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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2001

OR

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

For the transition period from __________ to __________

Commission file number 0-25135

REDDING BANCORP
(Exact name of Registrant as specified in its charter)

|                                                                         |  |                                     
|------------------------------------------------------------------------ |  | ------------------------------------
|California                                                               |  | 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 the number of shares outstanding of each of the issuers class of common stock, as of the
latest practicable date. September 30, 2001: 2,757,527

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TABLE OF CONTENTS



|                              |                                                                                                                    |                                                                |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                                      
|                              |                                                                                                                    | Consolidated Condensed Balance Sheets                         
|                              |                                                                                                                    | Consolidated Condensed Statements of Income                   
|                              |                                                                                                                    | Consolidated Condensed Statements of Cash Flows               
|                              |                                                                                                                    | Notes to Unaudited Consolidated Condensed Financial Statements
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND                      RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                                               
|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                                                                                                 
|SIGNATURES                   



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REDDING BANCORP & SUBSIDIARIES

Index to Form 10-Q

|                              |  |                                                                                                     |  |      
|----------------------------- |  | --------------------------------------------------------------------------------------------------- |  | -----
|                              |  |                                                                                                     |  | Page:
|                              |  |                                                                                                     |  |      
|PART I. Financial Information |  |                                                                                                     |  |      
|                              |  | Item 1. Financial Statements                                                                        |  |      
|                              |  | Consolidated Condensed Balance Sheets September 30, 2001, December 31, 2000
and September 30, 2000  |  | 3    
|                              |  | Consolidated Condensed Statements of Income Three and nine months ended
September 30, 2001 and 2000 |  | 4    
|                              |  | Consolidated Condensed Statements of Cash Flows Nine months ended September 30, 2001
and 2000       |  | 5    
|                              |  | Notes to Consolidated Condensed Financial Statements                                                |  | 6    
|                              |  | Item 2. Managements Discussion and Analysis Of Financial Condition and
Results of Operations       |  | 8    
|                              |  | Item 3. Quantitative and Qualitative Disclosure about Market Risk                                   |  | 17   
|PART II. Other Information    |  |                                                                                                     |  |      
|                              |  | Item 1. Legal proceedings                                                                           |  | 19   
|                              |  | Item 2. Changes in Securities and use of proceeds                                                   |  | 19   
|                              |  | Item 3. Defaults Upon Senior Securities                                                             |  | 19   
|                              |  | Item 4. Submission of Matters to a Vote of Security Holders                                         |  | 19   
|                              |  | Item 5. Other Information                                                                           |  | 19   
|                              |  | Item 6. Exhibits and Report on Form 8-K                                                             |  | 20   
|SIGNATURES                    |  | 20                                                                                                 

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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




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

|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |         |         |   |         | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------- | ------ | ---------------------------------------------------- | ------- | ------------------ | ------- | ----------------- | ------- | ------------------ | ------- | ------- | ------- | - | ------- | 
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         | September 30, 2001 |         | December 31, 2000 |         | September 30, 2000
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                   
|ASSETS                                         |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               | Cash and
          due from banks                                                                                                                                                                                            |                                        | $      | 14,809                                               |         |                    | $       | 12,603            |         |                    | $       | 11,438  |        
|                                               | Federal
          funds sold                                                                                                                                                                                                 |                                        |        | 23,400                                               |         |                    |         | 13,010            |         |                    |         | 23,180  |        
|                                               | Securities:                                                                                                                                                                                                                  |                                        |        |                                                      |         |                    |         |                   |         |                    |         |         |        
|                                               | Available-for-sale                                                                                                                                                                                                           |                                        |        | 43,368                                               |         |                    |         | 20,997            |         |                    |         | 19,676  |        
|                                               | Held-to-maturity
          (estimated fair value of $4,702 
          at September 30, 2001, $4,972 at December 31, 2000
          and $5,513 at September 30, 2000)                                                         |                                        |        | 4,524                                                |         |                    |         | 5,007             |         |                    |         | 5,613   |        
|                                               | Loans,
          net of the allowance for loan losses of $3,189 at
          September 30, 2001, $2,974 at December 31, 2000
          and $3,083 at September 30, 2000                                                      |                                        |        | 215,658                                              |         |                    |         | 191,322           |         |                    |         | 184,043 |        
|                                               | Bank
          premises and equipment, net                                                                                                                                                                                   |                                        |        | 5,343                                                |         |                    |         | 5,287             |         |                    |         | 5,346   |        
|                                               | Other
          assets                                                                                                                                                                                                       |                                        |        | 8,366                                                |         |                    |         | 6,881             |         |                    |         | 6,974   |        
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               |                                                                                                                                                                                                                              |                                        |        | TOTAL
          ASSETS                               |         | $                  | 315,468 |                   |         | $                  | 255,107 |         |         | $ | 256,270 | 
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|LIABILITIES
          AND STOCKHOLDERS EQUITY |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               |                                                                                                                                                                                                                              | Demand
           noninterest bearing |        | $                                                    | 39,807  |                    |         | $                 | 37,392  |                    |         | $       | 39,860  |  
|                                               |                                                                                                                                                                                                                              | Demand
           interest bearing    |        |                                                      | 61,716  |                    |         |                   | 47,394  |                    |         |         | 46,670  |  
|                                               |                                                                                                                                                                                                                              | Savings                                |        |                                                      | 17,146  |                    |         |                   | 12,496  |                    |         |         | 14,238  |  
|                                               |                                                                                                                                                                                                                              | Certificates
          of deposits     |        |                                                      | 156,777 |                    |         |                   | 120,754 |                    |         |         | 118,853 |  
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               |                                                                                                                                                                                                                              |                                        |        | Total
          Deposits                             |         |                    | 275,446 |                   |         |                    | 218,036 |         |         |   | 219,621 | 
|                                               | Other
          borrowings                                                                                                                                                                                                   |                                        |        | 6,563                                                |         |                    |         | 5,268             |         |                    |         | 4,189   |        
|                                               | Other
          Liabilities                                                                                                                                                                                                  |                                        |        | 3,721                                                |         |                    |         | 3,049             |         |                    |         | 3,492   |        
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               |                                                                                                                                                                                                                              |                                        |        | Total
          Liabilities                          |         |                    | 285,730 |                   |         |                    | 226,353 |         |         |   | 227,302 | 
|                                               | Stockholders
          Equity:                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |         |        
|                                               | Preferred
          stock, no par value, 2,000,000 authorized
          no shares issued and outstanding in 2001 and 2000                                                                                                    |                                        |        |                                                      |         |                    |         |                   |         |                    |         |         |        
|                                               | Common
        Stock, no par value, 10,000,000 shares 
        authorized; 2,757,527 shares issued and outstanding at
        September 30, 2001, 2,884,181 at December 31, 2000 and
        2,876,261 at September 30, 2000 |                                        |        | 9,010                                                |         |                    |         | 9,371             |         |                    |         | 5,169   |        
|                                               | Retained
          Earnings                                                                                                                                                                                                  |                                        |        | 20,101                                               |         |                    |         | 19,296            |         |                    |         | 23,919  |        
|                                               | Accumulated
          other comprehensive income gain (loss), net of tax                                                                                                                                                     |                                        |        | 627                                                  |         |                    |         | 87                |         |                    |         | (120    | )      
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               |                                                                                                                                                                                                                              |                                        | 29,738 |                                                      |         |                    | 28,754  |                   |         |                    | 28,968  |        
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        
|                                               |                                                                                                                                                                                                                              |                                        |        | TOTAL
          LIABILITIES AND STOCKHOLDERS EQUITY |         | $                  | 315,468 |                   |         | $                  | 255,107 |         |         | $ | 256,270 | 
|                                               |                                                                                                                                                                                                                              |                                        |        |                                                      |         |                    |         |                   |         |                    |         |        

See notes to consolidated financial statements.

