,775,636 |      |   |           | 2,868,073 |  |   |           | 2,966,551 | 
|                        |                                                          |                                                     |   |           |           |      |   |           |           |  |   |          
|                        | Diluted EPS                                              |                                                     | $ | 1.51      |           |      | $ | 1.29      |           |  | $ | 1.44      |          



| |  | 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 noninterest 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 Company
with the property after the sale, and other matters. Under certain
circumstances, revenue recognition may be deferred until these criteria are
met.                                                                                                                                                                                                                                                                         
|
| |  | 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 Opinion (APB) 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 Compensation,as 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 SFAS Statement No.
123, to stock-based employee compensation.                                                                                                                                                             

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | Net income before option expense less compensation
expense associated with stock options
| |  | ----------------------------------------------------------------------------------------

|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |           |          |  
|---------------------------------------------------------------------------------------- | --------------------- | ------------------------------------------------------------------------------------------------------------------- | --------- | ---------------------- | ------- | ---- | --------- | --------- | -------- | - | --------- | --------- | -------- | -
|                                                                                         |                       |                                                                                                                     |           | Year Ended December 31
|                                                                                         |                       |                                                                                                                     |           | 2003                   |         | 2002 |           | 2001     
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |          
|Net income before option expense less
compensation expense associated with stock options |                       | $                                                                                                                   | 4,205,080 |                        |         | $    | 3,763,660 |           |          | $ | 4,340,862 |          
|                                                                                         |                       |                                                                                                                     | (22,404   | )                      |         |      | (67,200   | )         |          |   | (67,200   | )        
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|Net income as reported                                                                   |                       | $                                                                                                                   | 4,182,676 |                        |         | $    | 3,696,460 |           |          | $ | 4,273,662 |          
|Deduct:                                                                                  |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|                                                                                         |                       | Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax |           |                        | (77,803 | )    |           |           | (168,352 | ) |           |           | (149,340 | )
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|                                                                                         | Pro forma net income  |                                                                                                                     | $         | 4,104,873              |         |      | $         | 3,528,108 |          |   | $         | 4,124,322 |         
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|Earnings per share:                                                                      |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|                                                                                         | Basic - as reported   |                                                                                                                     | $         | 1.56                   |         |      | $         | 1.38      |          |   | $         | 1.52      |         
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|                                                                                         | Basic - pro forma     |                                                                                                                     | $         | 1.53                   |         |      | $         | 1.32      |          |   | $         | 1.47      |         
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|                                                                                         | Diluted - as reported |                                                                                                                     | $         | 1.51                   |         |      | $         | 1.29      |          |   | $         | 1.44      |         
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          
|                                                                                         | Diluted
- pro forma   |                                                                                                                     | $         | 1.48                   |         |      | $         | 1.24      |          |   | $         | 1.39      |         
|                                                                                         |                       |                                                                                                                     |           |                        |         |      |           |           |          |   |           |          



| |  | In 2003, 2002 and 2001 there were no shares that could potentially dilute
basis EPS in the future that were excluded from the calculation of diluted
EPS because their effect would be anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Comprehensive Income- Comprehensive income includes net income and other
comprehensive income (loss). The Companys only source of other
comprehensive income (loss) is unrealized gains and losses on securities
available-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
(loss) 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-Reportable operating segments are generally defined as
components of an enterprise for which discrete financial information is
available, whose operating results are regularly reviewed by the
organizations management and whose revenue is 10 percent or more of total
revenue. Under this definition the Company does not have reportable
segments. In prior reporting periods, 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. In the current year, the Company accounted for its
operations as one operating segment.

52



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

|                                         |  |      |           |      |  |      |           |  |  |   |           | 
|---------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|Income before income taxes:              |  | 2003 |           | 2002 |  | 2001
|                                         |  |      |           |      |  |     
|Commercial Banking                       |  | $    | 6,669,334 |      |  | $    | 5,297,047 |  |  | $ | 5,675,153 | 
|Merchant credit card service income, net |  |      |          |      |  |      | 424,557   |  |  |   | 940,234   | 
|                                         |  |      |           |      |  |      |           |  |  |   |           | 
|                                         |  | $    | 6,669,334 |      |  | $    | 5,721,604 |  |  | $ | 6,615,387 | 



| |  | 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 during 2003 or
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51(the Interpretation) -In January 2003,
the Financial Accounting Standards Board (FASB) issued Consolidation of
Variable Interest Entities, an interpretation of Accounting Research
Bulletin No. 51(the Interpretation),FASB Interpretation No. 46 (FIN
46).The purpose of this interpretation is to provide guidance on how to
identify a variable interest entity (VIE) and determine when the assets,
liabilities, non-controlling interests, and results of operations of a VIE
need to be included in a companys consolidated financial statements. A
company that holds variable interests in an entity will need to consolidate
that entity if the companys interest in the VIE is such that the company
will absorb a majority of the VIEs expected losses and or receive a
majority of the VIEs expected residual returns, if they occur. As of
December 31, 2003, management believes that the Company does not have any
VIEs which would be consolidated under the provisions of FIN 46.
|
| |  | Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity- In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.The Statement establishes standards for how the
Company should classify and measure certain financial instruments entered
into or modified after May 31, 2003 and is otherwise effective at the
beginning, with characteristics of both liabilities and equity. SFAS No.
150 is effective for financial instruments beginning after June 15, 2003.
The new standards for the classification and measurement of financial
instruments should be applied retroactively. Any gain or loss resulting
from the implementation of SFAS No. 150 will be reported as a cumulative
effect of a change in accounting principle. The adoption of the standards
of this Statement has no impact on the Companys financial position or
results of operations.                                                                                                                  
|
| |  | Accounting for Guarantors and Disclosure Requirements for Guarantees,
including Indirect Guarantees of Indebtedness of Others- In November 2002,
the FASB issued FASB Interpretation no. 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.FIN 45 expands on the accounting
guidance of Statements No. 5, 57, and 107 and incorporates without change
the provisions of FIN 34, which it superseded. FIN 45 elaborates on the
existing disclosure requirements for most guarantees and requires that
guarantors recognize a liability for the fair value of guarantees at
inception. The disclosure requirements of FIN 45 are effective for
financial statement periods ending after December 31, 2002. The adoption of
the measurement provisions of this Interpretation has no impact on the
Companys financial position or results of operations. However, during the
fourth quarter of 2003 the Company deconsolidated its wholly-owned
subsidiary grantor trust and the provisions of FIN 46.                     

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|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, 2003 and 2002 was approximately $7,760,000 and
$5,855,000 respectively. In addition, the Bank maintains compensating
balances with its primary correspondent, which totaled $2,500,000 at
December 31, 2003 and 2002.
|  
|4. |  | SECURITIES                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The amortized cost and estimated fair value of securities available-for-sale are summarized as follows:                                                                                                                                                                                                                                                                                     

|                                                          |  |                   |            |            |  |            |         |       |  |   |          |   |  |           |            | 
|--------------------------------------------------------- |  | ----------------- | ---------- | ---------- |  | ---------- | ------- | ----- |  | - | -------- | - |  | --------- | ---------- | 
|                                                          |  | December 31, 2003
|                                                          |  |                  
|                                                          |  |                   |            |            |  |            |         |       |  |   |          |   |  | Estimated
|                                                          |  | Amortized         |            | Unrealized |  | Unrealized |         | Fair 
|                                                          |  | Cost              |            | Gains      |  | Losses     |         | Value
|U.S. Treasury securities and
obligations of U.S. agencies |  | $                 | 21,767,536 |            |  | $          | 60,402  |       |  | $ | (464,721 | ) |  | $         | 21,363,217 | 
|Obligations of state and political
subdivisions           |  |                   | 6,442,310  |            |  |            | 68,697  |       |  |   | (125,878 | ) |  |           | 6,385,129  | 
|Bankers acceptances                                       |  |                   | 9,993,211  |            |  |            | 0       |       |  |   | 0        |   |  |           | 9,993,211  | 
|Mortgage-backed securities                                |  |                   | 32,281,173 |            |  |            | 115,202 |       |  |   | (103,490 | ) |  |           | 32,292,885 | 
|                                                          |  |                   |            |            |  |            |         |       |  |   |          |   |  |           |            | 
|                                                          |  | $                 | 70,484,230 |            |  | $          | 244,301 |       |  | $ | (694,089 | ) |  | $         | 70,034,442 | 
|                                                          |  |                   |            |            |  |            |         |       |  |   |          |   |  |           |            | 

