Page 1
SUTTER COMMUNITY BANK
Independent Auditor’s Report
and
Financial Statements
For the years ended December 31, 2008 and 2007
CERTIFIED PUBLIC ACCOUNTANTS I BUSINESS CONSULTANTS

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CONTENTS
PAGE
INDEI’ENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheets
Statements of operations
Statements of changes in shareholders’ equity
Statements of cash flows
Notes to financial statements 6 2
Lam-pm“)

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CERTIFIED PUBLIC ACCOUNTANTS I BUSINESS CUNSULTIINTS
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Sutter Community Bank
We have audited the accompanying balance sheets of Sutter Community Bank (the Bank) as of
December 31, 2008 and 2007, and the related statements of operations, changes in shareholders’ equity,
and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the
responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Bank as of December 31, 2008 and 2007, and the results of its operations and
its cash flows for the years ended December 31, 2008 and 2007, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 14 to the financial statements, effective January 1, 2008, the Bank adopted the
provisions of Statement of Financial Accounting Standards No. 157, Fair Vafrm M'easln‘erizmfr.
WWW 4M
Stockton, California
March 30, 2009

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SUTTER COMMUNITY BANK

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SUTTER COMMUNITY BANK
BALANCE SHEETS
ASSETS
DECEMBER 31,
2008 2007
Cash and due from banks 8 2,219,435 8 1,209,062
Federal funds sold 8,105,000 10,530,000
Cash and cash equivalents 10,324,435 11,739,062
Loans, net 44,658,960 32,720,255
Premises and equipment, net 227,913 435,841
Other real estate owned 1,319,150 ~
Interest receivable and other assets ' 1,188,378 809,630
8 57,718,836 8 45,704,788
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits 8 50,744,165 8 37,869,184
Interest payable and other liabilities 504,753 528,405
Total liabilities 51,248,918 38,397,589
Commitments and contingencies (Notes 8 and 11)
ShareholdersI equity
Preferred stock, no par value, 5,000,000 shares
authorized; no shares issued or outstanding — —
Common stock, no par value, 5,000,000 shares
authorized; 951,678 shares issued and outstanding
at December 31, 2008 and 2007 9,478,418 9,478,418
Additional paid-in capital 489,435 236,281
Accumulated deficit (3,497,935) (2,407,500)
Total shareholders’ equity 6,469,918 7,307,199
8 57,718,836 515 45,704,788
ix)

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SUTTER COMMUNITY BANK
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2008 2007
INTEREST INCOME
Interest and fees on loans - 8 3,136,044 8 2,350,060
Interest on federal funds sold 163,751 344,840
Interest on deposits in other financial institutions 18,888
3,318,683 2,694,900
INTEREST EXPENSE
Interest expense on deposits 1,378,662 1,018,406
Net interest income 1,940,021 1,676,494
PROVISION FOR LOAN LOSSES 189,325 218,200
Net interest income after provision for loan losses 1,750,696 1,458,294
NON~INTEREST INCOME
Gain on sale of loans 219,442 327,740
Service charges on deposits 104,261 59,141
Other operating income 48,311 32,225
372,014 419,106
NON-INTEREST EXPENSES
Salaries and employee benefits 1,564,897 1,544,818
Write down of other reaI estate owned 500,000 -
Occupancy expense 299,369 290,147
Data processing fees 292,612 262,497
Professional fees 156,533 148,061
Other real estate owned expense 105,696 —
Advertising and promotion 88,279 151,767
Insurance expense 76,580 50,998
Transportation and communication expense 35,440 21,939
Supplies expense 26,900 33,748
Other operating expenses 66,039 75,816
3,212,345 2,579,791
Loss before income taxes (1,089,635) (702,391)
Provision for income taxes 800 800
Net loss 8 (1,090,435) 8 (703,191)
NET LOSS PER SHARE - BASIC 8 (1.15) 8 (0.74)
WEIGI-ITED AVERAGE SHARES OUTSTANDING 951,678 951,678
See awompargyz'itg notes 3

