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

                                    FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2003

Commission File Number: 000-31929

                            -------------------------
                              SONOMA VALLEY BANCORP
               (Name of registrant at as specific in its charter)
       CALIFORNIA                                       68-0454068
 (State of incorporation)                  (I.R.S. Employer Identification No.)

                              202 West Napa Street
                            Sonoma, California 95476
                                 (707) 935-3200
               (Address, including zip code, and telephone number,
              including area code, of principal executive offices)
                            ------------------------
Securities to be registered under section 12(b) of the Exchange Act:  None

Securities to be registered under section 12(g) of the Exchange Act:

                                                    Name of each exchange
              Title of each class                    on which registered
           Common Stock, No Par Value                       None

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.  [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is 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 of this Form 10-K. |_|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act) [ ] Yes [ X ] No

Aggregate market value of Common Stock held by  non-affiliates  of Sonoma Valley
Bancorp as of March 16, 2004 based on the current  market price of the stock:
$36,317,984

The number of shares of  registrant's  common stock  outstanding as of March 15,
2004 was 1,484,823.

DOCUMENTS INCORPORATE BY REFERENCE
None.


<PAGE>

     With the exception of historical facts stated herein, the matters discussed
in this  Form 10-K are  "forward  looking"  statements  that  involve  risks and
uncertainties  that  could  cause  actual  results  to  differ  materially  from
projected  results.  Such  "forward  looking"  statements  include,  but are not
necessarily  limited  to  statements  regarding  anticipated  levels  of  future
revenues and earnings from the operation of Sonoma Valley Bancorp's wholly owned
subsidiary,  Sonoma  Valley  Bank,  projected  costs  and  expenses  related  to
operations of the bank's liquidity,  capital resources,  and the availability of
future equity capital on commercially reasonable terms. Factors that could cause
actual results to differ  materially  include,  in addition to the other factors
identified in this Form 10-K,  the  following:  (i) increased  competition  from
other  banks,  savings  and loan  associations,  thrift  and loan  associations,
finance  companies,  credit  unions,  offerors of money market funds,  and other
financial  institutions;  (ii) the risks and  uncertainties  relating to general
economic  and  political  conditions,  both  domestically  and  internationally,
including,  but not limited to, inflation,  or natural  disasters  affecting the
primary  service area of the Bank or its major  industries;  or (iii) changes in
the laws and regulations  governing the Bank's activities at either the state or
federal level. Readers of this Form 10-K are cautioned not to put undue reliance
on "forward  looking"  statements  which,  by their  nature,  are  uncertain  as
reliable indicators of future  performance.  Sonoma Valley Bancorp disclaims any
obligation to publicly update these "forward looking"  statements,  whether as a
result of new information, future events, or otherwise.

                                     PART I

ITEM 1. BUSINESS

General

     Sonoma Valley Bancorp  ("Company") was incorporated under California law on
March 9, 2000 at the  direction of Sonoma Valley Bank for the purpose of forming
a single-bank  holding company structure  pursuant to a plan of  reorganization.
The  reorganization  became  effective  November 1, 2000,  after  obtaining  all
required regulatory approvals and permits,  shares of the Company's common stock
were issued to  shareholders  of Sonoma Valley Bank in exchange for their Sonoma
Valley Bank stock. Previously, Sonoma Valley Bank filed its periodic reports and
current  reports  under the  Securities  Exchange  Act of 1934 with the  Federal
Deposit  Insurance  Corporation.  Following  the  reorganization,  periodic  and
current reports are now filed with the Securities and Exchange Commission.

     The business operations of the Company continue to be conducted through its
wholly-owned  subsidiary,  Sonoma Valley Bank ("Bank"),  which began  commercial
lending  operations on June 3, 1988.  In addition to its main branch  located in
Sonoma,  California,  the Bank also operates a second  branch office  located in
Glen  Ellen,  California.  In March  2004,  the Bank  opened a branch,  Banco de
Sonoma,  located in Boyes Hot Springs,  California.  The  following  discussion,
therefore,  although presented on a consolidated  basis,  analyzes the financial
condition  and results of  operations  of the Bank for the twelve  month  period
ended December 31, 2003.

Primary Services

     The Bank emphasizes the banking needs of small to  medium-sized  commercial
businesses,  professionals  and upper  middle  to high  income  individuals  and
families in its primary  service area of Sonoma,  California  and the  immediate
surrounding area.

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<PAGE>

     The Bank offers  depository and lending  services keyed to the needs of its
business and professional clientele.  These services include a variety of demand
deposit, savings and time deposit account alternatives,  all insured by the FDIC
up to its applicable  limits.  Special merchant and business  services,  such as
coin, night depository, courier, on line cash management and merchant teller are
available. The Bank offers bank by mail service,  drive-up ATM service, extended
hours including Saturday banking, drive-up windows and telephone voice response.
In 2003,  the bank began  offering  Internet  Banking to its customer  base. The
initial  customers  using the product were existing Cash  Management  Commercial
customers  and by  mid-year  the bank  offered  Internet  Banking  to its entire
customer base with products for both  commercial and individual  customers.  The
Bank's lending  activities  are directed  primarily  towards  granting short and
medium-term  commercial loans, augmented by customized lines of credit, for such
purposes as operating capital,  business and professional start-ups,  inventory,
equipment,   accounts   receivable,   credit  cards,  and  interim  construction
financing, personal loans and loans secured by residential real estate.

     With the  opening of our third  Branch  office,  Banco de Sonoma  Office in
March 2004, the bank is offering  additional services to the Latino community in
our market place.  In 2003, the Bank installed a bilingual ATM machine,  and has
bilingual officers and customer service  employees.  All of the employees at the
Banco de Sonoma Office are bilingual.

     The business of the Bank is not seasonal. The Bank intends to continue with
the  same  basic  commercial  banking  activities  it has  operated  with  since
beginning  operations June 3, 1988. Retail deposit  gathering  activities at the
branches  comprise  the bulk of  sources  for  lending.  The  bank has  approved
borrowing levels at the Federal Home Bank for temporary funding needs.

Competition

     In general,  the banking  business in  California  and in the market areas,
which the Bank  serves,  is highly  competitive  with  respect to both loans and
deposits,  and is dominated by a relatively  small number of major banks,  which
have many offices  operating over a wide geographic  area. The Bank competes for
loans and deposits with these and other regional banks,  including several which
are much larger than the Bank, as well as savings and loan associations,  thrift
and loan  associations,  finance  companies,  credit  unions,  offerors of money
market funds and other financial institutions.

     The Bank's  primary  service area is currently  served by branches of eight
other banks (including three major banks:  Citigroup,  Bank of America and Wells
Fargo Bank).  In order to compete with the major  financial  institutions in its
primary service area, the Bank uses its flexibility as an independent bank. This
includes emphasis on specialized services and personalized attention.

     In the event  there are  customers  whose  loan  demands  exceed the Bank's
lending limit, the Bank seeks to arrange for such loans on a participation basis
with other financial  institutions and intermediaries.  The Bank also is able to
assist  those  customers  requiring  other  services  not offered by the Bank by
obtaining those services through its correspondent banks.

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<PAGE>

Concentration of Credit Risk

     The majority of the Bank's loan activity is with  customers  located within
the  county  of  Sonoma.  While  the  Bank  has a  diversified  loan  portfolio,
approximately 84% of these loans are secured by real estate in its service area.
This concentration for the year ending December 31, 2003 is presented below:

(in thousands of dollars)

        Secured by real estate:
        Construction/land development             $ 19,421
        Farmland                                     3,784
        1-4 family residences                       15,919
        Commercial/multi-family                     63,691

Employees

     As of December  31,  2003,  the Company  employed 49  full-time  equivalent
employees.  In  anticipation  of opening the Banco de Sonoma  branch in 2004 the
bank began hiring additional employees in the 4th quarter of 2003.

Supervision and Regulation

     The Company is a  registered  bank holding  company  under the Bank Holding
Company Act, regulated,  supervised and examined by the Federal Reserve Bank. As
such, it must file with the Federal Reserve Bank an annual report and additional
reports as the Federal Reserve Board may require. The Company is also subject to
periodic examination by the Federal Reserve Board.

     In addition,  both the Company and the Bank are extensively regulated under
both  federal and state laws and  regulations.  These laws and  regulations  are
primarily intended to protect depositors,  not shareholders.  To the extent that
the following  information describes statutory or regulatory  provisions,  it is
qualified  in  its  entirety  by  reference  to  the  particular  statutory  and
regulatory provisions at issue.

     As a California  state-licensed  bank,  the Bank is subject to  regulation,
supervision and periodic  examination by the California  Department of Financial
Institutions. The Bank is also subject to regulation,  supervision, and periodic
examination by the Federal Deposit Insurance  Corporation (the "FDIC"). The Bank
is not a member of the Federal  Reserve System,  but is nevertheless  subject to
certain  regulations of the Board of Governors of the Federal Reserve System. As
a state bank, the Bank's  deposits are insured by the FDIC to the maximum amount
permitted by law, which is currently  $100,000 per depositor in most cases.  For
this protection, the Bank pays a semi-annual assessment.

     The regulations of these state and federal bank regulatory  agencies govern
most aspects of the Company's and the Bank's business and operations,  including
but not limited to,  requiring the maintenance of non-interest  bearing reserves
on deposits,  limiting the nature and amount of investments  and loans which may
be made,  regulating  the  issuance of  securities,  restricting  the payment of
dividends, regulating bank expansion and bank activities,  including real estate
development activities. The Federal Reserve Board, the Federal Deposit Insurance
Corporation,  and the California Department of Financial Institutions have broad
enforcement powers over depository institutions, including the power to prohibit
a bank from engaging in business  practices which are considered to be unsafe or
unsound, to impose substantial fines and other civil and criminal penalties,  to
terminate  deposit  insurance,  and to appoint a conservator or receiver under a

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<PAGE>

variety of  circumstances.  The Federal Reserve Board also has broad enforcement
powers over bank holding  companies,  including the power to impose  substantial
fines and other civil and criminal penalties.

Regulation of Bank Holding Companies

     As a  bank  holding  company,  the  Company's  activities  are  subject  to
extensive  regulation by the Federal Reserve Board. The Bank Holding Company Act
requires us to obtain the prior approval of the Federal Reserve Board before (i)
directly or  indirectly  acquiring  ownership or control of any voting shares of
another bank or bank holding company if, after such acquisition, we would own or
control  more than 5% of the  shares of the other bank or bank  holding  company
(unless  the  acquiring  company  already  owns or  controls a majority  of such
shares);  (ii) acquiring all or substantially  all of the assets of another bank
or bank holding  company;  or (iii) merging or  consolidating  with another bank
holding  company.  The Federal  Reserve Board will not approve any  acquisition,
merger or consolidation that would have a substantially  anticompetitive result,
unless the  anticompetitive  effects of the  proposed  transaction  are  clearly
outweighed by a greater public  interest in meeting the convenience and needs of
the community to be served.  The Federal  Reserve Board also  considers  capital
adequacy  and  other   financial  and  managerial   factors  in  its  review  of
acquisitions and mergers.

     With certain  exceptions,  the Bank Holding  Company Act also  prohibits us
from acquiring or retaining direct or indirect ownership or control of more than
5% of the  voting  shares  of any  company  that is not a bank  or bank  holding
company,  or from engaging directly or indirectly in activities other than those
of  banking,  managing or  controlling  banks,  or  providing  services  for its
subsidiaries.  The principal  exceptions to these  prohibitions  involve certain
non-bank  activities  that, by statute or by Federal Reserve Board regulation or
order, have been determined to be activities  closely related to the business of
banking or of managing or controlling banks.

Federal Deposit Insurance

     The FDIC may  terminate  the deposit  insurance  of any insured  depository
institution  if the FDIC  determines  that the  institution  has  engaged  or is
engaging in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation, order or any
condition  imposed in writing  by, or pursuant to written  agreement  with,  the
FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing
process for a permanent  termination  of  insurance  if the  institution  has no
tangible capital.

Impact of Economic Conditions and Monetary Policies

     The  earnings  and growth of the Bank are and will be  affected  by general
economic  conditions,  both domestic and international,  and by the monetary and
fiscal policies of the United States  Government and its agencies,  particularly
the Federal Reserve Bank (FRB). One function of the FRB is to regulate the money
supply and the national supply of bank credit in order to mitigate  recessionary
and  inflationary  pressures.  Among the  instruments of monetary policy used to
implement these objects are open market transactions in United States Government
securities,  changes in the discount rate on member bank borrowings, and changes
in reserve requirement held by depository institutions. The monetary policies of
the FRB have had a  significant  effect on the  operating  results of commercial
banks in the past and are expected to continue to do so in the future.  However,
the effect of such  policies  on the future  business  and  earnings of the Bank
cannot be accurately predicted.

                                       5
<PAGE>

Recent and Proposed Legislation

     From  time  to  time,  legislation  is  enacted  which  has the  effect  of
increasing  the  cost of  doing  business,  limiting  or  expanding  permissible
activities,  or  affecting  the  competitive  balance  between  banks  and other
financial  institutions.  Proposals to change the laws and regulations governing
the  operations  and  taxation  of banks and other  financial  institutions  are
frequently made in Congress, in the California legislature,  and by various bank
regulatory agencies. No prediction can be made as to the likelihood of any major
changes or the impact such changes  might have on the Bank.  Certain  changes of
potential  significance  to the Bank which have been enacted  recently or others
which are currently  under  consideration  by Congress or various  regulatory or
professional agencies are discussed below.

     The  Financial  Services  Modernization  Act of  1999  (also  known  as the
"Gramm-Leach-Bliley   Act"  after  its  Congressional   sponsors)  substantially
eliminates most of the separations between banks,  brokerage firms, and insurers
enacted  by the  Glass-Steagall  Act of 1933.  The  reform  legislation  permits
securities  firms and insurers to buy banks,  and banks to underwrite  insurance
and securities.  States retain regulatory authority over insurers.  The Treasury
Department's Office of the Comptroller of the Currency has authority to regulate
bank  subsidiaries  that  underwrite  securities  and the  Federal  Reserve  has
authority over bank affiliates for activities such as insurance underwriting and
real-estate development.

     In  January  2001,  the Basel  Committee  on Banking  Supervision  issued a
proposal  for a "New  Capital  Accord." The New Capital  Accord  incorporates  a
three-part framework of minimum capital  requirements,  supervisory review of an
institution's  capital  adequacy and  internal  assessment  process,  and market
discipline  through  effective  disclosure  to encourage  safe and sound banking
practices.  The New Capital Accord is scheduled for implementation by the end of
2006.  The federal  banking  agencies are  required to take  "prompt  corrective
action" in respect of depository  institutions and their bank holding  companies
that do not meet minimum capital  requirements.  FDIC  established  five capital
tiers:  "well  capitalized,"   "adequately   capitalized,"   "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized." A depository
institution's  capital tier, or that of its bank holding  company,  depends upon
where its capital levels are in relation to various relevant  capital  measures,
including a risk-based capital measure and a leverage ratio capital measure, and
certain other factors.

     Under the implementing regulations adopted by the federal banking agencies,
a bank holding company or bank is considered "well  capitalized" if it has (i) a
total  risk-based  capital  ratio of 10% or  greater,  (ii) a Tier 1  risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv)
is not subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately  capitalized" bank holding
company or bank is defined as one that has (i) a total risk-based  capital ratio
of 8% or greater,  (ii) a Tier 1 risk-based  capital  ratio of 4% or greater and
(iii) a leverage  ratio of 4% or greater (or 3% or greater in the case of a bank
with a  composite  CAMELS  rating  of 1).  A bank  holding  company  or  bank is
considered (A) "undercapitalized" if it has (i) a total risk-based capital ratio
of less than 8%, (ii) a Tier 1 risk-based capital ratio of less than 4% or (iii)
a leverage  ratio of less than 4% (or 3% in the case of a bank with a  composite
CAMELS rating of 1); (B) "significantly  undercapitalized" if the bank has (i) a
total  risk-based  capital  ratio of less than 6%,  or (ii) a Tier 1  risk-based
capital  ratio of less  than 3% or (iii) a  leverage  ratio of less  than 3% and
(C)"critically  undercapitalized"  if the bank has a ratio of tangible equity to
total assets equal to or less than 2%. The Federal  Reserve Board may reclassify
a "well capitalized" bank holding company or bank as "adequately capitalized" or
subject an "adequately  capitalized"  or  "undercapitalized"  institution to the
supervisory  actions  applicable  to  the  next  lower  capital  category  if it
determines  that the bank  holding  company  or bank is in an unsafe or  unsound
condition or deems the bank  holding  company or bank to be engaged in an unsafe
or unsound  practice and not to have corrected the  deficiency.  The Company and
Bank  currently  meet  the  definition  of  "well   capitalized"   institutions.

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<PAGE>

"Undercapitalized"  depository institutions,  among other things, are subject to
growth limitations, are prohibited, with certain exceptions, from making capital
distributions,  are limited in their  ability to obtain  funding  from a Federal
Reserve Bank and are required to submit a capital  restoration plan. The federal
banking agencies may not accept a capital plan without determining,  among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository  institution's  capital. In addition,  for a capital
restoration plan to be acceptable,  the depository  institution's parent holding
company  must  guarantee  that the  institution  will comply  with such  capital
restoration  plan  and  provide  appropriate  assurances  of  performance.  If a
depository  institution  fails to submit an  acceptable  plan,  including if the
holding  company  refuses or is unable to make the  guarantee  described  in the
previous sentence,  it is treated as if it is "significantly  undercapitalized".
Failure to submit or  implement an  acceptable  capital plan also is grounds for
the appointment of a conservator or a receiver. "Significantly undercapitalized"
depository  institutions  may be subject to a number of additional  requirements
and  restrictions,  including  orders to sell sufficient  voting stock to become
"adequately  capitalized,"  requirements to reduce total assets and cessation of
receipt of deposits  from  correspondent  banks.  Moreover,  the parent  holding
company of a  "significantly  undercapitalized"  depository  institution  may be
ordered to divest itself of the  institution or of nonbank  subsidiaries  of the
holding company. "Critically undercapitalized" institutions, among other things,
are   prohibited   from  making  any  payments  of  principal  and  interest  on
subordinated  debt,  and  are  subject  to  the  appointment  of a  receiver  or
conservator.  Each federal  banking agency  prescribes  standards for depository
institutions and depository  institution  holding companies relating to internal
controls,  information  systems,  internal  audit systems,  loan  documentation,
credit  underwriting,  interest rate  exposure,  asset growth,  compensation,  a
maximum ratio of classified  assets to capital,  minimum earnings  sufficient to
absorb losses, a minimum ratio of market value to book value for publicly traded
shares and other standards as they deem  appropriate.  The Federal Reserve Board
and OCC have adopted such standards.  Depository institutions that are not "well
capitalized" or "adequately capitalized" and have not received a waiver from the
FDIC are prohibited from accepting or renewing brokered deposits. As of December
31, 2003, the Company and Bank had no brokered deposits.

     The  USA  Patriot  Act of  2001  ("USA  Patriot  Act")  imposes  additional
obligations on U.S.  financial  institutions,  including banks and broker dealer
subsidiaries,   to  implement  policies,   procedures  and  controls  which  are
reasonably  designed to detect and report  instances of money laundering and the
financing of terrorism.  In addition,  provisions of the USA Patriot Act require
the  federal  financial   institution   regulatory   agencies  to  consider  the
effectiveness of a financial institution's anti-money laundering activities when
reviewing bank mergers and bank holding company acquisitions.

     The  Sarbanes-Oxley  Act of 2002  ("Sarbanes-Oxley")  intended  to  address
corporate and accounting  fraud.  Sarbanes-Oxley  applies to publicly  reporting
companies. In addition to the establishment of a new accounting oversight board,
which will enforce auditing, quality control and independence standards and will
be  funded  by fees  from all  publicly  traded  companies,  the bill  restricts
provision of both  auditing and  consulting  services by  accounting  firms.  To
maintain auditor independence, any non-audit services being provided to an audit
client will require  pre-approval by the Company's audit committee  members.  In
addition, the audit partners must be rotated.

     Sarbanes-Oxley  also requires chief executive  officers and chief financial
officers  to  certify  to the  accuracy  of  periodic  reports  filed  with  the
Securities  Exchange  Commission  (the  "SEC"),  subject  to civil and  criminal
penalties if they knowingly or willfully violate this certification requirement.
In  addition,  under  Sarbanes-Oxley,  legal  counsel will be required to report
evidence of a material violation of the securities laws or a breach of fiduciary
duty by a company to its chief  executive  officer or its chief  legal  officer,

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<PAGE>

and, if such officer does not appropriately  respond, to report such evidence to
the audit committee or other similar  committee of the board of directors or the
board itself.

     Longer  prison  terms  and  increased  penalties  will also be  applied  to
corporate  executives  who violate  federal  securities  laws, the period during
which  certain  types of suits can be brought  against a company or its officers
has been extended,  and bonuses issued to top executives prior to restatement of
a  company's  financial  statements  are now  subject  to  disgorgement  if such
restatement was due to corporate misconduct. Executives are also prohibited from
insider trading during retirement plan "blackout" periods,  and loans to company
executives  are  restricted.  Sarbanes-Oxley  accelerates  the  time  frame  for
disclosures by public companies,  as they must immediately disclose any material
changes in their  financial  condition or  operations.  Directors  and executive
officers  must also  provide  information  for most  changes in  ownership  in a
company's securities within two business days of the change.

     Sarbanes-Oxley  also  prohibits any officer or director of a company or any
other person acting under their direction from taking any action to fraudulently
influence,  coerce,  manipulate or mislead any  independent  public or certified
accountant  engaged in the audit of the company's  financial  statements for the
purpose  of  rendering   the   financial   statements   materially   misleading.
Sarbanes-Oxley  also requires the SEC to prescribe rules requiring  inclusion of
an internal  control report and assessment by management in the annual report to
shareholders.  In addition,  the  Sarbanes-Oxley  requires  that each  financial
report  required to be prepared in accordance with (or reconciled to) accounting
principles generally accepted in the United States of America and filed with the
SEC  reflect  all  material  correcting  adjustments  that are  identified  by a
"registered  public  accounting  firm" in accordance with accounting  principles
generally accepted in the United States of America and the rules and regulations
of the SEC.

Accounting Pronouncements

     In April 2003, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 149,  "Amendment  of
Statement 133 on Derivative  Instruments and Hedging  Activities".  SFAS No. 149
amends  and  clarifies   financial   accounting  and  reporting  for  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts,  and for  hedging  activities  under SFAS No.  133,  "Accounting  for
Derivative  Instruments and Hedging Activities".  The Statement is effective for
contracts  entered  into or  modified  after  June  30,  2003  and  for  hedging
relationships  designated  after June 30, 2003.  This Statement had no impact on
the Company's financial condition or results of operations.

