10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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 0-26552

California Independent Bancorp
(Exact name of registrant as specified in its charter)

California	68-0349947
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1227 Bridge Street, Suite "C," Yuba City, California (Address of principal executive offices)	95991 (Zip Code)
Registrant's telephone number, including area code: (530) 674-6025
Securities registered pursuant to Section 12(b) of the Act:
Title of each class None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of class)

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). o

        The aggregate market value of the voting stock held by non-affiliates of California Independent Bancorp was $34,305,244 and the number of outstanding shares of common stock was 2,117,373 as of the last business day of the registrant's most recently completed second fiscal quarter.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the Proxy Statement for 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A are incorporated into Part III.

Selected pages of the Company's 2002 Annual Report to Shareholders are incorporated into Part II and IV.

THIS REPORT INCLUDES A TOTAL OF 30 PAGES
EXHIBIT INDEX IS ON PAGE 28-30

INDEX

	Description	Page No.
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	18
ITEM 3.	LEGAL PROCEEDINGS.	19
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	19
ITEM 5.	MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS	20
ITEM 6.	SELECTED FINANCIAL DATA	20
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	21
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	21
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	22
ITEM 11.	EXECUTIVE COMPENSATION	22
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	22
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	22
ITEM 14.	CONTROLS AND PROCEDURES	22
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	23

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PART I

ITEM 1. BUSINESS

        Certain statements in this Annual Report on Form 10-K (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: significant competitive pressure in the banking industry; reduced interest margins due to changes in the interest rate environment; general economic conditions, either nationally or regionally, that are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan and lease losses; loss of key personnel; change in the regulatory environment; operational risks including data processing system failures or fraud; lending concentration in real estate; volatility in agricultural lending; asset and liability matching risks and liquidity risks; changes in the securities markets; and the effects of terrorism, including the events of September 11, 2001 and thereafter, and the conduct of the war on terrorism by the United States and its allies. Therefore, the information set forth herein should be carefully considered when evaluating the business prospects of California Independent Bancorp and Feather River State Bank (collectively, the "Company").

GENERAL

        California Independent Bancorp ("CIB") is a California corporation and the bank holding company for Feather River State Bank (the "Bank"), both located in Yuba City, California. CIB was incorporated on October 28, 1994 and became the bank holding company for the Bank on May 2, 1995, pursuant to the Bank Holding Company Act of 1956, as amended.

        The Bank was incorporated as a California state banking corporation on December 1, 1976 and commenced operations on April 6, 1977. On October 1, 1996, the Bank acquired an equipment leasing company, E.P.I. Leasing Co., Inc. ("EPI"), and operated it as a wholly-owned subsidiary of the Bank. As a part of the Company's restructuring efforts, EPI will be dissolved following the orderly wind-down of the remaining lease portfolio. On June 25, 1984, the Bank formed Yuba-Sutter Financial Services Corporation as a wholly-owned subsidiary. This subsidiary is inactive. CIB formed a non-bank subsidiary, CIB Capital Trust, for the sole purpose of issuing trust preferred securities on October 2, 2002.

        At December 31, 2002, CIB had three employees, who also served as executive officers of the Bank. The Bank at December 31, 2002, employed 146 persons, including 26 part-time employees, 6 executive officers and 54 other officers. None of the Company's employees is currently represented by a union or covered under a collective bargaining agreement. Management believes that its employee relations are excellent.

        CIB itself does not engage in any business activities other than ownership of the Bank and CIB Capital Trust. CIB's primary asset is its ownership of the Bank's stock, and the dividends paid by the Bank are CIB's primary source of income. At December 31, 2002, the Company had consolidated assets of $367,083,000, deposits of $306,726,000, gross loans and leases of $214,428,000, and shareholders' equity of $29,056,000.

GENERAL BANKING SERVICES

        The Bank engages in a broad range of financial services activities. Its primary market is located in the Sacramento Valley, with a total of nine branches in Yuba City, Marysville, Colusa, Arbuckle,

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Wheatland, Woodland, Lincoln, and Roseville, California, serving Sutter, Yuba, Colusa, Yolo, and Placer Counties, and secondarily, Sacramento, El Dorado, Butte, and Glenn counties. All of the Bank's branches are located in areas that are in the periphery of housing for those individuals who work in the growing Sacramento area.

        The total population base, in the nine counties served by the Bank, is approximately 2,268,000 people, according to the U. S. Census Bureau. The economic base of the Bank's primary operating territory is predominantly agricultural in nature. A wide variety of food crops are produced in the area including peaches, tomatoes, prunes, rice, and almonds. In addition to agriculture, western Placer County is one of California's fastest growing regions. Western Placer County is developing into a high-tech, light industry and retail center, and Lincoln, in particular, is becoming a large retirement community with developments by Del Webb and U.S. Homes.

        The Bank intends to grow primarily through its existing branches. However, the Bank may increase the number of its banking facilities in its trade areas when such expansion is appropriate. The Bank's expansion program is dependent on obtaining the necessary governmental approvals, governmental monetary policies, and competition. No assurance can be given that all or any part of the Bank's expansion program can be accomplished without the Bank being required to raise additional capital.

        The Bank is engaged in the commercial banking business, including accepting demand, savings and time deposits and making commercial, real estate, agricultural, and consumer loans. The Bank also offers installment note collection, issues cashier's checks and money orders, sells traveler's checks, and provides bank-by-mail, night depository, safe deposit boxes, ATMs, Visa debit cards, and other customary banking services. The Bank offers its customers home banking services, whereby the customers can make transfers between accounts, pay bills, receive balance inquiries and statements via their personal computer or telephone. The Bank does not provide trust or international banking services.

DEPOSITS

        Most of the Bank's deposits are obtained from individuals, small and medium-sized businesses, and professionals. The Bank is able to attract and retain these deposits through advertising in the local media and the reputation the Bank has established in the communities it serves. No single depositor or group of related depositors control a significant amount of the Bank's total deposits. The loss of any one depositor or group of related depositors should not have a materially adverse effect on the business of the Bank. The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC"). As a result, deposit accounts held with the Bank are insured in accordance with the FDIC's rules and regulations.

LENDING ACTIVITIES

        The Bank engages in a full complement of lending activities, including agricultural, real estate, commercial, and consumer loans.

        The Bank makes real estate loans secured by residential, agricultural, and commercial property. Residential loans are made to purchase or refinance one to four family residences or multi-family residential properties and are secured by a first deed of trust on the property, except for loans to improve existing properties that are secured by junior liens. The maximum loan-to-value ratio for these loans is 90% of the real estate's appraised value. Loans secured by agricultural property include mortgages, loans for farm residences, and other improvement loans. Such agricultural loans are secured by a first lien on real estate. The maximum loan-to-value ratio for farmland is 70% of the real estate's appraised value. Commercial real estate loans are made to owner and non-owner occupied businesses for such purposes as offices, warehouses, professional buildings, retail, and storage facilities. The maximum loan-to-value ratio for commercial properties is 75% of the real estate's appraised value. As

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of December 31, 2002, these types of real estate secured loans totaled $123,991,000, or 57.8% of the Bank's loan portfolio.

        The Bank also makes real estate construction and development loans for acquisition of raw land to be developed into subdivisions for the construction of one to four family and multi-family housing, and for commercial real estate construction. These loans are secured by a first deed of trust and have maximum loan to value ratios ranging from 60% to 80% of the project's appraised value at completion, depending upon the type of project. As of December 31, 2002, the Bank had construction and development loans of $35,287,000, representing 16.5% of the Bank's loan portfolio.

        The Bank makes a variety of commercial and industrial loans to small-to-medium-sized businesses for working capital, inventory, accounts receivable, equipment, and general improvements. Typically, the Bank obtains a security interest in the collateral being financed or in other available assets of the customer. Loan to value ratios vary but generally do not exceed 75%. As of December 31, 2002, the Bank had loans for these purposes of $25,428,000, representing 11.9% of the Bank's loan portfolio.

        Additionally, the Bank has made Small Business Administration ("SBA") loans since its inception. The Bank offers both SBA 7(a) and SBA 504 real estate guaranteed loans ranging from amounts of $50,000 to $2,000,000. SBA 7(a) loans are for such purposes as working capital, inventory, and other purposes and are guaranteed by the SBA up to 80%. SBA 504 loans are made to finance commercial real estate.

        Furthermore, the Bank offers Business and Industry guaranteed loans through the Rural Development Agency ("RDA"). These loans are designated for businesses that create jobs in rural areas. RDA loans are in amounts up to $10 million and are 80%-90% guaranteed by the RDA. The Bank generally sells the guaranteed portion of its SBA and RDA loans in the secondary market.

        Agricultural loans are primarily made to finance agricultural production expenses generally as non-revolving lines of credit that are drawn upon when crop expenses are incurred and are repaid as crop sale proceeds are received. Crops and crop proceeds typically secure these loans. The Bank generally requires a repayment margin of 25% for permanent plantings (i.e., tree and vine crops) and 20% for row crops. The Bank participates in the Farm Service Agency ("FSA" an agency of the U.S. Department of Agriculture) guaranteed loan program. The program allows the Bank to obtain loan note guarantees on agricultural loans of up to 90% of the loan amount for eligible farmers. As of December 31, 2002, the Bank had agricultural loans outstanding of $17,536,000 (of which the FSA guaranteed approximately 3.3%), representing 8.2% of the Bank's total loan and lease portfolio.

        Being located in a prime agricultural area, the Bank participates in the Farmer Mac I loan program, pursuant to which it makes and then sells agricultural real estate loans to the Federal Agricultural Mortgage Corporation ("Farmer Mac"), and other institutional investors. In addition, the Bank participates in the Farmer Mac II loan program, pursuant to which it makes FSA guaranteed farm real estate loans and subsequently sells the 90% guaranteed portion of these loans directly to the secondary market and retains the servicing of these loans.

        The Bank also originates mortgage loans on residential and farm properties, which it sells and/or brokers into the secondary market in order to divest itself of the interest rate risk associated with these mostly fixed interest rate products. The purchasers and/or funders of the loans establish the underwriting criteria for residential and agricultural mortgage loans sold and/or brokered in the secondary market. The Company accounts for sold loans in accordance with Statement of Financial Accounting Standards No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125." These loans are sold without recourse. As of December 31, 2002, 2001, and 2000, total loans serviced by the Bank for third parties were $32,184,000, $78,062,000, and $92,741,000, respectively. For the years ended December 31,

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2002, 2001, and 2000, total loans sold by the Bank were $698,000, $1,726,000, and $760,000, respectively.

        Consumer and installment loans are made for household, family and other personal expenditures. These loans are made on both a secured and unsecured basis. As of December 31, 2002 the Bank had a total of $4,390,000 in consumer and installment loans representing 2.0% of its loan portfolio.

        The Bank maintains commercial and industrial equipment leases that were primarily originated through its subsidiary EPI. Leases were made to a wide variety of businesses including professional, agricultural, industrial, and construction concerns. Total net lease financing receivables as of December 31, 2002 were $5,891,000, or 2.7% of the Bank's portfolio. Although the business affairs of EPI will be dissolved following the orderly wind-down of the remaining lease portfolio, the Bank may continue to originate or purchase equipment leases.

        The Bank also makes other miscellaneous loans that totaled $1,905,000, or 0.9% of the Bank's portfolio, as of December 31, 2002.

INVESTMENT POLICY

        The Bank's investment policy is to provide the Bank with the maximum return on its investment securities consistent with safety and liquidity.

        In accordance with this policy and state laws regarding permissible investments, the Bank invests primarily in U. S. Treasury and Agency securities with a maturity or weighted average life of 10 years or less, tax-free municipal bonds rated "A" or better by Standard and Poors or Moody's with a maturity not to exceed 13 years, and corporate bonds rated "A" or better by Moody's or Standard and Poors with a maturity not to exceed 7 years. The Bank also invests in federal funds.

        The Bank's investment securities may also be used as collateral for public deposits and for other borrowings.

OTHER SERVICES

        The Bank offers other financial products and services including annuities, mutual funds, mutual fund advisory services, IRAs, brokerage and custodial services, 401(k) plans, estate plans, asset management, asset consulting, charitable remainder trusts, fiduciary services, pension plans, non-qualified deferred compensation, and retirement plans. All these investments and/or financial services are offered by a registered investment representative through the Bank's affiliation with London Pacific Securities, Inc., a registered broker/dealer and a member of the National Association of Securities Dealers ("NASD") and the Securities Investor Protection Corporation ("SIPC").

COMPETITION

        The Bank's primary service area consists of Colusa, Placer, Sutter, Yolo, and Yuba Counties. It is estimated that this service area contains 142 competitive banking and savings and loan offices, of which other independent banks own 48 offices. Based upon total bank deposits as of June 30, 2002 (the last period for which data is available), the Bank is third in market share in Colusa County, third in Yuba County, fourth in Sutter County, eleventh in Yolo County, and twenty-third in Placer County.

        The banking business in California and, specifically, in the Bank's primary service area is highly competitive with respect to both loans and deposits. The business is dominated by a relatively small number of major banks with many offices operating over a wide geographic area. Among the advantages such major banks have over the Bank are their ability to finance wide-ranging advertising campaigns and to allocate their investment assets to regions of highest yield and demand. Such institutions offer certain services, such as trust services and international banking, that are not offered

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directly by the Bank, and, by virtue of their greater total capitalization, they have substantially higher lending limits than does the Bank. Other entities, both governmental and in private industry, seeking to raise capital through the issuance and sale of debt or equity securities also provide competition for the Bank in the acquisition of deposits. The Bank also competes with money-market funds for deposits.

        In order to compete with major financial institutions and other competitors, the Bank relies upon the experience of its executive and senior officers in serving businesses and individuals and upon its specialized service, local promotional activities, and the personal contacts made by its officers, directors, and employees. For customers whose loan demands exceed the Bank's legal lending limit (15% of its capital and allowance for loan losses for unsecured loans and 25% of its capital and allowance for loan losses for certain types of secured loans), the Bank may arrange to extend such loans on a participation basis with other financial institutions or institutional lenders. In this manner, the Bank is able to close the loan while selling a portion of the credit to a participant.

SUPERVISION AND REGULATION

        Bank holding companies and their subsidiary banks are extensively regulated under applicable federal and/or state laws and regulations. Statutes, regulations, and policies affecting the banking industry are frequently being reviewed, added to, or changed by Congress, the state legislature, or the federal or state supervisory agencies responsible for the industry's oversight. Changes in the laws, regulations, or policies that impact CIB and the Bank cannot always be predicted and may have a material impact on earnings and the manner with which they conduct business.

        Discussed below are brief summaries of certain laws, regulations, or policies that apply to the operation of bank holding companies and to the banks they own or control. The summaries are qualified in their entirety by reference to the full text of the applicable law, regulation, or policy.

Regulation of CIB

        CIB is a registered bank holding company within the meaning of the BHC Act and is subject to the supervision of the Federal Reserve Board ("FRB"). The FRB requires CIB to file quarterly and annual reports and may conduct examinations of CIB and its subsidiaries.

        The FRB can require CIB to terminate an activity of, control of, liquidation of, or divestiture of certain subsidiaries or affiliates when the FRB believes that the activity or the control of the subsidiary or affiliate constitutes a significant risk to the financial safety, soundness, or stability of any of its banking subsidiaries. The FRB also has the authority to regulate provisions of certain bank holding company debt, including authority to impose interest ceilings and reserve requirements on such debt. Under certain circumstances, CIB must file a written notice and obtain approval from the FRB prior to the purchase or redemption of its own common stock.

        Under the BHC Act, a company generally must obtain the prior approval of the FRB before it exercises a controlling influence over, or acquires directly or indirectly, more than 5% of the voting shares or substantially all of the assets of any bank or bank holding company. CIB is required to obtain the FRB's prior approval before it acquires, merges, or consolidates with any bank or bank holding company. Additionally, any company seeking to acquire, merge, or consolidate with CIB would also be required to obtain the FRB's approval.

        The BHC Act generally prohibits CIB from acquiring ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company and from engaging directly or indirectly in activities other than banking, managing banks, or providing services to affiliates of the holding company. A bank holding company, with the approval of the FRB, may engage, or acquire the voting shares of companies engaged, in activities that the FRB has determined to be so closely related to banking, managing, or controlling banks as to be a proper incident thereto. A bank

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holding company must demonstrate that the benefits to the public of the proposed activity will outweigh the possible adverse effects associated with such activity.

        Transactions between CIB, the Bank, and any future subsidiaries of CIB are subject to a number of other restrictions. FRB policies forbid the payment by bank subsidiaries of management fees that are unreasonable in amount or exceed the fair market value of the services rendered (or, if no market exists, actual costs plus a reasonable profit). Additionally, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit, sale or lease of property, or furnishing of services. Subject to certain limitations, depository institution subsidiaries of bank holding companies may extend credit to, invest in the securities of, purchase assets from, or issue a guarantee, acceptance, or letter of credit on behalf of, an affiliate, provided that the aggregate of such transactions with affiliates may not exceed 10% of the capital stock and surplus of the institution, and the aggregate of such transactions with all affiliates may not exceed 20% of the capital stock and surplus of such institution. CIB may borrow only from depository institution subsidiaries if the loan is secured by marketable obligations with a value of a designated amount in excess of the loan. Further, CIB may not sell a low-quality asset to a depository institution subsidiary.

        The FRB requires CIB to maintain certain levels of capital. (See "Capital Standards.") The FRB also has the authority to take enforcement action against any bank holding company that commits any unsafe or unsound practice or violates certain laws, regulations, or conditions imposed in writing by the FRB. (See "Prompt Corrective Action and Other Enforcement Mechanisms.")

        Pursuant to FRB regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe or unsound manner. In addition, the FRB has issued a policy that in order to serve as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the FRB to be an unsafe and unsound banking practice or a violation of the FRB's regulations, or both.

        CIB is also a bank holding company within the meaning of California Financial Code section 3700. As a result, CIB and its subsidiaries are subject to examination by, and may be required to file reports with, the California Department of Financial Institutions ("DFI").

        CIB's common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 ("the 1934 Act"). As such, the Company is subject to reporting requirements, proxy solicitation, insider trading, and other requirements and restrictions of the 1934 Act.

Regulation of the Bank

        As a California state chartered bank, the Bank is subject to primary supervision, periodic examination, and regulation by the DFI and the FDIC. Additionally, the Bank is subject to certain regulations promulgated by the FRB.

        If the FDIC should determine, as a result of an examination of the Bank, that the Bank's financial condition, capital resources, asset quality, earnings prospects, management, liquidity, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating, or has violated, any law or regulation, various actions are available to the FDIC to remedy the situation. Such remedies include the power to enjoin "unsafe or unsound" practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of the Bank, to assess civil monetary penalties, to remove officers and directors and ultimately to terminate the Bank's deposit

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insurance, which would result in a revocation of the Bank's California charter. The DFI also has many of the same remedial powers.

        Various other requirements and restrictions under the laws of California and the United States affect the Bank's operations. State and federal statutes and regulations which relate to many aspects of the Bank's operations include: reserve requirements against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, and capital requirements. Furthermore, the Bank is required to maintain certain levels of capital. (See "Capital Standards.")

Capital Standards

        The FRB, FDIC, and other federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets, and transactions, such as letters of credit, unused commitments, and recourse arrangements, that are reported as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, that range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as business loans.

        A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off balance sheet items. The regulators measure risk-adjusted assets and off balance sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, and minority interests in certain subsidiaries, less most other intangible assets. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. Since December 31, 1992, the federal banking agencies have required a minimum ratio of qualifying total capital to risk-adjusted assets and off balance sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off balance sheet items of 4%.

        In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total average assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%. It is improbable, however, that an institution with a 3% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators' rating. For all banking organizations not rated in the highest category, the minimum leverage ratio is at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, is at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.

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        The following tables present the capital ratios for the Company and the Bank:

Risk Based Capital Ratio
As of December 31, 2002
(Dollars in thousands)

		Company			Bank
		Amount		Ratio	Amount		Ratio
Tier 1 and Total Capital Ratios
Tier 1 Capital		$	37,182	14.0%	$	29,609	11.2%
Tier 1 Capital Minimum Requirement			10,598	4.0%		10,584	4.0%
	Excess	$	26,584	10.0%	$	19,025	7.2%
Total Capital			41,238	15.6%		32,956	12.5%
Total Capital Minimum Requirement			21,196	8.0%		21,169	8.0%
	Excess	$	20,042	7.6%	$	11,787	4.5%
Risk-Adjusted Assets		$	264,950		$	264,609
Leverage Capital Ratio
Tier 1 Capital to Quarterly Average Total Assets		$	37,182	10.5%	$	29,609	8.4%
Minimum Leverage Requirement			14,162	4.0%		14,145	4.0%
	Excess	$	23,020	6.5%	$	15,464	4.4%
Total Quarterly Average Assets		$	354,057		$	353,621

Prompt Corrective Action and Other Enforcement Mechanisms

        Federal banking agencies possess broad powers to take corrective or other supervisory action to resolve an insured depository institution's problems. Problems that may be addressed through such actions include, but are not limited to, institutions that fall below one or more prescribed minimum capital ratios. Each federal banking agency has promulgated regulations defining the following five categories in which an insured depository institution will be placed, based on its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. At December 31, 2002, the Company and the Bank exceeded all the required ratios for classification as "well capitalized."

        An institution that, based upon its capital levels, is classified as well capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

        A bank may fall into the critically undercapitalized category if its "tangible equity" does not exceed 2% of the bank's total assets. Federal guidelines generally define "tangible equity" as a bank's tangible assets less liabilities. Federal regulators may, among other alternatives, require the appointment of a conservator or a receiver for a critically undercapitalized bank. In California, the Commissioner may require the appointment of a conservator or receiver for a state-chartered bank if its tangible equity does not exceed 3% of the bank's total assets, or $1 million.

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        In addition to measures taken under the prompt corrective action provisions, banks may be subject to potential enforcement actions by the federal or state regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency.

Safety and Soundness Standards

        The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") implemented certain specific restrictions on transactions and required the regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation, and asset growth. Among other things, FDICIA limited the interest rates paid on deposits by undercapitalized institutions, the use of brokered deposits, and the aggregate extension of credit by a depository institution to an executive officer, director, principal stockholder, or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.

        The federal financial institution agencies published a final rule effective August 9, 1995, implementing safety and soundness standards. The FDICIA added a new section 39 to the Federal Deposit Insurance Act, which required the agencies to establish safety and soundness standards for insured financial institutions covering: (1) internal controls, information systems, and internal audit systems; (2) loan documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset growth; (6) compensation, fees, and benefits; (7) asset quality, earnings, and stock valuation; and (8) excessive compensation for executive officers, directors, or principal shareholders which could lead to material financial loss. The agencies issued the final rules in the form of guidelines that set forth operational and managerial standards relating to: (i) internal controls, information systems, and internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees, and benefits.

        In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets; (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses; (iii) compare problem asset totals to capital; (iv) take appropriate corrective action to resolve problem assets; (v) consider the size and potential risks of material asset concentrations; and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

        If an agency determines that an institution fails to meet any standard established by the guidelines, the agency may require the financial institution to submit to the agency an acceptable plan to achieve compliance with the standard. Should the agency require submission of a compliance plan and the institution fails to timely submit an acceptable plan, within 30 days of a request to do so, or to implement an accepted plan, the agency must require the institution to correct the deficiency. The agencies may elect to initiate enforcement action in certain cases rather than rely on an existing plan, particularly where failure to meet one or more of the standards could threaten the safe and sound operation of the institution.

Restrictions on Dividends and Other Distributions

        The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions that limit the amount available for such distribution depending upon the earnings, financial condition, and cash

11

needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.

        The FRB has issued a policy statement that a bank holding company should not declare or pay a cash dividend to its stockholders if the dividend would place undue pressure on the capital of its subsidiary banks or if the dividend could be funded only through additional borrowings or other arrangements that might adversely affect the financial position of the bank holding company. Specifically, a bank holding company should not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each cash dividend consistent with its capital needs, asset quality, and overall financial condition. Further, as previously stated, CIB is expected to act as a source of financial strength for each of its subsidiary banks and to commit resources to support each subsidiary bank in circumstances when it might not do so absent such policy.

        CIB's ability to pay dividends depends in large part on the ability of the Bank to pay management fees and dividends to CIB. The ability of its subsidiary bank to pay dividends will be subject to restrictions set forth in California banking law and the regulations of the FDIC.

        Under California Financial Code section 642, funds available for cash dividend payments by a bank are restricted to the lesser of: (i) retained earnings; or (ii) the bank's net income for its three fiscal years (less any distributions to stockholders made during such period). However, with the prior approval of the California Commissioner of Financial Institutions, California Financial Code section 643 provides that a bank may pay cash dividends in an amount not to exceed the greater of: (1) the retained earnings of the bank; (2) the net income of the bank for its last fiscal year; or (3) the net income of the bank for its current fiscal year. However, if the Commissioner finds that the stockholders' equity of the bank is not adequate or that the payment of a dividend would be unsafe or unsound, the Commissioner may order such bank not to pay a dividend to stockholders.

        Additionally, under FDICIA a bank may not make any capital distribution, including the payment of dividends, if, after making such distribution, the bank would be in any of the "under-capitalized" categories under the FDIC's Prompt Corrective Action regulations.

        Also, under the Financial Institution's Supervisory Act, the FDIC has the authority to prohibit a bank from engaging in business practices that the FDIC considers unsafe or unsound. It is possible, depending upon the financial condition of a bank and other factors that the FDIC could assert that the payment of dividends or other payments in some circumstances might be such an unsafe or unsound practice and thereby prohibit such payment.