|                                                          |  |                   |            |            |  |            |         |       |  |   |        |   |  |           |            | 
|--------------------------------------------------------- |  | ----------------- | ---------- | ---------- |  | ---------- | ------- | ----- |  | - | ------ | - |  | --------- | ---------- | 
|                                                          |  | 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     | ) |  | $         | 11,710,311 | 
|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 | ) |  |           | 19,375,754 | 
|                                                          |  |                   |            |            |  |            |         |       |  |   |        |   |  |           |            | 
|                                                          |  | $                 | 32,113,197 |            |  | $          | 218,202 |       |  | $ | (3,556 | ) |  | $         | 32,327,843 | 
|                                                          |  |                   |            |            |  |            |         |       |  |   |        |   |  |           |            | 



| |  | The amortized cost and estimated fair value of securities
held-to-maturity at December 31, 2003 and 2002, consist of the
following:
| |  | -----------------------------------------------------------------------------------------------------------------------------------

|                           |  |                   |           |            |  |            |        |       |  |   |   |  |  |           |           | 
|-------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------ | ----- |  | - | - |  |  | --------- | --------- | 
|                           |  | December 31, 2003
|                           |  |                  
|                           |  |                   |           |            |  |            |        |       |  |   |   |  |  | Estimated
|                           |  | Amortized         |           | Unrealized |  | Unrealized |        | Fair 
|                           |  | Cost              |           | Gains      |  | Losses     |        | Value
|Mortgage backed securities |  | $                 | 1,390,851 |            |  | $          | 69,201 |       |  | $ | 0 |  |  | $         | 1,460,052 | 
|                           |  |                   |           |            |  |            |        |       |  |   |   |  |  |           |           | 

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

54



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | The amortized cost and estimated fair value of securities at December 31,
2003 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                |  | $                  | 11,054,737 |                  |  | $         | 11,062,147 |       |  | $ | 0         |           |  | $ | 0         | 
|Due after one year through five years  |  |                    | 13,604,313 |                  |  |           | 13,648,376 |       |  |   | 661,112   |           |  |   | 664,497   | 
|Due after five years through ten years |  |                    | 19,674,108 |                  |  |           | 19,326,590 |       |  |   | 0         |           |  |   | 0         | 
|Due after ten years                    |  |                    | 26,151,072 |                  |  |           | 25,997,329 |       |  |   | 729,739   |           |  |   | 795,555   | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |           |           |  |   |           | 
|                                       |  | $                  | 70,484,230 |                  |  | $         | 70,034,442 |       |  | $ | 1,390,851 |           |  | $ | 1,460,052 | 
|                                       |  |                    |            |                  |  |           |            |       |  |   |           |           |  |   |           | 



| |  | At December 31, 2003, the Companys securities available-for-sale shown
below have been in a continuous loss position for periods less than 12
months as shown below:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                          |  |                     |            |                   |  |       |         |            |  |       |   |            |  |   |   |  |  |   |            |  |  |    |         |  
|--------------------------------------------------------- |  | ------------------- | ---------- | ----------------- |  | ----- | ------- | ---------- |  | ----- | - | ---------- |  | - | - |  |  | - | ---------- |  |  | -- | ------- | -
|                                                          |  | Less than 12 months |            | 12 months or more |  | Total
|                                                          |  |                     |            |                   |  |      
|                                                          |  | Fair                |            | Unrealized        |  | Fair  |         | Unrealized |  | Fair  |   | Unrealized
|                                                          |  | Value               |            | Losses            |  | Value |         | Losses     |  | Value |   | Losses    
|U.S. Treasury securities and
Obligations of U.S. Agencies |  | $                   | 12,787,715 |                   |  | ($    | 464,721 | )          |  | $     | 0 |            |  | $ | 0 |  |  | $ | 12,787,715 |  |  | ($ | 464,721 | )
|Obligations of state and political
Subdivisions           |  | $                   | 3,643,909  |                   |  | ($    | 125,878 | )          |  | $     | 0 |            |  | $ | 0 |  |  | $ | 3,643,909  |  |  | ($ | 125,878 | )
|Mortgage-backed securities                                |  | $                   | 17,641,703 |                   |  | ($    | 103,490 | )          |  | $     | 0 |            |  | $ | 0 |  |  | $ | 17,641,703 |  |  | ($ | 103,490 | )
|                                                          |  |                     |            |                   |  |       |         |            |  |       |   |            |  |   |   |  |  |   |            |  |  |    |         |  
|Total temporarily impaired
securities                     |  | $                   | 34,073,327 |                   |  | ($    | 694,089 | )          |  | $     | 0 |            |  | $ | 0 |  |  | $ | 34,073,327 |  |  | ($ | 694,089 | )
|                                                          |  |                     |            |                   |  |       |         |            |  |       |   |            |  |   |   |  |  |   |            |  |  |    |         |  



| |  | Securities are classified as either held-to-maturity or available-for-sale.
Securities that the Company has the intent and ability to hold to maturity
are designated held-to-maturity and are stated at amortized cost. The
Company has determined that all other securities might be sold before
maturity to support its investment strategies. Accordingly, these other
investments are classified as available-for-sale and are stated at fair
value based on quoted market prices. Economic factors may affect market
pricing over the stated maturity of the security. Unrealized gains and
losses on available-for-sale securities are excluded from earnings and are
reported in accumulated other comprehensive income (loss), net of income
taxes where applicable. The Company recognizes an impairment charge when
the decline in the fair value of its investments below the cost basis is
judged to be other than temporary. As of December 31, 2003, thirteen
securities were in a loss position. The Company has determined the loss
position to be temporary and no impairment charges have occurred. Realized
gains and losses are determined on a specific identification basis and are
included in results of operations. Security income is accrued when earned
and included in interest income. The Company requires a credit rating of A
or higher on its initial acquisition of investments and maintains an
average rating of AAA on the overall portfolio.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|   |  | At December 31, 2003, the Company has pledged $1,000,000 of securities for
treasury, tax and loan accounts, $5,840,000 for deposits of public funds
and $3,749,000 for collateralized repurchase agreements.                                                                                                                                                                                           
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Gross realized gains and losses, respectively on the sale of
available-for-sale securities were $93,528 and $5,133 in 2003. Gross
unrealized gains and gross unrealized losses, respectively, on
available-for-sale, securities were $244,301 and $694,089 in 2003 and were
$218,202 and $3,556 in 2002.There were no gains or losses recognized in
securities held-to-maturity in 2003, 2002 and 2001.
|  
|5. |  | LOANS AND ALLOWANCE FOR LOAN LOSSES                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | Outstanding loan balances consist of the following:                                                                                                                                                                                                                                                                                                                                                    

|                                 |                           |   |              |           |      |   |             |           | 
|-------------------------------- | ------------------------- | - | ------------ | --------- | ---- | - | ----------- | --------- | 
|                                 |                           |   | December 31,
|                                 |                           |   |             
|                                 |                           |   | 2003         |           | 2002
|Commercial and financial loans   |                           | $ | 104,508,704  |           |      | $ | 99,083,692  |          
|Real estate - construction loans |                           |   | 66,741,598   |           |      |   | 40,661,859  |          
|Real estate - commercial         |                           |   | 102,952,921  |           |      |   | 124,209,767 |          
|Real estate - mortgage           |                           |   | 7,085,683    |           |      |   | 19,126,034  |          
|Installment loans                |                           |   | 451,567      |           |      |   | 720,484     |          
|Other                            |                           |   | 632,529      |           |      |   | 661,917     |          
|                                 |                           |   |              |           |      |   |             |          
|                                 |                           |   | 282,373,002  |           |      |   | 284,463,753 |          
|Less:                            |                           |   |              |           |      |   |             |          
|                                 | Deferred loan fees, net   |   |              | 494,366   |      |   |             | 583,906   | 
|                                 | Allowance for loan losses |   |              | 3,675,084 |      |   |             | 3,528,968 | 
|                                 |                           |   |              |           |      |   |             |          
|                                 |                           | $ | 278,203,553  |           |      | $ | 280,350,879 |          
|                                 |                           |   |              |           |      |   |             |          