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

|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |        |        | 
|--------------------------------------------------- | --------------------------------------------------------- | -------------------------- | ----- | ------------------ | ----- | ------------------ | ----- | ------------------ | ----- | ------------------ | ----- | ------ | ------ | - | ----- | ------ | ------ | 
|                                                    |                                                           |                            |       | Three months ended |       | Nine months ended 
|                                                    |                                                           |                            |       |                    |       |                   
|                                                    |                                                           |                            |       | September 30, 2001 |       | September 30, 2000 |       | September 30, 2001 |       | September 30, 2000
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                   
|Interest income:                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    | Interest and fees on loans                                |                            | $     | 4,483              |       |                    | $     | 4,483              |       |                    | $     | 13,386 |        |   | $     | 13,023 |       
|                                                    | Interest on securities                                    |                            |       | 527                |       |                    |       | 346                |       |                    |       | 1,430  |        |   |       | 1,129  |       
|                                                    | Interest on federal funds sold                            |                            |       | 259                |       |                    |       | 324                |       |                    |       | 662    |        |   |       | 690    |       
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    |                                                           | Total interest income      |       |                    | 5,269 |                    |       |                    | 5,153 |                    |       |        | 15,478 |   |       |        | 14,842 | 
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Interest expense:                                   |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    | Interest on demand deposits                               |                            |       | 220                |       |                    |       | 319                |       |                    |       | 752    |        |   |       | 763    |       
|                                                    | Interest on savings                                       |                            |       | 96                 |       |                    |       | 111                |       |                    |       | 282    |        |   |       | 320    |       
|                                                    | Interest on time deposits                                 |                            |       | 2,085              |       |                    |       | 1,813              |       |                    |       | 5,847  |        |   |       | 4,993  |       
|                                                    | Other borrowings                                          |                            |       | 40                 |       |                    |       | 81                 |       |                    |       | 175    |        |   |       | 240    |       
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    |                                                           | Total interest expense     |       |                    | 2,441 |                    |       |                    | 2,324 |                    |       |        | 7,056  |   |       |        | 6,316  | 
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Net interest income                                 |                                                           |                            | 2,828 |                    |       |                    | 2,829 |                    |       |                    | 8,422 |        |        |   | 8,526 |       
|Provision (credit) for loan losses                  |                                                           |                            | (52   | )                  |       |                    | 0     |                    |       |                    | 255   |        |        |   | 56    |       
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Net interest income after provision for loan
losses |                                                           |                            | 2,880 |                    |       |                    | 2,829 |                    |       |                    | 8,167 |        |        |   | 8,470 |       
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Non-interest income:                                |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    | Service charges on deposit accounts                       |                            |       | 53                 |       |                    |       | 56                 |       |                    |       | 159    |        |   |       | 166    |       
|                                                    | Credit card service income, net                           |                            |       | 120                |       |                    |       | 482                |       |                    |       | 839    |        |   |       | 1,406  |       
|                                                    | Other income                                              |                            |       | 339                |       |                    |       | 192                |       |                    |       | 830    |        |   |       | 608    |       
|                                                    | Net gain (loss) on sale of securities
available-for- sale |                            |       | 0                  |       |                    |       | 0                  |       |                    |       | 100    |        |   |       | (59    | )     
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    |                                                           | Total non-interest Income: |       |                    | 512   |                    |       |                    | 730   |                    |       |        | 1,928  |   |       |        | 2,121  | 
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Non-interest expense:                               |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    | Salaries and related benefits                             |                            |       | 1,068              |       |                    |       | 972                |       |                    |       | 2,935  |        |   |       | 2,794  |       
|                                                    | Net occupancy and equipment expense                       |                            |       | 309                |       |                    |       | 246                |       |                    |       | 811    |        |   |       | 735    |       
|                                                    | Data processing and professional services                 |                            |       | 145                |       |                    |       | 126                |       |                    |       | 400    |        |   |       | 394    |       
|                                                    | Other expense                                             |                            |       | 342                |       |                    |       | 295                |       |                    |       | 1,097  |        |   |       | 908    |       
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    |                                                           | Total non-interest expense |       |                    | 1,864 |                    |       |                    | 1,639 |                    |       |        | 5,243  |   |       |        | 4,831  | 
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Income before income taxes                          |                                                           |                            | 1,528 |                    |       |                    | 1,920 |                    |       |                    | 4,852 |        |        |   | 5,760 |       
|                                                    | Provision for income taxes                                |                            |       | 532                |       |                    |       | 695                |       |                    |       | 1,753  |        |   |       | 2,130  |       
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|                                                    |                                                           | Net Income                 |       | $                  | 996   |                    |       | $                  | 1,225 |                    |       | $      | 3,099  |   |       | $      | 3,630  | 
|                                                    |                                                           |                            |       |                    |       |                    |       |                    |       |                    |       |        |        |   |       |       
|Basic earnings per share                            |                                                           | $                          | 0.36  |                    |       | $                  | 0.43  |                    |       | $                  | 1.09  |        |        | $ | 1.26  |       
|Weighted average shares  basic                     |                                                           |                            | 2,817 |                    |       |                    | 2,877 |                    |       |                    | 2,844 |        |        |   | 2,883 |       
|Diluted earnings per share                          |                                                           | $                          | 0.33  |                    |       | $                  | 0.41  |                    |       | $                  | 1.04  |        |        | $ | 1.19  |       
|Weighted average shares  diluted                   |                                                           |                            | 3,026 |                    |       |                    | 3,005 |                    |       |                    | 2,979 |        |        |   | 3,038 |       

See notes to consolidated financial statements.

