##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

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

For the quarterly period ended
September 30, 2002 
OR

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

For the transition period from
__________ to __________ 
Commission file number 0-25135

REDDING BANCORP

(Exact name of Registrant as specified in its charter)


|                                                                                   |  |                                                
|---------------------------------------------------------------------------------- |  | -----------------------------------------------
|California
(State or other jurisdiction of incorporation or organization)          |  | 94-2823865
(I.R.S. Employer Identification No.)
|1951 Churn Creek Road Redding, California
(Address of principal executive offices) |  | 96002
(Zip code)                               

Registrants telephone number, including area code: (530) 224-3333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share

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

Yes [X] No [   ]

Outstanding shares of Common Stock, no par value, as of September 30, 2002: 2,648,122

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TABLE OF CONTENTS



|                              |                                                                                                                                                               |                                                                |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                                                                                 
|                              |                                                                                                                                                               | Consolidated Condensed Balance Sheets (Unaudited)             
|                              |                                                                                                                                                               | Consolidated Condensed Statements of Income (Unaudited)       
|                              |                                                                                                                                                               | Consolidated Condensed Statements of Cash Flows (Unaudited)   
|                              |                                                                                                                                                               | Notes to Unaudited Consolidated Condensed Financial Statements
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT.
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                                                                          
|                              | ITEM 4. CONTROLS AND PROCEDURES                                                                                                                              
|PART II. Other Information   
|                              | Item 1. Legal proceedings                                                                                                                                    
|                              | Item 2. Changes in securities and use of proceeds                                                                                                            
|                              | Item 3. Defaults upon Senior Securities                                                                                                                      
|                              | Item 4. Submission of Matters to a vote of Security Holders                                                                                                  
|                              | Item 5. Other Information                                                                                                                                    
|                              | Item 6A. Exhibits                                                                                                                                            
|                              | Item 6B. Reports on Form 8-K                                                                                                                                 
|SIGNATURES                   
|Exhibit 99.1                 



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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Index to Form 10-Q

|              |  |                                                                                                     |  |      
|------------- |  | --------------------------------------------------------------------------------------------------- |  | -----
|              |  |                                                                                                     |  | Page:
|              |  |                                                                                                     |  |      
|PART I.       |  | Financial Information                                                                               |  |      
|             
|              |  | Item 1. Financial Statements                                                                        |  |      
|             
|              |  | Consolidated Condensed Balance Sheets
September 30, 2002, December 31, 2001 and September 30, 2001  |  | 3    
|             
|              |  | Consolidated Condensed Statements of Income
Three and nine months ended September 30, 2002 and 2001 |  | 4    
|             
|              |  | Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 2002 and 2001       |  | 5    
|             
|              |  | Notes to Consolidated Condensed Financial Statements                                                |  | 6    
|             
|              |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations       |  | 10   
|             
|              |  | Item 3. Quantitative and Qualitative Disclosure about Market Risk                                   |  | 22   
|             
|              |  | Item 4. Controls and Procedures                                                                     |  | 23   
|             
|PART II.      |  | Other Information                                                                                   |  |      
|             
|              |  | Item 1. Legal proceedings                                                                           |  | 24   
|             
|              |  | Item 2. Changes in Securities and use of proceeds                                                   |  | 24   
|             
|              |  | Item 3. Defaults Upon Senior Securities                                                             |  | 24   
|             
|              |  | Item 4. Submission of Matters to a Vote of Security Holders                                         |  | 24   
|             
|              |  | Item 5. Other Information                                                                           |  | 24   
|             
|              |  | Item 6. Exhibits and Report on Form 8-K                                                             |  | 24   
|             
|SIGNATURES    |  | 24                                                                                                 
|             
|CERTIFICATION |  | 25                                                                                                 

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements





REDDING BANCORP & SUBSIDIARIES
Consolidated Condensed Balance Sheets (Unaudited)
(Dollar amounts in thousands)

|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |         |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ------------ | ------- | ------------- | ------- | ------------ | ------- | ------------- | ------- | ------- | ------- | ------- | ------- | 
|                                                                                                                                                                                             |                                            |                   |              |         | September 30, |         | December 31, |         | September 30,
|ASSETS                                                                                                                                                                                       |                                            | 2002              |              | 2001    |               | 2001   
|                                                                                                                                                                                             |                                            |                   |              |         |               |        
|Cash and due from banks                                                                                                                                                                      |                                            | $                 | 18,315       |         |               | $       | 15,528       |         |               | $       | 14,809  |        
|Federal funds sold and securities purchased under agreements to
resell                                                                                                                       |                                            |                   | 25,190       |         |               |         | 25,430       |         |               |         | 23,400  |        
|Securities available-for-sale                                                                                                                                                                |                                            |                   | 52,584       |         |               |         | 40,898       |         |               |         | 43,368  |        
|Securities held to maturity (estimated fair value of $2,898
at September 30, 2002, $4,193 at December 31, 2001
and $4,702 at September 30, 2001)                                             |                                            |                   | 2,722        |         |               |         | 4,117        |         |               |         | 4,524   |        
|Loans, net of the allowance for loan losses of $3,465 at
September 30, 2002, $3,180 at December 31, 2001, $3,189
at September 30, 2001                                                       |                                            |                   | 270,498      |         |               |         | 216,696      |         |               |         | 215,658 |        
|Bank premises and equipment, net                                                                                                                                                             |                                            |                   | 5,402        |         |               |         | 5,339        |         |               |         | 5,343   |        
|Other assets                                                                                                                                                                                 |                                            |                   | 10,075       |         |               |         | 10,678       |         |               |         | 8,366   |        
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        
|                                                                                                                                                                                             |                                            |                   | Total Assets |         | $             | 384,786 |              |         | $             | 318,686 |         |         | $       | 315,468 | 
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                         |                                            |                   |              |         |               |         |              |         |               |         |         |        
|Demand  noninterest bearing                                                                                                                                                                 |                                            | $                 | 52,784       |         |               | $       | 44,525       |         |               | $       | 39,807  |        
|Demand  interest bearing                                                                                                                                                                    |                                            |                   | 89,855       |         |               |         | 69,892       |         |               |         | 61,716  |        
|Savings                                                                                                                                                                                      |                                            |                   | 20,918       |         |               |         | 17,034       |         |               |         | 17,146  |        
|Certificates of deposits                                                                                                                                                                     |                                            |                   | 155,544      |         |               |         | 149,984      |         |               |         | 156,777 |        
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        
|                                                                                                                                                                                             |                                            | Total Deposits    |              |         | 319,101       |         |              |         | 281,435       |         |         |         | 275,446 |        
|Securities sold under agreements to repurchase                                                                                                                                               |                                            |                   | 4,665        |         |               |         | 6,780        |         |               |         | 6,563   |        
|Advances from the Federal Home Loan Bank                                                                                                                                                     |                                            |                   | 28,000       |         |               |         | 0            |         |               |         | 0       |        
|Other Liabilities                                                                                                                                                                            |                                            |                   | 4,244        |         |               |         | 3,231        |         |               |         | 3,721   |        
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        
|                                                                                                                                                                                             |                                            | Total Liabilities |              |         | 356,010       |         |              |         | 291,446       |         |         |         | 285,730 |        
|Stockholders Equity:                                                                                                                                                                        |                                            |                   |              |         |               |         |              |         |               |         |         |        
|Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2002 and 2001                                                                                        |                                            |                   |              |         |               |         |              |         |               |         |         |        
|Common Stock , no par value, 10,000,000 shares
authorized; 2,648,122 shares issued and outstanding
at September 30, 2002, 2,703,457 at December 31, 2001
and 2,757,527 at September 30, 2001 |                                            |                   | 8,720        |         |               |         | 8,851        |         |               |         | 9,010   |        
|Retained Earnings                                                                                                                                                                            |                                            |                   | 19,727       |         |               |         | 18,397       |         |               |         | 20,101  |        
|Accumulated other comprehensive income gain (loss), net of tax                                                                                                                               |                                            |                   | 329          |         |               |         | (8           | )       |               |         | 627     |        
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        
|                                                                                                                                                                                             |                                            |                   | 28,776       |         |               |         | 27,240       |         |               |         | 29,738  |        
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        
|                                                                                                                                                                                             | Total Liabilities and Stockholders Equity |                   | $            | 384,786 |               |         | $            | 318,686 |               |         | $       | 315,468 |        
|                                                                                                                                                                                             |                                            |                   |              |         |               |         |              |         |               |         |         |        

See notes to consolidated financial statements.