        Finally, the Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, CIB or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of CIB or other affiliates. Such restrictions prevent CIB and such other affiliates from borrowing from the Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by the Bank to or in CIB or to or in any other affiliate are limited, individually, to 10% of the Bank's capital and surplus (as defined by federal regulations), and such secured loans and investments are limited, in the aggregate, to 20% of the Bank's capital and surplus (as defined by federal regulations). California law also imposes certain restrictions with respect to transactions involving CIB and other controlling persons of the Bank. Additional restrictions on transactions with affiliates may be imposed on the Bank under the prompt corrective action provisions of federal law.

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Interstate Banking and Branching

        On September 29, 1994, the Reigle/Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was signed into law, effectively permitting nationwide banking. The Interstate Act provides that adequately capitalized and adequately managed bank holding companies may acquire banks in any state, even in those jurisdictions that currently bar acquisition by out-of-state institutions, subject to deposit concentration limits. The deposit concentration limits provide that regulatory approval by the FRB may not be granted for a proposed interstate acquisition if, after the acquisition, the acquirer on a consolidated basis would control more than 10% of the total deposits nationwide or would control more than 30% of deposits in the state where the acquiring institution is located. The deposit concentration state limit does not apply for initial acquisitions in a state and, in every case, may be waived by the state regulatory authority. Interstate acquisitions are subject to compliance with the Community Reinvestment Act (the "CRA"). States are permitted to impose age requirements not to exceed five years on target banks for interstate acquisitions.

        Branching between states may be accomplished either by merging separate banks located in different states into one legal entity or by establishing new branches in another state. Interstate branching is also subject to a 30% statewide deposit concentration limit on a consolidated basis and a 10% nationwide deposit concentration limit. The laws of the host state regarding community reinvestment, fair lending, consumer protection (including usury limits), and establishment of branches shall apply to the interstate branches.

        The opening of a new branch by an out-of-state bank is not permitted unless the host state expressly permits such an opening. The establishment of an initial new branch in a state is subject to the same conditions as apply to the initial acquisition of a bank in the host state, other than the deposit concentration limits.

        The Interstate Act permits bank subsidiaries of a bank holding company to act as agents for affiliated depository institutions in receiving deposits, renewing time deposits, closing loans, servicing loans, and receiving payments on loans and other obligations. When acting as an agent for an affiliate, a bank shall not be considered a branch of the affiliate. Any agency relationship between affiliates must be on terms that are consistent with safe and sound banking practices. The authority for an agency relationship for receiving deposits includes the taking of deposits for an existing account, but is not meant to include the opening or origination of new deposit accounts. Subject to certain conditions, insured savings associations that were affiliated with banks as of June 1, 1994 may act as agents for such banks. An affiliate bank or savings association may not conduct activity as an agent that it is prohibited from conducting as a principal.

        If an interstate bank decides to close a branch located in a low or moderate-income area, it must comply with additional branch closing notice requirements. The appropriate regulatory agency is authorized to consult with community organizations to explore options to maintain banking services in the affected community where the branch is to be closed.

        To ensure that interstate branching does not result in taking deposits without regard to a community's credit needs, the regulatory agencies have implemented regulations prohibiting interstate branches from being used as "deposit production offices." The regulations include a provision to the effect that if loans made by an interstate branch are less than 50% of the average of all depository institutions in the state, then the regulator must review the loan portfolio of the branch. If the regulator determines that the branch is not meeting the credit needs of the community, it has the authority to close the branch and to prohibit the bank from opening new branches in the state.

        The Caldera, Weggeland and Killea California Interstate Banking and Branching Act of 1995 (the "Caldera Act"), effective October 2, 1995, amends the California Financial Code to, among other matters, regulate the operations of state banks to eliminate conflicts with and to implement the

13

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 discussed above. The Caldera Act includes: (1) an election to permit early interstate merger transactions; (2) a prohibition against interstate branching through the acquisition of a branch business unit located in California without acquisition of the whole business unit of the California bank; and (3) a prohibition against interstate branching through de novo establishment of California branch offices. The Caldera Act mandates that initial entry into California, by an out-of-state institution, be accomplished by acquisition of or merger with an existing whole bank that has been in existence for at least five years.

Community Reinvestment Act

        The Bank is subject to the fair lending requirements and reporting obligations involving home mortgage lending operations and CRA activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities.

        A Bank's compliance with its CRA obligations is based on a performance-based evaluation system, which bases CRA ratings on the institution's lending, service, and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the FRB will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. Based on an examination conducted in the third quarter of 2001, the Bank was rated satisfactory in complying with its CRA obligations.

Deposit Insurance Premiums

        The Bank's deposit accounts are insured by the FDIC's Bank Insurance Fund ("BIF") to the maximum permitted by law. This deposit insurance may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC or the institution's primary regulator.

        The FDIC charges an annual assessment for the insurance of deposits. As of December 31, 2002, the assessment ranged from 0 to 27 basis points per $100 of insured deposits, based on the risk a particular institution poses to its deposit insurance fund. The risk classification is based on an institution's capital group and supervisory subgroup assignment.

        Pursuant to the Economic Growth and Paperwork Reduction Act of 1996 ("EGPRA"), at January 1, 1997, the Bank began paying, in addition to its normal deposit insurance premium as a member of the BIF, an amount toward the retirement of the Financing Corporation Bonds ("FICO Bonds") issued in the 1980s to assist in the recovery of the savings and loan industry, which was approximately 1.7 basis points per $100 of insured deposits, as of December, 2002. Members of the Savings Association Insurance Fund ("SAIF"), also paid in addition to their normal deposit insurance premium, approximately 1.7 basis points per $100 of insured deposits as of December, 2002. Under the EGPRA, the FDIC is not permitted to establish SAIF assessment rates that are lower than comparable BIF assessment rates. Beginning January 1, 2000, the rate paid to retire the FICO Bonds was required to be equal for members of the BIF and the SAIF.

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Asset Conservation, Lender Liability, and Deposit Insurance Protection Act of 1996

        Environmental Protection Agency regulations excluding financial institutions from liability for the clean up of toxic materials on property held as collateral for loans were overturned by the federal courts. Due to concerns expressed by interested parties (owners, realtors, and lenders), Congress passed amendments to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") to reinstate certain safeguards for fiduciaries and lenders. A bank or other party acting as a fiduciary may hold property in such capacity and shall have no liability for the release or threatened release of a hazardous substance in excess of the value of the property held in a fiduciary capacity. For example, a bank acting as trustee under the terms of a written trust agreement will not have any liability in excess of the actual value of the assets in that particular trust. The assets of the Bank will not be at risk for a release occurring on property belonging to the trust. This amendment does not limit the liability of the fiduciary to private parties that may have a cause of action outside the scope of CERCLA. "Fiduciary," as used in CERCLA, includes trustees, executors, administrators, custodians, guardians, receivers, conservators, and personal representatives.

        The amendments to CERCLA include changes in the definitions contained in 42 U.S.C. section 9601(20), entitled "Definitions." A major change in the definition of "Owner" or "Operator" has the effect of limiting the liability of a financial institution that does not participate in management of an environmentally impaired property. Section 9607 of CERCLA states that owners and operators of a vessel or facility are liable for damages arising out of discharge of a hazardous substance on property. The amendment specifically states that a financial institution holding a deed of trust on real property that does not participate in the management of the operations carried out on the property is not an owner or an operator under the statute. The amendments further state that a financial institution that forecloses on such property does not incur liability simply by the act of foreclosing on the property or through the subsequent sale of the property to a third party.

Financial Modernization Act

        President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Modernization Act") on November 12, 1999. The Financial Modernization Act generally accomplishes the following:

(1)

Facilitates the affiliation of commercial banks with security firms, insurance companies and other financial service providers by: repealing restrictions on affiliation contained in the Glass-Steagall Act; expressly preempting any state law restrictions on affiliation; and by eliminating the BHC Act's prohibition on insurance underwriting activities.



(2)

Substantially modifies and expands the BHC Act to permit bank holding companies to engage in a full range of "financial activities" through a new entity known as a "Financial Holding Company." "Financial activities" is broadly defined to include not only banking, insurance, and securities activities, but also merchant banking, real estate development and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system.



(3)

Sets forth a systematic structure for the functional regulation of banks, savings institutions, holding companies and their activities.



(4)

Provides enhanced protections for the privacy rights of consumer information.



(5)

Adopts provisions to modernize the Federal Home Loan Bank system including provisions relating to the capitalization, membership and corporate governance.



(6)

Revises the laws that implement CRA.

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(7)

Amends the Federal Deposit Insurance Act regarding the governance of subsidiaries of state banks that engage in "activities as principal that would only be permissible" for a national bank to conduct in a financial subsidiary. The amendment expressly preserves a state bank's ability to retain all existing subsidiaries. And;



(8)

Addresses a wide range of other legal and regulatory issues affecting financial institutions operations and activities.

        CIB has not determined whether it will seek an election to become a Financial Holding Company. The Board and Management are evaluating the benefits to determine whether CIB desires to utilize any of the Financial Modernization Act's expanded powers. Since California permits state chartered commercial banks to engage in any activity permissible for national banks, the Bank should be allowed to form subsidiaries to engage in the activities authorized by the Financial Modernization Act, to the same extent as a national bank.

        CIB does not expect that the Financial Modernization Act will have a material adverse effect on its operations in the near future. However, some commentators have projected that in the long term the Financial Modernization Act's enactment may result in further consolidation of and increased competition in the financial services industry.

USA Patriot Act of 2001

        President Bush signed the USA Patriot Act of 2001 ("Patriot Act") on October 26, 2001. This legislation was enacted in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C. on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement and the intelligence communities' ability to work together to combat terrorism on a variety of levels. The potential impact of the Patriot Act on financial institutions is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including:

(1)

Due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.



(2)

Standards for verifying customer identification at account opening.



(3)

Rules to promote cooperation among financial institutions, regulators, and law enforcement entities to assist in the identification of parties that may be involved in terrorism or money laundering.



(4)

Reports to be filed by nonfinancial trades and business with the Treasury Department's Financial Crimes Enforcement Network for transactions exceeding $10,000.



(5)

The filing of suspicious activities reports by securities brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

Until all new regulations, rules or standards have been developed; the Company is not able to predict the impact of such law on its financial condition or results of operations at this time.

Proposed Legislation

        Periodically, legislation is enacted and regulations are promulgated which have the effect of increasing the cost of doing business, limiting or expanding permissible activities, or affecting the competitive balance between banks and other financial services providers. It is likely that additional legislation will be introduced in Congress or in state legislatures in the future that may impact the Company's business. It cannot be predicted whether or in what form any of these proposals will be taken or adopted, or the extent to which the present or future business of the Company may be affected.

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IMPACT OF MONETARY POLICIES

        Banking is a business that depends on interest rate differentials. In general, the difference between the interest paid by a bank on its deposits and other borrowings and the interest rate earned by a bank on loans, securities, and other interest-earning assets comprises the major source of a bank's earnings. Thus, the earnings and growth of banks are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the FRB. The FRB implements national monetary policy, seeking to curb inflation and combat recession, by its open-market dealings in United States government securities, by adjusting the required level of reserves for financial institutions subject to reserve requirements and through adjustments to the discount rate applicable to borrowings by banks that are members of the FRB. The actions of the FRB in these areas influence the growth of bank loans, investments, and deposits and also affect interest rates. The nature and timing of any future changes in such policies and their impact on the Bank cannot be predicted. In addition, adverse economic conditions could make a higher provision for loan losses a prudent course and could cause higher loan loss charge-offs, thus adversely affecting a bank's net earnings.

ACCOUNTING PRONOUNCEMENTS

SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets"

        In July 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). These Statements change the method of accounting for business combinations and goodwill in two significant ways. First, SFAS No. 141 prohibits the use of the pooling of interests method and requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. Second, SFAS No. 142 changes the accounting method for goodwill from an amortization method to an impairment-only approach. As a result, goodwill will be accounted for as an asset unless it declines in value. Companies will be required to test their goodwill valuation periodically for "impairment" or loss and to recognize any change on their books. The amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142, which for companies with calendar year ends, was January 1, 2002. Management does not believe that the adoption of these Statements had any material impact on the Company or its ability to accomplish certain business strategies.

SFAS No. 147, "Acquisitions of Certain Financial Institutions"

        In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions." This Statement, which addresses financial accounting and reporting matters for the acquisition of all or part of a financial institution, applies to all such transactions except those between two or more mutual enterprises. This statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," and related interpretations. This Statement requires a financial institution to apply SFAS No. 144 and evaluate long-term customer relationship intangible assets (core deposit intangible) for impairment. Under SFAS No. 72, a financial institution may have recorded an unidentifiable intangible asset arising from a business combination. If certain criteria in SFAS No. 147 are met, the amount of the unidentifiable intangible asset will be reclassified to goodwill upon adoption of this Statement and any amortization amounts that were incurred after the adoption of SFAS No. 142 must be reversed. Reclassified goodwill would then be measured for impairment under the provisions of SFAS No. 142. Provisions of this Statement are applicable on or after October 1, 2002. In Management's opinion, the adoption of this Statement did not have a material effect on the Company's consolidated financial position or results of operations.

17

SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123"

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reporting containing financial statements for interim periods beginning after December 15, 2002. Because the company accounts for the compensation cost associated with its stock option plans under the intrinsic value method, the alternative methods of transition will not apply to the Company. The additional disclosure requirements of the statement are included in these financial statements. In Management's opinion, the adoption of this Statement did not have a material impact on the Company's consolidated financial position or results of operations.

EFFECTS OF TERRORISM

        The terrorists' acts of September 11, 2001, and thereafter, have had significant adverse effects upon the United States economy. Whether terrorist activities in the future, and the actions of the United States and its allies in combating terrorism on a worldwide basis, will adversely impact the Company and the extent of such impact is uncertain. Such events, however, have had and may continue to have, an adverse effect on the economy in the Company's market areas. Such continued economic deterioration could adversely affect the Company's future results of operations by, among other matters, reducing the demand for loans and other products and services offered by the Bank, increasing nonperforming loans and the amounts reserved for loan losses, and causing a decline in the Company's stock price.

OTHER INFORMATION

        There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state, or local provisions regarding the discharge of materials into the environment.

ITEM 2. PROPERTIES

        The Bank currently conducts its banking operations from an administrative office, a loan operations and special asset office, and nine branch offices.

        The Bank's principal branch office in Yuba City, California, is located at 777 Colusa Avenue in a modern, single-story, shopping center end building with drive-up windows and off-street parking for its customers. This office was opened in 1982 and has a total square footage of 9,122.

        The Bank purchased land for the Bank's office at 1221 Bridge Street, Yuba City, California, in 1978. In 1991, the Bank purchased a combined 14,972 square foot retail and office building with parking located at 1227 Bridge Street, adjacent to the Bank's Bridge Street branch. Currently, the Company's headquarters, the Bank's Data Center, and the Bank's administrative and financial consulting service offices are located in this building.

        The Bank's Marysville office is located at 700 "E" Street in Marysville, California. The Bank purchased this 3,702 square foot building, which was a branch of another bank, in September 1995.

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        The Bank's Colusa branch office is located at 655 Fremont Street in a 2,819 square foot office building that was converted to banking quarters. The Bank owns the land and premises for the branch.

        In 1985, the Bank purchased a 5,306 square foot premises for its Arbuckle office located at the corner of Amanda and Sixth Streets. The Bank moved its Arbuckle office to this location in June 1986.

        In 1993, the Bank purchased a 4,427 square foot building that is now the location of its Woodland, California, branch office located at 203 Main Street. This was formerly the site of a branch of another bank.

        The Bank leased the land and a module on the property located at 114 "D" Street, Wheatland, California, from March 1997 until April 1998 for its Wheatland branch office. In April 1998, the Bank entered a new lease for the same site together with a new freestanding building. The 2,831 square foot building was completed on September 21, 1998. At that time, the Bank relocated from the previously leased module. The term of the lease is 10 years with the option to extend the original term of this lease for two periods of five years each. The monthly lease payment is $2,915 and is subject to annual adjustments on the anniversary of the lease commencement date.

        The Bank moved its Citrus Heights loan production office ("LPO") to a new office in Roseville in December 2000. This LPO was converted into a full-service branch on September 26, 2001. The Bank entered into an agreement on July 26, 2000, to lease 3,816 square feet of office space at 1552 Eureka Road in Roseville. The term of this lease is sixty-two (62) months. Commencing on October 1, 2000, lease payments of $6,296 per month were required continuing through the twenty-sixth (26) month. Between months twenty-six (26) and fifty (50), rent will be $6,678 per month. Thereafter, the monthly payment rises to $7,060 through the end of the lease term.

        On October 18, 2000, the Bank entered into an agreement to lease a 1,200 square foot office space located at 435 South Highway 65, Suite A in Lincoln, California. The term of this lease is five years with rent payments of $2,340 per month for the first twenty-four (24) months. Thereafter, monthly lease payments are subject to annual adjustments pursuant to the lease agreement. This lease was amended on March 1, 2001. At that time, the Bank leased an additional 1,080 square feet of office space at the same location. Under the terms of the amended lease, the monthly rent payment is $5,426 beginning June 1, 2001.

        On December 2, 1996, the Bank purchased a former bank branch located at 995 Tharp Road in Yuba City, California. The Bank's Loan Operations Department and Special Assets Department are located at this facility.

        Rental expense for all premises leased by the Company totaled $178,000 for the year ended December 31, 2002. It is estimated that rental expense for leased premises will be approximately $184,000 for 2003.

ITEM 3. LEGAL PROCEEDINGS

        Other than routine litigation incidental to the ordinary course of the Company's business, neither CIB nor any of it subsidiary entities is a party to any material legal proceedings nor is any of their property the subject of any such proceeding. The Company believes that the ultimate disposition of all currently pending matters will not have a material adverse affect on the Company's financial condition or the results of its operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

        CIB's common stock is trading on the NASDAQ Stock Market under the trading symbol "CIBN." CIB's common stock began trading on the NASDAQ Stock Market on July 31, 1996. Prior to that time, CIB's common stock was listed on the NASDAQ Bulletin Board and was the subject of limited trading.

        The following table presents the high and low closing sale prices of CIB's common stock for each quarterly period for the last two years as reported, and as adjusted for the effect of applicable stock dividends, by the NASDAQ Stock Market:

RANGE OF STOCK PRICES

2002 Quarters	High		Low
4th	$	24.76	$	18.85
3rd		20.75		18.21
2nd		19.48		16.19
1st		21.57		18.00

2001 Quarters	High		Low
4th	$	23.14	$	20.94
3rd		23.95		20.64
2nd		25.40		20.86
1st		20.86		17.23

        After adjusting retroactively for the effect of applicable stock dividends, cash dividends paid on CIB's common stock were $0.42 per share for the year ending December 31, 2002, and $0.40 per share for the year ending December 31, 2001.

        It is currently the intention of the Board of Directors of CIB to pay cash dividends on a quarterly basis. However, there is no assurance that cash dividends will be paid in the future, as CIB's ability to pay dividends is dependent upon the earnings, financial condition, and capital requirements of CIB and the Bank, as well as legal and regulatory requirements.

        Federal and State banking and corporate laws could limit the Bank's ability to pay dividends to CIB. The FRB has issued a policy statement that a bank holding company should not declare or pay a cash dividend to its shareholders if the dividend would place undue pressure on the capital of its subsidiary banks or if the dividend could be funded only through additional borrowings or other arrangements that may adversely affect the financial position of the company. In addition, a bank holding company may not continue its existing rate of cash dividends on its common stock unless its net income is sufficient to fully fund each dividend, and its prospective rate of earnings retention is sufficient to fully fund each dividend and appears consistent with its capital needs, asset quality, and overall financial condition.

        As of March 14, 2003, there were 1,808 holders of record of CIB's common stock.

ITEM 6. SELECTED FINANCIAL DATA

        For the "Selected Financial Data," see page 8 of the Company's 2002 Annual Report to the Shareholders, which is incorporated herein by reference.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        For the "Management's Discussion and Analysis of Financial Condition and Results of Operations," see pages 10-28 of the Company's 2002 Annual Report to Shareholders, which is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        For the discussion of "Quantitative and Qualitative Disclosures About Market Risk," see section titled "Interest Rate Sensitivity" at page 23 of the Company's 2002 Annual Report to the Shareholders, which is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        For "Financial Statements and Supplemental Data," see pages 29-51 of the Company's 2002 Annual Report to the Shareholders, which is incorporated herein by reference.

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

        The accounting firm of Perry-Smith LLP ("Perry-Smith") has been selected as CIB's independent public accountants for 2002. Arthur Andersen LLP ("Andersen") served as CIB's independent public accountants for 2001. On March 28, 2002, CIB decided not to renew the engagement of Andersen and appointed Perry-Smith as its new independent public accountants, effective on such date. This determination followed CIB's decision to seek proposals from independent public accountants to audit CIB's financial statements for the fiscal year ending December 31, 2002.

        The decision not to renew the engagement of Andersen and to retain Perry-Smith was approved by CIB's Board of Directors upon the recommendation of its Audit Committee. The decision was based on proposals from national and regional accounting firms and reflected Audit Committee's judgment as to which firm was best suited to deliver external audits to CIB in light of relevant factors such as the firm's depth of experience, breadth of resources, commitment to provide exceptional service, ability to handle transition issues and location of key personnel.

        During CIB's two most recent fiscal years ended December 31, and the subsequent interim period through March 28, 2002, there were no disagreements between CIB and Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to Andersen satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their reports. None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within CIB's two most recent fiscal years and the subsequent interim period through March 28, 2002.

        Andersen's report on CIB's 2001 consolidated financial statements was filed with the Securities and Exchange Commission on March 27, 2002 in conjunction with CIB's filing of its Annual report on Form 10-K for the year ended December 31, 2001. The audit reports of Andersen on the consolidated financial statements of the Company and subsidiaries as of and for the fiscal years ended December 31, 2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. During CIB's two most recent fiscal years ended December 31, and the subsequent interim period through March 28, 2002, CIB did not consult with Perry-Smith regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

21

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        On May 9, 2002, President and Chief Executive Officer Larry D. Hartwig retired from his officer and board of directors' positions with CIB and the Bank effective May 10, 2002. The Board of Directors appointed Director John I. Jelavich to serve as interim President and Chief Executive Officer for CIB and the Bank. On July 16, 2002, Mr. Jelavich accepted a permanent appointment to these positions. President and Chief Executive Officer Jelavich brings more than thirty years of banking experience to his positions. From 1988 to 1998, Mr. Jelavich served as the Regional Vice President for Union Bank of California's Mid Valley Region. From 1999 through February of 2000, Mr. Jelavich served as a consultant to the president and chief executive officer of the Bank. He has served on the Boards of Directors of CIB and the Bank since March of 2000.

        On March 11, 2002, CIB's Chief Financial Officer and Corporate Secretary, Robert J. Lampert, submitted his resignation effective March 25, 2002, from all positions held with CIB and the Bank. Kevin R. Watson has been appointed to the positions of Chief Financial Officer and Corporate Secretary of CIB and the Bank. Mr. Watson, a Certified Management Accountant, came to the Bank in 2001 with more than twelve years of business experience and most recently served as the Controller of CIB and the Bank. For information concerning directors and executive officers of the Company, see "ELECTION OF DIRECTORS" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the definitive Proxy Statement for the Company's 2003 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A (the "Proxy Statement"), which is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

        For information concerning executive compensation, see "EXECUTIVE COMPENSATION" in the Proxy Statement, which is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        For information concerning security ownership of certain beneficial owners and management, see "Security Ownership of Certain Beneficial Owners and Management" and "Election of Directors" in the Proxy Statement, which is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        For information concerning certain relationships and related transactions, see "Indebtedness of Management and Other Transactions" in the Proxy Statement, which is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES.

        Within the 90 days prior to the date of this Form 10-K, 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 along 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-K.

22

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

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)

1.    FINANCIAL STATEMENTS

        The consolidated financial statements of the Company and subsidiaries, other financial information, and the Independent Auditors' Report on Consolidated Financial Statements are contained herein under Item 8.

2.

FINANCIAL STATEMENT SCHEDULES

        In accordance with Regulation S-X, the financial statement schedules have been omitted because (a) they are not applicable to or required of the Company; or (b) the information required is included in the consolidated financial statements or notes thereto.

3.

EXHIBITS

        See Index to Exhibits of this Form 10-K.

(b)

REPORTS ON FORM 8-K

        The Company filed a Form 8-K on October 30, 2002, regarding the issuance of ten million dollars ($10,000,000) of Trust Preferred Securities. The sale of the securities closed and funded on October 29, 2002.

        The Company filed a Form 8-K on November 21, 2002 regarding the Board of Director's decision to adopt a Shareholder Rights Plan.

        The Company filed a Form 8-K on December 4, 2002 regarding the Shareholder Rights Plan agreement.