| |  | Included in total loans are nonaccrual loans of $3,930,810 and $0 at
December 31, 2003 and 2002, respectively. If interest on nonaccrual loans
at December 31, 2003 and 2002 had been accrued, such interest income would
have approximated $184,785 and $2,389 during the years ended December 31,
2003 and 2002, respectively. 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
$4,028,004 and $6,818 in impaired loans that had impairment allowances of
$837,000 and $1,023 as of December 31, 2003 and 2002, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The average outstanding balance of impaired loans were $2,235,293, $14,277
and $187,277, for the years ended December 31, 2003, 2002 and 2001
respectively. There was interest of $0 ,$0 and $18,333 recognized on
impaired loans during the year ended December 31, 2003, 2002 and 2001,
respectively. The Company services, for others, loans and participation of
loans that are sold of $5,971,387 and $5,892,988 as of December 31, 2003
and 2002, respectively.                                                                                                                                                                                                                                                                       
|
| |  | The Company concentrates its lending activities primarily within Shasta, El
Dorado, Placer and Sacramento counties, in California, and the location of
the four full service offices of the Bank. Although the Company 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.                                                                                                                                

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | The Company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, 2003 and 2002, the Company had pledged $35,689,544 and
$28,768,517, respectively, 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,
|                                           |  |                         
|                                           |  | 2003                     |           | 2002 |  | 2001
|                                           |  |                          |           |      |  |     
|Balance at beginning of year               |  | $                        | 3,528,968 |      |  | $    | 2,915,906 |   |  | $ | 2,709,717 |  
|Provision for loan losses                  |  |                          | 515,000   |      |  |      | 620,000   |   |  |   | 255,000   |  
|Loans charged off                          |  |                          | (379,717  | )    |  |      | (25,839   | ) |  |   | (535,179  | )
|Recoveries of loans previously charged off |  |                          | 10,833    |      |  |      | 18,901    |   |  |   | 486,368   |  
|                                           |  |                          |           |      |  |      |           |   |  |   |           |  
|Balance at end of year                     |  | $                        | 3,675,084 |      |  | $    | 3,528,968 |   |  | $ | 2,915,906 |  
|                                           |  |                          |           |      |  |      |           |   |  |   |           |  



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

|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|--------------------------------- |  | ----------- |  | ---- | --------- | ------------ | ---------- | - | --------- | - | ---------- | -
|                                  |  |             |  |      |           | December 31,
|                                  |  | Estimated   |  |     
|                                  |  | Lives       |  | 2003 |           | 2002        
|                                  |  |             |  |      |           |             
|Land                              |  |             |  |      |           | $            | 1,507,628  |   |           | $ | 1,507,628  |  
|Bank buildings                    |  | 31.5 years  |  |      | 4,049,397 |              |            |   | 4,002,958 |  
|Furniture, fixtures and equipment |  | 3 - 7 years |  |      | 4,440,834 |              |            |   | 3,899,319 |  
|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|                                  |  |             |  |      |           |              | 9,997,859  |   |           |   | 9,409,905  |  
|Less accumulated depreciation     |  |             |  |      |           |              | (4,485,843 | ) |           |   | (4,071,309 | )
|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|                                  |  |             |  |      |           |              | 5,512,016  |   |           |   | 5,338,596  |  
|Construction in progress          |  |             |  |      |           |              | 300,773    |   |           |   | 27,360     |  
|                                  |  |             |  |      |           |              |            |   |           |   |            |  
|                                  |  |             |  |      |           | $            | 5,812,789  |   |           | $ | 5,365,956  |  
|                                  |  |             |  |      |           |              |            |   |           |   |            |  



| |  | Depreciation expense, included in net occupancy and equipment expense, is
$573,059, $737,020, and $604,945 for the years ended December 31, 2003,
2002 and 2001, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|7. |  | OTHER ASSETS                          
|-- |  | --------------------------------------
|  
|   |  | Other assets consist of the following:

|                                                                                  |  |              |            |      |  |   |            | 
|--------------------------------------------------------------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                                                                                  |  | December 31,
|                                                                                  |  |             
|                                                                                  |  | 2003         |            | 2002
|                                                                                  |  |              |            |     
|Cash surrender value of bank owned life insurance
policies                        |  | $            | 4,593,005  |      |  | $ | 4,398,275  | 
|Deferred tax asset, net                                                           |  |              | 2,369,208  |      |  |   | 1,855,011  | 
|Accrued interest on loans                                                         |  |              | 1,135,786  |      |  |   | 1,240,255  | 
|Accrued interest on investment securities                                         |  |              | 288,590    |      |  |   | 282,821    | 
|Goldman Sachs Sweep account receivable                                            |  |              | 2,607,284  |      |  |   | 1,451,938  | 
|Federal Home Loan Bank Stock                                                      |  |              | 1,500,000  |      |  |   | 1,409,900  | 
|Core Deposit Intangible, net of accumulated
amortization of $292,536 and $173,736 |  |              | 476,609    |      |  |   | 595,409    | 
|Other Real Estate Owned                                                           |  |              | 0          |      |  |   | 337,977    | 
|Other                                                                             |  |              | 551,671    |      |  |   | 1,084,657  | 
|                                                                                  |  |              |            |      |  |   |            | 
|                                                                                  |  | $            | 13,522,153 |      |  | $ | 12,656,243 | 
|                                                                                  |  |              |            |      |  |   |            | 



|8. |  | DEPOSITS                                                                                                                                                                                                                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Time certificates of deposit of $100,000 or more totaled $79,931,791
and $81,682,952 at December 31, 2003 and 2002,
respectively. Interest expense on such deposits was $1,937,164,
$2,260,692 and $3,114,739 during 2003, 2002 and 2001, respectively. At
December 31, 2003, the scheduled maturities for all time deposits are
as follows:
|  
|   |  | Deposit Maturity Schedule                                                                                                                                                                                                                                                                                                                   

|                                      |  |   |             |  | 
|------------------------------------- |  | - | ----------- |  | 
|Three months or less                  |  | $ | 51,758,081  | 
|Four through twelve months            |  |   | 60,451,517  | 
|Over twelve through thirty-six months |  |   | 27,859,808  | 
|Over thirty-six months                |  |   | 0           | 
|                                      |  |   |             | 
|Total                                 |  | $ | 140,069,406 | 



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

|                                          |  |              |           |      |  |   |           | 
|----------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2003         |           | 2002
|                                          |  |              |           |     
|Deferred compensation                     |  | $            | 2,830,193 |      |  | $ | 2,546,657 | 
|Employee incentive payable                |  |              | 401,026   |      |  |   | 275,182   | 
|Accrued 401(k) match payable              |  |              | 136,166   |      |  |   | 123,000   | 
|Accrued interest payable                  |  |              | 202,450   |      |  |   | 272,956   | 
|Reserve for off-balance sheet commitments |  |              | 263,876   |      |  |   | 263,876   | 
|Other                                     |  |              | 525,308   |      |  |   | 397,926   | 
|                                          |  |              |           |      |  |   |           | 
|                                          |  | $            | 4,359,019 |      |  | $ | 3,879,597 | 
|                                          |  |              |           |      |  |   |           | 