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SUTTER COMMUNITY BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss 8 (1,090,435) S (703,191)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization of premises
and equipment 211,788 203,663
Stock—based compensation 253,154 236,281
Provision for loan losses 189,325 218,200
Proceeds from sale of loans 3,140,180 4,439,476
Gain on sale of loans (219,442) (327,740)
Write down of other real estate owned 500,000 ~
Change in servicing asset (108,874) (199,932)
(Decrease) increase in interest payable
and other liabilities (23,652) 310,831
Increase in interest receivable and
other assets (196,574) (200,444)
Net cash from operating activities 2,655,470 3,977,144
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans (16,867,918) (19,870,866)
Purchase of equity stock (73,300) (222,715)
Purchase of premises and equipment (3,860) (42,436)
Net cash from investing activities (16,945,078) (20,136,017)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits and
savings accounts 3,168,209 8,032,546
Net increase in time deposits 9,706,772 12,619,686
Net cash from financing activities 12,874,981 20,652,232
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,414,627) 4,493,359
CASH AND CASE—I EQUIVALENTS, beginning of period 11,739,062 7,245,703
CASH AND CASH EQUIVALENTS, end of year 8 10,324,435 8 11,739,062
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest 8 1,479,324 15 731,193
Income taxes 8 800 S 800
NON~CASI~I INVESTING AND FINANCING ACTIVTIES:
During 2008, the Bank acquired real estate in connection with a loan foreclosure and transferred
$1,813,150 in loans to other real estate owned.
See armmpargvz'qg notes 5

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Sutter Community Bank (the Bank) conform to generally
accepted accounting principles and general practices within the banking industry. A summary of the
significant accounting policies applied in the preparation of the accompanying financial statements
follows.
On December 15, 2005, the California Commissioner of Financial Institutions approved the Bank’s
application for organization. The Bank also received approval of an application that it filed for insurance
of bank deposit accounts with the Federal Deposit insurance Corporation (FDIC). The state chartered
bank was incorporated under the laws of the state of California on December 19, 2005, and opened for
business onJune 19, 2006. The Bank offers traditional commercial banking products and services to
businesses and individuals through one branch located in Sutter County.
Estimates In preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reported period. Actual results could differ from those
estimates.
The allowance for loan losses is the most significant accounting estimate reflected in the Bank’s financial
statements. The allowance for loan losses includes charges to reduce the recorded balances of loans
receivable to their estimated net realizable value, as appropriate. The allowance is based on estimates,
and ultimate losses may vary from current estimates. The Bank provides for estimated losses on loans
receivable and real estate when any significant: and permanent decline in value occurs. These estimates
for losses are based on individual assets and their related cash flow forecasts, sales values, independent
appraisals, the volatility of certain real estate markets, and concern for disposing of real estate in
distressed markets. Although management of the Bank believes the estimates underlying the calculation
of specific allowances are reasonable, there can be no assurances that the Bank could ultimately realize
these values. In addition to providing valuation allowances on specific assets where a decline in value
has been identified, the Bank establishes general valuation allowances for losses based on the overall
portfolio composition, general market cOnditions, concentrations, and prior loss experience.
Other significant management judgments and accounting estimates reflected in the Bank’s financial
statements include:
Decisions regarding the timing and placement of loans on non-accrual;
Determination, recognition, and measurement of impaired loans;
Determination and evaluation of asset servicing rights;
Determination and evaluation of deferred tax assets and liabilities;
Determination of the fair value of financial instruments; and
Determination of the fair value of other real estate owned.

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SUTTER COMMUNITY BANK
NOTES To FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentrations of credit risk — Assets and liabilities that subject the Bank to concentrations of credit risk
consist of cash balances at other banks, loans, and deposits. Most of the Bank’s customers are located
within Sutter County and the surrounding areas. The Bank’s primary lending products are discussed in
Note 3 to the financial statements. The Bank did not have any significant concentrations in its business
with any one customer or industty. The Bank obtains what it believes to be sufficient collateral to secure
potential losses on loans. The extent and value of collateral varies based on the details underlying each loan
agreement.
As of December 31, 2008 and 2007, the Bank has cash deposits at other financial institutions in excess of
FDIC insured limits. However, as the Bank places these deposits with major financial institutions and
monitors the financial condition of these institutions, management believes the risk of loss to be minimal.
Cash and cash equivalents Cash and cash equivalents include cash on hand, amounts due from
banks, money market funds, and federal funds sold. Generally, federal funds are sold for one-day
periods.
Loans and allowance for loan losses Loans are reported at the principal amount outstanding, net of
deferred loan fees and costs and the allowance for loan losses. Unearned discounts on installment loans
are recognized as income over the terms of the loans. Interest on other loans is calculated by using the
simple interest method on the daily balance of the principal amount outstanding.
Loan fees, net of certain direct costs of origination, are deferred and amortized over the contractual
term of the loan as an adjustment to the interest yield. During the years ended December 31, 2008 and
2007, salaries, employee benefits, and other expenses totaling $137,600 and $119,238, respectively, were
deferred as loan origination costs.
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans.
Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely
collection of interest or principal or when a loan becomes contractually past due by 90 days or more
with respect to interest or principal. When a loan is placed on non-accrual status, all interest previously
accrued, but not collected, is reversed against current period interest income. income on such loans is
then recognized only to the extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of management, the loans are estimated to
be fully collectible as to both principal and interest.
The allowance for loan losses is established through a provision for loan losses charged to operations.
Loans are charged against the allowance for loan losses when management believes that the collectibility
of the principal is unlikely. Subsequent recoveries of previously charged off amounts, if any, are credited
to the allowance.

