##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2003

OR

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

For the transition period from __________ to __________

Commission file number 0-25135

(REDDING BANCORP LOGO)


REDDING BANCORP


(Exact name of Registrant as specified in its charter)


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

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

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes   x   No   o
Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange
Act)
Yes   o   No   x

Outstanding shares of Common Stock, no par value, as of July 31, 2003: 2,704,801

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TABLE OF CONTENTS



|                                                               |                                                                                               |                                                                 |  |  |  |  |  | 
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                 
|                                                               | Item 1. Financial Statements                                                                 
|                                                               |                                                                                               | Condensed Consolidated Balance Sheets                          
|                                                               |                                                                                               | Consolidated Condensed Statements of Income (Unaudited)        
|                                                               |                                                                                               | Consolidated Condensed Statements of Cash Flows (Unaudited)    
|Notes to Unaudited Consolidated Condensed Financial Statements
|                                                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                               |                                                                                               | Overview                                                       
|                                                               |                                                                                               | Sources of Income                                              
|                                                               |                                                                                               | Results of Operations                                          
|                                                               |                                                                                               | Net Interest Income and Net Interest Margin                    
|                                                               |                                                                                               | Liquidity                                                      
|                                                               |                                                                                               | Capital Management                                             
|                                                               |                                                                                               | Short term borrowings                                          
|                                                               |                                                                                               | Provision for loan losses                                      
|                                                               |                                                                                               | Factors that may affect future results                         
|                                                               |                                                                                               | Critical Accounting Policies                                   
|                                                               |                                                                                               | Average Balances, Interest Income/Expense and Yields/Rates Paid
|                                                               | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                          
|                                                               | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. Other Information                                    
|                                                               | Item 1. Legal proceedings                                                                    
|                                                               | Item 2. Changes in securities and use of proceeds                                            
|                                                               | Item 3. Defaults upon Senior Securities                                                      
|                                                               | Item 4. Submission of Matters to a vote of Security Holders                                  
|                                                               | Item 5. Other Information                                                                    
|                                                               | Item 6A. Exhibits                                                                            
|                                                               | Item 6B. Reports on Form 8-K                                                                 
|SIGNATURES                                                    
|Exhibit 31                                                    
|Exhibit 32                                                    



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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES

Index to Form 10-Q

|                           |                       |                                                                                       |        |                                                            |    |  |    | 
|-------------------------- | --------------------- | ------------------------------------------------------------------------------------- | ------ | ---------------------------------------------------------- | -- |  | -- | 
|PART I.                    | FINANCIAL INFORMATION | Page:                                                                                
|                          
|Item 1.                    |                       | Financial Statements                                                                  |        |                                                            |    | 
|                           |                       |                                                                                       |        | Consolidated Condensed Balance Sheets                      |    |  |    | 
|                           |                       |                                                                                       |        | June 30, 2003, December 31, 2002 and June 30, 2002         |    |  | 3  | 
|                           |                       |                                                                                       |        | Consolidated Condensed Statements of Income                |    |  |    | 
|                           |                       |                                                                                       |        | Three and six months ended June 30, 2003 and 2002          |    |  | 4  | 
|                           |                       |                                                                                       |        | Consolidated Condensed Statements of Cash Flows            |    |  |    | 
|                           |                       |                                                                                       |        | Three and six months ended June 30, 2003 and 2002          |    |  | 5  | 
|                           |                       |                                                                                       |        | Notes to Consolidated Condensed Financial Statements       |    |  | 6  | 
|Item 2.                    |                       | Managements Discussion and Analysis
of Financial Condition and Results of Operations |        |                                                            | 10 | 
|                           |                       |                                                                                       |        | Overview                                                   |    |  | 10 | 
|                           |                       |                                                                                       |        | Sources of Income                                          |    |  | 12 | 
|                           |                       |                                                                                       |        | Results of Operations                                      |    |  | 12 | 
|                           |                       |                                                                                       |        | Net Interest Income and Net Interest Margin                |    |  | 12 | 
|                           |                       |                                                                                       |        | Liquidity                                                  |    |  | 13 | 
|                           |                       |                                                                                       |        | Capital Management                                         |    |  | 13 | 
|                           |                       |                                                                                       |        | Short term borrowings                                      |    |  | 14 | 
|                           |                       |                                                                                       |        | Provision for loan losses                                  |    |  | 14 | 
|                           |                       |                                                                                       |        | Factors that may affect future results                     |    |  | 14 | 
|                           |                       |                                                                                       |        | Critical accounting policies                               |    |  | 15 | 
|                           |                       |                                                                                       |        | Average balances, Interest Income/Expense rates and yields |    |  | 18 | 
|                           |                       |                                                                                       |        | Volume/ Rate analysis                                      |    |  | 19 | 
|                           |                       |                                                                                       |        | Non-interest Income                                        |    |  | 20 | 
|                           |                       |                                                                                       |        | Non-interest Expense                                       |    |  | 20 | 
|                           |                       |                                                                                       |        | Income taxes                                               |    |  | 21 | 
|                           |                       |                                                                                       |        | Asset quality                                              |    |  | 22 | 
|                           |                       |                                                                                       |        | Allowance for loan losses (ALL)                            |    |  | 23 | 
|                           |                       |                                                                                       |        | Securities portfolio                                       |    |  | 24 | 
|Item 3.                    |                       | Quantitative and Qualitative Disclosure about Market Risk                             |        |                                                            | 25 | 
|Item 4.                    |                       | Controls and Procedures                                                               |        |                                                            | 25 | 
|PART II. OTHER INFORMATION |                       |                                                                                       |        |                                                           
|Item 1.                    |                       | Legal proceedings                                                                     |        |                                                            | 26 | 
|Item 2.                    |                       | Changes in Securities and use of proceeds                                             |        |                                                            | 26 | 
|Item 3.                    |                       | Defaults Upon Senior Securities                                                       |        |                                                            | 26 | 
|Item 4.                    |                       | Submission of Matters to a Vote of Security Holders                                   |        |                                                            | 26 | 
|Item 5.                    |                       | Other Information                                                                     |        |                                                            | 26 | 
|Item 6.                    |                       | Exhibits and Report on Form 8-K                                                       |        |                                                            | 26 | 
|SIGNATURES                 |                       |                                                                                       | 26     |                                                           
|EXHIBITS                   |                       |                                                                                       | 27, 28 |                                                           

2



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

|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |        |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | ------------ | ------- | ------------- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|Dollar amounts in thousands                                                                                                                                                       |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  |                           | June 30, 2003                              |         | Dec 31, 2002 |         | June 30, 2002
|                                                                                                                                                                                  |                           |                                            |         |              |         |              
|ASSETS                                                                                                                                                                            |                           |                                            |         |              |         |              
|Cash and due from banks                                                                                                                                                           |                           | $                                          | 27,737  |              |         | $             | 23,832  |        |         | $ | 25,414  |       
|Federal funds sold and securities purchased under agreements to
resell                                                                                                            |                           |                                            | 13,060  |              |         |               | 10,760  |        |         |   | 7,500   |       
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  | Cash and cash equivalents |                                            |         | 40,797       |         |               |         | 34,592 |         |   |         | 32,914 |        
|Securities available for sale                                                                                                                                                     |                           |                                            | 43,520  |              |         |               | 32,328  |        |         |   | 28,084  |       
|Securities held to maturity, at cost (estimated fair value of $1,908
at June 30, 2003, $2,561 at December 31, 2002
and $3,564 at June 30, 2002)                                   |                           |                                            | 1,812   |              |         |               | 2,405   |        |         |   | 3,394   |       
|Loans, net of the allowance for loan losses of $4,168 at June 30,
2003, $3,793 at December 31, 2002 and $3,359 at June
30, 2002                                                   |                           |                                            | 284,668 |              |         |               | 280,087 |        |         |   | 252,586 |       
|Bank premises and equipment, net                                                                                                                                                  |                           |                                            | 5,479   |              |         |               | 5,366   |        |         |   | 5,370   |       
|Other assets                                                                                                                                                                      |                           |                                            | 10,489  |              |         |               | 12,656  |        |         |   | 8,837   |       
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  |                           | TOTAL ASSETS                               |         | $            | 386,765 |               |         | $      | 367,434 |   |         | $      | 331,185 | 
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                              |                           |                                            |         |              |         |               |         |        |         |   |         |       
|Demand  noninterest bearing                                                                                                                                                      |                           | $                                          | 63,498  |              |         | $             | 55,170  |        |         | $ | 51,102  |       
|Demand  interest bearing                                                                                                                                                         |                           |                                            | 98,344  |              |         |               | 88,251  |        |         |   | 83,873  |       
|Savings                                                                                                                                                                           |                           |                                            | 22,577  |              |         |               | 20,797  |        |         |   | 17,615  |       
|Certificates of deposits                                                                                                                                                          |                           |                                            | 146,060 |              |         |               | 150,229 |        |         |   | 141,727 |       
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  |                           | Total deposits                             |         |              | 330,479 |               |         |        | 314,447 |   |         |        | 294,317 | 
|Securities sold under agreements to repurchase                                                                                                                                    |                           |                                            | 3,484   |              |         |               | 3,704   |        |         |   | 4,947   |       
|Federal Home Loan Bank borrowings                                                                                                                                                 |                           |                                            | 13,000  |              |         |               | 18,000  |        |         |   | 0       |       
|Other liabilities                                                                                                                                                                 |                           |                                            | 5,010   |              |         |               | 3,616   |        |         |   | 3,395   |       
|Guaranteed Preferred Beneficial Interests in Companys
Junior Subordinated Debentures (Trust Preferred Securities)                                                                |                           |                                            | 5,000   |              |         |               | 0       |        |         |   | 0       |       
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  |                           | Total Liabilities                          |         |              | 356,973 |               |         |        | 339,767 |   |         |        | 302,659 | 
|Commitments and contingencies (note 6)                                                                                                                                            |                           |                                            |         |              |         |               |         |        |         |   |         |       
|Stockholders Equity:                                                                                                                                                             |                           |                                            |         |              |         |               |         |        |         |   |         |       
|Preferred stock, no par value, 2,000,000 authorized
no shares issued and outstanding in 2003 and 2002                                                                             |                           |                                            |         |              |         |               |         |        |         |   |         |       
|Common stock , no par value, 10,000,000 shares
authorized; 2,666,466 shares issued and
outstanding
at June 30,2003, 2,641,536 at December 31, 2002
and 2,683,775 at June 30, 2002 |                           |                                            | 8,809   |              |         |               | 8,715   |        |         |   | 8,820   |       
|Retained earnings                                                                                                                                                                 |                           |                                            | 20,837  |              |         |               | 18,814  |        |         |   | 19,552  |       
|Accumulated other comprehensive income gain, net of tax                                                                                                                           |                           |                                            | 146     |              |         |               | 138     |        |         |   | 154     |       
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  |                           |                                            | 29,792  |              |         |               | 27,667  |        |         |   | 28,526  |       
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       
|                                                                                                                                                                                  |                           | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |         | $            | 386,765 |               |         | $      | 367,434 |   |         | $      | 331,185 | 
|                                                                                                                                                                                  |                           |                                            |         |              |         |               |         |        |         |   |         |       

