##### 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, 2003

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 LOGO)REDDING BANCORP


(Exact name of Registrant as specified in its charter)


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

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share

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

Yes [X] No [   ]

Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange
Act)

Yes [   ] No [X]

Outstanding shares of Common Stock, no par value, as of October 31, 2003: 2,708,058

1



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TABLE OF CONTENTS



|                              |                                                                                               |                                                                 |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | Condensed Consolidated Balance Sheets                          
|                              |                                                                                               | Condensed Consolidated Statements of Income                    
|                              |                                                                                               | Condensed Consolidated Statements of Cash Flows                
|                              |                                                                                               | Notes to Condensed Consolidated Financial Statements           
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              |                                                                                               | Overview                                                       
|                              |                                                                                               | Sources of Income                                              
|                              |                                                                                               | Financial Highlights - Results of Operations                   
|                              |                                                                                               | Net Interest Income and Net Interest Margin                    
|                              |                                                                                               | Liquidity                                                      
|                              |                                                                                               | Capital Management                                             
|                              |                                                                                               | Short Term Borrowings                                          
|                              |                                                                                               | Provision for Loan Losses                                      
|                              |                                                                                               | Factors that may affect future results                         
|                              |                                                                                               | Specific risks to operations in California                     
|                              |                                                                                               | Critical Accounting Policies                                   
|                              |                                                                                               | Average Balances, Interest Income/Expense and Yields/Rates Paid
|                              |                                                                                               | Analysis of Changes in Net Interest Income and Interest Expense
|                              |                                                                                               | Noninterest Income                                             
|                              |                                                                                               | Noninterest Expense                                            
|                              |                                                                                               | Income Taxes                                                   
|                              |                                                                                               | Asset Quality                                                  
|                              |                                                                                               | Allowance for Loan Losses (ALL)                                
|                              |                                                                                               | Securities Portfolio                                           
|                              | 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 31                   
|Exhibit 32                   



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REDDING BANCORP & SUBSIDIARIES

Index to Form 10-Q

|                              |  |                                                                                                     |  |       | 
|----------------------------- |  | --------------------------------------------------------------------------------------------------- |  | ----- | 
|                              |  |                                                                                                     |  | Page:
|PART I. FINANCIAL INFORMATION |  |                                                                                                     | 
|Item 1.                       |  | Financial Statements                                                                                |  |       | 
|                              |  | Condensed Consolidated Balance Sheets
September 30, 2003, December 31, 2002 and September 30, 2002  |  | 3     | 
|                              |  | Condensed Consolidated Statements of Income
Three and nine months ended September 30, 2003 and 2002 |  | 4     | 
|                              |  | Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 2003 and 2002       |  | 5     | 
|                              |  | Notes to Condensed Consolidated Financial Statements                                                |  | 6     | 
|Item 2.                       |  | Managements Discussion and Analysis
of Financial Condition and Results of Operations               |  | 11    | 
|                              |  | Overview                                                                                            |  | 11    | 
|                              |  | Sources of Income                                                                                   |  | 13    | 
|                              |  | Financial Highlights                                                                                |  | 13    | 
|                              |  | Net Interest Income and Net Interest Margin                                                         |  | 13    | 
|                              |  | Liquidity                                                                                           |  | 14    | 
|                              |  | Capital Management                                                                                  |  | 14    | 
|                              |  | Short term borrowings                                                                               |  | 15    | 
|                              |  | Provision for loan losses                                                                           |  | 15    | 
|                              |  | Factors that may affect future results                                                              |  | 15    | 
|                              |  | Specific risks to operations in California                                                          |  | 16    | 
|                              |  | Critical accounting policies                                                                        |  | 17    | 
|                              |  | Average balances, Interest Income/Expense and yields/rates paid                                     |  | 19    | 
|                              |  | Analysis of changes in net interest income and interest expense                                     |  | 20    | 
|                              |  | Noninterest Income                                                                                  |  | 21    | 
|                              |  | Noninterest Expense                                                                                 |  | 21    | 
|                              |  | Income taxes                                                                                        |  | 22    | 
|                              |  | Asset quality                                                                                       |  | 23    | 
|                              |  | Allowance for loan losses (ALL)                                                                     |  | 24    | 
|                              |  | Securities portfolio                                                                                |  | 26    | 
|Item 3.                       |  | Quantitative and Qualitative Disclosure about Market Risk                                           |  | 27    | 
|Item 4.                       |  | Controls and Procedures                                                                             |  | 28    | 
|PART II. OTHER INFORMATION    |  |                                                                                                     | 
|Item 1.                       |  | Legal proceedings                                                                                   |  | 29    | 
|Item 2.                       |  | Changes in Securities and use of proceeds                                                           |  | 29    | 
|Item 3.                       |  | Defaults Upon Senior Securities                                                                     |  | 29    | 
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                 |  | 29    | 
|Item 5.                       |  | Other Information                                                                                   |  | 29    | 
|Item 6.                       |  | Exhibits and Report on Form 8-K                                                                     |  | 29    | 
|SIGNATURES                    |  | 29                                                                                                  | 
|EXHIBITS                      |  | 30, 31                                                                                              | 

2



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PART I. FINANCIAL INFORMATION
Item 1. Financial StatementsREDDING BANCORP & SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)

|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |        |         |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ----------------- | ------------ | ------- | -------------- | ------- | ------------- | ------- | -------------- | ------- | ------ | ------- | ------- | ------- | 
|                                                                                                                                                                                 |                           |                                            |                   |              |         | Sept. 30, 2003 |         | Dec. 31, 2002 |         | Sept. 30, 2002
|Dollars in thousands                                                                                                                                                             |                           |                                            |                   |              |         |               
|ASSETS                                                                                                                                                                           |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|Cash and due from banks                                                                                                                                                          |                           | $                                          | 25,315            |              |         | $              | 23,832  |               |         | $              | 18,315  |       
|Federal funds sold and securities purchased under agreements to
resell                                                                                                           |                           |                                            | 23,380            |              |         |                | 10,760  |               |         |                | 25,190  |       
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|                                                                                                                                                                                 | Cash and cash equivalents |                                            |                   | 48,695       |         |                |         | 34,592        |         |                |         | 43,505 |        
|Securities available-for-sale (including pledged collateral of
$13,000 at September 30, 2003 and $13,833 at December 31, 2002)                                                   |                           |                                            | 64,238            |              |         |                | 32,328  |               |         |                | 52,584  |       
|Securities held-to-maturity, at cost (estimated fair value of $1,715
at Sept. 30, 2003, $2,561 at Dec. 31, 2002
and $2,898 at Sept. 30, 2002)                                    |                           |                                            | 1,619             |              |         |                | 2,405   |               |         |                | 2,722   |       
|Loans, net of the allowance for loan losses of $3,965 at Sept. 30,
2003, $3,566 at Dec. 31, 2002 and $3,225 at Sept. 30,
2002                                                    |                           |                                            | 278,028           |              |         |                | 280,314 |               |         |                | 270,738 |       
|Premises and equipment, net                                                                                                                                                      |                           |                                            | 5,652             |              |         |                | 5,366   |               |         |                | 5,402   |       
|Other assets                                                                                                                                                                     |                           |                                            | 10,635            |              |         |                | 12,656  |               |         |                | 10,075  |       
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|                                                                                                                                                                                 |                           |                                            |                   | TOTAL ASSETS |         | $              | 408,867 |               |         | $              | 367,661 |        |         | $       | 385,026 | 
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                             |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|Demand - noninterest bearing                                                                                                                                                     |                           | $                                          | 73,228            |              |         | $              | 55,170  |               |         | $              | 52,784  |       
|Demand - interest bearing                                                                                                                                                        |                           |                                            | 101,778           |              |         |                | 88,251  |               |         |                | 89,855  |       
|Savings                                                                                                                                                                          |                           |                                            | 22,230            |              |         |                | 20,797  |               |         |                | 20,918  |       
|Certificates of deposit                                                                                                                                                          |                           |                                            | 144,627           |              |         |                | 150,229 |               |         |                | 155,544 |       
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|                                                                                                                                                                                 |                           |                                            | Total deposits    |              |         | 341,863        |         |               |         | 314,447        |         |        |         | 319,101 |        
|Securities sold under agreements to repurchase                                                                                                                                   |                           |                                            | 5,498             |              |         |                | 3,704   |               |         |                | 4,665   |       
|Federal Home Loan Bank borrowings                                                                                                                                                |                           |                                            | 20,000            |              |         |                | 18,000  |               |         |                | 28,000  |       
|Other liabilities                                                                                                                                                                |                           |                                            | 7,301             |              |         |                | 3,843   |               |         |                | 4,484   |       
|Guaranteed Preferred Beneficial Interests in Companys                                                                                                                           |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|Junior Subordinated Debentures (Trust Preferred Securities)                                                                                                                      |                           |                                            | 5,000             |              |         |                | 0       |               |         |                | 0       |       
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|                                                                                                                                                                                 |                           |                                            | Total Liabilities |              |         | 379,662        |         |               |         | 339,994        |         |        |         | 356,250 |        
|Commitments and contingencies (note 6)                                                                                                                                           |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|Stockholders Equity:                                                                                                                                                            |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2003 and 2002                                                                            |                           |                                            |                  |              |         |                |        |               |         |                |        |       
|Common stock , no par value, 10,000,000 shares
authorized; 2,708,058 shares issued and
outstanding
at Sept. 30, 2003, 2,641,536 at Dec. 31, 2002
and 2,648,122 at Sept. 30, 2002 |                           |                                            | 8,952             |              |         |                | 8,715   |               |         |                | 8,720   |       
|Retained earnings                                                                                                                                                                |                           |                                            | 20,681            |              |         |                | 18,814  |               |         |                | 19,727  |       
|Accumulated other comprehensive income (loss), net of tax                                                                                                                        |                           |                                            | (428              | )            |         |                | 138     |               |         |                | 329     |       
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|                                                                                                                                                                                 |                           | Total stockholders equity                 |                   |              | 29,205  |                |         |               | 27,667  |                |         |        | 28,776  |        
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       
|                                                                                                                                                                                 |                           | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |                   | $            | 408,867 |                |         | $             | 367,661 |                |         | $      | 385,026 |        
|                                                                                                                                                                                 |                           |                                            |                   |              |         |                |         |               |         |                |         |       

See accompanying notes to condensed consolidated financial statements.