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REDDING BANCORP & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Nine months ended September 30, 2001 and 2000

|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                    |         |       |        |  
|--------------------------------------------------------------------------------- | -------------------------------- | ------------------------------------------------------------------- | ---------- | ------------------------------------------------ | ------- | ------------------ | ------- | ------------------ | ------- | ----- | ------ | -
|                                                                                  |                                  |                                                                     |            |                                                  |         | September 30, 2001 |         | September 30, 2000
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|Cash flows from operating activities:                                             |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  |                                                                     | Net Income |                                                  | $       | 3,099              |         |                    | $       | 3,630 |       
|Adjustments to reconcile net income to net cash provided by
operating activities: |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  | Provision for loan losses                                           |            |                                                  | 255     |                    |         |                    | 56      |      
|                                                                                  |                                  | Provision for depreciation                                          |            |                                                  | 398     |                    |         |                    | 383     |      
|                                                                                  |                                  | Compensation associated with stock options                          |            |                                                  | 50      |                    |         |                    | 50      |      
|                                                                                  |                                  | Amortization of investment premiums and accretion of
discounts, net |            |                                                  | 491     |                    |         |                    | 175     |      
|                                                                                  |                                  | (Gain) Loss on sale of securities available-for-sale                |            |                                                  | (100    | )                  |         |                    | 59      |      
|                                                                                  |                                  | Gain on sale of loans                                               |            |                                                  | (79     | )                  |         |                    | (111    | )    
|                                                                                  |                                  | Proceeds from sales of loans                                        |            |                                                  | 2,858   |                    |         |                    | 4,745   |      
|                                                                                  |                                  | Loans originated for sale                                           |            |                                                  | (3,778  | )                  |         |                    | (4,856  | )    
|                                                                                  |                                  | Effect of changes in:                                               |            |                                                  |         |                    |         |                    |         |      
|                                                                                  |                                  |                                                                     |            | Other assets                                     |         |                    | (1,485  | )                  |         |       | (1,084 | )
|                                                                                  |                                  |                                                                     |            | Deferred loan fees                               |         |                    | (47     | )                  |         |       | (132   | )
|                                                                                  |                                  |                                                                     |            | Other liabilities                                |         |                    | 672     |                    |         |       | 156    |  
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  |                                                                     |            | Net cash provided by operating activities        |         |                    | 2,334   |                    |         |       | 3,071  |  
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|Cash flows from investing activities:                                             |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  | Proceeds from maturities of available-for-sale securities           |            |                                                  | 18,038  |                    |         |                    | 4,273   |      
|                                                                                  |                                  | Proceeds from sale of available-for-sale securities                 |            |                                                  | 4,942   |                    |         |                    | 4,420   |      
|                                                                                  |                                  | Purchases of available-for-sale securities                          |            |                                                  | (44,719 | )                  |         |                    | (1,952  | )    
|                                                                                  |                                  | Loan origination, net of principal repayments                       |            |                                                  | (23,544 | )                  |         |                    | (13,898 | )    
|                                                                                  |                                  | Purchases of premises and equipment                                 |            |                                                  | (454    | )                  |         |                    | (267    | )    
|                                                                                  |                                  | Proceeds from sales of equipment                                    |            |                                                  | 0       |                    |         |                    | 12      |      
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  |                                                                     |            | Net cash (used) provided by investing activities |         |                    | (45,737 | )                  |         |       | (7,412 | )
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|Cash flows from financing activities:                                             |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  | Net change in deposits                                              |            |                                                  | 58,705  |                    |         |                    | 20,687  |      
|                                                                                  |                                  | Common stock repurchase transactions                                |            |                                                  | (2,833  | )                  |         |                    | (1,202  | )    
|                                                                                  |                                  | Common stock options exercised                                      |            |                                                  | 127     |                    |         |                    | 309     |      
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  |                                  |                                                                     |            | Net cash provided by financing activities        |         |                    | 55,999  |                    |         |       | 19,794 |  
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|Net increase in cash and cash equivalents                                         |                                  |                                                                     | 12,596     |                                                  |         |                    | 15,453  |                   
|Cash and cash equivalents, beginning of period                                    |                                  |                                                                     | 25,613     |                                                  |         |                    | 19,165  |                   
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|Cash and cash equivalents, end of period                                          |                                  | $                                                                   | 38,209     |                                                  |         | $                  | 34,618  |                   
|                                                                                  |                                  |                                                                     |            |                                                  |         |                    |         |                   
|Supplemental disclosures:                                                         |                                  |                                                                     |            |                                                  |         |                    |         |                   
|                                                                                  | Cash paid during the period for: |                                                                     |            |                                                  |         |                    |         |                    |        
|                                                                                  |                                  |                                                                     |            | Income taxes                                     |         |                    | 2,044   |                    |         |       | 2,124  |  
|                                                                                  |                                  |                                                                     |            | Interest                                         |         |                    | 7,064   |                    |         |       | 6,242  |  

See notes to consolidated financial statements.

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REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements

1. Basis of Presentation

The accompanying unaudited consolidated financial statements should be read in
conjunction with the financial statements and related notes contained in
Redding Bancorps 2000 Annual Report to Shareholders on SEC Form 10-K. 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 statements include the accounts of
Redding Bancorp (the Company), and its wholly owned subsidiaries, Redding
Bank of Commerce (RBC) and Redding Service Corporation. 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.
The results of operations and cash flows for the three and nine months ended
September 30, 2001 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.

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

Certain amounts as previously reported have been reclassified to conform
to the three and nine-months ended September 30, 2001 presentation.

2. Earnings per Share

Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. The following table displays the
computation of earnings per share for the three months and nine months ended
September 30, 2001 and 2000.

|                                                        |                                                                      |                    |                    |                   |                    |   |                    |       |                    |   |       |       |  |   |       |       | 
|------------------------------------------------------- | -------------------------------------------------------------------- | ------------------ | ------------------ | ----------------- | ------------------ | - | ------------------ | ----- | ------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|(Dollars in thousands, except per share
          data) |                                                                      | Three Months Ended |                    | Nine Months Ended
|                                                        |                                                                      |                    |                    |                  
|                                                        |                                                                      |                    | September 30, 2001 |                   | September 30, 2000 |   | September 30, 2001 |       | September 30, 2000
|                                                        |                                                                      |                    |                    |                   |                    |   |                    |       |                   
|Basic EPS Calculation:                                  |                                                                      |                    |                    |                   |                    |   |                    |       |                    |   |       |       |  |   |       |      
|                                                        | Numerator (net income)                                               |                    | $                  | 996               |                    |   | $                  | 1,225 |                    |   | $     | 3,099 |  |   | $     | 3,630 | 
|                                                        | Denominator
          (average common 
          shares outstanding) |                    |                    | 2,817             |                    |   |                    | 2,877 |                    |   |       | 2,844 |  |   |       | 2,883 | 
|Basic earnings per Share                                |                                                                      | $                  | 0.36               |                   |                    | $ | 0.43               |       |                    | $ | 1.09  |       |  | $ | 1.26  |      
|Diluted EPS Calculation:                                |                                                                      |                    |                    |                   |                    |   |                    |       |                    |   |       |       |  |   |       |      
|                                                        | Numerator (net income)                                               |                    | $                  | 996               |                    |   | $                  | 1,225 |                    |   | $     | 3,099 |  |   | $     | 3,630 | 
|                                                        | Denominator:                                                         |                    |                    |                   |                    |   |                    |       |                    |   |       |       |  |   |       |       | 
|                                                        | Average common shares outstanding                                    |                    |                    | 2,817             |                    |   |                    | 2,877 |                    |   |       | 2,844 |  |   |       | 2,883 | 
|                                                        | Options                                                              |                    |                    | 209               |                    |   |                    | 128   |                    |   |       | 135   |  |   |       | 155   | 
|                                                        |                                                                      |                    |                    |                   |                    |   |                    |       |                    |   |       |       |  |   |       |      
|                                                        |                                                                      |                    | 3,026              |                   |                    |   | 3,005              |       |                    |   | 2,979 |       |  |   | 3,038 |      
|Diluted earnings per Share                              |                                                                      | $                  | 0.33               |                   |                    | $ | 0.41               |       |                    | $ | 1.04  |       |  | $ | 1.19  |      
|                                                        |                                                                      |                    |                    |                   |                    |   |                    |       |                    |   |       |       |  |   |       |      