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SUTTER COMMUNITY BANK
Nores To FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans and allowance for loan losses — (continued)
The allowance for loan losses is evaluated on a regular basis by management and is based on
management’s periodic review of the collectibility of the loans in light of historical experience, the
nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to
repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation
is inherently subjective as it requires estimates that are susceptible to significant revision as more
information becomes available.
The allowance consists of specific, general, and unallocated components. The specific component
relates to loans that are classified as impaired. Impaired loans, as defined, are measured based on the
present value of expected future cash flows discounted at the loan’s effective interest rate or the fair
value Of the collateral if the loan is collateral dependent. The general component relates to non—impaired
loans and is based on historical loss experience adjusted for qualitative factors. An unallocated
component is maintained to cover uncertainties that could affect management’s estimate of probable
losses. The unallocated component of the allowance reflects the margin Of imprecision inherent in the
underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio.
The Bank considers a loan impaired when it is probable that all amounts of principal and interest due,
according to the contractual terms of the loan agreement, will not be collected, which is the same criteria
used for the transfer of loans to non~accrual status. Interest income is recognized on impaired loans in
the same manner as non-accrual loans. Factors considered by management in determining impairment
include payment status, collateral value, and the probability Of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance Of payment delays and payment
shortfalls on a case-by~case basis, taking into consideration all of the circumstances surrounding the loan
and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior
payment record, and the amount of the shortfall in relation to the principal and interest owed.
Premises and equipment —~ Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are provided for in amounts sufficient to relate the
cost of depreciable assets to operations over their estimated service lives using the straight-line method.
The estimated lives used in determining depreciation are:
Furniture, fixtures, and equipment 2 — 5 years
Computer software ' 2 — 5 years
Leasehold improvements 3 — 4 years
Leasehold improvements are amortized over the lesser of the useful life Of the asset or the term of the
lease. The straight-line method of depreciation is followed for all assets for financial reporting purposes,
but: accelerated methods are used for tax purposes. Deferred income taxes have been provided for the
resulting temporary differences.

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SUTTER COMMUNrTY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT Accouwrmo POLICIES (CONTINUED)
Income taxes The Bank uses the asset and liability method to account for income taxes. Under such
method, deferred tax assets and liabilities are recognized for the future tax consequences of differences
between the financial statement carrying amounts of existing assets and liahiiities and their respective tax
basis (temporary differences). Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized
or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes in the period of enacnnent.
A valuation allowance is established to the extent that it is more likely than not that the benefits
associated with the deferred tax assets will not be fully realized.
The Bank adopted the provisions of FASB Interpretation No. 48, Armmi‘tz'agfir Uncertainty in lama/is
Taxes", onjanuary 1, 2007. The Bank had no unrecognized tax benefits that would require an adjustment
to the january l, 2007 beginning balance of retained earnings. The Bank had no unrecognized tax
benefits at December 31, 2008 and 2007.
The Bank recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense.
During the years ended December 31, 2008 and 2007, the Bank recognized no interest and penalties.
The Bank files income tax returns in the US. federal jurisdiction and with the state of California. The
Bank is subject to US. federal or state income tax examinations by tax authorities for years beginning
2006.
Net loss per common share " Basic net loss per share amounts are computed by dividing net loss
available to shareholders by the weighted average number of common shares outstanding during the
year. Diluted earnings per share 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
share in the earnings of the Bank. The treasury stock method is applied to determine the dilutive effect
of stock options when computing diluted earnings per share. However, dilutive earnings per share
amounts are not presented when a net loss occurs because the conversion of potential common stock is
antidilutive.
Other real estate owned — Real estate acquired through, or in lieu of, loan foreclosure is expected to
be sold and is recorded at the date of foreclosure at the lower of the recorded investment in the
property or its fair value less estimated costs to sell (fair value) establishing a new cost basis. After
foreclosure, valuations are periodically performed by management with any subsequent write downs
recorded as a valuation allowance and charged against operating expenses. Operating expenses of such
properties, net of related income, are included in other expenses, and gains and losses on their
disposition are included in non-interest income and expenses. During 2008, the Bank foreclosed on one
loan and transferred $1,819,150 to other real estate owned. Additionally, the Bank recorded a write-
down and corresponding valuation allowance for the other real estate owned equal to $500,000 during
2008.