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REDDING BANCORP & SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
Three and nine months ended September 30, 2003 and 2002

|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |        |   |        | 
|----------------------------------------------- | ---------------------------------------------------------------------------------- | - | --------------------------------------------------- | ----- | ------------------ | ----- | ----------------- | ----- | -------------- | ----- | -------------- | ------ | - | ------ | ----- | ------ | - | ------ | 
|                                                |                                                                                    |   |                                                     |       | Three Months Ended |       | Nine Months Ended
|                                                |                                                                                    |   |                                                     |       | Sept. 30, 2003     |       | Sept. 30, 2002    |       | Sept. 30, 2003 |       | Sept. 30, 2002
|Dollars in thousands, except for per share data |                                                                                    |   |                                                     |       |                    |       |                   |      
|Interest income:                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                | Interest and fees on loans                                                         |   | $                                                   | 4,399 |                    |       | $                 | 4,418 |                |       | $              | 13,312 |   |        | $     | 12,281 |  
|                                                | Interest on tax exempt securities                                                  |   |                                                     | 52    |                    |       |                   | 32    |                |       |                | 84     |   |        |       | 113    |  
|                                                | Interest on U.S. government securities                                             |   |                                                     | 354   |                    |       |                   | 306   |                |       |                | 783    |   |        |       | 925    |  
|                                                | Interest on federal funds sold and
securities purchased under agreements to
resell |   |                                                     | 42    |                    |       |                   | 57    |                |       |                | 162    |   |        |       | 168    |  
|                                                | Interest on other securities                                                       |   |                                                     | 2     |                    |       |                   | 22    |                |       |                | 2      |   |        |       | 56     |  
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Total interest income                               |       |                    | 4,849 |                   |       |                | 4,835 |                |        |   | 14,343 |       |        |   | 13,543 | 
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|Interest expense:                               |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                | Interest on demand deposits                                                        |   |                                                     | 110   |                    |       |                   | 170   |                |       |                | 351    |   |        |       | 446    |  
|                                                | Interest on savings deposits                                                       |   |                                                     | 31    |                    |       |                   | 34    |                |       |                | 102    |   |        |       | 106    |  
|                                                | Interest on time deposits                                                          |   |                                                     | 864   |                    |       |                   | 1,207 |                |       |                | 2,798  |   |        |       | 3,906  |  
|                                                | Securities sold under agreements to repurchase                                     |   |                                                     | 4     |                    |       |                   | 5     |                |       |                | 10     |   |        |       | 17     |  
|                                                | Interest on other borrowings                                                       |   |                                                     | 106   |                    |       |                   | 55    |                |       |                | 306    |   |        |       | 60     |  
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Total interest expense                              |       |                    | 1,115 |                   |       |                | 1,471 |                |        |   | 3,567  |       |        |   | 4,535  | 
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Net interest income                                 |       |                    | 3,734 |                   |       |                | 3,364 |                |        |   | 10,776 |       |        |   | 9,008  | 
|Provision for loan losses                       |                                                                                    |   | 40                                                  |       |                    |       | 105               |       |                |       | 415            |        |   |        | 295   |       
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Net interest income after provision for
loan losses |       |                    | 3,694 |                   |       |                | 3,259 |                |        |   | 10,361 |       |        |   | 8,713  | 
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|Noninterest income:                             |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                | Service charges on deposit accounts                                                |   |                                                     | 94    |                    |       |                   | 69    |                |       |                | 250    |   |        |       | 217    |  
|                                                | Payroll and benefit processing fees                                                |   |                                                     | 79    |                    |       |                   | 73    |                |       |                | 245    |   |        |       | 220    |  
|                                                | Earnings on cash surrender value -
Bank owned life insurance                       |   |                                                     | 57    |                    |       |                   | 62    |                |       |                | 176    |   |        |       | 185    |  
|                                                | Net gain on sale of securities available for sale                                  |   |                                                     | 12    |                    |       |                   | 123   |                |       |                | 88     |   |        |       | 125    |  
|                                                | Net gain on sale of loans                                                          |   |                                                     | 25    |                    |       |                   | 0     |                |       |                | 99     |   |        |       | 31     |  
|                                                | Merchant credit card service income, net                                           |   |                                                     | 112   |                    |       |                   | 108   |                |       |                | 307    |   |        |       | 317    |  
|                                                | Mortgage brokerage fee income                                                      |   |                                                     | 112   |                    |       |                   | 73    |                |       |                | 224    |   |        |       | 97     |  
|                                                | Other income                                                                       |   |                                                     | 93    |                    |       |                   | 57    |                |       |                | 298    |   |        |       | 290    |  
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Total noninterest income                            |       |                    | 584   |                   |       |                | 565   |                |        |   | 1,687  |       |        |   | 1,482  | 
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|Noninterest expense:                            |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                | Salaries and related benefits                                                      |   |                                                     | 1,409 |                    |       |                   | 1,282 |                |       |                | 4,063  |   |        |       | 3,424  |  
|                                                | Occupancy and equipment expense                                                    |   |                                                     | 374   |                    |       |                   | 377   |                |       |                | 1,087  |   |        |       | 1,073  |  
|                                                | FDIC insurance premium                                                             |   |                                                     | 12    |                    |       |                   | 12    |                |       |                | 37     |   |        |       | 36     |  
|                                                | Data processing fees                                                               |   |                                                     | 52    |                    |       |                   | 27    |                |       |                | 141    |   |        |       | 69     |  
|                                                | Professional service fees                                                          |   |                                                     | 161   |                    |       |                   | 105   |                |       |                | 549    |   |        |       | 235    |  
|                                                | Deferred compensation expense                                                      |   |                                                     | 65    |                    |       |                   | 46    |                |       |                | 189    |   |        |       | 177    |  
|                                                | Directors expense                                                                 |   |                                                     | 68    |                    |       |                   | 46    |                |       |                | 182    |   |        |       | 194    |  
|                                                | Stationery and supplies                                                            |   |                                                     | 58    |                    |       |                   | 46    |                |       |                | 178    |   |        |       | 171    |  
|                                                | Other expenses                                                                     |   |                                                     | 260   |                    |       |                   | 287   |                |       |                | 836    |   |        |       | 741    |  
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Total noninterest expense                           |       |                    | 2,459 |                   |       |                | 2,228 |                |        |   | 7,262  |       |        |   | 6,120  | 
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|Income before income taxes                      |                                                                                    |   | 1,819                                               |       |                    |       | 1,596             |       |                |       | 4,786          |        |   |        | 4,075 |       
|                                                | Provision for income taxes                                                         |   |                                                     | 565   |                    |       |                   | 483   |                |       |                | 1,721  |   |        |       | 1,374  |  
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|                                                |                                                                                    |   | Net income                                          |       | $                  | 1,254 |                   |       | $              | 1,113 |                |        | $ | 3,065  |       |        | $ | 2,701  | 
|                                                |                                                                                    |   |                                                     |       |                    |       |                   |       |                |       |                |        |   |        |       |       
|Basic earnings per share                        |                                                                                    | $ | 0.46                                                |       |                    | $     | 0.42              |       |                | $     | 1.15           |        |   | $      | 1.01  |       
|Weighted average shares - basic                 |                                                                                    |   | 2,697                                               |       |                    |       | 2,657             |       |                |       | 2,667          |        |   |        | 2,681 |       
|Diluted earnings per share                      |                                                                                    | $ | 0.45                                                |       |                    | $     | 0.39              |       |                | $     | 1.11           |        |   | $      | 0.95  |       
|Weighted average shares - diluted               |                                                                                    |   | 2,810                                               |       |                    |       | 2,832             |       |                |       | 2,761          |        |   |        | 2,858 |       

See accompanying notes to condensed consolidated financial statements.

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REDDING BANCORP & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2003 and 2002

|                                                                                  |  |                                                                          |                                           |   |         |               |        |               |         |         |   | 
|--------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ----------------------------------------- | - | ------- | ------------- | ------ | ------------- | ------- | ------- | - | 
|                                                                                  |  |                                                                          |                                           |   |         | Sept 30, 2003 |        | Sept 30, 2002
|Dollars in thousands                                                              |  |                                                                          |                                           |  
|Cash flows from operating activities:                                             |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  | Net income                                                               |                                           | $ | 3,065   |               |        | $             | 2,701   |        
|Adjustments to reconcile net income to net
cash provided by operating activities: |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  | Provision for loan losses                                                |                                           |   | 415     |               |        |               | 295     |        
|                                                                                  |  | Provision for depreciation and amortization                              |                                           |   | 425     |               |        |               | 462     |        
|                                                                                  |  | Compensation expense associated with stock options                       |                                           |   | 17      |               |        |               | 50      |        
|                                                                                  |  | Gain on sale of securities available for sale                            |                                           |   | (88     | )             |        |               | (125    | )      
|                                                                                  |  | Amortization of investment premiums and accretion of
discounts, net      |                                           |   | 307     |               |        |               | 605     |        
|                                                                                  |  | Gain on sale of loans                                                    |                                           |   | (99     | )             |        |               | (128    | )      
|                                                                                  |  | Proceeds from sale of loans                                              |                                           |   | 1,419   |               |        |               | 4,327   |        
|                                                                                  |  | Loans originated for sale                                                |                                           |   | (1,093  | )             |        |               | (4,183  | )      
|                                                                                  |  | Effect of changes in:                                                    |                                           |   |         |               |        |               |         |        
|                                                                                  |  |                                                                          | Other assets                              |   |         | 2,020         |        |               |         | 603     |  
|                                                                                  |  |                                                                          | Deferred loan fees                        |   |         | (35           | )      |               |         | 190     |  
|                                                                                  |  |                                                                          | Other liabilities                         |   |         | 3,775         |        |               |         | 773     |  
|                                                                                  |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  |                                                                          | Net cash provided by operating activities |   |         | 10,128        |        |               |         | 5,570   |  
|                                                                                  |  |                                                                          |                                           |   |         |               |        |              
|Cash flows from investing activities:                                             |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  | Proceeds from maturities of available-for-sale securities                |                                           |   | 14,713  |               |        |               | 12,247  |        
|                                                                                  |  | Proceeds from sales of available-for-sale securities                     |                                           |   | 15,244  |               |        |               | 22,021  |        
|                                                                                  |  | Proceeds from maturities of held-to-maturity securities                  |                                           |   | 796     |               |        |               | 0       |        
|                                                                                  |  | Purchases of available-for-sale securities                               |                                           |   | (62,979 | )             |        |               | (44,700 | )      
|                                                                                  |  | Loan origination, net of principal repayments                            |                                           |   | 1,679   |               |        |               | (54,063 | )      
|                                                                                  |  | Net purchases of premises and equipment                                  |                                           |   | (710    | )             |        |               | (526    | )      
|                                                                                  |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  |                                                                          | Net cash used in investing activities     |   |         | (31,257       | )      |               |         | (65,021 | )
|Cash flows from financing activities:                                             |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  | Net increase in deposits                                                 |                                           |   | 27,416  |               |        |               | 37,666  |        
|                                                                                  |  | Net increase (decrease) in securities sold under
agreement to repurchase |                                           |   | 1,793   |               |        |               | (2,115  | )      
|                                                                                  |  | Proceeds from Federal Home Loan Bank advances                            |                                           |   | 35,000  |               |        |               | 28,000  |        
|                                                                                  |  | Repayments of Federal Home Loan Bank advances                            |                                           |   | (33,000 | )             |        |               | 0       |        
|                                                                                  |  | Proceeds from issuance of Trust Preferred Securities                     |                                           |   | 5,000   |               |        |               | 0       |        
|                                                                                  |  | Common stock transactions, net                                           |                                           |   | (977    | )             |        |               | (1,553  | )      
|                                                                                  |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  |                                                                          | Net cash provided by financing activities |   |         | 35,232        |        |               |         | 61,998  |  
|Net increase in cash and cash equivalents                                         |  |                                                                          | 14,103                                    |   |         |               | 2,547  |              
|Cash and cash equivalents, beginning of period                                    |  |                                                                          | 34,592                                    |   |         |               | 40,958 |              
|                                                                                  |  |                                                                          |                                           |   |         |               |        |              
|Cash and cash equivalents, end of period                                          |  | $                                                                        | 48,695                                    |   |         | $             | 43,505 |              
|                                                                                  |  |                                                                          |                                           |   |         |               |        |              
|Supplemental disclosures:                                                         |  |                                                                          |                                           |   |         |               |        |              
|                                                                                  |  | Cash paid during the period for:                                         |                                           |   |         |               |        |               |         |        
|                                                                                  |  |                                                                          | Income taxes                              |   | $       | 1,752         |        |               | $       | 1,130   |  
|                                                                                  |  |                                                                          | Interest                                  |   |         | 3,505         |        |               |         | 4,439   |  

See accompanying notes to condensed consolidated financial statements.