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##### Table of Contents



3. Comprehensive Income

The Companys total comprehensive earnings were as follows:

|                                                                                               |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       |  
|---------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ------------------ |  | ------------------ | ----- | ------------------ |  | - | ----- |  |  | - | ----- | -
|                                                                                               |  | Three Months Ended |       | Nine Months Ended 
|(Dollars in thousands)                                                                         |  |                    |       |                   
|                                                                                               |  | September 30, 2001 |       | September 30, 2000 |  | September 30, 2001 |       | September 30, 2000
|                                                                                               |  |                    |       |                    |  |                    |       |                   
|Net Income as reported                                                                         |  | $                  | 996   |                    |  | $                  | 1,225 |                    |  | $ | 3,099 |  |  | $ | 3,630 |  
|Other comprehensive income
(net of tax):                                                       |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       |  
|Change
          in unrealized holding gain (loss)
           on securities available-for-sale |  |                    | 519   |                    |  |                    | 82    |                    |  |   | 541   |  |  |   | (84   | )
|Reclassification adjustment                                                                    |  |                    | 0     |                    |  |                    | 0     |                    |  |   | 0     |  |  |   | (37   | )
|                                                                                               |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       |  
|Total other comprehensive income                                                               |  |                    | 519   |                    |  |                    | 82    |                    |  |   | 541   |  |  |   | (120  | )
|Total comprehensive income                                                                     |  | $                  | 1,515 |                    |  | $                  | 1,307 |                    |  | $ | 3,640 |  |  | $ | 3,509 |  
|                                                                                               |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       |  

4. Segment Reporting

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

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

|                                      |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       | 
|------------------------------------- |  | ------------------ | ----- | ------------------ |  | ------------------ | ----- | ------------------ |  | - | ----- |  |  | - | ----- | 
|                                      |  | Three Months Ended |       | Nine Months Ended 
|                                      |  |                    |       |                   
|Net income before taxes allocated to: |  | September 30, 2001 |       | September 30, 2000 |  | September 30, 2001 |       | September 30, 2000
|                                      |  |                    |       |                    |  |                    |       |                   
|Commercial Banking                    |  | $                  | 1,408 |                    |  | $                  | 1,438 |                    |  | $ | 4,013 |  |  | $ | 4,354 | 
|Credit card services                  |  |                    | 120   |                    |  |                    | 482   |                    |  |   | 839   |  |  |   | 1,406 | 
|                                      |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       | 
|                                      |  | $                  | 1,528 |                    |  | $                  | 1,920 |                    |  | $ | 4,852 |  |  | $ | 5,760 | 
|                                      |  |                    |       |                    |  |                    |       |                    |  |   |       |  |  |   |       | 

6. New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, Business Combinationsand SFAS
No. 142, Goodwill and Other Intangible Assets.SFAS No. 141 requires that all
business combinations initiated after June 30, 2001 be accounted for under the
purchase method and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination. SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 provides
that intangible assets with finite useful lives be amortized and that goodwill
and intangible assets with indefinite lives will not be amortized, but will
rather be tested at least annually for impairment. The Company will adopt SFAS
No. 142 for its fiscal year beginning January 1, 2002.

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7. Stock Repurchase Program

The Board of Directors announced a common stock repurchase program effective
September 1, 2001. The program calls for the repurchase of up to 4.50% of the
Companys outstanding shares, or approximately 127,000 shares based on the
2,843,000 shares outstanding as of July 31, 2001. The Board decision reflects
managements confidence in our Companys future.

As of September 30, 2001, the Company had repurchased 85,599 shares at an
average price of $23.20 per share. These shares have been retired.

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

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



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

For additional information concerning risks and uncertainties related to
the Company and its operations please refer to the Companys Annual Report on
Form 10-K for the year ended December 31, 2000 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,
2000 to September 30, 2001. Also discussed are significant trends and changes
in the Companys results of operations for the three and nine months ended
September 30, 2001, compared to the same period in 2000. The consolidated
financial statements and related notes appearing elsewhere in this report are
condensed and unaudited.

General

Redding Bancorp (the Company) is a financial service holding company
(FHC) with its principal offices in Redding, California. A financial service
holding company may engage in a commercial banking, insurance and securities
business and offer other financial products to consumers. The Company currently
engages in a general commercial banking business in Redding and Roseville and
the counties of El Dorado, Placer, Shasta, and Sacramento, California.

The Company considers Northern California to be its major market area.
The Company conducts its business through Redding Bank of Commerce (The
Bank), its principal subsidiary, and Roseville Banking Center, a division of
the Bank. The Company has three full-service offices and one focused service
office. The focused service concentrates on stable deposit funding. The
services offered by the Company include those traditionally offered by
commercial banks of similar size and character in California, such as business
checking, interest-bearing checking (NOW) and savings accounts, money market
deposit accounts, commercial, construction, real estate, SBA and line of credit
loans travelers checks, safe deposit boxes, collection services, telephone and
Internet banking, including commercial cash management.

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The Companys goal is to be the premier provider of services to the
business and professional community of its major market area including Small
Business Administration (SBA) loans, commercial building financing, credit
card services, payroll and accounting packages, lockbox and billing programs.

The emphasis is on relationship banking to small and medium sized
businesses and professionals with special attention to the asset side of the
balance sheet. Other offices may provide focused services targeting smaller
markets, such as retirement communities that provide a stable source of funding
for the commercial activities of the Company.

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

Results of Operations

The Company reported earnings of $996,000, for the quarter ended September
30, 2001. The quarterly earnings represent a 18.69% decrease over the
$1,225,000 reported for the same quarterly period of 2000. Diluted earnings per
share for the third quarter of 2001 were $0.33, compared to $0.41 for the same
period of 2000. Earnings for the nine-month period ended September 30, 2001,
were $3,099,000 a 14.63% decrease compared with $3,630,000 for the nine months
ended September 30, 2000. Diluted earnings per share for the nine months ended
September 30, 2001 was $1.04, compared to $1.19 for the same period in 2000.