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REDDING BANCORP & SUBSIDIARIES
Consolidated Condensed Statements of Income (Unaudited)
(Dollars in thousands, except share data)

|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |        |        | 
|--------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------- | ----- | ------------------ | ----- | ----------------- | ----- | ------------- | ----- | ------------- | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|                                                    |                                                                                    |                            |       | Three months ended |       | Nine months ended
|                                                    |                                                                                    |                            |       |                    |       |                  
|                                                    |                                                                                    |                            |       | September 30,      |       | September 30,     |       | September 30, |       | September 30,
|                                                    |                                                                                    |                            |       | 2002               |       | 2001              |       | 2002          |       | 2001         
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |              
|Interest income:                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    | Interest and fees on loans                                                         |                            | $     | 4,418              |       |                   | $     | 4,483         |       |               | $     | 12,281 |        |   | $     | 13,386 |       
|                                                    | Interest on tax exempt securities                                                  |                            |       | 32                 |       |                   |       | 61            |       |               |       | 113    |        |   |       | 139    |       
|                                                    | Interest on US government securities                                               |                            |       | 306                |       |                   |       | 451           |       |               |       | 925    |        |   |       | 1,226  |       
|                                                    | Interest on federal funds sold and securities
purchased under
agreements to resell |                            |       | 79                 |       |                   |       | 274           |       |               |       | 240    |        |   |       | 727    |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    |                                                                                    | Total interest income      |       |                    | 4,835 |                   |       |               | 5,269 |               |       |        | 13,559 |   |       |        | 15,478 | 
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Interest expense:                                   |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    | Interest on demand deposits                                                        |                            |       | 170                |       |                   |       | 220           |       |               |       | 446    |        |   |       | 752    |       
|                                                    | Interest on savings                                                                |                            |       | 34                 |       |                   |       | 96            |       |               |       | 106    |        |   |       | 282    |       
|                                                    | Interest on time deposits                                                          |                            |       | 1,207              |       |                   |       | 2,085         |       |               |       | 3,906  |        |   |       | 5,847  |       
|                                                    | Securities sold under agreements to repurchase                                     |                            |       | 60                 |       |                   |       | 40            |       |               |       | 77     |        |   |       | 175    |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    |                                                                                    | Total interest expense     |       |                    | 1,471 |                   |       |               | 2,441 |               |       |        | 4,535  |   |       |        | 7,056  | 
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Net interest income                                 |                                                                                    |                            | 3,364 |                    |       |                   | 2,828 |               |       |               | 9,024 |        |        |   | 8,422 |       
|Provision for loan losses                           |                                                                                    |                            | 105   |                    |       |                   | (52   | )             |       |               | 295   |        |        |   | 255   |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Net interest income after provision for loan losses |                                                                                    |                            | 3,259 |                    |       |                   | 2,880 |               |       |               | 8,729 |        |        |   | 8,167 |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Non-interest income:                                |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    | Service charges on deposit accounts                                                |                            |       | 69                 |       |                   |       | 53            |       |               |       | 217    |        |   |       | 159    |       
|                                                    | Credit card service income, net                                                    |                            |       | 108                |       |                   |       | 120           |       |               |       | 317    |        |   |       | 839    |       
|                                                    | Net gain on sale of securities available-for-sale                                  |                            |       | 123                |       |                   |       | 0             |       |               |       | 125    |        |   |       | 100    |       
|                                                    | Other income                                                                       |                            |       | 265                |       |                   |       | 339           |       |               |       | 807    |        |   |       | 830    |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    |                                                                                    | Total non-interest Income: |       |                    | 565   |                   |       |               | 512   |               |       |        | 1,466  |   |       |        | 1,928  | 
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Non-interest expense:                               |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    | Salaries and related benefits                                                      |                            |       | 1,282              |       |                   |       | 1,068         |       |               |       | 3,424  |        |   |       | 2,935  |       
|                                                    | Net occupancy and equipment expense                                                |                            |       | 377                |       |                   |       | 309           |       |               |       | 1,073  |        |   |       | 811    |       
|                                                    | Data processing and professional services                                          |                            |       | 126                |       |                   |       | 145           |       |               |       | 357    |        |   |       | 400    |       
|                                                    | Directors Expense                                                                  |                            |       | 46                 |       |                   |       | 32            |       |               |       | 194    |        |   |       | 129    |       
|                                                    | Other expense                                                                      |                            |       | 397                |       |                   |       | 310           |       |               |       | 1,072  |        |   |       | 968    |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    |                                                                                    | Total non-interest expense |       |                    | 2,228 |                   |       |               | 1,864 |               |       |        | 6,120  |   |       |        | 5,243  | 
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Income before income taxes                          |                                                                                    |                            | 1,596 |                    |       |                   | 1,528 |               |       |               | 4,075 |        |        |   | 4,852 |       
|                                                    | Provision for income taxes                                                         |                            |       | 483                |       |                   |       | 532           |       |               |       | 1,374  |        |   |       | 1,753  |       
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|                                                    |                                                                                    | Net Income                 |       | $                  | 1,113 |                   |       | $             | 996   |               |       | $      | 2,701  |   |       | $      | 3,099  | 
|                                                    |                                                                                    |                            |       |                    |       |                   |       |               |       |               |       |        |        |   |       |       
|Basic earnings per share                            |                                                                                    | $                          | 0.42  |                    |       | $                 | 0.36  |               |       | $             | 1.01  |        |        | $ | 1.09  |       
|Weighted average shares  basic                     |                                                                                    |                            | 2,657 |                    |       |                   | 2,817 |               |       |               | 2,681 |        |        |   | 2,844 |       
|Diluted earnings per share                          |                                                                                    | $                          | 0.39  |                    |       | $                 | 0.33  |               |       | $             | 0.95  |        |        | $ | 1.04  |       
|Weighted average shares  diluted                   |                                                                                    |                            | 2,832 |                    |       |                   | 3,026 |               |       |               | 2,858 |        |        |   | 2,979 |       

See notes to consolidated financial statements.

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REDDING BANCORP & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Nine months ended September 30, 2002 and 2001

|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |               |         |       |         |  
|--------------------------------------------------------------------------------- | -------------------------------- | ------------------------------------------------------------------- | ---------- | ----------------------------------------- | ------- | ------------- | ------- | ------------- | ------- | ----- | ------- | -
|                                                                                  |                                  |                                                                     |            |                                           |         | September 30, |         | September 30,
|                                                                                  |                                  |                                                                     |            |                                           |         | 2002          |         | 2001         
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|Cash flows from operating activities:                                             |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  |                                                                     | Net Income |                                           | $       | 2,701         |         |               | $       | 3,099 |        
|Adjustments to reconcile net income to net
cash provided by operating activities: |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  | Provision for loan losses                                           |            |                                           | 295     |               |         |               | 255     |      
|                                                                                  |                                  | Provision for depreciation and amortization                         |            |                                           | 462     |               |         |               | 398     |      
|                                                                                  |                                  | Compensation associated with stock options                          |            |                                           | 50      |               |         |               | 50      |      
|                                                                                  |                                  | (Gain) on sale of securities available-for-sale                     |            |                                           | (125    | )             |         |               | (100    | )    
|                                                                                  |                                  | Amortization of investment premiums and accretion of
discounts, net |            |                                           | 605     |               |         |               | 491     |      
|                                                                                  |                                  | Gain on sale of loans                                               |            |                                           | (128    | )             |         |               | (79     | )    
|                                                                                  |                                  | Proceeds from sales of loans                                        |            |                                           | 4,087   |               |         |               | 2,858   |      
|                                                                                  |                                  | Loans originated for sale                                           |            |                                           | (4,183  | )             |         |               | (3,778  | )    
|                                                                                  |                                  | Effect of changes in:                                               |            |                                           |         |               |         |               |         |      
|                                                                                  |                                  |                                                                     |            | Other assets                              |         |               | 603     |               |         |       | (1,485  | )
|                                                                                  |                                  |                                                                     |            | Deferred loan fees                        |         |               | 190     |               |         |       | (47     | )
|                                                                                  |                                  |                                                                     |            | Other liabilities                         |         |               | 1,013   |               |         |       | 672     |  
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  |                                                                     |            | Net cash provided by operating activities |         |               | 5,570   |               |         |       | 2,334   |  
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|Cash flows from investing activities:                                             |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  | Proceeds from maturities of available-for-sale securities           |            |                                           | 12,247  |               |         |               | 18,038  |      
|                                                                                  |                                  | Proceeds from sale of available-for-sale securities                 |            |                                           | 22,021  |               |         |               | 4,942   |      
|                                                                                  |                                  | Purchases of available-for-sale securities                          |            |                                           | (44,700 | )             |         |               | (44,719 | )    
|                                                                                  |                                  | Loan origination, net of principal repayments                       |            |                                           | (54,063 | )             |         |               | (23,544 | )    
|                                                                                  |                                  | Purchases of premises and equipment                                 |            |                                           | (544    | )             |         |               | (454    | )    
|                                                                                  |                                  | Proceeds from sales of equipment                                    |            |                                           | 18      |               |         |               | 0       |      
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  |                                                                     |            | Net cash (used) by investing activities   |         |               | (65,021 | )             |         |       | (45,737 | )
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|Cash flows from financing activities:                                             |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  | Net increase in deposits                                            |            |                                           | 35,551  |               |         |               | 53,705  |      
|                                                                                  |                                  | Proceeds from Federal Home Loan Bank advances                       |            |                                           | 28,000  |               |         |               | 5,000   |      
|                                                                                  |                                  | Common stock repurchase transactions                                |            |                                           | (1,773  | )             |         |               | (2,833  | )    
|                                                                                  |                                  | Common stock options exercised                                      |            |                                           | 220     |               |         |               | 127     |      
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  |                                  |                                                                     |            | Net cash provided by financing activities |         |               | 61,998  |               |         |       | 55,999  |  
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|Net increase in cash and cash equivalents                                         |                                  |                                                                     | 2,547      |                                           |         |               | 12,596  |              
|Cash and cash equivalents, beginning of period                                    |                                  |                                                                     | 40,958     |                                           |         |               | 25,613  |              
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|Cash and cash equivalents, end of period                                          |                                  | $                                                                   | 43,505     |                                           |         | $             | 38,209  |              
|                                                                                  |                                  |                                                                     |            |                                           |         |               |         |              
|Supplemental disclosures:                                                         |                                  |                                                                     |            |                                           |         |               |         |              
|                                                                                  | Cash paid during the period for: |                                                                     |            |                                           |         |               |         |               |        
|                                                                                  |                                  |                                                                     |            | Income taxes                              |         | $             | 1,130   |               |         | $     | 2,044   |  
|                                                                                  |                                  |                                                                     |            | Interest                                  |         |               | 4,439   |               |         |       | 7,064   |  

See notes to consolidated financial statements

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REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements

1. Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Redding Bancorp
(the Company), its subsidiaries Redding Bank of Commerce (RBC) and Redding
Service Corporation and all operating divisions. All significant inter-company
balances and transactions have been eliminated. All such adjustments are of a
normal recurring nature. The financial information contained in this report
reflects all adjustments that in the opinion of management are necessary for a
fair presentation of the results of the interim periods. The preparation of
financial statements in conformity with generally accepted accounting
principals requires management to make estimates and assumptions that affect
the reported amounts of certain assets and liabilities at the date of the
financial statements and the reported amounts of certain revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the financial statements and related notes contained in
Redding Bancorps 2001 Annual Report to Shareholders. 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. The results of operations and cash flows for the three and
nine months ended September 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002.