5



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##### Table of Contents






REDDING BANCORP & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)



|1. |  | Consolidation and Basis of Presentation
|-- |  | ---------------------------------------

The unaudited condensed consolidated financial statements include the accounts
of Redding Bancorp (the Holding Company) and its subsidiaries Redding Bank of
Commerce (RBC or the Bank) RBC Mortgage Services and RBC Trust
(collectively the Company). All significant inter-company balances and
transactions have been eliminated. 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. All such
adjustments are of a normal recurring nature. Certain reclassifications have
been made to the prior period condensed consolidated financial statements to
conform to the current financial statement presentation.

The accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America and general
practices within the banking industry. In preparing the condensed consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the balance sheet and revenue and expenses for the period. Actual results could
differ from those estimates.

The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes contained in Redding Bancorps 2002 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 2003 interim periods shown in this report are not necessarily
indicative of the results for any future interim period or the entire fiscal
year.

For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold and repurchase agreements.
Generally, federal funds are sold for a one-day period and securities purchased
under agreements to resell are for no more than a 90-day period.

From 1999 through 2002, merchant credit card services were considered a segment
of the Company for reporting purposes. Credit card services are limited to
those revenues, net of related data processing costs, associated with the
Banks agreement (Merchant Services Agreement) to provide credit and debit
card processing services for merchants solicited by an independent sales
organization (ISO) and nonbank merchant card processor. The Merchant
Services Agreement is described in detail under Merchant Credit Card Processing
Services in the Companys 2002 Annual Report on Form 10-K. As previously
reported, the 2001 renewal of the contract with our ISO represented a
significant reduction to the earnings on this business segment. The Company is
no longer accepting new merchant activity from the ISO and the segment is no
longer managed separately from the local merchant activity of the Bank. Due to
these changes, the Company no longer considers merchant credit card activity to
be a business segment.

During the first quarter of 2003, the Company, through its RBC Mortgage
Services subsidiary, has entered into an affiliated business arrangement with
another entity to provide mortgage loans to customers of Redding Bank of
Commerce, and Roseville Bank of Commerce, a division of Redding Bank of
Commerce. RBC Mortgage Services and its affiliate provide mortgage brokerage
services, and split all earnings, net of operating costs, equally. Before the
formation of the subsidiary, mortgage banking services were performed as a
department of the Bank.



|2. |  | Recent Accounting pronouncements
|-- |  | --------------------------------

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51(the Interpretation).The purpose of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE need to be included in a
companys consolidated financial statements.

6



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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(Unaudited)

A company that holds variable interests in an entity will need to consolidate
that entity if the companys interest in the VIE is such that the company will
absorb a majority of the VIEs expected losses and or receive a majority of the
VIEs expected residual returns, if they occur. New disclosure requirements are
also prescribed by FIN 46. On October 9, 2003, the FASB issued FASB Staff
Position (FSP) No. FIN 46-6 deferring the effective date for applying the
provisions of FIN 46. The Company need not apply the provisions of FIN 46 to an
interest held in a variable interest entity created before February 1, 2003
until December 31, 2003. As of September 30, 2003, the Company does not believe
it has any VIEs for which this interpretation would require consolidation.
Additionally, under FIN 46, the Companys subsidiary, which issued trust
preferred securities, has not been deconsolidated awaiting further guidance
from the FASB.

In July 2003, the Federal Reserve issued Supervisory Letter SR 03-13 addressing
recent accounting interpretation guidance issued by the FASB regarding the
consolidation of special purpose entities formed for the issuance of trust
preferred securities. This specific issue raised by the new FASB interpretive
guidance is whether or not the special purpose entities formed for the issuance
of trust preferred securities qualify for consolidation under FIN 46. The
Company currently has one such entity that is consolidated and included in the
balance sheet as a liability described as Guaranteed Preferential Beneficial
Interests in Companys Junior Subordinated Debentures (Trust Preferred
Securities). One of the concerns raised regarding the potential
deconsolidation of trust preferred special purpose entities is whether the
current treatment of qualifying amounts of trust preferred securities as Tier 1
capital will change. Supervisory Letter SR 03-13 instructs bank holding
companies to continue to report trust preferred securities in the same manner
on periodic reports to the Federal Reserve (as a minority interest in
consolidated subsidiaries) and to include, subject to limitation, trust
preferred securities as Tier 1 capital until otherwise instructed.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity.The Statement establishes standards for how the Company
should classify and measure certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is
effective for financial instruments beginning after June 15,
2003. The new standards for the classification and measurement of
financial instruments should be applied retroactively. Any gain or
loss resulting from the implementation of SFAS No. 150 will be
reported as a cumulative effect of a change in accounting principle.
Management believes that adoption of the standards of this Statement
has no impact on the Companys financial position or results of
operations.

7



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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)(Unaudited)



|3. |  | Earnings Per Share
|-- |  | ------------------

Basic earnings per share (EPS) excludes dilution and is computed by dividing
net income by the weighted-average number of common shares outstanding for the
period. Diluted EPS 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. Stock options are considered to be common stock
equivalents. The following table displays the computation of earnings per share
for the three and nine months ended September 30, 2003 and 2002.

(Dollars in thousands, except per share data)

|                         |                                                 |                                                     |      |                    |       |                   |      |               |       |               |      |       |       |   |      |       |       | 
|------------------------ | ----------------------------------------------- | --------------------------------------------------- | ---- | ------------------ | ----- | ----------------- | ---- | ------------- | ----- | ------------- | ---- | ----- | ----- | - | ---- | ----- | ----- | 
|                         |                                                 |                                                     |      | Three Months Ended |       | Nine Months Ended
|                         |                                                 |                                                     |      |                    |       |                  
|                         |                                                 |                                                     |      | Sept 30, 2003      |       | Sept 30, 2002     |      | Sept 30, 2003 |       | Sept 30, 2002
|                         |                                                 |                                                     |      |                    |       |                   |      |               |       |              
|Basic EPS calculation:   |                                                 |                                                     |      |                    |       |                   |      |               |       |               |      |       |       |   |      |      
|                         | Numerator (net income)                          |                                                     | $    | 1,254              |       |                   | $    | 1,113         |       |               | $    | 3,065 |       |   | $    | 2,701 |      
|                         | Denominator (average common
shares outstanding) |                                                     |      | 2,697              |       |                   |      | 2,657         |       |               |      | 2,667 |       |   |      | 2,681 |      
|Basic EPS                |                                                 | $                                                   | 0.46 |                    |       | $                 | 0.42 |               |       | $             | 1.15 |       |       | $ | 1.01 |      
|Diluted EPS calculation: |                                                 |                                                     |      |                    |       |                   |      |               |       |               |      |       |       |   |      |      
|                         | Numerator (net income)                          |                                                     | $    | 1,254              |       |                   | $    | 1,113         |       |               | $    | 3,065 |       |   | $    | 2,701 |      
|                         | Denominator:                                    |                                                     |      |                    |       |                   |      |               |       |               |      |       |       |   |      |       |      
|                         | Average common shares outstanding               |                                                     |      | 2,697              |       |                   |      | 2,657         |       |               |      | 2,667 |       |   |      | 2,681 |      
|                         | Dilutive effect of stock options                |                                                     |      | 113                |       |                   |      | 175           |       |               |      | 94    |       |   |      | 177   |      
|                         |                                                 |                                                     |      |                    |       |                   |      |               |       |               |      |       |       |   |      |      
|                         |                                                 | Adjusted weighted average
common shares outstanding |      |                    | 2,810 |                   |      |               | 2,832 |               |      |       | 2,761 |   |      |       | 2,858 | 
|Diluted EPS              |                                                 | $                                                   | 0.45 |                    |       | $                 | 0.39 |               |       | $             | 1.11 |       |       | $ | 0.95 |      



|4. |  | Stock Option Plans
|-- |  | ------------------

The Company accounts for its stock option plan under the intrinsic value method
in accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense is recorded only if the current market price of
the underlying stock exceeds the exercise price on the date of the grant. As
required by the Statement of Financial Accounting Standards, (SFAS) No. 123,
Accounting for Stock-Based Compensationas amended by SFAS No. 148, Accounting
for Stock-Based Compensation - Transition and Disclosure,the Company provides
pro forma net income and pro forma earnings per share disclosures for employee
stock option grants. The following table illustrates the effect on net income
and earnings per share as if the Company had applied the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation,to
stock-based employee compensation.