See accompanying notes to consolidated condensed financial statements.

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

|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |       |       |     | 
|----------------------------------------------- | ---------------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------- | ------------- | ------------------ | ------------- | ---------------- | ------------- | ----- | -- | ----- | ----- | ----- | --- | ----- | ----- | ----- | --- | 
|                                                |                                                                                    |                                                     |                           |               | Three Months Ended |               | Six Months Ended
|                                                |                                                                                    |                                                     |                           |               |                    |               |                 
|Amounts in thousands, except for per share data |                                                                                    | June 30, 2003                                       |                           | June 30, 2002 |                    | June 30, 2003 |                  | June 30, 2002
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |              
|Interest income:                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                | Interest and fees on loans                                                         |                                                     | $                         | 4,408         |                    |               | $                | 4,156         |       |    | $     | 8,913 |       |     | $     | 7,863 |      
|                                                | Interest on tax exempt securities                                                  |                                                     |                           | 19            |                    |               |                  | 33            |       |    |       | 32    |       |     |       | 81    |      
|                                                | Interest on U.S. government securities                                             |                                                     |                           | 214           |                    |               |                  | 242           |       |    |       | 429   |       |     |       | 619   |      
|                                                | Interest on federal funds sold and
securities purchased under agreements to
resell |                                                     |                           | 69            |                    |               |                  | 48            |       |    |       | 120   |       |     |       | 111   |      
|                                                | Interest on other securities                                                       |                                                     |                           | 0             |                    |               |                  | 29            |       |    |       | 0     |       |     |       | 50    |      
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Total interest income                               |                           |               | 4,710              |               |                  |               | 4,508 |    |       |       | 9,494 |     |       |       | 8,724 |    
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|Interest expense:                               |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                | Interest on demand deposits                                                        |                                                     |                           | 131           |                    |               |                  | 158           |       |    |       | 241   |       |     |       | 276   |      
|                                                | Interest on savings deposits                                                       |                                                     |                           | 35            |                    |               |                  | 35            |       |    |       | 71    |       |     |       | 72    |      
|                                                | Interest on time deposits                                                          |                                                     |                           | 852           |                    |               |                  | 1,264         |       |    |       | 1,934 |       |     |       | 2,699 |      
|                                                | Securities sold under agreements to repurchase                                     |                                                     |                           | 4             |                    |               |                  | 4             |       |    |       | 6     |       |     |       | 12    |      
|                                                | Other borrowing expense                                                            |                                                     |                           | 129           |                    |               |                  | 3             |       |    |       | 200   |       |     |       | 5     |      
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Total interest expense                              |                           |               | 1,151              |               |                  |               | 1,464 |    |       |       | 2,452 |     |       |       | 3,064 |    
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Net interest income                                 |                           |               | 3,559              |               |                  |               | 3,044 |    |       |       | 7,042 |     |       |       | 5,660 |    
|Provision for loan losses                       |                                                                                    |                                                     | 200                       |               |                    |               | 125              |               |       |    | 375   |       |       |     | 190   |      
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Net interest income after provision for
loan losses |                           |               | 3,359              |               |                  |               | 2,919 |    |       |       | 6,667 |     |       |       | 5,470 |    
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|Non-interest income:                            |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                | Service charges on deposit accounts                                                |                                                     |                           | 88            |                    |               |                  | 76            |       |    |       | 156   |       |     |       | 148   |      
|                                                | Payroll and benefit processing fees                                                |                                                     |                           | 82            |                    |               |                  | 73            |       |    |       | 166   |       |     |       | 147   |      
|                                                | Earnings on cash surrender value -                                                 |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |       |      
|                                                |                                                                                    |                                                     | Bank owned life insurance |               |                    | 60            |                  |               |       | 62 |       |       |       | 119 |       |       |       | 123 | 
|                                                | Net gain on sale of securities available for sale                                  |                                                     |                           | 53            |                    |               |                  | 3             |       |    |       | 76    |       |     |       | 2     |      
|                                                | Merchant credit card service income, net                                           |                                                     |                           | 100           |                    |               |                  | 102           |       |    |       | 195   |       |     |       | 209   |      
|                                                | Mortgage brokerage fee income                                                      |                                                     |                           | 59            |                    |               |                  | 24            |       |    |       | 112   |       |     |       | 66    |      
|                                                | Other income                                                                       |                                                     |                           | 167           |                    |               |                  | 118           |       |    |       | 279   |       |     |       | 206   |      
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Total non-interest income                           |                           |               | 609                |               |                  |               | 458   |    |       |       | 1,103 |     |       |       | 901   |    
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|Non-interest expense:                           |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                | Salaries and related benefits                                                      |                                                     |                           | 1,355         |                    |               |                  | 1,120         |       |    |       | 2,654 |       |     |       | 2,142 |      
|                                                | Occupancy and equipment expense                                                    |                                                     |                           | 341           |                    |               |                  | 343           |       |    |       | 713   |       |     |       | 696   |      
|                                                | FDIC insurance premium                                                             |                                                     |                           | 13            |                    |               |                  | 12            |       |    |       | 25    |       |     |       | 24    |      
|                                                | Data processing fees                                                               |                                                     |                           | 72            |                    |               |                  | 40            |       |    |       | 89    |       |     |       | 60    |      
|                                                | Professional service fees                                                          |                                                     |                           | 196           |                    |               |                  | 71            |       |    |       | 388   |       |     |       | 171   |      
|                                                | Deferred compensation expense                                                      |                                                     |                           | 63            |                    |               |                  | 59            |       |    |       | 124   |       |     |       | 116   |      
|                                                | Directors expense                                                                 |                                                     |                           | 58            |                    |               |                  | 88            |       |    |       | 114   |       |     |       | 148   |      
|                                                | Other expenses                                                                     |                                                     |                           | 389           |                    |               |                  | 274           |       |    |       | 696   |       |     |       | 535   |      
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Total non-interest expense                          |                           |               | 2,487              |               |                  |               | 2,007 |    |       |       | 4,803 |     |       |       | 3,892 |    
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|Income before income taxes                      |                                                                                    |                                                     | 1,481                     |               |                    |               | 1,370            |               |       |    | 2,967 |       |       |     | 2,479 |      
|                                                | Provision for income taxes                                                         |                                                     |                           | 596           |                    |               |                  | 523           |       |    |       | 1,156 |       |     |       | 891   |      
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|                                                |                                                                                    | Net Income                                          |                           | $             | 885                |               |                  | $             | 847   |    |       | $     | 1,811 |     |       | $     | 1,588 |    
|                                                |                                                                                    |                                                     |                           |               |                    |               |                  |               |       |    |       |       |       |     |       |      
|Basic earnings per share                        |                                                                                    | $                                                   | 0.33                      |               |                    | $             | 0.32             |               |       | $  | 0.68  |       |       | $   | 0.59  |      
|Weighted average shares  basic                 |                                                                                    |                                                     | 2,661                     |               |                    |               | 2,682            |               |       |    | 2,653 |       |       |     | 2,693 |      
|Diluted earnings per share                      |                                                                                    | $                                                   | 0.32                      |               |                    | $             | 0.30             |               |       | $  | 0.65  |       |       | $   | 0.56  |      
|Weighted average shares  diluted               |                                                                                    |                                                     | 2,786                     |               |                    |               | 2,848            |               |       |    | 2,775 |       |       |     | 2,863 |      

See accompanying notes to consolidated condensed financial statements.