     In May 2003, the Financial  Accounting Standards Board issued SFAS No. 150,
"Accounting  for Certain  Financial  Instruments  with  Characteristics  of Both
Liabilities and Equity".  SFAS No. 150  establishes  standards for how an issuer
classifies and measures certain financial  instruments with  characteristics  of
both a  liability  and  equity.  It  requires  that an issuer  classify  certain
financial  instruments  as a liability,  although the financial  instrument  may
previously  have been  classified  as equity.  This  Statement is effective  for
financial  instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period  beginning  after June
15, 2003. This Statement had no impact on the Company's  financial  condition or
results of operations.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others" ("FIN 45"),  which covers  guarantees such
as standby  letters of credit,  performance  guarantees,  and direct or indirect
guarantees of the indebtedness of others, but not guarantees of funding.  FIN 45
requires a guarantor to recognize,  at the inception of a guarantee, a liability

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in an amount equal to the fair value of the obligation undertaken in issuing the
guarantee,  and requires  disclosure about the maximum  potential  payments that
might be required,  as well as the collateral or other recourse obtainable.  The
recognition and measurement provisions of FIN 45 were effective on a prospective
basis after  December  31,  2002,  and its adoption by the Company on January 1,
2003 has not had a significant  effect on the Company's  consolidated  financial
statements.

     In December 2003, the FASB revised Interpretation No. 46, "Consolidation of
Variable  Interest  Entities"  ("FIN  46"),  which  explains  identification  of
variable  interest  entities and the assessment of whether to consolidate  these
entities. FIN 46 requires existing  unconsolidated variable interest entities to
be  consolidated  by  their  primary   beneficiaries  if  the  entities  do  not
effectively  disperse risks among the involved parties. The provisions of FIN 46
are  effective for all financial  statements  issued after January 1, 2003.  The
Company has no variable interests in any entities which would require disclosure
or consolidation.

     In  December  2002,   FASB  issued  SFAS  No.  148,  which  provides  three
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based  compensation.  In addition, this Statement
amends the  disclosure  requirements  of SFAS No. 123 to require more  prominent
disclosures in both annual and interim financial  statements about the method of
accounting  for  stock-based  employee  compensation  and the impact on reported
financial  results.  Finally,  this Statement amends APB Opinion No. 28, Interim
Financial  Reporting,  to  require  disclosure  about  those  effects in interim
financial  information.  This  Statement  is  effective  for fiscal and  interim
periods  ending after  December  15, 2003.  The Company has elected to adopt the
prospective  transition  method  effective  January  1, 2003  and,  accordingly,
compensation  expense was recognized  for any stock options  granted on or after
that date.  The unvested  portion of stock  options  granted prior to January 1,
2003 will continue to be accounted  for under the  provisions of APB Opinion No.
28. This Statement did not have an impact on the Company's  financial  condition
or results of operations in 2003 since no stock options were granted.  Since the
method of determining the value of stock options  prescribed  under SFAS No. 123
is based on a  valuation  model that  relies  upon  factors  that are beyond the
Company's  control,  such as stock price  volatility and market  interest rates,
Management  is not able to  accurately  predict the cost of options  that may be
granted  in the  future  and the  resulting  impact on the  Company's  financial
condition and results of  operations.  Additional  information  regarding  stock
options is contained in Notes A and M of the Notes to the Consolidated Financial
Statements.

                                       9
<PAGE>

Statistical Data

     The following information is required by the Industry Guide 3, "Statistical
Disclosure by Bank Holding  Companies".  The averages shown have been calculated
using the average  daily  balance.

                                                           Sequential Page
                                                              Number

I.      Distribution of Assets, Liabilities and Share-
        holders' Equity; Interest Rates and Differential

        A. Average balance sheets                             19
        B. Analysis of net interest earnings                  19
        C. Rate/volume analysis                               20

II.     Investment Portfolio

        A. Book value (Amortized Cost) of investments         42
        B. Weighted average yield and maturity                19, 23, 28 and 43
        C. Securities of issuer exceeding
               ten percent of equity:                         None

III.    Loan Portfolio

        A. Types of loans                                     19 and 44
        B. Maturities and sensitivities of loans
                to change in interest rates                   28 and 45
        C. Risk elements

               1. Non-accrual, past due,
                      and restructured loans                  24 and 44
               2. Potential problem loans:                    None
               3. Foreign outstandings:                       None
               4. Loan concentrations                         23 and 44

        D. Other Interest Bearing Assets:                     None

IV.     Summary of Loan Loss Experience                       21, 24 and 45

V.      Deposits

        A. Average balances and average rates paid            19
        B. Other categories of deposits                       None
        C. Foreign outstandings                               None
        D. Maturity of time deposits greater than $100,000    28
        E. Maturity of foreign time deposits
               greater than 100,000                           None

VI.     Return on Equity and Assets                           17

VII.    Short-term Borrowings:                                None

                                       10
<PAGE>

ITEM 2. PROPERTIES

     The Company is headquartered in Sonoma, California. At the present time the
Company's  Bank has two branch offices with a third branch opening first quarter
2004.  In 1995 the Bank leased  additional  office space  adjacent to the Sonoma
Branch and in September 1997 the Bank purchased  property across the street from
the Sonoma Branch.  The Sonoma Branch is located at 202 W. Napa Street,  Sonoma.
The building contains approximately 6800 square feet and has been subleased on a
long-term basis (the initial term expires in 2009, with option to extend for two
additional  five-year terms).  The office is considered by management to be well
maintained  and adequate for the purpose  intended.  Lease payments made in 2003
totaled  $224,979  compared to the $216,326 paid in 2002. The lease provides for
future  annual  rents to be  adjusted  for changes in the  Consumer  Price Index
("CPI"), with a minimum annual increase of 4%, effective each March 1st.

     In July,  1995,  the Bank leased a building at 463 Second Street West.  The
building contains  approximately  2400 square feet and has been leased on a long
term basis to coincide with the Sonoma Branch lease. The initial term expired in
2000,  with the first  option  exercised  to  expire in 2005,  with an option to
extend for three  additional  five year terms and one additional four year term.
At present  the Bank  utilizes  all of the units.  Lease  payments  made in 2003
totaled  $37,006  compared with the $36,376 paid in 2002. The lease provides for
future  annual  rents to be  adjusted  for changes in the  Consumer  Price Index
("CPI") effective each July 1st.

     In  September,  1997 the Bank  purchased a building at 472 Second St. West.
The building contains approximately 1013 square feet. The Bank paid $246,943 for
the property.  At present the Bank is utilizing the parking area for  additional
parking for Bank  employees  and the Bank is renting out the building  premises.
Rental income in 2003 was $17,406 compared to $16,521 in 2002.

     The Glen Ellen Branch is located at 13751  Arnold  Drive,  Glen Ellen.  The
facility is  approximately  600 square  feet.  The facility is leased for a five
year term  expiring  in 2008 with the option to extend for two  additional  five
year terms.  Lease payments made in 2003 totaled $12,889  compared to $12,172 in
2002.  The lease  provides for future annual rents to be adjusted for changes in
the CPI, with a minimum annual increase of 4% effective April 1st of each year.

     The Banco de Sonoma  Branch,  opened in March  2004,  is  located  at 18615
Sonoma Hwy #108, Boyes Hot Springs.  The facility is  approximately  1200 square
feet.  The  facility  is leased  for a five year term  expiring  in 2009 with an
option to extend for two  additional  five year terms.  The lease  provides  for
future annual rents to be adjusted for changes in the CPI effective  January 1st
of each year.

ITEM 3. LEGAL PROCEEDINGS

     In the normal course of  operations,  the Company and /or its Bank may have
disagreements or disputes with vendors,  borrowers,  or employees,  which may or
may  not  result  in  litigation.  These  disputes  are  seen  by the  Company's
management as a normal part of business.  There are no pending actions  reported
and no  threatened  actions that  management  believes  would have a significant
material impact on the Company's  financial  position,  results of operations or
cash flows.

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

     The  Company  did not submit any  matters to  security  holders  during the
fourth quarter of its last fiscal year ended December 31, 2003.

                                       11
<PAGE>

                                     PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS

     Following the  reorganization  the Company's  common stock began trading on
the Over the Counter Bulletin Board ("OTC BB") under the symbol "SBNK",  and the
Bank's stock  ceased to be traded.  The Company is not listed on any exchange or
on the National  Association of Securities  Dealers  Automated  Quotation System
("NASDAQ").

     Several  brokers act as facilitators in the trades of Sonoma Valley Bancorp
stock. They are:

        A.G. Edwards                             Hoefer and Arnett
        703 2nd Street, Suite 100                555 Market Street, 18th floor
        Santa Rosa, CA  95409                    San Francisco, CA  94105
        Denise Gilseth                           Lisa Gallo
        (800) 972-4800                           (800) 346-5544

        Paine Webber                             Monroe Securities
        6570 Oakmont Drive                       47 State Street
        Santa Rosa, CA  95409                    Rochester, NY  14614
        John Rector                              Helen Rubeins
         (707) 539-1500                          (888)995-5560

        Edward Jones                             Sutro & Co.
        515 First Street East                    P.O. Box 2859
        Sonoma, CA  95476                        Big Bear Lake, CA  92315
        Gary Scott                               Troy Norlander
        (707) 935-1856                           (800) 288-2811

        Wedbush Morgan Securities
        1300 S.W. Fifth Avenue, Suite 2000.
        Portland, OR  97201-5667
        Joey Warmenhoven
        (503) 224-0480

                                       12
<PAGE>

     The table below  summarizes those trades of the common stock as reported by
OTC BB, setting forth the high and low prices for the periods  shown.  The stock
prices have been adjusted for stock dividends.

        Quarter Ended:                        High         Low

        March 31, 2002                      $ 21.32      $ 19.27
        June 30, 2002                         27.62        20.51
        September 30, 2002                    27.62        25.00
        December 31, 2002                     29.47        25.48

        March 31, 2003                      $ 29.52      $ 26.10
        June 30, 2003                         29.00        26.67
        September 30, 2003                    30.00        27.60
        December 31, 2003                     31.00        28.25


     As of March 9, 2004,  there were 1,661  holders of record of the  Company's
common stock.

Payment of Dividends

     Under state law, the Board of Directors of a California state-licensed bank
may  declare  a cash  dividend,  subject  to the  restriction  that  the  amount
available  for the  payment of cash  dividends  shall be the lesser of  retained
earnings  of the bank or the bank's net income for its last three  fiscal  years
(less the amount of any distributions to shareholders made during such period).

     However,  under the Financial  Institutions  Supervisory  Act, the FDIC has
broad  authority to prohibit a bank from engaging in banking  practices which it
considers to be unsafe or unsound. It is possible,  depending upon the financial
condition  of the bank in question and other  factors,  that the FDIC may assert
that the  payment of  dividends  or other  payments by a bank is  considered  an
unsafe and unsound banking practice and therefore,  implement  corrective action
to address such a practice.

     The Bank paid cash dividends of $300,000 on December 29, 2000,  $500,000 on
April 18, 2001, $500,000 on February 26, 2003 and $1,000,000 on June 18, 2003 to
the Company.  Future dividend  payments from the Bank to the Company will depend
on the  Bank's  future  earnings  and on the Bank's  ability to meeting  certain
capital requirements and having an adequate allowance for loan losses.

     The Company paid a cash dividend of $0.25 cent per share to shareholders of
record as of March 1, 2004 with  payment  made on March 15,  2004.  The Board of
Directors of the Company is currently  reviewing our  strategic  plan to utilize
our capital assets in order to enhance shareholder value. One of the initiatives
includes  review of the  declaration of future cash  dividends.  No plan has yet
been finalized.

                                       13
<PAGE>

     Historically, the Company and the Bank have declared ten stock dividends of
5% each, two stock dividends of 10% in May 1996 and June 1997, one 2 for 1 stock
split in March 1998 and a cash dividend in February 2004 as detailed below:



             Dividends Paid by the Bank
             --------------------------

             Date Declared          Record Date            Date Paid
             ---------------------- ---------------------- ---------------------
             May 13, 1992           May 31, 1992           June 15, 1992

             June 26, 1993          July 15, 1993          July 31, 1993

             July 20, 1994          August 1, 1994         August 15, 1994

             January 18, 1995       February 5, 1995       February 20, 1995

             August 16, 1995        September 11, 1995     September 29, 1995

             May 22, 1996           June 14, 1996          June 28, 1996

             June 18, 1997          July 15, 1997          August 1, 1997

             March 18, 1998         April 15, 1998         April 30, 1998

             July 21, 1999          August 16, 1999        August 31, 1999

             August 16, 2000        September 8, 2000      September 25, 2000


             Dividends Paid by the Company
             -----------------------------

             Date Declared          Record Date            Date Paid
             ---------------------- ---------------------- ---------------------
             July 18, 2001          August 3, 2001         August 17, 2001

             June 17, 2002          July 2, 2002           July 16, 2002

             June 18, 2003          July 2, 2003           July 16, 2003

             February 18, 2004      March 1, 2004          March 15, 2004


                                       14
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA


                              SONOMA VALLEY BANCORP
                      Selected Consolidated Financial Data
                       dollars in thousands, except share
                               and per share data

                              For the years ended:


<TABLE>
<CAPTION>
<S>                              <C>        <C>           <C>        <C>         <C>          <C>

                                 2003       2002          2001       2000        1999          1998
                                 ----       ----          ----       ----        ----          ----
RESULTS OF OPERATIONS:
    Net interest income        $  8,906   $  8,633    $  8,236     $  7,870    $  6,699     $  5,987
    Provision for loan losses        20        393         342          335         240          335
    Non-interest income           1,715      1,646       1,309          893         941          878
    Non-interest expense          6,244      5,862       5,224        5,061        4614        4,100
    Provision for income tax      1,446      1,275       1,379        1,160         976          843
                               --------   --------    --------     --------    --------     --------
                               $  2,911   $  2,744    $  2,600     $  2,207    $  1,810     $  1,587
                               ========   ========    ========     ========    ========     ========

SELECTED AVERAGE BALANCES:
    Assets                     $195,177   $164,200    $147,807     $135,924    $123,202     $107,202
    Loans, net of unearned      123,044    116,867     100,605       86,547      73,222       70,838
    Deposits                    171,620    143,228     129,534      120,135     109,801       95,819
    Shareholders' equity         20,232     17,964      15,121       12,984      11,490        9,976
PER SHARE DATA:
    Basic net income              $2.00      $1.87       $1.77        $1.49       $1.21        $1.06
    Fully diluted net income      $1.83      $1.72       $1.66        $1.45       $1.19        $1.05
    Period end book value        $14.73     $13.09      $11.36        $9.67       $8.10        $7.16
    Weighted average shares
        outstanding           1,457,431  1,464,344   1,473,151    1,478,573   1,497,447    1,502,803
FINANCIAL RATIOS:
    Return on average assets      1.49%      1.67%       1.76%        1.62%       1.47%        1.48%
    Return on average
       shareholders' equity      14.39%     15.27%      17.19%       17.00%      15.75%       15.91%
    Net yield on earning
       assets                     5.24%      6.06%       6.25%        6.49%       6.04%        6.22%
    Cost Control ratio           56.95%     55.07%      52.72%       55.06%      58.52%       57.97%
    Average shareholders'
       equity to average assets  10.37%     10.94%      10.23%        9.55%       9.33%        9.31%
CAPITAL RATIOS:
    Risk-based capital:
    Tier I                       12.81%     12.31%      11.81%       12.78%      12.36%       12.57%
    Total                        14.07%     13.57%      13.07%       14.04%      13.62%       13.83%
    Leverage ratio               10.50%     10.62%      10.38%       10.11%       9.54%        9.55%
CREDIT QUALITY:
    Net charge-offs to
       average loans              0.14%      0.02%       0.05%       -0.04%       0.04%        0.09%
    Allowance for possible
       loan losses to period
       end loans                  2.15%      2.17%       2.25%        2.29%       2.19%        2.12%

</TABLE>
                                       15
<PAGE>

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

The Year Ended December 31, 2003 versus December 31, 2002

     The business operations of the Company continue to be conducted through its
wholly-owned  subsidiary,  Sonoma Valley Bank ("Bank"),  which began  commercial
lending operations on June 3, 1988.  Accordingly,  the following  discussion and
analysis of the financial condition and the results of operations should be read
in conjunction  with the financial  statements  and notes included  elsewhere in
this annual report. Per share amounts for prior years have been adjusted for the
Bank's prior 2 for 1 stock split declared  March 18, 1998,  10% stock  dividends
declared June 18, 1997 and May 22, 1996 and 5% stock dividends  declared in June
2003, June 2002, July 2001,  August 2000, July 1999,  January and August,  1995,
July 1994,  June 1993 and May,  1992.  The  continual  growth and success of the
company is dependent upon a stable  economy,  an increasing  deposit base in the
valley and economically viable technology to enhance customer service. Expansion
of services in the valley such as the opening of a new branch,  the placement of
remote ATM in the local hospital,  and the deployment of wire transfer  services
through an  international  network are some of the  strategies for our continual
successful performance.  We continue to believe that community banking,  through
providing  useful  services  in  niche  markets  will  prosper  in  spite of the
consolidation taking place in the industry.

Critical Accounting Policies

     The accounting and reporting  policies of the Company conform to accounting
principles  generally accepted in the United States and general practices within
the financial  services  industry.  The  preparation of financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.  A summary of the Company's most significant  accounting  policies is
contained  in  Note A to the  consolidated  financial  statements.  The  Company
considers its most critical  accounting policies to consist of the allowance for
loan and lease losses and the  estimation  of fair value,  which are  separately
discussed below.

     Allowance  for Loan and  Lease  Losses.  The  allowance  for loan and lease
losses represents  management's best estimate of inherent losses in the existing
loan  portfolio.  The  allowance  for loan and lease  losses is increased by the
provision for losses on loans and leases charged to expense and reduced by loans
and leases  charged off, net of  recoveries.  The  provision  for loan and lease
losses is determined based on management assessment of several factors:  reviews
and  evaluations of specific loans and leases,  changes in the nature and volume
of the loan  portfolio,  current  economic  conditions and the related impact on
specific  borrowers  and  industry  groups,   historical  loan  and  lease  loss
experience,  the level of classified and nonperforming  loans and the results of
regulatory examinations.

     The Company's Audit Committee engage experienced independent loan portfolio
review  professionals  many of  which  are  former  bank  examiners.  The  Audit
Committee  determines  the scope of such  reviews and will provide the report of
findings  to the Board's  Loan  Committee  after they have  accepted  it.  These
reviews are  supplemented  with periodic  reviews by the Company's credit review
function,  as well as  periodic  examination  of both  selected  credits and the
credit review process by the applicable  regulatory  agencies.  The  information
from these reviews assists  management in the timely  identification of problems
and  potential  problems and  provides a basis for  deciding  whether the credit
represents a probable loss or risk that should be recognized.

     Changes in the  financial  condition of individual  borrowers,  in economic
conditions,  in historical  loss experience and in the conditions of the various
markets in which collateral may be sold may all affect the required level of the

                                       16
<PAGE>

allowance  for loan and lease losses and the  associated  provision for loan and
lease losses.

     Estimation of Fair Value.  Accounting  principles generally accepted in the
United  States  require that certain  assets and  liabilities  be carried on the
Consolidated  Balance Sheet at fair value or at the lower of cost or fair value.
Furthermore, the fair value of financial instruments is required to be disclosed
as a part of the notes to the consolidated financial statements for other assets
and  liabilities.  Fair values are volatile and may be influenced by a number of
factors, including market interest rates, prepayment speeds, discount rates, the
shape of yield curves and the credit worthiness of counterparties.

     Fair values for the majority of the Company's available for sale investment
securities are based on quoted market prices.  In instances  where quoted market
prices are not available,  fair values are based on the quoted prices of similar
instruments  with  adjustment  for relevant  distinctions.  For trading  account
assets, fair value is estimated giving consideration to the contractual interest
rates,  weighted  average  maturities and anticipated  prepayment  speeds of the
underlying instruments and market interest rates.

Overview

     Net income for 2003 was $2,911,007  compared with earnings of $2,744,333 in
2002.  Basic  earnings per share for 2003 was $2.00 compared with $1.87 in 2002.
Return on average  shareholders'  equity  declined to 14.39% in 2003 compared to
15.27% in 2002.  Return on average  total  assets  for 2003,  2002 and 2001 were
1.49%, 1.67% and 1.76%, respectively.

     While the bank  continues to enjoy  increased  earnings over the last three
years,  the banks growth in assets has exceeded  the  earnings  growth.  Earning
growth has been  impacted by the  decline in net  interest  margins,  which is a
combination of increased rate  competition  for loans and the lower market rates
for  investment  securities.  Retaining all of the banks earnings in its capital
accounts  has  resulted in the  decline in the return on equity,  as the capital
accounts  increase at a faster growth rate than the increase in net income.  The
capital  planning  strategy going forward will deploy both a repurchase of share
strategy  with a cash  dividend  policy  intended  to better  manage an adequate
capital level.

     At December 31, 2003,  total assets were $205.1  million,  a 12.3% increase
over the $182.6 million at December 31, 2002. The Company showed loans of $122.5
million in 2003,  compared  with $128.1  million at year-end  2002, a decline of
4.4%. Deposits increased, growing 12.6%, from $160.0 million at year-end 2002 to
$180.1 million at year-end 2003. The loan-to-deposit  ratio declined to 68.0% in
2003 from 80.0% in 2002. The decline in loans and the  loan-to-deposit  ratio is
reflective of  management's  attention to the risk  associated  with making long
term fixed rate loans at low  interest  rates and  increased  attention  to loan
quality due to concern about the economy.

     The company has acquired additional  software to accommodate  maintaining a
portfolio  of  adjustable  rate  residential  loans,  which  was  not an  option
previously.  Additionally,  the bank has  enhanced  its  ability  to  engage  in
mortgage  origination for the secondary market,  and will be using the increased
liquidity for warehousing  product available for sale. This activity is expected
to enhance earnings for the company.

Net Interest Income

     Net interest  income is the difference  between total  interest  income and
total  interest  expense.  Net  interest  income,  adjusted  to a fully  taxable
equivalent  basis,  increased  $250,000 to $9.3  million,  up 2.8% from 2002 net
interest  income  of $9.0  million.  Net  interest  income  on a  fully  taxable
equivalent  basis,  as shown on the table - Average  Balances,  Yields and Rates
Paid  (page  19),  is  higher  than net  interest  income on the  statements  of
operations because it reflects adjustments  applicable to tax-exempt income from

                                       17
<PAGE>

certain  securities and loans ($343,000 in 2003 and $366,000 in 2002, based on a
34% federal income tax rate).

     The increase in net interest  income (stated on a fully taxable  equivalent
basis) was the net effect of a small increase of $13,000 in interest  income and
a $237,000  decrease in  interest  expense,  which is a result of deposit  rates
declining faster than loan rates. Declining rates influenced net interest income
in spite of the growth in earning  assets.  The decline in  interest  expense is
expected to plateau as the effective  interest cost for the bank is not expected
to decline further. This combination of increased rate competition for loans and
investments  with an inability to lower  interest  costs will likely result in a
flat earnings environment.

     Net interest income (stated on a fully taxable  equivalent basis) expressed
as a  percentage  of average  earning  assets,  is referred  to as net  interest
margin.  The Company's net interest  margin declined 82 basis points to 5.24% in
2003 from 6.06% in 2002.