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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
(Unaudited)

|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |       |      |  
|-------------------------------- | ---------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ----- | ------------------ | --- | ----------------- | ----- | ------------- | --- | ------------- | ----- | ----- | --- | - | ----- | ----- | ---- | -
|                                 |                        |                                                                                                                                     |       | Three Months Ended |     | Nine Months Ended
|                                 |                        |                                                                                                                                     |       | Sept 30, 2003      |     | Sept 30, 2002     |       | Sept 30, 2003 |     | Sept 30, 2002
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |              
|Net income before option expense |                        | $                                                                                                                                   | 1,260 |                    |     | $                 | 1,130 |               |     | $             | 3,082 |       |     | $ | 2,751 |      
|                                 |                        | less compensation expense
associated with stock
options                                                                             |       |                    | (6  | )                 |       |               | (17 | )             |       |       | (17 | ) |       |       | (50  | )
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|                                 | Net income as reported |                                                                                                                                     |       | 1,254              |     |                   |       | 1,113         |     |               |       | 3,065 |     |   |       | 2,701 |     
|Deduct:                          |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|                                 |                        | Total stock-based
employee compensation
expense
determined under fair
value based
method for all
awards, net of related
tax effects |       |                    | (19 | )                 |       |               | (42 | )             |       |       | (57 | ) |       |       | (126 | )
|                                 | Pro forma net income   |                                                                                                                                     | $     | 1,235              |     |                   | $     | 1,071         |     |               | $     | 3,008 |     |   | $     | 2,575 |     
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|Earnings per share:              |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|                                 | Basic - as reported    |                                                                                                                                     | $     | 0.46               |     |                   | $     | 0.42          |     |               | $     | 1.15  |     |   | $     | 1.01  |     
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|                                 | Basic - pro forma      |                                                                                                                                     | $     | 0.46               |     |                   | $     | 0.40          |     |               | $     | 1.13  |     |   | $     | 0.96  |     
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|                                 | Diluted - as reported  |                                                                                                                                     | $     | 0.45               |     |                   | $     | 0.39          |     |               | $     | 1.11  |     |   | $     | 0.95  |     
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      
|                                 | Diluted - pro forma    |                                                                                                                                     | $     | 0.42               |     |                   | $     | 0.38          |     |               | $     | 1.09  |     |   | $     | 0.90  |     
|                                 |                        |                                                                                                                                     |       |                    |     |                   |       |               |     |               |       |       |     |   |       |      



|5. |  | Comprehensive Income
|-- |  | --------------------

The Companys total comprehensive income was as follows:

|                                        |                                                                                   |               |                    |               |                   |               |       |               |   |   |       |      |   |   |       |     |  
|--------------------------------------- | --------------------------------------------------------------------------------- | ------------- | ------------------ | ------------- | ----------------- | ------------- | ----- | ------------- | - | - | ----- | ---- | - | - | ----- | --- | -
|                                        |                                                                                   |               | Three Months Ended |               | Nine Months Ended
|                                        |                                                                                   |               |                    |               |                  
|(Dollars in thousands)                  |                                                                                   | Sept 30, 2003 |                    | Sept 30, 2002 |                   | Sept 30, 2003 |       | Sept 30, 2002
|                                        |                                                                                   |               |                    |               |                   |               |       |              
|Net income as reported                  |                                                                                   | $             | 1,254              |               |                   | $             | 1,113 |               |   | $ | 3,065 |      |   | $ | 2,701 |    
|Other comprehensive income,
net of tax: |                                                                                   |               |                    |               |                   |               |       |               |   |   |       |      |   |   |       |    
|                                        | Unrealized holding (loss) gain
on
securities available for sale                   |               |                    | (530          | )                 |               |       | 261           |   |   |       | (463 | ) |   |       | 420 |  
|                                        | Reclassification adjustment for
gain on available for sale
securities, net of tax |               |                    | (35           | )                 |               |       | (86           | ) |   |       | (95  | ) |   |       | (83 | )
|                                        |                                                                                   |               |                    |               |                   |               |       |               |   |   |       |      |   |   |       |    
|Total other comprehensive (loss) income |                                                                                   |               | (565               | )             |                   |               | 175   |               |   |   | (558  | )    |   |   | 337   |    
|                                        |                                                                                   |               |                    |               |                   |               |       |               |   |   |       |      |   |   |       |    
|Total comprehensive income              |                                                                                   | $             | 689                |               |                   | $             | 1,288 |               |   | $ | 2,507 |      |   | $ | 3,038 |    
|                                        |                                                                                   |               |                    |               |                   |               |       |               |   |   |       |      |   |   |       |    



|6. |  | Junior Subordinated Debentures (Trust Preferred Securities)
|-- |  | -----------------------------------------------------------

During the first quarter 2003, Redding Bancorp formed a wholly-owned Delaware
statutory business trust, Redding Bancorp Trust, which issued $5.0 million of
guaranteed preferred beneficial interests in Redding Bancorps junior
subordinated debentures (the Trust Preferred Securities). These debentures
qualify as Tier 1 capital under Federal Reserve Board guidelines. The proceeds
from the issuance of the Trust Preferred Securities were transferred from the
Holding Company to the Bank as surplus capital. The Trust Preferred Securities
accrue and pay distributions on a quarterly basis at 3 month London Interbank
Offered Rate (LIBOR) plus 3.30%. The rate at September 30, 2003 was 4.41%.
The rate increase is capped at 2.75% annually and the lifetime cap is 12.5%.
The final maturity on the Trust Preferred Securities is March 18, 2033, and the
debt allows for prepayment after five years on the quarterly payment date.

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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)(Unaudited)



|7. |  | Commitments and Contingent Liabilities
|-- |  | --------------------------------------



Lease Commitments -The Company leases certain facilities at which
it conducts its operations. Future minimum lease commitments under all
non-cancelable operating leases as of September 30, 2003 are below:




|                       |  |   |       | 
|---------------------- |  | - | ----- | 
|(Dollars
in thousands) |  |   |       | 
|                       |  |   |       | 
|2003                   |  | $ | 75    | 
|2004                   |  | $ | 298   | 
|2005                   |  | $ | 298   | 
|2006                   |  | $ | 303   | 
|2007                   |  | $ | 303   | 
|2008                   |  | $ | 303   | 
|Thereafter             |  | $ | 832   | 
|                       |  |   |       | 
|Total                  |  | $ | 2,412 | 
|                       |  |   |       | 



Legal
Proceedings - The Company is involved in various pending and
threatened legal actions arising in the ordinary course of business. The
Company maintains reserves for losses from legal actions, which are both
probable and estimable. In the opinion of management, the disposition of
claims, currently pending will not have a material adverse affect on the
Companys financial position or results of operations.


10



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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements and Risk Factors

This discussion and information in the accompanying financial statements
contains certain forward-looking statements, which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties that could cause actual
results to differ materially from those stated. These risks and uncertainties
include the Companys ability to maintain or expand its market share and net
interest margins, or to implement its marketing and growth strategies. Further,
actual results may be affected by the Companys ability to compete on price and
other factors with other financial institutions; customer acceptance of new
products and services; and general trends in the banking and the regulatory
environment, as they relate to the Companys cost of funds and return on
assets. The reader is advised that this list of risks is not exhaustive and
should not be construed as any prediction by the Company as to which risks
would cause actual results to differ materially from those indicated by the
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements.

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, 2002 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,
2002 to September 30, 2003. Also discussed are significant trends and changes
in the Companys results of operations for the three and nine-months ended
September 30, 2003, compared to the same period in 2002. 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.




Overview

Redding Bancorp (the Holding Company) is a financial holding company (FHC)
registered under the Bank Holding Company Act of 1956, as amended, and was
incorporated in California on January 21, 1982, for the purpose of organizing,
as a wholly owned subsidiary, Redding Bank of Commerce (the Bank). The
Holding Company elected to change to a FHC in 2000. As a financial holding
company, the Holding Company is subject to the Financial Holding Company Act
and to supervision by the Board of Governors of the Federal Reserve System
(FRB). The Holding Companys principal business is to serve as a holding
company for the subsidiaries, Redding Bank of Commerce, RBC Mortgage Services,
a California corporation (formerly Redding Service Corporation), RBC Trust
(collectively the Company) and for other banking or banking-related
subsidiaries that the Holding Company may establish or acquire.

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

11



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##### Table of Contents



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

The Holding Companys principal source of income is dividends from its
subsidiaries. The Holding Company conducts its corporate business operations
at the administrative office of the Bank located at 1951 Churn Creek Road,
Redding, California 96002. The Company conducts its business operations in two
geographic market areas, Redding and Roseville, California. The Company
considers Upstate California to be the major market area of the Bank. The
three Internet addresses of the Company are reddingbankofcommerce.com,
rosevillebankofcommerce.com, and rbcmortgageservices.com.

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

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

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

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

Most of the Banks customers are small to medium sized businesses,
professionals and other individuals with medium to high net worth, and most of
the Banks deposits are obtained from such customers. The Bank emphasizes
servicing the needs of local businesses and professionals and individuals
requiring specialized services. The primary business strategy of the Bank is
to focus on its lending activities. The Banks principal lines of lending are
(i) commercial, (ii) real estate construction and (iii) commercial and
residential real estate. The majority of the loans of the Bank are direct
loans made to individuals and small businesses in the major market area of the
Bank and are secured by real estate. See -Risk Factors That May Affect
Results-Dependence on Real Estate in the Companys 2002 Annual Report on Form
10-K. A relatively small portion of the loan portfolio of the Bank consists of
loans to individuals for personal, family or household purposes. The Bank
accepts real estate, listed and unlisted securities, savings and time deposits,
automobiles, machinery and equipment and other general business assets such as
accounts receivable and inventory as collateral for loans.

The Companys goal is to be a premier provider of financial 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 performance by monitoring key operating ratios to
high performing peer information on a national level, and model strategies to
meet or exceed such goals.

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##### Table of Contents



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




Sources of Income

The Company derives its income from two principal sources: (i) net interest
income, which is the difference between the interest income it receives on
interest-earning assets and the interest expense it pays on interest-bearing
liabilities, and (ii) fee income, which includes fees earned on deposit
services, income from SBA lending, electronic-based cash management services,
mortgage brokerage fee income and merchant credit card processing services.
The income of the Company depends to a great extent on net interest income.
These interest rate factors are highly sensitive to many factors, which are
beyond the Companys control, including general economic conditions, inflation,
recession, and the policies of various governmental and regulatory agencies, in
particular, the Federal Reserve Board. Because of the Companys predisposition
to variable rate pricing and non-interest bearing demand deposit accounts, the
Company is considered asset sensitive. As a result, the Company is adversely
affected by declining interest rates.




Financial Highlights - Results of Operations

Net income for the third quarter of 2003 totaled $1,254,000 an increase of
12.7% from the $1,113,000 reported for the same quarterly period of 2002. On
the same basis, diluted earnings per common share for the third quarter of 2003
were $0.45, compared to $0.39 for the same period of 2002, a 15.4% increase.
Return on average assets (ROA) and return on average equity (ROE) for the third
quarter of 2003 were 1.29% and 14.51%, respectively, compared with 1.28% and
16.43%, respectively, for the third quarter of 2002.

Net income for the nine-month period ended September 30, 2003 totaled
$3,065,000, an increase of 13.5% over net income reported for the same
nine-month period ended September 30, 2002. On the same basis, diluted earnings
per common share for the nine-months ended September 30, 2003 was $1.11,
compared to $0.95 for the same nine-month period in 2002, a 16.9% increase. ROA
was 1.08% and ROE was 12.80% for the first nine-months of 2003 compared with
1.10% and 13.55%, respectively, for the same nine-month period of 2002.




Net Interest Income and Net Interest Margin

Net interest income is the primary source of the Companys income. Net interest
income represents the excess of interest and fees earned on interest-earning
assets (loans, securities and federal funds sold) over the interest paid on
deposits and borrowed funds. Net interest margin is net interest income
expressed as a percentage of average earning assets. Net interest income for
the quarter ended September 30, 2003 was $3.7 million compared with $3.4
million for the same period in 2002 an increase of 11.0%. Net interest income
for the nine-months ended September 30, 2003 was $10.8 million compared with
$9.0 million for the same nine-month period in 2002, an increase of 19.6%.

Average earning assets for the nine-months ended September 30, 2003 increased
$50.5 million or 17.0% compared with the same period in the prior year. Loans,
the largest component of earning assets, increased $42.0 million or 17.2% on
average compared with the prior year period. Average securities increased $8.5
million or 16.6% over the prior nine-month period. Overall, the yield on
earning assets decreased to 5.52% for the nine-month period compared to 6.11%
for the same period in the prior year, primarily due to declining interest
rates. The decline was due to variable loan repricing as well as new loan
production at lower rates in the first nine-months of 2003 compared with the
same nine-month period of 2002.

Average interest-bearing liabilities for the nine-months ended September 30,
2003 increased $33.8 million or 13.6% compared with the prior year period. Of
this increase, $19.4 million was in core deposit growth (interest-bearing
demand and savings accounts), generally the least expensive deposit categories.
Federal Home Loan Bank borrowings increased $10.2 million compared with the
prior year period. The Company is using short-term Federal Home Loan Bank
borrowings to supplement loan growth and to leverage into securities to improve
the spread in the margin. Borrowings are repaid as core deposit growth
increases.

13



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##### Table of Contents



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

The overall cost of interest-bearing liabilities for the first nine-months 2003
was 1.69% compared with 2.44% for the first nine-months of 2002, a 21.3%
decrease. The decrease was primarily a result of decreases in rates paid on
time deposits and low cost short-term borrowings. As time deposits and
borrowings matured during the period, the Company was able to roll these
investments over at lower rates. The net effect of the changes discussed above
resulted in an increase of $1.8 million or 19.7% in net interest income for the
nine-month period ended September 30, 2003 from the same period in 2002. Net
interest margin increased 9 basis points to 4.15% from 4.06% for the same
period a year ago.




Liquidity

The objective of liquidity management is to ensure that the Company can
efficiently meet the borrowing needs of its customers, withdrawals of its
depositors and other cash commitments under both normal operating conditions
and under unforeseen and unpredictable circumstances of industry or market
stress.

The Asset Liability Management Committee (ALCO) establishes and monitors
liquidity guidelines that require sufficient asset-based liquidity to cover
potential funding requirements and to avoid over-dependence on volatile, less
reliable funding markets. In addition to the immediately liquid resources of
cash and due from banks and federal funds sold and securities purchased under
agreements to resell, asset liquidity is supported by debt securities in the
available-for-sale securities portfolio and wholesale lines of credit with the
Federal Home Loan Bank and borrowing lines with other financial institutions.
Customer core deposits have historically provided the Company with a source of
relatively stable and low-cost funds. Management monitors the sources and uses
of funds on a daily basis to maintain an acceptable liquidity position. In
addition to liquidity from core deposits and repayments and maturities of loans
and securities, the Company has the ability to sell securities under agreements
to repurchase, obtain Federal Home Loan Bank advances or purchase overnight
Federal Funds.

The Companys consolidated liquidity position remains adequate to meet
short-term and long-term future contingencies. At September 30, 2003, the
Company had overnight investments of $23.4 million and available lines of
credit of at the Federal Home Loan bank of approximately $76.6 million, and a
Federal Funds borrowing line with a correspondent of $10.0 million.

To accommodate future growth and business needs, the Company develops an annual
capital expenditure budget during strategic planning sessions. Capital
expenditures for 2003 are expected to be about $746,000 for additional software
and routine replacement of furniture and equipment. Approximately $710,000 has
been spent through September 30, 2003, slightly over projections due to
rescheduling 2004 installations into 2003. The Company expects that the
earnings of the Bank, acquisition of core deposits and wholesale borrowing
arrangements are sufficient to support liquidity needs in 2003.




Capital Management

The Company uses capital to fund organic growth, pay dividends and repurchase
its shares. The objective of effective capital management is to produce above
market long-term returns by using capital when returns are perceived to be high
and issuing capital when costs are perceived to be low. The Companys potential
sources of capital include retained earnings, common and preferred stock
issuance and issuance of subordinated debt and trust preferred securities.
During the third quarter, a cash dividend of $0.65 per share was declared to
shareholders of record as of October 1, 2003 due and payable on October 22,
2003.

Total stockholders equity increased from December 31, 2002 by $1.5 million to
$29.2 million at September 30, 2003. The increase was a result of earnings of
$3.1 million, $799,985 from exercises of stock options, including tax benefits,
a dividend declaration of $1.7 million and a decrease in accumulated other
comprehensive income (loss) of $566,000.

14



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##### Table of Contents



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




Short Term Borrowings

The Company actively uses Federal Home Loan Bank (FHLB) advances as a source
of wholesale funding to support growth strategies as well as to provide
liquidity. At September 30, 2003, all of the Companys FHLB advances were fixed
rate, fixed term borrowings without call or put option features.

During the nine months ended September 30, 2003 and the nine months ended
September 30, 2002, the average balance of short-term FHLB advances was $15.1
million and $4.1 million, respectively, and the average interest rates during
those periods were 1.17% and 1.29% respectively. The maximum outstanding at any
month-end during the nine months ended September 30, 2003 and the year ended
December 31, 2002 was $28.0 million. The FHLB advances are collateralized by
loans and securities pledged to the FHLB.




Provision for Loan Losses

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 as discussed under Asset Quality and Allowance for Loan Losses (ALL)
in this document.

During the first quarter 2003, one loan relationship became 90 days past due
for interest payments. During the third quarter 2003, management began an
impairment evaluation of the credit relationship and a specific reserve was
established. Interest payments were brought current by the borrower. The credit
in question totaled $2.9 million at September 30, 2003 and is collateralized by
equipment and real estate. The Company has seven other loans to this borrower
totaling approximately $1.6 million. These loans are performing in accordance
with their original terms, are fully collateralized and the Company expects to
collect all principal and interest due. However, in accordance with its policy,
the Company has classified all seven loans to this borrower and its affiliates.

Provision for loan losses of $415,000 were provided for the nine-months
ended September 30, 2003 compared with $295,000 for the same period of 2002.
The Companys allowance for loan losses was 1.41% of total loans at September
30, 2003 and 1.18% at September 30, 2002, while its ratio of non-performing
assets to total assets was 0.89% at September 30, 2003, compared to 0.09% at
September 30, 2002. Year-to-date net recoveries of $1,000 compare favorably to
net charge-offs of $10,000 in the same period last year.




Factors that may affect future results

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

Geopolitical conditions can also affect our earnings. Acts or threats of
terrorism, actions taken by the United States or other governments in response
to acts or threats of terrorism and our military conflicts including the
aftermath of the war with Iraq, could impact business conditions in the United
States.

15



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##### Table of Contents



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

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

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

The holding company, subsidiary bank and nonbank subsidiary are heavily
regulated at the federal and state levels. This regulation is to protect
depositors, federal deposit insurance funds and the banking system as a whole,
not investors. Congress and state legislatures and federal and state regulatory
agencies continually review banking laws, regulations and policies for possible
changes. Changes to statutes, regulations or regulatory policies including
changes in interpretation and implementation could affect us in substantial and
unpredictable ways including limiting the types of financial services and
products we may offer. Our failure to comply with the laws, regulations or
policies could result in sanctions by regulatory agencies and damage our
reputation. For more information, refer to the Supervision and Regulation
section in the Companys 2002 Annual Report on Form 10-K.

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

The holding company is a separate and distinct legal entity from its
subsidiaries. It receives substantially all of its revenues from dividends
from its subsidiaries. These dividends are the principal source of funds to
pay dividends on the holding companys common stock and interest and principal
on its debt. Various federal and state laws and regulations limit the amount
of dividends that our bank may pay to the holding company. For more
information, refer to Dividends and Other Distributions in the Companys
2002 Annual Report on Form 10-K.




Specific risks to operations in California

Our operations are located entirely in California, which in recent years has
experienced economic disruptions that are unique to the state. The state
legislature has approved a compromised budget for the 2003-04 fiscal year. The
compromise does not cut spending nor raise revenues sufficiently to balance
the budget, but defers to borrowing to carry the deficit over. At the time
this report is being prepared, the current governor of California has been
recalled and a new governor elected on October 7, 2003. We can offer no
assurances that the critical impact of the California economic and leadership
crisis will not have a material adverse effect on our customers or on our
business, financial condition and results of operations.

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##### Table of Contents



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




Critical Accounting Policies

The Securities and Exchange Commission (SEC) issued disclosure guidance for
critical accounting policies. The SEC defines critical accounting policies
as those that require application of managements most difficult, subjective or
complex judgements, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in future
periods.

Our accounting policies are integral to understanding the results reported.
Accounting policies are described in detail in Note 2 of the NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS in the Companys 2002 Annual Report on Form
10-K. Not all of the significant accounting policies presented in Note 2 to the
Consolidated Financial Statements contained in the Companys 2002 Annual Report
on Form 10-K require management to make difficult, subjective or complex
judgements or estimates.

Preparation of financial statements

The preparation of these financial statements requires management to make
estimates and judgements that affect the reported amount of assets,
liabilities, revenues and expenses. On an ongoing basis, management evaluates
the estimates used. Estimates are based upon historical experience, current
economic conditions and other factors that management considers reasonable
under the circumstances.

Use of estimates

These estimates result in judgements regarding the carrying values of assets
and liabilities when these values are not readily available from other sources,
as well as assessing and identifying the accounting treatments of contingencies
and commitments. Actual results may differ from these estimates under different
assumptions or conditions.

Accounting Principles Generally Accepted in the United States of America

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 2002 Annual Report
on Form 10-K.

The Company follows accounting policies typical to the commercial banking
industry and in compliance with various regulations and guidelines as
established by the Financial Accounting Standards Board (FASB), the American
Institute of Certified Public Accountants (AICPA) and the Banks primary
federal regulator, the FDIC. The following is a brief description of the
Companys current accounting policies involving significant management
judgements.

Allowance for Loan Losses

The Companys most significant management accounting estimate is the
appropriate level for the allowance for loan losses. The allowance for loan
losses is established to absorb known and inherent losses attributable to loans
outstanding. The adequacy of the allowance is monitored on an on-going basis
and is based on managements evaluation of numerous factors. These factors
include the quality of the current loan portfolio, the trend in the loan
portfolios risk ratings, current economic conditions, loan concentrations,
loan growth rates, past-due and non-performing trends, evaluation of specific
loss estimates for all significant problem loans, historical charge-off and
recovery experience and other pertinent information.

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.