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

|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |   |         |       |         |  
|--------------------------------------------------------------------------------- | -------------------------------- | ------------------------------------------------------------------- | ---------- | ----------------------------------------- | ------- | ----- | ------- | - | ------- | ----- | ------- | -
|Dollars in thousands                                                              |                                  | June 30, 2003                                                       |            | June 30, 2002                            
|                                                                                  |                                  |                                                                     |            |                                          
|Cash flows from operating activities:                                             |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  |                                                                     | Net Income |                                           | $       | 1,811 |         |   | $       | 1,588 |        
|Adjustments to reconcile net income to net
cash provided by operating activities: |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  | Provision for loan losses                                           |            |                                           | 375     |       |         |   | 190     |      
|                                                                                  |                                  | Provision for depreciation and amortization                         |            |                                           | 281     |       |         |   | 305     |      
|                                                                                  |                                  | Compensation expense associated with stock options                  |            |                                           | 11      |       |         |   | 34      |      
|                                                                                  |                                  | Gain on sale of securities available for sale                       |            |                                           | (76     | )     |         |   | (2      | )    
|                                                                                  |                                  | Amortization of investment premiums and accretion of
discounts, net |            |                                           | 258     |       |         |   | (3      | )    
|                                                                                  |                                  | Gain on sale of loans                                               |            |                                           | (74     | )     |         |   | (96     | )    
|                                                                                  |                                  | Proceeds from sales of loans                                        |            |                                           | 947     |       |         |   | 4,087   |      
|                                                                                  |                                  | Loans originated for sale                                           |            |                                           | (873    | )     |         |   | (4,183  | )    
|                                                                                  |                                  | Effect of changes in:                                               |            |                                           |         |       |         |   |         |      
|                                                                                  |                                  |                                                                     |            | Other assets                              |         |       | 2,167   |   |         |       | 1,840   |  
|                                                                                  |                                  |                                                                     |            | Deferred loan fees                        |         |       | (28     | ) |         |       | 190     |  
|                                                                                  |                                  |                                                                     |            | Other liabilities                         |         |       | 1,378   |   |         |       | 164     |  
|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  |                                                                     |            | Net cash provided by operating activities |         |       | 6,177   |   |         |       | 4,114   |  
|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |  
|Cash flows from investing activities:                                             |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  | Proceeds from maturities of available for sale securities           |            |                                           | 9,791   |       |         |   | 4,175   |      
|                                                                                  |                                  | Proceeds from sales of available for sale securities                |            |                                           | 8,709   |       |         |   | 13,081  |      
|                                                                                  |                                  | Proceeds from maturities of held to maturity securities             |            |                                           | 599     |       |         |   | 0       |      
|                                                                                  |                                  | Purchases of available for sale securities                          |            |                                           | (29,858 | )     |         |   | (3,550  | )    
|                                                                                  |                                  | Loan originations, net of principal repayments                      |            |                                           | (4,928  | )     |         |   | (36,077 | )    
|                                                                                  |                                  | Purchases of premises and equipment                                 |            |                                           | (391    | )     |         |   | (337    | )    
|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  |                                                                     |            | Net cash used by investing activities     |         |       | (16,078 | ) |         |       | (22,708 | )
|Cash flows from financing activities:                                             |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  | Net increase in deposits                                            |            |                                           | 16,031  |       |         |   | 12,882  |      
|                                                                                  |                                  | Net decrease in securities sold under agreement to repurchase       |            |                                           | (221    | )     |         |   | (1,833  | )    
|                                                                                  |                                  | Proceeds from Federal Home Loan Bank advances                       |            |                                           | 10,000  |       |         |   | 0       |      
|                                                                                  |                                  | Repayments of Federal Home Loan Bank advances                       |            |                                           | (15,000 | )     |         |   | 0       |      
|                                                                                  |                                  | Proceeds from issuance of Trust Preferred Securities                |            |                                           | 5,000   |       |         |   | 0       |      
|                                                                                  |                                  | Common stock transactions, net                                      |            |                                           | 296     |       |         |   | (499    | )    
|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  |                                  |                                                                     |            | Net cash provided by financing activities |         |       | 16,106  |   |         |       | 10,550  |  
|Net increase (decrease) in cash and cash equivalents                              |                                  |                                                                     | 6,205      |                                           |         |       | (8,044  | )
|Cash and cash equivalents, beginning of period                                    |                                  |                                                                     | 34,592     |                                           |         |       | 40,958  |  
|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |  
|Cash and cash equivalents, end of period                                          |                                  | $                                                                   | 40,797     |                                           |         | $     | 32,914  |  
|                                                                                  |                                  |                                                                     |            |                                           |         |       |         |  
|Supplemental disclosures:                                                         |                                  |                                                                     |            |                                           |         |       |         |  
|                                                                                  | Cash paid during the period for: |                                                                     |            |                                           |         |       |         |   |        
|                                                                                  |                                  |                                                                     |            | Income taxes                              |         | $     | 997     |   |         | $     | 285     |  
|                                                                                  |                                  |                                                                     |            | Interest                                  |         |       | 2,429   |   |         |       | 3,072   |  

See accompanying notes to consolidated condensed financial statements.

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##### Table of Contents






REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements

1. Consolidation and Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts
of Redding Bancorp (the Holding Company) and its subsidiaries Redding Bank of
Commerce (RBC or the Bank) and RBC Mortgage. All significant inter-company
balances and transactions have been eliminated. All such adjustments are of a
normal recurring nature. The financial information contained in this report
reflects all adjustments that in the opinion of management are necessary for a
fair presentation of the results of the interim periods. Certain
reclassifications have been made to the prior period consolidated financial
statements to conform to the current financial statement presentation.

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

The accompanying unaudited condensed consolidated financial statements should
be read in conjunction with the financial statements and related notes
contained in Redding Bancorps 2002 Annual Report to Shareholders. The
accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America and general
practices within the banking industry. The results of operations and cash flows
for the 2003 interim periods shown in this report are not necessarily
indicative of the results for any future interim period or the entire fiscal
year.

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

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

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

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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements

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 and six months ended June 30,
2003 and 2002.

|                           |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |       | 
|-------------------------- | ----------------------------------------------- | ------------------ | ------------- | ---------------- | ------------- | - | ------------- | ----- | ------------- | - | ----- | ----- |  | - | ----- | ----- | 
|(Amounts in thousands,     |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |      
|except per share data)     |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |      
|                           |                                                 | Three Months Ended |               | Six Months Ended
|                           |                                                 |                    |               |                  |              
|                           |                                                 |                    | June 30, 2003 |                  | June 30, 2002 |   | June 30, 2003 |       | June 30, 2002
|                           |                                                 |                    |               |                  |               |   |               |       |              
|Basic EPS Calculation:     |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |      
|                           | Numerator (net income)                          |                    | $             | 885              |               |   | $             | 847   |               |   | $     | 1,811 |  |   | $     | 1,588 | 
|                           | Denominator (average common
shares outstanding) |                    |               | 2,661            |               |   |               | 2,682 |               |   |       | 2,653 |  |   |       | 2,693 | 
|Basic earnings per Share   |                                                 | $                  | 0.33          |                  |               | $ | 0.32          |       |               | $ | 0.68  |       |  | $ | 0.59  |      
|Diluted EPS Calculation:   |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |      
|                           | Numerator (net income)                          |                    | $             | 885              |               |   | $             | 847   |               |   | $     | 1,811 |  |   | $     | 1,588 | 
|                           | Denominator:                                    |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |       | 
|                           | Average common shares outstanding               |                    |               | 2,661            |               |   |               | 2,682 |               |   |       | 2,653 |  |   |       | 2,693 | 
|                           | Options                                         |                    |               | 125              |               |   |               | 166   |               |   |       | 122   |  |   |       | 170   | 
|                           |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |      
|                           |                                                 |                    | 2,786         |                  |               |   | 2,848         |       |               |   | 2,775 |       |  |   | 2,863 |      
|Diluted earnings per Share |                                                 | $                  | 0.32          |                  |               | $ | 0.30          |       |               | $ | 0.65  |       |  | $ | 0.56  |      
|                           |                                                 |                    |               |                  |               |   |               |       |               |   |       |       |  |   |       |      