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold and repurchase agreements.
Federal funds sold and repurchase agreements are generally for one day periods.

2. Earnings per Share

Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. The following table displays the
computation of earnings per share for the three months and nine months ended
September 30, 2002 and 2001.

(Dollars in thousands, except per share data)

|                           |                                                 |   |                    |       |                    |   |                    |       |                    |   |       |       |  |   |       |       | 
|-------------------------- | ----------------------------------------------- | - | ------------------ | ----- | ------------------ | - | ------------------ | ----- | ------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                           |                                                 |   | Three Months Ended |       | Nine Months Ended 
|                           |                                                 |   |                    |       |                   
|                           |                                                 |   | September 30, 2002 |       | September 30, 2001 |   | September 30, 2002 |       | September 30, 2001
|                           |                                                 |   |                    |       |                    |   |                    |       |                   
|Basic EPS Calculation:     |                                                 |   |                    |       |                    |   |                    |       |                    |   |       |       |  |   |       |      
|                           | Numerator (net income)                          |   | $                  | 1,113 |                    |   | $                  | 996   |                    |   | $     | 2,701 |  |   | $     | 3,099 | 
|                           | Denominator (average common
shares outstanding) |   |                    | 2,657 |                    |   |                    | 2,817 |                    |   |       | 2,681 |  |   |       | 2,844 | 
|Basic earnings per Share   |                                                 | $ | 0.42               |       |                    | $ | 0.36               |       |                    | $ | 1.01  |       |  | $ | 1.09  |      
|Diluted EPS Calculation:   |                                                 |   |                    |       |                    |   |                    |       |                    |   |       |       |  |   |       |      
|                           | Numerator (net income)                          |   | $                  | 1,113 |                    |   | $                  | 996   |                    |   | $     | 2,701 |  |   | $     | 3,099 | 
|                           | Denominator:                                    |   |                    |       |                    |   |                    |       |                    |   |       |       |  |   |       |       | 
|                           | Average common shares outstanding               |   |                    | 2,657 |                    |   |                    | 2,817 |                    |   |       | 2,681 |  |   |       | 2,844 | 
|                           | Options                                         |   |                    | 175   |                    |   |                    | 209   |                    |   |       | 177   |  |   |       | 135   | 
|                           |                                                 |   |                    |       |                    |   |                    |       |                    |   |       |       |  |   |       |      
|                           |                                                 |   | 2,832              |       |                    |   | 3,026              |       |                    |   | 2,858 |       |  |   | 2,979 |      
|Diluted earnings per Share |                                                 | $ | 0.39               |       |                    | $ | 0.33               |       |                    | $ | 0.95  |       |  | $ | 1.04  |      
|                           |                                                 |   |                    |       |                    |   |                    |       |                    |   |       |       |  |   |       |      

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3. Comprehensive Income

The Companys total comprehensive earnings were as follows:

|                                         |                                                          |   |                    |     |                   |   |               |     |               |   |       |     |   |   |       |     | 
|---------------------------------------- | -------------------------------------------------------- | - | ------------------ | --- | ----------------- | - | ------------- | --- | ------------- | - | ----- | --- | - | - | ----- | --- | 
|                                         |                                                          |   | Three Months Ended |     | Nine Months Ended
|                                         |                                                          |   |                    |     |                  
|                                         |                                                          |   | September 30,      |     | September 30,     |   | September 30, |     | September 30,
|                                         |                                                          |   | 2002               |     | 2001              |   | 2002          |     | 2001         
|                                         |                                                          |   |                    |     |                   |   |               |     |              
|Net Income as reported                   |                                                          | $ | 1,113              |     |                   | $ | 996           |     |               | $ | 2,701 |     |   | $ | 3,099 |    
|Other comprehensive income
(net of tax): |                                                          |   |                    |     |                   |   |               |     |               |   |       |     |   |   |       |    
|                                         | Unrealized holding gain on
securities available-for-sale |   |                    | 261 |                   |   |               | 518 |               |   |       | 420 |   |   |       | 541 | 
|                                         | Less reclassification adjustment                         |   |                    | (86 | )                 |   |               | 0   |               |   |       | (83 | ) |   |       | 0   | 
|                                         |                                                          |   |                    |     |                   |   |               |     |               |   |       |     |   |   |       |    
|Total other comprehensive income         |                                                          |   | 175                |     |                   |   | 518           |     |               |   | 337   |     |   |   | 541   |    
|Total comprehensive income               |                                                          | $ | 1,288              |     |                   | $ | 1,514         |     |               | $ | 3,038 |     |   | $ | 3,640 |    
|                                         |                                                          |   |                    |     |                   |   |               |     |               |   |       |     |   |   |       |    

4. Segment Reporting

The Company has two reportable segments: commercial banking and credit card
services. The Company conducts a general commercial banking business in the
counties of El Dorado, Placer, Shasta, and Sacramento, California. The
principal commercial banking activities include a full-array of deposit
accounts and related services and commercial lending for businesses and their
interests. Credit card services are limited to those revenues and data
processing costs associated with its agreement with an Independent Sales
Organization (ISO), pursuant to which the Bank provides credit and debit card
processing services for merchants solicited by the ISO or the Bank who accept
credit and debit cards as payments for goods and services. Effective April 1,
2001, the Company has signed a new agreement for credit card services with the
ISO. The new pricing of the agreement is .02% of transaction processing
compared with .135% of transaction processing under the old agreement.

The following table presents financial information about the Companys
reportable segments:

|                                      |  |                    |       |                   |  |               |       |               |  |   |       |  |  |   |       | 
|------------------------------------- |  | ------------------ | ----- | ----------------- |  | ------------- | ----- | ------------- |  | - | ----- |  |  | - | ----- | 
|                                      |  | Three Months Ended |       | Nine Months Ended
|                                      |  |                    |       |                  
|                                      |  | September 30,      |       | September 30,     |  | September 30, |       | September 30,
|Net income before taxes allocated to: |  | 2002               |       | 2001              |  | 2002          |       | 2001         
|                                      |  |                    |       |                   |  |               |       |              
|Commercial Banking                    |  | $                  | 1,488 |                   |  | $             | 1,408 |               |  | $ | 3,758 |  |  | $ | 4,013 | 
|Credit card services                  |  |                    | 108   |                   |  |               | 120   |               |  |   | 317   |  |  |   | 839   | 
|                                      |  |                    |       |                   |  |               |       |               |  |   |       |  |  |   |       | 
|                                      |  | $                  | 1,596 |                   |  | $             | 1,528 |               |  | $ | 4,075 |  |  | $ | 4,852 | 
|                                      |  |                    |       |                   |  |               |       |               |  |   |       |  |  |   |       | 

5. Stock Option Plans

The Company maintains 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 options (NSOs) 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 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) aligning 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. Under the Plan, stock options typically vest over a
five-year time period. Vesting may be accelerated in the event of an optionees
death, disability, retirement or in the event of a change of control. A total
of 594,000 shares of the Companys common stock are reserved for grant under
the Plan.

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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, 2001 and March 31, 2002 |           |  | 427,850 |         |          | $ | 9.87     |      
|                                                          |           |  |         |         |          |   |          |      
|Options outstanding, March 31, 2002                       |           |  | 427,850 |         |          | $ | 9.87     |      
|                                                          | Granted   |  |         | 0       |          |   | $        | 0.00  | 
|                                                          | Exercised |  |         | (4,620  | )        |   | $        | 9.70  | 
|                                                          | Forfeited |  |         | (990    | )        |   | $        | 9.70  | 
|Options outstanding, June 30, 2002                        |           |  | 422,240 |         |          | $ | 9.87     |      
|                                                          | Granted   |  |         | 22,300  |          |   | $        | 20.00 | 
|                                                          | Exercised |  |         | (18,026 | )        |   | $        | 9.70  | 
|                                                          | Forfeited |  |         | (4,228  | )        |   | $        | 16.57 | 
|Options outstanding September 30, 2002                    |           |  | 422,286 |         |          | $ | 15.32    |      

6. Recent Accounting Pronouncements

Business Combinations and Goodwill and Other Intangible Assets

Effective June 30, 2001, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinationswhich addresses the
elimination of pooling accounting treatment in business combinations and the
financial accounting and reporting for acquired goodwill and other intangible
assets at acquisition, and adopted January 1, 2002 and SFAS No. 142, Goodwill
and Other Intangible Assetswhich addresses financial accounting and reporting
for acquired goodwill and other intangible assets at acquisition in
transactions other than business combinations covered by SFAS No. 141, and the
accounting treatment of goodwill and other intangible assets after acquisition
and initial recognition in the financial statements. The adoption of these
statements did not have any impact on the Companys consolidated financial
position, results of operations, or cash flows, as the Company had no goodwill
as of January 1, 2002 and all of the Companys intangible assets, comprised of
core deposit intangibles, have finite lives and are continuing to be amortized.

Impairment or Disposal of Long-Lived Assets

Effective January 1, 2002, the Company adopted SFAS No. 144, Accounting For
The Impairment Or Disposal Of Long-Lived Assets.SFAS No. 144 supersedes SFAS
No. 121, Accounting For The Impairment Of Long-Lived Assets And For Long-Lived
Assets To Be Disposed Ofand the accounting and reporting provisions of
Accounting Principles Board (APB) Opinion No. 30, Reporting The Results Of
Operations  Reporting The Effects Of Disposal Of A Segment Of A Business, And
Extraordinary, Unusual and Infrequently Occurring Events And Transactions".
SFAS No. 144 unifies the accounting treatment for various types of long-lived
assets to be disposed of, and resolves implementation issues related to SFAS
No. 121.