23

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly issued this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CALIFORNIA INDEPENDENT BANCORP
Date: March 25, 2003	By:	/S/  JOHN I. JELAVICH John I. Jelavich President and Chief Executive Officer

24

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/S/  JOHN L. DOWDELL JOHN L. DOWDELL	Director	March 25, 2003
/S/  HAROLD M. EASTRIDGE HAROLD M. EASTRIDGE	Director	March 25, 2003
/S/  WILLIAM H. GILBERT WILLIAM H. GILBERT	Director	March 25, 2003
/S/  JOHN I. JELAVICH JOHN I. JELAVICH	President, Chief Executive Officer and Director (Principal Executive Officer)	March 25, 2003
/S/  DONALD H. LIVINGSTONE DONALD H. LIVINGSTONE	Director	March 25, 2003
/S/  ALFRED G. MONTNA ALFRED G. MONTNA	Chairman of the Board of Directors and Director	March 25, 2003
/S/  DAVID A. OFFUTT DAVID A. OFFUTT	Director	March 25, 2003
/S/  WILLIAM K. RETZER WILLIAM K. RETZER	Director	March 25, 2003
/S/  KEVIN R. WATSON KEVIN R. WATSON	Chief Financial Officer and Corporate Secretary (Principal Financial and Accounting Officer)	March 25, 2003
/S/  MICHAEL C. WHEELER MICHAEL C. WHEELER	Director	March 25, 2003

25

Section 302 Certification

CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K

        I, John I. Jelavich, certify that:

        I have reviewed this annual report on Form 10-K of California Independent Bancorp ("Registrant");

        Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual; report;

        Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

        The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

        designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

        evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

        presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):

        all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

        any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls;

        The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

/S/  JOHN I. JELAVICH John I. Jelavich
President and Chief Executive Officer

26

Section 302 Certification

CERTIFICATION FOR ANNUAL REPORT ON FORM 10-K

        I, Kevin R. Watson, certify that:

        I have reviewed this annual report on Form 10-K of California Independent Bancorp ("Registrant");

        Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

        Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;

        The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

        designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

        evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

        presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):

        all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

        any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls;

        The Registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

/S/  KEVIN R. WATSON Kevin R. Watson
Chief Financial Officer

27

INDEX TO EXHIBITS

Exhibit No.
2.1	Plan of Reorganization and Merger Agreement dated January 30, 1995 by and between Feather River State Bank, FRSB Merger Company and California Independent Bancorp (Incorporated by reference to Exhibit 2.1 to the General Form for Registration of Securities on Form 10 (File No. 0-26552)).
3.1	Secretary's Compiled, Amended and Restated Articles of Incorporation for California Independent Bancorp as of April 26, 1999 (Incorporated by reference to Exhibit 3.1 to Form 10-Q filed with the Commission on May 12, 1999).
3.2	Secretary's Compiled, Amended and Restated Bylaws of California Independent Bancorp as of September 30, 1999 (Incorporated by reference to Exhibit 3.2 to Form 10-Q filed with the Commission on November 15, 1999).
3.3	Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.3 to Form 8-K filed with the Commission on December 5, 2002).
3.4	Amendment to Bylaws dated March 25, 2003.
4.1	Shareholder Rights Agreement (Incorporated by reference to Exhibit 4.1 to Form 8-K filed with the Commission on December 5, 2002).
10.2	Software License Agreement dated March 16, 1998 with Information Technology, Inc. (Incorporated by reference to Exhibit 10.2 to Form 10-K filed with the Commission on March 27, 2002).
10.3	Product License Agreement dated March 16, 1998 with Information Technology, Inc. (Incorporated by reference to Exhibit 10.3 to Form 10-K filed with the Commission on March 27, 2002).
10.4	Equipment Sale Agreement dated May 21, 2001 with Information Technology, Inc. (Incorporated by reference to Exhibit 10.4 to Form 10-K filed with the Commission on March 27, 2002).
10.5	Addendum to Software and Product License Agreements dated May 21, 2001 with Information Technology, Inc. (Incorporated by reference to Exhibit 10.5 to Form 10-K filed with the Commission on March 27, 2002).
10.7	California Independent Bancorp Employee Stock Ownership Plan dated January 1, 2001 (Incorporated by reference to Exhibit 10.7 to Form 10-K filed with the Commission on March 27, 2002).
10.8	California Independent Bancorp 401K Retirement Savings Plan dated January 1, 2001 (Incorporated by reference to Exhibit 10.8 to Form 10-K filed with the Commission on March 27, 2002).
10.9	Bank Affiliate Agreement between Feather River State Bank and London Pacific Securities, Inc., formerly known as Select Advisors, Inc. (Incorporated by reference to Exhibit 10.8 to the General Form for Registration of Securities on Form 10 (File No. 0-26552)).
10.10	California Independent Bancorp 1989 Amended and Restated Stock Option Plan including related Incentive and Non Statutory Stock Option Agreements (Incorporated by reference to Exhibit 4 to Amendment No. 1 to the Company's Registration Statement on Form S-8/SEC Registration No. 333-09813 dated November 26, 1996).
10.11	California Independent Bancorp 1996 Stock Option Plan and related Incentive Stock Option and Nonstatutory Stock Option Agreements (Incorporated by reference to Exhibit to Amendment No. 1 to the Company's Form S-8/SEC Registration No. 333-09823 dated November 26, 1996).
10.12	Lease by and between Raj J. Sharma and Feather River State Bank for 114 D Street, Wheatland, California (Incorporated by reference to Exhibit 10.16 to Form 10-K filed with the Commission on March 25, 1999).

10.14	Director Deferred Fee Agreement between Feather River State Bank and David A. Offutt dated April 1, 1999 (Incorporated by reference to Exhibit 10.20 to Form 10-Q filed with the Commission on November 15, 1999).
10.15	Employment Agreement between California Independent Bancorp, Feather River State Bank and Larry D. Hartwig dated July 19, 1999 (Incorporated by reference to Exhibit 10.21 to Form 10-Q filed with the Commission on November 15, 1999).
10.16	Nonqualified Stock Option Agreement between California Independent Bancorp and Larry D. Hartwig dated July 19, 1999 (Incorporated by reference to Exhibit 10.22 to Form 10-Q filed with the Commission on November 15, 1999).
10.17	Executive Salary Continuation Agreement between Feather River State Bank and Blaine C. Lauhon dated May 7, 1999 (Incorporated by reference to Exhibit 10.23 to Form 10-Q filed with the Commission on November 15, 1999).
10.18	Executive Salary Continuation Agreement between Feather River State Bank and Larry D. Hartwig dated October 27, 1999 (Incorporated by reference to Exhibit 10.19 to Form 10-K filed with the Commission on March 30, 2000).
10.19	Promissory Note, Loan Agreement and Annual Contribution Agreement dated May 11, 2000, by and between Feather River State Bank Employee Stock Ownership Plan and Trust and United ComServe (Incorporated by reference to Exhibit 10.21 to Form 10-Q filed with the Commission on August 11, 2000).
10.20	California Independent Bancorp Revised 2000 Equity Incentive Plan (Incorporated by reference to Exhibit 10.22 to Form 10-Q filed with the Commission on November 13, 2000).
10.21	California Independent Bancorp 2000 Equity Incentive Plan Form Nonqualifying Stock Option Agreement (Incorporated by reference to Exhibit 10.23 to Form 10-Q filed with the Commission on November 13, 2000).
10.22	California Independent Bancorp 2000 Equity Incentive Plan Form Nonqualifying Stock Option Exercise Agreement (Incorporated by reference to Exhibit 10.24 to Form 10-Q filed with the Commission on November 13, 2000).
10.23	California Independent Bancorp 2000 Equity Incentive Plan Form Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.25 to Form 10-Q filed with the Commission on November 13, 2000).
10.24	California Independent Bancorp 2000 Equity Incentive Plan Form Incentive Stock Option Exercise Agreement (Incorporated by reference to Exhibit 10.26 to Form 10-Q filed with the Commission on November 13, 2000).
10.27	Lease by and between Eureka Corporate Plaza, Ltd., L.P. and Feather River State Bank, for the premises at 1552 Eureka Road, Roseville, California (Incorporated by reference to Exhibit 10.29 to Form 10-Q filed with the Commission on November 13, 2000).
10.31	Lease for a branch office at 435 South Highway 65, Suite A, Lincoln, California, entered into between Lincoln Town Center, LLC and Feather River State Bank on December 1, 2000 (Incorporated by reference to Exhibit 10.28 to Form 10-K filed with the Commission on April 2, 2001).
10.32	Lincoln lease Amendment for a branch office at 435 South Highway 65, Suite A, Lincoln, California, entered into between Lincoln Town Center, LLC and Feather River State Bank on March 1, 2001(Incorporated by reference to Exhibit 10.32 to Form 10-K filed with the Commission on March 27, 2002).
10.33	Lease Servicing Agreement dated May 26, 2000, by and among Bancorp Financial Services, Inc., as the Servicer, and EPI Leasing Company Inc., a subsidiary of Feather River State Bank as the Originator (Incorporated by reference to Exhibit 10.29 to Form 10-K filed with the Commission on April 2, 2001).
10.36	Leasing Agreement dated March 20, 2002, between Portolio Financial Servicing Company, Inc., the Servicer, and EPI Leasing Company Inc., a subsidiary of Feather River State Bank as the Originator (Incorporated by reference to Exhibit 10.36 to Form 10-Q filed with the Commission on May 13, 2002).

10.37	Severance Agreement between California Independent Bancorp, Feather River State Bank and Larry D. Hartwig dated May 8, 2002 (Incorporated by reference to Exhibit 10.37 to Form 10-Q filed with the Commission on August 12, 2002).
10.38	CIB Capital Trust/Trust Preferred Securities (Incorporated by reference to Exhibit (b) to Item 12 of Schedule TO filed November 27, 2002).
13	California Independent Bancorp's 2002 Annual Report to Shareholders (Deemed filed only with respect to those sections that have been incorporated into this Form 10-K by reference).
16.1	Letter from Arthur Andersen (Incorporated by reference to Exhibit 16.1 to Form 8-K filed with the Commission on April 5, 2002).
21	Feather River State Bank, a California banking corporation, is the only subsidiary of Registrant.
23	Consent of Perry-Smith LLP.
99.1	Certification of the Annual Report of the Company on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
INDEX
PART I

ITEM 1. BUSINESS

ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

RANGE OF STOCK PRICES

ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. CONTROLS AND PROCEDURES.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SIGNATURES
Section 302 Certification
Section 302 Certification
INDEX TO EXHIBITS

EX-3.4

Exhibit 3.4

Amendment to Amended and Restated Bylaws

On March 25, 2003, the Board of Directors amended Section 3.2 of California Independent Bancorp’s Amended and Restated Bylaws as follows:

Section 3.2.            Number of Directors.  The authorized number of directors of the corporation shall not be less than seven (7) nor more than thirteen (13) until changed by an amendment of the articles of incorporation or by a bylaw amending this Section 3.2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote.  The exact number of authorized directors within said range shall be determined by board resolution.

EX-13

Exhibit 13

	TABLE OF CONTENTS
		CORPORATE PROFILE
		MESSAGE TO SHAREHOLDERS
		REACHING NEW HEIGHTS SEEKING NEW HORIZONS
		SHAREHOLDER & INVESTOR INFORMATION
		FINANCIAL HIGHLIGHTS

CORPORATE
PROFILE

California Independent Bancorp (“CIB”) and its banking subsidiary, Feather River State Bank, provide full-service banking and financial services through nine offices, located in five Northern California counties.

Feather River State Bank was founded in 1977, and CIB became the Bank’s holding company in 1995. Feather River State Bank has steadily grown into a leading regional banking franchise. The Bank enjoys a reputation for efficient and highly personal service, local decision-making and innovative financial services. Feather River State Bank celebrated a quarter century of service to a growing number of customers during 2002.

Customers of Feather River State Bank have more than 27,000 accounts and enjoy access to a full range of financial services to meet consumer, commercial, agri-business, real estate and small business needs. The Bank is a member of the Federal Deposit Insurance Corporation and each depositor’s account is insured for up to $100,000.

Feather River State Bank also offers noninsured financial services through an affiliation with London Pacific Advisory Services, Inc., a registered Broker/Dealer, member NASD/SIPC, and London Pacific Investment Advisory Services, Inc., a Registered Investment Advisor.

Banking offices of Feather River State Bank are located in Colusa, Sutter, Placer, Yolo and Yuba Counties.

1

MESSAGE TO
SHAREHOLDERS

During 2002, California Independent Bancorp (“CIB”) successfully met the challenge of change, while achieving the best financial performance in the Company’s history. The achievements of 2002 came as we celebrated the 25th anniversary of our subsidiary, Feather River State Bank.

It was an honor for us to be named to our present positions of Chairman and President & CEO, respectively, this year. We would both like to extend our sincere thanks to David Offutt for his years of service as our Chairman and recognize his continuing and valued role as a Director. In March of 2002, Kevin Watson was named Chief Financial Officer of both the Company and the Bank and, later in the year, he was promoted to Senior Vice President. During the fourth quarter, Regional Lending Manager Steven Olin received a well-deserved promotion to Senior Vice President.

Although 2002 was a year of change, many things remained constant. First is our commitment to a philosophy of prudent management, along with an emphasis on asset quality. Further, we remain dedicated to measurably superior service and relationship banking, which are fundamental to the way we do business. We also continued the policy of paying cash dividends on the Company’s common stock. We have done this in every year since 1980 and we have paid consecutive quarterly cash dividends since 1991.

2

We are pleased to report record financial results for the year ended December 31, 2002. Net income was $3,911,000, the highest in the history of the Company, a 177.6% increase over the $1,409,000 net income reported for 2001. Diluted earnings per share for 2002 was $1.74 per share, a 180.6% increase over diluted earnings per share of $0.62 reported in 2001. Total assets increased 19.7% to $367.1 million. Our loans and leases grew $22.1 million to a total of $214.4 million at December 31, 2002, and our total deposits grew $31.1 million to a total of $306.7 million at December 31, 2002. As 2002 progressed, we experienced accelerated performance, which was accomplished by the creation of real teamwork, resulting in a measurable increase in staff productivity.

After careful consideration of our long-term business strategy, the Board of Directors adopted a Shareholder Rights Plan. Under this plan, Rights were distributed as a dividend at the rate of one Right for each share of CIB common stock held by shareholders of record on December 2, 2002. Shareholders Rights Plans, like the plan adopted by your Company, are designed to encourage any groups that may be interested in acquiring the Company, to negotiate directly with the Board of Directors, thereby protecting our shareholders from the potential for inadequate offers and/or abusive tactics. At year-end, the Company successfully completed a tender offer to purchase 76,292 shares of its common stock at a purchase price of $25.00 per share. This is part of a longer-term stock repurchase program that reflects management’s continued confidence in the Company’s long-term prospects.

We owe a debt of gratitude for the achievements of 2002 to both our loyal customers and our dedicated team of employees. We are excited by the prospects and potential for the years ahead as we expand our franchise to deliver on our growth strategy. As always, we will strive to produce greater value for you, our shareholders.

	Sincerely,
Alfred G. Montna		John I. Jelavich
Chairman of the Board		President & CEO

3

REACHING NEW HEIGHTS
SEEKING NEW HORIZONS

At a time when many of our competitors have consolidated or compacted their operations, California Independent Bancorp and its subsidiary, Feather River State Bank, have reached new heights in customer service, performance, and profitability.

This is a reflection of the values that have guided our growth for more than a quarter-century. As we celebrated our 25th anniversary in 2002, this milestone event reaffirmed the principles upon which our Bank was founded. Our unmitigated success is directly linked to our relationships with our customers and the communities we serve. Our long heritage in community banking reflects this tradition, and we have always been an involved and caring corporate citizen. This resonates through our community involvement, as well as our genuine interest in our customers’ lives, we really get to know the people we serve.

A "PEOPLE" BUSINESS

Banking is, after all, a people business. And we strive to provide our customers with an extraordinary experience, whether we’re serving them face-to-face, on the phone, through the mail or over the Internet. We go the extra mile to offer superior service. This is our ultimate goal, and to achieve it, we take a consultative approach to banking, carefully listening to our customers, then recommending financial solutions that truly serve the customers’ needs.

4

“As a premier Northern California community bank, we are committed to meeting the needs of our customers with relationship-oriented products and services, while creating an environment for our employees to develop and prosper, resulting in enhanced shareholder value.”

We believe that our employees and the personality of our company set us apart from other banks. When employees feel good about where they work and what they do, they strive to create a pleasurable experience for our customers. Over the years, as customers enjoy a great experience with us, they tell others. We have established standards of performance and we provide recognition for superior sales and service. We also encourage successful referrals and proactive management of customer relationships. From top management to front-line customer service representatives, our company employees have shown a sincere enthusiasm for their work and a passion for helping and serving customers.

CAREFULLY MANAGED GROWTH

From the day we were established in 1977, we have followed a path of expansion that was carefully managed. Our geographic expansion was matched by a branch system that allowed us to bring our unique banking style to an increasing number of customers without compromising the principles of service that are the heart of our business philosophy. By the time we celebrated our 25th anniversary, we had grown to nine branches, with over 27,000 accounts, serving customers in five counties.

Our Company continually strives to implement new technologies and increase our collective knowledge to gain a distinct advantage over our competition. By arming our employees with the right tools and information, they can do their jobs better and faster. We continuously use technology to enhance the personal quality of our service and never to replace it. This helps employees serve our customers more efficiently, bringing them an ever increasing level of personal service.

5

LOOKING AHEAD

In the future, we seek new horizons of growth in the increasingly diverse markets that lie beyond our current service areas. We will pursue these growth opportunities with the same concern for sound management and credit quality that have characterized our Company’s expansion in recent years.

We believe that solid, long term performance is essential to our success. If we consistently perform at high earnings levels, we can afford to support the expansion of our banking franchise, while shareholders benefit from excellent returns. For this reason, we are committed to high performance standards, both now and in the future.

The evolving story of California Independent Bancorp is the continuation of a journey of more than a quarter-century. On that journey, we share the promise of the future with a team of talented employees, loyal customers and dedicated shareholders. We see a future of expanding horizons for our organization and for the principles we share — community involvement, quality customer relationships and solid, consistent performance. With a high measure of confidence, we are ready for the challenges of tomorrow.

6

SHAREHOLDER AND
INVESTOR INFORMATION

PRICE RANGE OF COMMON STOCK

                California Independent Bancorp’s (“CIB’s”) common stock is traded on the NASDAQ Stock Market under the trading symbol “CIBN.” The common stock began trading on the NASDAQ Stock Market on July 31, 1996.

                The following table presents the high and low closing sale prices of CIB’s common stock for each quarterly period for the last two years as reported and as retroactively adjusted for the effect of applicable stock dividends by the NASDAQ Stock Market:

	Range of Stock Prices
	High		Low
2002 Quarters
4th	$	24.76	$	18.85
3rd	20.75		18.21
2nd	19.48		16.19
1st	21.57		18.00
	High		Low
2001 Quarters
4th	$	23.14	$	20.94
3rd	23.95		20.64
2nd	25.40		20.86
1st	20.86		17.23

CASH DIVIDEND INFORMATION

                After adjusting retroactively for the effect of applicable stock dividends, cash dividends paid on CIB’s common stock were $0.42 per share for the year ended December 31, 2002 and $0.40 per share for the year ended December 31, 2001.

                CIB has paid cash dividends on its common stock since 1980, and has paid consecutive quarterly cash dividends since 1991. It is currently the intention of the Board of Directors to continue the payment of cash dividends on a quarterly basis. However, there is no assurance that cash dividends will be paid in the future, as such dividends are dependent upon the earnings, financial condition and capital requirements of CIB and Feather River State Bank, as well as legal and regulatory requirements.

                The number of shares issued and outstanding as of December 31,2002, was 2,152,751.

                Call your stockbroker or one of our market makers for stock information:

Wachovia Securities	(888) 383-3112
Hoefer & Arnett	(800) 346-5544
Sandler O’Neill & Partners	(800) 635-6851

                Wachovia Securities offers Dividend Reinvestment Plans. These plans allow conversion of cash dividends into whole or fractional shares of CIB stock. This service is offered free of fee or commission charges.

SHAREHOLDER INFORMATION

                Shareholders wishing more detailed information about CIB may obtain a copy of its Form 10-K or Quarterly Newsletter upon request from:

California Independent Bancorp
Investor Relations Department
Kevin R. Watson
1227 Bridge St., Suite C
Yuba City, CA 95991
(530) 674-6025
(800) 258-4334

STOCKHOLDER ACCOUNT INFORMATION

                If you have questions concerning your stockholder account, please call our transfer agent:

U.S. Stock Transfer Corporation
1745 Gardena Avenue
Glendale, California 91204
(800) 835-8778

ANNUAL MEETING

                The annual shareholders’ meeting of CIB will be held May 20, 2003, 6:00 P.M., at Feather River State Bank’s Colusa Avenue Branch located at 777 Colusa Avenue in Yuba City, California.

7

FINANCIAL
HIGHLIGHTS

CALIFORNIA INDEPENDENT BANCORP & SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31,

(Dollars in thousands, except share data and ratios)

	2002				2001			2000				1999			1998
Interest Income	$		20,920		$	21,358		$	23,126			$	22,743		$	24,279
Interest Expense	5,156				7,022			9,470				8,573			8,831
Net Interest Income	15,764				14,336			13,656				14,170			15,448
Provision for Loan and Lease Losses	550				2,450			200				1,000			2,246
Net Interest Income After Provision for Loan and Lease Losses	15,214				11,886			13,456				13,170			13,202
Noninterest Income	2,729				2,304			2,744				2,564			3,454
Noninterest Expense	11,934				12,194			11,806				13,273			12,330
Income Before Provision for Income Taxes	6,009				1,996			4,394				2,461			4,326
Provision for Income Taxes (1)	2,098				587			1,675				752			1,475
Net Income From Continuing Operations	3,911				1,409			2,719				1,709			2,851
Loss on Disposal of Subsidiary (2)	—				—			—				(714		)	—
(Loss) Income on Discontinued Operations	—				—			—				(278		)	158
Net Income	$		3,911		$	1,409		$	2,719			$	717		$	3,009
Per Common Share Data (3)
Basic Earnings Per Share From Continuing Operations	$	1.76			$	0.64		$		1.23		$	0.81		$	1.40
Cash Dividends	$	0.42			$	0.40		$		0.38		$	0.36		$	0.34
Book Value	$	13.50			$	12.98		$		12.83		$	12.20		$	12.99
Dividend Payout Ratio	23.86			%	62.50		%	30.89			%	47.37		%	25.56		%
Weighted Average Common Shares Outstanding — Basic	2,224,285				2,215,532			2,208,675				2,108,669			2,041,282
Financial Ratios From Continuing Operations
Return on Average Assets	1.18			%	0.48		%	0.91			%	0.54		%	0.95		%
Return on Average Shareholders’ Equity	13.67			%	5.18		%	11.36			%	6.70		%	11.82		%
Net Interest Margin	5.20			%	5.31		%	5.04			%	5.39		%	5.99		%
Net Charge-Offs to Average Loans and Leases	-0.25			%	1.45		%	0.74			%	0.14		%	0.91		%
Allowance for Loan and Lease Losses as a Percent of Loans and Leases	3.05			%	2.86		%	3.20			%	4.20		%	3.33		%
Efficiency Ratio	64.53			%	73.29		%	71.99			%	79.32		%	65.23		%

(1)An adjustment of $113,000 and $129,000 was made reducing the Provision for Income Taxes in 1999 and 1998, respectively, relating to the tax treatment of certain dividends on preferred stocks held in the investment portfolio.

(2)The effect of discontinued operations is not presented in 2000 - 2002 due to immateriality.

(3)All per share amounts and the weighted average number of common shares outstanding as shown in the proceeding table have been adjusted retroactively, as applicable, to reflect the 5% stock dividends distributed in each of the years presented.

8

	FINANCIAL TABLE OF CONTENTS
		MANAGEMENT’S DISCUSSION & ANALYSIS
		INDEPENDENT AUDITOR’S REPORT
		CONSOLIDATED FINANCIAL STATEMENTS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9

MANAGEMENT'S DISCUSSION & ANALYSIS

                Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years Ended December 31, 2002 and 2001

                Certain statements in the annual report, Form 10-K and in Management’s Discussion and Analysis of Financial Condition and Results of Operations (excluding statements of fact or historical financial information) involve forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors: competitive pressure in the banking industry increases significantly; changes in the interest rate environment reduce margins; general economic conditions, either nationally or regionally, are less favorable than expected, resulting in, among other things, a deterioration in credit quality and an increase in the provision for possible loan and lease losses; the loss of key personnel; change in the regulatory environment; changes in business conditions; volatility of rate sensitive deposits; operational risks including data processing system failures or fraud; lending concentration in real estate; volatility in agricultural lending; asset/liability matching risks and liquidity risks; changes in the securities markets; and the effects of terrorism, including the events of September 11, 2001 and thereafter, and the conduct of the war on terrorism by the United States and its allies.

                The following discussion and analysis is designed to provide a better understanding of the significant changes and trends related to California Independent Bancorp’s (“CIB’s”) and Feather River State Bank’s (the “Bank’s”) (CIB and the Bank are collectively, the “Company”) financial condition, operating results, asset and liability management, and liquidity and capital resources; and should be read in conjunction with the Consolidated Financial Statements of the Company and its accompanying notes.

CRITICAL ACCOUNTING POLICIES

                General

                California Independent Bancorp’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and general practices within the banking industry. The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, or relieving a liability. Historical losses are used as a factor in determining the inherent loss that may exist in the loan portfolio. Actual losses may vary significantly from the historical factors being used. Other estimates being used are related to the useful lives of the depreciable assets.

                Allowance for loan and lease losses

                The allowance for loan and lease losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (1) Statement of Financial Accounting Standards (“SFAS”) No.5, “Accounting for Contingencies”, which requires that losses be accrued when both of the following conditions are met: the loss is probable and it can be reasonably estimated; and (2) SFAS No.114, “Accounting by Creditors for Impairment of a Loan”, which requires that losses be accrued based on the differences between the loan balance and the present value of the expected future cash flows, or the loan’s observable market price, or the fair value of the collateral.

                The allowance for loan and lease losses consists of three components: the general reserve, the specific reserve, and the unallocated reserve. The general reserve is calculated based on a reserve ratio established for each loan type. The reserve ratio is determined by historical credit loss experience. The reserve ratios are adjusted from time to time to reflect the most recent loss information coupled with the historical data. The specific reserve is an estimate for identified credits. This reserve is calculated based upon quantitative analysis, present knowledge of the specific loans, and subjective evaluation of the likelihood of future loss. The unallocated reserve is based upon general economic conditions and industry or geographic sectors that are not recognized in the first two components.

SUMMARY OF FINANCIAL RESULTS

                CIB, through the Bank, engages in a broad range of financial service activities. The Bank commenced operations in 1977. CIB was formed in 1994 and, after receiving regulatory and shareholder approval, became the holding company for the Bank in May 1995.