3. Stock Option Plans

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

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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements

|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |       |     |  
|------------------- | --------------------- | ----------------------------------------------------------------------------------------------------------------------------------- | - | ------------------ | --- | ---------------- | - | ------------- | --- | ------------- | - | ----- | --- | - | - | ----- | --- | -
|                    |                       |                                                                                                                                     |   | Three Months Ended |     | Six Months Ended
|                    |                       |                                                                                                                                     |   |                    |     |                 
|                    |                       |                                                                                                                                     |   | June 30, 2003      |     | June 30, 2002    |   | June 30, 2003 |     | June 30, 2002
|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |              
|Net income          |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|                    | As reported           |                                                                                                                                     | $ | 885                |     |                  | $ | 847           |     |               | $ | 1,811 |     |   | $ | 1,588 |    
|Deduct:             |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|                    |                       | Total
stock-based
employee
compensation
expense
determined
under fair
value based
method for
all awards,
net of related
tax effects |   |                    | (19 | )                |   |               | (43 | )             |   |       | (38 | ) |   |       | (84 | )
|                    | Pro forma net income  |                                                                                                                                     | $ | 866                |     |                  | $ | 804           |     |               | $ | 1,773 |     |   | $ | 1,504 |    
|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|Earnings per share: |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|                    | Basic  as reported   |                                                                                                                                     | $ | 0.33               |     |                  | $ | 0.32          |     |               | $ | 0.68  |     |   | $ | 0.59  |    
|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|                    | Basic  pro forma     |                                                                                                                                     | $ | 0.32               |     |                  | $ | 0.30          |     |               | $ | 0.67  |     |   | $ | 0.56  |    
|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|                    | Diluted  as reported |                                                                                                                                     | $ | 0.32               |     |                  | $ | 0.30          |     |               | $ | 0.65  |     |   | $ | 0.56  |    
|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      
|                    | Diluted  pro forma   |                                                                                                                                     | $ | 0.32               |     |                  | $ | 0.28          |     |               | $ | 0.64  |     |   | $ | 0.53  |    
|                    |                       |                                                                                                                                     |   |                    |     |                  |   |               |     |               |   |       |     |   |   |      

4. Comprehensive Income

The Companys total comprehensive income was as follows:

|                                       |                                                                       |   |                    |     |                  |   |               |     |               |   |       |     |   |   |       |     |  
|-------------------------------------- | --------------------------------------------------------------------- | - | ------------------ | --- | ---------------- | - | ------------- | --- | ------------- | - | ----- | --- | - | - | ----- | --- | -
|                                       |                                                                       |   | Three Months Ended |     | Six Months Ended
|                                       |                                                                       |   |                    |     |                 
|                                       |                                                                       |   | June 30, 2003      |     | June 30, 2002    |   | June 30, 2003 |     | June 30, 2002
|                                       |                                                                       |   |                    |     |                  |   |               |     |              
|Net Income as reported                 |                                                                       | $ | 885                |     |                  | $ | 847           |     |               | $ | 1,811 |     |   | $ | 1,588 |    
|Other comprehensive income
net of tax: |                                                                       |   |                    |     |                  |   |               |     |               |   |       |     |   |   |       |    
|                                       | Unrealized holding gain on
securities
available for sale              |   |                    | 62  |                  |   |               | 254 |               |   |       | 67  |   |   |       | 163 |  
|                                       | Reclassification adjustment for
gain on available for sale
securities |   |                    | (46 | )                |   |               | (2  | )             |   |       | (60 | ) |   |       | (1  | )
|                                       |                                                                       |   |                    |     |                  |   |               |     |               |   |       |     |   |   |       |    
|Total other comprehensive income       |                                                                       |   | 16                 |     |                  |   | 252           |     |               |   | 7     |     |   |   | 162   |    
|Total comprehensive income             |                                                                       | $ | 901                |     |                  | $ | 1,099         |     |               | $ | 1,818 |     |   | $ | 1,762 |    
|                                       |                                                                       |   |                    |     |                  |   |               |     |               |   |       |     |   |   |       |    

5. Junior Subordinated Debentures (Trust Preferred Securities)

During the first quarter 2003, Redding Bancorp formed a wholly-owned Delaware
statutory business trust, Redding Bancorp Trust, which issued $5.0 million of
guaranteed preferred beneficial interests in Redding Bancorps junior
subordinated debentures (the Trust Preferred Securities). These debentures
qualify as Tier 1 capital under Federal Reserve Board guidelines. The proceeds
from the issuance of the Trust Preferred Securities were transferred from the
Holding Company to the Bank as surplus capital. The Trust Preferred Securities
accrue and pay distributions on a quarterly basis at 3 month London Interbank
Offered Rate (LIBOR) plus 1.32%. The rate at June 30, 2003 was 4.57%. The
rate increase is capped at 2.75% annually and the lifetime cap is 12.5%. The
final maturity on the Trust Preferred Securities is March 18, 2033, and the
debt allows for prepayment after five years on the quarterly payment date.

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##### Table of Contents



REDDING BANCORP & SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements

6. Commitments and contingent liabilities



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

|                       |  |   |           | 
|---------------------- |  | - | --------- | 
|(Dollars in thousands) |  |   |           | 
|2003                   |  | $ | 148,800   | 
|2004                   |  | $ | 297,590   | 
|2005                   |  | $ | 297,590   | 
|2006                   |  | $ | 303,180   | 
|2007                   |  | $ | 303,180   | 
|2008                   |  | $ | 303,180   | 
|Thereafter             |  | $ | 831,780   | 
|                       |  |   |           | 
|Total                  |  | $ | 2,485,300 | 
|                       |  |   |           | 



| |  |  | Legal Proceedings The Company and its subsidiaries are involved in
various legal actions arising in the ordinary course of business. These
matters have a high degree of uncertainty associated with them. There can
be no assurances that all matters that may be brought against the Company
are known to us at any point of time.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents






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

Forward looking statements and risk factors

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

For additional information concerning risks and uncertainties related to the
Company and its operations please refer to the Companys Annual Report on Form
10-K for the year ended December 31, 2002 under the heading Risk factors that
may affect results.Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

The following sections discuss significant changes and trends in financial
condition, capital resources and liquidity of the Company from December 31,
2002 to June 30, 2003. Also discussed are significant trends and changes in the
Companys results of operations for the three and six-months ended June 30,
2003, compared to the same period in 2002. The consolidated financial
statements and related notes appearing elsewhere in this report are condensed
and unaudited. The following discussion and analysis is intended to provide
greater detail of the Companys financial condition and results.




Overview

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

On January 2, 2003, Redding Service Corporation, a wholly-owned subsidiary of
the FHC, changed its name to RBC Mortgage Services, an affiliate of Redding
Bank of Commerce. The principal business of the subsidiary is mortgage
brokerage services. The subsidiary has an affiliated business arrangement with
the Bank of Walnut Creek (BWC Mortgage Services). Under the terms of the
agreement, BWC Mortgage Services underwrites or brokers mortgage products and
manages the independent contractors, supporting staff and broker relationships
with various secondary market lenders. RBC Mortgage Services in turn provides
office space, equipment and marketing support for the mortgage brokerage
services. RBC Mortgage Services, through this agreement, offers a full array of
single-family and multi-family residential real estate mortgages including
equity lines. Earnings from the mortgage brokerage services, net of operating
costs, are split 50% RBC Mortgage Services, 50% BWC Mortgage Services.

Before the formation of the subsidiary, mortgage-banking services were
performed as a department of the Bank.

10



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##### Table of Contents



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

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

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

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

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

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

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

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

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##### Table of Contents



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




Sources of Income

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




Financial Highlights  Results of Operations

Net income for the second quarter of 2003 totaled $885,000 an increase of 4.5%
from the $847,000 reported for the same quarterly period of 2002. On the same
basis, diluted earnings per common share for the second quarter of 2003 were
$0.32, compared to $0.30 for the same period of 2002, a 6.7% increase. Return
on average assets (ROA) and return on average equity (ROE) for the second
quarter of 2003 were 0.95% and 12.01%, respectively, compared with 1.05% and
12.94%, respectively, for the second quarter of 2002.

Net income for the six-month period ended June 30, 2003 totaled $1,811,000, an
increase of 14.0% over net income reported for the same six-month period ended
June 30, 2002. On the same basis, diluted earnings per common share for the
six-months ended June 30, 2003 was $0.65, compared to $0.56 for the same
six-month period in 2002, a 16.0% increase. ROA was 0.97% and ROE was 11.84%
for the first six-months of 2003 compared with 1.21% and 11.29%, respectively,
for the same six-month period of 2002.