The adoption of SFAS No. 144 did not have any effect on the Companys financial
position, results of operations, or cash flows, as the Company had no
long-lived assets that were considered impaired or that were to be disposed of
as of January 1, 2002.

In April 2002, the Financial Accounting Standards Board {FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections.SFAS No. 145 rescinds and amends these statements to
eliminate any inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions.

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SFAS No. 145 also amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions including clarification that gains or
losses from normal extinguishments of debt need not be classified as
extraordinary items. The Company adopted SFAS No. 145 as of April 1, 2002.
The adoption did not have a significant impact on the Companys financial
position, results of operations, or cash flows.

In June 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities, which addresses accounting for restructuring and
similar costs. SFAS 146 supersedes previous accounting guidance, principally
Emerging Issues Task Force Issue No. 94-3. The Company will adopt the
provisions of SFAS 146 for restructuring activities initiated after December
31, 2002. SFAS 146 requires that the liability for costs associated with an
exit or disposal activity be recognized when the liability is incurred. Under
Issue 94-3, a liability for an exit cost was recognized at the date of the
Companys commitment to an exit plan. SFAS 146 also establishes that the
liability should initially be measured and recorded at fair value.
Accordingly, SFAS 146 may affect the timing of recognizing future restructuring
costs as well as the amounts recognized.

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|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS PRIVATE SECURITIES LITIGATION REFORM ACT SAFE
HARBOR STATEMENT.
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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



| |  | Competitive pressure in the banking industry and changes in the regulatory environment.                                                                                                
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Changes in the interest rate environment and volatility of rate sensitive deposits.                                                                                                    
| 
| |  | The health of the economy declines nationally or regionally which could reduce the demand
for loans or reduce the value of real estate collateral securing most of the
Companys loans.
| 
| |  | Credit quality deteriorates which could cause an increase in the provision for loan
losses.                                                                                            
| 
| |  | Losses in the Companys merchant credit card processing business.                                                                                                                      
| 
| |  | Asset/Liability matching risks and liquidity risks.                                                                                                                                    
| 
| |  | Changes in the securities markets.                                                                                                                                                     

For additional information concerning risks and uncertainties related to
the Company and its operations please refer to the Companys Annual Report on
Form 10-K for the year ended December 31, 2001 under the heading Risk factors
that may affect results. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to revise or publicly release the results of
any revision to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

The following sections discuss significant changes and trends in financial
condition, capital resources and liquidity of the Company from December 31,
2001 to September 30, 2002. Also discussed are significant trends and changes
in the Companys results of operations for the three and nine months ended
September 30, 2002, compared to the same period in 2001. The consolidated
financial statements and related notes appearing elsewhere in this report are
condensed and unaudited. The following discussion and analysis is intended to
provide greater detail of the Companys financial condition and results.

General

Redding Bancorp (the Company) is a financial holding company (FHC) with one
subsidiary bank, Redding Bank of Commerce, and Redding Service Corporation,
which currently engages in processing trust deeds for real estate transactions.
The Company has its principal offices in Redding, California. A financial
holding company may engage in a commercial banking, insurance and securities
business and offer other financial products to consumers. The Company currently
engages in a general commercial banking business in Redding and Roseville and
the counties of El Dorado, Placer, Shasta, and Sacramento, California.

The Company considers Upstate California to be its major market area. The
Company conducts its business through Redding Bank of Commerce (the Bank),
its principal subsidiary, and Roseville Bank of Commerce, a division of the
Bank. The Company has three full-service offices and one focused service
office. The focused service concentrates on stable deposit funding.

The Company provides a wide range of commercial banking services to small and
medium-sized businesses, real estate developers, property managers, business
executives, professionals and other individuals. The services offered by the
Company include business checking, interest-bearing checking (NOW) and
savings accounts, money market deposit accounts; commercial, construction, real
estate, SBA and line of credit loans, travelers checks, safe deposit boxes,
lockbox services, telephone and Internet banking including commercial cash
management.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

The Companys goal is to be a premier provider of services to the business and
professional community of its major market area including Small Business
Administration (SBA) loans, commercial building financing, credit card
services, payroll and accounting packages, lockbox and billing programs. The
Company measures premier by monitoring key operating ratios to high performing
peer information on a national level, and models strategies to meet or exceed
such goals.

The Companys strength is in relationship banking to small and medium sized
businesses and professionals, commercial real estate financing, with special
attention to personalized service. The Company offers a host of financial
services designed to compliment the small business and professional
customer 
including direct courier, online cash management and E-statement  so the
professional never has to leave their office.

The Company derives its income from two principal sources: (i) net interest
income, which is the difference between the interest income it receives on
interest-earning assets and the interest expense it pays on interest-bearing
liabilities, and (ii) fee income, which includes fees earned on deposit
services, income from SBA lending, electronic-based cash management services
and merchant credit card processing services. Management considers the business
of the Company to be divided into two segments: (i) commercial banking and (ii)
credit card services. Credit card services are limited to those revenues, net
of related data processing costs, associated with the Merchant Services
Agreement and the Banks agreement to provide credit and debit card processing
services for merchants solicited by the Bank who accept credit and debit cards
as payments for goods and services.

Critical Accounting Policies

The Companys financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The
Companys significant accounting policies are presented in Note 2 to the
Consolidated Financial Statements contained in the Companys 2001 Annual Report
on Form 10-K. The Company follows accounting policies typical to the community
commercial banking industry and in compliance with various regulations and
guidelines as established by the Financial Accounting Standards Board (FASB)
and the Banks primary federal regulator, the FDIC.

The Companys most significant management accounting estimate is the
appropriate level for the allowance for loan losses. The Company follows a
methodology for calculating the appropriate level for the allowance for loan
losses. However, various factors, many of which are beyond the control of the
Company, could lead to significant revisions in the amount of allowance for
loan losses in future periods, with a corresponding impact upon the results of
operations. In addition, the calculation of the allowance for loan losses is
by nature inexact, as the allowance represents Managements best estimate of
the loan losses inherent in the Companys credit portfolios at the reporting
date. These loan losses will occur in the future, and as such cannot be
determined with absolute certainty at the reporting date.

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.

The Company applies Accounting Principles Board (APB) Opinion No. 25 and
related interpretations in accounting for stock options. Under APB No. 25,
compensation cost for stock options is measured as the excess, if any, of the
fair market value of the Companys stock at the date of grant over the amount
the employee or director must pay to acquire the stock. Because the Companys
stock option Plans provides for the issuance of options at a price of no less
than the fair market value at the date of grant, no compensation cost is
required to be recognized for the stock option Plans.

Had compensation costs for the stock option Plans been determined based upon
the fair value at the date of grant consistent with SFAS No. 123, Accounting
for Stock Based Compensation, the Companys net income and earnings per share
would have been reduced.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

The amount of the reduction for the fiscal years 1999 through 2001 is disclosed
in Note 11 to the Consolidated Financial Statements contained in the 2001
Annual Report on Form 10-K, based upon the assumptions listed therein.
Accounting principles generally accepted in the United States of America
(GAAP), itself may change over time, having impact over the reporting of the
Companys financial activity. Although the economic substance of the Companys
transactions would not change, alterations in GAAP could affect the timing or
manner of accounting or reporting.

RESULTS OF OPERATIONS

The following table summarizes income, income per share and key financial
ratios for the periods indicated using two measurements:

|                                        |         |                    |   |                    |      |                    |   |                    |      |  |   |       |      |  |   |       |      | 
|--------------------------------------- | ------- | ------------------ | - | ------------------ | ---- | ------------------ | - | ------------------ | ---- |  | - | ----- | ---- |  | - | ----- | ---- | 
|                                        |         |                    |   | Net Income         |      | Net Income        
|                                        |         |                    |   |                    |      |                   
|                                        |         |                    |   | Three Months       |      | Three Months       |   |                    |      |  |   |       |      | 
|(Dollars in thousands, except per share |         | Ended              |   | Ended              |      | Nine Months Ended  |   | Nine Months Ended 
|amounts)                                |         | September 30, 2002 |   | September 30, 2001 |      | September 30, 2002 |   | September 30, 2001
|                                        |         |                    |   |                    |      |                    |   |                   
|Net Income                              |         |                    | $ | 1,113              |      |                    | $ | 996                |      |  | $ | 2,701 |      |  | $ | 3,099 |     
|Net Income per share:                   |         |                    |   |                    |      |                    |   |                    |      |  |   |       |      |  |   |       |     
|                                        | Basic   |                    |   | $                  | 0.42 |                    |   | $                  | 0.36 |  |   | $     | 1.01 |  |   | $     | 1.09 | 
|                                        | Diluted |                    |   | $                  | 0.39 |                    |   | $                  | 0.33 |  |   | $     | 0.95 |  |   | $     | 1.04 | 
|Return on average assets                |         |                    |   | 1.28               | %    |                    |   | 1.32               | %    |  |   | 1.10  | %    |  |   | 1.49  | %   
|Return on average equity                |         |                    |   | 16.43              | %    |                    |   | 14.14              | %    |  |   | 13.55 | %    |  |   | 14.68 | %   

Net Income

The Company reported earnings of $1,113,000, for the quarter ended September
30, 2002. The quarterly earnings represent an 11.7% increase from the $996,000
reported for the same quarterly period of 2001. Diluted earnings per share for
the third quarter of 2002 were $0.39, compared to $0.33 for the same period of
2001. Earnings for the nine-month period ended September 30, 2002, were
$2,701,000 a 12.8% decrease compared with $3,099,000 for the nine months ended
September 30, 2001. Diluted earnings per share for the nine months ended
September 30, 2002 was $0.95, compared to $1.04 for the same period in 2001.