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SUTTER COMMUNITY BANK
NOTES To FINANCIAL STATEMENTS
NOTE 1 “ ORGANIZATION AND Smmaav OF SiGNiFiCANT ACCOUNTING POLICIES (CONTINUED)
Transfers of financial assets Transfers of financial assets are accounted for as sales when control
over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when:
(1) the assets have been isolated from the Bank, (2) the transferee obtains the right (free of conditions
that contain it from taking advantage of that right) to piedge or exchange the transferred assets, and
(3) the Bank does not maintain effective control over the transferred assets through an agreement to
repurchase them before their maturity.
Advertising costs —The Bank expenses advertising costs as they are incurred. Advertising expense was
$48,963 and $73,885 for the years ended December 31, 2008 and 2007, respectively.
Loans held for sate -- Loans held for sale include mortgage loans and are reported at the lower of cost
or market value. Cost generally approximates market value, given the short duration of these assets.
Gains or losses on the sale of loans that are held for sale are recognized at the time of the sale and
determined by the difference between net sale proceeds and the net book value of the loans less the
estimated fair value of any retained mortgage servicing rights. There were no ioans held for sale at
December 31, 2008 or 2007.
Servicing rights -~ SPAS No. 156, issued in March 2006, requires all separately recognized servicing
assets and liabilities to be initially measured at fair value. In addition, entities are permitted to choose to
either subsequently measure servicing rights at fair value and report changes in fair value in earnings, or
amortize servicing rights in proportion to and over the period of the estimated net servicing income or
loss and assess the rights for impairment. Beginning with the fiscal year in which an entity adopts SPAS
No. 156, it may elect to subsequently measure a class of servicing assets and liabiiities at fair value. The
effect of re-measuring an existing class of servicing assets and liabilities at fair value is to be reported as a
cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. F or the
Bank, this standard became effective onjanuary 1, 2007.
The Bank sells or transfers loans, including the guaranteed portion of Small Business Administration
(“SBA”) and United States Department of Agriculture (“USDA”) loans (with servicing retained) for
cash proceeds equal to the principal amount of loans, as adjusted to yield interest to the investor based
upon the current market rates. The Bank records an asset representing the right to service ioans for
others when it sells a loan and retains the servicing rights. The carrying value of loans is allocated
between the loan and the servicing rights, biased on their relative fair values. The fair value of servicing
rights is estimated by discounting estimated future cash flows from servicing using discount rates that
approximate current market rates and using estimated prepayment rates.
The servicing rights are initially measured at fair value and amortized in proportion to and over the
period of the estimated net servicing income assuming prepayments. Additionaily, management assesses
the servicing rights for impairment as of each financial report date. For purposes of evaluating and
measuring impairment, servicing rights are based on a discounted cash flow methodology, current
prepayment speeds and market discount rates. Any impairment is measured as the amount by which the
carrying value of servicing rights for a stratum exceeds its fair value. The carrying value of SBA/ USDA
servicing rights at December 31, 2008 and 20077 were $308,806 and $199,932, respectively. No
impairment charges were recorded for the years ended December 31, 2008 or 2007 related to
SBA/USDA servicing assets.
10