58



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|10. |  | FEDERAL HOME LOAN BANK ADVANCES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Included in other borrowings are advances from the Federal Home Loan Bank
of San Francisco (FHLB) totaling $30,000,000 as of December 31, 2003 and
$18,000,000 as of December 31, 2002. The FHLB advances bear fixed rates of
interest ranging from 0.97% to 1.39%. Interest is payable on a monthly
basis. FHLB advances due as follows: $10,000,000 maturing January 2, 2004
at 0.97%, $10,000,000 maturing January 22, 2004 at 1.11% and $10,000,000
maturing February 4, 2004 at 1.39%. These borrowings are secured by an
investment in FHLB stock and certain real estate mortgage loans which have
been specifically pledged to the FHLB pursuant to their collateral
requirements. Based upon the level of FHLB advances, the Company was
required to hold a minimum investment in FHLB stock of $1,500,000 and to
pledge $35,689,544 and $28,768,517 of its real estate mortgage loans to the
FHLB as collateral as of December 31, 2003 and 2002.                                                                                                                                                                    
|   
|11. |  | JUNIOR SUBORDINATED DEBT PAYABLE TO UNCONSOLIDATED SUBSIDIARY GRANTOR
TRUST                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | During the first quarter 2003, Redding Bancorp formed a wholly-owned
Delaware statutory business trust, Redding Bancorp Trust (the grantor
trust), which issued $5.0 million of guaranteed preferred beneficial
interests in Redding Bancorps junior subordinated debentures (the trust
notes) to the public and $155,000 common securities to the Company. These
debentures qualify as Tier 1 capital under Federal Reserve Board
guidelines. The proceeds from the issuance of the trust notes were
transferred from the grantor trust to the Holding Company and from the
Holding Company to the Bank as surplus capital. The trust notes accrue and
pay distributions on a quarterly basis at 3 month London Interbank Offered
Rate (LIBOR) plus 3.30%. The rate at December 31, 2003 was 4.45%. The
rate increase is capped at 2.75% annually and the lifetime cap is 12.5%.
The final maturity on the trust notes is March 18, 2033, and the debt
allows for prepayment after five years on the quarterly payment date.
During the fourth quarter of 2003 the Company deconsolidated the grantor
trust under FIN 46.
|   
|12. |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Provision for income taxes consists of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|         |                                  |  |                          |           |      |  |      |           |   |  |   |           |  
|-------- | -------------------------------- |  | ------------------------ | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|         |                                  |  | Years Ended December 31,
|         |                                  |  |                         
|         |                                  |  | 2003                     |           | 2002 |  | 2001
|         |                                  |  |                          |           |      |  |     
|Current: |                                  |  |                          |           |      |  |      |           |   |  |   |          
|         | Federal                          |  | $                        | 2,171,432 |      |  | $    | 1,966,162 |   |  | $ | 2,197,404 |  
|         | State                            |  |                          | 568,351   |      |  |      | 459,196   |   |  |   | 397,186   |  
|         |                                  |  |                          |           |      |  |      |           |   |  |   |           |  
|         | Total currently payable          |  |                          | 2,739,783 |      |  |      | 2,425,358 |   |  |   | 2,594,590 |  
|         |                                  |  |                          |           |      |  |      |           |   |  |   |           |  
|         | Deferred:                        |  |                          |           |      |  |      |           |   |  |   |           |  
|         | Federal                          |  |                          | (153,895  | )    |  |      | (305,390  | ) |  |   | (220,322  | )
|         | State                            |  |                          | (99,230   | )    |  |      | (94,824   | ) |  |   | (32,543   | )
|         |                                  |  |                          |           |      |  |      |           |   |  |   |           |  
|         | Total deferred provision         |  |                          | (253,125  | )    |  |      | (400,214  | ) |  |   | (252,865  | )
|         |                                  |  |                          |           |      |  |      |           |   |  |   |           |  
|         | Total provision for income taxes |  | $                        | 2,486,658 |      |  | $    | 2,025,144 |   |  | $ | 2,341,725 |  
|         |                                  |  |                          |           |      |  |      |           |   |  |   |           |  

59



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | 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
|                                                |  |                   
|                                                |  | 2003               |       | 2002 |  | 2001
|                                                |  |                    |       |      |  |     
|Income tax at the Federal statutory rate        |  |                    | 34.00 | %    |  |      | 34.00 | % |  |  | 34.00 | %
|State franchise tax, net of Federal tax benefit |  |                    | 4.64  |      |  |      | 4.20  |   |  |  | 3.50  |  
|Tax-exempt interest                             |  |                    | (0.67 | )    |  |      | (0.76 | ) |  |  | (0.89 | )
|Other                                           |  |                    | (0.69 | )    |  |      | (2.05 | ) |  |  | (1.21 | )
|                                                |  |                    |       |      |  |      |       |   |  |  |       |  
|                                                |  |                    | 37.28 | %    |  |      | 35.39 | % |  |  | 35.40 | %
|                                                |  |                    |       |      |  |      |       |   |  |  |       |  



| |  | The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2003 and 2002 consist of the following:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               |                                                        |   |           |           |   |      |           |           |   | 
|------------------------------ | ------------------------------------------------------ | - | --------- | --------- | - | ---- | --------- | --------- | - | 
|                               |                                                        |   |           | 2003      |   | 2002
|                               |                                                        |   |           |           |   |     
|Deferred tax assets:           |                                                        |   |           |           |   |      |           |          
|                               | State franchise taxes                                  |   | $         | 173,511   |   |      | $         | 135,405   |  
|                               | Deferred compensation                                  |   |           | 1,269,059 |   |      |           | 1,148,064 |  
|                               | Loan loss reserves                                     |   |           | 1,296,097 |   |      |           | 1,183,081 |  
|                               | Net unrealized losses on securities available-for-sale |   |           | 185,088   |   |      |           | 0         |  
|                               | Other                                                  |   |           | 184,189   |   |      |           | 110,409   |  
|                               |                                                        |   |           |           |   |      |           |          
|Total deferred tax assets      |                                                        |   | 3,107,944 |           |   |      | 2,576,959 |          
|                               |                                                        |   |           |           |   |      |           |          
|Deferred tax liabilities:      |                                                        |   |           |           |   |      |           |          
|                               | Depreciation                                           |   |           | (264,068  | ) |      |           | (165,694  | )
|                               | Net unrealized gains on securities available-for-sale  |   |           | (0        | ) |      |           | (75,986   | )
|                               | Deferred loan origination costs                        |   |           | (310,942  | ) |      |           | (350,282  | )
|                               | Deferred state taxes                                   |   |           | (163,726  | ) |      |           | (129,986  | )
|                               | Other                                                  |   |           | (0        | ) |      |           | (0        | )
|                               |                                                        |   |           |           |   |      |           |          
|Total deferred tax liabilities |                                                        |   | (738,736  | )         |   |      | (721,948  | )        
|                               |                                                        |   |           |           |   |      |           |          
|Net deferred tax asset         |                                                        | $ | 2,369,208 |           |   | $    | 1,855,011 |          
|                               |                                                        |   |           |           |   |      |           |           |  



|13. |  | 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.                                                                                                                                                                                                                                                                                                                                                                                      

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | A total of 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, 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 | 
|                                       |  |        |         |          |  |          |       | 
|Granted                                |  |        | 4,500   |          |  | $        | 20.25 | 
|Exercised                              |  |        | (68,522 | )        |  | $        | 9.07  | 
|Forfeited                              |  |        | (3,490  | )        |  | $        | 17.27 | 
|                                       |  |        |         |          |  |          |       | 
|Options outstanding, December 31, 2003 |  |        | 344,932 |          |  | $        | 10.50 | 
|                                       |  |        |         |          |  |          |       | 



| |  | At December 31, 2003, 2002
and 2001, respectively, 75,430 shares were
available for future grants under the Plan. As of December 31, 2003, 2002
and 2001, respectively, 305,512, 286,367 and 225,827 shares respectively
were available to be exercised.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Additional information regarding options outstanding as of December 31,
2003 is as follows:                                                                                                                                                             

|         |  |                     |         |         |  |                     |               |  |  |  |         |  | 
|-------- |  | ------------------- | ------- | ------- |  | ------------------- | ------------- |  |  |  | ------- |  | 
|         |  |                     |         |         |  |                     | Weighted Avg. |  |  |  |        
|         |  |                     |         |         |  |                     | Remaining     |  |  |  |        
|Exercise |  |                     |         |         |  | Contractual Life    |               |  |  | 
|Prices   |  | Options Outstanding |         | (Years) |  | Options Exercisable
|         |  |                     |         |         |  |                    
|$  8.25  |  |                     | 184,020 |         |  |                     | 4             |  |  |  | 184,020 | 
|$  9.70  |  |                     | 98,212  |         |  |                     | 4             |  |  |  | 98,212  | 
|$16.25   |  |                     | 14,250  |         |  |                     | 7             |  |  |  | 5,700   | 
|$20.00   |  |                     | 43,950  |         |  |                     | 7             |  |  |  | 17,580  | 
|$20.25   |  |                     | 4,500   |         |  |                     | 8             |  |  |  | 0       | 
|         |  |                     |         |         |  |                     |               |  |  |  |         | 
|         |  |                     | 344,932 |         |  |                     |               |  |  |  | 305,512 | 
|         |  |                     |         |         |  |                     |               |  |  |  |         |  | 