Net Interest Income and Net Interest Margin

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

The net effect of the increase in volume of earning assets and decreasing
interest rate pressure on interest bearing liabilities offset by yields on
earning assets, resulted in an increase of $602,000 or 7.1% in net interest
income for the nine month period ended September 30, 2002 from the same period
in 2001. Net interest margin decreased 33 basis points to 4.07% from 4.40% for
the same period a year ago. Yields on earning assets dropped to 6.11% compared
with 8.09% a year ago. Funding costs dropped to 2.44% compared with 4.41% a
year ago. Per plan, the increased volume of earning assets has mitigated the
effect of the 4.75% rate reductions that occurred during 2001.

The Companys internal financial models indicate that in periods of falling
interest rates the net interest margin is expected to decrease while in periods
of rising interest rates its margin is expected to increase. The decrease of
net interest margin is magnified by the fact that the Companys assets reprice
at a more rapid rate than liabilities. At the current low rates, any
additional rate reductions will cause an additional reduction in interest
margins.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Growth

The Company continues to experience exceptional growth in assets; $66.1 million
or 20.7% since December 31, 2001. The focus has been centered on increasing
loan volumes to mitigate the low interest rate environment while maintaining
the quality of assets. As per plan, the growth has been funded by reallocating
investments and federal funds sold into higher yielding loan products. Loans
have grown $17.9 million during the third quarter or 7.1% and $53.8 million or
24.8% since December 31, 2001. Loan growth is funded by sales of investment
securities, federal funds sold, increases in deposit balances, and short term
borrowings.

The Business Development division has started an aggressive marketing program
focused on increasing the deposit market share of the Company. The program is
supported by newspaper ads, a mailing piece, direct call, an officer visit to
the customers place of business and a special offer for financial services.
The results of these efforts culminate in core deposit increases of $10.9
million or 7.2% during the third quarter, $32.1 million or 24.4% year-to-date.
Core deposits are non-interest-bearing demand, interest bearing demand and
savings accounts.

Liquidity

The Companys consolidated liquidity position remains adequate to meet future
contingencies. At September 30, 2002 the Companys liquidity ratio was 25.0% of
total assets. Per plan, Investment securities and federal funds sold have been
reinvested in loan production improving overall yield. The Company develops
liquidity through deposit growth, maturities and repayments of loans and
investments, net interest income, fee income and access to borrowing lines.
Loan growth has outpaced deposit growth during the quarter, as anticipated, as
deposit relationships take longer to transition into the bank.

During the third quarter, the Company borrowed $10.0 million from the Federal
Home Loan Bank to support loan growth and an additional $18.0 million was
borrowed and leveraged into investment securities, available for sale, with an
income spread of at least 2.25%. The average cost of the borrowings is 1.79%
with staged maturities through August 2003.

Credit Quality

Anchored to loan growth is the underwriting quality within the loan portfolio.
The Companys most significant management accounting estimate is the
appropriate level for the allowance for loan losses. The Company follows a
methodology for calculating the appropriate level for the allowance for loan
losses. Provision for loan losses of $295,000 were provided for the nine
months ended September 30, 2002 compared with $255,000 for the same period of
2001. Redding Bancorps allowance for loan losses was 1.26% of total loans at
September 30, 2002 and 1.46% at September 30, 2001, while its ratio of
non-performing assets to total assets was 0.09% at September 30, 2002, compared
to 0.33% at September 30, 2001. Year-to-date net charge-offs of $10,000 compare
favorably to net charge-offs of $102,000 in the same period last year.

Non-interest income

Non-interest income increased $53,000 or 10.4% for the quarter over September
2001 and decreased $462,000 or 24.0% over the prior year to date. Service
charge income increased $16,000 or 30.2% for the quarter over September 2001
and $58,000 or 36.5% over the prior year, reflective of deposit growth.

Merchant bankcard processing services are highly regulated by credit card
associations such as Visa. In order to participate in the credit card program,
Redding Bank of Commerce must comply with the credit card associations rules
and regulations that may change from time to time.

13



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

During November 1999, Visa adopted several rule changes to reduce the risk
profile in high-risk acquiring programs and these rule changes affect the
Banks credit card services business segment. These changes include a
requirement that an acquiring processors reported fraud ratios be no greater
than three times the national average.

Redding Bank of Commerces overall fraud ratio met and complied with the Visa
requirement. Other Visa changes announced included the requirement that total
processing volume in certain high-risk categories (as defined by Visa) is less
than 20% of total processing volume.

Credit card income is significantly reduced both at the quarter and
year-to-date reflective of new contract pricing that took effect on May 1, 2001
and the effect of Visa limitations of processing related to capital.

The new contract pricing is a reduction in fee pricing to 2 basis points from
13.5 basis points. Quarterly earnings were $108,000 compared with $120,000
representing at 10.0% decrease over the same quarterly period in 2001. Earnings
for the nine-month period were $317,000 compared with $839,000 representing a
62.2% decrease over the same nine-month period in 2001.

Management is pursuing various strategies to offset the decline in revenues,
including the expansion of the Roseville Bank of Commerce, a division of the
bank, an aggressive loan growth and core deposit focused business development
program, and a recently expanded mortgage division.

In September 2002, the Company began to offer Image data capturing services for
other financial service companies. One contract is in place and is expected to
add fee income of $5,000 per month, net of expenses beginning in October 2002.

Also in September 2002, the Company repositioned its investment portfolio
selling $10.0 million in U.S. Government Agency investments with scheduled call
dates. The sales of these investments resulted in net gains to income of
$123,000 for the period.

Non-interest expense

Non-interest expense increased $364,000 or 19.5% for the quarter over September
2001 and $877,000 or 16.7% over the prior year to date.

Salaries and benefits have increased $214,000 (20.0%) for the quarter over
September 2001 and $489,000 or 16.7% over the prior year reflective of
additions to staff to support new markets and volume increases coupled with a
77% increase in workers compensation insurance expense, reflective of the
current market for insurance coverage.

Occupancy expense has increased $68,000 or 22.0% for the quarter over
September 2001 and $262,000 or 32.3% over the prior year to date. The increase
in occupancy and premise expense is attributed to the relocation and expansion
of the Roseville Bank of Commerce, a division of the bank. Fixed asset
increases include the addition of five courier vehicles to support both
markets. Data processing increases are reflective of the support of the
Roseville market in lockbox operations.

All other expenses show modest increases over prior periods, reflective of
growth.

14



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

The following table presents the Companys daily average balance sheet
information together with interest income and yields earned on average
interest-bearing assets and interest expense and rates paid on average
interest-bearing liabilities. Average balances are average daily balances.

|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|------------------------------------------- |  | ------------------------------------ | ------- | ------------------------------------ |  | ---------- | ------ | ------- |  | -------- | ----- | ---------- |  | - | ------- | ------- |  | - | ------ |  |  |  | ----- | -
|                                            |  | Nine Months ended September 30, 2002 |         | Nine Months ended September 30, 2001
|                                            |  |                                      |         |                                     
|                                            |  | Average                              |         |                                      |  |            |        | Average |  | Average  |       |            |  |   |         | Average
|(Dollars in thousands)                      |  | Balance                              |         | Interest                             |  | Yield/Rate |        | Balance |  | Interest |       | Yield/Rate
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |           
|Interest Earning Assets                     |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Portfolio Loans                             |  | $                                    | 244,848 |                                      |  | $          | 12,281 |         |  |          | 6.69  | %          |  | $ | 200,771 |         |  | $ | 13,386 |  |  |  | 8.89  | %
|Tax-exempt Securities                       |  |                                      | 3,579   |                                      |  |            | 113    |         |  |          | 4.21  | %          |  |   | 4,325   |         |  |   | 139    |  |  |  | 4.29  | %
|US Government Securities                    |  |                                      | 33,170  |                                      |  |            | 925    |         |  |          | 3.72  | %          |  |   | 28,585  |         |  |   | 1,226  |  |  |  | 5.72  | %
|Federal Funds Sold                          |  |                                      | 13,353  |                                      |  |            | 168    |         |  |          | 1.68  | %          |  |   | 20,678  |         |  |   | 662    |  |  |  | 4.27  | %
|Other Securities                            |  |                                      | 883     |                                      |  |            | 72     |         |  |          | 10.87 | %          |  |   | 778     |         |  |   | 65     |  |  |  | 11.14 | %
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Average Earning Assets                      |  | $                                    | 295,833 |                                      |  | $          | 13,559 |         |  |          | 6.11  | %          |  | $ | 255,137 |         |  | $ | 15,478 |  |  |  | 8.09  | %
|Cash & Due From Banks                       |  | $                                    | 19,625  |                                      |  |            |        |         |  |          |       |            |  | $ | 11,448  |         |  |   |        |  |  |  |       |  
|Bank Premises                               |  |                                      | 5,391   |                                      |  |            |        |         |  |          |       |            |  |   | 5,260   |         |  |   |        |  |  |  |       |  
|Allowance for Loan Losses                   |  |                                      | (3,302  | )                                    |  |            |        |         |  |          |       |            |  |   | (2,871  | )       |  |   |        |  |  |  |       |  
|Other Assets                                |  |                                      | 8,983   |                                      |  |            |        |         |  |          |       |            |  |   | 7,627   |         |  |   |        |  |  |  |       |  
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Average Total Assets                        |  | $                                    | 326,530 |                                      |  |            |        |         |  |          |       |            |  | $ | 276,601 |         |  |   |        |  |  |  |       |  
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Interest Bearing Liabilities                |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Demand Interest Bearing                     |  | $                                    | 77,753  |                                      |  |            | 446    |         |  |          | 0.76  | %          |  | $ | 53,517  |         |  | $ | 752    |  |  |  | 1.87  | %
|Savings Deposits                            |  |                                      | 18,179  |                                      |  |            | 106    |         |  |          | 0.78  | %          |  |   | 14,242  |         |  |   | 282    |  |  |  | 2.64  | %
|Certificates of Deposit                     |  |                                      | 143,297 |                                      |  |            | 3,906  |         |  |          | 3.63  | %          |  |   | 139,143 |         |  |   | 5,847  |  |  |  | 5.60  | %
|Borrowings                                  |  |                                      | 8,685   |                                      |  |            | 77     |         |  |          | 1.18  | %          |  |   | 6,451   |         |  |   | 175    |  |  |  | 3.62  | %
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|                                            |  |                                      | 247,914 |                                      |  |            | 4,535  |         |  |          | 2.44  | %          |  |   | 213,353 |         |  | $ | 7,056  |  |  |  | 4.41  | %
|Non Interest Demand                         |  |                                      | 48,791  |                                      |  |            |        |         |  |          |       |            |  |   | 31,651  |         |  |   |        |  |  |  |       |  
|Other Liabilities                           |  |                                      | 3,252   |                                      |  |            |        |         |  |          |       |            |  |   | 3,452   |         |  |   |        |  |  |  |       |  
|Shareholder Equity                          |  |                                      | 26,573  |                                      |  |            |        |         |  |          |       |            |  |   | 28,145  |         |  |   |        |  |  |  |       |  
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Average Liabilities & Shareholder Equity    |  | $                                    | 326,530 |                                      |  |            |        |         |  |          |       |            |  | $ | 276,601 |         |  |   |        |  |  |  |       |  
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  
|Net Interest Income and Net Interest Margin |  |                                      |         |                                      |  | $          | 9,024  |         |  |          | 4.07  | %          |  |   |         |         |  | $ | 8,422  |  |  |  | 4.40  | %
|                                            |  |                                      |         |                                      |  |            |        |         |  |          |       |            |  |   |         |         |  |   |        |  |  |  |       |  