                In 2002, the Company recognized a significant increase in total assets over 2001. At December 31, 2002, total assets were $367,083,000 as compared to $306,642,000 at December 31, 2001. Cash and cash equivalents increased to $40,046,000 at December 31, 2002 over  $23,047,000 at December 31, 2001, while total investments increased to $100,239,000 at December 31, 2002 from $77,996,000 at December 31, 2001. Net loans and leases increased 11.3% to $207,896,000 at December 31, 2002 over $186,783,000 at December 31, 2001. Total deposits increased 11.3% to $306,726,000 at year-end 2002 over $275,576,000 at year-end 2001. The Company’s shareholders’ equity increased $1,601,000, or 5.8%, to $29,056,000 at December 31, 2002 over $27,455,000 at December 31, 2001.

10

                During 2002, the Company recognized record net income of $3,911,000 an increase of $2,502,000, or 177.6%, over $1,409,000 recognized in 2001. The large increase in net income in 2002 over 2001 was principally due to a number of factors including: increased net interest income as a result of strong loan growth and decreased cost of funds; an increase in noninterest income; a decrease in noninterest expense; and the large charge-off in the fourth quarter of 2001 which required a substantial provision for possible loan and lease losses in 2001. This and other factors impacting the Company’s net income are discussed in detail throughout this Management’s Discussion and Analysis.

                Basic earnings per share in 2002 were $1.76, an increase of $1.12, or 175.0%, over  2001 basic earnings per share from continuing operations of $0.64. Diluted earnings per share were $1.74 in 2002 and $0.62 in 2001. The Company paid cash dividends of $0.42 per share in 2002, $0.40 per share in 2001, and $0.38 per share in 2000. Additionally, the Company declared and distributed 5% stock dividends in 2002, 2001, and 2000. Consequently, for all periods presented, basic and diluted earnings per share, cash dividends paid on shares of Common Stock, and the weighted-average number of shares, have been adjusted retroactively to reflect the 5% stock dividends distributed on September 20, 2002, September 25, 2001, and September 15, 2000, as well as all other previously declared and distributed stock dividends and splits.

                The following table depicts the Average Daily Balance Sheets for the years ended December 31, 2002, 2001, and 2000. This table shows the composition of average earning assets and average interest-bearing liabilities, average yields and rates, and the Company’s net interest spread for years 2000 through 2002.

AVERAGE DAILY BALANCE SHEETS

(Dollars in thousands, except percentages)

	2002							2001							2000
	Average Balance			Yield/ Rate		Interest Amount		Average Balance			Yield/ Rate		Interest Amount		Average Balance			Yield/ Rate		Interest Amount
Assets
Earning-Assets:
Short-Term Investments:
Federal Funds Sold	$	5,471		1.43	%	$	78	$	13,266		3.65	%	$	484	$	10,812		5.83	%	$	630
Investment Securities:
Taxable	92,581			5.42	%	5,022		70,127			6.20	%	4,347		88,215			6.59	%	5,815
Non-Taxable (1)	1,576			4.19	%	66		2,258			4.12	%	93		2,920			4.08	%	119
Total	94,157			5.40	%	5,088		72,385			6.13	%	4,440		91,135			6.51	%	5,934
Loans and Leases (2)	203,391			7.75	%	15,754		184,397			8.91	%	16,434		169,273			9.78	%	16,562
Total Earning Assets	303,019			6.90	%	20,920		270,048			7.91	%	21,358		271,220			8.53	%	23,126
Allowance for Possible Loan Losses	(5,797		)					(5,188		)					(6,583		)
Non Earning Assets:
Cash and due from banks	14,541							13,061							12,366
Premises and Equipment	6,830							6,909							7,102
Other	11,985							11,253							14,168
Total Non-Earning Assets	33,356							31,223							33,636
Total Assets	$	330,578						$	296,083						$	298,273
Liabilities and Shareholders’ Equity
Interest-Bearing Liabilities:
Demand, Savings and Money Market	$	118,442		0.95	%	$	1,122	$	108,286		1.94	%	$	2,098	$	111,132		3.00	%	$	3,336
Time Certificates	99,734			3.34	%	3,328		95,684			5.02	%	4,804		98,438			5.71	%	5,620
Other Interest—Bearing Liabilities	17,614			4.01	%	706		2,899			4.14	%	120		8,099			6.35	%	514
Total Interest—Bearing Liabilities	235,790			2.19	%	5,156		206,869			3.39	%	7,022		217,669			4.35	%	9,470
Noninterest-Bearing Liabilities:
Demand deposits	60,513							58,235							53,724
Other Liabilities	5,675							3,775							2,942
Total Noninterest-Bearing Liabilities	66,188							62,010							56,666
Shareholders’ Equity	28,600							27,204							23,938
Total Liabilities and Shareholders’ Equity	$	330,578						$	296,083						$	298,273
Net Interest Income						$	15,764						$	14,336						$	13,656
Net Interest Spread				4.71	%						4.51	%						4.18	%

(1)The yield that relates to income on certain securities that are exempt from federal income taxes has not been adjusted to reflect its tax-equivalized yield.

(2)Loan interest includes loan fees of $733,000, and $792,000, and $837,000 in 2002, 2001, and 2000, respectively.

11

NET INTEREST INCOME

                Net interest income, the difference in interest earned on assets and interest paid on liabilities, increased to $15,764,000 for 2002 over a comparable 2001 net interest income figure of $14,336,000. Interest earning assets consist of overnight federal funds sold, investment securities, and loans and leases. In total, these assets averaged $303,019,000, $270,048,000, and $271,220,000 in 2002, 2001, and 2000, respectively. Average loans and leases were $203,391,000, $184,397,000, and $169,273,000 in 2002, 2001, and 2000, respectively, representing an increase of 10.3% in 2002 over 2001, and an increase of 8.9% in 2001 over 2000.

                Interest income decreased 2.1% for 2002 to $20,920,000 from $21,358,000 for 2001. Interest income was $23,126,000 for 2000.

                The Company’s primary source of income is interest and fees on loans and leases. For full-year 2002, interest and fees on loans and leases decreased $680,000 from the comparable 2001 period. The decline in interest and fee income is primarily the result of a 1.16% reduction in portfolio yield which was driven by the Federal Reserve Bank’s easing of interest rates throughout 2001 and the further reduction in November 2002. The impact of the lower portfolio yield on interest and fee income was significantly offset by an increase of $18,994,000 in average loan and lease balances outstanding in 2002 over 2001. This increase in average loan and lease balances outstanding is directly attributable to successful business development efforts whereby the Company has intensified its focus on real estate secured and commercial lending in its geographic market segments, as well as the Company recommiting itself to promoting a productive sales culture that emphasizes relationship banking.

                Interest earned on investment securities increased $648,000, or 14.6%, for 2002 over 2001. Average investment securities in 2002, 2001, and 2000 were $94,157,000, $72,385,000, and $91,135,000, respectively. The principal reason for the increase in interest earned was due to the large increase of $21,772,000, or 30.1%, in the average balance of investment securities in 2002 over 2001, which was the result of the adoption of a leveraged investment strategy whereby qualified securities were purchased utilizing borrowed funds. The easing interest rate environment negatively impacted the overall yield of the investment portfolio as it fell to 5.4% in 2002 from 6.1% in 2001. Interest income on investment securities for the years ended December 31, 2002, 2001, and 2000 was $5,088,000, $4,440,000, and $5,934,000, respectively. When comparing 2001 with 2000, the decrease in interest income on investments was $1,494,000, or 25.2%. This was due both to a decrease in volume and a decrease in the average interest rate earned on the investment portfolio, which was 6.1% for 2001 versus 6.5% for 2000.

                Average federal funds sold were $5,471,000 for 2002, $13,266,000 for 2001, and $10,812,000 for 2000, representing a decrease of 58.8% in 2002 from 2001, and an increase of 22.7% in 2001 over 2000. The yield on federal funds sold was 1.4%, 3.6%, and 5.8% for full-year 2002, 2001, and 2000, respectively, and is reflective of the general interest rate environment as previously discussed.

                After considering the effect of the preceeding factors that had an impact on the Company’s interest income, the overall yield on average earning assets was 6.9%, 7.9%, and 8.5% for the full-years ending 2002, 2001, and 2000, respectively.

                Average interest-bearing liabilities increased to $235,790,000 for 2002 as compared to $206,869,000 for 2001 and $217,669,000 for 2000. The primary component of interest-bearing liabilities is interest-bearing deposits which averaged $218,176,000, $203,970,000, and $209,570,000 for 2002, 2001, and 2000, respectively. The Company has experienced a significant decrease in total interest expense on deposits of $2,452,000, or 35.5%, in 2002 from 2001. This decrease is  due to an overall decrease in the average cost of deposits from 3.4% for 2001 to 2.0% in 2002. This sharp decline in average deposit costs was a direct result of the reduced interest rate environment.

                The Company experienced an increase of $14,715,000 in average other interest-bearing liabilities when comparing 2002 with 2001. Other interest-bearing liabilities consists primarily of borrowings from the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank. Historically, during the months of November through May, the Bank experiences excess liquidity. The Bank’s seasonal agricultural and construction loan demand, which typically occurs each year from early June through late October, tends to absorb excess liquidity and frequently results in a net borrowed position during that time frame. The average balance of other interest-bearing liabilities was $17,614,000, $2,899,000, and $8,099,000 in 2002, 2001, and 2000, respectively. During 2002, the Company adopted a leveraged investment strategy whereby investment securities were purchased utilizing borrowed funds from the FHLB.

12

                After considering the effect of the preceding factors that had an impact on the Company’s interest expense, total interest expense decreased 26.6% to $5,156,000 for 2002 from $7,022,000 for 2001 and decreased 25.9% for 2001 from $9,470,000 for 2000. The decline in 2002 from 2001 is the result of the overall reduced interest rate environment as interest-bearing liabilities increased from the previous year.

                The rate paid on total average interest-bearing liabilities was 2.2%, 3.4%, and 4.4%, for the full-years ending 2002, 2001, and 2000, respectively. Consequently, the net interest spreads were 4.71%, 4.51%, and 4.18%, for the full-years ending 2002, 2001, and 2000, respectively.

CHANGES IN INTEREST RATES AND THE VOLUME OF INTEREST SENSITIVE ASSETS AND LIABILITIES

                Changes in the rates earned and paid and the volume of interest-earning assets and interest-bearing liabilities affect the Company’s net interest margin. The impact of changes in volume and rate on net interest income in 2002 compared to 2001, and 2001 compared to 2000, is shown in the following table.

CHANGES IN VOLUME/RATE

(Dollars in thousands)

	2002 Compared to 2001										2001 Compared to 2000
	Volume				Rate			Total			Volume			Rate			Total
Federal Funds Sold	$		(285	)	$	(121	)	$	(406	)	$	143		$	(289	)	$	(146	)
Investment Securities:
Taxable	1,395				$	(720	)	675			(1,192		)	(276		)	(1,468		)
Nontaxable	(28			)	$	1		(27		)	(27		)	1			(26		)
Loans and Leases	1,690				$	(2,370	)	(680		)	1,478			(1,606		)	(128		)
Total	$		2,772		$	(3,210	)	$	(438	)	$	402		$	(2,170	)	$	(1,768	)
Demand, Savings and Money Market	197				$	(1,173	)	(976		)	(85		)	(1,153		)	(1,238		)
Time Certificates	202				$	(1,678	)	(1,476		)	(157		)	(659		)	(816		)
Other	609				$	(23	)	586			(330		)	(64		)	(394		)
Total	$	1,008			$	(2,874	)	$	(1,866	)	$	(572	)	$	(1,876	)	$	(2,448	)
Increase (Decrease) in Net Interest Income	$	1,764			$	(336	)	$	1,428		$	974		$	(294	)	$	680

NONINTEREST INCOME

                Noninterest income for 2002 was $2,729,000, an increase of $425,000, or 18.4%, from 2001, which stood at $2,304,000. Noninterest income in 2001 was 16.0% less than the 2000 amount of $2,744,000. The table below sets forth the components of noninterest income for the years indicated:

NONINTEREST INCOME

(Dollars in thousands)

	2002		2001		2000
Service Charges and Fees on Deposit Accounts	$	1,271	$	1,083	$	1,009
Brokered Loan Fees	172		158		112
Loan Servicing Fees	298		366		489
Earnings on Bank Owned Life Insurance Policies	295		280		260
Other	693		417		874
Total	$	2,729	$	2,304	$	2,744

                Service charges and fees on deposit accounts, one of the main components of noninterest income, increased in 2002 to $1,271,000, or 17.4%, over the 2001 amount of $1,083,000. An increase in deposits and an increase in the charges administered led to the increase in service charges and fees from prior years.

13

                Brokered loan fees, another primary source of noninterest income, were $172,000 in 2002. This represents an increase of $14,000, or 8.9%, from 2001, which stood at $158,000. The increase in brokered loan fee income from 2000 to 2002 is largely attributable to higher demand in the home refinance market due to the decreased interest rate environment.

                Loan servicing fees, another major component of noninterest income declined 18.6% to $298,000 in 2002, from $366,000 in 2001. This decrease is principally due to the lower amount of total loans serviced which is described in detail in the “Loans and Leases” section of this Management’s Discussion and Analysis.

                Earnings on Bank Owned Life Insurance Policies were $295,000, 280,000, and 260,000 for 2002, 2001, and 2000, respectively. The earnings represent the increase in the cash surrender value of the policies that are on certain directors and officers.

                All other noninterest income increased $276,000, or 66.2%, to $693,000 in 2002, from $417,000 during the comparable 2001 period. The primary reason for this increase was a non-recurring gain of $143,000 on the sale of other real estate owned during 2002. Increases were also recognized in other charges and fees, and miscellaneous income items.

NONINTEREST INCOME

                Noninterest expense decreased $260,000, or 2.1%, in 2002 to $11,934,000 from 2001 results, which stood at $12,194,000. The 2001 results reflected an increase of 3.3% from 2000 totals of $11,806,000. The table below sets forth the components of noninterest expense for the years indicated.

NONINTEREST EXPENSE

(Dollars in thousands)

	2002		2001		2000
Salaries and Benefits	$	6,664	$	6,887	$	6,133
Occupancy	820		822		726
Furniture and Equipment	1,261		1,171		1,170
Other Operating and Administrative	3,189		3,314		3,777
Total	$	11,934	$	12,194	$	11,806

                Salaries and benefits, the largest component of noninterest expense, was $6,664,000 for 2002, $6,887,000 for 2001, and $6,133,000 for 2000, representing a decrease of 3.2% in 2002 from 2001, and an increase of 12.3% in 2001 over 2000. Although the Bank experienced increases in its cost of employee benefit plans, primarily medical insurance and costs associated with the Company’s 401K plan, and additional staffing for the new branch openings in Lincoln and Roseville, California, in 2001, it was able to reduce salaries and benefits expense by improving efficiencies and productivity.

                Collectively, occupancy and furniture and equipment expenses increased $88,000, or 4.4%, for 2002 over 2001 and stood at $2,081,000 and $1,993,000, for the full year periods, respectively. During 2001, the Company recognized an increase of 5.1% from $1,896,000 in 2000. The increase in 2002 over 2001 was principally driven by the new branches in Lincoln and Roseville, California as described in the preceding paragraph.

                Other operating and administrative expenses were $3,189,000 for 2002, a decrease of $125,000, or 3.8% from 2001’s non-interest operating and administrative expenses of $3,314,000. This same classification of expenses amounted to $3,777,000 in 2000. The decline in other noninterest operating and administrative expense during 2000 to 2002 is attributed primarily to a variety of initiatives implemented by the Company to further streamline workflow processes and improve its use of technology, thereby achieving greater operational efficiency. For a breakdown of the other noninterest operating and administrative expenses, please see footnote 14 in the Notes to Consolidated Financial Statements.

INCOME TAXES

                The provision for income taxes was $2,098,000 in 2002, $587,000 in 2001, and $1,675,000 in 2000. The Company’s effective tax rate was 34.9%, 29.4%, and 38.1%, for full-year’s 2002, 2001, and 2000, respectively.

14

LOANS AND LEASES

                The Company continues to emphasize real estate, real estate construction, commercial, agricultural, and consumer lending activities. During 2002, the Company continued its focus to improve asset quality, to meet customers’ needs in its geographic market segments, and recommit itself to promoting a productive sales culture that emphasizes relationship banking. All of these factors led to the strong year over year growth in the loan portfolio. Gross loans and leases increased $22,147,000, or 11.5%, when comparing December 31, 2002 with December 31, 2001. The increase in gross loans and leases during 2002 is attributable to the substantial increase in the commercial real estate mortgage secured loan portfolio and to the modest increases in the commercial real estate construction and agricultural loan portfolios. The Company experienced declines in the commercial, consumer, and lease portfolios.

                The Company lends primarily to small and medium-sized businesses, small to large-sized farms, professionals, and consumers within its market area, which is principally comprised of Sutter, Yuba, Colusa, Yolo, and Placer counties, and secondarily, Sacramento, El Dorado, Butte, and Glenn counties. A significant portion of the Company’s loan portfolio consists of loans secured by commercial, agricultural, and residential real estate. The following table depicts the composition of the Bank’s loan and lease portfolio as of December 31, for each of the last five years:

COMPOSITION OF LOAN AND LEASE PORTFOLIO

(Dollars in thousands)

	December 31,
	2002		2001		2000		1999		1998
Commercial	$	25,428	$	26,763	$	20,494	$	19,076	$	22,998
Agricultural	17,536		13,329		21,197		36,035		49,106
Real Estate-Construction	35,287		32,268		35,783		30,514		53,968
Real Estate-Mortgage	123,991		100,685		75,627		46,004		28,930
Consumer	4,390		4,827		4,472		2,524		2,443
Lease Financing	5,891		11,654		19,609		27,010		23,034
Other	1,905		2,755		1,833		158		393
Total	$	214,428	$	192,281	$	179,015	$	161,321	$	180,872

                During 2002, the Bank continued to realize substantial growth in its real estate mortgage loan portfolio. The year-end balance of mortgage loans secured by commercial, agriculture, and residential real estate increased $23,306,000, or 23.1%, at year-end 2002 over year-end 2001. This increase is attributable to the strategic decision to focus expansion into Placer county, the Bank’s newest market, which is one of the highest growth rate areas in the state. At December 31, 2002, the Bank’s real estate mortgage loan portfolio equaled $123,991,000, or 57.8%, of the total loan and lease portfolio. At December 31, 2001, the real estate mortgage loan portfolio equaled $100,685,000, or 52.4%, of the total loan and lease portfolio. These loans are fully secured by real estate collateral and advances are limited to 65% to 80% of the real estate’s appraised value depending on the type of loan. Due to the large make-up of real estate mortgage loans in the portfolio, the Directors’ Loan Committee monitors this asset concentration on a monthly basis. Sub-classifications have been identified within the asset class and are monitored and analyzed with established limitations. The Bank’s current concentration limits requires commercial real estate mortgage, residential real estate (exclusive of Home Equity Loans and Home Equity Lines of Credit) and commercial real estate construction to total no more than 75% of total loans.

The Bank makes real estate construction loans, primarily to finance a variety of commercial, office, and retail projects, as well as for the construction of single-family homes. At December 31, 2002, these loans increased $3,019,000, or 9.4%, compared to year-end 2001. The Bank had $35,287,000, or 16.5%, and $32,268,000, or 16.8%, of its total loan and lease portfolio in real estate construction loans outstanding at December 31, 2002 and 2001, respectively. The growth was recognized due to the Company’s expansion into Placer county. In all cases, real estate construction loans are fully secured by the real property being improved. Advance rates are limited to 70% to 75% of the project’s appraised value at completion depending upon the type of project. Generally, to further its business development goals, the Bank enters into construction lending relationships with the commitment, or the intent to commit, to provide term real estate mortgage financing to its customer upon project completion.

15

                The Bank makes commercial and small business loans (including lines of credit) that are secured by the assets of the business. Commercial loans decreased $1,335,000, or 5.0%, between December 31, 2001 and December 31, 2002. The decrease is the result of a softening commercial loan demand and increased competition throughout the Bank’s geographically served areas. The Bank had $25,428,000, or 11.9%, and $26,763,000, or 13.9%, of the total loan and lease portfolio in commercial and industrial loans outstanding at December 31, 2002 and 2001, respectively.

                The Bank provides agricultural production lines of credit and other agricultural loans that are secured by crops, crop proceeds, and other collateral. These loans are generally at their peak in the third quarter of each year. At December 31, 2002, agricultural loans increased $4,207,000, or 31.6%, in comparison to December 31, 2001. Although agricultural loans increased from the previous year, they represent a significantly smaller percentage of the loan and lease portfolio than several years prior. This trend was the result of the Bank’s decision to diversify into real estate secured and commercial lending. Additionally, the decline in agricultural loans is due to the Bank’s enhanced credit standards which resulted in lower agricultural loan production, the economic adversities affecting certain agricultural commodities produced in the Bank’s trade area which have softened new loan demand, and to lending competition in the Bank’s core market area which remains competitive. The Bank had $17,536,000, or 8.2%, and $13,329,000, or 6.9%, of the total loan and lease portfolio in agricultural loans outstanding at December 31, 2002 and 2001, respectively. Approximately 3.3% of these loans are guaranteed by the Farm Service Agency (“FSA,” an agency of the U.S. Department of Agriculture).

                The Bank grants consumer loans, including secured and unsecured loans and lines of credit, to finance a variety of consumer needs. At December 31, 2002, consumer loans decreased $437,000, or 9.1%, from December 31, 2001. The Bank had $4,390,000, or 2.0%, and $4,827,000, or 2.5%, of the total loan and lease portfolio in consumer loans at December 31, 2002 and 2001, respectively. The decrease in this loan category is due to increased competition and special pricing programs for new car financing by other lenders.

                During 2002, the Bank experienced a significant decline in its lease portfolio. As of December 31, 2002, lease financing receivables declined $5,763,000, or 49.5%, from year-end 2001. The decline is the direct result of the Bank’s decision in the first quarter of 2000 to discontinue originating and purchasing leases through its subsidiary E.P.I Leasing Co., Inc. (“EPI”). Consequently, the reduction of the remaining lease portfolio during 2002 was basically due to scheduled lease portfolio principal reductions. The Bank had $5,891,000, or 2.7%, and $11,654,000, or 6.1%, of the total loan and lease portfolio in leases at December 31, 2002 and 2001, respectively.

                In conjunction with the Bank’s March 21, 2000 decision to discontinue and wind-down the operations of EPI, servicing of the lease portfolio was outsourced to Bancorp Financial Services, Inc. (“BFS”), a third party specializing in the origination, acquisition, and servicing of small ticket leases. On May 21, 2001, Humboldt Bancorp, BFS’ parent company, announced a plan to wind-down the operations of BFS in an orderly fashion over time. Subsequently, on January 28, 2002, BFS notified the Bank that it had targeted March 31, 2002 as the completion date for its wind-down process and furthermore advised the Bank of their intent to resign as the servicer of the EPI lease portfolio. As a result of these developments, the Bank entered into a contract on March 20, 2002, effective May 1, 2002, with Portfolio Financial Servicing Company, Inc. (“PFSC”) as the successor servicer of the EPI lease portfolio. PFSC is a third party specializing in the servicing of lease portfolios.

                The Company also originates certain mortgage loans on residential and agricultural properties, which it sells into the secondary market to divest itself of the interest rate risk associated with these mostly fixed-interest rate products. The Company accounts for these loans in accordance with Statement of Financial Accounting Standards No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125”.

                As of December 31, 2002, 2001, and 2000, total loans serviced by the Company were $32,184,000, $78,062,000, and $92,741,000. Total loans sold by the Company were $698,000 in 2002, $1,726,000 in 2001, and $760,000 in 2000. The decreasing trend in loans serviced over the last three years is the result of the Company changing its focus to brokered loans rather than serviced loans. The Company expects this trend to continue due to principal amortization, loan payoffs, and fewer loan originations.

16

QUALITY OF LOANS AND LEASES

                Inherent in the lending function is the fact that loan and lease losses will be experienced, and the risk of loss will vary with the type of loan or lease extended, general economic conditions, and the creditworthiness of the borrower. To reflect the estimated risks of loss associated with its loan and lease portfolio, provisions are made to the Company’s allowance for loan and lease losses. As an integral part of this process, the allowance for loan and lease losses is subject to review and possible adjustment as a result of Management’s assessment of risk, third party reviews, or regulatory examinations conducted by governmental agencies.

ALLOWANCE FOR LOAN AND LEASES LOSSES

                The Company uses the allowance method in providing for loan and lease losses. Additions to the Allowance for Loan and Lease Losses (“ALLL”) are made by provisions for possible losses which are charged to operating expense and are based upon past loss experience and estimates of potential losses which, in Management’s judgment and in accordance with generally accepted accounting principles, deserve current recognition. Loan and lease losses are charged against the ALLL and recoveries are credited to it. The ALLL at December 31, 2002 was $6,532,000, or 3.0% of total loans and leases outstanding compared to $5,498,000, or 2.9% of total loans and leases outstanding at December 31, 2001. The ALLL consists of three components: general reserve, specific reserve, and unallocated reserve.

                The general reserve is consistent with SFAS No. 5 “Accounting for Contingencies” and establishes a reserve for performing loans. A reserve ratio based on historical loss data is determined for each loan type. The reserve ratios ranging from 0.25% - 3.00% are applied to the loan type balance, less any loan amounts with a specific reserve, to calculate the general reserve. Additionally, a 0.10% “special reserve” for economic uncertainty is applied to the aggregate performing loan balance. At December 31, 2002, the general reserve was $2,061,000, or 31.6%, of the ALLL.