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|    |  | 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 as of December 31, 2003,
2002 and 2001 was $22,404, $67,200 and $67,200 respectively.                                                                                                       
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company applies APB No. 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:                                                                                                                                                                                    
|   
|    |  | The fair value of the options granted during 2003, 2002 and 2001, is
estimated as $28,142, $95,061 and $238,318, respectively, on the date of
grant using a binomial option-pricing model with the following
assumptions: volatility of 22.75% and 29.55%, risk-free interest rate of
3.27% and 2.71%, expected dividends of $0.65 per share per year, annual
dividend rate of 3.55% and 3.06%, assumed forfeiture rate of zero and an
expected life of seven years. There were 4,500 options granted in 2003
and 22,300 options granted in 2002. The fair value per share of the 2003,
2002 and 2001 awards was $6.25, $4.26 and $5.67, respectively.                              
|   
|14. |  | 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 and 2001, 92,981 and 193,839 shares were
purchased. No shares were repurchased during 2003. 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, 2003 and 2002, a cash dividend of $0.65 per share was paid
to shareholders of record as of October 1, 2003 and 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | On April 20, 1999, the Board of Directors authorized 2,000,000 shares of
preferred stock. As of December 31, 2003, no preferred shares had been
issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|15. |  | RETIREMENT BENEFITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Profit Sharing Plan -In 1985, the Company adopted a profit sharing 401(k)
plan for eligible employees to be funded out of the earnings of the
Company. The employees contributions are limited to the maximum amount
allowable under IRS Section 402(G). The Company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 Company made matching contributions aggregating
$120,000, $122,716, and $100,000 for the years ended December 31, 2003,
2002 and 2001, respectively. No discretionary contributions were made in
2003, 2002 or 2001.
|   
|    |  | Salary Continuation Plan In April 2002, 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.                                                                                                                                                                                                                                                                                                           

62



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|    |  | 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 expense under the salary continuation plan totaled $84,840
and $53,048 for 2003 and 2002, respectively. As of December 31, 2003 and
2002, the vested benefit payable was $228,087 and $138,905, respectively.                                                                                                                                                                                                                                                                                        
|   
|    |  | 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 fifteen years. Interest
on Directors deferred compensation is fixed at 10% per the plan. Deferred
compensation expense totaled $255,612 and $239,128 at December 31, 2003
and 2002, respectively. As of December 31, 2003 and 2002, the vested
benefit payable was $1,279,974 and $1,053,502 , respectively.
|   
|16. |  | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Some of the directors, officers and principal stockholders 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 2003 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.                                                                             

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

|                             |  |              |            |      |  |   |           |  
|---------------------------- |  | ------------ | ---------- | ---- |  | - | --------- | -
|                             |  | December 31,
|                             |  |             
|                             |  | 2003         |            | 2002
|                             |  |              |            |     
|Balance at beginning of year |  | $            | 5,150,404  |      |  | $ | 921,075   |  
|New loan additions           |  |              | 2,559,874  |      |  |   | 2,695,391 |  
|Other additions              |  |              | 0          |      |  |   | 2,107,196 |  
|Principal repayments         |  |              | (3,586,566 | )    |  |   | (573,258  | )
|                             |  |              |            |      |  |   |           |  
|Balance at end of year       |  | $            | 4,123,712  |      |  | $ | 5,150,404 |  
|                             |  |              |            |      |  |   |           |  

| |  | Other additions are related to loans made in previous years to a director
who joined the Board in 2002. As of December 31, 2003 and 2002 there were
no related party loans, which were past due or classified.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|17. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Lease Commitments -The Company leases certain facilities where it
conducts its operations. Future minimum lease commitments under all
non-cancelable operating leases as of December 31, 2003 are below:
|   
|    |  | (Dollars in thousands)                                                                                                                                                                                  

|                                                                |  |   |       | 
|--------------------------------------------------------------- |  | - | ----- | 
|2004                                                            |  | $ | 406   | 
|2005                                                            |  | $ | 412   | 
|2006                                                            |  | $ | 321   | 
|2007                                                            |  | $ | 327   | 
|2008                                                            |  | $ | 333   | 
|Thereafter                                                      |  | $ | 1,226 | 
|                                                                |  |   |       | 
|Total                                                           |  | $ | 3,025 | 
|                                                                |  |   |       | 
|Minimum rental due in the future
under noncancellable subleases |  | $ | 259   | 
|                                                                |  |   |       | 



| |  | Off-Balance Sheet Financial
Instruments - In the ordinary course of
business, the Company enters various types of transactions, which involve
financial instruments with off-balance sheet risk. These instruments
include commitments to extend credit and standby 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.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



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

|                               |                              |  |              |            |      |  |   |            | 
|------------------------------ | ---------------------------- |  | ------------ | ---------- | ---- |  | - | ---------- | 
|                               |                              |  | December 31,
|                               |                              |  |             
|                               |                              |  | 2003         |            | 2002
|                               |                              |  |              |            |     
|Off-balance sheet commitments: |                              |  |              |            |      |  |   |           
|                               | Commitments to extend credit |  | $            | 90,768,902 |      |  | $ | 83,909,436 | 
|                               | Standby letters of credit    |  |              | 4,594,010  |      |  |   | 3,858,203  | 



|    |  | 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 Company 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 is subject to various pending and threatened legal actions
arising in the ordinary course of business. The Company maintains
reserves for losses from legal actions that are both probable and
estimable. In the opinion of management the disposition of claims
currently pending will not have a material effect on the Companys
consolidated financial position or results of operations.                                                                                                                                                                                                                                                                                                                                             
|   
|18. |  | 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 can initiate certain
mandatory and possibly additional discretionary actions by
regulators, that if undertaken, could have a direct material effect
on the Companys and Consolidated 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.                                 
|   
|    |  | The capital amounts and the Banks prompt corrective action
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors. Prompt
corrective action 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,
2003 and 2002, that the Company and the Bank met all capital adequacy
requirements to which they are subject.

65



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | As of December 31, 2003, and 2002, 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
1 risk-based, and Tier 1 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, 2003 and
2002 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, 2003:                    |  |        |            |                   |  |                   |       |       |  |             |             |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Company                                  |  |        |            |                   |  |                   |       |       |  |             |             |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Leverage capital (to average assets)     |  | $      | 35,775,892 |                   |  |                   | 9.10  | %     |  | $           | 13,680,000  |              |  |  | 4.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Tier 1 capital (to risk-weighted assets) |  |        | 35,775,892 |                   |  |                   | 11.19 | %     |  |             | 11,818,412  |              |  |  | 4.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Total capital (to risk-weighted assets)  |  |        | 39,773,421 |                   |  |                   | 12.44 | %     |  |             | 23,636,824  |              |  |  | 8.00 | % |  |                  | n/a        |  |  |  | n/a   |  
|Bank                                     |  |        |            |                   |  |                   |       |       |  |             |             |              |  |  |      |   |  |                  |            |  |  |  |       |  
|Leverage capital (to average assets)     |  | $      | 34,430,147 |                   |  |                   | 8.84  | %     |  | $           | 15,575,720  |              |  |  | 4.00 | % |  | $                | 19,650,000 |  |  |  | 5.00  | %
|Tier 1 capital (to risk-weighted assets) |  |        | 34,430,147 |                   |  |                   | 10.77 | %     |  |             | 12,792,094  |              |  |  | 4.00 | % |  |                  | 19,188,141 |  |  |  | 6.00  | %
|Total capital (to risk-weighted assets)  |  |        | 38,427,676 |                   |  |                   | 12.02 | %     |  |             | 25,584,187  |              |  |  | 8.00 | % |  |                  | 31,980,234 |  |  |  | 10.00 | %
|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 | %     |  |             | 123,636,824 |              |  |  | 8.00 | % |  |                  | 20,880,675 |  |  |  | 10.00 | %



| |  | The principal sources of cash for the Holding Company are dividends from
the Bank. Dividends from the Bank to the Holding 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, 2003, the maximum amount available for dividend distribution
under this restriction was approximately $6,878,889.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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
2003 or 2002.                                                                                                                                                                                                                                            