15



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

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

Nine Months ended September 30, 2002
Compared with September 30, 2001
favorable / (unfavorable)

|                                                 |                           |                |                |       |     |       |        |        |        |        |     |        |        |        |  
|------------------------------------------------ | ------------------------- | -------------- | -------------- | ----- | --- | ----- | ------ | ------ | ------ | ------ | --- | ------ | ------ | ------ | -
|Interest Earned on                               |                           |                |                |       |     |       |        |        |        |        |     |       
|Interest-Bearing Assets                          |                           | Volume         |                | Rate  |     | Net  
|                                                 |                           |                |                |       |     |      
|Interest Income                                  |                           |                |                |       |     |       |        |        |        |        |     |       
|                                                 | Portfolio loans           |                | $              | 2,211 |     |       | $      | (3,316 | )      |        | $   | (1,105 | )     
|                                                 | Securities -Tax exempt    |                |                | (24   | )   |       |        | (2     | )      |        |     | (26    | )     
|                                                 | Securities -US Government |                |                | 128   |     |       |        | (429   | )      |        |     | (301   | )     
|                                                 | Federal Funds Sold        |                |                | (92   | )   |       |        | (402   | )      |        |     | (494   | )     
|                                                 | Other Securities          |                |                | 9     |     |       |        | (2     | )      |        |     | 7      |       
|                                                 |                           |                |                |       |     |       |        |        |        |        |     |       
|                                                 |                           |                | Total Increase |       | $   | 2,232 |        |        | $      | (4,151 | )   |        | $      | (1,919 | )
|                                                 |                           |                |                |       |     |       |        |        |        |        |     |       
|Interest Expense on Interest-Bearing Liabilities |                           |                |                |       |     |       |        |        |        |        |     |       
|Interest Expense                                 |                           |                |                |       |     |       |        |        |        |        |     |       
|                                                 | Interest Bearing Demand   |                | $              | 139   |     |       | $      | (445   | )      |        | $   | (306   | )     
|                                                 | Savings Deposits          |                |                | 23    |     |       |        | (199   | )      |        |     | (176   | )     
|                                                 | Certificates of Deposit   |                |                | 113   |     |       |        | (2,054 | )      |        |     | (1,941 | )     
|                                                 | Borrowings                |                |                | 20    |     |       |        | (118   | )      |        |     | (98    | )     
|                                                 |                           |                |                |       |     |       |        |        |        |        |     |       
|                                                 |                           | Total Increase |                | $     | 295 |       |        | $      | (2,816 | )      |     | $      | (2,521 | )     
|                                                 |                           |                |                |       |     |       |        |        |        |        |     |       
|Net Increase                                     |                           | $              | 1,937          |       |     | $     | (1,335 | )      |        | $      | 602 |       
|                                                 |                           |                |                |       |     |       |        |        |        |        |     |       

Non-interest Income

The Companys non-interest income consists of service charges on deposit
accounts, other fee income and processing fees for merchants who accept credit
card payments for goods and services. Service charges have increased $16,000 or
30.2% for the quarter ended and $58,000 or 36.5% over the prior year as a
result of core deposit volume increases.

In April 1993, the Bank entered into an agreement (the Merchant Services
Agreement) with Cardservice International, Inc. (CSI), an independent sales
organization (ISO) and nonbank merchant credit card processor, pursuant to
which the Bank has agreed to provide credit and debit card processing services
for merchants solicited by CSI who accept credit and debit cards as payment for
goods and services. Pursuant to the Merchant Services Agreement, the Bank acts
as a clearing bank for CSI and processes credit or debit card transactions into
the Visa® or MasterCard® system for presentment to the card issuer. As a
result of the Merchant Services Agreement, the Bank has acquired electronic
credit and debit card processing relationships with merchants in various
industries on a nationwide basis. The Merchant Services Agreement was renewed
on March 28, 2001 for a period of four years, which expires on April 1, 2005,
and will automatically renew for additional four-year periods unless terminated
in advance of the renewal period by CSI upon 90 days written notice or by the
Bank upon 30 days prior written notice. The terms of the renewal represent a
reduction in earnings on volume from .135% to .02% effective May 1, 2001.

16



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Credit card income quarterly earnings were $108,000 compared with $120,000
representing at 10.0% decrease over the same quarterly period in 2001. Earnings
for the nine-month period were $317,000 compared with $839,000 representing a
62.2% decrease over the same nine-month period in 2001. The earnings for this
nine-month period are representative of the earning expectations over the life
of the new contract.

During the third quarter 2002, the investment portfolio was repositioned
selling callable agency paper. The sales resulted in gains from investment
sales of $123,000.

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

|                         |                                               |      |                    |      |                   |      |               |      |               |   |       |     |  |   |       |     | 
|------------------------ | --------------------------------------------- | ---- | ------------------ | ---- | ----------------- | ---- | ------------- | ---- | ------------- | - | ----- | --- |  | - | ----- | --- | 
|                         |                                               |      | Three Months Ended |      | Nine Months Ended
|                         |                                               |      |                    |      |                  
|                         |                                               |      | September 30,      |      | September 30,     |      | September 30, |      | September 30,
|Non-interest Income      |                                               | 2002 |                    | 2001 |                   | 2002 |               | 2001
|                         |                                               |      |                    |      |                   |      |               |     
|                         | Service Charges                               |      | $                  | 69   |                   |      | $             | 53   |               |   | $     | 217 |  |   | $     | 159 | 
|                         | Credit Card Income, net                       |      |                    | 108  |                   |      |               | 120  |               |   |       | 317 |  |   |       | 839 | 
|                         | Gain on sale of securities available-for-sale |      |                    | 123  |                   |      |               | 0    |               |   |       | 125 |  |   |       | 100 | 
|                         | Other Income                                  |      |                    | 265  |                   |      |               | 339  |               |   |       | 807 |  |   |       | 830 | 
|                         |                                               |      |                    |      |                   |      |               |      |               |   |       |     |  |   |       |    
|Total noninterest income |                                               | $    | 565                |      |                   | $    | 512           |      |               | $ | 1,466 |     |  | $ | 1,928 |    
|                         |                                               |      |                    |      |                   |      |               |      |               |   |       |     |  |   |       |    

Non-interest Expense

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

For the quarter ended September 30, 2002, non-interest expense increased
$364,000 or 19.5% over the same period in 2001. Salaries and benefits increased
$214,000 or 20.0% over the same period in 2001 reflective of additions to
staffing to support the new markets and volume. Occupancy expenses rose by
$68,000 or 22.0% as a result of the expansion and relocation of the Roseville
Bank of Commerce at Eureka Road in Roseville, California coupled with the
addition of courier vehicles and services.

For the nine months ended September 30, 2002, noninterest expense increased
$877,000 or 16.7% over the same nine-month period in 2001. Salaries and
benefits increased $489,000 or 16.7% over the same nine-month period in 2001,
reflective of additions to staff to support growth and volumes in both markets.
Occupancy expenses increased $262,000 or 32.3% over the same nine-month period
in 2001 as a result of the expansion of markets.