                The specific reserve is consistent with SFAS No.114 “Accounting by Creditors for Impairment of a Loan”, and establishes a reserve for impaired loans graded as “special mention”, “substandard”, and “doubtful”. At December 31, 2002, the specific reserve was $2,910,000, or 44.5%, of the ALLL.

                The unallocated reserve is the portion of the ALLL not defined in the general or specific reserve. This reserve is for losses from economic events, industry, or geographic sectors, and the inherent imprecision in the underlying assumptions used to reserve for losses in the general and specific reserve calculations. Additionally, it is the result of past favorable collections of previously charged-off loan positions and the successful collection of certain loans that held sizable specific reserves that are no longer required.

                Management believes that the total ALLL is adequate to cover potential losses in the loan and lease portfolios. While Management uses all available information to provide for loan and lease losses, actual losses may vary from current estimates and future additions to the ALLL may be necessary.

                Provisions to the ALLL totaled $550,000 and $2,450,000 for the years ended December 31, 2002 and December 31, 2001, respectively. During 2002, provisions to the ALLL were driven by strong loan growth. Management deemed it prudent to increase the ALLL in conjunction with the growth of the loan portfolio. Full-year 2001 provisions were caused by the charge-off during the fourth quarter of the Bank’s exposure to a large, long running agribusiness problem credit relationship. Additionally, the Bank moved aggressively to build loan loss reserves on other agricultural real estate supported loans and a construction loan relationship.

                The Company had loan and lease charge-offs of $442,000 for 2002, $3,109,000 for 2001, and $1,740,000 for 2000. Over the same periods, the Company had recoveries of $926,000, $433,000, and $493,000, respectively. This resulted in the Company experiencing net recoveries of $484,000 in 2002, net loan and lease charge-offs of $2,676,000 in 2001, and $1,247,000 in 2000. These net charge-offs are equal to (0.2%), 1.5%, and 0.7%, of average loans and leases for 2002, 2001, and 2000.

17

                The following table illustrates the activity in the Bank’s allowance for loan and lease losses for the years ending December 31, 1998 through 2002.

ACTIVITY IN ALLOWANCE FOR LOAN AND LEASE LOSSES

(Dollars in thousands, except percentages)

	2002			2001			2000			1999			1998
Balance of Allowance at January 1	$	5,498		$	5,724		$	6,771		$	6,024		$	5,514
Charge-Off by Loan Category:
Commercial	—			764			585			25			699
Agricultural	—			2,063			232			54			775
Real Estate-Construction	—			—			247			115			189
Real Estate-Mortgage	—			—			—			8			—
Consumer	14			14			19			15			49
Lease Financing	408			268			657			930			621
Other	20			—			—			—			—
Total	442			3,109			1,740			1,147			2,333
Recoveries by Loan Category:
Commercial	203			249			59			191			299
Agricultural	578			9			81			160			—
Real Estate-Construction	—			—			180			267			—
Real Estate-Mortgage	—			35			—			—			—
Consumer	2			2			2			—			98
Lease Financing	135			138			171			276			200
Other	8			—			—			—			—
Total	926			433			493			894			597
Net Charge-offs (Recoveries)	(484		)	2,676			1,247			253			1,736
Provision Charged to Expense	550			2,450			200			1,000			2,246
Balance, December 31	$	6,532		$	5,498		$	5,724		$	6,771		$	6,024
Total Loans and Leases at End of Year	$	214,428		$	192,282		$	179,015		$	161,321		$	180,872
Average Loans and Leases	203,391			184,397			169,273			181,166			189,892
Ratios:
Net Charge-offs (Recoveries) to Average Loans and Leases	-0.24		%	1.45		%	0.74		%	0.14		%	0.91		%
Allowance to Loans and Leases at End of Year	3.05		%	2.86		%	3.20		%	4.20		%	3.33		%

                In the preceding table, loan and lease losses are divided among the loan types. During 2002, the bulk of the charge-offs were in the lease portfolio which totaled $408,000, or 92.3%, of the total charge-offs. Previously, the Company purchased leases from EPI, who originated the leases. Lease originations were discontinued in March 2000, and EPI’s operations were wound-down. As previously discussed, lease servicing will continue to be outsourced to a qualified and experienced third party lease servicing provider. Recognizing the inherent risks associated with lease activity, the Company continues to maintain higher reserves for this portfolio than other conventional loan portfolios. Other and consumer categories made up the rest of the charge-offs with $20,000 and $14,000, respectively.

                For 2001, the largest category of loss was in the agricultural portfolio. The losses were $2,063,000, or 66.4% of total losses. This entire amount was centered in one large, long running agribusiness problem credit relationship that experienced a sharp decline in the real estate collateral value during the fourth-quarter driven principally by the softening of the overall local agricultural economy.

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                The commercial portfolio experienced losses of $764,000 at December 31, 2001. Approximately 60.2%, or $460,000, of the loss experienced in commercial loans was centered in the same agribusiness relationship discussed in the preceding paragraph. The remaining $304,000 of commercial charge-offs were attributable to two borrowers. The largest is a contractor who liquidated and filed bankruptcy resulting in a loss of $162,000. The Company recovered the amount charged-off through the sale of residential lots that had been pledged as additional security on the loan. The other commercial loan was a protracted workout, for which the Bank had obtained real property collateral as additional security. Due to the excessive passage of time while trying to liquidate the property, the loan was charged-off. The borrower subsequently sold the property and the Bank recovered its prior charge-off.

                The lease portfolio losses at December 31, 2001 were $268,000, and the consumer losses were $14,000.

The allocation of the ALLL by loan and lease type as of December 31 for each of the last five fiscal years is summarized in the following table. Any allocation or breakdown in the ALLL is provided for informational purposes only and should not be construed to lend an appearance of exactness that does not exist. Thus, the following allocation should not be interpreted as an indication of expected amounts or categories where charge-offs will occur. Management uses available information to provide for loan and lease loss reserve allocation; however, future additions to the ALLL may be necessary based upon changes in the economic conditions and other variables.

ALLOCATION OF ALLOWANCE

(Dollars in thousands, except percentages)

	December 31, 2002				December 31, 2001				December 31, 2000				December 31, 1999				December 31, 1998
			Percent of				Percent of				Percent of				Percent of				Percent of
			loans in each				loans in each				loans in each				loans in each				loans in each
			category to				category to				category to				category to				category to
	Amount		total loans		Amount		total loans		Amount		total loans		Amount		total loans		Amount		total loans
Balance Applicable to:
Commercial	$	575	11.9	%	$	1,072	13.9	%	$	1,165	11.4	%	$	848	11.8	%	$	1,310	12.7	%
Agricultural	738		8.2	%	754		6.9	%	1,065		11.8	%	2,794		22.3	%	2,334		27.1	%
Real Estate-Construction	1,502		16.5	%	1,270		16.8	%	399		20.0	%	417		18.9	%	925		29.8	%
Real Estate-Mortgage	1,484		57.8	%	1,320		52.4	%	578		42.2	%	542		28.5	%	610		16.0	%
Consumer	85		2.0	%	67		2.5	%	36		2.5	%	48		1.6	%	32		1.4	%
Lease Financing	243		2.7	%	488		6.1	%	832		11.0	%	940		16.7	%	706		12.7	%
Other	1,905		0.9	%	527		1.4	%	1,649		1.0	%	1,182		0.1	%	107		0.2	%
Total	$	6,532	100.0	%	$	5,498	100.0	%	$	5,724	100.0	%	$	6,771	100.0	%	$	6,024	100.0	%

                Management believes the total ALLL is adequate as of December 31, 2002. The $1,905,000 amount shown as “Other” consisted of $136,000 reserved for undisbursed commitments on the combined loan and lease portfolios, $2,000 reserved for standby lines of credit, $206,000 in “special reserve” (described in the paragraph discussing the general reserve), and $1,561,000 in unallocated reserves. This unallocated reserve equals 23.9% of the reserve deemed necessary by Management and provides an added margin of safety for the overall portfolio.

NONPERFORMING LOANS

                The Company places loans and leases on nonaccrual status when either principal or interest has been past due for 90 days or more. Exceptions to this policy can be made if the loan or lease is well secured and in the process of collection. The Company also places loans and leases on nonaccrual when payment in full of principal or interest is not expected, or the financial condition of the borrower has significantly deteriorated. At the time that a loan or lease is placed on nonaccrual, any accrued but uncollected interest is reversed, and additional income is recorded on a cash basis as payments are received. Loans or leases that are in the process of renewal in the normal course of business, or that are well-secured and in the process of collection, may not be placed on nonaccrual status at the discretion of Management. A nonaccrual loan or lease may be restored to an accrual basis when interest and principal payments are current and the prospects for future payments are no longer in doubt.

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                The following table summarizes nonperforming assets as of December 31, 2002, 2001, 2000, 1999, and 1998.

NONPERFORMING ASSETS:

(Dollars in thousands)

	2002		2001		2000		1999		1998
Loans and Leases Accounted for on a Nonaccrual Basis	$	4,392	$	3,060	$	4,926	$	6,115	$	5,644
Other Loans Contractually Past Due 90 Days or More	—		—		—		—		854
Total Nonperforming Loans and Leases	$	4,392	$	3,060	$	4,926	$	6,115	$	6,498
Other Real Estate Owned	$	—	$	542	$	405	$	1,300	$	101
Total Nonperforming Assets	$	4,392	$	3,602	$	5,331	$	7,415	$	6,599

                Nonperforming assets increased by $790,000 over the past year. The Bank did not experience a widespread frequency of loans nonperforming but rather it was due to one large real estate construction loan. This loan has been in the process of foreclosure and the Bank expects to have clear title of the property during the first quarter of 2003. The Bank intends to sell the property and believes this credit is well reserved. Nonperforming loans and leases were $4,392,000, or 2.0%, of the portfolio at December 31, 2002, and $3,060,000, or 1.6%, of the portfolio at December 31, 2001. The Company continues to successfully implement its classified asset reduction plan and enhance quality control in the management of the loan portfolio. Each of the nonperforming relationships is assigned to the Company’s Special Assets Department, which is responsible for and has developed written work-out arrangements for each of these relationships. The decreasing number of loans that are nonperforming is indicative of the progress made in this area.

                The amount of nonperforming loans and leases consists of a small number of credits. As of December 31, 2002, $4,108,000, or 93.5%, of the nonaccrual loans were in three relationships: a real estate construction loan for $2,443,000; an agricultural loan for $747,000; and a commercial real estate loan for $918,000.

                Similarly, as of December 31, 2001, 95.6% of the Company’s total nonaccrual loans and leases were concentrated in five relationships. Four of the relationships, totaling $2,664,000, or 87.1%, were real estate loan relationships, while the remainder, totaling $260,000, or 8.5%, was an agribusiness credit relationship.

                There were no loans or leases on accrual status that were past due 90 days or more at December 31, 2002, December 31, 2001, or December 31, 2000.

INVESTMENTS

                At December 31, 2002, the Company’s investment portfolio was $100,239,000 or 27.3% of total assets, an increase over $77,996,000, or 25.5% of total assets at December 31, 2001. At December 31, 2002, and 2001, federal funds sold were $18,245,000, and $5,300,000, respectively. Federal funds sold are overnight deposits with other banks.

                Under Statement of Financial Accounting Standard No. 115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”), investments in debt and equity securities must be classified in one of three different categories: “Trading,” “Available-for-Sale,” or “Held-to-Maturity,” and there are different accounting methods for each category. The Company has classified all of its investment securities as either “Available-for-Sale” or “Held-to-Maturity.” SFAS 115 requires that any unrealized gain or loss related to the “Available-for-Sale” category be reported as an adjustment to the Company’s shareholders’ equity, even though this gain or loss would only be realized if the investment were actually sold. If the investment is in the “Held-to-Maturity”category, no unrealized gains or losses need be reported.

                During 2002, the Company adopted a leveraged investment strategy whereby qualified securities were purchased and funded with similar term borrowings to net a desired yield. This strategy coupled with utilizing excess liquidity to purchase short average life securities led to the large increase over year 2001. Due to the structure of the Mortgage-Backed securities purchased, the weighted average life is significantly less than the stated final maturity.

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                The following table summarizes the carrying value of the Company’s investment securities as of December 31, 2002, 2001 and 2000.

INVESTMENTS

(Dollars in thousands)

	2002		2001		2000
Available-for-Sale:
Obligations of U.S. Government Agencies	$	34,586	$	40,085	$	64,137
Mortgage-Backed Securities	50,068		19,872		6,404
Debt Securities	8,729		8,737
Equity Securities	4,591		5,698		6,154
	$	97,974	$	74,392	$	76,695
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	1,265	$	1,854	$	2,568
Debt and Other Securities	1,000		1,750		2,749
	$	2,265	$	3,604	$	5,317

                The maturity distribution and yields of the investment portfolios are presented in the table below.

INVESTMENT MATURITY

(Dollars in thousands)

	As of December 31, 2002
	Within One Year				After One But Within Five Years				After Five But Within Ten Years					After Ten Years				Total
	Amount		Yield		Amount		Yield		Amount		Yield			Amount		Yield		Amount		Yield
Available for Sale
Obligations of U.S. Government Agencies	$	—	n/a		$	13,293	6.45	%	$	10,341	7.22		%	$	10,952	4.70	%	$	34,586	6.13	%
Mortgage-Backed Securities	22		6.50	%	—		n/a		5,922		5.65		%	44,124		5.42	%	50,068		5.45	%
Debt Securities	2,077		5.37	%	6,652		5.93	%	—		n/a			—		n/a		8,729		5.80	%
Equity Securities (1)	—		n/a		—		n/a		—		n/a			4,591		n/a		4,591		n/a
Total Available-for-Sale	$	2,099	5.38	%	$	19,945	6.28	%	$	16,263	6.65		%	$	59,667	4.87	%	$	97,974	5.46	%
Held-to-Maturity:
Obligations of States and Political Subdivisions (2)	$	700	4.40	%	565		4.70	%	—		n/a			—		n/a		1,265		4.53	%
Debt and Other Securities	1,000		6.17	%	—		n/a		—		n/a			—		n/a		1,000		6.17	%
Total Held-to-Maturity	$	1,700	5.44	%	$	565	4.70	%	$	—	$	—						$	2,265	5.26	%
Total Investment Securities	$	3,799			$	20,510			$	16,263				$	59,667			$	100,239

(1)           Equity securities have no stated maturity but have been added to the “after ten years,” for ease of review.

(2)           Yields are not adjusted for the tax benefits of non-taxable income.

                In the normal course of business, the Bank pledges its investment securities as collateral for certain deposits (typically deposits of government entities), and for the Bank’s borrowing lines. The book value of pledged securities was $53,245,000 and $50,808,000 at December 31, 2002 and 2001, respectively.

OTHER ASSETS

                During 2002, the Company recognized an increase in total other assets. These assets consist primarily of premises and equipment, interest receivable, other real estate owned (“OREO”), cash surrender value of life insurance policies associated with certain executive officers and directors of the Company, net deferred taxes, income tax receivable, investment in a Community Reinvestment Act (“CRA”) qualified California Affordable Housing Project, FHLB stock, and other miscellaneous assets.

                Total other assets increased $86,000 to $18,902,000 at December 31, 2002 compared to $18,816,000 at December 31, 2001. The increases in other assets were in FHLB stock which increased $534,000, cash surrender value of life insurance policies by $1,131,000 (the increase was primarily caused by the purchase of a new life insurance policy, and secondarily due to the annual earnings produced by the existing policies), Trust Preferred Securities Placement Fee, and Trust Preferred Securities Attorney Fees (two new asset accounts as a result of the issuance of Mandatorily Redeemable Cumulative Trust Preferred Securities of Subsidiary Grantor Trust which are amortized over five years).

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                The biggest decline in other assets was in income tax receivable due to the application of the balance to current year tax liability, as well as a refund received. The second biggest decline in other assets was OREO, which stood at zero at year-end. The Company was successful in selling the property transferred into OREO and recognized a gain from sale. Deferred taxes increased from the previous year, which is attributed to differences in the timing of the recognition of certain income and expense items for tax and financial accounting purposes.

                Premises and equipment also declined $206,000 from December 31, 2001 to December 31, 2002. During the year 2002, the Company acquired $817,000 of new property, recognized depreciation of $979,000, and disposed of various equipment with an immaterial book value.

                Other assets declining include an investment made in a California Affordable Housing Project, for which the Company recognizes recurring pre-tax impairment and equity losses. This investment contributed toward the Bank’s achievement of its CRA objectives, and its economic value is ultimately realized through the tax benefits it generates.

DEPOSITS

                Total deposits at December 31, 2002, 2001, and 2000 were $306,726,000, $275,576,000, and $267,632,000, respectively. These figures represent an increase of $31,150,000, or 11.3%, at December 31, 2002 over December 31, 2001, and an increase of $7,944,000, or 3.0%, at December 31, 2001 over December 31, 2000. Average daily total deposits were $278,689,000 for 2002, $262,205,000 for 2001, and $263,294,000 for 2000.

                The primary reason for the large increase in 2002 was due to an innovative deposit product, developed and marketed, celebrating the Bank’s 25th anniversary. This tiered certificate of deposit product, the “Silver CD” marking the Bank’s 25th year in business was a success in bringing approximately $14,000,000 of new money to the Bank, as well as increasing the customer base, allowing increased opportunities to cross-sell the Bank’s other products.

                The Company has been able to attract and retain deposits by providing superior customer service and offering interest rates on deposits competitive with other financial institutions in its market area. Total deposits consist of interest-bearing and noninterest-bearing deposits. At December 31, 2002, the mix of deposits consists of 24.6% noninterest-bearing and 75.4% interest-bearing. The mix of interest-bearing deposits consists of 47.3% in time certificates of deposit, 26.3% in interest-bearing demand deposits, and 26.4% in savings and money market accounts. Average time certificates of deposit, the largest portion of interest-bearing deposit accounts, were $99,734,000 for 2002, $95,684,000 for 2001, and $98,438,000 for 2000, representing an increase of $4,050,000, or 4.2%, in 2002 compared to 2001, and a decrease of $2,754,000, or 2.8%, in 2001 from 2000.

                Average daily noninterest-bearing demand deposits, the majority of which are business checking accounts, increased $2,278,000 to $60,513,000 in 2002, from $58,235,000 for 2001, and stood at $53,724,000 for 2000.

                The remaining contractual maturities of the Company’s time certificates of deposit, including public time deposits, as of December 31, 2002 and 2001, are indicated in the following table. Interest expense on time certificates of deposit totaled $3,328,000 in 2002 and $4,804,000 in 2001. The decrease in interest expense on time certificates of deposit was due to the reduced interest rate environment that began in 2001 and includes the most recent rate cut in November 2002. The average yields paid on time certificates of deposit were 3.34% and 5.02% for the years ended December 31,2002 and 2001, respectively.

CONTRACTUAL MATURITY OF CERTIFICATES OF DEPOSITS

(Dollars in thousands)

	December 31, 2002				December 31, 2001
	$	100,000 and over	Under $100,000		$	100,000 and over	Under $100,000
Three Months or Less	$	17,563	$	35,663	$	18,430	$	25,164
Over Three Months Through Twelve Months	8,914		20,627		12,378		28,231
Over One Year Through Three Years	9,048		13,165		2,902		4,279
Over Three Years	1,849		2,722		1,101		792
Total	$	37,374	$	72,177	$	34,811	$	58,466

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OTHER LIABIILTIES

                Total other liabilities for the Company increased to $31,301,000 at December 31, 2002 compared to $3,611,000 at December 31, 2001. Total other liabilities consist of other borrowings, Mandatorily Redeemable Cumulative Trust Preferred Securities of Subsidiary Grantor Trust (“Trust Preferred Securities”), interest payable on interest-bearing liabilities, deferred compensation payable, and other miscellaneous liabilities. The increase of $27,690,000 at year-end 2002 from year-end 2001 in total other liabilities was principally due to $15,000,000 of borrowings at the FHLB as part of a leveraged investment strategy, and the issuance of $10,000,000 of Trust Preferred Securities.

INTEREST RATE SENSITIVITY

                Interest rate sensitivity is the relationship between market interest rates and net interest income (“NII”) due to the repricing characteristics of assets and liabilities. As interest rates change, interest income and expense also change thereby changing NII. If more liabilities reprice than assets in a given period, a liability sensitive position is created. If interest rates decline, a liability sensitive position will benefit NII. Alternatively, where assets reprice more quickly than liabilities in a given period (an asset sensitive position), a decline in market rates will have an adverse effect on NII.

                The following table depicts the Company’s interest rate sensitivity position as of December 31, 2002.

INTEREST RATE SENSITIVITY AS OF DECEMBER 31, 2002

(Dollars in thousands)

	Repricing Opportunity
	Three months or less			Over three months through 12 months			1 year - 3 years			Over 3 years		Total
Interest-Earning Assets:
Federal Funds Sold	$	18,245		$	—		$	—		$	—	$	18,245
Loans	143,583			12,285			7,388			51,172		214,428
Investments	5,613			2,777			16,333			75,516		100,239
Total Interest-Earning Assets	$	167,441		$	15,062		$	23,721		$	126,688	$	332,912
Interest-Bearing Liabilities:
Interest-Bearing Demand	$	60,801		$	—		$	—		$	—	$	60,801
Savings and Money Market Deposits	60,993			60,993			—			—		—
Time Certificates	53,225			42,912			8,842			4,572		109,551
Other Interest-Bearing Liabilities	1,335			40			40			25,000		26,415
Total Interest-Bearing Liabilities	$	176,354		$	42,952		$	8,882		$	29,572	$	257,760
Gap	(8,913		)	(27,890		)	14,839			97,116		75,152
Cumulative Gap	(8,913		)	(36,803		)	(21,964		)	75,152

                The above table indicates the time period in which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. However, this table does not necessarily indicate the impact of general interest rate movements on the Bank’s NII or yield because the repricing of various categories of assets and liabilities is discretionary and is subject to competitive and other pressures. As a result, various assets and liabilities indicated as maturing or repricing within the same period may in fact mature or reprice at different times and at different rate levels. For example,  although the Bank’s regular savings accounts generally are subject to immediate withdrawal, Management considers most of these accounts to be core deposits having significantly longer effective maturities based on the Bank’s experience of retention of such deposits in changing interest rate environments.

                Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The composition of the Company’s Balance Sheet is planned and monitored by the Asset and Liability Committee (“ALCO”), a committee comprised of the Bank’s executive management. The primary tool used by the ALCO to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations reflecting changes in interest rates over one and two-year time horizons has enabled Management to develop and initiate strategies for managing exposure to interest rate risks. The ALCO believes that both individually and in the aggregate its modeling assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation of exposure.

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MARKET RISK

                Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates and prices such as interest rates, foreign currency exchange rates, commodity prices, and equity prices. The Company’s primary market risk exposure is interest rate risk. The continuous monitoring and management of this risk is an important component of the Company’s asset and liability management process, which is governed by policies established by its Board of Directors, which are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset and liability management policies to the ALCO. In this capacity, Management develops guidelines and strategies impacting the Company’s asset and liability management related activities based upon estimated market risk sensitivity, policy limits, and overall market interest rate levels and trends.

INTEREST RATE RISK

                Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change thereby impacting NII,  the primary component of the Company’s earnings. The ALCO utilizes the results of the detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes.

                The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s Consolidated Balance Sheet as well as for off balance sheet financial instruments. This sensitivity analysis is compared to the ALCO policy limits that specify a maximum tolerance level for NII exposure over a one-year horizon, assuming no balance sheet growth, given both a 200 basis point (“bp”) upward and downward shift in interest rates (due to the reduced interest rate environment, only a 100 basis point downward shift was modeled for year 2002). A parallel shift in rate, pro-rated over a 12-month period, is assumed. The Bank’s policy limit threshold is that NII exposure shall not exceed 10% of estimated NII over the next 12 months. The following table reflects the Company’s NII sensitivity analysis as of December 31, 2002.

Rate change (bp)	Estimated benefit (exposure) as a% of annual projected NII
+200	4.14%
-100	(1.07)%

                The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of future operating results. These hypothetical estimates are based on numerous assumptions including the nature and timing of interest rate levels including yield curve shape, repayments on loans, leases, and securities, deposit rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in responding to or anticipating changes in interest rates.

24

LIQUIDITY

                The need for liquidity in a banking institution arises principally to provide for deposit withdrawals, the credit needs of its customers, and to take advantage of investment opportunities. A banking institution may achieve desired liquidity from both assets and liabilities. The Company considers cash and deposits held in other banks, federal funds sold, other short-term investments, maturing loans and investments, receipts of principal and interest on loans, investments available for sale, and potential loan sales as sources of asset liquidity. Deposit growth and access to credit lines established with correspondent banks and market sources of funds are considered by the Company as sources of liability liquidity.

                Historically, during the first half of each year the Bank experiences excess liquidity. The Bank’s seasonal agricultural and construction loan demand, which typically occurs each year from early June through late October, tends to absorb excess liquidity and usually results in a net borrowed position during that time frame.

                The Bank’s short-term liquid assets consist of cash and due from banks, federal funds sold and investment securities with maturities of one year or less (exclusive of pledged securities). Irrespective of maturity, U.S. Government and Agency securities qualify as collateral for borrowings at the FHLB, Federal Reserve Bank, and with broker-dealers.

                The Company’s short-term liquid assets totaled $48,436,000 and $29,685,000 and at December 31, 2002 and 2001, respectively. Short-term liquid assets as a percentage of total assets were 13.2% and 9.7%, respectively as of those dates.

                In order to fund its liquidity needs, the Bank maintains formal and informal borrowing arrangements with the Federal Reserve Bank to meet unforeseen deposit outflows or seasonal loan funding demands. The Bank has also entered an agreement to borrow funds from the FHLB secured by U.S. Government and Agency obligations in the Bank’s investment portfolio. As of December 31, 2002 and December 31, 2001, the Bank had $15,000,000 and $0 outstanding on these lines, respectively. Liquidity is also affected by collateral requirements of the Bank’s public deposit and certain borrowings. Total pledged securities were $72,244,000 at December 31, 2002 and $50,808,000 at December 31, 2001.