17



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

Revenue recognition

The Companys primary sources of revenue are interest income. Interest income
is recorded on an accrual basis. Note 2 to the Consolidated Financial
Statements contained in the Companys 2002 Annual Report on Form 10-K offers an
explanation of the process for determining when the accrual of interest income
is discontinued on an impaired loan.

Fixed Assets

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

Stock-based Compensation

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 FASB Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting
for Stock Based Compensation,
the Companys net income and earnings per share would have been reduced. The
reduction in the Companys net income had compensation costs been determined in
accordance with SFAS No. 123 would have been $57,000 and $126,000 for the
nine-months ended September 30, 2003 and 2002, respectively. There would have
been $0.02 per share decrease in diluted earnings per share in 2003 and $0.05
per share decrease in 2002.

The amount of the reduction for the fiscal years 2000 through 2002 is disclosed
in Note 12 to the Consolidated Financial Statements contained in the Companys
2002 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.

Income Taxes

The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using currently enacted tax rates applied to such taxable income in the years
in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. If future
income should prove non-existent or less than the amount of deferred tax assets
within the tax years to which they may be applied, the asset may not be
realized and our net income will be reduced. The Companys deferred tax assets
are described further in Note 11 of the NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS in the Companys 2002 Annual Report on Form 10-K.

18



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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 earning
assets and interest expense and rates paid on average interest-bearing
liabilities. Average balances are average daily balances.




Table 1. Average Balances, Interest Income/Expense and Yields/Rates Paid
(Unaudited, Dollars in thousands)

|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|-------------------------------------------- |  | -------------- | ------- | -------- | -------------- | ---- | ------ | ------- |  | -------- | ---- | ---- |  | - | ------- | ------ |  | - | ------ |  |  |  | ---- | -
|                                             |  | Nine Months    |         |          | Nine Months   
|                                             |  | Ended          |         |          | Ended         
|                                             |  | Sept. 30, 2003 |         |          | Sept. 30, 2002
|                                             |  |                |         |          |               
|                                             |  | Average        |         |          |                |      |        | Yield/  |  | Average  |      |      |  |   |         | Yield/
|                                             |  | Balance        |         | Interest |                | Rate |        | Balance |  | Interest |      | Rate
|Earning Assets                               |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Portfolio Loans                              |  | $              | 286,885 |          |                | $    | 13,312 |         |  |          | 6.19 | %    |  | $ | 244,848 |        |  | $ | 12,281 |  |  |  | 6.69 | %
|Tax-exempt Securities                        |  |                | 2,974   |          |                |      | 84     |         |  |          | 3.77 | %    |  |   | 3,579   |        |  |   | 113    |  |  |  | 4.21 | %
|US Government Securities                     |  |                | 36,908  |          |                |      | 783    |         |  |          | 2.83 | %    |  |   | 33,170  |        |  |   | 925    |  |  |  | 3.72 | %
|Federal Funds Sold                           |  |                | 19,500  |          |                |      | 162    |         |  |          | 1.11 | %    |  |   | 13,353  |        |  |   | 168    |  |  |  | 1.68 | %
|Other Securities                             |  |                | 79      |          |                |      | 2      |         |  |          | 3.38 | %    |  |   | 883     |        |  |   | 56     |  |  |  | 8.46 | %
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Average Earning Assets                       |  | $              | 346,346 |          |                | $    | 14,343 |         |  |          | 5.52 | %    |  | $ | 295,833 |        |  | $ | 13,543 |  |  |  | 6.11 | %
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Cash & Due From Banks                        |  | $              | 21,369  |          |                |      |        |         |  |          |      |      |  | $ | 19,625  |        |  |   |        |  |  |  |      |  
|Bank Premises                                |  |                | 5,479   |          |                |      |        |         |  |          |      |      |  |   | 5,391   |        |  |   |        |  |  |  |      |  
|Allowance for Loan Losses                    |  |                | ( 4,049 | )        |                |      |        |         |  |          |      |      |  |   | ( 3,302 | )      |  |   |        |  |  |  |      |  
|Other Assets                                 |  |                | 9,970   |          |                |      |        |         |  |          |      |      |  |   | 8,983   |        |  |   |        |  |  |  |      |  
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Average Total Assets                         |  | $              | 379,115 |          |                |      |        |         |  |          |      |      |  | $ | 326,530 |        |  |   |        |  |  |  |      |  
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Interest Bearing Liabilities                 |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Demand Interest Bearing                      |  | $              | 92,930  |          |                | $    | 351    |         |  |          | 0.50 | %    |  | $ | 77,753  |        |  | $ | 446    |  |  |  | 0.76 | %
|Savings Deposits                             |  |                | 22,415  |          |                |      | 102    |         |  |          | 0.61 | %    |  |   | 18,179  |        |  |   | 106    |  |  |  | 0.78 | %
|Certificates of Deposit                      |  |                | 147,506 |          |                |      | 2,798  |         |  |          | 2.53 | %    |  |   | 143,297 |        |  |   | 3,906  |  |  |  | 3.63 | %
|Borrowings                                   |  |                | 18,866  |          |                |      | 316    |         |  |          | 2.23 | %    |  |   | 8,685   |        |  |   | 77     |  |  |  | 1.18 | %
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|                                             |  |                | 281,717 |          |                | $    | 3,567  |         |  |          | 1.69 | %    |  |   | 247,914 |        |  | $ | 4,535  |  |  |  | 2.44 | %
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Noninterest bearing demand                   |  |                | 61,395  |          |                |      |        |         |  |          |      |      |  |   | 48,791  |        |  |   |        |  |  |  |      |  
|Other Liabilities                            |  |                | 4,070   |          |                |      |        |         |  |          |      |      |  |   | 3,252   |        |  |   |        |  |  |  |      |  
|Stockholders Equity                         |  |                | 31,933  |          |                |      |        |         |  |          |      |      |  |   | 26,573  |        |  |   |        |  |  |  |      |  
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Average Liabilities and
Stockholders Equity |  | $              | 379,115 |          |                |      |        |         |  |          |      |      |  | $ | 326,530 |        |  |   |        |  |  |  |      |  
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  
|Net Interest Income and Net
Interest Margin  |  |                |         |          |                | $    | 10,776 |         |  |          | 4.15 | %    |  |   |         |        |  | $ | 9,008  |  |  |  | 4.06 | %
|                                             |  |                |         |          |                |      |        |         |  |          |      |      |  |   |         |        |  |   |        |  |  |  |      |  

19



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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 interest 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.




Table 2. Analysis of Changes in
Net Interest Income and Interest Expense

|                       |                          |                           |       |                                                        |       |       |    |        |        |   |       |        |      |  
|---------------------- | ------------------------ | ------------------------- | ----- | ------------------------------------------------------ | ----- | ----- | -- | ------ | ------ | - | ----- | ------ | ---- | -
|                       |                          |                           |       | Sept. 30,
2003           over           Sept. 30,
2002
|(Dollars in thousands) |                          | Volume                    |       | Rate                                                   |       | Total
|                       |                          |                           |       |                                                        |       |       |    |       
|Increase
(Decrease) In |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|Interest Income        |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|                       | Portfolio Loans          |                           | $     | 1,951                                                  |       |       | $  | (920   | )      |   | $     | 1,031  |     
|                       | Tax-exempt Securities    |                           |       | (17                                                    | )     |       |    | (12    | )      |   |       | (29    | )   
|                       | US Government Securities |                           |       | 79                                                     |       |       |    | (221   | )      |   |       | (142   | )   
|                       | Federal Funds Sold       |                           |       | 51                                                     |       |       |    | (57    | )      |   |       | (6     | )   
|                       | Other Securities         |                           |       | (20                                                    | )     |       |    | (34    | )      |   |       | (54    | )   
|                       |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|                       |                          | Total Increase (Decrease) |       | $                                                      | 2,044 |       |    | $      | (1,244 | ) |       | $      | 800  |  
|                       |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|Increase (Decrease) In |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|Interest Expense       |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|                       | Interest Bearing Demand  |                           | $     | 57                                                     |       |       | $  | (152   | )      |   | $     | (95    | )   
|                       | Savings Deposits         |                           |       | 19                                                     |       |       |    | (23    | )      |   |       | (4     | )   
|                       | Certificates of Deposit  |                           |       | 80                                                     |       |       |    | (1,188 | )      |   |       | (1,108 | )   
|                       | Borrowings               |                           |       | 171                                                    |       |       |    | 68     |        |   |       | 239    |     
|                       |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|                       |                          | Total Increase (Decrease) |       | $                                                      | 327   |       |    | $      | (1,295 | ) |       | $      | (968 | )
|                       |                          |                           |       |                                                        |       |       |    |        |        |   |       |       
|Net Increase           |                          | $                         | 1,717 |                                                        |       | $     | 51 |        |        | $ | 1,768 |       
|                       |                          |                           |       |                                                        |       |       |    |        |        |   |       |       

Net interest income was $10.8 million for the first nine-months of 2003
compared with $9.0 million for the same period in 2002, a 19.6% increase
(Tables 1 and 2). The primary reason for the increase was an increase in the
volume of earning assets. Average earning assets for the first nine-months of
2003 were $346.3 million compared with $295.8 million for the same period in
2002, an increase of $50.5 million or 17.1%. Portfolio loans is the single
largest component of earning assets and average portfolio loans increased $42.0
million or 17.2% over the same period in 2002.

While the average volume of earning assets increased, the average yield
decreased from 6.11% in 2002 to 5.52% in 2003. This decrease was due to asset
repricing during a period of declining interest rates. Average interest bearing
liabilities also increased during the period, to $281.7 million for the first
nine-months of 2003 compared with $247.9 million for the same period in 2002, a
$33.8 million increase or 13.6%. Similar to earning assets, the cost of
interest bearing liabilities decreased from 2.44% in 2002 to 1.69% in 2003.

The decrease in the cost of interest bearing liabilities was due to repricing
of interest bearing checking and savings accounts as well as the rollover of
maturing certificates of deposits at lower rates. As a result of these changes,
the interest spread (the difference between the yield on earning assets and the
cost of interest bearing liabilities) increased 9 basis points to 4.15% for the
nine-months ended September 30, 2003 compared with the same period in the prior
year.