The primary factors contributing to the decrease in operating results are
multiple drops in prevailing interest rates and higher costs of funding which
resulted in a decrease in net interest rate spread and margin. Since the
beginning of this year there have been nine rate drops totaling 4%, a 40-year
historical low. The Companys internal financial models indicate that in
periods of falling interest rates its net interest margin is expected to
decrease while in periods of rising interest rates its margin is expected to
increase. In periods of rapid interest rate changes this decrease of net
interest margin is magnified by the fact that the Companys assets reprice at a
more rapid rate than its liabilities. While the Companys variable rate assets
are repriced daily its variable rate deposit liabilities will reprice at the
end of the calendar quarter and fixed rate deposit liabilities will reprice at
the next maturity averaging six months.

Provision for loan losses of $255,000 were provided for the nine months
ended September 30, 2001 compared with $56,000 for the same period of 2000.
Redding Bancorps allowance for loan losses was 1.46 % of total loans at
September 30, 2001 and 1.65% at September 30, 2000, while its ratio of
non-performing assets to total assets was 0.33% at September 30, 2001, compared
to 0.65% at September 30, 2000. The Company had year-to-date net loan
charge-offs of $41,000 in 2001 compared to net recoveries of $56,000 in the
same period of 2000. All other internal measurements of credit quality reflect
an improvement in total portfolio credit quality.

New pricing became effective in the credit card service income on May 1,
2001. The new pricing is a reduction in fee pricing to 2 basis points from 13.5
basis points. Quarterly earnings were $120,000 compared with $482,000
representing at 75.10% decrease over the same quarterly period in 2000.
Earnings for the nine-month period were $839,000 compared with $1,406,000
representing a 40.33% decrease over the same nine-month period in 2000.
Anticipated earnings for 2001 are $959,000 compared with actual earnings of
$1,875,000 in 2000, a 49.85% decrease.

10



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Salary increases are related to the staff expansion of the
Roseville Banking Center at Eureka during the first quarter of 2001 and
the acquisition of the Roseville Banking Center at sunrise during the
second quarter 2001. The Roseville at Eureka office relocated to new
facilities in Roseville, California in mid-December 2000. The office was
converted from a loan production facility to a full-service banking
facility in June 2000. The new staffing was procured to achieve deposit
growth goals and to formulate and introduce a business lock box product.
The lock box product is targeted specifically to large property
management associations.

In June 2001, the Company completed an acquisition of the FirstPlus
Bank office at Citrus Heights, California and renamed the facility
Roseville Banking Center at Sunrise. The facility is a focused deposit
gathering office targeting a retirement community. The purchase
consisted of approximately 828 deposit accounts of which 172 are savings
and the balances are time certificates of deposit, totaling $32,453,369
at June 15, 2001. The deposits are relationships in the common market
area of Citrus Heights and Roseville, California where Redding Bank of
Commerce has another full service office. The assumption includes a
leased facility of approximately 4,982 square feet and monthly rent of
$3,240. The lease expires on March 5, 2009.

The purchase includes a premium of 2.37% of the deposit liabilities
on the date of close. Management believes that the assumptions used to
calculate the premium were reasonable. The final pricing of the premium
was $769,144.

Net Interest Income

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

Net interest income declined 0.04% to $2,828,000 in the third quarter
2001, compared with $2,829,000 for the third quarter 2000. This reduction in
net interest income attributed to interest rate reductions on earning assets
(prime rate reductions) experienced during the first half of 2001, coupled with
the acquisition of higher cost certificates of deposit. The reduction
attributed to rate reductions was offset by the volume of new earning assets
during the period. Net interest margin for the third quarter 2001 was 4.40%,
compared with 5.11% for the third quarter 2000. The decrease from a year ago is
attributable to the decrease in rate related earning assets and an increase in
the cost of funds over the prior year.

The combined effect of the increase in volume of earning assets and
decrease in yield on earning assets, coupled with increases in cost of funding
sources resulted in an decrease of $104,000 (1.23%) in net interest income for
the nine month period ended September 30, 2001 from the same period in 2000.

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

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

|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|------------------------------------------- |  | ------------------ | ------- | ------------------ |  | ---- | ------ | ------- |  | -------- | ----- | ------- |  | - | ------- | - |  | ------ | ------ |  |  |  | ----- | -
|                                            |  | Nine Months Ended 
|                                            |  |                   
|                                            |  | September 30, 2001 |         | September 30, 2000
|                                            |  |                    |         |                   
|                                            |  |                    |         |                    |  |      |        |         |  | Yield/   |       | Average |  |   |         |   |  | Yield/
|                                            |  | Average
Balance    |         | Interest           |  | Rate |        | Balance |  | Interest |       | Rate   
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |        
|Earning Assets                              |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Portfolio Loans                             |  | $                  | 200,771 |                    |  | $    | 13,386 |         |  |          | 8.89  | %       |  | $ | 180,256 |   |  | $      | 13,023 |  |  |  | 9.63  | %
|Tax Exempt Securities                       |  |                    | 4,325   |                    |  |      | 139    |         |  |          | 4.29  | %       |  |   | 3,271   |   |  |        | 108    |  |  |  | 4.40  | %
|US Government                               |  |                    | 28,585  |                    |  |      | 1,226  |         |  |          | 5.72  | %       |  |   | 23,154  |   |  |        | 978    |  |  |  | 5.63  | %
|Federal Funds Sold                          |  |                    | 20,678  |                    |  |      | 662    |         |  |          | 4.27  | %       |  |   | 15,096  |   |  |        | 690    |  |  |  | 6.09  | %
|Other Securities                            |  |                    | 778     |                    |  |      | 65     |         |  |          | 11.14 | %       |  |   | 540     |   |  |        | 43     |  |  |  | 10.62 | %
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Average Earning Assets                      |  | $                  | 255,137 |                    |  | $    | 15,478 |         |  |          | 8.09  | %       |  | $ | 222,317 |   |  | $      | 14,842 |  |  |  | 8.90  | %
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Cash & Due From Banks                       |  | $                  | 11,448  |                    |  |      |        |         |  |          |       |         |  | $ | 10,539  |   |  |        |        |  |  |  |       |  
|Bank Premises                               |  |                    | 5,260   |                    |  |      |        |         |  |          |       |         |  |   | 5,427   |   |  |        |        |  |  |  |       |  
|Allowance for Loan Losses                   |  |                    | (2,871  | )                  |  |      |        |         |  |          |       |         |  |   | ( 3,007 | ) |  |        |        |  |  |  |       |  
|Other Assets                                |  |                    | 7,627   |                    |  |      |        |         |  |          |       |         |  |   | 4,967   |   |  |        |        |  |  |  |       |  
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Average Total Assets                        |  | $                  | 276,601 |                    |  |      |        |         |  |          |       |         |  | $ | 240,243 |   |  |        |        |  |  |  |       |  
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Interest
          Bearing Liabilities      |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Demand Interest Bearing                     |  | $                  | 53,517  |                    |  | $    | 752    |         |  |          | 1.87  | %       |  | $ | 40,764  |   |  | $      | 763    |  |  |  | 2.50  | %
|Savings Deposits                            |  |                    | 14,242  |                    |  |      | 282    |         |  |          | 2.64  | %       |  |   | 13,654  |   |  |        | 320    |  |  |  | 3.12  | %
|Certificates of Deposit                     |  |                    | 139,143 |                    |  |      | 5,847  |         |  |          | 5.60  | %       |  |   | 116,649 |   |  |        | 4,993  |  |  |  | 5.71  | %
|Borrowings                                  |  |                    | 6,451   |                    |  |      | 175    |         |  |          | 3.62  | %       |  |   | 4,755   |   |  |        | 240    |  |  |  | 6.73  | %
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|                                            |  |                    | 213,353 |                    |  | $    | 7,056  |         |  |          | 4.41  | %       |  |   | 175,822 |   |  | $      | 6,316  |  |  |  | 4.79  | %
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Non interest Demand                         |  |                    | 31,651  |                    |  |      |        |         |  |          |       |         |  |   | 36,314  |   |  |        |        |  |  |  |       |  
|Other Liabilities                           |  |                    | 3,452   |                    |  |      |        |         |  |          |       |         |  |   | 1,164   |   |  |        |        |  |  |  |       |  
|Shareholder Equity                          |  |                    | 28,145  |                    |  |      |        |         |  |          |       |         |  |   | 26,943  |   |  |        |        |  |  |  |       |  
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Average Liabilities and
Shareholders Equity |  | $                  | 276,601 |                    |  |      |        |         |  |          |       |         |  | $ | 240,243 |   |  |        |        |  |  |  |       |  
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  
|Net Interest Income and Net
Interest Margin |  |                    |         |                    |  | $    | 8,422  |         |  |          | 4.40  | %       |  |   |         |   |  | $      | 8,526  |  |  |  | 5.11  | %
|                                            |  |                    |         |                    |  |      |        |         |  |          |       |         |  |   |         |   |  |        |        |  |  |  |       |  