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

(Dollars in Thousands)

|                          |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |       | 
|------------------------- | --------------------- | ------------------ | ------------------ | ------------------ | ----------------- | ------------------ | ----- | ------------------ |  | - | ----- | ----- |  | - | ----- | ----- | 
|                          |                       |                    | Three Months Ended |                    | Nine Months Ended
|                          |                       |                    |                    |                    |                  
|Noninterest Expense       |                       | September 30, 2002 |                    | September 30, 2001 |                   | September 30, 2002 |       | September 30, 2001
|                          |                       |                    |                    |                    |                   |                    |       |                   
|                          | Salaries and Benefits |                    | $                  | 1,282              |                   |                    | $     | 1,068              |  |   | $     | 3,424 |  |   | $     | 2,935 | 
|                          | Occupancy & Equipment |                    |                    | 377                |                   |                    |       | 309                |  |   |       | 1,073 |  |   |       | 811   | 
|                          | Data Processing Fees  |                    |                    | 37                 |                   |                    |       | 29                 |  |   |       | 97    |  |   |       | 77    | 
|                          | Professional Fees     |                    |                    | 89                 |                   |                    |       | 116                |  |   |       | 260   |  |   |       | 323   | 
|                          | Directors Expenses    |                    |                    | 46                 |                   |                    |       | 32                 |  |   |       | 194   |  |   |       | 129   | 
|                          | FDIC Insurance        |                    |                    | 12                 |                   |                    |       | 11                 |  |   |       | 36    |  |   |       | 34    | 
|                          | Other Expenses        |                    |                    | 385                |                   |                    |       | 299                |  |   |       | 1,036 |  |   |       | 934   | 
|                          |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |      
|Total Noninterest expense |                       | $                  | 2,228              |                    |                   | $                  | 1,864 |                    |  | $ | 6,120 |       |  | $ | 5,243 |      
|                          |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |      

17



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Income Taxes

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

Income tax expense through the third quarter 2002 was $1,374,000 as
compared to $1,753,000 for 2001. The decrease in tax expense is
attributed to an increased volume in enterprise zone loans qualifying
for state tax exemption and lower income.

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

(Dollars in thousands)

|                   |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  
|------------------ |  | ------------------ | ----- | ------------------ |  | ------------------ | ----- | ------------------ |  | - | ----- | - |  | - | ----- | -
|                   |  | Three Months Ended |       | Nine Months Ended 
|                   |  |                    |       |                   
|Income Taxes       |  | September 30, 2002 |       | September 30, 2001 |  | September 30, 2002 |       | September 30, 2001
|                   |  |                    |       |                    |  |                    |       |                   
|Tax provision      |  | $                  | 483   |                    |  | $                  | 532   |                    |  | $ | 1,374 |   |  | $ | 1,753 |  
|Effective tax rate |  |                    | 30.26 | %                  |  |                    | 34.82 | %                  |  |   | 33.72 | % |  |   | 36.13 | %
|                   |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  

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

Asset Quality

The Company concentrates its lending activities primarily within in El Dorado,
Placer, Sacramento and Shasta Counties, California, and the location of the
Banks three full service 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 and are expected to be repaid from the cash flows of the
borrower or proceeds from the sale of collateral.

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

(Dollars in thousands)

|                           |                              |   |                    |        |                   |   |         |        |  
|-------------------------- | ---------------------------- | - | ------------------ | ------ | ----------------- | - | ------- | ------ | -
|                           |                              |   | September 30, 2002 |        | December 31, 2001
|                           |                              |   |                    |        |                  
|Portfolio Loans            |                              |   |                    |        |                   |   |         |       
|Commercial & Financial     |                              | $ | 91,115             |        |                   | $ | 76,913  |       
|Real
Estate  Construction |                              |   | 42,064             |        |                   |   | 45,331  |       
|Real
Estate  Commercial   |                              |   | 139,693            |        |                   |   | 96,617  |       
|Installment                |                              |   | 432                |        |                   |   | 440     |       
|Other Loans                |                              |   | 1,116              |        |                   |   | 709     |       
|Less:                      |                              |   |                    |        |                   |   |         |       
|                           | Deferred Loan Fees and Costs |   |                    | (457   | )                 |   |         | (134   | )
|                           | Allowance for Loan Losses    |   |                    | (3,465 | )                 |   |         | (3,180 | )
|                           |                              |   |                    |        |                   |   |         |       
|Total Net Loans            |                              | $ | 270,498            |        |                   | $ | 216,696 |       
|                           |                              |   |                    |        |                   |   |         |       

18



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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

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 are loans that are on nonaccrual, are
90 days past due and still accruing or have been restructured.

Net portfolio loans increased $53,802,000 or 24.8% at September 30, 2002 over
$216,696,000 at December 31, 2001. The portfolio mix reflects a slight decrease
in construction lending while the balance of the portfolio remains stable with
the mix at September 30, 2002, with commercial and financial loans of
approximately 34%, real estate construction of 16% and commercial real estate
at 50%.

Impaired loans are loans for which it is probable that the Bank will not
be able to collect all amounts due. The Bank had outstanding balances of $0 and
$349,000 in impaired loans that had impairment allowances of $0 and $13,000 as
of September 30, 2002 and December 31, 2001, respectively. Other real estate
owned totaled $338,000 for the quarter and consists of one property that was
expected to close escrow during the third quarter this year. Recently the sale
escrow has been withdrawn and the property is listed at a reduced price.

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

|                                         |  |                    |     |                   |  |   |     | 
|---------------------------------------- |  | ------------------ | --- | ----------------- |  | - | --- | 
|(Dollars in thousands)                   |  | September 30, 2002 |     | December 31, 2001
|                                         |  |                    |     |                  
|Non performing assets                    |  |                    |     |                   |  |   |     | 
|Nonaccrual loans                         |  | $                  | 0   |                   |  | $ | 59  | 
|90 days past and still accruing interest |  |                    | 0   |                   |  |   | 290 | 
|                                         |  |                    |     |                   |  |   |     | 
|                                         |  |                    |     |                   |  |   | 349 | 
|Other Real Estate Owned                  |  |                    | 338 |                   |  |   | 0   | 
|                                         |  |                    |     |                   |  |   |     | 
|Total non performing assets              |  | $                  | 338 |                   |  | $ | 349 | 
|                                         |  |                    |     |                   |  |   |     | 

Allowance for Loan and Lease Losses (ALLL)

The Company makes provisions to the ALLL on a regular basis through charges to
operations that are reflected in the Companys statements of income as a
provision for loan losses. When a loan is deemed uncollectible, it is charged
against the allowance. Any recoveries of previously charged-off loans are
credited back to the allowance. There is no precise method of predicting
specific losses or amounts that ultimately may be charged-off on particular
categories of the loan portfolio.

Similarly, the adequacy of the ALLL and the level of the related provision for
possible loan losses is determined on a judgment basis by management based on
consideration of (i) economic conditions, (ii) borrowers financial condition,
(iii) loan impairment, (iv) evaluation of industry trends, (v) industry and
other concentrations, (vi) loans which are contractually current as to payment
terms but demonstrate a higher degree of risk as identified by management,
(vii) continuing evaluation of the performing loan portfolio, (viii) monthly
review and evaluation of problem loans identified as having loss potential,
(ix) quarterly review by the Board of Directors, (x) off balance sheet risks
and (xi) assessments by regulators and other third parties. Management and the
Board of Directors evaluate the allowance and determine its desired level
considering objective and subjective measures, such as knowledge of the
borrowers business, valuation of collateral, the determination of impaired
loans and exposure to potential losses.

The ALLL is a general reserve available against the total loan portfolio and
off balance sheet credit exposure. It is maintained without any
interallocation to the categories of the loan portfolio, and the entire
allowance is available to cover loan losses. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Banks ALLL. Such agencies may require the Bank to
provide additions to the allowance based on their judgment 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.

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

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

The adequacy of the ALLL is calculated upon three components. First is the
dollar weighted risk rating of the loan portfolio, including all outstanding
loans and leases, off balance sheet items, and commitments to lend. Every
extension of credit has assigned a risk rating based upon a comprehensive
definition intended to measure the inherent risk of lending money. Each rating
has an assigned a risk factor expressed as a reserve percentage. Central to
this assigned risk (reserve) factor is the five-year historical loss record of
the bank.

Secondly, established specific reserves are available for individual loans
currently on management watch, special mention, and substandard loan lists.
These are the estimated potential losses associated with specific borrowers
based upon the collateral and event(s) causing the risk rating.

The third component is unallocated. This reserve is for qualitative factors
that may effect the portfolio as a whole, such as those factors described
above.

Management believes the assigned risk grades and our methods for managing
changes are satisfactory. Management believes the loan portfolio performance
has improved as reflected by the stable and low delinquency ratio. Watch list
loan categories have increased somewhat over the past year, primarily due to a
greater tendency to move more susceptible, although performing, accounts to
attention. This minimal increase does not suggest a trend. Special mention and
substandard loan categories have decreased substantially over the past year,
reflective of the quality of underwriting standards.