20



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##### Table of Contents



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




Noninterest Income

The Companys noninterest income consists of service charges on deposit
accounts, other fee income, processing fees for credit card payments and gains
or losses on security sales. The following table sets forth a summary of
noninterest income for the periods indicated.

|                         |                                                              |                |                    |                |                   |                |     |                |  |   |       |     |  |   |       |     | 
|------------------------ | ------------------------------------------------------------ | -------------- | ------------------ | -------------- | ----------------- | -------------- | --- | -------------- |  | - | ----- | --- |  | - | ----- | --- | 
|                         |                                                              |                | Three Months Ended |                | Nine Months Ended
|                         |                                                              |                |                    |                |                  
|(Dollars in thousands)   |                                                              | Sept. 30, 2003 |                    | Sept. 30, 2002 |                   | Sept. 30, 2003 |     | Sept. 30, 2002
|                         |                                                              |                |                    |                |                   |                |     |               
|Noninterest income       |                                                              |                |                    |                |                   |                |     |                |  |   |       |     |  |   |       |    
|                         | Service charges on deposit accounts                          |                | $                  | 94             |                   |                | $   | 69             |  |   | $     | 250 |  |   | $     | 217 | 
|                         | Payroll and benefit processing fees                          |                |                    | 79             |                   |                |     | 73             |  |   |       | 245 |  |   |       | 220 | 
|                         | Earnings on cash surrender value -
Bank owned life insurance |                |                    | 57             |                   |                |     | 62             |  |   |       | 176 |  |   |       | 185 | 
|                         | Net gain on sale of securities
available-for-sale            |                |                    | 12             |                   |                |     | 123            |  |   |       | 88  |  |   |       | 125 | 
|                         | Net gain on sale of loans                                    |                |                    | 25             |                   |                |     | 0              |  |   |       | 99  |  |   |       | 31  | 
|                         | Merchant credit card service income, net                     |                |                    | 112            |                   |                |     | 108            |  |   |       | 307 |  |   |       | 317 | 
|                         | Mortgage brokerage fee income                                |                |                    | 111            |                   |                |     | 73             |  |   |       | 223 |  |   |       | 97  | 
|                         | Other income                                                 |                |                    | 94             |                   |                |     | 57             |  |   |       | 299 |  |   |       | 290 | 
|                         |                                                              |                |                    |                |                   |                |     |                |  |   |       |     |  |   |       |    
|Total noninterest income |                                                              | $              | 584                |                |                   | $              | 565 |                |  | $ | 1,687 |     |  | $ | 1,482 |    
|                         |                                                              |                |                    |                |                   |                |     |                |  |   |       |     |  |   |       |    

Noninterest income increased $19,000 or 3.4% for the quarter ended September
30, 2003 over September 30, 2002. Service charges on deposit accounts increased
due to growth in core deposits and implementation of account analysis fees.
Other income increased $37,000 or 6.5% for the quarter ended September 30, 2003
over September 30, 2002 primarily due to the addition of contract core item
processing. Net gain on sale of loans increased $25,000 over the prior years
quarter of $0 due to increased sales of SBA loans during the quarter. Mortgage
brokerage fee income increased by 53.4% or $38,000 for the quarter ended
September 30, 2003 over September 30, 2002. Increases are attributed to the
rising volumes of new purchase mortgages being processed through RBC Mortgage
Services.

Noninterest income increased by $205,000 or 13.8% for the nine-month period
ended September 30, 2003 over the same nine-month period in 2002. Increases in
other income are attributed to the core item processing agreement in which the
Bank is paid a fee for data processing services supplied to another independent
bank. Net gain on sale of loans increased $68,000 or 219.4% over the prior year
due to increased sales of SBA loans. Mortgage brokerage fee income increased by
130.0% or $126,000 over the same nine-month period a year ago. Increases in
mortgage brokerage fee income are attributed to the rising volumes of new
purchase mortgages being processed through RBC Mortgage Services.

Noninterest Expense




|                          |                                 |                |                    |                |                   |                |       |                |  |   |       |       |  |   |       |       | 
|------------------------- | ------------------------------- | -------------- | ------------------ | -------------- | ----------------- | -------------- | ----- | -------------- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                          |                                 |                | Three Months Ended |                | Nine Months Ended
|                          |                                 |                |                    |                |                  
|(Dollars in thousands)    |                                 | Sept. 30, 2003 |                    | Sept. 30, 2002 |                   | Sept. 30, 2003 |       | Sept. 30, 2002
|                          |                                 |                |                    |                |                   |                |       |               
|Noninterest expense       |                                 |                |                    |                |                   |                |       |                |  |   |       |       |  |   |       |      
|                          | Salaries and related benefits   |                | $                  | 1,409          |                   |                | $     | 1,282          |  |   | $     | 4,063 |  |   | $     | 3,424 | 
|                          | Occupancy and equipment expense |                |                    | 374            |                   |                |       | 377            |  |   |       | 1,087 |  |   |       | 1,073 | 
|                          | FDIC insurance premium          |                |                    | 12             |                   |                |       | 12             |  |   |       | 37    |  |   |       | 36    | 
|                          | Data processing fees            |                |                    | 52             |                   |                |       | 27             |  |   |       | 141   |  |   |       | 69    | 
|                          | Professional service fees       |                |                    | 161            |                   |                |       | 105            |  |   |       | 549   |  |   |       | 235   | 
|                          | Deferred compensation expense   |                |                    | 65             |                   |                |       | 46             |  |   |       | 189   |  |   |       | 177   | 
|                          | Directors expense              |                |                    | 68             |                   |                |       | 46             |  |   |       | 182   |  |   |       | 194   | 
|                          | Stationery and supplies         |                |                    | 58             |                   |                |       | 46             |  |   |       | 178   |  |   |       | 171   | 
|                          | Other expenses                  |                |                    | 260            |                   |                |       | 287            |  |   |       | 836   |  |   |       | 741   | 
|                          |                                 |                |                    |                |                   |                |       |                |  |   |       |       |  |   |       |      
|Total noninterest expense |                                 | $              | 2,459              |                |                   | $              | 2,228 |                |  | $ | 7,262 |       |  | $ | 6,120 |      
|                          |                                 |                |                    |                |                   |                |       |                |  |   |       |       |  |   |       |      

21



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##### Table of Contents



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

Noninterest expense for the quarter ended September 30, 2003 was $2.5 million,
an increase of $231,000 or 10.4% over the same period a year ago. Salaries and
employee benefits increased $127,000 or 9.9% over the same period a year ago.
Increases to benefits include a 30% increase in group health coverage and a 74%
increase in workers compensation insurance expense. Group health and
California workers compensation insurance increases are reflective of the
current economic market for insurance coverage in California.

Professional service expense increased $56,000 or 53.3% for the quarter ended
September 30, 2003 over the quarter ended September 30, 2002. Professional
service expenses consists of assessments, audit expenses, legal expenses and
other outside services. Professional service expenses increased due to overall
increasing costs of audit services and as a result of new consulting contracts
intended to provide insight into the Companys efficiency and technology uses.

Other expenses decreased $27,000 or 9.4% for the quarter ended September 30,
2003 over the quarter ended September 30, 2002, representing other expense
reductions related to efficiencies in operations.

Noninterest expense for the nine-months ended September 30, 2003 was $7.3
million, an increase of $1,142,000 or 18.7% over the same nine-month period a
year ago. Salaries and employee benefits increased $639,000 or 18.7% over the
same nine-month period a year ago. Increases to benefits include a 30% increase
in group health coverage and a 74% increase in workers compensation insurance
expense. Group health and California workers compensation insurance increases
are reflective of the current economic market for insurance coverage in
California.

Professional service expense increased $314,000 or 133.6% for the nine-month
period ended September 30, 2003 over the nine-month period ended September 30,
2002 relating to increased audit and consulting expenses related to efficiency
studies, technology enhancements and increased risk assessments and internal
control. Data processing expenses have increased by $72,000 or 104.3% in
relation to the installation of new hardware and software to create operational
efficiencies.




Income Taxes

The Companys effective tax rate varies with changes in the relative amounts of
its non-taxable income and non-deductible expenses. The increase in the
Companys tax provision is attributable to decreases in non-taxable income
related to a reduction in the municipal security portfolio and reclassification
of enterprise zone qualified credits. A strategy to increase holdings in the
municipal security portfolio was implemented in the third quarter.

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       |  | Sept. 30, 2003     |      | Sept. 30, 2002    |  | Sept. 30, 2003 |      | Sept. 30, 2002
|                   |  |                    |      |                   |  |                |      |               
|Tax provision      |  | $                  | 565  |                   |  | $              | 483  |                |  | $ | 1,721 |   |  | $ | 1,374 |  
|Effective tax rate |  |                    | 31.1 | %                 |  |                | 30.3 | %              |  |   | 36.0  | % |  |   | 33.7  | %

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
2003 was $565,000 as compared to $483,000 for the third quarter period in 2002.
Income tax expense for the nine-months ended September 30, 2003 was $1.7
million compared to $1.4 million for the same nine-month period in 2003. The
increase in tax expense quarterly and for the nine-month period is attributed
to increased revenues and a reduction in tax-exempt income on municipal
securities

22



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##### Table of Contents



and reclassification of enterprise zone qualified credits.

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




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 four 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 commercial 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)


|                         |                           |                |         |               |   |   |         |        |  
|------------------------ | ------------------------- | -------------- | ------- | ------------- | - | - | ------- | ------ | -
|Portfolio Loans          |                           | Sept. 30, 2003 |         | Dec. 31, 2002
|                         |                           |                |         |              
|Commercial and financial |                           | $              | 102,045 |               |   | $ | 99,084  |       
|Real estate-construction |                           |                | 66,446  |               |   |   | 40,662  |       
|Real estate-commercial   |                           |                | 113,112 |               |   |   | 143,336 |       
|Installment              |                           |                | 498     |               |   |   | 720     |       
|Other loans              |                           |                | 441     |               |   |   | 662     |       
|Less:                    |                           |                |         |               |   |   |         |       
|                         | Net deferred loan fees    |                |         | (549          | ) |   |         | (584   | )
|                         | Allowance for loan losses |                |         | (3,965        | ) |   |         | (3,566 | )
|                         |                           |                |         |               |   |   |         |       
|Total net loans          |                           | $              | 278,028 |               |   | $ | 280,314 |       
|                         |                           |                |         |               |   |   |         |       

The Companys practice is to place an asset on nonaccrual status when one of
the following events occur: (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 decreased $2.3 million or 0.8% at September 30, 2003 over
December 31, 2002. The portfolio mix reflects a decrease in commercial real
estate reflective of managements strategy to reduce the dependence on
commercial real estate through pay downs. The balance of the portfolio remains
relatively consistent with the mix at December 31, 2002, with commercial and
financial loans of approximately 37%, real estate construction of 23.5% and
commercial real estate at 40.0%. Impaired loans are loans for which it is
probable that the Company will not be able to collect all amounts due and
payable. The Company had outstanding balances of $2,920,000 and $7,000 in
impaired loans that had impairment allowances of $500,000 and $1,000 as of
September 30, 2003 and December 31, 2002, respectively.

The credit in question totaled $2.9 million at September 30, 2003 and is
collateralized by equipment and real estate. The Company has seven other loans
to this borrower totaling approximately $1.6 million. These loans are
performing in accordance with their original terms, are fully collateralized,
and the Company expects to collect all principal and interest due. However, in
accordance with its policy, the Company has classified all seven loans to this
borrower and its subsidiaries.