Interest Income

     As previously stated, interest income (stated on a fully taxable equivalent
basis)  increased by $13,000 to $11.0  million in 2003, a .12% increase over the
$10.9 million realized in 2002.

     The  $13,000  increase  was the net effect of an 11.0%  increase in average
earning  assets to $176.6 million offset by a 117 basis point decline in average
yield for the year.

                                       18
<PAGE>
                             SONOMA VALLEY BANCORP
                     AVERAGE BALANCES/YIELDS AND RATES PAID
                                  Rate/Volume
<TABLE>
<CAPTION>
<S>                            <C>       <C>      <C>     <C>       <C>       <C>       <C>      <C>          <C>

ASSETS                         Average   Income/  Yield/  Average   Income/   Yield/    Average  Income/      Yield
                               Balance   Expense  Rate    Balance   Expense   Rate      Rate     Expense      Rate
-------------------------      -------   -------  ------  --------  -------   ------    -------  -------      -----
Interest-earning assets:
  Loans(2):
   Commercial                  $85,965    $6,493   7.55%  $75,696   $ 5,978     7.90%     61,888     $5,582     9.02%
   Consumer                     11,632       889   7.64%   13,186     1,098     8.33%     14,583      1,370     9.39%
   Real estate construction     18,781     1,530   8.15%   19,040     1,689     8.87%     12,393      1,279    10.32%
   Real estate mortgage          3,820       333   8.72%    5,732       481     8.39%      8,983        823     9.16%
   Tax exempt loans (1)          3,147       263   8.36%    3,367       285     8.46%      2,566        220     8.57%
   Leases                           67        22  32.84%      164        27    16.46%        409         42    10.27%
   Tax exempt leases (1)            47        10  21.28%      106        15    14.15%        165         15     9.09%
   Unearned loan fees            (416)                       (424)                          (382)
                                 -----                       -----                          -----
          Total loans          123,043     9,540   7.75%  116,867     9,573     8.19%    100,605      9,331     9.27%
  Investment securities
    Available for sale:
          Taxable               11,093       352   3.17%    6,029       365     6.05%     16,420      1,001     6.10%
          Tax exempt(1)              0         0   0.00%        0         0     0.00%          0          0     0.00%
    Hold to maturity:
          Taxable                  392        13   3.32%      201        13     6.47%        203         13     6.40%
          Tax exempt (1)        11,270       736   6.53%   10,904       777     7.13%     11,779        837     7.11%
                                ------     -----           ------     -----               ------      -----
          Total investment      22,755     1,101   4.84%   17,134     1,155     6.74%     28,402      1,851     6.51%
  securities
  Federal funds sold            30,318       318   1.05%   14,053       216     1.54%      8,219        286     3.48%
  FHLB Stock                       288        13   4.51%      275        15     5.45%        261         15     5.75%
  Total due from
  banks/Interest bearing           202         1   0.50%       73         1     1.37%         11          0     2.73%
                               -------    ------          -------    ------              -------     ------
   Total interest earning      176,606    10,973   6.21%  148,402    10,960     7.39%    137,498     11,483     8.35%
       assets                  =======    ======          =======    ======              =======     ======

  Noninterest-bearing
  assets:
    Reserve for loan losses    (2,772)                    (2,547)                        (2,263)
    Cash and due from banks      9,090                      7,600                          6,620
    Premises and equipment       1,120                        705                            620
    Other assets                11,133                     10,040                          5,332
                              --------                   --------                       --------
           Total assets       $195,177                   $164,200                       $147,807
                              ========                   ========                       ========
  LIABILITIES AND
  SHAREHOLDERS' EQUITY
  Interest bearing liabilities:
    Interest bearing deposits
          Interest bearing      29,819       $51   0.17%  $23,794      $ 84     0.35%    $21,940      $ 149     0.68%
  transaction
          Savings deposits      59,266       466   0.79%   48,052       656     1.37%     42,074        997     2.37%
          Time deposits         19,794       477   2.41%   18,362       547     2.98%     16,739        845     5.05%
  over $100,000
          Other time deposits   25,209       730   2.90%   20,155       674     3.34%     18,913        885     4.68%
          deposits              ------       ---           ------       ---               ------        ---
          Total interest bearing
          Deposits             134,088     1,724   1.28%  110,363     1,961     1.78%     99,666      2,876     2.89%
    Federal Funds purchased          0         0   0.00%        0         0     0.00%          0          0        0%
    Other short term                 3         0   0.00%        0         0     0.00%        174          7     4.02%
          borrowings           -------     -----          -------     -----               ------      -----
          Total interest bearing
             liabilities       134,091     1,724   1.28%  110,363   $ 1,961     1.78%     99,840    $ 2,883     2.89%
                                           =====                    =======                         =======
    Non interest bearing
  liabilities:
    Non interest bearing        37,531                     32,865                         29,868
  demand deposits
    Other liabilities            3,323                      3,008                          2,978
    Shareholders' equity        20,232                     17,964                         15,121
                               -------                    -------                         ------
        Total liabilities and
        shareholders' equity   195,177                   $164,200                       $147,807
                               =======                   ========                       ========
  shareholders' equity
  Interest rate spread                             4.93%                        5.61%                           5.46%
  Interest income                        $10,973   6.21%            $10,960     7.39%               $11,483     8.35%
  Interest expense                         1,724   0.98%              1,961     1.32%                 2,883     2.10%
                                         -------                    -------                         -------
  Net interest income/margin              $9,249   5.24%             $8,999     6.06%                $8,600     6.25%
                                         =======                    =======                         =======
</TABLE>

  (1)    Fully tax equivalent adjustments are based on a federal income tax
rate of 34% in 2003, 2002 and 2001.
  (2)    Non accrual loans have been included in loans for the purposes of the
above presentation.  Loan fees of approximately $405,000, $343,000 and $334,000
for the twelve months ended December 31, 2003, 2002 and 2001, respectively,
were amortized to the appropriate interest income categories.

                                       19
<PAGE>
                              SONOMA VALLEY BANCORP

                              Rate/Volume Analysis

<TABLE>
<CAPTION>
<S>                           <C>          <C>       <C>         <C>        <C>        <C>      <C>           <C>

                                            2003 over  2002                             2002 over  2001
                                            ---------------                             ---------------
                              Volume       Rate     Vol/Rate     Total      Volume     Rate     Vol/Rate      Total
ASSETS
Interest-earning assets:
Loans:
  Commercial                     811      (261)       (35)         515       1,245      (694)      (155)         396
  Consumer                     (129)       (90)         11       (209)       (131)      (156)         15       (272)
  Real estate                   (23)      (138)          2       (159)         686      (180)       (96)         410
construction
  Real estate mortgage         (160)         19        (6)       (148)       (298)       (69)         25       (342)
  Tax exempt loans              (19)        (4)          0        (22)          69        (3)        (1)          65
  Leases                        (16)         27       (16)         (5)        (25)         25       (15)        (15)
  Tax exempt leases              (8)          8        (4)         (5)         (5)          8        (3)           0
  Unearned fee income              0          0          0           0           0          0          0           0
                                ----      -----       ----        ----       -----    -------      -----        ----
      Total loans                456      (439)       (48)        (33)       1,541    (1,069)      (230)         242

Investment securities:
  Available for sale:
    Taxable                      307      (174)      (146)        (13)       (633)        (7)          4       (636)
    Tax-exempt                     0          0          0           0           0          0          0           0
  Held to maturity:
    Taxable                       12        (6)        (6)           0           0          0          0           0

    Tax-exempt                    26       (65)        (2)        (41)        (62)          2          0        (60)
                                ----      -----       ----        ----       -----    -------      -----        ----
      Total investment
         securities              345      (245)      (154)        (54)       (695)        (5)          4       (696)
Federal funds sold               250       (69)       (79)         102         203      (160)      (113)        (70)
FHLB Stock                         1        (3)        (0)         (2)           1        (1)          0           0
Due from banks-int bearing         2        (1)        (1)           0           2          0        (1)           1
                                ----      -----       ----        ----       -----    -------      -----        ----
      Total interest-earning
        assets                 1,054      (757)      (282)         13        1,052    (1,235)      (340)       (523)
                               =====      =====      =====        ====       =====    =======      =====       =====
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
  Savings deposits                21       (44)       (11)        (34)          13       (72)        (6)        (65)
  Interest-bearing demand
    deposits                     153      (277)       (65)       (189)         142      (423)       (60)       (341)
  Time less than $100,000         43      (105)        (8)        (70)        (26)      (321)          9       (338)
  Time $100,000 and over         169       (90)       (23)          56         172      (285)       (58)       (171)
                                ----      -----       ----        ----       -----    -------      -----        ----
   Total interest-bearing
     deposits                    386      (516)      (107)       (237)         301    (1,101)      (115)       (915)
Federal funds purchased            0          0          0           0           0          0          0           0
Other borrowings                   0          0          0           0         (7)        (7)          7         (7)
                                ----      -----       ----        ----       -----    -------      -----        ----
   Total interest-bearing
      liabilities                386      (516)      (107)       (237)         294    (1,108)      (108)         922
  Interest differential          668      (241)      (175)        250          758      (127)      (232)         399
                               =====      =====      =====        ====       =====    =======      =====       =====
</TABLE>

Volume/Rate variances were allocated in the following manner:
  a.  Changes affected by volume (change in volume times old rate)
  b.  Changes affected by rates (change in rates times old volume)
  c.  Changes affected by rate/volume (change in volume times change in rates)
  The total for each category was arrived at by totaling the individual items
  in their respective categories.

                                       20
<PAGE>

Interest Expense

     Total interest  expense  declined by $237,000 to $1.7 million.  The average
rate paid on all  interest-bearing  liabilities was 1.28%,  compared to 1.78% in
2002.  Average balances increased from $110.4 million to $134.1 million, a 21.5%
gain.

     The gain in volume of  average  balances  was  responsible  for a  $279,000
increase  in interest  expense  offset by a $516,000  decrease  related to lower
interest  rates paid for a net  decrease  of  $237,000.  The lower rates paid on
interest-bearing   liabilities  is  a  result  of  a  declining   interest  rate
environment.

     Individual  components of interest income and interest expense are provided
in the table - Average Balances, Yields and Rates Paid on page 19.

Provision for Loan Losses

     The provision for loan losses  charged to operations is based on the Bank's
monthly  evaluations of the loan portfolio and the adequacy of the allowance for
loan  losses in  relation  to total loans  outstanding.  The  provisions  to the
allowance for loan losses  amounted to $20,000 in 2003 and $393,000 in 2002. The
decrease in the provision is the result  management's  evaluation and assessment
of the loan portfolio and decline in the loan growth.

     Loans charged-off, net of recoveries,  resulted in losses totaling $167,000
in 2003 and $27,000 in 2002.  The increase in charge offs reflects loan problems
related to the  economic  downturn.  Refer to page 45, Note D for an analysis of
the changes in the allowance for loan and lease losses.

Non-interest Income

     Non-interest  income of $1.7 million  increased 4.5% in comparison with the
$1.6  million  recorded in 2002.  The increase  was  primarily  due to a $70,000
increase in service charges on deposit accounts.

Non-interest Expense

     Total non-interest expense increased 6.5% to $6.2 million in 2003 from $5.9
million in 2002.  Non-interest  expense represented 3.2% of average total assets
in 2003  and 3.6% in  2001.  The  expense/asset  ratio  is a  standard  industry
measurement of a bank's ability to control its overhead or  non-interest  costs.
During 2004, the Company will continue to emphasize cost controls. Certain costs
are not  controllable  by  management.  Refer to Note I, page 49, for a detailed
description of Non-Interest Income and Other Non-Interest Expense.

Salaries and Benefits

     Salaries  and  benefits  increased  1.5% from $3.4  million in 2002 to $3.5
million in 2003. The 2003 increase  reflects normal merit increases and employee
incentives  paid as a result of the  Company's  earnings in 2003.  Additionally,
there continues to be significant increases in workers compensation and employee
medical  benefits.  At  December  31, 2003 and 2002 total  full-time  equivalent
employees were 49 and 44  respectively.  Year-end  assets per employee were $4.2
million in 2003 and 2002 compared to $3.3 million in 2001.

                                       21
<PAGE>

Premises and Equipment

     Expenses  related to premises and equipment  increased by 24.4% to $769,000
in 2003 from $618,000 in 2002.  Building  lease  expense on three  locations and
storage units increased to $289,000 in 2003 from $278,000 in 2002.  Lease income
for 2003  totaled  $17,000  compared  to lease  income of $17,000  in 2002.  The
increase  in  premises  and  equipment  expense  is the  result  renovation  and
remodeling of the Operations Center and Sonoma Main Office facility.

Other Non-interest Expense

     Other  non-interest  expense increased by 9.9% to $2.0 million in 2003 from
$1.8  million  in 2002.  The  increase  was the  result of a 22.2%  increase  in
professional   fees.   Professional  fees  is  the  largest  category  of  other
non-interest  expense,  primarily  comprised  of  accounting,  legal  and  other
professional  fees.  These services  increased by $210,000 to $1,153,000 in 2003
from $944,000 in 2002. This increase is the result of the additional  regulatory
requirements as a result of Sarbanes-Oxley  and the U.S. Patriot Act.  Increases
in other  categories  reflect  the  increased  growth and volume of  business in
general.

Provision for Income Taxes

     The provision for income taxes  increased to an effective tax rate of 33.2%
in 2003 compared with 31.7% in 2002.

Balance Sheet Analysis

Investment Securities

     Securities  are  classified as held to maturity if the Company has both the
intent and the ability to hold these securities to maturity.  As of December 31,
2003, the Company had  securities  totaling $16.6 million with a market value of
$17.0 million  categorized as held to maturity.  Decisions to acquire  municipal
securities,  which  are  generally  placed  in this  category,  are based on tax
planning needs and pledge requirements.

     Securities are  classified as available for sale if the Company  intends to
hold these debt securities for an indefinite period of time, but not necessarily
to maturity.  Investment  securities which are categorized as available for sale
are acquired as part of the overall asset and liability  management function and
serve as a primary  source of  liquidity.  Decisions  to  acquire  or dispose of
different  investments  are  based on an  assessment  of  various  economic  and
financial factors,  including, but not limited to, interest rate risk, liquidity
and capital  adequacy.  Securities  held in the  available for sale category are
recorded at market value,  which is $20.1 million  compared to an amortized cost
of $20.1 million as of December 31, 2003.

     At year end 2003 the overall  portfolio had a market value of $37.2 million
compared  with  an  amortized  cost  of  $36.6  million.  Investment  securities
increased  166.8% to $36.7  million  from  $13.7  million in 2002.  The  Company
purchases  securities  rated A or higher by Standard and Poor's  and/or  Moody's
Investors Service.  At year end the Company had two securities totaling $656,000
with ratings  below A, both mature in 2004.  Tax-exempt  bonds are  occasionally
purchased  without  an A rating.  In the  opinion  of  management,  there was no
investment in  securities at December 31, 2003 that would  constitute a material
credit risk to the Company.

                                       22
<PAGE>

     The table  below  shows the  components  of the  investment  portfolio  and
average  yields.  For  further   information   concerning  the  Company's  total
securities  portfolio,  including market values and unrealized gains and losses,
refer to Note C of the Notes to  Consolidated  Financial  Statements on pages 42
and 43.

<TABLE>
<CAPTION>
<S>                                      <C>         <C>              <C>         <C>

                                   Twelve months ended 12/31/03  Twelve months ended 12/31/02
                                        Average     Average          Average     Average
                                        Balance     Yield            Balance     Yield
                                        -------     -------          -------     -------

U.S. Treasury securities                $ 780        1.8%          $ 2,529        6.0%
U.S. federal agency issues              9,263        2.9%            1,596        6.1%
State, county and municipal issues     11,662        6.4%           11,105        7.1%
Corporate securities                    1,050        6.4%            1,904        6.1%
                                     --------                     --------
Total investment securities          $ 22,755        4.8%         $ 17,134        6.7%
                                     ========                     ========
</TABLE>

Loans

     A  comparative  schedule of average loan balances is presented in the table
on page  19;  year-end  balances  are  presented  in Note D to the  Consolidated
Financial Statements pages 44 and 45.

     Loan balances,  net of deferred loan fees at December 31, 2003, were $122.5
million, a decrease of 4.4% over 2002. Commercial loans, comprising 75.0% of the
portfolio,  increased $2.7 million,  or 3.0% over 2002. This increase represents
the only category of loans showing growth in 2003.  Included in commercial loans
are loans made for commercial purposes and secured by real estate.

     Real Estate  Construction  loans declined $2.8 million,  or 14.7% over 2002
balances. Consumer loans, including home equity loans, decreased $1.6 million or
12.1% over 2002 balances while real estate  mortgage loans declined $3.7 million
or 62.3%.  In 1997 the Company began  offering  leasing  opportunities  to small
businesses.  Lease financing  receivables for year end 2003 decreased $94,000 or
54.0%.

Risk Elements

     The  majority of the  Company's  loan  activity is with  customers  located
within Sonoma County.  Approximately  84% of the total loan portfolio is secured
by real estate located in the Company's  service area (see Note P, on page 57 of
the Consolidated Financial Statements, Concentration of Credit Risk).

     Significant  concentrations  of  credit  risk may exist if a number of loan
customers  are  engaged  in  similar   activities  and  have  similar   economic
characteristics.  The Company believes that it has policies in place to identify
problem loans and to monitor  concentration of credits of loan customers engaged
in similar activities.

Commitments and Letters of Credit

     Loan commitments are written agreements to lend to customers at agreed upon
terms  provided  there are no  violations of any  condition  established  in the
contract. Commitments generally have fixed expiration dates or other termination
clauses.  Loan  commitments  may have  variable  interest  rates and terms  that
reflect current market conditions at the date of commitment. Because many of the
commitments are expected to expire without being drawn upon, the amount of total
commitments  does not  necessarily  represent the Company's  anticipated  future
funding  requirements.  Unfunded loan commitments were $35.3 million at December
31, 2003 and $30.4 million at December 31, 2002.

                                       23
<PAGE>

     Standby  letters of credit commit the Company to make payments on behalf of
customers when certain  specified  events occur.  Standby  letters of credit are
primarily issued to support customers'  financing  requirements of twelve months
or less and must meet the Company's normal policies and collateral requirements.
Standby  letters of credit  outstanding  were  $725,000 at December 31, 2003 and
$589,000 at December 31, 2002.

Nonperforming Assets

     Management  classifies all loans as non-accrual loans when they become more
than 90 days past due as to principal or interest, or when the timely collection
of  interest  or  principal  becomes  uncertain,  if  earlier,  unless  they are
adequately secured and in the process of collection.

     A loan remains in a  non-accrual  status until both  principal and interest
have been current for six months and meets cash flow or  collateral  criteria or
when the loan is determined to be  uncollectible  and is charged off against the
allowance for loan losses,  or in the case of real estate loans,  is transferred
to other real estate owned. A loan is classified as a restructured loan when the
interest  rate is  materially  reduced,  when the term is  extended  beyond  the
original  maturity date or other  concessions are made by the Company because of
the inability of the borrower to repay the loan under the original terms.

     The Company had $1.2 million in non-accrual status at December 31, 2003 and
$897,000 at December 31, 2002.  There were $1.2 million in loans 90 days or more
past due at December  31, 2003 and $796,000 in loans 90 days or more past due at
December 31, 2002.

Allowance for Loan Losses

     The allowance for loan losses is maintained at a level considered  adequate
to provide for losses  that can be  reasonably  anticipated.  The  allowance  is
increased by provisions charged to operating expense and reduced by charge-offs,
net of recoveries.  The allowance is based on estimates, and ultimate losses may
vary from the current  estimates.  These estimates are reviewed  monthly and, as
adjustments  become  necessary,  they are reported in earnings in the periods in
which they become known.

     The review  process is  intended  to  identify  loan  customers  who may be
experiencing financial difficulties. In these circumstances,  a specific reserve
allocation  or  charge-off  may be  recommended.  Other  factors  considered  by
management in evaluating  the adequacy of the  allowance  include:  loan volume,
historical net loan loss experience,  the condition of industries and geographic
areas  experiencing  or  expected to  experience  economic  adversities,  credit
evaluations,  and current economic conditions.  The allowance for loan losses is
not a precise amount,  but based on the factors above,  represents  management's
best  estimate of losses that may be  ultimately  realized from the current loan
portfolio.

     Worsening conditions in certain economic sectors and geographic areas could
adversely affect the loan portfolio,  necessitating  larger  provisions for loan
losses than currently  estimated.  However, as of December 31, 2003, the Company
believes its overall allowance for loan losses is adequate based on its analysis
of conditions at that time.

     At December 31, 2003,  the allowance  for loan losses was $2.6 million,  or
2.2% of year end loans,  compared with $2.8 million or 2.2% of year end loans at
December 31, 2002. Net charge-offs to average loans increased when compared with
the prior year.  The Company  recorded net losses of $167,000 or .14% of average
loans in 2003  compared  to  $27,000  or .02% of  average  loans  in  2002.  The
continued low level of charge-offs in 2003 reflects the Company's  attention and
effort in managing and collecting  past due loans by encouraging the customer to
bring them to a current status or to pay them off.

                                       24
<PAGE>

Deposits

     A  comparative  schedule of average  deposit  balances is  presented in the
table on page 19; year-end deposit balances are presented in the table below.

     Total deposits  increased $20.1 million (12.6%) in 2003, to $180.1 million.
Demand deposits declined  $813,000,  or 2.1% in 2003. Savings deposits increased
by $11.9 million,  or 22.9% and interest bearing checking increased $7.8 million
or 31.8%  during  2003.  Other time  deposits  of less than  $100,000  decreased
$325,000, or 1.6% and time deposits over $100,000 increased $1.5 million, for an
increase of 6.2% over 2002 balances.

     The composition of deposits for the years ending December 31, 2003 and 2002
are as follows:

<TABLE>
<CAPTION>
<S>                                     <C>           <C>         <C>           <C>
                                        December 31,  Percentage  December 31,  Percentage
                                           2003        of Total      2002        of Total
                                        ------------  ----------  ------------  ----------

Interest bearing transaction deposits    $32,467,678      18.0%   $24,627,589      15.4%
Savings deposits                          63,680,697      35.4%    51,802,714      32.4%
Time deposits, $100,000 and over          26,565,347      14.7%    25,018,603      15.6%
Other time deposits                       19,453,317      10.8%    19,778,540      12.4%
                                        ------------             ------------     ------
Total interest bearing deposits          142,167,039      78.9%   121,227,446      75.8%
Noninterest-bearing deposits              37,947,577      21.1%    38,760,806      24.2%
                                        ------------             ------------     ------
Total deposits                          $180,114,616     100.0%  $159,988,252     100.0%
                                        ============             ============     ======
</TABLE>

Capital

     The Bank is subject to FDIC regulations  governing  capital  adequacy.  The
FDIC has adopted  risk-based  capital guidelines which establish a risk-adjusted
ratio relating capital to different  categories of assets and off-balance  sheet
exposures.  Under the current guidelines,  as of December 31, 2003, the Bank was
required to have minimum Tier I and total risk-based capital ratios of 4% and 8%
respectively.  To be well capitalized  under Prompt Corrective Action Provisions
requires minimum Tier I and total risk-based capital ratios should be 6% and 10%
respectively.