                The Bank monitors its credit facility availability and unencumbered qualifying collateral in conjunction with its asset and liability management process. Policy limits are established and monitored for maximum borrowings and minimum contingency liquidity levels.

                Management believes the Company maintains adequate amounts of liquidity to meet its needs.

CAPITAL RESOURCES

                The Company and the Bank are subject to requirements of the Federal Reserve Board (“FRB”) and FDIC, respectively,  governing capital adequacy. These regulations are intended to reflect the degree of risk associated with both on and off balance sheet items. Financial institutions are expected to comply with a minimum ratio of qualifying total capital to risk-weighted assets of 8.0%. At least half of which must be in Tier 1 Capital, as defined by the regulations. Federal regulatory agencies have also adopted a minimum leverage ratio of 4.0%, which is intended to supplement the risk-based capital requirements and to ensure that all financial institutions continue to maintain a minimum level of core capital.

                Total shareholders’ equity on December 31, 2002, increased by $1,601,000 to $29,056,000 over December 31, 2001 total shareholders’equity of $27,455,000. The increase is attributed to net income during 2002 of $3,911,000, an increase of $417,000 in the accumulated other comprehensive income associated with the market value adjustment on the Bank’s Available-for-Sale securities, an increase of $234,000 associated with stock options exercised, and a decrease of $40,000 to the Bank’s guarantee of its Employee Stock Ownership debt. These increases to shareholder’s equity were offset by cash dividends paid in the amount of $944,000, cash paid in lieu of fractional shares related to the Company’s 5% stock dividend in the amount of $10,000, stock repurchase on the open market in the amount of $140,000, and a stock tender offer in the amount of $1,907,000. As can be seen by the following table, the Company and Bank exceeded all regulatory capital ratios on December 31, 2002.

25

RISK BASED CAPITAL RATIO

As of December 31, 2002

(Dollars in thousands)

	Company				Bank
	Amount		Ratio		Amount		Ratio
Tier 1 and Total Capital Ratios
Tier 1 Capital	$	37,182	14.0	%	$	29,609	11.2	%
Tier 1 Capital Minimum Requirement	10,598		4.0	%	10,584		4.0	%
Excess	$	26,584	10.0	%	$	19,025	7.2	%
Total Capital	41,238		15.6	%	32,956		12.5	%
Total Capital Minimum Requirement	21,196		8.0	%	21,169		8.0	%
Excess	$	20,042	7.6	%	$	11,787	4.5	%
Risk-Adjusted Assets	$	264,950			$	264,609
Leverage Capital Ratio
Tier 1 Capital to Quarterly Average Total Assets	$	37,182	10.5	%	$	29,609	8.4	%
Minimum Leverage Requirement	14,162		4.0	%	14,145		4.0	%
Excess	$	23,020	6.5	%	$	15,464	4.4	%
Total Quarterly Average Assets	$	354,057			$	353,621

                Stock Repurchase Plan

                On November 13, 2001, CIB’s Board of Directors approved a plan to repurchase, as conditions warrant, up to 5% of the Company’s common stock on the open market. The duration of the plan is open-ended and the timing of purchases is dependent upon market conditions. During 2002, CIB purchased 7,419 shares of its own common stock pursuant to the plan, which are the total shares repurchased since the plan’s inception. Under California law, CIB must retire all repurchased shares.

                Tender Offer

                CIB’s Board of Directors approved a “Dutch Auction” Tender Offer to purchase up to 200,000 shares of its outstanding common stock at a price per share of not less than $22.00 nor more than $25.00 per share. The tender offer commenced on November 27, 2002 and expired on December 30, 2002. Under this offer, CIB purchased 76,292 shares of its common stock that were properly tendered at a price of $25.00 per share. Due to restrictions from our transfer agent regarding 517 lost shares, 75,775 shares were actually retired in 2002, while the 517 shares were retired in January 2003.

                Shareholder Rights Plan

                CIB’s Board of Directors adopted a Shareholder Rights Plan after careful consideration of its long-term business strategy. Under the Rights Plan, Rights were distributed as a dividend at the rate of one Right for each share of common stock held by shareholders of record as of the close of business on December 2, 2002.

                The Rights were distributed as a non-taxable dividend on all shares of CIB Common Stock and expire ten years from the date of adoption of the Rights Plan. The Rights will be exercisable only if, and only after ten days from when, a person or group acquires 15 percent or more of CIB’s Common Stock without direct negotiation with the Company’s Board of Directors who must amend the plan to permit any person or group to acquire 15 percent or more of CIB’s Common Stock.

                The Rights will trade with CIB’s Common Stock and will not be exercisable unless and until ten days after a person or group acquires 15 percent or more of CIB’s Common Stock. The Company’s Board of Directors may terminate the Rights Plan and the Rights prior to that time without the consent of, or compensation to, the holders of the Rights. A copy of the Rights Plan is filed with the Securities and Exchange Commission.

                Mandatorily Redeemable Cumulative Trust Preferred Securities of Subsidiary Grantor Trust (“Trust Preferred Securities”)

                On October 29, 2002, the Company issued $10,000,000 of Trust Preferred Securities. The issuance closed and funded on that day and the proceeds from the sale of the securities will be used for general corporate and strategic purposes. $1.9 million of the proceeds were used to purchase shares from the Company’s “Dutch auction” tender offer. A complete description of the Trust Preferred Securities is in Note 9 of the Notes to Consolidated Financial Statements.

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INFLATION

                It is Management’s opinion that the effects of inflation on the Company’s financial statements for the years ended December 31, 2002, 2001, and 2000 are not material.

SUPERVISION AND REGULATION

                CIB and the Bank operate in a highly regulated environment and are subject to supervision and examination by various federal and state regulatory agencies. CIB, as a bank holding company, is subject to regulation and supervision by primarily the FRB, and the Bank, as a California-chartered commercial bank, is subject to supervision and regulation by primarily the FDIC and the California Department of Financial Institutions (“DFI”). Federal and California state laws and regulations govern numerous matters involving both entities, including maintenance of adequate capital and financial condition, permissible types, amounts and terms of extensions of credit and investments, permissible non-banking activities, the level of reserves against deposits, and restrictions on dividend payments. The federal and state regulatory agencies possess extensive discretion and powers to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies. CIB and the Bank also undergo periodic examinations by one or more of these regulatory agencies, which may subject them to changes in asset valuations, in amounts of required loss allowances, and in operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examination. The Bank’s operations are also subject to a wide variety of state and federal consumer protection and similar statutes and regulations. Those and other restrictions limit the manner in which CIB and the Bank may conduct business and obtain financing. The laws and regulations to which CIB and the Bank are subject can and do change significantly from time to time, and such changes could materially affect the Company’s business, financial condition, and operating results.

                Corporate Reform Legislation

                President George W. Bush signed the Public Company Accounting Reform and Investor Protection Act of 2002 (the “Act”) on July 30, 2002, which responds to recent issues in corporate governance and accountability. Among other matters, key provisions of the Act provide for:

•Expanded oversight of the accounting profession by creating a new independent oversight board to be monitored by the SEC.

•Revised rules on auditor independence to restrict the nature of non-audit services provided to audit clients and to require such services to be pre-approved by the audit committee.

•Improved corporate responsibility through mandatory listing standards relating to audit committees, certifications of periodic reports by the CEO and CFO, and makes it a crime for an issuer to interfere with an audit.

•Enhanced financial disclosures, including periodic reviews for the largest issuers and real time disclosure of material company information.

•Enhanced criminal penalties for a broad array of white-collar crimes and increases in the statute of limitations for securities fraud lawsuits.

                The effect of the Act upon corporations is uncertain; however, it is likely that compliance costs may increase as corporations modify procedures if required to conform to the provisions of the Act. The Company does not currently anticipate that compliance with the Act will have a material effect upon its financial position or results of its operations or its cash flows.

                USA Patriot Act of 2001

                President Bush signed the USA Patriot Act of 2001 (“Patriot Act”) on October 26, 2001. This legislation was enacted in response to the terrorist attacks in New York, Pennsylvania, and Washington, D.C. on September 11, 2001. The Patriot Act is intended to strengthen U.S. law enforcement and the intelligence communities’ ability to work together to combat terrorism on a variety of levels. The potential impact of the Patriot Act on financial institutions is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including:

1)Due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.

2)Standards for verifying customer identification at account opening.

3)Rules to promote cooperation among financial institutions, regulators, and law enforcement entities to assist in the identification of parties that may be involved in terrorism or money laundering.

4)Reports to be filed by nonfinancial trades and business with the Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000.

5)The filing of suspicious activities reports by securities brokers and dealers if they believe a customer may be violating U.S. laws and regulations.

                Until all new regulations, rules or standards have been developed, the Company is not able to predict the impact of the new laws and regulations on its financial condition or results of operations.

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EFFECTS OF TERRORISM

                The terrorist acts of September 11, 2001, and thereafter, has had significant adverse effects upon the United States economy. It is uncertain whether and to what extent, if any, future terrorist activities, and the response of the United States and its allies in combating terrorism on a worldwide basis will adversely impact the Company. Such events, however, have had, and may continue to have, an adverse effect on the economy in the Company’s market areas. Such continued economic deterioration could adversely affect the Company’s future results of operations by, among other matters, reducing the demand for the Bank’s loans and other products, increasing nonperforming loans and the amounts reserved for loan losses, and causing a decline in the Company’s stock price.

CHANGES IN SENIOR MANAGEMENT

                On May 9, 2002, President and Chief Executive Officer Larry D. Hartwig retired from his officer and board of directors’ positions with CIB and the Bank, effective May 10, 2002. The Board of Directors appointed Director John I. Jelavich to serve as interim President and Chief Executive Officer for CIB and the Bank. On July 16, 2002, Mr. Jelavich accepted a permanent appointment to these positions.

                President and Chief Executive Officer Jelavich brings more than thirty years of banking experience to his positions. From 1988 to 1998, Mr. Jelavich served as the Regional Vice President for Union Bank of California’s Mid Valley Region. From 1999 through February of 2000, Mr. Jelavich served as a consultant to the president and chief executive officer of the Bank. He has served on the Boards of Directors of CIB and the Bank since March of 2000.

                On March 11, 2002, Chief Financial Officer and Corporate Secretary, Robert J. Lampert, submitted his resignation, effective March 25, 2002, from all positions held with CIB and the Bank. On March 25, 2002, the Board announced that Kevin R. Watson accepted the positions of Chief Financial Officer and Corporate Secretary for CIB and the Bank.

                Chief Financial Officer and Corporate Secretary, Kevin R. Watson, accepted the positions after serving as the Controller for the Bank. In June of 2002, he was named Senior Vice President. Mr. Watson came to the Bank in 2001 with more than twelve years of business experience.

                On October 15, 2002, the Board announced that Steven P. Olin was promoted to Senior Vice President, Regional Lending Manager. Mr. Olin joined the Bank in 1998 and has twenty-one years of experience in commercial banking in the Northern Sacramento Valley. Mr. Olin’s primary responsibilities include production of loans, deposits, and customer relationship management for commercial and agricultural clients in Yuba, Sutter, and Colusa counties.

CHANGE IN ACCOUNTANTS

                On March 28, 2002, the Company decided not to renew the engagement of Arthur Andersen LLP (“Andersen”) and appointed Perry-Smith LLP (“Perry-Smith”) as its new independent public accountant, effective on such date. This determination followed the Company’s decision to seek proposals from independent public accountants to audit the Company’s financial statements for the fiscal year ending December 31, 2002.

                The decision not to renew the engagement of Andersen and to retain Perry-Smith was approved by CIB’s Board of Directors upon the recommendation of its Audit Committee. The decision was based on proposals from national and regional accounting firms and reflected the Audit Committee’s judgment as to which firm was best suited to deliver external audits to the Company in light of relevant factors such as the firm’s depth of experience, breadth of resources, commitment to provide exceptional service, ability to handle transition issues, and location of key personnel.

28

INDEPENDENT AUDITOR'S REPORT

The Shareholders and Board of Directors

California Independent Bancorp and Subsidiaries

                We have audited the accompanying consolidated balance sheet of California Independent Bancorp and Subsidiaries (the “Company”) as of December 31, 2002 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of the Company as of December 31, 2001 and for each of the years in the two-year period then ended were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion, before restatement, on those financial statements in their report dated February 14, 2002.

                We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

                In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of California Independent Bancorp and Subsidiaries as of December 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

                As discussed above, the consolidated financial statements of California Independent Bancorp and Subsidiaries as of December 31, 2001 and for each of the years in the two-year period then ended were audited by other auditors who have ceased operations. As described in Note 18, these consolidated financial statements have been restated to increase previously reported shareholders’equity. We audited the adjustment described in Note 18 that was applied to restate the 2001 consolidated financial statements. In our opinion, such adjustment is appropriate and has been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2001 consolidated financial statements of the Company other than with respect to such adjustment and, accordingly, we do not express an opinion or any other form of assurance on the 2001 consolidated financial statements taken as a whole.

Sacramento, California

February 14, 2003

29

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSAS OF DECEMBER 31, 2002 AND 2001 (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

	2002			2001
ASSETS
Cash and Due From Banks	$	21,801		$	17,747
Federal Funds Sold	18,245			5,300
Cash and Cash Equivalents	40,046			23,047
Investment Securities Held-to-Maturity (Note 2)	2,265			3,604
Investment Securities Available-for-Sale (Note 2)	97,974			74,392
Total Investments	100,239			77,996
Loans and Leases (Notes 3, 10 and 15)	214,428			192,281
Less: Allowance for Loan and Lease Losses (Note 3)	(6,532		)	(5,498		)
Net Loans and Leases	207,896			186,783
Premises and Equipment, Net (Note 4)	6,731			6,937
Interest Receivable	2,070			2,091
Other Real Estate Owned	—			542
Cash Surrender Value of Insurance Policies	6,239			5,108
Deferred Taxes (Note 8)	1,594			1,458
Other Assets (Note 5)	2,268			2,680
Total Assets	$	367,083		$	306,642
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (Note 6):
Noninterest-Bearing	$	75,381		$	69,968
Interest-Bearing	231,345			205,608
Total Deposits	306,726			275,576
Interest Payable	1,407			1,247
Federal Home Loan Bank Borrowings (Note 7)	15,000			—
Other Borrowings (Note 13)	80			120
Mandatorily Redeemable Cumulative Trust Preferred Securities of Subsidiary Grantor Trust (Note 9)	10,000			—
Other Liabilities	4,814			2,244
Total Liabilities	338,027			279,187
Commitments and Contingencies (Note 10)
SHAREHOLDERS' EQUITY (Notes 11 and 12):
Common Stock, No Par Value—Shares Authorized —20,000,000, Shares Issued and Outstanding —2,152,751 in 2002 and 2,115,419 in 2001	22,600			22,322
Retained Earnings	5,589			4,723
Debt Guarantee of ESOP	(80		)	(120		)
Accumulated Other Comprehensive Income (Notes 2 and 16)	947			530
Total Shareholders’ Equity	29,056			27,455
Total Liabilities and Shareholders’Equity	$	367,083		$	306,642

The accompanying notes are an integral part of these consolidated financial statements.

30

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

	2002		2001		2000
INTEREST INCOME
Interest and Fees on Loans and Leases	$	15,754	$	16,434	$	16,562
Interest on Investments—
Taxable Interest Income	5,022		4,347		5,815
Nontaxable Interest Income	66		93		119
Interest on Federal Funds Sold	78		484		630
Total Interest Income	20,920		21,358		23,126
INTEREST EXPENSE
Interest on Deposits (Note 6)	4,450		6,902		8,956
Interest on Other Borrowings (Notes 7 and 9)	706		120		514
Total Interest Expense	5,156		7,022		9,470
Net Interest Income	15,764		14,336		13,656
PROVISION FOR LOAN AND LEASE LOSSES (Note 3)	550		2,450		200
Net Interest Income After Provision for Loan and Lease Losses	15,214		11,886		13,456
NONINTEREST INCOME
Service Charges on Deposit Accounts	1,271		1,083		1,009
Brokered Loan Fees	172		158		112
Loan Servicing Fees	298		366		489
Other (Note 14)	988		697		1,134
Total Noninterest Income	2,729		2,304		2,744
NONINTEREST EXPENSE
Salaries and Employee Benefits (Notes 3 and 13)	6,664		6,887		6,133
Occupancy Expense (Notes 4 and 10)	820		822		726
Furniture and Equipment Expense (Note 4)	1,261		1,171		1,170
Other (Note 14)	3,189		3,314		3,777
Total Noninterest Expense	11,934		12,194		11,806
Income Before Provision for Income Taxes	6,009		1,996		4,394
PROVISION FOR INCOME TAXES (Note 8)	2,098		587		1,675
NET INCOME	$	3,911	$	1,409	$	2,719
PER SHARE AMOUNTS
Basic Earnings Per Share (Note 11)	$	1.76	$	0.64	$	1.23
Diluted Earnings Per Share (Note 11)	1.74		0.62		1.23
Cash Dividends Per Common Share	0.42		0.40		0.38

The accompanying notes are an integral part of these consolidated financial statements.

31

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)

	Common Stock					Retained Earnings			Debt Guarantee of ESOP			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount
BALANCE DECEMBER 31, 1999 AS PREVIOUSLY REPORTED	1,904,618		$	17,951		$	6,233		$	—		$	(949	)	$	23,235
Prior Period Adjustment (Note 18)	—		—			242			—			—			242
BALANCE DECEMBER 31, 1999 RESTATED	1,904,618		$	17,951		$	6,475		—			$	(949	)	$	23,477
Comprehensive Income (Note 16):
Net Income	—		—			2,719			—			—			2,719
Other Comprehensive Income, Net of Tax:
Net Unrealized Investment Gains	—		—			—			—			705			705
Comprehensive Income															3,424
ESOP Debt Guarantee	—		—			—			(200		)	—			(200		)
Reduction of ESOP Debt	—		—			—			40			—			40
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares	94,881		1,830			(1,838		)	—			—			(8		)
Options Exercised	14,695		103			—			—			—			103
Shares Surrendered From Exercise of Options	(5,228	)	(33		)	—			—			—			(33		)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	—		59			—			—			—			59
Cash Dividends	—		—			(850		)	—			—			(850		)
BALANCE DECEMBER 31, 2000, RESTATED	2,008,966		$	19,910		$	6,506		$	(160	)	$	(244	)	$	26,012
Comprehensive Income (Note 16):
Net Income	—		—			1,409			—			—			1,409
Other Comprehensive Income, Net of Tax:
Net Unrealized Investment Gains	—		—			—			—			774			774
Comprehensive Income															2,183
Reduction of ESOP Debt	—		—			—			40			—			40
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares	99,957		2,285			(2,297		)	—			—			(12		)
Options Exercised	6,724		116			—			—			—			116
Shares Surrendered From Exercise of Options	(228	)	(5		)	—			—			—			(5		)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	—		16			—			—			—			16
Cash Dividends	—		—			(895		)	—			—			(895		)
BALANCE DECEMBER 31, 2001, RESTATED	2,115,419		$	22,322		$	4,723		$	(120	)	$	530		$	27,455
Comprehensive Income (Note 16):
Net Income	—		—			3,911			—			—			3,911
Other Comprehensive Income, Net of Tax:
Net Unrealized Investment Gains	—		—			—			—			417			417
Comprehensive Income															4,328
Reduction of ESOP Debt	—		—			—			40			—			40
5% Stock Dividend With Cash Paid in Lieu of Fractional Shares	105,405		2,091			(2,101		)	—			—			(10		)
Options Exercised	15,121		189			—			—			—			189
Repurchase of Common Stock	(7,419	)	(140		)	—			—			—			(140		)
Shares Retired from Tender Offer	(75,775	)	(1,907		)	—			—			—			(1,907		)
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	—		45			—			—			—			45
Cash Dividends	—		—			(944		)	—			—			(944		)
BALANCE DECEMBER 31, 2002	2,152,751		$	22,600		$	5,589		$	(80	)	$	947		$	29,056

The accompanying notes are an integral part of these consolidated financial statements.

32

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS)

	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	3,911		$	1,409		$	2,719
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization	979			920			997
Provision for Losses on Other Real Estate Owned	—			—			140
Provision for Loan and Lease Losses	550			2,450			200
Provision for Deferred Taxes	—			—			832
Gain on Sale of Loans and Leases, Net	(6		)	—			—
Loss on Disposal of Investment Securities	55			—			—
Gain on Sale of Other Real Estate Properties, Net	(143		)	(14		)	(292		)
(Gain) Loss on Sale of Premises and Equipment	(14		)	24			(19		)
(Increase) Decrease in Assets:
Interest Receivable	21			748			443
Deferred Taxes	(478		)	475			761
Cash Surrender Value of Insurance Policies	(251		)	(238		)	(222		)
Income Tax Receivable	979			(915		)	176
Net Assets From Discontinued Operations	—			63			(338		)
Other Assets	(567		)	433			(1,229		)
Increase (Decrease) in Liabilities:
Interest Payable	160			(633		)	346
Deferred Compensation Payable	480			304			178
Other Liabilities	2,135			(297		)	(193		)
Net Cash Provided By Operating Activities	$	7,811		$	4,729		$	4,499
CASH FLOWS FROM INVESTING ACTIVITIES
Net Increase in Loans and Leases	(21,815		)	(16,220		)	(18,941		)
Purchase of Securities Available-for-Sale	(46,219		)	(43,441		)	(16,046		)
Proceeds From Maturity of Securities Held-to-Maturity	520			1,580			10,712
Proceeds From Sales, Maturities and Calls of Securities Available-for-Sale	24,160			46,923			11,026
Proceeds From Sales of Other Real Estate Owned	843			154			1,092
Purchases of Premises and Equipment, Net	(759		)	(901		)	(614		)
Purchase of Life Insurance Policies	(880		)	—			—
Net Cash Used for Investing Activities	$	(44,150	)	$	(11,905	)	$	(12,771	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Noninterest-Bearing Deposits	5,413			5,972			3,512
Net Increase (Decrease) in Interest-Bearing Deposits	25,737			1,972			(9,339		)
Net Increase (Decrease) in Borrowed Funds	15,000			(4,000		)	4,000
Proceeds From Mandatorily Redeemable Cumulative Trust Preferred Securities	10,000			—			—
Repurchase of Common Stock	(2,047		)	—			—
Cash Dividends	(944		)	(895		)	(850		)
Stock Options Exercised	189			127			129
Cash Paid in Lieu of Fractional Shares	(10		)	(12		)	(8		)
Net Cash Provided by (Used For) Financing Activities	$	53,338		$	3,164		$	(2,556	)
Net Increase (Decrease) in Cash and Cash Equivalents	$	16,999		$	(4,012	)	$	(10,828	)
Cash and Cash Equivalents, Beginning of Year	$	23,047		$	27,059		$	37,887
Cash and Cash Equivalents, End of Year	$	40,046		$	23,047		$	27,059
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest Expense	$	4,996		$	7,656		$	9,124
Income Taxes	1,173			730			1,375
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Debt Guarantee of ESOP	(40		)	(40		)	160
Net Unrealized Gain On Securities Held as Available-for-Sale (Net of Taxes)	417			774			705
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	45			16			59
Stock Dividends	2,091			2,285			1,830
Increase in Other Real Estate Owned as a Result of Foreclosure	158			278			—

The accompanying notes are an integral part of these consolidated financial statements.

33

CALIFORNIA INDEPENDENT BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                The accounting and reporting policies of California Independent Bancorp and its Subsidiaries (the “Company”) conform with accounting principles generally accepted in the United States of America and general practice within the banking industry. The more significant of these policies applied in the preparation of the accompanying financial statements are discussed below.

                General

                California Independent Bancorp (“CIB”) is a California corporation and the holding company for Feather River State Bank (the “Bank”), located in Yuba City, California. The Bank was incorporated as a California state banking corporation on December 1, 1976, and commenced operations on April 6, 1977. CIB was incorporated on October 28, 1994, and became the holding company for the Bank on May 2, 1995. The Bank engages in a broad range of financial services activities, and its primary market is located in the Sacramento Valley, with a total of nine branches. The main source of income for the Bank is from lending activities, including commercial, agricultural, real estate, consumer, and installment loans and leases. CIB formed a nonbank subsidiary, CIB Capital Trust, for the sole purpose of issuing trust preferred securities on October 2, 2002.

                Principles of Consolidation

                The consolidated financial statements include the accounts of CIB and its wholly-owned subsidiaries, Feather River State Bank, E.P.I. Leasing Company, Inc. (“EPI”) and CIB Capital Trust. Significant intercompany transactions and balances have been eliminated in consolidation.

                Use of Estimates

                The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

                Material estimates that are particularly susceptible to significant changes in the near-term relate to the determination of the allowance for loan and lease losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan and lease losses and other real estate, management obtains independent appraisals for significant properties, evaluates the overall loan and lease portfolio characteristics and delinquencies and monitors economic conditions.

                Cash and Cash Equivalents

                For the purpose of reporting the statement of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. Generally, Federal funds are sold for one-day periods.

                Investment Securities

                Investments are classified into the following categories:

•Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported,  net of taxes, as accumulated other comprehensive income within shareholders’ equity.

•Held-to-maturity securities, which management has the positive intent and ability to hold to maturity, are reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums.

                Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value.

                Gains or losses on the sale of investment securities are computed on the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums. In addition, unrealized losses that are other than temporary are recognized in earnings for all investments.

                Loans and Leases

                Loans and leases are stated at the principal amount outstanding less applicable unearned interest income. Interest is accrued daily based upon outstanding loan and lease balances. However, when, in the opinion of management, loans and leases are considered to be impaired and the future collectibility of interest and principal is unlikely, loans and leases are placed on nonaccrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received are applied to reduce the principal balance until collectibility of the remaining principal and interest can be reasonably assured. Subsequent payments on these loans and leases, or payments received on nonaccrual loans or leases for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal.