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNEFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-has ed compensation -- The Bank accounts for its stock-based compensation in accordance with
the provisions of Statement of Financial Accounting Standards (SPAS) No. 123 (R), Here BaredPzymmfr,
a revision to the previously issued guidance on accounting for stock options and other forms of equity-
based compensation. SPAS No. 123(R) requires the Bank to recognize in the income statement the
grant—date fair value of stock options and other equity-based forms of compensation issued to
employees and directors over the requisite service period (generally the vesting period).
The fair value of each option grant is estimated as of the grant date using an option—pricing model. The
weighted average assumptions used by the Bank for the 200? option grants included: 000% dividend
yield, 17.75% expected volatility, 4.8% risk-free interest rate, and an expected option term of 6.5 years.
There were no stock option grants during 2008. The Bank utilizes a Black-Scholes pricing model for
valuating its stock option grants. The assumptions used in this model inciude an estimate of expected
volatility, based on the historical volatility of the price of similar bank stocks. The Bank estimates the
number of options expected to be forfeited based on industry average forfeiture rates. The risk-free
interest rates are equal to the U.S. Treasury yield at the time of the grant and commensurate with the
expected term of the grant.
NOTE 2 CASH AND DUE FROM BANKS
Cash and due from banks includes balances with the Federai Reserve Bank and other correspondent
banks. The Bank is required to maintain specified reserves by the Federal Reserve Bank. The average
reserve requirements are based on a percentage of the Bank’s deposit liabilities. At December 31, 2008,
no reserve was required.
11

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 3 LOANS
Major classifications of loans are as follows:
DECEMBER 31,
2008 2007
Commercial 8 9,806,316 8 8,673,943
Commercial real estate 15,096,069 9,850,116
Construction and land development 2,198,540 3,613,607
Residential real estate 2,502,5l 5 1,179,229
Agricultural production, land, and equipment 15,345,915 9,563,905
Consumer and other 452,385 441,324
45,401,740 315,322,} 24
Allowance for loan losses (542,692) (434,217)
Deferred loan fees and costs, net (200,088) (167,652)
8 44,658,960 8 32,720,255
The Bank’s customers are primarily located in Sutter County. Approximately 34% of the Bank’s loans
are agriculture and USDA loans. Approximately 5% of the Bank’s loans are real estate construction
loans. Additionally, 38% of the Bank’s loans are for real estate term loans. The remaining 23% are in
commercial and consumer loans. Generally, real estate loans are collateralized by real property while
commercial and other loans are collateralized by funds on deposit, business, or personal assets.
Repayment is generally expected from the proceeds of the sales of property for real estate construction
loans and from cash flows of the borrower for other loans.

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SUTTER COMMUNETY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 3 LOANS (CONTINUED)
Changes in the allowance for loan losses are as follows:
DECEMBER 31,
2008 2007
Balance, beginning of period 8 434,217 3 217,530
Provision for loan losses 189,325 218,200
Loans charged off (80,850) (1,513)
Recoveries of loans previously charged off _ ~ -
Balance, end of period 8 542,692 8 434,217
The total recorded investment in impaired loans at December 31, 2008, was $574,607. The average
recorded investment in impaired loans was $324,299 during 2008. Specific reserves related to impaired
loans at December 31, 2008, totaled 335,758. No interest income was recognized on impaired loans
while considered impaired during 2008. Additionally, there were no impaired loans without specific
reserves at December 31, 2008.
The total recorded investment in impaired loans at December 31, 2007 was $1,900,000. The average
recorded investment in impaired loans was $130,137 during 2007. Specific reserves related to impaired
loans at December 31, 2007, totaled approximately 881,000. No interest income was recognized on
impaired ioans while considered impaired during 2007.
The total recorded investment in non-accrual loans was $574,607 and $1,900,000 at December 31, 2008
and 2007, respectively. The amount of foregone interest income related to non—accrual loans was
$16,017 and $28,857 during 2008 and 2007, respectively. In addition, there were no loans past due
greater than 90 days and still accruing interest at December 31, 2008 or 2007.