Net Interest Income and Net Interest Margin

Net interest income is the primary source of the Companys income. Net interest
income represents the excess of interest and fees earned on interest-earning
assets (loans, securities and Federal Funds sold) over the interest paid on
deposits and borrowed funds. Net interest margin is net interest income
expressed as a percentage of average earning assets. Net interest income for
the quarter ended June 30, 2003 was $3.6 million compared with $3.0 million for
the same period in 2002 an increase of 17.3%. Net interest income for the
six-months ended June 30, 2003 was $7.0 million compared with $5.7 million for
the same six-month period in 2002, an increase of 24.4%.

Average earning assets for the six-months ended 6/30/03 increased $56.3 million
or 19.7% compared with the same period in the prior year. Loans, the largest
component of earning assets, increased $52.8 million or 22.5% on average
compared with the prior year period. Average securities increased $3.5 million
or 6.8% over the prior period. Overall, the yield on earning assets decreased
to 5.54% for the six-month period compared to 6.10% for the same period in the
prior year, primarily due to declining interest rates. The decline was due to
variable loan repricing as well as new loan production at lower rates in the
first six-months of 2003 compared with the same six-month period of 2002.

Average interest-bearing liabilities for the six-months ended 6/30/03 increased
$41.1 million or 17.1% compared with the prior year period. Of this increase,
$25.5 million was in core deposit growth (interest-bearing demand and savings
accounts), generally the least expensive deposit categories. Federal Home Loan
Bank borrowings increased $16.4 million compared with the prior year period.
The Company is using the Federal Home Loan Bank borrowings to supplement loan
growth and to leverage into securities to improve the spread in the margin.
Borrowings are repaid as core deposit growth increases.

12



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##### Table of Contents



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

The overall cost of interest-bearing liabilities for the first six-months 2003
was 1.74% compared with 2.55% for the first six-months of 2002, a 31.8%
decrease. The decrease was primarily a result of decreases in rates paid on
time deposits and low cost short-term borrowings. As time deposits and
borrowings matured during the period, the Company was able to roll these
investments over at lower rates.

The net effect of the changes discussed above resulted in an increase of $1.4
million or 25.0% in net interest income for the six-month period ended June 30,
2003 from the same period in 2002. Net interest margin increased 15 basis
points to 4.11% from 3.96% for the same period a year ago.




Liquidity

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

The Asset Liability Management Committee (ALCO) establishes and monitors
liquidity guidelines that require sufficient asset-based liquidity to cover
potential funding requirements and to avoid over-dependence on volatile, less
reliable funding markets. In addition to the immediately liquid resources of
cash and due from banks and federal funds sold, asset liquidity is supported by
debt securities in the available for sale security portfolio and wholesale
lines of credit with the Federal Home Loan Bank and borrowing lines with other
financial institutions. Customer core deposits have historically provided the
Company with a source of relatively stable and low-cost funds.

The Companys consolidated liquidity position remains adequate to meet
short-term and long-term future contingencies. At June 30, 2003, the Company
had overnight investments of $13.0 million and available lines of credit of at
the Federal Home Loan bank of approximately $79.0 million, and a federal funds
borrowing line with a correspondent of $10.0 million.

To accommodate future growth and business needs, the Bank develops an annual
capital expenditure budget during strategic planning sessions. Capital
expenditures for 2003 are expected to be about $700,000 for additional software
and routine replacement of furniture and equipment. Approximately $475,000 has
been spent through June 30, 2003. The Company expects that the earnings of the
Bank, acquisition of core deposits and wholesale borrowing arrangements are
sufficient to support liquidity needs in 2003.




Capital Management

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

Total shareholder equity increased from December 31, 2002 by $2.1 million to
$29.8 million at June 30, 2003. The increase was a result of earnings of $1.8
million, $192,872 from exercises of stock options, including tax benefits, and
an increase in accumulated other comprehensive income of $8,000.

13



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##### Table of Contents



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




Short term borrowings

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

At June 30, 2003, the Bank had $13 million in FHLB short-term advances
outstanding at an average rate of 1.63% compared to $0 at June 30, 2002.




Provision for loan losses

The Companys most significant management accounting estimate is the
appropriate level for the allowance for loan losses. The Company follows a
methodology for calculating the appropriate level for the allowance for loan
losses as discussed under Asset Quality and Allowance for Loan Losses (ALL)
in this document.

During the first quarter 2003, one loan relationship became 90 days past due
for interest payments. During the second quarter 2003, management performed an
impairment evaluation of the credit relationship and a specific reserve was
established for contingencies. Interest payments were brought current. The
credit in question totaled $2.9 million at June 30, 2003 and is fully
collateralized. The Bank expects to collect all principal and interest due. The
Bank has seven other loans to this borrower totaling approximately $1.9
million. These loans are performing in accordance with their original terms,
are fully collateralized and the Bank expects to collect all principal and
interest due. However, in accordance with its policy, the Bank has classified
all eight loans to this borrower and its affiliates.

Provision for loan losses of $375,000 were provided for the six-months
ended June 30, 2003 compared with $190,000 for the same period of 2002. Redding
Bancorps allowance for loan losses was 1.44% of total loans at June 30, 2003
and 1.31% at June 30, 2002, while its ratio of non-performing assets to total
assets was 0.77% at June 30, 2003, compared to 0.0% at June 30, 2002.
Year-to-date net charge-offs of $0 compare favorably to net charge-offs of
$11,000 in the same period last year.




Factors that may affect future results

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

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

14



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##### Table of Contents



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

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

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

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

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

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

Specific Risks to operations in California

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




Critical Accounting Policies

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

15



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##### Table of Contents



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

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

Preparation of financial statements

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

Use of estimates

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

Generally Accepted Accounting Principles in the United States of America

The Companys financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP). The
Companys significant accounting policies are presented in Note 2 to the
Consolidated Financial Statements contained in the Companys 2002 Annual Report
on Form 10-K.

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

Allowance for Loan Losses

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

The calculation of the allowance for loan losses is by nature inexact, as the
allowance represents Managements best estimate of the loan losses inherent in
the Companys credit portfolios at the reporting date. These loan losses will
occur in the future, and as such cannot be determined with absolute certainty
at the reporting date.

Revenue recognition

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

16



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##### Table of Contents



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

Fixed Assets

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

Stock-based Compensation

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

Had compensation costs for the stock option plans been determined based upon
the fair value at the date of grant consistent with SFAS No. 123, Accounting
for Stock Based Compensation, the Companys net income and earnings per share
would have been reduced. The reduction in the Companys net income had
compensation costs been determined in accordance with FAS No. 123 would have
been $38,000 and $84,000 for the six-months ended June 30, 2003 and 2002,
respectively. There would have been $0.01 per share decrease in diluted
earnings per share in 2003 and $0.03 per share decrease in 2002.

The amount of the reduction for the fiscal years 2000 through 2002 is disclosed
in Note 12 to the Consolidated Financial Statements contained in the 2002
Annual Report on Form 10-K, based upon the assumptions listed therein.
Accounting principles generally accepted in the United States of America
(GAAP), itself may change over time, having impact over the reporting of the
Companys financial activity. Although the economic substance of the Companys
transactions would not change, alterations in GAAP could affect the timing or
manner of accounting or reporting.