                A loan or lease is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan or lease agreement. An impaired loan or lease is measured based on the present value of expected future cash flows discounted at the loan or lease’s effective interest rate or, as a practical matter, at the loan or lease’s observable market price or the fair value of collateral if the loan or lease is collateral dependent.

34

                Interest and Fees on Loans and Leases

                Origination fees and commitment fees, offset by certain direct loan and lease origination costs, are deferred and recognized over the contractual life of the loan as a yield adjustment. Interest income on loans and direct lease financing is accrued monthly as earned on all credits not classified as nonaccrual. Unearned income on loans or leases, where applicable, is recognized as income using the effective interest method over the term of the loan or lease.

                Loans and leases are generally placed on nonaccrual status when the timely collection of future interest or principal becomes uncertain, when they are 90 days past due as to either interest or principal, or are otherwise determined to be impaired. At that time, any accrued but uncollected interest is reversed, and additional income is recorded on a cash basis as payments are received. However, loans and leases that are well-secured and in the process of collection may not be placed on nonaccrual status, at the discretion of Management. A nonaccrual loan or lease may be restored to an accrual basis when interest and principal payments are current and prospects for future payments are no longer in doubt.

                Allowance for Loan and Lease Losses

                The allowance for loan and lease losses (“ALLL”) is maintained to cover probable credit losses related to specifically identified loans as well as probable credit losses inherent in the remainder of the loan portfolio that have been incurred as of the balance sheet date. The provision for loan and lease losses is charged to operating income in sufficient amounts to maintain the allowance for loan and lease losses at an adequate level at the balance sheet date. Actual credit losses for loans and leases, which may be for all or part of a particular loan or lease, are deducted from the allowance and the related loan or lease balances are charged-off in the period in which the balances are deemed uncollectible. Recoveries of loans previously charged-off are added to the allowance when received.

                Management employs a methodology for estimating the allowance for loan and lease losses that is consistent with recognition principles related to loss contingencies and the measurement of loan impairment as well as regulatory guidance promulgated by the FDIC. Management’s methodology considers a number of quantitative and qualitative factors that may influence the Company’s ultimate loan and lease losses. Significant quantitative factors include the amount and type of loans and leases outstanding, the level of classified loans, historical loss rates and the level of impaired loans. Significant qualitative factors include recent examination findings by regulators and internal credit examiners, trends in loan concentrations,  delinquencies, local economic conditions and the relative strengths or weaknesses of the credit management function.

                Management believes the allowance for loan and lease losses is adequate at December 31, 2002; however, ultimate losses may vary from their estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings during the periods they become known. In addition, the FDIC and the California Department of Financial Institutions, as an integral part of their examination process, review the allowance for loan and lease losses. These agencies may require additions to the allowance for loan and lease losses based on their judgment about information available at the time of their examinations.

                Sales and Servicing of SBA Loans

                The Bank originates loans to customers under the Small Business Administration (“SBA”) program that generally provides for SBA guarantees of 70% to 90% of each loan. The Bank usually maintains these loans in its portfolio, but occasionally sells the guaranteed portion of each loan to a third party and retains the unguaranteed portion in its own portfolio. The Bank may be required to refund a portion of the sales premium received, if the borrower defaults or the loan prepays within 90 days of the settlement date. At December 31, 2002, the Bank had received no premiums subject to such recourse. A gain is recognized on the sale of SBA loans through collection on sale of a premium over the adjusted carrying value, through retention of an ongoing rate differential (less adequate compensation for servicing the loan) between the rate paid by the borrower to the buyer and the rate paid by the Bank to the purchaser, or both.

                Servicing rights acquired through 1) a purchase or 2) the origination of loans which are sold or securitized with servicing rights retained are recognized as separate assets or liabilities. Servicing assets or liabilities are recorded at the difference between the contractual servicing fees and adequate compensation for performing the servicing, and are subsequently amortized in proportion to and over the period of the related net servicing income or expense. Servicing assets are periodically evaluated for impairment. Servicing assets were not considered material for disclosure purposes.

                Bank Premises and Equipment

                Bank premises and equipment are stated at cost, less accumulated depreciation. Depreciation on premises, furniture, fixtures, and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 31.5 years. Leasehold improvements are amortized using the straight-line method over the asset’s useful life or the term of the lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. Expenditures for major renewals and improvements of bank premises and equipment are capitalized, and those for maintenance and repairs are charged to expense as incurred.

35

                Other Real Estate Owned

                Other real estate owned (“OREO”) represents properties acquired by the Bank in full or partial payment settlement of loan obligations. At the time the property is acquired, if the estimated fair value is less than the amount outstanding on the loan,  the difference is charged against the allowance for loan and lease losses. Subsequent declines in estimated fair value, if any,  are charged to expense. At December 31, 2002, no other real estate owned was held. At December 31, 2001, $542, 000 was held as other real estate owned.

                Salary Continuation Plans

                The Company negotiated salary continuation agreements with five key executives (including former executives), or their designated beneficiaries, with annual benefits for a specified number of years after retirement or death. These benefits are substantially equivalent to those available under insurance policies purchased by the Company on the lives of the executives. The Company accounts for these future benefits as deferred compensation agreements. The cost of these benefits is accrued over the period of the employee’s service in a systematic and rational manner. At the balance sheet date, the amount of accrued benefits equals the then present value of the benefits expected to be provided to the employee, any beneficiaries, and covered dependents in exchange for the employee’s service to that date.

                Income Taxes

                The Company files its income taxes on a consolidated basis with its subsidiary. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for income taxes.

                Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

                Stock-Based Compensation

                At December 31, 2002, the Company has three stock-based employee compensation plans, the Feather River State Bank 1989 Amended and Restated Stock Option Plan, the California Independent Bancorp 1996 Stock Option Plan, and the California Independent Bancorp 2000 Stock Option Plan (the “Plans”) which are described more fully in Note 11. The Company accounts for the Plans under the recognition and measurement principles of APB Opinion No.25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the Plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

                For purposes of pro forma disclosures, the estimated fair value of stock-based compensation plans and other options is amortized to expense primarily over the vesting period. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No.123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

(Dollars in thousands, except share data)	2002			2001			2000
Net Income, As Reported	$	3,911		$	1,409		$	2,719
Deduct Total Stock-Based Employee Compensation Expense Determined Under the Fair Value Based Method for all Awards, Net of Related Tax Effects	(334		)	(75		)	(51		)
Pro Forma Net Income	$	3,577		$	1,334		$	2,668
Basic Earnings Per Share:
As Reported	$	1.76		$	0.64		$	1.23
Pro Forma	$	1.61		$	0.60		$	1.21
Diluted Earnings Per Share:
As Reported	$	1.74		$	0.62		$	1.23
Pro Forma	$	1.59		$	0.59		$	1.21

                As required, the pro forma disclosures above include options granted since January 1, 1995. Consequently, the effects of applying FASB Statement No.123 for providing pro forma disclosures may not be representative of the effects on reported net income for future years until all options outstanding are included in the pro forma disclosures.

36

                The fair value of each option is estimated on the date of grant using an option-pricing model with the following assumptions:

	2002			2001			2000
Weighted Average Fair Value of Options Granted	$	5.93		$	8.88		$	7.70
Dividend Yield	2.24		%	1.78		%	2.13		%
Expected Volatility	30.24		%	30.77		%	30.77		%
Risk-Free Interest Rate	3.61		%	4.96		%	6.08		%
Expected Option Life	7.50 Years			7.50 Years			7.50 Years

                Earnings Per Share

                Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Company. All data with respect to computing earnings per share is retroactively adjusted to reflect stock dividends and the treasury stock method is applied to determine the dilutive effect of stock options in computing diluted EPS.

                Comprehensive Income

                Comprehensive income is reported in addition to net income for all periods presented. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income or loss that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income or loss. Total comprehensive income or loss and the components of accumulated other comprehensive income or loss are presented in the Consolidated Statements of Changes in Shareholders’ Equity.

                Reclassifications

                Certain reclassifications have been made to amounts previously reported to conform with current presentation methods. Such reclassifications have no effect on net income or shareholders’equity previously reported.

                Financial Accounting Pronouncements

                In July 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, ”Business Combinations”(“SFAS No. 141”), and SFAS No. 142, ”Goodwill and Other Intangible Assets”(“SFAS No. 142”). These Statements change the method of accounting for business combinations and goodwill in two significant ways. First, SFAS No. 141 prohibits the use of the pooling of interests method and requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. Second, SFAS No. 142 changes the accounting method for goodwill from an amortization method to an impairment-only approach. As a result, goodwill will be accounted for as an asset unless it declines in value. Companies will be required to test their goodwill valuation periodically for “impairment”or loss and to recognize any change on their books. The amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of SFAS No. 142. On January 1, 2002, the Company adopted SFAS No. 141 and SFAS No. 142. Management does not believe that these Statements had a material impact on the Company’s consolidated financial position or results of operations.

                In October 2002, the FASB issued SFAS No. 147, ”Acquisitions of Certain Financial Institutions”(“SFAS No. 147”). This Statement, which addresses financial accounting and reporting matters for the acquisition of all or part of a financial institution, applies to all such transactions except those between two or more mutual enterprises. This statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of SFAS No. 72, ”Accounting for Certain Acquisitions of Banking or Thrift Institutions”, and related interpretations. This Statement requires a financial institution to apply SFAS No. 144 and evaluate long-term customer relationship intangible assets (core deposit intangible) for impairment. Under SFAS No. 72, a financial institution may have recorded an unidentifiable intangible asset arising from a business combination. If certain criteria in SFAS No. 147 are met, the amount of the unidentifiable intangible asset will be reclassified to goodwill upon adoption of this Statement and any amortization amounts that were incurred after the adoption of SFAS No. 142 must be reversed. Reclassified goodwill would then be measured for impairment under the provisions of SFAS No. 142. Provisions of this Statement are applicable on or after October 1, 2002. In Management’s opinion, the adoption of this Statement did not have a material effect on the Company’s consolidated financial position or results of operations.

                In December 2002, the FASB issued SFAS No. 148, ”Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123”(“SFAS No. 148”). This Statement amends SFAS No. 123,  “Accounting for Stock-Based Compensation”(“SFAS No. 123”), to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reporting containing financial statements for interim periods beginning after December 15, 2002. Because the Company accounts for the compensation

37

cost associated with its stock option plans under the intrinsic value method, the alternative methods of transition will not apply to the Company. The additional disclosure requirements of the statement are included in these financial statements. In Management’s opinion, the adoption of this Statement did not have a material impact on the Company’s consolidated financial position or results of operations.

2          INVESTMENT SECURITIES

                The amortized cost and approximate fair value of investments in debt securities, mortgage backed securities, and other investments at December 31, 2002 and 2001 were as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
December 31, 2002
Available-for-Sale:
Obligations of U.S. Government Agencies	$	34,061	$	527	$	(2	)	$	34,586
Mortgage-Backed Securities	48,688		1,380		—			50,068
Debt Securities	8,508		221		—			8,729
Equity Securities	4,994		47		(450		)	4,591
	$	96,251	$	2,175	$	(452	)	$	97,974
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	1,265	$	62	$	—		$	1,327
Debt and Other Securities	1,000		4		—			1,004
	$	2,265	$	66	$	—		$	2,331
December 31,2001
Available-for-Sale:
Obligations of U.S. Government Agencies	$	39,184	$	1,028	$	(127	)	$	40,085
Mortgage-Backed Securities	19,588		386		(102		)	19,872
Debt Securities	8,606		132		(1		)	8,737
Equity Securities	6,049		69		(420		)	5,698
	$	73,427	$	1,615	$	(650	)	$	74,392
Held-to-Maturity:
Obligations of States and Political Subdivisions	$	1,854	$	57	$	—		$	1,911
Debt and Other Securities	1,750		37		—			1,787
	$	3,604	$	94	$	—		$	3,698

                As of December 31, 2002 and 2001, the Bank’s equity capital reflected a net unrealized gain on the Bank’s “Available-for-Sale” investment securities, net of applicable taxes, of $947,000 and $530,000, respectively.

                The following table shows the amortized cost and estimated fair value of investment securities by contractual maturity at December 31, 2002 and 2001. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollars in thousands)	Held-to-Maturity				Available-for-Sale
	Amortized		Fair		Amortized		Fair
	Costs		Value		Costs		Value
December 31, 2002
No Stated Contractual Maturity	$	—	$	—	$	4,994	$	4,591
Within One Year	1,700		1,725		2,056		2,099
After One But Within Five Years	565		606		19,474		19,945
After Five But Within Ten Years	—		—		15,840		16,263
After 10 Years	—		—		53,887		55,076
Total	$	2,265	$	2,331	$	96,251	$	97,974
December 31, 2001
No Stated Contractual Maturity	$	—	$	—	$	6,049	$	5,698
Within One Year	589		593		6,032		6,225
After One But Within Five Years	2,870		2,952		25,046		23,776
After Five But Within Ten Years	145		153		10,283		15,063
After 10 Years	—		—		26,017		23,630
Total	$	3,604	$	3,698	$	73,427	$	74,392

                There were no sales of “Available-for-Sale”investment securities in 2002, 2001, or 2000.

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                Investment securities with amortized costs totaling $72,242,000 and $50,808,000 and market values totaling $74,079,000 and $51,648,000 were pledged as collateral for certain lines of credit and deposits at December 31, 2002 and 2001, respectively.

3              LOANS

                Loans outstanding are summarized as follows:

(Dollars in thousands)	December 31
	2002			2001
Commercial	$	25,375		$	26,691
Agricultural	17,536			13,329
Real Estate-Construction	35,287			32,268
Real Estate-Mortgage	125,094			101,536
Consumer	4,391			4,827
Lease Financing	5,891			11,654
Other	1,905			2,755
	215,479			193,060
Deferred Loan Fees, Net	(1,051		)	(779		)
Allowance for Loan and Lease Losses	(6,532		)	(5,498		)
	$	207,896		$	186,783

                The recorded investment in loans and leases that were considered to be impaired totaled $4,392,000 and $3,060,000 at December 31, 2002 and 2001, respectively. The related allowance for loan and lease losses on these impaired loans at December 31, 2002 and 2001 were $1,641,000 and $1,080,000, respectively. The average recorded investment in impaired loans during 2002, 2001 and 2000 was $4,964,000, $4,444,000 and $7,438,000, respectively. Interest income on impaired loans is recognized on a cash basis and totaled $274,000, $291,000 and $270,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

                Interest foregone on nonaccrual loans totaled $424,000, $597,000 and $744,000 for the years ended December 31, 2002, 2001 and 2000, respectively.

                Salaries and employee benefits totaling $355,000, $373,000 and $409,000 have been deferred as loan origination costs for the years ended December 31, 2002, 2001 and 2000, respectively.

                Changes in the allowance for loan and lease losses are summarized as follows:

(Dollars in thousands)	Years Ended December 31,
	2002			2001			2000
Balance, Beginning of Year	$	5,498		$	5,724		$	6,770
Provision	550			2,450			200
Loans Charged-Off	(442		)	(3,109		)	(1,740		)
Recoveries on Loans Previously Charged-Off	926			433			494
Balance, End of Year	$	6,532		$	5,498		$	5,724

4              PREMISES AND EQUIPMENT

                A summary of premises and equipment follows:

(Dollars in thousands)	December 31,
	2002			2001
Land	$	1,316		$	1,316
Bank Premises and Improvements	6,031			5,963
Furniture, Fixtures and Equipment	5,554			5,447
	12,901			12,726
Less Accumulated Depreciation and Amortization	(6,170		)	(5,789		)
Total Premises and Equipment	$	6,731		$	6,937

                Depreciation and amortization charged to expense was $979,000, $920,000, and $967,000 in 2002, 2001, and 2000, respectively.

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5          OTHER ASSETS

                Other assets consisted of the following:

(Dollars in thousands)	December 31,
	2002		2001
Prepaid expenses	$	344	$	501
FHLB Stock	895		361
Investment in Affordable Housing	749		775
Other	280		1,043
Total Other Assets	$	2,268	$	2,680

                The Bank invested in a limited partnership that operates qualified affordable housing projects to receive tax benefits in the form of tax deductions from operating losses and tax credits. The Bank accounts for the investment under the equity method and management analyzes the investment annually for potential impairment.

6          DEPOSITS

                A summary of deposit balances follows:

(Dollars in thousands)	December 31,
	2002		2001
Demand	$	75,381	$	69,968
Interest-Bearing Transaction Accounts	77,080		70,628
Savings Deposits	44,714		41,703
Time Certificate of Deposits	109,551		93,277
Total Deposits	$	306,726	$	275,576

                Interest expense recognized on interest-bearing deposits consisted of the following:

(Dollars in thousands)	Years Ended December 31,
	2002		2001		2000
Interest-Bearing Transaction Accounts	717		1,363		2,340
Savings Deposits	405		735		996
Time Certificate of Deposits	3,328		4,804		5,620
Total Interest Expense on Deposits	$	4,450	$	6,902	$	8,956

                At December 31, 2002, the scheduled contractual maturities of all time certificates of deposit were as follows:

(Dollars in thousands)	December 31, 2002
Three Months or Less	$	53,226
Over Three Through Twelve Months	42,911
Over One Through Three Years	8,842
Over Three Years	4,572
Total	$	109,551

7              LONG TERM DEBT AND OTHER BORROWING ARRANGEMENTS

                The Bank maintains secured lines of credit with the Federal Home Loan Bank (“FHLB”) and the Federal Reserve Bank, against which the Bank may take advances. The terms of these credit facilities require the Bank to maintain in safekeeping with the FHLB or Federal Reserve Bank, as applicable, eligible collateral of at least 100% of outstanding advances. To provide borrowing capacity for short-term liquidity needs, as of December 31, 2002 and 2001, the Company had $53,245,000 and $37,632,000 in loans and investment securities in safekeeping and pledged to the FHLB, respectively, and $7,000,000 and $8,000,000 in safekeeping and pledged to the Federal Reserve Bank, respectively. At December 31, 2001, there were no amounts outstanding on the FHLB line of credit. At December 31, 2002 and 2001, there were no amounts outstanding on the Federal Reserve Bank line of credit.

                The interest rates on FHLB and Federal Reserve Bank credit advances vary dependent on the term of the advance and the nature of the collateral supporting the advance. Interest is paid at maturity for overnight advances and monthly for other advances. Principal is due at maturity. The interest expense on all FHLB and Federal Reserve Bank advances was $596,000, $84,000, and $461,000 for the years ended December 31, 2002, 2001, and 2000, respectively.

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                Advances from the Federal Home Loan Bank at December 31, 2002 consisted of:

(Dollars in thousands)		December 31, 2002
Amount		Rate		Maturity Date
$	2,500	4.05	%	01/25/05
2,500		4.24	%	01/31/05
2,500		4.90	%	01/25/07
2,500		5.11	%	01/29/07
5,000		3.64	%	04/16/12
$	15,000

8              INCOME TAXES

                The expense for income taxes for the years ended December 31, 2002, 2001 and 2000 consisted of the following:

(Dollars in thousands)	Years Ended December 31,
	2002			2001		2000
Current—
Federal	$	2,491		$	73	$	798
State	85			39		116
	2,576			112		914
Deferred—
Federal	(341		)	357		560
State	(137		)	118		201
	(478		)	475		761
	$	2,098		$	587	$	1,675

                The effective tax rate and statutory federal income tax rate are reconciled as follows:

	Years Ended December 31,
	2002		2001		2000
Federal Statutory Income Tax Rate	34.0	%	34.0	%	34.0	%
State Franchise Taxes, Net of Federal
Income Tax Benefit	7.0		7.2		7.2
Tax-Exempt Interest	(0.5	)	(7.9	)	(4.9	)
Income Tax Credits	(7.1	)	(5.1	)	—
Other	1.5		1.2		1.8
	34.9	%	29.4	%	38.1	%

                The components of the net deferred tax asset of the Company, recorded in other assets, as of December 31, 2002 and 2001, were as follows:

(Dollars in thousands)	2002		2001
Deferred Tax Assets—
Loan and Lease Losses	$	1,654	$	1,431
California Franchise Tax	15		13
Other Real Estate Owned	—		27
Nonaccrual Loans	169		202
Deferred Compensation	635		371
Other	192		24
Total Deferred Tax Assets	$	2,665	$	2,068
Deferred Tax Liabilities—
Depreciation	242		136
Stock Dividends	53		40
Unrealized Gain on Securities Available-for-Sale	776		434
Other	—		—
Total Deferred Tax Liabilities	$	1,071	$	610
Net Deferred Tax Assets	$	1,594	$	1,458

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9MANDATORILY REDEEMABLE CUMULATIVE TRUST PREFERRED SECURITIES OF SUBSIDIARY GRANTOR TRUST ("TRUST PREFERRED SECURITIES")

                The Company formed CIB Capital Trust as a special purpose entity, which is consolidated into the Company’s financial statements. CIB Capital Trust is a Delaware business trust and was formed for the sole purpose of issuing Company obligated mandatorily redeemable cumulative trust preferred securities of Subsidiary Grantor Trust holding solely junior subordinated debentures.

                During the fourth quarter of 2002, CIB Capital Trust issued 10,000 of its Floating Rate Trust Preferred Securities with a liquidation amount of $1,000 per security for gross proceeds of $10,000,000. The entire proceeds of the issuance were invested by CIB Capital Trust in $10,000,000 of Floating Rate Junior Subordinated Deferrable Interest Debentures of the Company, with identical maturity, repricing, and payment terms as the Trust Preferred Securities. The subordinated debentures represent the sole assets of CIB Capital Trust. The subordinated debentures mature on November 7, 2032, bear an initial interest rate of 5.27% (3.45% plus 3-month LIBOR), with repricing and interest payments due quarterly. The subordinated debentures are redeemable by the Company, subject to receipt by the Company of prior approval from the Federal Reserve Bank on November 7, 2007, and each quarter thereafter. The redemption price is par plus accrued and unpaid interest to the redemption date. The Trust Preferred Securities are subject to mandatory redemption to the extent of any early redemption of the subordinated debentures and upon maturity of the subordinated debentures in 2032.

                Holders of the Trust Preferred Securities are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security at an initial rate per annum of 5.27%. This rate adjusts quarterly two business days prior to each February 15th,  May 15th, August 15th, and November 15th, to 3-month LIBOR plus 3.45%, provided, that the applicable interest rate may not exceed 12.5% through the interest payment date in November 2007. The distributions on the Trust Preferred Securities are treated as interest expense in the consolidated statement of income. The Company has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default on the payment of interest on the Subordinated Debentures. The Trust Preferred Securities issued in the offering were sold in private transactions pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated basis, distributions and other payments due on the Trust Preferred Securities.

                For financial reporting purposes, the subordinated debentures and related trust investments in the subordinated debentures have been eliminated in consolidation and the trust preferred securities are included in the consolidated balance sheet. Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier I capital is limited to twenty-five percent of the Company’s Tier I capital on a pro forma basis. At December 31, 2002, $9,165,000 of the Trust Preferred Securities qualified as Tier I Capital, and the remaining $835,000 as Tier II capital.

                Deferred costs related to the issuance of the Trust Preferred Securities, which are included in other assets in the accompanying consolidated balance sheet, at December 31, 2002 were $328,000 and the amortization of the deferred costs was $11,000 during 2002.

10           COMMITMENTS AND CONTINGENCIES

                Leases

                The Bank is obligated under a number of noncancellable operating leases for premises and equipment used for banking purposes. Minimum future rental commitments under noncancellable operating leases as of December 31, 2002 were as follows:

(Dollars in thousands)

Lease Commitments
2003	184
2004	189
2005	198
2006	59
2007	43
Thereafter	30
	$	703

                Rent under operating leases was approximately $178,000, $143,000, and $53,000 in 2002, 2001, and 2000, respectively. Three of the Bank’s branch facilities are leased with two having renewal options, with 5-year terms.

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                Financial Instruments with Off-Balance-Sheet Risk

                The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business

in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments consist of commitments to extend credit and letters of credit. These instruments involve, to varying degrees,  elements of credit and interest rate risk in excess of the amount recognized on the balance sheet.

                The Bank’s exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet.

                Commitments to extend credit consist primarily of unfunded single-family residential and commercial real estate construction loans and commercial revolving lines of credit. Construction loans are established under standard underwriting guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction. Commercial revolving lines of credit have a high degree of industry diversification. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are generally secured and are issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.

                At December 31, 2002, commercial loan commitments represent approximately 43% of total commitments and are generally secured. Real estate loan commitments represent 52% of total commitments and are generally secured by property with a loan-to-value ratio not to exceed 80%. Consumer loan commitments represent the remaining 5% of total commitments and are generally unsecured. In addition, the majority of the Bank’s loan commitments have variable interest rates.

                The following financial instruments represent off-balance-sheet credit risk:

(Dollars in thousands)	December 31,
	2002		2001
Loan Commitments	$	56, 428	$	40, 832
Standby Letters of Credit	572		520

                Correspondent Banking Agreements

                The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Uninsured deposits totaled $17,462,000 at December 31, 2002.

                Concentrations of Credit Risk

                As of December 31, 2002, in management’s judgment, a concentration of loans existed in real estate-related loans. At that date, approximately 72% of the Company’s loans were real estate-related.

                Although management believes the loans within this concentration have no more that the normal risk of collectibility, a substantial decline in the performance of the economy in general or a decline in real estate values in the Company’s primary market area, in particular, could have an adverse impact on collectibility, increase the level of real estate-related nonperforming loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on the financial condition of the Company.

                Contingencies

                The Company is subject to legal proceedings and claims, which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or consolidated results of operations of the Company.