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

Analysis of Changes in Net Interest Income

|                       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |     |   |     |  | 
|---------------------- | ------------------------ | -------------------------------------------------- | -------------- | ----- | - | ------------------------------------------------------ | ---- | ------ | - | ------ | ---- | --- | - | --- |  | 
|                       |                          |                                                    |                |       |   | Nine Months Ended   
                Nine Months Ended
|(Dollars in thousands) |                          | September 30, 2001     over     September 30, 2000
|                       |                          |                                                   
|                       |                          |                                                    |                |       |   | Volume                                                 |      | Rate   |   | Total 
|                       |                          |                                                    |                |       |   |                                                        |      |        |   |       
|Increase(Decrease) In  |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|Interest Income        |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|                       | Portfolio loans          |                                                    | $              | 1,368 |   |                                                        | $    | (1,005 | ) |        | $    | 363 |  
|                       | Tax exempt securities    |                                                    |                | 34    |   |                                                        |      | (3     | ) |        |      | 31  |  
|                       | US Government securities |                                                    |                | 233   |   |                                                        |      | 15     |   |        |      | 248 |  
|                       | Federal Funds Sold       |                                                    |                | 179   |   |                                                        |      | (207   | ) |        |      | (28 | )
|                       | Other Securities         |                                                    |                | 20    |   |                                                        |      | 2      |   |        |      | 22  |  
|                       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|                       |                          |                                                    | Total Increase |       | $ | 1,834                                                  |      |        | $ | (1,198 | )    |     | $ | 636 | 
|                       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|Increase(Decrease) In  |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|Interest Expense       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|                       | Interest Bearing Demand  |                                                    | $              | 179   |   |                                                        | $    | (190   | ) |        | $    | (11 | )
|                       | Savings Deposits         |                                                    |                | 12    |   |                                                        |      | (50    | ) |        |      | (38 | )
|                       | Certificates of Deposit  |                                                    |                | 945   |   |                                                        |      | (91    | ) |        |      | 854 |  
|                       | Borrowings               |                                                    |                | 46    |   |                                                        |      | (111   | ) |        |      | (65 | )
|                       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|                       |                          |                                                    | Total Increase |       | $ | 1,182                                                  |      |        | $ | (442   | )    |     | $ | 740 | 
|                       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    
|Net Increase           |                          | $                                                  | 652            |       |   | $                                                      | (756 | )      |   | $      | (104 | )  
|                       |                          |                                                    |                |       |   |                                                        |      |        |   |        |      |    

Noninterest Income

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

Credit card income quarterly earnings were $120,000 compared with $482,000
representing at 75.10% decrease over the same quarterly period in 2000.
Earnings for the nine-month period were $839,000 compared with $1,406,000
representing a 40.33% decrease over the same nine-month period in 2000.

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For the nine months, ended September 30, 2001 total noninterest income
decreased $193,000 over the same period in 2000. The decrease in credit card
income is partially offset by an increase of $222,000 or 36.5% attributable to
an increase in fees collected from the sales of the Companys non-deposit
investment product.

Historically the Companys service charges on deposit accounts have lagged
peer levels for similar services. This is consistent with the Companys
philosophy of allowing customers to pay for services with compensating balances
and the emphasis on certificates of deposit as a significant funding source.

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

|                         |                                                      |                    |                    |                    |                   |                    |     |                    |  |   |       |     |  |   |       |       |  
|------------------------ | ---------------------------------------------------- | ------------------ | ------------------ | ------------------ | ----------------- | ------------------ | --- | ------------------ |  | - | ----- | --- |  | - | ----- | ----- | -
|                         |                                                      |                    | Three Months Ended |                    | Nine Months Ended
|                         |                                                      |                    |                    |                    |                  
|Noninterest Income       |                                                      | September 30, 2001 |                    | September 30, 2000 |                   | September 30, 2001 |     | September 30, 2000
|                         |                                                      |                    |                    |                    |                   |                    |     |                   
|                         | Service Charges                                      |                    | $                  | 53                 |                   |                    | $   | 56                 |  |   | $     | 159 |  |   | $     | 166   |  
|                         | Credit Card Income, net                              |                    |                    | 120                |                   |                    |     | 482                |  |   |       | 839 |  |   |       | 1,406 |  
|                         | Other Income                                         |                    |                    | 339                |                   |                    |     | 192                |  |   |       | 830 |  |   |       | 608   |  
|                         | Gain (loss) on sale of
securities available-for-sale |                    |                    | 0                  |                   |                    |     | 0                  |  |   |       | 100 |  |   |       | (59   | )
|                         |                                                      |                    |                    |                    |                   |                    |     |                    |  |   |       |     |  |   |       |      
|Total noninterest income |                                                      | $                  | 512                |                    |                   | $                  | 730 |                    |  | $ | 1,928 |     |  | $ | 2,121 |      
|                         |                                                      |                    |                    |                    |                   |                    |     |                    |  |   |       |     |  |   |       |      

Noninterest Expense

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

For the quarter ended September 30, 2001, noninterest expense increased
$225,000 or 12.07% over the same period in 2000. Occupancy expenses rose by
$63,000 (25.6%) as a result of the expansion of the two Roseville Banking
Center facilities. Other operating expenses rose $47,000 or 15.9% representing
office and support costs for the Roseville facilities.