Income Taxes

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

17



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##### Table of Contents



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

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




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

|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|-------------------------------------------- |  | ---------------- | ------- | ---------------- |  | ---- | ----- | ------- |  | -------- | ---- | ---- |  | - | ------- | ------ |  | - | ----- |  |  |  | ---- | - |  |  |  | 
|                                             |  | Six Months Ended |         | Six Months Ended |  |      |       |        
|                                             |  | June 30, 2003    |         | June 30, 2002    |  |      |       |        
|                                             |  |                  |         |                  |  |      |       |        
|                                             |  | Average          |         |                  |  |      |       | Yield/  |  | Average  |      |      |  |   |         | Yield/ |  |   |       | 
|                                             |  | Balance          |         | Interest         |  | Rate |       | Balance |  | Interest |      | Rate |  |   |         |       
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |       
|Earning Assets                               |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Portfolio Loans                              |  | $                | 287,594 |                  |  | $    | 8,913 |         |  |          | 6.20 | %    |  | $ | 234,829 |        |  | $ | 7,863 |  |  |  | 6.70 | % |  |  |  | 
|Tax-exempt Securities                        |  |                  | 1,517   |                  |  |      | 32    |         |  |          | 4.22 | %    |  |   | 3,898   |        |  |   | 81    |  |  |  | 4.16 | % |  |  |  | 
|US Government Securities                     |  |                  | 32,897  |                  |  |      | 429   |         |  |          | 2.61 | %    |  |   | 32,886  |        |  |   | 619   |  |  |  | 3.76 | % |  |  |  | 
|Federal Funds Sold                           |  |                  | 20,438  |                  |  |      | 120   |         |  |          | 1.17 | %    |  |   | 13,318  |        |  |   | 111   |  |  |  | 1.67 | % |  |  |  | 
|Other Securities                             |  |                  | 0       |                  |  |      | 0     |         |  |          | 0.00 | %    |  |   | 1,247   |        |  |   | 50    |  |  |  | 8.02 | % |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Average Earning Assets                       |  | $                | 342,446 |                  |  | $    | 9,494 |         |  |          | 5.54 | %    |  | $ | 286,178 |        |  | $ | 8,724 |  |  |  | 6.10 | % |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Cash & Due From Banks                        |  | $                | 20,358  |                  |  |      |       |         |  |          |      |      |  | $ | 19,224  |        |  |   |       |  |  |  |      |   |  |  |  | 
|Bank Premises                                |  |                  | 5,390   |                  |  |      |       |         |  |          |      |      |  |   | 5,378   |        |  |   |       |  |  |  |      |   |  |  |  | 
|Allowance for Loan Losses                    |  |                  | ( 3,990 | )                |  |      |       |         |  |          |      |      |  |   | ( 3,247 | )      |  |   |       |  |  |  |      |   |  |  |  | 
|Other Assets                                 |  |                  | 10,170  |                  |  |      |       |         |  |          |      |      |  |   | 8,698   |        |  |   |       |  |  |  |      |   |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Average Total Assets                         |  | $                | 374,374 |                  |  |      |       |         |  |          |      |      |  | $ | 316,231 |        |  |   |       |  |  |  |      |   |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Interest Bearing Liabilities                 |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Demand Interest Bearing                      |  | $                | 91,147  |                  |  | $    | 241   |         |  |          | 0.53 | %    |  | $ | 74,780  |        |  | $ | 276   |  |  |  | 0.74 | % |  |  |  | 
|Savings Deposits                             |  |                  | 22,054  |                  |  |      | 71    |         |  |          | 0.64 | %    |  |   | 17,823  |        |  |   | 72    |  |  |  | 0.81 | % |  |  |  | 
|Certificates of Deposit                      |  |                  | 147,612 |                  |  |      | 1,934 |         |  |          | 2.62 | %    |  |   | 142,648 |        |  |   | 2,699 |  |  |  | 3.78 | % |  |  |  | 
|Borrowings                                   |  |                  | 20,323  |                  |  |      | 206   |         |  |          | 2.03 | %    |  |   | 4,816   |        |  |   | 17    |  |  |  | 0.71 | % |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|                                             |  |                  | 281,136 |                  |  | $    | 2,452 |         |  |          | 1.74 | %    |  |   | 240,067 |        |  | $ | 3,064 |  |  |  | 2.55 | % |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Non interest Demand                          |  |                  | 58,591  |                  |  |      |       |         |  |          |      |      |  |   | 46,969  |        |  |   |       |  |  |  |      |   |  |  |  | 
|Other Liabilities                            |  |                  | 4,055   |                  |  |      |       |         |  |          |      |      |  |   | 2,890   |        |  |   |       |  |  |  |      |   |  |  |  | 
|Shareholder Equity                           |  |                  | 30,592  |                  |  |      |       |         |  |          |      |      |  |   | 26,305  |        |  |   |       |  |  |  |      |   |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Average Liabilities and
Shareholders Equity |  | $                | 374,374 |                  |  |      |       |         |  |          |      |      |  | $ | 316,231 |        |  |   |       |  |  |  |      |   |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 
|Net Interest Income and Net Interest Margin  |  |                  |         |                  |  | $    | 7,042 |         |  |          | 4.11 | %    |  |   |         |        |  | $ | 5,660 |  |  |  | 3.96 | % |  |  |  | 
|                                             |  |                  |         |                  |  |      |       |         |  |          |      |      |  |   |         |        |  |   |       |  |  |  |      |   |  |  |  | 

18



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##### Table of Contents



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

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

|         |  |                                            |  | 
|-------- |  | ------------------------------------------ |  | 
|Table 2. |  | Analysis of Changes in Net Interest Income |  | 

|                                       |                          |                                            |                           |       |        |       |      |      |       |      |       |       |   |      |  
|-------------------------------------- | ------------------------ | ------------------------------------------ | ------------------------- | ----- | ------ | ----- | ---- | ---- | ----- | ---- | ----- | ----- | - | ---- | -
|(Dollars in thousands)                 |                          | June 30, 2003      over      June 30, 2002
|                                       |                          |                                            |                          
|                                       |                          |                                            |                           |       | Volume |       | Rate |      | Total
|                                       |                          |                                            |                           |       |        |       |      |      |      
|Increase(Decrease) In Interest
Income  |                          |                                            |                           |       |        |       |      |      |       |      |       |      
|                                       | Portfolio Loans          |                                            | $                         | 1,639 |        |       | $    | (589 | )     |      | $     | 1,050 |  
|                                       | Tax-exempt Securities    |                                            |                           | (50   | )      |       |      | 1    |       |      |       | (49   | )
|                                       | US Government Securities |                                            |                           | (8    | )      |       |      | (182 | )     |      |       | (190  | )
|                                       | Federal Funds Sold       |                                            |                           | 42    |        |       |      | (33  | )     |      |       | 9     |  
|                                       | Other Securities         |                                            |                           | (41   | )      |       |      | 25   |       |      |       | (16   | )
|                                       |                          |                                            |                           |       |        |       |      |      |       |      |       |      
|                                       |                          |                                            | Total Increase (Decrease) |       | $      | 1,582 |      |      | $     | (778 | )     |       | $ | 804  |  
|                                       |                          |                                            |                           |       |        |       |      |      |       |      |       |      
|Increase(Decrease) In
Interest Expense |                          |                                            |                           |       |        |       |      |      |       |      |       |      
|                                       | Interest Bearing Demand  |                                            | $                         | 44    |        |       | $    | (79  | )     |      | $     | (35   | )
|                                       | Savings Deposits         |                                            |                           | 14    |        |       |      | (15  | )     |      |       | (1    | )
|                                       | Certificates of Deposit  |                                            |                           | 62    |        |       |      | (827 | )     |      |       | (765  | )
|                                       | Borrowings               |                                            |                           | 157   |        |       |      | 32   |       |      |       | 189   |  
|                                       |                          |                                            |                           |       |        |       |      |      |       |      |       |      
|                                       |                          |                                            | Total Increase (Decrease) |       | $      | 277   |      |      | $     | (889 | )     |       | $ | (612 | )
|                                       |                          |                                            |                           |       |        |       |      |      |       |      |       |      
|Net Increase                           |                          | $                                          | 1,305                     |       |        | $     | 111  |      |       | $    | 1,416 |      
|                                       |                          |                                            |                           |       |        |       |      |      |       |      |       |      

Net interest income was $7.0 million for the first six-months of 2003 compared
with $5.7 million for the same period in 2002 (Tables 1 and 2). The primary
reason for the increase was an increase in the volume of earning assets.
Average earning assets for the first six-months of 2003 were $342.4 million
compared with $286.2 million for the same period in 2002, an increase of $56.3
million or 19.7%. Portfolio loans is the single largest component of earning
assets and average portfolio loans increased $52.8 million or 22.5% over the
same period in 2002.

While the average volume of earning assets increased, the average yield
decreased from 6.10% in 2002 to 5.54% in 2003. This decrease was due to asset
repricing during a period of declining interest rates. Average interest bearing
liabilities also increased during the period, to $281.1 million for the first
six-months of 2003 compared with $240.1 million for the same period in 2002, a
$41.1 million increase or 17.1%. Similar to earning assets, the cost of
interest bearing liabilities decreased from 2.55% in 2002 to 1.74% in 2003.

The decrease in the cost of interest bearing liabilities was due to repricing
of interest bearing checking and savings accounts as well as the rollover of
maturing certificates of deposits at lower rates. As a result of these changes,
the interest spread (the difference between the yield on earning assets and the
cost of interest bearing liabilities) increased 0.15% to 4.11% for the
six-months ended June 30, 2003 compared with the same period in the prior year.

19



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

Non-interest Income

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

|                          |                                                         |   |                    |     |                  |   |               |     |               |   |       |     |  |   |     |     | 
|------------------------- | ------------------------------------------------------- | - | ------------------ | --- | ---------------- | - | ------------- | --- | ------------- | - | ----- | --- |  | - | --- | --- | 
|                          |                                                         |   | Three Months Ended |     | Six Months Ended
|                          |                                                         |   |                    |     |                 
|                          |                                                         |   | June 30, 2003      |     | June 30, 2002    |   | June 30, 2003 |     | June 30, 2002
|                          |                                                         |   |                    |     |                  |   |               |     |              
|                          | Service charges on deposit accounts                     |   | $                  | 88  |                  |   | $             | 76  |               |   | $     | 156 |  |   | $   | 148 | 
|                          | Payroll and benefit processing fees                     |   |                    | 82  |                  |   |               | 73  |               |   |       | 166 |  |   |     | 147 | 
|                          | Earnings on cash surrender value -
Bank owned insurance |   |                    | 60  |                  |   |               | 62  |               |   |       | 119 |  |   |     | 123 | 
|                          | Net gain on sale of securities available for sale       |   |                    | 53  |                  |   |               | 3   |               |   |       | 76  |  |   |     | 2   | 
|                          | Merchant credit card service income, net                |   |                    | 100 |                  |   |               | 102 |               |   |       | 195 |  |   |     | 209 | 
|                          | Mortgage brokerage fee income                           |   |                    | 59  |                  |   |               | 24  |               |   |       | 112 |  |   |     | 66  | 
|                          | Other Income                                            |   |                    | 167 |                  |   |               | 118 |               |   |       | 279 |  |   |     | 206 | 
|                          |                                                         |   |                    |     |                  |   |               |     |               |   |       |     |  |   |     |    
|Total Non-interest income |                                                         | $ | 609                |     |                  | $ | 458           |     |               | $ | 1,103 |     |  | $ | 901 |    
|                          |                                                         |   |                    |     |                  |   |               |     |               |   |       |     |  |   |     |    

Non-interest income increased $151,000 or 33.0% for the quarter ended June 30,
2003 over June 30, 2002. Service charges on deposit accounts increased due to
growth in core deposits. Other income increased $49,000 or 41.5% for the
quarter ended June 30, 2003 over June 30, 2002 primarily due to the addition of
contract core item processing. Gains on available for sale securities sold
during the quarter increased by $50,000 over the same quarterly period a year
ago. Mortgage brokerage fee income increased by 145.8% or $35,000 for the
quarter ended June 30, 2003 over June 30, 2002. Increases are attributed to the
rising volumes of refinance and new purchase mortgages being processed through
RBC Mortgage Services.

Non-interest income increased by $202,000 or 22.4% for the six-month period
ended June 30, 2003 over the same six-month period in 2002. Gains in other
income are attributed to the core item processing agreement in which the Bank
is paid a fee for data processing services supplied to another independent
bank. Approximately $5.0 million in Mortgage-backed securities were sold during
the period due to accelerating prepayment speeds. Gains on securities sold were
$76,000 for the first six-months of June 2003 compared with $2,000 in the first
six-months of 2002. Mortgage brokerage fee income increased by 69.7% or $46,000
over the same six-month period a year ago. Increases in mortgage brokerage fee
income are attributed to the rising volumes of refinance and new purchase
mortgages being processed through RBC Mortgage Services.

Non-interest Expense

|                           |                                 |               |                    |               |                  |               |       |               |  |   |       |       |  |   |       |       | 
|-------------------------- | ------------------------------- | ------------- | ------------------ | ------------- | ---------------- | ------------- | ----- | ------------- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                           |                                 |               | Three Months Ended |               | Six Months Ended
|                           |                                 |               |                    |               |                 
|(Dollars in Thousands)     |                                 | June 30, 2003 |                    | June 30, 2002 |                  | June 30, 2003 |       | June 30, 2002
|                           |                                 |               |                    |               |                  |               |       |              
|Non-interest Expense       |                                 |               |                    |               |                  |               |       |               |  |   |       |       |  |   |       |      
|                           | Salaries and related benefits   |               | $                  | 1,355         |                  |               | $     | 1,120         |  |   | $     | 2,654 |  |   | $     | 2,142 | 
|                           | Occupancy and equipment expense |               |                    | 341           |                  |               |       | 343           |  |   |       | 713   |  |   |       | 696   | 
|                           | FDIC insurance premium          |               |                    | 13            |                  |               |       | 12            |  |   |       | 25    |  |   |       | 24    | 
|                           | Data processing fees            |               |                    | 72            |                  |               |       | 40            |  |   |       | 89    |  |   |       | 60    | 
|                           | Professional service fees       |               |                    | 196           |                  |               |       | 71            |  |   |       | 388   |  |   |       | 171   | 
|                           | Deferred compensation expense   |               |                    | 63            |                  |               |       | 59            |  |   |       | 124   |  |   |       | 116   | 
|                           | Directors expense              |               |                    | 58            |                  |               |       | 88            |  |   |       | 114   |  |   |       | 148   | 
|                           | Other expenses                  |               |                    | 389           |                  |               |       | 274           |  |   |       | 696   |  |   |       | 535   | 
|                           |                                 |               |                    |               |                  |               |       |               |  |   |       |       |  |   |       |      
|Total non-interest expense |                                 | $             | 2,487              |               |                  | $             | 2,007 |               |  | $ | 4,803 |       |  | $ | 3,892 |      
|                           |                                 |               |                    |               |                  |               |       |               |  |   |       |       |  |   |       |      

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

Non-interest expense for the quarter ended June 30, 2003 was $2.5 million, an
increase of $480,000 or 23.9% over the same period a year ago. Salaries and
employee benefits increased $235,000 or 21.0% over the same period a year ago.
Increases to benefits include a 40.9% increase in group health coverage and a
99.4% increase workers compensation insurance expense. Group health and
California workers compensation insurance increases are reflective of the
current economic market for insurance coverage in California.

Professional service expense increased $105,000 or 147.9% for the quarter ended
June 30, 2003 over the quarter ended June 30, 2002. Professional service
expense consists of assessments, audit expenses, legal expenses and other
outside services. Audit expenses increased $106,000 or 150.0% for the quarter
ended June 30, 2003 over the prior quarter ended June 30, 2002 because of
overall increasing costs for such services. Other outside services increased
$54,000 or 131.7% for the quarter ended June 30, 2003 over the quarter ended
June 30, 2002 as a result of new consulting contracts intended to provide
insight into the Companys efficiency and technology uses.

Other expenses increased $115,000 or 42.0% for the quarter ended June 30, 2003
over the quarter ended June 30, 2002. Included in other expenses, correspondent
service charges increased $44,000. The increase is related to volume increases
in check and automated clearinghouse processing fees due for services provided
by correspondents. All other expenses show modest increases over prior periods
reflective of growth.

Non-interest expense for the six-months ended June 30, 2003 was $4.8 million,
an increase of $911,000 or 23.4% over the same six-month period a year ago.
Salaries and employee benefits increased $512,000 or 23.9% over the same
six-month period a year ago.

Professional service expense increased $217,000 or 126.9% for the six-month
period ended June 30, 2003 over the six-month period ended June 30, 2002
relating to increased audit and consulting expenses related to efficiency
studies, technology enhancements and increased risk assessments pursuant to the
Sarbanes-Oxley Act.

Income Taxes

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

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 |      | Six Months Ended
|                   |  |                    |      |                 
|Income Taxes       |  | June 30, 2003      |      | June 30, 2002    |  | June 30, 2003 |      | June 30, 2002
|                   |  |                    |      |                  |  |               |      |              
|Tax provision      |  | $                  | 596  |                  |  | $             | 523  |               |  | $ | 1,156 |   |  | $ | 891  |  
|Effective tax rate |  |                    | 40.2 | %                |  |               | 38.2 | %             |  |   | 39.0  | % |  |   | 35.9 | %
|                   |  |                    |      |                  |  |               |      |               |  |   |       |   |  |   |      |  

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

Income tax expense through the second quarter 2003 was $596,000 as
compared to $523,000 for the second quarter period in 2002. The increase
in tax expense is attributed to increased revenues and a reduction in
tax-exempt income on municipal securities.

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

Asset Quality

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

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

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

|                         |                           |               |         |                   |   |   |         |        |  
|------------------------ | ------------------------- | ------------- | ------- | ----------------- | - | - | ------- | ------ | -
|(Dollars in thousands)   |                           |               |         |                   |   |   |         |       
|Portfolio Loans          |                           | June 30, 2003 |         | December 31, 2002
|                         |                           |               |         |                  
|Commercial and financial |                           | $             | 109,119 |                   |   | $ | 99,084  |       
|Real estate-construction |                           |               | 54,836  |                   |   |   | 40,662  |       
|Real estate-commercial   |                           |               | 124,193 |                   |   |   | 143,336 |       
|Installment              |                           |               | 652     |                   |   |   | 720     |       
|Other loans              |                           |               | 580     |                   |   |   | 662     |       
|Less:                    |                           |               |         |                   |   |   |         |       
|                         | Net deferred loan fees    |               |         | (544              | ) |   |         | (584   | )
|                         | Allowance for loan losses |               |         | (4,168            | ) |   |         | (3,793 | )
|                         |                           |               |         |                   |   |   |         |       
|Total net loans          |                           | $             | 284,668 |                   |   | $ | 280,087 |       
|                         |                           |               |         |                   |   |   |         |       

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

Net portfolio loans increased $4,581,000 or 1.6% at June 30, 2003 over
$280,087,000 at December 31, 2002. The portfolio mix reflects a decrease in
commercial real estate reflective of managements strategy to reduce the
dependence on commercial real estate through pay downs. The balance of the
portfolio remains relatively consistent with the mix at December 31, 2002, with
commercial and financial loans of approximately 38%, real estate construction
of 19% and commercial real estate at 44%. Impaired loans are loans for which it
is probable that the Bank will not be able to collect all amounts due and
payable. The Bank had outstanding balances of $2,959,486 and $6,818 in impaired
loans that had impairment allowances of $500,000 and $1,023 as of June 30, 2003
and December 31, 2002, respectively.

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

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

|                                             |  |               |       |                   |  |   |     | 
|-------------------------------------------- |  | ------------- | ----- | ----------------- |  | - | --- | 
|(Dollars in thousands)                       |  |               |       |                   |  |   |     | 
|Non performing assets                        |  | June 30, 2003 |       | December 31, 2002
|                                             |  |               |       |                  
|Nonaccrual loans                             |  | $             | 2,959 |                   |  | $ | 0   | 
|90 days past due and still
accruing interest |  |               | 0     |                   |  |   | 7   | 
|                                             |  |               |       |                   |  |   |     | 
|                                             |  |               | 2,959 |                   |  |   | 7   | 
|Other Real Estate Owned                      |  |               | 0     |                   |  |   | 338 | 
|                                             |  |               |       |                   |  |   |     | 
|Total non performing assets                  |  | $             | 2,959 |                   |  | $ | 345 | 
|                                             |  |               |       |                   |  |   |     | 

Allowance for Loan Losses (ALL)

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

Similarly, the adequacy of the ALL and the level of the related provision for
possible loan losses is determined on a 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) monthly review by the Board of Directors, and (x) 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 ALL is a general reserve available against the total loan portfolio. It is
maintained without any interallocation to the categories of the loan portfolio,
and the entire allowance is available to cover loan losses. While management
uses available information to recognize losses on loans, future additions to
the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of the examination
process, periodically review the Banks ALL. 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. Accordingly, it
is not possible to predict the effect future economic trends may have on the
level of the provision for possible loan losses in future periods.

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

The adequacy of the ALL is calculated using three components. First is the
dollar weighted risk rating of the loan portfolio, including all outstanding
loans and leases and commitments to lend. Every extension of credit is
assigned a risk rating based upon a comprehensive definition intended to
measure the inherent risk of lending money. Each rating has an assigned risk
factor expressed as a reserve percentage. In determining the assigned risk
(reserve) percentage management takes into account the five-year historical
loss record of the bank, the current portfolio mix, growth rates, and loan
concentrations.

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

The third component is an assessment of current economic conditions in our
market areas. This reserve is for qualitative factors that may effect the
portfolio as a whole, such as those factors described above.

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

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

|                                  |  |                    |       |                  |  |               |       |               |  |   |       |   |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | ---------------- |  | ------------- | ----- | ------------- |  | - | ----- | - |  | - | ----- | -
|(Dollars in thousands)            |  | Three Months Ended |       | Six Months Ended
|Allowance for Loan Losses         |  | June 30, 2003      |       | June 30, 2002    |  | June 30, 2003 |       | June 30, 2002
|                                  |  |                    |       |                  |  |               |       |              
|Beginning balance for Loan Losses |  | $                  | 3,963 |                  |  | $             | 3,232 |               |  | $ | 3,793 |   |  | $ | 3,180 |  
|Provision for Loan Losses         |  |                    | 200   |                  |  |               | 125   |               |  |   | 375   |   |  |   | 190   |  
|Charge offs:                      |  |                    |       |                  |  |               |       |               |  |   |       |   |  |   |       |  
|Commercial                        |  |                    | (0    | )                |  |               | (3    | )             |  |   | (7    | ) |  |   | (3    | )
|Real Estate                       |  |                    | (0    | )                |  |               | (0    | )             |  |   | 0     |   |  |   | (18   | )
|Other                             |  |                    | (0    | )                |  |               | (0    | )             |  |   | 0     |   |  |   | (0    | )
|                                  |  |                    |       |                  |  |               |       |               |  |   |       |   |  |   |       |  
|Total Charge offs                 |  |                    | (0    | )                |  |               | (3    | )             |  |   | (7    | ) |  |   | (21   | )
|Recoveries:                       |  |                    |       |                  |  |               |       |               |  |   |       |   |  |   |       |  
|Commercial                        |  |                    | 5     |                  |  |               | 5     |               |  |   | 7     |   |  |   | 10    |  
|Real Estate                       |  |                    | 0     |                  |  |               | 0     |               |  |   | 0     |   |  |   | 0     |  
|                                  |  |                    |       |                  |  |               |       |               |  |   |       |   |  |   |       |  
|Total Recoveries                  |  |                    | 5     |                  |  |               | 5     |               |  |   | 7     |   |  |   | 10    |  
|Ending Balance                    |  | $                  | 4,168 |                  |  | $             | 3,359 |               |  | $ | 4.168 |   |  | $ | 3,159 |  
|ALL to total loans                |  |                    | 1.44  | %                |  |               | 1.31  | %             |  |   | 1.44  | % |  |   | 1.31  | %
|Net Charge offs to average loans  |  |                    | 0.00  | %                |  |               | 0.01  | %             |  |   | 0.00  | % |  |   | 0.01  | %
|                                  |  |                    |       |                  |  |               |       |               |  |   |       |   |  |   |       |  

Securities Portfolio

Total available-for-sale securities increased $11.2 million or 34.6% for the
six-months of 2003. Purchases were primarily in the U.S. Government sector with
a moderate increase in tax-exempt municipal purchases.

Approximately $8.6 million in available-for-sale securities were sold during
the period posting a gain on sale of $76,000. The sale occurred to balance
accelerated prepayment risk in the U.S. Government portfolio.

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##### Table of Contents






ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

Fluctuation in interest rates will ultimately affect both the level of interest
income and interest expense recorded as revenue. The fundamental objective of
the Companys management of its assets and liabilities is to enhance the
economic value of the Company while maintaining adequate liquidity and an
exposure to interest rate risk deemed acceptable by the Companys management.

To estimate the effect of interest rate shock on the Companys net interest
income, management uses a model to prepare an analysis of interest rate risk.
Such analysis calculates the change in net interest income given a change in
the federal funds rate of 100 basis points up or down. All changes are
measured in dollars and are compared to projected net interest income.

At June 30, 2003, the estimated annualized reduction in net interest income
attributable to a 50 and 100 basis point decline in the federal funds rate was
$460,000 and $903,000, respectively. (A similar and opposite result
attributable to a 100 basis point increase in the federal funds rate.) At
December 31, 2002, the estimated annualized reduction in net interest income
attributable to a 100 and 200 basis point decline in the federal funds rate was
$769,000 and $1,538,000, respectively, with a similar and opposite result
attributable to a 100 basis point increase in the federal funds rate.




ITEM 4. CONTROLS AND PROCEDURES

As required by SEC rules, within 90 days prior to the date of this Form 10-Q,
the Company carried out an evaluation, under the supervision and with the
participation of the Companys management, including the Companys President
and Chief Executive Officer and with the Companys Chief Financial Officer, of
the effectiveness of the design and operation of the Companys disclosure
controls and procedures, pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys President and Chief Executive Officer along with the
Companys Chief Financial Officer concluded that the Companys disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in this Form 10-Q.

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

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##### Table of Contents






PART II. Other Information




Item 1. Legal proceedings

The Company 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

The Annual Shareholder meeting of the
Registrant was held on May 20, 2003.

2,125,403 shares or 80% of the outstanding voting stock was available for
quorum.

2,095,835 or 78.9% voted for the amendment of the corporate bylaws to expand
the director seats from no less than seven (7) and no more than eleven (11).

2,125,403 or 80% of the shares voted for all ten of the directors presented in
the proxy. No shares voted against and 529,063 shares were not voted.

Ratification of the appointment of Deloitte & Touche as independent auditors of
the company passed with a majority in favor with 79% of outstanding shares.




Item 5. Other Information

N/A




Item 6A. Exhibits

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

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




Item 6B. Reports on Form 8-K

Form 8-K dated April 24, 2003 announcing 1st Quarter earnings.

Form 8-K dated August 5, 2003 announcing 2nd Quarter earnings.




SIGNATURES

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

REDDING BANCORP
(Registrant)

|      |  |                |  |                                                                                     
|----- |  | -------------- |  | ------------------------------------------------------------------------------------
|Date: |  | August 5, 2003 |  | /s/ Linda J. Miles
Linda J. Miles
Executive Vice President &
Chief Financial Officer

26