23



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##### Table of Contents



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

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

(Dollars in thousands)


|                                             |  |                |       |               |  |   |     | 
|-------------------------------------------- |  | -------------- | ----- | ------------- |  | - | --- | 
|Non performing assets                        |  | Sept. 30, 2003 |       | Dec. 31, 2002
|                                             |  |                |       |              
|Nonaccrual loans                             |  | $              | 2,920 |               |  | $ | 0   | 
|90 days past due and still accruing
interest |  |                | 712   |               |  |   | 7   | 
|                                             |  |                |       |               |  |   |     | 
|Total nonaccrual loans                       |  |                | 3,632 |               |  |   | 7   | 
|Other Real Estate Owned                      |  |                | 0     |               |  |   | 338 | 
|                                             |  |                |       |               |  |   |     | 
|Total non performing assets                  |  | $              | 3,632 |               |  | $ | 345 | 
|                                             |  |                |       |               |  |   |     | 




Allowance for Loan Losses (ALL)

The allowance for loan losses is managements estimate of the amount of
probable loan losses in the loan portfolio. The company determines the
allowance for loan losses based on an ongoing evaluation. The evaluation is
inherently subjective because it requires material estimates, including the
amounts and timing of cash flows expected to be received on impaired loans.
Those estimates may be susceptible to significant change. The Company makes
provisions to the ALL 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 loaned 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.

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

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

The ALL is a general reserve available against the total loan portfolio. 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 the examination
process, periodically review the Companys ALL. Such agencies may require the
Company to provide additions to the allowance based on their judgment of
information available to them at the time of their examination. 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. In addition
to the ALL, an allowance for unfunded loan commitments and letters of loan is
determined using estimates of the probability of funding. This reserve is
carried as a liability on the condensed consolidated balance sheet.

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

24



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##### Table of Contents



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

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

|                                  |  |                    |       |                   |  |                |       |                |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | ----------------- |  | -------------- | ----- | -------------- |  | - | ----- | - |  | - | ----- | -
|(Dollars in thousands)            |  | Three Months Ended |       | Nine Months Ended
|                                  |  |                    |       |                  
|Allowance for Loan Losses         |  | Sept. 30, 2003     |       | Sept. 30, 2002    |  | Sept. 30, 2003 |       | Sept. 30, 2002
|                                  |  |                    |       |                   |  |                |       |               
|Beginning balance for Loan Losses |  | $                  | 3,925 |                   |  | $              | 3,359 |                |  | $ | 3,549 |   |  | $ | 3,180 |  
|Provision for Loan Losses         |  |                    | 40    |                   |  |                | 105   |                |  |   | 415   |   |  |   | 295   |  
|Charge offs:                      |  |                    |       |                   |  |                |       |                |  |   |       |   |  |   |       |  
|Commercial                        |  |                    | (0    | )                 |  |                | (5    | )              |  |   | (7    | ) |  |   | (8    | )
|Real Estate                       |  |                    | (0    | )                 |  |                | (0    | )              |  |   | 0     |   |  |   | (18   | )
|Other                             |  |                    | (1    | )                 |  |                | (0    | )              |  |   | (1    | ) |  |   | (0    | )
|                                  |  |                    |       |                   |  |                |       |                |  |   |       |   |  |   |       |  
|Total Charge offs                 |  |                    | (1    | )                 |  |                | (5    | )              |  |   | (8    | ) |  |   | (26   | )
|Recoveries:                       |  |                    |       |                   |  |                |       |                |  |   |       |   |  |   |       |  
|Commercial                        |  |                    | 1     |                   |  |                | 6     |                |  |   | 9     |   |  |   | 16    |  
|Real Estate                       |  |                    | 0     |                   |  |                | 0     |                |  |   | 0     |   |  |   | 0     |  
|                                  |  |                    |       |                   |  |                |       |                |  |   |       |   |  |   |       |  
|Total Recoveries                  |  |                    | 1     |                   |  |                | 6     |                |  |   | 9     |   |  |   | 16    |  
|Ending Balance                    |  | $                  | 3,965 |                   |  | $              | 3,465 |                |  | $ | 3,965 |   |  | $ | 3,465 |  
|ALL to total loans                |  |                    | 1.41  | %                 |  |                | 1.18  | %              |  |   | 1.41  | % |  |   | 1.18  | %
|Net Charge offs to average loans  |  |                    | 0.00  | %                 |  |                | 0.01  | %              |  |   | 0.00  | % |  |   | 0.01  | %
|                                  |  |                    |       |                   |  |                |       |                |  |   |       |   |  |   |       |  

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##### Table of Contents



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




Securities Portfolio

The securities portfolio is comprised of U.S. Treasury securities, U.S. Agency
securities, mortgage-backed securities, and obligations of states and political
subdivisions. Securities classified as available for sale are recorded at fair
value, while securities classified as held to maturity are recorded at cost.
Unrealized gains or losses on available for sale securities, net of the
deferred tax effect, are reported as increases or decreases in stockholders
equity. Portions of the securities portfolio are used for pledging requirements
for deposits of state and local subdivisions, securities sold under repurchase
agreements, and FHLB advances. The Company does not include federal funds sold
as securities. These investments are included in cash and cash equivalents.

Total available-for-sale securities increased $31.9 million or 98.7% for the
nine-months of 2003. Purchases were primarily in the U.S. Agency sector with a
moderate increase in tax-exempt municipal purchases.

Approximately $6.5 million in available-for-sale securities were sold during
the period posting a gain on sale of $12,000. The sale occurred to balance
accelerated prepayment risk in the U.S. Government portfolio.

As of September 30, 2003, the Company has pledged $1.0 million of securities
for treasury, tax and loan accounts, $6.5 million for deposits of public funds
and approximately $5.5 million for collateralized repurchase agreements.

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

|                                                |  |                          |        |            |  |            |     |            |  |   |        |   |  |   |        | 
|----------------------------------------------- |  | ------------------------ | ------ | ---------- |  | ---------- | --- | ---------- |  | - | ------ | - |  | - | ------ | 
|                                                |  | as of September 30, 2003
|                                                |  |                         
|                                                |  | Amortized                |        | Unrealized |  | Unrealized |     | Estimated 
|(Dollars in thousands)                          |  | Costs                    |        | Gains      |  | Losses     |     | Fair Value
|                                                |  |                          |        |            |  |            |     |           
|U.S. government & agencies                      |  | $                        | 25,347 |            |  | $          | 59  |            |  | $ | (464   | ) |  | $ | 24,942 | 
|Obligations of state and
political subdivisions |  |                          | 6,442  |            |  |            | 311 |            |  |   | (481   | ) |  |   | 6,272  | 
|Mortgage backed securities                      |  |                          | 33,117 |            |  |            | 11  |            |  |   | (104   | ) |  |   | 33,024 | 
|                                                |  |                          |        |            |  |            |     |            |  |   |        |   |  |   |        | 
|Total                                           |  | $                        | 64,906 |            |  | $          | 381 |            |  | $ | (1,049 | ) |  | $ | 64,238 | 
|                                                |  |                          |        |            |  |            |     |            |  |   |        |   |  |   |        | 

|                                                |  |                          |        |            |  |            |     |            |  |   |   |  |  |   |        | 
|----------------------------------------------- |  | ------------------------ | ------ | ---------- |  | ---------- | --- | ---------- |  | - | - |  |  | - | ------ | 
|                                                |  | as of September 30, 2002
|                                                |  |                         
|                                                |  | Amortized                |        | Unrealized |  | Unrealized |     | Estimated 
|(Dollars in thousands)                          |  | Costs                    |        | Gains      |  | Losses     |     | Fair Value
|                                                |  |                          |        |            |  |            |     |           
|U.S. government & agencies                      |  | $                        | 16,226 |            |  | $          | 112 |            |  | $ | 0 |  |  | $ | 16,338 | 
|Obligations of state and
political subdivisions |  |                          | 2,570  |            |  |            | 164 |            |  |   | 0 |  |  |   | 2,734  | 
|Mortgage backed securities                      |  |                          | 33,271 |            |  |            | 241 |            |  |   | 0 |  |  |   | 33,512 | 
|                                                |  |                          |        |            |  |            |     |            |  |   |   |  |  |   |        | 
|Total                                           |  | $                        | 52,067 |            |  | $          | 517 |            |  | $ | 0 |  |  | $ | 52,584 | 
|                                                |  |                          |        |            |  |            |     |            |  |   |   |  |  |   |        | 

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##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company considers interest rate, credit and operation risk as the most
significant risks affecting the Company. Other types of market risk, such as
foreign exchange risk and commodity price risk, do not affect the Company in
the normal course of operations.

Fluctuation in interest rates will ultimately affect both the level of interest
income and interest expense recorded as revenue. 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.

To estimate the effect of interest rate shock 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.

At September 30, 2003, the estimated annualized reduction in net interest
income attributable to a 50 and 100 basis point decline in the federal funds
rate was $432,000 and $852,000, respectively. At September 30, 2003, the
estimated annual increase in net interest income attributable to a 100 and 200
basis point increase in the federal funds rate was $772,000 and $1,543,000. At
December 31, 2002, the estimated annualized reduction in net interest income
attributable to a 100 and 200 basis point decline in the federal funds rate was
$769,000 and $1,538,000, respectively, with a similar and opposite result
attributable to a 100 basis point increase in the federal funds rate.

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ITEM 4. CONTROLS AND PROCEDURES

As required by SEC rules, within 90 days prior to the date of this Form 10-Q,
the Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys President
and Chief Executive Officer and with the Companys Chief Financial Officer, of
the effectiveness of the design and operation of the Companys disclosure
controls and procedures, pursuant to Exchange Act Rule 13a-14.

As part of the disclosure controls and procedures, management has formed the
SEC Disclosure Committee. This committee reviews the quarterly filing to a
disclosure checklist to ensure that all functional areas of the Company have
participated in the disclosure review. In addition, operational and accounting
audits are performed ongoing throughout the year by the Companys internal
auditors to support the control structure.

Based upon that evaluation, the Companys President and Chief Executive Officer
along with the Companys Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in this Form 10-Q.

There have been no significant changes in the Companys internal controls, or
in other factors, which would significantly affect internal controls subsequent
to the date the Company carried out its evaluation.

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##### Table of Contents






PART II. Other Information




Item 1. Legal proceedings

The Company is involved in various pending and threatened legal actions arising
in the ordinary course of business. The Company maintains reserves for losses
from legal actions, which are both probable and estimable. In the opinion of
management, the disposition of claims, currently pending will not have a
material adverse affect on the Companys financial position 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

(31) Certification of Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002
(32) Certification of Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002




Item 6B. Reports on Form 8-K

September 18, 2003 Press Release announcing company dividend.




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, 2003 |  |                           
|                        |  | /s/ Linda J. Miles        
|                        |  | Linda J. Miles            
|                        |  | Executive Vice President &
|                        |  | Chief Financial Officer   

29