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



|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
consolidated balance sheets for cash and cash equivalents 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.
Securities available-for-sale are carried at their aggregate fair value,
while securities held-to-maturity are carried at amortized cost.                                                                                                                                                                                                                                                          
|   
|    |  | 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 fixed rate 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.                                                                                                                                                              
|   
|    |  | The Companys allowance for loan losses is a reasonable estimate of the
valuation allowance needed to adjust computed fair values for quality of
certain loans in the portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Federal Home Loan Bank borrowings-The fair value of borrowed funds
with maturities less than one year is based on carrying amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Junior subordinated debt payable to unconsolidated subsidiary grantor
trust - The fair value of
variable rate junior subordinated debt payable to subsidiary grantor
trust is based on carrying amounts.                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                 

67



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



| |  | 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
Companys entire holdings of a particular financial instrument.                                                                                                                                                                                                                                                                                                   
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Because no market exists for a significant portion of the Company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 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.
|
| |  | The estimated fair values of the Companys financial instruments are
approximately as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                                            |                              |  |          |            |          |  |                   |             |  |  |             |             | 
|--------------------------------------------------------------------------- | ---------------------------- |  | -------- | ---------- | -------- |  | ----------------- | ----------- |  |  | ----------- | ----------- | 
|                                                                            |                              |  |          |            |          |  | December 31, 2003 |             |  |  |            
|                                                                            |                              |  |          |            |          |  |                   |             | 
|                                                                            |                              |  | Contract |            | Carrying |  | Fair             
|                                                                            |                              |  | Amount   |            | Amount   |  | Value            
|                                                                            |                              |  |          |            |          |  |                  
|Financial Assets:                                                           |                              |  |          |            |          |  |                   |             |  |  |             |            
|                                                                            | Cash and cash equivalents    |  |          |            |          |  | $                 | 32,038,864  |  |  | $           | 32,038,864  | 
|                                                                            | Securities                   |  |          |            |          |  |                   | 71,425,293  |  |  |             | 71,494,494  | 
|Loans, net                                                                  |                              |  |          |            |          |  | 278,203,553       |             |  |  | 282,580,019 |            
|Financial Liabilities:                                                      |                              |  |          |            |          |  |                   |             |  |  |             |            
|                                                                            | Demand and savings           |  |          |            |          |  | $                 | 187,469,237 |  |  | $           | 187,469,237 | 
|                                                                            | Fixed rate certificates      |  |          |            |          |  |                   | 137,567,137 |  |  |             | 138,334,185 | 
|                                                                            | Variable certificates        |  |          |            |          |  |                   | 2,502,269   |  |  |             | 2,502,269   | 
|Securities sold under agreements to repurchase                              |                              |  |          |            |          |  | 3,748,797         |             |  |  | 3,748,797   |            
|Federal Home Loan Borrowings                                                |                              |  |          |            |          |  | 30,000,000        |             |  |  | 30,000,000  |            
|Junior subordinated debt payable to unconsolidated
subsidiary grantor trust |                              |  |          |            |          |  | 5,000,000         |             |  |  | 5,000,000   |            
|Off balance sheet financial instruments:                                    |                              |  |          |            |          |  |                   |             |  |  |             |            
|                                                                            | Commitments to extend credit |  | $        | 90,768,902 |          |  |                   |             |  |  | $           | 90,768,902  | 
|                                                                            | Standby letters of credit    |  |          | 4,594,010  |          |  |                   |             |  |  |             | 4,594,010   | 

68



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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

|                                               |                           |            |                              |  |          |            |             |             |                   |  |             |             |            |            | 
|---------------------------------------------- | ------------------------- | ---------- | ---------------------------- |  | -------- | ---------- | ----------- | ----------- | ----------------- |  | ----------- | ----------- | ---------- | ---------- | 
|                                               |                           |            |                              |  |          |            |             |             | December 31, 2002 |  |             |             |           
|                                               |                           |            |                              |  |          |            |             |             |                   |  |            
|                                               |                           |            |                              |  | Contract |            | Carrying    |             | Fair             
|                                               |                           |            |                              |  | Amount   |            | Amount      |             | Value            
|                                               |                           |            |                              |  |          |            |             |             |                  
|Financial Assets:                              |                           |            |                              |  |          |            |             |             |                   |  |             |            
|                                               | Cash and cash equivalents |            |                              |  |          |            | $           | 34,591,729  |                   |  | $           | 34,591,729  |           
|                                               |                           | Securities |                              |  |          |            |             |             | 34,732,955        |  |             |             | 34,889,140 |           
|Loans, net                                     |                           |            |                              |  |          |            | 280,350,879 |             |                   |  | 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   |            
|Federal Home Loan Borrowings                   |                           |            |                              |  |          |            | 18,000,000  |             |                   |  | 18,000,000  |            
|Off balance sheet financial instruments:       |                           |            |                              |  |          |            |             |             |                   |  |             |            
|                                               |                           |            | Commitments to extend credit |  | $        | 83,909,436 |             |             |                   |  |             |             | $          | 83,909,436 | 
|                                               |                           |            | Standby letters of credit    |  |          | 3,858,203  |             |             |                   |  |             |             |            | 3,858,203  | 



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

|                         |                                                                             |                              |   |              |            |      |   |            |            | 
|------------------------ | --------------------------------------------------------------------------- | ---------------------------- | - | ------------ | ---------- | ---- | - | ---------- | ---------- | 
|                         |                                                                             |                              |   | December 31,
|                         |                                                                             |                              |   |             
|                         |                                                                             |                              |   | 2003         |            | 2002
|                         |                                                                             |                              |   |              |            |     
|Condensed Balance Sheets |                                                                             |                              |   |              |            |      |   |           
|                         | Assets:                                                                     |                              |   |              |            |      |   |            |           
|                         |                                                                             | Cash                         |   | $            | 23,822     |      |   | $          | 153,195    | 
|                         |                                                                             | Time deposit with subsidiary |   |              | 300,000    |      |   |            | 140,000    | 
|                         |                                                                             |                              |   |              |            |      |   |           
|                         |                                                                             | Cash and cash equivalents    |   |              | 323,822    |      |   |            | 293,195    | 
|                         |                                                                             | Investment in subsidiaries   |   |              | 34,937,365 |      |   |            | 27,373,935 | 
|                         |                                                                             | Other assets                 |   |              | 308,630    |      |   |            | 0          | 
|                         | Total assets                                                                |                              | $ | 35,569,817   |            |      | $ | 27,667,130 |           
|                         |                                                                             |                              |   |              |            |      |   |           
|                         | Junior subordinated debt payable to unconsolidated
subsidiary grantor trust |                              |   | 5,000,000    |            |      |   | 0          |           
|                         | Other liabilities                                                           |                              |   | 58,624       |            |      |   | 0          |           
|                         | Stockholders equity                                                        |                              |   | 30,511,193   |            |      |   | 27,667,130 |           
|                         |                                                                             |                              |   |              |            |      |   |           
|                         | Total liabilities and stockholders equity                                  |                              | $ | 35,569,817   |            |      | $ | 27,667,130 |           
|                         |                                                                             |                              |   |              |            |      |   |           