For the nine months ended September 30, 2001, noninterest expense
increased $412,000 or 7.86% over the same nine-month period in 2000. Other
expenses increased by $76,000 (10.34%) and can be attributed to the additional
operational expenses in expanding the Roseville Banking Center, specifically
courier, telephone, office supplies, postage and business development costs.

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

|                          |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |       | 
|------------------------- | --------------------- | ------------------ | ------------------ | ------------------ | ----------------- | ------------------ | ----- | ------------------ |  | - | ----- | ----- |  | - | ----- | ----- | 
|(Dollars in Thousands)    |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |      
|                          |                       |                    | Three Months Ended |                    | Nine Months Ended
|                          |                       |                    |                    |                    |                  
|Noninterest Expense       |                       | September 30, 2001 |                    | September 30, 2000 |                   | September 30, 2001 |       | September 30, 2000
|                          |                       |                    |                    |                    |                   |                    |       |                   
|                          | Salaries and Benefits |                    | $                  | 1,068              |                   |                    | $     | 972                |  |   | $     | 2,935 |  |   | $     | 2,794 | 
|                          | Occupancy & Equipment |                    |                    | 309                |                   |                    |       | 246                |  |   |       | 811   |  |   |       | 735   | 
|                          | Data Processing Fees  |                    |                    | 29                 |                   |                    |       | 21                 |  |   |       | 77    |  |   |       | 63    | 
|                          | Professional Fees     |                    |                    | 116                |                   |                    |       | 105                |  |   |       | 323   |  |   |       | 331   | 
|                          | Directors Expenses    |                    |                    | 53                 |                   |                    |       | 45                 |  |   |       | 151   |  |   |       | 148   | 
|                          | Other Expenses        |                    |                    | 289                |                   |                    |       | 250                |  |   |       | 946   |  |   |       | 760   | 
|                          |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |      
|Total Noninterest expense |                       | $                  | 1,864              |                    |                   | $                  | 1,639 |                    |  | $ | 5,243 |       |  | $ | 4,831 |      
|                          |                       |                    |                    |                    |                   |                    |       |                    |  |   |       |       |  |   |       |      

Income Taxes

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

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

|                       |  |                    |       |                    |  |                    |      |                    |  |   |       |   |  |   |       |  
|---------------------- |  | ------------------ | ----- | ------------------ |  | ------------------ | ---- | ------------------ |  | - | ----- | - |  | - | ----- | -
|(Dollars in thousands) |  |                    |       |                    |  |                    |      |                    |  |   |       |   |  |   |       |  
|                       |  | Three Months Ended |       | Nine Months Ended 
|                       |  |                    |       |                   
|Income Taxes           |  | September 30, 2001 |       | September 30, 2000 |  | September 30, 2001 |      | September 30, 2000
|                       |  |                    |       |                    |  |                    |      |                   
|Tax provision          |  | $                  | 532   |                    |  | $                  | 695  |                    |  | $ | 1,753 |   |  | $ | 2,130 |  
|Effective tax rate     |  |                    | 34.82 | %                  |  |                    | 36.2 | %                  |  |   | 36.13 | % |  |   | 37.0  | %
|                       |  |                    |       |                    |  |                    |      |                    |  |   |       |   |  |   |       |  

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

Asset Quality

The Company concentrates its lending activities primarily within in El
Dorado, Placer, Sacramento and Shasta Counties, California, and the location of
the Banks three full service branches.

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

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

|                         |                              |                    |         |                   |   |   |         |        |  
|------------------------ | ---------------------------- | ------------------ | ------- | ----------------- | - | - | ------- | ------ | -
|(Dollars in thousands)   |                              | September 30, 2001 |         | December 31, 2000
|                         |                              |                    |         |                  
|Portfolio Loans          |                              |                    |         |                   |   |   |         |       
|Commercial & Financial   |                              | $                  | 78,148  |                   |   | $ | 61,069  |       
|Real Estate-Construction |                              |                    | 46,026  |                   |   |   | 37,531  |       
|Real Estate-Commercial   |                              |                    | 93,393  |                   |   |   | 94,111  |       
|Installment              |                              |                    | 425     |                   |   |   | 430     |       
|Other Loans              |                              |                    | 1,049   |                   |   |   | 1,396   |       
|Less:                    |                              |                    |         |                   |   |   |         |       
|                         | Deferred Loan Fees and
Costs |                    |         | (194              | ) |   |         | (241   | )
|                         | Allowance for Loan Losses    |                    |         | (3,189            | ) |   |         | (2,974 | )
|                         |                              |                    |         |                   |   |   |         |       
|Total Net Loans          |                              | $                  | 215,658 |                   |   | $ | 191,322 |       
|                         |                              |                    |         |                   |   |   |         |       

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

Net portfolio loans increased $24,336,000 or 12.72% at September 30, 2001
over $191,322,000 at December 31, 2000. The portfolio mix remains stable with
the mix at December 31, 2000, with commercial and financial loans of
approximately 36%, real estate construction of 21% and commercial real estate
at 43%.

Impaired loans are loans for which it is probable that the Bank will not
be able to collect all amounts due. The Bank had outstanding balances of
$290,858 and $801,246 in impaired loans that had impairment allowances of
$21,424 and $318,382 as of September 30, 2001 and December 31, 2000,
respectively.

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

|                        |  |                    |    |                   |  |   |     | 
|----------------------- |  | ------------------ | -- | ----------------- |  | - | --- | 
|(Dollars in thousands)  |  | September 30, 2001 |    | December 31, 2000
|                        |  |                    |    |                  
|Non performing assets   |  |                    |    |                   |  |   |     | 
|Nonaccrual loans        |  | $                  | 10 |                   |  | $ | 801 | 
|Other Real Estate Owned |  |                    | 0  |                   |  |   | 0   | 
|                        |  |                    |    |                   |  |   |     | 

Allowance for Loan and Lease Losses (ALLL)

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

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

The ALLL is a general reserve available against the total loan portfolio
and off balance sheet credit exposure. It is maintained without any
interallocation to the categories of the loan portfolio, and the entire
allowance is available to cover loan losses. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Banks ALLL. Such agencies may require the Bank to
provide additions to the allowance based on their judgment of information
available to them at the time of their examination. There is uncertainty
concerning future economic trends. Accordingly, it is not possible to predict
the effect future economic trends may have on the level of the provision for
possible loan losses in future periods.

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

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

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

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

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##### Table of Contents



Management believes the assigned risk grades and our methods for managing
changes are satisfactory. Management believes the loan portfolio performance
has improved as reflected by the stable and low delinquency ratio. Watch list
and high-grade loans have increased somewhat over the past year, primarily due
to a greater tendency to move more susceptible, although performing, accounts
to attention. This minimal increase does not suggest a trend.

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

|                                   |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  
|---------------------------------- |  | ------------------ | ----- | ------------------ |  | ------------------ | ----- | ------------------ |  | - | ----- | - |  | - | ----- | -
|(Dollars in thousands)             |  | Three Months Ended |       | Nine Months Ended 
|                                   |  |                    |       |                   
|Allowance for Loan & Lease Losses  |  | September 30, 2001 |       | September 30, 2000 |  | September 30, 2001 |       | September 30, 2000
|                                   |  |                    |       |                    |  |                    |       |                   
|Beginning balance for Loan Losses  |  | $                  | 2,806 |                    |  | $                  | 3,034 |                    |  | $ | 2,974 |   |  | $ | 2,972 |  
|Provision (credit) for Loan Losses |  |                    | (51   | )                  |  |                    | 0     |                    |  |   | 255   |   |  |   | 56    |  
|Charge offs:                       |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  
|Commercial                         |  |                    | (11   | )                  |  |                    | (0    | )                  |  |   | (191  | ) |  |   | (0    | )
|Real Estate                        |  |                    | (0    | )                  |  |                    | (0    | )                  |  |   | (309  | ) |  |   | (0    | )
|Other                              |  |                    | (0    | )                  |  |                    | (0    | )                  |  |   | (0    | ) |  |   | (0    | )
|                                   |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  
|Total Charge offs                  |  |                    | (11   | )                  |  |                    | (0    | )                  |  |   | (500  | ) |  |   | (0    | )
|Recoveries:                        |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  
|Commercial                         |  |                    | 4     |                    |  |                    | 47    |                    |  |   | 9     |   |  |   | 53    |  
|Real Estate                        |  |                    | 441   |                    |  |                    | 2     |                    |  |   | 451   |   |  |   | 2     |  
|                                   |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  
|Total Recoveries                   |  |                    | 445   |                    |  |                    | 49    |                    |  |   | 460   |   |  |   | 55    |  
|Ending Balance                     |  | $                  | 3,189 |                    |  | $                  | 3,083 |                    |  | $ | 3,189 |   |  | $ | 3,083 |  
|ALLL to total loans                |  |                    | 1.46  | %                  |  |                    | 1.65  | %                  |  |   | 1.46  | % |  |   | 1.65  | %
|Net Charge offs to average loans   |  |                    | 0.02  | %                  |  |                    | 0.00  | %                  |  |   | 0.02  | % |  |   | 0.00  | %
|                                   |  |                    |       |                    |  |                    |       |                    |  |   |       |   |  |   |       |  

Investment Portfolio

Total available-for-sale securities increased $22,371,000 in the nine
months ending September 30, 2001 or 106.5% compared to December 31, 2000. The
increase represents purchases of $44,719,000 offset by maturities of
$18,038,000 and sales of $4,942,000.

Liquidity

With respect to assets, liquidity is provided by cash and money market
investments such as interest-bearing time deposits, federal-funds sold,
securities available-for-sale and principal and interest payments on loans.
With respect to liabilities, the Companys core deposits, shareholders equity
and the ability of the Bank to borrow funds and to generate deposits, provide
asset funding.

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

The Companys liquid assets (cash and due from banks, federal funds sold
and available-for-sale securities) totaled $81,577,000, or 25.86% of total
assets, at September 30, 2001 compared to $46,610,000 or 18.27% of total assets
at December 31, 2000.

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Capital Adequacy

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

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

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

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

|                                                  |  |               |       |              |  |      |       |         |  |             |       |   |  |  |       |   |  |                     |         |  
|------------------------------------------------- |  | ------------- | ----- | ------------ |  | ---- | ----- | ------- |  | ----------- | ----- | - |  |  | ----- | - |  | ------------------- | ------- | -
|                                                  |  | September 30, |       | December 31,
|                                                  |  | 2001          |       | 2000        
|                                                  |  |               |       |             
|                                                  |  |               |       |              |  |      |       |         |  |             |       |   |  |  |       |   |  | For Bank to be well
|Capital Ratio's                                   |  | Bank          |       | Company      |  | Bank |       | Company |  | capitalized
|                                                  |  |               |       |              |  |      |       |         |  |            
|Total Risk-Based Capital                          |  |               | 11.39 | %            |  |      | 12.75 | %       |  |             | 14.11 | % |  |  | 15.01 | % |  |                     | > 10.00 | %
|Tier 1 Capital to
Risk-Based Assets               |  |               | 10.14 | %            |  |      | 11.50 | %       |  |             | 12.86 | % |  |  | 13.75 | % |  |                     | > 6.00  | %
|Tier 1 Capital to
Average Assets
(Leverage ratio) |  |               | 9.28  | %            |  |      | 10.41 | %       |  |             | 11.02 | % |  |  | 11.52 | % |  |                     | > 5.00  | %
|                                                  |  |               |       |              |  |      |       |         |  |             |       |   |  |  |       |   |  |                     |         |  




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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

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

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

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

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

To estimate the effect of interest rate shocks on the Companys net
interest income, management uses a model to prepare an analysis of interest
rate risk. Such analysis calculates the change in net interest income given a
change in the federal funds rate of 100 basis points up or down. All changes
are measured in dollars and are compared to projected net interest income. At
September 30, 2001, the estimated annualized reduction in net interest income
attributable to a 100 and 200 basis point decline in the federal funds rate was
$526,000 and $1,052,000, respectively. A similar and opposite result
attributable to a 100 basis point increase in the federal funds rate. At
December 31, 2000, the estimated annualized reduction in net interest income
attributable to a 100 and 200 basis point decline in the federal funds rate was
$413,000 and $826,000, respectively, with a similar and opposite result
attributable to a 100 basis point increase in the federal funds rate.
Management does not believe that the change from in the first quarter is
significant or represents a known trend toward more interest rate risk
sensitivity in the Companys financial position.

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

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##### Table of Contents






PART II. Other Information




Item 1. Legal proceedings

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




Item 2. Changes in securities and use of proceeds

N/A




Item 3. Defaults upon Senior Securities

N/A.




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

N/A




Item 5. Other Information

N/A




Item 6A. Exhibits

N/A

Item 6B. Reports on Form 8-K

Form 8-K dated September 27, 2001, Exhibit 10. Employment contracts.
Form 8-K dated September 21, 2001 Cash dividend announcement.
Form 8-K dated August 24, 2001 Treasury repurchase announcement.




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 6, 2001 |  | /s/ Linda J. Miles
        Linda J. Miles 
        Executive Vice President & 
        Chief Financial Officer

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