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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 4 H PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
DECEMBER 31,
2008 _ 2007
Furniture, fixtures, and equipment 3 252,559 8 250,699
Computer software 229,311 229,311
Leasehold improvements 269,790 267,790
751,660 747,800
Less accumulated depreciation and amortization (523,747) (311,959)
8 227,913 3 435,841
Depreciation and amortization expense totaled $211,788 and $203,663 for the years ended
December 31, 2008 and 2007, respectively.
NOTE 5 INTEREST RECEIVABLE AND OTHER ASSETS
Interest receivable and other assets were as follows:
DECEMBER 31,
2008 2007
Accrued interest and fees - loans 8 468,893 8 327,202
Servicing assets 1 308,806 199,932
Pacific Coast BankersI Bank stock 170,000 170,000
Federal Home Loan Bank stock 124,400 51,100
Prepaid expenses and other assets 116,279 61,396
8 1,188,378 8 809,630
14

Page 18
SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 6 — DEPOSITS
Customer deposits were as follows:
DECEMBER 31,
2008 2007
Demand, non-interest bearing 8 5,243,149 8 4,981,221
Money market 7,957,131 7,898,369
NOW 7,490,359 4,614,765
Savings ' 1,278,442 1,306,517
Tiine less than $100,000 12,919,439 7,459,983
Time — greater than or equal to $100,000 15,855,645 11,608,329
8 50,744,165 8 37,869,184
Certificates of deposit issued and their remaining maturities are as follows:
Year Ending December 31,
2009 8 19,545,528
2010 8,528,059
2011 120,522
2012 580,975
2013 and beyond —
8 28,775,084
Interest expense, net of early Withémwal penalty, recognized on interest-beating deposits consisted of
the following:
YEARS ENDED DECEMBER 31,
2008 2007
Interest-bearing checking - 8 113,697 8 65,156
Savings 5,843 11,326
Money market 198,220 205,619
Time less than $100,000 494,307 306,821
Time — greater than or equal to $100,000 566,595 429,484
Total interest expense on deposits 8 1,378,662 8 1,018,406
15

Page 19
SUTTER COMMUNITY BANK
Noras TO FINANCIAL STATEMENTS
NOTE 7 - INcoME TAXES
The provision for income taxes for the years ended December 31, 2008 and 2007 consisted of $800 in
state franchise tax.
Deferred tax assets at December 31, 2008 and 2007, consisted of the following:
DECEMBER 31,
2008 2007
Deferred tax assets:
Net operating losses 3 716,000 8 335,000
Write down of other real estate owned 206,000 -
Allowance for loan loss 202,000 160,000
Accrual to cash 62,000 135,000
Accumulated depreciation 43,000 18,000
Non-accrual interest 6,000 -
Contribution carryforward 1,000 -
Non'qualified StOck options 126,000 59,000
1,362,000 707,000
Deferred tax liabilities:
Organization and start-up costs (51,000) (32,000)
Dividends (2,000) *
Deferred loan fees (41,000) (32,000)
(94,000) (64,000)
Valuation allowance (1,268,000) (643,000)
Net deferred income tax asset it; - 1,5 -
As of December 31, 2008, a valuation allowance equal to the amount of realizable deferred tax assets
was recorded based on the determination that the Bank is more likely than not, unable to utilize the
deferred tax assets. At December 31, 2008 and 2007, the Bank has federal net operating loss
carryforwards totaling approximately $1,747,000 and $818,000, respectiveiy. Additionaliy, at
December 31, 2008 and 2007, the Bank has state net operating loss carryforwards totaling approximately
$1,706,000 and $793,000, respectively. These net operating loss carryforwards will begin to expire in
2026 for federal income tax purposes and in 2016 for state income tax purposes if not previously
utilized. Utilization of the net operating loss may be subject to substantial annual limitation due to
ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such
an annual limitation could result in the expiration of net operating loss carryforwards before utilization.
The valuation allowance was increased by approximately $625,000 and $241,000 during the years ended
December 31, 2008 and 2007, respectively.
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SUTTER COMMUNITY BANK
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance—sheet risk in the normal course of business
to meet the financing needs of its customers. These financial instruments include commitments to
extend credit in the form of loans or through standby letters of credit. These instruments involve, to
varying degrees, eiements of credit and interest rate risk in excess of the amount recognized in the
balance sheet.
The Bank’s exposure to credit loss, in the event of non~performance by the other party to the financial
instrument for commitments to extend credit and standby letters of credit, is represented by the
contractual amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet instruments.
Contract
Amount
Financial instruments whose contract
amounts represent credit risk:
Undisbursed loan commitments $ 6,534,614
Overdraft protection 317,638
$ 6,852,252
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment ofa fee. Since many of the commitments are expected to
expire without being drawn upon, the total conunitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis The
amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on
management’s credit evaluation. Collateral held varies, but may include accounts receivable, inventory,
property, plant, and equipment, and incomeéproducing commercial properties.
Standby letters of credit are c0nditional commitments 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.
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