     The FDIC has also adopted minimum  leverage ratio guidelines for compliance
by banking  organizations.  The guidelines require a minimum leverage ratio of 4
percent of Tier 1 capital  to total  average  assets.  Banks  experiencing  high
growth rates are expected to maintain  capital  positions well above the minimum
levels.  The leverage  ratio in conjunction  with the  risk-based  capital ratio
constitute  the  basis  for   determining   the  capital   adequacy  of  banking
organizations.

     Based on the FDIC's  guidelines,  the Bank's total risk-based capital ratio
at December  31,  2003 was 13.44% and its Tier 1  risk-based  capital  ratio was
12.18%.  The Bank's leverage ratio was 10.00%. All the ratios exceed the minimum
guidelines of 8.00%, 4.00% and 4.00%,  respectively.  The ratios for the Holding
Company at December 31, 2002, were 13.57%, 12.31% and 10.62%, respectively.  The
capital ratios for the Holding Company at December 31, 2003, were 14.07%, 12.81%
and 10.49%, respectively.

     In February  2001,  the  Company  approved a program to  repurchase  Sonoma
Valley  Bancorp  stock up to $1 million and in August 2002 the Company  approved
the repurchase of an additional $1 million  Sonoma Valley  Bancorp stock.  As of
December 31, 2003,  $1,448,737 was repurchased and retired, net of options which
were exercised and then  subsequently  repurchased  and retired.  The Company is
continuing  to  repurchase  Sonoma  Valley  Bancorp  stock up to the  authorized
amount.

                                       25
<PAGE>

     Management believes that the Bank's current capital position, which exceeds
guidelines  established  by  industry  regulators,  is  adequate  to support its
business.

Off Balance Sheet Commitments

     The Company's  off balance  sheet  commitments  consist of  commitments  to
extend credit and standby letters of credit.  These  commitments are extended to
customers in the normal  course of business  and are  described in Note O to the
Consolidated  Financial  Statements on page 55. The Company also has contractual
obligations  consisting of operating leases for various  facilities and payments
to participants under the Company's  supplemental  executive retirement plan and
deferred compensation plan, which are described in Note H.

     The following table summarizes the Company's contractual  obligations as of
December 31, 2003.

<TABLE>
<CAPTION>
<S>                                 <C>          <C>           <C>         <C>         <C>

                                                        Payments due by period
                                                 Less than 1                           More than 5
Contractual Obligations               Total         year       1-3 years   3-5 Years      years
----------------------------------------------------------------------------------------------------
Operating Lease Obligations         1,623,625      302,802      582,837     594,949      143,037

Executive Officer Supplemental
Retirement                          1,733,623       5,000       29,502      186,543     1,512,578

Deferred Compensation                 989,788      12,819       16,844      106,504       853,621

</TABLE>

Liquidity Management

     The Company's liquidity is determined by the level of assets (such as cash,
federal  funds  sold  and   available-for-sale   securities)  that  are  readily
convertible  to cash to meet customer  withdrawal and borrowing  needs.  Deposit
growth  also  contributes  to  the  Company's  liquidity  needs.  The  Company's
liquidity  position is reviewed by  management on a regular basis to verify that
it is adequate  to meet  projected  loan  funding and  potential  withdrawal  of
deposits.  The Company has a comprehensive  Asset and Liability  Policy which it
uses to monitor and determine  adequate  levels of liquidity.  At year end 2003,
the Company's liquidity ratio (adjusted liquid assets to deposits and short term
liabilities) was 29.03% compared to 20.39% and 21.08% at year end 2002 and 2001,
respectively.  Management expects that liquidity will remain adequate throughout
2004, as loans are not expected to grow  significantly  more than deposits,  and
excess funds will continue to be invested in quality liquid assets.

Market Risk Management

     Overview.  Market risk is the risk of loss from  adverse  changes in market
prices and rates.  The Company's market risk arises primarily from interest rate
risk  inherent  in its loan and deposit  functions.  The goal for  managing  the
assets and  liabilities  of the  Company is to  maximize  shareholder  value and
earnings  while  maintaining a high quality  balance sheet without  exposing the
Company  to undue  interest  rate  risk.  The  Board of  Directors  has  overall
responsibility  for the interest rate risk  management  policies.  Sonoma Valley
Bank has an Asset and Liability Management Committee (ALCO) that establishes and
monitors  guidelines  to  control  the  sensitivity  of  earnings  to changes in
interest rates.

     Asset/Liability   Management.   Activities   involved  in   asset/liability
management  include  but are not  limited  to  lending,  accepting  and  placing
deposits and investing in  securities.  Interest rate risk is the primary market
risk  associated  with  asset/liability  management.  Sensitivity of earnings to
interest rate changes  arises when yields on assets  change in a different  time
period or in a different  amount from that of interest costs on liabilities.  To

                                       26
<PAGE>

mitigate  interest rate risk, the structure of the balance sheet is managed with
the goal  that  movements  of  interest  rates on  assets  and  liabilities  are
correlated  and  contribute  to earnings  even in periods of  volatile  interest
rates.  The  asset/liability  management  policy sets  limits on the  acceptable
amount of  variance  in net  interest  margin and market  value of equity  under
changing interest  environments.  The Company uses simulation models to forecast
earnings, net interest margin and market value of equity.

     Simulation of earnings is the primary tool used to measure the  sensitivity
of earnings to interest rate changes. Using  computer-modeling  techniques,  the
Company is able to estimate the potential  impact of changing  interest rates on
earnings.  A balance sheet forecast is prepared quarterly using inputs of actual
loans,  securities and interest bearing liabilities (i.e.  depositis/borrowings)
positions as the beginning base. The forecast balance sheet is processed against
four interest rate  scenarios.  The scenarios  include a 100 and 200 basis point
rising rate  forecasts,  a flat rate forecast and a 100 basis point falling rate
forecast which take place within a one year time frame.  The net interest income
is  measured  during  the year  assuming  a  gradual  change  in rates  over the
twelve-month horizon. The Company's 2004 net interest income, as forecast below,
was modeled  utilizing a forecast  balance  sheet  projected  from year-end 2002
balances. The following table summarizes the effect on net interest income (NII)
of a +/-100 and +200 basis point change in interest rates as measured  against a
constant rate (no change) scenario.

Interest Rate Risk Simulation of Net Interest Income as of December 31, 2003
(In thousands)

Variation from a constant rate scenario            Change in NII
               +200bp                               $948
               +100bp                               $434
               -100bp                              ($328)

     The  simulations of earnings do not  incorporate  any  management  actions,
which might  moderate the negative  consequences  of interest  rate  deviations.
Therefore,  they do not reflect likely actual results, but serve as conservative
estimates of interest rate risk.

     Interest Rate Sensitivity Analysis. Interest rate sensitivity is a function
of the repricing  characteristics  of the  portfolio of assets and  liabilities.
These   repricing   characteristics   are  the  time  frames  within  which  the
interest-bearing  assets and liabilities are subject to change in interest rates
either  at  replacement,   repricing  or  maturity.  Interest  rate  sensitivity
management focuses on the maturity of assets and liabilities and their repricing
during periods of changes in market interest rates. Interest rate sensitivity is
measured as the difference  between the volumes of assets and liabilities in the
current  portfolio that are subject to repricing at various time  horizons.  The
differences are known as interest sensitivity gaps.

     A positive cumulative gap may be equated to an asset sensitive position. An
asset  sensitive  position in a rising  interest rate  environment  will cause a
bank's interest rate margin to expand. This results as floating or variable rate
loans reprice more rapidly than fixed rate  certificates of deposit that reprice
as they mature over time. Conversely, a declining interest rate environment will
cause the  opposite  effect.  A  negative  cumulative  gap may be  equated  to a
liability  sensitive  position.  A  liability  sensitive  position  in a  rising
interest rate  environment will cause a bank's interest rate margin to contract,
while a declining interest rate environment will have the opposite effect.

     The  following  table  sets forth the dollar  amounts  of  maturing  and/or
repricing assets and liabilities for various periods.  This does not include the
impact of  prepayments or other forms of convexity  caused by changing  interest
rates.  Historically,  this has been  immaterial  and estimates for them are not
included.

                                       27
<PAGE>

     The Company has more  liabilities  than  assets  repricing  during the next
year. However, because the Company's asset rates change more than deposit rates,
the Company's interest income will change more than the cost of funds when rates
change.  Its net interest margin should therefore  increase  somewhat when rates
increase and shrink somewhat when rates fall.

     The Company  controls its long term interest rate risk by keeping long term
fixed  rate  assets  (longer  than 5 years)  less than its long term  fixed rate
funding, primarily demand deposit accounts and capital. The following table sets
forth  cumulative  maturity  distributions  as of  December  31,  2003  for  the
Company's  interest-bearing  assets and  interest-bearing  liabilities,  and the
Company's   interest   rate   sensitivity   gap  as  a   percentage   of   total
interest-earning  assets. The table shows $72.5 million in fixed rate loans over
5 years.  Many  variable  rate credit  lines  reached  floors in 2003,  and were
reclassified to the fixed rate category. As soon as interest rates increase, the
loans will no longer be at floors and will be reclassified  back to the floating
rate category.

(dollars in thousands)

<TABLE>
<CAPTION>
<S>                             <C>      <C>       <C>      <C>      <C>        <C>        <C>

    December 31, 2003           3 months 12 months 3 years  5 years  15 years   >15 years  Totals
-------------------------------------------------------------------------------------------------

    ASSETS:

      Fixed rate investments       $300   $3,977  $11,268   $4,858   $15,298     $977  $36,678

      Variable rate investments                                                   295      295

      Fixed rate loans           11,452   12,844   11,686   30,199  39,608      2,696  108,485

      Variable rate loans        13,191        0        0        0       0          0   13,191

      Interest-bearing balances      35                                                     35

      Fed funds sold             25,220                                                 25,220
                                 ------                                                 ------

       Interest bearing assets   50,198   16,821   22,954   35,057  54,906      3,968  183,904
                                 ======   ======   ======   ======  ======      =====  =======

    LIABILITIES:

      Interest bearing           32,468                                                 32,468
    transaction deposits

      Savings deposits           63,681                                                 63,681

      Time deposits

         Fixed rate >100m         5,933   13,199    5,251    2,254                      26,637

         Fixed rate <100m         5,437    8,743    4,114    1,043                      19,337

         Floating rate >100m                                                                 0

         Floating rate <100m         44                                                     44

      Borrowings                      0                                                      0
                                  -----                                                 ------

       Interest Bearing         $107,563 $21,942  $9,365    $3,297     $ 0         $0 $142,167
        Liabilities             ======== =======  ======    ======     ===      ===== ========

    Rate Sensitivity Gap        (57,365) (5,121)   13,589   31,760  54,906      3,968

    Cumulative Rate             (57,365)(62,486) (48,897) (17,137)  37,769     41,737
    Sensitivity Gap

    Cumulative Position to      (27.97%)(30.47%) (23.84%)  (8.36%)  18.41%     20.34%
    Total Assets

</TABLE>

Inflation

     Assets and liabilities of a financial  institution are principally monetary
in nature.  Accordingly,  interest rates,  which generally move with the rate of
inflation,  have  potentially the most  significant  effect on the Company's net
interest income.  The Company attempts to limit inflation's  impact on rates and
net income margins by minimizing its effect on these margins through  continuing
asset/liability management programs.

                                       28
<PAGE>

Management's Discussion and Analysis
The Year Ended December 31, 2002 versus December 31, 2001

Summary

     Net income for 2002 was $2.7  million  compared  with $2.6 million in 2001.
Basic earnings per share for 2002 were $1.87 compared with $1.77 in 2001. Return
on average assets was 1.67% in 2002 compared with 1.76% the previous year, while
return on average equity was 15.27% in 2002 and 17.19% for the previous year.

     Total assets  reached  $182.6  million in 2002, an 16.0%  increase over the
$157.4 million at December 31, 2001.  Loans  increased  19.2% to $128.1 million,
compared with $107.4 million at year-end 2001. Deposits also increased,  growing
16.2% from $137.7  million at year-end 2001 to $160.0  million at year-end 2002.
The loan-to-deposit ratio increased from 78.1% to 80.0%.

Net Interest Income

     Net interest  income on a fully tax equivalent  basis increased by $399,000
to $9.0 million in 2002, up 4.6% from 2001 net interest  income of $8.6 million.
The net interest  margin for 2002 decreased to 6.06% from 6.25% for the previous
year. Individual components of interest income and interest expense are provided
in the table - Average Balances, Yields and Rates Paid on page 19.

Interest Income

     Interest  income  decreased by $523,000 to $11.0 million for a 4.6% decline
over the $11.5 million  realized in 2001. The volume of earning assets increased
by 7.9% to  $148.4  million  from  $137.5  million  in 2001,  while the yield on
average earning assets declined 97 basis points.

Interest Expense

     Interest  expense  decreased  by $922,000 to $2.0 million in 2002 from $2.9
million  in 2001.  The  average  rate paid on all  interest-bearing  liabilities
decreased from 2.89% in 2001 to 1.78% in 2002 while average  balances  increased
from $99.8 million to $110.4 million, a 10.5% gain over 2001. The gain in volume
of average balances was responsible for a $186,000  increase in interest expense
and higher  interest rates paid resulted in a decrease of $1,108,000 for a total
decrease of $922,000.  The higher rates paid on interest bearing  liabilities is
the result of a raising rate environment.

Provision for Loan Losses

     The  provision  for loan losses was  $393,000 in 2002 and $342,000 in 2001.
The  increase  in the  provision  is  primarily  the  result of loan  growth and
management's evaluation and assessment of the loan portfolio. Loans charged off,
net of  recoveries,  resulted in losses  totaling  $27,000 in 2002 and losses of
$47,000  in  2001.  The  increase  in  charge-offs   reflects  current  economic
conditions.

Non-interest Income

     Non-interest  income  increased  by 25.4% to $1.6 million from $1.3 million
the previous  year.  The increase was due to increases in all  categories of non
interest  income with a 189.0%  increase in other non  interest  income,  a 3.7%
increase in service charge on deposit accounts and a 24.3% increase in other fee
income.

                                       29
<PAGE>

Non-interest Expense

     Non-interest  expenses  increased  12.2% to $5.9  million in 2002 from $5.2
million in 2001.  Non-interest  expense represented 3.6% of average total assets
at December 31, 2002 and 3.5% at December 31, 2001.

     Salaries and  benefits  increased by 9.3% from $3.1 million in 2001 to $3.4
million in 2002. The 2002 increase  reflects normal merit increases,  incentives
and other increases in employee benefits.  At December 31, 2002, total full-time
equivalent  employees  were 44  compared to 47 at December  31,  2001.  Year end
assets per employee were $4.2 million in 2002 compared to $3.3 million in 2001.

     Expenses related to premises and equipment increased by 5.5% to $618,000 in
2002,  from  $586,000 in 2001.  Building  lease  expense on three  locations and
storage units increased to $278,000 in 2002 from $268,000 in 2001.

     Other non-interest expenses increased by 21.0% to $1.8 million in 2002 from
$1.5 million in 2001.  The increase was primarily the result of a 66.2% increase
in  professional  fees.  Professional  fees is the  largest  category  of  other
non-interest  expense,  primarily  comprised  of  accounting,  legal  and  other
professional fees. These services increased by $190,000 to $478,000 in 2002 from
$288,000 in 2001. Advertising and business development show an increase of 90.2%
or $95,000  to  $200,848  in 2002 from  $105,614  in 2001.  Advertising/business
development includes  advertising,  customer relations,  shareholder  relations,
public  relations,  donations  and  civic  dues  and is a result  of the  bank's
community  involvement.  Increases  in other  categories  reflect the  increased
growth and volume of business in general.

Provision for Income Taxes

     The provision for income taxes decreased to an effective tax rate of 31.72%
in 2002 compared with 34.66% in 2001.

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Information regarding Quantitative and Qualitative Disclosures about Market
Risk  appears on page 26 through 28 under the caption  "Management's  Discussion
and Analysis of  Consolidated  Financial  Condition  and Results of Operations -
Market Risk Management" and is incorporated herein by reference.

                                       30

<PAGE>

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Richardson & Company                                 550 Howe Avenue, Suite 210
                                                   Sacramento, California 95825

                                                      Telephone: (916) 564-8727
                                                            FAX: (916) 564-8728





                         REPORT OF RICHARDSON & COMPANY
                              INDEPENDENT AUDITORS


Board of Directors and Shareholders
Sonoma Valley Bancorp and Subsidiary
Sonoma, California


We have audited the  accompanying  consolidated  balance sheets of Sonoma Valley
Bancorp  and  Subsidiary  as of  December  31,  2003 and 2002,  and the  related
consolidated  statements of operations,  changes in the shareholders' equity and
cash flows for each of the three years in the period  ended  December  31, 2003.
These financial  statements are the responsibility of the Bancorp'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  consolidated  financial  position of Sonoma Valley
Bancorp and  Subsidiary as of December 31, 2003 and 2002,  and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.




January 29, 2004                                  /s/  Richardson & Company

                                       31
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2003 and 2002

<TABLE>
<CAPTION>
<S>                                                                              <C>              <C>

ASSETS                                                                              2003             2002
                                                                                 -----------     -----------
    Cash and due from banks                                                      $ 9,803,272     $ 8,387,953
    Federal funds sold                                                            25,220,000      23,095,000
    Interest-bearing due from banks                                                  330,930          34,646
                                                                                 -----------     -----------
                                             Total cash and cash equivalents      35,354,202      31,517,599
    Investment securities available-for-sale, at fair value                       20,119,777       3,823,259
    Investment securities held-to-maturity (fair value
        of $17,042,186 and $10,440,453, respectively)                             16,558,153       9,923,737
    Loans and lease financing receivables, net                                   119,833,989     125,269,181
    Premises and equipment, net                                                    1,313,995         875,697
    Accrued interest receivable                                                      906,958         799,282
    Cash surrender value of life insurance                                         7,730,600       7,387,712
    Other assets                                                                   3,288,463       3,006,260
                                                                               -------------   -------------

                                                                Total assets    $205,106,137    $182,602,727
                                                                                ============    ============
LIABILITIES
    Noninterest-bearing demand deposits                                         $ 37,947,577    $ 38,760,806
    Interest-bearing transaction deposits                                         32,467,678      24,627,589
    Savings and money market deposits                                             63,680,697      51,802,714
    Time deposits, $100,000 and over                                              26,565,347      25,018,603
    Other time deposits                                                           19,453,317      19,778,540
                                                                                ------------    ------------
                                                              Total deposits     180,114,616     159,988,252
    Accrued interest payable
        and other liabilities                                                      3,520,242       3,374,165
                                                                                ------------    ------------
                                                           Total liabilities     183,634,858     163,362,417
    Commitments and contingencies ( see accompanying notes )

SHAREHOLDERS' EQUITY
    Common stock, no par value; 10,000,000 shares
        authorized; 1,457,594 shares in 2003 and 1,401,146 in
        2002 issued and outstanding                                               15,061,636      12,936,225
    Retained earnings                                                              6,386,083       6,215,790
    Accumulated other comprehensive income                                            23,560          88,295
                                                                                ------------    ------------

                                                  Total shareholders' equity      21,471,279      19,240,310
                                                                                ------------    ------------
                                  Total liabilities and shareholders' equity    $205,106,137    $182,602,727
                                                                                ============    ============
</TABLE>

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

                                       32

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              For the years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>
<S>                                                         <C>              <C>              <C>

                                                              2003             2002               2001
                                                         ---------------- ---------------  ----------------
INTEREST INCOME
    Loans and leases                                           $ 9,446,841     $ 9,470,998      $ 9,251,314
    Taxable securities                                             365,459         378,511        1,013,330
    Tax-exempt securities                                          485,460         512,708          552,110
    Federal funds sold and other                                   318,798         216,362          286,083
    Dividends                                                       13,269          15,227           15,812
                                                               -----------     -----------      -----------
                                    Total interest income       10,629,827      10,593,806       11,118,649

INTEREST EXPENSE
    Interest-bearing transaction deposits                           50,454          84,241          149,078
    Savings and money market deposits                              466,081         655,841          996,864
    Time deposits, $100,000 and over                               729,758         674,089          844,351
    Other time deposits                                            477,061         546,543          885,322
    Other
                                                                        31                            7,221
                                                                ----------     -----------      -----------
                                   Total interest expense        1,723,385       1,960,714        2,882,836
                                                                ----------      ----------      -----------
           NET INTEREST INCOME                                   8,906,442       8,633,092        8,235,813
    Provision for loan and lease losses                             20,000         393,000          342,000
                                                                ----------      ----------      -----------
                                NET INTEREST INCOME AFTER
                                   PROVISION FOR LOAN AND
                                             LEASE LOSSES        8,886,442       8,240,092        7,893,813
NON-INTEREST INCOME                                              1,715,123       1,641,191        1,309,315
NON-INTEREST EXPENSE
  Salaries and employee benefits                                 3,489,007       3,437,390        3,143,911
  Premises and equipment                                           768,789         618,029          585,748
  Other                                                          1,986,365       1,806,954        1,494,285
                                                                ----------      ----------      -----------
                               Total non-interest expense        6,244,161       5,862,373        5,223,944
                                  Income before provision       ----------      ----------      -----------
                                         for income taxes        4,357,404       4,018,910        3,979,184
  Provision for income taxes                                     1,446,397       1,274,577        1,378,940
                                                                ----------      ----------      -----------

                                               NET INCOME       $2,911,007      $2,744,333      $ 2,600,244
                                                                ==========      ==========      ===========

                                     NET INCOME PER SHARE           $ 2.00          $ 1.87           $ 1.77
                                     NET INCOME PER SHARE           ======          ======           ======
                                        ASSUMING DILUTION           $ 1.83          $ 1.72           $ 1.66
                                                                    ======          ======           ======

</TABLE>

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

                                       33

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              For the years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>
<S>                            <C>              <C>          <C>            <C>            <C>             <C>
                                                                                            Accumulated
                                                                                               Other
                               Comprehensive         Common Stock            Retained      Comprehensive
                                  Income        Shares         Amount        Earnings          Income        Total
                               -------------   ---------     -----------    -----------    -------------  ------------
BALANCE AT
   JANUARY 1, 2001
                                               1,281,680     $ 9,585,003    $ 4,641,551       $ 78,692    $ 14,305,246

5% stock dividend                                 63,104       1,381,976    (1,381,976)
Fractional shares                                                              (11,955)                       (11,955)
Redemption and retirement
  of stock                                      (27,717)       (207,323)      (364,085)                      (571,408)
Stock options exercised and                       16,437         266,229                                       266,229
   related tax benefits
Net income for the year         $2,600,244                                    2,600,244                      2,600,244
Other comprehensive
income,
  net of tax:
  Unrealized holding gains
    on securities available-
    for-sale arising during          82,706
    the year, net of taxes      -----------
    of $57,842

Other comprehensive
income,
  net of taxes                      82,706                                                      82,706          82,706
                                ----------    ----------      ---------    ------------      ---------      ----------

Total comprehensive income      $2,682,950
                                ==========