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001

|                               |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |           |           | 
|------------------------------ | --------------------------------------------------------------------------------- | ------------------------ | --------- | ------------------------ | --------- | ---- | --------- | --------- | --------- |  | --------- | --------- | --------- | 
|                               |                                                                                   |                          |           | Years Ended December 31,
|                               |                                                                                   |                          |           |                         
|                               |                                                                                   |                          |           | 2003                     |           | 2002 |           | 2001     
|                               |                                                                                   |                          |           |                          |           |      |           |          
|Condensed Statements of Income |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                               | Income:                                                                           |                          |           |                          |           |      |           |           |           |  |           |           |          
|                               |                                                                                   | Interest on time deposit |           | $                        | 5,497     |      |           | $         | 2,261     |  |           | $         | 45,582    | 
|                               |                                                                                   | Dividend from subsidiary |           |                          | 1,760,239 |      |           |           | 3,721,279 |  |           |           | 4,303,000 | 
|                               |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                               |                                                                                   |                          | 1,765,736 |                          |           |      | 3,723,540 |           |           |  | 4,348,582 |          
|                               | Expenses                                                                          |                          |           | 394,050                  |           |      |           | 153,901   |           |  |           | 161,579   |          
|                               |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                               | Income before income taxes and
equity in undistributed net income
of subsidiaries |                          |           | 1,371,686                |           |      |           | 3,569,639 |           |  |           | 4,187,003 |          
|                               | Provision for income taxes                                                        |                          |           | 800                      |           |      |           | 800       |           |  |           | 800       |          
|                               |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                               | Income before equity in undistributed
net income of subsidiaries                  |                          |           | 1,370,886                |           |      |           | 3,568,839 |           |  |           | 4,186,203 |          
|                               | Equity in undistributed net income of
subsidiaries                                |                          |           | 2,811,790                |           |      |           | 127,621   |           |  |           | 87,459    |          
|                               |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          
|                               | Net income                                                                        |                          | $         | 4,182,676                |           |      | $         | 3,696,460 |           |  | $         | 4,273,662 |          
|                               |                                                                                   |                          |           |                          |           |      |           |           |           |  |           |          

|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |   |            |            |  
|------------------------------------------------ | ------------------------ | --------------------------------------------------------------------------------- | ------------------------------ | - | ------------------------ | ---------- | ---------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | -
|                                                 |                          |                                                                                   |                                |   | Years Ended December 31,
|                                                 |                          |                                                                                   |                                |   |                         
|                                                 |                          |                                                                                   |                                |   | 2003                     |            | 2002       |   | 2001      
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |           
|                                                 | Statements of Cash Flows |                                                                                   |                                |   |                          |            |            |   |            |            |            |   |           
|Cash flows from operating activities:            |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|                                                 |                          | Net income                                                                        |                                | $ | 4,182,676                |            |            | $ | 3,696,460  |            |            |   | 4,273,662  |           
|                                                 |                          | Adjustments to reconcile net income to
net cash provided by operating activities: |                                |   |                          |            |            |   |            |            |            |   |            |           
|                                                 |                          | Compensation associated with stock options                                        |                                |   | 22,404                   |            |            |   | 67,200     |            |            |   | 67,200     |           
|                                                 |                          | Equity in undistributed net income of
subsidiaries                                |                                |   | (2,811,790               | )          |            |   | (127,621   | )          |            |   | (87,459    | )         
|                                                 |                          | Other assets, net                                                                 |                                |   | (250,006                 | )          |            |   | 0          |            |            |   | 0          |           
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Net cash provided by operating activities        |                          |                                                                                   | 1,143,284                      |   |                          |            | 3,636,040  |   |            |            | 4,253,403  |  
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Cash flows from investing activities:            |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|                                                 |                          |                                                                                   | Investment in subsidiary trust |   |                          | (155,000   | )          |   |            | 0          |            |   |            | 0          |  
|                                                 |                          |                                                                                   | Capital contribution to Bank   |   |                          | (5,000,000 | )          |   |            | 0          |            |   |            | 0          |  
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Net cash used by investing activities            |                          |                                                                                   | (5,155,000                     | ) |                          |            | 0          |   |            |            | 0          |  
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Cash flows from financing activities:            |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|                                                 |                          | Equity transactions, net                                                          |                                |   | 802,582                  |            |            |   | (1,787,794 | )          |            |   | (3,969,064 | )         
|                                                 |                          | Proceeds from unconsolidated subsidiary
Grantor trust                             |                                |   | 5,000,000                |            |            |   | 0          |            |            |   | 0          |           
|                                                 |                          |                                                                                   | Cash dividends                 |   |                          | (1,760,239 | )          |   |            | (1,721,279 | )          |   |            | (1,792,392 | )
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Net cash used by financing activities            |                          |                                                                                   | 4,042,343                      |   |                          |            | (3,509,073 | ) |            |            | (5,761,456 | )
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Increase (decrease) in cash and cash equivalents |                          |                                                                                   | 30,627                         |   |                          |            | 126,966    |   |            |            | (1,508,053 | )
|Cash and cash equivalents at beginning of year   |                          |                                                                                   | 293,195                        |   |                          |            | 166,229    |   |            |            | 1,674,282  |  
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  
|Cash and cash equivalents at end of year         |                          | $                                                                                 | 323,822                        |   |                          | $          | 293,195    |   |            | $          | 166,229    |  
|                                                 |                          |                                                                                   |                                |   |                          |            |            |   |            |            |            |  

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REDDING BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001



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

UNAUDITED QUARTERLY STATEMENTS OF INCOME DATA

|                                              |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |      | 
|--------------------------------------------- | -------------------------- | ---- | --------------------- | ---- | -------- | ---- | ------------- | ---- | ------------ | - | ------ | ---- |  | - | ------ | ---- | 
|                                              |                            |      | For the Quarter Ended
|                                              |                            |      |                      
|                                              |                            |      | March 31,             |      | June 30, |      | September 30, |      | December 31,
|(Dollars in thousands, except per
share data) |                            | 2003 |                       | 2003 |          | 2003 |               | 2003
|                                              |                            |      |                       |      |          |      |               |      |             
|Net interest income                           |                            | $    | 3,506                 |      |          | $    | 3,559         |      |              | $ | 3,734  |      |  | $ | 3,918  |     
|Provision for loan losses                     |                            |      | (175                  | )    |          |      | (200          | )    |              |   | (40    | )    |  |   | (100   | )   
|Noninterest income                            |                            |      | 471                   |      |          |      | 609           |      |              |   | 584    |      |  |   | 462    |     
|Noninterest expense                           |                            |      | (2,316                | )    |          |      | (2,487        | )    |              |   | (2,459 | )    |  |   | (2,396 | )   
|                                              |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |     
|Income before taxes                           |                            |      | 1,486                 |      |          |      | 1,481         |      |              |   | 1,819  |      |  |   | 1,884  |     
|Provision for income tax                      |                            |      | (560                  | )    |          |      | (596          | )    |              |   | (565   | )    |  |   | (766   | )   
|                                              |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |     
|Net Income                                    |                            | $    | 926                   |      |          | $    | 885           |      |              | $ | 1,254  |      |  | $ | 1,118  |     
|                                              |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |     
|Per common share:                             |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |     
|                                              | Basic earnings per share   |      | $                     | 0.35 |          |      | $             | 0.33 |              |   | $      | 0.46 |  |   | $      | 0.41 | 
|                                              | Diluted earnings per share |      | $                     | 0.33 |          |      | $             | 0.32 |              |   | $      | 0.45 |  |   | $      | 0.40 | 
|                                              | Dividends per share        |      | $                     | 0.00 |          |      | $             | 0.00 |              |   | $      | 0.65 |  |   | $      | 0.00 | 

|                                              |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |      | 
|--------------------------------------------- | -------------------------- | ---- | --------------------- | ---- | -------- | ---- | ------------- | ---- | ------------ | - | ------ | ---- |  | - | ------ | ---- | 
|                                              |                            |      | For the Quarter Ended
|                                              |                            |      |                      
|                                              |                            |      | March 31,             |      | June 30, |      | September 30, |      | December 31,
|(Dollars in thousands, except per
share data) |                            | 2002 |                       | 2002 |          | 2002 |               | 2002
|                                              |                            |      |                       |      |          |      |               |      |             
|Net interest income                           |                            | $    | 2,616                 |      |          | $    | 3,044         |      |              | $ | 3,364  |      |  | $ | 3,493  |     
|Provision for loan losses                     |                            |      | (65                   | )    |          |      | (125          | )    |              |   | (105   | )    |  |   | (325   | )   
|Noninterest income                            |                            |      | 443                   |      |          |      | 458           |      |              |   | 565    |      |  |   | 625    |     
|Noninterest 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 | 