11           SHAREHOLDERS' EQUITY

                At December 31, 2002, the Company was authorized to issue 20,000,000 shares of no par common stock. Of this amount,  2,152,751, and 2,115,419 shares of common stock were issued and outstanding at December 31, 2002 and 2001, respectively.

                The Company’s Board of Directors approved a “Dutch Auction” Tender Offer to purchase up to 200,000 shares of its outstanding common stock at a price per share of not less than $22.00 nor more than $25.00 per share. The tender offer commenced on November 27, 2002 and expired on December 30, 2002. Under this offer, CIB purchased 76,292 shares of its common stock that were properly tendered at a price of $25.00 per share. Due to restrictions from our transfer agent regarding 517 lost shares, 75,775 shares were actually retired in 2002, while the 517 shares will be retired in 2003.

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                Earnings Per Share

                A reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

(Dollars in thousands, except share data)

			Weighted Average
	Net		Shares	Per Share
Year Ended December 31,	Income		(Denominator)	Amount
Basic Earnings Per Share
2002	$	3,911	2,224,000	$	1.76
2001	1,409		2,216,000	0.64
2000	2,719		2,209,000	1.23
Effect of Dilutive Securities-Employee Stock Options
2002	$	—	20,000	—
2001	—		42,000	—
2000	—		3,000	—
Diluted Earnings Per Shares
2002	$	3,911	2,244,000	$	1.74
2001	1,409		2,258,000	0.62
2000	2,719		2,212,000	1.23

All per share amounts and the weighted average number of common shares outstanding as shown in the preceeding table have been adjusted retroactively, as applicable, to reflect the 5% stock dividends distributed in each of the years presented.

                Dividends

                In August of 2002, 2001, and 2000, the Board of Directors authorized a 5% stock dividend that was distributed in September 2002, 2001, and 2000, respectively. All common stock and per share amounts have been retroactively adjusted to reflect the stock dividend.

                The Company’s primary source of income with which to pay cash dividends is dividends from the Bank. The California Financial Code restricts the total dividend payment of any bank in any calendar year to the lesser of (1) the bank’s retained earnings or (2) the bank’s net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. At December 31, 2002, retained earnings of $6,202,000 were free of such restrictions.

                Share Repurchase Plan

                On November 13, 2001, the Company’s Board of Directors approved a plan to repurchase, as conditions warrant, up to 5% of the Company’s common stock on the open market. The duration of the plan is open-ended and the timing of purchases is dependent upon market conditions. During 2002, the Company repurchased 7,419 shares of its common stock pursuant to the plan.

                Stock Options

                During 1989, the Bank adopted the Feather River State Bank 1989 Amended and Restated Stock Option Plan. The plan is nonqualified and provides that nonemployee directors and key employees may be granted options to purchase the Company’s stock at the fair market value of the shares as determined by the Board of Directors. As of May 1995, all previously granted options to purchase the Bank’s stock had been retired and exchanged for options to purchase the CIB’s stock, on a one-for-one option basis. All granted options must be exercised within the earlier of ten years of the date of grant, or no later than three (3) months and one (1) day after any termination of employment, or status as a director. Vesting is determined at the time of grant by the Board of Directors.

                During 1996, the Company adopted the California Independent Bancorp 1996 Stock Option Plan (“1996 Plan”), which as of December 31, 2002, after adjustment for all subsequently distributed stock dividends and splits, sets aside 199,797 shares of no par value common stock of the Company for which options may be granted to key, full-time salaried employees and officers of the Company, as well as nonemployee directors of the Company. The exercise price of all options to be granted under the 1996 Plan must be at least 100% of the fair market value of the Company’s common stock on the granting date. Additionally, the options must be paid in full at the time the option is exercised in cash, shares of the Company’s common stock with a fair value equal to the purchase price, or a combination thereof. Under the 1996 Plan, all options expire no more than ten years after the date of grant.

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                During 2000, the Company adopted the California Independent Bancorp 2000 Stock Option Plan (“2000 Plan”), which as of December 31, 2002, after adjustment for all subsequently distributed stock dividends and splits, sets aside 115,762 shares of no par value common stock of CIB. The 2000 Plan provides for the grant of Incentive Stock Options (“ISO”) and Non-qualified Stock Options (“NQSO”), within the meaning of the Internal Revenue Code of 1986, as amended, to employees,  including directors and officers who are also employees of the Company. The 2000 Plan also provides for other types of stock and option awards which may be granted to employees, officers and directors of the Company and its subsidiaries. Awards may also be granted to the Company’s consultants, independent contractors, and advisors, provided they render bona fide services that are not in connection with the offer and sale of securities in a capital-raising transaction. Options granted may be exercised within the times or upon the events determined by the Stock Option Committee (the “Committee”) as set forth in the Award Agreement governing such option. However, no option will be exercisable after the expiration of one hundred twenty (120) months from the date the option is granted.

                The vesting of any option granted under the 2000 Plan will be determined by the Committee at its sole discretion. The exercise price of each NQSO granted pursuant to the 2000 Plan will be determined by the Committee, but may not be less than eighty five percent (85%) of the fair market value of the stock subject to the option on the date the option is granted. The exercise price of each ISO granted pursuant to the 2000 Plan will also be determined by the Committee, but may not be less than one hundred percent (100%) of the fair market value of shares on the grant date, unless the optionee owns 10% or more of the combined voting power of the Company. In such event, the purchase price of the stock subject to the ISO may not be less than one hundred ten percent (110%) of the fair market value of shares on the grant date.

                A summary of the status of the Company’s three stock option plans, after adjustment for all subsequently distributed stock dividends and splits at December 31, 2002, 2001, and 2000, and changes during the years then ended is presented in the table and narrative below.

	2002				2001				2000
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at Beginning of Year	407,705		$	18.69	397,887		$	19.24	344,235		$	19.47
Granted	124,447		19.68		41,529		24.80		110,002		20.76
Exercised	(15,121	)	13.00		(6,724	)	17.28		(14,694	)	12.62
Expired			—		—		—		(1,044	)	6.56
Forfeited	(153,146	)	19.16		(24,987	)	19.23		(40,612	)	20.25
Outstanding at End of Year	363,885		18.33		407,705		18.69		397,887		19.24
Exercisable at End of Year	266,000		17.68		313,847		18.02		309,551		18.87

*Grants include net effect of additional options resulting from the 5% stock dividend distributed on September 20, 2002.

                The options outstanding at December 31, 2002 are illustrated in the following table.

	Number of	Weighted	Number of
	Options	Average	Options
	Outstanding	Remaining	Exercisable
	December 31,	Contractual	December 31,
Range of Exercise Prices	2002	Life (years)	2002
$10.08 — $10.29	8,284	1.1	8,284
$13.77 — $14.93	26,790	3.9	26,790
$16.46 — $17.28	58,849	6.3	58,849
$17.90 — $18.10	63,767	5.7	63,767
$18.47 — $19.00	121,835	8.7	83,532
$19.89 — $21.77	77,351	8.4	23,676
$22.71 — $24.57	7,009	8.8	1,102
	363,885		266,000

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12           REGULATORY MATTERS

                The Company and the Bank are subject to certain regulatory requirements administered by the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (“FDIC”). Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken,  could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

                Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. Management believes, as of December 31, 2002, the Company and the Bank met all capital adequacy requirements to which they are subject.

                In addition, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1 Leverage Ratios as set forth in the table. There are no conditions or events since that notification that Management believes have changed the institution’s category.

                The Company and the Bank’s actual capital amounts and ratios are also presented in the table:

	2002				2001
	Amount		Ratio		Amount		Ratio
Tier I Leverage Ratio:
California Independent Bancorp and Subsidiary	$	37,182	10.5	%	$	26,490	8.6	%
Minimum regulatory requirement	$	14,162	4.0	%	$	12,379	4.0	%
Feather River State Bank	$	29,609	8.4	%	$	26,177	8.5	%
Minimum requirement for “Well Capitalized” institution	$	17,681	5.0	%	$	15,461	5.0	%
Minimum regulatory requirement	$	14,145	4.0	%	$	12,369	4.0	%
Tier I Risked Based Capital:
California Independent Bancorp and Subsidiary	$	37,182	14.0	%	$	26,490	11.2	%
Minimum regulatory requirement	$	10,598	4.0	%	$	9,434	4.0	%
Feather River State Bank	$	29,609	11.2	%	$	26,177	11.1	%
Minimum requirement for “Well Capitalized” institution	$	15,877	6.0	%	$	14,163	6.0	%
Minimum regulatory requirement	$	10,584	4.0	%	$	9,442	4.0	%
Total Risk-Based Capital:
California Independent Bancorp and Subsidiary	$	41,238	15.6	%	$	29,470	12.5	%
Minimum regulatory requirement	$	21,196	8.0	%	$	18,868	8.0	%
Feather River State Bank	$	32,956	12.5	%	$	29,159	12.4	%
Minimum requirement for “Well Capitalized” institution	$	26,461	10.0	%	$	23,604	10.0	%
Minimum regulatory requirement	$	21,169	8.0	%	$	18,884	8.0	%

13           EMPLOYEE BENEFITS

                401(k) Profit Sharing Plans

                The Bank formed a 401(k) Qualified Savings Plan (“the Plan”) effective August 1, 1993. All full-time employees who have reached the age of 21 are eligible to participate following 90 days of employment. All eligible employees are 100% vested in their own contributions, which may be any whole percentage of pay between 2% and 15%, inclusive. Beginning January 1, 1995, the Bank made annual matching contributions, which were equal to 20% of each employee’s elective contributions not exceeding 6% of pay. Contributions are invested under employee directed investment options.

                Beginning January 2000, the Bank made annual matching contributions equal to 50% of each employee’s elective contributions not exceeding 6% of pay. Of the matching contributions, 50% is applied to an employer directed fund and 50% of the funds are applied to the purchase of CIB common stock. For the years ended December 31, 2002, 2001 and 2000, the Bank made matching contributions totaling $112,000, $115,000 and $127,000, respectively.

46

                Employee Stock Ownership Plan

                The Bank formed an Employee Stock Ownership Plan (the “ESOP”) effective January 1, 1988. Effective January 1, 1995,  the ESOP was amended to recognize CIB and all of its employees as participants. All employees who have completed 90 days of service and have reached the age of 21 are eligible to participate in the ESOP. The ESOP provides for annual contributions at the discretion of the Board of Directors. The contributions are allocated based on the participants’ compensation for the year. Employees vest ratably in the ESOP over six years. The ESOP borrowed $200,000 from a nonprofit corporation to acquire 8,125 shares of CIB common stock in June 2000. The borrowing is payable in five equal annual installments with interest at prime minus 1/2%, which rate was 3.75% at December 31, 2002. At December 31, 2002 and 2001 the amount outstanding was $80,000 and $120,000, respectively. The Bank made contributions to the ESOP of approximately $40,000 in each of the years 2002, 2001, and 2000.

                Deferred Compensation Plan

                The Bank has a nonqualified Deferred Compensation Plan, which provides directors and a former key executive with an unfunded, deferred compensation program. Under the plan, eligible participants may elect to defer some or all of their current compensation. Deferred amounts earn interest at an annual rate, ranging from 4.25% to 8.50% at December 31, 2002, determined by the Board of Directors.

                Salary Continuation Plans

                The Company entered into salary continuation agreements to provide five key executives (including former executives),  or their designated beneficiaries, with annual benefits for a specified number of years after retirement or death. The expense recognized under these plans for the years ended December 31, 2002, 2001, and 2000 totaled $184,000, $218,000, and $154,000, respectively.

14           OTHER NONINTEREST INCOME AND EXPENSE

                The components of other noninterest income and expense were as follows:

(Dollars in thousands)	Years Ended December 31,
	2002		2001		2000
Non-Insured Deposit Income	$	145	$	174	$	222
Gains on Sale of OREO	143		14		292
Earnings on Bank Owned Life Insurance Policies	295		280		260
Other	405		229		360
Total Other Noninterest Income	$	988	$	697	$	1,134
Stationary & Supplies	249		214		184
Telephone Expense	266		333		297
Insurance	235		197		187
Attorney Fees	179		166		225
Directors Fees	238		258		258
Courier Expense	190		158		123
Other	1,832		1,988		2,503
Total Other Noninterest Expense	$	3,189	$	3,314	$	3,777

15           RELATED PARTY TRANSACTIONS

                During the normal course of business, the Bank enters into loans with related parties, including executive officers and directors. These loans are made with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers:

(Dollars in thousands)	Year Ended December 31,
	2002			2001
Loan Balances — Beginning of Year	$	1,822		$	3,177
Disbursements	2,421			741
Collections	(560		)	(2,096		)
Loan Balances — End of Year	$	3,683		$	1,822
Undisbursed Commitments	$	377		$	618

47

16           COMPREHENSIVE INCOME

                Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of other comprehensive income that historically has not been recognized in the calculation of net income. Unrealized gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income. Total comprehensive income and the components of accumulated other comprehensive income are presented in the Consolidated Statements of Changes in Shareholders’ Equity.

                The Company held securities classified as available-for-sale which had unrealized gains or losses as follows:

(Dollars in thousands)

	Before Tax			Tax (Expense) Benefit			After Tax
For the Year Ended December 31, 2002
Other comprehensive income:
Unrealized holding gains	$	703		$	(317	)	$	386
Less: reclassification adjustment for net losses included in net income	(55		)	24			(31		)
Total other comprehensive income	$	758		$	(341	)	$	417
For the Year Ended December 31, 2001
Other comprehensive income:
Unrealized holding gains	$	1,408		$	(634	)	$	774
Total other comprehensive income	$	1,408		$	(634	)	$	774
For the Year Ended December 31, 2000
Other comprehensive income:
Unrealized holding gains	$	1,282		$	(577	)	$	705
Total other comprehensive income	$	1,282		$	(577	)	$	705

17           DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS

                Disclosures include estimated fair values for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

                Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented.

                Cash and Cash Equivalents

                For these short-term instruments, the carrying value approximates fair value.

                Investments - Securities

                For securities held-for-investment purposes, fair values are based on quoted market prices or dealer quotes. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers.

48

                Loans and Leases

                The fair value of loans and leases is estimated by discounting the future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. The fair value of nonperforming loans and leases is estimated based on allocating specific and general reserves to the various nonperforming loan and lease classifications.

                Cash Surrender Value of Life Insurance Policies

                The fair value of life insurance policies are based on current cash surrender values at each reporting date provided by insurers.

                Deposits

                The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.

                Other Liabilities

                Other liabilities represent short-term instruments. The carrying amount approximates fair value.

                Commitments to Extend Credit and Letters of Credit

                The fair value of amounts for fees arising from commitments to extend credit, standby letters of credit, and financial guarantees written are not material.

                The estimated fair values of the Bank’s financial instruments at December 31, 2002 and 2001 were as follows:

	December 31, 2002				December 31, 2001
(Dollars in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Cash and Cash Equivalents	$	40,046	$	40,046	$	23,047	$	23,047
Investments	100,239		100,305		77,996		78,090
Loans and Leases (Net)	207,896		211,016		186,783		190,538
Cash Surrender Value of Life Insurance Policies	6,239		6,239		5,108		5,108
Interest Receivable	2,070		2,070		2,091		2,091
Financial Liabilities:
Deposits	$	306,726	$	310,253	$	275,576	$	276,264
Federal Home Loan Bank Advances	15,000		15,616		—		—
Other Borrowings	80		80		120		120
Trust Preferred Securities	10,000		10,000		—		—
Interest Payable	1,407		1,407		1,247		1,247
Off-Balance Sheet Financial Instruments:
Commitments to Extend Credit	$	56,428	$	56,428	$	40,832	$	40,832
Standby Letters of Credit	572		572		520		520

18           PRIOR PERIOD ADJUSTMENT

                The Company discovered an error that occurred in 1999 and 1998 related to the tax treatment of certain dividends on preferred stocks held in its investment portfolio. This adjustment had no effect on previously reported net income in 2001 and 2000. This prior period adjustment is reflected on the balance sheet as an increase in retained earnings and an increase in other assets of $242,000.

49

19           PARENT ONLY CONDENSED FINANCIAL STATEMENTS

	December 31,
(Dollars in thousands)	2002			2001
BALANCE SHEET –
Assets:
Cash and Due From Banks	$	7,764		$	57
Investment in Subsidiaries	31,088			27,142
Other Assets	608			448
Total Assets	$	39,460		$	27,647
Liabilities and Shareholders’ Equity
Other Liabilities	$	94		$	192
Subordinated Debentures	10,310			—
Shareholders’Equity	29,056			27,455
Total Liabilities and Shareholders’Equity	$	39,460		$	27,647
	Year Ended December 31,
	2002			2001			2000
STATEMENT OF INCOME –
Other Expense	$	(659	)	$	(401	)	$	(216	)
Loss Before Equity in Net Income of Subsidiaries	$	(659	)	$	(401	)	$	(216	)
Equity in Net Income of Subsidiaries
Distributed	1,145			1,307			1,010
Undistributed	3,154			338			1,837
Income Tax Benefit	271			165			90
Net Income	$	3,911		$	1,409		$	2,719
	Year Ended December 31,
	2002			2001			2000
STATEMENTS OF CASH FLOWS –
Operating Activities:
Net Income	$	3,911		$	1,409		$	2,719
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Undistributed Earnings of Subsidiaries	(3,154		)	(338		)	(1,836		)
Depreciation and Amortization	11			—			—
Decrease in Other Operating Assets	(148		)	(480		)	(121		)
(Decrease) Increase in Other Operating Liabilities	(98		)	190			2
Net Cash Used for Operating Activities	522			781			764
Investing Activities:
Investment in subsidiaries	(310		)	—			—
Purchases of Premises and Equipment	(3		)	—			—
Net Cash Used for Investing Activities	(313		)	—			—
Financing Activities:
Issuance of Subordinated Debentures	10,310			—			—
Stock Options Exercised	189			127			129
Repurchase of Common Stock	(2,047		)	—			—
Cash Dividends	(944		)	(895		)	(850		)
Cash Paid in Lieu of Fractional Shares	(10		)	(12		)	(8		)
Net Cash Provided by (Used in) Financing Activities	7,498			(780		)	(729		)
Increase in Cash and Cash Equivalents	7,707			1			35
Cash and Cash Equivalents, Beginning of Year	57			56			21
Cash and Cash Equivalents, End of Year	$	7,764		$	57		$	56
Supplemental Disclosures of Noncash Investing and Financing Activities
Net Unrealized Gain On Securities Held as Available-for-Sale (Net of Taxes)	$	417		$	774		$	705
Tax Benefit Arising From Exercise of Nonqualified Stock Options and Disqualifying Dispositions	$	45		$	16		$	59
Stock Dividends	$	2, 091		$	2, 285		$	1, 830

50

20           QUARTERLY STATEMENTS OF OPERATIONS (UNAUDITED)

                The following information is unaudited. However, in the opinion of Management, all adjustments, which include only normal recurring adjustments necessary to present fairly the results of operations for such periods, are reflected. Reference is made to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further explanation of results of operations.

Quarterly Statements of Operations

	2002 Quarter Ended (Unaudited)
	March 31		June 30		September 30		December 31
	(Dollars in thousands, except per share data)
Interest Income	$	4,824	$	5,123	$	5,300	$	5,673
Interest Expense	1,165		1,173		1,390		1,428
Net Interest Income	3,659		3,950		3,910		4,245
Provision for Loan and Lease Losses	150		150		150		100
Net Interest Income After Provision for Loan and Lease Losses	3,509		3,800		3,760		4,145
Noninterest Income	599		620		744		766
Noninterest Expense	2,934		3,137		2,930		2,933
Income Before Income Taxes	1,174		1,283		1,574		1,978
Provision for Income Taxes	428		471		593		606
Net Income	$	746	$	812	$	981	$	1,372
Basic Earnings Per Share	$	0.34	$	0.37	$	0.44	$	0.62
Diluted Earnings Per Share	$	0.33	$	0.36	$	0.44	$	0.60
Weighted Average Shares Outstanding	2,221,189		2,224,353		2,225,211		2,226,322
	2001 Quarter Ended (Unaudited)
	March 31		June 30		September 30		December 31
	(Dollars in thousands, except per share data)
Interest Income	$	5,603	$	5,468	$	5,150	$	5,137
Interest Expense	2,116		1,848		1,673		1,385
Net Interest Income	3,487		3,620		3,477		3,752
Provision for Loan and Lease Losses	—		—		—		2,450
Net Interest Income After Provision for Loan and Lease Losses	3,487		3,620		3,477		1,302
Noninterest Income	622		534		634		514
Noninterest Expense	3,085		3,000		3,035		3,075
Income Before Income Taxes	1,024		1,154		1,076		(1,259		)
Provision (Benefit) for Income Taxes	373		414		389		(590		)
Net Income (Loss)	$	651	$	740	$	687	$	(669	)
Basic Earnings (Loss) Per Share	$	0.29	$	0.33	$	0.31	$	(0.30	)
Diluted Earnings (Loss) Per Share	$	0.29	$	0.33	$	0.30	$	(0.30	)
Weighted Average Shares Outstanding	2,214,884		2,214,884		2,215,227		2,217,112

51

DIRECTORS AND MANAGEMENT TEAM

CALIFORNIA INDEPENDENT BANCORP AND FEATHER RIVER STATE BANK

CALIFORNIA INDEPENDENT BANCORP AND FEATHER RIVER STATE BANK DIRECTORS	CALIFORNIA INDEPENDENT BANCORP MANAGEMENT
Alfred G. Montna	John I. Jelavich
Chairman of the Board	President/Chief Executive Officer
Owner, Montna Farms
	Kevin R. Watson
John L. Dowdell	Chief Financial Officer/Corporate Secretary
President/CEO, Dowdell Financial Services
	Douglas R. Marr
Harold M. Eastridge	Assistant Corporate Secretary
President, Trident Investment Corporation
Real Estate Development
	FEATHER RIVER STATE BANK MANAGING COMMITTEE
William H. Gilbert
Partner, Gilbert Orchards, Walnut Grower	John I. Jelavich
	President/Chief Executive Officer
John I. Jelavich
President/Chief Executive Officer	Kevin R. Watson
California Independent Bancorp	Senior Vice President/Chief Financial Officer
President/Chief Executive Officer
Feather River State Bank	Kenneth M. Anderson
	Senior Vice President/Chief Banking Services Officer
Donald H. Livingstone
Teaching Professor, Brigham Young University	Blaine C. Lauhon
Marriott School of Business	Senior Vice President/Regional Lending Manager
David A. Offutt	Douglas R. Marr
President, Offutt, Shephard & Haven	Senior Vice President/Chief Credit Officer
Attorneys-at-Law
	Steven P. Olin
William K. Retzer	Senior Vice President/Regional Lending Manager
Chairman/CEO, Examen, Inc.
	Financial Information And Media Contact
Michael C. Wheeler	Analysts, stockholders and other investors seeking
President and General Manager,	financialinformation about California Independent
Wheeler Chevrolet-Oldsmobile-Cadillac	Bancorp or any of its subsidiaries, or news media
	seeking general information, should contact:
DIRECTORS EMERITUS
	Investor Relations Department
Dale L. Green	1227 Bridge St., Suite C
Chief Financial Officer, Dale L. Green, Inc.	Yuba City, CA, 95991
Contractor	(530) 674-6025 or
	(800) 258-4334
Lawrence Harris
Walnut Grower, Consulting Civil Engineer
	Certified Public Accountants/Auditors
Ross D. Scott	Perry-Smith LLP
Owner, Scott Center, Physical Therapist
Louis F. Tarke	Legal Counsel
Partner, Tarke Brothers & Anderson	Bartel, Eng & Schroder
Walnut and Rice Grower	Sacramento, CA

52

BRANCHES AND OFFICES

FOR INFORMATION CALL (530) 674-6000 OR (800) 258-4334

YUBA CITY,  CA

                1.Bridge Street Branch & Loan Center
                1221 Bridge Street

                2.Colusa Avenue Branch & Loan Center
                777 Colusa Avenue

                3.Loan Operations Center
                995 Tharp Road

                4.Administrative Office
                CIB/FRSB Corporate Headquarters
                1227 Bridge Street, Suite C

ARBUCKLE,  CA

                5.Arbuckle Branch
                540 Amanda Street

COLUSA,  CA

                6.Colusa Branch
                655 Fremont Street

MARYSVILLE,  CA

                7.Marysville Branch
                700 E Street

ROSEVILLE,  CA

                8.Roseville Branch & Loan Center
                1552 Eureka Road, Suite 101

WHEATLAND,  CA

                9.Wheatland Branch
                114 D Street

WOODLAND,  CA

                10.Woodland Branch & Loan Center
                203 Main Street

LINCOLN,  CA

                11.Lincoln Branch
                435 S. Highway 65, Suite A

53

EX-23

Exhibit 23

INDEPENDENT AUDITOR'S CONSENT

                We consent to the incorporation by reference in Registration Statement Nos. 333-09813, 333-09823 and 333-39960 of California Independent Bancorp on Form S-8 of our report, dated February 14, 2003, appearing in this Annual Report on Form 10-K of California Independent Bancorp for the year ended December 31, 2002.

/s/ Perry-Smith LLP

Sacramento, California

March 25, 2003

EX-99.1

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Exhibit 99.1

CERTIFICATION
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF
TITLE 18, UNITED STATES CODE)

        Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of Title 18, United States Code), each of the undersigned officers of California Independent Bancorp, a California corporation (the "Company"), does hereby certify with respect to the Annual Report of the Company on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission (the "Form10-K") that, to the best of their knowledge:

(1)

the Form10-K fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



(2)

the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 25, 2003	/S/  JOHN I. JELAVICH John I. Jelavich President and Chief Executive Officer
Date: March 25, 2003	/S/  KEVIN R. WATSON Kevin R. Watson Chief Financial Officer and Corporate Secretary

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Exhibit 99.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (SUBSECTIONS (a) AND (b) OF SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE)