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, 2002    Commission File Number: 000-31929
                               -------------------------

                              SONOMA VALLEY BANCORP
                 (Name of small business issuer 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

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 February 19, 2003 based on the current  market price of the stock:
$ 28,712,040

The number of shares of registrant's common stock outstanding on the NASD OTC BB
as of March 10, 2003 was 1,392,138.

                       DOCUMENTS INCORPORATE BY REFERENCE

Part  III  incorporates  information  by  reference  from the  definitive  proxy
statement for the registrant's  annual meeting of shareholders to be held on May
14, 2003.


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  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 branch  office  located in Glen
Ellen, 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, 2002.

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.

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,

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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.  The bank is venturing  into Internet  Banking.  The
initial  customers  using  the  product  are  our  Cash  Management   Commercial
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.

The bank is exploring ways to serve the Hispanic  community in our market place.
We are  installing  bilingual  ATM  machine,  and have  bilingual  officers  and
customer service employees.

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.

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 six  other  banks
(including two major banks:  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.

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
83% of these  loans  are  secured  by real  estate  in its  service  area.  This
concentration for the year ending December 31, 2002 is presented below:

(in thousands of dollars)

         Secured by real estate:
         Construction/land development         $ 24,889
         Farmland                                 4,197
         1-4 family residences                   20,917
         Commercial/multi-family                 56,663

Employees

As of December 31, 2002, the Company employed 44 full-time equivalent employees.

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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
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

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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.

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 1997, California adopted the Environmental Responsibility Acceptance Act (the
"Act") (Cal.  Civil Code Sections  850-855) to facilitate  the  notification  of
government  agencies  and  potentially  responsible  parties (for  example,  for
cleanup) of the existence of contamination and the cleanup or other remediation

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of contamination by the potentially responsible parties. The Act requires, among
other things,  that owners of sites who have actual  awareness of a release of a
hazardous material that exceeds a specified  notification  threshold to take all
reasonable steps to identify the potentially  responsible  parties and to send a
notice of  potential  liability  to the  parties and the  appropriate  oversight
agency.

During 1996, new federal  legislation  amended the  Comprehensive  Environmental
Response, Compensation, and Liability Act ("CERCLA") and the underground storage
tank provisions of the Resource Conservation and Recovery Act to provide lenders
and fiduciaries with greater protections from environmental  liability.  In June
1997,  the U.S.  Environmental  Protection  Agency  ("EPA")  issued its official
policy with regard to the  liability of lenders  under CERCLA as a result of the
enactment of the Asset  Conservation,  Lender  Liability  and Deposit  Insurance
Protection  Act of 1996.  Although  numerous  exceptions  exist,  California law
provides  that a lender  acting in the  capacity  of a lender will not be liable
under  any state or local  statute,  regulation  or  ordinance,  other  than the
California  Hazardous  Waste  Control Law, to undertake a cleanup,  pay damages,
penalties or fines, or forfeit  property as a result of the release of hazardous
materials at or from the property.

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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"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, 2002, the Company
and Bank had no brokered deposits.

USA Patriot Act

The  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.

Future Legislation and Regulations

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 legislative changes might have on the Bank.



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Accounting Pronouncements

In April 2002, the Financial  Accounting Standards Board (FASB) issued Statement
(SFAS) No. 145, which amends  Statements No. 4 "Reporting  Gains and Losses from
Extinguishment  of Debt",  No. 44  "Accounting  for  Intangible  Assets of Motor
Carriers"  and No.  64,  Extinguishments  of Debt Made to  Satisfy  Sinking-Fund
Requirements".  The Statement is effective for fiscal years  beginning after May
15, 2002, or for transactions  occurring after May 15, 2002. This Statement will
not have a material impact on Sonoma Valley Bancorp.

In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
Exit or Disposal Activities". The provisions of this Statement are effective for
exit and disposal  activities  that are initiated  after December 31, 2002. This
Statement is not expected to have a material effect on Sonoma Valley Bancorp.

In October 2002, the FASB issued SFAS No. 147 "Acquisitions of Certain Financial
Institutions".  This Statement  removes  acquisitions of financial  institutions
from the scope of SFAS No. 72 and  Interpretation  No. 9 and requires that those
transactions  be accounted  for in accordance  with  Statement No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets".  The Statement
indicates that the purchase method of accounting  applies to all acquisitions of
financial   institutions,   except  transactions  between  two  or  more  mutual
enterprises.  This Statement is effective for acquisitions occurring on or after
October 1, 2002. This Statement is not expected to have a material effect on the
Company.

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,
2002.  The  Company  has  elected  to adopt the  prospective  transition  method
effective  January  1,  2003  and,  accordingly,  compensation  expense  will be
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.  Management  does not
expect  this  Statement  to have  material  impact  on the  Company's  financial
condition or results of operations in 2003.  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.

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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 Stock-
         holders'  Equity; Interest Rates and Differential

         A. Average balance sheets                                            16
         B. Analysis of net interest earnings                                 16
         C. Rate/volume analysis                                              17

II.      Investment Portfolio

         A. Book value (Amortized Cost) of investments                        41
         B. Weighted average yield and maturity                16, 20, 25 and 42
         C. Securities of issuer exceeding
                  ten percent of equity:                                    None

III.     Loan Portfolio

         A. Types of loans                                             16 and 43
         B. Maturities and sensitivities of loans
                   to change in interest rates                         25 and 44
         C. Risk elements

                  1. Non-accrual, past due,
                           and restructured loans                      21 and 43
                  2. Potential problem loans:                               None
                  3. Foreign outstandings:                                  None
                  4. Loan concentrations                               20 and 56

         D. Other Interest Bearing Assets:                                  None

IV. Summary of Loan Loss Experience                                21, 22 and 44

V.  Deposits

         A. Average balances and average rates paid                           16
         B. Other categories of deposits                                    None
         C. Foreign outstandings                                            None
         D. Maturity of time deposits greater than $100,000                   25
         E. Maturity of foreign time deposits greater than 100,000          None

VI. Return on Equity and Assets                                               14

VII. Short-term Borrowings:                                                 None


                                     Page 9
--------------------------------------------------------------------------------

<PAGE>



Item 2.           Properties

The Company is  headquartered  in Sonoma,  California.  At the present  time the
Company's Bank has two branch offices. 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 2002 totaled $216,326 compared to the $208,005
paid in 2001.  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 2002
totaled  $36,376  compared with the $40,720 paid in 2001. 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 2002 was $16,521 compared to $15,576 in 2001.

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 2003 with the  option to extend for an  additional  five year term.
Lease  payments made in 2002 totaled  $12,172  compared to $11,054 in 2001.  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.

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, 2002.



                                     Page 10
--------------------------------------------------------------------------------

<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                          Raymond James Financial Services
         6570 Oakmont Drive                    777 Baywood Drive
         Santa Rosa, CA 95409                  Petaluma, CA  94954
         John Rector                           Moe Jacobson
         (707) 539-1500                       (707) 763-0354

         Edward Jones                          Smith Barney
         515 First Street East                 111 Santa Rosa Ave., Suite 303
         Sonoma, CA  95476                     Santa Rosa, CA 95404
         Gary Scott                            Kirk Aguer
         (707) 935-1856                       (707) 571-5702

         Edward  Jones                         Monroe Securities
         19485 Sonoma Hwy, Suite G             47 State Street
         Sonoma, CA  95476                     Rochester, NY 14614
         James Wandzilak                       Helen Rubeins
         (707) 935-0865                       (888) 995-5560

         Wedbush Morgan Securities             Sutro & Co.
         1300 S.W. Fifth Avenue, Suite 2000.   P.O. Box 2859
         Portland, OR  97201-5667              Big Bear Lake, CA 92315
         Joey Warmenhoven                      Troy Norlander
         (503) 224-0480                       (800)288-2811



                                     Page 11
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<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.
<TABLE>
<S>                                                   <C>              <C>

Quarter Ended:                                          High             Low
                                                      --------         -------

         March 31, 2001                               $  19.16         $ 16.89
         June 30, 2001                                   19.04           18.28
         September 30, 2001                              21.90           18.77
         December 31, 2001                               21.19           20.14

         March 31, 2002                               $  22.38         $ 20.24
         June 30, 2002                                   29.00           21.54
         September 30, 2002                              29.00           26.25
         December 31, 2002                               30.94           26.75
</TABLE>


As of February 20,  2003,  there were 1,069  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 has never paid a cash dividend and the future payment of cash dividends
by the Company will not only depend on the Bank's future earnings, but will also
depend on the Bank and the Company  meeting  certain  capital  requirements  and
having an adequate allowance for loan losses.



                                     Page 12
--------------------------------------------------------------------------------

<PAGE>



Historically,  the Bank has declared nine stock  dividends of 5% each, two stock
dividends  of 10% in May 1996 and June 1997 and one 2 for 1 stock split in March
1998 as detailed below:



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
July 18, 2001               August 3, 2001               August 17, 2001
June 17, 2002               July 2, 2002                 July 16, 2002



                                     Page 13
-------------------------------------------------------------------------------

<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>
<S>                                   <C>             <C>            <C>              <C>              <C>              <C>



                                           2002            2001           2000             1999             1998             1997
                                      ----------      ----------     ----------       ----------       ----------       ----------
RESULTS OF OPERATIONS:
       Net interest income            $    8,633      $    8,236     $    7,870       $    6,699       $    5,987       $    5,282
       Provision for loan losses             393             342            335              240              335              295
       Non-interest income                 1,646           1,309            893              941              878              735
       Non-interest expense                5,862           5,224          5,061            4,614            4,100            3,519
       Provision for income tax            1,275           1,379          1,160              976              843              789
       Gain(Loss) securities sold             (5)
       Extraordinary item             ----------      ----------     ----------       ----------       ----------       ----------
                                      $    2,744      $    2,600     $    2,207       $    1,810       $    1,587       $    1,414
                                      ==========      ==========     ==========       ==========       ==========       ==========
SELECTED AVERAGE
BALANCES:
       Assets                         $  164,200      $  147,807     $  135,924       $  123,202       $  107,202       $   98,359
       Loans, net of unearned            116,867         100,605         86,547           73,222           70,838           56,811
       Deposits                          143,228         129,534        120,135          109,801           95,819           89,050
       Shareholders' equity               17,964          15,121         12,984           11,490            9,976            8,377
PER SHARE DATA:
       Basic net income               $     1.97      $     1.85     $     1.57       $     1.27       $     1.11       $      .99
       Fully diluted net income       $     1.80      $     1.74     $     1.52       $     1.25       $     1.10       $      .99
       Period end book value          $    13.73      $    11.91     $    10.14       $     8.49       $     7.50       $     6.37
       Weighted average shares
           outstanding                 1,395,679       1,404,486      1,409,908        1,428,782        1,434,138        1,434,138
FINANCIAL RATIOS:
       Return on average assets             1.67%           1.76%          1.62%            1.47%            1.48%            1.44%
       Return on average
          shareholders' equity             15.27%          17.19%         17.00%           15.75%           15.91%           16.88%
       Net yield on earning
          assets                            6.06%           6.25%          6.49%            6.04%            6.22%            5.95%
       Cost Control ratio                  55.07%          52.72%         55.06%           58.52%           57.97%           57.01%
       Average shareholders'
          equity to average assets         10.94%          10.23%          9.55%            9.33%            9.31%            8.52%
CAPITAL RATIOS:
       Risk-based capital:
       Tier I                              12.31%          11.81%         12.78%           12.36%           12.57%           12.32%
       Total                               13.57%          13.07%         14.04%           13.62%           13.83%           13.57%
       Leverage ratio                      10.62%          10.38%         10.11%            9.54%            9.55%            8.65%
CREDIT QUALITY:
       Net charge-offs to
          average loans                     0.02%           0.05%         -0.04%            0.04%            0.09%            0.25%
       Allowance for possible
          loan losses to period
          end loans                         2.17%           2.25%          2.29%            2.19%            2.12%            2.01%
</TABLE>


                                     Page 14
--------------------------------------------------------------------------------

<PAGE>



Item 7. Management's Discussion and Analysis of Consolidated Financial Condition
        and Results of Operations

The Year Ended December 31, 2002 versus December 31, 2001

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
2002, July 2001,  August 2000, July 1999,  January and August,  1995, July 1994,
June 1993 and May, 1992.

Overview

Net income was  $2,744,333  ($1.97 per share) for 2002 compared with earnings of
$2,600,244  ($1.85 per share) in 2001.  Return on average  shareholders'  equity
declined to 15.28% in 2002  compared to 17.19% in 2001.  Return on average total
assets for 2002, 2001 and 2000 were 1.67%, 1.76% and 1.62%, respectively.

At December 31, 2002 total assets were $182.6 million, a 16.1% increase over the
$157.4  million at December 31, 2001.  The Company  showed loan growth to $128.1
million in 2002, compared with $107.4 million at year-end 2001, a growth rate of
19.2%.  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% in 2001 to 80.0% in 2002,  a  reflection  of  stronger  loan  growth
compared to the growth of deposits.

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 $399,000 to $9.0 million, up 4.6% from 2001 net interest income
of $8.6 million.  Net interest  income on a fully taxable  equivalent  basis, as
shown on the table - Average  Balances,  Yields and Rates  Paid  (page  16),  is
higher than net  interest  income on the  statements  of  operations  because it
reflects adjustments applicable to tax-exempt income from certain securities and
loans ($366,000 in 2002 and $364,000 in 2001,  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 $523,000  decrease  in  interest  income and a $922,000
decrease in interest expense which is a result of deposit rates declining faster
than loan rates.

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 19 basis points to 6.06% in 2002 from
6.25% in 2001.

Interest Income

As previously  stated,  interest  income  (stated on a fully taxable  equivalent
basis)  decreased by $523,000 to $11.0  million in 2002, a 4.6% decline over the
$11.5 million realized in 2001.

The $523,000  decrease was the net effect of a 7.9% increase in average  earning
assets to $148.4 million offset by a 96 basis point decline in average yield for
the year.

                                     Page 15
--------------------------------------------------------------------------------

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

                                                   2002                            2001                             2000
                                                   ----                            ----                             ----

ASSETS                                 Average    Income/     Yield/    Average   Income/     Yield/    Average   Income/  Yield/
                                       Balance    Expense     Rate      Balance   Expense     Rate      Balance   Expense   Rate
                                       --------   --------    -----     --------  -------     ------    -------   -------  -----
Interest-earning assets:
Loans(2):
  Commercial                           $ 75,696   $  5,978     7.90%   $ 61,888   $ 5,582      9.02%  $ 52,475   $ 5,195    9.90%
  Consumer                               13,186      1,098     8.33%     14,583     1,370      9.39%    11,889     1,179    9.92%
  Real estate construction               19,040      1,689     8.87%     12,393     1,279     10.32%    11,316     1,224   10.82%
  Real estate mortgage                    5,732        481     8.39%      8,983       823      9.16%     8,763       830    9.47%
  Tax exempt loans (1)                    3,367        285     8.46%      2,566       220      8.57%     1,798       149    8.29%
  Leases                                    164         27    16.46%        409        42     10.27%       537        55   10.24%
  Tax exempt leases (1)                     106         15    14.15%        165        15      9.09%       122        11    9.02%
  Unearned loan fees                       (424)                           (382)                          (353)
                                       --------    -------             --------   -------             --------
         Total loans                    116,867      9,573     8.19%    100,605     9,331      9.27%    86,547     8,643    9.99%
Investment securities
  Available for sale:
         Taxable                          6,029        365     6.05%     16,420     1,001      6.10%    22,696     1,420    6.26%
         Tax exempt(1)                        0          0     0.00%          0         0      0.00%       199        15    7.54%
  Hold to maturity:
         Taxable                            201         13     6.47%        203        13      6.40%       347        19    5.48%
         Tax exempt (1)                  10,904        777     7.13%     11,779       837      7.11%    11,509       803    6.98%
                                       --------   --------             --------   -------             --------    ------
         Total investment securities     17,134      1,155     6.74%     28,402     1,851      6.51%    34,751     2,257    6.50%
Federal funds sold                       14,053        216     1.54%      8,219       286      3.48%     4,802       294    6.12%
FHLB Stock                                  275         15     5.45%        261        15      5.75%       285        22    7.72%
Total due from banks/Interest bearing        73          1     1.37%         11         0      2.73%        40         2    4.33%
                                      ---------   --------             --------   -------             --------   -------
  Total interest earning assets         148,402   $ 10,960     7.39%    137,498   $11,483      8.35%   126,425    11,218    8.87%
                                                  ========                        =======                        =======

Noninterest-bearing assets:
  Reserve for loan losses                (2,547)                         (2,263)                        (1,916)
  Cash and due from banks                 7,600                           6,620                          6,115
  Premises and equipment                    705                             620                            619
  Other assets                           10,040                           5,332                          4,681
                                       --------                        --------                       --------
                  Total assets         $164,200                        $147,807                       $135,924
                                       ========                        ========                       ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing deposits
         Interest bearing transaction  $ 23,794   $     84     0.35%   $ 21,940   $   149      0.68%  $ 20,875   $   204    0.98%
         Savings deposits                48,052        656     1.37%     42,074       997      2.37%    38,400     1,016    2.65%
         Time deposits over $100,000     18,362        547     2.98%     16,739       845      5.05%    15,177       831    5.48%
         Other time deposits             20,155        674     3.34%     18,913       885      4.68%    18,594       947    5.09%
                                       --------   --------             --------   -------             --------   -------
           Total interest bearing
                     Deposits           110,363      1,961     1.78%     99,666     2,876      2.89%   93,046     2,998    3.22%
  Federal Funds purchased                     0          0     0.00%          0         0      0.00        69         5    7.25%
  Other short term borrowings                 0          0     0.00%        174         7      4.02%      186        13    6.99%
                                       --------   --------             --------   -------             --------  -------
           Total interest bearing
                     liabilities        110,363   $  1,961     1.78%     99,840   $ 2,883      2.89%   93,301   $ 3,016    3.23%
                                                  ========                        =======                       =======
Non interest bearing liabilities:
  Non interest bearing demand deposits   32,865                          29,868                         27,089
  Other liabilities                       3,008                           2,978                          2,550
  Shareholders' equity                   17,964                          15,121                         12,984
                                       --------                        --------                       --------
         Total liabilities and
           shareholders' equity        $164,200                        $147,807                       $135,924
                                       ========                        ========                       ========
Interest rate spread                                           5.61%                           5.46%                       5.64%
                                                               ====                            ====                        ====
Interest income                                   $ 10,960     7.39%              $11,483      8.35%            $11,218    8.87%
Interest expense                                     1,961     1.32%                2,883      2.10%              3,016    2.39%
                                                  --------     ----               -------       ----            -------    ----
Net interest income/margin                        $  8,999     6.06%              $ 8,600      6.25%            $ 8,202    6.49%
                                                  ========                        =======                       =======
</TABLE>

(1) Fully tax equivalent  adjustments  are based on a federal income tax rate of
    34% in 2002,2001 and 2000.
(2) Non accrual loans have  been included in loans for the purposes of the above
    presentation.  Loan fees of   approximately  $343,000, $334,000 and $312,000
    for the twelve months ended December 31, 2002,2001 and 2000,   respectively,
    were  amortized  to  the  appropriate   interest  income categories.

                                     Page 16
--------------------------------------------------------------------------------
<PAGE>
                            SONOMA VALLEY BANCORP

                              Rate/Volume Analysis

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

                                                  2002 over 2001                    2001 over 2000
                                                  --------------                    --------------
                                  Volume     Rate     Vol/Rate     Total     Volume     Rate     Vol/Rate     Total
ASSETS
Interest-earning assets:
Loans:
  Commercial                       1,245      (694)      (155)      396      932       (462)      (83)       387
  Consumer                          (131)     (156)        15      (272)     267        (62)      (14)       191
  Real estate construction           686      (180)       (96)      410      116        (56)       (5)        55
  Real estate mortgage              (298)      (69)        25      (342)      21        (27)       (1)        (7)
  Tax exempt loans                    69        (3)        (1)       65       64          5         2         71
  Leases                             (25)       25        (15)      (15)     (13)         0         0        (13)
  Tax exempt leases                   (5)        8         (3)        0        4          0         0          4
  Unearned fee income                  0         0          0         0        0          0         0          0
                                  ------    ------      -----      -----   -----      -----     -----      -----
      Total loans                  1,541    (1,069)      (230)      242    1,391       (602)     (101)       688

Investment securities:
  Available for sale:
    Taxable                         (633)       (7)         4      (636)    (393)       (36)       10       (419)
    Tax-exempt                         0         0          0         0      (15)       (15)       15        (15)
  Held to maturity:
    Taxable                            0         0          0         0       (8)         3        (1)        (6)
    Tax-exempt                       (62)        2          0       (60)      19         15         0         34
                                  ------     -----      -----      -----   -----      -----     -----      -----
      Total investment
         securities                 (695)       (5)         4      (696)    (397)       (33)       24       (406)
Federal funds sold                   203      (160)      (113)      (70)     209       (127)      (90)        (8)
FHLB Stock                             1        (1)         0         0       (2)        (6)        1         (7)
Due from banks-int bearing             2         0         (1)        1       (1)        (1)        0         (2)
                                  ------     -----      -----     -----    -----      -----     -----      -----
      Total interest-earning
         assets                    1,052    (1,235)      (340)     (523)   1,200       (769)     (166)       265
                                  ======     =====      =====     =====    =====      =====     =====      =====

LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
  Savings deposits                    13       (72)        (6)      (65)      10        (62)       (3)       (55)
  Interest-bearing demand
    deposits                         142      (423)       (60)     (341)      97       (106)      (10)       (19)
  Time less than $100,000            (26)     (321)         9      (338)      16        (77)       (1)       (62)
  Time $100,000 and over             172      (285)       (58)     (171)      86        (65)       (7)        14
                                   -----     -----      -----     -----    -----      -----     -----      -----
      Total interest-bearing
         deposits                    301    (1,101)      (115)     (915)     209       (310)      (21)      (122)
Federal funds purchased                0         0          0         0       (5)        (5)        5         (5)
Other borrowings                      (7)       (7)         7        (7)       0         (6)        0         (6)
                                  ------     -----      -----     -----    -----      -----     -----      -----
      Total interest-bearing
         liabilities                 294    (1,108)      (108)      922      204       (321)      (16)      (133)
  Interest differential              758      (127)      (232)      399      996       (448)     (150)       398
                                  ======     =====      =====     =====    =====      =====     =====      =====
</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


                                     Page 17
--------------------------------------------------------------------------------

<PAGE>



Interest Expense

Total interest  expense  declined by $922,000 to $2.0 million.  The average rate
paid on all interest- bearing liabilities was 1.78%,  compared to 2.89% in 2001.
Average balances increased from $99.8 million to $110.4 million, a 10.5% gain.

The gain in volume of average  balances was responsible for a $186,000  increase
in interest  expense offset by a $1.1 million decrease related to lower interest
rates  paid  for  a  net  decrease  of   $922,000.   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 16.

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 $393,000 in 2002 and $342,000 in 2001. The
increase in the provision is the result  management's  evaluation and assessment
of the loan portfolio.

Loans  charged-off,  net of recoveries,  resulted in losses totaling  $27,000 in
2002 and $47,000 in 2001.  The  decrease in charge  offs  reflects  management's
efforts to identify problems early.

Non-interest Income

Non-interest  income of $1.6 million increased 25.4% in comparison with the $1.3
million recorded in 2001. The increase was primarily due to a $242,000  increase
in other non interest  income which was generated by earnings on bank owned life
insurance policies.

Non-interest Expense

Total  non-interest  expense  increased  12.2% to $5.8 million in 2002 from $5.2
million in 2001. Non- interest expense  represented 3.6% of average total assets
in 2002  and 3.5% 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 2002, the Company will continue to emphasize cost controls. Certain costs
are not  controllable  by  management.  Refer to Note I,  page 47 and 48,  for a
detailed description of Non-Interest Income and Non-Interest Expense.

Salaries and Benefits

Salaries and benefits  increased  9.3% from $3.1 million in 2001 to $3.4 million
in 2002.  The  2002  increase  reflects  normal  merit  increases  and  employee
incentives  paid  as  a  result  of  the  Company's  strong  earnings  in  2002.
Additionally,   there   continues  to  be   significant   increases  in  workers
compensation and employee medical benefits.  At December 31, 2002 and 2001 total
full-time equivalent employees were 44 and 47 respectively.  Year-end assets per
employee were $4.2 million in 2002 compared to $3.3 million in 2001 and 2000.

                                     Page 18
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<PAGE>



Premises and Equipment

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. Lease income for 2002
totaled  $17,000  compared to lease  income of $16,000 in 2001.  The increase in
premises and equipment expense is the result of the banks continued  emphasis on
investment in technology.

Other Non-interest Expense

Other non-interest  expense increased by 21.0% to $1.8 million in 2002 from $1.5
million in 2001. The increase was the result of a 24.7% increase in professional
fees and a 90.2%  increase  in  advertising.  Professional  fees is the  largest
category of other non-interest expense,  primarily comprised of data processing,
item  processing  and ATM  services,  as well as  accounting,  legal  and  other
professional fees. These services increased by $187,000 to $944,000 in 2002 from
$757,000  in 2001.  This  increase  is the result of the bank  outsourcing  many
functions to keep staffing  costs down and outside  assistance  in  implementing
check  imaging and internet  banking.  Advertising/Marketing  which  includes in
addition to  advertising,  customer  relations,  shareholder  relations,  public
relation,  donations and civic dues was $201,000 in 2002 which increased $95,000
from  $106,000  in  2001.  This is a  result  of the  bank's  greater  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  declined to an effective tax rate of 31.72% in
2002 compared with 34.66% in 2001.

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, 2002,
the Company had  securities  totaling  $9.9 million with a market value of $10.4
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 $3.8 million compared to an amortized cost of
$3.7 million as of December 31, 2002.


                                     Page 19
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<PAGE>



At year end 2002  the  overall  portfolio  had a market  value of $14.3  million
compared  with  an  amortized  cost  of  $13.6  million.  Investment  securities
decreased  38.8% to $13.7  million  from  $22.5  million  in 2001.  The  Company
maintains an investment  portfolio of  securities  rated A or higher by Standard
and Poor's and/or Moody's Investors  Service.  Tax-exempt bonds are occasionally
purchased  without  an A rating.  In the  opinion  of  management,  there was no
investment in  securities at December 31, 2002 that would  constitute a material
credit risk to the Company.

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 41 and 42.

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

                                     Twelve months ended 12/31/02         Twelve months ended 12/31/01

                                     Average     Average                  Average     Average
                                     Balance      Yield                   Balance      Yield

U.S. Treasury securities             $ 2,529     6.0%                     $ 12,280    6.1%
U.S. federal agency issues             1,596     6.1%                        2,019    6.2%
State, county and municipal issues    11,105     7.1%                       11,982    7.1%
Corporate securities                   1,904     6.1%                        2,121    6.2%
                                     -------                              --------

Total investment securities          $17,134     6.7%                     $ 28,402    6.5%
                                     =======                              ========
</TABLE>

Loans

A  comparative  schedule of average  loan  balances is presented in the table on
page 16; year-end balances are presented in Note D to the Consolidated Financial
Statements pages 43 and 44.

Loan  balances,  net of deferred  loan fees at December  31,  2002,  were $128.1
million, an increase of 19.2% over 2001.  Commercial loans,  comprising 69.7% of
the  portfolio,  increased  $17.3  million,  or 23.9% over 2001.  This  increase
represented the primary reason for the overall growth in the portfolio. Included
in commercial  loans are loans made for commercial  purposes and secured by real
estate.

Real  Estate  Construction  loans  increased  $5.6  million,  or 40.7% over 2001
balances.  Consumer loans,  including home equity loans,  decreased  $871,000 or
6.1% over 2001 balances while real estate  mortgage loans declined $1.3 million.
In 1997 the Company offered leasing  opportunities  to small  businesses.  Lease
financing receivables for year end 2002 decreased $167,000 or 49.0%.

Risk Elements

The majority of the Company's  loan activity is with  customers  located  within
Sonoma County.  Approximately 83% of the total loan portfolio is secured by real
estate  located  in the  Company's  service  area (see Note P, on page 56 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.



                                     Page 20
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<PAGE>



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 $30.4 million at December
31, 2002 and $41.9 million at December 31, 2001.

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  $589,000 at December 31, 2002 and
$953,000 at December 31, 2001.

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 $897,000 in non-accrual status at December 31, 2002 and $747,000
at December 31, 2001.  There were  $796,000 in loans 90 days or more past due at
December 31, 2002 and no loans 90 days or more past due at December 31, 2001.

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

                                     Page 21
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<PAGE>



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, 2002, the Company
believes its overall allowance for loan losses is adequate based on its analysis
of conditions at that time.

At December 31, 2002, the allowance for loan losses was $2.8 million, or 2.2% of
year end loans, compared with $2.4 million or 2.2% of year end loans at December
31, 2001.  Net  charge-offs  to average loans  decreased  when compared with the
prior year. The Company  recorded net losses of .02% in 2002 compared to .05% in
2001.  The  continued  low level of  charge-offs  in 2002 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.

Deposits

A comparative  schedule of average deposit balances is presented in the table on
page 16; year-end deposit balances are presented in the table below.

Total  deposits  increased  $22.3 million  (16.2%) in 2002,  to $160.0  million.
Demand  deposits  increased  $6.5 million,  or 20.0% in 2002.  Savings  deposits
increased by $6.2  million,  or 13.8% and interest  bearing  checking  increased
$761,000  or 3.2%  during  2002.  Other  time  deposits  of less  than  $100,000
increased $7.2 million,  or 40.5% and time deposits over $100,000 increased $1.6
million, for an increase of 8.9% over 2001 balances.

The composition of deposits for the years ending December 31, 2002 and 2001 are
as follows:

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


                                        December 31,   Percentage     December 31,   Percentage
                                           2002         of Total           2001       of Total
                                           ----         --------           ----       --------

Interest bearing transaction deposits   $  24,627,589      15.4%      $  23,865,954      17.3%
Savings deposits                           51,802,714      32.4%         45,523,306      33.1%
Time deposits, $100,000 and over           25,018,603      15.6%         17,809,990      12.9%
Other time deposits                        19,778,540      12.4%         18,159,339      13.2%
                                        -------------     -----       -------------     -----
Total interest bearing deposits           121,227,446      75.8%        105,358,589      76.5%
Demand deposits                            38,760,806      24.2%         32,296,390      23.5%
                                        -------------     -----       -------------     -----
Total deposits                          $ 159,988,252     100.0%      $ 137,654,979     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, 2002, the Bank was
required to have minimum Tier I and total risk-based capital ratios of 4% and 8%
respectively. To be well

                                     Page 22
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<PAGE>



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, 2002 was 13.41% and its Tier 1 risk-based capital ratio was 12.15%.
The  Bank's  leverage  ratio was  10.49%.  All the  ratios  exceed  the  minimum
guidelines of 8.00%, 4.00% and 4.00%,  respectively.  The ratios for the Bank at
December 31, 2001,  were 13.07%,  11.81% and 10.38%,  respectively.  The capital
ratios for the Holding  Company at December  31, 2002,  were 13.57%,  12.31% and
10.62%, 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, 2002, $344,600 was purchased and retired. The Company is continuing
to repurchase Sonoma Valley Bancorp stock up to the authorized amount.

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

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 2002,
the Company's liquidity ratio (adjusted liquid assets to deposits and short term
liabilities) was 20.39% compared to 21.08% and 24.27% at year end 2001 and 2000,
respectively.  Management expects that liquidity will remain adequate throughout
2003, 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.


                                     Page 23
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<PAGE>



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 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
forecasts 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 2003 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, 2002
(In thousands)

Variation from a constant rate scenario            $ Change in NII
                  +200bp                           $1,033
                  +100bp                              472
                  -100bp                             (394)

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.

                                     Page 24
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<PAGE>



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.

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, 2002 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 $65.0  million in fixed rate loans over 5 years.  Many  variable
rate credit lines reached  floors in 2002,  and were  reclassified  to the fixed
rate category.  As soon as interest rates increase,  the loans will no longer be
at floors and will reclass back to the floating rate category.

( dollars in thousands)
<TABLE>
<S>                                    <C>        <C>         <C>        <C>       <C>       <C>          <C>

    December 31, 2002                  3 months   12 months   3 years    5 years   15 years  >15 years    Totals
                                       --------   ---------   -------    --------  --------  ---------    ------

    ASSETS:
      Fixed rate investments           $    876   $  2,391    $  5,154   $    317  $  4,033  $    976     $ 13,747
      Variable rate investments                                                                   282          282
      Fixed rate loans                   11,069     16,759       7,524     18,194    44,021     2,782      100,349
      Variable rate loans                26,370         27          11        822         0         0       27,230
      Interest-bearing balances              35                                                                 35
      Fed funds sold                     23,095                                                             23,095
                                       --------   --------    --------   --------  --------  --------     --------

         Interest bearing assets         61,445     19,177      12,689     19,333    48,054     4,040      164,738
                                       ========   ========    ========   ========  ========  ========     ========

    LIABILITIES:
      Interest bearing transaction
      deposits                           24,628                                                             24,628
      Savings deposits                   51,803                                                             51,803
      Time deposits
         Fixed rate >100m                 7,154      8,566       7,891      1,222                           24,833
         Fixed rate <100m                 5,552      7,728       5,687        945                           19,912
         Floating rate >100m                                                                                     0
         Floating rate <100m                 51                                                                 51
      Borrowings                              0                                                                  0
                                       --------   --------    --------   --------  --------  --------     --------

         Interest Bearing Liabilities  $ 89,188   $ 16,294    $ 13,578   $  2,167  $      0  $      0     $121,227
                                       ========   ========    ========   ========  ========  ========     ========


    Rate Sensitivity Gap                (27,743)     2,883        (889)    17,166    48,054     4,040

    Cumulative Rate Sensitivity Gap     (27,743)   (24,860)    (25,749)    (8,583)   39,471    43,511

    Cumulative Position to Total Assets (15.20%)   (13.62%)    (14.10%)    (4.70%)   21.62%    23.83%
</TABLE>





                                     Page 25
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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.


Management's Discussion and Analysis
The Year Ended December 31, 2001 versus December 31, 2000

Summary

Net  earnings  for 2001 were $2.6  million  compared  with $2.2 million in 2000.
Earnings per share for 2001 were $1.85  compared  with $1.57 in 2000.  Return on
average  assets was 1.76% in 2001 compared with 1.62% the previous  year,  while
return on average equity was 17.19% in 2001 and 17.00% for the previous year.

Total assets  reached  $157.4 million in 2001, an 12.1% increase over the $140.4
million at December 31, 2000. Loans increased 16.1% to $107.5 million,  compared
with $92.6 million at year-end 2000. Deposits also increased, growing 11.8% from
$123.1  million  at  year-end  2000 to $137.7  million  at  year-end  2001.  The
loan-to-deposit ratio increased from 75.2% to 78.1%.

Net Interest Income

Net interest  income on a fully tax  equivalent  basis  increased by $398,000 to
$8.6 million in 2001, up 4.9% from 2000 net interest income of $8.2 million. The
net  interest  margin for 2001  decreased  to 6.25% from 6.49% 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 16.

Interest Income

Interest income increased by $265,000 to $11.5  million for a 2.4% gain over the
$11.2 million  realized in 2000. The volume of earning assets  increased by 8.8%
to $137.5  million  from  $126.4  million  in 2000,  while the yield on  average
earning assets declined 52 basis points.

Interest Expense

Interest expense decreased by $133,000 to $2.9 million in 2001 from $3.0 million
in 2000.  The average rate paid on all  interest-bearing  liabilities  decreased
from 3.23% in 2000 to 2.89% in 2001 while average balances  increased from $93.3
million to $99.8  million,  a 7.0% gain over 2000. The gain in volume of average
balances was responsible for a $188,000  increase in interest expense and higher
interest  rates paid resulted in a decrease of $321,000 for a total  decrease of
$133,000. The higher rates paid on interest bearing liabilities is the result of
a raising rate environment.



                                     Page 26
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<PAGE>



Provision for Loan Losses

The  provision  for loan losses was $342,000 in 2001 and  $335,000 in 2000.  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 $47,000 in 2001 and recoveries of
$32,000  in  2000.  The  increase  in  charge-offs   reflects  current  economic
conditions.

Non-interest Income

Non-interest  income  increased  by  46.5% to $1.3  million  from  $893,000  the
previous  year.  The  increase was due to  increases  in all  categories  of non
interest  income with a 45.5%  increase in other non  interest  income,  a 34.2%
increase in service charge on deposit accounts and a 20.1% increase in other fee
income.

Non-interest Expense

Non-interest  expenses  increased 3.2% to $5.2 million in 2001 from $5.1 million
in 2000.  Non-interest  expense  represented  3.5% of  average  total  assets at
December 31, 2001 and 3.7% at December 31, 2000.

Salaries  and  benefits  increased  by 19.2%  from $2.6  million in 2000 to $3.1
million in 2001. The 2001 increase  reflects normal merit increases,  incentives
and other increases in employee benefits.  At December 31, 2001, total full-time
equivalent  employees  were 47  compared to 42 at December  31,  2000.  Year end
assets per employee were $3.3 million in 2001 and 2000.

Expenses  related to premises  and  equipment  decreased  by 3.3% to $586,000 in
2001,  from  $606,000 in 2000.  Building  lease  expense on three  locations and
storage units increased to $265,000 in 2001 from $260,000 in 2000.

Other non-interest expenses decreased by 17.8% to $1.5 million in 2001 from $1.8
million in 2000.  The decrease was primarily  the result of a 22.3%  decrease in
professional   fees.   Professional  fees  is  the  largest  category  of  other
non-interest  expense,  primarily comprised of data processing,  item processing
and ATM services,  as well as  accounting,  legal and other  professional  fees.
These services  decreased by $217,000 to $757,000 in 2001 from $973,000 in 2000.
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 34.66% in
2001 compared with 34.45% in 2000.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

Information regarding Quantitative and Qualitative Disclosures about Market Risk
appears on page 23 through 25 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.



                                     Page 27
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<PAGE>



Item 8.  Financial Statements and Supplementary Data

For  consolidated  financial  statements  of the  Company  and  Subsidiary,  see
consolidated  balance  sheets as of  December  31,  2002 and 2001,  consolidated
statements of operations,  consolidated  statements of changes in  shareholders'
equity  and  consolidated  statements  of cash flows for the three  years  ended
December 31, 2002, 2001 and 2000 and notes to consolidated  financial statements
at pages 29 through 62 of this annual report.

Item 9. Changes On and Disagreement With Accountants on Accounting and Financial
         Disclosure

None


                                     Page 28
--------------------------------------------------------------------------------

<PAGE>













                         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,  2002 and 2001,  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, 2002.
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, 2002 and 2001,  and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
three years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.


                                                       /s/ Richardson & Company


January 29, 2003

                                     Page 29
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2001
<TABLE>
<S>                                                                 <C>                  <C>


                                                                            2002               2001
                                                                     ---------------     ---------------
ASSETS
    Cash and due from banks                                          $     8,422,599     $     7,150,662
    Federal funds sold                                                    23,095,000          13,250,000
                                                                     ---------------     ---------------
                            Total cash and cash equivalents               31,517,599          20,400,662
    Investment securities available-for-sale, at fair value                3,823,259          10,668,970
    Investment securities held-to-maturity ( fair value
        of $10,440,453 and $12,142,652, respectively)                      9,923,737          11,795,980
    Loans and lease financing receivables, net                           125,269,181         105,032,209
    Premises and equipment, net                                              875,697             620,652
    Accrued interest receivable                                              799,282             952,061
    Cash surrender value of life insurance                                 7,387,712           5,030,531
    Other assets                                                           3,006,260           2,849,139
                                                                     ---------------      --------------

                                               Total assets          $   182,602,727      $  157,350,204
                                                                     ===============      ==============
LIABILITIES
    Noninterest-bearing demand deposits                              $   38,760,806       $   32,296,390
    Interest-bearing transaction deposits                                24,627,589           23,865,954
    Savings and money market deposits                                    51,802,714           45,523,306
    Time deposits, $100,000 and over                                     25,018,603           17,809,990
    Other time deposits                                                  19,778,540           18,159,339
                                                                     --------------       --------------
                                             Total deposits             159,988,252          137,654,979
    Accrued interest payable
        and other liabilities                                             3,374,165            3,024,163
                                                                     ---------------      --------------
                                          Total liabilities              163,362,417         140,679,142
    Commitments and contingencies ( see accompanying notes )

SHAREHOLDERS' EQUITY
    Common stock, no par value; 10,000,000 shares
        authorized; 1,401,146 shares in 2002 and 1,333,504 in
        2001 issued and outstanding                                       12,936,225          11,025,885
    Retained earnings                                                      6,215,790           5,483,779
    Accumulated other comprehensive income                                    88,295             161,398
                                                                     ---------------      --------------
                                 Total shareholders' equity               19,240,310          16,671,062
                                                                     ---------------      --------------
                 Total liabilities and shareholders' equity          $   182,602,727      $  157,350,204
                                                                     ===============      ==============
</TABLE>


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



                                     Page 30
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

              For the years ended December 31, 2002, 2001 and 2000

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


                                                                                 2002             2001           2000
                                                                           ------------     ------------     ------------
INTEREST INCOME
    Loans and leases                                                       $  9,470,998     $  9,251,314     $  8,588,054
    Taxable securities                                                          378,511        1,013,330        1,441,452
    Tax-exempt securities                                                       512,708          552,110          539,863
    Federal funds sold                                                          216,362          286,083          294,165
    Dividends                                                                    15,227           15,812           21,682
                                                                           ------------     ------------     ------------
                                                 Total interest income       10,593,806       11,118,649       10,885,216
INTEREST EXPENSE
    Interest-bearing transaction deposits                                        84,241          149,078          203,767
    Savings and money market deposits                                           655,841          996,864        1,016,445
    Time deposits, $100,000 and over                                            674,089          844,351          830,920
    Other time deposits                                                         546,543          885,322          946,805
    Other                                                                                          7,221           17,579
                                                                           ------------      -----------     ------------
                                                Total interest expense        1,960,714        2,882,836        3,015,516
                                                                           ------------      -----------     ------------
           NET INTEREST INCOME                                                8,633,092        8,235,813        7,869,700
    Provision for loan and lease losses                                         393,000          342,000          335,000
                                                                           ------------      -----------     ------------
                                             NET INTEREST INCOME AFTER
                                                PROVISION FOR LOAN AND
                                                          LEASE LOSSES        8,240,092        7,893,813        7,534,700
NON-INTEREST INCOME                                                           1,641,191        1,309,315          892,701
NON-INTEREST EXPENSE
  Salaries and employee benefits                                              3,437,390        3,143,911        2,636,374
  Premises and equipment                                                        618,029          585,748          606,044
  Other                                                                       1,806,954        1,494,285        1,818,221
                                                                           ------------      -----------     ------------
                                            Total non-interest expense        5,862,373        5,223,944        5,060,639
                                                                           ------------      -----------     ------------
                                               Income before provision
                                                      for income taxes        4,018,910        3,979,184        3,366,762
  Provision for income taxes                                                  1,274,577        1,378,940        1,160,052
                                                                           ------------      -----------     ------------

                                                            NET INCOME     $  2,744,333     $  2,600,244     $  2,206,710
                                                                           ============     ============     ------------

                                                  NET INCOME PER SHARE     $       1.97      $      1.85     $       1.57
                                                                           ============      ===========     ============
                                                  NET INCOME PER SHARE
                                                     ASSUMING DILUTION     $       1.80      $      1.74     $       1.52
                                                                           ============      ===========     ============
</TABLE>


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


                                     Page 31
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              For the years ended December 31, 2002, 2001 and 2000


<TABLE>
<S>                             <C>                 <C>             <C>             <C>             <C>               <C>
                                                                                                      Accumulated
                                                                                                         Other
                                Comprehensive               Common Stock              Retained       Comprehensive
                                   Income             Shares           Amount         Earnings          Income              Total
                                -----------        ---------       -----------     ------------     ------------      -------------
BALANCE AT
   JANUARY 1, 2000                                  1,230,161       $ 8,534,744     $  3,671,578     $  (151,644)      $ 12,054,678

5% stock dividend                                      60,605         1,068,160       (1,068,160)
Fractional shares                                                                         (7,912)                            (7,912)
Redemption and retirement
  of stock                                            (14,168)          (91,667)        (160,665)                          (252,332)
Stock options exercised and
   related tax benefits                                 5,082            73,766                                              73,766
Net income for the year         $  2,206,710                                           2,206,710                          2,206,710
Other comprehensive income,
  net of tax:
  Unrealized holding gains
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $161,088                      230,336
                                ------------
Other comprehensive income,
  net of taxes                       230,336                                                              230,336           230,336
                                ------------        ---------       -----------     ------------      -----------      ------------

Total comprehensive income      $  2,437,046
                                ============

BALANCE AT
  DECEMBER 31, 2000                                 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
  related tax benefits                                 16,437           266,229                                            266,229
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
    the year, net of taxes
    of $57,842                        82,706
                                ------------
Other comprehensive income,
  net of taxes                        82,706                                                              82,706             82,706
                                ------------        ---------       -----------     ------------     -----------       ------------
Total comprehensive income      $  2,682,950
                                ============
</TABLE>
(Continued)

                                     Page 32
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<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)

              For the years ended December 31, 2002, 2001 and 2000

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

                                                                                                     Accumulated
                                                                                                        Other
                                Comprehensive       Common          Stock           Retained         Comprehensive
                                   Income           Shares          Amount          Earnings            Income         Total
                                -------------      ---------       ------------    ------------     -------------     ------------

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 losses
    on securities available-
    for-sale arising during
    the year, net of taxes
    of $51,125                       (73,103)
                                -------------
Other comprehensive income,
  net of taxes                       (73,103)                                                             (73,103)         (73,103)
                                -------------      ---------       ------------    ------------     -------------     ------------

Total comprehensive income      $  2,671,230
                                =============


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


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

                                     Page 33
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<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

              For the years ended December 31, 2002, 2001 and 2000



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

                                                               2002              2001             2000
                                                           -----------       -----------      -----------
OPERATING ACTIVITIES
    Net income                                             $ 2,744,333       $ 2,600,244      $ 2,206,710
    Adjustments to reconcile net income
        to net cash provided by operating activities:
            Provision for loan and lease losses                393,000           342,000          335,000
            Depreciation                                       144,659           142,683          150,492
            Loss on sale of securities                           5,098
            Loss on sale of equipment                                                              12,029
            Amortization and other                              43,971            71,782           93,539
            Net change in interest receivable                  152,779           199,863         (116,331)
            Net change in cash surrender value
               of life insurance                              (265,181)         (113,227)         (73,567)
            Net change in other assets                         (63,800)         (111,557)        (832,950)
            Net change in interest payable
               and other liabilities                           350,001            69,505          616,358
                                                           -----------       -----------      -----------
                                 NET CASH PROVIDED BY
                                 OPERATING ACTIVITIES        3,504,860         3,201,293        2,391,280
INVESTING ACTIVITIES
    Purchases of securities held-to-maturity                                  (1,129,886)      (3,179,416)
    Purchases of securities available-for-sale                (540,547)                        (3,219,376)
    Proceeds from maturing securities held-to-
        maturity                                             1,841,141         1,472,700        1,832,000
    Proceeds from maturing securities available-
        for-sale                                             7,000,000        10,550,000        1,215,000
    Proceeds from sales of securities available-
        for-sale                                               244,063                          2,915,968
    Net increase in loans and leases                       (20,629,972)      (14,910,204)     (12,432,526)
    Purchases of premises and equipment                       (399,704)         (156,037)        (226,378)
    Purchases of life insurance                             (2,092,000)       (3,000,000)        (450,000)
    Proceeds from disposal of equipment                                                            19,700
                                                           -----------       -----------      -----------
                                 NET CASH USED FOR
                                 INVESTING ACTIVITIES      (14,577,019)       (7,173,427)     (13,525,028)
</TABLE>


                                  (Continued)


                                     Page 34
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

              For the years ended December 31, 2002, 2001 and 2000

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

                                                                2002              2001             2000
                                                            ------------     ------------     -----------
FINANCING ACTIVITIES
    Net change in demand, interest-bearing
        transaction and savings deposits                    $ 13,505,460     $ 13,692,323     $ 6,043,892
    Net change in time deposits                                8,827,814          866,584       1,864,642
    Stock repurchases                                           (344,602)        (571,408)       (252,332)
    Stock options exercised                                      214,375          214,858          61,602
    Fractional shares purchased                                  (13,951)         (11,955)         (7,912)
                                                            ------------   --------------     -----------
                              NET CASH PROVIDED BY
                              FINANCING ACTIVITIES            22,189,096       14,190,402       7,709,892
                                                            ------------   --------------     -----------

                            NET CHANGE IN CASH AND
                            CASH EQUIVALENTS                  11,116,937       10,218,268      (3,423,856)
    Cash and cash equivalents
        at beginning of year                                  20,400,662       10,182,394      13,606,250
                                                            ------------      -----------    ------------
                         CASH AND CASH EQUIVALENTS
                         AT END OF YEAR                     $ 31,517,599     $ 20,400,662     $10,182,394
                                                            ============      ===========     ===========

SUPPLEMENTAL DISCLOSURES OF
    CASH FLOW INFORMATION:

Cash paid during the year for:
     Interest expense                                       $  1,965,215     $  2,920,348     $ 2,994,750
     Income taxes                                           $  1,663,975     $  1,556,000     $ 1,849,000

SUPPLEMENTAL DISCLOSURES OF
     NONCASH ACTIVITIES:

Stock dividend                                              $  1,775,026     $  1,381,976     $ 1,068,160
Net change in unrealized gains and losses
     on securities                                          $   (124,228)    $    140,548     $   391,425
Net change in deferred income taxes on unrealized
     gains and losses on securities                         $     51,125     $    (57,842)    $  (161,089)
</TABLE>


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


                                     Page 35
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<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2002, 2001 and 2000

NOTE A--SIGNIFICANT ACCOUNTING POLICIES

Business:  During  2000,  the  shareholders  of Sonoma  Valley  Bank (the  Bank)
approved a Plan of Reorganization  and Merger Agreement,  which provided for the
formation of Sonoma Valley  Bancorp (the  Bancorp) (a bank holding  company) and
the conversion of each share of outstanding  Bank common stock into one share of
no par value  Bancorp  common  stock.  Effective  November 1, 2000,  the Bancorp
issued  1,281,680  shares of its common stock for all of the outstanding  common
stock of the Bank  through a merger  which has been  accounted  for similar to a
pooling  of  interests  in that the  historical  cost basis of the Bank has been
carried  forward.  As a result of the merger,  the Bank became the wholly  owned
subsidiary of the Bancorp.

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.

                                     Page 36
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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  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

                                 Page 37
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000

NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

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.



                                     Page 38
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Stock Option  Accounting:  At December 31, 2002 the Bancorp has two  stock-based
employee and director compensation plans, which are described more fully in Note
M. The Bancorp  accounts for those plans 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,  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 FASB Statement
No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.


<TABLE>
<S>                                                             <C>             <C>            <C>
                                                                   2002            2001          2000
                                                                -----------     -----------    -----------

    Net Income, as reported                                     $ 2,744,333     $ 2,600,244    $ 2,206,710
    Deduct: Total stock-based compensation expense
      determined under fair value based method for all
      awards, net of related tax effects                           (185,919)       (179,899)      (179,899)
                                                                -----------     -----------    -----------
    Pro forma net income                                        $ 2,558,414     $ 2,420,345    $ 2,026,811
                                                                ===========     ===========    ===========

Net income per share:
    Basic - As reported                                                1.97            1.85           1.57
    Basic - Pro forma                                                  1.83            1.72           1.44
    Diluted - As reported                                              1.80            1.74           1.52
    Diluted - Pro forma                                                1.68            1.62           1.39
</TABLE>


In December 2002 the Financial  Accounting  Standards Board issued SFAS No. 148,
Accounting  for Stock- Based  Compensation,  an Amendment of SFAS No. 123 ("SFAS
No. 123") in an effort to encourage the recognition of compensation  expense for
the issuance of stock options.  Sonoma Valley Bancorp  expects to adopt SFAS No.
148 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

                                     Page 39
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE A--SIGNIFICANT ACCOUNTING POLICIES (Continued)

January 1, 2003 will be recognized in the income statement. The unvested portion
of stock  option  grants  issued  before  January  1, 2003 will  continue  to be
accounted  for under APB No. 25.  SFAS No.  148 also  requires  new  disclosures
regarding the cost of stock options not accounted for under SFAS No.148.

The adoption of SFAS No. 148 will reduce Sonoma Valley  Bancorp's net income and
earnings per share.  The future  amount of this  reduction  is dependent  upon a
number of factors, including the number of options granted and certain variables
used in  determining  the "fair value" of each option  granted under the "Black-
Scholes"  model.  These  variables  include  the  volatility  of  Sonoma  Valley
Bancorp's stock price,  Sonoma Valley Bancorp's dividend yield,  market interest
rates and the expected life of the options.  The actual compensation  ultimately
realized by option  holders is determined at the time of exercised  based on the
differential  between the options exercise price and the current market value of
Sonoma Valley Bancorp stock.

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.

Reclassifications: Certain reclassifications have been made to the 2001 balances
to conform to the current  presentation.  Federal  Home Loan Bank stock has been
reclassified from investment securities available-for- sale to other assets.

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, 2002 and 2001 was $2,886,000 and
$2,337,000, respectively.


                                     Page 40
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE C--INVESTMENT SECURITIES

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



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

                                           Amortized       Unrealized       Unrealized          Fair
                                              Cost           Gains           Losses             Value
                                        ------------      ------------     -----------      -------------
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
                                        ============      ============     ===========       ============

December 31, 2001:

Securities Available-for-Sale
    U.S. Treasury securities            $  7,005,118      $    110,842                       $  7,115,960
    U.S. Government agency
        securities                         1,495,960            96,070                          1,592,030
    Corporate securities                   1,893,618            67,362                          1,960,980
                                        ------------      ------------     -----------       ------------

                                        $ 10,394,696      $    274,274     $                 $ 10,668,970
                                        ============      ============     ===========       ============

Securities Held-to-Maturity
    Municipal securities                $ 11,795,980      $    375,773     $   (29,101)      $ 12,142,652
                                        ------------      ------------     -----------       ------------

                                        $ 11,795,980      $    375,773     $   (29,101)      $ 12,142,652
                                        ============      ============     ===========       ============
</TABLE>


                                     Page 41
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE C--INVESTMENT SECURITIES (Continued)

Contractual maturities of investment securities at December 31, 2002 were as
follows:
<TABLE>
<S>                             <C>            <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         $    750,562   $     756,455     $   2,511,232  $  2,556,087
Due after one year through
   five years                      2,922,652       3,066,804         2,404,164     2,521,632
Due after five years through
   ten years                                                         1,700,768     1,834,720
Due after ten years                                                  3,307,573     3,528,014
                                ------------   -------------     -------------  ------------

                                $  3,673,214   $   3,823,259     $  9,923,737   $ 10,440,453
                                ============   =============     =============  ============
</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 2001, the Bancorp did not sell any
securities   available-for-sale.   During  2000,  the  Bancorp  sold  securities
available-for- sale for total proceeds of approximately $2,687,482, resulting in
gross realized losses of approximately $97,186 and no gross realized gains.

As of  December  31,  2002,  investment  securities  with a  carrying  amount of
$5,332,794  and an  approximate  fair  value  of  $5,677,085  were  pledged,  in
accordance  with  federal  and state  requirements,  as  collateral  for  public
deposits.  Investment  securities  with a  carrying  amount  and  fair  value of
$1,720,596  at December  31, 2002 were pledged to meet the  requirements  of the
Federal Reserve and the U.S. Department of Justice.

                                     Page 42
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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>
<S>                                     <C>                <C>       <C>                <C>

                                                  2002                        2001
                                        ------------------------     -----------------------


Commercial                              $   89,507,230     69.7%     $   72,239,607     66.9%
Consumer                                    13,374,774     10.4%         14,246,442     13.2%
Real estate mortgage                         5,911,082      4.6%          7,237,000      6.7%
Real estate construction                    19,507,906     15.2%         13,864,265     12.9%
Lease financing receivables, net of
   unearned income of $33,781
   in 2002 and $70,764 in 2001                 174,409      0.1%            340,714      0.3%
                                        --------------    ------     --------------    -----

                                           128,475,401    100.0%        107,928,028    100.0%
                                                          =====                        =====

Deferred loan fees and costs, net             (424,258)                    (480,264)
Allowance for loan and lease losses         (2,781,962)                  (2,415,555)
                                        --------------                -------------

                                        $  125,269,181                $ 105,032,209
                                        ==============                =============
</TABLE>

At December 31, 2002, the recorded  investment in loans for which impairment has
been recognized in accordance with Statement of Financial  Accounting  Standards
(Statement) No. 114 totaled $164,000,  with a corresponding  valuation allowance
of $17,000.  At December 31, 2001,  the recorded  investment  in loans for which
impairment  has been  recognized  in accordance  with  Statement No. 114 totaled
$178,000,  with a corresponding  valuation  allowance of $25,000.  For the years
ended  December 31, 2002,  2001 and 2000,  the average  recorded  investment  in
impaired loans was approximately $143,000, $192,000 and $220,000,  respectively.
During 2002, $2,000 of interest was received and recognized on an impaired loan.
No interest was recognized on impaired loans during 2001 or 2000.

In  addition,  at December 31, 2002 and 2001,  the Bancorp had other  nonaccrual
loans of approximately $801,700 and $624,200, 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.


                                     Page 43
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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:

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


                                               2002               2001
                                           -------------     ---------------
Fixed rate loan maturities
    Three months or less                   $   7,311,329     $     4,331,247
    Over three months to twelve months        10,216,291          12,442,102
    Over one year to five years               25,726,170          16,285,410
    Over five years                           29,032,374          26,357,034
Floating rate loans repricing
    Quarterly or more frequently              54,271,273          45,082,138
    Quarterly to annual frequency                273,285             685,182
    One to five years frequency                  748,138           1,998,052
                                            ------------     ---------------
                                             127,578,860         107,181,165
Nonaccrual loans                                 896,541             746,863
                                           -------------     ---------------

                                           $ 128,475,401     $   107,928,028
                                           =============     ===============
</TABLE>

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

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

                                             2002              2001            2000
                                        -------------     -------------    -------------

Beginning balance                       $   2,415,555     $   2,120,517    $   1,753,894
Provision for loan and lease losses           393,000           342,000          335,000
Loans charged off:
     Commercial                               (10,741)          (44,345)
     Consumer                                 (34,872)          (31,680)         (19,440)
                                        -------------     -------------    -------------
                                              (45,613)          (76,025)         (19,440)
Recoveries:
     Commercial                                 9,474            10,363           38,181
     Consumer                                   9,546            18,700           12,882
                                        -------------     -------------    -------------
                                               19,020            29,063           51,063
                                        -------------     -------------    -------------

Ending balance                          $    2,781,962    $   2,415,555    $   2,120,517
                                        ==============    =============    =============
</TABLE>


                                     Page 44
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE E--PREMISES AND EQUIPMENT

Premises and equipment consisted of the following at December 31:
<TABLE>
<S>                                        <C>              <C>


                                            2002                  2001
                                            -----------     ------------

Land                                       $    175,000     $    175,000
Building                                         71,943           71,943
Leasehold improvements                          418,802          199,512
Furniture, fixtures and equipment             1,306,225        1,125,811
                                           ------------     ------------
                                              1,971,970        1,572,266
Less: Accumulated depreciation               (1,096,273)        (951,614)
                                           ------------     ------------

                                           $    875,697     $    620,652
                                           ============     ============
</TABLE>



NOTE F--TIME DEPOSITS

The maturities of time deposits at December 31, 2002 are as follows:
<TABLE>
<S>                                                         <C>

         Maturing within one year                           $ 29,050,000
         Maturing in one year to two years                     7,834,000
         Maturing two years through five years                 6,310,000
         Maturing after five years                             1,603,000
                                                            ------------

                                                            $ 44,797,000
                                                            ============
</TABLE>


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 $15,500,000 at
December 31, 2002. The Bancorp pledged loans totaling  $22,594,531 as collateral
to secure advances from the Federal Home Loan Bank of up to  $12,767,110.  There
were no  borrowings  outstanding  under the  agreements  at December 31, 2002 or
2001.




                                     Page 45
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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  the first day of the month  following six months of
employment. Bancorp contributions are 100% vested at all times. The Bancorp made
contributions totaling $77,913 in 2002, $60,845 in 2001 and $64,019 in 2000.

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, 2002 and 2001,  the cash
surrender   value  of  these  policies   totaled   $7,387,712  and   $5,030,531,
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, 2002 and 2001,  the liability  recorded
for the executive officer  supplemental  retirement plan totaled  $1,223,570 and
$898,205  respectively.  The amount of pension  expense related to this plan for
2002 and 2001 was $325,365 and $233,124  respectively.  The director  retirement
plan was  established  during 2002 and a liability was recorded  during the year
totaling $208,600. At December 31, 2002 and 2001, the liability recorded for the
deferred  compensation  plan totaled  $849,600 and $696,000,  respectively.  The
amount  of  expense  related  to this  plan for 2002  and 2001 was  $74,400  and
$60,300,  respectively.  The  following are the  components  of the  accumulated
benefit obligation related to the executive officer supplemental retirement plan
as of December 31:

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

                                                                   2002         2001
                                                              -----------     ---------

    Projected benefit obligation                              $ 1,032,706     $ 609,162
    Unamortized net transition obligation                         190,864       289,043
                                                              -----------     ---------

          Pension liability included in other liabilities     $ 1,223,570     $ 898,205
                                                              ===========     =========
</TABLE>

The  weighted-average  discount rate used in determining  the actuarial  present
value of the projected benefit obligation was 7.5% for 2002 and 2001. The entire
accumulated benefit obligation was fully vested at December 31, 2002 and 2001.


                                     Page 46
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE H--EMPLOYEE BENEFIT PLANS (Continued)

The following is a  reconciliation  of the beginning and ending  balances of the
pension  liability and the components of net pension expense for the years ended
December 31:

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

                                                                      2002           2001
                                                                  -----------     ---------
    Pension liability at beginning of year                        $   898,205     $ 665,081
    Net periodic pension expense:
        Service cost                                                  302,632       238,323
        Interest cost on projected benefit obligation                  66,189        42,517
        Amortization of unrecognized liability at transition          (43,456)      (47,716)
                                                                  -----------     ---------
                                                                      325,365       233,124
                                                                  -----------     ---------

                             Pension liability at end of year     $ 1,223,570     $ 898,205
                                                                  ===========     =========
</TABLE>


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>
<S>                                      <C>             <C>             <C>

                                            2002            2001          2000
                                         -----------     -----------     ----------

Service charges on deposit accounts      $   964,198     $   930,171     $   692,639
Other fee income                             312,121         251,042         209,418
Investment securities gains (losses)          (5,098)                        (97,186)
Life insurance earnings                      357,181         113,227          73,567
Other ( none exceeding 1% of revenues )       12,789          14,875          14,263
                                         -----------     -----------     -----------

                                         $ 1,641,191     $ 1,309,315     $   892,701
                                         ===========     ===========     ===========
</TABLE>


                                     Page 47
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE I--NON-INTEREST INCOME AND OTHER NON-INTEREST EXPENSE (Continued)

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

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

                                                 2002           2001            2000
                                            ----------     -----------     -----------

Professional and consulting fees            $  477,830     $   287,471     $   513,706
Data processing                                465,946         469,750         459,559
Stationary and supplies                        159,909         158,335         159,886
Staff related                                  158,707         104,092         148,724
Advertising and business development           200,848         105,614         139,926
Postage and telephone                          122,408         116,879         110,093
Assessments and insurance                       83,633          79,042          79,972
Other ( none exceeding 1% of revenues)         137,673         173,102         206,355
                                           -----------     -----------     -----------

                                           $ 1,806,954     $ 1,494,285     $ 1,818,221
                                           ===========     ===========     ===========
</TABLE>



 NOTE J--INCOME TAXES

The provision for income taxes is comprised of the following:
<TABLE>
<S>                                        <C>             <C>             <C>


                                                2002           2001             2000
                                           -----------     -----------     -----------
Current
     Federal                               $ 1,100,218     $ 1,008,534     $ 1,112,326
     State                                     437,893         409,376         449,287
                                           -----------     -----------     -----------
                                             1,538,111       1,417,910       1,561,613
Deferred
    Federal                                   (222,552)        (50,778)       (311,409)
    State                                      (40,982)         11,808         (90,152)
                                           -----------     -----------     -----------
                                              (263,534)        (38,970)       (401,561)
                                           -----------     -----------     ------------

                                           $ 1,274,577     $ 1,378,940     $ 1,160,052
                                           ===========     ===========     ===========
</TABLE>








                                     Page 48
--------------------------------------------------------------------------------
<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE J--INCOME TAXES (Continued)

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>
<S>                                                <C>             <C>             <C>

                                                       2002            2001           2000
                                                   -----------     -----------     -----------

  Income tax at Federal statutory rate             $ 1,366,429     $ 1,352,923     $ 1,144,699
      State franchise tax, less Federal
            income tax benefit                         287,529         284,687         240,872
      Interest on municipal obligations exempt
            from Federal tax                          (230,100)       (221,062)       (198,144)
      Life insurance earnings                         (146,996)        (46,598)        (30,276)
      Meals and entertainment                            7,412           7,283           5,191
      Other differences                                 (9,697)         (1,707)         (2,290)
                                                   -----------     -----------     -----------

  Provision for income taxes                       $ 1,274,577     $ 1,378,940     $ 1,160,052
                                                   ===========     ===========     ===========
</TABLE>

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>
<S>                                                <C>             <C>             <C>

                                                      2002             2001            2000
                                                   -----------     ------------    ------------
Deferred tax assets:
    Allowance for loan losses                      $ 1,012,030     $    877,944    $   753,634
    Nonqualified benefit plans                         917,768          719,760        526,215
    Accrued liabilities                                249,827          280,367        474,744
    State franchise taxes                              148,884          139,188        152,758
    Other                                               45,118           27,186         28,984
                                                    ----------     ------------    -----------
                  Total deferred tax assets          2,373,627        2,044,445      1,936,335

Deferred tax liabilities:
    Unrealized securities holding gains                 61,750          112,876         55,034
    Depreciation                                        46,285           19,308          9,666
    Other                                               35,565           29,392         24,820
                                                   -----------     ------------    -----------
             Total deferred tax liabilities            143,600          161,576         89,520
                                                   -----------     ------------    -----------


                     Net deferred tax asset        $ 2,230,027      $ 1,882,869    $ 1,846,815
                                                   ===========      ===========    ===========
</TABLE>




                                     Page 49
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE J--INCOME TAXES (Continued)

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  $147,486  and  $389,855 at December 31, 2002 and
2001, respectively. The income tax benefit related to net investment losses were
$2,098 and $39,996 during 2002 and 2000.  There were no net investment  gains or
losses in 2001.


NOTE K--STOCK REPURCHASE

The Bancorp has in effect a program to repurchase Sonoma Valley Bancorp stock up
to $2 million. As of December 31, 2002, $916,010 was repurchased.


NOTE L--EARNINGS PER SHARE

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

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

                                                   2002            2001            2000
                                               -----------     -----------     -----------
Basic:
Net income                                     $ 2,744,333     $ 2,600,244     $ 2,206,710
                                               ===========     ===========     ===========
Weighted-average common shares outstanding       1,395,679       1,404,486       1,409,908
                                               ===========     ===========     ===========
Earnings per share                             $      1.97     $      1.85     $      1.57
                                               ===========     ===========     ===========
</TABLE>



                                     Page 50
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000

NOTE L--EARNINGS PER SHARE (Continued)

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

                                                            2002           2001             2000
                                                        -----------     -----------     -----------
Diluted:
Net income                                              $ 2,744,333     $ 2,600,244     $ 2,206,710
                                                        ===========     ===========     ===========
Weighted-average common shares outstanding                1,395,679       1,404,486       1,409,908
Net effect of dilutive stock options - based on the
    treasury stock method using average market
    price                                                   125,169          90,268          45,942
                                                        -----------     -----------     -----------
Weighted-average common shares outstanding
    and common stock equivalents                          1,520,848       1,494,754       1,455,850
                                                        ===========     ===========     ===========
Earnings per share- assuming dilution                   $      1.80     $      1.74     $      1.52
                                                        ===========     ===========     ============
</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 432,404
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  2,942 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 73,055 of  incentive  options and 141,193 of  nonstatutory
options granted in April 1999, which are subject to a graded vesting schedule of
20% per year. In 2002, 1,050 options were granted and no options were granted in
2001 or 2000.

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 78,448 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.



                                     Page 51
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000

NOTE M--STOCK OPTION PLAN (Continued)

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 years ended December 31:
<TABLE>
<S>                             <C>                <C>         <C>                <C>         <C>                <C>

                                                                    Incentive Stock Options
                                ----------------------------------------------------------------------------------------
                                           2002                            2001                             2000
                                --------------------------     --------------------------     --------------------------

                                   Weighted-                       Weighted-                     Weighted-
                                    Average                         Average                       Average
                                Exercise Price      Shares     Exercise Price      Shares     Exercise Price     Shares
                                --------------     -------     --------------     --------    --------------     -------
Shares under option at
     beginning of year             $ 12.89         126,190           $ 12.90      128,748         $  12.90       128,748
Options granted                      22.86           1,050
Options exercised                    12.92         (16,596)            13.47       (2,558)
Options cancelled                    12.55          (2,431)
                                                   -------                        -------
Shares under option at
     end of year                     12.98         108,213             12.89      126,190            12.90       128,748
                                                   =======                        =======                        =======

Options exercisable at
     end of year                                    90,174                         88,192                         73,219
Weighted-average fair value
     of options granted during
     the year                      $ 10.23
</TABLE>

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

                                                                   Nonstatutory Stock Options
                                ----------------------------------------------------------------------------------------
                                     2002                          2001                           2000
                                --------------------------     -------------------------      --------------------------
                                   Weighted-                     Weighted-                      Weighted-
                                    Average                       Average                        Average
                                Exercise Price     Shares      Exercise Price      Shares      Exercise Price     Shares
                                --------------     -------     --------------     -------     --------------     -------
Shares under option at
     beginning of year             $ 12.44         214,729         $  12.43       229,435           $ 12.38      235,318
Options exercised                                                     12.27       (14,706)            10.47       (5,883)
                                                   -------                        -------                        -------
Shares under option at
     end of year                     12.44         214,729            12.44       214,729             12.43      229,435
                                                   =======                        =======                        =======

Options exercisable at
     end of year                                   155,901                        126,465                        111,776
</TABLE>



                                     Page 52
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE M--STOCK OPTION PLAN (Continued)

The following table summarizes information about fixed stock options outstanding
at December 31, 2002:

                               Options Outstanding

                                          Weighted-Average
   Range of                  Number          Remaining         Weighted-Average
Exercise Prices           Outstanding     Contractual Life     Exercise Price
---------------           -----------     ----------------     --------------
$ 8.60 to $10.28               37,170           4.26 years           $   9.08
$12.34 to $12.55              240,720           6.28 years              12.53
$15.32 to $16.97               44,002           5.18 years              15.87
$22.86                          1,050           9.42 years              22.86
                          -----------

$8.60 to  $22.86              322,942           5.95 years              12.62
                          ===========

                                              Options Exercisable

   Range of                 Number                             Weighted-Average
Exercise Prices           Exercisable                          Exercise Price
---------------           -----------                          --------------
$ 8.60 to $10.28               37,170                                $   9.08
$12.34 to $12.55              163,853                                   12.52
$15.32 to $16.97               44,002                                   15.87
$22.86                          1,050                                   22.86
                          -----------

$ 8.60 to $22.86              246,075                                   12.64
                          ============


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, 2002 and 2001:



                                     Page 53
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE N--RELATED PARTY TRANSACTIONS (Continued)
<TABLE>
<S>                                        <C>              <C>


                                                 2002           2001
                                           ------------     -----------

Loans outstanding at beginning of year     $  2,236,000     $ 2,423,000
Loans disbursements                           2,723,000         770,000
Loan repayments                                (352,000)       (957,000)
                                           ------------     -----------

Loans outstanding at end of year           $  4,607,000     $ 2,236,000
                                           ============     ===========
</TABLE>

At December 31, 2002, commitments to related parties of approximately $1,289,000
were  undisbursed.   Deposits  received  from  directors  and  officers  totaled
$5,360,000 and $4,277,000 at December 31, 2002 and 2001, 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,
2002 and  2001 was  $12,172  and  $11,054,  respectively.  The  remaining  lease
commitment  is  approximately  $2,989  through  March 2003  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 and Glen Ellen
office  under   noncancelable   operating   leases  with   remaining   terms  of
approximately  seven years, three years and three months,  respectively.  Two of
the leases  require  adjustments to the base rent for changing price indices and
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  lease has an option to renew for one  additional
five-year term. The following table summarizes future minimum  commitments under
the noncancelable operating leases.
<TABLE>
<S>                                                  <C>

 Year ended December 31:
            2003                                     $   264,572
            2004                                         270,582
            2005                                         261,639
            2006                                         253,071
            2007                                         263,194
            Thereafter                                   415,138
                                                     -----------
                                                     $ 1,728,196
                                                     ===========
</TABLE>

                                     Page 54
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

Rental expense was $278,000 in 2002, $268,000 in 2001 and $260,000 in 2000.

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:
<TABLE>
<S>                                        <C>                <C>

                                                   Contractual Amounts
                                                 2002              2001
                                           --------------     --------------

          Commitments to extend credit     $   30,359,000     $   41,920,000
          Standby letters of credit               589,000            952,500
</TABLE>


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.

The Bancorp has not incurred any losses on its commitments in 2002, 2001 or
2000.



                                     Page 55
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE O--COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

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, 2002 and 2001 was $181,000 and $34,000, 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  83% 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%, 7% and 19%, 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, 2002 the Bancorp had on deposit $9,500,000,
$5,000,000 and $4,950,000 in federal funds sold to three of these  institutions,
which represented 50%, 26% and 26% of the Bancorp's net worth, respectively.  In
addition,  deposits with one  correspondent  bank was in excess of the federally
insured limit by $1,390,645 at December 31, 2002.  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.

At  December  31,  2002,  the  Bancorp  had life  insurance  policies  with cash
surrender  values of $2,155,278  and  $1,772,564  with two insurance  companies,
which  represented  11%  and  9%,  respectively,  of the  Bancorp's  net  worth.
Management  closely  monitors  the  financial  condition  and  rating  of  these
insurance companies on a regular basis.


                                     Page 56
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000

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, 2002,  $5,801,283  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, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.



                                     Page 57
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


NOTE Q--REGULATORY MATTERS (Continued)

As of December 31, 2002, 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>
<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, 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%
                                                           -             -          -            -

As of December 31, 2001:
   Total Capital
        (to Risk Weighted Assets)   $ 17,781     13.1%     >$ 10,884     >8.0%      >$13,605     > 10.0%
                                                           -             -          -            -
   Tier I Capital
        (to Risk Weighted Assets)   $ 16,072     11.8%     >$  5,442     >4.0%      >$  8,163    >  6.0%
                                                           -             -          -            -
   Tier I Capital
        (to Average Assets)         $ 16,072     10.4%     >$  6,195     >4.0%      >$  7,743    >  5.0%
                                                           -             -          -            -
</TABLE>


NOTE R--CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY

A  condensed  balance  sheet as of  December  31,  2002 and 2001 and the related
condensed  statement of operations  and cash flows for the years ended  December
31, 2002 and 2001,  and two months  ended  December  31, 2000 for Sonoma  Valley
Bancorp (parent company only) are presented as follows:



                                     Page 58
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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

                            Condensed Balance Sheets
                           December 31, 2002 and 2001
<TABLE>
<S>                                              <C>              <C>


                                                       2002             2001
                                                 --------------   --------------
Assets
    Cash                                         $      249,432   $      349,706
    Other assets                                         89,551           87,699
    Investment in common stock of subsidiary         18,985,494       16,233,657
                                                 --------------   --------------

                                                 $   19,324,477   $   16,671,062
                                                 ==============   ==============
Liabilities
    Accrued expenses                             $       84,167

Shareholders' equity
    Common stock                                     12,936,225   $   11,025,885
    Retained earnings                                 6,304,085        5,645,177
                                                 --------------   --------------

                                                 $   19,324,477   $   16,671,062
                                                 ==============   ==============
</TABLE>