|                                              |                            |      |                       |      |          |      |               |      |              |   |        |      |  |   |        |      | 
|--------------------------------------------- | -------------------------- | ---- | --------------------- | ---- | -------- | ---- | ------------- | ---- | ------------ | - | ------ | ---- |  | - | ------ | ---- | 
|                                              |                            |      | For the Quarter Ended
|                                              |                            |      |                      
|                                              |                            |      | March 31,             |      | June 30, |      | September 30, |      | December 31,
|(Dollars in thousands, except per
share data) |                            | 2001 |                       | 2001 |          | 2001 |               | 2001
|                                              |                            |      |                       |      |          |      |               |      |             
|Net interest income                           |                            | $    | 2,856                 |      |          | $    | 2,738         |      |              | $ | 2,828  |      |  | $ | 2,768  |     
|Provision for loan losses                     |                            |      | (158                  | )    |          |      | (149          | )    |              |   | 52     |      |  |   | (0     | )   
|Noninterest income                            |                            |      | 732                   |      |          |      | 684           |      |              |   | 512    |      |  |   | 895    |     
|Noninterest 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 | 

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

There have been no changes in or disagreements with accountants or
auditors on accounting and financial disclosure.




ITEM 9A. 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.




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 2004 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 December 31,
2003, are as follows:

|                 |  |     |    |             |  |                                                                            
|---------------- |  | --- | -- | ----------- |  | ---------------------------------------------------------------------------
|Name             |  | Age |    | Position(s)
|                 |  |     |    |            
|Michael C. Mayer |  |     | 47 |             |  | President and Chief Executive Officer Redding
Bank of Commerce and Director
|                 |  |     |    |             |  |                                                                            
|Linda J. Miles   |  |     | 50 |             |  | Executive Vice President, Chief Financial
Officer and Assistant Secretary  

Michael
C. Mayer joined 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. Miles has 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 Asset/Liability
committee and attends audit, executive and long range planning committee
meetings of the Board of Directors.

72



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##### Table of Contents



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.




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 AND RELATED STOCKHOLDER MATTERS

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 stockholders of the Company
and their associates were customers of and had banking transactions with the
Company in the ordinary course of the Companys business during 2003 and the
Company expects to have such transactions in the future. All loans and
commitments 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.

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PART IV




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
Deloitte Entities) for professional services rendered for the audit of the
Companys annual financial statements for the fiscal years ended December 31,
2003 and 2002 and for the reviews of the financial statements included in the
Companys Quarterly Reports on Form 10-Q for those fiscal years were $166,125
and $132,600, respectively.

Audit-Related Fees

Deloitte Entities did not render any professional services for information
technology services relating to financial information systems design and
implementation for the fiscal years ended December 31, 2003 and December 31,
2002.

Tax Fees

Deloitte Entities did not render any professional services for tax compliance,
tax advice, or tax planning during 2003. The fees associated for the
preparation of the 2002 and 2001 Corporate tax returns were approximately
$7,500, and $6,000 respectively.

All Other Fees

The aggregate fees billed by Deloitte Entities for services rendered to the
Company, other that the services described under Audit Fees and
Audit-Related Fees and tax fees amount to $0 and $16,846 for the fiscal years
December 31, 2003 and 2002, respectively.

In discharging its oversight responsibility with respect to the audit process,
the Audit Committee of the Board of Directors obtained from the independent
auditors a formal written statement describing all relationships between the
auditors and the Company that might bear on the auditors independence
consistent with Independence Standards Board Standard No.1, Independence
Discussions with Audit Committees, discussed with the auditors any
relationships that may impact their objectivity and independence and satisfied
itself as to the auditors independence. The Committee also discussed with
management and the independent auditors the quality and adequacy of Redding
Bancorps internal controls and the outsourced audit functions,
responsibilities, budgeting and staffing. The Committee reviewed with the
independent auditors their audit plans, audit scope and identification of audit
risks.

The Committee discussed and reviewed with the independent auditors all
communications required by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, Communication with Audit Committees, and discussed and
reviewed the results of the independent auditors audit of the financial
statements. The Committee also discussed the results of the internal audit
examinations.

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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
     _51_).                                                                    
|        |  |                                                                                                                                          
|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      _76_)                                                                                                   
|        |  |                                                                                                                                          
|99.1    |  | Certification pursuant to Section 906 of the Sarbannes-Oxley
Act of 2002                                                                 



---

|* |  | Previously filed with the Companys Registration Statement on Form 10
and by the Companys filing of reports on Form 8-K.
|- |  | -------------------------------------------------------------------------------------------------------------------------

75



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##### Table of Contents



(b) Reports on Form 8-K:

On September 17, 2003 the Company filed a Form 8-K announcing the cash
dividend. On November 13, 2003 the Company filed Form 8-K reporting third
quarter financial results.




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 19, 2004.

| |  |                 |  |                           
| |  | --------------- |  | --------------------------
| |  | 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.

76



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##### Table of Contents



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 24, 2004
|Michael C. Mayer           |  | Redding Bank of Commerce and       |  |                  
|                           |  | Director                           |  |                  
|                           |  |                                    |  |                  
|                           |  | Executive Vice President and Chief |  | February 24, 2004
|                           |  | Financial Officer and Assistant    |  |                  
|/s/Linda J. Miles          |  | Secretary (Principal Financial and |  |                  
|                           |  | Accounting Officer)                |  |                  
|Linda J. Miles             |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Robert C. Anderson      |  |                                    |  |                  
|                           |  | Chairman of the Board              |  | February 24, 2004
|Robert C. Anderson         |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Welton L. Carrel        |  |                                    |  |                  
|                           |  | Director                           |  | February 24, 2004
|Welton L. Carrel           |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Russell L. Duclos       |  |                                    |  |                  
|                           |  | Director                           |  | February 24, 2004
|Russell L. Duclos          |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/John C. Fitzpatrick     |  |                                    |  |                  
|                           |  | Vice Chairman of the Board         |  | February 24, 2004
|John C. Fitzpatrick        |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Kenneth R. Gifford, Jr. |  |                                    |  |                  
|                           |  | Director                           |  | February 24, 2004
|Kenneth R. Gifford, Jr.    |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Harry L. Grashoff, Jr.  |  |                                    |  |                  
|                           |  | Director                           |  | February 19, 2004
|Harry L. Grashoff, Jr.     |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Eugene L. Nichols       |  |                                    |  |                  
|                           |  | Director                           |  | February 24, 2004
|Eugene L. Nichols          |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/David H. Scott          |  |                                    |  |                  
|                           |  | Director                           |  | February 24, 2004
|David H. Scott             |  |                                    |  |                  
|                           |  |                                    |  |                  
|/s/Lyle L. Tullis          |  |                                    |  |                  
|                           |  | Director                           |  | February 24, 2004
|Lyle L. Tullis             |  |                                    |  |                  

77



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##### Table of Contents



CERTIFICATIONS

I, Michael C. Mayer, certify that:



|1) |  | I have reviewed this annual report on Form 10-K of Redding Bancorp (the
registrant);                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|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 officer 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
we 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 officer 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 officer and I have indicated in this
annual report whether or not 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 24, 2004

78



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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 (the
registrant);                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|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 officer 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
we 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 officer 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 officer and I have indicated in this
annual report whether or not 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 24, 2004

79



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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.*                                                                                              
|        |  |                                                                                                                                          
|15.1    |  | Statement re: Computation of Earnings Per Share (see page
_51____).                                                                      
|        |  |                                                                                                                                          
|14.0    |  | RBC Code of Ethics*                                                                                                                      
|        |  |                                                                                                                                          
|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 _76____).                                                                                                    
|        |  |                                                                                                                                          
|99.1    |  | Section 906 Certifications 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.
|- |  | -------------------------------------------------------------------------------------------------------

80