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

|                                  |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | ----------------- |  | ------------- | ----- | ------------- |  | - | ----- | - |  | - | ----- | -
|                                  |  | Three Months Ended |       | Nine Months Ended
|                                  |  |                    |       |                  
|                                  |  | September 30,      |       | September 30,     |  | September 30, |       | September 30,
|(Dollars in thousands)            |  | 2002               |       | 2001              |  | 2002          |       | 2001         
|                                  |  |                    |       |                   |  |               |       |              
|Allowance
for Loan & Lease Losses |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  
|Beginning balance for Loan Losses |  | $                  | 3,359 |                   |  | $             | 2,806 |               |  | $ | 3,180 |   |  | $ | 2,974 |  
|Provision for Loan Losses         |  |                    | 105   |                   |  |               | (51   | )             |  |   | 295   |   |  |   | 255   |  
|Charge offs:                      |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  
|Commercial                        |  |                    | (5    | )                 |  |               | (11   | )             |  |   | (8    | ) |  |   | (191  | )
|Real Estate                       |  |                    | (0    | )                 |  |               | (0    | )             |  |   | (18   | ) |  |   | (309  | )
|Other                             |  |                    | (0    | )                 |  |               | (0    | )             |  |   | (0    | ) |  |   | (0    | )
|                                  |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  
|Total Charge offs                 |  |                    | (5    | )                 |  |               | (11   | )             |  |   | (26   | ) |  |   | (500  | )
|Recoveries:                       |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  
|Commercial                        |  |                    | 6     |                   |  |               | 4     |               |  |   | 16    |   |  |   | 9     |  
|Real Estate                       |  |                    | 0     |                   |  |               | 441   |               |  |   | 0     |   |  |   | 451   |  
|                                  |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  
|Total Recoveries                  |  |                    | 6     |                   |  |               | 445   |               |  |   | 16    |   |  |   | 460   |  
|Ending Balance                    |  | $                  | 3,465 |                   |  | $             | 3,189 |               |  | $ | 3,465 |   |  | $ | 3,189 |  
|ALLL to total loans               |  |                    | 1.26  | %                 |  |               | 1.46  | %             |  |   | 1.26  | % |  |   | 1.46  | %
|Net Charge offs to average loans  |  |                    | 0.00  | %                 |  |               | 0.02  | %             |  |   | 0.01  | % |  |   | 0.02  | %
|                                  |  |                    |       |                   |  |               |       |               |  |   |       |   |  |   |       |  

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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)

Investment Portfolio

Total available-for-sale securities increased $24.5 million or 87.2% for the
third quarter and $11.7 million or 28.6% over December 31, 2001. The quarterly
increase, per plan, was to reposition the portfolio and leverage borrowings
into investment strategies locking in yield. $10.0 million of U. S. Agency
Investments with call features were sold during the period recognizing a
$123,000 gain on sale. $35.0 million of U.S. Agency mortgage back and
collateralized mortgage investments were purchased using $18.0 million in
borrowed funds from the Federal Home Loan Bank.

The average yield on the borrowings is 1.79% with staged maturities through
August 2003.

Liquidity

With respect to assets, liquidity is provided by cash and money market
investments such as interest-bearing time deposits, federal-funds sold,
securities available-for-sale and principal and interest payments on loans.
With respect to liabilities, the Companys core deposits, shareholders equity
and the ability of the Bank to borrow funds and to generate deposits, provide
asset funding. The Company develops liquidity through deposit growth,
maturities and repayments of loans and investments, net interest income, fee
income and access to borrowing lines.

Because estimates of the liquidity need of the Bank may vary from actual needs,
the Bank maintains a substantial amount of liquid assets to absorb short term
increases in loans or reductions in deposits.

The Companys liquid assets (cash and due from banks, federal funds sold and
available-for-sale securities) totaled $96.1 million or 25.0% of total assets,
at September 30, 2002 compared to $81,856,000 or 25.7% of total assets at
December 31, 2001.

Per plan, Investment securities and federal funds sold have been
reinvested in significant loan production improving overall yield, coupled with
repositioning and borrowing from the Federal Home Loan Bank leveraged into
investment transactions providing for additional yield. Loan growth has
outpaced deposit growth during the quarter, as anticipated, as deposit
relationships take longer to transition into the bank.

During the third quarter, the Company borrowed $28.0 million from the Federal
Home Loan Bank. $18.0 million was invested in U.S. Agency mortgage backed and
collateralized mortgage investments, a strategy intended to capture yield
spread of 2.25% or more. $10.0 million was reinvested in loan volumes with
matching maturities.

Capital Adequacy

Overall capital adequacy is monitored on a day-to-day basis by the Companys
management and reported to the Companys Board of Directors on a monthly basis.
The Banks regulators 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 shareholders equity) and Tier 2 capital
(defined as principally comprising the qualifying portion of the ALLL).

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

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The following table sets forth the Companys capital ratio as of the dates
indicated.

|                                                  |  |               |      |              |  |      |       |         |  |                  |       |   |  |  |       |   |  |                |        |  
|------------------------------------------------- |  | ------------- | ---- | ------------ |  | ---- | ----- | ------- |  | ---------------- | ----- | - |  |  | ----- | - |  | -------------- | ------ | -
|                                                  |  | September 30, |      | December 31, |  |      |       |        
|                                                  |  | 2002          |      | 2001         |  |      |       |        
|                                                  |  |               |      |              |  |      |       |        
|                                                  |  |               |      |              |  |      |       |         |  |                  |       |   |  |  |       |   |  | For Bank to be
|Capital Ratio's                                   |  | Bank          |      | Company      |  | Bank |       | Company |  | well capitalized
|                                                  |  |               |      |              |  |      |       |         |  |                 
|Total Risk-Based Capital                          |  |               | 9.86 | %            |  |      | 10.69 | %       |  |                  | 12.18 | % |  |  | 12.33 | % |  |                | >10.00 | %
|Tier 1 Capital to
Risk-Based Assets               |  |               | 8.61 | %            |  |      | 9.44  | %       |  |                  | 10.93 | % |  |  | 11.08 | % |  |                | > 6.00 | %
|Tier 1 Capital to
Average Assets
(Leverage ratio) |  |               | 7.95 | %            |  |      | 8.67  | %       |  |                  | 9.38  | % |  |  | 9.38  | % |  |                | > 5.00 | %
|                                                  |  |               |      |              |  |      |       |         |  |                  |       |   |  |  |       |   |  |                |        |  




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Companys primary component of market risk is interest rate volatility.
Fluctuation in interest rates will ultimately impact both the level of interest
income and interest expense recorded on a large portion of the Companys assets
and liabilities, and the fair market value of interest earning assets and
interest-bearing liabilities, other than those which possess a short term to
maturity. Because the Companys interest-bearing liabilities and
interest-earning assets are with the Bank, the Companys interest rate risk
exposure is in connection with the operations of the Bank. Consequently, all
significant interest rate risk management procedures are performed at the Bank
level.

Based upon the nature of its operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The fundamental objective of
the Companys management of its assets and liabilities is to enhance the
economic value of the Company while maintaining adequate liquidity and an
exposure to interest rate risk deemed acceptable by the Companys management.

The Company manages its exposure to interest rate risk through adherence to
maturity, pricing and asset mix policies and procedures designed to mitigate
the impact of changes in market interest rates. The Banks profitability is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as
loans and securities, and its interest expense on interest-bearing liabilities,
such as deposits and borrowings.

The formal policies and practices adopted by the Bank to monitor and manage
interest rate risk exposure measure risk in two ways: (i) repricing
opportunities for earning assets and interest-bearing liabilities and (ii)
changes in net interest income for declining interest rate shocks of 100 and
200 basis points.

Because of the Banks capital position and noninterest-bearing demand deposit
accounts, the Bank is asset sensitive. As a result, management anticipates
that, in a declining interest rate environment, the Companys net interest
income and margin would be expected to decline, and, in an increasing interest
rate environment, the Companys net interest income and margin would be
expected to increase. However, no assurance can be given that under such
circumstances the Company would experience the described relationships to
declining or increasing interest rates.

Because the Bank is asset sensitive, the Company is adversely affected by
declining rates rather than rising rates. In periods of rapid interest rate
changes, such as the six prime rate reductions during 2001, the decrease of net
interest margin is temporarily magnified by the fact that the Companys assets
are repriced instantly while deposit liabilities reprice at the next maturity
date, averaging six months.

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.
Such analysis calculates the change in net interest income given a change in
the federal funds rate of 100 basis points up or down. All changes are
measured in dollars and are compared to projected net interest income.

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At September 30, 2002, the estimated annualized reduction in net interest
income attributable to a 100 and 200 basis point decline in the federal funds
rate was $526,000 and $1,052,000, respectively. A similar and opposite result
attributable to a 100 basis point increase in the federal funds rate. At
December 31, 2001, the estimated annualized reduction in net interest income
attributable to a 100 and 200 basis point decline in the federal funds rate was
$837,000 and $1,673,000, respectively, with a similar and opposite result
attributable to a 100 basis point increase in the federal funds rate.

The model utilized by management to create the analysis described in the
preceding paragraph uses balance sheet simulation to estimate the impact of
changing rates on the annual net interest income of the Bank. The model
considers a number of factors, including (i) change in customer and management
behavior in response to the assumed rate shock, (ii) the ratio of the amount of
rate change for each interest-bearing asset or liability to assumed changes in
the federal funds rate based on local market conditions for loans and core
deposits and national market conditions for other assets and liabilities and
(iii) timing factors related to the lag between the rate shock and its effect
on other interest-bearing assets and liabilities.

Actual results will differ when actual customer and management behavior and
ratios differ from the assumptions utilized by management in its model. The
assumptions in the model are tested at least annually to actual results.
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 mitigates the impact of rate changes
more than 100 basis points, as proven during 2001 with rates dropping by 4.75%
while the margin dropped 1.31% for the same period.




ITEM 4. CONTROLS AND PROCEDURES

Based upon an evaluation made within 90 days prior to the date of this report,
the Companys Chief Executive Officer and Chief Financial Officer have
concluded that the Companys disclosure controls and procedures (as defined in
Exchange Act Rule 13a  14(c)) are adequate and effective in timely alerting
them to material information relating to the Company required to be included in
the Companys filings with the SEC under the Securities Exchange Act of 1934.

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PART II. Other Information




Item 1. Legal proceedings

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




Item 2. Changes in securities and use of proceeds

N/A




Item 3. Defaults upon Senior Securities

N/A.




Item 4. Submission of Matters to a vote of Security Holders

N/A




Item 5. Other Information

N/A




Item 6A. Exhibits

(99.1) Certification of Chief Executive Officer and Chief Financial Officer
pursuant to the Sarbanes-Oxley Act of 2002.




Item 6B. Reports on Form 8-K

Form 8-K dated October 4, 2002 announcing dividend.

Form 8-K dated October 15 announcing second quarter earnings.




SIGNATURES

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

REDDING BANCORP
(Registrant)

Date: November 13, 2002

| |  |                                                                                     
| |  | ------------------------------------------------------------------------------------
| |  | /s/ Linda J. Miles
Linda J. Miles
Executive Vice President &
Chief Financial Officer

24