                       Condensed Statements of Operations
For the years ended December 31, 2002 and 2001 and the
two months ended December 31, 2000

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

                                                         2002                2001             2000
                                                     -------------     -------------     -------------
Dividend from subsidiary                                               $     500,000     $     300,000
Expenses                                             $     125,091            36,620            44,370
                                                     -------------     -------------     -------------

(Loss) income before income taxes and equity in
    undistributed income of subsidiary                    (125,091)          463,380           255,630
Income tax benefit                                          44,483            16,419            19,110
                                                     -------------     -------------      ------------
                                                           (80,608)          479,799           274,740
Equity in undistributed net income of subsidiary         2,824,941         2,120,445           111,750
                                                     -------------     -------------      ------------

Net income                                           $   2,744,333     $   2,600,244      $    386,490
                                                     =============     =============      ============
</TABLE>




                                     Page 59
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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

                       Condensed Statements of Cash Flows
For the years ended December 31, 2002 and 2001 and the
two months ended December 31, 2000

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

                                                                 2002            2001                2000
                                                             ------------     ------------     ------------

Operating activities:
    Net income                                               $  2,744,333     $  2,600,244     $    386,490
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Equity in undistributed net income of subsidiary       (2,824,941)      (2,120,445)        (111,750)
        Increase in other assets                                   40,345          (17,218)         (19,110)
        Net change in total liabilities                            84,167
                                                             ------------     ------------     ------------
            Net cash provided by operating activities              43,904          462,581          255,630
                                                             ------------     ------------     ------------
Financing activities:
    Stock repurchases                                            (344,602)        (571,408)
    Stock options exercised                                       214,375          214,858
    Fractional shares purchased                                   (13,951)         (11,955)
                                                             ------------     ------------
                Net cash used by financing activities            (144,178)        (368,505)

              Net change in cash and cash equivalents            (100,274)          94,076          255,630

       Cash and cash equivalents at beginning of year             349,706          255,630
                                                             ------------     ------------     ------------

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

Supplemental Disclosures of Noncash Activities:
    Stock Dividend                                           $  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.

                                     Page 60
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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>
<S>                                <C>                <C>            <C>                  <C>

                                              2002                                      2001
                                   -----------------------------     ------------------------------

                                                      Estimated                           Estimated
                                     Carrying            Fair           Carrying             Fair
                                      Amount            Value            Amount             Value
Financial assets:                 ------------     -------------     ------------     ------------
     Cash and due from banks      $  8,422,599     $   8,422,599     $  7,150,662     $  7,150,662
     Federal funds sold             23,095,000        23,095,000       13,250,000       13,250,000
     Investment securities
        available- for-sale          3,823,259         3,823,259       10,668,970       10,668,970
     Investment securities held-
        to-maturity                  9,923,737        10,440,453       11,795,980       12,142,652
     Loans and lease financing
        receivables, net           125,269,101       125,970,797      105,032,209      105,660,396
     Accrued interest receivable       799,282           799,282          952,061          952,061
     Cash surrender value of life
        insurance                    7,387,712         7,387,712        5,030,531        5,030,531
Financial liabilities:
     Deposits                      160,079,253       161,011,407      137,654,979      137,977,557
     Accrued interest payable           59,923            59,923           64,423           64,423
</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.



                                     Page 61
--------------------------------------------------------------------------------

<PAGE>



                      SONOMA VALLEY BANCORP AND SUBSIDIARY

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                        December 31, 2002, 2001 and 2000


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.



                                     Page 62
--------------------------------------------------------------------------------

<PAGE>



PART III

Item 10.  Directors and Executive Officers of the Company.

The  information  called for in Item 10 of Part III is incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 11.  Executive Compensation.

The  information  called for in Item 11 of Part III is incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The  information  called for in Item 12 of Part III is incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 13.  Certain Relationships and Related Transactions.

The  information  called for in Item 13 of Part III is incorporated by reference
from  the  definitive  proxy  statement  of the  Company  to be  filed  with the
Securities and Exchange Commission within 180 days from fiscal year end.

Item 14.  Controls and Procedures

Within the 90 days prior to the date of this Form 10-K, the Company  carried out
an evaluation, under the supervision and with the participation of the Company's
management,  including  the  Company's  Chief  Executive  Officer along with the
Company's  Chief  Financial  Officer,  of the  effectiveness  of the  design and
operation  of the  Company's  disclosure  controls  and  procedures  pursuant to
Exchange  Act Rule  13a-14.  Based upon that  evaluation,  the  Company's  Chief
Executive  Officer along with the Company's  Chief Financial  Officer  concluded
that the Company's  disclosure  controls and  procedures are effective in timely
alerting  them to material  information  relating to the Company  required to be
included in this Form 10-K.

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



                                     Page 63
--------------------------------------------------------------------------------

<PAGE>



                                     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:

     Number                                                                 Page

     1.  Independent Auditor's Report ....................................... 29


     2.  Consolidated Balance Sheets as of December 31, 2002 and 2001 ........30

     3.  Consolidated Statements of Operations for the three years ended
         December 31, 2002, 2001 and 2000.....................................31


     4.  Consolidated Statements of Changes in Shareholders' Equity
         for the three years ended December 31, 2002, 2001 and 2000....32 and 33

     5.  Consolidated Statements of Cash Flows for the three years ended
         December 31, 2002, 2001 and 2000..............................34 and 35

     6.  Notes to Consolidated Financial Statements ..........................36

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.



                                     Page 64
--------------------------------------------------------------------------------

<PAGE>



Reports on Form 8-K

     None

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.

10.10Sonoma 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.

10.11Sonoma 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.

23.1 Consent of Richardson and Co., Independent Auditors.

99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

                                     Page 65
--------------------------------------------------------------------------------

<PAGE>



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


                                                           SONOMA VALLEY BANCORP




Date:    March 19, 2003               By:/s/ Mel Switzer, Jr.
                                      -----------------------------------------
                                      Mel Switzer, Jr.
                                      President and
                                      Chief Executive Officer
                                      (Principal Executive Officer)






Date:    March 19, 2003               By:/s/ Mary Quade Dieter
                                      -----------------------------------------
                                      Mary Quade Dieter
                                      Executive Vice President and
                                      Chief Operating Officer
                                      (Principal Finance and Accounting Officer)

                                     Page 66
--------------------------------------------------------------------------------

<PAGE>



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                                        Date: March 19, 2003
----------------------------------------
Suzanne Brangham, Secretary
of the Board and Director

/s/ Dale T. Downing                                         Date: March 19, 2003
-------------------------------------------
Dale T. Downing, Director

/s/ Frederick H. Harland                                    Date: March 19, 2003
-----------------------------------------
Frederick H. Harland, Director

/s/ Robert B. Hitchcock                                     Date: March 19, 2003
-----------------------------------------
Robert B. Hitchcock, Director

/s/ Gerald J. Marino                                        Date: March 19, 2003
--------------------------------------------
Gerald J. Marino, Director

/s/ Gary D. Nelson                                          Date: March 19, 2003
--------------------------------------------
Gary D. Nelson, Director

/s/ Robert J. Nicholas                                      Date: March 19, 2003
-------------------------------------------
Robert J. Nicholas, Chairman
of the Board and Director

/s/ Angelo C. Sangiacomo                                    Date: March 19, 2003
--------------------------------------
Angelo C. Sangiacomo, Director

/s/ Jesse R. Stone                                          Date: March 19, 2003
----------------------------------------------
Jesse R. Stone, Director

/s/ Mel Switzer, Jr.                                        Date: March 19, 2003
---------------------------------------------
Mel Switzer, Jr., Director, President and
Chief Executive Officer
(Principal Executive Officer)

/s/ Harry Weise                                             Date: March 19, 2003
----------------------------------------------
Harry Weise, Director

/s/ Mary Quade Dieter                                       Date: March 19, 2003
-----------------------------------------
Mary Quade Dieter, Chief Financial Officer
Executive Vice President, Chief Operating Officer
(Principal Finance and Accounting Officer)


                                     Page 67
--------------------------------------------------------------------------------

<PAGE>



                                  CERTIFICATION

I, Mel Switzer, Jr., Chief Executive Officer for Sonoma Valley Bancorp,  certify
that:

1. I have reviewed this quarterly report on Form 10-K of Sonoma Valley Bancorp;

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

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

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

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

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

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

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

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

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

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


Dated:    March 19, 2003                           /s/ Mel Switzer, Jr.
       ------------------------                    ----------------------------
                                                   Mel Switzer, Jr.
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)




<PAGE>


                                  CERTIFICATION

I, Mary Quade Dieter., Chief Financial Officer for Sonoma Valley Bancorp,
certify that:

1. I have reviewed this quarterly report on Form 10-K of Sonoma Valley Bancorp;

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

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

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

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

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

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

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

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

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

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


Dated:    March 19, 2003              /s/ Mary Quade Dieter
       ------------------------       -----------------------------------------
                                      Mary Quade Dieter
                                      Chief Financial Officer
                                      (Principal Finance and Accounting Officer)




<PAGE>
                                                                    EXHIBIT 23.1









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

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







                         CONSENT OF RICHARDSON & COMPANY

     We consent to the incorporation by reference in the Registration  Statement
(Form S-8) (SEC File Number 333-62294) pertaining to the Sonoma Valley Bancorp's
1996 Stock Option Plan as amended in April 1999 and the  Registration  Statement
(Form S-8) (SEC File Number 333-88610) pertaining to the Sonoma Valley Bancorp's
2002 Equity  Incentive plan of our report dated January 29, 2003 with respect to
the  consolidated  financial  statements of Sonoma Valley Bancorp and Subsidiary
included in its Annual Report (Form 10-K) for the year ended  December 31, 2002,
filed with the securities and Exchange Commission.

                                                        /s/ Richardson & Company
                                                        ------------------------
                                                        Richardson & Company

Sacramento, California
March 19, 2003



<PAGE>


                                                                    Exhibit 99.1

                            CERTIFICATION PURSUANT TO
                 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                   SECTION 906 OF THE SARBANES-OXLEY ACT 2002

In connection with the annual report of Sonoma Valley Bancorp (the "Company") on
Form 10-K for the period ending  December 31, 2002 as filed with the  Securities
and Exchange Commission on the date hereof (the "Report"), We, Mel Switzer, Jr.,
Chief Executive Officer and Mary Quade Dieter,  Chief Financial Officer,  of the
Company  certify,  pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to
Section  906 fo  the  Sarbanes-Oxley  Act of  2002 ,  that  to the  best  of our
knowledge and belief:

          (1)  The Report fully complies with the  requirements of section 13(a)
               or 15(d) of the Securities Exchange Act of 1934: and

          (2)  The information  contained in the Report fairly presents,  in all
               material  respects,   the  financial   condition  and  result  of
               operations of the Company.


Dated:        March 19, 2003        /s/ Mel Switzer, Jr.
     ------------------------       ------------------------------------------
                                    Mel Switzer, Jr.,
                                    Chief Executive Officer
                                    (Principal Executive Officer)

Dated:        March 19, 2003        /s/ Mary Quade Dieter
     ------------------------       -------------------------------------------
                                    Mary Quade Dieter,
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)