BALANCE AT
  DECEMBER 31, 2001                            1,333,504      11,025,885      5,483,779        161,398      16,671,062

5% stock dividend                                 65,742       1,775,026    (1,775,026)
Fractional shares                                                              (13,951)                       (13,951)
Redemption and retirement
  of stock                                      (14,596)       (121,257)      (223,345)                      (344,602)
Stock options exercised and
  related tax benefits                            16,496         256,571                                       256,571
Net income for the year        $ 2,744,333                                    2,744,333                      2,744,333
Other comprehensive
income,
  net of tax:
  Unrealized holding gains
    on securities available-
    for-sale arising during       (73,103)
    the year, net of taxes     -----------
    of $51,125
Other comprehensive
income,
  net of taxes                    (73,103)                                                    (73,103)        (73,103)
                               -----------   ----------      -----------    ------------    ---------       ---------
Total comprehensive income     $ 2,671,230
                               ===========
                                                          (Continued)

</TABLE>
                                       34

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)

              For the years ended December 31, 2003, 2002 and 2001



<TABLE>
<CAPTION>
<S>                            <C>              <C>          <C>            <C>            <C>             <C>
                                                                                            Accumulated
                                                                                               Other
                               Comprehensive         Common Stock            Retained      Comprehensive
                                  Income        Shares         Amount        Earnings          Income        Total
                               -------------   ---------     -----------    -----------    -------------  ------------

BALANCE AT
  DECEMBER 31, 2002                             1,401,146   $12,936,225     $ 6,215,790        $  88,295    $19,240,310

5% stock dividend                                  68,665     1,997,422    (1,997,422)
Fractional shares                                                             (14,193)                        (14,193)
Redemption and retirement
  of stock                                       (38,987)     (361,296)      (729,099)                     (1,090,395)
Stock options exercised and
  related tax benefits                             26,770       489,285                                        489,285
Net income for the year           $ 2,911,007                                2,911,007                       2,911,007
Other comprehensive income,
  net of tax:
  Unrealized holding losses
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $45,274                        (64,735)
                                  ------------
Other comprehensive income,
  net of taxes                        (64,735)                                                  (64,735)       (64,735)
                                  ------------ ----------- -------------   ------------    -------------    -----------

Total comprehensive income        $ 2,846,272
                                  ===========

BALANCE AT
  DECEMBER 31, 2003
                                                1,457,594    $15,061,636   $ 6,386,083          $ 23,560    $21,471,279
                                                =========    ===========   ===========        ==========    ===========

</TABLE>

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

                                       35

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              For the years ended December 31, 2003, 2002 and 2001

<TABLE>
<CAPTION>
<S>                                                          <C>            <C>           <C>

                                                                 2003         2002          2001
                                                             -----------   -----------   -----------

OPERATING ACTIVITIES
    Net income                                               $ 2,911,007   $ 2,744,333   $ 2,600,244
    Adjustments to reconcile net income
        to net cash provided by operating activities:
            Provision for loan and lease losses                   20,000       393,000       342,000
            Depreciation                                         224,774       144,659       142,683
            Loss on sale of securities                                           5,098
            Loss on sale of equipment                                 23
            Amortization and other                               115,551        43,971        71,782
            Net change in interest receivable                  (107,676)       152,779       199,863
            Net change in cash surrender value
               Of life insurance                               (342,888)     (265,181)     (113,227)
            Net change in other assets                          (47,325)      (63,800)     (111,557)
            Net change in interest payable
               and other liabilities                             146,078        50,001        69,505
                                                               ---------     ---------     ---------
                                     NET CASH PROVIDED BY
                                     OPERATING ACTIVITIES      2,919,544     3,504,860     3,201,293
INVESTING ACTIVITIES
    Purchases of securities held-to-maturity                (10,718,156)                 (1,129,886)
    Purchases of securities available-for-sale              (17,216,738)     (540,547)
    Proceeds from maturing securities held-to-
        Maturity                                               4,028,400     1,841,141     1,472,700
    Proceeds from maturing securities available-
        for-sale                                                 750,000     7,000,000    10,550,000
    Proceeds from sales of securities available-
        for-sale                                                               244,063
    Net increase (decrease) in loans and leases                5,415,192  (20,629,972)  (14,910,204)
    Purchases of premises and equipment                        (663,645)     (399,704)     (156,037)
    Purchases of life insurance                                            (2,092,000)   (3,000,000)
    Proceeds from disposal of equipment
                                                                   550
                                                            ------------  ------------   -----------
                                        NET CASH USED FOR
                                     INVESTING ACTIVITIES   (18,404,397)  (14,577,019)   (7,173,427)

</TABLE>

                                             (Continued)


                                       36
<PAGE>




                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

              For the years ended December 31, 2003, 2002 and 2001


<TABLE>
<CAPTION>
<S>                                                          <C>            <C>           <C>

                                                                 2003         2002          2001
                                                             -----------   -----------   -----------

FINANCING ACTIVITIES
    Net change in demand, interest-bearing
        transaction and savings deposits                    $ 18,904,842  $ 13,505,460  $ 13,692,323
    Net change in time deposits                                1,221,521     8,827,814       866,584
    Stock repurchases                                        (1,090,395)     (344,602)     (571,408)
    Stock options exercised                                      299,681       214,375       214,858
    Fractional shares purchased
                                                                (14,193)      (13,951)      (11,955)
                                                            ------------   -----------   -----------
                                     NET CASH PROVIDED BY
                                     FINANCING ACTIVITIES     19,321,456    22,189,096    14,190,402
                                                            ------------   -----------   -----------
                                   NET CHANGE IN CASH AND
                                         CASH EQUIVALENTS      3,836,603    11,116,937    10,218,268
                                                            ------------   -----------   -----------
    Cash and cash equivalents
        at beginning of year                                  31,517,599    20,400,662    10,182,394
                                                            ------------   -----------   -----------
                                CASH AND CASH EQUIVALENTS
                                           AT END OF YEAR   $ 35,354,202  $ 31,517,599  $ 20,400,662
                                                            ============  ============  ============

SUPPLEMENTAL DISCLOSURES OF
    CASH FLOW INFORMATION:

Cash paid during the year for:
     Interest expense                                         $1,731,256    $1,965,215    $2,920,348
     Income taxes                                             $1,375,000    $1,663,975    $1,556,000

SUPPLEMENTAL DISCLOSURES OF
     NONCASH ACTIVITIES:

Stock dividend                                                $1,997,422    $1,775,026    $1,381,976
Net change in unrealized gains and losses
     on securities                                           $ (110,009)   $ (124,228)     $ 140,548
Net change in deferred income taxes on unrealized
     gains and losses on securities                             $ 45,274     $  51,125    $ (57,842)

</TABLE>

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

                                       37

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2003, 2002 and 2001


NOTE A--SIGNIFICANT ACCOUNTING POLICIES

Business: Sonoma Valley Bancorp (the Bancorp), formed in 2000, is a bank holding
company  whose  principal  activity  is  the  ownership  and  management  of its
wholly-owned subsidiary, Sonoma Valley Bank. Sonoma Valley Bank was organized in
1987 and commenced  operations  on June 3, 1988 as a California  state-chartered
bank. The Bank is subject to regulation,  supervision and regular examination by
the State  Department of Financial  Institutions  and Federal Deposit  Insurance
Corporation. The regulations of these agencies govern most aspects of the Bank's
business.

Principles of Consolidation:  The consolidated  financial statements include the
accounts of the Bancorp and the Bank.  All  material  intercompany  accounts and
transactions have been eliminated.

Nature of  Operations:  The Bank  provides  a variety  of  banking  services  to
individuals and businesses in its primary service area of Sonoma, California and
the immediate  surrounding area. The Bank offers depository and lending services
primarily to meet the needs of its business and  professional  clientele.  These
services  include a variety of demand deposit,  savings and time deposit account
alternatives,  and special  merchant and business  services.  The Bank's lending
activities  are  directed  primarily  towards  granting  short  and  medium-term
commercial  loans,  customized  lines of credit,  for such purposes as operating
capital, business and professional start-ups,  inventory, equipment and accounts
receivable, and interim construction financing.

Use of Estimates:  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Cash and Cash  Equivalents:  For the purposes of reporting cash flows,  cash and
cash  equivalents  are defined as those  amounts  included in the balance  sheet
captions "Cash and due from banks" and "Federal funds sold." Generally,  federal
funds are sold or purchased for one-day periods.

Investment  Securities:  Securities  are classified as  held-to-maturity  if the
Bancorp  has both the intent  and  ability  to hold  those  debt  securities  to
maturity regardless of changes in market conditions,  liquidity needs or changes
in general  economic  conditions.  These securities are carried at cost adjusted
for amortization of premium and accretion of discount,  computed by the interest
method over their contractual lives.

Securities are classified as  available-for-sale  if the Bancorp intends to hold
those debt  securities for an indefinite  period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale would
be based on various factors,  including significant movements in interest rates,
changes in the maturity mix of the Bancorp's assets and  liabilities,  liquidity
needs,  regulatory capital considerations and other similar factors.  Securities
available-for-sale are carried at fair value. Unrealized holding gains or losses
are  reported as increases or  decreases  in  shareholders'  equity,  net of the
related deferred tax effect.  Realized gains or losses,  determined on the basis
of the cost of specific securities sold, are included in earnings.

                                       38

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans and Lease Financing Receivables:  Loans are stated at the amount of unpaid
principal,  less the  allowance  for loan  losses  and net  deferred  loan fees.
Interest  on loans is accrued  and  credited  to income  based on the  principal
amount  outstanding.  Loan  origination fees and certain direct loan origination
costs  are  capitalized  and  recognized  as an  adjustment  of the yield on the
related loan.  However,  loan origination  costs in excess of fees collected are
not  deferred  but this  treatment  has an  immaterial  impact on the  financial
statements. Amortization of net deferred loan fees is discontinued when the loan
is placed on nonaccrual status.

All of the Bancorp's leases are classified and accounted for as direct financing
leases.  Under the direct financing  method of accounting for leases,  the total
net rentals  receivable under the lease contracts,  net of unearned income,  are
recorded as a net investment in direct financing leases, and the unearned income
is  recognized  each month as it is earned so as to produce a constant  periodic
rate of return on the unrecovered investment.

Allowance  for Loan and Lease  Losses:  The  allowance is  maintained at a level
which,  in the opinion of  management,  is adequate  to absorb  probable  losses
inherent  in  the  loan  and  lease   portfolio.   Credit   losses   related  to
off-balance-sheet  instruments  are included in the allowance for loan and lease
losses  except if the loss meets the  criteria  for accrual  under  Statement of
Financial Accounting Standards (SFAS) No. 5, in which case the amount is accrued
and reported  separately as a liability.  Management  determines the adequacy of
the  allowance  based upon reviews of individual  loans and leases,  recent loss
experience, current economic conditions, the risk characteristics of the various
categories  of loans and leases and other  pertinent  factors.  The allowance is
based on  estimates,  and ultimate  losses may vary from the current  estimates.
These estimates are reviewed monthly and, as adjustments become necessary,  they
are  reported in earnings in the periods in which they become  known.  Loans and
leases deemed  uncollectible  are charged to the allowance.  Provisions for loan
and lease losses and recoveries on loans previously charged off are added to the
allowance.

Commercial  loans are  considered  impaired,  based on current  information  and
events,  if it is  probable  that the  Bancorp  will be  unable to  collect  the
scheduled   payments  of  principal  or  interest  when  due  according  to  the
contractual  terms of the loan  agreement.  Allowances  on  impaired  loans  are
established  based on the present value of expected future cash flows discounted
at the loan's historical  effective  interest rate or, for  collateral-dependent
loans, on the fair value of the collateral.  Cash receipts on impaired loans are
used to reduce principal.

Income  Recognition  on Impaired  and  Nonaccrual  Loans and  Leases:  Loans and
leases, including impaired loans, are generally classified as nonaccrual if they
are past due as to maturity or payment of  principal or interest for a period of
more than 90 days,  unless  such loans are  well-secured  and in the  process of
collection.  If a loan or lease or a portion of a loan or lease is classified as
doubtful  or is  partially  charged  off,  the loan or lease  is  classified  as
nonaccrual.  Loans and leases that are on a current  payment  status or past due
less than 90 days may also be  classified  as nonaccrual if repayment in full of
principal and/or interest is in doubt.

                                       39

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans and leases  may be  returned  to accrual  status  when all  principal  and
interest amounts contractually due (including arrearages) are reasonably assured
of  repayment  within an  acceptable  period of time,  and there is a  sustained
period  of  repayment  performance  by the  borrower,  in  accordance  with  the
contractual terms of interest and principal.

While a loan or lease is classified as nonaccrual and the future  collectibility
of the recorded  balance is doubtful,  collections of interest and principal are
generally  applied as a  reduction  to  principal  outstanding.  When the future
collectibility  of the  recorded  balance is  expected,  interest  income may be
recognized  on a cash basis.  In the case where a  nonaccrual  loan or lease had
been partially  charged off,  recognition of interest on a cash basis is limited
to that  which  would  have  been  recognized  on the  recorded  balance  at the
contractual  interest rate. Cash interest  receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior  charge-offs
have been fully recovered.

Premises  and  Equipment:  Premises  and  equipment  are  stated  at cost,  less
accumulated depreciation. The provision for depreciation is computed principally
by the  straight-line  method  over the  estimated  useful  lives of the related
assets.

Income Taxes:  Provisions for income taxes are based on amounts  reported in the
statements of operations (after exclusion of non-taxable income such as interest
on state and  municipal  securities)  and include  deferred  taxes on  temporary
differences  in the  recognition  of income and  expense  for tax and  financial
statement  purposes.  Deferred  taxes are computed using the asset and liability
method.  Deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts  of assets and  liabilities  and their  respective  tax bases.
Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized in income in the
period that includes the enactment date.  Deferred tax assets are recognized for
deductible  temporary  differences  and tax  credit  carryforwards,  and  then a
valuation  allowance is  established  to reduce that deferred tax asset if it is
"more likely than not" that the related tax benefits will not be realized.

Advertising: Advertising costs are charged to operations in the year incurred.

Net Income Per Share of Common  Stock:  Net income per share of common  stock is
computed  by dividing  net income by the  weighted  average  number of shares of
common stock outstanding during the year, after giving retroactive effect to the
stock dividends and splits. Net income per share--assuming  dilution is computed
similar to net income per share  except that the  denominator  is  increased  to
include the number of additional  common shares that would have been outstanding
if the  dilutive  potential  common  shares  had been  issued.  Included  in the
denominator is the dilutive effect of stock options  computed under the treasury
method.

                                       40
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock Option  Accounting:  At December 31, 2003, the Bancorp has two stock-based
employee and director compensation plans, which are described more fully in Note
M. The Bancorp adopted SFAS No. 148, Accounting for Stock-Based Compensation, an
Amendment  of SFAS No.  123  effective  January  1, 2003  using the  prospective
application method.  Under this method, the compensation expense and related tax
benefit  associated  with stock option grants issued on or after January 1, 2003
are recognized in the income statement. The Bancorp accounts for options granted
prior to January 1, 2003 under the recognition and measurement principles of APB
Opinion  No.  25,  Accounting  for  Stock  Issued  to  Employees,   and  related
Interpretations. No stock-based compensation cost is reflected in net income for
these  options,  as all options  granted under those plans had an exercise price
equal to the market value of the  underlying  common stock on the date of grant.
The following table  illustrates the effect on net income and earnings per share
if the  Bancorp  had  applied  the fair  value  recognition  provisions  of SFAS
Statement No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based
compensation for options granted prior to January 1, 2003.

<TABLE>
<CAPTION>
<S>                                                           <C>          <C>            <C>
                                                                2003          2002          2001
                                                             -----------  -----------    -----------
Net income, as reported                                      $ 2,911,007  $ 2,744,333    $ 2,600,244

Deduct: Total stock-based employee compensation
   expense determined under fair value based method
   for all awards, net of related tax effects                  (179,899)    (185,919)      (179,899)
                                                             -----------  -----------    -----------
Pro forma net income                                         $ 2,731,108  $ 2,558,414    $ 2,420,345
                                                             ===========  ===========    ===========

Earnings per share:

Basic--as reported                                                $ 2.00       $ 1.87         $ 1.77

Basic--pro forma                                                    1.87         1.75           1.64

Diluted--as reported                                                1.83         1.72           1.66

Diluted--pro forma                                                  1.72         1.61           1.54

</TABLE>

Off-Balance-Sheet  Financial Instruments: In the ordinary course of business the
Bancorp has entered into  off-balance-sheet  financial instruments consisting of
commitments  to extend  credit and  standby  letters of credit.  Such  financial
instruments are recorded in the financial statements when they become payable.

Operating  Segments:  Reportable  segments are based on products  and  services,
geography,  legal structure,  management structure and any other manner in which
management  desegregates a company for making operating  decisions and assessing
performance.  The Bancorp has  determined  that its  business is  comprised of a
single operating segment.

                                       41

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE B--RESTRICTIONS ON CASH AND DUE FROM BANKS

Cash and due from banks include amounts the Bank is required to maintain to meet
certain average  reserve and  compensating  balance  requirements of the Federal
Reserve.  The total requirement at December 31, 2003 and 2002 was $3,400,000 and
$2,886,000, respectively.

NOTE C--INVESTMENT SECURITIES

The  amortized  cost and  approximate  fair value of investment  securities  are
summarized as follows:

<TABLE>
<CAPTION>
<S>                                      <C>              <C>            <C>               <C>

                                          Amortized       Unrealized     Unrealized         Fair
                                            Cost             Gains         Losses           Value
                                       --------------- --------------- ---------------- --------------
December 31, 2003:

Securities Available-For-Sale
    U.S. Treasury securities               $  515,928       $   4,619                      $  520,547
    U.S. Government agency
        securities                         18,672,992          72,126       $ (57,548)     18,687,570
    Corporate securities
                                              890,820          20,840                         911,660
                                         ------------       ---------       ----------   ------------

                                         $ 20,079,740       $  97,585       $ (57,548)   $ 20,119,777
                                         ============       =========       =========    ============

Securities Held-to-Maturity
    Municipal securities                 $ 16,558,153      $  550,533       $ (66,500)   $ 17,042,186
                                         ------------       ---------       ----------   ------------

                                         $ 16,558,153      $  550,533       $ (66,500)   $ 17,042,186
                                         ============       =========       =========    ============

December 31, 2002:

Securities Available-For-Sale
    U.S. Treasury securities               $  533,848        $  5,057                      $  538,905
    U.S. Government agency
        securities                          1,497,398         115,417                       1,612,815
    Corporate securities                    1,641,968          46,555       $ (16,984)      1,671,539
                                         ------------       ---------       ----------   ------------

                                           $3,673,214       $ 167,029       $ (16,984)    $ 3,823,259
                                         ============       =========       =========    ============

Securities Held-to-Maturity
    Municipal securities                  $ 9,923,737       $ 517,873        $ (1,157)   $ 10,440,453
                                         ------------       ---------       ----------   ------------

                                          $ 9,923,737       $ 517,873        $ (1,157)   $ 10,440,453
                                         ============       =========       =========    ============
</TABLE>

                                       42
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY


                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE C--INVESTMENT SECURITIES (Continued)

Contractual  maturities  of  investment  securities at December 31, 2003 were as
follows:

<TABLE>
<CAPTION>
<S>                                  <C>              <C>             <C>             <C>

                                   Securities Available-For-Sale    Securities Held-To-Maturity
                                   -----------------------------    ------------------------------

                                    Amortized           Fair         Amortized          Fair
                                      Cost              Value          Cost             Value
                                   --------------  ---------------  --------------  --------------

Due in one year or less                $3,155,579     $ 3,234,107     $ 1,042,976      $ 1,060,505

Due after one year through
   five years                          13,886,939      13,837,497       2,288,096        2,345,770

Due after five years through
   ten years                            3,037,222       3,048,173       7,600,195        7,814,824

Due after ten years                                                     5,626,886        5,821,087
                                  --------------- --------------- --------------- ----------------

                                     $ 20,079,740    $ 20,119,777    $ 16,558,153     $ 17,042,186
                                  =============== =============== =============== ================
</TABLE>

During 2002, the Bancorp sold securities  available-for-sale  for total proceeds
of  approximately  $244,062  resulting in gross realized losses of approximately
$5,098 and no gross  realized  gains.  During 2003 and 2001, the Bancorp did not
sell any securities available-for-sale.

As of  December  31,  2003,  investment  securities  with a  carrying  amount of
$6,107,353  and an  approximate  fair  value  of  $6,530,152  were  pledged,  in
accordance  with  federal  and state  requirements,  as  collateral  for  public
deposits.  Investment  securities  with a  carrying  amount  and  fair  value of
$1,655,647  at December  31, 2003 were pledged to meet the  requirements  of the
Federal Reserve and the U.S. Department of Justice.

The following  table shows the  investments'  gross  unrealized  losses and fair
value,  aggregated  by  investment  category and length of time that  individual
securities have been in a continuous  unrealized loss position,  at December 31,
2003.

                                                     Less Than 12 Months
                                                   -----------------------
                                                   Fair         Unrealized
Description of Securities                          Value          Losses
-------------------------                         ------------  ----------

U.S. government agency securities                 $  8,736,699  $   57,548
Municipal securities                                 4,630,160      63,406
                                                  ------------  ----------

  Total temporarily impaired securities           $ 13,366,859  $  120,954
                                                  ============  ==========


There were no securities as of December 31, 2003 that were in a continuous  loss
position  for 12 months or more.  There were 9 Federal Home Loan Bank or Federal
Home Loan Mortgage Corporation  securities and 14 municipal securities that were
temporarily  impaired  as of  December  31,  2003.  The  primary  cause  of  the
impairment  of these  securities  is interest rate  volatility.  The  unrealized
losses on these securities is expected to be short-term.

                                       43
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE D--LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The composition of the loan and lease portfolio was as follows at December 31:

<TABLE>
<CAPTION>
<S>                                              <C>                  <C>        <C>             <C>

                                                          2003                         2002
                                                --------------------------     -----------------------
      Commercial                                    $ 92,197,984     75.0%     $ 89,507,230      69.7%
      Consumer                                        11,750,131      9.6%       13,374,774      10.4%
      Real estate mortgage                             2,231,244      1.8%        5,911,082       4.6%
      Real estate construction                        16,646,907     13.5%       19,507,906      15.2%
      Lease financing receivables, net of
         unearned income of $9,799 in
         2003 and $33,781 in 2002                         79,884      0.1%          174,409       0.1%
                                                    -------------    ----       -----------      ----

                                                     122,906,150    100.0%      128,475,401     100.0%
                                                                    =====                       =====
      Deferred loan fees and costs, net                (437,536)                  (424,258)
      Allowance for loan and lease losses
                                                     (2,634,625)                (2,781,962)
                                                    ------------               ------------
                                                    $119,833,989               $125,269,181
                                                    ============               ============
</TABLE>

At December 31, 2003, the recorded  investment in loans for which impairment has
been recognized in accordance with Statement of Financial  Accounting  Standards
(Statement) No. 114 totaled $1,145,000, with a corresponding valuation allowance
of $424,000.  At December 31, 2002,  the recorded  investment in loans for which
impairment  has been  recognized  in accordance  with  Statement No. 114 totaled
$164,000,  with a corresponding  valuation  allowance of $17,000.  For the years
ended  December 31, 2003,  2002 and 2001,  the average  recorded  investment  in
impaired loans was approximately $843,000, $143,000 and $192,000,  respectively.
During 2003 and 2002,  $8,000 and $2,000 of interest was received and recognized
on impaired  loans,  respectively.  No interest was recognized on impaired loans
during 2001.

In  addition,  at December 31, 2003 and 2002,  the Bancorp had other  nonaccrual
loans of approximately $115,300 and $801,700, respectively, for which impairment
had not been recognized.

The Bancorp has no  commitments  to loan  additional  funds to the  borrowers of
impaired or nonaccrual loans.

                                       44
<PAGE>


                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE D--LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES (Continued)

The  maturity  and  repricing  distribution  of the loan and lease  portfolio at
December 31:


                                                      2003            2002
                                                  -----------      ----------
   Fixed rate loan maturities
     Three months or less                        $ 11,452,282     $ 11,069,375
     Over three months to twelve months            12,843,967       16,759,422
     Over one year to five years                   41,884,458       25,717,999
     Over five years                               42,304,207       46,803,191
   Floating rate loans repricing
     Quarterly or more frequently                  13,191,129       26,369,806
     Quarterly to annual frequency                                      26,790
     One to five years frequency                                       832,277
                                                  -----------      -----------
                                                  121,676,043      127,578,860
   Nonaccrual loans                                 1,230,107          896,541
                                                  -----------      -----------
                                                 $122,906,150     $128,475,401
                                                 ============     ============

An  analysis  of the changes in the  allowance  for loan and lease  losses is as
follows for the years ended December 31:

<TABLE>
<CAPTION>
<S>                                              <C>               <C>              <C>

                                                    2003            2002              2001
                                                -----------      -----------       -----------

   Beginning balance                            $ 2,781,962      $ 2,415,555       $ 2,120,517
   Provision for loan and lease losses               20,000          393,000           342,000
   Loans charged off:
     Commercial                                   (142,572)         (10,741)          (44,345)
     Consumer                                      (41,161)         (34,872)          (31,680)
                                                ----------       ----------        ----------
                                                  (183,733)         (45,613)          (76,025)
   Recoveries:
     Commercial                                       8,320            9,474            10,363
     Consumer                                         8,076            9,546            18,700
                                                -----------      -----------       -----------
                                                     16,396           19,020            29,063
                                                -----------      -----------       -----------

   Ending balance                               $ 2,634,625      $ 2,781,962       $ 2,415,555
                                                ===========      ===========       ===========


</TABLE>

                                       45

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE E--PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at December 31:

                                                    2003             2002
                                                 ----------       ----------

    Land                                         $  175,000       $  175,000
    Building                                         71,943           71,943
    Leasehold improvements                          660,272          418,802
    Furniture, fixtures and equipment             1,688,809        1,306,225
                                                 ----------        ---------
                                                  2,596,024        1,971,970
    Less: Accumulated depreciation               (1,282,029)      (1,096,273)
                                                 ----------       ----------
                                                 $1,313,995        $ 875,697
                                                 ==========        =========


NOTE F--TIME DEPOSITS

The maturities of time deposits at December 31, 2003 are as follows:

    Maturing within one year                                   $  33,355,000
    Maturing in one year to two years                              8,443,000
    Maturing two years through five years                          2,550,000
    Maturing after five years                                      1,671,000
                                                               -------------

                                                               $  46,019,000
                                                               =============

NOTE G--FEDERAL FUNDS CREDIT LINES

The Bancorp has uncommitted  federal funds lines of credit agreements with other
banks. The maximum borrowings  available under these lines totaled $4,000,000 at
December 31, 2003. The Bancorp pledged loans totaling  $25,913,127 as collateral
to secure advances from the Federal Home Loan Bank of up to  $14,255,849.  There
were no  borrowings  outstanding  under the  agreements  at December 31, 2003 or
2002.


NOTE H--EMPLOYEE BENEFIT PLANS

The Bancorp has a 401(k)  Employee  Savings Plan (the Plan) in which the Bancorp
matches a portion of the employee's  contribution each payday. All employees are
eligible  for  participation  following  three  months  of  employment.  Bancorp
contributions  are 100%  vested at all times.  The  Bancorp  made  contributions
totaling $92,012 in 2003, $77,913 in 2002 and $60,845 in 2001.

                                       46

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE H--EMPLOYEE BENEFIT PLANS (Continued)

The Bancorp purchased single premium life insurance  policies in connection with
the  implementation  of retirement plans for four key officers and for the Board
of Directors.  The policies  provide  protection  against the adverse  financial
effects  from the death of a key officer and provide  income to offset  expenses
associated with the plans. The officers are insured under the policies,  but the
Bancorp is the owner and  beneficiary.  At December 31, 2003 and 2002,  the cash
surrender   value  of  these  policies   totaled   $7,730,600  and   $7,387,712,
respectively.

The  retirement  plans are  unfunded  and  provide  for the  Bancorp  to pay the
officers and directors  specified amounts for specified periods after retirement
and allows them to defer a portion of current  compensation  in exchange for the
Bancorp's  commitment to pay a deferred  benefit at retirement.  If death occurs
prior to or during retirement, the Bancorp will pay the officer's beneficiary or
estate the benefits set forth in the plans.  Deferred  compensation is vested as
to the amounts  deferred.  Liabilities  are recorded for the  estimated  present
value of future salary continuation benefits and for the amounts deferred by the
officers and directors.  At December 31, 2003 and 2002,  the liability  recorded
for the executive officer  supplemental  retirement plan totaled  $1,439,970 and
$1,223,570, respectively. The amount of pension expense related to this plan for
2003 and 2002 was $216,400 and $325,365,  respectively. At December 31, 2003 and
2002,  the  liability  recorded for the director  supplemental  retirement  plan
totaled  $293,653  and  $208,626,  respectively.  The amount of pension  expense
related to this plan for 2003 and 2002 was $208,626  and $85,027,  respectively.
At  December  31,  2003  and  2002,  the  liability  recorded  for the  deferred
compensation  plan totaled  $989,788 and $849,610,  respectively.  The amount of
expense  related  to this  plan  for 2003 and  2002  was  $82,542  and  $74,407,
respectively.  The  following  are the  components  of the  accumulated  benefit
obligation related to the executive officer and director supplemental retirement
plans as of December 31:

<TABLE>
<CAPTION>
<S>                                         <C>            <C>                 <C>            <C>

                                                  Directors                            Officers
                                           -----------------------            -------------------------
                                             2003           2002                  2003          2002
                                           ---------     ---------            -----------   -----------

    Projected benefit obligation           $ 293,653     $ 208,626            $ 1,235,077   $ 1,032,706

    Unamortized net transition
       obligation                                                                 204,893       190,864
                                           ---------     ---------            -----------   -----------
       Benefit obligation included in
          other liabilities                $ 293,653     $ 208,626            $ 1,439,970   $ 1,223,570
                                           =========     =========            ===========   ===========
</TABLE>

The  weighted-average  discount rate used in determining  the actuarial  present
value of the  projected  benefit  obligation  was 7.5%  for  2003 and  2002.  No
compensation  increases were assumed.  The entire accumulated benefit obligation
was fully vested at December 31, 2003 and 2002.

                                       47

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE H--EMPLOYEE BENEFIT PLANS (Continued)

The following is a  reconciliation  of the beginning and ending  balances of the
benefit obligation for the years ended December 31:

<TABLE>
<CAPTION>
<S>                                         <C>            <C>                  <C>            <C>

                                                  Directors                            Officers
                                           -----------------------            -------------------------
                                             2003           2002                  2003          2002
                                           ---------     ---------            -----------   -----------

Benefit obligation at beginning of year    $ 208,626                          $ 1,223,570    $ 898,205
Net periodic pension cost:
   Service cost                               71,387     $  76,182                319,856      302,632
   Interest cost on projected benefit
     obligation                               13,640         8,845                122,265       66,189
   Amortization of unrecognized                                                  (56,811)     (43,456)
     liability at transition
   Amendments                                              123,599              (168,910)
                                            --------     ---------            ----------      --------
   Net Periodic pension cost recognized       85,027       208,626               216,400       325,365
                                            --------     ---------            -----------     --------

    Benefit obligation at end of year      $ 293,653     $ 208,626           $ 1,439,970   $ 1,223,570
                                           =========     =========           ===========   ===========
</TABLE>


The following  benefit  payments,  which reflect  expected  future  service,  as
appropriate, are expected to be paid:

                                        Directors       Officers
                                        ---------       --------

      2004                              $  5,000
      2005                                14,100
      2006                                15,402
      2007                                17,585
      2008                                23,562        $  145,396
      2009 to 2013                     1,511,134         4,811,609


                                       48

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE I--NON-INTEREST INCOME AND OTHER NON-INTEREST EXPENSE

Non-interest  income is comprised of the following for the years ended  December
31:

<TABLE>
<CAPTION>
<S>                                                         <C>             <C>            <C>

                                                               2003            2002          2001
                                                            -----------     ---------     ---------

     Service charges on deposit accounts                    $ 1,033,990     $ 964,198     $ 930,171
     Other fee income                                           323,780       312,121       251,042
     Life insurance earnings                                    342,888       357,181       113,227
     Investment securities gains (losses)                                     (5,098)
     Other ( none exceeding 1% of revenues )                     14,465        12,789        14,875
                                                            -----------     ---------     ---------

                                                            $ 1,715,123   $ 1,641,191   $ 1,309,315
                                                            ===========   ===========   ===========
</TABLE>

Other  non-interest  expense is comprised of the  following  for the years ended
December 31:

<TABLE>
<CAPTION>
<S>                                                          <C>             <C>           <C>

                                                               2003            2002          2001
                                                            -----------     ---------     ---------

    Professional and consulting fees                           $ 679,460     $ 477,830    $ 287,471
    Data processing                                              473,932       465,946      469,750
    Stationary and supplies                                      160,992       159,909      158,335
    Staff related                                                175,801       158,707      104,092
    Advertising and business development                         165,142       200,848      105,614
    Postage and telephone                                        123,269       122,408      116,879
    Assessments and insurance                                     30,948        83,633       79,042
    Other ( none exceeding 1% of revenues)                       176,821       137,673      173,102
                                                             -----------   -----------  -----------

                                                             $ 1,986,365   $ 1,806,954  $ 1,494,285
                                                             ===========   ===========  ===========
</TABLE>

                                       49
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE J--INCOME TAXES

The provision for income taxes is comprised of the following:


                                       2003          2002          2001
                                  ------------   -----------     -----------
   Current
        Federal                   $    827,960   $ 1,073,157     $ 1,008,534
        State                          403,346       426,600         409,376
                                     ---------   -----------     -----------
                                     1,231,306     1,499,757       1,417,910
   Deferred
       Federal                         180,039     (195,491)        (50,778)
       State                            35,052      (29,689)          11,808
                                  ------------   -----------     -----------
                                       215,091     (225,180)        (38,970)
                                  ------------   -----------     -----------
                                  $  1,446,397   $ 1,274,577     $ 1,378,940
                                  ============   ===========     ===========


The  following  is a  reconciliation  of income  taxes  computed  at the Federal
statutory  income tax rate of 34% to the effective  income tax rate used for the
provision for income taxes:

<TABLE>
<CAPTION>
<S>                                                 <C>             <C>            <C>

                                                       2003           2002          2001
                                                   ------------   -----------   -----------

   Income tax at Federal statutory rate            $ 1,481,517     $1,366,429   $ 1,352,923

      State franchise tax, less Federal
        income tax benefit                             311,746        287,529       284,687
      Interest on municipal obligations exempt
        from Federal tax                             (217,541)      (259,885)     (221,062)
         Life insurance earnings                     (141,113)      (146,996)      (46,598)
         Meals and entertainment                         8,175          7,412         7,283
         Other differences                               3,613         20,088         1,707
                                                   -----------    -----------   -----------

     Provision for income taxes                    $ 1,446,397    $ 1,274,577   $ 1,378,940
                                                   ===========    ===========   ===========
</TABLE>

                                       50

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE J--INCOME TAXES (Continued)

The tax effects of temporary differences that give rise to the components of the
net  deferred  tax asset  recorded  as an other  asset as of December 31 were as
follows:

<TABLE>
<CAPTION>
<S>                                                            <C>            <C>           <C>

                                                                  2003           2002          2001
                                                              ------------   -----------   -----------
  Deferred tax assets:
      Nonqualified benefit plans                              $ 1,021,410     $ 884,446      $ 719,760
      Allowance for loan losses                                   959,891     1,015,774        877,944
      Accrued liabilities                                         227,840       233,575        280,367
      State franchise taxes                                       137,138       145,316        139,188
      Other                                                        13,773        45,119         27,186
                                                              ------------   -----------   -----------
                                  Total deferred tax assets     2,360,052     2,324,230      2,044,445

  Deferred tax liabilities:
      Depreciation                                                 89,220        36,366         19,308
      Unrealized securities holding gains                          16,477        61,750        112,876
      Other                                                        42,041        35,565         29,392
                                                              ------------   -----------   -----------
                             Total deferred tax liabilities       147,738       133,681        161,576
                                                              ------------   -----------   -----------

                                     Net deferred tax asset   $ 2,212,314  $ 2,190,549     $ 1,882,869

                                                              ===========  ===========     ===========

</TABLE>

Amounts  presented for the tax effects of temporary  differences  are based upon
estimates and  assumptions and could vary from amounts  ultimately  reflected on
the Bancorp's tax returns.  Accordingly, the variances from amounts reported for
prior  years are  primarily  the  result of  adjustments  to  conform to the tax
returns as filed.

Refundable  income  taxes were  $346,669  and  $185,839 at December 31, 2003 and
2002, respectively.  The income tax benefit related to net investment losses was
$2,098  during  2002.  There were no net  investment  gains or losses in 2003 or
2001.

NOTE K--STOCK REPURCHASE

The Bancorp has in effect a program to repurchase  Sonoma Valley  Bancorp stock.
As of December 31, 2003, $2,006,404 was repurchased.

                                       51

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE L--EARNINGS PER SHARE

The following is the computation of basic and diluted earnings per share for the
years ended December 31:

<TABLE>
<CAPTION>
<S>                                                            <C>            <C>           <C>

                                                                  2003           2002          2001
                                                              ------------   -----------   -----------
  Basic:

  Net income                                                  $ 2,911,007   $ 2,744,333    $ 2,600,244
                                                              ===========   ===========    ===========

  Weighted-average common shares outstanding                    1,457,431     1,464,344      1,473,151
                                                              ===========   ===========    ===========

  Earnings per share                                             $   2.00      $   1.87       $   1.77
                                                              ===========   ===========    ===========

  Diluted:

  Net income                                                  $ 2,911,007   $ 2,744,333    $ 2,600,244
                                                              ===========   ===========    ===========

  Weighted-average common shares outstanding                    1,457,431     1,464,344      1,473,151

  Net effect of dilutive stock options - based on the
      treasury stock method using average market
      price                                                       132,911       128,321         94,899
                                                              -----------   -----------    -----------
  Weighted-average common shares outstanding
      and common stock equivalents                              1,590,342     1,592,665      1,568,050
                                                              ===========   ===========    ===========

  Earnings per share- assuming dilution                          $   1.83      $   1.72       $   1.66
                                                              ===========   ===========    ===========
</TABLE>

NOTE M--STOCK OPTION PLAN

The Bancorp has a stock  option  plan (the Plan),  effective  March 31, 1996 and
terminating  March 31,  2006,  under  which  incentive  and  nonstatutory  stock
options, as defined under the Internal Revenue Code, may be granted. The Plan is
administered by a Committee appointed by the Board. Options representing 454,024
shares of the  Bancorp's  authorized  and  unissued  common stock may be granted
under the Plan by the Committee to directors,  full-time officers, and full-time
employees of the Bancorp at a price to be  determined by the  Committee,  but in
the case of  incentive  stock  options  shall  not be less than 100% of the fair
market value of the shares on the date the incentive stock option is granted. In
addition,  the Bancorp  shall grant  options to purchase  3,089 shares of common
stock to each Board member on March 1st of each year,  provided the person was a
member of the Board for the entire  preceding  year ending  December 31st, at an
option  price equal to the fair market  value as of the grant date.  The options
may have an  exercise  period  of no more  than 10  years  and are  vested  upon
granting,  except for 63,943 of  incentive  options and 142,075 of  nonstatutory
options granted in April 1999, which are subject to a graded vesting schedule of
20% per year. No options were granted in 2003 or 2001.

                                       52

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE M--STOCK OPTION PLAN (Continued)

The Bancorp  approved an equity  incentive plan (the Plan),  effective May, 2002
and terminating May, 2012, under which stock options,  restricted  stock,  stock
appreciation  rights and stock bonuses may be granted.  The Plan is administered
by a Committee appointed by the Board. Options representing 82,370 shares of the
Bancorp's  authorized and unissued common stock may be granted under the Plan by
the Committee to all employees of the Bancorp at a price to be determined by the
Committee but shall not be less than 100% of the fair market value of the shares
on the date the  incentive  stock  option is  granted.  The  options may have an
exercise period of no more than 10 years and vesting is at the discretion of the
Committee.

The fair value of options  granted is  estimated  on the date of grant using the
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions used for grants in 2002; dividend yield of zero; expected volatility
of 33.36 percent;  risk-free  interest rate of 5.44 percent and expected life of
10 years.

A summary of stock option  activity,  adjusted to give effect to stock dividends
and stock splits follows for the years ended December 31:

<TABLE>
<CAPTION>
<S>                       <C>              <C>        <C>           <C>          <C>             <C>

                                                     Incentive Stock Options
                        --------------------------------------------------------------------------------
                                     2003                     2002                        2001
                        -------------------------   ------------------------   -------------------------
                            Weighted-                  Weighted-                 Weighted-
                             Average                    Average                   Average
                          Exercise Price   Shares   Exercise Price Shares       Exercise Price
                        ----------------  --------  -------------- --------     --------------  --------

  Shares under option at
    beginning of year     $  12.36         113,624     $ 12.27      132,500        $12.28        135,185

  Options granted                                        21.77        1,103

  Options exercised          12.10        (15,445)       12.31     (17,426)         12.82        (2,685)

  Options cancelled                                      11.95      (2,553)
                                          --------                  -------
  Shares under option at
    end of year              12.40          98,179       12.36      113,624         12.27        132,500
                                          ========                  =======                      =======
  Options exercisable at
    end of year                             95,090                   94,683                       92,602

  Weighted-average fair value
    of options granted during
    the year                                                          $9.28

</TABLE>

                                       53

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE M--STOCK OPTION PLAN (Continued)

<TABLE>
<CAPTION>
<S>                       <C>              <C>        <C>            <C>          <C>           <C>

                                                   Nonstatutory Stock Options
                        ------------------------------------------------------------------------------
                                     2003                     2002                      2001
                        -------------------------   ------------------------   -----------------------
                           Weighted-                  Weighted-                   Weighted-
                            Average                    Average                     Average
                         Exercise Price   Shares    Exercise Price  Shares      Exercise Price  Shares
                        ----------------  --------  -------------   --------    --------------  --------

 Shares under option at
      beginning of year      $11.84        225,465      $ 11.84       225,465     $ 11.83      240,906

 Options exercised            10.07        (12,352)                                 11.69      (15,441)
                                           -------                    -------                  _______

 Shares under option at
      end of year             11.94        213,113         11.84      225,465       11.84      225,465
                                           =======                    =======                  =======

 Options exercisable at
      end of year                          182,227                   163,696                   132,788

</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 2003:

<TABLE>
<CAPTION>
<S>                                         <C>              <C>                   <C>

                                                       Options Outstanding
                                           ----------------------------------------------------
                                                          Weighted-Average
     Range of                                Number           Remaining         Weighted-Average
  Exercise Prices                          Outstanding    Contractual Life       Exercise Price
  ---------------                          -----------    ----------------      ----------------
  $8.19 to $9.79                                31,448      3.27 years              $ 8.69
  $11.75 to $11.95                             233,816      5.28 years               11.93
  $14.59 to $16.16                              44,925      4.18 years               15.08
  $21.77                                         1,103      8.42 years               21.77
                                               -------
  $8.19 to $21.77                              311,292      4.96 years               12.09
                                               =======


</TABLE>

<TABLE>
<CAPTION>
<S>                                                           <C>                    <C>

                                                                     Options Exercisable
                                                            ------------------------------------
     Range of                                                  Number           Weighted-Average
  Exercise Prices                                            Exercisable         Exercise Price
  ---------------                                            -----------        ----------------
  $8.19 to $9.79                                                  31,448             $ 8.69
  $11.75 to $11.95                                               199,841              11.92
  $14.59 to $16.16                                                44,925              15.08
  $21.77                                                           1,103              21.77
                                                              ----------

  $8.19 to $21.77                                                277,317              12.11
                                                              ==========
</TABLE>

                                       54
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE N--RELATED PARTY TRANSACTIONS

The Bancorp has entered into transactions with its directors, executive officers
and their  affiliates  (related  parties).  Such  transactions  were made in the
ordinary  course of business  on  substantially  the same terms and  conditions,
including  interest rates and collateral,  as those  prevailing at the same time
for comparable transactions with other customers, and did not, in the opinion of
management,  involve more than normal credit risk or present  other  unfavorable
features. The following is a summary of the aggregate activity involving related
party borrowers at December 31, 2003 and 2002:


                                                       2003           2002
                                                    -----------   -----------

     Loans outstanding at beginning of year         $ 4,607,000   $ 2,236,000
     Loans disbursements                                690,000     2,723,000
     Loan repayments                                (2,202,000)     (352,000)
                                                    -----------   -----------
     Loans outstanding at end of year               $ 3,095,000   $ 4,607,000
                                                    ===========   ===========

At December 31, 2003, commitments to related parties of approximately $1,541,000
were  undisbursed.   Deposits  received  from  directors  and  officers  totaled
$6,471,000 and $5,360,000 at December 31, 2003 and 2002, respectively.

The Bancorp  leases its Glen Ellen office from a director of the Bancorp under a
noncancellable  operating lease.  Lease expense for the years ended December 31,
2003 and  2002 was  $12,889  and  $12,172,  respectively.  The  remaining  lease
commitment  is  approximately  $61,595  through  March 2008  including a minimum
inflationary  increase  of 4% per  year.  The  monthly  lease  payments  will be
increased  annually  based upon the Consumer  Price Index,  but not less than 4%
annually.  The term of the lease is 5 years  with an option to extend  the lease
term for an additional 5 years at the same Consumer Price Index limitations.


NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES

Lease  Commitments:  The Bancorp leases its two Sonoma  offices,  the Glen Ellen
office and the Banco de Sonoma office under noncancelable  operating leases with
remaining  terms of  approximately  six years,  two  years,  five years and five
years, respectively.  All of the leases require adjustments to the base rent for
changing price indices and two have a minimum  annual  increase of four percent.
The  Sonoma  main  office  lease  has an  option  to renew  for two  consecutive
five-year  terms  and the  Sonoma  annex  office  has an option to renew for two
five-year periods and one four-year period.  The Glen Ellen office and the Banco
de Sonoma office lease each have an option to renew for two additional five-year
terms.  The following  table  summarizes  future minimum  commitments  under the
noncancelable operating leases.

                                       55

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

         Year ended December 31:
           2004                                        $   302,802
           2005                                            295,621
           2006                                            287,216
           2007                                            297,927
           2008                                            297,022
           Thereafter                                      143,037
                                                       -----------

                                                       $ 1,623,625
                                                       ===========

Rental expense was $289,000 in 2003, $278,000 in 2002 and $268,000 in 2001.

Financial  Instruments  with  Off-Balance-Sheet  Risk:  The Bancorp's  financial
statements do not reflect various  commitments and contingent  liabilities which
arise in the normal  course of  business  and which  involve  elements of credit
risk,  interest rate risk and liquidity risk.  These  commitments and contingent
liabilities are  commitments to extend credit and standby  letters of credit.  A
summary of the Bancorp's commitments and contingent  liabilities at December 31,
is as follows:

                                                        Contractual Amounts
                                                       2003            2002
                                                   ------------   -------------

      Commitments to extend credit                 $ 35,309,000   $  30,359,000
      Standby letters of credit                         725,000         589,000

Commitments to extend credit and standby  letters of credit include  exposure to
some credit loss in the event of nonperformance  of the customer.  The Bancorp's
credit policies and procedures for credit  commitments and financial  guarantees
are the same as those for  extension  of credit that are recorded on the balance
sheet.  Because these instruments have fixed maturity dates, and because many of
them  expire  without  being  drawn  upon,  they do not  generally  present  any
significant liquidity risk to the Bancorp.

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  of  a  fee.  The  Bancorp  evaluates  each  customer's  credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bancorp  upon  extension  of credit,  is based on  management's
credit  evaluation  of the  customer.  Collateral  held  varies but may  include
accounts receivable,  inventory, property, plant, and equipment, certificates of
deposits and income-producing commercial properties.

Standby letters of credit are conditional  commitments  issued by the Bancorp to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  public and  private  borrowing  arrangements.  The
credit risk  involved in issuing  letters of credit is  essentially  the same as
that involved in extending facilities to customers.

                                       56

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

The Bancorp has not  incurred  any losses on its  commitments  in 2003,  2002 or
2001.

As  a  guarantor  of  its  customer's  credit  card  accounts,  the  Bancorp  is
contingently  liable  for  credit  card  receivable  balances  held  by  another
financial  institution should the customers default. The total amount guaranteed
as of December 31, 2003 and 2002 was $153,500 and $181,000, respectively.


NOTE P--CONCENTRATIONS OF CREDIT RISK

Most of the Bancorp's  business  activity is with  customers  located within the
State of California,  primarily in Sonoma  County.  The economy of the Bancorp's
primary service area is heavily  dependent on the area's major  industries which
are tourism and agriculture,  especially wineries, dairies, cheese producers and
turkey breeders.  General economic conditions or natural disasters affecting the
primary  service  area or its major  industries  could  affect  the  ability  of
customers  to repay  loans and the value of real  property  used as  collateral.
While the Bancorp has a diversified loan portfolio,  approximately  84% of these
loans are secured by real estate in its service area.

The  concentrations  of  credit  by type of loan  are set  forth  in Note D. The
distribution of commitments to extend credit  approximates  the  distribution of
loans  outstanding.  In  addition,  the  Bancorp  has  loan  commitments  in the
wine/agricultural   industry,   tourism   industry   and   construction   loans,
representing  8%,  13% and 23%,  of  outstanding  loans,  respectively.  Standby
letters of credit were granted primarily to commercial  borrowers.  The Bancorp,
as a matter of policy, does not extend credit to any single borrower or group of
related borrowers on a secured basis in excess of 25% of its unimpaired  capital
(shareholders'  equity plus the allowance for credit losses) and on an unsecured
basis in excess of 15% of its unimpaired capital.

The  concentrations  of investments  are set forth in Note C. The Bancorp places
its investments primarily in financial instruments backed by the U.S. Government
and its agencies or by high quality  financial  institutions,  municipalities or
corporations.   The  Bancorp  has   significant   funds   deposited   with  four
correspondent banks. At December 31, 2003 the Bancorp had on deposit $7,500,000,
$7,500,000 and $5,500,000 in federal funds sold to three of these  institutions,
which represented 35%, 35% and 26% of the Bancorp's net worth, respectively.  In
addition,  deposits with two correspondent banks were in excess of the federally
insured limit by $3,033,351 at December 31, 2003.  While  management  recognizes
the inherent risks involved in such concentrations,  this concentration provides
the Bancorp with an effective and cost efficient means of managing its liquidity
position and item processing  needs.  Management  closely monitors the financial
condition of their  correspondent  banks on a continuous basis. The Bancorp also
maintains  additional  deposit  accounts with other  correspondent  banks should
management  determine that a change in its  correspondent  banking  relationship
would be appropriate.

                                       57
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE P--CONCENTRATIONS OF CREDIT RISK (Continued)

At  December  31,  2003,  the  Bancorp  had life  insurance  policies  with cash
surrender  values of $2,248,787,  $1,847,274 and $1,646,283 with three insurance
companies, which represented 10%, 9% and 8%, respectively,  of the Bancorp's net
worth.  Management closely monitors the financial  condition and rating of these
insurance companies on a regular basis.


NOTE Q--REGULATORY MATTERS

Banking  regulations limit the amount of cash dividends that may be paid without
prior approval of the Bank's  regulatory  agency.  Cash dividends are limited to
the lesser of retained earnings, if any, or net income for the last three years,
net of the amount of any other  distributions  made to shareholders  during such
periods.  As of December 31, 2003,  $6,442,571  was  available for cash dividend
distribution without prior approval.

The Bank is subject to various regulatory capital  requirements  administered by
its primary federal regulator, the Federal Deposit Insurance Corporation (FDIC).
Failure   to  meet   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  Bank's  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
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 Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2003, that the Bank
meets all capital adequacy requirements to which it is subject.

                                       58
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE Q--REGULATORY MATTERS (Continued)

As of December 31, 2003, 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 I risk-based and Tier I 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 Bank's
actual capital amounts and ratios are also presented in the table.


<TABLE>
<CAPTION>
<S>                                      <C>         <C>        <C>        <C>        <C>        <C>

                                                                                        To Be Well
                                                                                     Capitalized Under
                                                                 For Capital         Prompt Corrective
                                             Actual            Adequacy Purposes     Action Provisions
                                         ----------------     ------------------     -----------------
                                         Amount     Ratio      Amount     Ratio      Amount      Ratio
                                         ------     -----      ------     -----      ------      -----
                                                              (in thousands)

As of December 31, 2003:
   Total Capital
     (to Risk Weighted Assets)          $ 22,493     13.4%   >$ 13,393     >8.0%    >$16,742     >10.0%
   Tier I Capital                                            -             -        -            -
     (to Risk Weighted Assets)          $ 20,394     12.2%   >$  6,697     >4.0%    >$10,044     > 6.0%
   Tier I Capital                                            -             -        -            -
     (to Average Assets)                $ 20,394     10.0%   >$  8,165     >4.0%    >$10,206     > 5.0%
                                                             -             -        -            -
As of December 31, 2002:
   Total Capital
       (to Risk Weighted Assets)        $ 20,852     13.4%   >$ 12,444     >8.0%    >$15,555     >10.0%
   Tier I Capital                                            -             -        -            -
       (to Risk Weighted Assets)        $ 18,897     12.2%   >$  6,222     >4.0%    >$ 9,333     > 6.0%
   Tier I Capital                                            -             -        -            -
       (to Average Assets)              $ 18,897     10.5%   >$  7,207     >4.0%    >$ 9,009     > 5.0%
                                                             -             -        -            -
</TABLE>


NOTE R--CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

A  condensed  balance  sheet as of  December  31,  2003 and 2002 and the related
condensed  statement of operations  and cash flows for the years ended  December
31, 2003,  2002,  and 2001 for Sonoma Valley Bancorp  (parent  company only) are
presented as follows:

                                       59
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE R--CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (Continued)

                                        Condensed Balance Sheets
                                       December 31, 2003 and 2002


<TABLE>
<CAPTION>
<S>                                                                         <C>              <C>

                                                                               2003            2002
                                                                         ------------     ------------
Assets
    Cash                                                                   $  869,931       $  249,432
    Other assets                                                              258,863           89,551
    Investment in common stock of subsidiary                               20,417,945       18,985,494
                                                                         ------------     ------------

                                                                         $ 21,546,739     $ 19,324,477
                                                                         ============     ============
Liabilities
    Accrued expenses                                                        $  75,460       $   84,167

Shareholders' equity
    Common stock                                                           15,061,636       12,936,225
    Retained earnings                                                       6,409,643        6,304,085
                                                                         ------------     ------------
                                                                         $ 21,546,739     $ 19,324,477
                                                                         ============     ============

</TABLE>

                                   Condensed Statements of Operations
                          For the years ended December 31, 2003, 2002 and 2001


<TABLE>
<CAPTION>
<S>                                                           <C>              <C>            <C>

                                                                2003             2002          2001
                                                             -----------       ---------     ----------

Dividend from subsidiary                                     $ 1,500,000                     $  500,000
Expenses                                                         145,553       $ 125,091         36,620
                                                             -----------       ---------     ----------

Income (loss) before income taxes and equity in
    undistributed income of subsidiary                         1,354,447       (125,091)        463,380
Equity in undistributed net income of subsidiary               1,497,186       2,824,941      2,120,445

Income tax benefit                                                59,374          44,483         16,419
                                                             -----------     -----------    -----------
Net income                                                   $ 2,911,007     $ 2,744,333    $ 2,600,244
                                                             ===========     ===========    ===========

</TABLE>
                                       60
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001

NOTE R--CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY (Continued)

                       Condensed Statements of Cash Flows
              For the years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>
<S>                                                              <C>             <C>            <C>

                                                                   2003            2002           2001
                                                                ----------      ----------     ----------
Operating activities:
    Net income                                                  $2,911,007      $2,744,333     $2,600,244

    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Equity in undistributed net income of subsidiary       (1,497,186)     (2,824,941)    (2,120,445)
        Net change in other assets                                  20,292          40,345       (17,218)
        Net change in accrued expenses                             (8,707)          84,167
                                                                ---------       ----------     ----------

                  Net cash provided by operating activities      1,425,406          43,904        462,581
                                                                ----------      ----------      ---------
Financing activities:
    Stock repurchases                                          (1,090,395)       (344,602)      (571,408)
    Stock options exercised                                        299,681         214,375        214,858
    Fractional shares purchased                                   (14,193)        (13,951)       (11,955)
                                                                ----------      ----------      ---------
                      Net cash used by financing activities      (804,907)       (144,178)      (368,505)

                    Net change in cash and cash equivalents        620,499       (100,274)         94,076

             Cash and cash equivalents at beginning of year        249,432         349,706        255,630
                                                                ----------      ----------      ---------
                   Cash and cash equivalents at end of year      $ 869,931       $ 249,432      $ 349,706
                                                                ==========      ==========      =========

Supplemental Disclosures of Noncash Activities:
    Stock Dividend                                              $1,997,422      $1,775,026    $ 1,381,976

</TABLE>

NOTE S--FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial  Accounting  Standards  No. 107,  Disclosures  about Fair
Value of Financial  Instruments,  requires  disclosure of fair value information
about financial instruments,  whether or not recognized in the balance sheet. In
cases where quoted  market  prices are not  available,  fair values are based on
estimates using present value or other valuation  techniques.  Those  techniques
are significantly  affected by the assumptions used, including the discount rate
and  estimates  of future cash flows.  In that  regard,  the derived  fair value
estimates cannot be  substantiated by comparison to independent  markets and, in
many cases,  could not be realized in immediate  settlement of the  instruments.
Statement No. 107 excludes  certain  financial  instruments and all nonfinancial
instruments from its disclosure  requirements.  Accordingly,  the aggregate fair
value amounts  presented do not represent the underlying value of the Bancorp as
a whole.

                                       61

<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE S--FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair values of the Bancorp and Subsidiary's  financial instruments
are as follows at December 31:

<TABLE>
<CAPTION>
<S>                                             <C>          <C>           <C>           <C>

                                                       2003                        2002
                                               ----------------------    ------------------------
                                                            Estimated                   Estimated
                                               Carrying       Fair        Carrying         Fair
                                                Amount        Value        Amount          Value
                                               ----------   -----------  -----------   -----------
Financial assets:
     Cash and due from banks                   $9,803,272    $9,803,272  $ 8,387,953   $ 8,387,953
    Interest-bearing due from banks               330,930       330,930       34,646        34,646
     Federal funds sold                        25,220,000    25,220,000   23,095,000    23,095,000
     Investment securities
        available- for-sale                    20,119,777    20,119,777    3,823,259     3,823,259
     Investment securities held-
        to-maturity                            16,558,153    17,042,186    9,923,737    10,440,453
     Loans and lease financing
        receivables, net                      119,833,989   120,308,741  125,269,181   125,970,797
     Accrued interest receivable                  906,958       906,958      799,282       799,282
     Cash surrender value of life
        insurance                               7,730,600     7,730,600    7,387,712     7,387,712
Financial liabilities:
     Deposits                                 180,114,616   180,913,343  159,988,252   160,920,406
     Accrued interest payable                      52,052        52,052       59,923        59,923

</TABLE>

The carrying  amounts in the  preceding  table are included in the balance sheet
under the applicable captions.

The following methods and assumptions were used by the Bancorp in estimating its
fair value disclosures for financial instruments:

     Cash,  due from banks and federal  funds  sold:  The  carrying  amount is a
     reasonable estimate of fair value.

     Investment  securities:  Fair values for investment securities are based on
     quoted  market  prices,  where  available.  If quoted market prices are not
     available,  fair  values are based on quoted  market  prices of  comparable
     instruments.   The   carrying   amount  of  accrued   interest   receivable
     approximates its fair value.

                                       62
<PAGE>

                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2003, 2002 and 2001


NOTE S--FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

Loans and lease financing  receivables,  net: For variable-rate loans and leases
that reprice  frequently and fixed rate loans and leases that mature in the near
future,  with no  significant  change in credit  risk,  fair values are based on
carrying  amounts.  The fair  values  for other  fixed rate loans and leases are
estimated using discounted cash flow analysis, based on interest rates currently
being  offered for loans or leases with  similar  terms to  borrowers of similar
credit quality.  Loan and lease fair value estimates include judgments regarding
future  expected loss experience and risk  characteristics  and are adjusted for
the allowance for loan and lease losses. The carrying amount of accrued interest
receivable approximates its fair value.

Cash surrender value of life insurance:  The carrying  amount  approximates  its
fair value.

Deposits:   The  fair  values   disclosed  for  demand  deposits  (for  example,
interest-bearing  checking  accounts and passbook  accounts) are, by definition,
equal to the amount  payable  on demand at the  reporting  date (that is,  their
carrying  amounts).  The fair values for  certificates  of deposit are estimated
using a discounted cash flow  calculation  that applies interest rates currently
being offered on certificates to a schedule of aggregated contractual maturities
on  such  time  deposits.  The  carrying  amount  of  accrued  interest  payable
approximates fair value.

Off-balance  sheet  instruments:   Off-balance  sheet  commitments   consist  of
commitments  to extend  credit and standby  letters of credit.  The  contract or
notional amounts of the Bancorp's financial  instruments with  off-balance-sheet
risk are  disclosed  in Note O.  Estimating  the fair  value of these  financial
instruments  is not  considered  practicable  due to  the  immateriality  of the
amounts of fees  collected,  which are used as a basis for  calculating the fair
value, on such instruments.

NOTE T--SUBSEQUENT EVENTS

The Bank will open a new branch office, called Banco de Sonoma, in March 2004. A
long-term lease has been entered into as of December 31, 2003, which is included
in Note O. The Bank has deferred $40,000 of costs related primarily to leasehold
improvements as of December 31, 2003.

In January 2004, the Bank  authorized the granting of options to purchase 45,000
shares to officers of the Bank at $31.06,  resulting in compensation  expense of
approximately $50,000.

On February 18, 2004,  the Board of Directors  declared a cash dividend of $0.25
per share to  shareholders  of record on March 1, 2004 and  payable on March 15,
2004.

                                       63
<PAGE>

ITEM 9.  CHANGES ON AND DISAGREEMENT WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES.

     We  carried  out  an  evaluation,   under  the  supervision  and  with  the
participation of the our management,  including our Chief Executive  Officer and
Chief Financial Officer,  about the effectiveness of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e).  Based upon that evaluation,
our Chief  Executive  Officer and Chief  Financial  Officer  concluded  that our
disclosure  controls and  procedures as of the end of the period covered by this
Form 10-K are effective in timely alerting them to material information required
to be included in this Form 10-K.

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

<TABLE>
<CAPTION>
<S>                                  <C>          <C>

                                                 Position with the Bank and Principal
Director                             Age         Occupations During the Past Five Years
--------                             ---         --------------------------------------

                                                 Secretary since 2001 and Director of the Bank
Suzanne Brangham                      61         since March, 1995; since 1975, president of
                                                 Classix, Inc. and since 1994, president of 400
                                                 West Spain Corp.

                                                 Director of the Bank since its formation in
Dale T. Downing                       62         1988; proprietor, Sonoma Market, Inc. and Glen
                                                 Ellen Village Market, Inc., formerly Shone's
                                                 Country Store, Inc.

                                                 Director of the Bank since its formation in
Frederick H. Harland                  57         1988; proprietor, Harland & Lely Corporation
                                                 since 1998, project manger, Lely Construction,
                                                 Inc. since 1990; former Director and Chief
                                                 Executive Officer of Sonoma Cheese Factory from
                                                 1969 to 1990.

                                                 Director of the Bank since its formation in
Robert B. Hitchcock                   59         1988; Chairman of the Board 1988-1995 retired in
                                                 1992 as President, Nicholas Turkey Breeding
                                                 Farms, a position held since 1982.

                                                 Director of the Bank since its formation in
Gerald J. Marino                      64         1988; retired president, Marino Distributing
                                                 Beer and Wine Company since 1968.



</TABLE>
                                       64
<PAGE>

<TABLE>
<CAPTION>
<S>                                  <C>          <C>

                                                 Director of the Bank since 1993; president of
Gary D. Nelson                        66         Gary D. Nelson Associates, Inc. since 1970.

                                                 Chairman of the Board since 1995 and Director of
Robert J. Nicholas                    61         the Bank since its formation in 1988; retired in
                                                 1992 as Chairman, Nicholas Turkey Breeding
                                                 Farms, a position held since 1982.

                                                 Director of the Bank since 1992; general manager
Angelo C. Sangiacomo                  73         and partner, Sangiacomo Vineyards since 1950;
                                                 founding director, Carneros Quality
                                                 Alliance since 1959.

                                                 Director of the Bank since 1993; retired as
J. R. Stone                           80         Chairman of World Products, Inc. in 1987.
..
                                                 President and Chief Executive Officer of the
Mel Switzer, Jr.                      58         Bank since April 1990; director of the Bank
                                                 since he joined in 1990.

                                                 Director of the Bank since its formation in
Harry W. Weise                        73         1988; Secretary 1995-2001; retired president,
                                                 North Bay Insurance Brokers, Inc. since 1968.
..
</TABLE>

<TABLE>
<CAPTION>
<S>                                  <C>          <C>

                                                 Position with the Bank and Principal
Officer                              Age         Occupations During the Past Five Years
-------                              ---         --------------------------------------

Mel Switzer, Jr.                      58         President and Chief Executive Officer since
                                                 April 1990.

Mary Quade Dieter                     55         Executive Vice President, Chief Operating
                                                 Officer, Chief Financial Officer  and Assistant
                                                 Corporate Secretary since June 1997; Executive
                                                 Vice President, Chief Financial Officer and
                                                 Asst. Corporate Secretary since January 1993;
                                                 Vice President, Chief Financial Officer and
                                                 Assistant Corporate Secretary from June 1988 to
                                                 January 1993.

                                                 Senior Vice President and Chief Lending Officer
Sean Cutting,                         34         since August 2003; VP and Loan Group Manager
Chief Lending Officer,                           since April 2003; VP and Commercial Loan Officer
Senior Vice President                            since June 2002;  Corporate Banking Officer at
                                                 ABN AMRO Bank and Silicon Valley Bank from
                                                 1999-2001.
</TABLE>


     There are no family relationships between any of the directors or executive
officers.

                                       65
<PAGE>

<TABLE>
<CAPTION>
<S>                                  <C>          <C>

                                                 Position with the Bank and Principal
Key Employee                          Age        Occupations During the Past Five Years
------------                          ---        --------------------------------------
Bob Thomas,
CIO, Vice President                   44         Vice President and Chief Information Officer
                                                 since January 2003;  AVP and IT Manage since
                                                 January 2001; Information Technology Manager
                                                 since January 2000;  Network Communications
                                                 Engineer at ReloAction from 1997-1999.

</TABLE>

Audit Committee Financial Expert

     The Board of Directors  has not  designated  an Audit  Committee  Financial
Expert.  All of the members of the Audit Committee are independent as determined
by the NASD listing standards.

Compliance with Section 16 of the Securities Exchange Act of 1934

     Based  solely upon a review of Forms 3, 4 and 5 delivered to the Company as
filed with the Securities and Exchange Commission ("Commission"),  directors and
officers  of the  Company  and  persons  who own more than 10% of the  Company's
common stock timely filed all required  reports pursuant to Section 16(a) of the
Securities Exchange Act of 1934, except Robert Nicholas,  who was late reporting
one transaction.

Code of Ethics

     We have  adopted a code of ethics that applies to our  principal  executive
officer, principal financial officer,  principal accounting officer,  controller
and other persons performing similar functions. A copy of our code of ethics can
be found on our website at sonomavalleybank.com/svbethics.pdf.  The Company will
report any amendment or wavier to the code of ethics on our website  within five
(5) days.







                                       66
<PAGE>

ITEM. 11.  EXECUTIVE COMPENSATION.

     As to the Company's Chief Executive  Officer and each other key employee of
the Company and Bank who received  total  remuneration  in excess of $100,000 in
2003,  the  following  table sets forth  total  remuneration  received  from the
Company for services performed in all capacities during the last three years.

<TABLE>
<CAPTION>
<S>                 <C>       <C>          <C>       <C>           <C>             <C>           <C>


                           SUMMARY COMPENSATION TABLE

                                ANNUAL COMPENSATION                       LONG-TERM COMPENSATION
                                -------------------                       ----------------------
                                                                                  SECURITIES
NAME AND                                             OTHER        RESTRICTED      UNDERLYING      ALL
PRINCIPAL                                            ANNUAL         STOCK          OPTIONS/      OTHER
POSITION            YEAR      SALARY       BONUS     COMP.         AWARD(S)          SARs        COMP.
=================== ======== ============ ========== =========== ============== ================ ==========

Mel Switzer, Jr.,    2001    $147,137(1)   $104,032   $7,608(5)       $ 0                 0      $4,200(6)
CEO, President
                     2002    $154,250(2)   $120,727     $  0(5)       $ 0                 0      $4,800(6)

                     2003    $157,879(3)   $ 72,159  $ 2,374(5)       $ 0                 0      $5,600(6)
=================== ======== ============ ========== =========== ============== ================ ==========

Mary Quade           2001        $97,592    $69,355   $8,633(5)       $ 0                 0      $4,200(6)
Dieter, COO, CFO,
Executive VP
                     2002      $ 102,472  $ 80,485    $2,759(5)       $ 0                 0      $4,800(6)

                     2003       $106,571   $48,106     $ 102(5)       $ 0                 0      $5,600(6)
=================== ======== ============ ========== =========== ============== ================ ==========

Sean C. Cutting
CLO, Senior VP       2002      $48,853(4) $  4,890    $1,539(5)       $ 0                 0      $2,030(6)

                     2003      $ 108,567   $25,900    $  820(5)       $ 0                 0      $4,800(6)
=================== ======== ============ ========== =========== ============== ================ ==========

Bob Thomas,          2001      $ 109,600   $ 10,631   $1,990(5)       $ 0                 0          $  0
CIO, VP
                     2002      $ 117,880   $ 11,491   $1,720(5)       $ 0                 0          $  0

                     2003       $137,750    $10,061   $2,484(5)       $ 0                 0          $  0
=================== ======== ============ ========== =========== ============== ================ ==========
</TABLE>
____________________________
(1) Includes $141,290 base salary and $5,847 in fringe benefits.
(2) Includes $148,354 base salary and $5,896 in fringe benefits.
(3) Includes $154,289 base salary and $3,590 in fringe benefits.
(4) Hire date 6/17/2002
(5) Represents accrued and unused vacation.
(6) Represents 401(k) employer's matching contributions.

                                       67
<PAGE>

Option Grants in 2003

     The following table provides  information relating to stock options granted
by us during the year ended December 31, 2003.

<TABLE>
<CAPTION>
<S>                       <C>             <C>              <C>      <C>            <C>       <C>

                                  Option Grants in Last Fiscal Year
                                  ---------------------------------
                                                                                       Potential
                                       Percent of Total                           Realizable Value at
                         Number of     Options Granted                               Assumed Annual
                        Securities            to         Exercise                    Rates of Stock
                        Underlying        Employees       Price                   Price Appreciation
                         Options       in Fiscal Year      Per    Expiration      For Option Terms
        Name             Granted       --------------     Share      Date           5%         10%
        ----             -------                          -----      ----         ------     -------

Mel Switzer, Jr.             0                -              -           -           -          -

Mary Quade Dieter            0                -              -           -           -          -

Sean C. Cutting              0                -              -           -           -          -

</TABLE>

*  Less than 1%

Fiscal Year End Option Values

     The following table sets forth for each of our executive  officers named in
the  Summary  Compensation  Table  the  number  and  value  of  exercisable  and
un-exercisable options for the year ended December 31, 2003.

<TABLE>
<CAPTION>
<S>                   <C>         <C>           <C>            <C>          <C>             <C>

                                                  Number of Securities
                     Shares                       Underlying Unsecured          Value of Unexercised
                     Acquired                            Options                In-The-Money Options
                         on         Value         at December 31, 2003          at December 31, 2003
       Name          Exercise    Realized ($)  Exercisable  Un-exercisable  Exercisable   Un-exercisable
       ----          --------    ------------  -----------  --------------  -----------   --------------

Mel Switzer, Jr.         0            0          60,422         3,089        1,053,431       54,678

Mary Quade Dieter        0            0          27,058           0           327,953           0

Sean C. Cutting          0            0             0             0              0              0

</TABLE>

Compensation of Directors

     The directors of the Company are  scheduled to meet at least  quarterly and
receive $100 for each  meeting.  The directors of the Bank receive $800 for each
regular board meeting and $200 for each committee meeting attended of which they
are a member.  The  Chairman of the Board of the Bank  receives  $1,100 for each
meeting.  The  Chair of the  Audit  Committee  receives  $300  for each  meeting
attended.  The  President  and Chief  Executive  Officer  does not  receive  any
director fees.

Severance Agreements

     On October 21, 1998, the Bank entered into Severance  Agreements  with both
its Chief Executive Officer, Mel Switzer, and its Chief Operating Officer,  Mary
Dieter. On March 17, 2004, the Bank entered into a Severance  Agreement with its
Chief Lending Officer, Sean C. Cutting. The Severance Agreement with Mr. Switzer
provides  for  payment to him equal to two years of his base salary in the event
that he is  terminated  within 24 months  following  a change of  control of the

                                       68
<PAGE>

Company.  Similarly,  the Severance  Agreements  with Ms. Dieter and Mr. Cutting
provides for payment to each equal to one year of their  individual  base salary
in the event either is terminated within 24 months following a change of control
of the Company.  The Severance  Agreements  are not  employment  agreements  and
provide for payment of the severance  only in the event of the occurrence of the
specified circumstances.  All Severance Agreements are effective through October
20,  2008,  subject to  extension  by mutual  agreement  of the Company and each
executive. The Company has assumed the obligations under these agreements.

Aggregated  Option  Exercises  in Last  Fiscal  Year  and  Ten-Year  Options/SAR
Repricings

     There was no re-pricing  of options for the fiscal year ended  December 31,
2003.

Compensation Committee Interlocks and Insider Participation

     Directors,  Robert  J.  Nicholas,  Chairman,  Dale T.  Downing,  Robert  B.
Hitchcock, Gary D. Nelson and Harry W. Weise serve on the Personnel and Policies
Committee (the board committee performing equivalent functions of a compensation
committee).   There  are  no  compensation   committee   interlocks  or  insider
participation on our personnel and policies committee.

Personnel and Policies Committee Report

Compensation Philosophy

     The  Committee  continues  to  emphasize  the  important  link  between the
Company's  performance,  which  ultimately  benefits all  shareholders,  and the
compensation  of its  executives.  Therefore,  the primary goal of the Company's
executive  compensation  policy  is  to  closely  align  the  interests  of  the
shareholders  with the interest of the executive  officers,  In order to achieve
this goal, the Company  attempts to (i) offer  compensation  opportunities  that
attract and retain  executives  whose  abilities  and skills are critical to the
long-term  success of the Company and reward them for their  efforts in ensuring
the  success of the  Company and (ii)  encourage  executives  to manage from the
perspective of owners with an equity stake in the Company. The Company currently
uses three integrated components - Base Salary, Incentive Compensation and Stock
Options - to achieve these goals.

Base Salary

     The Base Salary  component of total  compensation is designed to compensate
executives competitively within the industry and the marketplace.  Base Salaries
of the executive  officers are established by the committee based upon Committee
compensation  data, the executives' job  responsibilities,  level of experience,
individual  performance and contribution to the business.  In making base salary
decisions,  the  Committee  exercised  its  discretion  and judgment  based upon
regional  and  personal  knowledge  of industry  practice  and did not apply and
specific formula to determine the weight of any one factor.

Incentive Bonuses

     The  Incentive  Bonus  component of executive  compensation  is designed to
reflect  the  Committee's  belief  that a portion  of the  compensation  of each
executive  officer should be contingent upon the performance of the Company,  as
well as the individual  contribution  of each executive  officer.  The Incentive
Bonus is intended  to motivate  and reward  executive  officers by allowing  the
executive officers to directly benefit from the success of the Company. The plan
is  weighted   heavily  towards   achieving   profitability   before  any  bonus
compensation  would be earned and is presently based upon increasing  returns on
beginning equity.

                                       69
<PAGE>

Long Term Incentives

     The Committee  provides the  Company's  executive  officers with  long-term
incentive  compensation  in the form of stock option  grants under the Company's
1996 Stock Option Plan and 2001 Equity  Incentive  Plan. The Committee  believes
that stock options provide the Company's executive officers with the opportunity
to purchase  and  maintain an equity  interest in the Company and t share in the
appreciation of the value of the Company's Common Stock. The Committee  believes
that stock  options  directly  motivate an executive  officers to date have been
granted at the fair market  value of the  Company's  common stock on the date of
grant. The committee  considers each option  subjectively,  considering  factors
such as the individual  performance of the executive officer and the anticipated
contribution  for the executive  officer to the attainment of the Company's long
term strategic  performance  goals. The number of stock options granted in prior
years is also taken into consideration.

     In  conclusion,   the  Committee   believes  that  the  company's   current
compensation levels are consistent with Company goals.

                                            Respectfully Submitted,
                                            Sonoma Valley Bancorp
                                            Personnel and Policies Committee,

                                            /s/ Robert J. Nicholas, Chairman
                                            /s/ Dale T. Downing
                                            /s/ Robert B. Hitchcock
                                            /s/ Gary D. Nelson
                                            /s/ Harry W. Weise







                                       70
<PAGE>

Comparison of Cumulative Total Return on Investment

     There can be no assurance that our stock performance will continue into the
future with the same or similar trends  depicted in the graph below.  The market
price of our common stock in recent years has fluctuated significantly and it is
likely  that the price of the stock  will  fluctuate  in the  future.  We do not
endorse any  predictions  of future stock  performance.  Furthermore,  the stock
performance  chart is not considered by us to be (i) soliciting  material,  (ii)
deemed  filed  with  the  Securities  and  Exchange  Commission,  or (iii) to be
incorporated  by reference in any filings by us under the Securities Act, or the
Exchange Act.

[OBJECT OMITTED]











                                       71
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Equity Compensation Plan Information

     Compensation Plan Table

     The following  table  provides  aggregate  information as of the end of the
fiscal year ended  December  31,  2003 with  respect to all  compensation  plans
(including individual  compensation  arrangements) under which equity securities
are authorized for issuance.

<TABLE>
<CAPTION>
<S>                           <C>                     <C>                   <C>

     Plan category        Number of securities      Weighted-average      Number of securities
                            to be issued upon       exercise price of     remaining available
                               exercise of        outstanding options,    for future issuance
                          outstanding options,     warrants and rights        under equity
                           warrants and rights                             compensation plans
                                                                         (excluding securities
                                                                          reflected in column (a))
                                   (a)                     (b)                  (c)
  --------------------    ----------------------   --------------------   -----------------------

  Equity compensation
   plans approved by
    security holders             311,292                 $ 12.09                 82,370

  Equity compensation
 plans not approved by              0                       0                      0
    security holders

         Total                   311,292                 $ 12.09                 82,370
</TABLE>

Principal Shareholders

     The following  table sets forth certain  information  as of March 15, 2004,
with  respect  to the  beneficial  ownership  of our  common  stock for (i) each
director,  (ii) all of our  directors  and  officers as a group,  and (iii) each
person  known  to us to own  beneficially  five  percent  (5%)  or  more  of the
outstanding shares of our common stock.

     The address for each listed  shareholder is Sonoma Valley  Bancorp,  202 W.
Napa Street, Sonoma, California 95476. To our knowledge,  except as indicated in
the footnotes to this table or pursuant to applicable  community  property laws,
the  persons  named in the table  have sole  voting  and  investment  power with
respect to the shares of common stock indicated.


                                   Common Stock Amount
Name, Principal                       and Nature of
Occupation and Address             Beneficial Ownership     Percent of
----------------------             --------------------      Class(1)
                                                            ----------

Suzanne Brangham                        26,574 (2)             1.76%

Dale T. Downing                       77,873 (3)(7)            5.17%

Frederick H. Harland                  13,007 (4)(8)              *



                                      72
<PAGE>

                                   Common Stock Amount
Name, Principal                       and Nature of
Occupation and Address             Beneficial Ownership     Percent of
----------------------             --------------------      Class(1)
                                                            ----------

Robert B. Hitchcock                   85,219 (3)(9)            5.66%

Gerald J. Marino                        72,002 (2)             4.77%

Gary D. Nelson                        73,063 (5)(10)           4.91%

Robert J. Nicholas                      80,732 (4)             5.40%

Angelo C. Sangiacomo                  28,892 (2)(11)           1.91%

J. R. Stone                           63,801 (2)(12)           4.23%

Mel Switzer, Jr.                      80,275 (6)(13)           5.18%

Harry W. Weise                          58,148 (3)             3.86%

Directors and Executive
Officers as a Group (13                695,566 (14)            39.50%
persons including the above)

*  Less than 1% of outstanding shares of common stock.

(1)     Percentages are based on a total of 1,484,823 shares outstanding as
        of March 15, 2004.
(2)     Includes 24,709 shares subject to options exercisable within 60 days.
(3)     Includes 21,620 shares subject to options exercisable within 60 days.
(4)     Includes 9,266 shares subject to options exercisable within 60 days.
(5)     Includes 3,089 shares subject to options exercisable within 60 days.
(6)     Includes 63,511 shares subject to options exercisable within 60 days.
(7)     Includes 7,944 shares held by wife in an IRA account.
(8)     Includes 403 shares held by wife and 487 shares held by wife in an IRA
        account.
(9)     Includes 7,280 shares held by wife in an IRA account.
(10)    Includes 178 shares held in a Trust  Account of which his wife is a
        Trustee and 21 shares held by son.
(11)    Includes 1,305 shares held by wife as a custodian of Uniform Transfer
        to Minors Act.
(12)    Includes 12,754 shares held by wife in an IRA account.
(13)    Includes 1,438 shares held by wife in an IRA account.
(14)    Includes a total of 278,884 shares subject ot options exercisable
        within 60 days.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Certain Relationships and Related Transactions

     We have and expect to have in the future to have  banking  transactions  in
the ordinary  course of its business  with its  directors,  officers,  principal
shareholders and their affiliates.  These loans are granted on substantially the
same terms, including interest rates, collateral,  and repayment terms, as those
prevailing at the same time for comparable  transactions with others and, in the
opinion  of   management,   do  not  involve   more  than  the  normal  risk  of
collectibility.  The  aggregate  loan  disbursements  and loan  payments made in
connection  with  loans to  directors,  officers,  principal  shareholders,  and
affiliates, are as follows:

                                       73
<PAGE>
                                        2003             2002
                                        ----             ----

Balance, beginning of year           $4,607,000      $2,236,000
Loan disbursements                      690,000       2,723,000
Loan payments                        (2,202,000)       (352,000)
Balance, end of year                 $3,095,000      $4,607,000

     During 2003,  the highest  amount of aggregate  indebtedness  of directors,
officers, principal shareholders, and affiliates, was $ 3,113,688 as of July 31,
2003, which represented 15.45% of the Bank's equity capital as of such date.

     The Bank leases its Glen Ellen branch office from Sonoma Market Partnership
in which  director Dale Downing is a partner.  Lease expense for the years ended
December 31, 2003 and 2002 was $12,889 and $12,172,  respectively. The remaining
lease commitment is approximately $61,595 through March 2008 including a minimum
inflationary  increase  of 4% per  year.  The  monthly  lease  payments  will be
increased  annually  based upon the Consumer  Price Index,  but not less than 4%
annually.  The term of the lease is 5 years  with an option to extend  the lease
term  for  two  additional  5  year  terms  at the  same  Consumer  Price  Index
limitations.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

Relationship with Independent Auditors

     The Company  retained the firm of Richardson & Co. as independent  auditors
of the Company for the fiscal year ending December 31, 2003.

Audit Fees

     The aggregate fees billed for professional  services rendered for the audit
of the Company's annual financial  statements on Form 10-K and the review of the
financial  statements  included in the Company's  quarterly reports on Form 10-Q
for the fiscal year ended  December  31, 2002 was $ 41,720 and December 31, 2003
was $ 41,720.

Audit-Related Fees

     The  aggregate  fees  billed for  assurance  and  related  services  by the
principal accountant that are reasonably related to the performance of the audit
or review of the Company's financial  statements for the year ended December 31,
2002 was $ 4,695 and December 31, 2003 was $ 8,547.

Tax Fees

     The aggregate fees billed for tax  compliance,  tax advice and tax planning
rendered by our independent auditors for the fiscal year ended December 31, 2002
was $ 9,470 and December 31, 2003 was $ 9,470.  The  services  comprising  these
fees include  federal and state income tax returns,  quarterly tax estimates and
business property tax statements.

All Other Fees

     There were no  aggregate  fees billed for any other  professional  services
rendered  by the  Company's  independent  auditors  for the  fiscal  year  ended
December 31, 2002 and 2003.

                                       74
<PAGE>

     The  Audit  Committee  approved  100% of the  fees  paid  to the  principal
accountant  for   audit-related,   tax  and  other  fees.  The  Audit  Committee
pre-approves all non-audit services to be performed by the auditor in accordance
with the Audit  Committee  Charter.  The  percentage  of hours  expended  on the
principal  accountant's  engagement to audit the Company's financial  statements
for the most  recent  fiscal  year that were  attributed  to work  performed  by
persons other than the principal accountant's full-time, permanent employees was
0%.

                                     PART IV

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

Financial Statements

     The following financial statements of the Company are filed as part of this
Annual Report:

<TABLE>
<CAPTION>
<S>                                                                       <C>

    Number                                                                Page

    1.  Independent Auditor's Report.....................................  31


    2.  Consolidated Balance Sheets as of December 31, 2003 and 2002.....  32

    3.  Consolidated Statements of Operations for the three years ended
        December 31, 2003, 2002 and 2001.................................  33

    4.  Consolidated Statements of Changes in Shareholders' Equity
        for the three years ended December 31, 2003, 2002 and 2001.......  34 and 35

    5.  Consolidated Statements of Cash Flows for the three years ended
        December 31, 2003, 2002 and 2001.................................  36 and 37

    6.  Notes to Consolidated Financial Statements.......................  38

</TABLE>

Financial Statement Schedules

     All other schedules have been omitted since the required information is not
present or is not present in  sufficient  amounts to require  submission  of the
schedules or because the information is included in the financial  statements or
the notes thereto.

                                       75
<PAGE>

Exhibits
--------

     The following Exhibits are attached or incorporated herein by reference:

3.1  Sonoma Valley Bancorp  Articles of  Incorporation,  filed as Exhibit 3.1 to
     the Registrant's Registration Statement on Form S-8 filed on June 5, 2001.

3.3  Sonoma Valley  Bancorp  By-laws,  filed as Exhibit 3.2 to the  Registrant's
     Registration Statement on Form S-8 filed on June 5, 2001.

4.2  Agreement  for the sale of Sonoma  Valley  Bank Stock dated  September  23,
     1992,  filed as  Exhibit  4.2  (formerly  A-1) to the Form F-2 for the year
     ended December 31, 1992.

10.1 Lease for Sonoma branch office, filed as Exhibit 10.1 (formerly 7.1) to the
     Registrant's Registration Statement on Form F-1 filed on May 1, 1989.

10.2 Sonoma  Valley  Bank Chief  Executive  Officer  Severance  Agreement  dated
     January 4,  1995,  filed as  Exhibit  10.2 to the Form  10-KSB for the year
     ended December 31, 1997.

10.3 Sonoma Valley Bank  Supplemental  Executive  Retirement Plan, as amended on
     March 20, 1996, filed as Exhibit 10.3 to the Form 10-KSB for the year ended
     December 31, 1997.

10.4 Sonoma Valley Bank Deferred Compensation Plan, filed as Exhibit 10.4 to the
     Form 10-KSB for the year ended December 31, 1997.

10.5 Sonoma Valley Bank Master Trust  Agreement for  Executive  Deferral  Plans,
     filed as Exhibit  10.5 to the Form 10-KSB for the year ended  December  31,
     1997.

10.6 Sonoma  Valley Bank 1996 Stock  Option  Plan,  filed as Exhibit 10.6 to the
     Form 10-KSB for the year ended December 31, 1997.

10.7 Sonoma Valley Bank Severance Agreement with Mel Switzer,  Jr. dated October
     21,  1998,  filed as  Exhibit  10.7 to the From  10-KSB  for the year ended
     December 31, 1998.

10.8 Sonoma Valley Bank  Severance  Agreement with Mary Dieter dated October 21,
     1998,  filed as Exhibit 10.8 to the From 10-KSB for the year ended December
     31, 1998.

10.10 Sonoma Valley Bancorp Assumption of Severance Agreement [Form of], filed
      as Exhibit 10.1 to the Form 10-KSB for the year ended December 31, 2001.

10.11 Sonoma Valley Bancorp 2002 Equity Incentive Plan, filed as Exhibit A to
      the Company's Proxy Statement for the Annual Meeting held on May 14, 2002.

10.12 Sonoma Valley Bank Severance Agreement with Sean Cuttings dated
      March 18, 2004.

23.1  Consent of Richardson and Co., Independent Auditors.

31.1  Certification of Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act

31.2  Certification of Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act

32    Certification of Chief Executive Officer and Chief Financial Officer
      pursuant to Section 906 of the Sarbanes-Oxley Act

                                       76
<PAGE>

(b)  Reports on Form 8-K

     The following reports on Form 8-K were filed during the last quarter of the
period covered by this report:

           Date of Event Reported       Item Reported
           ----------------------       -------------

           February 18, 2004            Announcing Cash Dividend

           February 15, 2004            Announcing Fiscal Year End 2003 Results












                                       77
<PAGE>

                                   SIGNATURES

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

SONOMA VALLEY BANCORP,
A California corporation


/S/ MEL SWITZER, JR.                             March 23, 2004
---------------------------------
Mel Switzer, Jr.
President and
Chief Executive Officer
(Principal Executive Officer)



/S/ MARY QUADE DIETER                              March 23, 2004
---------------------------------
Mary Quade Dieter
Executive Vice President and
Chief Operating Officer
 (Principal Finance and Accounting Officer)

     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.



/S/ SUZANNE BRANGHAM                               March 23, 2004
---------------------------------
uzanne Brangham, Secretary
of the Board and Director



/S/ DALE T. DOWNING                                March 23, 2004
---------------------------------
Dale T. Downing, Director



/S/ FREDERICK H. HARLAND                           March 23, 2004
---------------------------------
Frederick H. Harland, Director



/S/ ROBERT B. HITCHCOCK                            March 23, 2004
---------------------------------
Robert B. Hitchcock, Director



/S/ GERALD J. MARINO                               March 23, 2004
---------------------------------
Gerald J. Marino, Director

                                       78
<PAGE>


/S/ GARY D. NELSON                                 March 23, 2004
---------------------------------
Gary D. Nelson, Director



/S/ ROBERT J. NICHOLAS                             March 23, 2004
---------------------------------
Robert J. Nicholas, Chairman
of the Board and Director



/S/ ANGELO C. SANGIACOMO                           March 23, 2004
---------------------------------
Angelo C. Sangiacomo, Director



/S/ JESSE R. STONE                                 March 23, 2004
---------------------------------
Jesse R. Stone, Director



/S/ MEL SWITZER, JR.                               March 23, 2004
---------------------------------
Mel Switzer, Jr., President,
Chief Executive Officer and
Director (Principal Executive
Officer)



/S/ HARRY WEISE                                    March 23, 2004
---------------------------------
Harry Weise, Director



/S/ MARY QUADE DIETER                              March 23, 2004
---------------------------------
Mary Quade Dieter, Executive
Vice President, Chief Operating
Officer and Chief Financial
Officer (Principal Finance and
Accounting Officer)


                                       79